Document of The World Bank Public Disclosure Authorized

ReportNo. 13412-RU

STAFF APPRAISAL REPORT

Public Disclosure Authorized RUSSIAN FEDERATION

URBAN TRANSPORT PROJECT

APRIL 26, 1995 Public Disclosure Authorized

Public Disclosure Authorized Infrastructure, Energy and Environment Division Country Department III Europe and Central Asia Region CURRENCy EQUIVALENTS (Figures are as of end of month)

CURRENCYUNrI = RUBLE (RB) RUBLESPER US$ December 1991 170 December 1992 415 December 1993 1,247 December 1994 3,550 March 1995 4,899

BORROWER'S FlISCAL YEAR January 1 - December 31

WEIGIITS AND MEASURms

METRIcSyS'im US SYSTEM 1 meter (m) = 3.2808 feet

1 kilometer (km) - 0.6214 mile 1 square meter (m2) = 1.196 square yards 1 metric ton (ton) = 1.102 short tons

ACRONYMS, ABBREVIATIONS AND GLOSSARY ask available seat kilometers GAZ Gorkiy [Nizhniy Novgorod] AvtoUAZ Uralsk Automobile Plant Automobile Plant (Russia) (Russia) GKI State Committee for the bvk billion vehicle kilometers Management of State Property CAS Country Assistance Strategy GNP gross national product CBR Central Bank of Russia HC hydrocarbons CEE Central and Eastern Europe ICB International Competitive CHMK Cherepovets Metallurgical Bidding Company (Russia) ICR Implementation Completion CIF Cost-Insurance-Freight Report CIS Commonwealth of Independent IFC I n t e r n a t i o n a I F i n a n c e States Corporation CO carbon monoxide IS International Shopping CV curriculum vitae KamAZ Kama Large-Truck Production DSC Directed State Credits Association EBRD E u r o p e a n B a n k f o r KAvZ Kurgan Bus Plant (Russia) Reconstruction and Development krai administrative region EU European Union LCB Local Competitive Bidding ECE Economic Commission for LAZ Lvov Bus Plant (Ukraine) Europe LiAZ Likino Bus Plant (Russia) EIS Environmental Impact Statement MAZ Minsk Automobile Plant ERR economic rate of return (Belarus) FOB Free-On-Board MOF Ministry of Finance FSU former Soviet Union MOT Ministry of Transport NGO non-governmental organization ton-km ton-kilometer NIIAT Research and Development TOR Terms of Reference Institute of Automobile UN United Nations Transport USTDA U.S. Trade and Development NO2 nitrous dioxide Agency oblast region - a Russian state-level UTP Urban Transportation Project territorial administrative unit ZIL Likhachev Automobile Plant okrug administrative district (Russia) pass-km passenger kilometer ZIU Uritskiy Trolleybus Plant PAZ Pavlovo Bus Plant (Russia) (Russia) PD Project Director PID Project Implementation Directorate PLW Project Launch Workshop PMA Project Management Adviser PPAR Project Performance Audit Review PPF Project Preparation Facility rayon district - a Russian county-level territorial administrative unit RF Russian Federation SA Special Account SAR Staff Appraisal Report SO2 sulphur dioxide SOE Statement of Expenditure TA Technical Assistance I STAFF APPRAISAL REPORT

RUSSIAN FEDERATION URBAN TRANSPORT PROJECT

CONTENTS

Page No. Loan and Project Summary ...... i

I. Transport Sector Background...... 1

II. Urban Transport Sector ...... 3 A. Urban Sector Background ...... 3 B. Urban Transport Characteristics ...... 4 C. InstitutionalFramework ...... 5 D. Financing the Sector ...... 6 E. Urban Passenger Transport ManufacturingIndustry ...... 7 F. Urban Transport and the Environment ...... 8 G. GovernmentUrban Passenger Transport Strategy ...... 9

III. Urban Transport in the Project Cities and SelectionProcess for the Project ...... 11 A. Urban Transport in the CandidateCities ...... 11 B. Financial Situation in the Project Cities ...... 18 C. Level of Subsidies ...... 29 D. Reform Program for the Project Cities...... 30 E. Reform Program Progress...... 31 F. Financial Situation of the Oblasts and Municipalities ...... 35

IV. World Bank Experiencein Urban Transport, and in Russia ...... 41 A. Bank Experience in Urban Transport ...... 41 B. Lessons from Other Bank Operationsin Russia ...... 43

The project was prepared and appraised by the following-Jane E.M. Holt (Task Maniager),Melody Mason (Deputy Task Manager), Iriria Kichigina, Andrey Kushliu and Thomas Till. Additional work was provided Richard Podolske, Maurice Dickerson, Richard Tarkir and Jacqueline Jamsheed. The team was also assisted by consultants financed- by USAID, including a local Russian Institute (NIIAT), the Government of the Netherlands, the Govermnent of Canada and the Government of the U.K. Claude Blanchi (ECAVP), John Kendall (ECAVP) and Marc Blanc (EC3DR) provided :operational and policy guidance. Peer reviewers are Messrs. Richard Scurfield (EA2T.P), Slbodan Mitic(T ), and Richard Barrett (ESDVP). Jonathan C. Brown is Division Chief, and the Department Director is Yukon H*uang.Karin Skeldon desktop published the report. V. The Project ...... 45 A. Project Origin and Preparation...... 45 B. Project Rationale ...... 46 C. Project Objectives ...... 46 D. Project Description ...... 47 E. Cost Estimates and Financing ...... 54 F. Implementation...... 55 G. Procurement ...... 58 H. Disbursements...... 62 I. Reporting, Accounting, Auditingand Project Supervision ...... 64 J. EnvironmentalImpact ...... 65

VI. Financial Evaluation of Project Cities and Their Urban Transport Companies . .. . 69 A. Urban Transport Companiesin the Project Cities ...... 70 B. SensitivityAnalyses of Urban Transport Company Financial Forecasts .... . 72 C. Municipal Budgetsand Ability to Repay Loan ...... 73

VII. Economic Analysis and Project Risks ...... 77 A. Economic Analysis ...... 77 B. Project Risks ...... 80

VIII. Agreementsand Recommendation...... 83

ANNEXES Page No.

3.1 Traffic and Other OperationalData ...... 87

3.2 Vehicle OperationalStatistics...... 89

3.3 Transit Fares in 1991 to 1994...... 91

5.1 Project City Fleet Requirements...... 93

5.2 Details of Vehicle Rehabilitation...... 95

5.3 Terms of Reference: Services to Assist in the Developmentof the Transit Equipment ManufacturingIndustry...... 99

5.4 Terms of Reference: Assistanceto the Ministry of Transport ...... 109

5.5 Terms of Reference Assistancefor Urban Transport Vehicle Rehabilitation .... . 115 5.6 Technical Assistanceto the Cities ...... 119 Terms of Reference A: Assistanceto Project Cities' Transport Regulatory Authoritiesand Urban Transport Companies ...... 119 Terms of Reference B: Assistanceto Project Cities to Improve the Planning of Urban Transport ...... 127 Terms of Reference C: Assistanceto Project Cities for the Regulation, Financing and Privatizationof Urban Transport ...... 133

5.7 Project Cost Estimates ...... 141

5.8 The Project ImplementationDirectorate ...... 143

5.9 Technical Assistancefor the Project ImplementationDirectorate ...... 151 Terms of Reference A: Project Adviser to the Project Implementation Directorate ...... 151 Terms of Reference B: Principal ProcurementServices, Phase A ...... 157 Terms of Reference C: ProcurementServices, Phase B ...... 163

5.10 OrganizationalChart for Project Management ...... 169

5.11 Project ImplementationSchedule ...... 171

5.12 Project Performance Indicators ...... 173

5.13 Procurement Plans and Schedules ...... 175

5.14 Estimated DisbursementsSchedule ...... 193

5.15 SupervisionPlan ...... 195

5.16 Details of EnvironmentalAnalysis ...... 197

7.1 Details of the Economic Analysis ...... 205

8.1 SelectedDocuments and Data Available in the Project Files ...... 208

Maps: IBRD 26294 - Public Transport Supply in Project Cities (1993) IBRD 26295 - Public Transport Demandin Project Cities (1993) TABLESIN THE TEXr

2.1 Urban Passenger Transport Operational Losses (Rb billions) 2.2 Atmospheric Emissions, 1980-1990 (million tons) 2.3 Bus Emissions in Russia and Western Europe/USA (grams/km)

3.1 Project City Characteristics 3.2 Candidate City Key Operational Statistics (1993) 3.3 Candidate City Average Fleet Characteristics (1993) 3.4 Financial Performance of Transit Companies (1993) and (First and Second Quarters 1994) 3.5 Affordability of Urban Public Transport in Project Cities (as of March 1994) 3.6 Status of Reform Program in Project Cities: Cost Recovery Level and Measures to Reduce Losses from Exemptions and Fare Evasions 3.7 Status of Reform Program in Project Cities: Governance and Autonomy of Public Transportation Enterprises 3.8 Status of Reform Program in Project Cities to Improve the Efficiency of Operations and Investment Planning 3.9 Status of Reform Program in Project Cities: Restructuring and Privatizing the Urban Transport Sector 3.10 Relationship of Municipal Budgets to Transit Company Performance

5.1 Details of Expenditures by Project City and Loan Amounts 5.2 Project City Cost Estimates (US$ million) 5.3 Project Financing Plan (US$ million) 5.4 Summary of Procurement Arrangements (US$ million equivalent) 5.5 Estimated Disbursements

6.1 Transit Company Cost Recovery (percent) 6.2 Influence of the Loan on the Municipal Budgets in the Project Cities

FIGURESIN THE TExT

1.1 Passenger Demand, 1980-2007

6.1 Inflation vs. Fare Increases STAFFAPPRAISAL REPORT

RUSSIAN FEDERATiON URBAN TRANSPORTPROJECT

LOAN ANDPROJECT SUMMARY

BORROWER: Russian Federation

IMLEMENTING MOT and the municipalgovernments and public transit companiesof AGENCY: Cherepovets, Kostroma, Nizhniy Novgorod, Novgorod, Omsk, Pskov, Rostov-on-Don,Samara, Saransk, Smolensk,Tver, Velikie Luki, Vologda and Yekaterinburg

BENEFICIARIES: MOF, MOT, the municipal governmentsand public transit companies of Cherepovets, Kostroma, Nizhniy Novgorod, Novgorod, Omsk, Pskov, Rostov-on-Don,Samara, Saransk, Smolensk, Tver, Velikie Luki, Vologda and Yekaterinburg,plus other cities throughoutRussia that will purchase spare parts financed under the project through the national spare parts component and the distribution center Avtosnabsbyt.

POVERTY CATEGORY: Not applicable

AMOUNT: US$329 million equivalent

Tau¶s: Seventeenyears, includingfive years' grace, at the World Bank's standard variable interest rate.

CoMItnFENT 0.75 percent on undisbursedloan balance, beginning60 days after signing, FEE: less any waiver.

ONLENDING: Proceeds of the Bank loan to finance the purchase and rehabilitation of vehicles and provisionof technicalassistance will be onlent to participating cities through Subsidiary Loan Agreements that will be co-signed and guaranteed by oblast governments. The subsidiary loans will carry an interest rate 200 basis points above the primary loan's interest rate, for terms of 15 years, with five years' grace. The borrowingcities will assume the foreign exchange risk. Proceeds of the Bank loan to finance the purchase of urban transport spare parts for other cities throughout the country will be financed through a Subsidiary Loan Agreement with the National Spare Parts Distribution Center at Nizhniy Novgorod that will carry an interest rate 250 basis points above the primary loan's interest rate for a term of one year. Summary iii

FINANCING PLAN:

(US$million)

Percent of Local Foreign Total Total

World Bank 6.1 322.7 328.8 84 European Union 1.8 1.8 1 Local governments 38.8 21.6 60.4 15 Total 44.9 346.1 391.0 100

Note: figures are rounded.

EcoNoMIc RATE OF RETuRN: 39 percent for new vehicles and rehabilitation of vehicles in 14 cities.

MAPS: IBRD No. 26294 IBRD No. 26295 STAFF APPRAISAL REPORT

RUSSIAN FEDERATION URBAN TRANSPORT PROJECT

I. TRANSPORTSECTOR BACKGROUND

1.1 Russia's internal surface transportsystem includes a vast networkof railways, roads, pipelines, and inland waterways, much of which is west of the Urals. The country's present basic transportation infrastructure consists of 86,000 km of rail network operated by 19 regionally autonomousrailway administrations,453,000 km of public roadsl, 300,000 km of oil and gas distributionpipelines, and 100,000km of waterways.Despite thinly developedtransport networks, the RussianFederation has the most freight-transport-intensiveeconomy in the world, even after the recent drops in traffic. The transport ton-kilometerper US dollar equivalent of GDP in the former Soviet Union (FSU) in the late 1980shas been estimated to be nearly six times that of the USA and over four times that of Canada. Road density is slightly above the average for middleincome economies and road freight transport is providedby Russia's roughly 3 million trucks, of which about 1,500,000 belong to state farms and other agricultural enterprises. The railways, the most densely used in the world, accountedfor 71 percent of total freight traffic in 1992, excludingpipelines, while roads accountedfor about 8 percent, river and sea 21 percent.

1.2 The fiscal impact of the transport sector in Russia is enormous and increasing rapidly, althoughresponsibility for supportingthe sector is moving from the Federal to the oblast and local levels. Costs, particularly fuel, are rising rapidly, but revenues are declining, both because of lower traffic volumes and the time lag between cost and tariff increases. Explicit subsidies to transport for operating losses represented 11 percent of Russia's total budgeted subsidypayments in 1992, roughly equivalentto two percent of GDP. The operatingdeficits of urban transport companieswere estimated to be roughly six percent of GDP in 1993.

1.3 Passenger Transport. Passenger transport is provided by public enterprises in Russia, with buses carrying the most passengersfor primarily short distances, while rail carries the greatest passenger-kilometer(pass-km). The railwayscarried about 42 percent of total non- urban passenger traffic in 1990 (417 billion pass-km) while buses carried about 27 percent (268 billion pass-km). Becausemuch of its populationis urbanizedand private ownershipof cars has been discouraged- private car ownershipis very low with about 6 cars per 100 inhabitants,as comparedto over 40 in WesternEurope. Russia has the third largest public transport fleet in the world. The fleet is estimated to carry 90 percent of all urban motorizedperson-trips. Russia has been highly dependent upon air service due to its vast distances and governmentalpolicy of maintainingextremely low air fares; airlines account for about 22 percent of total non-urban

I. There are an additional0.45 million km of agriculturaland enterpriseroads, some of which shouldbe re-classifiedas public roads. 2 Chapter I transport. However, already air traffic has declined sharply over the past two years because of the increase in air fares; this trend is expectedto continueas fares are set closer to international fares. Road passenger transport is expected to more than double over the next ten years.2

1.4 PassengerDemand. Passenger travel is expectedto respond to changes in income levels and changes in relative prices. According to the European Bank for Reconstructionand Development(EBRD) consultants' forecast, "givenconstant prices, the overall passengermarket is expected to grow at the rate of growth of the economy with longer distance travel growing somewhatfaster and short-distancetravel growing somewhatslower. Real price changes would similarly affect long-distancetrips more than short-distancetrips.", The forecastsalso take into account suppressedpassenger demand within Russia and the FSU (Figure 1.1) and assume no intermodal distortions regarding tariff patterns or subsidies. In fact, the government is increasingly subsidizing passenger transport, although the subsidy is buried in support to local Figure 1.1 PASSENGERDEMAND and regional budgets since responsibility for (1980 to 2007) urban transport has devolved to local authorities. Responsibilityfor covering the cost of suburban commuter rail transport has been left to Billion P.as.engerkm individualrailways to cross subsidizewith freight °° traffic, although individual railways are 2000 encouraged to raise local commuter rail fares in consultation with municipal authorities. The political climate for implementing such price increases may vary from place to place and thus could introduce intermodal distortions. MO Nonetheless, even if there were real price _ increases for some modes, passenger traffic 1950 1990 loa Medium Hilgh demand is expected to grow significantlygiven U Ril eus Car 0 Air [Z] All non-Rail the past level of suppresseddemand.

1.5 Organization. The Ministry of Transport (MOT) was establishedin 1992 out of the remains of the former Ministry of AutomobileTransport. The Ministry is divided into seven offices each headedby a Deputy Minister, includingan InterdepartmentalCoordinating Council on Transport and Advisory Council, plus six modal transport departments headed by First DeputyMinisters, includingaviation, maritime, waterways, highways,automotive transport, and railways. Urban transport comes under the responsibility of the Department of Automobile Transport. MOT has been given responsibility for transport policy and coordination for all modes of transportin Russia, but the Ministryof Railways(which oversaw all aspects of railway operations prior to the dissolution of the Soviet Union) remains in existenceby governmental decree and still exercises full control over the railways.

2. Holt, Jane E.M. TransportStrategies for the Russian Federation, IBRD SET Report No. 9, September 1993.

3. BoozoAllen & Hamilton/Travers Morgan, Railway Sector Survey of the IndependentStates of Russia, Belarus, Ukraine and Kazakhstan,December 1992, p. 23. STAFF APPRAISAL REPORT

RUSSIAN FEDERATION URBAN TRANSPORT PROJECT

Il. URBAN TRANSPORT SECTOR

A. URBAN SECTOR BACKGROUND

2.1 The Russian Federation, with a land area of 17.1 million square kilometers, is by far the largest country in the world, stretchingacross 11 time zones. Russia is a highlyurbanized country with 74 percent (108.8 million) of its 1991 populationof 146.8 million living in urban areas. More than 1,800 urban settlementsare served by bus transport. It has the fourth largest urban population in the world: only China, India, and the USA have larger urban populations. Russia is also experiencingone of the highest paces of urbanizationin the world: during the ten year period, 1979-89, the country experienced a 14 percent increase (14.1 million) in urban population while experiencing a 10 percent drop (4.3 million) in rural population'. These urbanizationtrends are expectedto continue in the foreseeablefuture. Migration to the cities is likely to increase as the country moves to a marketeconomy, restrictionson places of residence are lifted, and migrationfrom other republicsof the former SovietUnion (FSU) to Russiancities continues.Despite the high level of urbanization,there is less urban concentrationin large cities than in Western Europe and the USA, since only 26 percent of the urban populationlive in cities with over a million people, and nearly 40 percent of these live in Moscow and St. Petersburg. In addition, Russia's population, includingits cities, is concentratedin the area west of the Ural Mountains.

2.2 Decentralizationof Public Expenditure. Intergovernmentalfiscal relations in the RussianFederation are complicatedby the lack of legal regulationgoverning fiscalrelationships among governmentalunits. Consistentwith political reforms to decentralizeauthority, the past two years have witnesseda dramaticdecentralization of the responsibilityfor public expenditure in Russia. Prior to 1991, nearly all investmentin public infrastructurewas under the control of the central Governmentbut since then most public sector investmentsand services have been made the responsibilityof regional and local authorities.According to the new Constitution,the federal Governmentretains responsibilityonly for monetarypolicy, federal transportand power systems, and federally-subordinatedenterprises and banks. In 1993, about 80 percent of public expenditureson social services were at the sub-nationallevel.

2.3 Although the policy to decentralize has many positive features, devolution of expenditure responsibilityto regional governmentshas not been accompaniedby an adequate transfer of fiscal revenues. Despite the passage of a law on basic taxation in early 1992, the

1. Duringthis period the populationof Russia increased9.8%. 4 Chapter I system still relies on the Soviet model of sharing most of the major tax revenue collected. This system involvesa process of iterative negotiationsbetween the Ministry of Finance (MOF) and the departmentsof finance of the oblasts, autonomousregions, krais, okrugs and, in some cases, municipalities, with politically stronger regional and local governments managing to retain a larger share of the revenues collected. Local taxes collected by regional governmentsgenerally account for only about 5-10 percent of their revenues, compared to 50-90 percent in OECD countries. Public finance is further constrained by the regional and municipal governments' inability to borrow given the immaturityof financialmarkets and the high and variable inflation rates which make term financingrisky for both lenders and borrowers.

2.4 A key aspect of the Russian administrative system is that only oblast-level governmentsare subjectsof the Federation. By contrast, local governments- municipalitiesand rayons - are "subjects"of the oblast government,not of the federal Government.Despite recent laws designed to establish a standard sphere of authority and responsibility for local governments, the powers of local governmentsare still determined primarily by each oblast. Local governmentshave practically no fiscal independence,as their budgets must be approved by the oblastgovernment. As a result, the powers of local governmentsvary considerablyacross oblasts - and even within oblasts - althoughlarger municipalitiestend to have a larger measure of independence.

B. URBAN TRANSPORTCHARAcTERISTICS

2.5 With 75 percent of its population living in urban areas and low car ownership, Russia is more dependent upon public transport services than any other nation with a similar level of income. In 1991, urban and suburbantransport by bus, tram, and trolleybuscarried 41.8 billion passengers,representing about 85 percent of passenger transportationby all modes.This compares to an urban transport share of overall public transport in Western Europe of about 20 percent, and in the United States of about 3 percent. If public transport companiesdo not work well, then neither do Russia's cities, households, factories, offices, schools, or stores.

2.6 Russian cities are served by a variety of passenger services. Bus services are provided in 1,854 urban settlementsthroughout the Federation. Some form of electric-powered transport service is provided in 101 cities, including85 cities with a trolleybus network and 70 cities with a tram network. Five major cities are served by a subway or metro system and commiuterrail service is important for the suburbs of the larger Russian cities, especially Moscow and St. Petersburg. Overall, bus services account for an estimated 64.4 percent of all urban passenger trips; trolleybuses and trams 18.5 percent; metros 7.8 percent; suburban rail 7 percent; and taxis and small buses 2.3 percent.

2.7 There are an estimated 300,000 buses in Russia, of which 131,000 are in fleets providing regularly scheduled services (of which 26,000 serve intercity routes). The remaining 169,000are predominantlyowned by enterprisesand other entities that provide services to their employees. Approximately80 percent of the publicly-ownedbuses provide regularly scheduled urban and suburban service; 20 percent are in intercity service. In addition there are approximately15,000 trams and 14,000 trolleybuses. ChapterII 5

2.8 Despite the large size of the urban transport fleet, it is relatively small given Russia's high dependenceon public transport. The fleet currently averages slightly over one vehicle per thousand population, including a large percentage of vehicles currently not operational.The operatingfleet is considerablylower than the operatingfleets in the four major European Union (EU) countries where automobilesand other personal means of transport are much more widespread,indicating the lower number of passengertrips per day. As a result, the degree of personal mobility in Russian cities is considerablylower than in Western European and other developednations. This has an enormousimpact on labor efficiency.

2.9 In the last two or three years since the government began to limit the use of critically needed foreign exchangefor buying new buses, trolleys, and associated spare parts, urban public transportationservice has deteriorated sharply. More than a third of the current urban bus and tram fleets have been manufactured mainly in Hungary and former Czechoslovakiabut since the breakup of the Eastern European trade block the cost of the buses has increased rapidly to near world-marketprices. Consequently, the number of Ikarus buses imported from Hungary dropped from 3,100 in 1988 to a mere 120 in 1992 (accordingto MOT filgures),compared to an estimated requirementof at least 2,000. Overall, the number of buses received by Russia's transport carriers declined from 19,500 buses in 1985 to 9,320 in 1992; these mostlydomestically-produced buses were smaller, less fuel efficient, and less durable than those imported from Hungary. Due to the low replacementrate of buses, an estimatedone-third of the fleet was beyond its economic life by the end of 1994. As a result, vehicles are already being kept in operation well beyond their serviceablelife. Accordingto MOT, only about one- half of Russia's demand for buses is now being met. Assistance for the subsector has already been provided by the Bank under the RehabilitationLoan (Ln. 3513-RU) which financedabout US$41 million in spare parts for buses.

C. INsTITUTuoNAL FRAMEWORK

2.10 The urban public transport industry and its governmental institutions are, like everything else in Russia, in transition. Under the former regime, the day to day activities of most urban transport companies were controlled at the oblast governmentlevel, includingall aspects of urban transport operations; all urban transport budgets had to be approved by the oblast. Urban transport companieswere also involvedin other activities, such as road transport, taxi services, and inter-city bus services. The extent to which there have been changes in the organization and control of urban passenger transport varies considerablyfrom one oblast to another. In many cases, the oblast has given control over day to day operations of urban transport companiesto municipalgovernments. In a few cities the process of divorcingtransport enterprisesfrom the municipalgovernment is well underway.Some urban transport companies have divestedthemselves of non-urbanpassenger transport activities, although most still provide taxi services. Nevertheless,whether urban transport operationsare controlled at the municipal level or not, oblastgovernments still have considerableinfluence over urban transportcompanies because of their control over municipalbudgets, which include financingof subsidiesfor urban transport operationsand acquisitionof buses. 6 Chapter II

D. FINANCINGTHE SECTOR Table 2.2: URBANPASSENGER TRANSPORT OPERATIONALLossEs (Rb billions) 2.11 Urban transport is essential to _Rb_billions) the economy and vital to the mobility of 1993 the population, but there is simply not 1991 1992 Estimated sufficient money to operate or maintain 1.73 58.3 589.6 the urban transport system as presently Buses structured. Accordingto MOT figures (as Metros 0.34 4.4 11.0 given in Table 2.1), losses for passenger Surfaceurban 1.10 23.6 425.0 transport were Rb3.17 billion in 1991, electric transport and estimated at RblOO billion for 1992 Tota 3.17 100.3 1,014.6 (October 1992 prices) and Rbl trillion in 1993, roughly equivalent to 6 percent of Railwaypassenger losses 204.0 GDP. In 1994, losses were expectedto be Current prices. Rb 3 to 4 trillion (US$1.5-2.0billion). Of a/ Within suburbanroutes. these totals, the greatest losses are in bus transport. Source: MOT, given to WorldBank mission,November 1992 and June 1993. For railway estimate, Interfax Business 2.12 Prior to 1993, the federal Report, No. 29 (432) 11 February 1993, p 3. Governmentfinanced a large share of the - urban passengeroperating losses, but now most operating subsidies are financed by oblast and municipal governments (although the majorityof oblastshave receivedsubventions from the federal Governmentto help cover overall budget deficits). In 1994 there are no provisions for federal subsidies for urban transport. Instead, a federal decree was issued (December 3, 1993) authorizing oblast governments to institute and collect a one percent payroll tax to support urban transport losses. This tax is being levied in the oblasts of some of the candidate cities but tax receipts are folded into oblast governmentgeneral revenues rather than earmarked directly to urban transportcompanies at the local level. MOT estimatedthat local governmentscollected Rb120-130 billion from this special urban transport tax in 1993. Without major efforts both to restructure Russia's transport industries and enterprises and to reform and reorganize the government institutions that administer and fund them, the gap betweenrevenues and costs will continue to increase and put increasing demands on the federal budget to subsidizetransport operations.

2.13 Transport entities are experiencinga general decline in financial conditionscaused by rapid increases in costs, increasinglylimited local governmentbudget allocations available for transport subsidies, and passengerfare evasion, presumablyall caused by the overall decline in economic conditions. About one-third of the population is legally exempt from paying any fare2. An additionalone-third of the populationis apparently illegally evadingpayment of fares - Moscow authoritiesreported that during the past year fares were tripled while collectionsonly increased 60 percent. Moreover, fares are set very low relative to costs. As a result, passengers of most urban public transport systems are paying only 10-20 percent of total operatingcosts; when capital costs are taken into account, passengers' share of costs covered by fares may be

2. In some localities, additional exemptions enacted at the oblast and municipal level reportedly have brought exemptions closer to 70-80% of the population. Chapter II 7 as low as 5-10 percent. The municipalities(or oblasts in some cases) have been slow to release funds to finance the urban transport companies' operatingdeficits so that companieshave been continuallyoperating in a crisis situation.

E. URBAN PASSENGER TRANSPORTMANUFACTURING INDUSTRY

2.14 Importing large numbers of vehicles for urban transport is really only a short to medium term solution to Russia's ongoing urban transport vehicle replacement requirements. Given its size and market, and the unlikelihood that urban transport services will be self- financingfor many years, it is importantthat municipalitiesbe able to purchase good buses for rubles at prices less than available for import. Unfortunately, the previous Government's centralizationand specializationpolicies resulted in the manufactureof buses being assigned to members of the Soviet Union other than Russia.

2.15 The majorityof standard and articulated urban transport buses were manufactured in Hungary by Ikarus while buses assigned to suburban routes were manufacturedfor the most part by Ikarus and the Lvov Bus Plant in Ukraine. Even before the breakup of the former USSR, the number of buses manufactureddecreased by 6.9 percent from the 1989 level of 90,618 to 84,380 in 1990. The Lvov plant, which specializedin medium-sizeintercity and local or rural route buses, accounted for 14.5 percent of overall production. The Riga Bus Plant (in Latvia), specialized in a line of minibus models and accounted for 20.3 percent of total 1990 bus production.

2.16 Russian bus manufacturersinclude the Likino Bus Plant (LiAZ), which used to manufacture9-10 meter city buses (3,500 in 1993)which are smaller and a lower standardthan the imported Ikarus buses, but has now switchedto productionof a 12 meter buses; the Pavlovo Bus plant (PAZ), which produces small-size buses (10,780 in 1993) and the Kurgan Plant (KAvZ),a producer of small generalpurpose buses (5,720 in 1993).AvtoUAZ and KamAZalso produce buses, and, respectively, accounted for 15 percent and 5.8 percent of overall bus productionin 1990. Two joint ventures have recently been establishedin Russia - AO RusScan (Russian-Swedish) and GolAZ Golitzino (Russian - German) - both of whom produce 12 meter buses; GolAZ also produces 18 meter buses. Domestic manufacturingcapacity is not sufficient to meet the demand for buses in Russia. The domestic trolleybus producer is the Uritskiy Trolleybus Plant (ZIU) which produced 1,660 vehicles in 1993. Apart from the St.Petersburg Tram and Trolley Bus Plant which only manufacturesvehicles for its own needs, the only supplier of trams is the Ust-KatavWagon Repair Plant which produced 560 trams in 1993.

2.17 Even prior to the break-up of the FSU, Government intended to increase bus productionin the USSR under the auspicesof the AvtrokonConcern, an associationof bus and trolleybus producers. Under this plan, three additional bus manufacturerswere to be created: Davydovka, Golistynoand Tula. Followingthe breakup of the FSU and in the wake of the lack of funds for imports, efforts to privatize and improve bus manufacturingbecame more urgent. Government plans for the developmentof a bus and other urban transport vehicle industry centeredon the allocationof investmentfor the productionof various bus and other components among state-ownedfacilities and then allocationof the vehiclesamong cities. However, a study of how to develop a private sector domestic transit vehicle manufacturingindustry is included 8 ChapterH in the project, plus assistance for the sector to attract foreign investmentin the form of joint ventures with Russian manufacturers(para 5.20).

F. URBAN TRANSPORT AND THE ENvIRoNMENT

2.18 In the early 1970s, the SovietUnion reported to the World Health Organizationthat motor vehicle fumes (from trucks, buses and automobiles)accounted for 13.1 percent of all toxic pollutants produced. Thereafter, the number of vehicles expanded dramatically: from 1970 to 1988, the trucking industry and use of buses increasedby about 225 percent, and the sales of automobilesfor private use increased sixteen-fold.Nevertheless, during the 1980sthere was a modest 8 percent decrease in emissionsfrom vehicles but becauseof the greater decline in the volume of pollutantsemitted from stationary sources (23 percent), Table 2.2: ATMOSPHERIC EmiSSIONS,1980-1990 the share of air pollution emitted (milliontons) nationwideby the transport sector increased to 39 percent in 1990 Source of Emissions Percent of Total (Table 2.2). Despite the reported Total Stationary Transport Stationary Transport 20-27 percent decrease in overall emissions from the transport 1980 110.8 72.8 38.0 66 34 sector in 1990-1992, ambient 1985 105.0 68.3 36.7 65 35 concentrationsof carbon monoxide 1986 103.6 66.5 37.1 64 36 and lead remained constant, and nitrogen dioxide and nitric oxide levels even increased by 4.5 1988 97.5 61.7 35.8 63 37 percent and 2 percent 1989 94.0 58.5 35.5 62 38 3 respectively. 1990 90.7 55.7 35.f 61 39

2.19 Energy consumption a. Estimate and emissions from vehicles are Sources: USSR Goskomstat, Okhrana okruzhayushchei sredy i high in Russia compared to raisional'noe ispol'zovanie prirodnykh resursov v SSSR (Moscow: Western European and USA Finansy i statistika, 1989), p.7; USSR Goskompriroda, Sostoyanie standards, particularly carbon prirodnoi sredy i prirodookhrannaya deyatel'nost' v SSSR v 1989 godu monoxide (CO) and hydrocarbons (Moscow, 1990), p.20; Ekonomika i zhizn', No 35, 1991, p.6. (HC), as can be seen in Table 2.3. Not only were domestic vehicles produced without catalytic converters and basics like electronic ignition and exhaust-gas recirculation, but also there was the widespreaduse of gasolinerather than diesel fueled heavy vehicles and buses. More than half of the urban bus fleet is still powered by gasolinerather than less polluting and more fuel-efficientdiesel-powered engines (Annex 5.16, Table 2). Only 30 percent of gasoline used in Russia is unleaded, which results in the annual emissionsof 5,600 metric tons of lead (Pb) into the atmosphericair.

3. MOT RF/NIIAT, Natsional'nyi dokdad o vliyanii deyatel'nosti 7DK na sostoyaniye okruzhayushchei sredy (Moscow: Naucho-issledovatel'skii institut avtomobil'nogo transporta, 1993). ChapterII 9

Table 2.4: Bus EMISSIONSIN RUSSIAAND WESTERN EUROPE/USA (grams/Ian)

CarbonMonoxide Hydrocarbons NO, Particles ...... ______...... ------___ Gas Diesel Gas Diesel Gas Diesel Gas Diesel

Russia 104 7.8 7.7 3.4 10.4 10.0 0 1.9

Western Europe/USA 2.5 1.1 11.0 0.7

Source: COWI TecnEcon: Roads and Road Transport Study, 1992.

2.201 Reductionsin CO, HC and Pb emissionscan be madeby changing the composition of the vehicle fleet. The project will have a limited impact on air quality in the project cities becauseof the replacementof gasoline-poweredbuses by diesel-poweredones, rehabilitationand improved maintenanceof the bus fleet (para 5.63).

G. GOvERNmENTURBAN PASSENGERTRANSPORT STRATEGY

2.21 Government strategy for the sector is to: (i) devolve responsibility for urban transport to the municipal level; (ii) separate the organizationof urban transport from that of trucking and privatize some activities associatedwith urban transport such as taxi services; (iii) eliminatecentral Governmentsubsidies for urban transportoperating losses to oblastsand cities; and (iv) try to restore transport capacityby developingthe local bus manufacturingcapacity so as to make available buses that can be purchased with rubles at prices lower than imports. The Governmenthas completed its policy of devolving all responsibilityfor urban transport to the local level and is no longer funding operating subsidies. However, the transitionhas not been smooth and local governments are trying to cope with a situation where funding for urban transport companies has not been provided in a timely fashion, with consequent impact on vehicle availabilityand replacementrates (para 2.9). Althoughit can encourage the separation of truckingand taxi services from municipalurban transportcompanies, the central Government has no direct influence over such policies, since all such decisions are now taken at the oblast level. The provision of routine and emergencysubventions to oblast and regional governments that in turn assist municipalitieswith their deficits insteadof direct subsidiesfor urban transport, means that the Governmenthas little control over urban transport policies and practices at the local level.

2.22 The two major underlying problems of urban transport in Russia are that the companies' operationsare not financiallyself-sustaining and they lack sufficientoverall financing to maintaintransport capacity. Theseproblems have onlyjust begun to be addressedat any level of Government.Clearly, the current level of subsidies(85-95 percent of total operatingcosts in most cities) is not sustainablein a situationof mountingmunicipal budget deficitsand pressures to fund more and more activities.Therefore, under the project the participatingcities will agree to: (a) increase the urban transport companies' cost recovery; and (b) contract with urban transport companieson terms that set financialand operatingperformance improvement targets for urban transport services.

STAFF APPRAISAL REPORT

RUSSIAN FEDERATION URBAN TRANSPORT PROJECT

III.URBAN TRANSPORTIN THE PROJECT CITIES AND SELECTIONPROCESS FOR THE PROJECT

A. URBAN TRANSPORTIN THE CANDIDATECmEs

3.1 Project Cities. At the beginning of the preparation of the project, medium-sized cities were invited to apply for assistancewith replacementof their urban transport vehicle fleet under the Bank loan. Initially, ten cities applied to be included in the project after a series of seminarsexplaining the terms and conditionsof the loan were held by MOT with a number of potentially interested cities; five additionalcities applied at a later date. Consequently,fifteen self-selectedcities submittedrequests to be includedin the project. The cities are Cherepovets, Kostroma, Kursk, Nizhniy Novgorod, Novgorod, Omsk, Pskov, Rostov-on-Don, Samara, Saransk, Smolensk,Tver, VelikieLuki, Vologda,and Yekaterinburg.They range in population from 116,000in Velikie Luki to 1,451,000 in Nizhniy Novgorod, and total 9.4 million. All are located in the European part of Russia except for Omskwhich is in Western Siberia (Map IBRD 26294). The cities are engagedin diversifiedeconomic activities ranging from ferrous metallurgy and heavy machine-building(Cherepovets, Yekaterinburg, Nizhniy Novgorod)to oil refiningand petrochemical industry (Omsk, Samara) to transportationequipment manufacturing (Nizhniy Novgorod - trucks, ships, cars; Samara - aircraft; Rostov-on-Don and Omsk - farm tractors and combines;Tver -rail cars) to labor-intensiveelectronics and textile industries(Novgorod, Pskov, Smolensk, Vologda, Velikie Luki). Five of the cities are among the nation's major industrial hubs with a population of over one million people each (Nizhniy Novgorod, Yekaterinburg, Samara, Omsk, Rostov-on-Don).Details of each city are given in Table 3. 1 and Annex 3.1.

3.2 The Bank and the Governmentagreed upon minimumurban transport reforms as a condition for inclusion in the project (para 3.42). At appraisal, only seven cities had achieved a cost recovery ratio in excess of 20 percent by the end of the first quarter 1994 but it was estimated at that time that about ten cities might reach 25 percent by the end of the second quarter and thus be eligible for inclusion in the project. However, the remainingcities (except for Kursk, who declinedto be in the project) were determinedto take actions to improve their financial performance to meet the project's eligibility cost recovery target of 25 percent by negotiations. Financial data submittedto the Bank in August 1994 for the second quarter 1994 and, in some cases, also for the month of July, 1994, showed that, with the exception of the Omsk tram company, all of the transit companiesin fourteencandidate cities met the 25 percent cost recovery target. All fourteen also formally agreed, at appraisal, to implementthe reform program. Thus, fourteen cities qualified for inclusion in the project. Cities were able to make these improvementsby raising fares in real terms, by reducing exemptionsand by increasing transit revenues by using subsidiesto directly purchase transit passes for exempt passengers. Urban Transport System Oblast (or Population *------City Republic) ('000) Economic Base B TB TM M

Cherepovets Vologodskaya 318 ferrous metallurgy, machine building, mineral fertilizers x x Kostroma' Kostromskaya 281 machine building, wood processing, dairy and textile products x x Kursk' Kurskaya 397 electro-technicalindustry, chemical fiber products, leather and footwear x x x Nizhniy Nizhegorodskaya 1,471 major industrialhub (automobile& ship building, oil refining, ferrous x x x x Novgorod' metallurgy, food processing, mineral fertilizers, constructionmaterials, etc.) Novgorod' Novgorodskaya 274 electronics, mineral fertilizers, wood & food processing x c Omsk Omskaya 1,116 major industrialhub (oil refining, petrochemical products, agricultural x x x machinery, food and textile products, etc.) 0 Pskov' Pskovskaya 208 radio industry, constructionmaterials, food & textile products x c Rostov-on-Dont Rostovskaya 1,110 major industrialhub (nuclear power plant equipment,agricultural x x x machinery, chemical, food & textile products, etc.) Samara Samarskaya 1,275 major industrialhub (aircraft industry, machine tools, oil refining, x x x x chemicalproducts, constructionmaterials, food processing, etc.) Saransk Mordovian 286 electro-technicalindustry, petrochemical products, automobiles,food x x Republic processing - Smolensk' Smolenskaya 352 machine-building,textiles,construction materials, food processing x x x

Tvei Tverskaya 459 railroad equipment, chemical fiber products, construction materials, x x x C textiles

Velikie Luki Pskovskaya 116 electro-technicalindustry, textiles x Vologda Vologodskaya 286 machine-buildingpulpmills, textiles, dairy products x x Yekaterinburg' Sverdlovskaya 1,420 major industrialhub (heavy machine-building,ferrous & copper x x x x metallurgy,chemical, textile & food products, etc.) a/ Administrativecenter of Oblast (or Republic) B = bus TB = trolleybus TM tram M = metro (subway) x = operational c = under construction

. Chapter m 13

3.3 Urban TransportCompanies in the Project Cities. Urban transport service in most of the project cities is provided by a mix of buses, trams and trolleybuses;altogether, there are a total of 37 urban transport companies of which 23 are bus companies, 11 electric transport companiesand 3 metros (Table 3.1). The metros and several of the companiesare outside the scope of the project. Most cities have one bus and one electric transport company, but in some cases the companies are more like holding companies with the depots acting as fairly autonomous entities. Clearly, some of the cities need to consolidate the managementof the companies and this will be addressed under the project. By 1994, the three smallest cities (Velikie Luki, Pskov and Novgorod) were using single-modetransport systems (buses only), while the three largest ones (Nizhniy Novgorod, Yekaterinburgand Samara) operated buses, trolleybuses,trams, and undergroundmetro systems.The metro systems, however, account for a relatively small amount of passengertraffic in these cities (6.3 percent, 2.2 percent and 1.5 percent, respectively).In most cases, these different modes have been organized and operated separately with each mode concentratingon a different segment of demand. For the most part, trams and trolleybusesserve the most heavily trafficked urban corridors while the buses serve a broader area and carry passengers from city centers to suburban neighborhoodsand satellite areas further out. Most of the project urban transport companies operate only intracity and suburban passenger services; intercity services have been spun off into separate companiesor have remained under the jurisdiction of the oblast. Just over 50 percent of passengers are transportedby bus, 20 percent by trolleybus,and 30 percent by tram in the 15 candidatecities (Annex 3.1). Sixty percent of passenger km are accounted for by bus transport, 15 percent by trolleybus, and 25 percent by tram.

3.4 In a number of cities, the public urban transport companies are supplementedby enterprise-ownedtransport services operated for their own employees:in severalindustrial cities, like Nizhniy Novgorod, Yekaterinburg,or Omsk, a number of employersown their own bus or minivanfleets. In some cities, major employerscontract with the cities to provide passes to their workers.

3.5 Urban TransportInstitutional Framework in the Project Cities. All urban transport operationswere formerly the responsibilityof the oblast governments,but operations for most of these, together with the responsibility for supporting them, have been devolved to the municipal level. In several cities, however, operations are still effectively controlled by the oblast. Oblast govemmentsare also still the primary source of subsidiesfor some of the urban transport companiesbecause of the lack of funds at the local level. In most cases, however, the right to increase tariffs rests with the municipality.In the absence of elected Dumas at the local level, fare increases in many of the cities have been implementedby mayoral decree. Whether the informalityand responsivenessof this tariff approvalprocess can be sustainedonce municipal Dumas are reinstated is an issue.

3.6 Where devolvementhas occurred, some cities exercise direct control over urban transport operationsthrough municipaldepartments. Others have establishedthe urban transport companies as autonomous entities with responsibility for all day-to-day operations, such as dispatching, maintenance, accounting, purchasing of spare parts and administration.In these cases, the companiesthemselves maintain their own financialrecords, calculatethe need for fare increases and compile cost data necessaryto justify proposed tariff increases. Most of the urban 14 ChapterIm

transport companies in the project cities have formed autonomous companies and are operating them under detailed performance contracts with the city governments; these contracts specify routes to be served, timetables and performance targets to be achieved by the company as well as the level of subsidy to be provided by the municipal government. In some cases, however, the subsidy agreement is merely to pay whatever operating loss results from the provision of specified service.

3.7 One of the major obstacles to the establishment of performance contracts between urban transport companies and municipal governments and privatization of urban transport companies is the uncertain financial situation of the municipalities. Given the deteriorating budget situation for most municipalities, the local governments have not been able to provide subsidies in a timely fashion, thereby making it impossible for urban transport companies to adhere to agreed service standards. Therefore, in reality the existence of performance contracts or privatized operations makes little difference to the efficiency of operations or service levels. Given urban transport companies' low cost recovery, municipal governments still have considerable influence over the companies because of their control over fare levels and allocation of subsidies. In practice, the transport department within the municipal government works closely with the transport operator to provide political assistance in achieving tariff increases, to identify land parcels suitable for garages and depots and to assist in the provision of replacement vehicles to the extent possible, including searching for second-hand buses.

3.8 Some cities have gone farther than others in separating the municipal government from urban transport operations. One of the project cities, Vologda, is even considering privatizing the electric transport company and forming an employee-owned company. Other activities of the oblast level transport association to which the project urban transport companies formerly belonged, such as trucking, intercity bus and taxi services, have been split up and divested. In most cases, the trucking services have been privatized, intercity bus services have been separated from city and suburban services, and taxis have been privatized.

3.9 Operational Performance oj Urban Trawsport Cornpanies in the Project Cities. Operational performance varies somewhat according to the type of vehicle operated, the route structure served, and the degree of autonomy and organizational circumstances of each urban transport company. Nonetheless, there are far more similarities than differences. For the most part, transport operations per se are well-run and maintenance well-organized and executed. The major problems with performance relate to the deteriorating condition of the fleet.

3.10 Vehicle breakdowns have increased, and the availability of vehicles decreased, as a consequence of a number of factors: a lack of funds for replacement vehicles, and, in particular, a lack of foreign ex-haoge to spare jparts ar,d non-Russian made buses; a lack of supply of spare parts for Russian imade buses; and increasing fuel costs. The fleet is old and deteriorating, utilization rates are declining and transport capacity has been reduced substantially over the last three or four years. At the same time, buses are filled with passengers and the ratio of empty vehicle-kilometers to total operational vehicle-kilometers per year is quite low, varying from one percent in Omsk and Smolensk to 11 percent in Cherepovets. Chapter IE 15

Table 3.2: CANDIDATE CITY KEY OPERATIONAL STATISTICS (1993)

Percent of % of Fleet Fleet which beyond Shouldbe Percent of Breakdown Passengers Staff per Economic Written Off Fleet Rate per 1 sq.m. Operating City Fleet Size Life by End-1997 Operational (percent) at Peak Vehicle Buses Cherepovets 217 10.9 59.0 64.0 n.a. 14.0 5.4 Kostroma 187 22.4 61.0 65.0 29.0 11.0 3.7 Kursk 260 11.4 49.0 80.4 21.4 11.0 5.1 Nizhniy Novgorod 1,195 14.7 37.0 69.0 23.0 8.0 3.8 Novgorod 174 18.4 44.0 86.2 13.0 9.0 4.3 Omsk 1,523 17.7 58.0 82.0 19.0 8.0 4.0 Pskov 150 18.1 61.0 74.8 13.2 8.0 4.3 Rostov-on-Don 574 9.1 44.0 71.0 21.0 10.0 4.1 Samara 870 17.8 50.0 62.0 n.a. 11.0 2.2 Saransk 226 16.7 64.0 71.0 0.9 11.0 3.3 Smolensk 127 17.8 32.0 76.0 13.0 10.0 5.3 Tver 115 16.3 49.0 73.0 n.a. 13.0 4.6 Velikie Luki 69 24.6 67.0 80.0 5.5 8.0 3.7 Vologda 156 15.3 56.0 78.0 n.a. 7.0 n.a. Yekaterinburg 685 20.8 65.0 87.0 17.0 10.0 3.9 ...... Trolleybuses Kostroma 84 0.0 55.0 77.0 23.0 10.0 7.3 Kursk 107 14.9 44.0 77.6 10.3 10.0 5.2 Nizhniy Novgorod 249 7.6 43.0 74.0 5.3 11.0 5.6 Omsk 235 0.0 48.0 78.0 20.0 7.0 4.7 Rostov-on-Don 261 22.6 57.0 72.0 13.0 10.0 6.2 Samara 264 5.3 43.0 98.0 8.3 12.0 5.7 Saransk 181 19.3 56.0 73.0 11.3 11.0 5.6 Smolengk 25 0.0 0.0 100.0 1.0 8.0 5.4 Tver 141 n.a. n.a. n.a. n.a. 5.5 8.1 Vologda 103 8.7 45.0 67.0 n.a. 10.0 n.a. Yekaterinburg 260 16.2 52.0 83.8 n.a. 10.0 6.8 ...... Trams Cherepovets 86 0.0 n.a. 66.0 n.a. 13.0 n.a. Kursk 183 0.0 29.0 57.9 4.9 9.0 11.5 Nizhniy Novgorod 415 0.0 14.0 66.0 5.1 11.0 5.5 Omsk 206 0.0 0.0 70.0 30.0 4.0 5.9 Rostov-on-Don 231 0.0 9.0 71.0 29.0 7.0 6.2 Samara 439 51.0 73.0 94.0 7.0 5.0 10.1 Smolensk 105 0.0 0.0 65.0 5.0 13.0 8.6 Tver 264 0.0 36.0 48.0 n.a. 6.5 n.a. Yekaterinburg 466 25.3 69.0 77.0 n.a. 9.0 4.9

n.a. = not available.

3.11 Tables 3.2 and 3.3 contain highlights of individual urban transport companies' vehicle fleet operating performance in each of the project cities. Further details are given in Annexes 3.1 and 3.2. As shown therein, the percent of fleet that is operationalvaries from 62 percent to 87 percent for bus companies, 67 percent to 100 percent for trolleybuses, and 48 percent to 94 percent for trams; the breakdown rate varies from one percent to 29 percent for 16 Chapter I buses, one percent to 23 percent for trolleybuses, and 5 percent to 30 percent for trams. Even if vehicles are repaired and rehabilitated, the existing fleet in most cities is not sufficient to meet minimum service levels during peak hours of travel and the situation is rapidly deteriorating. The next three to four years will be critical since over 50 percent of the fleets in nine of the cities will reach the end of their economic life (Table 3.2). Average age of the bus fleets (Annex 3.2) varies from 7.6 years in Velikie Luki to 4.8 years in Nizhniy Novgorod (most buses have an economic life of 8-10 years), while average age of electric transport fleet varies from 10.7 years for trams in Samara to 2.9 years for trolleybuses in Smolensk.

3.12 The effect of the deteriorating fleet on passengers is a significant decrease in the quality of service. Waiting times have increased and vehicles are extremely overcrowded, particularly at peak periods. Overcrowding is evident from the high levels of average passengers per square meter of transport capacity recorded. Ten out of the fifteen candidate cities have more than eight passengers per bus square meter during peak periods; six cities have more than ten passengers per bus square meter (Table 3.2). A similar situation exists for trolleybuses and trams.

3.13 Despite these poor conditions, the transport planning and operational capability of the project companies is satisfactory. The route networks are generally well-designed and, for the most part, the different modes complement rather than compete with each other where several urban transport companies operate in the same city. All parts of the towns are well- served, and, with the high level of ridership, it has been possible to minimize the number of connections per passenger. Passenger trip distances tend to be short, averaging 3.1 km and 3.8 km for trolleybuses and trams, and 4.7 km for buses (Annex 3.1). The project companies continually monitor demand and make adjustments to route schedules and service points as appropriate. Staff are competent and professional (indeed many of the mechanical staff are extraordinarily inventive in their efforts to keep badly deteriorating vehicles in service) and work methods are good. Incentive systems in a number of the cities have been revised to maximize driver and vehicle utilization, although in several of the project cities (e.g., Yekaterinburg, Samara, and Nizhniy Novgorod) problems exist. Overall staffing levels are in line with international practice varying for most project companies from three to six staff per vehicle (although a few electric transport companies need to reduce staffing levels, particularly in Tver, Kursk, Samara and Smolensk). A particular problem is the somewhat higher than international practice in administrative staff per vehicle, with more than two staff per operating vehicle for the bus company in Cherepovets and electric transport companies in Kursk, Omsk, Rostov-on- Don, Saransk, Smolensk and Tver.

3.14 Maintenance. Most of the project urban transport companies do an admirable job of maintaining their vehicles with the resources at hand. A high percentage of recommended maintenance schedules are completed, with trolleybus and tram companies more successful at this than the bus companies due to the higher availability of spare parts and, according to the bus directors, to the better maintenance facilities of the tram and trolleybus companies. Nonetheless, some garages are in need of workshop equipment and some companies could use assistance in ensuring that maintenance of vehicles does not unduly reduce vehicle utilization. The project will provide financing for the provision of a limited amount of workshop equipment. The project will also provide technical assistance for maintenance planning and vehicle Chapterm 17 replacement and in making investment decisions as strategic tradeoffs between rehabilitation, write-offs and new investments. To this end, the assistance will help put in place a cost accountingsystem for tracking maintenanceand operationsby vehicle type.

3.15 Purchasing and Inventory. Efficiency of the companiesin the areas of purchasing and inventory control of spare parts is particularlyconstrained by a shortageof suppliers, as well as a shortage of funds. In many cases, there is only a single supplier of parts, the manufacturer, and the companies cannot put their requirementsout for bid. In addition, the order quantity is dependent upon the availabilityof funds, and even when funds are available, paymentsthrough the Russian banking system are often so delayed that the supplier cancels the order. Inventory control is carried out manually, using stock cards and a second set of accountingrecords. The authorizationrequired to draw parts is dependentupon the part, with the more expensiveparts requiring a higher level of authorization. Stock wastage, due to damage or theft, is relatively low, thoughthere have been problemsof theft of parked vehiclesin some cities. The project will provide assistance in competitive procurement of spares parts and in adopting more modem inventory controls and stock usage.

3.16 Urban TransportSupply in the ProjectCities. Data on the transport supplyavailable in the project cities in summarizedin Annex 3.1. The total length of network in each city (for all modes) varies from 151 km in Cherepovetsto 2,070 km in Nizhniy Novgorod. Overall the number of vehicles offering service varies from 1,967 in Omsk to 69 in Velikie Luki. The total number of buses operated in all fifteen candidate cities is 6,525, the number of trolleybuses 1,916 and the number of trams 2,159 (Table 3.3). The number of these vehicles that are operationaltotals 4,868 buses, 1,490 trolleybuses,and 1,525 trams, which representsan average of 75 percent for the bus fleet, 80 percent for the trolleybus fleet and 71 percent for the tram fleet. The number of operationalvehicles per 1,000 inhabitantsvaries from 0.48 in Velikie Luki to 1.36 in Omsk. This compares to the Russian standardof 1.0 per 1,000 populationand 0.5 in the USA where relativelyfew travel by urban transport. In terms of transportcapacity, however, the carrying capacity of the fleet in terms of passenger-kilometersis more relevant to assess adequacyof capacity than the number of vehicles per 1,000 inhabitants.

Table3.3: CANDIDATECITY AVERAGE FLEET CHARACTERISTICS 1993

Percent of Operational Breakdowns Average Average Percent of Vehicles on as Percent Age Kilometrage Fleet Street during Vehicles on Mode Fleet Size (years) ('000 km) Operational Peak' Street

Buses 6,528 5.85 342.97 74.54 77.09 18.88 Trolleybuses 1,910 6.14 325.50 79.50 82.16 11.88 Trams 2,395 8.83 534.18 71.45 80.02 12.34

1. Older vehicles are often not used during peak hours because they are not in good enough condition to survive the severe overloading. 18 Chapterm

3.17 Demand for Urban Transport in the Project Cities. The number of passengers carried per year by each of the urban transport companiesin the project cities is summarizedin Annex 3.1. Taking the project cities together, on average, inhabitantsmake 690 trips per year (or 1.9 trips per day) per capita with individual cities averaging from 323 trips per year per capita in Velikie Luki to 797 trips per year per capita in Tver, or in terms of trips per day from 0.9 to 2.2. Given that the number of workers in each city averages about 50 percent of the population, much of the ridership is associatedwith taking people to and from work.

3.18 GapBetween Supply and Demandin the Project Cities. Capacitymeasurement varies dependingupon assumptionsabout service qualityin terms of the averagenumbers of passengers per square meter. Some of the buses in the project cities are so overcrowdedthat they are being operated at an average of 11-14 passengers per square meter at peak hours (Table 3.2). The project would provide financingfor new vehicles so that service levels could be improved to a minimal level of 8 passengers per square meter at peak hours. To attain an even more comfortable level of service of, say, 6-7 passenger per sq.m. several of the cities intend to purchaseadditional vehicles, many of them used, withinthe scope of the project. The acquisition of these additionalvehicles will slightly lower the economic rate of return on the project and increase the burden of capital related transport subsidiesto be absorbed by city budgets.

3.19 Future Demandfor Urban Transportin the Project Cities. For the most part, the demand for urban transport is expected to continue at current levels. In some cities, where restructuringof enterprises is expectedto bring about significantincreases in unemployment,it is likely that there may be a decrease in peak travel but overall traffic levels are expected to remain the same as unemployedworkers are still expectedto average one trip per day, for job seeking, running errands, or visiting garden plots. In most of the cities, the rate of increase in automobileownership is low and there is not expectedto be much diversion of ridership from urban transport companies to private car.

B. FINANCIALSrrUATION IN THE PROJECTCrrmEs

3.20 Financial Situation of Urban Transport Companies in the Project Cities. The financial situation of the project urban transport companies is extremely poor and essentially unsustainable without subsidies. Since revenues fall far short of operating expenses and companies are no longer cross-subsidized from more profitable trucking operations, the companieshave no means of generating funds for investment.In every one of the cities (indeed, probably in every city in Russia), there is, therefore, a need for subsidies to cover operating losses and to provide capital investmentfor replacementand rehabilitationof vehicles.

3.21 Income statements for 1992, estimated results for 1993, forecasts for 1994-1997 period and selected ratios for each urban transport company in the project cities are contained in the Project File. During appraisal, actual results for 1993 and first quarter 1994 were collected and reviewed. Subsequently,financial data for the secondquarter, and for the month of July 1994, were submitted to the Bank so that the cities' ability to meet the project eligibility's cost recovery target of 25 percent by negotiationscould be determined. A summary of highlightsfrom these data, which are in the Project File, is contained in Table 3.4. Chapter m 19

Table 3.4: FINANCIAL PERFORMANCE OF TRANSIT COMPANIES (1993)

Nizhniy BIS COMPIANS C:herpovess Kostroma Kura' Novgorod NoVg0rod Omust PskoV

Annual number of passengers (millions) 120.9 95.9 139.8 420.5 145.0 663.6 10.84

Annual number of passengers/day (000) 331.2 262.7 383.0 1,152.1 397.3 1,818.1 29,0

Percent of: paying passengers 56.0 49.0 56.2 30.0 51.0 52.0 56.0 exempted passengers .. e. 40.0 23.7 49.9 45.0 31.0 31.0 passengers evading fares 5.8 11.0 18.5 20.1 4.0 17.0 13.0

Average: fareforyear(Rb)"' 12.9 8.1 4.0 14.7 6.7 9.6 4.6 revenue from fares per passenger (Rb) 6.5 2.8 0.9 3.6 2.2 4.0 1.7 operational subsidy per passenger (Rb) 13.2 11.1 12.0 25.7 8.6 20.0 5.0

Total revenues (Rb million) 790.1 269.0 190.0 1,496 0 331.0 2,672.0 IB6.5 of which revenue from fares 790.1 266.6 121.0 1,495.5 320.3 2.671.5 186.5

Total operational expenditures (Rb million) 2,363.1 1,341.0 1,573.0 11,10) 0 1,600.0 15,100.0 1,295.1

Cost recovery from sale of tickets (percent) 33.4 19.9 7.7 13.4 20.0 17.7 14.4

Total cost recovery (percent) 33.4 20.1 12.1 13.4 20.7 17.7 14.4

Subsidy (Rb million): Operational 1,596.4 1,066.0 1,671.0 10,812.0 1,248.0 13,248.1 542.0 Capital 992.6 94.0 421.0 2,285.0 69.01 2,027.8 48.4 Non-dedicated 0.0 264.0 0.0 2,408.0 82.0 2,239.5 0.0 Total subsidies 2,589.0 1,424.0 2,092.0 15,505.0 1499.0 17,515.4 590.4

Operational balance after subsidy 23.4 -6.0 288.0 1,148.0 *21.0 820.1 -566.6 Source of subsidy - city, of which urban transport tax 2,589.0 1,329.0 na. 0.0 1,299.0 17,085.4 58.0 oblast government 0.0 0.0 n.a, 15,505.0 200.0 0.0 1,059.8 federal government 0.0 94.0 n.a. 0.0 0.0 430.0 0.0

Rostov- . Velikie . Yekater- on-Don Samara Sajnsk Smolensk Tvor . Luki Vologda inburg

Annual number of passengers (millions) 282.3 391.8 63.9 53.0 100.0 37.5 69.8 362.4

Annual number of passengers/day (000) 773.4 1,073.4 175.1 145.2 274.0 102.7 191.2 992.9

Percent of: paying passengers 24.0 30.0 47.0 n.a. 39.2 73.0 48.6 35.0 exempted passengers 39.0 36.0 34.0 n.a1 28.1 11.0 39.5. 27.0 passengers evading fares 37,0 34.0 19.0 7.9 32.7 16.0 11.9 - 20.0

Average: fare for year (Rb) t 0 8.1 8.2 3.1 10.0 9.5 4.6 12.7 5.4 revenue from fares per passenger (Rb) 1.4 1.4 2.7 3.9 1.0 3.1 4,1 2.0 operational subsidy per passenger (Rb) 20.4 21.4 33.7 18.0 6.4 23.6 17.4 16.7

Total revenues (Rb million) 571.0 537.0 185.0 209.0 96.5 115.0 289.0 743.0 of which revenue from fares 389.0 536.6 172.8 209.0 96.0 114.8 289.0 742.0

Total operational expenditures (Rb million) 9,755.0 7,061.0 2,008.0 1,094.0 639.1 515.8 1,416.0 6,707.0

Cost recovery from sale of tickets (percent) 4.0 7.6 8.6 19 1 15.0 22.3 20.4 11.1

Toal cost recovery (percent) 5.9 7.6 9.2 19 1 15.1 22.3 20.4 11.1

Subsidy (Rb million): Operational 5,766.0 8,366.0 2,152.0 954.0 642.5 884.0 1,213.0 6,039.0 Capital 669.0 2,529.0 500.0 250.0 840.5 0.0 250.0 3,498.0 Non-dedicated 162.0 814.0 14.0 0 0 0.0 0.0 0.0 0.0 Total subsidies 6,597.0 11,709.0 2,666.0 1,204.0 1,483.0 884.0 1,463.0 9,537.0

Operational balance after subsidy .3,418.0 1,842.0 329.0 69.0 99.9 483.2 86.0 75.0 Source of subsidy - cit, of which urban transport tax n.. 10,751.0 196.0 1,078.0 1,474,7 91.0 1,463.0 n.. oblast government n.a. 858.0 0.0 126.0 8.3 793.0 0.0 : n.. federal government ra. 100.0 2,836.0 0.0 0.0 n.a. a) Information includes 4th quarter estimates. b) Ticket for a single journey: bus/tramArolleybus. c) Nizhniy Novgorod data is unique to each category. 20 Chapter MI

Table 3.4 (con't): FINANCIAL PERF'ORMANCEoF TRANSIT COMPANIES (1993)

Nizbniy ELzcfltc TRANSPORTCOWiANSs hrpv1 Kostroma K ~ Novgorod 0O,6)4Omk io Annual number of passengers (millions) 4.605 1.29.7-204.4

Annual number of passengers/day (000) 937 165.8 31485: 1,349.9 50.W

Percet of:. paying p-aseger-* n.a. 56225.0 -52.0 exemptedpassnger IkAL n.m. 23757.1 -31.0 passengers evading fars A n.a. IS17.9 - ~ 17.0

Average: tfae for yea (Rb) * 998.1 408.6 .§s 9.6 rvnefro fawe per passnger (Rb) n..28 :. 13 .

operational subsidy per passenger (Rb) h. 11.3 i:16.t 14.5 -33.1

Total revenues (Rb million) l.. 173.0 130404.0 I 350.0 of which revenue from fars .a 171.7 I163.0::: 403.5 350.4

Total operational expenditures (Rb million) n.. 858.0 1,79.0 7,598.0 5,170.0

Cost recovery from sale of ticket (percent) n.. 20.0 ~ 9536.8

Total cost reouvery (percent) a, 20.2 .. .5.3 6..8

Subsidy (Rb million): Operational m 686.0 1,13.0 7,156.0- 6,775.8 4 Cqsita l.m 0.0 A65.0.X 2,064.0 -619.4 Non-dedicated t., 187.0 00 2,239.0 - 49.2 Tota subsidies n.iim. 873.0 Z~10 11,459.0 - 8,244.4

Operational balance siler subsidy n.10 560-30 ,955.8 Source of subsidy - city, of which urban transport tax t. 873.0 g. 1,50829.4 oblast government ~.0.0 m,0.0 0.0 federal govermnment n,.0.0 n.0.0 ... 0.0

tqv- Velikle Yekdeser- olDa Ssni Smara SmolenAk ite1Lki Vl6 lnburg

Annual numaberof passengers (millions) 321f. 525.0 18.6 77. 26.s-. 553.0 Annual numaberof passikener/day (000) 88. ,3. 1. 13.2 72. 21. 1,11

Percnt of: paying passengers 240 2. 70n.m S 35.0 exepted passengers 90 53. 340 n.a. 298 -27.0 passengers evading fiares 370 2. 906.9 3. $ 2.

Average: fare for yea (Rb)~ , 8.2 31 10.0 95 -1. . revenue from fares per passenger (Rb) .8 0.9 .52.2 . -12 operitional subsidy per passenger (Rb) 138 7.9 17.2 10.2 I.8 13.5

Tota revenues (Rb million) -9.. 448.0 2.0 175.0 2.6 -770 698.0 of which revenue from fares )44.6..748...... 27. 6.... 0

Total operational expenditures (Rb million) ,0. ,170 18.0 956.0 2,422 M13?.G 6,722.0

Cost recovery froin sale-of ticket. (percent) 85 8.7 10.7: 12.3 .. <:I.41A> 1 10.1

Total coa recovery (percent) .... .8.7 411.2 18.3 11 -Z) 0.

Subsidy (Rb million): Operational 4453 :.0~ 4,132.0 1348.0. 791.0 2 298.0 -'1464. 7,455.0 c)pital113. 4,755.0 27.0~ 1,194.0 96. 60.1,279.0 Non-dedicated 110 0.0 14.0000 -0. 620

Total atsbsidies 5,801,0 ~~8,887.0:1,549.0 1,9850 3264 - t1. ,4.

Operationalsubsidy balanc after .1946.0 -587.0 .2670 10. 394.4 - 36. 1,431.0 Source of subsidy - ...... city, of which uftan tranport tax ...... 7,683.0 ,540 1,984.0 3272 - 143Gnm

oblast government 0. o.2560. , -oo nm federal government ... .,1i: 0.0 00 0.0 5 -nm

a) Information Includes 4th quailer ealantae. b) Ticket for a single journey: busAtmnArollybua. c) Nlrsny Novgaord dueais unikpe to escb afeory. 'I=1ii*fi

Totl rcvc_m(Rb niluioo) 1,041 1,577 217 477 1,017 2,354 251 598 2,233 2,949 157 553 341 1.181 To4adopetio_l 2,005 2,426 1,105 1.416 7,825 9,476 1,026 1,324 10,149 11,308 1,118 1,490 3,320 3,692 § e_pudium (Rb zuillou) _ -2,510 Opetial cb flow -964 -849 -ago -939 -6,808 -7,122 -776 -725 -7,916 -8,359 -961 -937 -2,979 32.0% Tetzicootreoveiy 51.9% 65.0% 19.7% 33.7% 13.0% 24.8% 24.4% 45.2% 22.0% 26.1% 14.0% 37.1% 10.3%

s5nnr Saink SmnoImuk Tvcr Velik Ldki Voloda Y&kUrburg ._...... _...... ~...... ~~...... ~~...... lt Qtr 2nd Qtr lot Qr 2d Qtr lt Qtr 2nd Qtr lt Qtr 2ad Qtr lt Qtr 2nd Qtr lt Qtr 2ad Qr lst Qtr 2nd Qtr

660 1,414 Toldrevelau(Rb nilbim) 1,411 2,212 301 412 227 516 68 262 90 245 351 629 Total op_eeIa 5,620 7,468 1,273 1,495 824 1,201 524 614 340 481 1,065 1.437 5,094 5,525 I dim(IRb aiO) -4,041 Opermt cu flow -4,209 -5.250 -972 -1,04 -597 *692 -456 -352 -251 -237 -714 -80 -4,434 Toblcoslteooveiy 25.1% 29.6% 23.7% 27.5% 27.5% 42.7% 13.0% 42.7% 26.3% 50.9% 32.9% 43.8% 12.9% 26.9%

-.- ....-..-- ... --...... - ~~~~~~~~~~~~~~~......

.... ~~~~ ~~.:...... Tomrevai (Rbiniliou) 144 286 SO 228 333 397 207 619 721 1,156 258 307 27 48 Tobti opeutii1 674 830 2,469 2,918 1.872 2,059 2,16S 2,374 1,618 1,939 849 1,219 139 167

Opa_l mcm. flow -530 -544 -2,389 -2,761 -1,539 -1,663 -1,961 -1,756 -897 -782 -591 -913 -112 -119 29.0% Totd ooststoovry 21.4% 34.5% 3.3% 7.6% 17.8% 19.3% 9.6% 26.1% 44.6% 59.6% 30.4% 25.2% 19.3%

Tver Vob.dR Yekr-ibu

letQtr 2MdQtr ltQtr 2adQtr lotQtr 2a Qrg

Toal rev_am (Rb mlion) 75 308 339 570 313 860 TowIopeultioslv 756 991 1,163 1,120 1,730 2,475 cipemikaves (Rb nilion) Opeatioami A flow -681 63 -824 -550 -1,417 -1,615 e Toticoetrecovay 10.0% 31.1% 29.1% S0.9% 18.1% 34.7%

. ., =..- . I...... - ......

1,286 Toblrevenu.(]Rbmillion) 167 467 240 310 143 489 772 1,250 144 271 112 378 475 4,4SS Teotl opei f 4,857 5,804 1,863 1991 2,160 1,S99 2,276 2,786 675 948 1,182 1,341 3,121 Taleratio (Rb 48022on) 2 -3,202 Operaiial cah flow -4,691 -5,337 -1,623 -1,6S1 -2,018 -1,410 1,505 -1,537 -531 -676 -1,070 -964 -2,646 28.6% Total coet recovey 3.4% 8.0% 12.9% 15.6% 6.6% 25.7% 33.9% 44.8% 21.4% 28.6% 9.5% 28.2% 15.2% 22 Chapterm

3.22 Operating Losses and Cost Recovery Ratios. As shown therein, operating costs (excludingdepreciation and interest charges on debt of which there is little since capital costs are provided by Government)exceeded revenues by a substantial margin in every city; total revenues for fourteen cities in 1992 were Rbl.3 billion and total costs Rb6.5 billion for a net operating loss of Rb5.2 billion and a cost recovery ratio of 20 percent. In 1993 total revenues of all modes for all fifteen cities were Rb12.4 billion and costs were RblO4.2 billion, for a net operating loss of Rb9l.8 billion and a cost recovery ratio of 12 percent. Cost recovery was 14 percent for buses only in 1993, and for electric transit companies was 9 percent.

3.23 The situation worsened as costs increased faster than fares could be increased. In 1993, the level of cost recovery in the project cities ranged from a low of 5.9 percent for buses in Rostov to a high of 33.4 percent in Cherepovets;for electric transit companiesthe lowest was 5.3 percent in Nizhniy Novgorod to a high of 20.2 percent in Vologda. Only the city of Kostroma showed improvement for buses, while cost recovery in nearly all the other cities decreased. A number of cities have been pressured to improve these results in order to qualify for the project and cost recovery ratios have begun to improve. In the first quarter of 1994 cost recovery in the project cities ranged from a high of 52 percent Cherepovets to a low of 13 percent in Nizhniy Novgorod for buses; for electric transit a high of 45 percent in Samara for trolleybuses(including revenues from exempt tickets financed by the city) to a low of 3 percent for Nizhniy Novgorod trams. By the secondquarter of 1994, cost recovery ranged from a high of 65 percent in Cherepovetsto a low of 25 percent in Nizhniy Novgorod for buses; for electric transit a high of 60 percent in Samara for trolleybuses (again including revenues from exempt tickets financed by the city) to a low of 8 percent for Nizhniy Novgorod trams. Nizhniy Novgorod subsequentlyraised fares to Rb200 for a single trip, highest of all the cities, and lifted the cost recovery ratio of its trolleybusand tram company to 25 percent for the month of July, 1994. The dynamics of cost recovery for each city can be seen in Table 6.1. Overall, a total of eight cities improved cost recovery for bus companiesand seven cities for electric transport in the first quarter of 1994 compared to 1993; and, all fourteen cities improved cost recovery in all transit companies, except Omsk tram, in the second quarter 1994 compared to the first quarter.

3.24 Cost Components.The mix of expense componentsalso shifted somewhatbetween 1992 and 1993, reflecting the different rates of inflation for wages, and of inflation and availabilityof fuel and spare parts. Averagefuel costs in 1993were 30-35 percent of world price levels. As fuel prices move toward world levels, therefore, the percentageof operatingexpenses spent on fuel will increase and cost recovery will be further reduced unless tariffs are increased to compensate.

3.25 Spare Part Expenditures.The results would also be worse if the companieshad been able to locate and purchase spare parts at a level sufficient to keep the fleet operational. According to Bank studies, on average, spare part expenditureequals about 9 percent of capital costs for a bus of medium age and about 11 percent for a very old bus. In the project cities, spare part expendituresare averagingabout 2 percent of the capital cost of buses (based on the end 1993 price of LiAZ buses and comparing this to fourth quarter expenditures for 1993 in several cities). If more funds were available, and if there were no problem with the supply of Chapter Im 23 spare parts, clearly operating expenses for spare parts should increase by about five times to ensure more normal maintenanceof bus fleets in Russia.

3.26 Spare parts necessaryto catch up with maintenanceand rehabilitatevehicles out-of- service will be made available under the project. The additionalexpenditure for spare parts will again lower cost recovery levels unless tariffs are raised to cover the additionalcosts. Given the low level of spare part availabilityin the last several years, however, it is likely that the sudden availability of spare parts under the project will result in an abnormally high percentage of expenditureson spare parts and cost recovery will be reduced further unless tariffs are raised to compensate. In assessingthe adequacyof cost recovery rates in any given year, however, it would be prudent to make adjustmentsfor the potentialdistortion that might be caused from the expensing in one year of spare part usage that, in fact, represents a "catching up of maintenance",which might be better handled as a capital expense equivalentto rehabilitation. The degree to which assessmentof the urban transport companies' performance against target cost recovery rates needs modificationto take account of this distortion will be determined on a case-by-case basis by comparing spare part expenses with the capital costs of city fleets. Distortions mightalso result from efforts to postponepayment of expenses from one timeperiod to another to meet cost recovery targets for a given time period. For this reason, the loan agreement will aim to encourage cities to sustain cost recovery targets once reached. This will be done through a combinationof increasing the cost recovery targets over the course of the project and by stipulating,in the Loan Agreement's definitionof a cost recovery ratio, that it should be calculated over six month periods. For a city to meet the target of 35 percent by December 1, 1995, for example, cost recovery must be 35 percent for the preceding six month period from June through December 1, 1995. As of the beginning of 1995, most of the cities look as if they will achieve this target and many will even surpass it (para 6.6).

3.27! Given the shortage of working capital and borrowing constraints, the project companies adjusted as they could to cash shortages. They limited salary increases, reduced maintenanceand curtailed some services. They also increased their arrears in accounts payable for fuel. These measures are only of short term help, however; as time passes, more and more cities subsequentlyhave raised wages and faced real increases in fuel costs. Most have since realized that the scope for cost cutting is limited and that increasing revenues is a more promising means of improvingcash flow.

3.28 Average Yields and Tariffs. The average yield per passengerin these cities as of the first quarter 1994 ranged from a low of Rbl.O per passenger trip to a high of Rb6.5 for buses and a low of RbO.9 to a high of Rb3.5 for electric transport respectively.By comparison, the actual fares by June 1994 ranged from Rb5Oper trip (four cities), to Rb6Oper trip (two cities) to Rb O00per trip (five cities), Rb150 per trip (one city), to a high of Rb200 per trip (one city). Except for Cherepovets,which had a fare of Rb4Oper trip in December 1993, fares in the other cities were either RblO or Rb2Oper trip in December 1993. Thus, in most cities, fares have gone up at least five times since December 1993. By early 1995, fares were in the Rb300 to Rb400 per trip average. Still, there is a great difference between average yield and average fares. The difference reflects the extraordinarynumbers of exemptpassengers and the fact that many passengers buy monthly passes which offer a substantial discount from the single fare tariff. 24 Chapter m

3.29 Although tariffs have Box 3.3:FtuWE EXMFnoNS increased, they have not kept up with inflation. Adjusting fares for inflation Federally mnduxatedexemptions for prJect cites in 1'93 over the last two years (Annex 3.3) shows were aest iatdbytheNciietobebetwee 1% (V ell:e the degree to which fares have changed. Lxemptionsanud50% (Nizniy Novgoro ofbs egoerst 0In ExemptAionsare mnandated:atthfee levels Of gvrmn:P every case for which full data are federal, oblast an niunicipal (and at the rayOnlevel ,0 available, the increases in fares have some cases). Little data: s ava l ondable iethenumb of lagged increases in costs by several exempted passengers Wcover underdeachr: typeabof months at a minimum. In a period of exemption, but information fromb a 1993 IFC' Std rapid inflation, delays in implementing .indicates that the largest:number:of exemptiosin tariff increases can be extremely costly. NizlimiyNovgoroxl is eut'ta:0batlivet;:tiit00ji0000:000 arfmcessanbexeelcoly Nizhniy0;f;at 0oblas Novgorod l is0: :The manate cost recovery ratios from 1992 to Federally mandated benefits:derive teir authority from: 1993 reflect this lag. The more rapid regulations of the Council of Ministersiof the'Russian increase in fares in 1994 has enabled Federation, decrees of ;thelPrebsidiumof theSupreme cities to "catch up" somewhat with this Soviet, Russin Federation:laws agreements,preXsidentald lag. Still, the need for vigilance in Decrees & regtilatiornsof Supretne.ESov:iet..S x:0::D: DecreesSupreme & regulationSovit,; f ; monitoring transport costs and revenues Federallyexempt passengersfall into te n algroups: through taking timely action to increase fares as costs increase is particularly 1. Government representative,sfatthefederal, oblastad's critical in Russia's environment of high local level (e.g., de1xlesof federa1,goblaSt;tast:0W4. and loca inflation. In the past, fares have huIaS) within the C:territoryth thegoverment traditionally been kept low for social serves. 2. Heroes oftlie Soviet Union. reasons but increasing losses are 3. veterans, those sablediin thesrvi ce0-ofth:e ste,; becoming a significant burden to civilian employees aofthemilitar and securty fores: government budgets. Focus on cost andi civil recipients.lof honors for servieduriung recovery in conjunction with this project, Worldl W ar 11. : 0 :tt .! :i|:::0i:::-ii::-::i0:::k:E::ifi World WaMicarl>XllilirzAtlciSXrSEtavez-1 oh however, has resulted in fare increases orphans,4.Husandicbapped andaadndchildrn ad*-the;irtravel0ing hlrn onipion from 5-10 times since December 1993. 5. Blind personsand their trveling0 omanon. While this progress is good, cost recovery 6. Active military personnel, mem ersof the ilitia,' must improve further since there is a far andi mhilitary acadiemy tuetis0. greater need now for government support

transport7.Drives,inspectioncondctors emiploes o a & trolybuses of urban transport to be geared toward 8. Victitms of the Chernobyl nuclar reactortsite sr capital investments in fleet replacement. If surroundlingcountry-side: andtheVcean-'upcrews.,, fare increases are implemented along with 9. Secondary school childilrenfrom:lfgefa Milies, measures to improve the collection of 10. Former under-aed0concentration camp inmates and; revenues from users, there is definitely rehabilitatespersons.;:::E0:R::: t :0ii 4::i::Ei:i-L':i|:'i:9'::V':'L:::f rehabilitate persons. more scope for improving cost recovery. L)okingat project cityl.pas.segrexemptions indicaes; For this reason, attainment of at least a 25 that the largest groups, Iare, -'children, sudensW , percent cost recovery ratio by negotiations pensioners, but these group r'eceive' theireti'on was a condition for inclusion in the fromnnon-federld sourcets. Th est cary of federal project by project cities. The Bank and exeiptions are active :-esue dlvtri'll: exemo prsoner ive iiiaid vthe Government have also agreed on amnounhtg to a significantpercentage:gof transit 0:ridershitr:rs in cities with military bases.:: e reform program to sustain this level over time and to include a further improvement in cost recovery to 35 percent for the six months ending Chapterm 25

December1, 1995 and 40 percentfor the six monthsending March31, 1996 (para8.3). The project cities have also agreed to a target of 50 percent cost recovery by the end of 1997 (para 3.42).

3.30 Exemptions. The cost recovery situation is exacerbatedby the fact that central and local governmentshave institutedmany categories of exemptionsfor particular groups of urban transport users in Russia. For example, all military and many governmental personnel are exempt from paying fares as a directive of the central government, while at the local level exemptionshave been given to school children, widows, and pensioners (Box3.1). The percent of passengers that do pay ranges from 24 percent in Rostov to 73 percent in Velikie Luki. Anotherproblem is that the buses are so crowded and the number of exemptpassengers so great, that many other passengers - so called "rabbits" - simply board and ride vehicles without paying.

3.31 Measures to Reduce Fare Evasion. Some of the cities are taking steps to cut back on the number of "rabbits" as one means of improving cost recovery. Some have hired unemployedhousewives to serve as "checkers"of tickets and to impose fines upon riders found without legitimate tickets. The fine is relatively stiff for a rider (about Rbl,500, or 10 percent of an average worker's salary). In some cases, the unemployedcheckers are permitted to keep the fines as salary. Other cities have hired transportpolice to cut back on rabbits. As part of the reform program, the project cities will undertake to reduce fare evasion to 10 percent of daily passenger trips by June 30, 1996 (para 3.42).

3.32 Efforts to Reduce Exemptions.The practice of extendingexemptions to segmentsof the population for social reasons is unfortunatelyso pervasive that no effort to improve cost recovery will be successfulunless it is combinedwith a commitmentto reduce exemptions.In several cities this effort is already underway. In two of the project cities, exemptions to pensioners have been withdrawn; instead, deserving pensioners pay one-fifth of the price of a monthlyfare pass and the city pays the urban transport companythe other four-fifthson behalf of the pensioner. The entire issue of exemptionsis complicatedby the fact that a number of them have been instituted at the Federal level, some at the oblast level and many others at the local level. A concerted effort is needed to end this practice and, where social needs justify subsidizing riders, to subsidize the rider directly. MOF has indicated that the Federal Governmenthas absolved itself of any responsibilityfor exemptions,with the implicationthat local governments can make their own decisions as to whether or not to continue them. Unfortunately,local governmentsdo not have the confidenceto reverse Federal policy without an official decree authorizing them to do so. Moreover, it is unrealistic to expect local governments to order military personnel to pay for urban transport. The Governmenthas undertakento determinethe effect of fare exemptions on the financial viability of urban transport companies and, based on the results of such assessment, undertake measures, includingthose at the federal level, aimed at reducingexemptions and increasingthe cost recovery ratio of the companies(para 8.1).

3.33 Such a measure would considerablyenhance cost recovery ratios. According to analysis of the candidatecompanies, if exemptionshad been eliminated or if subsidieshad been 26 Chapter m directly tied to exemptionsand consideredas revenue, averagecost recovery of the project cities would have improved from 12 percent to 25 percent in 1993.

3.34 EconomicAffordability of Urban Transport.A principalaim of the reforms required for participation in the project is to improve cost recovery and thereby reduce the fiscal burden of urban transport on municipalities.Urban public transport in Russia, however, is the principal means of daily urban mobility for a very large proportion of the Russian population. Thus, measurestaken to improvecost recovery should not raise fares to levels that the average Russian citizen cannot afford. To ensure that fare increases instituted to reach the project's targeted levels of cost recovery are affordable, monthlyincomes of wage earners and of householdswere analyzed to determine the percentage spent on urban transport at current fare levels, and the impact of increases in fares to levels that would achieve full cost recovery on the proportion of income spent on urban transport.

3.35 According to Table 3.5, urban transport expendituresin the project cities ranged from about 0.9 percent to 3.1 percent of average household income in March 1994. If cities were to achieve a 100 percent cost recovery level, fares would have had to be increasedabout 100 percent in Cherepovets;200 percent in Vologda; 300 percent in Velikie Luki, Smolensk, Saransk, Samara, Omsk, and Novgorod; 400 percent in Kostroma; 600-700 percent in Pskov, Nizhniy Novgorod, Yekaterinburg,and Tver; and 900 percent in Rostov. These higher fares, in turn, would increase the percent of average householdincome spent on transport to a range of between 2.2 percent and 7.6 percent. Since the maximumcost recoverygoal under the project is not 100 percent, but 50 percent, the increase in the percentageof average monthly household expenditure accounted for by urban transport would range from about one percent to five percent. Since this analysis was done on the basis of the number of current paying passengers, it does not reflect the fact that fares could be half as high if revenues for all passengers were collected.

3.36 This percentage is not unreasonably high by world standards, according to informationpresented in Bus Services:Reducing Costs, Raising Standards,by Armstrong-Wright and Thierez. Their research indicates that in developing countries, 10 percent is about the maximum level of household income that should be spent on urban transport usage. This percentage could be higher in Russia, where expendituresfor such other categories as housing, utilities, and clothing are highly subsidized,and therefore, a much lower proportion of income. Consequently,after adjustingfor non-cashbenefits, the maximumlevel of householdincome that could be spent on urban transport in Russia is 12 percent. However, it is highly likely that households will have to bear a greater share of such expendituresin the future so that the 10 percent maximummay be the more appropriatemeasure. Irrespectiveof whether the maximum is 10 percent or 12 percent of household income, the impact of full cost recovery on average monthly householdexpenditures would not be unreasonable, as long as incomescontinue to be adjusted for inflation on a relatively frequent basis. With respect to the ability of the poorest groups in society, it should be noted that a system is currently in place to exempt these individuals from paying for transport. In some cities, subsidies for this purpose are provided through the purchase of monthlypasses; in others, this cost is incorporatedas a general subsidy to cover transit company losses. Chapter HI 27

Table 3.5: AFFORDABILITYOF URBAN TRANSPORT IN PROJECT CITIES (as of March 1994)

Niztaly- Cterepoyets Kostroma Novgorod Novgorod Omsk Pskov

Average monthly salary (Rb 000) 1.55.0 128.5 142.4 130.8 141.0 115.6

Average monthly household income (Rb 000) 355.06 269.1 291. 1 279.0 311.8 279.0

Average monthly per capita income (Rb 000) 114.5 86.8 93Q9 93.0 91.7 93.0

Official minimum subsistence level (Rb 000) 64.5 64.4 66.0 61.9 59.4 64.1

Cost of minimum 'food basket' (Rb 000) - 42.8 41.5 40.S 42.3 33.3 42.1

Monthly per capita urban public transport expense 2.9 2.4 2.1 2.3 3.2 1.3 (Rb 000)

% of average monthly salary 1.9 1.9 1.5 1.8 2.3 1.1

% of average monthly per capita income 2.5 2.8 2.2 2.5 3.5 1.4

% of minimum subsistence level 4.5 3.7 3.2 3.7 -5.4 2.0

% of average monthly household income 2.5 2.7 2.2 2.5 3. 1 1.4 (assuming three commuters per household)

* = Oblast-level data for March 1994

Roslov-- Vedikie Yekater o-- Don Samara Saransk Smolensk TVer Luki Volgda. -inburg

Averagemonthly salary (Rb00) 114.1 174.7 93.7 118.2 124.5 115.6 155.0 171.3

Averagemonthly household income (Rb 000) 232.6 366.4 224.4 244.9 267.9 279.0 355.0 377.9

Averagemonthly per capita income(Rb 000 72. 114.5 680 79.0 S9.3 93.0 114.5 11S.1

Officialminimum subsistence level (Rb 000) 59.5 75.9 61.0 51.8 67.8 64.1 645 77A

Cost of minimum'food basket' (Rb 000) 33.1 51.5 40.5 38.0 42.6 42.1 42.8 43.4

Monthlyper capitaurban pubic transport 0.9 1.2 1.0 0.9 2.0 0.8 2,6 1.6 expense (Rb 000)

% of average monthlysalary o0. 0.7 1.1 0.8 1.6 0.7 1.7 0.9

% of average monthlyper capitaincome 12 1.1 1.5 1.1 2.2 0.9 23 1.4 % of minimumsubsistence level 1.3 1.6 1.6 1.7 3.0 1.3 4.0 2.1

% of average monthlyhousehold income .L2 1.0 1.3: 1.1 2.2 0.9 -2.2 1.3 (assumingthree commutersper household)

* = Oblast-leveldata for March 1994

Sources: OosKomStat,World Bank HouseholdSurveys, 1989 Census,ATKeamey Consultant Reports, NUAT.

3.37 A related issue is whether monthlyincomes in the project cities have kept pace with inflation as it is possible that even if the fares appear affordable at current levels, they may not remain so in a high inflationaryenvironment. Of the six project cities reporting wage figures for both 1992 and 1993, four reflect an increase of 12-14times, the fifth went up by 2.5 times, and the last went up a reported 36 times. If the high and the low figures are discounted,and we use a 12-14times measure to gauge against inflation, it appears - based on preliminaryanalysis - 28 Chapter m that monthlyincomes during the period examined(average 1992 through late 1993)for the most part have not been adjusted to absorb the impact of inflation. (The price index rose from 20.6 in June 1992 to 541.4 in December 1993, an increase of more than 26 times. It is important to note, however, that prices have been rising in larger metropolitanareas somewhatmore rapidly than in medium-sizedand smaller cities.) Nevertheless, expenditureson urban transport still seem to form a very small part of total householdexpenditures.

C. LEVEL OF SUBSIDIES

3.38 Methods of SubsidyAllocation. Each city and oblast is free to determine its methods of subsidy allocations. Transport has not been an item in city budgets until recently so methods of allocationare still under development.Most of the local governmentsexpress a desire to base the subsidieson some form of service delivery but the current chaotic financialsituation makes it difficult to implement such a policy. In fact, the allocations appear to be based more on standard budgetary reviews where the government tries to balance the needs for transport subsidies against other demands in a situation of very inadequateresources. Usually they do include a review of the performance indicators and targets. Subsidiesare generally inadequate to provide desired, or even former, levels of service.

3.39 Since the local and central governmentsare committed to the provision of funds sufficientto enable the companiesto operate under reasonabletechnical standardsand minimum acceptable levels of quality of service, the level of subsidies should be established on a sustainable basis and used to stimulate improvementsin efficiency. This will first require substantialimprovements in the companies' recurrent and capital budgetingprocedures, so that their financialneeds, as well as the financialimpact of various measure to improve efficiency, can be clearly established.Second, the operatingbudgets should be prepared and approvedeach year taking into account agreed improvementsin efficiency and in the context of performance contracts that specifyperformance targets in terms of vehicle and driver utilization,yield factors, efficiency of vehicle maintenanceand availabilityof parts for repair and sustainabilityof the service. The local and central governmentsalso need to have a clearer idea of the least cost means of meeting their urban transport needs. Currently many of the cities have several modes of urban transport and a number of them are contemplatingexpansion or even introductionof trolleybus or tram services in order to avoid having to pay for expensive foreign buses. Most of the plans currently under discussionhave never been evaluated.There is a need, therefore, to undertake a least cost analysis of the transport systems in the project cities and to develop better investmentanalyses of proposed investmentsbefore city or oblast governmentsagree to finance them. The project includes assistance to carry out such analyses and to assist in developing means to reduce subsidies, increase fare recovery and exemptions and reduce operatingcosts to the extent possible.

3.40 Citywide Transport Plans for New Investment. The difficulty of obtaining replacement vehicles for their urban transport companies, particularly Ikarus-made buses, in conjunction with fuel shortages, has led a number of municipal governments and transport experts to formulate plans to create new trolleybus or tram companies (and, in one case, a metro) to expand transport capacity. In some cities, poles and wires for the trolleybuses have already been installed, althoughit may be some time before any trolleybusesare purchased. To Chapter IH 29 the city governments, trolleybuses may seem to be a good alternate to buying foreign buses because they are made in Russia and the price is so low as to obviously not reflect economic costs. In Western countries, trolleybuses are far costlier than diesel-powered buses (at US$300,000 to US$500,000 each, at least twice as expensive as buses) but in Russia they are cheaper. The disadvantagesof trolleybusesare that they are less flexible and require electricity which is currently priced far below economiccosts and whose subsidyis already a costlyburden on Russia's economy. New tram systemsare also costly, disruptiveto road networks and even less flexible than trolleybuses.On the other hand, trolleybusesand trams are consideredto have greater environmentalbenefits, although the option of natural gas fueled buses has also to be taken into account. The analysis, therefore, of new trolleybusor tram systems is quite complex and would have to take accountof all the economiccosts and benefitsand various options. Some of the other project cities which already have three modes of urban transport are planning expansion of lines and even constructionof a metro in one case. Given the financial problems of the cities and the need to rehabilitatevehicles and systemsalready in place, it is important that no new investmentsbe initiated unlessanalysis demonstrates they are economicallyjustified. To this end, the project cities have agreed that they will inform the Bank about any investmentproject for its transportsystem which significantly affects the financialsituation of the project city, and shall inform the Bank of the results of relevant feasibilitystudies in order to enable the Bank to provide its opinion regardingthe project (para 8.3). Further, all project cities will be required to carry out a financial and economic review of its transport systemto determinethe least cost mode and the type of vehicleswithin eachmode by June 30, 1997 (para 8.3). Technicalassistance will be provided under the project to assist with this effort.

D. REFORM PROGRAM FOR THE PROJECT CrrIES

3.41 The cities applied for assistanceunder the loan on the understandingthat they would carry out minimum reforms as a conditionfor inclusion in the project. These reforms should assure that those cities selected will use the project investmentsin an efficient and sustainable manner, and demonstratethe effectivenessof such reforms for the rest of the nation. Included in the reforms are up-front measuresthat have to be taken by the cities regarding cost recovery, establishmentof autonomousurban transportcompanies and municipalregulatory authority,and divestiture of inter-city bus operations.

3.42 Details of the reform program agreed with the cities included in the project are given below.

Cost Recovery

* Before April 1, 1994, achievementof a minimum of 20 percent of the operating costs of urban transport enterprises recovered from operatingrevenues.

* By end-July 1994 achievementof a minimum 25 percent of the operating costs of urban transport enterprises recovered from operating revenues. 30 Chapter M

* By December 1, 1995 a minimum 35 percent cost recovery for all participating transportation enterprises should have been maintained for the previous six months and by March 31, 1996 a minimum 40 percent cost recovery should have been maintained for the previous six months. All cities expect to achieve a 40 percent cost recovery for the six month period before the contracts are signed for the new buses and trolleybuses later this year. A target of 50 percent cost recovery has been set for the end of 1997.

* By June 30, 1996, reduction of fare evasion to ten percent or less of daily passenger trips and seven percent by June 30, 1998.

Governance of Transport Entities and Corporate Autonomy

* As a condition of inclusion in the project, transferral of urban transport entities from oblast to city level of subordination.

* As a condition of inclusion in the project, establishment of enterprises participating under the project as legally autonomous and corporatized entities (i.e., not part of the city government even if partially or fully owned by the city), with significant operational independence.

- As a condition of inclusion in the project, establishment of a transport department (or similar body) with qualified full time staff for the purposes of planning the development, and regulation, of the city's urban public transport system.

3 By December 31, 1995, completion of separation of city bus operations from inter- city bus operations.

Operating Efficiency and Investment Planning

* By June 1, 1996 adoption of action plans, agreed with the Bank, to introduce contractual arrangements aiming at improving of operating efficiencies of transport companies, reducing their costs and the overall level of subsidies provided to them by local governments.

* By June 30, 1997, carrying out of a financial and economic review of transport systems to determine the least cost mode of urban transport and the least cost type of vehicle within each mode.

Competition and Private Provision of Public Transport Services

* Take all necessary measures to support provision of transport services by private individuals or companies to encourage wider provision of urban transport services.

* By September 1, 1996, preparation of plans for contracts with entities other than the project companies to provide urban transport services or auxiliary services. Chapter IH 31

0 As a conditionof inclusionin the project, preparationof a plan for privatizationof taxi services.

E. REFORM PROGRAM PROGRESS

3.43 The status of each city's reform program is summarizedin Tables 3.6 to 3.9 and discussed in more detail below. The analysis presented herein in based upon information collected by the Russian Research and DevelopmentInstitute of AutomobileTransport (NIIAT) during the past year, other consultantsengaged to help prepare the project, informationobtained during appraisal and post-appraisalof the project and during negotiationsof the project.

Table 3.6: STATUS OF REFORM PROGRAM IN PROJECT CITIES COST RECOVERY LEVEL AND MEASURES TO REDUCE LOSSES FROM EXEMPTIONS AND FARE EVASION

(as of July 1994) (percent)

Cost Recovery Target by Nizhniy .Rostov-on- Negotiations = 25% Cherepovets Kostroma Novgorod Novgorod Omsk Pskov DQn Bus cost recovery 2nd qtr 1994 actuals 65 34 25 45 26 37 32 TroUeybuscost recovery 2nd qtr 1994 actuals -- 34 8 - 19 - 26 July 1994 actual 25 33

Tram cost recovery 2nd qtr 1994 actuals -- 4 -- 16 -- 26 July 1994 actual 25 20

Reduction of losses due to I X X X X I X exemptions

Reduce fare evasion to not X X X X X X X more than 10%

Velikie Yekater- Samara Saransk Smolensk Tver Luki Vologda inburg

Bus cost recovery 2nd qtr 1994 actuals 30 2S 43 43 51 44 27 July 1994 actual 66

TroUeybus cost recovery 2nd qtr 1994 actuals 60 25 29 31 -- 51 35 July 1994 actual 43

Tram cost recovery 2nd qtr 1994 actuals 45 -- 29 28 -- - 29 July 1994 actual 31

Reduction of losses due to I 1 I I X X exemptions

Reduce fare evasionto not X X X X X X X more than 10%

I = Action program has been initiated. X Has agreed to comply. 32 Chapter m

3.44 The dialogue between the World Bank and the project cities has resulted in a substantialnumber of reforms being adoptedby the municipalgovernments and urban transport companiesduring project preparation. In particular, significantprogress has been achievedon devolving responsibility for urban transport to the cities, establishmentof autonomousurban transport agencies, and divestmentof non-transportservices.

3.45 Cost Recovery. As described in para 3.23, financialdata submittedto the Bank in August 1994 showedthat, except for the Omsk tram company, fourteen candidate cities met the 25 percent cost recovery target. Nizhniy Novgorod's five bus companiesmet the cost recovery target, but still belong to the oblast government, so only its tram and trolleybuscompanies are included in the project.

3.46 Ten cities indicated that they already have plans to reduce the impact of exempt riders on revenues. In addition to reducing the number of fare-exempt riders, urban transport companies can improve cost recovery by increasing fares, receiving compensation for exemptionsfrom different levelsof government,reducing fare evasion, reducingoperating costs, improving efficiency, and expandingcommercial or premium services (although this would be better provided by private operators).

Table 3.7: STATUSOF REFORMPROGRAM IN PROJECTCITIES GOVERNANCEAND AUTONOMY OF PUBLICTRANSPORTATION ENTERPRISES

(as of May1994)

Cberq,ov.tspDg;g Kostroma No'orodi Novgorod m0sk-.0 Pskov oa

Companies municipally owned & C (i) C (2) C controlled Enterprises must be autonomous C (i) C C

Municipal transpor department - c c ......

Velikie Yakater- Samara Saransk Smolensk Tv0r Luki -Volda inburg

Companies municipally owned and C C - (2) C controlled

Enterpriis must be autonomous C C:C (2) C

Municipal transport department C c C C C C

C = complied.

1. Tbe Tram and Trolley Bus Company has completed the reform conditions related to municipal ownership and autonomy of enterpries. The bus companies that provide urban transport services in the city are still federally owned and are controlled by Nizhniy Novgorod Oblast. The municipal government is unwilling, to assume the financial burden of transferring control of the buses from the oblast to the municipality. Therefore, the bus companies in Nizhniy Novgorod have been excluded from the project.

2. In Pskov and Velikie Luki, the oblast still controls some aspects of the bus company, but a decree has been passed and draft charters for the bus companies have been drawn up to make them autonomous municipally owned entities. The final steps to establish the autonomous bus companies should take place by June 1995. Chapterm 33

Table 3.8: STATUSOF REFORMPROGRAM IN PROJECTCITIES TO IMPROVEEFFICIENCY OF OPERATIONSAND INVESTMENT PLANNING

(as of May 1994)

'' ' '" "'' ' " 'Nlhniy 'Ro-' . ov.- t po~vets .. Kostroma Nvgrtod Novgorod 0m*lk Pskov on-Don

Startprogrm to inprove ..x . x x efficiency

Complete analysis of least- x x x x x x cost modeand vehicle

Velikie Yekater- Samara -Saransk Smolensk Tver Luki Vologda inburg

Startprogram to improve efficiency x : x X x . x

Complete analysis of least-cost x x x x mode and vehicle

x = agreed to comply.

3.47 Fare evasion is a major cause of poor cost recovery among transit enterprises. At appraisal four cities (Cherepovets, Kostroma, Novgorod, and Smolensk) reported that they have already achieved the goal of reducing fare evasion to less than 10 percent of passenger trips (although evasion could be higher for the last two cities). All the other cities indicated that they intend to try to achieve this target by June 30, 1996. The most common measure taken to reduce fare evasion is to place on the buses inspectors authorized to impose on the spot fines on offending riders. In some cases, these inspectors are unemployed persons who are entitled to keep the fines collected as an incentive to detect fare evaders.

3.48 Governance and Autonomy. Eleven project cities have assumed control of urban transport companies from the oblasts and two others have passed the necessary decrees and plan to complete the transfer by June 1995 (Table 3.7). Nizhniy Novgorod has not yet transferred bus companies from the oblast to municipal level of government and has decided, therefore, to not include buses in the project. Although all cities have established transport departments to conduct regulatory activities and planning for transport operations, many cities have tended to maintain significant elements of the old system's oblast level control mechanisms to keep track of the operations of their transit enterprises. Many continue to perform functions such as operations planning, ticket sales, and revenue collection that should be the responsibility of their transit enterprises. Thus, substantial work remains to be done during project implementation to ensure that such departments: (i) truly allow the transit enterprises to operate autonomously, and (ii) restrict their roles (and perform those roles effectively) to planning and regulation.

3.49 Operating Efficiency and Investment Planning. As one of the elements of the loan covenants, each participating city has to agree to develop and implement a program to improve the operating efficiency of their urban transport enterprises during the life of the project (Table 3.8). All cities have indicated their willingness to do so. The extent to which operating costs can be reduced will also be emphasized. Operational performance targets have been included in the 34 Chapter Im

set of projectperformance indicators, and will be included in the onlendingagreement. Technical assistance provided under the project will be available to assist cities in the developmentand implementationof these plans.

3.50 To date, little analysis has been carried out before investmentsare undertaken in urban transport. Of particular concern are planned investments in new, and extensions of, trolleybus and tram lines (para 3.40). The cities have therefore undertakento carry out economic analysis of new investmentswith the help of consultantsto be financed under the project.

3.51 Competitionand Privatization.Plans to contract out urban transport services should specificallyinclude provisionsfor divesting certain services currently provided by the existing transport enterprises to the private sector. Examplesinclude contracting out services such as vehicle maintenance and vehicle rehabilitation, contracting for bus services with non-urban transport companies (such as those that operate own-account buses), privatization of taxis,

Table 3.9: STATUS OF REFORM PROGRAM IN PROJECT CITIES RESTRUCTURING AND PRIVATIZING THE URBAN PUBLIC TRANSPORT SECTOR

(as of May 1994)

Cherepovets Kostroma Novgorod Novgorod Onisk Pskov on-Don: Plansto divesttaxi services C C C C(2) C C C

Divest intercity bus service C C C (I) C C C C

Remove all barriers to privateentry C.:] C C C C C C:00

Plans for contracts with outside x x x x x x x; enterprises

Velikie Yekater- Samara Saranekl Smolensk Tver Luki Vologdai inburg

Plans to divest taxi services C C C C C C C

Divest intercity bus service x (3) C C C C (3) Remove all barriers to private entry x C C C C C C

Plans for contracts with outside x x x x x x x enterprises

C = complied x = will comply

1. Bus companynumber 6, which operates some limited urban services,is primarilyan intercitycompany. As long as its servicesto the city are providedunder a transparentcontract, this will not serve as a bar to NizhniyNovgorod's participation in the project.

2. The taxi companywas owned by the oblast, not the city. Under a court decision,it is scheduledfor privatizationby August1995.

3. The city has agreedto divest all buses engagedin intercitybus servicefrom the bus enterprisesowned and operatedby the city to a separate enterpriseor enterprisesnot owned by the city, by December31, 1995. Chapter HI 35 intercity buses and establishmentof private minivans that operate as route taxis. In addition, candidate cities should develop plans to divest non-transportactivities and facilities such as schools, farms, and dwelling units. All cities have divested their taxi enterprises or have plans to do so. Two cities have not divested intercity services but have plans to do so by December 31, 1995. All cities indicatedthat they have removedsignificant barriers to entry of private firms willing to provide urban transport services. All cities also indicate that they intend to prepare plans, by September 1, 1996, for contracts with outside enterprises to provide urban transport services or auxiliary services (Table 3.9). Through a combinationof technical assistance and study tours financedby the project, city and transit officials in the project cities will be exposed to privatizationof bus companiesand contractingof servicesas practiced successfullyelsewhere in the world. If possible, some of the technicalassistance will be organizedon a twinningbasis with cities where such reforms have been implementedsuccessfully.

3.52 Commitmentto the project is already quite strong as a result of the process of self- selection of cities to participate as candidatesfor inclusion in the project and of the process of helping to prepare the project. Many of the reforms have already been adopted by the cities. Moreover, municipal governmentsand urban transport companies are looking for ways to improvecost recovery and cut back exemptionsand riders. Nonetheless,it is clear from previous Bank projects in the sector that one of the most difficultareas of success in any urban transport project has been that of cost recovery. Approval of tariff increases in a timely fashion is essential to the financial viability of urban transport companies but, at the same time, can jeopardize any politician's future. To maintain the focus on this essential reform, the reform program will be incorporated into the Subsidiary Loan Agreements (para 8.3).

F. FINANCIAL SITUATION OF TBIE OBLASTS AND MuNIcIPALrrIEs

3.53 The urban transport companies to be included in the project are owned by the municipalgovernments of the cities they serve. Therefore, it is expectedthat these municipalities will bear the responsibilityfor repaying the Federal Governmentfor funds borrowed under the Bank loan, since responsibilityfor urban transport operationsand financinghas been devolved to the local level. MOF is in the process of redistributingits financialflows from the center to regions, a reversal of traditionalpatterns of socialistbudget management.At the same time, the regions, and, in turn, the municipal governmentswithin them, are gradually financing- and taking greater responsibility for - an increasing number of sectors such as health insurance, social security and welfare, housing and utilities, local transportation and communication, kindergartens,primary and secondaryschools, retraining, food subsidies, culture, mass media, agriculture, consumer services, and numerous organizations under oblast, city and rayon jurisdiction. The municipalgovernments, in turn, have also begun increasingtheir financingof these sectors.

3.54 To finance these new responsibilities, the scope of taxing authority and rules governing allocation of federal subsidies have been made more explicit, although the responsibilityfor spendingin many areas is still shared by several levels of government.On the revenue side, federal budget laws in 1992 and 1993 granted most oblasts a 20 percent share of the value-added tax, 69 percent of the tax on corporate profits (22 percent of profits), 100 percent of personal income tax, about half of the excise tax on alcoholand oil products, and all 36 Chapterm local taxes. Some regions gained the right to retain up to 50 percent of the VAT; the average VAT share retained by the regions was 24.4 percent in 1992.

3.55 A departmentof the Federal Tax Service collects all federal and regional taxes, as well as revenues destined for extra-budgetaryroad funds. Payments to other extra-budgetary funds are collected independentlyby the managementof those funds, apparently including collectionof a one percent payroll tax to help finance urban transport losses. On the expenditure side, the assignmentof responsibilityof expendituresis apparentlyfar less transparent,and there is significant overlap among local, regional, federal, and other budgets in many areas. Some cities also have a lower level of government(rayon) that also have their own budgets.

3.56 Becauseof inflation, adjustmentsin budget authority are generally made quarterly. But this is not adequate to maintain service levels when the actual subsidy payment is based on the previous quarter's actual spending, as is usually the case. In the current inflationary situation, this causes serious operationalproblems.

3.57 When the federal government fails to meet its financial obligations on time, the oblast must spend its own funds. This happened quite frequently in 1993, for example, when students scholarshipswere raised and when federal employeesreceived a pay increase. This practice boils down to a forced, interest free advancefrom the oblast to the federal government. In turn, regional governmentspay themselvesback by withholdingtax revenue transfers to the federal budget. This extremelyinefficient way of solvingbudget conflicts exacerbatesthe public finance situationand hampersan orderly decentralizationprocess. Althougha presidentialdecree issued on October 27, 1993, imposessanctions on regions that fail to transfer tax revenue to the federal budget, the problem will remain if the federal government continues its sequestering budget practice.

3.58 At the municipal level, city governmentssubmit their budget requirements to the oblast government and after discussion and agreement on the requirements, the oblast governmentallocates revenues. A large proportion of city revenues are funded from the oblast share of federaltaxes: only a small share is fundedfrom municipaltaxes. However, the type and level of municipal tax has to be approvedby the oblast government. With such a large share of revenues dependent on the collectionand release of federal taxes, the municipal governments are caught up in the same budget conflicts as the oblast and federal governments.

3.59 Againstthis backdrop of ad hoc relationships,there will be a formal subsidiaryloan agreementbetween the Federal Governmentand the project city governmentsthat wouldgovern the onlending terms of the Bank loan made to the Federal Government for funds borrowed on behalf of city-owned urban transport companies. The oblast governments of which the participatingcities are a part of will sign as guarantors of the loans in view of the dependency of municipal governmentsupon oblast governmentsfor financialresources. The final language of any onlending agreement for the project is still under discussion among governmental authorities. ChapterIm 37

3.60 Two fundamentalissues emerge: (a) the seriousnesswith which the city governments will view the onlendingagreement in light of the current negotiatingbudgetary environment; and (b) the ability of the municipalitiesto take on and service a long-term hard currency debt.

3.61 MOF insisted on the guaranteeof the oblast governmentfor each project city's loan given the oblast's leverage over the cities and access to greater financial resources. As for as the ability of the cities to repay the debt, the World Bank undertook to assess the current financial conditionof the candidate cities and their ability to absorb a loan sufficientto finance the cost of purchasingthe buses and transportvehicles needed on the basis of passengerdemand.

3.62 Municipal Budgets. If financing for the loan is to be repaid from city budgets, therefore, it is useful to try to assess the ability of the cities to service the loan's debt from municipalbudgets. To this end, municipalbudgets of the candidate cities have been analyzed. A comparison of each candidate city's budget expenditures to those of their urban transport companiesin 1993 are shown in Table 3.10.

3.63 Three cities had an overall deficit budget in 1993 - Novgorod, Samara, and Vologda - while several cities reported a balancedbudget or a small surplus. Even so, those cities with budget surpluses cannot be said to have much margin for increasing expenditures. Some of the cities might be able to appeal to their oblast governmentsfor more funds but here too, there are problems. Of the three cities with deficit budgets, only Samara comes from an oblast which had a budget surplus in 1992 (latest year for which data is available - see column 2 of Table 3.10).

3.64 As pressures to absorb more and more services are added to the responsibilitiesof oblast and local governments, however, these surpluses may disappear. This trend is evident from a detailed review of expenditurescovered by city budgets. Expenses for central heating, housing, kindergartensand education have increased significantly,in some cases by more than the inflation rate from 1992 to 1993 (estimatedat 10 times between mid-1992and mid-1993). For example, housingexpenses increased by 21.7 times in Tver from 1992 to 1993 while Tver's total revenues and total expenses increased by only 15.3 times; transport subsidies in Tver increased 16.4 times in comparison. In Vologda, housing expenses increased 134 times comparedto transportincreases of 15 times and overall budget revenuesand expensesincreased 10 times. In Rostov, on the other hand, transport subsidies increased 32.1 times compared to revenue increases of 11.9 times.

3.65 What does this mean for the cities' ability to absorb more expenditurefor transport? Table 3.10 also shows the total operating subsidies currently provided (both oblast and local where relevant). As shown therein, subsidies for transport operating losses (excludingcapital) average 8.3 percent of total municipal expenditures, ranging from less than one percent for Pskov and Velikie Luki (which get all of their subsidiesat the oblast level) to 14.9 percent for Samara. Actual data for 1994 (see Table 6.2) indicates that transit subsidies ranged from 7.8 percent to 18.2 percent of municipalexpenditures in the first half of 1994. Given the mounting pressure on budgets for other sector expenditures,an analysis was made of what subsidy level would be needed, as a percent of city expenditures,if cost recovery from transport revenueshad been 50 percent in 1993 rather than the average of 11.8 percent. The results, shown in the last w 00

Muiii Bu4t in 1993 Tranit Companie' Finsa Resulk in 1993- TrAit Opag SubsidisoNeeded (estimnatd) Actusa OpRLingSubsidi Calulsted for 50% CoatRecevy Oblt B ...... Bud t urp ...... Balanesin 1992 (Delfi ) Opaling Cot % of Mazceipsl % OfMaidepl w as % of Toal Reucsuis e e. OperatingCst Reves Recovery Budget Budget City Revemce Rb miflion Rb million Rb nillion Rb million Rbmillicn % OfCests Rb million Epee(s) Rb miUk Exes CherepovetsA (0.78) 24,494.30 24,457.90 36.40 2,363.10 790.10 33.43 1,596.40 6.53 1,181.55 4.83

Kosboma (16.23) 44,120.00 21,923.00 22,197.00 2,199.00 442.00 20.10 1,752.00 7.99 1,099.50 5.02

Nizhniy NovgorodC 12.28 186,881.00 179.611.00 7,270.00 18,758.00 1,900.00 10.13 0.00 0.00 9,379.00 5.22

Nizhniy Novgorod' 12.28 186,81.00 179,611.00 7,270.00 18,758.00 1,900.00 10.13 10,812.00 6.02 9,379.00 5.22 Novgorod (33.12) 24,953.00 27,849.10 (2,896.10) 1,600.00 331.00 20.69 1,248.00 4.48 800.00 2.87

Omsk (11.71) 165,534.40 161,602.50 3,931.90 20,270.00 3,022.00 14.91 20,023.90 12.39 10,135.00 6.27 0 PskovC (65.73) 28,251.70 28,251.70 0.00 1,295.10 187.00 14.44 48.40 0.17 647.55 2.29 PskovD (65.73) 31,090.20 31,090.20 0.00 1,295.10 187.00 14.44 1,117.80 3.60 647.55 2.08 * 5 Rostov-on-Don 7.53 108,267.00 104,933.00 3,334.00 16,763.00 1,180.00 7.04 10,219.00 9.74 8,381.50 7.99

Samara 15.61 81,300.00 84,100.00 (2,800.00) 12,228.00 984.00 8.05 12,498.00 14.86 6,114.00 7.27 Saranak (73.02) 24,494.30 24,457.90 36.40 3,825.00 387.00 10.12 3,500.00 14.31 1,912.50 7.82 E

Smolesk 2.40 28,539.70 28,539.70 0.00 2,050.00 384.00 18.73 1,745.00 6.11 1,025.00 3.59

Tver 4.44 49,721.50 45,498.70 4,222.80 2,781.30 335.10 12.05 2,940.50 6.46 1,390.65 3.06

Veliki LukiC (65.73) 14,003.00 13,950.00 53.00 515.79 115.02 22.30 91.0 0.65 257.90 1.85 0 Velikic Lki (65.73) 15,706.10 15,653.10 53.00 515.79 115.02 22.30 884.00 5.65 257.90 1.65

VologdC (0.78) 33,476.40 39,260.00 (5,783.60) 2,789.00 566.00 20.29 1,213.0 3.09 1,394.50 3.55 0

Yekaterinburg 6.94 111,763.00 110,430.00 1,333.00 14,429.00 1,441.00 9.99 1,494.00 1.35 7,214.50 6.53

TotalC n.a. 925,799.30 894,864.50 30,934.80 105,232.29 12,417.72 11.80 74,176.20 8.29 52,616.15 5.88

TotalD n.a. 896,864.50 860,146.10 36,718.40 105,232.29 12,417.72 11.80 86,850.60 10.10 52,616.15 6.12

A) Bus only. B) Informition inchlded 4th quarter estimates. C) City-xubsidizedoperaitiorD onty. D) If all obast-subsidized tansit operations and expenses are tansferred to municipal level, and the amount of tsx revenues adequate to cover these extra expenes is transferred from oblast to municipal budget. (Sc Sources: A. T. Keariseycoraulbant reporls on each city anappraisallpost-appraisal mission data.

-s Chapter m 39 column of Table 3.10, show that the average subsidy would have been only 5.9 percent of total municipal expenditures. Such a decrease in operating subsidies would make repayment of the principal and interest on the Bank loan more feasible. Clearly, therefore, there is adequate scope to support additional transport costs, which would be required if the candidate cities were made responsible for the loan, provided the cities and their urban transport companies take all measures to improve cost recovery of present transport operations.

STAFF APPRAISAL REPORT

RUSSIAN FEDERATION URBAN TRANSPORT PROJECT

IV. WORLD BANK EXPERIENCEIN URBAN TRANSPORT, AND IN RUSSIA

A. BANK EXPERENCE IN URBAN TRANSPORT

4.1 Compared to many other sectors, urban transport has not been a major area of World Bank activity. Yet, since 1972, the World Bank has had about thirty urban transport projects and an even larger number of urban developmentprojects with a substantial urban transport component.These projects have been quite diversified in terms of content, countries, and circumstancesunder which they have been designedand implemented.The major objective of World Bank lending for urban transport has been to improve and extend available facilities and services through the use of low cost options. For this reason, by far the greatest emphasis has been placed on: (i) rationalizationof the use of urban transport facilities, particularly urban roads; (ii) provision of better access through upgradingand extensionof the road networks;and (iii) improvementin the standards and viability of public transport services. A more general objective has been to meet the special needs of the urban poor. Upgrading and extending road networks in low income neighborhoodshas therefore also been a priority as well as improving the public transport services benefitting the poor. Other objectives of World Bank urban transport operations have been to improve planning and coordination and to better integrate urban transport with urban development.More recently, Bank objectives have focussedon the privatization of urban transport, including contractingout maintenanceand other services, but most of the projects incorporatingthese objectivesare ongoingprojects.

4.2 By mid 1991, Project Completion Reports (PCRs) and in many cases Project PerformanceAudit Reports(PPARs) had been prepared for about fifteen urban transportprojects or urban developmentprojects with a large urban transport component (above 30 percent of costs). The main lessons of experienceare summarizedbelow.

4.3 With the exception of the Bangkok Urban Transport Project (UTP) which was significantlychanged in scope, physical componentsof urban transport projects were generally implementedas planned. While some changes did take place and some componentswere poorly planned, the physical componentsproposed at appraisal proved to be feasibleand supportedby decision makers. Overall estimated project costs were also of the right order although wide variationsin individualcomponents occurred.

4.4 Institutional arrangements and components were considerably less successful, however. Many projects established traffic and transport units to plan, design and supervise improvementschemes. The PCR/PPARsmake reference to the politicalproblems of maintaining the units, of giving the units sufficient authority to act, of staffing the units, of obtaining 42 Chapter IV adequately trained staff and of sustaining those units after the implementationof a project. In particular, the institutionalproblems of sustainingtraffic managementmomentum and capabilities have not yet been solved. Many of the PCR/PPARs cite lack of enforcement of traffic regulations as reason for failure of traffic managementschemes. Indeed, more attention should have been paid to improving police operations. In some cities, despite the implementationof physical schemes, there was a lack of long term commitment to accept traffic management measures and subsequent changes in political administrationrejected the traffic management approach.

4.5 Transport policy measureswere included in some, but not all projects. The results were mixed. For example, some failures were recorded in:

a) Kuala Lumpur Second UTP and BangkokUTP with respect to road pricing;

b) Calcutta and Cote d'Ivoire Second UTP with respect to bus fares; and

c) Brazil Third UTP studies for bus deregulationand maintenance.

But sbme policy measureswere also at least partly successfullyimplemented, for example in:

a) Kuala Lumpur Second UTP with respect to increases in bus fares;

b) Bombay UTP and Madras Urban Project with respect to increases in bus fares, although the increases were not enough to meet covenantedagreements regarding revenue/cost ratios.

4.6 A number of projects (Bombay, Madras, Cote d'Ivoire and Calcutta) invested in public bus or monopoly bus operations (often supplying buses). Except in Calcutta, all the companieswere relativelyefficient with, for example, availabilityof the fleet of the order of 90 percent and reasonable staffing ratios. All companies made operationalimprovements during project implementation. Nevertheless, Government was reluctant to allow bus fares to rise adequately to meet agreed revenue/cost ratios (covenantedunder the loans) and for financial targets to be met, demonstratingthe political difficultiesof raising fares.

4.7 Project schedules were always over-optimisticat appraisal. This appears to have resulted from some, or all, of the following factors: (i) the difficultiesof implementingtraffic schemes; (ii) failure to completefinal designs in a timely manner; (iii) unfamiliaritywith World Bank procedures (especiallyprocurement); and (iv) lack of counterpartfunds.

4.8 Although the project is quite different from most of the World Bank's previous urban transport projects - it does not includeany civil works or traffic managementschemes - the lessons of World Bank experience have been taken into account in its design. Implementationdelays are expected to be minimized because: (i) procurement will be well advancedby the time the project goes to the Board for approval, and the bids for the buses and trolleybuses should be being evaluated by the time of loan effectiveness; (ii) experience of procuring bus spare parts has alreadybeen gained under the RehabilitationLoan (Ln 3513-RU); Chapter IV 43 and (iii) MOT has already establisheda Project ImplementationDirectorate (PID) to managethe project and carry out procurement and local project implementing units have already been establishedin the project cities.

4.9 Cost recovery should improvebecause of (i) up front cost recovery targets that have been met by the cities included in the project (the transit companieshave already achieved25 percent cost recovery) and (ii) cost recovery targets throughout the project (35 percent by December 1, 1995, 40 percent by March 31, 1996 and 50 percent by end of the project). However, two-thirds of the cities have already reached 40 percent cost recovery for bus operations. Initial institutional development targets will have been met by the time of loan effectiveness,insofar as autonomoustransit companieswill have been established,and additional conditionalitywill be linked to making more progresson institutionalissues by the middleof the project. The training and technical assistance has also been designed to support the Government's policies and project companies' programs. Despite these project features, some risks remain. In particular, targets for cost recovery will depend on political will and the ability of passengers to pay. Risks are discussed further in Chapter VII.

B. LESSONS FROM OTHER BANK OPERATIONS IN RUSSIA

4.10 Lessons learned from the First Oil RehabilitationLoan (Ln 3620-RU) and other loans in Russia highlight the importanceof: (a) identifyinga consistent committedcounterpart team with sufficient authority to move the project forward; (b) coordinating among key interested parties at the federal and regionallevels on critical or controversialproject issues; (c) early detailed attentionto procurementand other implementationissues; and (d) involving local consultantsand institutes in the process. The design of the project has taken account of these issues with plans for procurement and implementationof the project and involvementof the candidate cities and NIIAT in the preparationof the project.

4.11 The urban transport sector was one of five sectors to benefit from the Bank's first loan to Russia, the First RehabilitationLoan, which financed US$41 million for procurement of critically-neededimports necessary to maintainurban transport fleets in selected cities. The procurement and distribution system worked quite well and the same distribution entity "Avtosnabsbyt"will be used under the project for the national spare parts component.A major lesson learned from the loan was that the transit companies need to be more involved in the procurementprocess for the spare parts rather than the municipalgovernments who providedthe funds, so as to ensure that the required spare parts are purchased. During project preparation, Bank consultants worked closely with the bus and electric transport companies in the selected cities to identify needs, and technical assistance to be provided under the project will continue to liaise with the cities and monitor their needs and performance. l STAFFAPPRAISAL REPORT

RussiAN FEDERATION URBAN TRANSPORTPROJECT

V. THE PROJECT

A. PROJECTORIGIN AND PREPARATION

5.1 The World Bank carried out a limited review of urban services in several selected cities in order to identify potential areas for World Bank assistance as part of the development of the initial lending program for Russia. The conclusionsof this review were that the urban transport sector was one of the highest priorities for municipalitiesin view of the declining availability of urban transport vehicles and lack of funds for replacementof transport fleets. Discussionswere held with MOT which supported World Bank assistance for urban transport in a selected number of cities, especiallysince the Government'spolicy to devolveresponsibility for all urban transport operationsto the local level and to reduce federal fiscal support for the sector was resulting in severe financialhardship for the public transport entities.

5.2 To date, MOT has assumedoverall responsibilityfor the project, althoughMOF will have to bear the responsibilityfor: (a) borrowingfrom the World Bank on behalf of the cities; and (b) ensuring that effective onlending arrangementsare in place with the cities on whose behalf the loan is being made. Cities were self-selectinginsofar as they applied for inclusionin the project on the understandingthat they would have to fulfill the agreed reform program. The first part of project preparation was funded by the U.S. Trade and Development Agency (USTDA).The funds were used to hire transport consultantsto assist in project preparation and to contract NIIAT, the Russian AutomobileTransport Institute, to: (a) hold seminars with the participating cities to explain the objectives of the project; (b) discuss and negotiate with the cities the reforms to be carried out by participatingcities in order to be included in the project; (c) assist the cities with the preparationof their initial submissionsto MOT and the World Bank for inclusion in the project; and (d) prepare urban transport operational guidelines. USTDA funding also enabled MOT officials to visit bus manufacturingcompanies in the United States and hold discussions with the World Bank in Washington on the project scope's and implementation.

5.3 The second phase of project preparation was funded by the Government of the Netherlandsto contract Dutch consultantsto: (a) review the city's submissionsand evaluatethe requirements for urban transport vehicles in each city; (b) identify technical assistance and training needs for each city to improve operationsand the organization framework for urban transport; and (c) assess the economicand financialrate of return of investmentrequests for each city. Financing from the UK assisted with the review of the project cities' cost recovery ratios to verify that they had met the target set as a conditionof negotiations.Lastly, a Canadiangrant financed a small team to assess the potential for rehabilitationof the cities' existing urban transport vehicle fleet. 46 ChapterV

B. PROJECT RATIONALE

5.4 Urban transport services have been steadilydeclining over the past few years given the deterioratingbudgetary situationat both federal and local levels of government. At least for the next three years, it is unlikely that governmentbudgetary resources will be available to replace the rapidly ageing urban transport vehicle fleet or that revenues will be increased sufficientlyquickly to finance the purchase of buses and other vehicles. Because of low cost recovery, privatization of transport services will be difficult in the short term because of the wide differential in fares for public and privately operated services if private operators are to earn a reasonableprofit. The financingof fleet replacementand rehabilitationby the World Bank will enable the project cities' urban transport companies to improve service to at least a minimum satisfactorylevel and, along with the improvementin service, raise fares to increase cost recovery. With higher levels of cost recovery it will be possible to introduce more privatizationand competitionfor the provisionof urban transport services sinceprivate operators could not compete with highly subsidizedpublic operators.

5.5 The project also supports sector restructuringand needed institutionalchanges such as: the devolvementof responsibilityfor urban transport to municipalities,the breaking-up of oblast-widetransport operating and spare part distribution monopolies, the transformationof a centrally controlled procurement system and allocation of urban transport vehicles based on vehicles per populationand MOT judgment, to one based on operationaland economic analysis and competitivebidding procedures. Althoughmuch of the project is limited to fourteen cities, the demonstrationeffects could lead to implementationof the project's reforms throughoutthe country. The Bank's involvementin this project is also expected to play a catalytic role in supporting sectoral policy and institutionalchanges in the urban transport sector at the federal level and to enhance our support of the transport sector as a whole. The project is fully consistent with the objectivesof the most recent CAS (May 19, 1994), since a major focus of the core projects of the CAS is the achievementof effective implementationarrangements and the addressing of key policy issues in the sector investmentproject.

C. PROJECT OBJECTIVES

5.6 The proceeds of the loan would be used to help restore capacity in selected cities by financing selected fleet replacementsand critically needed spare parts and to foster reforms that would assist transport entities to maintainand develop their operationson a self-sustaining and commercial basis. The reform package would be aimed at substantiallyreducing subsidies before delivery of buses, with a view to their eliminationover a period of time. The project would serve to demonstrate(a) the benefits of such reform programs to other cities in Russia, id (b) how Governmentsupport for capital replacementof vehicles could be tied to improved cost recovery and other reforms, not only for urban transportbut for other sectorsas well. Such retorms are needed on a national level to reduce urban transport losses which were about six percent of GDP in 1993. The project would also help improve the quality of life of the urban populationin the project cities by reducingwaiting time and overcrowdingon buses and electric transport. Chapter V 47

5.7 Importing vehicles for urban transport is only a short term solution to Russia's continual urban transport vehicle replacementrequirements. It is important that municipalities be able to purchase locally manufacturedbuses at prices significantlyless than imported bus prices (given the low cost of labor and other inputs), especially since it is unlikely that urban transport services will be wholly self-financingfor many years. Therefore, the project will examine the potential for private sector financingof the bus manufacturingindustry.

5.8 The objectives of the project are to:

(i) preserve essential urban transport capacityin fourteen cities by linking financingof urgently needed replacement vehicles and spare parts to the implementationof reforms;

(ii) strengthen the fourteen project cities' urban transport sector institutions so as to improve the efficiency of passenger transport operations;

(iii) arrest the decline of urban transportservices in cities throughoutRussia through the provision of urgently needed spare parts for transport vehicles; and

(iv) provide restructuringadvice for the domestic bus industry.

D. PROJECT DESCRIPTION

5.9 The project includesthe fourteencities that have achieveda 25 percent cost recovery target by end-July 1994 and have committedto implementingthe rest of the reform program. The project cities are Cherepovets, Kostroma, Nizhniy Novgorod, Novgorod, Omsk, Pskov, Rostov-on-Don,Samara, Saransk, Smolensk,Tver, Velikie Luki, Vologda and Yekaterinburg. Major componentsof the project would consistof the provisionof new urban transport vehicles, spare parts and technical assistanceand training in the project cities. The project will also assist other cities throughoutRussia through the provision of spare parts for public transport vehicles and provide assistancefor MOT to developmore appropriateurban transportpolicies and include a study on how to develop a private domestic urban transport vehicles manufacturingindustry.

5.10 The project is based upon the investmentprogram for the project cities from 1995 through 1997, including buses and trolleybuses financed by both the Bank loan and local governmentfunds. Vehicles to be purchased with local funds include used or new Ikarus buses (some of which are locally assembled),other imported secondhandbuses and a few domestically produced smaller buses. Altogether, the project will finance about 81 percent of the total cost of the cities' investmentin bus and trolleybus acquisitions.

5.11 The main componentsof the project are:

(a) Assistance for fourteen selected cities including: 48 Chapter V

(i) bus and trolleybus fleet replacement, including the purchase of 2,154 buses and 509 trolleybuses, of which the World Bank will finance 1,501 buses and 272 trolleybuses;

(ii) rehabilitation of 997 buses, 327 trolleybuses, and 380 trams;

(iii) provision of workshop, computers and other equipment for urban transport companies, plus a fare collection system to be tested in one of the project cities; and

(iv) technical assistance and training to assist the cities implement reforms, rehabilitate transit vehicles and assist with procurement and monitoring of the project;

(b) Assistance for MOT including:

(i) purchase of ten natural gas buses to be tested as part of a pilot project;

(ii) purchase of equipment for the Project Implementation Directorate (PID);

(iii) studies of, and restructuring advice for, the domestic urban transport vehicle manufacturing industry; and

(iv) technical assistance and training to assist MOT develop more appropriate urban transport policies and help expand the reform program to other cities throughout Russia;

(c) Provision of spare parts for urban transport companies throughout Russia.

(i) Assistance for Selected Cities

5.12 New Urban Transport Vehicles. The buses and trolleybuses included in each of the fourteen project cities' investment programs will replace existing vehicles that are either beyond their economic life or beyond repair. The investment program is based on the replacement requirements for fourteen cities over a three year period. The existing fleet of mainly Hungarian and Russian-made vehicles (Russia produces smaller buses and trolleybuses) is ageing and a large percentage of vehicles need to be written off over the next three years. The existing fleet of vehicles has a shorter life compared to Western buses, plus lower availability, primarily because the vehicles have not been treated against corrosion, have lower quality engines and generally lower quality of construction. Buses to be financed under the Bank loan will have a longer life, higher availability, require fewer spare parts, be more fuel-efficient, thus making considerably less carbon monoxide and hydrocarbon pollution, especially since they will replace over 1,000 gasoline-fueled buses in the present fleet with new diesel-fueled buses complying with more stringent emission standards. New Vehicles Rehabilitation of Vehicles

Total Cost Total Cost Workshop Total Loan (USS (USS and Other TA and (USS City Bus Trolleybus million) Bus Trolleybus Trams million) Equipment Training million)

Cherepovets 50 7.3 88 1.4 I 0.3 0.2 9.2

Kostroma 91 11.6 48 25 0.9 0.7 0.3 13.6

Nizlm* Novgromd 100 9.3 36 120 5.2 0.4 0.4 15.3

Novgorod 80 10 11.9 40 0.8 0.4 0.3 13.4

Omsk 300 38.4 170 36 2.2 1.0 1.0 42.6 g

Pskov 75 10.6 15 0.3 0.2 0.3 11.4

Rostov-on-Don 169 84 29.3 240 50 50 5.7 1.1 0.9 36.9

Samara 192 25.2 153 60 100 6.7 0.6 0.8 33.3

Saransk 70 50 13.9 24 60 1.2 0.5 0.4 16.0 u U

Smolensk S0 100. 37 0.7 0.4 0.3 11.4

Tver 34 4.5 20 45 2.2 0.3 0.2 7.2

Velikie Luki 34 4.9 12 0.2 0.1 0.1 5.4

Vologda 46 28 7.8 60 60 1.5 1.5 0.3 11.1

Yekaterinburg 280 39.0 90 65 4.4 1.2 1.1 45.7

Total 1,501 272 223.7 997 327 380 33.6 8.7 6.5 272.5 Note: figures are rounded.

_~~~~~~~~ 50 Chapter V

5.13 Proceeds from the loan will finance about 1,501 diesel fueled buses and 272 trolleybuses at an estimated cost of US$223.7 million; 653 buses and 237 trolleybuseswill be procured locally by the cities using their own funding and procurement procedures (for an estimated cost of US$53 million). The Bank loan will finance 851 twelve meter buses and 650 articulated buses.

5.14 The buses have been allocated to the cities based on an evaluation of their requirements.Technical specificationsfor the buses have been based on a modified version of existing buses, includingan improved engine, rustproofingand other features that will extend the life of the bus and lead to more fuel efficiency.Trolleybus specificationshave been based on modified technical specifications for the existing fleet. Specifications for buses and trolleybuses were substantially agreed by the Bank, MOT and the project cities during negotiations,and any subsequentchanges will requireBank approval (para8.1). Details of buses to be financed by the Bank by city are given in Table 5. 1. Additionaldetails are given in Annex 5.1.

5.15 Rehabilitation and Spare Partsfor Urban Transport Vehicles. According to appraisal estimates, about 20 percent of the cities' bus fleet, 19 percent of the trolleybus fleet, and 17 percent of the tram fleet will require rehabilitationover a three year period. To meet these needs, the project will include the rehabilitationof 997 buses, 327 trolleybuses,and 380 trams at an estimated cost of US$40.9 million. Rehabilitationworks include repair and reinforcement of vehicle frames, replacementof body panels, moldingsand flooring, replacementof engines, transmission systems, clutches, suspensionand steering components,corrosion prevention and painting of vehicles. The project will finance spare parts for the rehabilitationworks which will be carried out in-house or by direct contract. The list of spare parts for each year's rehabilitation program will be finalized with the assistance of the vehicle rehabilitationtechnical assistance team (para 5.20) and submittedfor Bank approval before procurement taking place. Details of vehicles to be rehabilitatedby city are given in Table 5.1 (for costs) and Annex 5.1 (for number of vehicles) and more details of the rehabilitationprogram are given in Annex 5.2.

5.16 Equipment. Urban transport companies workshop and other equipment are inadequatefor the efficientoperation of urban transport services in the cities. In particular,there could be substantialimprovement of maintenanceoperations if the urban transport companies were provided with paint booths, welders, steam cleaners, sandblasters, machineshop tools and hand tools. Operationswould also be improvedif there were more computersfor such activities as route planning and scheduling,inventory control, and accountingand cost control. In order to improve fare collection to reduce the level of fare evasion, the project will include a fare collection system for one city (Vologda) as a pilot study after a careful review of alternative systems. The total cost of all the fare collection, workshop, computer and other equipmentis estimated at about US$8.7 million. The list of equipment will be finalized with the assistance of the vehicle rehabilitation technical assistance team (para 5.20) and submitted for Bank approval before procurement taking place.

5.17 TechnicalAssistance. The project will include a technical assistance and training program to: (a) assist with the procurement and administrationof the project; (b) assist the project companies to implement the vehicle rehabilitationprogram; and (c) assist the project Chapter V 51 cities and their transport enterprisesto implementthe agreed upon reform programs and improve operationalperformance. The estimated cost of the technical assistanceand training is US$8.3 million. Further details are given in para 5.20.

(ii) Assistanceto MOT

5.18 The project will include ten natural gas fueled buses to be tested on a pilot basis in Moscow to determine their suitabilityfor conditionsin Russia, for a total cost of US$1.5 million. A small amount (US$0.2 million) is also includedin the project for equipment for the PID. The project will also include a technicalassistance and training program for MOT to: (a) help develop a private sector strategy for a domestic urban transport vehicle manufacturing industry; (b) assist MOT to develop an overall strategy for the urban transport sector; and (c) extend the reform program to other cities in Russia. The cost of this componentis estimated to be US$4.6 million. Further details of technicalassistance included in the project are given in para 5.20.

(iii) National Spare Parts Program

5.19 Given the deterioratingurban transport services throughoutRussia, the project will include a component to provide urgently needed spare parts for buses, trolleybusesand trams for cities throughoutthe Federation, as was providedunder the RehabilitationProject (Ln 3513- RU). The spare parts will be used to help put back into service vehicles that would otherwise remain idle or only be used in off-peakhours becauseof their poor condition. MOT will onlend to "Avtosnabsbyt",the privatized spare parts distributioncompany in Nizhniy Novgorod, which will be responsible for the sale of the spare parts to users at the purchase price plus the distribution center's mark-up. There should be considerablesavings from purchasing the spare parts in bulk, given the experienceof the RehabilitationLoan where it is estimatedthat there has been a 17 percent saving in costs. The national spare part component is estimated to cost US$50.0 million. A final list of spare parts will be submittedto the Bank for approval before procurement takes place.

TechnicalAssistance and Training

5.20 It is estimated that about 800 staff months of technical assistance will be required to carry out the technical assistanceprogram, of which about 380 months would be foreign and 420 local. The project is expectedto provide trainingand experiencefor the domesticconsultants specializingin urban transport: one local consulting group (NIIAT) has already been heavily involved in the preparationof the project. The total cost of the technical assistance and training is US$12.9 million. Terms of reference for consultantsto be financed under the project will be submittedto the Bank for final approval before invitationsfor proposals are requested. For all technical assistance and training, the World Bank will make every effort to secure grant funds: the EU has agreed already to financepart of the technical assistance to the cities. 52 ChapterV

(a) Policy Support

* assistance for Government to develop a strategy for the development of a private sector urban transport vehicle manufacturing industry, including a study of current urban transport vehicle manufacturing enterprises to assist them in restructuring, privatizing and attracting foreign investment or joint venture partners (US$3.0 million). Terms of reference are including in Annex 5.3;

* as the project unfolds, assistance for MOT to help translate the concept and lessons learned to the Ministry's responsibilities regarding urban transport for other cities throughout Russia. Terms of reference are included in Annex 5.4 (US$0.3 million). Ideally, future federal government support for urban transport should be made on the basis of commitment to a policy reform agenda;

* assistance with expanding the reform program to other cities in Russia (US$1.2 million);

(b) Project Preparation and Implementation

* assistance and training for the project coordination unit for administration, procurement, supervision and monitoring of the project (US$3.4 million);

* assistance with the implementation of the vehicle rehabilitation program (US$0.6 million). Terms of reference are included in Annex 5.5;

(c) Institutional Development

* assistance and training will be provided to the project city municipal regulatory authorities and urban transport entities (US$4.3 million) for the following tasks:

(i) improvements in organization and management of workshops and maintenance facilities, including computerized procedures for stores management, and procurement of urban transport vehicles and other equipment;

(ii) measures for increasing the efficiency of operations in accordance with agreed upon performance targets;

(iii) improvements in financial planning, budgeting, and accounting, including the introduction of computerized procedures for the above;

(iv) drawing up contracts between the cities and their transport entities to provide incentives for improvement of operational performance of the transport entities and to lay down the criteria for awarding subsidies for services provided;

(v) involvement of the private sector in the provision of public transport services; Chapter V 53

(vi) preparation of public transport developmentplans for each city and of the appropriateregulation of transport entities; and

(vii) twinningarrangements with cities in other countries where there are efficient urban transportoperations and experiencewith privatizationof urban transport operations.

The three terms of reference for the technicalassistance for the project cities are included in Annex 5.6.

(d) Training

* Training will be provided for specialized areas of urban transport operations and seminars and study tours will be financed for MOT and other transport-related Governmentofficials (US$0.1 million).

TABLE5.2: PROJECTCOST ESTEMATES (US$ million)

Foreign Exchange Component Components Local Costs Foreign Costs Total Cost (percent) New vehicles Buses 21.6 220.0 241.6 91 Natural gas buses 0.0 1.5 1.5 100 Trolleybuses 9.9 25.3 35.2 72 Totalfor component 31.5 246.8 278.3 89 Rehabilitationof vehicles Buses 7.2 11.1 18.3 61 Trolleybuses 3.1 1.8 4.9 37 Trams 2.5 15.2 17.7 86 Totalfor component 12.8 28.1 40.9 69 Workshop, office equipment, 0.6 8.3 8.9 93 and fare colection system National spare partsprogram 50.0 50.0 100 Technicalassistance & training 12.9 12.9 100

Total Cost 44.9 346.1 391.0 89

Taxesand dutiesestimated at aboutUS$11.0 million and are not includedin the aboveestimates. Total costs are rounded. 54 Chapter V

E. COST ESTIMATESAND FINANCING

5.21 Costs. The estimatedtotal cost of the project amountsto US$391 million, excluding taxes. Costs were estimated as of March 1995. The foreign componentamounts to US$346.1 million or 89 percent of the total cost. Duties and taxes are expectedto amount to about US$11 million (mostly in the form of administrativecharges for imported goods). Government has exempted all buses used for public transportationfrom import duties. Cities are required to pay VAT when purchasingvehicles and spare parts, but are reimbursed within one month through the budgetaryprocess. A summaryof the costs of the project are given in Table 5.2 and detailed cost estimates are given in Annex 5.7.

5.22 The total estimated cost of the fourteen cities' investment programs for vehicle replacement,rehabilitation and equipmentis US$326.6million, includingUS$241.6 million for new buses and US$35.2 million for trolleybuses.The cost of new vehicles to be financed by the Bank loan, includinga two years supply of spare parts, is estimated at US$198.4 million for buses based on recent bids for similar Bank-financedbuses and US$25.3 million for trolleybuses based on recent FSU country prices. The unit cost of a 12 meter bus is estimatedat US$117,000 and an articulated bus at US$160,000 (including spares). The unit cost of trolleybuses is US$95,000 (the low cost of trolleybuses reflects the low price of the existing fleet of mostly Russian-madetrolleybuses). The estimatedcost of US$40.9 million for the project cities' vehicle rehabilitationprograms is based on the cost of spare parts and transit companies' workshopcosts where the work is to be done in-houseand contract costs where the work is to be contractedout. The total cost of US$50 million for spare parts the national spare part component is based on recent experience with the purchase of spare parts for transport vehicles purchased under the RehabilitationProject. The cost of technical assistanceand training (US$12.9 million) is based on recent experience of consultants working in Russia and training costs both overseas and locally.

5.23 Financing. The World Bank loan of US$329 million would finance 84 percent of project costs, including 81 percent of the costs of the new vehicles, 82 percent of the cost of rehabilitation, 100 percent of the cost of workshopequipment and other equipment, 100 percent

TABLE5.3: PROJECTFINANCING PLAN (US$ million)

Percent of Local Foreign Total Total World Bank 6.1 322.7 328.8 84 European Union 1.8 1.8 1 Local governments 38.8 21.6 60.4 15 Total 44.9 346.1 391.0 100

Note: figures are rounded. Chapter V 55 of the cost of the national spare parts program, and 86 percent of the cost of technicalassistance. The EU has agreed to financeUS$1.8 million of technicalassistance and other donors are being requested to finance some of the other technical assistance costs. The project city governments and transport companies are financing US$62 million, or 15 percent of total project costs. Provision for retroactive financing of up to US$1.5 million has been included in the loan to finance essential procurement and project managementassistance since the bids for buses and trolleybuses should be submitted before loan effectiveness. The financing plan is given in Table 5.3.

F. IMPLEMENTATION

5.24 The Russian Federationwill be the Borrowerand will onlend to the 14 project cities which will pass on the funds as a grant to the local transportcompanies. The Bank has formally acknowledgedDeclarations of Commitmentsigned by all 14 project cities detailingthe vehicles, parts and equipmentto be financed under the project and elementsof the reform program. The undertakingsin the Declarationsof Commitmentwill becomelegally binding on the projectcities and their oblastsonce the Governmenthas executedSubsidiary Loan Agreementswith the cities. MOT will have overall responsibilityfor implementingthe project and coordinatingthe work of the cities which each will be responsible for certain project aspects. To undertake this responsibility,the Governmenthas establishedan Urban TransportProject CoordinatingCouncil (the Council) to provide project policy and a PID to undertake the administrative,procurement and supervision functions. Details of the Directorate's functions are included in Annex 5.8, together with the TOR for the Project Director (PD). As cities are the main beneficiariesof the loan through the sub-loanagreements, both the Council's makeupand the PID's functionswill rely heavily on city input. While the Council chairperson is the Director of the Automobile Department of MOT, two deputy chairpersons have been nominated by the cities and city personnel will sit on the Council. At the local level, each city has designated a city project manager to manage and coordinate the project at the city level, and be the focal point for communicationswith the PID. The respective responsibilitiesof the PID and the cities will be covered in the city SubsidiaryLoan Agreements.

5.25 Working through the Council, the PID will be responsible for: (a) procurement, monitoring and coordination of project implementation and resolution of implementation problems; (b) liaison with the city authorities and transport companies; (c) supervision and monitoringof project cities' compliancewith the conditionsof the SubsidiaryAgreements and preparing monthly and annual project audits for MOF; (d) ensuring that spare parts are distributed to urban transport companies under the national component; (e) managing the project's technical assistance; (f) disbursementand financial recording of the project; and (g) reporting requirements for the Bank (including statistics on the operation and financial performance of the urban transport companiesincluded in the project).

5.26 The PID is headed by the PD and Deputy PD who have already been appointed. They will be assisted by three Unit Chiefs and four other staff drawn from MOT with further assistance from visiting city staff. The PD will also be assisted by a Project Adviser (PA) financed under the project; the PA will provide advice and assistance to the cities and transport companiesand the latter's procurementunits. The PA will be an individual, possibly provided 56 Chapter V

by a firm which will provide additional services on an "as and when required" basis. Among its other tasks, the PID will be responsible for procurement and accounting administration, including disbursement. Technical assistance also will be contracted by the PID, but will be under the direction of the Council. The terms of reference for the PID, PA and procurement services are included in Annex 5.9.

5.27 In undertakingprocurement tasks, the PID would perform the functionsof a service organizationproviding procurementand coordinationservices to the cities for the procurement of new vehicles, spare parts and equipment,and to MOT for the procurement of spare parts for urban transport authorities throughoutRussia. The PID would respond to city requests and be responsible for facilitating procurement, including: (a) finalization and issuance of bidding documentsin accordancewith city and World Bank requirements;(b) facilitationof bid opening with, in the case of buses, a city official present on the bid opening commission; and (c) facilitationof a bid evaluationcommittee which, in the case of the buses, would have majority representation from the concerned cities who would sign award recommendationsto the World Bank: the bid evaluation committee would be headed by the Chairperson of the Coordinating Council. During negotiations,agreement was reachedwith Governmenton maintenanceof the Counciland the PID withinMOT, responsibilitiesof the Counciland the PID, adequate staffing of the PJD, and retention of a PD with qualificationsand experiencesatisfactory to the Bank (para 8.1).

5.28 TransportCompanies Will Have Their Own Procurement Units. Through the city project manager, the city transport companies' procurement units (known locally as Purchase and Supply Departments)will be responsiblefor local procurement, perhaps some international procurement of spare parts, and for all rehabilitationwork. These units will be provided with procurement assistance and training from the PID.

5.29 The transport companies in the selected cities will be responsible for the rehabilitationof buses, trolleybusesand trams. Rehabilitationof urban transport vehicles will either be carried out by direct contract or in-house. Additionalworkshop equipmentand tools will be financed under the project where necessaryto assist the urban transport companiesto carry, out the rehabilitationworks. A detailed rehabilitationplan for each urban transport companywas agreed at negotiationsand includedin the Declarationsof Commitment(para 8.5). These plans will assist the PID in consolidating the procurement of spare parts for rehabilitationof vehiclesand contractingout of rehabilitationworks. The rehabilitationprogram will be reviewed by the vehicle rehabilitationtechnical assistanceteam after a detailed review of each cities' fleet of vehicles, and spare parts, workshopequipment and vehicle rehabilitation contract requirements will be reassessed. The transport companieswill also provide MOT with all the informationand technical support required to carry out the responsibilitiesof MOT set forth above. Organizationcharts for project implementationorganization are given in Annex 5.10. The Bank, MOF, MOT, the project cities and the transport companies have agreed the duties and responsibilitiesto be performed by central and local governments. Details of the implementationschedule (Annex 5.11) were also agreed during negotiations.

5.30 Although the loan for this project may not become effective until September of 1995, project implementationneeds to start as soon as possible to award some contracts as soon Chapter V 57

as the loan becomes effective. Therefore, consultant services to assist the PID with the evaluationof bids for the buses and trolleybusesand preparationof bidding documentsfor other project components will be financed under a Project Preparation Facility (PPF). Bidding documentswith the technicalspecifications for the new buses and trolleybuseswere substantially agreed during negotiations.The PID should have signed a contract with a frm or firms to provide project managementand procurementservices as a conditionof loan effectiveness (para8.5). If financed under the loan, the firm will have been selectedin accordancewith Bank Guidelines.

5.31 Technical assistance will be provided to assist the project municipal regulatory authorities and urban transportentities to institute measuresto implementreforms, meet project monitorabletargets, improve operatingefficiencies, organization and managementof workshop and maintenancefacilities, and to draw up incentives based on contracts between cities and contract entities to further reduce subsidies and costs. The project monitorabletargets (Annex 5.12) have been agreed by the Bank and the Governmentand will be included in the Subsidiary Loan Agreement.Performance indicators will be based on implementationof the reform program which is to be included in the SubsidiaryLoan Agreements.Consultants will be engagedto help Governmentprepare a strategy for the further developmentof a private sector urban transport vehicle manufacturingindustry, to translatelessons and replicate the projectelsewhere in Russia, and develop ways of deepening private sector involvement and further reform of the sector (para 5.20).

5.32 , Onlending. The onlending arrangementsare for the Bank loan to be passed on by MOF as loans to the project city governmentswhich in turn will pass on the goodsand services financed under the loan as grants to the urban transport companiesin view of the companies' inability to repay. The subsidiary loans will carry an interest rate 200 basis points above the primary loan's interest rate, for terms of 15 years, with five years' grace. The interest spread will cover MOF's costs of administratingthe subsidiaryloans but will be somewhatlower than the long-term market rate for capital in Russia for revenue-earningentities because the project beneficiariesare engaged in loss-makingpublic service operationsand their municipalowners are under severe budget constraints. The cities will undertake to assume the foreign exchange risk. The onlending agreement will involve MOF, oblast governments and the municipal governments.MOF wishes oblastgovernments to be included in the subsidiaryloan agreements in order to have recourse to the oblast in the event that the cities default on their loan repayments. Therefore, oblast governmentswill be required to guarantee the subsidiaryloans to cities in their oblast. Confirmationthat each project city's oblast governmentwill guarantee the subsidiaryloan was received by the Bank prior to negotiations.

5.33 Proceeds of the Bank loan to finance the purchase of spare parts for other cities throughoutthe country will be financed through a subsidiaryloan agreement with the National Spare Parts Distribution Center at Nizhniy Novgorod that will carry an interest rate 250 basis points above the primary loan's interest rate for a term of one year. Onlendingarrangements and the terms and conditionsof the onlendingagreement were agreed during negotiations(para 8.1). The signing of the Subsidiary Loan Agreements by at least five of the project cities will be a condition of loan effectiveness(para 8.5). 58 Chapter V

5.34 ProjectLaunch Workshop.Detailed discussions on project implementationwere held with representatives of the PID and project cities during negotiations. Follow-up discussions focussing mainly on the vehicle rehabilitationprogram, technical assistance and completionof the implementationof the reform program will take place during the Project Launch Workshop, to be held within three months of loan approval. Procurement of the buses and trolleybuses should be underwayby the time the Workshopis held. A particular focus of the Workshopwill be the cities' cost recovery ratios and progress with meeting the 40 percent cost recovery target (para 6.6). Importantconstraints to effectiveimplementation of the project and reform programs will be reviewed and discussed, and responsibilitiesfor implementationwill be confirmed.

5.35 A mid-term project review involving the World Bank and relevant Borrower agencies will take place in November 1996. The objective of the review will be to assess: (a) overall progress of project implementationincluding buses and trolleybusesprocurement and distribution of spare parts, technical assistanceand training; (b) the extent to which the project cities have met the conditions of the project including achieving a cost recovery ratio of 40 percent by March 31, 1996; (c) performance of MOT and the project city governments and urban transport companies;(d) progresswith implementationof reform programs; and, (e) need for redesigning and/or restructuring of project components.The Bank and the Government have agreed on the scope and timing of the mid-termreview (para 8.1).

5.36 The project completiondate is December 31, 2000 and the loan closing date would be June 30, 2001 to allow sufficienttime for the release of security depositson supply contracts where performance guaranteesare specified.

G. PROCuREMENT

5.37 All Bank-financeditems will be procured in accordancewith the Bank's Guidelines (January 1995). Donor financingof some technical assistanceassignments will be on a parallel basis and procurement will follow donors procurement procedures. Table 5.4 summarizesthe methods of procurement.' Annex 5.13 containsthe procurement schedules.

5.38 Vehicles,Spare Parts and Equipment. The vehicles, spare parts and equipment to be procured under the World Bank loan comprise: (a) two types of buses, one type of trolleybus and one type of natural gas bus with spares and special tools; (b) spare parts for the rehabilitation of buses, trolleybuses and trams; (c) spare parts for a National Spare Parts program; and (d) workshop and computer equipment. For International CompetitiveBidding (ICB), as detailed below, Russian manufacturers competing under ICB would receive a preference in bid evaluation of 15 percent of the CIF price or the prevailing customs duty applicable to non-exemptimporters, whichever is less, provided: (i) the manufacturingcost includes labor, raw materials and components from the Russian Federation greater than 30 percent of the ex-works price; and (ii) the productionfacility has been in operation for at least one year prior to the Closing Date for Bids.

1. Costsinclude contingencies. Chapter V 59

Table 5.4: SUMMARYOF PROCUREMENTARRANGEMENTS (US$ million equivalent)

ProcurementMethod Not Bank Project Element ICB Other Financed Total Goods Buses and spare parts 198.4 43.2 241.6 (198.4) (198.4) Natural gas buses 1.5* 1.5 (1.5) (1.5) Trolleybuses and spares 25.3 9.9 35.2 (25.3) (25.3)

Rehabilitation 33.6 b 7.3 40.9 (33.6) (33.6) National spare parts program 50.0 50.0 (50.0) (50.0) Workshop and computer equipment 4.0 4.8 c 8.8 (4.0) (4.8) (8.8)

Consulting services d Policy support 5.2 5.2 (5.2) (5.2) Project implementationsupport 2.2 2.2 (2.2) (2.2) Institutional development 1.4 1.8 3.2 (1.4) (1.4) Training 1.7 1.7 (1.7) (1.7) Miscellaneous 0.7 0.7 (refinancing PPF) (0.7) (0.7) Total 277.7 51.1 62.2 391.0 (of which Bank) (277.7) (51.1) (328.8)

Totals are rounded. Figures in parenthesis are World Bank financed. a. Limited International Bidding for natural gas buses (US$1.5 million). b. Limited InternationalBidding (US$19.5 million), InternationalShopping (US$8.0 million), National Shopping (US$5.5 million), and Direct Contracting (US$0.6 million). c. Limited InternationalBidding (US$1.0 million), International Shopping(US$2.0 million), National Shopping (US$0.5 million), Sole Source (US$1.3 million). d. Consultants will be selected and employed in accordance with the Bank's Guidelines. e. To be financed by the European Union. 60 ChapterV

5.39 Buses and Trolleybuses.One thousand five hundred and one diesel engined buses and 272 trolleybuses with spares will be procured under the project. The diesel engined buses (totalling US$198.4 million) and trolleybuses (totalling US$25.3 million), all with spare parts and tools, will be procured through InternationalCompetitive Bidding (ICB) using the Bank's StandardBidding Documentfor the Procurementof Goods.

5.40 To facilitatethe delivery withinthe twelve monthdelivery period, the dieselengined bus procurement package comprises ten lots which will be evaluated and awarded separately. These lots will also encouragedomestic manufacturersto bid - includingthose who have already joint ventured with well known foreign firms. While not evaluated separately, for convenience, each pities' requirements are further divided into sub-lots. Where contracts are awarded, each city's bus requirements will be delivered directly from the manufacturer(s) to the cities. Inspectionof the vehicles and their manufacturewill be rigorous and will include inspectionsof the manufacturer's(ers') quality assurance program: (a) prior to manufacture; (b) during manufacture; (c) prior to delivery; and (d) prior to acceptance.Buses and trolleybuses should be procured in one bid package in 1995, unless some of the cities do not meet the 40 percent cost recovery target six monthsprior to signingthe contract for the vehicles, in which case buses and trolleybuseswill be procured in two bid packages for those cities - one in 1995 and one in 1996 (para 6.6). If required, the secondprocurement of vehicles would start no later than April 1996.

5.41 Given the pilot nature of this component,the naturalgas powered buses and support services (US$1.5 million) will be procured through Limited International Bidding (LIB). Expressionsof interestand detailsof experiencewill be requestedthrough Development Business and, after evaluation, bids invited from suppliers at the forefront of natural gas powered technology.

5.42 Rehabilitation. This category provides for the rehabilitation of 997 buses, 327 trolleybuses and 380 trams. While most transit companies have followed the practice of rehabilitating most of their vehicles in-house, there is now a small but growing private transit vehicle rehabilitationindustry in Russia. On the down side, it is difficult and expensiveto move trolleybuses and trams any distance, and while some buses have been rehabilitated as far away as Poland and Hungary, moving buses that far is unreliable and tends to be both arduous and expensive. Thus, contract rehabilitationhas been carried out usually at locations closer to the transit company. Many of the project cities wish to move to rehabilitation of vehicles by contract. Accordingly, some of the most urgent rehabilitation(up to ten vehicles per city) will be undertakenthrough InternationalShopping for a maximumof US$300,000per contract (for a total of US$4.2 million) using specificationsand appropriatebidding documentssatisfactory to the Bank. The remainder of the contract rehabilitation(estimated at US$19.5 million) will be undertaken through Limited InternationalBidding. A number of buses and some unique makes of trams and trolleybuseswill be rehabilitatedby the cities with parts procured by the individual cities through InternationalShopping (up to US$300,000per contract with an aggregateamount of US$3.8 million), NationalShopping (up to US$50,000per contract with an aggregateamount of US$5.5 million), and Direct Contracting(aggregate amount of US$600,000). The PID and Procurement Services consultants will conduct procurement training and provide procurement advice to the cities. ChapterV 61

5.43 While most of the vehicles have been identified, the project vehicle rehabilitation technical assistance team will confirm with each city the vehicles to be rehabilitated, and the procurement method to be used. The team will also assist in the preparation of rehabilitation specificationsand appropriatebidding documents for contract work for Bankreview. Meanwhile, the cities can consider commencingrehabilitation of up to ten vehicles as noted above. All lists of parts proposed for procurement, with cost estimates, and details of the vehicles to be rehabilitated, and the procurement method and documentationwill be forwarded for Bank approval prior to procurement taking place.

5.44 National Spare Parts Program. This component comprises spare parts for national distribution (US$50.0 million). Following the successfulsimilar procurement and distribution under the First RehabilitationLoan, procurement will be through ICB. The parts will be sold to the Russian cities on a commercialbasis through a national joint stock distribution company (para 5.19). Procurementwill be in two rounds (of US$25.0 millioneach) with bidding for the second round taking place only after Avtosnabsbythas fully repaid to MOF the proceeds advancedto it for the first procurement.

5.45 Workshopand ComputerEquipment. This equipment(totalling US$8.9 million) will be procured following ICB (US$4.0 million), LIB for the fare collection system (US$1.0 million),Intemational Shopping (US$2.0 million), National Shopping (US$0.6 million),and Sole Source (US$1.3 million).

5.46 Prior Review. Prior review will be required of all ICB, LIB and Sole Source (direct contracting) contracts regardless of value.

5.47 Technical Assistance. Professional services (consulting services) for technical assistance(US$12.9 million)will be provided mostlyby firms and, where World Bank financed, selected and employedin accordancewith the Bank's Guidelineson the Use of Consultants.The principal assignmentsare:

US$ million Project managementservices, comprising 3.4 PA 1.1 monitoringof the project 0.7 procurement 1.0 inspectionservices 0.6 Bus manufacturingstudy 3.0 Urban transportpolicy advice to MOT 0.3 Replicationof reforms to other cities 1.2 Vehicle rehabilitationassistance 0.6 Technicalassistance to cities 4.3 Training 0.1 Total (rounded) 12.9

Schedulesand critical dates for these assignmentsare given in Annex 5.13. 62 Chapter V

5.48 All consultants financed by the World Bank will be contracted using the World Bank's standard contract. Proposals will be invited from a shortlist of firms for all assignments over an estimated value of US$50,000 and selection will be made on the basis of technical evaluation.

5.49 The World Bank will require for its prior review the assignmentterms of reference, the method of selection, advertisements,letters of invitation,the proposed selection,prior to the invitation of proposals. After consultantnegotiations, the World Bank will require for its prior review all firms' contracts greater than US$100,000.

5.50 Procurementadministration, monitoring and reportingto the Bank will be computer based and undertakenby the PID, with the assistanceof the ProcurementAdvisors. All project procurement arrangementshave been agreed with the Government with the exception of the procurement of trolleybuses. During negotiations the Government expressed the view that procurementof trolleybusesthrough ICB might significantlyincrease their prices due to a limited number of trolleybus manufacturers and requested that direct contracting with a Russian companyknown to have low prices could result in a substantiallylower price. It was agreed that this matter would be further discussed.

H. DISBuRSEMENTs Table 5.5: ESTIMATEDDISBURSEMENTS

5.51 Although the project Amount of Percent of has been designed for Loan Allocated Expenditures to be implementation in three years, the Category (US$million) Financed World Bank's ECA standard Equipment, materials 317.8 100% local ex-factory disbursementprofile indicatesthat andsupplies 100%of foreign expenditures;85% of five years is a more realistic time expenditures for other estimate for full disbursement of items procured locally the loan. The estimated Technical assistance, 10.5 100% disbursement schedule and chart studies and training are given in Annex 5.14 while Repaymentof PPF 0.7 Table 5.5 gives the categoriesand amounts to be financed out of the Total 329.0 IBRD loan, and the percentage to be financed in each category.

5.52 To facilitate project implementation, a Special Account (SA) with a maximum allocationof US$3 million (with an initial deposit of US$500,000)would be establishedby the Borrower in a commercialbank on terms and conditionsacceptable to the World Bank. The SA would be managedby the PID. At the request of the Borrower and, based on the project needs, the Bank would make an initial deposit or deposits into the Special Account up to the amount of the authorized allocation. Applicationsfor the replenishmentof the Special Account would be submitted monthlyor when one-third of the amount has been withdrawn, whichever occurs earlier. Documentationrequirements for replenishmentwould follow the usual Bankprocedures. In addition, monthlybank statementsof the SpecialAccount which have been reconciledby the Borrower would accompany all replenishmentapplications. The commercial bank would be Cbapter V 63

selected from a number of acceptablebanks, on the basis of competitivebids. Selectioncriteria for participation in the bids are: (a) the bank should be financially sound as demonstratedby their latest accounts, as audited by an internationallyrecognized accounting firm; (b) the bank should have a significantforeign correspondencenetwork covering all major currencies; (c) the bank should have a reasonablecapacity and experiencefor issuing letters of credit, for maldng direct foreign paymentsand other internationaltransactions, with appropriate arrangementsfor the training and developmentof their staff; (d) the bank shouldbe capable of performing a wide range of local banking services, including cash payments, transfers to other domestic banks, issuanceof debit notes, applicationof conversionrates from foreigncurrencies, and maintenance of adequate accounts for the SA; (e) the bank should be a member of S.W.I.F.T. (Society for WorldwideInterbank FinancialTelecommunications) and should routinely use or plan to use this facility to expeditepayment transfers; (f) the bank should be willing to issue a Comfort Letter to assure that amountsdeposited in an SA will not be set off or otherwise seized or attachedto satisfy amountsdue to the commercialbank by the borrower; (g) the bank should be willing to maintain adequate accounts as required by the World Bank, provide monthly bank statements to the World Bank and the PID, and any other informationconsidered necessary. Copies of all transactions would be routinely submittedto the PID; and (h) the bank should be willing to charge reasonable rates for their services and provide reasonableinterest on balances held from time to time. The SA will be opened in a commercial bank on terms and conditions satisfactoryto the Bank no later than December31, 1995 (para 8.1).

5.53 Each city will receive, through the SA, an advance covering an estimated two months of expendituresto cover the purchaseof small items (spare parts, etc.) procured through international shoppingor direct contracting. The amount of the advance will vary with the size of the city, but will not exceed US$50,000.The advance will be deposited in an account of the choice of the city, but preferably in the branch of the bank holding the SA, if such a branch exists. The account will be replenishedon a monthlybasis.

5.54 All disbursementsunder the project, including training and technical assistance, would be made against standard full documentation,except that disbursement for goods and consultants' contracts each valued at less than US$50,000 equivalent may be claimed under Statementsof Expenditures(SOEs) with related documentationretained by MOT for review by World Bank supervisionmissions and independentauditors. During negotiations, it was agreed that MOF will submit to the World Bank the auditors' report and audited financial statements for the SA and SOEs for the preceding calendar year, audited by an independentaccountant acceptable to the World Bank, by June 30 of each year.

5.55 Conditionsof disbursementare: (i) any disbursementsfor expendituresincurred by the Project cities are conditionalupon effectivenessof the SubsidiaryLoan Agreementsbetween MOF and the cities; (ii) any disbursements for the National Spare Parts component are conditional upon effectiveness of the Subsidiary Loan Agreement between MOF and Avtosnabsbyt. Essential procurement and project managementservices would be eligible for retroactive financing under the loan, not to exceed in total US$1.5 million. 64 Chapter V

I. REPORTING, ACCOUNTING,AUDMING AND PROJECT SUPERVISION

5.56 The accountingfor all SA transactionsand for all other project-relatedaccounts will be maintainedin accordancewith internationalaccounting standards. An appropriateaccounting and control system should be operational when project execution begins. Annual financial statements of Bank-financed components will be prepared and audited in accordance with InternationalAuditing Guidelinesby suitably qualified independentauditors acceptable to the Bank. Audits will also be carried out, at the same time, and for corresponding periods, in accordancewith Bank guidelines,for SOEs against which disbursementshave been made or are due to be made out of the credit proceeds, and specific reference will be made in the audit reports accompanyingthe financialstatements. Auditing of urban transport companies' accounts will pay particular attention to cost recovery ratios. Auditors acceptable to the Bank will be retained by MOF to review the accounting systems and supporting internal procedures and practices for the special and loan-related accounts and SOEs, and recommend any needed changes which would be implementedafter Bank agreementnot later than six monthsafter loan effectiveness(this arrangement would allow for three months' operation of the accounts).

5.57 Semi-annualprogress reports covering all project componentswill be prepared by the project cities and MOT, and sent to the Bank within one month after the end of each six month period. These reports will include: (a) progress achievedagainst agreed implementation and disbursementschedules, includingnumber of contracts for goods and vehicle rehabilitation works awarded, number of buses and quantity of spare parts delivered, number of urban transport vehiclesrehabilitated, and project monitorabletargets and performanceindicators, and (b) work programs and cost estimates for the coming six months and for the total project. The main purpose of the reports will be to provide managers timely and updated information on implementationof project components,highlighting issues and problem areas, recommending actions and commentingon progress in resolvingprevious recommendations.Upon completion of the project, MOT and the project cities will also prepare an evaluationreport on the project's execution.

5.58 One of the tasks of the PA is to assist with the supervisionand monitoring of the project. The PA will be responsible for obtaining from the cities all data relating to the implementationof the reform program (including financial statements and details of transit operations), evaluatingsuch data, and giving advice and assistancewhen necessaryto the cities. If additional assistance is required for any particular city, the PA will be able to call on the assistance of his company to provide several staff-monthsof specific urban transport services. The PA will also help direct the consultantsresponsible for assisting the project cities' transport regulatory authorities and urban transport companies. The data and evaluationprovided by the PA will be used by Bank supervision missions to evaluate the implementationof the reform program and progress on all areas of urban transit operations. As well as the PLW, there will be two supervision missions in FY96, three supervision missions in FY97, two in FY98, and one in FY99: each mission will be for about three to four weeks. Most missions would be staffed by an urban transport specialistand an economist/financialanalyst, plus other specialists such as an institutional analyst, procurement expert, vehicle maintenance specialist, training expert, or transport industry specialist. Missions would review the physical componentsof the project and implementation of reform programs including all the institutional and policy Chapter V 65 developmentmeasures proposed under the project and agree on remedialmeasures. The mission reviews would be done in the context of agreed targets. Each city could be visited twice a year with a different staff specialisteach time. Supervisionbetween missions will be assisted by the infrastructurespecialist in the Bank's ResidentMission. Details of the supervisionplan are given in Annex 5.15.

5.59 During the mid-term review and annual project review (para 5.35), evidence of progress with implementationof the agreed reform program would be provided by the project cities. Part of the TOR of the consultantsproviding technicalassistance to the project cities will be to assist the project companies with the collection of relevant urban transport data and progress with implementationof the reform program. The forwarding of such informationby the project cities to the PID on a quarterly basis will be a conditionof the onlendingagreement.

J. ENvIRONMENTAL IMPACT

5.60 The Bank determinedthat the project requires a "category B" rating, as defined in the Bank's Operational Directive on Environmental Assessment (OD 4.01), since it is not expectedto have any significantnegative environmental impact. Backgroundinformation as well as technical details of the project's environmentalassessment are presented in Annex 5.16.

5.61 Crucial environmentalissues that are related to the transportationsector in general and are not urban public transport specific (such as institutional and legal framework for environmental standards enforcement at federal, regional and local level of government in Russia, system of economic incentivesfor environmentallysound transport operations)are not within the scope of the project, since these issues are specificallyaddressed in two other Bank projects in Russia. The EnvironmentalManagement Project ([Ln. 3806-RU] US$110 million) focuses on the improvementof overall institutionaland regulatory frameworkof environmental managementthroughout various sectors of economy and levels of government. The Highway Rehabilitationand MaintenanceProject ([Ln. 3706-RU] US$300 million) has a US$5 million component designedto provide technical assistanceto the Ministry of Transport of the Russian Federation in improvinglegal and organizationalframework of the nation's transport sector in the face of economic transitionand environmentalconstraints. To this end, the environmental assessment of the Urban Transport Project is building upon and complementing the aforementionedefforts and only touches upon a limited number of transportationsector areas of environmentalconcern, namely automotiveair pollution and solid and liquid waste disposal by transit companies.

5.62 AutomotiveUrban Air Pollution.The new diesel-poweredbuses to be financedunder the project will have engines that shall be certified in conformance with one of the following emissions standards for heavy-duty engines: UN Economic Commission for Europe (ECE), EURO-1, and will be less polluting than the gasoline-poweredbuses in operation today. Moreover, starting from 1994 all models of motor vehicles manufacturedand imported in the Russian Federation are subject to environmentalcertification in direct accordancewith the UN ECE RegulationsNo. 82, 24, 40, 47, 49, and 15 (these new rules have been introduced in March 31, 1993 by the Ordinanceof the RF State Committeefor Standards). 66 Chapter V

5.63 Replacementof the bus fleet and changes in its compositionwould not have a major effect on the overallaverage level of atmosphericpollution in the 14 project cities. For example, Omsk, Yekaterinburg,and Samara are includedin the Government'slist of 43 Russiancities that experiencescritically high level of air pollution generated predominantlyby stationarysources (heavyindustry). Moreover, accordingto Russia's nationwideestimates, buses in 1992accounted for only 7.2 percent of transportemissions of sulphurdioxide (SO2)and 10.8 percent of nitrous dioxide (NO2), the bulk of these pollutantsbeing generatedby trucks (up to 88 percent). A more important effect of the project would be manifestedthrough significant reductions in carbon monoxide(CO) and hydrocarbon (HC) emissions (23.8 percent of transport's total) and lower peak concentrationsof these pollutants in traffic congestedurban areas, which now account for up to 50 percent of the carbon emissionsin the project cities (especiallysmaller ones) and some 80-90 percent of the total atmosphericpollution by buses. Current compositionof atmospheric pollution generated by urban transport companiesin the project cities is shown in Annex 5.16, Table 1, with Novgorod being different from a typical situation for its 100 percent diesel- engined fleet of Ikarus buses. Implicationsof reductionsin the S02 emissions can be assessed through the NIIAT analysisof the sulfurcontent and other characteristicsof diesel fuels supplied to the project cities by several oil refineries in Russia (sulfur content ranging from 0.01 percent in Nizhniy Novgorod to 0.6 percent in Velikie Luki, and resin content from 10 to 40 mg/lOOcm3, with a tendency to increase for winter brands of fuel as opposed to summer ones). Gharacteristics of these fuels (Annex 5.16, Table 3) will be accounted for in technical specificationsfor diesel engines for the buses to be procured under the project. Suppliers will be requested to furnish recommendationsfor proper maintenanceof the engine when operating on diesel fuels available in Russia, so that engine performance and durability are not reduced.

5.64 Since transport air pollution statistics at the local (city, enterprise) levels in Russia are heavily based on fuel consumptionfigures and more direct measurementtechniques are not yet adequatelyavailable, fuel economydata from transport companieswill be used as an easily monitorableenvironmental performance indicator throughout the project implementationperiod, which would enable to assess reductionsin total emissionsof specific substancesto be assessed (provided the vehicle model-specificexhaust characteristicsand fuel compositionare known variables). Taking into account that a generic new bus in Russia typically consumes 10 to 15 percent less fuel (gasoline or diesel) per 100 km than an eight year-old bus of the same make and model, and that urban buses with diesel engines consume 16-18 percent less fuel that the ones with gasoline engines, Bank-financedbuses will be considerablymore fuel efficient than the present fleet of buses in Russia, providingan estimatedeconomy of 680 tons of fuel per year for a typically-sizedcity like Kostroma (281,000 residents, 187 city route buses), or as much as 20,000-30,000 tons of fuel per year for all 14 candidate project cities.

5.65 Noise Reduction and Waste Disposal. Urban transport is known to be the major source of audible noise in all cities, independentof their size. Motor vehicles not only account for 80 percent of all zones of acoustic discomfortin cities (an average of 30 percent of Russia's urban populationlives in such zones of acousticdiscomfort), but also cause peak supernormative levels of noise in residentialareas (5-35 dBA above normative).New transit vehicles would also be less noisy (maximumexternal noise should not exceed 86 dBA as measured 15 meters from the vehicle). In addition, the rehabilitationand spare parts for repairs to be financed under the project will help improve vehicle maintenance, which will lead to reduced levels of noise of Chapter V 67 operating vehicles (including, in particularly, trolleybuses and trams). Another sizeable by- product of urban transportoperations is the accumulationof recyclable(ferrous and non-ferrous metals) and non-recyclablewastes (rubber, petroleum products, oil, paint, etc.). To support and/or enhance remedialactivities towards this end, assistancewould be provided to the project transit companiesto suggest methodsof limitingharmful effects of the disposalof non-recyclable engine fluids and old tires (as a routine garage maintenance component of the vehicle rehabilitationtechnical assistanceprogram, Annex 5.5).

5.66 Yet another likely impact of the project that benefits the urban environment and health of the cities is expected to be caused by a decrease in the peak-hour overcrowdingof transit vehicles (currently up to 14 passengers per m2). This overcrowding, according to city officials, is one of the significant factors spreading respiratory diseases among the daily commutingworking population and high rate of sick leave during the cold seasons. Such an impact, though, cannot be easily quantifiedbecause of the lack of reliable medical statistics.

STAFF APPRAISAL REPORT

RUSSIAN FEDERATION URBAN TRANSPORT PROJECT

VI. FINANCIALEVALUATION OF PROJECT CITIES AND THEIR URBAN TRANSPORTCOMPANIES

6.1 The project will provide urban transport companiesin the project cities with 2,154 new buses (of which the Bank will finance 1,501) and 509 trolleybuses (of which the Bank will finance 272), spare parts to repair 997 buses, 327 trolleybuses, and 380 trams as well as technical assistance, workshop and computer equipment and a fare collection system for Vologda.

6.2 Becauseurban transport companies' revenuesare not expected to exceed operating expenses in any of the project cities, the financialrate of return on the project's investmentsis negative in every case. Cost recovery ranged from 3 percent to 52 percent in the first quarter and from 8 percent to 65 percent in the secondquarter of 1994 for the candidatecities. Although improvementto at least 25 percent has been attained by all transit companies included in the project, this still represents a substantial net loss for each company. Therefore, no effort was made to try to calculate the financialrate of return for the project. Further, no attempt has been made to assess the financial return on the national spare parts componentas it is impossibleto determine a priori the end users of the spares to be purchased or whether they will be used to rehabilitate out-of-service buses or to keep vehicles operational on a daily basis. Instead, financialevaluation of the project has focused on three main issues:

- FinancialEvaluation of the Urban TransportCompanies to assess the present and projected financialperformance of the project cities' urban transport companies with a view towardassessing the need for, and ability to implement, tariff increases, reductionsin exemptionsand other actions central to the attainmentof the project's cost recovery targets;

* FinancialEvaluation of the MunicipalBudgets in the Project Cities to ascertain the degree to which these budgets are currently subsidizingtransport losses and the likelihoodthat city budgetscan realisticallyabsorb repaymentof a Bank loan for the purchase of new urban transport vehicles and related investmentsincluded in the project; and

* Relationshipof Fares to the Incomesof Urban TransportPassengers to assess the current affordability of fares for urban transport passengers and estimate the scope for increasing the urban transport share of an average wage earner's salary or average household's budget expenditure. 70 Chapter VI

A. URBAN TRANSPORT COMPANIES IN THE PROJECT CITIES

6.3 Financial evaluation was carried out using financial statements for each urban transport company for 1992, 1993, and the first quarter of 1994 and then forecasting revenues and expenses for each company based on the stated intentions of each candidate city to implement real increases in fares, projected passenger demand and operating practices. The projections were based on constant first quarter 1994 ruble prices. Actual and projected cost recovery ratios were calculated for each urban transport company for the 1992-1994 period. Sensitivity analyses were undertaken with respect to assumptions regarding fuel prices, tariff increases, timing of tariff increases compared to inflation, and the degree to which city governments and operating companies are able to rescind legally mandated fare exemptions. Subsequently, candidate cities provided financial data for the second quarter 1994 but these data were used only to determine compliance with cost recovery. Specific assumptions used in the analysis and a summary of the results are discussed below. The data discussed here are contained in the Project File.

6.4 Revenues. The companies' future revenues were based on existing demand figures, except where a case for significant changes could be made, and fare levels based on each city's intention to increase fares. The political climate for raising real fares and improving cost recovery will be far greater with the project since service levels will be improved in many cases and maintained in other.

6.5 Expenses. On the cost side, the companies' future costs were based on existing costs adjusted for projected average vehicle operating costs for newer, more reliable, buses purchased through the project. Fuel costs, for example, should be lower since new buses and rehabilitated buses put back in service with new engines and transmissions will be significantly more fuel- efficient than the old buses. Other cost savings will result from savings in spare part usage and labor costs for maintenance as a newer fleet should have fewer breakdowns and better performance than the existing fleet. On the other hand, total costs may increase as the number of vehicles operated increases; in some instances, operational expansion may necessitate the hiring of additional drivers and/or mechanics to service additions to the fleet.

6.6 Results - Cost Recovery. The forecasted operating results are contained in the Project File together with greater details about the assumptions used in each project city. In every case, as expected, the cities project financial losses to continue. The exercise was undertaken, however, to help cities appreciate the need to increase tariffs and to consider the relationship between the timing of cost increases and tariff increases. Since doing so, cities have come to better understand the need to track and improve cost recovery ratios and have made concentrated efforts to reverse the decline from 1992 to 1993. Table 6.1 shows the cost recovery ratios for 1992, 1993, the first two quarters of 1994, and the month of January 1995. These results should be c6mpared against the targets for cost recovery as agreed in the reform program, including at least 20 percent by first quarter 1994 and 25 percent by negotiations. As shown therein, except for Omsk's tram company (which was excluded from the project), the transit companies in fourteen cities achieved a cost recovery of at least 25 percent by July 1994. The cost recovery target of 40 percent set for March 31, 1996 in the reform program has reportedly been met by nine of the cities for bus operations. Even the target of 50 percent cost recovery set for the end Chapter VI 71

Table 6.1: TRANSITCOMPANY COST RECOVERY (percent)

1994 (First 1994 (Second July January 1992 1993 Quarter Quarter 1994 1995 (Actual) (Actual) Actual) Actual) Actual Actual d Cherepovets Bus n.a. 33 52 65 89 90 Kostroma Bus 11 20 20 34 n.a. 35 Trolleybus 29 20 21 34 n.a. n.a. Kursk Bus 15 12' n.a. n.a. n.a. n.a. Trolleybus and n.a. 9' n.a. n.a. n.a. n.a. Tram Nizhniy Bus 26 13 13 25 n.a. 47 Novgorod Trolleybus & tram 10 5 3 8 25 37 Novgorod Bus 24 21 24 45 61 70 Omsk Bus 29 18 22 26 35 46 Trolleybus 12 8 18 19 33 40 Tram 11 6 13 16 20 n.a. Pskov Bus 26 14 14 37 n.a. 80 Rostov-on- Bus 8 6' lob 32 n.a. 40 Don Trolleybus & tram 12 9 job 26 n.a. n.a. Samara Bus 19 8 25 30 n.a. n.a. Trolleybus 15 10 45 60 n.a. n.a. Tram 15 8 34 45 n.a. n.a. Saransk Bus 10 9 24 28 n.a. 38 Trolleybus 14 11 30 25 n.a. 43 Smolensk Bus 40 19 28 43 n.a. 32 Trolleybus 50 19 19 29 n.a. < 30 Tram 50 18 21 29 n.a. < 30 Tver Bus 25 15 13 43 66 45 Trolleybus & tram 30 11 lob 3lb 43b n.a. Tram 9c 28c 31c n.a. Velikie Luki Bus 33 22 26 51 26 over 40 Vologda Bus 22 20 33 44 n.a. over 40 I Trolleybus 26 20 29 51 n.a. over 40 Yekaterinburg Bus 14 11' 13 27 n.a. n.a. Trolleybus & tram 21 10' 18' 35b n.a. n.a. Tram 15c 29c n.a. n.a. a. Reflects retrospective application of assumption reforms for first quarter; first quarter at appraisal were 7.5%, 10.3% and 8.4% for bus, trolleybus and tram, respectively. b. Trolleybus only. c. Tram only. d. Cost recovery ratios given by the transit companies during negotiations, but not verified by the Bank. n.a. = not available. 72 Chapter VI

of the project already has been met by three cities' bus companies. The project cities have undertaken to achieve 40 percent cost recovery for the six months prior to signing of the contract for buses and trolleybuses. Those cities that do not achieve this ratio will only receive buses to meet 1995 and 1996 needs: the procurement of buses to meet 1997 needs will be delayed until the 40 percent cost recovery target included in the Subsidiary Loan Agreement (March 31, 1996) has been met.

B. SENs1Tvr ANALYSESOF URBAN TRANSPORT COMPANYFINANCIAL FORECASTS

6.7 Tariff Increases. Sensitivity analysis of the projections indicates that the most significant factor in achieving the revenue targets is the timeliness of the rate increases needed to cover cost increases due to inflation. In an inflationary environment of 15 percent per month, a lag of one month can reduce cost recovery ratios significantly. Using 1993 figures, a lag of one month would have reduced the average cost recovery ratio from 11.8 percent to 10.3 percent; a two month lag would have reduced cost recovery in 1993 to 9.2 percent and a three month lag at 15 percent per month inflation would have reduced the average cost recovery ratio for 1993 to 7.9 percent on an annual basis. Any real improvement of cost recovery requires a real increase in fares. Experience to date shows that increases have significantly lagged behind cost increases until cities made concerted efforts to reverse the situation in order to quality for the project (Figure 6.1). Even so, even where cities have good intentions to raise fares in real terms very few have managed to do it. Thus, it is important that the project benefits be used to induce the cities to improve cost recovery to the greatest extent possible. To this end, only those cities that met the 25 percent cost recovery criteria by end-July 1994 were included in the project.

Figure 6. 1: INFLATION vs. FARE INCREASES

100.00

12.0

A ; ~Actualfare

7z i/ --- Real fare (adjusted U° t.OO for inflation)- .- tA00

0.10 I Dec-g1 Jul-92 Jau-93 Aug-93 Mar-94 Sep-94 Chapter VI 73

6.8 Fuel Price Increases. Analysis shows that the projects are also sensitive to real increases in fuel prices. The average cost recovery ratio of 12.9 percent in 1993 would have been reduced to 9.7 percent if fuel prices had been at world price levels in 1993 (roughlythree times higher than recorded).

6.9 Reductionof exemptionsis also critical to improvingcost recovery. If the cities do not want to increase real fares as much as necessary, they can improve cost recovery by increasing the number of paying customers. If exemptionswere cut to only 10 percent of riders, the average cost recovery would improve significantly.For example, in Rostov cost recovery in the fourth quarter of 1993 was seven percent but if the company had been reimbursed for exemptions, the cost recovery ratio would have been 15 percent. Where exemptions currently are being reimbursed explicitly, rather than implicitly through general subsidy payments, the reimbursementsshould be considered as revenues and taken into account for purposes of cost recovery calculation.

C. MuNICIPALBUDGETS AND ABILITYTO REPAY LOAN

6.10 Since the project companiescurrently operate at a loss and are likely to continue to operate at a loss throughoutthe life of the loan, it is not possible for these companies to repay either the interest or the principalon any Bank loan aimed at purchasingnew vehiclesand spare parts. Responsibilityfor repaying the loan lies with the city governmentsthat own the project companiesand have contractedfor their services.The abilityof the cities to makeavailable more funds from their budgets if urban transport companiesimproved cost recovery was discussed in Chapter III (paras 3.53-3.65). In the financial evaluationof the project, an analysis was also made of the percent of each cities' budget expenses that would be represented by having to service the debt of the World Bank loan at the agreed lending rate. The calculationwas made by determining the level of annuity needed to repay a loan equal to the amount of investment in new vehicles, spare parts for rehabilitationand workshopequipment at 9.09 percent interest on a 15 year loan with a five year grace period for principal repayments.The result for the expected project cities is shown in Table 6.2. The annuity, as expressed as a percent of the municipalbudgets averages3.0 percent and ranges from 1.0 percent in Nizhniy Novgorod to 7.2 percent for Saransk. Combiningthis debt service with subsidiespaid for urban transport would significantlyraise the percentageof each city's municipalbudget devotedto transport. As shown in the last column of Table 6.2, unless subsidiesare reducedby improvementsin cost recovery, total transport expenses would be from 11.4 percent to 22.1 percent of a project city's budget. There is no way to determine what percentage of any city's budget should be devoted to the support of urban transport. Given other pressures on city budgets, however, it is not recommendedto endorse the extensionof a loan to any city if the result would represent a claim of more than 10 percent on a city's budget. Further, it is recommendedthat the percent of municipalbudget spent on transport operatinglosses and transport capital investmentcombined be kept no higher than 15-20percent. Cost recovery improvement,therefore, is clearly essential to the viability of these cities.

6.11 Representativesfrom MOF, as well as MOT and the cities themselves,were briefed on this analysis during the appraisal mission. In some cases, cities reacted by lowering to a minimumthe number of buses to be financed under the project. Perhaps this analysis enabled 4-

1994 Municipal Annual Debt Service Annual Debt Annual Debt Budget, ...... Service plus Service plus estimated Bank 1994Municipal Total Transit Subsidies(as Subsidies(as City expenditures Loan At Bank rate' At on-lendingrate b Subsidies,estimated % of budget) % of budget)

(USS (USS (US$ % of (USS % of (US$ Percentof At Bank rate' At on-lending million)+______million) million)* Budget million) Budget million)* Budget rate b

Cherepovets 34.86 9.19 1.2 3.4 1.4 4.0 4.54 13.0 16.4 17.0 Kostroma 46.4 13.56 1.7 3.7 2.1 4.5 3.64 7.8 11.5 12.3 Nizhniy Novgorod 247.01 15.26 1.9 0.8 2.4 1.0 34.80 14.1 14.9 15.1 Novgorod 34.83 13.40 1.7 4.9 2.1 6.0 2.97 8.5 13.4 14.5 Omsk 203.16 42.60 5.4 2.7 6.7 3.3 35.52 17.5 20.2 20.8 Pskov 37.62 11.41 1.4 3.7 1.8 4.8 4.05 10.8 14.5 15.6 ii Rostov-on-Don 136.94 36.95 4.7 3.4 5.8 4.2 14.86 10.9 14.3 15.1 Samara 285.40 33.34 4.2 1.5 5.2 1.8 27.36 9.6 11.1 11.4

Saransk 34.86 15.96 2.0 5.7 2.5 7.2 4.54 13.0 18.7 20.2 Ig Smolensk 35.46 11.39 1.4 4.0 1.8 5.1 3.05 8.6 12.6 13.7 Tver 80.33 7.22 0.9 1.1 1.1 1.4 10.47 13.0 14.1 14.4 Velikie Luki 20.04 5.38 0.7 3.5 0.8 4.0 2.5 12.5 16.0 16.5 Vologdae 55.45 11.13 1.4 2.5 1.7 3.1 5.72 10.3 12.8 13.4 W Yekaterinburg 180.46 45.68 5.8 3.2 7.1 3.9 32.9 18.2 21.4 22.1 Total 1,432.82 272.47 34.4 2.4 42.5 3.0 186.92 13.1 15.5 16.1

* Assumes annual average exchange rate of Rb 1,900= US$I a) Estimated by converting principal plus interest to an annuity equal to 12.65 % of loan amount (based on World Bank interest rate of 7.09% for 17 years). b) Estimatedby converting principal plus interest to an annuity equal to 15.64% of loan amount (based on onlending interest rate of 9.09% for 15 years). c) Based on the assumptionthat subsidies currently financed by the oblast will be financed by the municipality in the future.

-I Chapter VI 75

MOF to focus more clearly on the issue of whether or not cities would be in a position to repay the loan. In any case, at the end of the appraisal mission MOF determined that it would not borrow funds for this project for onlendingto any city unless the loan was guaranteedby that city's oblast government.

STAFFAPPRAISAL REPORT

RUSSIANFEDERATION URBAN TRANSPORTPROJECT

VII. ECONOMICANALYSIS AND PROJECT RISKS

A. ECONOMICANALYSIS

7.1 ! General. The poor financialsituation of the urban transport companieshas resulted in a deteriorationin the level of service, meaningincreased waiting times and overcrowdingfor passengers. Without the project, the shortage of public transport capacity and resulting lower level of service will worsen in the cities, resulting in longer waiting times, often in sub-zero temperatures. The breakdown rate (number of vehicles breaking down once they have left the depot) of more than ten percent in six cities means that waiting times can be more than 30 minutes during the peak hour. To avoid waiting, passengersboard already overcrowdedbuses with consequent excessive loads (reportedly up to 14 per square meter passengers in Cherepovets). With the new buses and spare parts to be financed under the project that will enable out-of-servicevehicles to be brought back into service, fleet capacity can be increased so as to reduce overloadingand waiting times.

7.2 Traffic. Unfortunately,there have not been recent passenger surveys to determine trends or make projections of the elasticity of demand for passenger transport. The economic evaluationhas therefore made the conservativeassumption that the demand for bus transport in the 14 project cities will remain constant over the life of the project. Much will depend on the overall economic situationin the country and future economicdevelopment of each city. If there continues to be a major restructuring of the economy, there could be substantially more unemploymentwhich would lead to a lower demand for urban transport. On the other hand, increased unemploymentcould lead to more peak or off-peak travel as people search for work and possibly take on two or more low paying jobs. Changes in policy that are already being implementedin some cities could also reduce the number of passenger trips, such as reducing the number of passengersexempted from paying fares, controllingfare evasion, and increasing fares (in real terms). However, the poor level of service now provided by the urban transport companies may have suppresseddemand during the peak hours, especially given the extent of overcrowded conditions and long waiting times. Lastly, and perhaps most importantly, is the extent to which there will be growth in private car ownership and the resulting impact on the demand for urban transport.

7.3 Fleet Requirements. For the purpose of the project, fleet requirements have been based on a service level of eight passengers/squaremeter during the peak period, a very low level of service by Western standards, but it would appear that service levels were never very high in many of the project cities. Given the poor financial situation of the urban transport companies and the increasing pressure on municipal government budgets, the acquisitionof transport vehicles should be kept to a minimum over the next few years, especially given the 78 Chapter VII vehicles' high capital cost. If demand is lower than projected, then the urban transport companieswill be able to offer a higher level of service than the present minimum standardof eight passengers/sq.m.although they would be unlikelyto attain the generally acceptedwestern industry standard of service of five passengers/sq.m. However, in some cities, the municipal governmenthas decided to provide a higher level of service (six to seven passengers/sq.m.)and are financingthe additional vehicles out of local funds.

7.4 As of 1993, the fourteen project cities had a combined fleet of 6,329 buses, 1,389 trolleybusesand 1,505 trams with an average age of six to seven years for buses in most cities, five to seven years for trolleybuses,and five to ten years for trams. On average, the Russian- made mediumbus has a maximumlife of eight years while the HungarianIkarus 200 series large and articulated buses have a life of eight to ten years. The short life of the buses is due to lack of corrosion prevention which results in the buses quickly rusting away. Fleet size has been diminishing over the last five years and the fleet has been ageing because of the failure to replace vehicles beyond their economiclife. Over the life of the project, about 53 percent of the bus fleets should be written off because they will be beyond their economiclife. As well as new vehicles, the project will also finance rehabilitationof buses, trolleybusesand trams based on the criteria established in Annex 5.2. Details of the project cities' fleets and vehicles to be financed under the project are given in Annex 7.1.

7.5 EconomicAnalysis. The economicanalysis of the project has been carried out in the absence of a transport plan for each city which was one reason for focussing only on replacementneeds and not expansionof the bus, trolleybusor tram systems. Such plans will be carried out as part of the technical assistance to be provided under the project. The economic analysis is based on very approximatedata, not only because there were no detailedpassenger surveys available, but also due to the lack of vehicle maintenancecost and other data.

7.6 An increasing burden has been put on urban transport companiesas their vehicles have reached the end of their economiclife and not been replaced. The ageing fleet, plus lack of funds for vehicle maintenanceand unavailabilityof spare parts for Russian-manufactured vehicles has led to declining availabilityrates for buses, trolleybusesand trams. The result has been a deteriorationin service levels with increasingwaiting times and excessiveovercrowding. In the economicanalysis, the withoutproject case has assumed that the low level of expenditures on vehicles would continue for the first few years of the project, and that from 1995 to 1998 the cities would only be able to replace about forty to fifty percent of their vehiclesas they reached the end of their economiclife (however, they would not be able to catch up with the backlog of replacement needs in 1993). Consequently, the size of the existing fleet would continue to decrease, with the result that waiting times and overcrowding would continue to increase (although in some cities they have reached the maximum capacity on many routes so that any further decline in service levels would have the most impact on passenger waiting time). After 1998, it was assumed that cities would be in a better financial position, following generally improved economic conditions in Russia, to replace their fleet and increase expenditure on maintenanceuntil all replacementand maintenanceneeds were met.

7.7 The economic analysis assumed that with the project, new buses and trolleybuses and rehabilitationof buses, trolleybuses and trams financed under the project would result in Chapter VII 79 greatly improved service levels. Fleet size could be reduced in some cases becauseof the lower reserve capacity required for the new vehicles compared to the old and lower quality fleet of existing vehicles. Buses, trolleybuses and trams would be rehabilitatedapproximately halfway through their normal working life and once they had been rehabilitatedtheir effectiveutilization would increase substantially. The economic evaluationcompared the capital cost of the new vehicles and rehabilitation, plus the extra operating and maintenance costs of the new and rehabilitated buses, with the benefits resulting from passenger time savings followingthe more frequent service. Without the project, maintenanceand operating costs would be lower for the present fleet because of the lower vehicle kilometrage, low vehicle availability, and current practice of cannibalizingold vehicles for spare parts and making spare parts in the workshops (often leading to higher breakdown rates) because of the lack of funds for spare parts.

7.8 The ERR for new buses varies from 14 percent in Yekaterinburgto 36 percent in Tver, and for the total bus component, including rehabilitation, from 20 percent in Yekaterinburgto 58 percent in Cherepovets.New trolleybusesare estimatedto have an ERR of 14 percent in Saransk to 36 percent in Yekaterinburg,and the total trolleybus component, including rehabilitation, ranges from 23 percent to 75 percent. Rehabilitation only for trolleybuses and for trams has an ERR of over 100 percent. The ERR for all new vehicles and rehabilitationfor the 14 project cities was 39 percent. To test the sensitivityof the economic analysis, ERRs were estimatedusing differentassumptions about waiting time, and value of time for each city; a 20 percent decrease in either one would result in ERRs ranging from 13-26 percent for buses and 10-26percent for trolleybuses.The ERR for all the cities would be about 16 percent. For some cities, the results are quite sensitiveto changes in key variables; therefore the economicevaluation has assumed quite conservativevalues for most of the key variables in the base case. The lowest estimate of waiting times has been taken plus a conservativeestimate of the value of time. The latter is obviously more difficult to determine, especially in times of economicadjustment and sharply falling exchangerates. The sensitivityof the ERR to changes in key variables demonstrates the importance of improving the quality of data collection, especially regarding the number of passengers, waiting time, and maintenancecosts.

7.9 It was found that the rate of return varied significantlydepending upon the number of additional buses purchased. The marginal return on additional buses fell steadily as more buses were purchased. This is becausethe proportionatesavings in waiting time from addingan additional vehicle to the fleet becomes less as more vehicles are purchased. Not surprisingly, the estimated ERRs are generally highest for those cities where the observed waiting time is highest. In a number of those cities in 1993 the estimatedpeak hour average waiting time was 15 minutes which would in some cases, increase to 20 to 30 minutesby 1998. With the project, the average peak hour waiting times for these cities in 1998 was estimated to decline 10 to 15 minutes (so as to reduce the size of the Bank loan, a few cities have elected not to have Bank financingfor all their fleet replacementwith the result that waiting times will not decrease as much as for other cities which use Bank financingto meet all their replacementneeds during the project period). Waiting times could be even higher were it not for the cold climate, since passengers struggle to board buses rather than wait in sub-zero weather conditions. Becauseof the problem with quantifying benefits, the economic evaluation does not include the benefits from reducing the present severe overcrowdingof buses, althoughthis is a major benefit of the 80 ChapterVII project. Assumptions used in the economic analysis and the ERRs for individual cities are included in Annex 7.1.

7.10 The project also includes a national component for spare parts to be distributed to bus, trolleybus and tram companies throughout Russia. The spare parts will help put back serviceabletransport vehicles into operation that would otherwise be left idle because project companieswill not have sufficientfunds to purchasespare parts or because spares are not locally available. Given that the project companieswhich are going to purchase the spares will not be known until project implementation, it is difficult to estimate an ERR for the component. However, an indication of the ERR for this component has been obtained by evaluating the economic benefits of rehabilitationof vehicles, estimated at over 100 percent.

7.11 Other benefitsthat have not been quantifiedinclude important organizational reforms that will be carried out, including: (i) establishmentof autonomous urban transport agencies completely separate from the oblast or municipalgovernments; (ii) municipalgovernments and urban transport companies entering into contracts to set performance targets and encourage greaterefficiency for the provisionof transportservices; (iii) municipalitiesestablishing transport departmentsto regulate transport services; (iv) the introductionof private transport services, and (v) divestitureof non-urbantransport servicesand taxi servicesfrom municipalownership. These improvementsare expectedto contribute significantlyto reducing the cost of passengertransport in the projectcities, althoughsuch costs are difficultto quantifyand therefore cannot be included in the estimate of the economic rate of return of the project.

B. PROJECTRISKS

7.12 A major risk of the projectis that the proposedreforms, especially the cost recovery reforms, will not be implementedas promised. If these reforms are not implemented,the new buses and spare parts financed under the loan would only give temporary relief. Availability rates of vehicles would once again decline because of the lack of spare parts and fleet replacement, and vehicle maintenance costs would increase because of the ageing fleet. Therefore, the project included cost recovery (25 percent by negotiations)and organizational reform conditionalityas a pre-requisite for cities to be included in the project, and further cost recovery (40 percent) and organizationalreforms to be carried out by the cities by March of 1996.However, during negotiationsmost cities reported that they had already met the 40 percent cost recovery target and that all intendedto meet the target for the remainder of 1995. Once the companiesreceive the new buses and trolleybusesthey should be able to increase cost recovery even more with the substantiallyimproved level of service. The successof the project cities with improvingcost recovery has demonstratedto other cities in Russia that it is possibleto undertake such reforms and lessen the heavyburden of urban transport subsidiesand there is evidencethat other cities want to follow the example of the project cites. Given the enormous adjustments required to go from a centrally plannedeconomy which gave little considerationto cost recovery to a market economy involving the commercializationof public sector enterprises, even if only two thirds of the cities maintainthe objectivesof the reform program the project should still be regarded as a success. Chapter VII 81

7.13 Another risk is that once the project is completedthe urban transportcompanies will still not have sufficientfunds for the purchase of spare parts and replacementof the fleet, even with improvedcost recovery achievedunder the project. Project companieswill have to compete with other priority sectorsto secureadequate subsidies from local governmentwhich could come under increasing financial pressure over the next few years. Given the uncertainty over future levels of funding, the project will: (a) set a target of 50 percent cost recovery by the end of the project, (b) require the introductionof contracts between the municipalgovernment and project companiesguaranteeing payment of subsidiesbased on performancestandards; and (c) introduce privatization of urban transport services to reduce public funding requirements. Despite these resources, there is still a risk of under-fundingby municipalgovernments making it even more urgent for the cities to continue to improve cost recovery and reduce reliance on the local governmentfor subsidiesonce the project is completed.

7.14 A third risk is that there will be delays in project execution. To reduce this risk, bidding documents for the major components of the project already have been prepared and substantiallyagreed. The Governmentwishes to go out to bid for the buses and trolleybusesas soon as possible, so as to have the contracts ready to award right after loan effectiveness.

7.15 A fourth risk is that cities will not purchasethe spare parts to be financed under the national spare parts component since the parts are to be sold at their purchase price plus mark- up. MOT will onlend to the distributioncenter, thereby encouragingthe center to keep its costs to a minimum. The center will have one year to repay MOT after delivery of the spare parts and will auction off any remainingparts at the end of the year. The procurementof the spare parts will be divided into two packages of US$25 million, and the secondprocurement will not start until MOF has been reimbursedby the distributioncompany for the spare parts purchased under the first procurement.

7.16 A final risk is that the investmentcomponents, especially the new vehicles, could cost more than originally estimated. However, there have been two recent bids for buses financed by the Bank upon which to base the cost estimates. During negotiations, the Government also agreed that the second procurement of the national spare parts would be delayed until the contracts for the new vehicles had been signed and it is evident that there are sufficientfunds for the vehicles in the project. If not, the Governmentwould have to assess the relative priority of new vehiclesagainst the national spare parts componentand possibly request reallocationof funds from the national spare parts componentfor the higher than estimatedcost of the new vehicles.

STAFFAPPRAISAL REPORT

RuSSIAN FEDERATION URBAN TRANSPORTPROJECT

VIII. AGREEMENTS AND RECOMMENDATION

AgreementsReached

8.1 During negotiationsagreement was reached on the following:

(a) Government will determine the effect of fare exemptions for passengers on the financial viability of urban transport companiesand, based on the results of such assessment,shall undertakemeasures, includingthose at the federal level, aimed at reducing exemptions and increasing the cost recovery ratio of urban transport companies (para 3.32).

(b) Specificationsfor new vehiclesto be financedunder the loan will be agreed by the Bank (para 5.14).

(c) The number of new vehicles, vehicles to be rehabilitated,amount for workshopand other equipment,and technicalassistance for each project city to be financedunder the loan (para 5.24).

(d) Maintenance of the Urban Transport Project Coordinating Council and the PID within MOT, responsibilitiesof the Council and the PID, adequate staffing of the PID, and retention of a PD with qualificationsand experience satisfactory to the Bank (para 5.27).

(e) Onlending to project cities, with the oblast governmentsas guarantors of the sub- loans, and Avtosnabsbyt, under terms and conditions acceptable to the Bank, including the conditionsgiven in paras 8.3 and 8.4. The Government will ensure that all the project cities and Avtosnabsbytperform all their obligationsset forth in the Subsidiary Loan Agreements(para 5.33).

(f) Scope and timing of project mid-term review (para 5.35).

(g) By December 31, 1995 opening of a Special Account in a commercial bank on terms and conditionsacceptable to the Bank (para 5.52).

(h) Auditing and accountingrequirements (para 5.56). 84 ChapterVIII

Conditions of Disbursement

8.2 Conditions of disbursement are:

(a) Any disbursements for expenditures incurred by the project cities are conditional upon effectiveness of the Subsidiary Loan Agreements (para 5.55).

(b) Any disbursements for the National Spare Parts component are conditional upon the signing of a subsidiary loan agreement between the Government and Avtosnabsbyt and legal confirmation that it is legally binding upon Avtosnabsbyt (para 5.55).

A PPF of US$0.75 million (para 5.30) and retroactive financing not to exceed US$1.5 million (para 5.55) have been included in the loan in order to finance essential procurement and project management services.

Subsidiary Loan Agreements

8.3 The Government agreed to include the following conditions in the Subsidiary Loan Agreements with the project cities:

e The project city will inform the Bank about any investment project for its transport system which significantly affects the municipality's financial situation and will inform the Bank about the results of feasibility studies in order to enable the Bank to provide its opinion regarding the project (para 3.40).

* The project city will cause the participating transport companies to achieve, by December 1, 1995, a minimum 35 percent cost recovery for the previous six months and by March 31, 1996, a 40 percent cost recovery for the previous six months (para 3.42).

* By December 31, 1995, the project city will complete the separation of city bus operations from inter-city bus operations (para 3.42).

* By June 1, 1996, the project city will adopt action plans, agreed with the Bank, to introduce contractual arrangements aiming at improving operating efficiencies of transport companies, reducing their costs and the overall level of subsidies provided to them by local governments (para 3.42).

* By June 30, 1997, the project city will have completed an analysis of the least-cost mode of urban transport (para 3.42).

* The project city will take measures to support the provision of transport services by private individuals or companies, to encourage wider provision of urban transport services (para 3.42). Chapter VIII 85

* By September 1, 1996, the project city will prepare plans for contracts with entities other than the project companies to provide urban transport services or auxiliary services (para 3.42).

* An onlending rate for each subloanto the 14 project cities of 200 basis points above the Bank lending rate. The subloansare to be repaid to MOF over a period of 15 years inclusive of a five years' grace period. The foreign exchange risk is to be borne by the project cities (para 5.32).

The project monitorabletargets (Annex 5.12) will also be included in each of the project cities' Subsidiary Loan Agreements with the Government,including the target to reduce fare evasion to ten percent of passengersby June 1996 and to seven percent by June 1998 (para 3.42).

8.4 The Governmentagreed to include the followingconditions in the SubsidiaryLoan Agreement with Avtosnabsbyt:

* An onlending rate for the subloan to Avtosnabsbytof 250 basis points above the Bank lending rate with a one year loan maturity, and foreign exchange risk to be borne by Avtosnabsbyt(para 5.33).

* There will be two bidding packages of up to US$25 million each. No bids for the second procurementof spare parts under the national spare parts program shall be invited until the proceedsadvanced to Avtosnabsbytfor the first procurementhave been fully repaid to MOF (para 5.44).

X Avtosnabsbytcharges prices based on commercialprices for the spare parts (para 5.44).

8.5 The Bank has formally acknowledgedDeclarations of Commitmentsigned by each city detailing the numbers of vehicles to be purchased under the project, vehicles to be rehabilitatedand other componentsand the reform program to be implementedby each city. The requirement that urban transport entities attain a 25 percent cost recovery by negotiationshas been fulfilled by the entities included in the project (para 6.6). Each participatingcity's oblast government has agreed to guarantee the subsidiary loan (para 5.32). Conditions of loan effectivenessare (i) that the PID have signed a contract with a firm or firms to provide project management and procurement services (para 5.30); and (ii) signing of the Subsidiary Loan Agreements by at least five project city governments(para 5.33).

8.6 Subject to agreementon the above, the Urban Transport Project is suitablefor a loan of US$329 million equivalentto the RussianFederation at the standardvariable interest rate, for a term of 17 years includinga grace period of five years. r ANNEXES

No. of Length Pass. per No. of No. of Average Staff Rat;os per Opeting Vehicle Non- Of Year Pass. per Paus. Trip Pass-km Average Revenue l'opubtinn Netwoi (million) Day during Peak Distance per day Maint. Adm & Speed of Milea City (000) (km) 1993 (000) Hours (kn) (000) Toal Drivers Staff Support Vehicles (M)

...... BUSES

Cbheepovds 318 138 120.9 331.2 29,000 5.6 2,184.0 5.4 2.0 1.1 2.4 n.a. 11.0

Koaztroma 281 230 95.9 303.3 42,467 5.7 1,729.0 3.7 1.8 0.7 1.2 16.4 8.6 Kursk 438 336 139.8 383.0 38,000 8.5 991.0 5.1 2.6 1.4 1.1 18.7 3.0 q

Nizhniy 1,451 1,420 420.5 1,401.7 196,235 6.6 9,293.1 3.8 1.7 1.4 0.7 20.0 7.0 Novgorod C

Novgorod 265 312 145.0 397.0 46,000 4.7 1,314.0 4.3 2.5 1.1 0.6 18.7 5.1 9 Omsk 1,161 1,622 663.6 2,212.0 191,118 3.9 8,582.6 4.0 2.0 0.8 1.2 18.0 1.0 L I Pskov 208 166 108.4 297.0 41,000 4.3 1,187.0 4.3 2.3 1.4 0.2 16.5 6.4

RatOVs 1,100 986 282.3 941.1 80,694 3.8 3,604.3 4.1 2.1 1.2 0.8 18.5 5.0 Y Don

Samara 1,275 273 391.8 1,073.4 107,000. * n.a. n.a. 2.2 1.1 0.8 0.3 17.0 8.3

SaranaSk 349 n.a. 63.9 175.0 23,178 4.4 777.0 3.3 1.9 0.9 0.5 18.3 7.0

Smolensk 352 784 53.0 176.7 22,325 4.4 777.4 5.3 2.0 2.3 1.0 17.9 5.0 b

Tver 459 425 100.0 274.0 22,000 4.6 1,263.0 4.6 1.8 1.9 0.9 17.1 n.a.

Velikie 116 195 37.5 124.8 11,600 4.0 502.1 3.7 1.8 0.8 1.1 n.a. 8.6 Luki

Vologda 286 234 69.8 225.0 20,000 3.2 720.0 n.a. 2.0 n.a. n.a. 17.5 7.7

Yelkterin- 1,420 446 362.4 992.0 100,000. ' 6.1 6,036.0 3.9 1.5 1.5 0.9 17.9 5.0 burg n.a. = not available. Pass. = passengers. a = Very SPproximateestimate because of lack of dta. 00 00 No. of Pass. per No. of No. of Averae Staff Ratdosper Operating Vehicle Length of Year Pass. per Pass. Trip Pass-km ...... Averae Population Network (maiflion) Day during Peak Distance per day Maint. Adm & Speed of Non-Revenue city (00) (kmn) I99 (000) Hours (kcm) (000) Total Drivers Staff support Vehicles MEieae (%)

Kostoma 281 62 60.5 201.5 28,216 2.7 544.2 7.3 2.9 3.2 1.3 15.3 0 Kursk 438 64 54.3 149.0 15,000 9.7 357.0 5.2 2.6 1.4 1.2 17.3 0 Nizhniy 1,451 345 169.5 571.7 80,045 2.8 1,583.7 5.6 1.6 2.3 1.7 17.4 7.9 Novgorod

OnIsk 1,161 174 106.8 356.0 32,395 3.7 1,313.6 4.7 1.8 1.2 1.7 18.0 6.0

Rostoy-on-Don 1,100 264 173.9 579.6 50,925 2.5 1,454.7 6.2 1.7 2.0 2.5 16.2 5.o

SamAra 1,275 91 257.3 705.0 70,000.* 3.6 2,530.0 5.7 1.4 3.4 0.9 17.1 9.5 Saranik 349 n.a. 78.6 215.0 22,310 3.9 842.0 5.6 1.9 1.0 2.7 17.7 4.5 Smolensk 352 28 12.5 41.7 4,911 2.3 95.8 5.4 1.3 2.0 2.1 12.8 1.0 Tver 459 188 75.0 205.0 n.a. 3.14 645.2 8.1 2.9 1.5 3.7 e.g. e.g. Vologda 286 36 78.4 215.0 17,200 2.9 623.0 na.. 2.8 n.a. na.. 15.2 0.2

Yekaterinburg 1,420 65 175.0 480.0 48, 000.* 3.0 1,438.0 6.8 2.2 2.7 1.9 16.3 n.s.

Cherepovfts 318 13 34.2 93.7 n.a. 5.5 515.0 na.& n.a. n.a. n.s. n.a. 0.2 Kursk 438 102 72.9 199. 20,000 12.8 480.0 11.5 2.7 1.9 6.9 17.0 0 Nizhniy 1,451 307 323.2 1,274.1 178,370 2.6 3,261.6 5.5 1.2 2.7 1.5 17.0 6.6 Novgorod

Omsk 1,161 153 97.6 326.5 34,711 2.71 884.9 5.9 1.8 1.9 2.2 16.0 9.0

Rostov-on-Don 1,100 180 148.0 491.7 45,350 4.6 2,252.2 6.2 1.7 2.0 2.5 14.1 0

Samara 1,275 81 267.7 733.4 73,000. * 8.6 6,300.0 10.1 1.6 6.8 1.7 16.5 8.0 Smolenak 352 161 65.3 217.8 25,665 2.3 500.9 8.6 1.4 3.6 3.6 15.0 1.0 Tver 459 330 191.0 523.0 12,670 2.4 1,229.0 n.a. 2.7 n.a. n.a. 15.6 na.. Yekaterinburg 1,420 79 378.0 1,035.0 104,000. - 2.9 2,952.0 4.9 1.4 1.9 1.6 15.1 eA.. n.a. = Not available. - Ver approximate estimate because of lack of data. Averge Age of % of % of Fleet Averige km Fleet Operational which per Accident ...... Vehicles Breakdowns % of Flet Shouldbe Operdonal per % of Fled on Steet " % of beyond Wriuen Vehicleper 100,000 Fleet Size Opertional during Vehicks on Economic Off by Day Vehicle- City (1993) Yea 000 km 1993 Peak Street Life end-1997 1993 kn

~~~~~~~~~~~~~...... _..,_i

Cherepovets 217 6.4 345 64.0 95.7 n.a. 10.9 59 223 n.a.

Kosttoma 187 6.4 328 65.0 89.3 29.0 2^.4 61 n.a. 0.2 C M

Kursk 260 6.2 327 80.4 56.5 21.4 11.4 49 191 0.7

Nizhniy 1,195 4.8 308 69.0 100.0 23.0 14.7 37 271 n.a. O ! Novgorod '

Novgorod 174 6.6 174 86.2 77.5 13.0 18.4 44 n.a. 0.1

Omsk 1,523 5.9 369 82.0 81.0 19.0 17.7 58 n.a. 0

Pskov 150 7.0 378 74.8 57.0 13.2 18.1 61 243 n.a.

Rostov-on-Don 574 5.2 322 71.0 92.0 21.0 9.1 44 n.a. 0.3

Saniara 870 5.4 n.a. 62.0 57.0 n.a. 17.8 50 n.a. n.a.

Saransk 226 7.3 381 71.0 71.0 0.9 16.7 64 n.a. 0.8 4,

Smolensk 127 6.5 426 76.0 83.3 13.0 17.8 32 253 0

Tver 115 5.7 335 73.0 83.0 n.a. 16.3 49 127 n.a.

Velikie Luki 69 7.6 454 80.0 82.0 5.5 24.6 67 157 0

Vologda 156 5.9 293 78.0 76.0 n.a. 15.3 56 223 0.3

Yekikerinburg 685 7.2 376 87.0 44.0 17.0 20.8 65 n.a. 0.3 n.a. - Not available. 0 Average Age of % of Fleet Operational Breakdowns % of Fleet % of Fleet Average km % of Fleet Vehicles on as % of beyond which Should per Operational Accidents per Fleet Size Operational Street during Vehicles on Economic Be Written Off Vehicle per 100,000 City (193) Year 000 km 1993 Peak Street Life by End-1997 Day 1993 Vehicle-km .' ""'''''''''" ~~~~~~~~~~~~~~~~~~~~... ..' ...... " ''......

Kostroma U4 5.6 366 77.0 92.3 23.0 0 55.0 n.a. 0.2

Kurak 107 6.2 322 77.6 70.1 10.3 14.9 44.0 n.a. n.a.

NizbniyNovgorod 249 5.7 290 74.0 98.9 5.3 7.6 43.0 239 n.a.

Omak 235 5.9 331 78.0 98.0 20.0 0 48.0 n.a. 0.1 Rostov-on-Don...... 261... I...... 6.9 387 ...... 72.0 92.0 13.0 22.6 57.0 n.a...... 0.2 Samara 264 5.6 263 98.0 55.0 8.3 5.3 43.0 n.a. n.a. Seanrk 181 6.9 377 73.0 67.0 11.3 19.3 56.0 n.e. n.a. Smolensk 25 2.9 73 100.0 76.0 1.0 0 0 149 0.2 Tver. 14l n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Vologda 103 6.5 300 67.0 85.5 n.a. 8.7 45.0 189 n.e. Yekaterinburg 260 6.4 373 84.0 81.0 n.a. 16.2 52.0 n.a. n.a.

Cherepovets ' 86 7.2 251I 66.0 82.5 n.e. 0 n..n.a. n.a.

Kurak 183 8.6 466 57.9 68.3 4.9 0 29.0 n.a. 0.7

Nizhniy Novgorod 415 9.1 413 66.0 n.a. 5.1 0 14.0 253 n.e.

Omsk 206 6.4 335 70.0 88.0 30.0 0 0 n.e. 0.1

Rosov-on-Don 231 5.5 262 71.0 93.0 29.0 0 9.0 n.a. 0.4

Samara 439 10.7 752 94.0 54.0 7.0 51.0 73.0 n.2 . n.a. Smolenmk 105 4.3 117 65.0 n.e. 5.0 0 0 223 0.6 Tver 264 9.0 628 48.0 79.0 n.3. 0 36.0 106 n.a. Yekaterinburg 466 10.8 7S3 77.0 77.0 n.a. 2S.3 69.0 n.a. n.a. a. Idutrial plant coinnuters. b. Intercitq routea. c. Privately owned. d. Tver trolleybuses not included in project. n.a.- not available.. STAFF APPRAISAL REPORT

RUSSIAN FEDERATION URBAN TRANSPORT PROJECT

ANNEX 3.3 TMANSIrFARES IN 1991 TO 1994

.... -...... , _......

ffiR AR " " e f 8A " 2 X 9 n A n

......

j ! ^ N N N 9 _e! _ "t_ tN

0 o 4o o> oO S 'q ~ oF 00 0i qgo

......

4 4 V i I a W 4 a. 0 -I4 . 0 o am eF esm . - a, . a.m.. a. Va en

q q 00 C0 0i V 0 0 0 q C! C t-. . 0 t- In V oWI o. O . i °. - .

...... I...... _...... 1

I ;! -° - °- o _- - e -. i° * 3 n o.ns o. n o. N. O,O,W O, 0 * It ......

0 : - 0 0 0 IRo ct o 'A o qo q Re d o

ft.00. .0 .0C C0} C.0} 0 eC;tlj qP 1~ -6 1~. 0t a'01- j I

000 ~~~~~~0C0 000 00 Is 0

STAFF APPRAISAL REPORT

RUSSIAN FEDERATION URBAN TRANSPORT PROJECT

ANNEX 5.1 PROJECT CiTY FLEET REQUIREMENTS

Annual Number of Vehicles to be New Vehicles to be Rehabilitated Financed under the --....------City Project 1995 1996 1997 Total --uses Cherepovets 50 39 26 23 88 Kostroma 91 20 15 13 48 Novgorod 80 13 13 14 40 Omsk 300 55 55 60 170 Pskov 75 5 5 5 15 Rostov-on-Don 169 80 80 80 240 Samara 192 40 40 73 153 Saransk 70 8 8 8 24 Smolensk 80 10 10 17 37 Tver 34 7 7 6 20 Velikie Luki 34 4 4 4 12 Vologda 46 20 20 20 60 Yekaterinburg 280 30 30 30 90

Total 1,501 331 313 353 997

eTroyeybuses ...... Kostroma 0 8 8 9 25 Nizhniy Novgorod 100 12 12 12 36 Novgorod 10 0 0 0 0 Omsk 0 12 12 12 36 Rostov-on-Don 84 16 17 17 50 Samara 0 20 20 20 60 Saransk 50 20 20 20 60 Vologda 28 20 20 20 60 Total 272 108 109 110 327 ...... Trais Nizhniy Novgorod 0 40 40 40 120 Rostov-on-Don 0 16 17 17 50 Samara 0 40 40 20 100 Tver 0 15 15 15 45 Yekaterinburg 0 25 25 15 65 Total 0 136 137 107 380

STAFF APPRAiSAL REPORT

RUSSIANFEDERATION URBAN TRANSPORTPROJECT

ANNEX5.2 DETAIS OF VEHICLEREHABILITATION

Vehicle rehabilitationwill include:

* Removal of all seating,interior and exterior end and side panels, flooring,power train, steering, suspension,interior ceiling panels completelyexposing floor and body structural members.

X Steam cleaning.

* Removal of rust by grinding or with a bead blaster, if available.

* Replacing rusted members, welding or reinforcing structural frame, floor frame and body frame as necessary. Welding and reinforcement or replacement of articulated hinges, as applicable. Corrosion protection.

* Painting of all surfaces after treatment with a zinc-basedprimer.

* Reassemblyof vehicleswith new or rebuilt componentsand materials as indicated in the following table.

Component/ Material LiAZ (9m buses) DkarusBus Trolleybus Tram Engine/motor new or factory factoryor in-house in-houseor factory in-houseor factory rebuild build rewind rewind Transmission in-house rebuild in-houserebuild Controller in-houserebuild in-houserebuild Suspension, new or rebuilt new or rebuilt new or rebuilt new or rebuilt steering, axles, componentsas componentsas componentsas componentsas etc. required required required required Bogies in-houserebuild Electricaland inspect, test and inspect, test and inspect, test and inspect, test and lighting replace as necessary replace as necessary replace as necessary replace as necessary 96 Annex 5.2

Component/ Material LiAZ (9m buses) Ikarus Bus Trolleybus Tram

Brakes new shoes, linings, new shoes, linings, new shoes, linings, new shoes, linings, drums, cams, etc., drums, cams, as drums, cams, as drums, cams, as as required required required required

Air components in-house or factory in-house or factory in-house or factory in-house or factory rebuild rebuild rebuild rebuild

Current collector in-house rebuild with in-house rebuild with system new components as new components as required required

Floor new 20mm 7-ply new 20mm 7-ply new 20mm 7-ply new 20mm 7-ply exterior grade, resin exterior grade, resin exterior grade, resin exterior grade, resin bonded plywood bonded plywood and bonded plywood and bonded plywood and and new rubber new rubber floor new rubber floor new rubber floor floor covering covering covering covering

Steps new new metaUfiberglass new metal/fiberglass new metalfiberglass metal/fiberglass as as required and new as required and new as required and new required and new rubber treads rubber treads rubber treads rubber treads Doors in-house rebuild or in-house rebuild or in-house rebuild or in-house rebuild or new as required new as required new as required new as required

Windows new glass as new glass as required new glass as required new glass as required required Seating repair frames, paint repair frames, paint repair frames, paint repair frames, paint and install new and install new and install new and install new cushions cushions cushions cushions

Panels new or repaired new or repaired new or repaired new or repaired panels as required panels as required panels as required panels as required

Painting grind/sand to a grind/sand to a grind/sand to a grind/sand to a smooth surface, smooth surface, smooth surface, smooth surface, prime and spray prime and spray paint prime and spray paint prime and spray paint paint with a durable with a durable with a durable with a durable polyurethane type polyurethane type polyurethane type polyurethane type paint with a non- paint with a non- paint with a non- paint with a non- isocynate drying isocynate drying isocynate drying isocynate drying agent agent agent agent Annex5.2 97

CR=TERA FOR SELECTING VEHICLESFOR REHABILfTATON

2. For the purpose of this project, vehicle rehabilitationis defined as a set of repair or rebuilding activities required to extend the dependableservice life of a vehicle to or beyond the original intended life. Vehicles to be rehabilitatedunder the project will meet the following criteria.

Age Rangeat Time of ExpectedUsable Life Original Intended Rehabilitation after Rehabilitation Vehicle Type Life (years) (years) (years) 9m LiAZ, LAZ, etc. 7-8 4-5 3 12m and 18m Ikarus 9-10 5-6 4 Trolleybus 12 5-7 5 Tatra tram 18 12-18 9 Ust-Katavtram 12 8-12 6

3. In order to qualify for rehabilitation,a vehicle must meet the following criteria:

* the frame mustbe structurallysound, but may exhibitminor corrosionand fatigue damage

* the vehicle must be required to supply basic urban or suburban transit service. ; STAFF APPRAISAL REPORT

RUSSIAN FEDERATION URBAN TRANSPORT PROJECT

ANNEX5.3 TERMSOF REFERENCE SERVICESTO ASSIST IN THE DEVELOPMENTOF THE TRANSITEQUIPMENT MANUFACTURING INDUSTRY

BACKGROuND

1. Because of the globalizationof the automotivemanufacturing industry, the pace of investmentin that industry has increased over the past few years. The entry of the countries of the former Soviet Union into the world economy will provide additional markets and manufacturing facilities to the world's pool of supply and demand for such products. This is particularlyimportant in the case of equipmentfor urban passengertransport - includingbuses, articulated buses, trolleybuses, and trams - for which Russia has a large market and a substantialpotential for production.

2. Global. The location of automotive manufacturingis truly worldwide, ranging from North America and Westem Europe to Eastern Europe, the Middle East, East and South Asia, and Latin America. But even as investmentin the industry has been rising, the industry has been going through major changes because of disequilibriumbetween supply and demand, revised governmentpolicies, expandinginternational trade, and - more recently - growth in transplantproduction. Companiesare thus rethinkingtheir strategies; entering into mergers and alliances that are altering the structure of the industry and the relationshipsbetween vehicle manufacturersand their suppliers; developingnew approachesto the location of productionand marketing;accelerating the developmentand applicationof new technologies;and bringingabout a host of other changes affecting both the process and the product. In this environment, governmentshave been modifyingtheir policies, although not necessarily uniformly with one another, while some of the emerging producing countries in the global market - such as Mexico, Brazil and Taiwan- have movedtoward liberalization.Environmental concerns related to road vehicles are on the rise and many more governmentsare likely to establish relevant regulations.

3. In short, whereas the interestin investing in the transit equipmentmanufacturing sector and in joining the global marketis very high, such investmentscarry a substantialamount of risk unless they are first carefully assessedand then properly structured.

4. Russia. The Russian Government's interest in this sector stems from its lack of a well-developedand competitivedomestic industry for the manufacturingof buses, trolleybuses, and trams. Given Russia's huge domestic market for such equipment and its fiscal interest in avoidingthe accumulationof large internationaldebts, importinglarge numbers of urban transit 100 Annex 5.3 vehicles is not in Russia's long-term interest. Russia's need for action is driven by the impact of the break-up of the former Soviet Union and the dissolution of COMECON on Russia's traditional sources of supply for urban transit equipment.

5. The vast majority of urban transport buses were manufacturedin Hungary by Ikarus while buses assigned to suburban routes were manufacturedfor the most part by Ikarus and the Lvov Bus Plant in Ukraine. Of the 84,380 buses manufacturedin the USSR in 1990, a 6.9 percent decrease from the 90,618 produced in 1989, the Lvov plant, which specializesin medium-sizeintercity and local or rural route buses, accounted for 14.5 percent of overall production. The Riga Bus Plant (in Latvia), specializes in a line of minibus models and accounted for 20.3 percent of total 1990 bus production. Russianbus manufacturersinclude the Likino Bus Plant (LiAZ), which manufactureslarge city buses (6,002 in 1990); the Pavlovo Bus Plant (PAZ), which produces small-sizebuses (8,600 in 1990); and the Kurgan Plant (KAvZ), a producer of small general purpose buses (19,360 in 1990). AvtoUAZ and KamAZ also produce buses and accountedfor 15 percent and 5.8 percent of overall bus production in 1990. The domestic trolleybus producer is the Uritskiy TrolleybusPlant (ZIU) which produced2,300 vehicles in 1990.

6. Prior to the break-upof the FSU, Governmentintended to increasebus production in the USSR under the auspicesof the Avtrokon Concern, an associationof bus and trolleybus producers. Under this plan, three additional bus manufacturers were to be created: the Davydovka, Golsityno and Tula bus plants. However, the introduction of reform oriented policies and their impact has already had a marked effect on the structure of bus production.

7. Most manufacturersof road vehicleshave now been privatizedor made into joint stock companies. To introducenew technologyand capitalize upgraded facilities, most of these manufacturersare now discussingpotential joint venture arrangementswith various western or Asian engine and vehicle manufacturers; however, due to the perceived uncertain business climate itself due in part to the lack of a private sector supporting legal and financial infrastructure,few joint venturesare in place. Neverthelessjoint venture discussionsare ongoing and the situation is dynamic.

8. The market will also change. Car ownershipwill increase, which will inevitably affect traffic on some bus routes. Further, with the need to increase cost recovery it is likely the same city bus companies will wish to cut down or shed completely service on unprofitable routes. Some deregulation is likely to take place which eventually will give emerging private sector operators a share of the market - probably initially in inter-city services but also some city services. The changes will eventuallyhave an impact on the demand for new buses but also on the range of bus types to be manufactured to meet operators' varied requirements. Nevertheless, even with likely market changes, given the relatively low quality of the current fleet of 160,000 buses, the market for replacementsis large. However, rather than on need, demandwill largely depend on federal and local policies towardsfare setting and the consequent rate at which the city bus companiesimprove their financial management.Manufacturers will not only have to produce good buses but also develop creative financingoptions to assist city bus companies to buy them. Annex 5.3 101

9. Aware of the domestic and export market potential, the Governmentrecognizes that creating an environment that will place a premium on market-driven solutions is the best manner in which Russia can achieve two critical goals. These are: (i) to promote the rapid and effectivedevelopment of Russia's domestictransit equipmentmanufacturing industry (so Russian transit enterprisescan meet their capital needs without taking on foreign currency indebtedness); and (ii) to secure those innovationsin technologynecessary to improve the fuel efficiency and emissionsstandards of the bulk of the urban public transport fleet'.

10. With this in mind, Governmenthas taken two critical steps. The first was to work with the World Bankin the preparationof an urban transport projectwhich includesthe purchase of new transit equipmentand the rehabilitationof buses, trams and trolleys for selected cities, to provide spare parts for transit enterprises throughout Russia, and will fund a program of technical assistance for municipal transport departments. The project will have the salutary effect, over a two-year time span, of providing the incentive of a significantdemand for buses to spur the formationof joint ventures and other steps that will improvethe competitivenessand level of technology. The preparation of this project is complete, and new transit equipment should start to be delivered to the participatingRussian cities in the third or fourth quarter of 1996.

11. The second step was to undertake an action program to create the proper environmentfor the developmentof a domestic transit equipmentmanufacturing industry. The urban transportproject therefore includesconsulting services to assist and support this program. The services will be to assist governmentin identifyingthe steps to be taken to provide the legal and commercialenvironment in which its urban transport manufacturingindustry can properly develop and will be available to potentially viable manufacturing enterprises to assist them directly with restructuringplans such that they are more favorablyplaced to obtain the necessary capital investmentsso that the industrycan be both efficient and competitivein not only helping meet Russia's domestic needs, but also can build up an overseas demand for its vehicles and components.

OBJWECrE

12. The objective of the services is to assist and support the development and upgrading of the Russian automotive transit manufacturingindustry within a market oriented environment.

13. For the objective to be achieved, the following should have taken place by the completionof the services: (i) at a macro level, the appropriatedecision makers in government, the domestic manufacturingindustry and manufacturersworldwide should be familiar with the state of the Russian domestic industry, its constraints to development,the steps that have been and are being taken to remove or minimizethe effect of these constraints, the likely domestic and foreign marketincluding trends in public transportationand the directionwhich the industry is takcingand/or should take; (ii) at the industry level, potentiallyviable firms shouldhave been

1. For example,more thanhalf of the bus fleet is powered by gasoline enginesrather than by more efficient and less pollutingdiesel engines. 102 Annex 5.3

selected, innovative management in place and such management given assistance with the preparation of strategic and business plans including restructuringand technologyand quality upgrading investment plans. This will include, on request, a detailed review of production practice and assistance with plans for upgrading. Selected firms should be familiar with the availability of appropriate production process equipment and control technology. The firms' managementshould be familiarwith overseasproduction practices and modem management,and with internationalbanking and finance. In addition, for discussionsand negotiationswith banks and potentialjoint venture partners and/or licensor, on request, a selected firm will have access to negotiatingadvice and assistance - and some firms will have used these services. Firms will also be given advice on the preparation of bids for domestic and overseas contracts.

14. These terms of reference have been prepared on the understandingthat, through the Working Group, the MOT and its affiliateswill provide most of the backgroundmaterial and assist with analysis for work at the macro level. Thus, most of the consulting services will be directed to work at industry level in partnership with the selected firms.

15. General. The Russian Federation will oversee this project through a Working Group that will be made up of representativesfrom the Ministries of Economy, Finance, and Transport, the AutomotiveIndustry Agencyof the State Committeeon IndustrialPolicy and the GKI. The World Bank, which is financingthis study, will be invited to send a representativeto the principal project decisionand review meetings, as indicated in the description of the scope of services below.

16. The consultingservices will be carried out in three phases: Weeks

Phase 1: Industry and Market Assessment 12 Phase 2: Selectionof PotentiallyViable Manufacturers 16 Phase 3: Corporate and Technical Assistance 76

Given the current dynamic situation in the industry and the previous work which has already been undertaken,and the turbulent businessclimate, the phasing of the services and the timing should be considered flexible. Thus, it is likely that preliminary work on firm selection will begin concurrently with the industry and market assessment. Also, potential overseas joint venture partners are likely to be furthering their contactsthroughout the durationof the services both with the consultantsand with manufacturers.Both flexibilityand these contacts are to be encouraged but without compromisingthe integrity of the services and the goal of assisting industry in developing its potential through the developmentof sound corporate strategiesand business plans.

PEASE 1: INDuSTRYAND MARKEr ASEssM

17. The Overview.The consultantsshall prepare an overviewof the transit equipment manufacturingindustry both Russianand foreign, constraintsto the developmentof the Russian industry and trends to remove these, markets and market trends both Russian and foreign (including trends in transit company ownership, financing, and government support), and the Annex 5.3 103 desirable and likely direction to be taken by the industry. The overview will receive wide circulationand shouldbe prepared for top government,industry and financialinstitutional levels and also for distribution to those requiring more detail. The overview will give an enhanced understandingof the industry and should set the stage for detailed technicaland financialinputs into potentially viable private sector companies.

18. The Interational Industry. The overview should include a brief section on the manufacturingindustry worldwidewith references to availabilityof more detailedinformation. The consultantsshould highlighttrends (e.g., the growth in trans-bordermanufacture) and make comparisonswhich would be relevant and useful to the objectivesof these services.

19. The RussianIndustry. The consultantsshall review the state of the Russian transit equipment manufacturing industry. For the purposes of these services, manufacturing will include manufacturing,assembly, rebuildingand rehabilitationof both vehiclesand components. Transit equipmentshall be defined as gasoline, diesel and naturalgas powered buses, electrically powered trolleybusesand trams and the componentswhich go to make these vehicles. Other than trams, the study will not cover rail equipment.The industry has been reviewed already by the government and, to a limited extent, by the World Bank and by major international manufacturers as potential and actual joint venture partners. Through interviews and written material, the consultantswill make every effort to make use of and not duplicateprevious work. Nevertheless, the consultantswill be expectedto use their own judgement in determining the accuracy and appropriatenessof previous work and conclusionsreached.

20. The overview will cover individual firms, associationsof manufacturersand the industry as a whole. The overview will be backed up by details covering each firm.2 At this stage a protocol will have to be establishedgiving guidance to all involvedwith the services as to the confidentialityand circulationof informationconcerning an individualfirm. In the interest of promoting a truly competitiveindustry in a market orientated environment, the details of individual business plans are likely to be extremely confidentialwith some details remaining confidentialbetween the firm and the consultantsonly.

21. For each firm (inter alia) the followinginformation will be covered:

(i) Ownership, capitalization,stock valuationcompany structure includingany joint venture arrangements. Policies regarding seeking partners, (e.g., foreign bus manufacturer,engine supplier and/or financier).

(ii) The organization,including that of managementand, if a joint venture, the role of the respectivepartners.

(iii) Overall turnover and some basic financial information on sales, accounts receivable, production costs and pricing strategies.

2. Lniits on finn size to be agreed on during negotiations. 104 Annex 5.3

(iv) Productionfacilities and their conditionincluding environmental measures needed.

(v) Quality control.

(vi) If a joint venture, the role of the respectivepartners in production - particularly in quality control.

(vii) Staffing structure, numbers, redundancypolicy.

(viii) Accounting and managementsystems and the extent to which these are being modernizedand, for example, reflect day-to-dayproduction and cash flow.

(ix) Have any outside managementstudies taken place.

(x) The source of tools, materials and componentsand procurement policy, and the respective extent of vertical integration and outsourcing.

(xi) The product developmentfacilities, e.g., R&D, design, modelling, testing, etc..

(xii) Domestic and export marketing strategies - e.g., customer surveys, market studies, market testing business plans, etc..

(xiii) The warranty provisionsand how these are met.

(xiv) After sales service - distribution and service networks - policy and practice.

(xv) Such other informationas the consultantsdeem necessary.

22. Again, the consultantsshould note that, through a previous World Bank mission, several of the major firms have already suppliessome of this informationto the MOT. However, the information will require to be reviewed for appropriateness. In particular, and most likely in Phase 2, the state of the production facilities and plans for upgrading will require close technical attention.

23. The consultants will use this industry informationto determine the approach to be used during Phase 2 to review in detail individual manufacturingfirms potential.

24. The Constraints.The constraints to the developmentof the industry also appear well known - particularly the slow evolutionof a financialand legal infrastructureconducive to businessdevelopment. The consultantsshould review these, confirm the macro constraintsand at industry level, identify in detail the effect of these constraints. This review should include potentialjoint venture partners' perception and experienceof these constraints.

25. The industries' desire for capital investmentis also well known. On an overview basis, the consultantsshould recommendthe steps that should be taken during Phase 2 to assess Annex5.3 105 the appropriatenessof such capital investment.For example, businessplans should be prepared on reasonable market expectations,not on past models, quality, productivityor production.

26. TheMarket. The consultantsshall give an overviewof the existingand potential market both in Russia and overseas. The overview will be supportedby an analysis of trends in public transportationincluding, for example, the effect of the increase in car ownership, setting fares to give reasonablecost recovery, the effect of possiblederegulation and the entry of private sector operatingcompanies. The consultantswill draw heavily on experiencein other countries. To the extent possible, the consultantsshould give examplesof the marketingstrategies of major international manufacturers.

PHASE2. SELECrIONOF PoTENTIALLYVuABLE MANFwACITuRES

27. The purposeof this Phase is to selectpotentially viable manufacturersand provide them with technicalassistance. Manufacturers selected at this stage mustbe privately-ownedjoint stock companies, with the exception that enterprises that are well-advancedin the process of privatizationmay be selected for inclusionon a case-by-casebasis. The consultantswill execute this Phase in two tasks.

28. The first task will comprise presentingto and agreeing with the Working Group a "long" list of potentially viable manufacturers.Through analysis, develop a 'short" list of manufacturerswho will receive technical assistance through the consultant's services. The aim would be to agree on the short list within a reasonably short time after the start of Phase 2 so that direct assistance to these firms could begin.

29. ! The informationand analysisneeded to selectpotentially viable manufacturerswill have begun under Phase 1. At the start of Phase 2, a preliminary screening can probably take place to give the "long" list of 112 manufacturersfor submissionto the WorkingGroup. At that time the consultants would also present their methodologyand criteria for the selection of the short list. This screening would include a review of government's proposed candidate manufacturers.However, the consultant'srecommended "long' list to the WorkingGroup would be based on their analysis and would not be predetermined.

30. The second task would follow agreement on the "long" list. The listed firms wouldbe subject to a detailedreview which wouldinclude (inter alia) the firm prepared business plan, including restructuring proposals and financialstate, products, production facilities, and management.The objective being to select about six firms that, given certain assistance, have the potential to be a viable concerns. The consultant's recommended"short" list would then be submittedto the Working Group for agreement.

PuSE 3. CoR0ORATEAD TECHICALAssIrsANcE

31. Phase 3, providing direct assistanceto the selected firms is the main thrust of the services. The nature of this assistance will require a change in the role of the consulting services. In Phases 1 and 2, the consultantswere clearly reporting to the Working Group and submitting material for the Group's agreement. In providing direct assistance to the firms, the 106 Annex 5.3 consultantswill now be working on behalf of these firms and dealing with confidentialissues. Indeed, for the preparation of businessplans, the consultantswill need to put together a panel of advisers such that, where two firms are likely to be in completion, each has a separate adviser. Thus one of the first tasks of Phase 3 will be for the consultantsto prepare a proposal on the working arrangementswhich would best meet the needs of dealing with these different firms on sensitiveissues. This would includeagreeing a protocol on the classificationof a firm's material. These proposals could well be on the lines of creating a small separate Center for Consultationsand Advice and Assistance(CCAA).

32. After agreementon the arrangementsby the Working Group, the consultantswill meet with each firm and agree on an assistanceprogram. This will vary accordingto the firm, but will take the form where each firm clearly has ownershipof the output. The consultantswill act as advisers and facilitatorsto the firm's managementand will not be imposingoutside plans and strategy on the firm.

33. Specific assistance will probably be provided in the areas of corporate strategy, market review, detailed business and financialplanning (includingoperational, investmentand financingcash flows)revisiting the firm's previouslyprepared businessplan, cost control, advice on international finance, advice on environmental policy, impact projections and remedial measures. Training will play a large part in the assistanceto be given. This will includenot only trail)ing by the consultants but also arranging opportunities for training both in Russia and overseas.

34. Assistance will also be provided in locating and introducingpotential providers of finance and technology.The level and timing of the assistancewill once again depend on the firm and the contact it has already made. The process will include: (i) identificationof potential sources of debt and equity financing (including IFC, EBRD, investment bankers, venture capitalists and eligible joint venture partners); (ii) identificationof potentialtechnology alliance partners; and (iii) introducing firms to appropriate investors/partners and assisting in negotiations.

35. While these terms of reference have been prepared on the basis of providing assistanceto only preselectedfirms, it could well be that the CCAA might be able to take "walk in" customers - particularly to provide advice to smaller componentmanufacturers. Similarly, while potential foreign joint venture partners are usually very 'au fait' with the state of the industry, it also likely that they will be constant visitors at the CCAA. Under these circumstancesthe consultantswill be expectedto provide advice and assistance to these visitors which is not just limited to the short listed firms. Annex 5.3 107

TIME SCHEDuLE AND REPORTINGREQuIEmENTS

Phase Weeks Task

I 12 Industry Market Assessment 0-2 Startup Meeting and Agreement with Working Group on Work Plan.

8 Progress Report

12 Overview of Industry Draft for discussion and agreement by the Working Group

II 16 Selection of Potentially Viable Manufacturers

13-16 Task 1: Submit to the Working Group and agree on "long' list of manufacturers.

16-24 Task 2: Submit to the Working Group for agreement on "short" list of manufacturers

24-28 Agreement with the Working Group

I 76 Corporate and Technical Assistance

29-76 Operation of the Center for Consultation, Advice and Assistance (CCAA).

DATA AND SERVICESTO BE PROVIDEDBY THE GOVERNmENT

A. Data (to be determined)

B. Services (to be determined)

STAFFAPPRAISAL REPORT

RUSSIAN FEDERATION URBAN TRANSPORT PROJECT

ANNEX5.4 TERMS OFREFERENCE ASSISTANCETO THEMINISTRY OF TRANSPORT

1. Background. As part of the transition by the Government of the Russian Federation to a new govemment and economic system, it is appropriate for the role of the Ministry of Transport (MOT) to be modified as cities take responsibilityfor their own transit systemsand as the transit equipmentmanufacturing enterprises restructure and prepare to enter the private sector. These terms of reference(TOR) provide for assistancewith a number of tasks that MOT's AutomobileTransport Departmentis planning to undertake.

2. Objectives. The main objective of this project is to equip MOT for its evolving role in the urban transport sector. Specificobjectives relate to following needs to: (a) provide opportunities for key officials at the federal level to observe new approaches to the administration of the urban transport sector and to observe transit equipment manufacturing outside of Russia; (b) develop a consistent body of information about the sector and its performance; (c) improve methods for the handling of fare exemptions; and (d) disseminate informationabout best practices in the field of urban transport.

3. Scope of ConsultingServices. The Russian Federationhas the following services for which it seeks this consultingassistance under this one contract: (a) study trips and diagnostic missions; (b) developmentof a sector informationsystem; (c) improvementof the handling of fare exemptions;and (d) education and training. These services are described in detail below.

STUDY MISSIONS

A. MODERNIZATIONOF URBAN PASSENGERTRANSPORT POLICIES AND ORGANIZATION

4. Objective.To inform central governmentofficials involved in the administration of urban transport of the lessons of experience and modern practices in urban transport administrationand to formulaterecommendations on how to implementsuch practicesin Russia.

5. Main Tasks. The consultantswill organize a program of visits and seminars for two groups of about 10-15persons to visit four European cities in two countries: two cities that are national capital cities, in which the group will meet with national governmentofficials and experts involved in policy making and administrationfor the sector; and two cities in which 110 Annex 5.4

public transport companies will be visited.' In addition, the cities visited to observe urban transport entities should have these characteristics:(a) one of the cities visited will be of a size of at least one missionpopulation; (b) the averagecost recovery of urban transport in these cities should be at least 60 percent; and (c) the cities shouldexhibit the significantuse of private sector firms in the provision of urban transport services. There will be two identical trips with an interval of about two monthsin order to keep the groups to a manageablesize and maximizethe chance for participationby high level Russian officials and managers.

6. The main subjects to be discussed will be the following:

(a) Roles of central and local governmentsin urban transport;

(b) Governanceof public transportenterprises, contractualrelationships between the companiesand the government, performanceassessment;

(c) Tariff and subsidy policies, their implementation in the control of government/enterprisecontractual relationships,and revenues for subsidies;

(d) Actual and potential role of the private sector, innovative approaches and their implementation;

(e) Urban transport planning; and

(f) General organizationand managementof public transport companies.

7. The seminars and field trips will be designed to give to the participants an overview of the main issues, lessons of experience, and best practices today in urban transport in Europe. The emphasis will be on (i) urban transport policies and ways and means of implementation;and (ii) enterprise organizationand managementand the incentive and control systems to minimizecosts of a given level of service. The main urban transport modes to be consideredwill be urban buses, trolleybusesand, to a lesser extent, trams. Very little attention will be devoted to metros and suburban railways.

8. The seminars will include well-prepared presentations with extensive use of audiovisual and distribution of written materials in Russian. Althoughonly four cities in two countries will be visited for practical reasons, interesting solutionsdeveloped in other countries will also be presented.

B. IMROVEMENT IN ORGANIZATION AND MANAGEMENT OF VEHICLE MANUFACTIG

9. Objective. To acquaint concerned federal officials with vehicle manufacturing practices in countries that have competitive and financially viable transit equipment manufacturingindustries. The group of officials should include, to the greatest extent possible,

1. The cities in which companieswill be visied will be selected for the efficiency of their transport systems and the innovate solutions they have developed and integrated in recent years. Annex 5.4 111

Russian federal officials who are members of the Working Group on the study of the Russian Transit Equipment ManufacturingSector being carried out under the project. The field visits should be carried out at an early stage in the conduct of the manufacturing study. The aim should be to convey how manufacturingurban bus and electronic transport is organized and managed, and to recommend how to implementsuch practices in Russia.

10. Main Tasks. These include:

(a) Organization of a program of visits and seminars for a group of about 25 government and transit enterprise officials in developed countries. The manufacturersto be visited will be selected for the qualityand level of technology of their products, their quality control, their cost effectiveness, and for their overall management.The study trip will last about two weeks and include field visit coverage of:

(i) general organizationof manufacturing; (ii) financial structure of the firm; (iii) manufacturingprocesses and quality control procedures; (iv) incentive systems for managers and workers - control and supervision; (v) role of outside firms in providing parts and supplies; (vi) information management systems, including finance, accounting, and manufacturingoptions; and (vii) training and education of managerial, clerical, and production line employees.

(b) Immediately before the return to Russia of the group, two experts among the main contributors to the study trip will conduct a "lessons learned" seminar for the group, producing a memorandumfor the record about the most significant professionalaspects of the trip. The experts will help the group draw conclusions about the potentially most valuable solution to Russia's most pressing problems in the manufacturingsector, based, in particular, on the state-of-the-artpractices observed during the trip.

DEVELOPMwr OF A SECTORINFORMATION SYSrEM

11. Objective. To develop, at the federal level, an information system that will, on an annual basis, gather, analyze, and disseminatedata on all aspects of Russia's urban transport system as an aid to policy making, government administration, enterprise managementand research and analysis.

12. Main Tasks. These include:

(a) Establishand secure approval for a set of data on the urban transport sector to be gathered annually. At a minimum, the data should cover information on all aspects of urban transport to include: 112 Annex 5.4

* equipment fleets - types, numbers, ages * capital needs - annual replacementrates, rehabilitationplans * operations- annualvehicle-kilometers by type of vehicle and per-vehicle average, route kilometers, out-of-serviceratio * finance - basic informationfrom the income statement and balance sheet * ridership - numbers, average fare, percent of fare evaders, percent exempt from fares.

(b) Establish a data gathering and collectionsystem for data on the urban transport sector, design the reporting formats, and assemblea mock-upreport; circulate for review and comment.

(c) Prepare training materials on the system and carry out pilot training sessions to vet the training materials and train local personnel to conduct the training.

ELTINATioN OF EXEMPTIONSOR REIMBURSEmENTTO THECITIES FORTHEIR COSTS

13. Costs. To provide the informationand analysis essential to MOT and MOF to use in revising the system of fare exemptions to limit exemptions and reduced fares for special groups to only the most needy. Principal possible changes include eliminationof categories of exempt passengers (or reducing the percentage of fare reduction) for those not financially in need, and devising a system for direct reimbursement to transit companies for those exempt riders that they must and do carry. Another approach to be explored is to provide financingfor urban transport services directly to members of the exempt categories.

14. Main Tasks. These include:

(a) Review the system of fare exemptionsand reduced fares at the federal level and determine the financialimpact of those policies on all levels of government.

(b) Examine the rationale for fare exemptions and reduced fares and identify the cases where this rationale may be weak, in particular because it may not be consistentwith the central government's social policies or because the objectives may be achieved more effectivelyby other means.

(c) Prepare recommendationson how to reform and simplify the system, including proposals for implementation(possibly by stages).

(d) Assist MOF and MOT in implementingthe measuresthat they have, after review of the consultants' proposals, decided to undertake. Annex5.4 113

EDUCATIONAND TRAING

15. Objectives.To design a systemof training and informationdissemination to help key governmentofficials achieve three goals: (i) to encouragecities that did not participate in the first project to participatein potential follow-onreplications of the project; (ii) to disseminate to transit officials in all Russian cities the results of the technical assistance provided to the project cities; and (iii) to inform urban transport officials at all levels of the improvements achievedin the fields of urban transport services so that they can more effectivelycarry out their responsibilities.

16. Main Tasks. These include:

(a) Design a series of seminarsthrough which key federal officials can inform cities not participating in the first project of the benefits and requirements of project participationto promote the replication of the project.

(b) Develop a system for the dissemination of the analytical products from the technicalassistance to the cities so that the research, analysis and recommendation can be made available to municipal transport departmentsand transit operating enterprises throughoutRussia.

(c) Prepare a design for the establishmentof a technologytransfer informationsystem to make available to all cities in Russia data on the most recent developments conceming all aspects of the management, operation, planning, equipping, financing, and maintenance/rehabilitationof urban transport systems.

STAFF APPRAISAL REPORT

RUSSIAN FEDERATION URBAN TRANSPORT PROJECT

ANNEX 5.5 TERMS OF REFERENCE ASSISTANCE FOR URBAN TRANSPORT VEHICLE REHABHLITATION

1. Introduction.The RussianFederation and the WorldBank have preparedan Urban Transport Project to assist self-selectedRussian cities in supporting urban transit. One of the componentsof the project is a program of bus, trolleybusand tram rehabilitationand improved garage maintenance.

2. An integral componentof the rehabilitationprogram is the trainingof mechanics, tradesmenand supervisorsin the various cities in two specific areas: body work (particularlyin corrosion prevention) and welding.

3. Objective. The objectives of this program are to: (a) review the list of buses, trolleybuses and trams to be rehabilitated under the loan for each city; (b) review the list of workshop equipment for each city to be financed under the loan; (c) acquaint primary representatives (maintenance/garagemanagement and foremen/tradesmen),designated as lead rehabilitationpersonnel, with modem methodsand procedures for the successfulrehabilitation of urban transport vehicles; (d) convey how facilities and personnel are best organized and utilized to provide quality rehabilitation in an efficient, timely and cost-effective manner; (e) assist the transit companies with the contracting out of vehicle rehabilitation; (f) provide supervision of the ongoing rehabilitation program; and (g) to acquaint rehabilitation and maintenancepersonnel with cost-efficientand environmentallysafe techniques for the disposal of non-recyclablewastes (engine fluids, tires, etc.).

SCOPEOF WORK

4. Identificationof Needs. For each project city the consultantswill draw up detailed lists of vehicles to be rehabilitated,a list of spare parts to carry out the rehabilitationwork, and workshop equipment required to carry out adequate repair and rehabilitation of all transit companies' vehicles. To identify needs, the consultantswill:

(a) Review the criteria outlinedin the attachedannex for rehabilitatingvehicles to be includedin the rehabilitationcomponent of the project. The review shouldinclude an analysis of substitutinglocally manufactureddiesel engines for the gasoline engines of LiAZ buses. 116 Annex 5.5

(b) Visit each city and identifythe buses, trolleybusesand trams to be includedin the rehabilitationcomponent of the project. The informationprovided shouldinclude:

* vehicle identificationnumber (VIN), local vehicle number, make and model * type of rehabilitationrequired * spare parts/materialslist

(c) Provide an analysis of each garage/depotthat describes the existingconditions of the facility in relation to lighting level, heat, adequate space, shop equipment, shop facilities, shop tools, and personal hand tools. Based on this analysis, provide a detailed list of equipment and tools that are required to improve the repair and rehabilitationof vehicles in the garage/depot.

5. Meeting the above requires:

* a visit to each garage/depotin each project city. - identificationof specific candidatevehicles by garages, prior to the meeting. - stripping down sample prototype vehicles by garages.

6. Training

(a) The consultants will arrange for mechanical staff, foremen, supervisors and managers of garages, all designated as lead rehabilitation personnel, to visit maintenance/repairfacilities (rehabilitationfacilities if available abroad probably in WesternEurope). The facilities should service vehiclesoperating under similar climatic conditions to their Russian counterparts and demonstrate good professionalpractices.

(b) Specific training for buses, trolleybuses and trams will be carried out only for those transit companiesthat are carrying out rehabilitationin-house. Training as needed, will be provided for designatedlead rehabilitationpersonnel from cities' garages where rehabilitationworks will be carried out. Qualificationtesting shall be performed at qualifiedfacilities in the specific areas of high quality welding and painting/finishing.The consultantwill develop training materials suitablefor classroom and hands-on training, including instructor's manual, hand-out materials, list of suggested materials/equipmentfor hands-on training, and supervisor's summariesof training program.

(c) Training in rehabilitation of vehicles will be carried out for rehabilitation specialists, split into groups of project cities. Different types of specialistsmay attend where parallel activity is determinedto be beneficial to the program. The consultantswill demonstratehow to rehabilitate selected vehicles to each group of cities.

In each group of cities (or possibly one city, if sufficientlylarge enough), for each vehicle type (bus, trolleybus and tram), set up a prototype Annex 5.5 117

rehabilitationlocation in a garage/depot.Upgrade the space as needed, so as to demonstratepilot rehabilitationactivities.

Key designated staff from garages/depots will be assembled at the designated prototype rehabilitation facilities, and trained by the rehabilitation experts who will rotate through the different prototype locations.There shouldbe at least one maintenance/supervisorystaff from a garage/depot where rehabilitation works will be carried out, with a maximumof six attending the training.

Each participating city shall be permitted to submit one selected vehicle of each vehicle type for the primaryprototype rehabilitationfacility where that city's personnel are being trained. This vehicle will be rehabilitated as part of the training program and returned with the city's personnel at the end of their training. All vehicles submitted may be utilized in the training of all the personnel from the various project cities attending the particular prototype facility. Shipment of the vehicle to and from the prototype facility is the responsibilityof the city owning the vehicle, but can be financed under the loan. Supply of materials for specific vehicle rehabilitationshall be the responsibilityof the city: the necessaryparts can be procured under the loan by direct contractingif necessary. Workshop equipmentwill be provided by the host city. Where the city does not have essential items of equipment, the parts will be procured under the loan (through direct contracting, if necessary).

"Rehabilitationpeer trainers' will be selected from each participatingcity and given training in all the major rehabilitationtechniques necessary to the program. They will be given a one to two day training program including video, classroom presentationand hands-on training.

7. Rehabilitationby Contract.With the cities, the consultantswill confirm or revise the type and number of vehicles which would be suitablefor rehabilitationby contract, identify and visit likely rehabilitation companies, develop appropriate specificationsand contracting procedures for PID and World Bank approval, develop a rehabilitationby contract program, assist the cities and PID with the bidding and evaluation process, and assist in setting up adequate vehicle examination, supervision and inspection procedures. In particular, the consultantswill (inter alia):

(a) Agree on the number and type of vehicles suitable for rehabilitationby contract. Agree also on up to ten vehicles in urgent need of rehabilitationwhich might be rehabilitated on a trial basis under International Shopping procurement procedures.

(b) Following an advertisementinviting expressionsof interest to be placed by the PID locally and in adjoiningcountries where the distance is such that vehicles could be shipped there on an economic basis, visit some selected plants to gain 118 Annex 5.5

an insight into their standardsof work, quality assuranceprocedures, likely costs, possible contractingarrangements and inspectionprocedures.

(c) Develop draft specifications,examination procedures, contract documents and inspectionprocedures and a first year contract rehabilitationprogram for PID and World Bank review and approval.

(d) After agreement on (c) and through PID, assist the cities with Limited International Bidding process, including bid evaluation, post qualification (if necessary), advice on bus delivery schedules, examination and inspection procedures.

(e) Assist in monitoringthe program and, with lessons learned, setting up the next year's program.

8. Supervision of RehabilitationProgram. The consultants will rotate among the various project cities providing technicalassistance for vehicle rehabilitation. Each city will be visited twice in the first year of the project and once in the secondand third years of the project.

9. Non-Recyclable Wastes. The consultants will demonstrate to garage/depot personnel how to dispose of non-recyclablewastes, such as engine fluids, tires, etc., in an environmentallysafe and cost-efficientway.

10. Time Schedule. Training and supervision of the rehabilitationprogram will be providedfor a period of three years. The identificationof vehiclesto be rehabilitated,workshop equipmentto be financed under the loan and potential rehabilitationcontractors will be carried out in the first two monthsof the assignment. The training of groups of mechanicalstaff using prototype vehicles and assistancewith the contractingout of rehabilitationwill be carried out in the first five months of the assignment.Other training will be carried out in the first nine months of the assignment. Supervision activities will take place throughout the three years of the assignment.

11. Reports. The consultants will submit a short report within two months of the assignment, includingthe list of vehicles to be rehabilitated,workshop equipment for each city, the training program, and the list of potential rehabilitation contractors. Thereafter, short quarterly reports will be submittedon the progress of the vehicle rehabilitationprogram. STAFFAPPRAISAL REPORT

RUSSIAN FEDERATION URBAN TRANSPORT PROJECT

ANNEX 5.6 TECHNICALASSISTANCE TO THECITIES

The following three sets of terms of reference are all aimed at improvingtransit organization and operationsin the 14 project cities.

TERmS OF REFERENCE A: ASSISTANCE TO PROJECTCiTIES' TRANSPORTREGULATORY AUTHORITIES AND URBAN TRANSPORT COMPANIES

BACKGROUND

1. The Russian Federation is undertakinga project (the Project) to support urban transportreforms in a number of cities, arrest the decline in urban transport services throughout the Federation and provide restructuringadvice to the domesticbus manufacturingindustry. The total project cost estimate is US$391 million dollars equivalent and will be financed by the RussianFederation, the World Bank, the European Union (EU) and possiblyother international donors. The Ministry of Finance is the Borrower and the Ministry of Transport (MOT), the ImplementingAgency. Funds will be onlent to the project cities for new vehicles, rehabilitation of vehicles, pfovision of workshopequipment and technical assistance.

2. Current Situation and Basis for the Project. With 74 percent of its population living in urban areas and car ownershiponly about 6 cars per 100 inhabitants,compared to over 40 in Western Europe, Russia is more dependentupon public transport services than any other nation with a similar level of income. Urban transport carried 41.8 billion passengersin 1991, representing an 85 percent share of passenger transportationby all modes, compared to 20 percent in Western Europe and 3 percent in the United States. Russia has one of the three largest urban public transport fleets in the world, with about 105,000 buses providing regularly scheduled urban and suburban service, but is small in terms of vehicles per population. Moreover, the fleet is shrinking. Fast deteriorating equipment conditions, driven by unavailabilityof funds to upgrade and maintain existing fleets, are resulting in out-of-service ratios between 60 percent to 70 percent of the fleet in most cities and break-downsare as high as 20 percent of the fleet. Low service levels are developing as a result; vehicles are overcrowded,averaging over nine passengersper sq.m. at peak and waiting times have increased considerably. Similar, but less severe, problems prevail with tram and trolleybus companies. 120 Annex 5.6

3. The lack of funds, together with the increasing costs and declining domestic productionof buses and increasedcost of imported diesel-poweredbuses has left public transport companieswithout the means to replace its fleet and sustainoperations. Low cost recovery from fares, together with a high number of fare dodgersand fare exemptions(at least one-third of the population and as high as 70-80 percent in some cities), and an inflationary environmenthave increased urban transport companies' operating losses to an estimated Rbl.0 trillion in 1993, roughly 6 percent of GDP. At the same time, as a part of the pattern of general reform, combined with the fiscal crisis of the central Government, the responsibility for capital and operating subsidesto the urban transportindustry has devolved, of necessity, and by decree, to the local level. Local governments, which have increasing responsibilitiesto subsidize other sectors as well as an often insufficienttax revenue base, will have difficulty funding transport losses. Reforms to improve cost recovery, eliminate fare exemptionsand fight fare evaders are greatly needed so that a greater portion of existing subsidies can be used to finance vehicle replacement and other capital needs. In the longer term, Russia's urban transport sector also needs access to more fuel-efficientvehicles (about half the Russianbus fleet is gasoline rather than diesel-powered, and is about 40 percent less fuel efficient) and to develop competitive procurementprocedures that will eventuallystimulate a competitivebus manufacturingindustry within Russia that offers more energy efficient, less-pollutingand longer lasting buses.

4. During projectpreparation, the Bankworked with a number of cities to encourage them to put forward urban transport reform programs. The project will assist fourteen self-selected candidate cities which have met a minimumprogram of urban transport reforms, includingparticularly doublingor trebling cost recovery ratios, as a condition for inclusion of the project. The 14 cities include five of the nation's thirteen cities over one million population and range from 116,000(Velikie Luki) to 1.5 million people (NizhniyNovgorod). All the cities except Omsk are in the European part of Russia. The most stringent requirement for inclusion has been attainmentof at least a 25 percent cost recovery ratio (excludingdepreciation) for the secqnd quarter of 1994.

5. Main Objective of the Project. The main objective of the project is to help the Federal Government replicate reforms and develop more effective urban transport policies throughout the country by demonstratingthe effectivenessof reforms in fourteen self-selected cities, including increasing cost recovery, restructuring the sector, establishing autonomous transit entities, and stimulating private participation in the sector. This objective is to be accomplishedby (a) linking financingof urgently needed replacementvehicles and spare parts to improve vehicle availability to the implementation or reforms in fourteen cities; and (b) strengtheningurban transport institutionsand improvingthe efficiencyof passengertransport operations. To assist cities in their efforts to improve cost recovery and to strengthen their operations, the project will include the provision of technical assistance. The purpose of this terms of reference is to detail the duties and responsibilitiesof assistanceand training that are provided to the project city municipal authoritiesand urban transport entities.

6. Project Description. The entire project includes:

* provision of 1,501 buses and 272 trolleybuseswith spares for fourteen cities; Annex 5.6 121

* rehabilitationof about 997 buses, 327 trolleybusesand 380 trams;

* provision of workshop, computers and other equipment for urban transit companies, plus a fare collectionsystem to be tested in one of the project cities;

* technical assistance and training to assist the cities implementreforms and assist with procurement and monitoringof the project;

* assistance to MOT for studies of, and restructuring advice for, the domestic bus industry and to provide technical assistance and training to assist MOT in developingmore appropriateurban transportpolicies for cities throughoutRussia to help replicate the project's policy reforms in other cities; and to assist in preparation of a follow-onurban transportproject;

* provision of spare parts for transit companies throughoutRussia.

7. Project Benefits. The project will help alleviate the growing shortage of public transport in the 14 project cities and thereby increase the quality of service. Major benefits in the project cities include: (i) reduced passenger waiting times and severe overcrowding; (ii) vehicle maintenancesavings; (iii) higher level of availabilityof the urban transport vehicle fleet; (iv) fuel savings, and (v) improved air quality. The project will also help improve the efficiency of public transport services and the organizationof the sector in the 14 project cites, promote more reforms in other cities and economicurban transportpolicies at the national level, improve the availabilityof existingvehicle fleets in cities throughoutRussia and assist with the development of a viable urban transport vehicle manufacturing industry in Russia. The unquantifiable benefits include important organizational reforms that will be carried out including: (i) establishmentof autonomoustransit agencies completelyseparate from the oblast or municipal governments; (ii) municipal governments and transit companies entering into contracts to set performancetargets and encouragegreater efficiencyfor the provisionof transit services; (iii) municipalities establishing transport departments to regulate transit services; (iv) the introductionof private transportservices on a trial basis; and (v) divestitureof non-urban transport services and taxi services from municipalownership.

8. Objectives.A main objectiveof the assignmentis for cities to achieve increasing cost recovery ratios by raising fares, decreasing the number of fare evaders, ensuring the payment to transit companiesby governmentof fares for exempt or non-exemptpassengers and making transit operations more efficient. These reforms, which concern tariff levels and fare collection, subsidies, improvementof contractualrelationships between the companiesand the local governments, privatizationof competing urban transport entities such as taxis, inter-city buses, mini buses and route taxis, are aimed at creating an environment which encourages a more efficient provision of urban transport services. Another main objective of the loan is to assist the public transport companies in the project cities to modernize and improve the organization, management, and work practices, in line with the experience gained in other countries. The provision of services described will help transit entities in the project cities achieve these objectives. 122 Annex5.6

9. Scope of Work. The consultantswill provide assistance to the project cities and transit enterprises:

(a) To enable them to meet the project's reform measures and performance targets.

(b) To improve the systemof fare exemption and the collectionof fares.

These services are described in detail below.

ENABLiNG PROJEcT CITIES TO MEET THE PRoJEcT's REFORM MEASURES AND PERFORMANCE TARGETS

10. Objectives. The objectives are: (a) to improve and put in place computerized budget preparation and cost accounting procedures so that they can be used as effective management and supervision tools; (b) to develop and put in place managementreporting systems that enable transit managers and city administratorsto monitor transport performance against project targets and city goals; and (c) to assist transit companiesand city administrations in preparing quarterly performancereports required under the project.

11. Main Tasks. These include:

(a) Reviewprocedures currently used in the transit enterprisesin the project cities for recurrent and capital budget preparation and cost accounting. Identify their strengths and weaknesses, particularly in terms of providing managementthe information needed to monitor its performance against project targets.

(b) Discuss with the transport companies the advantages and disadvantages of procedures employedin various other (especiallywestern) countries.

(c) On the basis of the companies' comments, develop improved procedures that (i) remain simple and adaptedto the current economictransition period, (ii) make it easy to take account of productivity improvements, (iii) provide a basis for subsequent developmentand sophistication, and (iv) are easy to computerize. These procedures should be well coordinated with the procedures prepared for improvingthe subsidysystem. They shouldalso be decentralizedwith budget and cost analysis being prepared at depot level before consolidation.

(d) Develop a simple computerizedcost accounting system for all project transit companies. Assist with the procurement and installationof computers (financed under the project) and install the cost accountingsystem for each project transit company. Provide training for transit company staff in the use of the system.

(e) Develop a simple compute program (for example, on the basis of spreadsheets) to facilitate budget preparationand analysis and cost calculations. Annex 5.6 123

(f) Formulate recommendationsregarding the annual schedule for preparation and approval of the companies' budget and for preparation of reports on budget implementationand on costs. Prepare standardreporting forms for the companies managers and the city governments. The budget schedule and the reporting requirements should be consistent with the schedule and reports proposed for improvingthe subsidy allocationsystem and the contractualrelationships between the companiesand the city governments.

(g) Develop and implement management reporting systems that enable transit company managersto monitoroperating and financialresults on a timely basis to help in assessingprocess against projecttargets againstgood practices. This effort should include developingcriteria and techniquesto relate investmentto financial performance:institute more comprehensiveand longer term financialforecasting, if possible, through developmentof a "tops down' forecasting model to enable transit companiesto determinebreak even and cost recovery levels under various tariff, traffic and costing scenarios and to establish the general level of capital expendituresrequired to implementalternative scenarios.

(h) Develop formats for project monitoring and assist transit companies and city administrationsin preparing quarterly reports.

IMPROVEMENTSIN THESYSTM OF FARE EXEMPTIONSAND FARE COLLECTION

12. Objectives.To help local and oblast administrationsto revise the systemof fare exemptionsso as to limit exemptionsand reduced fares for specialgroups to only the mostneedy groups. To help transit companiesrevise fare collectionprocedures and methodsof control so as to limit to the greatest possible extent the number of passengers who do not pay.

13. Main Tasks. These include:

(a) Review the system of fare exemptions and reduced fares in each of the project cities and compare them with the systems used in various other countries.

(b) Examinethe rationalefor fare exemptionsand reduce fares and identify the cases where this rationale may be weak, in particular becauseit may not be consistent with the central government's social policies or because the objectives may be achieved more effectivelyby other means.

(c) Prepare recommendationson how to reform and simply the system, including proposals for implementation(possibly by stages).

(d) Review the proceduresfor collectingfares from the passengersand for controlling payments and compare them with the procedures generally used in other (especiallywestern) countries. 124 Annex 5.6

(e) On the basis of the analysis in part (d) and taking account of the specific characteristicsof transportdemand and vehicle fleet in the project cities, prepare recommendationon how to improve fare collection, including proposals for implementation(possibly by stages).

(f) Assist the local governmentsand public transportcompanies in each of the project cities implementthe measuresthat they have then after review of the consultant's proposals.

ORGANIZATIONOF TECHNICALASSISTANCE

14. The technical assistanceinputs required will require a team of individualsskilled in management,accounting and budgeting,and with extensiveexperience in the urban transport sector. It is suggestedthat the technical assistancebe comprisedof a team that includes experts that will visit the project cities on a rotating basis according to the particular needs of the cities in the areas described above. One of the team should be designated as a team leader, with day- t-day responsibilityfor the consultingaspects of the team's performance (as well as carrying out above-mentioned consulting activities). The team leader will report to the unit chief responsible for Technical Assistance within the Project ImplementationDirectorate (PID) and to the Urban Transport Specialist in the PID. She/he will assist the project managers in the project cities in preparing their quarterly reports. It is suggestedthat the team leader be based in Moscow. The team leader should also develop a monitoring system for any action plans developed by its members within project cities. She/he will assist the chief of the PID monitoringunit in establishinga program of regular visits, reports and action follow-upbetween the PID and project cities, and in developing a reporting system of such visits to the steering committee.

15. 7imetable. The assignmentshould be completedwithin 18 months of the date that the contract becomes effective.

16. Budget. The technical assistance will be funded by the EU. The availabilityof funds for this consultingassignment is given below:

Million ECU Consultantfees 1.15 Equipmentand contingencies 0.05 Total 1.20 Annex 5.6 125

Attachmentto A

STUDYToums

Study tours will be carried out to demonstrateto transit personnel various means of improving the organization and management of public transport operations and organization and managementof vehicle maintenance.

IMPROVEMENT IN ORGANIZATION AND MANAGEMENT OF PUBLIC TRANSPORT OPERATIONS

1. Objective.To inform concernedmanagers of public transport companieswith the organizational and managementpractices or urban bus and electric transport companies in countries or cities that have reformed urban transport and achieved at least a 50 percent cost recovery ratio and to formulaterecommendations on how to implementsuch practicesin Russia.

2. Main Tasks. These include:

a) Organization of a program of visits and seminars for a group of about 25 operationsmanagers to the same cities as for the vehicle maintenancestudy trip. This trip will also last about two weeks and includedetailed presentations, as well as related field visits on the following topics:

(i) network design, planningof operations, optimizationstudies. (ii) implementation: adaptation to specific daily circumstances, field supervision,control systems. (iii) incentivesystems for managersand drivers, control and supervision,labor rules. (iv) managementinformation system. (v) training.

b) After return of the group to Russia, two experts among the main contributorsto the study trip will visit the public transport companies. They will help them formulate solutionsto their most pressingproblems, in particular through the use of the modem practices studied during the trip. The consultantswill deliver and agree an action plan which each city can follow to implement their recommendations.

IMPROVEMENT IN ORGANIZATION AND MANAGEMEN OF VEHICLE MAINTENANCE

3. Objective.To acquaintconcerned managers and line supervisorsof the project's transport companieswith vehicle maintenancepractices in countries or cities that have reformed urban transport and achieved a cost recovery ratio or at least 60 percent. The aim should be to convey how maintenanceof urban bus and electric transport is organized and managed and to recommendhow to implementsuch practices in Russia. 126 Annex 5.6

4. Main Tasks. These include:

a) Organization of a program of visits and seminars for a group of about 35 managers and technical line supervisors to two (European) cities in developed countries. The cities and the public transport companies to be visited will be selected for their cost recovery and for the quality of their maintenance management.At least one of the cities should have a populationgreater than one million. The study trip will last about two weeks and include detailed presentationsas well as field visits on the followingtopics:

(i) general organizationof maintenance. (ii) work methods, tools, and equipment. (iii) planningof work, coordinationwith bus/trolleybusoperations, labor rules. (iv) incentive systems for managers and workers; control and supervision. (v) procurement of spare parts and supplies, quality control, managementof stock, includingcomputerization of spare parts management. (vi) managementinformation system, cost accounting. (vii) training.

b) After the return of the group to Russia, two experts among the main contributors to the study trip will visit the public transport companies. They will help them formulate solutionsto their most pressingproblems, in particular, through the use of the modern practices studied during the trip. They will also purchase and help install computers and software to computerizespare parts management.

5. The Study Tours will be organized by the Project ImplementationDirectorate under the direct responsibilityof the Project Advisor.

6. Timetable.The Study Tours will be undertakenover a twelve month period.

7. Budget. The establishedcost of the study tour is about ECU 0.4 million. Annex 5.6 127

TERMS OF REFERENCE B: ASSISTANCE TO PROJECT CITIES TO IMPROVE THE PLANNING OF URBAN TRANSPORT

BACKGROUND

1. The Russian Federation is undertakinga project (the Project) to support urban transport reforms in a number of cities, arrest the decline in urban transport services throughout the Federation and provide restructuringadvice to the domesticbus manufacturingindustry. The total project cost estimate is US$391 million dollars equivalentand is financed by the Russian Federation, the World Bank, the EuropeanUnion (EU), and possibly other internationaldonors. The Ministry of Finance is the Borrower and the Ministry of Transport (MOT), the ImplementingAgency. Funds are onlent to the project cities for new vehicles, rehabilitationof vehicles, provision of workshopequipment and technical assistance.

2. Current Situation and Basis for the Project. With 74 percent of its population living in urban areas and car ownershiponly about 6 cars per 100 inhabitants,compared to over 40 in Western Europe, Russia is more dependentupon public transport services than any other nation with a similar level of income. Urban transport carried 41.8 billion passengersin 1991, representing an 85 percent share of passenger transportationby all modes, compared to 20 percent in Western Europe and 3 percent in the United States. Russia has one of the three largest urban public transport fleets in the world, with about 105,000 buses providing regularly scheduled urban and suburban service, but is small in terms of vehicles per population. Moreover, the fleet is shrinking. Fast deteriorating equipment conditions, driven by unavailabilityof funds to upgrade and maintain existing fleets, are resulting in out-of-service ratios between 60 percent to 70 percent of the fleet in most cities and break-downsare as high as 20 percent of the fleet. Low service levels are developing as a result; vehicles are overcrowded,averaging over nine passengersper sq. m. at peak and waitingtimes have increased considerably. Similar, but less severe, problems prevail with tram and trolleybus companies.

3. The lack of funds, together with the increasing costs and declining domestic productionof buses and increasedcost of importeddiesel-powered buses has left public transport companieswithout the means to replace its fleet and sustainoperations. Low cost recovery from fares, together with a high number of fare dodgers and fare exemptions(at least one-third of the population and as high as 70-80 percent in some cities), and an inflationaryenvironment have increased urban transport companies' operating losses to an estimated Rbl.0 trillion in 1993, roughly 6 percent of GDP. At the same time, as a part of the pattern of general reform, combined with the fiscal crisis of the central Government, the responsibility for capital and operating subsidesto the urban transport industry has devolved, of necessity, and by decree, to the local level. Local governments, which have increasing responsibilitiesto subsidize other sectors as well as an often insufficienttax revenue base, will have difficulty funding transport losses. Reforms to improve cost recovery, eliminate fare exemptionsand fight fare evaders are 128 Annex 5.6

greatly needed so that a greater portion of existing subsidies can be used to finance vehicle replacement and other capital needs. In the longer term, Russia's urban transport sector also needs access to more fuel-efficientvehicles (about half the Russian bus fleet is gasoline rather than diesel-powered, and is about 40 percent less fuel efficient) and to develop competitive procurement proceduresthat will eventuallystimulate a competitivebus manufacturingindustry within Russia that offers more energy efficient, less-pollutingand longer lasting buses.

4. During project preparation,the Bankworked with a numberof cities to encourage them to put forward urban transport reform programs. The project will assist fourteen self-selectedcandidate cities which have met a minimumprogram of urban transport reforms, includingparticularly doublingor trebling cost recovery ratios, as a conditionfor inclusionof the project. The 14 cities include five of the nation's thirteen cities over one million population and range from 116,000(Velikie Luki) to 1.5 millionpeople (NizhniyNovgorod). All the cities except Omsk are in the European part of Russia. The most stringent requirementfor inclusion has been attainmentof at least a 25 percent cost recovery ratio (excludingdepreciation) for the second quarter of 1994.

5. Main Objective of the Project. The main objective of the project is to help the Federal Government replicate reforms and develop more effective urban transport policies throughout the country by demonstratingthe effectivenessof reforms in fourteen self-selected cities, including increasing cost recovery, restructuring the sector, establishing autonomous transit entities, and stimulating private participation in the sector. This objective is to be accomplishedby (a) linking financingof urgently needed replacementvehicles and spare parts to improve vehicle availability to the implementationor reforms in fourteen cities; and (b) strengtheningurban transportinstitutions and improvingthe efficiencyof passengertransport operations. To assist cities in their efforts to improve cost recovery and to strengthen their operations, the project includes the provisionof technical assistance. The purpose of this terms of reference is to detail the duties and responsibilitiesof assistance and training that are to be provided to the project city municipalauthorities and urban transport entities.

6. Project Description. The entire project includes:

* provision of 1,501 buses and 272 trolleybuseswith spares for fourteen cities;

* rehabilitationof about 997 buses, 327 trolleybusesand 380 trams;

* provision of workshop, computers and other equipment for urban transit companies, plus a fare collection system to be tested in one of the project cities;

* technical assistanceand training to assist the cities implementreforms and assist with procurement and monitoringof the project;

* assistanceto MOT for studies of, and restructuringadvice for, the domestic bus industry and to provide technical assistance and training to assist MOT in developing more appropriateurban transport policiesfor cities throughoutRussia Annex 5.6 129

to help replicate the project's policy reforms in other cities; and to assist in preparation of a follow-onurban transport project;

* provisionof spare parts for transit companiesthroughout Russia.

7. Project Benefits. The project helps to alleviate the growing shortage of public transport in the 14 project cities and thereby increase the quality of service. Major benefits in the project cities include: (i) reduced passenger waiting times and severe overcrowding; (ii) vehicle maintenancesavings; (iii) higherlevel of availabilityof the urban transportvehicle fleet; (iv) fuel savings, and (v) improved air quality. The project also helps improve the efficiencyof public transport services and the organizationof the sectorin the 14 project cites, promote more reforms in other cities and economicurban transport policies at the national level, improve the availabilityof existingvehicle fleets in cities throughoutRussia and assist with the development of a viable urban transportvehicle manufacturingindustry in Russia. The unquantifiablebenefits include important organizational reforms to be carried out including: (i) establishment of autonomoustransit agenciescompletely separate from the oblast or municipalgovernments; (ii) municipalgovernments and transit companiesentering into contracts to set performancetargets and encourage greater efficiency for the provision of transit services; (iii) municipalities establishing transport departments to regulate transit services; (iv) the introduction of private transport services on a trial basis; and (v) divestiture of non-urbantransport services and taxi services from municipalownership.

8. The difficulty of obtaining replacement vehicles for their urban transport companies, particularlyIkarus-made buses, in conjunctionwith fuel shortages, has led a number of municipal governmentsand transport experts to formulateplans to create new trolleybus or tram companies(and, in one case, a metro) to expand transport capacity. In some cities, poles and wires for the trolleybuseshave already been installed, althoughit may be some time before any trolleybusesare purchased. To the city governments, trolleybuses may seem to be a good alternative to buying foreign buses because they are made in Russia and the price is so low. In Western countries, trolleybuses are far costlier than diesel-poweredbuses (at US$300,000 to US$500,000 each, at least twice as expensiveas buses), but in Russia they are cheaper. Trams are imported (mostly from the former Czechoslovakia) and so are far more expensive (US$250,000to US$300,000.) The analysis of new trolleybus or tram systemsis quite complex and would have to take accountof all the economiccosts and benefitsand various options. Given the financial problems of the cities and the need to rehabilitatevehicles and systemsalready in place, it is important that any new investmentsin urban transport be subjected to detailed analysis to if such investmentsare economicallyjustified.

9. Objectives. The objectives of this assignment are (i) to assess the relative economicsof each mode of urban transport(i.e., bus, trolleybus,tram and metro) in each of the project cities; and (ii) to develop a least cost plan based on economic costs for the future developmentof the urban transport system in each project city for the next five years.

10. Scope of Work. For each project city the scope of work includes:

(a) Analysis of existing transport data and conductingtransport surveys. 130 Annex 5.6

(b) Review of urban development plans and identificationof potential economic restructuring at the local level that could affect the demand for urban transport services.

(c) Preparation of traffic demand forecastsbased on different scenariosof economic conditionsand strategiesfor managingdemand for urban transport services, such as staggered work hours.

(d) Estimation of financial and economic operating costs for all modes or urban transport, to be estimatedin conjunctionwith consultantsworking on establishing a cost accountingsystem for the transit companies.Projection of the real increase in costs, particularly where financial prices do not reflect economic costs.

(e) Preparation of cost estimatesfor each strategy to enable economic and financial analyses to be carried out.

(f) Preparationof transport strategies (singleor multi-mode,depending on the city), for the next five years, taking into account the scarcity of financialresources and the need to stress low cost measures and policy interventions,and likely change in costs of urban transport.

(g) Evaluationof alternativestrategies in quantitative(capacity, operation, economic, financial, environmental)and qualitative terms.

(h) Refinementand selectionof least cost urban transport investmentstrategy for the next five years, taking into account the likely availabilityof financial resources.

The above tasks vary in magnitude,depending on the size of the city. Some of the smallercities only have one mode of transport, while the larger cities have all modes - bus, trolleybus, tram and metro.

11. To the extent possible, the economicand financialanalysis should be kept simple and urban transportplans limited to key investmentdecisions that need to be taken over the next five years. The primary focus of the economicand financialanalysis is to include the size of bus for different routes according to passenger traffic levels, possible role of natural gas buses, and economic and financialjustification of trolleybus and tram systems. Environmentalcosts and benefits are assessed and taken into considerationin the analysis. The consultantsalso make recommendationson demand management, especially on how to reduce peak demand by introducing such measures as staggered work hours.

ORGANIZATION OF TECHNICALASSISrANCE

12. The technical assistance inputs require a team of individuals skilled in the economics and financial analysis of urban public transport, and privatization of urban public transport services. The technical assistance should be comprisedof a team of experts that visit the project cities on a rotating basis according to the particular needs of the cities in the areas Annex 5.6 131

described above. One of the team should be designated as a team leader with day-to-day responsibility for the consulting aspects of the team's performance (as well as carrying out above-mentionedconsulting activities). The team leader reports to the unit chief responsiblefor Technical Assistance within the Project ImplementationDirectorate (PID). It is suggestedthe team leader be based in Moscow.

13. Reporting. Quarterly reports on the progress of the assignmentare submittedto the PID, including the status and content of contractual relationships between the city governmentsand public transport companies, and progress with privatizationof urban transport services.

14. TImetable.The assignmentshould be completedwithin 18 monthsof the date that the contract becomes effective. I Annex 5.6 133

TERMS OF REFERENCEC: ASSISTANCE TO PROJECT CITIES FOR THE REGULATION, FINANCINGAND PRIVATIZATION OF URBAN TRANSPORT

BAcKGRouND

1. The Russian Federation is undertakinga project (the Project) to support urban transport reforms in a number of cities, arrest the decline in urban transport services throughout the Federationand provide restructuringadvice to the domestic bus manufacturingindustry. The total project cost estimate is US$391 million dollars equivalentand is financed by the Russian Federation, the World Bank, the European Commission(EC) and possibly other international donors. The Ministry of Finance is the Borrower and the Ministry of Transport (MOT), the ImplementingAgency. Funds are onlent to the project cities for new vehicles, rehabilitationof vehicles, provision of workshopequipment and technical assistance.

2. Current Situation and Basis for the Project. With 74 percent of its population living in urban areas and car ownershiponly about 6 cars per 100 inhabitants,compared to over 40 in Western Europe, Russia is more dependentupon public transport services than any other nation with a similar level of income. Urban transport carried 41.8 billion passengers in 1991, representing an 85 percent share of passenger transportationby all modes, compared to 20 percent in Western Europe and 3 percent in the United States. Russiahas one of the three largest urban public transport fleets in the world, with about 105,000 buses providing regularly scheduled urban and suburban service, but is small in terms of vehicles per population. Moreover, the fleet is shrinking. Fast deteriorating equipment conditions, driven by unavailabilityof funds to upgrade and maintain existing fleets, are resulting in out-of-service ratios between 60 percent to 70 percent of the fleet in most cities and break-downsare as high as 20 percent of the fleet. Low service levels are developing as a result; vehicles are overcrowded,averaging over nine passengersper sq.m. at peak and waiting timeshave increased considerably. Similar, but less severe, problemsprevail with tram and trolleybus companies.

3. The lack of funds, together with the increasing costs and declining domestic productionof buses and increasedcost of importeddiesel-powered buses has left public transport companieswithout the means to replace its fleet and sustainoperations. Low cost recovery from fares, together with a high number of fare dodgers and fare exemptions(at least one-third of the populationand as high as 70-80 percent in some cities), and an inflationary environmenthave increased urban transport companies' operating losses to an estimated Rb1.0 trillion in 1993, roughly six percent of GDP. At the same time, as a part of the pattern of general reform, combined with the fiscal crisis of the central Government, the responsibility for capital and operating subsidesto the urban transport industry has devolved, of necessity, and by decree, to the local level. Local governments, which have increasing responsibilitiesto subsidize other sectorsas well as an often insufficienttax revenue base, have difficultyfunding transport losses. Reforms to improve cost recovery, eliminatefare exemptionsand fight fare evaders are greatly 134 Annex 5.6 needed so that a greater portion of existing subsidiescan be used to finance vehicle replacement and other capital needs. In the longer term, Russia's urban transport sector also needs access to more fuel-efficient vehicles (about half the Russian bus fleet is gasoline rather than diesel-powered, and is about 40 percent less fuel efficient) and to develop competitive procurement proceduresthat will eventuallystimulate a competitivebus manufacturingindustry within Russia that offers more energy efficient, less-pollutingand longer lasting buses.

4. During project preparation,the Bankworked with a numberof cities to encourage them to put forward urban transport reform programs. The project will assist fourteen self-selectedcandidate cities which have met a minimumprogram of urban transport reforms, includingparticularly doubling or trebling cost recovery ratios, as a condition for inclusion of the project. The 14 cities include five of the nation's thirteen cities over one million population and range from 116,000 (VelikieLuki) to 1.5 million people (NizhniyNovgorod). All the cities except Omsk are in the European part of Russia. The most stringent requirement for inclusion has been attainmentof at least a 25 percent cost recovery ratio (excludingdepreciation) for the second quarter of 1994.

5. Main Objective of the Project. The main objective of the project is to help the Federal Government replicate reforms and develop more effective urban transport policies throughout the country by demonstratingthe effectivenessof reforms in fourteen self-selected cities, including increasing cost recovery, restructuring the sector, establishing autonomous transit entities, and stimulating private participation in the sector. This objective is to be accomplishedby (a) linking financingof urgently needed replacementvehicles and spare parts to improve vehicle availability to the implementationor reforms in fourteen cities; and (b) strengtheningurban transportinstitutions and improvingthe efficiencyof passengertransport operations. To assist cities in their efforts to improve cost recovery and to strengthen their operations, the project includes the provisionof technical assistance.The purpose of this terms of reference is to detail the dutiesand responsibilitiesof assistanceand training that are proposed to be provided to the project city municipalauthorities and urban transport entities.

6. Project Description. World Bank financingfor the project includes:

* provision of 1,501 buses and 272 trolleybuseswith spares for fourteen cities;

* rehabilitationof about 997 buses, 327 trolleybusesand 380 trams;

* provision of workshop, computers and other equipment for urban transit companies, plus a fare collection systemto be tested in one of the project cities;

* technical assistanceand training to assist the cities implement reforms and assist with procurement and monitoring of the project;

* assistance to MOT for studies of, and restructuringadvice for, the domestic bus industry and to provide technical assistance and training to assist MOT in developingmore appropriateurban transportpolicies for cities throughoutRussia Annex 5.6 135

to help replicate the project's policy reforms in other cities; and to assist in preparation of a follow-onurban transport project;

* provision of spare parts for transit companiesthroughout Russia.

7. Project Benefits. The project helps alleviate the growing shortage of public transport in the 14 project cities and thereby increase the quality of service. Major benefits in the project cities include: (i) reduced passenger waiting times and severe overcrowding; (ii) vehicle maintenancesavings; (iii) higherlevel of availabilityof the urban transport vehiclefleet; (iv) fuel savings, and (v) improved air quality. The project also helps improve the efficiency of public transport services and the organizationof the sector in the 14 project cites, promote more reforms in other cities and economic urban transport policies at the national level, improve the availabilityof existingvehicle fleets in cities throughoutRussia and assist with the development of a viable urban transportvehicle manufacturingindustry in Russia. The unquantifiablebenefits include important organizationalreforms that are carried out: including: (i) establishmentof autonomoustransit agenciescompletely separatefrom the oblast or municipalgovernments; (ii) municipal governmentsand transit companiesentering into contracts to set performancetargets and encourage greater efficiency for the provision of transit services; (iii) municipalities establishingtransport departments to regulate transit services; (iv) the introductionof private transport services on a trial basis; and (v) divestiture of non-urban transport services and taxi services from municipalownership.

TECEIcAL ASSISTANCE

8. Objectives. A main objective of the technical assistance is to improve the efficiencyof transit operationsby improvingcontractual relationships between the companiesand the local governments, rationalizing subsidies for urban transport, and introducing private provision of urban transport services.

9. Scope of Work. The consultantsprovide assistanceto the project cities and transit enterprises:

(a) To improve the charters of the project companies and their contractual relationshipswith the city and oblast governments.

(b) To help implement more transparent procedures for allocation of subsidies to urban transport companies.

(c) To introduce private provision of urban transport services.

IMPROVEMENTSIN THECHARTERS OF THE PRoJECT COMPANIESAND THEIR CONTRACTUAL RELATIoNsEiPs WITH THE CITY GovERNmENTs

10. Objective. To develop charters and contracts for the project companies which provide for autonomouscompanies with clearly defined relationshipswith the local governments, measurementof performance, and accountability. 136 Annex 5.6

11. Main Tasks. These include:

(a) Review the charters of the operating companies in the project cities, as well as the various contracts among the local governments, the companies' senior managers,and the depot managers.Compare them with the charters and contracts in use in successfulurban transport organizationsin other countries.

(b) Developproposed charters for each of the operatingcompanies and discuss them with the officials of the companies and of the local governments; the charters clearly set forth the main responsibilities of the operating companies, the principles under which they operate, their general organization, cost recovery targets and financing mechanisms.In particular, the charters should ensure that the operatingcompanies are free to take all decisionsregarding their organization, operations, maintenance, purchase of spare parts and materials, financial transactions,and personnel matters, or as otherwisedefined by their owners, the local governments.

(c) Formulate detailed contracts between the local governmentsand the companies' senior managers which set forth the objectives of the companies in terms of service (particularly routes and frequencies) and efficiency, with quantitative targets (including cost reduction and efficiency in terms of cost per revenue passenger-kilometerand cost recovery targets) whenever possible. Develop detailed subcontractsbetween the companies' senior managersand the managers of the depots.

(d) After review of the existing systems for subsidy allocation in the project cities with special attentionto their results in 1994, develop an urban transport subsidy system which includes:

* calculationof actual costs; * targets for improvementsin cost recovery; * maximizationof passengeryields and minimizationof operatingcosts; * incorporationof incentives for transit companies to improve fare collection and reduce costs; * protectionof transit companiesfrom erosion of cost recoverydue to undue delays in tariff increases; * proceduresfor regular accountingand reporting designedto ensure that subsidy funds are expended only on urban transport in the city providing the funds; * coordinationwith improved computerizedprocedures for budget preparation; * proceduresand schedulesfor preparationof subsidy requestsand for their review and approval by local governmentsin coordination with local budget approval procedures.

(e) Formulate a mechanism to link part of the salary of the companies' senior managers and depot managersto the achievementof their objectives. Annex5.6 137

(f) Develop procedures and schedules for reporting, regular review of the performance of the companies, and updating of the contracts.

(g) Formulate recommendationsfor strengtheninglocal governmentsso that they can supervisethe companieseffectively as establishedin the charters and contracts.

(h) Ensure that the proposed systems and procedures are consistent with improvements recommended in other studies regarding budget and cost accounting.Also ensure that the proposalsare consistentwith existingregulations on the control of state-owned enterprises, as well as new regulations being developed as part of the general technical assistance to the State Property Committeeon enterprise reform. In this context, ensure that the public transport companieshave a clear legal status (possiblythat of Joint Stock Companywith the State as sole owner).

FORMULATnONAND IMPLEMENTATION OF MEASURESTO ENCOURAGETHE PROVISIONOF URBAN PUBLC TRANSPORT SERVICES BY THE PRIVATE SECrOR

12. Objectives. To introduce the private provision of urban transport services and to ensure efficient competition.

13., Main Tasks. These include:

a) Reviewexisting licensingstandards and proceduresand compare with those used in countries with the most efficient urban public transport services.

b) Identify changes in the regulatory framework required to facilitate the entry of qualified private suppliers of urban public transport services. The objective should be that any person or company willing to provide any type of public transport service would be authorized to do so as long as it meets national standards regarding safety and pollution and can show the necessary minimum level of professional capability. Recommend, in particular, improvements in organizational arrangements and staffing so that license requests are processed expeditiouslyand fairly and help Governmentimplement these improvements.

c) Identify public transport needs that are not being adequately met by existing services and formulate measures to encourage entrepreneurs to provide them.

d) Formulate a set of minimumregulations, as well as monitoringand enforcement mechanisms,to ensure that the qualityand reliability of public transport service providedby private operatorsis adequate,the interestsof the generalurban public are safeguarded, and efficient business practices are maintained. Liaise with MOT's legal task force to ensure compatibility with federal legislation in this area. 138 Annex 5.6

e) Review local regulationsand proceduresthat may be relevant to the competitive tender of public transport routes. Identify potential bidders and analyze their constraints (human resources, equipment, finance, etc.) which may affect their operations.

f) On the basis of the experience of other countries, identify routes that could be tendered and propose implementationmeasures to do so, with special emphasis on. service standards, bidding documents and procedures, and supervision mechanisms.

g) Help implementcompetitive tendering of public transport for at least two routes in each of the project cities, and monitor the performance of the successful bidders.

14. Training. The consultants give seminars to the project cities on contractual relationshipsof public transport companiesand city governments,financing of urban transport and privatizationof urban transport services.They also arrange for study tours as detailedin the attachmentto these terms of reference.

15. Organization of Technical Assistance. The technical assistance inputs require a team of individuals skilled in the regulation and financing of urban public transport, and privatization of urban public transport services. The technical assistance should be comprised of a team of experts to visit the projectcities on a rotating basis accordingto the particularneeds of the cities in the areas describedabove. One of the team should be designatedas a team leader with day-to-day responsibilityfor the consultingaspects of the team's performance (as well as carrying out above-mentionedconsulting activities). The team leader reports to the unit chief responsible for TechnicalAssistance within the Project ImplementationDirectorate (PID). It is suggestedthe team leader be based in Moscow.

16. Reporting. Quarterly reports on the progress of the assignment to be submitted to the PID, including the status and content of contractual relationships between the city governmentsand public transportcompanies, and progress with privatizationof urban transport services.

17. Timetable.The assignmentshould be completedwithin two years of the date that the contract becomes effective. Annex 5.6 139

Attachment to C

STUDYTouRs

Objective. Studytours will be carried out to inform central and local government officials and managers of urban transport companiesof the lessons of experience and modem practices in the regulation, financing and privatization of urban transport and formulate recommendationson how to implementsuch practices in Russia.

2. Main Tasks. These include:

(a) Study trips

(i) The consultants will organize a program of visits and seminars for two groups of about 15 persons each to two European cities. The cities and the public transport companiesto be visited will be selected for the efficiency of their transport systems and the developmentof contractual relations with public transport companies and privatization of urban transport services. The two cities are in different countries. One is of a size of at least one million population. The main urban transport modes are urban buses, trolleybuses,and trams.

(ii) The focus of the study tours is to:

- Roles of central and local governmentsin urban transport. - Governance of public transport enterprises, contractual relationships between the companiesand the government,performance assessment. - Tariff and subsidy policies, their implementation as part of government/enterprisecontractual relationships. * Actual and potential role of the private sector, innovativeapproaches and their implementation. * Alternativemeans of introducingprivatization of public transport services, including contractingout routes.

(iii) The study tours include well prepared presentationswith extensiveuse of audiovisualand distributionof written materialsin Russian. Althoughonly two cities are visited for practical reasons, interestingsolutions developed in other cities are also to be presented in seminars given by the consultants.

The Project ImplementationDirectorate will assist with the organizationof the study tours.

3. Timetable.The study tours are undertakenover a twelve month period. m STAFF APPRAISAL REPORT

RUSSIAN FEDERATION URBAN TRANSPORTPROJECT

ANNEX 5.7 PROJECT COST ESTIMATES

Table 1: PROJECT COST ESTIMATES

Local Costa Foreign Costs Total Costs Foreign Exchange Component (US$ nmillion) (percent)

New vehices

Buses - Bank financed 0.0 198.4 198.4 100 Buses-City financed 21.6 21.6 43.2 50

Natural gas buses - Bank financed 0.0 1.5 1.5 100

Trolleybuses- Bank financed 0.0 25.3 25.3 100

Trolleybuses - City financed 9.9 0.0 9.9 0 Totafor component 31.5 246.8 278.3 89 Rehabiltatin of veiles

Buses - spares 3.7 11.1 14.8 75

Buses - local and other 3.5 0.0 3.5 0 Trolleybuses- spares 1.8 1.8 3.6 50

Trolleybuses- local and other 1.3 0.0 1.3 0

Tranms- spares 0.0 15.2 15.2 100

Tranms- local and other 2.5 0.0 2.5 0 Totalfor component 12.8 28.1 40.9 69 Workshop and office equipment Workshop equipment 0.3 5.6 5.9 95 Computer and office equipment for cities 0.1 1.7 1.8 94 Computer and office equipment for PID 0.2 0.0 0.2 0 Fare collection system 0.0 1.0 1.0 100 Toa for componen 0.6 8.3 8.9 93 National spare parts program 0.0 50.0 50.0 100 TechniCal assistance and training Manufacturing study 0.0 3.0 3.0 100 MOT policy 0.0 0.4 0.4 100 Procurement 0.0 3.4 3.4 100 Preparation for second project 0.0 1.2 1.2 100 Vehicle rehabilitation 0.0 0.6 0.6 100 Assistance for cities 0.0 2.5 2.5 100 Institutional reforms 0.0 1.8 1.8 100 Toal for component 0.0 12.9 12.9 100 Total costs 44.9 346.1 391.0 89 Taxes and duties Taxes and duties are estimated at US$11 million. 142 Annex5.7

Table 2: PROJECT BASE COSTSBY YEAR (US$ million)

Base Costu Foreign Exchange

1995 1996 1997 1998 1999 Total Percent Amount

Investment costs Equipment 161.4 49.0 62.1 5.8 0 278.3 89 246.8 Rehabilitationof vehicles 10.8 12.5 13.2 3.2 1.2 40.9 69 28.1 Workshop, office 7.8 1.1 0 0 0 8.9 93 8.3 equipment and fare collection system National spare parns 10.0 15.0 20.0 5.0 0 50.0 100 50.0 program Technical assistanceand 4.6 6.2 1.7 0.4 0 12.9 100 12.9 training Total project costs 194.6 83.8 97.0 14.4 1.2 391.0 89 346.1

Table 3: FNANCINGPLAN BY COMPONENTS (US$ million)

covernment IBRD EC Total USS USS USS USS Foreig million % million % million % million % Exchange

Equipment 53.1 19.1 225.2 80.9 0 0 278.3 71.2 246.8 Rehabilitationof vehicles 7.3 17.8 33.6 82.2 0 0 40.9 10.5 28.1 Workshop, office equipment 0 0 8.9 100.0 0 0 8.9 2.2 8.3 and fare collection system National spare parts program 0 0 50.0 100.0 0 0 50.0 12.8 50.0 Technical assistance and 0 0 11.1 86.0 1.8 14.0 12.9 3.3 12.9 training Total disbursement 60.4 15.4 328.8 84.1 1.8 0.5 391.0 100.0 346.1 STAFFAPPRAISAL REPORT

RUSSIANFEDERATION URBAN TRANSPORTPROJECT

ANNEX5.8 THE PROJECTIMPLEMENTATION DIRECTORATE

1. Background.To prepare, implementand coordinatethe Urban Transport Project, MOT has established the Project ImplementationDirectorate (PID) as an entity within the Department of AutomobileTransport by Order No. 14 dated August 4, 1994, and following regulations contained in that order. The unit is staffed by staff delegated from MOT and is headed by a Project Director (PD), assisted by staff as shown in Chart 1 of Annex 5.10. The PD reports to the Urban Transport Project CoordinatingCouncil (the Council)which comprises representatives of the project cities and MOT. The Council is chaired by a representative of MOT. The Deputy Chairpersonsare drawn from the cities on a rotating basis or elected by city representatives(Annex 5.10, Chart 2).

2. The PID is also assisted by two consulting services under separate Terms of Reference (TOR): (a) a Project Advisor (PA); and (b) a procurement services firm. Both services are provided by consulting firms and are financed under the Project. The PID is provided with suitable office space and communicationand office equipment.

3. PID Functions.Under the direction of the Committee,the PID is the focal point for the project, is responsiblefor its successfulexecution, and has undertakensupervision of the project. It acts as a service agency and agent to the cities, for those componentsto be procured by the cities, and directly for those project componentswhich are directly the responsibilityof the MOT. The PID functionsare listed below and shouldbe read in conjunctionwith the Bank's Procurement Guidelines, Disbursement Handbook and Guidelines for Financial Reporting and Auditing:

(a) coordinationwith and between cities; (b) liaison with other donors and the World Bank; (c) procurement of major items; (d) administrationof the national spare parts program; (e) engaging and supervising the project technical assistance assignments; (f) procurement training; (g) disbursementactivities; (h) monitoring, accountingand auditing;

1. The term 'city' used throughoutthese TOR covers also the city transportcompanies. 144 Annex 5.8

(i) reporting; and (.i) policies concerning the above.

4. Coordination. The PID is the means and forum for coordination between cities. This includes coordinating and assisting the cities' preparation and implementation activities including agreement on each city's needs, the cities' project implementation organizations, the financial arrangements, the execution schedules and the documents required for procurement. The PID coordinates achieving the level of consistency required for successful project implementation. The degree of consistency varies according to the project activity, e.g., International Competitive Bidding (ICB) documents and procedures are standard for all ICB procurement; project related computer applications should be identical; however, city implementation arrangements may vary according to existing city organizational structures. The PID has issued project preparation and implementation guidelines and, with each city, assists in the drawing up a project preparation and implementation plan and schedule with responsibilities clearly defined. The plan and schedule form the basis of project monitoring and reporting for each city. The PID arranges and coordinates meeting between city officials and issues information to cities on a regular basis on project activities. The PID also coordinates project related MOF and MOT activities.

5. Liaison. The PID provides liaison with donors, the MOF and other concerned ministries, other public entities and the World Bank. In this regard, the PID is the consolidated repository for project information and data which it makes available to concerned entities in appropriate formats.

6. Procurement. Using the Procurement Services Firm, the PID has general responsibility for the administration of the procurement of equipment, goods and services. It acts as a procurement agent for the cities and is delegated powers in this regard by the cities for city procurement. In undertaking procurement of equipment and goods, the PID follows the World Bank Guidelines for Procurement under IBRD Loans and IDA Credits and, for selecting and employing professional services, follows the Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency. The PID also is familiar with and follows the procurement provisions of the Loan Agreement. The PID is responsible for organizing authorized prebid conferences and for arranging for preshipment and post delivery inspections. The PID also coordinates with the cities and MOT in collecting documentation such as inspection certificates, certificates of origin/manufacturer, manufacturers'/suppliers' guarantees, bills of lading, insurance certificates and is responsible for arranging for arranging for or facilitating clearance through customs. The specific responsibilities and arrangements for procurement are as follows;

(i) Provision of 1,501 new buses and 272 trolleybuses with spare parts

As the end user and owner of the buses and trolleybuses are the cities, the role of the PID is to undertake the procurement on behalf of and with the full participation of these cities. Procurement follows ICB procedures using the World Bank's standard documentation. Using the coordination approach outlined above, the PID is responsible for producing the final draft of the bidding documents and AnnexS.8 145

agreeing these with the cities prior to their being submitted to the Bank for its comments and/or "no objections". An evaluationcommission will be set up to receive and evaluate the bids. The role of the PID (and its advisers) and the PD will be to act as the technical resource and secretariat to this commission.The commissionwill comprise staff of MOT and cities with the majoritybeing drawn from city staff. From among its members, the commission will choose its own chairman (who should not be a member of the PID). After receipt of bids by the commission,the PID will assist the commissionwith its evaluation:and making recommendationsto the Council accompanied by detailed evaluation reports. After review and discussion,the Councilwill forward the recommendedaward(s) to the Bank. Contractswill be signed by the PID acting as agent under the written authority of the cities.

(il) Rehabilitation of 997 buses, 327 trolleybuses and 380 trams

Procurementfor the rehabilitationprogram will comprise: (a) the procurementof spare parts and (b) contractingout of vehicle rehabilitationwork.

Procurement.Procurement for the rehabilitationwill comprise (a) contractingout rehabilitation work - first initial urgent work under International Shopping followed by Limited International Bidding for the bulk of the work: (b) procurementof spare parts for in-house rehabilitation(see Section G, Chapter V of the SAR for details). Most of the procurementwill be undertakenby the cities themselveswith contracts signed by the cities.

Training, Advice and Assistance. The role of the PID will be to provide procurement training and advice to the cities. For this, the PID will rely largely on two of its consultingservices: (i) the ProcurementServices firm; and (ii) the Vehicle Rehabilitation Technical Assistance. The assistance will include the development of eommon specifications and contract documents suitable for rehabilitation work and acceptable to the World Bank for use under Limited InternationalBidding and InternationalShopping procedures.

Selection of Vehiclesand ProcurementMethods. Through the above consulting services, each city will confirm and/or revise the list of vehicles to be rehabilitatedin the first year and agree on whether these should be rehabilitated by contract or in-house.

Rehabilitation Assistance. During the implementation of the rehabilitation program, the PID will oversee the vehicle rehabilitationassistance consultants work, including the advice and assistance on preparation for, and ongoing, in- house rehabilitationwork, and setting up appropriateinspection arrangements for rehabilitationby contract.

2. To be disussd and agreedwith the Bank,and u the evaluationprocedure will be includedin the bid documents,agreed prior to isuan of bidsdocuments. 146 Annex 5.8

(iii) National Spare Parts Program

Under the Order creating the PID, on behalf of MOT, the PID will be responsible for procuring the spare parts. The PID will consolidate the lists of spares and prepare specifications.Spares should be combined in packages with ICB being used for all packages. For all ICB procurement, the PID will be responsibleto an MOT National Spare Parts Program evaluationcommittee which will set PID proceduresfor the Program and make award recommendations.Contracts will be signed by the MOT.

(iv) Workshop and Computer Equipment

The responsibilitiesand arrangementswill generally follow 6(i) above. Working with the cities, the PID will be responsible for the preparation of draft specificationsto be agreed by the cities prior to invitationof bids. Contracts will be signed on an agency basis by the PID.

(v) Technical Assistance and Training

There are seven assignmentsto be providedby consultingservices to be managed by the Technical AssistanceUnit. These are:

(a) the PA; (b) procurement services includinginspection services; (c) technical assistance to the cities; (d) bus manufacturingstudies and advice; (e) urban transport policy advice; (f) preparationof a second urban transport project; and (g) study tours/training

The PID will be responsiblefor the contractingof consultingservices. Cities will take part in the selectionprocess for assignmentswhich will involve their cities. Selectionand employmentof consultantswill follow the Bank's Guidelines and the Loan Agreement with selectioncommittees being formed for the purpose. The PID will prepare the initial draft of the TORs for the assignments (with assistance by the Bank). Selection committees will discuss and agree the TORs, selectinga short list of firms to be invited to submit proposals. The PID will form an evaluation committee to evaluate the consulting firms' proposals, the selection committee will review this evaluation and recommendcontract award. City representativeswill serve on the selection committees for assignments(i), (ii) and (iii) above. The PID will be responsiblefor facilitatingthe consultants' access to projectrelated documentsand governmentagencies. Contractswill be signed by the PID acting for MOT. The World Bank will require for its prior review the assignmentTOR, the method of selection,and Letters of Invitationprior to proposals being invited. After evaluationand prior to issuing the invitation to negotiate, the Bank will wish to receive for comment a copy of the winning proposal and the evaluation Annex 5.8 147

report. After negotiations and prior to award, the Bank will require for its review all contracts greater than US$100,000for firms and greater than US$50,000 for individuals.

(vi) ProcurementMonitoring

The PID will set up a computer based procurement monitoring system in Moscow and advice the cities in setting compatiblesystems. The procurementmonitoring systems will be an input to and should also be compatiblewith the overall project monitoring system (see below).

(vii) Trainingand Advice

Based on the above and the Bank's Procurementand ConsultantsGuidelines, the PID will prepare a manual defining the policies and procedures to be followed by both itself and by the cities. The PID will also provide advice and training to the cities in procurement and contract administration. The PID will assist in setting up the Project Launch Workshop (PLW) and other project training seminars.

7. Disbursement. The PID will be responsible for the preparation of withdrawal applications and the collection, maintenance of all relevant documents. The work will be managedby the Finance/Accountsand DisbursementsUnit. The DisbursementHandbook which details disbursementprocedures for IBRD Loans, provides the informationon procedures and should be considered a part of these TOR. Withdrawal applicationswill be fully documented, except for expendituresagainst contracts less than US$50,000 equivalentwhich will be made on certified statementsof expenditures(SOEs) detailing the individualtransactions. The documents to support these expenditureswill be retained by the PID for at least one year after the receipt by the Bank of the audit report for the year in which the last disbursement was made. This documentation will be made available for review by the auditors (see sections below on "Finance/Accountsand Auditing") and the Bank upon request. On behalf of the MOF, the PID will be responsiblefor the opening of a Special Accountin a bank to be agreed with the World Bank and the maintenanceof that account in accordance with the regulations of the Russian Federationand the World Bank. The PID will arrange for each of the project cities to open local imprest accounts and set up acceptable accountingsystems.

8. Finance/Accountsand Auditing. The PID will establisha managementinformation systems for all project activities managed by the Finance/Accountsand AuditingUnit which, at a minimum, will cover:

(a) The financial aspects of equipment and goods procurement activities. (b) The financial aspects of all consultants' contracts. (c) All other financialactivities includingpayments and disbursements. (d) An accounting system following generally accepted international standards in order to provide informationon the receipt and use of funds and in line with the terms of the Loan and SubsidiaryLoan Agreements.The system would ensure timely and accurate accountingof all transactionsunder the loan and sub-loans, and a clear presentationof financial information. It should enable identification 148 Annex 5.8

of the use of all funds by components and categories of equipment and goods procured and consultantsemployed and paid under the project. The accounting system should reflect the movement and receipts and payments through the Special Accountwith balancesagreed with monthlyfinancial statementsfrom the holding commercialbank and with periodic statements from the World Bank. (e) An auditing system to meet the requirements of the Government of the Russian Federation and the World Bank with the PID audited in accordance with International Accounting Guidelines by an auditor retained by the MOF and acceptable to the Bank.

9. Detail requirementsfor the above, includingthe determinationof responsibilities for the provision of data and reports on subloanswill be developedprior to the PLW.

10. Reform and Supervision Monitoring and Reporting. The PID (and where appropriate, with the cities), through the Reform Monitoring and Reporting Unit, will be responsible for preparing the followingreports;

(i) Annual financialstatements of World Bank-financedcomponents to be auditedas noted in para 7 and submittedto the World Bank;

(ii) Semi-annualprogress reports in a format to be agreed with the World Bank covering all project componentsand based on the information systems indicated in para 7 above. These reports will include: (a) progress achievedagainst agreed implementationand disbursementschedules, including number of contracts for goods and vehicle rehabilitationworks awarded, number of buses and quantityof spare parts delivered, number of urban transport vehicles rehabilitated, and project monitorabletargets and perfdrmance indicators, and (b) work programs and cost estimates for the coming six months and for the total project;

(iii) The cities will provide regular reports to the PID on the above including,monthly financial statementsand, on a quarterly basis, progress with implementationof the reform program; and

(iv) Project preparationand progress using appropriateCPM and PERT systems.

11. Information Exchange. Using the management system, the PID will make informationavailable (possiblyby newsletter) on a regular basis to interested parties including other cities in the Russian Federation, entities of the Government,actual and potential donors and to the participantsin the project.

12. Developmentof PID Policies and Procedures.The detailed functionsof the PID and its structure, policies and operationswill evolve over time. These TOR provide a starting point for these operations; however, it is expected that they will be revised, amplified and ame9ded from time to time to more adequatelymeet the needs of the project. Annex 5.8 149

Attachment PROJECT IMPLEMENTATION DIRECTORATE PROJECT DIRECTOR - JOB DESCRIPTION

1. The Project Director (PD) shall be in charge of the Project Implementation Directorate set up to coordinate and facilitatethe preparation and implementationof the IBRD- financed Urban Transport Project. The PID will act as a service and implementingagency for the project cities and for the MOT. The PD will therefore be responsiblefor the day to day project managementof the project in accordancewith the PID Terms of Reference (TOR) and for the effective managementof the PID itself.

2. The PD will be responsible to the Chairman of the Urban Transport Project CoordinatingCouncil composed of representativesfrom the Ministry of Transport (MOT) and from the cities participatingin the Project (see Chart 1, Annex 5.10). In operatingthe PID, the PD will be assisted by a small staff and by a Project Adviser (PA) who will provide assistance in project managementincluding the setting up of informationsystems, procurement, inspection and training.

3. In particular, the PD will be responsible (inter alia) for:

(i) setting up the PID office and procuring appropriateoffice equipment;

(ii) setting personnel and operatingpolicies for the functioningof the PID;

(iii) planning PID, project and procurementactivities;

(iv) coordination with and between city officials, city Project Managers, and bus enterprise project personnel;

(v) acting as the focal point for communicationswith the IBRD;

(vi) liaising with other Ministries and involved Governmentagencies - particularly Customs;

(vii) overseeingPID procurementand monitoringcity procurement;

(viii) establishingbid evaluationscommittees in accordancewith PID TOR;

(xi) administeringthe national spare parts program;

(x) supervising the project technical assistance assignments;

(xi) administeringthe procurement training program; 150 Annex 5.8

(xii) overseeing all financialactivities including: * setting up the project accountingsystem; * setting up the project SpecialAccount and assisting with the setting up of city Special Accounts; * acting as signatory to WithdrawalApplications and the PID Special Account; * setting up WithdrawalApplication and documentationprocedures; * arranging for the submissionof Applications for a Special Commitment to allow the opening of Letters of Credit; * arranging for the necessary administrativemeasures and accounts for the use of Statementsof Expenditureby the PID and the cities; * setting up financialreporting systems; and * complyingwith Russian Governmentand IBRD audit requirements;

(xiii) managingthe setting up and operationof informationand project reporting systems for Government,the project and other cities, the IBRD and other involvedparties;

(xiv) serving as representativefor the MOT on project matters.

4. Initially, the work of the PID will cover a continuation of project preparation activities - principally the preparation and issuance of bidding documents for major items of procurementand followingIBRD selectionprocedures for the engagementof consultants.

5. The PD will assist the Councilin developingprocedures for its functioning,will attend all meetings of the Committeeand will arrange for minutes to be kept of the Council's procedures. The PD will provide regular and ad hoc reports to the Council.

6. It is anticipatedthat the PID will be set up before the employmentof the PA. In the interim, the PID will be assisted by a consulting firm experienced in IBRD procurement employed on a short term contract. When employed the PA will provide assistance both from its own resourcesand where experiencedpersonnel are not availablefrom its own resources, will be expectedto subcontractsuch specializedservices as inspectionand bus rehabilitationtraining activities. Alternatively, some specializedactivities could be procured by the PID as separate contracts.

7. It is anticipatedthat the PD and staff will be secondedfrom the MOT and will be governed by MOT personnel policies.

8. Qualifications. The position requires an individual of high integrity who has demonstratedan ability to lead a team of professionals,who is a self starter, can work without supervision, capable of sustainedlevels of effort, results oriented, who would be dedicated to the success of the project and who would be a role model for personnel involved with the project. It is not necessary for the individual to have a transport background - it is more importantthat the individualshould be familiarwith project managementtechniques. Preferably, the individual should be able to communicateclearly in written and spoken English, and be conversant with Russian or must be able to demonstrate, with past experience, the aptitude to learn Russian over the first six months of the assignment. STAFF APPRAISAL REPORT

RUSSIAN FEDERATION URBAN TRANSPORT PROJECT

ANNEX 5.9 TECHNICAL ASSISTANCE FOR THE PROJECTIMPLEMENTATION DIRECTORATE

Assistance will be provided to the Project ImplementationDirectorate (PID) for managementof the Unit monitoringof the project, and procurement of vehicles, spares and equipment. The following three sets of terms of reference are for the Project Advisor and procurement services.

TERMSOF REFERENCEA: PROJECTADVISER TO THE PROJECT IMPLEMENTATIONDIRECTORATE

1. Objective. The objective of the Project Adviser's (PA) assignmentis to provide impartial top level advice, training, services and assistance to the Ministry of Transport (MOT) and Project ImplementationDirectorate (PID) of the World Bank-financedUrban Transport Project during the Project's implementation.

2. Background. The Russian Federation is undertaking a project (the project) to support urban transport reforms in fourteencities', arrest the decline in urban transport services throughout the Federation and provide restructuringadvice to the domestic bus manufacturing industry. The total project cost estimate is US$391 million dollars equivalent and will be financed by the Russian Federation, the World Bank, the European Community, and possible other internationaldonors. The project comprises:

(a) Provision of 1,511 new buses (including 10 natural gas powered buses) and 272 trolleybuses with spare parts. (b) Rehabilitationof 997 existing buses, 327 trolleybusesand 380 trams. (c) Provision of spare parts for urban transport projects throughoutRussia. (d) Provision of computersand workshopequipment. (e) Technical assistance and training to MOT and the project cities.

1. Cherepovets,Kostroma, Nizhniy Novgorod,Novgorod, Omsk, Pskov, Rostov, Samara, Saransk, Smolensk, Tver, Velikie Luki, Vologda, Yekaterinburg. 152 Annex 5.9

Funds will be onlent to the project cities for items (a), (b) and (c). (See Attachment A for the complete Loan and Project Summaryand AttachmentB for detailed cost estimates).2

3. To manage the project, MOT has created a Project ImplementationDirectorate (PID) under the direction of the Urban Transport Project Coordinating Committee (the Committee).Under the directionof the Committeeand managed by a Project Director, the PID will be the focal point for the project and will be responsiblefor its successfulexecution. It will act as a service agency and agent to the cities3 for those project componentsto be procured by the cities, and to MOT for those project components which are directly the responsibilityof MOT. It will also perform in-countrysupervision services for the World Bank. A summaryof the PID functionsare listed below and should be read in conjunctionwith the detailed PID terms of reference and organization chart (Attachment C).4 The functions should also be read in conjunction with the World Bank's Procurement Guidelines, Disbursement Handbook and Guidelinesfor FinancialReporting and Auditing.

(a) Coordinationwith and between cities. (b) Liaison with other donors. (c) Procurement of major items. (d) Administrationof the national spare parts program. (e) Engaging and supervisingthe project technical assistanceassignments; (f) Procurement training. (h) Disbursementactivities. (i) Monitoring, accountingand auditing. 0) Reporting. (k) Supervisionactivities for the World Bank. (i) Policies concerning the above.

4. ConsultingServices will be provided to assist the PID in the areas of: (i) overall project implementationassistance (the Project Adviser); (ii) procurement; and (iii) inspection services. In addition, there will be seven technicalassistance assignments as noted in Attachment A. These terms of reference cover item (i), overall project implementationassistance.

5. The Project Adviser (PA) will be responsible to the Project Implementation Director (the Director) for all aspects of the services.

SCOPE OF WORK

6. General. The Project Adviser (PA) will be expected to provide advice and assistance in all aspects of the PID work program. In particular the PID will be expected to provide advice on urban transport strategy and operations to the fourteen project cities. Also,

2. To be attachedwhen issuedto invited consultants.

3. The term "city' used throughoutthese TOR coversalso the city transportcompanies.

4. To be attachedwhen issued to invited consultants. Annex 5.9 153 when necessary, the PA will be expectedto provide or secure additional services and expertise on as and when required basis and the PA contract will allow for these services.

7. Project Status. Project implementationshould be well underway by the time the PA takes up the assignment.It is expectedthat the first round of bids will have been invited for diesel engined buses, trolleys and rehabilitationand national parts and that evaluationcould be underway. Further proposals will have been invited for some of the technical assistance assignmentsand some selectionsmade. Also, the procurement services firm should have been selected and in the process of taking up its appointment.The PA will therefore be required quickly to become familiar with the project status and with the cities and bus companies.

8. The PA will be expected to assist the Director as and when required with discussionswith the Committee, with the Minister of Transport at meetings with cities and, in general, act as resource to the Director on project related matters. The PA will also assist with the monitoring of the project city reform programs and project implementation.

9. The PA will also be a facilitatorfor the trainingactivities and will assist the PID, the cities, and other consultantsin executing training programs. This will include (inter alia) seeking training opportunities, setting workshops syllabuses,and working closely with the PID on administrativeaspects of the training program.

10. Detailed Scope of Work. The followingis indicativeof the individualtasks to be performed by the PA. The PA will make visits to all the project cities to monitor project implementation.Maximum use will be made of the various project technical assistance teams financed under the project to help monitor project city reform programs and project implementation.The list is not exhaustiveand the emphasis may be changed during the course of project implementation.

(a) Assisting the Director with overall project management and supervision and troubleshootingparticular issues.

(b) Assisting with setting up and/or consolidatingthe PID office organization and functions (with filing systems) including those of the Technical Assistance Program, Reform and Monitoringand Reporting, and the Finance/Accountsand DisbursementUnits.

(c) Assisting with the procurementof basic office equipment for the PID (under the PA's contract).

(d) Reviewingthe ad hoc coordinationarrangements between the PID and the cities and between the cities, recommending improvements and assisting in the implementationof agreed recommendations.

(e) With the Project Monitoringand Reporting Unit (the Unit), setting up PID and City compatibleproject information,reporting and communicationssystems (with the possibilityof satelliteE-mail) (in collaborationwith the ProcurementServices 154 Annex 5.9

firm) and assisting the Unit and the project cities to monitor the project in accordance with the agreed set of project monitorabletargets and performance indicators. Assist the Unit with the preparationof project monitoringreports for the World Bank.

(f) Advising MOT on urban transport related issues and helping develop an urban transport policy.

(g) Giving guidance to the project cities on the implementation of consultant recommendations on improving operational and financial performance and institutionaland regulatoryreforms and providingother support when necessary. Regular visits will be made to the project cities (at least once a year to each city) and meetings will be arranged for all, or groups of, cities on generic issues relating to improvingfinancial and operationalperformance of urban transport.

(h) With the Finance/Accounts and Disbursements Unit Head, setting up Financial/Accountingand Disbursementsystems satisfactory to MOF, MOT and the World Bank and assisting in setting up the PID Special Accountand the city sub-accountstogether with the required accountingprocedures.

(i) In collaborationwith the Vehicle RehabilitationAssistance firm, assisting with finalizing vehicle spare parts, workshopequipment and computer requirements.

'j) With the Technical AssistancePrograms Unit Head, facilitating the start of the various project technical assistance teams' assignments,and as requested by the Director, assistingin the managementof their assignments.In particular, the PA will help supervisingthe activitiesof the consultantsproviding technical assistance to the project cities and avoid duplicationof effort by using informationcollected by the consultants to determine project monitorable targets and performance indicatorsof the project.

(k) In collaboration with the Procurement Services firm, inter alia, assisting the Committee Chairman, Deputy Chairman and the Director with their duties concerning the bidding evaluationand award process.

(1) In collaborationwith the Procurement Services firm, setting up procedures and maintainingcontact with the organizationretailing the parts through the National Spare Parts Program.

(m) In collaborationwith the ProcurementServices firm, assistingwith proceduresfor the selectionand employmentof the technical assistance firms.

(n) Assisting with the remaining set of tasks for the PID, including, inter alia:

(i) the setting of personnel and operating policies for the functioningof the PID, and Annex 5.9 155

(ii) planning the PID work program.

(o) Becomingfamiliar with the World Bank Supervisionand Reportingrequirements, and assisting the PID with the submissionof progress reports required by the World Bank.

(p) At the request of the Director, assisting the Procurement Services teams, includingwith policy, procedural, and other generic issues.

(q) Assistingwith the assessmentof training requirements,identifying training course specialists, and drafting outlines of training proposals including study tours for project city and MOT personnel.

(r) In accordancewith the PID TOR, setting up an informationexchange system.

TIE SCHEDULEAND REPORTS

11. Time Schedule. The assignmentperiod will be for 30 months.

12. Reports. Apart from the scheduledreports required of the project, the PA will provide the followingreports (_ copies in Russianand two copies in English):

(a) A Project Status Report - within six weeks of the PA assignment Start Date describingthe status of all project componentsand proposing a format for future Project Progress Reports to the World Bank. This report will form the basis for a review of the projectby the RussianFederation and the World Bank. The Status Report will also include the PA's own Inception Report describing the PA's activities, issues and proposed activities for the next six months.

(b) Monthly Reports - very brief (3 - 4 pages) indicatingthe PA's activities for the previous month and proposed activities for the next month.

(c) A draft final report six weeks prior to the completion of the assignment summarizingproject status, outstandingitems and the next steps. The report will be an input into the ImplementationCompletion Report required by the World Bank.

DATA, SERVIcESAND FAcxTIs

13. To be Provided by the Government.The PID will provide:

(a) All the necessary data for the PA's assignment. (b) Unlimited telephone, fax and mail services. 156 Annex 5.9

14. To be Provided by the Consultant.The consultantwill provide:

(a) Own living accommodations. (b) Personal computer equipment. (c) Office space and furniture. (d) Office equipmentfor PID (list to be prepared). (e) Clerical and translation services. (f) Own office supplies.

In carrying out the assignment, the Consultantwill be expectedto use public service transport.

15. Qualifications5.The firm shouldbe experiencedin project managementand urban transportpolicy and operations. Firms mayjoint venture to provide the necessaryexpertise. The individual, who will be filling the key position of PA, should have extensive experiencein the urban transport sector, especially in urban transport policy and operations and preferably have worked as a manager of a transit company.

S. Note: When the invitationpackage is being prepared, this section, 'Qualifications', should be deleted fromthe TOR and includedin the Letter of Invitation. Annex5.9 157

TERMSOF REFERENCE B: PRINCIPAL PROCUREMENTSERVICES, PHASE A

BACKGROUND

1. The Russian Federation is undertakinga project (the Project) to support urban transport reforms in a number of cities, arrest the declinein urban transport services throughout the Federation and provide restructuringadvice to the domesticbus manufacturingindustry. The total project cost estimate is US$391 million dollars equivalent and will be financed by the RussianFederation, the World Bank and possibly some other internationaldonors. The Ministry of Finance is the Borrower and the Ministry of Transport (MOT) is the ImplementingAgency. The Project comprises:

(i) Provision of new buses and trolleybuseswith spare parts. (ii) Rehabilitationof existing buses, trolleybuses and trams. (iii) Provision of spare parts for urban transport projects throughout Russia. (iv) Provision of computersand workshopequipment. (v) Technical assistanceand training to MOT and the project cities.

Funds will be onlent to the project cities for items (i), (ii), (iv), and part of (v). (See Attachment A for further details.)'

2. MOT has created a Project ImplementationDirectorate (PID) under the direction of the Urban Transport Project CoordinatingCommittee to manage the project (see Annex 5.10, Chart 2). Under the direction of the Committee,the PID will be the focal point for the project and will be responsiblefor its successfulexecution. It will act as a service agency and agent to the cities2 for those components to be procured by the cities, and directly for those project componentswhich are directly the responsibilityof the MOT. PID functionsare listed below and should be read in conjunction with the Bank's Procurement Guidelines, Disbursement Handbook and Guidelines for Financial Reporting and Auditing.

(a) Coordinationwith and between cities. (b) Liaison with other donors and the World Bank. (c) Procurement of major items. (d) Administrationof the national spare parts program. (e) Engaging and supervisingthe project technical assistance assignments. (f) Procurementtraining. (g) Disbursementactivities. (h) Monitoring, accountingand auditing.

1. To be attachedwhen iuued to invitedconsultants.

2. The term'city' used throughoutthese TOR coversalso the city transport companies. 158 Annex 5.9

(i) Reporting. (j) Policies concerning the above.

3. ConsultingServices will be provided to assist the PID in the areas of: (i) overall project managementassistance (the Project Advisor); (ii) accounts/disbursements;(iii) inspection services; (iv) training; (v) informationsystems; and (vi) procurement. These terms of reference cover items (iii) and (vi), inspectionand procurement services.

4. Objective. Under the direction of the PID and in consultation with the Project Advisor (PA), the objective of the Services is to set up procurementprocedures, undertakethe initial procurement activitiesfor centrallyprocured goods and services, assist project cities with their initial procurement, and train local personnel/firm(s) to take over the procurement activities.

SCOPE OF CONSULTINGSERVICES 3

5. The procurement will be divided between two consulting companies. Phase A consultantswill be responsiblefor the procurementof buses and trolleybuses, the first tranche of rehabilitationspare parts and national spare parts program, workshopequipment and TA and training, vehicle rehabilitationcontracts, plus trainingof Phase B consultantsand assistingPhase B consultants with the evaluation of the bids for the second tranche of vehicles. Phase B consultants will be responsible for the procurement of spare parts, vehicle rehabilitation contracts, any remaining vehicles to be procured and training.

PHASE A (9 MONTHS)

6. ProcurementProcedures and Systems. FollowingIBRD procurementGuidelines, standard documents and procedures, Loan and Subloan Agreements and, particularly, the Procurement Annex in the Staff AppraisalReport, the Consultantswill undertakethe following specific tasks which will include (inter alia):

(i) Preparation of a procurement plan with schedules for each package.

(ii) With the Project Advisor, set up a procurement monitoring system including recording and filing expressionsof interest and maintainingcomplete records of the procurement process.

(iii) Workingclosely with the CustomsRepresentative on the CoordinatingCommittee to set up documentation and procedures to minimize delays and acting as troubleshooterwhen delays occur.

3. Advertisingfor bids for the busesand trolleybusesand possiblysome rehabilitation spares could take place May 199S with the public bid openingtaking place in late July 1995. Bid evaluationwill begin immediatelyafter and may take four months. Annex 5.9 159

(iv) Assisting cities with the procurement process including providing advice and assistance on the IBRD procedures for international shopping, local shopping and sole source procurement.

(v) Assisting as required in the preparation of withdrawal applications and applications for special commitments.

(vi) Acting as requested as the PID's contact on procurement matters with potential suppliers and consultants.

(vii) Assisting the cities with the procurement process for contracting out the rehabilitation of buses, trolleybuses and trams.

7. Specific Procurement. On behalf of the PID, the Consultants will undertake the procurement activities for the following (see Staff Appraisal Report for details):

(i) 1,501 diesel transit buses. (ii) 272 trolleybuses. (iii) 10 natural gas buses. (iv) The first year's bus rehabilitation program including both spares procurement and contracting out some of the rehabilitation work. (v) Workshop and computer equipment for the bus company garages. (vi) First tranche of the National Spare Parts program. (vii) The following procurement related assignments (including drafting the TOR): (a) local personnel/firm(s) to work with the Consultants and continue their work after the completion of this contract; and (b) an inspection services firm to undertake the inspection work outlined below; (viii) The following technical assistance consulting assignments: (a) Bus Manufacturing Study. (b) Urban Transport Policy Advice to MOT. (c) Vehicle rehabilitation assistance. (d) Technical assistance to the cities. (e) Preparation of the Second Urban Transport Project. (f) Training.

8. For the above, the Consultants will:

(i) Finalizing the draft bidding packages including the specifications4 and TOR for technical assistance consulting assignments. This will require distribution of the draft documents by the PID to the cities for their "no objections" and will include visits to some of the cities to resolve issues.

4. Note: The draftbidding packages wiDl be virtuallycomplete in Russianand in Englishby the time the procurement services firm is engaged. 160 Anmex5.9

(ii) With the vehicle rehabilitationassistance (above), finalize lists of spares for the rehabilitationprogram and finalizecontract documentationfor rehabilitationwork by private sector companies.

(iii) Forwarding any changes to the Special Conditions,specifications, TOR or other project specific documentto the Bank for the Bank's "no objections".5

(iv) For goods, issuing the advertisement,forwarding bidding documents, clarifying suppliers' queries, arranging the public bid opening includingtraining of the bid opening commissionand preparing the bid opening minutes.

(v) For consulting assignments, issuing the Letters of Invitation and receiving proposals.

(vi) Assistingwith the formationof the bid and consultantevaluation committees and acting as technical advisors to these committees.

(vii) Assistingwith the preparationof the bid and consultantevaluation reports.

(viii) Arranging for the contract signing, handlingpost award queries and issues, and subsequentadministrative steps.

(ix) Administeringthe contracts including monitoring any deliveries that take place during the Services and the consultingassignments.

9. Training. The Consultantswill provide procurement training to the staff of: (i) the PID; (ii) the bus enterprises Purchase and Supply Departments; and (iii) to the personnel/firm(s)engaged under 7(vii)(a)above.

10. InspectionServices. Inspectionof new vehicles to be procured under the project will assist in engaging the InspectionServices firm (which will be under contract to the PID). It is intended that some or all of the followinginspection services will be required to cover the manufacturingand rehabilitationplants of successfulbidders (the exact number of plants will not be known until after contract award):

(i) Inspectionof the manufacturingfacilities prior to the award of contracts.

(ii) After the award, inspection of the proposed manufacturing process, quality assurance (QA) systems, configurationcontrol and the manufacturingschedule.

(iii) Inspectionof a prototype vehicle.

(iv) In-house QA inspectionduring the manufacturingor rehabilitationprocess;

5. Note: Volume I of the Bank's StandardBidding Document for Goods is standardfor all projectsand is not subjectto revision, Annex5.9 161

(v) Pre-deliveryinspection and testing.

(vi) Post-deliveryinspection and testing in Russia.

PHASEB (24 MONTHS)

11. The Phase B services will comprise the remainder of the project procurement under the overall direction of the PID and with consultationwith the PA and will not comprise part of these services.

TIME ScHEDULE AND REPORiS

12. 7lme Schedule. The time schedule for Phase A is nine months. One of the Procurement Services Firm's first tasks will be to assess the status of procurement documentationand activitiesand prepare a procurementplan for approvalby the PID. This plan is detailed in the InceptionReport noted below.

13. Reports. The ProcurementServices Firm will prepare the followingreports ( copies in Russian and two copies in English):

(i) An Inception Report - within 4 weeks of the assignmentStart Date. (ii) Monthly Reports on the status of procurementactivities both centrally and at city level. (iii) Such reports as are requested by the PID and PA - particularly those required by the IBRD. (iv) A Final Report.

14. Data Services and Facilities to be Provided by the Government. The PID has agreed to provide (to be confirmed):

(i) All the necessary data for the assignment. (ii) Unlimited telephone, fax and mail services. (iii) Office furniture and cleaning services.

15. Services and Facilitiesto be Provided by the Consultant. The Consultant will provide:

(i) Own living accommodations. (ii) Personal computerequipment. (iii) Clerical and translation services. (iv) Own office supplies. (v) Project office space.

In carrying out the assignment, the Consultantwill be expectedto use public service transport.

Annex 5.9 163

TERMS OF REFERENCE C: PROCUREMENTSERViCES, PHASE B'

BACKGROUND

1. The Russian Federation is undertaking a project (the Project) to support urban transport reforms in a number of cities, arrest the decline in urban transport services throughout the Federation and provide restructuringadvice to the domesticbus manufacturingindustry. The total project cost estimate is US$391 million dollars equivalent and will be financed by the Russian Federation, the World Bank and possiblysome other internationaldonors. The Ministry of Finance is the Borrower and the Ministry of Transport (MOT) is the ImplementingAgency. The Project comprises:

(i) provision of new buses and trolleybuseswith spare parts. (ii) rehabilitationof existingbuses, trolleybusesand trams. (iii) provision of spare parts for urban transport projects throughoutRussia. (iv) provision of computersand workshop equipment. (v) technical assistance and training to MOT and the project cities.

Funds will be onlent to the project cities for items (i), (ii), (iv) and part of (v). (See Attachment A for further details.)2

2. The MOT has created a Project ImplementationDirectorate (PID) under the direction of the Urban Transport Project CoordinatingCommittee to manage the project (see Annex 5.10, Chart 2). Under the directionof the Committee,the PID will be the focal point for the project and will be responsible for its successfulexecution. It will act as a service agency and agent to the cities3 for those componentsto be procured by the cities, and directly for those project componentswhich are directly the responsibilityof the MOT. PID functions are listed below and shouldbe read in conjunctionwith the Bank's ProcurementGuidelines, Disbursement Handbook and Guidelinesfor Financial Reportingand Auditing.

(a) Coordinationwith and between cities. (b) Liaison with other donors and the World Bank. (c) Procurementof major items. (d) Administrationof the national spare parts program. (e) Engaging and supervisingthe project technical assistanceassignments. (f) Procurementtraining.

1. Includingtraining under Phase A.

2. To be attached when issued to invited consultants.

3. The term "city" used throughoutthese TOR covers also the city transportcompanies. 164 Annex 5.9

(g) Disbursementactivities. (h) Monitoring, accountingand auditing. (i) Reporting. (j) Policies concerningthe above.

3. ConsultingServices will be providedto assist the PID in the areas of: (i) overall project managementassistance (the Project Advisor); (ii) accounts/disbursements;(iii) inspection services; (iv) training; (v) informationsystems; and (vi) procurement. These terms of reference cover item (vi).

4. Objective. The objective of the consulting services is to assist the principal consultants providing procurement services under Phase A (below) and receive training from them. The consultantswill continue with subsequentprocurement of spare parts, workshopand other equipment, consultant services, and remaining buses or trolleybuses (if necessary).

SCOPE OF CONSULTINGSERVICES. 4

5. The procurement will be divided between two consultingcompanies. Phase A consultants will be responsible for the procurement of buses of trolleybuses, the first procurementof rehabilitationspare parts and nationalprogram spare parts, workshopequipment and TA and training, plus training of Phase B consultants. Phase B consultants will be responsiblefor subsequentprocurement of spare parts, equipment,any remaining vehicles and training.

PHASEA (9 MONTHS)

6. The consultants will work under the direction of the principal procurement consultants for the first nine months and assist with the tasks detailedbelow.

7. ProcurementProcedures and Systems. FollowingIBRD procurementGuidelines, standard documents and procedures, Loan and Subloan Agreements and, particularly, the Procurement Annex in the Staff Appraisal Report:

(i) Preparation of a procurementplan with schedules for each package.

(ii) With the Project Advisor, set up a procurement monitoring system including recording and filing expressionsof interest and maintainingcomplete records of the procurementprocess.

4. Preparation of some of the bidding documents and specifications is nearly complete and advertising for bids for the diesel transit and trolleybuses and possibly some rehabilitation spares could take place late April/early May 1995 with the public bid opening taking place in late June 1995. Bid evaluation will begin immediately after and may take four months. Thus it could well be that advance procurement assistance has been secured to ensure that project procurement is not delayed. These services will overlap with and take over from the advance procurement assistance. The Termns of Reference will be updated during negotiations with the successful consultant. Annex 5.9 165

(iii) Workingclosely with the CustomsRepresentative on the CoordinatingCommittee to set up documentation and procedures to minimize delays and acting as troubleshooterwhen delays occur.

(iv) Assisting cities with the procurement process including providing advice and assistance on the IBRDprocedures for internationalshopping, local shoppingand sole source procurement.

(v) Assisting as required in the preparation of withdrawal applications and applicationsfor special commitments.

(vi) Acting as requested as the PID's contact on procurement matters with potential suppliers and consultants.

8. Specific Procurement.Phase A specificprocurement will comprise the following (see Staff Appraisal Report for details):

(i) 1,501 diesel transit buses. (ii) 272 trolleybuses. (iii) 10 natural gas buses. (iv) The first year's bus rehabilitationprogram includingboth spares procurementand contracting out some of the rehabilitationwork. (v) Workshopand computer equipmentfor the bus company garages. (vi) First tranche of the National Spare Parts program. (vii) The followingprocurement related consultingassignments (including drafting the TOR): (a) these services; and (b) an inspection services firm to undertake the inspection work outlined below.

(viii) The following technical assistance consultingassignments: (a) Bus ManufacturingStudy; (b) Urban Transport Policy Advice to MOT; (c) Vehicle rehabilitationassistance; (d) Technicalassistance to the cities; and (e) Preparation of the Second Urban Transport Project, and (f) Training.

9. For the above, the consultantswill assist the principal procurement consultants with:

(i) Finalizing the draft bidding packages including the specifications5 and TOR for technical assistance consultingassignments. This will require distribution of the

5. Note: The draftbidding packages will be virtually completein Russian and in Englishby the time the procurement services rf is engaged. 166 Annex 5.9

draft documentsby the PID to the cities for their "no objections"and will include visits to some of the cities to resolve issues.

(ii) With the vehicle rehabilitationassistance (above), finalize lists of spares for the rehabilitationprogram and finalize contractdocumentation for rehabilitationwork by private sector companies.

(iii) Forwarding any changes to the Special Conditions,specifications, TOR or other project specific documentto the Bank for the Bank's "no objections".6

(iv) For goods, issuing the advertisement,forwarding bidding documents, clarifying suppliers' queries, arranging the public bid opening includingtraining of the bid opening commissionand preparing the bid opening minutes.

(v) For consulting assignments, issuing the Letters of Invitation and receiving proposals.

(vi) Assistingwith the formationof the bid and consultantevaluation committees and acting as technical advisors to these committees.

(vii) Assisting with the preparationof the bid and consultantevaluation reports.

(viii) Arranging for the contract signing, handlingpost award queries and issues, and subsequentadministrative steps.

(ix) Administeringthe contracts includingmonitoring any deliveries.

10. Training. The consultantswill receive training from the principal procurement consultantsand will in turn provide procurement to the staff of: (i) the PID; and (ii) the bus enterprises Purchase and Supply Departments.

11. InspectionServices. Inspectionof new vehicles to be procured under the project will form an important element of the procurementprocess. For Phase B, the consultantstake over liaison with the InspectionServices Firm which will have been engagedunder Phase A and is under contract to the PID. It is intended that some or all of the following inspectionservices will be required to cover the manufacturingand rehabilitationplants of successfulbidders (the exact number of plants will not be known until after contract award).

(i) Inspectionof the manufacturingfacilities prior to the award of contracts;

(ii) After the award, inspection of the proposed manufacturing process, quality assurance (QA) systems, configurationcontrol and the manufacturingschedule;

6. Note: Volume 1 of the Bank's StandardBidding Docwnentfor Goods is standard for all projects and is not subject to revision. Annex 5.9 167

(iii) Inspectionof a prototype vehicle.

(iv) In-houseQA inspectionduring the manufacturingor rehabilitationprocess.

(v) Pre-deliveryinspection and testing.

(vi) Post-deliveryinspection and testing in Russia.

PHASE B (24 MONTHS)

12. The Phase B services will be a continuationof the Phase A services and will be under the overall direction of the PID and in consultation with the PA. The services will comprise those listed below.

13. ProcurementProcedures and Systems. FollowingIBRD procurement Guidelines, standard documents and procedures, Loan and Subloan Agreements and, particularly, the ProcurementAnnex in the Staff AppraisalReport, the consultantswill maintainand upgrade the procurement proceduresand systems developedunder Phase A.

14. Specific Procurement.Phase B specificprocurement will comprise the following (see Staff Appraisal Report for details):

(i) Remainingdiesel transit buses and trolleybuses(if any). (ii) The second and third year's bus rehabilitation program including both spares procurement and contractingout some of the rehabilitationwork. (iii) The second tranche of the National Spare Parts program. (iv) Additionalworkshop and other equipment. (v) Consultingassignment for an inspectionwork outlined in para 9 above.

TIME SCEmDULEAND REPORTS

15. Time Schedule. The time schedulefor the services is 27 months.

16. Reports. The consultantswill assist with the preparation of reports under Phase A and will prepare the followingreports under Phase B ( copies in Russian and two copies in English):

(i) Monthly Reports on the status of procurementactivities both centrallyand at city level.

(ii) Annual Reports.

(iii) Such reports as are requested by the PID and PA - particularly those required by the IBRD.

(iv) A Final Report. 168 Annex 5.9

17. Data Services and Facilities to be Provided by the Government. The PID has agreed to provide (to be confirmed):

(i) All the necessary data for the assignment. (ii) Unlimited telephone, fax and mail services. (iii) Office furniture and cleaning services.

18. Services and Facilities to be Provided by the Consultant. The consultant will provide:

(i) Own living accommodations. (ii) Personal computer equipment. (iii) Clerical and translation services. (iv) Own office supplies. (v) Project office space.

In carrying out the assignment, the consultantwill be expected to use public service transport. STAFF APPRAISAL REPORT

RUSSIANFEDERATION URBAN TRANSPORTPROJECT

ANNEX 5.10 ORGANIZATIONALCHART FOR PROJECTMANAGEMENT

CHART 1

Ministryof Finance

Nizh*I Rostov-on-

I(3~JM NOYNwOd OmdkDon

Sanuin SarasuicSmolenaic Tver V.11kbLulci Vologda ~~~~~~~Yekaterinburg

UrbanTmrnsor ProjectCoordinatin Committe

ProjectImplementation Directorate (PID) SpecilAccount 170 Annex 5.10

PROJECr MANAGEMENTFUNCTIONS AND STAFFNG

Chart 2

Ministry Transport

Coordningr I C (Chair00b VUOn, C( 6.10mnbo)

- --

Project Marogonmwd (deckw ntbP.6tw4Wa (conrtjing servicee) 3 unTildMO(de, and- 4 .

ProcureIent I TechnkalAssistance RefonmMonkoring a Finance/Accouns&I | (consutingservices) Progrn PRO Disburswment (consuXingChbf (OT)sendc" UnH UndChif (MOT) UniHChe OT)

TAto Cite SpecialAcout (onsulngservices) Inspection Services (InspeclionServce)

Bus ManufacturingStudies _(conwing sevcs

RehaWbIltaionTAand Trsining| (cm-ing srie)

StudyTours/Specal Training (consullhg vo)

Con.uln servicesto be providsdby consulling fnnm. Some wvces maybe providedby mo thwone frm. Moe othe consuingservie includerali. STAFF APPRAISAL REPORT

RUSSIAN FEDERATION URBAN TRANSPORT PROJECT

ANNEX 5.11 PROJECTIMPLEMENTATION SCHEDULE

Russian Federation UrHbn Transport Project Implerrenlstion Schedule - major item.

1995 1996 1997 199 1 ID Nai Scheduled Start Scheduled Firish 02 Q30 004 01 020 030 0Q4 Ql Q2 03 04 Ql 02 03 04] 01 02 1 Equipment Procurment-Bid invitaton to delivery compliance May 22 '95 ec 1 S96

2 Diesel Buse May 22 '95 Dec 18 '96

3 Natual Gas Buse$ Oct a895 Sap 14 W96

4 Tolley Bums. May 24 '95 Jul 27 '9a

5 National spars pars program lfirst tranch.l May 29 '95 Jan 28 '96

8 Bus. troilsy and tram rehbilittdon Nov 6 '95 Jul 16 9a -

7 Contract Rahabilitadon ifirst yers programl Nov 6 '95 Sap 9 '96

a Contract Rshabjlitadon (second years program) Sep 2 '96 Jul 16 '97

9 Contract Rehabilitation (third yVers progreml Sep 1 97 Jul 16 's9

10 Consulting Servics - Assignment perlods Jul 17 95 Jul 16 '98 _ 11 Proj.cl Adviser Oct 17 '95 Apr 17 '98

12 Procuramant Servic.s Jul 7 '96 Jan 7 *98

13 Bus Manufacturing Nov 29 '95 May IS 97

14 Vehicle Rehabilitaion Team Jul 17 '95 Jul 16B '98 .

15 Technical Assistenc to Cities Jan 15 '96 Jan 14 '98

18 TA to MOT Jan 15 96 Jan 14 I98 , : . |

project: Critical Progrc Summary o DOats4/19195 Noncritical Milestone RolledUp K I STAFF APPRAISAL REPORT

RUSSIAN FEDERATION URBAN TRANSPORT PROJECT

ANNEX 5.12 PROJECTMONITORABLE TARGETS

Current June June June Situation 1996 1997 1998 Cost Recovery Percent of passengersevading fares 4-40 10 8 7 Percent of passengerspartially exempt from paying fares 20-30 * * * Percent of passengersexempt from paying fares 10-40 * * * Operating ratio ^ 25 40 45 50 Labor Productivity Mechanicalstaff per public operatingtransit vehicle: Buses 1.0-2.5 1.3 1.0 0.8 Trolleybusesand trams 1.0-3.5 1.0 0.8 0.6 Drivers per public operatingtransit vehicle: Buses 1.8-2.5 2.5 2.5 2.5 Trolleybusesand trams 1.4-2.9 2.5 2.5 2.5 Total staff per public operatingtransit vehicle: Buses 3.5-5.5 4.0 3.8 3.6 with conductors 6.0 5.8 5.6 Trolleybusesand trams 4.5-8.0 5.5 5.0 4.6 with conductors 7.5 7.0 6.6 Fleet Utilization

Average fleet availability:b Buses 64-86 70 75 80 Trolleybusesand trams 65-98 75 80 85 Breakdownsas a percent of availablefleet: Buses 1-30 18 15 10 Trolleybusesand trams 1-30 16 13 8 Accidentsper 100,000vehicle kilometers: 0.02-0.8 0.7 0.6 0.5 Service Levels Waitingtime (during peak), minutes 10-22 10-18 8-13 7-10 Passengersper 1 sq.m 7-14 7-12 7-9 7-8 Emissions & Fuel Control (Buses) Annualaverage fuel efficiency,L/100 km 52-60 48-56 44-52 42-50

* Reductiontargets for exemptionswill be developedbased upon relief actionsby various governmentallevels. a. Percent of cost recoveredfrom all operatingrevenues (total operatingrevenue not includingsubsidy divided by total operating costs, excludingdepreciation over a six monthperiod). b. Operationaltransit vehicles/numberof vehicles actuallyon street at peak. c. These figures are of an indicativenature.

STAFF APPRAISAL RLPORT

RussIAN FEDERATION URBAN TRANSPORTPROJECT

ANNEX 5.13 PROCUREMENTPLANS AND SCHEDULES

.80 §f :1 S- SEe WI

{.0 }i L~~~~~~~~~~:iI I 0 I i)~~i Wf WI 1

_ ^ - * " e W F " ^ >- tl 'C Table 2: CONSULTANTS'SERVICES

Estimated Cost Major Activities Schedule Lot/Item (US$ million Procurement Documents Bid/Proposal Contract Completion No. Nature of Package' equivalent) Method Issuance Submission Signature Date

I Project Advisor 1.7 ST b 5/29/95 6/28/95 10/1/95 4/17/98 2 Procurement services 1.0 ST 5/1/95 6/1/95 6/15/95 1/7/98 3 Inspection services 0.6 ST 8/1/95 9/1/95 10/1/95 8/1/96 4 Bus manufacturing studies 3.0 ST 6/5/95 7/20/95 10/30/95 5/15/97 & restructuring advice 5 Urban transport policy 0.3 ST 7/17/95 8/31/95 12/6/95 1/14/98 advice 6 Vehicle rehabilitation 0.6 ST 5/1/95 6/1/95 7/1/95 7/17/95 advice 7 Technical assistance to 4.3 ST 615195 7/20/95 10/30/95 5/30/98 cities 8 Training 0.1 ST 1/1/96 2/15/96 4/1/96 7/1/96 9 Expansion reform program 1.2 ST 7/1/95 8/17/95 12/19/95 1/15/97 to other cities

ST - Standard (technical). a. Although all consulting service contracts are shown in this schedule, several may be grant financed. b. Accelerated selection procedure. Thirty days allowed for submissionof proposals.

x[ Russian Federation Urban Transport Project Procurment of Diesel-ongined 3uses 1994 195q 19986 197 ID No Duration Scheduled Start Scheduled Rdish 02 Q3T04 QJ1Q Q32 4 Q1 Q2 3 04C14 Q2 Q3 1 Procuremnt - dieselenoined buee 424d May 5 '95 Dec 19 '98

2 Snks 'no objections" to bid pokag Od May 5 '95 May 5 '95 * 3 Advriaemnt Od May 21 '95 May 21 '95 i 4 Bid doc available Oed May 21 '95 May 21 '95 4 5 Prepwartionof Bids 64ed May 22 '95 Jul 25'95

6 PubiM bid opri.ng Od Jul 25 '95 Jul 25 '95

7 Bd evalution 90ed Jul 25 '95 Oct 23 '95

8 Proposd awwd to Dank 7ed Oct 23 '95 Oct 30 '95 9 Bk's 'no objections' 2led Oct30'95 Nov 20 '95 i : 10 Loan Effectivenes Oed Sep 30 '95 Sep 30'95

11 Contract dgning 2sd Nov 20 '95 Nov 22'95 12 Poet contract requirements 20d Nov 22 '95 Dec 20 '95

13 Supply of perfomam qar. 14.d Nov 22 '95 Dec 6 '95 i

14 Opening of LoC 28.d Nov 22'95 Dec 20'9S 1S Mnwfatcturc 300ed Dec 20 '95 Oct 15 '96

18 Devi"verriod 365ed Dec 20'95 Dec 19 '98

17 Possibledelivery period 150e4 Jun 1 '96 Oct 29 '96

Proe Ccttodl Prtogroe SW _My Dat: 4/20/95 Nonc Mbtono * Roied Up O Russian Federation -i Urban Transport Project Procurement of Trolley Buses

1994 1995 I 1996 I 1997 ID Name Duration Scheduled Start Scheduled Fi Q2 Q3 04 Q1 Q2| Q3 04 Q10 02 Q3 Q40 Q10 02 03 Q4 1 Procurement - trolley buses 333d May 10 '95 Aug 19 '96 ,

2 Bank's 'no objections" 'to bid package Od' May 10 '95 May 10 '95 4

3 Advertisement appears Od May 17 '951 May 17 '95

4 Bid docs available Oed May 17 '95 May 17 '95

5 Preparation of Bids 61ed May 17 '95 Jul 17 '95

6 Public bid opening Od Jul 17 '95 Jul 17 '95

7 Bid evaluation 90ed Ju117 '95. Oct 15 '95

8 Proposed award to Bank 7ed Oct 16 '95 Oct 23 '95 i

9 Bank's "no objections" 2led Oct 23 '95 Nov 13 '95

10 Loan Effectiveness Oed Sep 30 '95 Sep 30 '95

11 Contract signing 2ed Nov1 3 '95 Nov 15 '95 .

12 Post contract requirements 20d Nov 15 '95 Dec 13 '95 * _ _ _ _ _~_ - , 13 Supply of performance guar. j 14ed' Nov 15 '95 Nov 29 '95

14 Opening of LoC 28ed I Nov 15 '95 Dec 13 '95

15 Manufacture 250ed! Dec 13 '95 Aug 19 '96

16 Delivery period 250ed Dec 13 '95 Aug 19 '96

17 Possible delivery period 90ed Apr 1 '96 Jun 30 '96 . _

Project: Critical Progress Summary 'w Date: 4/12/95 Noncritical Milestone * Rolled Up K Russian Federation Urban Transport Project Procurement of Natural Gas Buses

1996 19963 1997 1996 ID Name Duration Scheduled Start Scheduled Finish 02 | 0301 | Q4 I Q1 002 0Q3 I Q4 01 | Q2 r03 1 04 01 | 02 r 03 1 Procurement - Natural Gas Buses 360d MaV 1 '95 Sep 14 '96

2 Barnks'no objections' to Interest advert. Oed ! Jun 1 '95 Jun 1 '95

3 Expressionsot Interest Advert appears Oed Jul 1 '95 Jul 1 '95

4 Preparationof Specs & Bid Docs 121ed May 1 '95 Aug 30 '95 5 Expressionsof Interest received 45ed Ju 1 '95 Aug 15 '95

Agreement on ist of Invitees Oed Sep 15_'95 Sep 15 '95

7 Bank's 'no objections"'to bid package 1 21ed Sep 15 '95 Oct 6 '95 s Bid docs sent to lnvitees Oed Oct 6 '95 Oct 6 '95

9 Preparationof Bids 45ed Oct 6 '95 Nov 20 '95 10 Public bid opening Od Nov 20 '95 Nov 20 '95

11 Bid evaluation 60ed' Nov 20'95 Jan 19 '96

12 Proposed award to Bank 7ad Jan 19 '96 Jan 26 '96 13 Bank's 'no objections' 2led Jan 26 '96 Fab 16 '96 14 Contract signing 2ed Feb 16 '96 Feb 18 '96 15 Post contract requirements 20d Feb 19 '96 Mar 18 '96 W 16 Supply of performance guar. 14ed Feb 19 '96 Mar 4 '96

17 Openingof LoC 28ed1 Feb 19 '96 Mar 18 '96

18 Manufacture 1S0ed Mar 18 '96 Sep 14 '96

19 DeliverVperiod IS0ed Mar 18 '96 Sep 14 '96

20 Possible deliverV period 30ed Sep 1 '96 Oct 1 96 I

Project: Critical Progress Summary Date: 4/12/95 Noncritical Milestone * Rolled Up O Russian Federation Urban Transport Project Procurement of Spares for National Program 1995 I 1996 1997 ID Name Duration Scheduled Start Scheduled Finish Ql Q2 Q3 Q4 Ql1 Q2 Q3 Q4 Q1 Q2 C03 Q4 Q1 Q2 1 Procurement National parts. -- First tranche 201d Apr 15 '95 Jan 23 '96 T

2 Finalization of list and specs & bid docs 30ed Apr 15 '95 May 15 '95 3 Bank's" no objections" to bid package 10Oed May 16 '95 May 26 '95

4 Advertisement appears Oed May 26 '95! May 26 '95

5 Preparationof Bids 45ed May 26 '95 Jul 10 '95 6 Public bid opening Oed Jul 10 '95 Jul 10 '95

7 Bid evaluation 30ad Jul10 '95 Aug 9 '95

8 Proposedaward to Bank 7ed Aug 9 '95 Aug 16 '95

9 Bank's 'no objections" 14ed Aug 16 '95 Aug 30 '95

10 Loan Effectiveness Oed Sep 30 '95 Sep 30 '95 11 Contract signing 2ed Oct 2 '951 Oct 4 '95 12 Post contract requirements 1 15d Oct 4 '95 Oct25 '95 W

13 Supply of performance guar. 14ed Oct 4'95 Oct 18'95 14 Opening of LoC 21ed Oct 4 '95 Oct 25 '95

15 First tranche delivery 90ed Oct 25 '95 Jan 23 '96

16 Second Tranche (if euthorized) 129d Oct 1 '96 Mar 30 '97

Project: Critiel_ Progress Sunry Date: 4/12195 Noncritical Mestone * RoNledUp O Russian Federation Urban Transport Project Procurement of Workshop and Computer Equipment 1995 1996 1997 _ ID Name Duration Scheduled Start Scheduled Finish Q1 Q2 Q3 Q4 |01 Q2 |Q3 Q4 Q1102 Q3 Q4 GQ 1 Procurement of workshop/ computer equip. -- total time 215d Jul 1 '95 Apr 28 '96 * W

2 Vehicle Rehab. Consultants arrive Oed Jul 1 '95 Jul 1 '95

3 Agreement on lists 60ad. Jul 3 '95 Sep 1 '95 I

4 Preparationof Specifications & bids docs 30ed Sep 1 '95' Oct 1 '95

5 Bank's ' no objections' to bid package 14ed Oct 2 '95 Oct 16 '95 6 Advertisement appears (for ICB) Od Oct 16 '95 Oct 16 '95

7 Bid docs available Od Oct 16 '95 Oct 16 '95 S Preparation of Bids 45ed! Oct 16 '95 Nov 3095

9 Public bid opening Od; Nov 30 '95, Nov 30 '95

10 Bid evaluation 21ed Nov 30 '95 Dec 21 '95 11 Proposedaward to Bank 7ed! Dec 21 '951 Dec 28 '95 12 Bank's 'no objections' 7ed Dec 28 '951 Jan 4 '96

13 Contracts signing 2ed Jan 4 '96. Jan 6 '96

14 Post contract requirements 15d Jan 8 '96 Jan 29 '96 15 SuppiV of performance guar. 14ed Jan 8 '96 Jan 22 '96

16 Opening of LoC 21 ed Jan 8 '96 Jan 29 '96

17 Delivery 90ed Jan 29 '961 Apr 28 '96

co

Project: Critical Progress Summary Date: 4/12/95 Noncritical Milestone RolledUp K Russian Federation Urban Transport Project Rehabilitation Procurement

1995 1996 1997 1998 ID Name Duration Scheduled Start Scheduled Fini Q1 02 03 04 01 02 03 4 01 02 03 Q4 01 0Q2 03 1 Procurement - Vehicle Rehabilitation 792d Jul 5 '95 Jul16 '98

2 Vehicle Rehab. Consultants arrive. Oed Jul 17 '95! Jul 17 '95

3 Meeetings with cities 30ed' Jul 17 '95 Aug 16 '95

4 Agreement on procurement methods 30Oed Aug 16 '95 Sep 15 '95

5 Urgent rehab by Contract-Internation. Shopping 219d Jul5 '95 May 7 '96

6 Agreement on vehicles for IS. Oed Jul5 '95 Jul 5 '95

7 Preparation of specs. and IS doc. 45ed Aug 16 '95 Sep 30 '95

a Banks 'no objections" 14ed Oct 2 '95 Oct 16 '95

9 Quotes reqested 30ed Oct 16 '95 Nov 15 '95

10 Evaluation 15ed! Nov 15 '95 Nov 30'95

11 Proposed Awards to Bank 7ed Nov 30 '95 Dec 7 '95

______i 12 Bank's "no objections" 14ed Dec 7 '95 Dec 21 '95

13 Loan Effectiveness Oed Sep 30 '95 Sep 30 '95

14 Contract signing 2ed Dec 21 '95 Dec 23 '95

15 Post contract requirements 10d Dec 25 '95 Jan 8 '96 W

16 Supply of performance guar. 14ed Dec 25 '95 Jan 8 '96

17 Rehabilitation 120ed Jan 8 '961 May 7 '96

18 Rehab by Contract - LIB 278d Aug 16 '95 Sep 9 '96

19 Preparation of Specs & Bid Docs 60ed Aug 16 '95 Oct 15 '95

20 Bank's "no objections" 'to bid package 2led Oct 16 '95 Nov 6 '95

21 Docs sent to selected companies ld Nov 6 '95 Nov 6 '95

22 Preparation of Bids 45ed Nov 7 '95 Dec 22 '95

23 Public bid opening Od Dec 22 '95 Dec 22 '95

24 Bid evaluation 30ed Dec 22 '95 Jan 21 '96 i

25 Proposed award to Bank 7ed Jan 22 '96 Jan 29 '96

Project: Critical Progress Summary _ O Date: 4/12/95 Noncritical Milestone * Rolled Up > Russian Federation Urban Transport Project Rehabilitation Procurement 99

1995 | 96 | 1997 98 _ > ID Namne Duration Scheduled Start Scheduled Fini 01 Q21 Q3 |4 |01 Q2.1 Q3 I Q4 Q1TQ2 |3| Q4 01Q1Q2|Q3 _ 26 Bank's 'no objections' 21ed Jan 29 '96 Feb 19 '96 s

27 Contract signing 2ed Feb 19 '96 Feb 21 '96

28 Post contract requirements 15d Feb 21 '96 Mar 13 '96 W 29_ Supply of performancegu__ ___ 29 Supply of performance guar. 14ed Feb 21 '96! Mar 6 '96

30 Opening of LoC 2led Feb 21 '96 Mar 13 '96

31 Rehabilitation 180ed Mar 13 '96! Sep 9 '96

32 2nd Year's Rehab. by contract 250d Aug 1 '96, Jul 16 '97

33 3rd Year's Rehab. by contract 250d Aug 1 '97 Jul 16 '98

34

35 - -- ___ ------t--1------______

36 In-house Rehabilitation IIS, LS & SS) 1 191d' Aug 16 '95 May 9 '96 37 Preparation of spares list, specs & bid docs 45ed Aug 16 '95 Sep 30 '95

38 Bank's "no objections" to packages 14ed Oct 2 '95 Oct 16 '95

39 Docs sent to selected companies 5ed Oct 16 '95 Oct 21 '95

40 Preparation of Bids 30edc Oct 23 '95 Nov 22 '95

41 Evaluation 14ed Nov 22 '95 Dec 6 95

42 Proposed award to Bank 7ed Dec 6 '95 Dec 13 '95

43 Bank's 'no objections" 7ed Dec 13 '95 Dec 20'95

44 Contract signing 2ed Dec 20 '95 Dec 22 '95

45 Post contract requirements 15d Dec 22 '95 Jan 12 '96 .

46 Supply of performance guar. 14edi Dec 22 '95 Jan 5 '96

47 Opening of LoC 2led Dec 22 '95 Jan 12 '96

48 Deliveries 60ed Jan 12 '96 Mar 12 '96

49 Rehabilitation 120ed Jan 10 '96 May 9 '96

50 2nd Year's In-house Rehab. 190d Jan 2 '96 Sep 23 96 go

Project: Critical Progress Summary Date: 4/12/95 Noncritical Milestone Rolled Up O Russian Federation Urban Transport Project Rehabilitation Procurementr 00 . 1995 1996 1997 1 1998 _ o ID Name Duration | Scheduled Start JScheduled Fini Ql1l Q2 0 3 0Q4 Q1 02 | Q3 Q40 |I1 Q20 0Q3 1 04 1 Q1 Q2 | 03 51 3rd Years In-house Rehab. 190d Sep 1 '97 May 22 '98

Project: Critical Progress Summary _ Date: 4/12/95 Noncritical Milestone Rolled Up K Russian Federation Urban Transport Project Summary of Technical Assistance Assignments

_ __1995 1996 1997 1998 1999 2000 2 _

ID Name Duratio Scheduled 02 1Q3104 01 0203 |04 01 Q2 03 04 01 Q2 03 0 1 Q2Q3Q4 Q01 0Q20Q3 0401 |Q2 ' 1 Project Adviser (2.5 years) 913ed Oct 17 '95.=

2 Procurement Services Phase A (9 m 274ed Jul 7 '95

3 Procurement Services Phase B (27 m 82led Oct 9 '95

4 Vehicle Rehab. Team (3 years intermi 1095ed Jul 17 '95

5 Bus Manufacturing Study (1.5 years) 533ed Nov 29 '95 , L = _ 6 TA to MoT (2 years - intermittemt) 730ed Jan 15 '96

7 TA to Cities (EU - financed) 548ed Aug 1 '95 . = = =

8 TA to Cities (Bank-financed) (2.5 year 913ed Nov 29 '95 .

Project: Critical Progress Summeary r Date: 4/19/95 Noncritical Milestone *Rolled Up0 Russian Federation Urban Transport Project Employmentof Project Adviser

1996 1996 1997 1998 ID Name Duration Scheduled Start Scheduled Finish Q2 03 | Q443 Q1 Q2 4 01 02 03 04 01 Q2 Q3

1 Employment of Project Adviser 784d Apr 15 '95 Apr 17 '98 _- _ 2 Finaizing ToR 29ed Apr 15 '95 May 14 '95

3 Prepareshort list 21ed May 1 '95 May 22 '95

4 Bank's 'no objections' to package 7ed May 22 '95 May 29 '95

5 Lol isesued to consultants Oad May 29 '95 May 29 '95

6 Consultants prepare proposals 30ed May 29 '95 Jun 28 95 7 Proposals received Od Jun 28 '95 Jun 28 '95

8 Proposalsevaluated 21ed Jun 28 '95 Jul 19 '95

9 Bank reviews eval. & gives n/o. 14ed Jul 19 '95 Aug 2 '95 10 Consultants invited to negotiate 7ed Aug 2 '95 Aug 9 '95 11 Negotiations IOed Aug 9'95 Aug 19 '95 12 Bank prior review of prop. contract 14ed Aug 21 '95 Sep 4'95

13 Loan Effectiveness Oed Sep 30 '95 Sep 30 '95

14 Contract signed 2ed Oct 1 '95 Oct 3 '95

15 Consultants mobilize 14ed Oct 3 '95 Oct 17 95

16 Consultants arrive (Start Date) Oed Oct 17 '95 Oct 17 '95

17 Assignment period (2.5 years) 913ed Oct 17 '95 Apr 17 '98

Project: | Critica _ _ Progress Summary _ _ U Date: 4/20195 |Noncritical Milestone *Rolled Up Russian Federation Urban Transport Project Employment of Procurement Services Consultants

1994 1995 1996 1997 ID Name Duration Scheduled Start Scheduled Fi Q2 04 01 02 03 04 01 02 Q3 04 01 02 03 Q4 01 I3 1 Employmentof ProcurementServices Consultants 718d Apr 7 '95 Jan 7 '98

2 FinalizingTerms of Reference 1 Sd Apr 15 '95 May 5 '95 3 Phase A Team 261d Apr 7 '95 Apr 6 '96

4 Agreements with Russian Govt & Donor Agenc 60ed Apr 7 '95 Jun 6 '95

5 Selection of staff 60ed May 1 '95 Jun 30 '95

6 A Team takes up asssignment 7ed Jun 30 '95 Jul 7 '95 7 Assignment period (9 months) 274ed Jul 7 '95 Apr 6 '96

8 Phase B Team 712d i Aprl5'95 Jan7'98

9 Prepareshort list 30ed Apr 15 '95 May 15 '95 10 Bank's "no objections" to package 14ed Jul 7 '95 Jul 21 '95

11 Lol isssued to consultants Oed Jul 21 '95 Jul 21 '95

12 Consultants prepare proposals 30ed Jul 21 '95 Aug 20 '95 13 Proposalsreceived Oed Aug 21 '95 Aug 21 '95

14 Proposalsevaluated 30ed Aug 21 '95 Sep 20 '95

15 Bank reviews evaluation & gives"no objections 14ed Sep 20 '95 Oct 4 '95 16 Consultants invited to negotiate 2ed Oct 4 '95 Oct 6 '95

17 Negotiations 10ed Oct 6 '95 Oct 16 '95

18 Bank prior review of proposed contract 7ed Oct 16 '95 Oct 23 '95

19 Loan Effectiveness Oed Sep 30 '95 Sep 30 '95

20 Contract signed Oed Oct 2 '95 Oct 2 '95

21 Consultants mobilize 7ed Oct 2 '95 Oct 9 '95

22 Consultants take up assignment (Start Date) Oed Oct 9 '95 Oct 9 '95

23 Assignment period ( 27 months) 821ed Oct 9 '95 Jan 7 '98

coo Project: Critical Progress Summary Date: 4/12/95 Noncritical Milestone * Rolled Up K Russian Federation Urban Transport Project - Employment of Vehicle Rehabilitation Team

1995 1996 1997 1998 ID Name Duration Scheduled Start Scheduled Finish Q1 Q2 03 Q4 1 0Q2Q3 Q4 Q1 |Q2 Q3 Q4 Q1 2 3 1 Employment of Vehicle Rehabilitation Team ld Apr 10 '95 Apr 10 '95

2 Agreements with Russian Govt. & Donor Agency 60ed Apr 20 '95 Jun 19 '95

3 Selection of staff 60ed May 1 '95 Jun 30 95

4 Team mobilizes 17ed Jun 30 '95 Jul 17 '95

5 Team Takes up Assignment (Start Date) Oed Jul 17 '95 Jul 17 '95 .

6 Assignment Period (38 months intermittent) 1095ed Jul 17 '95 Jul 16 '98 . ______///////////////

Project: Critical Progress Summary _ Date: 4/14/95 Noncritical Milestone Rolled Up ',' Russian Federation Urban Transpon Project Employmentof Bus Manufacturing Consultants 1994 1995 1996 L l ID Name Duration ScheduledStart Scheduled Finish Q2 03 040 0 1 022 | Q3 I 04 I l1 0Q2 | 03 1 4 01 0C 2I 1 Employmentof Bus Manufact. Consultants 549d Apr 7 '95 May 15 '97

2 FinalizeTerms of Referenceand LOI 30ed I Apr 7 '95 May 7 '95 w 3 Prepareshort list 45ed: Apr 7 '95 May 22 '95 4 Bank 'no objections' to package 14ed May 22 '95 Jun 5 '95 5 Lol isssued to consultants Oed Jun 5 '95 Jun 5 '95 6 Consultants prepare proposals 45ed Jun 5 '95 Jul 20 '95

7 Proposalsreceived Oed Jul 20 '95 Jul 20 '95 8 Proposalsevaluated 60ed Jul 20 '95 Sep 18 '95 9 Bank reviews evaluation & gives'no objections' 14ed Sep 18 '95 Oct 2 '95 Consultants invited to negotiate 2ed Oct 2 '95 Oct 4 '95

11 Negotiations 10ed Oct 4 '95 Oct 14 '95 12 Bank prior review of proposed contract 14ed Oct 16 '95 Oct 30 '95 13 Loan Effectiveness Oed Sep 30 '95 Sep 30 '95 14 Contract signed Oed Oct 30 '95 Oct 30 '95 . 15 Consultants mobilize 30ed Oct 30 '95 Nov 29 '95

16 Consultants arrive (Start Date) Oed2 Nov 29 '95 Nov 29 '95 17 Assignment period I 1.5 years) 381d: Nov 29 '95 May 15 '97 18 Industry an Market Assessment 84ed Nov 29 '95 Feb 21 '96 19 Selection of potentially viable manufacturers 84ed Feb 21 '96 May 15 '96

20 Corporate and Technical Assistance 365ed| May 15 '96 May 15 '97

Project: Critical Progress Summary Date: 4/12/95 Noncritical Milestone * Rolled Up K Russian Federation Urban Transport Projact Employment of Urban Transport Policy Advisers to MoT 1995 ] 1996 1997se l~iI ID Name Duration ScheduledStart Scheduled Finish Q21Q3 Q4 Ql Q2 Q3 Q4 J 1QJ Q3| Q 1 Employment of Urban Transport Policy Advisers to MoT 684d Jun 1 '95 Jan 14 '98

2 Finalize Terms of Reference 30ed Jun 1 95 Jul 1 '95

3 Prepare short list 30ed Jun 1 '95 Jul 1 '95

4 Bank "no objections" to package 14ed Jul 3 '95 Jul 17 '95

_ Lo isssued to consultants ed Ju1 17 '95 Jul 17 95

6 Consultants prepare proposals 45ed Jul 17 '95 Aug 31 '95

______d A3_ _5 7 Proposals received Oed Aug Aug 31 '95

8 Proposals evaluated 50ed Aug 31 '95 Oct 20 '95

9 Bank reviews evaluation & gives"no objections" 16ed Oct 20'951 Nov 5 95

10 Consultants invited to negotiate 2ed Nov 6'951 Nov 8 95i

11 Negotiations 10ed Nov8 '95 Nov 18 '95

12 Bank prior review of proposed contract 16ed Nov 20 '95 Dec 6 '95

13 Loan Effectiveness Oed Sep 30 '95 Sep 30 '95

14 Contract signed 4ed Dec 6 '95 Dec 10 '95

15 Consultants mobilize 35ed Dec 11 '95 Jan 15 '96

16 Consultants arrive (Start Date) Oed Jan 15 '96 Jan 15 '96

17 Assignment period 12 years -- intermittent visit) 730ed Jan 15 '96 Jan 14 '98

Project: Critical Progress Sumanery Date: 4/12/95 Noncritical Milestone *Rolled Up K0 Russian Federation Urban Transport Project Employment of TA to Cities Consulting Firm (s)

1995 1996 1997 1 t ID Name Duration Scheduled Start Scheduled Finish Q1 02 Q3 Q4 01 Q2 030 040 |_Q1 0Q2 0Q3 1 Q4 0Q1 | Q2 1 Employmentof TA to Cities Consulting Firm(s) 821d Apr 7 '95 May 30 '98

2 FinalizeTerms of Reference 30ed Apr 7 '95 May 7 '95 W

3 Prepare short list 45ed Apr 7 '95 May 22 '95

4 Bank "no objections" to package 14ed May 22 '95 Jun 5 '95 5 Lol isssued to consultants Oed Jun 5 '95 Jun 5'95

6 Consultants prepare proposals 45ed Jun 5'95, Jul 20 '95 7 Proposals received Oedj Jul 20 '951 Jul 20 '95 a Proposals evaluated 45ed Jul 20 '951 Sep 3 '95

9 Bank reviews evaluation& gives'no objections' 14ed 1 Sep 4 '95 Sep 18 '95 10 Consultants invited to negotiate 2ed Sep 18 '95 Sep 20 '95

11 Negotiations 10ed Sep 20 '95 Sep 30'95 12 Bank prior review ot proposed contract 14ed Oct 2 '95 Oct 16 '95 13 Loan Effectiveness Oed Sep 30 '95 Sep 30 '95 14 Contract signed 14ed Oct 16 '95 Oct 30 '95

15 Consultants mobilize 30ed Oct 30 '95 Nov 29 '95

16 Consultants arrive (Start Date) Oed Nov 29 '95 Nov 29 '95 17 Assignment period 913ed Nov29 '95 May30 '98

Project: Critical Progress Summary _ Date: 4/12/95 Noncritical Milestone * Rolled Up O Russian Federation Urban Transport Project Employment of Follow on Project Preparation Consultants

1995 | 1996 1997 1 ID Name Duration Scheduled Start Scheduled Finish Q1 Q2 Q3 Q4 Ql Q2 Q3 4 Ql Q2 Q3 Q Q2 1 Employment of Follow on Project Prep. Consultants 176d May 15 '95 Jan 16 '96

Draft Terms of Reference 30ed May 15 '95 Jun 14 '95

3 Prepare short list 15ed! May 30'95 Jun 14 '95

4 Bank 'no objections' to package 14ed Jun 14 '95 Jun 28 '95

5 Lol isssued to consultants Oed Jul 1 '95 Jul 1 '95

6 Consultants prepare proposals 45ed Jul 3 '95 ! Aug 17 '95 _ _ _ _ : _ I~~~~~~~~~~~______4 -- -- 7 Proposals received Od Aug 17 '95 Aug 17 '95 .

8 Proposals evaluated 60ed' Aug 17 '95 Oct 16 '95

9 Bank reviews evaluation & gives'no objections' 14ed Oct 16 '95 Oct30 '95

10 Consultants invited to negotiate 14ed Oct 30 '951 Nov 13 '95

11 Negotiations 10ed! Nov 13 '95 Nov 23'95

12 Bank prior review of proposed contract 14ed Nov 23 95 Dec 7 '95

13 Loan Effectiveness Oed Sep30 '95 Sep 30 '95 .

14 Contract signed 8ed' Dec 7 '95 Dec 15 '95

15 Consultants mobilize 32ed Dec 15 '95 Jan 16 '96

16 Consultants arrive (Start Date) Od Jan 16 '96 Jan 16 '96

17 Assignment period 365ed Jan 16 961 Jan 15 97 .

Project: |Critical Progress Summary__ Date: 4/12/95 |Noncritical Milestone *Rolled Up STAFF APPRAISAL REPORT

RUSSIAN FEDERATION URBAN TRANSPORTPROJECT

ANNEX 5.14 ESTIMATEDDISBURSEMENTS SCHEDULE

BANK'S FIScAL YEAR, ENDING JUNE 30 (US$ million)

Goods and Services 1995 1996 1997 1998 1999 2000

Vehicles, spares and workshop, and other 0 69 155 60 26 8 equipment Technical assistance and training 0 5 4 1 1 0 Total 0 74 159 61 27 8 Cumulative 0 74 233 294 321 329

Note: figures are rounded.

STAFF APPRAISAL REPORT

RUSSIAN FEDERATION URBAN TRANSPORTPROJECT

ANNEX 5.15 SUPERWSION PLAN

Approximate Date of Input (mo/yr) Activity Expected Skill Requirements Staff Weeks ...: ...... 1 . :.-- Fi-Y- i - ~~~~~~~~~~~~~~~~~~~Sub 2 SW May 1995 Mission to supervise procurement Task Manager 2 activities and hold discussions with Economist/FinancialAnalyst MOT, MOF and the project cities...... , ,,.... , ..,...... '""'V!" ""'""

'i,eYe'ar19946 -

July 1995 Project Launch Task Manager 4 Procurement Specialist Economist/FinancialAnalyst ...... October 1995 Mission to evaluate cost recovery of Task Manager 20 transit companies and monitor Procurement Specialist progress with implementationof the Urban Transport Specialist reform program and procurement Financial Analyst activities, liaise wih consultants on Bus Manufacturing Specialist Bus Manufacturing Study. Vehicle Maintenance Specialist

Mission will split into 2 groups and visit 10 cities ...... March 1996 Supervision Mission to monitor Task Manager 20 progress with vehicle rehabilitation Procurement Specialist program, procurement of new Urban Transport Specialist vehicles, and implementationof the Economist/FinancialAnalyst reform program Vehicle Maintenance Specialist Mission will split into 2 groups and visit 14 cities

....:Fisna .-;.7...... Ye~ ...... 1997...... ;,-...... b.

July 1996 Supervision mission to monitor Task Manager 18 progress with implementationof the Urban Transport Specialist reform program, vehicle Procurement Specialist rehabilitation program, and Economist/FinancialAnalyst procurement activities Training Specialist InstitutionalSpecialist Mission will split into 2 groups and Bus Manufacturing Specialist visit 14 cities ...... 196 Annex 5.15

Approximate Date of Input (mo/yr) Activity Expected Skill Requirements Staff Weeks

November 1996 Mid-term Review Task Manager 20 Urban Transport Specialist Mission will visit 7 cities Economist/FinancialAnalyst Vehicle Maintenance Specialist Procurement Specialist ...... April 1997 Annual review mission Task Manager 12 Urban Transport Specialist Mission will visit 7 cities Economist/Financial Analyst Institutional Specialist ...... Fiscal Year 1998 SubtoaIs 1Sw ...... October 1997 Supervision mission Task Manager 9 Urban Transport Specialist Economist/FinancialAnalyst

March 1998 Supervision mission and collection Task Manager 9 of data for ICR finalization Urban Transport Specialist Economist/FinancialAnalyst

...... Fiscal Year 1999 Subwa 9m ...... July 1998 Supervision mission and ICR Task Manager 9 finalization Urban Transport Specialist Economist/FinancialAnalyst STAFFAPPRAISAL REPORT

RUSSIANFEDERATION URBAN TRANSPORTPROJECT

ANNEX5.16 DETAILSOF ENVIRONMENTALANALYSIS

RussIA's INST1TUTIONALAND LEGAL FRAMEWoRKFOR THE ENVIRONMENT

1. Background. Prior to 1988, the FSU had no central administrative and management bodies involved in environmental protection; and a number of ministries and departments performed different managementand monitoring functions in natural resources conservationand environmentalprotection, including the USSR State Agro-industrialCommittee, State Forestry Committee, USSR Ministry of Water Management and Reclamation, USSR Ministry of Fishing Industry, USSR State Committeeof Hydrometeorologyand Environmental Monitoring, USSR Ministry of Public Health, USSR Ministry of Geology,USSR State Mining Safety Inspectorate, and USSR Ministry of Foreign Affairs. These ministries and departments often operated as powerful monopolies, ignoring environmentalconcerns and the interests of local populations, as the centrally set production targets served as the primary incentives. In early 1990, under the pressure of Gorbachev's policy of glasnost and perestroika a new federal agency responsiblefor the environmentalprotection was created in the USSR (Goskompriroda).

2. Ministry of Environment. In Russia, the recently renamed Ministry of EnvironmentalProtection and Natural Resources (MEPNR)is, in many ways, similar to that of the previous the USSR Goskompiroda.MEPNR is the central governmentalorgan responsible for environmentalprotection and natural resource utilizationin Russia, in conjunctionwith the executive authorities of the legal subjects of the Russian Federation. Its functions include regulation of land utilization and conservation, and the use of surface and ground water, air, vegetation, wildlife, and natural resources, including those of the territorial waters, the continental shelf, and the exclusive economic zone. Within the Russian Federation, the govemmentsof the subjectsof the RussianFederation (Oblasts, Republics)have receivedgreater powers in formulatingpolicy, including environmentalpolicy. At the same time, the earlier systemof ministriesand state committeescharged with environmentalresponsibilities essentially remains. In the case of the transport sector, the Ministry of Transport of the RF is responsible for the development and submission to MEPNR of the sectoral environmental programs, designing techniques of transport-specificenvironmental monitoring and drafting ecological standards and regulations to be cleared and approved of by MEPNR. Due to rapid, ongoing

1. This section was written using the data from: The World Bank, Europe and Central Asia (EC3lV), Environwntal Management Project Staff Appraisal Report, Wash., DC, August 1994; andMinistry of Transportof the RussianFederation, Natonal Report on the EnvironmentalImpact of TransportSector, Moscow, 1993. 198 Annex 5.16

changes in the Russian system of government, the institutionalframework for environmental protection is still evolvingand devolvingto lower levels in the government structure.

3. Territorial (oblast, rayon, or city) bodies of the MEPNR work with executive authorities and industries to achieve standards, conduct inspections and assess fines. The territorial bodies of MEPNR are empowered to carry out inspections for local environmental protection and elaborationof environmentalprograms in their areas, accountingand assessing of natural resources, volumesof production, waste accumulation,and pollution. They are also responsiblefor State EnvironmentalImpact AssessmentReview of projects and for issuing of permits, making decisionson restriction, suspensionand cessation of environmentallyharmful activities,settlement of disputes, protectionof naturalmonuments and protected areas, ecological training and education, and informationdissemination.

4. Environmental Legislation in Russia. In formal terms, the conservation and rational use of natural resourceswere constitutionallyguaranteed in the FSU. Principal laws and codes, such as "On Air Protection" (1960), "Land Code" (1970), "Code on Mineral Resources" (1976), "Water Code' (1972), and "Fundamentalsof the Russian Federation On Forestry" (1977) were adopted. Major shifts in Soviet environmentalpolicy occurred in 1986 and 1988, when efforts were increased to rationalize the use of natural resources and protect the environment. Incentives for decreasing material and energy inputs per unit of output were introduced. While economicimperatives were the primary driving force behind the new policy, the growing costs to the environmentwere also increasinglybeing appreciated.

5. The USSR "Law on the State Enterprises" (passed in 1987)had specialvalue in this regard, by containinglegal provisionsfor taking accountof environmentalimpacts. This law contained the first preventive measures aimed at curbing pollution and limiting excessive and wasteful extraction and production methodsin the former Soviet Union. Its Articles 17 and 20 specificallyreferred to environmentalaspects, such as payments for the use of natural resources, environmentalprotection measures, and compensationfor environmentaldamage (to be paid from the enterprises' own budgets). Introductionof cleaner technologiesbecame mandatoryfor certain types of production. The law was founded on the premise that state enterprises should and could become self-financing and profit-making entities, with a stake in their own profitability. However, it proved difficult to implementthe new policy, to some extent because the efforts to realize enterprise self-financing faltered. These difficulties are even more pronounced with respect to deficit-riddenurban passenger transport companiesand some other heavily subsidizedtransport subsectors.

6. The 1991 Russian Federation "Law on EnvironmentalProtection" sets out the areas of responsibility of the various levels of government within the country. The federal government, for example, is tasked with establishingenvironmental standards and procedures for setting fees for natural resources use. Governmentsat the republic level set fees and issue licenses for natural resource use. Regional (krai and oblast) administrationsissue permits for pollution emissions. Regional and local MEPNR agencies (upravleniya Minprirody) are responsiblefor monitoringemissions; and republic- and regional-levelagents enforce compliance with federal standards. In case of transportair pollution, the relevant motor vehicle certification Annex 5.16 199 is done by the Russian Transport Inspectorates- local units of MOT, with enforcementby the Ministry of Interior branch - road police, or State AutomobileInspection (GAI).

FEDERALPoLIcIEs AND MECHANISMSOF TRANSPORT POLLUTIONCONTROL

7. Possibleapproaches towards the containmentof the negativeeffects transporthas on the environment are:

* State certification of automotive vehicles to ensure compliance with standard levels of permissible emissions; * Licensingof transport enterprises; * Economic incentives (vehicle and fuel taxation, etc.); * Higher effectivenessof the utilizationof fleet, minimizationof per unit costs and optimizationof public transport route networks; and * Optimizationof city traffic patterns (bus and high-occupancy-vehiclelanes) and urban planning.

8. Air Quality Management Programs. Such programs in Russia are in general more biased toward control of stationary sources of pollution. Oversight of the process is provided centrally by MEPNR and responsibilitiesfor implementationof the system are delegated to the oblasts, rayons, and municipalities.Since 60% of the pollution fee revenue is kept by the local Committeesof EnvironmentalProtection, their role in air quality managementis very strongand they appear to operate with considerableautonomy. On the other hand, the providersof transport services, i.e., entities that own and/or operate non-stationary sources of air pollution, are nominallyregulated through economiclevers of fuel tax and vehicle tax and thoughpromulgation of vehicle technical specificationsrelated to permissible emissions. However, such measures have little impact on urban passenger transport companiesbecause: (a) any imposed penalties and fees for environmentalpollution are dwarfed by the rapidly increasing operating costs of transport companies (e.g., environmentalfees equaled 0.02% of one of the project companies' total expenses in the 1st quarter of 1994); and (b) since last year (1993) public passenger transportproviders were federallydeclared exempt of the normativepollution fees. On the other hand, the rapidly increasing cost of fuel serves as a natural economic incentive for companies to purchase, over time, more fuel-efficientand henceless polluting engines. This trend is slowed only by the inability of transit companies to finance vehicle replacement with higher quality ones.

9. Russia's Air Quality Management program currently is too complex and cumbersometo enable sources to react to changes in marketplace.It needs to be simplifiedand streamlinedso that sources can adapt to changing markets and attempt innovative modifications to products and production methods. Industrial enterprises could then attain the norms in their most cost-effective manner. The system also needs to be able to deal effectively with uncooperativemanagers of industrial concerns.

10. There are several specific aspects of the Russian AQM system that should be improved if the systemis to work efficientlyand be more cost effective. These are: (a) reduce the large number of pollutants(over 1,000) for which norms have been developed; (b) simplify 200 Annex 5.16 the synergy concept that attempts to consider the combined effect of pollutants on health; (c) establish a de minimis concept for regulating emissions or making process changes; (d) modify the legal system to facilitate enforcement of the control strategies and provide for redress by the regulator, sources or citizens; (e) update the outmoded technology used for ambient and source measurementsand the data systems in which measurementinformation are stored; (f) refocus the current system to enable Russian regulators to manage the collective impacts of all of the sources in an area; and (g) address the transport of pollutants into neighboring countries and global air issues.

HUMAN AND TECENCAL CAPACITIES AND CONSTRAINS FOR ENviRoNMENTALLY SUSTAINABLEMOTOR TRANSPORT SECTOR IN RUSSIA

11. The current environmentalquality management system at all levels of government is in a state restructuring and adaptationto the new economicand political realities in Russia. Key issues that need to be addressed during the transition to a more effective system of environmental management for pollution abatement and nature protection that can meet the specialdemands of a new economic, political and social system include: (a) unreliabilityof the data; (b) ineffectivenessof the legal and regulatory system; (c) poorly defined managementand organizational responsibilities; (d) inadequate budgetary allocations; (e) breakdown of the command and control systemand deficienciesin the economicincentive structure for pollution abatement and nature protection; (f) deficienciesin the methodologiesand techniques used to derive emission limits for air and water quality managementand managementof solid and hazardouswastes, includingthe ambient environmentalquality standardsthat have been adopted; and (g) insufficientfinancial incentivesand resources for companiesto invest in environmental mitigationefforts.

12. Unreliabilityof environmentaldata. The old system of central planning and control has left a legacy of inefficiencyand mismanagementresulting from: unreliable basic information; narrow segregationof responsibility;poor informationdissemination and analysis; incomplete accountability for performance or results; and, in certain cases, deliberate misreporting of environmentaldata. In some cases Bank missions have found that the data provided was in considerableerror (e.g., by factors of 2 to 5 times). In many situations it is simply impossible to judge by how much the data are in error. Due to insufficientbudgets and lack of staff, the air and water inspectoratein the MEPNR and its committeesat oblast and local levels have to rely on the industrialenterprises and municipal sewage organizationsto provide data on pollution emissions from their facilities. In short, the current situation is such that no data generated by the system can be taken at face value. Since the generation of reliable environmentalinformation and its timely disseminationand effective analysis are fundamental to eIfficientenvironmental management, this is clearly a priority area for upgrading and improvementin any strategy for assistance to this sector.

13. Ineffectiveenvironmentalprotection laws and regulations.Another important issue that adversely affects the ability of MEPNR and its territorial branches to perform their regulatory functionsis the state of developmentof the legal system in the FSU. Environmental law was slow to developand environmentallawyers and law schoolsteaching environmental law are, therefore, rare in Russia. Annex 5.16 201

14. Poorly defined managementand organizationalresponsibilities. Responsibilities for environmentalquality managementare dispersedamong many governmentalagencies. For example, MOT has a Division of Science and Technologywithin the Office of the Minister,and all the federal-levelenvironmental issues are supposedto be coveredby a 5-memberSubdivision of Transport Environmentaland Safety Regulations.But it fact, the Ministry, for the lacks of resources, seconds this responsibilityto a similarly named division in the Research Institute of Automobile Transport (NIIAT). Virtually the same programmatic work is also done at a subdivisionof MEPNR. These efforts are poorly coordinatedleading to conflicts between the ministries and inefficient use of the limited human and financial resources available. The MEPNR is one of the more recently formed governmental organizations, and has had great difficultyestablishing its own leadershiprole in environmentalmanagement.

15. Inadequatebudget allocations.Even before the break-upof the FSU, the financial resources available for environmentalquality managementwere extremely limited. Some relief was provided with the introductionof the pollution fee systemand allocationof a proportion of these funds to support environmental regulatory activities. However, the downturn in the economy, the pressing social demandson limited governmentfunds, and the effects of inflation have greatly eroded these small gains. As a result the environmentalmanagement system is under severe financial stress. There is a danger that well-trainedand experienced personnel in pollution abatement and nature protection will seek other occupationsin order to survive the current economic crisis.

16. Inappropriatecriteria for emissionstandards. Recently, a number of the current ambient emissions standards in Russia for air, water and soil quality, are quite advancedby internationalstandards (e.g., UN/ECE vehicle emissionregulations that were made compulsory for all motor vehicles to be manufacturedin Russia after 1994). Most industries in the Russian Federation do not currently have the capacity to be able to comply and thereby call into question the credibility of environmentalpolicy. According to Bank missions, the methodologiesand techniquesused to set emissionlimits also are out of date, and lead to inefficientand ineffective pollution abatementand control mechanisms.The problemsare further compoundedby the lack of EIA requirements in respect of investmentprojects. The assistance to be provided by the technical assistance teams should aim to improve the methodologies.

17. Inadequatemedium term investmentfunds.Transport enterprisesare facing great pressure to restructure their operations at a time when their financial resources are being cut through lower governmentsubsidies and soft credits. At the same time, the commercialbanks are reluctant to provide medium-termproject investment financingdue to a shortage of such funds and political risk factors. The Bank's EnvironmentManagement Project (Loan 3806-RU) provides a source of mediumterm loan funds to enterprisesso that they can implementpollution mitigation measures.

GoVERNm T's OBJECTIVESAND STRATEGY

18. Central and regional governmentofficials are aware of the issues raised above, but a clear and viable policy and strategy for dealing with continual decline in environmental managementfor pollution abatementand nature protectionare being realized very slowly. For 202 Annex 5.16

instance, a list of some forty laws and regulations currently being drafted by MEPNR are not necessarilyof high priority and yet tie up the services of the very few environmentalprotection law specialistsemployed by MEPNR. MEPNR and other governmentagencies with overlapping environmentalresponsibilities have been the subjectof severalreorganizations that have not fully resolved the issue.

19. The one relatively clear governmentstrategy that offers scope for interventions with considerable likelihood of immediate success is that of devolution of administrativeand legislative powers to regional and local governments. Since local residents are becoming increasingly vocal in their opposition to facilities that contaminate the environment, there is increasingpressures on these local and regional governmentsto find solutionsto environmental problems. Unfortunatelythe same is not true of nature protection. Local pressures for economic developmenttend to minimize the social value of protecting nature, focusing instead on the potential economicvalue of the natural resources found in them. However, there are beginning to be more opportunities in Russia for satisfying regional goals in both nature protection and economicgrowth, through sustainableand environmentallyacceptable development options (such as in forestry and agriculture).

20. Another important recent governmentpolicy initiative has been the introduction of pollutionfee system for industrial, agriculturaland domestic dischargesinto air and water and onto land. These fees are paid into environmentalfunds at the local, regional and federal level for investmentsin pollution control, and to a lesser extent for research and for environmental managementpurposes. While there are a number of improvementswhich need to be made in relation to the level of fees assessedand in the efficiencyof collection and utilization, there is already a soundbasis for an environmentaleconomic incentive system in the RussianFederation.

21. The severebudget constraintsbeing facedby governmentagencies and enterprises alike are severely restricting their ability to address even the most urgent environmentalquality and natural resourcedepletion problems. Much scope, therefore, exists for short to mediumterm strategic support from multilateral and bilateral financial sources to assist the Government in dealing with these concerns.

TECHNCALENviRoNMENTAL DATA FOR PROJECT CInES

22. The tables that follow provide additional technical data that support the analysis of the environmentalimpact of the project provided in Chapter 5 of the Staff Appraisal Report. These are all raw data obtainedby Bank missionmembers from the Project Companiesand City Administrationsin May-June 1994, and refer to the short period of 1992-1993,which does not allow for reliable data projectionsand cross-checks. Polkuuat's Polumta Exhausu by Kostroms Nizhniy Novgorotd Omk Samanr Saransk Smolensk Code' UrbanTrmnsport Novgorod Companies 11992 993 1992 1992 1992 1993 1992 IM 1992 1993 1992 1993 1992 1993

0001 Testi *S 100.0 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.I0 100.00 100.00 of wchiel

0002 soli (oot) 1.27 1.18 na. 1.83 2.78 2.77 17.69 15.14 n.a. 6.25 10.03 10.42 7.41 7.O6 0004 gseous and liquid, 98.73 93.82 n.a. 98.17 97.22 97.23 82.20 84.86 n.a. 93.75 89.97 89.58 92.59 92.92 of which: . 0330 S0 1.79 1.67 n.a. 0.08 0.40 0.40 50.84 52.03 n.a. 3.0t 0.40 0.41 10.66 IQ.28 0367 Co 75.72 76.10 n.a. 67.23 64.53 64.58 17.84 18383 n.a. 63.47 55.41 57.59 81.93 82.64

0301 NO2 7.66 7.48 n.a. 23.16 9.25 9.19 5.45 5.52 n.a. 2.20 13.72 13.96 21.32 20.56 0401 hydrocarbon 13.55 13.56 n.a. 1.08 10.77 10.78 2.49 2.40 n.a. 2.05 5.08 5.21 20.00 19.59 (wih VOC() 0006 VOC) 0.00 0.00 n.a. 5.07 11.74 11.75 5.48 5.53 n.a. 22.86 14.97 11.99 0.00 0.00 0005 odor 0.00 0.00 n.a. I.55 0.52 0.52 0.21 0O50 n.a. 0.14 0.41 0.42 0.00 0.00

Un,- Tr- Pelsbi As % of Tota Air 4.42 3.30 .aa. NA. 0.30 0.36 0.48 0.49 u.s. ma. 0.09 0.10 11.80 13.43 Piniem Somme: ProjectCompanies' Anmial Reports on AUmoaphbrrcAir Protction(mbnmtted to Bankmision in June1994). I Noez t Codesapply to the Russianofficial statisticsrepoting Form 2-TP(Air). 'Volafil Organic Compounds. 204 Annex5.16

Table 2: FuEL CHARACTERISTICSAND CONSUMPTION BY TRANSITCOANIES (metric tons)

Diesel as a Percent of Gasoline Diesel All Fuel Burned

City 1992 - 199$0 1992 199$ 1992 19 Cc reovet 4,262.7 -- 7i 3,424.9 2,SSI.j 4.6 IZ.6 Kostrma Saranak 6,017.0n.a. 6,474.9:371.7 5,823.0n.a~~~~~~~~~~~~~~~~~~~~~..... -~ .1...... s. 49.2 9-X0 9. - Nizhiy Novgoro 25,198.0 ; Z4 5--i 15,831.4 1S- 6. 38.6 - $9.0t sNovagor}od 27.4 232 ,11. ! i4,919.n 99.3 99i;:$1

Smolec k 347.0 31Z-.Gf 2,884.0 28808. vNcr 1,264.0 1-067. 1,530.1 - -, ; 54.8 -; ...... :....:i .0 : i:gg 0--...-:i-re Sucie Project Companies' Reportsfor 1992-1993(submitted to Bank.... mission ...in JunePe.o...... 1994). W....er..

Table 3: ECOLOGCICALCHARACTERISTICS OF DIESEL FUELS IJSEDBY TRANSITCOMPANIES IN PROJECTCITIES

Diesel Fuel CompositionCharacteristics Climatic Factors MdaximmRemn MaximumSulfur Concetntrain Maium Ash Coet (peten mg/lOOcm' Cotn ,w0 Aveawge Averageof * G 5 . : - ~~~~~~~Durto of Absoue

C:ity witer ..... -. .. Winter --> - W r...... Te.... ~herepovcs n.a. -a.. n.a. 0.01 a 1 .. .

Kostroma 0.20 .'. . 25.0 52,8- n.a. .na.: 122 13 Nizhniy Novgorod 0.019 0.01 30.0 4 0.01 Novgorod 0.05 20.0 41 0.00 120 90 14

Oms 0.20 9iDI,2030.0 409 0.01 . |00 112 9 Pskov 0.13 - D.8 30.0 -9- 0.01 13S .. . 16 Rostov-on-Don 0.11 0.2- n.a. 15. 0.0 v.0 185 19 Saniara 0.35 - .35 9.0 ~. .10.01 137 13 Saransk 0.20 0.X ; n.a. - - , 0.00 j 0.00 130 14 Smolensk 0.3S: 0.35 30.0 400 0.01 O1 -. 13S 10 Tver 0.35 0.35 35.0 4-- 0.01 0.1 125 16

Vc ikceLuki 0.15 0,6 n.a. --- ? ' n.a. 00 135 16 VoloSda n.a. n.aa n.a. - .a. n.a. 112 13

Yckaterinburg n.a. 0.20- n.a. n : .a. n.a..n..10.1

Source: NIIAT, May 1994. STAFF APPRAiSAL REPORT

RUSSIAN FEDERATiON URBAN TRANSPORTPROJECT

ANNEX 7.1 DETAILS OF THE ECONOMICANALYSIS

Table 1: ECONOMICRATES OF RETURN (percent)

New Total Rehabilitation Project City New Buses Total Buses' Trolleybuses Trofleybuses" of Trams Cherepovets 33 58 Kostroma 25 38 over 100" Nizhniy Novgorod 28 33 over 100 Novgorod 25 33 Omsk 31 40 over 100V Pskov 23 28 Rostov-on-Don 16 34 34 45 over 100 Samara 24 38 over 100 over 100 Saransk 18 32 14 23 Smolensk 16 26 Tver 36 50 over 100 Velikie Luki 23 31 Vologda 19 40 36 75 Yekaterinburg 14 20 over 100 Average ERR 23 31 28 50 over 100

ERR for all cities = 39 percent a. Includes new vehicles and rehabilitation. b. Rehabilitation only.

Key Assumptions * Value of passenger waiting time = 35 UScents/hour.

* Capital cost of 12m bus = US$117,000 18m bus = US$160,000 206 Annex 7.1

Table 2: DETAIS OF VEHICLEFLEET FOR ECONOMICANALYSIS

F1me Num_Oberof Mlot to be per sq... New Vebkla V&kco Sime Prm_e,a Opera wutim Off dureg Fsk Franced Rehababatd City 13 pa Day (000) flog 193 19%-1I7 1 udr Projet nder Projed

am ...... Cboepovde 217 331.2 139 89 282 14.0 50 BB lCoura 189 303.3 123 96 192 11.0 91 48 Novprod 174 397.0 IS0 115 188 9.0 S0 40 Omsk 1.523 663.6 1.249 150 1,196 8.0 300 170 Pskov 151 297.0 113 119 119 8.0 75 15

ko3w Dea 574 941.1 407 272 490 10.0 169 240 Semit 870 1,073.4 539 415 785 11.0 192 153 Sarank 226 175.0 160 113 242 11.0 70 24 S*okask 127 176.7 96 92 125 10.0 S0 37 Tver lip 274.0 S0 61 146 13.0 34 20 Veikie lWd 69 124.8 55 52 54 8.0 34 12 Vologda 156 225.0 122 98 110 7.0 46 60 YdmW6mbi" 685 992.0 400 440 521 10.0 280 90 TdiUA-w- 5.076 5974.1 3,633 2,812 4,450 9.5 1,501 997

......

...... Koeroma 84 201.5 65 45 99 10.0 25

Niv Nwismod 249 571.7 164 10 286 11.0 100 36

Novgorod 10

Omsk 238 356.0 186 112 17S 7.0 36

RGIN-Daw 261 579.6 188 120 270 10.0 84 50

Samara 264 705.0 166 64 251 12.0 60

Sartk 181 215.0 132 64 187 11.0 50 60

Voloda 103 215.0 69 67 86 10.0 28 60

Yeb-b*- 260 480.0 218 124 254 10.0

T-I/Aw-p 1,640 3,323.8 1,188 704 1,611 10.5 272 327 ...... , ...... , ...... , ...... !......

Nixy N _vgod 415 1,274.1 274 112 408 11.0 120

Rbgm.Daa 231 491.7 161 SO 141 7.0 50 Samar 439 733.4 190 100 121 5.0 100 Tver 264 523.0 127 94 101 6.5 45 Y.toseidg 466 1,035.0 359 120 354 9.0 65 Tdhr/A-W 1,920 4,275.0 1,179 497 1,249 8.0 380

a. Fled requ bemechae baoedana levelof service of eigbtpaseaer per square meer at peak. b. Poity new bues to be purcbhaedin 1994with local funds c. About 200 vehicha to be wrin off zn 1993. STAFF APPRAISAL REPORT

RusSIAN FEDERATION URBAN TRANSPORT PROJECT

ANNEX 8.1 SELECTED DOCUMENTS AND DATA AVAILABLE IN THE PROJECT FILES

Russian Federation: Urban Transport Project. Bidding Documents for Procurement of Diesel- Engined Transit Buses (ICB). Volume 3: Transit Bus Specifications. Volume 3A. Technical Requirements for the 12 Meter Diesel Transit Bus. April 1995 - 68 pp.

Russian Federation: Urban Transport Project. Bidding Documents for Procurement of Diesel- Engined Transit Buses (ICB). Volume 3: Transit Bus Specifications. Volume 3B. Technical Requirements for the 18 Meter Articulated Diesel Transit Bus. April 1995 - 69 pp.

Russian Federation: Urban Transport Project. Bidding Documents for Procurement of Electric Trolleybuses (ICB). Volume 3: Technical Specifications for the 12 Meter Electric Trolleybus. April 1995 - 88 pp.

Julian Granville/Jackie Jamsheed - to Jane Holt. [Memo and Financial data for 2nd Qtr. 1994 for 14 cities]. - August 22, 1994.

MOT. Ref DAT-14/289. A. Vasilyev - to Jane Holt [Memo Re Manufacturing Study Component]. - July 26, 1994.

Cole, Sherman & Associates Ltd. Russian Federation Urban Transport Project. Appraisal of Proposed Program of Urban Passenger Transport Vehicle Rehabilitation and Associated Spare Parts Requirements. June 1994. - 24, 55 pp.

Coopers & Lybrand. Urban Transport Appraisal Mission: Financial Annexes & Questionnaires. - June 1994.

Subsidiary Loan Agreement (Urban Transport Project) between Government of Russian Federation and Local Government. August 30, 1994.

Jane Holt. Russian Federation. Proposed Urban Transport Project. Appraisal Mission Aide- Memoire. - Moscow, May 13 - June 1, 1993. + 22 attachments.

Jane Holt. Russian Federation. Proposed Urban Transport Project. City Appraisal Memoranda (14 sets for 14 cities, with 5 attachments each). - Moscow, May 13 - June 1, 1993. + 22 attachments. 208 Annex 8.1

Russia: Proposed Urban Transport Project. Final Executive Project Summary. April 28, 1994.

MOT. Russia's Freight Traffic by Mode [and other sectoral informationtables]. - April 1994. - 14 pp.

NIIAT. The Main Results and Summariesto the additional analytical working-outof the Project "Urban Mass Transport of Russia" (re Contract of March 16, 1994). - 11 pp.

MOT. Demand of Ikarus Spare Parts in Russia in 1994, by Oblast/Jurisdiction.- 2 pp.

MOT. Specificationsof Spare Parts for Ikarus Buses to be Procured in 1994 for the Ministry of Transport of Russia through IBRD Loan. - 16 pp.

MOT. Total Demand for Rear Axles and Parts for Trolleybusesin 1992. - 3 pp.

MOT. Total Demand for Spare Parts for Czech Trams TATRA in Russia. (dated July 7, 1992) - 9 pp.

Jane Holt. Russian Federation. Proposed Urban Transport Project. Pre-AppraisalMission Aide-Memoire. - Moscow, March 4-16, 1993.

Minutes of Negotiationsbetween MOT and World Bank, February 7-11, 1994, Washington, DC

Minutes of Negotiationsbetween MOT and World Bank, March 28, 1995, Washington,DC.

Cherepovetz (World Bank Russian Urban Transport Project). A.T.Kearney Draft Report No.2//14914. Amsterdam, February 25, 1994. - 44 pp.

Kostroma (World Bank Russian Urban Transport Project). A.T.Kearney Draft Report No.2//14958. Amsterdam, March 1, 1994. - 48 pp.

Kursk (World Bank Russian Urban Transport Project). A.T.Kearney Draft Report No.12/1634. May 1994. - 51pp.

Nizhniy Novgorod (World Bank Russian Urban Transport Project). A.T.Kearney Draft Report No.2//15315. Amsterdam, March 7, 1994. - 44 pp.

Novgorod (World Bank Russian Urban Transport Project). A.T.Kearney Draft Report No. 12/1631/eg2. May 4, 1994. - 48 pp.

Omsk (World Bank Russian Urban Transport Project). A.T.Kearney Draft Report No.2//14962. Amsterdam, March 1, 1994. - 53 pp. Annex 8.1 209

Pskov (World Bank Russian Urban Transport Project). A.T.Kearney Draft Report No. 12/1634P/ms. May 1994. - 36 pp.

Rostov-on-Don (World Bank Russian Urban Transport Project). A.T.Kearney Draft Report No.2//14968. Amsterdam, March 2, 1994. - 52 pp.

Samara (World Bank Russian Urban Transport Project). A.T.Kearney Draft Report No.2//15687. Amsterdam, March 22, 1994. - 42 pp.

Saransk (World Bank Russian Urban Transport Project). A.T.Kearney Draft Report No.2//15688. Amsterdam, April 20, 1994. - 38 pp.

Smolensk (World Bank Russian Urban Transport Project). A.T.Kearney Draft Report No.2//15283. Amsterdam, March 7, 1994. - 34 pp.

Tver (World Bank Russian Urban Transport Project). A.T.Kearney Draft Report No.2//15289. Amsterdam, March 1, 1994. - 47 pp.

Velikie Luki (World Bank Russian Urban Transport Project). A.T.Kearney Draft Report No.2//15277. Amsterdam, March 7, 1994. - 28 pp.

Vologda (World Bank Russian Urban Transport Project). A.T.Kearney Draft Report No.2//15274. Amsterdam, March 2, 1994. - 62 pp.

Yekaterinburg (World Bank Russian Urban Transport Project). A.T.Kearney Draft Report No.2//15689. Amsterdam, April 22, 1994. - 40 pp.

The Critical Mass for the Loan Program Is Missing. (World Bank Russian Urban Transport Project). A.T.Kearney Interim Report No.25//14951. Amsterdam, January 24, 1994. 41 pp.

Selected Western Urban Management Experiences - Lessons Learned. Briefing Paper for Russian Municipal Administrators. (World Bank Russian Municipal Transport Project). A.T.Kearney Draft Report No.25//14880. Amsterdam, January 1994. - 25 pp.

NIIAT. Review of Technical Specifications for Urban Large-Capacity Buses Submitted to the Russian Consultants' Team by the World Bank. - December 1993. - 2 pp.

NIIAT. Main Technical Requirements to an Extra-Large Capacity Urban Bus Intended for Operations in Russian Cities. - December 1993. - 6 pp.

NIIAT. Main Technical Requirements to a Large Capacity Urban Bus Intended for Operations in Russian Cities. - December 1993. - 6 pp.

NIIAT. Initial Requirements to Trolleybus. - December 1993. - 5 pp.

NIIAT. Initial Requirements to Tram Wagon. - December 1993. - 6 pp. 210 Annex 8.1

Jane Holt. Russian Federation. Proposed Urban Transport Project. Preparation Mission Aide- Memoire. - Moscow, December 2-12, 1993.

Russia: Proposed Urban Transport Project. Revised Second Executive Project Summary (EPS). November 29, 1993.

Thomas Till. Russia: Urban Transport Mission, July-August 1993, Back-to-OfficeReport.

Richard Podolske et al. Russia: Urban Public Transport Project. Project Preparation Mission Aide-Memoire. July 18 - August 6, 1993.

Ministerstvo transporta Rossiyskoy Federatsii. Nauchno-tekhnicheskiyotdel. Gosudarstvennyi nauchno-issledovatel'skiyinstitut avtomobil'nogotransporta (NIIAT). Natsional'nyi doklad o vliyanii deyatel'nosti TDK na sostoyaniye okruzhayushchey sredy. - Moskva, 1993 - 57 pp. [NationalReport on the Influenceof Transport Sector on the State of the Environment]. IBRD 26294

SWEDEN

Gulf of Bothnia BarentsSea

Baltic RUSSIAN Sea -> FINLAND Koro RUSSIANFEDERATION RUSSIAN t ; .Sea TRANSPORTPROJECT FEDEMTIONd e v < < J r >ESTONIA- . Publicg W0>lTransport ( * * SupplyHn / \p X LATVI)& 4>

LVIA Novoro dogskov

Tver Project cities

i Velikie Cherepovets Qe s of the pies is indicative of the BELARUS\ Luki Vologda The size maximumperatiuonril passenger ursbaonfleets capacityin 1993. o \> J^Sm~~~~olensk Tver Ga/WJto

Kostroma 14, MOSCOW'+

Oblast, Krai, or Republic Boundaries

Okrug, or Republic Boundaries* ) fi N Nizhniy Autonomous Oblast, Novgorod

. - Boundaries UKRAINE % International

Saransk * IncludingRepublics of Adygeyo,Altai, K.,och.i-Cherkess and Kh.k-as. Yekaterinburg Samara

Secv-ofs ov-on-Don Kflomete,s 0 200 400 600

MRIes0 200 400

| GEORGIA - KAZAKHSTAN TURKEY J Caspion(; .~ 7\.

XALRENIA Sea

_,IR OFArol t-( AZER8AIJAN ). Sea m = ______T___ R_____f_ IRAAZERBAIJAN - - \ 10/05/1994niiri 2 cb 31F

IBRD26295

SWEDEN

Gulf of Bothnia , Brents Sea

Baltic FINLAND i FEDERATION RSeoSea FINtAND 5 r, (1 ,. 1 C , KaraL P RUSSIAN

KETESTONIA-\ fJa (

POLAND Skv Nvor

Tver Projectcities Velikie Cherepovets The size nindicativeoffte the BELARUS ~~~~~Volodaothpissdl_ c \ SLAUS ,pmlenskTver in 1993. SmolenskTv~~~~~~~~r -' -~~~~~ ______M*fro ~~~~~~~~actualpassengerridership

Ko>t MOSCOW* astroma .0-r

Oblast, KrDi, or RepublicBoundaries

, /<~~~~~~~ ~Nizhniy.- Boundaries* Novgorod AutonomousOblast, Okrug, or Republic

International Boundaries UKRAINE Saronsk IncdudingRoepblics of Adygeya,AlJti, Karochoi-Cherkess Yekaterinburg andKhokasio R ~~~~~~~Samara,

a t0a SAzov, Rosto-on-Don Kilaoetem 0 200 400 600

.Omsk MReS 0 200 400

|GEORGLA \ .< j KAZAKHSTAN TURKEY Caspian

ARMENIA15 j, I.RLOP AZERAJA Aral Sea RI_AZEREIA S c_o 9/7/1994 wm c .2 cix . 31TR F

I I