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Transport (Nonurban Road Transport) Armenia–Georgia Border Regional Road (M6 Vanadzor–Bagratashen) Improvement Project (RRP ARM 49244) SECTOR ASSESSMENT (SUMMARY): TRANSPORT (NONURBAN ROAD TRANSPORT) Sector Road Map 1. Sector Performance, Problems, and Opportunities 1. National context. Armenia is an open economy: trade in goods and services represents about 75% of gross domestic product (GDP). Thus, minimizing transport costs is imperative. However, because of geography and international politics, Armenia’s unit costs of importing and exporting goods are high compared with those of neighboring countries, even though its logistics performance index is about the regional average.1 2. The main transport modes are road, which together carried 85% of freight in 2014 (measured as tonnage). Nearly all of the balance is refined product carried by pipeline. The total base road network is 7,530 kilometers (km), excluding urban roads. It is divided into interstate roads (1,759 km), republican roads (1,966 km), and local roads (3,806 km).2 The operational rail network is 726 km, of which about 600 km are electrified. Rail services are operated by South Caucasus Railway CJSC, a subsidiary of Russian Railways, under a 30-year concession awarded in 2008. Armenia has four open international road borders: three with Georgia in the north (Bagratashen, Bavra, and Gogavan) and one with Iran in the south (Meghri). Rail services have just one open international border at Bagratashen. Beyond Georgia, rail freight must be transshipped at Poti or Batumi on the Black Sea. 3. Expressed as annual tonnage, the shares of rail (30%), road (55%), pipeline (15%), and air (0.1%) remained fairly static from 2005 to 2014.3 In terms of ton-km, however, the modal shares have not been static. The share hauled by road increased from 2% to 17% in that same period, while rail’s share fell from 28% to 19%, suggesting that long distance road haulage has tended to displace rail. In absolute terms, road ton-km has grown 30% per year, whereas rail has grown 2% a year. Moreover, rail tonnage fell sharply from an average of 3.1 million tons during 2005–2014 to 2.5 million tons in 2015.4 In general, road haulage is pulling ahead of rail. 4. Road institutions. The Ministry of Transport and Communications (MOTC) is the principal government agency in charge of the transport sector. It administers all interstate and republican roads. MOTC delegates its road administration functions (including collection of road and traffic data and asset management) to the Armenian Roads Directorate (ARD), a state- owned noncommercial organization, through annual contracts. Marzes (regional administrations) and local communities manage all local roads. Private companies provide routine maintenance services under 5-year contracts with ARD, marzes, and local communities. The North–South Road Corridor State Non-Commercial Organization implements the North– South Road Corridor Project. MOTC’s transport project implementation unit implements other road construction and rehabilitation projects, including those financed by the World Bank and the government. The MOTC has 176 employees. 5. Road conditions. With the exception of the ongoing North–South Corridor Road Investment Program, which has a concrete pavement, all paved roads have asphaltic pavements. Pavement condition data are inadequate as they omit road sections considered too 1 Trade data taken from World Bank, World Development Indicators database. Unit costs of import and export refer to container traffic. 2 Government of Armenia, Government Decree No. 265-N, 13 February 2014 3 Data taken from National Statistical Service sources. Freight volumes may be significantly underestimated as data on private vehicle use are not published. 4 Information from South Caucasus Railway CJSC. 2 poor to be maintained. Nevertheless, ARD data indicates that the condition of interstate roads has declined steadily since 2010: about two-thirds were in good to fair condition in 2015, down from 93% in 2010. Republican roads have fared better as two-thirds were in good to fair condition in 2015, up from 44% in 2010. Reliable data for local roads is not available. Much of the road network is in poor condition because of (i) insufficient financing for maintenance; (ii) obsolete road design, maintenance standards, and technical specifications; and (iii) a lack of qualified workers, contractors, and consulting companies with the necessary knowledge and skills. 6. Maintenance budget and allocation. Armenia has an integrated budgeting system, which includes the Armenian Development Strategy (ADS) for 2014–2025, annual medium-term expenditure framework submissions by MOTC, and the annual state budget. Allocations to the road subsector have fallen well below those anticipated in the ADS. All maintenance activities (including the World Bank-funded Lifeline Roads Network Improvement Project) account for about 0.7% of GDP in 2015 including the ongoing North–South Road Corridor Investment Program. The ADS indicated about 1.2% of GDP would be spent on road maintenance from 2015. Although routine maintenance expenditure was planned to a 5% nominal annual increase, the allocation to marzes (regions), which are responsible for the bulk of local roads, remains AMD0.9 billion only (Table 1). 7. ARD prepares an annual prioritized list of road sections for periodic maintenance, using the Highway Development and Management Model version 4. This list is submitted to the roads sector coordinating council, a body that includes representatives from the MOTC and the ministries of territorial affairs, finance, and economy. The council decides which roads will be included in the final list. The Asian Development Bank (ADB) is working with MOTC to improve the validation of the annual rehabilitation program. Table 1: Road Expenditure, 2012–2016 (AMD billion) Item 2012 2013 2014 2015 2016a MOTC periodic maintenance 7.2 3.9 13.2 3.4 4.0 MOTC routine maintenance 5.5 5.4 4.9 5.9 6.2 Marzes routine maintenance 0.8 0.8 0.8 0.9 0.9 LRNIP 6.5 8.4 2.6 13.5 9.9 Maintenance total 20.0 18.5 21.5 23.7 21.0 Road development 7.0 8.0 29.6 25.0 14.7 Total 27.0 26.5 51.1 48.7 35.7 LRNIP = Lifeline Roads Network Improvement Project, MOTC = Ministry of Transport and Communications. a Budget. Source: MOTC. 8. Road asset management system. Acquisition of a modern road asset management system (RAMS) remains a high priority. On June 20, 2014, the Prime Minister of Armenia issued a decree changing the source of financing (from the World Bank to ADB’s North–South Corridor Investment Project, Tranche 3) and the timeline for the purchase of the equipment and software for the RAMS. ADB will also finance the installation of the software and training of ARD staff. ADB will continue to support RAMS implementation with the purchase of equipment for road condition and traffic surveys, and other equipment. Some of the survey equipment (a road portable profiler and a four-wheel drive vehicle to mount the roughness measurement equipment) was already purchased. 3 9. Road safety. The number of road traffic deaths in Armenia per 100,000 people is high.5 While the number of recorded deaths has remained at about 300 per year between 2011 and 2014, the number of crashes and the recorded number of injuries have risen about 11% per year during the same period.6 Several ARD staff members are involved in road safety, but only one is full time. They undertake blackspot7 surveys from time to time. The police maintain a road accident database, which was in hard copy before the end of 2015. The Government had recognized the need for improving the road accidents data collection system and developed the road accident report form used by police with electronic form based on the best international practice. 10. Armenia does not have a road safety strategy. The National Road Safety Council, an advisory body established in 2010, is no longer operational. An action plan6 was drawn up with support of European Union through Transport Corridor Europe-Caucasus-Asia (TRACECA) regional road safety project in 2014, but the implementation is still pending due to lack of fund. The World Bank approved additional financing for the Lifeline Road Networks Improvement Project in July 2015 to include the development a new road safety action plan. To augment road safety, improvements are needed in institutional coordination, traffic safety audits, road designs (including signs and markings), speed limit enforcement, and other areas. 2. Government’s Sector Strategies 11. Improving transport infrastructure and services is among the government’s top priorities. The government’s transport sector strategy is set forth in several documents, such as the ADS and the latest government program. The ADS called for an increase in, and more efficient use of, public resources allocated to maintenance and rehabilitation of roads. The transport sector priorities identified in the ADS included (i) reconstructing the North–South Road Corridor and at least one road connecting each settlement with the rest of the country, (ii) strengthening road subsector management, (iii) improving public transport services, and (iv) developing ecofriendly transport. 12. Since 2010, budget allocations for the road subsector have averaged AMD36 billion at constant 2015 prices, of which AMD12 billion has been allocated to development and AMD24 billion to maintenance. Development expenditure has been strongly supported by external development partners, including ADB, the World Bank, European Investment Bank, and European Bank of Reconstruction and Development. However, maintenance spending continues to be inadequate, leading to the steady decline in the road network’s condition. 3. ADB Sector Experience and Assistance Plan 13. Previous program. Transport has been one of the priority sectors of ADB’s support since Armenia joined ADB in 2005. Based on the 2006 interim operational strategy for Armenia, transport accounted for a large proportion of ADB assistance to Armenia in 2007–2013.
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