International Logistics Centres for Western NIS and the Caucasus

Home , Roshen, State Highways (Ukraine), Transport in Kyiv

EuropeAid/126356/C/SER/Multi

International Logistics Centres

for Western NIS and the Caucasus

in Armenia, Azerbaijan, Georgia, Moldova and Ukraine

Inception Report

April 2009

This project is funded by A project implemented by the European Union Dornier Consulting GmbH / NTU / Inros Lackner AG

International Logistics Centres for Western NIS and the Caucasus

Local operator

Ministry of Transport and National Name Secretariat of IGC TRACECA in Azerbaijan

8/2, Aliyarbekov str. Address Baku, AZ 1005 Azerbaijan Tel. number +99412 493-37-76 Fax number +99412 498 64 26 E-mail [email protected] Contact Person Mr Akif Mustafayev

Signature ------

Local operator

Ministry of Economic Name Development of Georgia

12, Chanturia str. Address Tbilisi, 0108 Georgia

Tel. number +99532 99 98 99 Fax number +99532 93 45 45 E-mail [email protected]

Contact Person Mr Mamuka Vatsadze

Signature ------

Local Operator

Ministry of Transport and Name Communication of Ukraine 14, Peremogy av. Address Kyiv, 01135 Ukraine

Tel. number +38044 461 65 40 Fax number +38044 486 53 38

E-mail [email protected]

Contact Person Mr Hrigoryi Legenkyi

Signature ------

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Local Operator

Ministry of Transport and Road Name Industry of the Republic of Moldova 12a, Bucuriei str., of.401 Address Chisinau, MD-2004 Republic of Moldova

Tel. number +37322 74 37 36 Fax number +37322 74 07 50

E-mail [email protected]

Contact Person Mr Eduard Biriucov

Signature ------

Date of report: April 2009 Reporting period: 26 January 2009 – 26 April 2009 Author of report: Consortium of Dornier Consulting / NTU / Intros Lackner

EuropeAid Project Manager Mrs Barbara Bernardi ______[name] [signature] [date]

EC M & E team Mr Tornike Gotsiridze______[name] [signature] [date]

EC Delegation in Azerbaijan Mr Alan Waddams ______[name] [signature] [date] EC Delegation in Armenia Mr Jean-Francois Moret ______[name] [signature] [date] EC Delegation in Georgia Mr Micha Nekvasil ______[name] [signature] [date] EC Delegation in Moldova Mr Alexandru Albu ______[name] [signature] [date] EC Delegation in Ukraine Mrs Jurate Yuodsnukyte ______[name] [signature] [date]

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TABLE OF CONTENTS PROJECT SYNOPSIS ...... 7 1 ANALYSIS OF THE PROJECT ...... 9 1.1 START SITUATION ...... 9 1.2 RELEVANT PROJECT CONTEXT ...... 10 1.3 MAIN PROBLEMS AND DEFICIENCIES ...... 11 1.4 SITUATION WITH THE LOCAL COUNTERPARTS ...... 13 1.5 TARGET GROUPS ...... 13 1.6 PROJECT PARTNERS ...... 13 1.7 INCEPTION PHASE / PROJECT MOBILISATION ...... 14 2 PROJECT PLANNING ...... 18 2.1 INTRODUCTION ...... 18 2.2 RELATIONS AND CO-ORDINATION WITH OTHER PROJECTS ...... 18 2.3 PROJECT OBJECTIVES ...... 20 2.4 PROJECT APPROACH ...... 20 2.5 RISKS AND ASSUMPTIONS ...... 21 2.5.1 Risks ...... 21 2.5.2 Assumptions ...... 22 3 PROJECT PLANNING FOR NEXT REPORTING PERIOD ...... 40

LIST OF FIGURES Figure 1: Project organisation chart ...... 10

LIST OF TABLES Table 1: Contact Details of the Core Project Team ...... 10 Table 2: Overall Plan of Operations ...... 24 Table 3: Overall Output Performance Plan ...... 29 Table 4: Plan of Operations for the Next Period (Work Programme) ...... 35

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LIST OF ABBREVIATIONS ADB Asian Development Bank CIS Commonwealth of Independent States (former republic of the USSR) also called NIS EU European Union EBRD European Bank for Reconstruction and Development EC European Commission EIB European Investment Bank EU European Union IFI International Financing Instruction IGC Intergovernment Commission TRACECA ILC International Logistics Centre LC Logistic Certre LFM Logframe Matrix MCA Multi-Criteria Analysis (also known as Multi Variate Analysis, MVA) MoS Motoways of the Sea NIS Newly Independent States, also called CIS PS Permanent Secretariat TEN-T Trans-European Transport Network ToR/TOR Terms of Reference (of the present project, unless strated otherwise) TRACECA Transport Corridor Europe Caucasus Asia UNDP United Nations Development Program

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PROJECT SYNOPSIS Overall Objective: To support international trade and facilitate the movements of goods along the TRACECA corridor through improving logistics capabilities, interoperability and multimodal transport. Specific Project Objectives: PI – Project inception A – Logistics network and related infrastructures analysis B – Identification, ranking and promotion of logistics centres’ projects C – Preparation of the feasibility studies for the selected projects PM – Project management Outputs: A - Logistics network and related infrastructures analysis 1. Report on actual logistics related freight flows and compilation of maps 2. Eight country reports on infrastructure conditions at main TRACECA transport links and nodes 3. Assessment of locations in five direct beneficiary countries for future international logistics centre (ILC) projects at macro level 4. Description of main issues of transport operators (initial stakeholder analysis) in eight countries B - Identification, ranking and promotion of logistics centres’ projects 1. Final stakeholder analysis and prioritised action programme 2. Final list of the priority projects using MCA for five beneficiary countries 3. Recommendations on financing schemes for beneficiary countries 4. Study tour to LCs in Europe and study tour documentation C - Preparation of the feasibility studies for the selected projects 1. Implementation programme favourable to investments in five direct beneficiary countries 2. Communication plan including promotion and dissemination aspects For each selected project: 3. Pre-feasibility/feasibility study including: assumptions on public support and investment promotion, capacity and institutional strategy action plan, administrative support and staff qualification assessment, services to be rendered, business plans and cost-benefit analysis and environmental impact assessment where relevant. 4. Masterplan (preliminary design) covering functional area allocation schemes, layput for modern infrastructure and cargo handling facilities, description of adequate information system. Activities: PI – Project Inception

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Tasks PI: Project mobilisation and set up, coordination with the Client, beneficiaries, stakeholders and counterparts A - Logistics network and related infrastructures analysis Task A1: Traffic flow and operating infrastructures analysis Task A2: Description of the main issues of operators B - Identification, ranking and promotion of logistics centres’ projects Task B1 - Assistance in identifying and characterising priority projects of logistics centres Task B2 - Ranking the priority projects using multicriteria analysis Task B3 - Visit to the relevant logistics centres C - Preparation of the feasibility studies for the selected projects Task C1: Global description of the objectives and functions of the logistics centre Task C2: Identification of the major stakeholders Task C3: Possible site location Task C4: Preliminary design of the site Task C5: Preliminary design of the logistics (functional) areas Task C6: Business Plan for the site Task C7: Environmental impact assessment Task C9: Cost benefit analysis TaskC10: Recommendations for the adapted public support TaskC11: Communication and synergy within the networks of LC along TRACECA PM – Project management Task PM1: Quality assurance, risk management and conflict resolution Task PM2: Updates of the Logframe Task PM3: Project planning Task PM4: Project reporting Target Groups: Ports, rail, road and airport operators, freight forwarders, logistics and transport companies, real estate companies, shippers and consignees etc. Beneficiaries: Ministries of Transport of TRACECA member-states, PS IGC TRACECA Inputs: Technical Assistance will include: Long-Term Key Experts: Team Leader: 450 MD / Senior Experts: 800 MD Short-Term Experts: Senior Experts: 1425 MD / Junior Experts: 1890 MD Regional project office in Kiev Communication and visibility actions Project starting date: 26 January 2009

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1 ANALYSIS OF THE PROJECT

1.1 Start Situation The project was commenced on 26 January 2009, after the contract was signed and a briefing meeting in Brussels on 16 January 2009 took place. The briefing meeting was attended by the EC Task Manager and the Head of the Transport Sector, the EC Consultant represented by Consortium management and the Team Leader. In this meeting the general objectives of the project and activities for the next weeks were discussed. It was emphasised that the present project was intended to enhance the efficiency of the transport industry, quality transport and logistics related value added services. In the TRACECA environment, logistics has not yet been well studied. The present assignment is to initiate a new pattern of discussions in terms of policies, partnerships, shaping the industry to respond to transport demand, areas of assistance to stakeholders, and investments. It was pointed out that the overall approach starts from a country-wise analysis to achieve benefits in the TRACECA region. The project will propose pragmatic infrastructure projects of international logistics centres as priority projects to improve the TRACECA network operations. The Team Leader will report on all project activities on a monthly basis to the Project Manager in the Europe Aid Co-operation Office. The expert team will report to the Team Leader. The mobilization started with the arrival of the Team Leader in Kiev on 26 January 2009, followed by the arrival of Key Expert II and Key Expert III. The complete core team was mobilised by 9 February 2009. After completion of a selection procedure, the office in Kiev was rented in February 2009 and was fully operational on 6 March 2009. The office premises in Kiev have been rented in line with the ToR on an average level of rent. Fees and rent were approved by the Task Manager. The local staff was recruited following PRAG procedure and in full compliance with the local regulations. The complete contact details were communicated to the Client, beneficiaries, stakeholders, partners and counterparts defined on 19 March 2009. The office is located at the following address: 8, Lysenko Street, office 39, Kiev 01034, Ukraine. The general contacts are as follows: Tel/Fax: +380 44 234 03 88, +380 44 288 08 92 E-mail: [email protected]

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The contacts of the permanent project team in Kiev are as follows: Table 1: Contact Details of the Core Project Team Position Name Email Team Leader: Andreas Schoen [email protected] / [email protected] Key Expert II Hannes Rueger [email protected] [email protected] Key Expert III John Standingford [email protected] Regional Project Olena Nevmerzhytska [email protected] Coordinator Office Manager / Inna Pokydko [email protected] Project Assistant Project Translator Yulia Akhtonskaya [email protected] Below is the project organization chart: Figure 1: Project organisation chart

1.2 Relevant Project Context The project started in a time of change. Positive economic growth rates over the last eight years are being replaced by negative forecasts for this and an uncertain number of coming years. The international financial markets will never be the same again. Economic ties are weakening with a sharp decline in international transport, trade and cross-border investment. On this background, facilitation of trade and transport in the region and the improved integration of the Caucasus & Black Sea region countries in the world's economy is even more necessary than before. Cost effective multi-modal transportation of non-oil cargo from Asia via the Caucasus to Europe will be an important factor for future recovery. The recognition of priority links (rail, road, sea) and strategic intermodal logistic nodes, organised as a consistent network, will serve as an important precondition for the optimisation of cargo flows.

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In the TRACECA Long-Term Strategy up to 2010, an emphasis is given to ensuring the smooth and uninterrupted flow of freight in the region, across the different modes of transport and across the different countries. This project will tackle in particular the lack of modem logistic centres/nodes and common legal ground for its integration and development, since technological ties between these centres directly affect the development of trade and international transport (import, export and transit) in the Caucasus and Black Sea region countries. According to the ToR, the project assignment is divided into three sequential parts that at the same time correspond to the main result areas: A – Logistics network and related infrastructures analysis B – Identification, ranking and promotion of logistics centre projects C – Preparation of the feasibility studies for the selected projects The project beneficiary countries are split into direct beneficiaries eligible to receive technical assistance under EC European Neighbourhood Policy Budgets – Armenia, Azerbaijan, Georgia, Ukraine and Moldova; and indirect beneficiary countries – Bulgaria, Romania and Turkey, which are either EC or EC accession countries. The countries comprise a variety of political, economic, social, cultural and technological back- grounds. The awareness of logistics and basic understanding of logistics centres vary significantly across the countries. The levels of sophistication of logistics operations are also different, and sometimes not comparable. However, a common initiative for establishment of a network of logistics centres in the Western CIS is only addressed by the current assignment. On a country level mainly scattered initiatives are currently under way. Those are described in greater detail in dedicated country reports. The implementation approach is based on defined work packages, tasks and implementation phases. For each defined project result area a work package was designed. Each work package includes a number of related tasks (A1-A2, B1-B3 and C1-C11). The Consultant also proposed to introduce the Inception Phase and a modern project management component considering the complexity and rather tight schedule of the project.

1.3 Main problems and deficiencies Several areas of deficiency were identified at the beginning of project implementation. These comprise: the current economic crisis and its likely impact on market conditions and willingness to invest in infrastructure; availability of recent and coherent traffic data; and concerns that indirect beneficiary countries are very willing to participate in the projects. The project was commenced and will be implemented under the conditions of the world economic recession. The willingness to invest in infrastructure by private investors and international financing institutions has decreased. Private investors have generally put their investment projects on hold waiting for better market conditions. The international financing institutions have scaled back their investment plans. Even though the topic of international logistics centres is rather interesting, a downward trend in willingness to invest has been confirmed during the investigatory missions in the region and in talks with global players in Europe. In addition to that, statistics from the last quarter of 2008 showed freight flows had dropped across the TRACECA countries. Figures from 20% to 80% have been reported during the initial field missions to the region. This makes traffic forecasting unusually challenging, since the recovery period from the financial crisis is unclear.

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This has a direct consequence on implementation of the project, since realistic and viable projects are to be identified under conditions of limited investment possibilities and uncertain trend in traffic flow development The Consultant will strive to pursue a realistic approach and will work on bringing the interests of various stakeholders together for implementation of viable projects. However, the business and financial plans will be adapted to the crisis conditions and the scenarios will be analysed to propose the most economically feasible solutions, with a focus on regional development and coherence of TRACECA routes. The financial estimates and investment recovery rates are to be determined on a case-by-case basis, assuming successful crisis mitigation measures are in place and incentives to invest exist. In this regard, the promotion of land acquisition by public authorities and preparation of the areas for future private logistics operators will become crucial. The other important issue is availability of traffic and logistics related data. Currently the EU- funded project on transport dialogue and traffic forecasting is working on further development of the TRACECA database and creation of the traffic model for TRACECA. Close cooperation with this project has been established from the very beginning of the present assignment. An exchange of data has been initiated. However, availability of data, as well as their quality and consistency, varies significantly across the countries. The most standard data deficiency across the region is unavailability of recent data on imports and exports by commodity groups; also the data on export and import traffic routing are scattered or inconsistent. For preliminary comprehensive analysis at the macro level the data are generally sufficient; however for micro-level analysis more investigation is needed. The Consultant expects that once the micro-level analysis for proposed sites starts the stakeholders will cooperate on data provision more closely. In addition, by that time the traffic flows project will complete its assignment and a reasonable update will be available. At the meeting to present infrastructure projects in Bucharest in February 2009, the Consultant was advised that a new TRACECA corridor project map has been issued, including additions that the countries have made in their respective territories. This was done in December 2008 at the IGC Meeting of TRACECA. Since the ToR for the present assignment were based on the prior TRACECA network, the planning of missions and associated analysis had to be adjusted already in the Inception Phase and for Phase A. The deployment of resources was carefully planned and re-scheduled accordingly to allow enough man-day resources to be available for the next phases of the project. The situation with indirect beneficiary countries is also unclear in terms of counterparts’ expectations. Following the ToR, the approach to Bulgaria and Romania differs from the approach assigned to Turkey. For instance, the Consultant has to pay special attention to inform the Bulgarian and Romanian authorities on different steps of the project and to include their countries’ key logistics centres in the network of reference centres. The Consultant was officially requested to seek for the Client’s approval to pay special attention to providing information on the different steps of the project for authorities in Turkey. The Consultant has followed this approach and extended the attention to indirect beneficiary countries with respect to implementation of the infrastructure network analysis and traffic flow research. The transport systems of the indirect beneficiary countries are linked to the CIS part of TRACECA and should be cross-referenced in logistics terms. The requests of indirect beneficiary countries were discussed in Brussels and solutions are to be elaborated. In general, the Consultant has explained to the stakeholders in indirect beneficiary countries that in the long-term they can expect levels of service comparable to

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European standards from the network of logistics centres on the TRACECA route once the projects are implemented. The recommendations on potential for improvement identified in the missions to these countries have been also pointed out in the Consultant’s technical reports. These aspects will be followed-up in close coordination with the EC AIDCO Task Manager.

1.4 Situation with the Local Counterparts The local counterparts for these projects are the National Secretary and TRACECA structures in each direct and indirect beneficiary country. The Consultant perceives the local counterparts as its main agents and partners to promote the tasks and activities of the Project in particular and TRACECA in general. All local counterparts were duly informed on project commencement. The relevant project introductory presentations were provided. A basis for regular cooperation basis was established. The Consultant will report directly to the counterparts on all aspects of the project implementation. The National Secretaries have provided extensive support in data collection and facilitated the organization of the meetings. The main project outputs and action programme were also discuss with them during the meetings and follow up was organised.

1.5 Target Groups Target groups refer to project beneficiaries who are major stakeholders of the logistics process. A stakeholder is any group that can be affected, or is affected, by any initiative undertaken by the project. Under the present assignment it is justifiable to determine the target groups as the participants involved in the logistics chain and/or the establishment of logistics facilities. On the financing level, the investors and IFIs involved in the process are important project target groups. The business community in the region and interested parties in Europe (industrial circles, consignors and consignees, freight forwarders, trucking companies, shipping lines, operators of transport infrastructure, transport companies, logistics service providers) are also referred to the target groups. The customs authorities, municipalities and chambers of commerce are also referred to as beneficiaries of the present assignment. The representatives of target groups were interviewed in the Inception Phase of the project during the field missions of the Key Experts and short-term expert teams.

1.6 Project Partners The project partners are the donor community, logistics platforms, promoters of similar initiatives in the regions, as well as other EU projects. Close cooperation has been established with Europlatforms, German Association of Freight Villages, and the Logistics Platform in Ukraine. Cooperation has also been established with relevant EU financed projects at regional and national level.They include: • “Traffic flows and Transport Dialogue project” • “Motorways of the Black and Caspian Sea” • “Development of the Logistical Centres Network in Central Asia” • “Integration of the Transport System of Ukraine into the TEN-T network” • “Ukrainian ports feasibility study” • “Border crossings and transit corridors in Ukraine and Belorussia” The cooperation with Europlatforms and German Association of Logistics Villages will be used in preparation of the study tour.

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1.7 Inception Phase / Project Mobilisation In accordance with the Time Schedule of Activities for project implementation and the project’s ToR, and following the organisation and methodology outlined in the technical proposal, the Consultant carried out the following activities and actions. During the Inception Phase the project approach has been elaborated in greater details and fine-tuned following situation with local counter parts. The project consists of three consequent phases or work packages A – Logistics network and related infrastructures analysis B – Identification, ranking and promotion of logistics centres’ projects C – Preparation of the feasibility studies for the selected projects The Consultant introduced a project mobilization and project work inception phase. The Inception Phase corresponds to the implementation phase of A, and preparation of the background for the Phase B. Some tasks which were included under the work package C have been also initially been addressed in the inception phase. The Consultant also introduced an overarching project management component. PI – Project Inception The main tasks within this work package are project mobilisation and set up, and establishment of coordination with the Client, beneficiaries, stakeholders and counterparts. Team Leader (Andreas Schoen) and Key Experts (Hannes Rueger and John Standingford) were mobilised after commencement of the project. The Regional Coordinator (Olena Nevmer- zhytska) was appointed after approval of the EC Task Manager. The Office Manager (Inna Pokydko) was contracted after approval of the EC Programme Manager. The project team has also employed a permanent translator (Yulia Akhtonskaya). The basic team of senior and junior short-term experts in the region was approved and contracted. Further approvals are envisaged for data verification processes and for specific tasks within Phases B and C. The expert teams started field missions in the region after approval of the EC Programme Manager. Premises for the project office in Kiev were rented; the office was fully operational by 06 March within the approved budget. The project registration process was initiated with state authorities of Ukraine and completed by 17 April by the Ukrainian officials. Regular contacts and coordination are taking place with the Client. Ralf Behrens (Project Director), Andreas Schoen (Team Leader) and Yulia Usatova (Senior Expert) took part in the Bucharest TRACECA infrastructure working group meeting on 17-19 February 2009. The project was presented to the TRACECA member states, EU representatives and other EC projects. Contacts to all stakeholders were established and preparations for the presentation of priority project were started. The Team Leader has paid introductory visits to counterparts in all direct and indirect beneficiary countries. Kick-off meetings were organised introducing and discussing the project Field missions of the technical expert teams took place in all beneficiary countries. The meetings of the project team are listed in Annex 2.

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The database specialist (Carsten Schuerman) took part in the data collection coordination meeting in Brussels with representatives of the EC and the Traffic Flow project in January 2009. Additionally several meetings about future co-operation were conducted with the Traffic Flow project, the Black Sea and Caspian Motorways of the Sea project, contacts were established with the International Logistical Centres Network in Central Asia project, the TRACECA Land Transport Safety & Security Project, and the TRACECA Developing of the Transport Sector Training Capacity project, and national projects in Ukraine (TEN-T, Ukrainian Ports, Border Crossings, Harmonisation of Transport Legislation). Performance indicators for the project inception phase: “Project office established”, “project mobilised”, “kick-off meetings organised” and “coordination established” are completely fulfilled. A – Logistics network and related infrastructures analysis This should result in the following outputs: – 1. Report on actual logistics related freight flows and compilation of maps (Annex 3, Part 1) 2. Eight country reports on infrastructure conditions at main TRACECA transport links and nodes (Annex 3, Part 2) 3. Assessment of locations in five direct beneficiary for future international logistics centre (ILC) projects at macro level (Annex 3, Part 2) 4. Description of main issues of transport operators (initial stakeholder analysis) in eight countries (Annex 4) These reports are included to the present Inception Report as corresponding annexes. This project component includes the following tasks: A1 – Traffic flow analysis and characterization of the nature and condition of the operating infrastructures and facilities within the network To approach this task the project team was split into country teams to carry out the field missions with an objective to collect the information needed to complete tasks A1 and A2. The missions to all direct and indirect beneficiary countries took place and the stakeholders were interviewed. The project team developed structured interview guidelines to assure the consistency of the results obtained and comparable level of information for presentation in the reports. In parallel, desk research was implemented. Data collection was organized using TRACECA internal and external sources. The Consultant has analysed merchandise flows, estimated their specific logistics management, and determined traffic flows, flows and routes of container goods and promising locations for logistics centres. The analysis was based on the data that was possible to obtain within the 3 months of the inception period only, but this amount was sufficient for expert estimation and presentation of the required results. The findings on the traffic flows are summarized in Annex 3, Part 1, supported by extensive GIS map material. The analysis of infrastructure and nodes relevant to the project, as well as surveys of the facilities, equipment and technology in use at those nodes, has been implemented. The field missions have identified and described the main existing and missing transport links and performed surveys of the current situation regarding the logistics sector and international

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International Logistics Centres for Western NIS and the Caucasus transport corridors. The findings are summarized in country-by-country reports for all direct and indirect beneficiary countries in Annex 3, Part 2. Derived from the findings of the traffic flows and country reports, and in full compliance with the pre-requisites of an international logistics centre, the consultant has performed an assessment of locations indicated in the TOR and determined if they are suitable to accommodate an international logistics centre. The evaluation was performed using a multicriteria analysis on the macro level. The most promising locations will be further investigated in Phase B at the specific site level. The methodology and results of this evaluation is presented in Annex 3, Part 2. With delivery of • The regional report on actual logistics related freight flows and compilation of maps (Annex 3, Part 1) • Eight country reports on infrastructure conditions at main TRACECA transport links and nodes (Annex 3, Part 2) • Assessment of locations in five direct beneficiary for future international logistics centre (ILC) projects at macro level (Annex 3, Part 2) – preliminary list of suitable locations for logistics centres The performance indicators for the A1 are completely fulfilled. A2 – Description of main issues encountered by the operators The scope of the tasks derives from the activities undertaken for Task A1. The Consultant has summarised the issues raised by the transport operators in interviews. The issues comprise a mix of infrastructure bottlenecks and soft constraints. The findings are presented for the region as a whole and on a country-by-country basis. Relevant recommendations are provided. These recommendations will be taken into account in development of a future country-by-country implementation programme (C6) to be developed in Phase C. The Consultant has also studied the recommendations of the completed EC projects related to logistics performance. The initiatives of international organizations mainly of the EBRD, World Bank, UNDP and ADB on regional transit and trade facilitation were also considered. Training suggested by the ToR will be included into a stakeholder seminar on multicriteria analysis and into the study tour to Europe, once the action programme becomes more precise. The findings in respect to the issues encountered by operators are presented in the Annex 4. The delivery of a report describing the main issues of transport operators (initial stakeholder analysis) in eight countries and an initial action programme (Annex 4) constitute the fulfilment of the performance indicator for A2. B – Identification, ranking and promotion of logistics centres’ projects Only preparatory work has been done at this stage, since the implementation of the Phase B is supposed to start in the progress reporting period I, and main outputs will be finished in six months of the project implementation. This work package includes the following tasks: B1 – Identification and characterising of priority projects of logistics centres On the initial level the macro locations for the logistics centres were identified and ranked using MCA at the macro level. B2 – Ranking the existing projects using the multicriteria analysis

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The macro criteria used in Phase A were selected to allow pragmatic determination of concrete sites. B3 – Organisation of the visit to the relevant logistics centres Some preparatory activities have started. Several global logistics companies were approached to investigate their interest in presenting concepts at such a study tour. Further work will be done during Phase B. C – Preparation of the feasibility studies for the selected projects This phase is a conclusive phase of the project, but it contains some tasks that have to start already in the inception period. The work package C includes the following tasks: C1 – Global descriptions of the objectives and functions of the logistics centre C2 – Identification of major stakeholders C3 – Possible site location C4 – Preliminary design of the site C5 – Preliminary design of the logistics areas C6 – Business plan for the site C7 – Environmental impact assessment C8 – Assessment for key qualification required C9 – Cost benefit analysis C10 – Recommendations for adapted public support C11- Communication and the synergies within the networks of the logistical centres. Out of all these tasks only Task C11 has started already in the inception phase. The cooperation with the team leader of the parallel project has been established The communication and exchange of information with the most advanced regional and national projects has also started and will be pursued. The close liaison with the International Financing Institutions has started; regular information exchange is foreseen. The basis for the communication plan has been prepared and is included into the chapter 2.2 below. PM – Project management The Project management component was proposed by the Consultant given the complexity of the project and necessity to coordinate the multifunctional teams. This work package is implemented, will prevail during the whole project and includes the following tasks. PM1: Quality assurance, risk management and conflict resolution PM2: Updates of the Logframe The Logframe was updated on the basis of the information received during the inception phase. PM3: Project planning The planning results are presented in the tables of the current report. PM4: Project reporting

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Project reporting has been done on a monthly basis. The Inception Report is prepared upon completion of the Phase A after 3 months of project implementation.

2 PROJECT PLANNING

2.1 Introduction The consultant developed a logframe which was attached to his technical offer. The objectives, tasks and activities of the terms of reference were translated into this logical frame. It is the intention of the Consultant to work on the basis of an updated logframe matrix (LFM) (Annex 1). The developed time schedule to this logframe is still valid in general. The deviation in timing for organization of the stakeholder seminar and the study tour will be necessary. The study tour will be shifted to September 2009, due to the holiday season. The exact date for the stakeholder seminar proposed on the initiative of the Consultant will be scheduled together with the EC task manager during the implementation of Phase B.

2.2 Relations and Co-ordination with Other Projects Cooperation has been established with all partner projects. The meetings held with other projects are included into the list of meetings presented in Annex 2. The preparation of the project webpage has been initiated. The technical functionality features and user requirements have been drafted. The design features in accordance to visibility guidelines will be determined. The design and budget will be submitted to the task manager for prior approval. Other visibility actions (leaflets, press conferences, banners) will be coordinated with the EU Task Manager for specific occasions. Target group/ Activity Schedule Project partner Project Logistical Phase A: Constant contact at Centres in Central Asia • Establishment of contact Team leader and key • Exchange of general information on expert level, evaluation of sites on macro-level Regular meetings of Phase B: Team leaders within • Coordination of MCA and criteria for the the TRACECA development of logistics centres, exchange schedule of material of the MCA seminar and study tour • Exchange of information on traffic flows and main problems encountered by stakeholders, especially concerning the routes over the Caspian sea, • Exchange of information about the approved sites for logistics centres • Exchange of links on the webpage Phase C: • Coordination of technological schemes, safety standards, documentation and IT solutions proposed for the logistics centres • Coordination of handling equipment proposed for the logistics centres according to the structure and volumes of goods handled

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Target group/ Activity Schedule Project partner Motorways of the Black Phase A: Constant contact at and Caspian Sea • Establishment of contact Team leader and key • Exchange of information on experts findings expert level , in ports and traffic flows Monthly meetings of Phase B: Team leaders and/or • Inclusion of findings on the MoS project into Key experts in Kiev the MCA of port-related logistics centres in Azerbaijan, Ukraine and Georgia. • Exchange of information on traffic flows and main problems encountered by stakeholders • Exchange of links on the webpage Phase C: • Exchange of information concerning projects proposed in TRACECA ports • Inclusion of forecasted MoS traffic into the master- and business planning for approved sites • Coordination of technological schemes, safety standards, documentation and IT solutions proposed for the logistics centres Other TRACECA and Throughout the project: Exchange of information Regular contact of national projects concerning specific findings and topics (training, Team leaders and road safety, integration of Ukraine transport key experts systems into the TEN for Transport, border crossings, etc.) IFI and donor Phase A: Regular meetings community • Establishment of contact in all countries with EBRD, World • Presentation of the project Bank, EIB and ADB Phase B: in beneficiary • Information about selected macro-locations countries • Evaluation of IFI national strategies for the beneficiary countries for MCA. • Discussion of availability of financing programmes for ILC projects Phase C: • Presentation of approved locations to the IFI in beneficiary countries • Initiation of discussion of beneficiaries with the IFI concerning the proposed projects • Integration of IFI financing into the financial plans, where applicable TRACECA community Newsletters about the project will be published on Quarterly –May 09, the website and transmitted to the TRACECA Sep 09, Jan 10, May Permanent Secretariat. 10, Sep 10, Jan.11

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2.3 Project Objectives The terms of reference identify quite clearly the project objectives and three major phases of implementation, which correspond with the consultant’s perception. In addition, the Consultant has identified indicators in order to have a measure for project achievements and success. The overall objective of the project is to support international trade and facilitate the movements of goods along the TRACECA corridor through improving logistics capabilities, interoperability and multimodal transport. Project Objectives include: A – Logistics network and related infrastructures analysis B – Identification, ranking and promotion of logistics centres’ projects C – Preparation of the feasibility studies and business plans for the selected projects However, as mentioned in section 1 of this report – situation at the project start – some specific project objectives, namely preparation of the feasibility studies and business plans, may be influenced by the current global economic slowdown and financial crisis. This will have a substantial impact on willingness to invest in infrastructural projects and availability of funds from donors and IFIs. As originally conceived, the project would have prepared feasibility studies and business plans that were concerned chiefly with commercial profitability of the selected ILC projects. This was in accordance with the objective to attract private investment into the ILC projects. The world now faces an unforeseen financial and economic crisis, which is global in scope but appears to be affecting some beneficiary countries disproportionately. Consequently it may be difficult to justify any investment in narrow commercial terms, or to formulate a business plan that would attract private investment. Therefore we propose, for the EC Task Manager’s consideration, that the feasibility studies include a strong economic component focused on socio-economic rather than commercial profitability, and on national and regional development priorities. This approach would be aimed at promoting the ILC projects as targets for substantial public sector investment, thereby reducing the risk to which private investors would be exposed. In addition, the inclusion of the new routes in the TRACECA map will have impact on the resources needed in the Phases B and C to gather information on site-specific traffic flows and links, as well as for possible further verification of the results of the Phase A. These deviate from the initial planning, and will be adjusted in consultations with the EC Task Manager within the phase B. The implementation of Phase A showed, that short-term experts had to be given sufficient time to analyse the results obtained in missions in Europe. This entailed preparation of the technical reports, development of the scenarios, application of specialized software and consultation with global logistics players.These activities were supported by adequate backstopping. The experts ensured constant dialogue with interviewed stakeholders and the key expert team in Kiev. The objectives and the respective indicators are specified in Intervention Logic / Strategy of the updated logframe matrix attached as Annex 1.

2.4 Project Approach The project objectives require strong coordination with the target groups. Bringing various stakeholders together, promoting partnership, matching the stakeholder strategies and promoting viable solutions belong to the intangible part of the project’s technical assistance. In project implementation the Consultant will proceeed from the general to the specific; from regional issues to national, regional and eventually site-specific issues.

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First, the project team has evaluated the macro locations for future logistics centres, based on site visits, traffic flows, infrastructure conditions and in full compliance with criteria of the international logistics centres. In this exersice the project team had considered the initial interest of stakeholders and their readiness to discuss the establishment of such logistics centres at evaluated locations. Second, for the most promising locations specific sites will be identified. This requires a constant coordination with international financing institutions and stakeholders, including local public authorities. A key activity will be inspiring global logistics players to participate in future projects. At each stage of the assignment approval and consent of the beneficiaries, and endorsement by the counterparts, will constitute the basis for further work. Third, once the possible locations are identified, they will be ranked using the detailed micro multicriteria analysis. The criteria and weights will be elaborated by the project team in close consultation with the stakeholders based on best practice worldwide. This process will require further travelling in the region and in Europe, and further involvement of the network of local experts for data verification and coordination with individual stakeholders. The project team will maintain close contact with the responsible Task Manager of the European Commission and will further inform her about all relevant and important issues coming up during the project execution. It has to be clearly stated, that the major workload in order to achieve the results is not only the elaboration of required studies, schemes, recommendations, technical papers etc., but a dialogue with beneficiary states, IFIs and numerous stakeholders in each state. This task also includes the co-ordination of findings and achievement of consensus among the parties involved. These are time-consuming tasks which require concentration of all efforts to achieve the outputs stipulated in the terms of reference.

2.5 Risks and Assumptions 2.5.1 Risks The risks are mentioned in the Terms of Reference, but some additional risks were identified by the consultant. These risks are considered in the updated Logframe. In the following table the Consultant summarises the probability of risk occurance, its impact and action needed to counter those risks.

Probability of Impact occurrence High / Risk description Mitigation approach High / Medium Medium / / Low Low Relations between M M Improving Beneficiaries’ awareness about countries are undergoing suboptimal impact on their economic difficulties development – external risk, cannot be mitigated within the project implementation Lack of common goals and H M Hierarchy of common strategic goals – priorities in the transport external risk, cannot be mitigated within the sector of the countries project implementation Contradicting interests M M The stakeholder analysis should help between the transport legal minimising this risk, the ranking and entities in the countries weights in multicriteria analysis should help mitigare the contradicting interest. Hierarchy of common strategic goals, identification of the regional viable projects.

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Probability of Impact occurrence High / Risk description Mitigation approach High / Medium Medium / / Low Low Inappropriate H H Increase awareness of the inappropriate implementation of legal legal framework – external risk, the framework Consultant has no influence on change of laws and influence on legal amendments and ratification Delays in implementation L L Application of the Consultant’s experience of the parallel project in in coordinating of the multiple sector Central Asia and programmes with involvement of numerous interdependence on the operators. results of the on task C11 The communication plan shall be – Communication and established and agreed with the synergy within the network Contracting Authority. of the logistics centres along the TRACECA corridor. Promotion and lobbying by L M The multicriteria analysis as well as the beneficiaries of logistics other analyses conducted for all logistics projects which would lack centres and nodes will reduce this risk. commercial attractiveness The Consultant has extensive experience in for further investment. identification of the bankable projects. 2.5.2 Assumptions The ToR already identified the following basic assumptions for a successful project implementation: • Political continuity and stability in the beneficiary countries • Governments continue to pursue policy of regional integration and establishing viable links with the Trans-European Transport Networks • Commitment of national authorities to establish a legal basis for the development of transport logistics centres • Free access to necessary information and data The Consultant proposes to consider in addition the following set of assumptions:

Log Frame Level Description of assumptions Level: • Political continuity and stability in the beneficiary countries exists Project purpose • Successful measures to mitigate the consequences of the world’s financial crisis • Continuation of governments in pursuing policy of regional integration and establishment of viable links with the Trans-Eu*ropean Transport Networks • Acceptance of international customs and freight documentd snf procedures by beneficiary countries • Free access to necessary information and data within the project implementation • Continued or increased financial support demonstrated by the IFIs in the region in the transport and real estate sector • Continued commitment of responsible national authorities to establish a legal basis for the development of transport logistics centres • Clear legal regulations for land acquisitions

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Log Frame Level Description of assumptions • Readiness of transport operators to cooperate with their current competitors with a regional logistics centre Level: • Free access to necessary information and data within the project Project results implementation • Beneficiary support and continuity in decision-making • Favourable political and economic situation • Willingness of stakeholders and authorities to cooperate under a coherent, integrated logistics centre network solution • Relevant legislation and regulatory framework exist • Market conditions remain attractive to potential investors despite the current financial and economic crisis • Access of project team to all countries within the region, and to all project relevant areas (e.g. ports, border crossing points, airports, terminals, etc.) • Approval process for promotions of project activities takes place in due time Level: Project activities: Activities of task • Offices established “Project Inception” • Availability of counterpart staff to engage in meetings, project steering and working panels • Timely response to reports by the beneficiaries • Participation from counterpart staff Activities of task A • Relevant data and supporting documents are made available to the project team • Support and commitment from project partners Activities of task B • Full support and commitment from project partners • Commitment to development of the selection criteria and acceptance of the indicators (including public support) by all involved counterparts • Willingness and cooperation between various counterparts • Commitment from stakeholders to regional interests, respect for transport demand and network principle, rather than to locality preferences • The stakeholders will participate actively in round tables on identification and appraisal of priority sites • Measures to improve efficiency of the sector performance will be implemented • Co-operation with neighbouring countries Activities of task C • The data are available and counterparts provide strong input for the package implementation on the sustainable basis • Relevant data and supporting documents are made available to the project team • Means and forms of possible public support to the projects are being formulated and will be presented during task B Activities PM • Standard project management tools are applicable

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Table 2: Overall Plan of Operations

1 The project implementation started on 26 January 2009. The project team therefore worked only 1 week in January, so the days initially planned in the technical proposal for the 1st month of the project implementation had to be split into 4 weeks. The man-days input corresponding to the first week of project implementation remained as input month of January 2009. The rest of the days were shifted to the end of the project to cover the January 2011.

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Project title: Project number : Beneficiary countries: EuropeAid/126356/C/SER/ International Logistical Centres for Western Direct – Armenia, Azerbaijan, Georgia, Moldova, Ukraine Number of Pages: 5 NIS and the Caucasus in Armenia, MULTI Azerbaijan, Georgia, Moldova, Ukraine Indirect – Bulgaria, Romania, Turkey Planning period : Prepared on: 26 April 2009 EC Consultant : DCo / Inros Lackner / NTU 26 January 2009-26 January 2011 Project objective: To support international trade and facilitate the movements of goods along the TRACECA corridor through improving logistics capabilities, interoperability and multimodal transport. No MAIN ACTIVITIES TIME FRAME INPUTS year 2009 2010 2011 PERSONNEL EQUIPMENT (man-days) OTHER & FURNITURE month 11 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 Senior Junior A1: Traffic flow analysis TL: and characterisation of the 28 MD nature and the condition KEII+ 2. of operating x x x x x infrastructures and KE III: STE: facilities within the 74 MD 267 network STE: MD A2: Description of the 155 3. main issues encountered x x x x x MD by operators B1:Assistance in identifying and 4. characterising priority x x x x projects of logistics centres TL: 60 MD B2: Ranking the priority KEII+ 5. projects using multicriteria x x x x x analysis KE III: STE:

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Project title: Project number : Beneficiary countries: EuropeAid/126356/C/SER/ International Logistical Centres for Western Direct – Armenia, Azerbaijan, Georgia, Moldova, Ukraine Number of Pages: 5 NIS and the Caucasus in Armenia, MULTI Azerbaijan, Georgia, Moldova, Ukraine Indirect – Bulgaria, Romania, Turkey Planning period : Prepared on: 26 April 2009 EC Consultant : DCo / Inros Lackner / NTU 26 January 2009-26 January 2011 Project objective: To support international trade and facilitate the movements of goods along the TRACECA corridor through improving logistics capabilities, interoperability and multimodal transport. No MAIN ACTIVITIES TIME FRAME INPUTS year 2009 2010 2011 PERSONNEL EQUIPMENT (man-days) OTHER & FURNITURE month 11 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 Senior Junior B3: Visit to the relevant 100 295 logistics centres MD MD 6. x x x x STE: 245 MD C1: Global description of the objectives and 7. x x x x x x x x TL: functions of the logistics 302 MD centre KEII+ C2: Identification of the 8. x x x x x x x x KE III: major stakeholders 555 MD 9. C3: Possible site location x x x x x x x x STE: C4: Preliminary design of 998 MD STE: 10. x x x x x x x x x the site 1276 C5: Preliminary design of MD 11. the logistics (functional) x x x x x x x x x x x x x areas

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Project title: Project number : Beneficiary countries: EuropeAid/126356/C/SER/ International Logistical Centres for Western Direct – Armenia, Azerbaijan, Georgia, Moldova, Ukraine Number of Pages: 5 NIS and the Caucasus in Armenia, MULTI Azerbaijan, Georgia, Moldova, Ukraine Indirect – Bulgaria, Romania, Turkey Planning period : Prepared on: 26 April 2009 EC Consultant : DCo / Inros Lackner / NTU 26 January 2009-26 January 2011 Project objective: To support international trade and facilitate the movements of goods along the TRACECA corridor through improving logistics capabilities, interoperability and multimodal transport. No MAIN ACTIVITIES TIME FRAME INPUTS year 2009 2010 2011 PERSONNEL EQUIPMENT (man-days) OTHER & FURNITURE month 11 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 Senior Junior Task C6: Business Plan for the site and country- 12. x x x x x x x x x x x x x x x by-country legal programme C7: Environmental impact 13. x x x x x x x x x x x x x x x assessment C8: Assessment of key 14. x x x x x x x x x x x x x x x qualifications required 15. C9: Cost benefit analysis x x x x x x x x x x x x x x x x x x C10: Recommendations 16. for the adapted public x x x x x x x x x x x x x x x x x x support C11: Communication and synergy within the networks of logistical 17. centres along the x x x x x x x x x x x x x x x x x x x x x x x x x TRACECA corridor

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Project title: Project number : Beneficiary countries: EuropeAid/126356/C/SER/ International Logistical Centres for Western Direct – Armenia, Azerbaijan, Georgia, Moldova, Ukraine Number of Pages: 5 NIS and the Caucasus in Armenia, MULTI Azerbaijan, Georgia, Moldova, Ukraine Indirect – Bulgaria, Romania, Turkey Planning period : Prepared on: 26 April 2009 EC Consultant : DCo / Inros Lackner / NTU 26 January 2009-26 January 2011 Project objective: To support international trade and facilitate the movements of goods along the TRACECA corridor through improving logistics capabilities, interoperability and multimodal transport. No MAIN ACTIVITIES TIME FRAME INPUTS year 2009 2010 2011 PERSONNEL EQUIPMENT (man-days) OTHER & FURNITURE month 11 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 Senior Junior PM01: Quality assurance, TL: STE: risk management and 40 MD 20 conflict resolution KEII+ MD 18. x x x x x x x x x x x x x x x x x x x x x x x x x KE III: 60 MD STE: 15 MD PM02: Updates of the 19. x x x x Logframe 20. PM03: Project planning x x x x x x x x x x x x x x x x x x x x x x 21. PM04: Project reporting x x x x x x x x x x x N/A 500 000 Euros TOTAL (MD) Incidental expenditure Team leader 450 MD Key Experts I + II 800 MD 1425 1890 Short-term experts MD MD

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Table 3: Overall Output Performance Plan Project title: Project number : Beneficiary countries: International Logistical Centres for Western EuropeAid/126356/C/SE Number of Direct – Armenia, Azerbaijan, Georgia, Moldova, Ukraine NIS and the Caucasus in Armenia, R/MULTI Pages: 6 Indirect – Bulgaria, Romania, Turkey Azerbaijan, Georgia, Moldova, Ukraine Planning period : Prepared on: 26 April EC Consultant : DCo / Inros Lackner / NTU 26 January 2009-26 January 2011 2009 Project objective: To support international trade and facilitate the movements of goods along the TRACECA corridor through improving logistics capabilities, interoperability and multimodal transport. Outputs Agreed Objective Verifiable Indicators Assumptions Component project inception - IP • Key expert team within 2 weeks after the project • Availability of counterpart staff to engage in Project mobilised commencement meetings, project steering and working panels • Project office established and is fully operational within 6 • Timely response on Consultant’s requests weeks after the project commencement

• Project registered at the basis of operations country by the end of inception phase • Kick-off meetings in all eight direct and indirect beneficiary • Availability of counterpart staff to engage in Kick-off meeting took place countries are conducted meetings, project steering and working panels Component A: Logistics network and related infrastructures analysis 1. Report on actual logistics related • The report on logistic related traffic flows is delivered by • Free access to necessary information and data freight flows and compilation of maps the end of the inception phase. within the project implementation • Access of project team to all countries within region, and to all project relevant areas (e.g. ports, border crossing points, airports, terminals, etc.)

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Project title: Project number : Beneficiary countries: International Logistical Centres for Western EuropeAid/126356/C/SE Number of Direct – Armenia, Azerbaijan, Georgia, Moldova, Ukraine NIS and the Caucasus in Armenia, R/MULTI Pages: 6 Indirect – Bulgaria, Romania, Turkey Azerbaijan, Georgia, Moldova, Ukraine Planning period : Prepared on: 26 April EC Consultant : DCo / Inros Lackner / NTU 26 January 2009-26 January 2011 2009 Project objective: To support international trade and facilitate the movements of goods along the TRACECA corridor through improving logistics capabilities, interoperability and multimodal transport. Outputs Agreed Objective Verifiable Indicators Assumptions 2. Eight country reports on infrastructure • Field missions of expert teams took place in eight • Free access to necessary information and data conditions at main TRACECA beneficiary countries (both direct and indirect) within the project implementation transport links and nodes • Structured interviews were conducted with relevant • Access of project team to all countries within stakeholders region, and to all project relevant areas (e.g. • Eight reports on infrastructure conditions, current situation ports, border crossing points, airports, terminals, in logistics sector and main hub are prepared etc.) 3. Assessment of locations in five direct • Multicriteria analysis matrix is prepared • Willingness of stakeholders and authorities to beneficiary for future international • The locations at macro level are analysed and evaluated cooperate under coherent, integrated logistics logistics centre (ILC) projects at in five direct beneficiary countries centre network solution macro level • Beneficiary support and continuity in decision making • Access of project team to all countries within region, and to all project relevant areas (e.g. ports, border crossing points, airports, terminals, etc.) • Market conditions remain attractive to the potential investors despite the current financial and economic crisis • Approval process for promotion of project activities takes place in time

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Project title: Project number : Beneficiary countries: International Logistical Centres for Western EuropeAid/126356/C/SE Number of Direct – Armenia, Azerbaijan, Georgia, Moldova, Ukraine NIS and the Caucasus in Armenia, R/MULTI Pages: 6 Indirect – Bulgaria, Romania, Turkey Azerbaijan, Georgia, Moldova, Ukraine Planning period : Prepared on: 26 April EC Consultant : DCo / Inros Lackner / NTU 26 January 2009-26 January 2011 2009 Project objective: To support international trade and facilitate the movements of goods along the TRACECA corridor through improving logistics capabilities, interoperability and multimodal transport. Outputs Agreed Objective Verifiable Indicators Assumptions 4. Description of main issues of transport • Structured interviews are conducted with the stakeholders • Willingness of stakeholders and authorities to operators (initial stakeholder analysis) in all eight beneficiary countries cooperate to develop a coherent, integrated in eight countries • Report summarising findings is prepared and contains logistics centre network solution information on all eight beneficiary countries • Favourable political and economic situation • Preliminary action programme is proposed • Relevant legislation and regulatory framework exist Component B - Identification, ranking and promotion of logistics centres’ projects 1. Final stakeholder analysis and • Stakeholder analysis is prepared for each country and • Full support and commitment from project prioritised action programme prioritised action programme is proposed (report) partners • The stakeholders will participate actively in round tables on identification and appraisal of priority sites

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Project title: Project number : Beneficiary countries: International Logistical Centres for Western EuropeAid/126356/C/SE Number of Direct – Armenia, Azerbaijan, Georgia, Moldova, Ukraine NIS and the Caucasus in Armenia, R/MULTI Pages: 6 Indirect – Bulgaria, Romania, Turkey Azerbaijan, Georgia, Moldova, Ukraine Planning period : Prepared on: 26 April EC Consultant : DCo / Inros Lackner / NTU 26 January 2009-26 January 2011 2009 Project objective: To support international trade and facilitate the movements of goods along the TRACECA corridor through improving logistics capabilities, interoperability and multimodal transport. Outputs Agreed Objective Verifiable Indicators Assumptions 2. Final list of the priority projects using • List of the priority project resulting in selection of one • Willingness and cooperation between various MCA for five beneficiary countries project per direct beneficiary country counterparts • Commitment from stakeholders to regional interests, respect to transport demand and network principle, rather than to local preferences • Commitment to development of the selection criteria and acceptance of the indicators (including public support) by all involved counterparts • Co-operation with neighbouring countries 3. Recommendations on financing • Relevant European experience presented (in the report) • Measures to improve efficiency of the sector schemes for beneficiary countries • Problems identified in each direct beneficiary countries performance will be implemented and recommendation provided (in the report) 4. Study tour to LCs in Europe and study • Study tour to Europe organised upon completion of the • Availability of the counterparts and stakeholder tour documentation Phase B with participants approved by the EC • Capacity building actions / stakeholder MCA workshop are organised for beneficiary countries • Study tour documentations is available

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Project title: Project number : Beneficiary countries: International Logistical Centres for Western EuropeAid/126356/C/SE Number of Direct – Armenia, Azerbaijan, Georgia, Moldova, Ukraine NIS and the Caucasus in Armenia, R/MULTI Pages: 6 Indirect – Bulgaria, Romania, Turkey Azerbaijan, Georgia, Moldova, Ukraine Planning period : Prepared on: 26 April EC Consultant : DCo / Inros Lackner / NTU 26 January 2009-26 January 2011 2009 Project objective: To support international trade and facilitate the movements of goods along the TRACECA corridor through improving logistics capabilities, interoperability and multimodal transport. Outputs Agreed Objective Verifiable Indicators Assumptions Component C - Preparation of the feasibility studies for the selected projects 5. Implementation programme favourable • Country-by-country implementation programme for five • The data are available and counterparts provide to investments in five direct beneficiary direct beneficiary countries strong input for the package implementation on countries the sustainable basis • Relevant data and supporting documents are made available to the project team • Means and forms of possible public support to the projects is clearly formulated by the beneficiary countries • Market conditions remain attractive to the potential investors despite the current financial and economic crisis 6. Communication plan including • Communication plan is prepared in the inception period • No constraints promotion and dissemination aspects • Regular meetings with project partners and IFIs held For each selected project:

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Project title: Project number : Beneficiary countries: International Logistical Centres for Western EuropeAid/126356/C/SE Number of Direct – Armenia, Azerbaijan, Georgia, Moldova, Ukraine NIS and the Caucasus in Armenia, R/MULTI Pages: 6 Indirect – Bulgaria, Romania, Turkey Azerbaijan, Georgia, Moldova, Ukraine Planning period : Prepared on: 26 April EC Consultant : DCo / Inros Lackner / NTU 26 January 2009-26 January 2011 2009 Project objective: To support international trade and facilitate the movements of goods along the TRACECA corridor through improving logistics capabilities, interoperability and multimodal transport. Outputs Agreed Objective Verifiable Indicators Assumptions 7. Pre-feasibility/feasibility study • Feasibility / Prefeasibility studies are prepared by the end • The data are available and counterparts provide including: assumptions on public support of the project and contain the required components strong input for the package implementation on and investment promotion, capacity and the sustainable basis institutional strategy action plan, • Access of project team to all countries within administrative support and staff region, and to all project relevant areas (e.g. qualification assessment, services to be ports, border crossing points, airports, terminals, rendered, business plans and cost-benefit etc.) analysis and environmental impact • Relevant data and supporting documents are assessment where relevant. made available to the project team • Means and forms of possible public support to the projects is clearly formulated by the beneficiary countries 8. Masterplan (preliminary design) • Master plans are prepared • The data are available and counterparts provide covering functional area design, design strong input for the package implementation on for modern infrastructure and cargo the sustainable basis handling facilities, adequate information • Relevant data and supporting documents are system. made available to the project team • Means and forms of possible public support to the projects is clearly formulated by the beneficiary countries

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Table 4: Plan of Operations for the Next Period (Work Programme)

01: Inception TL: STE: N/A Refer to financial 15MD 32 reporting KEII+ MD 1 x x x KE III: 11 MD STE: 12 MD

2 The project implementation started on 26 January 2009. The project team therefore worked only 1 week in January, so the days initially planned in the technical proposal for the 1st month of the project implementation had to be split into 4 weeks. The man-days input corresponding to the first week of project implementation remained as input month of January 2009. The rest of the days were shifted to the end of the project to cover the January 2011.

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Project title: Project number : Beneficiary countries: EuropeAid/126356/C/SER/ Number of International Logistical Centres for Western NIS MULTI Direct – Armenia, Azerbaijan, Georgia, Moldova, Ukraine and the Caucasus in Armenia, Azerbaijan, Pages: 5 Georgia, Moldova, Ukraine Indirect – Bulgaria, Romania, Turkey Planning period : Prepared on: 26 April 2009 EC Consultant : DCo / Inros Lackner / NTU 26 January 2009-26 July 2009 Project objective: To support international trade and facilitate the movements of goods along the TRACECA corridor through improving logistics capabilities, interoperability and multimodal transport. No MAIN ACTIVITIES TIME FRAME INPUTS year 2009 PERSONNEL EQUIPMENT (man-days) OTHER & FURNITURE month 12 2 3 4 5 6 7 A1: Traffic flow analysis and TL: 28MD STE: characterisation of the nature KEII+ 267 2. and the condition of operating x x x x x KE III: MD infrastructures and facilities 74 MD STE: within the network 155 A2: Description of the main MD 3. issues encountered by x x x x x operators B1:Assistance in identifying TL: 60 MD STE: 4. and characterising priority x x x x KEII+ 295 projects of logistics centres KE III: MD 100 B2: Ranking the priority MD 5. projects using multicriteria x x x x STE: analysis 245

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C1: Global description of the TL: 20 MD STE: 7. objectives and functions of the x x 120 logistics centre KEII+ MD KE III: C2: Identification of the major 8. x x 35 MD stakeholders STE: 9. C3: Possible site location x x 67 MD C4: Preliminary design of the 10. site C5: Preliminary design of the 11. logistics (functional) areas

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Project title: Project number : Beneficiary countries: EuropeAid/126356/C/SER/ Number of International Logistical Centres for Western NIS MULTI Direct – Armenia, Azerbaijan, Georgia, Moldova, Ukraine and the Caucasus in Armenia, Azerbaijan, Pages: 5 Georgia, Moldova, Ukraine Indirect – Bulgaria, Romania, Turkey Planning period : Prepared on: 26 April 2009 EC Consultant : DCo / Inros Lackner / NTU 26 January 2009-26 July 2009 Project objective: To support international trade and facilitate the movements of goods along the TRACECA corridor through improving logistics capabilities, interoperability and multimodal transport. No MAIN ACTIVITIES TIME FRAME INPUTS year 2009 PERSONNEL EQUIPMENT (man-days) OTHER & FURNITURE month 12 2 3 4 5 6 7 Task C6: Business Plan for the 12. site and country-by-country legal programme C7: Environmental impact 13. assessment C8: Assessment of key 14. x x qualifications required 15. C9: Cost benefit analysis C10: Recommendations for the 16. adapted public support C11: Communication and synergy within the networks of 17. x x x x x x x logistical centres along the TRACECA corridor

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Project title: Project number : Beneficiary countries: EuropeAid/126356/C/SER/ Number of International Logistical Centres for Western NIS MULTI Direct – Armenia, Azerbaijan, Georgia, Moldova, Ukraine and the Caucasus in Armenia, Azerbaijan, Pages: 5 Georgia, Moldova, Ukraine Indirect – Bulgaria, Romania, Turkey Planning period : Prepared on: 26 April 2009 EC Consultant : DCo / Inros Lackner / NTU 26 January 2009-26 July 2009 Project objective: To support international trade and facilitate the movements of goods along the TRACECA corridor through improving logistics capabilities, interoperability and multimodal transport. No MAIN ACTIVITIES TIME FRAME INPUTS year 2009 PERSONNEL EQUIPMENT (man-days) OTHER & FURNITURE month 12 2 3 4 5 6 7 PM01 Quality assurance, risk 18. management and conflict x x x x x x x resolution PM02: Updates of the 19. x x x x Logframe 20. PM03: Project planning x x x x x x x 21. PM04: Project reporting x x x x TOTAL NA NA Team Leader: 128 MD Key Experts II + III 240 MD Short-term experts 484 719 MD MD

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3 PROJECT PLANNING FOR NEXT REPORTING PERIOD The next reporting period encompasses the time from 26 January 2009 till 26 July 2009, i.e. six months from the project start. This reporting period will be mainly related to the delivery of the results of the Phase B – Identification of the priority projects Activities of the task A: A1: Traffic flow analysis and characterisation of the nature and the condition of operating infrastructures and facilities within the network – necessary follow up will be organised in relation to the phase B covering site-specific data verification, analysis of the relevant links and merchandise flow A2: Description of the main issues encountered by operators – based on the preliminary action programme and issues indentified, further follow up will be organised. This relates to identification of the capacity building needs to be covered during stakeholder meetings and a study tour. Consultations will be carried out with the on-going project “Strengthening of the transport training capacities in the NIS countries” to exchange views in order to achieve synergy in the capacity building actions. The target groups of this project are however the trainers and transport institutes. In addition, the training programmes already executed under the TRACECA umbrella will be also analysed in order to gain experience from the lessons learned. However, it should be mentioned, that capacity building is already included into the daily work of the project team. Mainly the team work to increase awareness of the local counterparts and stakeholders on the modern logistics centres. Activities of the task B: Considering the assumptions to delivery of the results B, and analysing the occurrence of the identified risks the Consultant will implement the following activities: B1: Assistance in identifying and characterising priority projects of logistics centres Based on the macro locations identified in the phase A, the consultant will provide assistance to the beneficiary countries in identification of the promising projects at those locations. The Consultant will follow up investigations towards ports, rail, roads, airports, freight forwarders, transport companies, real estate sector, shippers and consignees started in the Phase A. This will require travelling of the established country teams in the region and involvement of the experts from countries for the follow up. The Consultant envisages an extensive workload in Europe with global logistics sector players, logistics platforms, associations of the logistics centres and freight villages. These are important stakeholders who could be interested in development of the logistics centres in the direct beneficiary countries. B2: Ranking the priority projects using multicriteria analysis The Consultant will rank the identified initiatives using the multi-criteria analysis. This process required coordination with the Client, beneficiaries and stakeholders. These criteria will include regional and country specific parameters. From the very beginning of the phase B the Consultant will start the preparation of the multicriteria matrix, containing the relevant indicators for micro-level analysis and their respective weights. This will be developed in accordance with the best-practice in Europe and taking into account the TRACECA specific background. The project key expert and country teams will carry out individual consultations with the target groups in each direct beneficiary country. In addition, based on its experience in TRACECA

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International Logistics Centres for Western NIS and the Caucasus countries, the Consultant has proposed to implement a stakeholder seminar for finalisation of the ranking process and ultimate selection of the site for those the studies will be prepared. Such a seminar was not requested by the Terms of Reference. Initially, the Consultant’s proposedl to conduct this workshop in the region in the month 5 of the project implementation, or 1 month before a study tour. Since the project was commenced later that initially specified in the tender documents, the month 5 of the project implementation will be June. There are already important TRACECA events scheduled for June 2009 – as for instance IGC Meeting at Issyk-Kul Lake, Kyrgyzstan. Summer is also a traditional vacation time both in Europe and in the region. The Consultant supposes that the counterparts may not be available for such a seminar at this period of time, as well as EU-based stakeholders as global logistics companies or management of the freight villages may not secure their participation on June. The Consultant proposes to reschedule this seminar and conduct it together with the study tour in Europe to bring in the synergy effects. The participants from the beneficiary countries will be determined together with the EC Task Manager. Based on this the respective budget for such a seminar will be presented for approval of the task manager. The task B2 also entails preparing the recommendations on optimisation of the degree and nature of the most relevant public granting scheme to be applicable for the financing of the logistics centres. The PPP opportunities will be also given high consideration. The suitable schemes applicable in Europe will be presented and benchmarked against the local realities and potential. The financing scheme will reflect the both direct and indirect investments, and analyse the potential for its application in the TRACECA countries. B3: Visit to the relevant logistics centres The study tour will concentrate on the following objectives - Visit Logistics Centres in Europe and demonstrate the PPP in practice and applied in order to visualise and demonstrate best practice solutions. This will focus on topics not yet covered by previous EC TRACECA projects. The study tour will be organised to the EU logistics centres, comparable to the sites identified in direct beneficiary countries. The participants will also benefit from knowledge and knowhow generated by experiences of Europlatforms and or association of the freight villages in the EU countries. The programme and the participant list for the study tour will be developed in cooperation with the beneficiaries, and submitted to the EC Project Manager for approval. The study tour will give the participants the opportunity to see “state-of-the-art” logistics facilities in function the best practices related to organisational and financial appraisal will be also presented. For the same reasons as the stakeholder seminar, the Consultant proposes to reschedule the study tour to September 2009 assuming the availability of the counter part. Activities of the task C Most of these activities will not yet start within the next reporting period, but all previous tasks related the C component will be followed up C1: Global description of the objectives and functions of the logistics centre The Consultant will start to elaborate the drafts for each selected site, once the priority projects are identified.

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International Logistics Centres for Western NIS and the Caucasus

C2: Identification of the major stakeholders There will be no specific activity on this task with the Phase B, but the consultant will continue working together with the stakeholders. C3: Possible site location Initial investigations will be done, based on the results of the phase B. C4: Preliminary design of the site No activities are envisaged in this respect within the Phase B. C5: Preliminary design of the logistics (functional) areas No activities are envisaged in this respect within the Phase B. C6: Business Plan for the site In regards of business plans, no activities are envisaged within the Phase B. As far as country- by-country implementation programme (legal aspects) is concerned – the preparation will be followed up, based on the action programme and stakeholder analysis. C7: Environmental impact assessment No activities are envisaged in this respect within the Phase B. C8: Assessment of key qualifications required This task correlates to the task C1 and some initial investigation will start. C9: Cost benefit analysis No specific activities are envisaged in this respect within the Phase B. C10: Recommendations for the adapted public support This task correlates to the task B2 and B3. The results achieved within these tasks will be followed up. C11: Communication and synergy within the networks of logistical centres along the TRACECA corridor The work on this has started from the beginning of the project. The Communication plan is drafted and presented in this report. The activities will be followed up. The structure of the project webpage will be presented for approval, as well as the design and launch of the project webpage will take place. The necessity of the promotion materials will be formulated. Activities of the task PM These are the regular activities embarked into the daily work of the key expert team. PM01: Quality assurance, risk management and conflict resolution – will be implemented PM02: Updates of the Logframe – no specific activity is envisaged. The Logframe was update in the inception period PM03: Project planning – will be detailed further and fine-tuned PM04: Project reporting – monthly reports will be submitted, progress report II containing

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International Logistics Centres for Western NIS and the Caucasus

International Logistics Centres

for Western NIS and the Caucasus

in Armenia, Azerbaijan, Georgia, Moldova and Ukraine

Inception Report – Annex 1

Project Logical Framework

April 2009

This project is funded by A project implemented by the European Union Dornier Consulting GmbH / NTU / Inros Lackner AG

International Logistics Centres for Western NIS and the Caucasus

LOGFRAME Intervention logic Objectively Verifiable Indicators Sources of Verification Assumptions Overall The overall objective of the • Increased volumes of cargo • National statistics objectives project is to support transport due to increase in • Export and import international trade and export and import of goods after statistics of facilitate the movements of implementation of the proposed national and goods along the TRACECA projects international corridor through improving • Increased share of logistics organisations logistics capabilities, value added services in GDP • Reports and interoperability and multimodal after implementation of the relevant Statistics transport. proposed projects of the international • Higher share of multimodal organisations operations in national and • TRACECA international supply chains database Project To develop financial, technical, • Increase in level of investment • National and • Political continuity and stability in purpose environmental and institutional in logistics centres and logistics international the beneficiary countries exists conditions and studies for a service in case of project statistics • Successful measures to mitigate the network of logistical centres realisation • IFI funding reports consequences of the world’s along the TRACECA corridor in • Increase funding of logistics and and programming financial crisis direct beneficiary countries freight transport sector projects documents and • Continuation of governments in (Armenia, Azerbaijan, Georgia, by IFIs or PPP action plans pursuing policy of regional Moldova, Ukraine) in view of: • Priority on intermodal transport • Publications of integration and establishment of • Provision of pre-feasibility and logistics in national professional viable links with the Trans-European and feasibility studies for transport strategies investment Transport Networks selected sites; promoters, e.g. • Acceptance of international customs • Analysis of the needs chambers of and freight documents and assessment and surveys commerce procedures by beneficiary countries

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International Logistics Centres for Western NIS and the Caucasus

Intervention logic Objectively Verifiable Indicators Sources of Verification Assumptions of the current logistics • Official • Free access to necessary capabilities; governmental information and data • Elaboration of the master publications • Continued or increased financial plans for selected • Transport support demonstrated by the IFIs in locations strategies and the region in the transport and real • Preparation of the programming estate sector business and documents of • Continued commitment of organisational plans, TRACECA responsible national authorities to financial and economic countries establish a legal basis for the analysis considering the • Project reports development of logistics centres changed cargo volumes • Project feasibility • Clear legal regulations for land resulted from worldwide studies acquisitions economic slowdown. • Readiness of transport operators to • To promote realistic, cooperate with their current attractive and sustainable competitors within a regional projects for further logistics centre benefiting from investment by financial synergy effects institutions and/or public and private actors possible under conditions of the world economic crisis.

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International Logistics Centres for Western NIS and the Caucasus

Intervention logic Objectively Verifiable Indicators Sources of Verification Assumptions Results Result 0 – Project Inception • Kick-off meetings held • Project reports • Free access to necessary • Main project office established • Project information and data within the in Kiev documentation project implementation • Project team mobilised • Official • Beneficiary support and continuity in communications of decision making Result A – Analysis of • Regional field missions took beneficiaries • Favourable political and economic TRACECA logistics network place in each beneficiary • TRACECA GIS situation and of the related operation of country traffic Database • Willingness of stakeholders and transport and logistics within • Country reports providing • Government authorities to cooperate under the existing network delivered information on infrastructure reports and coherent, integrated logistics centre conditions of the main decisions network solution TRACECA transport links and • Documentation of • Relevant legislation and regulatory nodes and capabilities of professional framework exist existing entities / stakeholder to associations for • Market conditions remain attractive perform logistics operations transport or trade to the potential investors despite the

• Traffic flowsreport analysis on • IFI reports current financial and economic crisis

TRACECA traffic flows and • Access of project team to all • Publications and network capacities is provided information reports countries within region, and to all in the inception report in mass media project relevant areas (e.g. ports, • Description of the main issues border crossing points, airports, encountered by operators (first terminals, etc.) stakeholder analysis) • Approval process for promotion of • Prioritised action programme to project activities takes place in time be discussed with beneficiary countries

• Preliminary list of assessed locations for logistics centre projects

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International Logistics Centres for Western NIS and the Caucasus

Intervention logic Objectively Verifiable Indicators Sources of Verification Assumptions Result B – Logistics centres’ • Stakeholders seminar on multi- projects are identified, ranked criteria analysis and promoted • Multi-criteria analysis (MCA) is prepared • A set of priority projects in each country is identified, ranked using MCA and submitted for approval • Coordination missions and meetings with sector

stakeholders, investors and IFIs are held • Recommendation are provided for optimizing the degree of most relevant public granting scheme and necessary regulatory changes • Study tour to relevant logistics centres in Europe is organised Result C – Feasibility studies For each selected project: for the selected projects • Pre-feasibility / feasibility study including: - assumptions concerning public support and fine-

tuned recommendations for promotion of investments - capacity and institutional strategy (action plan) - associated administrative

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International Logistics Centres for Western NIS and the Caucasus

Intervention logic Objectively Verifiable Indicators Sources of Verification Assumptions support needed - staff qualifications defined - services to be rendered - business plans and cost- benefit analysis - Environmental impact assessment is prepared if relevant

• Masterplan (preliminary

design) including

- functional area description and layout concept - dimensioning for infrastructure and cargo handling eqipment - adequate IT technologies • Country by country implementation programme favourable to investments • Communication plan is prepared including promotion of project activities (website, leaflets, press conferences, etc.) and coordination meetings with parallel Central Asia project are held Result PM – Successful • Final project dissemination is project implementation held

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International Logistics Centres for Western NIS and the Caucasus

Intervention logic Objectively Verifiable Indicators Sources of Verification Assumptions Activities 01: Inception Inputs: Costs Inception activities level: A1: Traffic flow analysis and Key experts: Fee budget on key • Offices established characterization of the nature • Team leader: 450 man days experts and short-term • Availability of counterpart staff to and the condition of operating experts • Other key experts: 800 man engage in meetings, project steering infrastructures and facilities days and working panels within the network Short-term experts: Incidental expenditures • Timely response on Consultant’s A2: Description of the main verifications reports / requests by the beneficiaries issues encountered by • International experts: 1425 man days • Participation from the counterpart staff operators Activities A level • Local experts: 1890 man days • Relevant data and supporting documents are made available to the project team

• Support and commitment from

project partners B1: Assistance in identifying Activities B level and characterizing priority projects of logistics centres • Full support and commitment from project partners B2: Ranking the priority projects using multi-criteria analysis • Commitment to development of the selection criteria and acceptance of B3: Visit to the relevant logistics the indicators (including public centres support) by all involved counterparts

• Willingness and cooperation between various counterparts • Commitment from stakeholders to regional interests, respect to transport demand and network principle, rather than to local preferences • The stakeholders will participate

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International Logistics Centres for Western NIS and the Caucasus

Intervention logic Objectively Verifiable Indicators Sources of Verification Assumptions actively in round tables on identification and appraisal of priority sites • Measures to improve efficiency of the sector performance will be implemented • Co-operation with neighbouring C1: Global description of the countries objectives and functions of the Activites C level logistics centre • The data is available and C2: Identification of the major counterparts provide strong input for stakeholders the package implementation on the C3: Possible site location sustainable basis C4: Preliminary design of the • Relevant data and supporting site documents are made available to C5: Preliminary design of the the project team logistics (functional) areas • Means and forms of possible public C6: Business Plan for the site support to the projects is clearly formulated by the beneficiary C7: Environmental impact countries assessment

C8: Assessment of key qualifications required C9: Cost benefit analysis C10: Recommendations for the adapted public support C11: Communication and synergy within the networks of logistical centres along the TRACECA corridor

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International Logistics Centres for Western NIS and the Caucasus

Intervention logic Objectively Verifiable Indicators Sources of Verification Assumptions PM 01: Activities PM level Quality assurance, risk *This area of activities is not directly management and conflict related to delivery of the technical results resolution (A, B and C), so the Consultant will apply PM 02: standard Project Management tools Updates of the Logframe throughout project implementation. PM 03: Pre-conditions: Project planning • Relations between countries are not PM 04: undergoing difficulties Project reporting • Common goals and priorities in the transport sector of the countries prevail • Contradicting interests between the

transport legal entities in the countries can be regulated • Appropriate legal framework will be adapted or is in place • National transport legislation is on the way to adaptation to international standards • No delays in implementation of the parallel project in Central Asia to assure implementation of interdependent results of the on task C11 – Communication and synergy within the network of the logistics centres along the TRACECA corridor • Promotion by beneficiaries of logistics projects with commercial attractiveness for further investment, limited lobbying of “unbankable” projects

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International Logistics Centres for Western NIS and the Caucasus

Inception Report Annex 1 - Logframe Page 9 of 9

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International Logistics Centres

for Western NIS and the Caucasus

in Armenia, Azerbaijan, Georgia, Moldova and Ukraine

Inception Report – Annex 2

List of meetings

April 2009

This project is funded by A project implemented by the European Union Dornier Consulting GmbH / NTU / Inros Lackner AG

International Logistics Centres for Western NIS and the Caucasus

Schedule of the Missions / Events in January – April 2009 Institutions / Events / Persons Met Participants Issues Discussed / Investigated January - February 2009

Belgium

EC • Introduction of parties • Overview of project objectives and methodology

Mr Ralf Behrens • Project organisation aspects Mr Leonidas Kioussis, DG Europe Aid Mr Andreas Schoen • Project mobilisation Cooperation Office, Unit A.3, Head of Sector Mrs Yulia Usatova • Coordination with logistics centres project in Central Asia Mrs Barbara Bernardi, DG Europe Aid Mr Lars Bentzen and other EU funded projects Cooperation Office, Unit A.3, Programme • Data collection and data access aspects Manager (Transport) • Communication and approval procedures Seminar of the traffic flows project on traffic data • Data collection strategy collection and modelling with participation of Mr Carsten Schuermann • Approach to A1 and A2 representatives of EC Directorates, data collection expert of the Traffic Flows Project • Exchange of information with the project experts Ukraine EC Delegation, Kiev • Project presentation, inviting feedback and establishing contacts Mrs Jurate Yuodsnukyte, Sector Manager Transport, Mr Andreas Schoen • Overview of the related projects of the TRACECA Delegation of the European Commission to Ukraine Mr Hannes Rueger programme and Belarus

Mr Hans Rhein, Head of Operations Section 3

Inception Report Annex 2 – List of meetings Page 1 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated Ministry of Transport and Communications of Ukraine (MoTC), Kiev • Project presentation, inviting feedback and establishing contacts Mr Hrigory Lehenkiy, Head of Transport Systems Co- Mr Andreas Schoen • Review and coordination of the locations to be visited in ordination and Development Department Mr Hannes Rueger Ukraine Mrs Olena Nevmerzhytska Mrs Antonina Kuzmenko, Deputy Head of the • Steps to be taken by the Consultant Department of Development and Coordination of the Mrs Yulia Usatova • Registration of the office Transport Systems and Communications • Project approach Mrs Svetlana Lipinska, Department Specialist, Responsible for International Logistics Centres IIyichevsk Commercial Sea Port, IIyichevsk • Project presentation, inviting feedback and establishing contacts

• Overview of the services and responsibilities of the Port Mr Georgiy Tokman, Director of Development and Mr Jan Scheele • Throughput statistics Investment Department • Development plans Mrs Iryna Babeshko, Engineer at the Development • Preferable locations for ILC and Investment Department • Site inspection Odessa Commercial Sea Port , Odessa • Project presentation

Mr Jan Scheele • Overview of the services and responsibilities of the Port Mr Mikhail Shaposhnikov ,Head of Development and • Development plans External Relations Department of the Odessa Sea • Site inspection Commercial Port International Chamber of Commerce Ukraine (ICCU), Kiev • Project presentation Mr John Standingford • Overview of the role, structure and work of ICCU Mr Vladimir Mikhailov, Secretary General ICCU Mrs Olena Nevmerzhytska • Offered support from ICCU Dr Sergiy Babak, Deputy Secretary General ICCU & Head of International Department

Inception Report Annex 2 – List of meetings Page 2 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated Ministry of Transport and Communications of Ukraine (MoTC), Kiev Mr Hannes Rueger • Brief overview of the ILC project Mr John Standingford • Questions from MoTC officials Mr Hrigory Lehenkiy, TRACECA National Secretary, Mr Armin Hansmann • Expectations of the project Ukraine and Head of Transport Systems Coordination Mr Jan Scheele • Follow-up meetings and Development Department Mrs Olena Nevmerzhytska • Support for organisation of visits in Ukraine MoTC officials Mr Hannes Rueger LISKI Freight Terminal, Kiev • Overview of ILC Project Mr John Standingford • Overview of the Terminal

Mr Armin Hansmann • Throughput statistics Mr Aleksandr Lukyanenko, Head of Dr Stefan Denzinger • Future development plans Technology Department, Liski Mr Lars Bentzen • Site inspection Association of International Freight Forwarders of Mr Hannes Rueger • Project presentation, inviting feedback and establishing Ukraine (AIFFU), Kiev Mr John Standingford contacts Mr Armin Hansmann • Overview of AIFFU Mr Yuri Prykhodko, General Director, Association of Mr Jan Scheele • Customs Service International Freight Forwarders of Ukraine (AIFFU) Mr Olena Nevmerzhytska • Cooperation of AIFFU with other organisations MOTC – State Department Maritime Transport, Kiev

• Project presentation Mr Ugenli, Maritime Department Coordinator • Overview of the scope of work and responsibilities of the Mr Nefedov A.V., Head of Coordination Department Mr Armin Hansmann State Department of Maritime Transport of State Department for Maritime and River Transport Mr Jan Scheele • Offered support and general information from the State Mr Lisenko A.V., Specialist Coordination Department Mr Hannes Rueger Department of Maritime Transport of State Department for Maritime and River Transport • Request from the State Department of Maritime Mrs Kondzerskaya L., Chief Specialist of Transport Coordination Division of State Department for Maritime and River Transport

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International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated Ministry of Transport of the Ukraine, International Transport Department of State Automobile Mr Hannes Rueger Administration, Kiev Mr Armin Hansmann • Project presentation • Overview of the department Mr John Standingford • Major bottlenecks Mr O.P. Kornienko, Chief Specialist of International Dr Stefan Denzinger • Expectations of MoTC towards the project Transportation Department of State Automobile Administration Logistrans Co, Kiev • Overview of ILC Project Mr Hannes Rueger • Overview of Logistrans Mr Armin Hansmann • Logistrans activities and plans Mr Valeriy A Belinskiy, President Mr John Standingford • Legal/institutional environment Mr Vladimir M. Kostuchenko, Deputy Director • Customs Service Mr Andrey V. Belinskiy, Financial Director • Tariffs Kovel Railway Station, Yagodin Railway Station, • Overview of Kovel railway station Kovel/Yagodin • Throughput statistics of Kovel railway station Mr Armin Hansmann • Potential locations of multimodal LC Mr Ruslan Alexandruk, Deputy Station Dr Stefan Denzinger • Overview of Yagodin railway station Manager Kovel • Throughput statistics of Yagodin railway station Mr Nikolai Brischko, Station Manager Yagodin • Development plans Kiev River Port, Kiev • Project presentation Mr Armin Hansmann • Overview of Kiev River Port Mr Vladimir Zigankov, Chairman of the Board Dr Stefan Denzinger • Future development plans Mrs Anna Gregori, Executive Chairman • Discussion regarding future ILC World Bank in Ukraine, Kiev • World bank activities in Transport sector Mr Andreas Schoen • Overview of two road and railway infrastructure projects Mrs Tatyana Dyachenko, Trade & Transport in the pipeline Facilitation Diagnostics Consultant • Yagodin / Kovel railway station potentials for future ILC

Inception Report Annex 2 – List of meetings Page 4 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated Kuehne and Nagel Ltd Ukraine, Kiev • Project presentation

Mr Armin Hansmann • Overview of the Scope of Work and Responsibilities of Victor Shkarban, National Manager, Head of Kuehne the Kuehne and Nagel Ltd Ukraine Dr Stefan Denzinger and Nagel Ukraine • Investment planning • Preferable locations for ILC Motorways of the Sea Project (MoS), Kiev Mr Andreas Schoen • Overview of the ILC project • Brief overview of MoS project Mr Marc Abeille, Team Leader, egis bceom Mr Hannes Rueger • Traffic flows data supplied to both projects Mrs Oksana Novoseletska, Project Mr John Standingford Development Manager, egis bceom • Inter-project coordination

Mrs Nataliia Dashchenko, Senior Legal Expert, • Exchange of information egis bceom

Armenia

Ministry of Transport and Communication, Yerevan • Project presentation, inviting feedback and establishing contacts Mr Andreas Schoen • Report on visited sites in Yerevan Mr Gurgen Sargsyan, Minister • Situation of the MOTC railway terminal • Project presentation, inviting feedback and establishing contacts Ministry of Transport and Communication, Yerevan • Overview of the department • Major bottlenecks Mr Gagik Grigoryan, Head of Foreign Relations Mr Jorgen Kristiansen • Throughput statistics Department, National Secretary of IGC TRACECA Mr Giorgi Doborjginedze • Development plans Mr Mr Khachatur Manukyan, Chief Specialist, Foreign • Expectations of the project Relations Department • Preferable locations for LC • Takeaway material • Site inspection

Inception Report Annex 2 – List of meetings Page 5 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated • Project presentation, inviting feedback and establishing Meltrans Ltd (Freight Forwarding Company), Yerevan contacts Mr Jorgen Kristiansen • Overview of the company

Mr Giorgi Doborjginedze • Major bottlenecks in establishing future logistics centres Mr Samuel Melikyan, Director Mr Khachatur Manukyan • The main routings on the Black Sea Staff member • Specific requirements to an International Logistics Centre • Customs services Association of International Road Carriers of Armenia • Membership and activities of the trucking industry (AIRCA), Yerevan Mr Jorgen Kristiansen • Road conditions • Interest and potentials for an International Logistics Mr Giorgi Doborjginedze Centre Mr Herbert Hambardzumyan, Secretary General • Customs and border crossing issues Railway Terminal JSC, Yerevan • Project presentation, inviting feedback and establishing Mr Andreas Schoen contacts

Mr Jorgen Kristiansen • Overview of the terminal Mr Dalakjan Warlan, Director General Mr Giorgi Doborjginedze • Company structure and ownership Mr Gagik Grigoryan, Head of the Foreign Relations Mr Khachatur Manukyan • Services provided by the terminal Department, MOTC • Preferable locations for LC • Project presentation, inviting feedback and establishing contacts APAVEN Co. Ltd (Freight Forwarding Company), Mr Gagik Grigoryan • Overview of the company Yerevan Mr Andreas Schoen • Modal operations Mr Jorgen Kristiansen • Container terminal operations Mr Gagik Aghajanyan, Executive Director Mr Giorgi Doborjginedze • Overview of the transportation market in Armenia Staff member Mr Khachatur Manukyan • Structure of cargo flow • Development plans • Customs services

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International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated Mr Gagik Grigoryan Mr Andreas Schoen APAVEN´s rail and road terminal, Yerevan Mr Jorgen Kristiansen • Site visit to the terminal Mr Giorgi Doborjginedze Mr Khachatur Manukyan • Project presentation, inviting feedback and establishing Customs Office at Apaven Ltd Rail and Road Mr Jorgen Kristiansen contacts Terminal, Yerevan Mr Giorgi Doborjginedze • Major bottlenecks in requirement of information from the NN, Chief Customs Officer Mr Khachatur Manukyan Customs Office • Incoming cargo State Revenue Committee of the Government of the Republic of Armenia • Project presentation, inviting feedback and establishing Mr Andreas Schoen contacts Mr Karen Beglaryan, Head of Strategic and • Customs clearance in Armenia International Relations Division of Customs Chamber of Commerce and Industry of the Republic • Project presentation of Armenia, Yerevan Mr Jorgen Kristiansen • Ideas about potential locations of ILCs • Customs and border crossing issues Mr Giorgi Doborjginedze Mr Araik Vardanyan, Executive Director • Functions, container handling potentials etc. Mr Khachatur Manukyan Mr Vladimir Amiryan, Head of International • Development plans Collaboration Department • Foreign trade relations • Overview of the core activities of Company Trans-Alliance Ltd (Freight Forwarding Company), Mr Jorgen Kristiansen • Specific requirements to an International Logistics Centre Yerevan • Services of the local logistics providers Mr Giorgi Doborjginedze • Main export-import routes Mr Khachatur Manukyan Mr Sargis Martirosyan, General Director • Customs services • Influence of financial crisis - statistics

Inception Report Annex 2 – List of meetings Page 7 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated Ministry of Transport and Communication, Yerevan • Project presentation, inviting feedback and establishing • Overview of the department

Mr Jorgen Kristiansen • Development plans of transport in Armenia Mr Khachatur Manukyan, Chief Specialist, Foreign • Expectations of the project Relations Department • Preferable locations for LC EBRD Office in Yerevan • Project presentation, inviting feedback and establishing contacts Mr Andreas Schoen • Information about past and present EBRD projects in Mr Alexandr Babayan, Principal Banker Yerevan Asian Development Bank, Yerevan • Project presentation, inviting feedback and establishing

Mr Andreas Schoen contacts Mr Areg Barseghyan, Senior Country Coordination • Information about North-South-Corridor project Officer The World Bank Armenian office, Yerevan

• Project presentation, inviting feedback and establishing Mrs Ani Balabanyan, Operations Officer, Mr Andreas Schoen contacts Sustainable Development Unit • Activities of the World Bank in Armenia (Rural roads) Mr Arthur Kochnakyan, Consultant, Sustainable Development Unit Delegation of the European Commission to Armenia, • Project presentation, inviting feedback and establishing Yerevan contacts Mr Andreas Schoen • Overview of EC-founded programs

• Offered support of the EC-Delegation in arranging Mr Jean-Francois Moret, Attache, Project Manager meetings with Armenian authorities Moldova

TRACECA National Secretariat in Moldova, Chisinau • Project presentation, inviting feedback and establishing Mr Andreas Schoen Mr Eduard Biriucov, TRACECA National Secretary contacts

Inception Report Annex 2 – List of meetings Page 8 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated EBRD Resident Office in Moldova, Chisinau • Project presentation, inviting feedback and establishing

Mr Andreas Schoen contacts Mr Octavian Costas, Senior Banker, EBRD Resident • Expectations of the project office Moldova EC-Delegation in Moldova, Chisinau Mr Andreas Schoen • Project presentation, inviting feedback and establishing Mr Hannes Rueger contacts Mr Alexandru Albu, EC Delegation Moldova Mr John Standingford • Contact details of other organisations World Bank in Moldova, Chisinau • Project presentation, inviting feedback and establishing contacts Mr Andreas Schoen Mr Sandu Ghidrim, Operations Officer, Sustainable • Major bottlenecks of the World Bank and EBRD Development Department Europe and Central Asia involvement in road rehabilitation projects in Moldova Chisinau Airport, Chisinau • Overview of ILC Project Mr Tolevni, Economist and Advisor to the Mr Hannes Rueger • Overview of cargo activities at Chisinau Airport Managing Director (Mr Roman Podcoritov), • Throughput statistics Mr John Standingford Chisinau Airport • Cargo services and facilities

Mrs Alla Tubari, Head of Economic Department • Development plans Mrs Elena Mazur, Assistant to the Managing • Takeaway material Director Agency of Transport, Chisinau • Overview of ILC Project Mr Hannes Rueger • Overview about background and implementation of the Agency of Transport (AoT) of Moldova Mr Ion Cotruta, Chief of Department of Mr John Standingford Terrestrial Transport • Brief overview of transport sector in Moldova

Mrs Elena Darii, Foreign Affairs and EU • Potential sites of future ILC Integration • Border problems

Inception Report Annex 2 – List of meetings Page 9 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated Moldovan Railway – Technical Services Department, • Brief overview of railway transport sector in Moldova Chisinau Mr Hannes Rueger • Border control and customs issues Mr John Standingford • Potential sites of future ILC Mr Zaika Alexandr Anatoljewitsch, First Deputy • Development plans and Chief Engineer, Head Technical Services • Statistical data Chamber of Commerce and Industry of the Republic of Moldova, Chisinau Mr Hannes Rueger • Overview of ILC Project • CCI scale, role and organisation Mr John Standingford Mr Vladimir Didilica, Vice-President, Chamber • Moldova’s economic and trade strategy of Commerce and Industry of the Republic of • Possible ILC sites Moldova International Association of Road Hauliers (AITA), Chisinau • Scale, role and organisation of AITA and AEM-TRANS Association of Forwarders and Customs Brokers Mr Hannes Rueger • AITA’s logistics centre • Other projects and plans (AEM-TRANS), Chisinau Mr John Standingford • Government organisation and legal framework

• Freight transport activity Mr Vladimir Pendiurin, Secretary General, AITA • Moldova’s economic and trade strategy Mr Serghei Taran, President, AEM-TRANS

Georgia Mr Andreas Schoen National Secretary of the IGC TRACECA in Georgia Mr Bodo Roessig • Project presentation, inviting feedback and establishing Mr Jorgen Kristiansen contacts Mr Mamuka Vatsadze, Head of Transport Department Mr Mamuka Chantladze Mr Giorgi Doborjginedze

Inception Report Annex 2 – List of meetings Page 10 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated Mr Andreas Schoen Ministry of Economic Development, Tbilisi • Project presentation, inviting feedback and establishing Mr Bodo Roessig contacts

Mr Jorgen Kristiansen • Planed foundation of Ministry of Infrastructure and Mr Paata Zakareishvili, Head of the Center of Mr Mamuka Chantladze Regional Development in Georgia. Responsibilities of the Development and Cooperation Mr Giorgi Doborjginedze Ministry unclear so far. EC Delegation, Tbilisi • Project presentation, inviting feedback and establishing Mr Andreas Schoen contacts Mr Micha Nekvasil, Second Secretary, Deputy Mr Mamuka Chantladze • Foundation of Ministry of Infrastructure and Regional Head of Operations, Delegation of the Development in Georgia European Union to Georgia • Overview of related projects • Project presentation, inviting feedback and establishing contacts Association of Freight Forwarders of Georgia, Tbilisi • Overview of the department Mr Jorgen Kristiansen • Concrete proposals for ILCs

Mr Giorgi Doborjginedze • Preferable locations for LC Prof. Dr. Surab Schengelia • Customs and border crossing issues • Development plans • Expectations of the project • Project presentation Maersk Logistics, Tbilisi • Overview of the company • Core activities of Company Mr Christian Roeder, Managing Director (Maersk Mr Jorgen Kristiansen • Development plans Line) Mr Giorgi Doborjginedze • Main areas covered with services: export, import, transit Mr Konstantine Kaukhchishvili, Country Logistics • Concrete proposals for ILCs Manager • Preferable locations for LC • Customs services

Inception Report Annex 2 – List of meetings Page 11 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated • Project presentation, inviting feedback and establishing contacts • Railway restructuring, core business units • Major bottlenecks Georgian Railway Ltd, Tbilisi • Throughput statistics Mr Bodo Roessig • Development plans e.g. Tbilisi bypass line, rail section Mr Dimitry Kemoklidze, Director (Restructuring and Mr Jorgen Kristiansen, Khachuri / Zestaponi Development Agency) Mr Mamuka Chantladze • Projects under development e.g.Poti port connection and shunting facilities • Expectations of the project • Railway land plot for as preferable locations for LC • Takeaway material • Site inspection Site visits along the road between Tbilisi and Poti, Mr Bodo Roessig Shunting yards at Zestaponi and Kutaisi; Samtredia, Mr Jorgen Kristiansen • Site inspection Senaki and railway junction; road sections Mr Mamuka Chantladze • Project presentation, inviting feedback and establishing contacts Silk Road Express, Poti • Core activities of Company • Modal operations Mr Bodo Roessig • Development plans Mr Korneli Korchilava, General Director Mr Jorgen Kristiansen • Main areas covered with services: export, import, transit Planning meeting with Office Manager and Mr Mamuka Chantladze • Specific requirements to an International Logistics Centre Accountant • Expectations of the project • Preferable locations for LC • Involvement in development of logistics projects in Tbilisi

Inception Report Annex 2 – List of meetings Page 12 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated • Project presentation, inviting feedback and establishing Poti Seaport contacts • Overview of the management structure • Major bottlenecks Mr Rony Saab, General Director Mr Bodo Roessig • Throughput statistics Mr Eduard Machavariani, Commercial and Investment Mrs Aza Shengelia Director • Development plans including the new port project Mr Devi Gvalia, Deputy Manager Reconstruction & • Expectations of the project Development • Preferable locations for LC • Site inspection • Project presentation Gi Anti (Freight Forwarding Company), Poti • Overview of the company Mr Jorgen Kristiansen • Core activities of Company Mr Mamuka Chantladze Mr Levan Gabiskiria, Deputy of Director • Development plans • Main areas covered with services: export, import • Project presentation, inviting feedback and establishing contacts Georgian Railways, Poti • Overview of the department Mr Bodo Roessig • Major bottlenecks

Mrs Aza Shengelia • Throughput statistics Mr Akaki Gotoshia, Station Manager • Development plans • Expectations of the project • Site inspection • Project presentation • Core activities of Company SOFMAR, Poti • Intermodal operations Mr Jorgen Kristiansen • Development plans

Mr Mamuka Chantladze • Investment planning Mr Wakhtang Alania, General Manager • Main areas covered with services: export, import, transit • Specific requirements to an International Logistics Centre • Customs services

Inception Report Annex 2 – List of meetings Page 13 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated Poti-Cargo Service, Poti • Project presentation • Overview of the company Mr Jorgen Kristiansen Mr Iuri Esebua, General Director • Core activities of Company Mr Mamuka Chantladze Mr Alexander Gurtovoy, Chartering & Agency • Development plans Management • Main areas covered with services: export, import, transit • Project presentation • Overview of the department Customs Office, Poti Sea Port Procedure and documentation in customs clearance Mr Jorgen Kristiansen • • Computer software application Mr Mamuka Chantladze Mrs Nicka Aklobadze, Customs Officer • Facilities for customs services • Clearance of consignments • Development plans • Project presentation, inviting feedback and establishing contacts • Responsibility of the management Georgian Railway, Territorial management of Batumi Mr Bodo Roessig • Major bottlenecks Mrs Aza Shengelia • Throughput statistics Mr Mamuka Chantladze Mr Otar Katamadze, Chief of Cargo and Commercial • Development plans Department Mr Jorgen Kristiansen • Expectations of the project • Preferable locations for LC • Site inspection • Core activities of Company TeRo Co. Ltd, Batumi • Development plans Mr Jorgen Kristiansen • Main areas covered with services: export, import

Mrs Aza Shengelia • Specific requirements to an International Logistics Centre Mr Soso Bokuchava, General Director • Expectations of the project • Preferable locations for LC

Inception Report Annex 2 – List of meetings Page 14 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated Geoinspect Ltd (Shipping and Forwarding Agency, Brokering, Maritime Consultant and Cargo Surveyors • Project presentation Co.), Batumi Mr Jorgen Kristiansen • Overview of the department • Development plans Mrs Aza Shengelia • Main areas covered with services: export, import, transit Mr Kakha Kandelaki, Director • Project presentation, inviting feedback and establishing contacts • Overview of the department Maritime Administration, Batumi • Major bottlenecks Mr Bodo Roessig • Responsibility of the Maritime Administration Mr Giorgi Doborjginedze Capt. Paata Inaishvili, Deputy Director • Development plans • Expectations of the project • Preferable locations for LC • Takeaway material • Project presentation, inviting feedback and establishing contacts • Overview of the newly established Container Terminal Batumi International Container Terminal LLC • Major bottlenecks Mr Bodo Roessig • Throughput statistics Mr Frank Carter, General Manager Mr Giorgi Doborjginedze • Development plans Mr Rafael Nieto, Terminal Manager • Expectations of the project • Preferable locations for LC • Takeaway material • Site inspection

Inception Report Annex 2 – List of meetings Page 15 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated • Project presentation, inviting feedback and establishing contacts • Overview of the Management structure Batumi Seaport Ltd • Major bottlenecks Mr Bodo Roessig • Throughput statistics Mr Khartyan Vyatcheslov, Deputy General Director of Mr Giorgi Doborjginedze • Development plans Production • Expectations of the project • Preferable locations for LC • Takeaway material • Site inspection Site visit to port terminals, Poti and the entrance gate Mr Bodo Roessig - Inland Terminal and main entranced of the port have Mr Jorgen Kristiansen • Photo have been made been visited Mr Mamuka Chantladze • Project presentation, inviting feedback and establishing contacts DIPLOMAT (Importer), Tbilisi Mr Bodo Roessig • Overview of the department

Mr Jorgen Kristiansen • Development plans Mr Giorgi Vasadze, Head of Logistic& Operation Mr Giorgi Doborjginedze • Throughput statistics Department • Main areas covered with services: export, import • Logistics concept implemented by DIPLOMAT • Project presentation, inviting feedback and establishing contacts • Overview of the customs departments’ responsibilities Customs, Tbilisi Mr Bodo Roessig • Major bottlenecks • Throughput statistics Mr Jorgen Kristiansen • Development plans Mr Giorgi Doborjginedze Mr Samson Umidia, Deputy Head of Customs Control • Expectations of the project Department, Revenue Service, Ministry of Finance Mr Mamuka Chantladze • Preferable locations for LC • Custom procedures for bounded warehouses • Site inspection

Inception Report Annex 2 – List of meetings Page 16 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated Mr Jorgen Kristiansen • Project presentation, inviting feedback and establishing Georgian Chamber of Commerce and Industry, Tbilisi contacts Mr Mamuka Chantladze • Major bottlenecks Mr Bodo Roessig Mr George Kakabadze, Executive Director • Customs and border crossing issues Mr Giorgi Doborjginedze • Preferable locations for LC • Project presentation, inviting feedback and establishing Roads Department of Georgia, Ministry of Regional contacts Development and Infrastructure, Tbilisi Mr Jorgen Kristiansen • Institutional and organisational issues Mr Mamuka Chantladze • Roads Classification and standards Mr Irakli Litanishvili, Vice-Chairman • Development plans • Roads maintenance • Project presentation, inviting feedback and establishing contacts Caucastransexpress (Forwarder), Tbilisi Mr Bodo Roessig • Overview of the company • Core activities of Company Mr Jorgen Kristiansen • Development plans Mr Gia Danelia, General Director Mr Giorgi Doborjginedze • Throughput statistics • Main areas covered with services: export, import, transit • Investment planning Tbilisi City Hall • Project presentation, inviting feedback and establishing Mr Bodo Roessig contacts Mr Akakki Jokhadze, Chief Municipal, Transport Mr Giorgi Doborjginedze • Overview of the responsibility within the Municipality Department related to project subjects • Project presentation, inviting feedback and establishing contacts Intertrans, rail terminal in Tbilisi Mr Bodo Roessig • Overview of the terminal • Types of terminal services and operations Mr Jorgen Kristiansen • Throughput statistics Mr Zaza Narimanidze, General Director Mr Giorgi Doborjginedze • Development plans • Preferable locations for LC

Inception Report Annex 2 – List of meetings Page 17 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated

Site visit to the Georgian / Azeri border station at the Mr Jorgen Kristiansen Red Bridge - Road section Tbilisi – Red Bridge; road • Site inspection junctions at E60/E117 and at north-eastern bypass Mr Mamuka Chantladze Municipality of Tbilisi / Tbilisi City Hall • Project presentation, inviting feedback and establishing contacts

• Overview of the responsibilities Mr Mamuka Akhvlediani, First Deputy Mayor of Tbilisi Mr Bodo Roessig • Major bottlenecks Mr Nino Bakhtadze, Head of the Municipal Property, Mr Mamuka Chantladze • Throughput statistics Management Agency • Development plans Mr Zviad Archuadze, Head of Economic Policy • Expectations of the project Agency • Preferable locations for LC • Project presentation, inviting feedback and establishing contacts Georgian Chamber of Commerce and Industry • Overview of the department Mr Bodo Roessig • Major bottlenecks Mr Mamuka Chantladze Mr Jemal Inaishvili, President • Development plans • Expectations of the project • Need for a LC • Project presentation, inviting feedback and establishing contacts TAV Georgia, Tbilisi International Airport • Overview of the department Mr Bodo Roessig • Major bottlenecks Mr Mamuka Chantladze Mr Tamaz Andguladze, Deputy General Manager • Throughput statistics • Development plans • Operation concept

Inception Report Annex 2 – List of meetings Page 18 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated • Project presentation, inviting feedback and establishing contacts Lasare Ltd, Cargo Terminal, Tbilisi Airport • Overview of the company Mr Bodo Roessig • Throughput statistics

Mr Mamuka Chantladze • Development plans Mr Sergo Lasreishvili, Director • Expectations of the project • Preferable locations for LC • Takeaway material • Project presentation, inviting feedback and establishing contacts Georgian Air Gate, Tbilisi • Overview of the company Mr Bodo Roessig • Major bottlenecks

Mr Mamuka Chantladze • Throughput statistics Mr Boris Mchedlidze, General Director • Development plans • Expectations of the project • Preferable locations for LC • Project presentation, inviting feedback and establishing contacts • Overview of the activities of the GRDC GRDC, Georgian Reconstruction & Development • Development plans Company Mr Bodo Roessig • Expectations of the project Mr Mamuka Chantladze • Preferable locations for LC Mr Irakli Kilauridze, Executive Vice President / CEO • Takeaway material • Site inspection • Cooperation with EBRD European Bank for Reconstruction and Development • Project presentation, inviting feedback and establishing contacts (EBRD) • Overview of the EBRD involvement in transport projects Mr Bodo Roessig • Development plans Mr Mamuka Chantladze Mr Nino Marshania, Associated Banker-Transport • Expectations of the project Mrs Nataly Mouravidze, Principal Banker • Preferable locations for LC

Inception Report Annex 2 – List of meetings Page 19 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated March 2009

Germany

Willi Betz International Spedition, Reutlingen, • Development of transport by W. Betz in South-Eastern Germany Europe, Caucasus and Central Asia Mr Armin Hansmann • Quality of transport infrastructure Mr Thomas Betz (tw.), Technical Manager • Handling procedures at the borders • Assessment of potential LC sites

Ukraine Odessa Commercial Sea Port Project overview • • Budget approval procedures Mr Mikhail Shaposhnikov ,Head of Development and • New Port law as a major bottleneck for required new External Relations Department of the Odessa Sea private investment Commercial Port Mr Jan Scheele • Port fees, penalties and other port and cargo handling Mr Vytautas Paulauskas Mr Morij Andreij Gregorjevic , Deputy Port General fees in the port Director on Legal Affairs of the Odessa Sea • Overview of Hamburg Port Consultant (HPC) Container Commercial Port Terminal Mr Bronislav M Sukhodolskyy, Executive Director, • Container handling statistics HPC Container Terminal Ports of Ukraine Publish House, Odessa • Project presentation • Overview of Ports Of Ukraine Publish House Mr Jan Scheele • Takeaway material: book “Ports of Ukraine” (Russian and Mr Vytautas Paulauskas Mrs Natalija Minkina, Editor - reporter, Ports of English) and journal “Ports of Ukraine” No. 1 2009 with Ukraine Publishing House statistics for the 2009

Inception Report Annex 2 – List of meetings Page 20 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated IIyichevsk Commercial Sea Port

Mr Lutsenko Ananoliy, Deputy Director of Department for Development and Investment of IIyichevsk Commercial Sea Port Mr Alexey G. Khomenko, Deputy General Director • Unavailability of Port Performance Indicators Foreign Economic Activity and Investments of • Development plans IIyichevsk Commercial Sea Port Mr Jan R. Scheele • Major bottlenecks Mr Nezavtin Stanislav, Harbour Master, IIyichevsk Mr Vytautas Paulauskas • Throughput statistics of IIyichevsk Commercial Sea Port Commercial Sea Port • Custom Procedures Mr Slabodnichenko Andrey, Technologist of • Preferable locations for ILC Technological Department of IIyichevsk Commercial Sea Port Mrs Blagodir Helen, Leading Specialist of the Department for Development of Investments of IIyichevsk Commercial Sea Port State Administration of Railway Transport of Ukraine, Kiev • Brief outline of the ILC project • Legal environment • Logistics Centres: Ukraine’s needs Mr Viktor Kushnirchuk, Head of Commercial Mr John Standingford Department, State Administration of Railway • Transit traffic Mr Hannes Rueger Transport of Ukraine • International forwarders’ involvement Mr Anatoly Prybatyen, Head of Combined • Border control/customs procedures Transportation and Operational Activity Department, • Impacts of crisis State Administration of Railway Transport of Ukraine

Inception Report Annex 2 – List of meetings Page 21 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated • World Bank activities in rail and road transport • Current transport-related studies World Bank in Ukraine, Kiev Mr Andreas Schoen • Past TRACECA projects Mrs Tatyana Dyachenko, Trade and Transport • Objective indicators available online Facilitation Diagnostics Consultant (www.worldbank.org/lpi) • Legal System Odessa Euro Terminal (dry port) Office • Introduction and project overview • Overview of LLC Euro Terminal

Mr Jan R. Scheele • Euro Terminal future development plans Mr Vanenkov Mikhail, Deputy Director on Commerce Mr Vytautas Paulauskas • LCs in Europe and Development, Limited Liability Company Euro • Peculiarities of public owned logistic centres and those Terminal (dry port) operated by private operators Project Support to the Integration of Ukraine in the • Inter-project coordination Trans-European Network TEN-T, Kiev • Government organisation • Transport strategy and planning • Obstacles to international transport and logistics centres Mr Douglas Rasbash, Team Leader, TEN-T Ukraine • Multimodalism Project Mr John Standingford • Sea ports Mr Ebby Adhami, Director, Corporate Solutions (Lead • Container routes Consultant) • Black Sea Ring Highway Mr Anthony Pearce, Senior Adviser, Road Sector • Economic Cooperation Organisation (ECO) • Law on freight forwarding • Introduction and project overview Project Accession and Implementation by Ukraine of • Brief overview of the IAC(U) project International Agreements and Conventions in • Problems with laws and legal processes – General Transport, Kiev Mr Michel Prouzet • Problems with laws and legal processes - Transport sector Mr John Standingford • PPP law Mr Marc Graille, Team Leader • Customs • Transport policy • Transport subsectors

Inception Report Annex 2 – List of meetings Page 22 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated TRACECA Project Land Transport Safety and Security • Overview of ILC project Mrs Olena Nevmerzhytska • Overview of Safety and Security project Mr Rudolf Kamphausen, Team Leader, TRACECA Mr John Standingford • Inter-project cooperation Land Transport Safety and Security Project Mrs Angela Huzun, Project Coordinator Support to the integration of Ukraine in the trans- • Overview of both projects European Transport network TEN-T, IIyichevsk Mr Jan Scheele • Inter-project cooperation Mr Vytautas Paulauskas • Dry ports situation in Illychevsk and Odessa Olga Seniuk, Local Expert • Ukraine Transport Policy, legal documents and their status • Overview of both projects Project Ukraine Ports Feasibility Study, Odessa Mr Jan Scheele • Inter-project cooperation • Exchange of information about the status of laws and Mr Vytautas Paulauskas Mr Michael Bennett, Team Leader of the Project regulations, customs procedures, port state control, health and environmental authorities Moldova Ministry of Construction and Territorial Development of the Republic of Moldova, Chisinau • Introduction of the ILC project Mr Andrei Cuculescu, Head of Investment and Mr Jan Scheele • Responsibilities of Ministry Infrastructure Development Division of the Dr George Doborjginidze • Planned road projects in Moldova Ministry of Construction and Territorial Development of the Republic of Moldova TRACECA National Secretariat in Moldova, Chisinau Mr Jan Scheele • Statistics of cargo traffic in Moldova Mr Eduard Biriucov, TRACECA National Secretary Dr George Doborjginidze

Inception Report Annex 2 – List of meetings Page 23 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated • Introduction of the ILC Project • Introduction of the EFZ Danube Logistics SRL • Share holding and оwnership , relationship with

Government • Organization of the Port River Port of Giurgiulesti, EFZ, Danube Logistics SRL • Current status of сonstruction Mr Jan Scheele • Services to be provided Dr George Doborjginidze • Outlook and future plans Mr Edgar Martin, Port Director • Cooperation with Constantza Port Mr Alexander Di Leonardo, Business Development • Interested to become an ILC Executive • Safety, security and environmental response plans • Customs services and procedures • Expected cargo throughput

• Rail and road connections • Bottlenecks • Site Visit Azerbaijan • Project presentation, inviting feedback and establishing Permanent Secretariat of the IGC TRACECA , Baku contacts • Expectations of the project Mr Bodo Roessig • Takeaway material Mr Rustan Jenalinov, Secretary General of the IGC Mrs Yulia Usatova • New port in Baku – new site development, TRACECA documentation and presentation of the concept of the new port

Inception Report Annex 2 – List of meetings Page 24 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated • Major bottlenecks Mr Andreas Schoen • Development plans Permanent Secretariat of the IGC TRACECA , Baku (as introductory meeting) • Expectations of the project

• Preferable locations for LC – position of the Azerbaijan Mr Akif Mustafayev, TRACECA National Secretary in Government Mr Bodo Roessig Azerbaijan • Takeaway material Mrs Yulia Usatova • New port in Baku – new site development, documentation and presentation of the concept of the new port Ministry of Transport of Azerbaijan Republic, Baku • Project presentation, inviting feedback and establishing contacts Mr Andreas Schoen (as introductory • Development plans Mr Javid Najarov, Head of Administration meeting) Mr Fikrte Babayev, Head of International Relation • Expectations of the project Department • Project presentation, inviting feedback and establishing contacts • Throughput statistics Ministry of Transport of Azerbaijan Republic, Baku • Development plans • Expectations of the project – coordination with the new Mr Bodo Roessig project of development of the Baku port Mrs Yulia Usatova Mr Sadraddin Mamedov, Head of Transport Policy • Preferable locations for LC in Alat – concept of a satellite and Economy Department logistics centres • Takeaway material • Inspection of the site development documents • Project presentation, inviting feedback and establishing contacts State Customs Committee of Azerbaijan Republic, • Throughput statistics Baku • Development plans Mr Andreas Schoen • Expectations of the project Mr Shahin Soltan, Head of the Main Department • Involvement of customs • Takeaway material

Inception Report Annex 2 – List of meetings Page 25 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated Project – Analysis of Traffic Flows in TRACECA countries and Interregional Dialogue between the EU Mr Andreas Schoen (as introductory • Exchange of view on mutual collaborations of the and NIS, Baku meeting) projects Mr Bodo Roessig • Communication plans and information exchange Mrs Ingrid Angela Goessinger, Team Leader / Mrs Yulia Usatova • Takeaway materials TRACECA Liaison Officer • Project presentation, inviting feedback and establishing contacts International Sea Trade Port of Baku, Baku • Port development plans

Mr Bodo Roessig • Port statistics Mr Vahid Aliyev, First Deputy General Director • Presentation of the development plans for the new port Mrs Yulia Usatova Mr Soltan Kazimov, Technical Director locations in Alyat • Site inspection • Discussions on major traffic flows and bottlenecks and soft barriers Bulgaria

Ministry of Transport of Republic of Bulgaria, Sofia • Project presentation, inviting feedback and establishing contacts Mr Andreas Schoen • Overview of responsibilities of the Ministry of transport in Bulgaria Mrs Tonka Yankova – Expert in National Transport Mr George Doborjginidze Policy directorate, Ministry of Transport • Main infrastructure projects Mr Jan Scheele Mr Boyko Kalachev, Chief Expert in Monitoring • Market overview Department, Ministry of Transport • Major bottlenecks National Transport Policy Directorate, Ministry of Transport of Bulgaria, Sofia Mr Andreas Schoen • Strategy for the development of transport infrastructure in Bulgaria Mr George Doborjginidze • Development of intermodal terminals Mrs Tonka Yankova – Expert in National Transport Mr Jan Scheele • Master plan of the infrastructure development in Sofia Policy Directorate, Ministry of Transport

Inception Report Annex 2 – List of meetings Page 26 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated • Project presentation, inviting feedback and establishing contacts • Overview of the department Bulgarian State Railways (BDZ), Sofia • Organizational structure of BDZ • Major bottlenecks Mr Andreas Schoen • Throughput statistics Mr Krasimir Angelov, Head of Projects Unit Mr Jan Scheele • Railway market overview, competitors, private rail Mrs Angelina Kurisheva, Senior Expert in the Mr George Doborjginidze companies Directorate of International Relations • Development plans Mr Dian Boev, Chief of Trade Department • Expectations of the project • Preferable locations for LC • Takeaway material • Site inspection • Project presentation, inviting feedback and establishing contacts • Overview of the department BDZ Cargo Ltd, Sofia Mr Andreas Schoen • Major bottlenecks

Mr Jan Scheele • Development plans Mrs Nadya Ganeva, Head of Sector Information Mr George Doborjginidze • Expectations of the project Systems and Technologies • Preferable locations for LC • Takeaway material • Site inspection • Project presentation, inviting feedback and establishing contacts National Railway Infrastructure Company, Sofia • Overview of the department Mr Andreas Schoen • Major bottlenecks • Development plans Mr Emil Lozanov, Head of Sector Strategic Mr Jan Scheele Development • Expectations of the project Mr George Doborjginidze Mrs Penka Dilova, Head of Sector Monitoring of • Preferable locations for LC SOPT • Takeaway material • Site inspection

Inception Report Annex 2 – List of meetings Page 27 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated • Project presentation, inviting feedback and establishing contacts • Overview of the department Intermodal, Shortsea and Inland Waterway Promotion Mr Andreas Schoen • Major bottlenecks Association, Sofia • Throughput statistics Mr Jan Scheele • Development plans Mr George Doborjginidze Mr Georgi Petkov, Director • Expectations of the project • Preferable locations for LC • Takeaway material • Site inspection • Overview of the NSBS • Overview of problems in the Bulgarian transportation sector The National Association of Freight Forwarders, Sofia Mr Andreas Schoen • Logistics market overview • Problems in the railway operation Mr Jan Scheele Mr Ivan Petrov, Vice President • Existing infrastructural bottlenecks Mr George Doborjginidze Mr Georgi Minchev, Chairman • Customs clearance procedures • Preferable locations for LC • Necessity of LC in Sofia • Site inspection • Project presentation, inviting feedback and establishing contacts • Overview of the department Maritime Administration Republic of Bulgaria, Sofia – • Major bottlenecks Mr Jan Scheele • Throughput statistics

• Development plans Mr Anton Pashov • Expectations of the project • Preferable locations for LC • Takeaway material • Site inspection

Inception Report Annex 2 – List of meetings Page 28 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated • Project presentation, inviting feedback and establishing Port of Varna, Varna contacts • Overview of the Port

• Organisational structure in the maritime sector Mr Danail Papazov, Executive Director Mr Jan Scheele • Major bottlenecks Mr George Doborjginidze Mrs Irina Gevezieva, Senior Expert of Statistics and • Throughput statistics Analyses PORTCONSULT Dept. • Development plans Mr Veselin Kapakchiev, Director • Regular services of the Port • No port performance indicators available • Project presentation, inviting feedback and establishing contacts Mobille Ltd, Varna • Major bottlenecks Mr Jan Scheele • Development plans

Mr George Doborjginidze • Expectations of the project Mr Angel Safev, Managing Director • Preferable locations for LC • Takeaway material • Site inspection • Project presentation, inviting feedback and establishing contacts • Overview of the department • Major bottlenecks Port of Bourgas • Throughput statistics Mr Jan Scheele • Development plans Mr Capt. Tanyo Ivanov, Chief for Marketing and QA Mr George Doborjginidze • Expectations of the project Dpt • Preferable locations for LC • Takeaway material • Site inspection • No port performance indicators available

Inception Report Annex 2 – List of meetings Page 29 of 37

International Logistics Centres for Western NIS and the Caucasus

Mr George Doborjginidze • Development plans Mr Smanimir Georgiev, Director • Expectations of the project • Preferable locations for LC • No Port Performance Indicators available • Site inspection Romania CRF MARFA Terminals (Romania Railway Freight Company), Bucharest • Project presentation, inviting feedback and establishing contacts

Mr Jan Scheele • Visit of Bucharest Sud Container terminal Mr Constantin Ruxanda, Head of Container Mr Vytautas Paulauskas • Visit of Bucharest Progress Intermodal terminal Department • Overview and development plans of Intermodal terminals Mr Dragan Petre Dania, Director of Bucharest in Bucharest Sud Container Terminal National Union of Road Hauliers from Romania, Bucharest

• Project presentation, inviting feedback and establishing Mrs Ioana Ciorzan, Department Internal and Mr Jan Scheele contacts External Affairs National Union of Road Mr Vytautas Paulauskas • Overview of the Road Hauliers Association UNTRR Hauliers from Romania • Border crossing procedures for “ High Risk Countries “ Mrs Roxaha Radu, Department Internal and External Affairs National Union of Road Hauliers from Romania

Inception Report Annex 2 – List of meetings Page 30 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated Constanta Port, Constanta • Project presentation, inviting feedback and establishing Mrs Andreea Nistor , Commercial Manager port contacts Of Constanta Mr Jan Scheele • Overview of the Constanta Port Mrs Cristiana Racautaniu, Head of Mr Vytautas Paulauskas • Development plans International Affairs Port Of Constanta • Overview of other projects in Romania and possible links Mrs Aleksandra Papescu, Port Representative with presented by Consultants project in Romania Intermodal Platform CFR MARFA Ferry Company, Constanta

Mr Constantin Nita, CFR MARFA Ferry Company technical director • Brief outline of the ILC project Mr Marin Ionescu, CFR MARFA Ferry Mr Jan Scheele • Presentation of CFR MARFA Ferry Company Company Administrative director Mr Vytautas Paulauskas • Tariffs Mrs Nicoleta Apostal, Head of Romania • Possibilities of improving the poor condition of the Company Intermodal Association Mrs Aleksandra Papescu, Port Representative in Romania Intermodal Platform CONSTANTA RIA (Romania Intermodal Association), Constanta • Project presentation • Overview of the RIA Mr Jan Scheele Mrs Nicoleta Apostal, Head of Romania • Presentation of the World container terminal Mr Vytautas Paulauskas Intermodal Association • Inland waterways container shipping lines Mrs Aleksandra Papescu, Port Representative • Development plans in Romania Intermodal Platform

Inception Report Annex 2 – List of meetings Page 31 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated DB Schenker Romtrans, Constanta

Mr Andrian Vlad, Head of the DB Schenker • Project presentation, inviting feedback and establishing Romtrans in Constanta Mr Jan Scheele contacts Mrs Nicoleta Apostal, Head of Romania Mr Vytautas Paulauskas • Overview of the DB Schenker Romtrans Intermodal Association • Customs service Mrs Aleksandra Papescu Port Representative in Romania Intermodal Platform Romania Ministry of Transport TRACECA SECRETARIAT, Bucharest

• Project presentation, inviting feedback and establishing Mr. Barcila Dumitru, Advisor, Ministry of contacts Transport Romania, Department of Railway • Current situation with Intermodal Terminals in Romania Transport Mr Jan Scheele • Overview about maritime and inland water transport main Mr Serban Daniel, Expert, Ministry of Transport Mr Vytautas Paulauskas running projects in Romania Romania, Maritime Department • Preferable locations for ILC Mr Parvo Marcel, Office Chief, Ministry of • Other TRACECA projects Transport Romania, State Aviation • Contacts with other organisations Administration Mr Stoica Gheorghe, Project manager, National Freight railway Company MARFA Romania Ministry of Transport, Bucharest • Project presentation, inviting feedback and establishing contacts Mr Sorin Sirbu, General Manager, Ministry of Mr Jan Scheele • Overview of Directorate Activities and Responsibilities • Preferable locations for the Public Logistics Centres in Transport Romania, General Directorate for Mr Vytautas Paulauskas Infrastructure and Road Transport Romania related to the TRACECA and other Transport Mr Eduard Ungureanu, Senior Counsellor, Ministry of Corridors crossing Romania Transport Romania, General Directorate for • Romania Transport Strategy

Inception Report Annex 2 – List of meetings Page 32 of 37

International Logistics Centres for Western NIS and the Caucasus

Institutions / Events / Persons Met Participants Issues Discussed / Investigated Infrastructure and Road Transport Turkey Ministry of Transport and Communications, Ankara • Project presentation, inviting feedback and establishing Mr Baris Tozar, TRACECA National Secretary Mr Andreas Schoen contacts in Turkey / Counsellor of Minister Mr Bodo Roessig • Expectations of the project Mr Izzet Isik, TRACECA National Secretariat Mrs Yulia Usatova • Takeaway material Turkey Mrs Secil Ozyanik, TRACECA National Secretariat Turkey Joint stakeholder meeting organised by Ministry of Transport and Communication, Ankara • Project presentation, inviting feedback and establishing contacts

• Throughput statistics Mr Hasan S. Tasus, Commercial Manager / Mr Andreas Schoen • Development plans Charter Cargo of MNG Airlines, Turkey Mr Bodo Roessig • Expectations of the project Mr Serkan Selik, EU Expert, Directorate Mrs Yulia Usatova • Preferable locations for LC General Civil Aviation • Takeaway material Mr Abdulkadir Aksu, Chief of the Section • Site inspection Turkish Railways Mr Orhan Aksay, TCDD Turkish Railways • Project presentation, inviting feedback and establishing Katircioglu, Trucking company, Istanbul contacts Mr Bodo Roessig • Structured interview Mrs Yulia Usatova Mr Hakan Ates • Development plans • Issues encountered by operators

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Institutions / Events / Persons Met Participants Issues Discussed / Investigated TCDD, Haydarpasa Port, Istanbul • Project presentation, inviting feedback and establishing contacts • Structured interview

Mr Bodo Roessig • Port statistics Mr Dursun Arpacioglu, Port Operation Manager Mrs Yulia Usatova • Links to TRACECA corridor Mr Erdal Gemici, Assistant to the Port • Bottlenecks and recommendations Operation Manager • Site inspection Akport, Istanbul – Teriktag Port Operator • Project presentation, inviting feedback and establishing contacts • Structured interview

Mr Bodo Roessig • Port statistics Mr Mehmed S. Bosna, Director Sales and Mrs Yulia Usatova • Links to TRACECA corridor Marketing • Bottlenecks and recommendations Mr Cenk Mehmed Anil, Marketing Manager • Site inspection UN RORO Terminal, Istanbul

Mr Bodo Roessig • Site inspection Site visit - location proposed as a potential Mrs Yulia Usatova logistics centre for Istanbul by municipality and UND Ulusoy Sea Lines Management S.A., Istanbul • Structured interview Mr Bodo Roessig • Links to TRACECA corridor Mr Volkan Erucar, Marine Superintendent Mrs Yulia Usatova • Motorways of the Sea concept Mr Onder Ulas Basboga, Manager International Transporters Association (UND), • Project presentation, inviting feedback and establishing contacts Istanbul • Structured • Issues of the operators Mr Bodo Roessig Mrs Mine Kaya, Chairman of Executive • Soft constrains in transportation process Mrs Yulia Usatova Committee • Logistics activities Mr Aybek Abdrahman, Member of Executive • Statistics Committee • Development plans

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Institutions / Events / Persons Met Participants Issues Discussed / Investigated • Project presentation, inviting feedback and establishing contacts TCDD Samsun Seaport, Samsun • Structured interview Mr Bodo Roessig • Port statistics Mrs Yulia Usatova Mr Temel Demir, Port Manager • Links to TRACECA corridor • Bottlenecks and recommendations • Site inspection Cenk Group, Samsun port, Shipping Line Mr Bodo Roessig • Operation issues

Mrs Yulia Usatova • Transportation on TRACECA Mr Nihat Budanoglu, Branch Manager Ulusoy Karadengiz Black Sea RORO and Container, Samsun Mr Bodo Roessig • Operation issues Mrs Yulia Usatova • Transportation on TRACECA Mr Tuncer Ucuncuoglu, Branch Coordinator TCDD Logistics Village, Samsun • Site inspection Mr Bodo Roessig • Development plans Mrs Yulia Usatova Mr Adil Tekin, Manager • Recommendations • Project presentation, inviting feedback and establishing Trabzon Port – Akbayrak Group of Companies, contacts Port Operator • Structured interview Mr Bodo Roessig • Port statistics Mrs Yulia Usatova Mr Muzaffer Ermis, Port Manager • Links to TRACECA corridor • Bottlenecks and recommendations • Site inspection Abdullah Cakir Shipping Agency, Trabzon Mr Bodo Roessig • Operation issues Mr Yusuf Cakir, Managing Director, Advisor of Mrs Yulia Usatova • Transportation on TRACECA the Chairman of the Chamber of Commerce

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Institutions / Events / Persons Met Participants Issues Discussed / Investigated • Project presentation, inviting feedback and establishing Hopa Port contacts Mr Bodo Roessig • Structured interview Mr Oguz Capkinoglu, Port Operations Mrs Yulia Usatova • Port statistics Manager, Park Denizcilik • Links to TRACECA corridor • Site inspection Yeniguller Forwarder, Hopa • Structured interview Mr Bodo Roessig • Operator issues Mrs Yulia Usatova Mr Ibragim Yenigul, Manager • Transportation on TRACECA Site visit to the Turkish – Georgian Border Mr Bodo Roessig (Sarpi) - Site visit, observations • Site inspections Mrs Yulia Usatova • Interviews with drivers Interviews with truck drivers waiting at border TRACECA Turkey, Izmir Mr Bodo Roessig • Recap of the 1st part of the mission to Turkey Mrs Yulia Usatova Mrs Secil Ozyanik, Expert TRACECA National • Development plans in terms of logistics Mrs Secil Ozyanik Secretariat Turkey • Project presentation, inviting feedback and establishing Izmir Port contacts Mr Bodo Roessig • Structured interview Mr Ismet Canbaz, Port Manager Izmir Port, Mrs Yulia Usatova • Port statistics Turkish Railways Mrs Secil Ozyanik • Links to TRACECA corridor • Bottlenecks and recommendations • Site inspection Manisa Industrial Zone, Izmir • Project presentation, inviting feedback and establishing Mr Bodo Roessig contacts

Mrs Yulia Usatova • Structured interview Mrs Funda Karaboran, Deputy Director Mrs Secil Ozyanik • Operation concept for a logistics centre Site visit, observations • Logistics centre site inspection

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Institutions / Events / Persons Met Participants Issues Discussed / Investigated Barsan Global Logistics, Aegean Region, Izmir

• Issues encountered by operators Mr Huseyin Isteermis, Aegean Region Director Mr Bodo Roessig • Development plans a partner of Mosbar consortium Mrs Yulia Usatova • Transportation on TRACECA Mr Ahmed Akman, Operation Chief Mr Erkan Aksoy, Deputy Regional Director

April 2009

Ukraine Ministry of Transport and Communications of Ukraine (MoTC), Kiev • Overview of project status quo Mr Hrigory Lehenkiy, Head of Transport Systems Co- • Status of harmonisation of borders controls, procedures ordination and Development Department Mr Andreas Schoen and documentation in Ukraine Current status of project related working groups Mr K. Savchenko, Deputy Head of the Mr Hannes Rueger • Department of Development and Coordination • Background and mechanisms for setting tariffs Mrs Olena Nevmerzhytska of the Transport Systems and Communications • Current status of the railway reform programme Mr John Standingford Mrs Antonina Kuzmenko, Deputy Head of the • Legal framework for multimodal transport and logistics Department of Development and Coordination nodes in Ukraine of the Transport Systems and Communications • Initial remarks on possible ILC sites Mrs Svetlana Lipinska, Department Specialist, Responsible for International Logistics Centres CJSC UVK • Brief outline of the ILC project Mrs Katerina Bassova • Overview of UVK company profile, facilities and services Mr Oleg Kalensky • Demands and Interest in future ILC

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for Western NIS and the Caucasus

in Armenia, Azerbaijan, Georgia, Moldova and Ukraine

Inception Report – Annex 3 Traffic flow analysis and characterisation of the nature and the condition of operating infrastructure and facilities within the network

April 2009

This project is funded by the European Union A project implemented by Dornier Consulting GmbH / NTU / Inros Lackner AG

ANNEX 3

INTRODUCTION

EXECUTIVE SUMMARY & METHODOLOGY AND APPROACH

International Logistics Centres for Western NIS and the Caucasus

TABLE OF CONTENTS LIST OF ABBREVIATIONS...... 3 1 EXECUTIVE SUMMARY ...... 9 1.1 DIRECT BENEFICIARY TRACECA COUNTRIES ...... 9 Armenia ...... 9 Azerbaijan ...... 9 Georgia ...... 10 Moldova ...... 12 Ukraine ...... 12 1.2 INDIRECT BENEFICIARY TRACECA COUNTRIES ...... 14 Bulgaria ...... 14 Romania ...... 15 Turkey ...... 15 2 METHODOLOGY AND APPROACH ...... 17 2.1 PART 1 – CARGO FLOWS AND TRANSPORT NETWORK CAPABILITIES ...... 17 2.2 PART 2 – TRANSPORT INFRASTRUCTURE AND MAIN LOGISTICS NODES ...... 18

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LIST OF ABBREVIATIONS 2PL Second Party Logistics Provider. 3PL Third Party Logistics Provider. ADB Asian Development Bank. ADDY Azerbaijan State Railway. ADR Agreement on Dangerous goods by Road. AFD French Development Agency. AFER Romanian Railway Authority. AGTC European Agreement on Important International Combined Transport Lines and Related Installations. AIA Armenian International Airports. AIFU International Forwarders Association. AIFFU Association of International Freight Forwarders of Ukraine. ARD Armenian Road Directorate. Arkas Arkas Shipping and TransportSA, Izmir. ARMCO Armenian national trade & transport facilitation committee (in existence 2002-07). ASYCUDA Automated SYstem for CUstoms Data (computer software developed by UNCTAD). ATP Autonomous Trade Preferences (EU scheme to extend selective preferences to non-member countries, including Moldova). BALO Western Anatolia Logistics Organisation. BASPA Black and Azov Seas Port Association. BCT Baku Cargo Terminal. BESEC URTA Union of Road Transport Association in the Black Sea Economic Cooperation Region. BGL Barsan Global Logistics. BSEC Back Sea Economic Cooperation pact/organization. The permanent secretariat is at Istanbul. The membership comprises this project’s eight beneficiary countries plus Albania, Greece and Russia. BTC Baku-Tbilisi-Ceyhan pipeline. BDZ Bulgarian State Railways. CASPAR Caspian Shipping Company. CCL Shipping Line belonging to GF Group an Italian Company. CFR National Railway Company - Compania Nationala de Cai Ferate ‘CFR’ SA (Romania). .

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CIA Central Intelligence Agency (US Government agency). CIS Commonwealth of Independent States (former republics of the USSR) also called NIS. CMA See CMA/CGM. CMA/CGM Container Shipping Line based in Marseilles. COSCO China Ocean Shipping Company. CSCL China Shipping Container Line. CWG Customs Working Group. DHL Deutsche Post DHL. DP World Largest Marine Terminal Operator in the world, Dubai. DTCSDC Directorate of Transport and Communication System Development and Coordination. DWT Deadweight. EASA 145 European Aviation Safety Agency. EBRD European Bank for Reconstruction and Development. EC European Commission. ECMT European Conference of Ministers of Transport. EDI Electronic Data Interchange. EDP Electronic Data Processing. EHS Environmental Health and Safety. EIB European Investment Bank. E-Road International E-road network. ENP European Neighbourhood Policy. EU European Union. EUR Euro (also abbreviated as €). FEZ Free Economic Zone (where imports and internal transactions are free of tax). FIATA Federation Internationale des Associations de Transitaires et Assimiles (International Federation of Freight Forwarders Associations). FMCG Fast Moving Consumer Goods. FSC Flag State Control (maritime terminology). GDCA General Department of Civil Aviation of the Government of the Republic of Armenia. GDP Gross Domestic Product (the value of goods and services produced within a country, usually an annual amount either in the domestic currency or in US dollars. It may be expressed in terms of purchasing power parity (PPP: see below). GIFP Giurgiulesti International Free Port.

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GOSKOMSTAT State Committee for Statistics (CIS Counties). GRECO Council of Europe Group of States Against Corruption. HACCP Hazard Analysis and Critical Control Points. HHLA Hamburger Hafen und Lagerhaus AG. HMM Hyundai Merchant Marine. HPC Hamburg Port Consultant. IATA International Air Transport Organisation. ICAO International Civil Aviation Organization. IFFA International Freight Forwarders Association. IFI International Financial Institution (for example EBRD, EIB, World Bank). IFZ Industrial Free Zone (similar to an FEZ, intended for manufacturing and related activities). IGC Intergovernmental Commission TRACECA. ILC International Logistics Centre. IMF International Monetary Fund. IMISK Logistics provider and trading company. IMO International Maritime Organisation. IRF International Road Federation. IRU International Road Transport Union (association of the road transport industry, including truck operators, and international guarantor of the TIR carnet system). ISO International Organization for Standardization. ISPA Instrument for Structural Policies for Pre-Accession. ISPS International Shipping and Port Security. ISTPB International Sea Trade Port of Baku. ITF International Transport Forum. JAR145 Joint Aviation Authority / Approved Maintenance Organisation. JBIC Japan Bank of International Cooperation. JHA Justice and Home Affairs (the 3rd pillar of the EU, covering corruption inter alia). JICA Japan International Cooperation Agency. JSC Joint Stock Company. JV Joint Venture. Kalder Turkish Society for Quality (Turkish). KfW KfW Bankengruppe. K-line Kawasaki Shipping Line.

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LC Logistic Centre. LCL Less than full Container Load. LiLo-1 Lilo-1 Ltd, terminal operator. LLC Limited Liability Company. LSGLGA Local Self-Government and Local Government Act. Maersk Container and logistics operator. MASBAR Manisa Free Zone and Barsan Logistics. MCA Multi-Criteria Analysis (also known as Multi-Variate Analysis,MVA). MCC Millennium Challenge Corporation (US Government agency). MCG Millenniums Challenge Georgia . MCL MCL Feeders Ltd. Shipping Line operation in the Mediterranean . MLA Multilateral Agreement (TRACECA). MLWG Multilateral Legal Working Group. MNG Airline situated in Istanbul operating air freight (Turkish). MoT / MOT Ministry of Transport. MoTC Ministry of Transport and Communication. MSC Mediterranean Shipping Company . MSG MSG Container Ship Operator. MSI Management Systems International. MTT International Railway Transit Tariff (originally a Soviet tariff schedule). NCA National Customs Agency. NGO Non-Governmental Organisation. NIS Newly Independent States (former republics of the USSR) also called CIS. NLWG National Legal Working Group. NYK Nippon Yusen Kaisha Shipping Line. OIZ Organized Industrial Zone (Turkey). OPIC Overseas Private Investment Corporation (Us government agency). PAN Pan-European transport corridors. PID Project Information Document (World Bank). PPP (1) Public-Private Partnership. PPP (2) Purchasing Power Parity (GDP or some other measure of national or per capita income, adjusted for price levels relative to those of the USA). PS Permanent Secretariat. PSA Port operating Company based in Singapore. PSC Port State Control (maritime terminology).

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PSIGC Permanent Secretariat of the Intergovernmental Commission TRACECA. RaK Ras al Khaimah. RAKIA Government of Ras al Khaimah RAK Investment Authority. RODER RoRo and Rola associoation (Turkish). Ro-Ro / RoRo Roll on Roll off (applied to rail and ferry operations where rail cars and road vehicles are carried). SCR South Caucasian Railways. SECI Southeast European Cooperation Initiative. SJSC State Joint Stock Company. SNCFR Romanian Railways National Company (now defunct). SOCAR State Oil Company. TACIS Technical Aid to the Commonwealth of Independent States. TCDD Turkish Railways (Turkish). TDI Turkish Maritime Administration (Turkish). TEN-T Trans-European Transport Network . TEU Twenty-foot Equivalent Unit (a 20’ shipping container or its equivalent; for example a 40’ container is 2 TEUs). TFWG Trade Facilitation Working Group. TI Transparency International. TINA Transportation Infrastructure Needs Assessment. TIR Transports Internationaux Routiers (usually pronounced ‘Teer’ in all langages). TIR carnet Single document that must accompany transit cargoes under the TIR system. TND Turkish Transport Association. TNT TNT Express. ToR / TOR Terms of Reference (of the present project, unless stated otherwise). TRACECA TRAnsport Corridor Europe Caucasus Asia. UASC United Arab Shipping Company. UFS UFS Shipping International, Hang Kong. UN United Nations. UNCTAD United Nations Conference on Trade And Development. UND International Transport Association (Turkish). UNECE United Nations Economic Commission for Europe (also UN-ECE). UNTRR Romanian Road Hauliers’ Union. USAID United States Agency for International Development.

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USCTS Ukrainian Centre of Transport Service.

USD United States Dollar (also abbreviated as US$). USSR Union of Soviet Socialist Republics (Soviet Union). Since its dissolution it is often referred to as the Former Soviet Union (FSU). UZ Ukrainian Railways. WTO World Trade Organization.

Note: Standard ISO abbreviations are used where appropriate; for example ha [hectare(s)], m [metre(s)], m2 [square metre(s)], m3 [cubic metre(s)], t [tonne(s)], kt [kilotonne(s)], Mt [megetonne(s)]. An apostrophe may denote minutes [for example: 39°27′20″N] or feet in the imperial measurement system [for example: 20’ container].

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1 EXECUTIVE SUMMARY

1.1 Direct Beneficiary TRACECA Countries

Armenia Armenia is a land-locked country, bordering with Georgia, Azerbaijan, Turkey and Iran. The economy is mainly agricultural, with some development of the service sector during the last years. Exported are mining products, followed by food and beverages, and precious stones. Import is crucial for Armenia, covering a wide range of products and for times higher in terms of value. After stable two-digit growth rates after 2000, Armenia is now severely hit by the global financial and economic crisis, a shrinking of the economy being predicted for 2009. The transport network (rail and road) is mainly inherited from Soviet times, well developed by capacity standards, but does not correspond to European standards in terms of general condition, average speed and safety. A main hindrance for the development of international traffic, economic development and investment are the transport costs, which are extremely high in comparison with neighboring countries. The borders to Azerbaijan and Turkey for road and rail transport are closed, limiting international transport to the rail and road connections to Georgia (ports of Poti and Batumi) and a road connection to Iran. A re-opening of the railway connection to Kars (Turkey) is envisaged at the moment. In terms of upgrading the international network, the main attention is given to the North-South road corridor, connecting Georgia and Iran through Armenia. End of 2009, construction work is scheduled to begin on first sections on the way from Yerevan to the Georgian border. Strategically, a new railway connection from Sevan-area to Iran is under consideration, but not likely to be implemented in the near future. The logistics sector is emerging, only. The road transport sector is dominated by freight forwarding companies (including Georgian). The railway is operated by the South Caucasian railways, a 100% daughter of the Russian railways, on a concession basis. Multimodal container handling is concentrated in Yerevan, at four container terminals. Before the crisis, these facilities were working at the limit of their capacities. During the expert visit the former industrial zone on the way to Zvartnots International airport and near Erubeni military airfield was identified as suitable area for a logistics centre, as railway access is available and taking into account the currently limited opportunities for expansion at the present container handling facilities.

Azerbaijan Azerbaijan is located in Southern Caucasus and covers an area of about 86,600 sq.m. with a population of 8,6 million, whereof 56% resides in urban areas. Azerbaijan is one of the world’s oldest oil exporters. Also transit of regional oil reserves remains central to country’s economic future. Azerbaijan is developing infrastructure needed to realize rapid growth in oil sector, but the challenge ahead is to ensure growth in the non-oil economy. After gaining its independence, the economy of Azerbaijan has been facing difficulties common to many of the ex-soviet republics until 2000. With complex economic measures the GDP growth rate was 10.2% in 2005 and rocketed to 25% in 2007. For 2008, the national statistics reported modest 10.8% growth. The latest IMF assessment confirmed 2008 figures, but further outlook remains uncertain.

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Azerbaijan is well situated on the crossroad of major international traffic routes including. Azerbaijan’s geographical position makes it an important link between the Black and Caspian Seas (TRACECA) and between Russia and Iran (North-South Corridor). Reinforcement of the two transit corridors has to permit to give transport capacity corresponding to the trade relations development between Europe, Russian Federation and Asia. The international road network is generally well developed and is being constantly upgraded. The rail transport sector is not in optimal condition but workable. Maritime transport plays an important role, especially for the oil cargos. There is also scattered containerized transportation of supplies for oil industry. The maritime industry of Azerbaijan consists of state owned companies with a monopolistic behaviour. These are Maritime Administration and Caspian Shipping Company. The Maritime Administration of Azerbaijan is the national regulatory body for implementation of State policy in the maritime sector. The Caspian Shipping Company (CASPAR), active in the seaborne transport mainly on the Caspian Sea. In the former Soviet Union all of the ports of the Caspian Sea except Iranian ports were part of CASPAR. Nowadays, the port of Baku functions as an independent State Own Enterprise. Port facilities and equipment are suitable for handling of all major commodity groups including containers. The port was also used as a station for switching cargo between the road and rail transport modes. However, the traffic via the port of Baku is rather small. In 2007 the Government decided to move the current port facilities out of capital city Baku. The new port will be built within 5-6 years period on the completely new site 70 km south to Baku, near Alyat settlement thus making the easy and fast access to both rail and road connections on East-West and North-South corridors. The Ministry of Transport envisages that the new port will be the real hub for all transport and logistics. The location of a logistics centre is included in the master plan of the new port. A number of industrial and manufacturing companies have established a base in that region. The new port will be the real hub for all transport and logistics, collecting the majority of cargo on Caspian. According to the port master plan a logistics centre will be located at its territory. The air freight transport sector in Azerbaijan is a relatively small in volumetric terms when compared to the other modes of transport. In the north of Baku a modern cargo terminal is located. This is one of the largest ones in the Commonwealth of Independent States (CIS). The terminal, equipped to international standards and handles up to 200 ton per day. The Transport Sector Development Strategy was elaborated to face the long-term challenges, existing in the transport sector of Azerbaijan Republic in accordance with the relevant strategic objectives. Azerbaijan is on the right way to improve the overall situation, entailing a political support to changes in the transport procedures and operations. The Government of Azerbaijan is recommended not only to focus on the adoption of regulations and rules but also enforce execution and control procedures.

Georgia Georgia is strategically placed between the Black and Caspian Seas, with Russia to the north and Turkey to the south. Its several Black Sea ports and its road and rail networks are important TRACECA links between Europe, the other South Caucasian and Asia. Transit services are provided to and through Georgia’s neighbours. These services include carrying oil and oil products via the pipelines that link Baku to the Georgian port of Supsa.

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The country is rich in minerals (copper and manganese), agricultural production (tea, citrus fruits, wine) and tourism potential; and it has a diverse manufacturing sector. However it is largely import-dependent with respect to energy and most consumer goods. Until the global financial and economic crisis the Georgian economy enjoyed strong growth: the IMF estimated an increase of 12.5% between 2006 and 2007. It suffered decline in 2008 but is expected to grow by 4% in 2009. Cargo flows are expected to drop by 20-30% however. The road network is in good condition and is being further improved through a number of externally funded projects. The road freight transport industry has undergone fleet modernization and has been increasing its market share. There is ongoing heavy investment in extending and improving the rail network too, including a new 98km line to Kars (Turkey) financed with a low-interest loan from Azerbaijan. Georgian Railway LLC is a state-owned corporation, but the government wishes to privatize it with separation of the ownership/management of infrastructure from the operation of passenger and freight services Poti is the country’s biggest container port, handling 220,000 TEU per year. It is managed by a private concessionaire which is committed to invest in modernizing the port. Lack of storage space forces the transfer of containers to eight inland terminals nearby, which is costly and time-consuming. A number of private companies rent space in the port for their operations. Batumi Port is leased to two operators. One has facilities for oil products, general cargo and ferry operations; the other for containers and ferry operations. The port has access problems and limited container storage, and some equipment is yet to be updated. Investment of US$15- 20 million is planned. There are four regular shipping services to/from Georgia per month, connecting Batumi Port to Burgas (Bulgaria) and Ilyichevsk (Ukraine). All other calls are by chartered vessels. A number of inland terminals serve Tbilisi and other urban centres. The biggest is Lilo-1, located close to Tbilisi International Airport. It is privately operated and mainly serves as a distribution point for imported goods. Customs clearance and warehousing are provided on-site. It has road and rail connections, as does the Intertrans terminal at a railway station in the city centre with poor road access. Both terminals are in need of substantial renovation. Of Georgia’s three international airports only Tbilisi is significant for air freight, which is handled by two specialized companies with facilities inside the airport perimeter and equipment leased from the airport’s owner. Before the global financial and economic crisis the annual throughput was 17,500 tonnes. The market is dominated by the freight forwarding industry, which is well developed for a limited range of functions, almost entirely related to import/export activities and local distribution. But there are no logistics centres as such and intermodal infrastructure is lacking. There is a strong consensus that the Tbilisi region would be the most sensible location for an ILC. There are several land plots, owned by different companies near the airport, which could qualify for the development of an International Logistics centre. The only other location that has support is Poti Port. The project “Industrial Free Zone” will open opportunities to develop logistics facilities and add container handling capabilities, which are limited in the existing ports, provided that the project will be realized as planned before the economic crisis. The concessionaire is committed to investing US$200 million in port expansion and upgrading by 2014.

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Moldova Moldova divides the EU from the CIS. It is characterized by its small size (in area and population); low income; large emigrant population; near-landlocked status; and temporary loss of territory and productive capacity to Transdniestrian separatists. The country is largely dependent on its agricultural sector, particularly on its wine exports. It is following a strategy of diversification and employment generation featuring development of nine Free Economic Zones throughout the country. Diversification and improvement of international transport links are also part of this strategy, and transit transport services are recognized as a potentially important invisible export. The road network is in need of rehabilitation. Such activities have been hampered by a cancelation of road project funding by the World Bank and EBRD, which have been leading sources of capital for infrastructural development. There are two candidate locations for an ILC: The Chisinau region provides due to its concentration of population and economic potentials as well as transport node of two international transport corridors promising opportunities for a future regional logistics centre. The Moldovan Railway owns a railway freight terminal with container handling and storage facilities, which are in need of renovation and updating. Giurgiulesti International Free Port (GIFP), situated at the confluence of the Rivers Prut and Danube, which is undergoing phased development by its private owner Danube Logistics. It lacks still a economic hinterland that would provide a sufficiently strong production/consumption base to support a full-scale ILC, but the master plan is projected for future handling of a wide range of bulk and containerised cargoes with the potential for transshipment between sea-going and river-going vessels.

Ukraine Ukraine is the second largest country in Europe in terms of area and fifth in terms of population. Furthermore Ukraine is by far the largest and economic most significant country of all five direct beneficiary countries. Ukraine is a lower middle-income country with significant economic potential and a strategic location connecting Europe, Russia, and Asian markets. The countries resources include some of Europe's best agricultural land, significant coal and some oil and gas reserves. The most important Ukrainian export goods traditionally are metallurgical products, chemical goods, machines, food and textiles. The main import products are equipment, vehicles and chemical products. Ukraine depends to a large extent on Russia as an energy supplier. The Ukrainian economy's dependence on steel exports made it particularly vulnerable to the effects of the global financial and economic crisis of 2008 and was hard-hit by the global financial and economic crisis of 2008. Demand and prices collapsed for Ukraine’s export commodities like steel and chemicals. Ukraine is an important transit country as well as a major hub in European multimodal transport networks connecting the country westbound to the EU, eastbound to (Central) Asia and north- south with CIS countries. Out of ten Pan-European Transport Corridors that cross Europe, three go through the territory of Ukraine. In addition, since the opening of the Black Sea - Danube Canal, Ukraine is directly connected to Corridor VII, the Danube. The TRACECA corridor passes through the country from Yagodin (Polish border) via Kovel to Odessa/Ilyichevsk.

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To enhance Ukraine’s competitive position as a transit country and location for regional logistics hubs, infrastructure development is a necessary but not sufficient condition. Also trade and transport facilitation and establishment of adequate logistics nodes, contributing to improved level of service and lower transport costs, are of vital importance. The country is implementing a variety of logistics and transport infrastructure related projects. However, logistics system development and networking is still lacking in Ukraine. Ukraine has a total road network of about 165,000 km paved roads. Most of the Ukrainian road system has not been upgraded since the Soviet era, and is now outdated. Rail transport in Ukraine plays the role of connecting all major urban areas, port facilities and industrial centres with neighbouring countries. The railway network in Ukraine extends for 22,473 kilometres and its density is one of the highest among other CIS countries. The inland waterway network consists of about 1,670 km and 15 inland harbours are in operation. Ukraine possesses the most powerful seaport potential among the countries of the Black Sea region. Along its Black Sea and Sea of Azov coastline there are 19 merchant sea ports. The most important are the two ports of Odessa and Ilyichevsk. In Ukraine there is still a lack of intermodal terminals and logistics centres with comparable international standards and capabilities. In recent years the Ukrainian Government has expended 48,7 million UAH on upgrading the six LISKI logistics centres. There are many privately operated logistics centres in Ukraine, but mainly they only have road access. In Odessa region there is the currently still port related LLC Euro Terminal. The airport of Kiev (Borispol), airport Odessa and airport Dnipropetrowsk are the most important international airports of Ukraine. The International Airport Borispol is by far the biggest airport in Ukraine, accounting for 74% of air cargo and mail handling in Ukraine. The main bottlenecks of the Ukrainian transport and logistics network regarding the future development of international logistics centres along the TRACECA corridor are the following: No coherent motorway network and limited traffic capacities; Poor quality of road conditions; Lack of intermodal hubs and logistics nodes; Poor or overloaded road and railway access to the Sea Port Terminals of Odessa and Iliychevsk; Limited infrastructure and service facilities on the crossing border points. International logistics providers and container terminal operators have entered the logistics and transportation market of Ukraine, mainly in Kiev region and nearby or inside the main Ukrainian ports. Some of them have investment plans for the future. On basis of the Terms of References and criteria for an ILC, the following three regions for ILC locations are the main promising candidates: South part of Ukraine – Odessa region; Central part of Ukraine – Kiev region; West part of Ukraine – Lviv region. These regions also were stated and recommended in interviews from national and international logistics providers as well as further stakeholders of the transport and logistics sector in Ukraine.

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1.2 Indirect Beneficiary TRACECA Countries

Bulgaria The global financial crisis is causing a economic slowdown in Bulgaria. Bulgaria's GDP increased by 6% in 2008, slower than the 6.2% growth recorded in 2007. IMF estimated 2% growth of Bulgarian GDP in this year. The transportation infrastructure in Bulgaria doesn’t yet meet the international standards. The main problem in road sector is the chronic lack of maintenance funds and previously postponed repair works. The existing road network has a lack of bypass roads around the main Bulgarian cities. Road connection between Varna/Bourgas – Sofia is in poor condition and doesn’t have sufficient capacity. The technical condition of railway is underdeveloped. Level of maintenance is unsatisfactory. There is a lack of intermodal infrastructure in Bulgaria. Technology and equipment in the existing intermodal terminals are mainly outdated. The costumers aren’t satisfied with the service in the railway terminals operated by Bulgarian Railways (BDZ). The managements of the terminals are inefficient by administration. One of the essential obstacles for efficiency of Bulgarian railway is an absence of regular rail connections between the main industrial and high density regions in Bulgaria. There is absence of regular block train services between the ports Varna/Bourgas and main container destinations in the country. Road transport plays an essential role in the distribution of cargo from the ports. There is a lack of competition in the truck service between Ports and main container destinations. For this reason the shipment prices are extremely high. Bulgarian Black Sea ports are the main transportation hubs in the country, handling 60% of all imports and exports. They are state-owned companies, controlled by Executive Agency "Port Administration". The ports Varna and Bourgas are characterised by a lack of specialization of the terminals. There is a lot of free capacity at the moment. During the visit of the experts the both ports were practically empty. Port of Varna has a poorly developed internal infrastructure. Eequipments in the existing terminals are mainly outdated. Port of Bourgas has well maintained infrastructure. The Port has developed the largest complex for bulk cargoes in Bulgaria. The port completed ammonium nitrate facility, which is not in operation and has never been used. The road transport is still the dominant mode of transportation due to the relatively underdeveloped railway system. Air transport has been neglected. An entrance of the international manufacturers and retailers into the Bulgarian market have resulted the growing demand for complex logistics services in the country. International logistics providers: Shenker, Rhenus, DHL are already operating there. The national transportation companies are mainly focused on the import/export logistics services. Financial crisis hits the transportation industry. According to the personal interviews with the stakeholders of transportation sector the total cargo revenue decreased by 25% in the first quarter of 2009. There are some problems created by customs authorities in customs clearance procedures. After Bulgaria’s entrance into the European Union the customs bonded cargo has decreased extremely. For this reason the Customs Administration has become less important. Sofia is a key logistics intensive location and industrial centre in Bulgaria. The main manufacturers and international retailers are located there. There is a necessity for the development of intermodal infrastructure and optimization of the rail connections with the ports. The Ministry of Transport of Bulgaria is planning to develop the new railway container terminal in Sofia. There is 73 ha plot identified. The planned location has a good connectivity to road and

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International Logistics Centres for Western NIS and the Caucasus railway junction but no expansions possibilities. Implementation of intermodal terminal at this location will have a negative impact on traffic in the city as the location is situated practically in the city centre.

Romania Romania is strategically located in the Europe, on the frontier between the EU and the CIS; on the Black Sea; and with the River Danube (the continent’s principal waterway, designated as Trans-European Transport Corridor VII) passing through its territory and forming most of its southern border. Consequently Romania is an important gateway for the landlocked states of Central and Eastern Europe, in particular Hungary, Slovakia and Austria through whose territories the River Danube flows. In support of this role, Romania’s transport infrastructure is extensive and well-connected across its borders with Bulgaria, Serbia, Hungary, Ukraine and Moldova. But in some areas there is a need for renovation and upgrading. Projects are under way in the roads sector, the main one being construction of the A2 Motorway from Bucharest to Constantza which is due for completion in 2011. In the railway sector improvement is slower. Despite reorganisation of the Romanian Railways National Company (SNCFR) in 1998 the railway network remains under-developed and inadequately maintained. The same is true of the associated intermodal freight handling facilities and ferry services. The inland waterways network is said to work well, and connects via the Black Sea – Danube Canal to Constantza Port on the Black Sea. Constantza is one of the 10 biggest ports in Europe with a good record for efficiency and growth. It has the capacity to handle 120Mt of cargo per year, which is supplemented by the much smaller satellite ports of Midia and Mangalia. Planned developments will substantially increase capacity and handling efficiency. Constantza is a ‘landlord port’. It is state-owned and managed by a state-owned company. But individual terminals are operated by private companies, as are all port services (stevedoring, towage, pilotage etc). There are two outstanding locations where new or enhanced logistics services might be synergistic with ILCs in the Black Sea region: Bucharest; it is the capital city and main centre of population, production and consumption. It is the country’s main transport hub and international logistics service providers already have a strong presence. Constantza Port; via Romania’s road, rail and inland waterway network - including the River Danube – it has a very large hinterland in Central and Eastern Europe. It has proved its competitiveness and appeal to private shipping companies and port operators.

Turkey The purpose of this report is to provide an assessment of the transport infrastructure network and links in Turkey. The findings result from surveys and a field expert mission carried out in March 2009. The assessment is focused on transport links important for the TRACECA corridor. The report provides recommendations for improvement of intermodal transport and logistics relevant for Turkey and TRACECA corridor.

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Turkey plays a significant role in regional integration of TRACECA, Black Sea, Balkan and Mediterranean regions. Its dynamic economy is a complex mix of modern industry, commerce and a traditional agricultural sector. Turkey is an important trade partner for EU and TRACECA countries. However, economic fundamentals are sound, but the Turkish economy according to IMF is to face negative economic indicators in 2009. The World Bank ranked Turkey 34 among all the countries analysed in the overall logistics services performance indicator. Among all TRACECA countries in the logistics performance Turkey has scored the best. Turkey has a well developed road network. The TRACECA road route is in excellent condition. The network is further upgraded. The TRACECA road border-crossing point at Sarp is operated at juxtapose basis with Georgia. The importance of railways as for combined transport is given impetus in recent years. A constant upgrade of the railway system takes place. The Turkish railway (TCDD) is outsourcing its secondary activities to concentrate on the core businesses. The railway ports are being or going to be privatised. The Turkish railway network is to gain utmost importance for the TRACECA corridor once the railway link Kars (Turkey)-Ahalkalaki (Georgia) is opened. The main port hubs on TRACECA route are those located in Istanbul, Tekirdag, Samsun, Trabzon and Izmir. Despite having traditionally a very well developed port sector, some deficiency in organisation of operation in various ports was observed. This implies a range of issues of infrastructural and organisational manner. The importance of private ports is growing. In general, private ports included into a survey demonstrated a well-thought development plans. At the country macro level, such locations as Ankara, Manisa, Sivas, Adana and Erzurum located at the crossroads of rail and road routes have potential to develop as inland hubs. These cities have a high consumer demand, and industrial and agricultural concentration. The main aviation cargo hubs are Istanbul, Ankara and Izmir. The related services range from inbound, outbound air cargo transportations, transhipment, handling, bonded warehousing and customs clearance. The most influential association of transporters are International Transporters Association UND, Ro-Ro and Ro-La association (RODER), and Turkish Transporters Association TND. The municipalities have no direct responsibility and right to establish or run logistics centre in terms of legal regulations. However, according to new provisions Municipalities, Chambers of Industry and Commerce, and Provincial Administrations are allowed to propose such projects. The Istanbul municipality supports creation of logistics centres in the vicinity of Istanbul together with UND and other transport stakeholders. The Samsun municipality is promoting a logistics centre together with a group of transport sector investors as an alternative to the planned railway-based logistics village. Lack of consistency in logistics centre development initiatives is revealed. The general master plan for a logistics sector development is missing. In overall management of the transport sector the Ministry of Transport is highly recommended to take over a masterminding process for improvement of Turkey’s nationwide logistics sphere by development of such a plan. The policies development requires stakeholder consultations.

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2 METHODOLOGY AND APPROACH The project team’s methodology and approach for Task A1 “Traffic flow analysis and characterisation of the nature and the condition of operating infrastructures and facilities within the network” is briefly described below for Part 1 and Part 2.

2.1 Part 1 – Cargo Flows and Transport Network Capabilities Part 1 contains an overview of the main cargo volumes and flows on the main transport axes and hubs of the direct and indirect beneficiary countries. This also includes the foreign trade between the beneficiary countries and the EU countries as well as domestic cargo flows by transport mode. The main initial data source was the TRACECA GIS database from the Permanent Secretariat of the IGC TRACECA in Baku. Additional data were collected from the national transport and statistical ministries, and from responsible port authorities of the direct and indirect beneficiary countries. Other data sources from international institutions such as Eurostat, UN-ECE and IMF have also been reviewed. Furthermore the RRG GIS database has been utilized in terms of GIS information, and data and information from other related studies and ongoing projects have been compiled and considered. All these data have been adjusted and completed using the results of the expert missions in the beneficiary countries. The main project in this respect is the ongoing project of the TRACECA program: “Analysis and forecasting of traffic flows for the TRACECA countries and interregional transport integration” (i.e. traffic flows project). At the very beginning of this project, in January 2009, the project team participated in the GIS Experts Meeting in Brussels and contacted the traffic flows project to receive their results. Unfortunately, their progress was not as expected, so that the available data were very preliminary. Especially the preliminary data on cargo flows in tonnes between main logistics hubs in the beneficiary countries were not sufficient, and are still lacking to a large degree. Therefore, the present Annex Report only presents cargo flows in monetary terms (US$). As soon as new data are available they will be presented in a subsequent report. All compiled data were, as far as possible, harmonized and presented in a set of standardized maps and diagrams, allowing easy understanding and comparison between beneficiary countries. Another import issue for the next project phases is forecasting of freight flows. Traditionally, forecasts assume that development takes place continuously. Based on this approach the traffic flows project already developed future scenarios of economic and thus cargo development in the beneficiary countries. The current economic crisis, however, marks a very significant discontinuity. This makes it impossible to make further use of any such forecasts generated before the crisis without making adjustments for its expected duration and severity. As the current crisis started already during 2008, the project team expected that the effects of the economic crisis would already be included in the traffic flows project forecasts; however, to date it remains unclear how and to what extent the traffic flows project took account of the latest economic developments. As soon as final outputs of the traffic flows project are available to this project, they will be incorporated. The Consultant’s view is that, because of the global recession, it is impossible to make traffic forecasts based on past trends with any confidence. In the interviews with national and international transport operators it was stated that cargo volumes have declined by 30-85%. No interview partner was willing to speculate on when demand is likely to grow again.

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But it will not be possible in the next project phases to conduct feasibility studies or formulate business plans without traffic forecasts, or, more precisely, without reliable information on future cargo volumes (in terms of tons). To address this problem the consultant has devised a set of scenarios, the purpose being to initiate productive debate, leading to an agreed basis for traffic and cargo forecasting. The Consultant therefore suggests three scenarios. These may be crudely described as High, Medium and Low. They might also be called Optimistic, Neutral and Pessimistic. The description of these scenarios is specified in chapter 2.4 “General Remarks on the Impacts of the Financial Crisis”.

2.2 Part 2 – Transport Infrastructure and Main Logistics Nodes The main focus of Part 2 is the identification and description of the transport infrastructure, main logistics nodes and existing transport links by mode of transport in the direct and indirect beneficiary countries. In February and March 2009 the project team was engaged in expert missions, including site visits and meetings, in all beneficiary countries. Based on standardised questionnaires, structured interviews were held with national transport agencies; other relevant public sector organizations; private sector representative bodies and selected national and international private stakeholders in the transport and logistics sector. All the main logistics nodes, defined in the TOR interms or regions located on the TRACECA corridor, were visited and analysed by the respective experts. The data and information have been compared and completed by back-stopping desktop research as far as possible. In addition related TRACECA, TACIS and other relevant studies are under review, but could not be completed yet due to the limited time schedule. Direct contacts have already been established by the project team with several related ongoing TRACECA and TACIS projects. Besides the already mentioned TRACECA project “Analysis and forecasting of traffic flows for the TRACECA countries and interregional transport integration” further contacts and meetings have been held with the regional TRACECA projects “Motorways of the Sea project foreseen in the Action Programme 2006”, “Freight Forwarders Training Courses” and “Land Transport Safety & Security”. In addition direct contact has been established with the ongoing national TACIS projects “TACIS Support to the integration of Ukraine in the Trans-European Network TEN-T”, “Ukraine port development feasibility study” and “Accession and Implementation by Ukraine of International Agreements and Conventions in Transport”. Some requested data are still awaited from public authorities and owners or operators of logistics nodes in the beneficiary countries. These will supplemented existing data in the next phase. At this stage only an overview of the main results and identified bottlenecks is presented in the country reports. Based on the results of the expert missions, interviews and consultants’ experience an initial evaluation of suitable locations for future International Logistics Centres in the direct beneficiary countries has been made. This evaluation was prepared based on a standardised Multi Criteria Analysis at the macro level (that is, considering general locations not specific sites). The methodology and criteria are described in Chapter 1.3 “Preliminary List of Suitable Locations for Logistics Centres”. In the next phase the current evaluation will be completed and detailed with a micro level analysis for the specific sites within these locations. In cooperation with the stakeholders in the direct beneficiary countries, a short list with a ranking of priority projects will be prepared.

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ANNEX 3

PART 1

CARGO FLOWS AND TRANSPORT NETWORK CAPABILITIES

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TABLE OF CONTENTS 1 TRANSPORT NETWORKS AND MAIN LINKS IN THE BENEFICIARY COUNTRIES ...... 7 1.1 OVERVIEW OF THE OVERALL TRACECA CORRIDOR AND RELATED TRANSPORT NETWORKS ...... 7 1.2 OVERVIEW AND GENERAL CHARACTERISATION OF THE TRACECA ROAD NETWORK ...... 10 1.3 OVERVIEW AND GENERAL CHARACTERISATION OF THE TRACECA RAILWAY NETWORK ...... 16 1.4 OVERVIEW OF THE TRACECA PORTS AND MARITIME NETWORK ...... 17 1.5 OVERVIEW OF RELEVANT LOGISTICS HUBS IN THE TRACECA NETWORK ...... 21 2 INTERNATIONAL AND DOMESTIC CARGO FLOWS ...... 27 2.1 FOREIGN TRADE OF BENEFICIARY COUNTRIES ...... 27 2.2 COUNTRY ANALYSIS OF FOREIGN TRADE PATTERNS ...... 36 2.2.1 General remarks on data ...... 36 2.2.2 Foreign Trade of Armenia ...... 36 2.2.3 Foreign Trade of Azerbaijan ...... 41 2.2.4 Foreign Trade of Georgia ...... 43 2.2.5 Foreign Trade of Moldova ...... 45 2.2.6 Foreign Trade of Ukraine ...... 46 2.3 CARGO FLOWS IN THE BENEFICIARY COUNTRIES ...... 48 2.3.1 Armenia - transport and logistics sector ...... 48 2.3.2 Azerbaijan - transport and logistics sector ...... 50 2.3.3 Bulgaria - transport and logistics sector ...... 51 2.3.4 Georgia - transport and logistics sector ...... 51 2.3.5 Moldova - transport and logistics sector ...... 53 2.3.6 Romania - transport and logistics sector ...... 54 2.3.7 Turkey - transport and logistics sector ...... 55 2.3.8 Ukraine - transport and logistics sector ...... 57 2.4 GENERAL REMARKS ON THE IMPACTS OF THE FINANCIAL CRISIS ...... 61 2.4.1 Expected growth rates before economic downfall ...... 61 2.4.2 Discontinuity in business and traffic development ...... 62 2.4.3 Determinants of Future Traffic ...... 63 2.4.4 Scenarios ...... 64 3 OVERVIEW OF CARGO FLOWS BETWEEN MAIN LOGISTICS HUBS IN THE BENEFICIARY COUNTRIES ...... 67 3.1 CARGO FLOWS DATA ...... 67 3.2 CARGO FLOWS ON MAIN MARITIME TRANSPORT LINKS ...... 67 3.3 CARGO FLOWS AT MAIN AIRPORTS...... 73 4 REFERENCES ...... 75 5 APPENDIX ...... 77

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LIST OF FIGURES

Figure 1: TRACECA area and TRACECA transport networks ...... 7 Figure 2: Map on beneficiary countries ...... 9 Figure 3: TRACECA road corridors, TEN road corridors and E-roads in beneficiary countries ...... 10 Figure 4: E-road census 2000 – Number of lanes ...... 11 Figure 5: E-road census 2000 – Average design speeds ...... 12 Figure 6: Annual average daily traffic (AAD)...... 15 Figure 7: Percentage of heavy motor vehicles...... 15 Figure 8: TRACECA rail corridors and TEN rail corridors in beneficiary countries ...... 16 Figure 9: Length and density of railways in beneficiary countries ...... 17 Figure 10: TRACECA ports, Black Sea ferry connections and navigable inland waterways in beneficiary countries ...... 18 Figure 11: Ferry connections in the Black Sea ...... 19 Figure 12: Main cargo seaports and river ports in Ukraine ...... 21 Figure 13: Freight villages and airports in beneficiary countries ...... 22 Figure 14: Ukrainian port activities 2008 ...... 23 Figure 15: Port of Odessa: Handling of containers ...... 23 Figure 16: Container Revenues in Georgian Ports 2004-2008...... 24 Figure 17: Cargo Traffic by Type of Cargo in the Poti Port 2004-2008 ...... 24 Figure 18: Port of Constanta, Romania – main cargo handling indicators ...... 25 Figure 19: Ports of Bulgaria – main cargo handling indicators ...... 25 Figure 20: Port of Varna, Bulgaria – main cargo handling indicators ...... 25 Figure 21: Destination of exports from beneficiary countries 2006 ...... 28 Figure 22: External Trade EU27 with TRACECA Beneficiary Countries: Development in 2008 (tons, Jan 08 = 100) ...... 29 Figure 23: External Trade EU27 with TRACECA Beneficiary Countries: Development in 2008 (Euros, Jan 08 = 100) ...... 30 Figure 24: Exports and imports EU27 – beneficiary countries, 2005-2008 (in tons, 2005=100) ...... 31 Figure 25: Trade Flows between Beneficiary countries and EU27 countries by mode (2008, in 1,000 tons) ...... 32 Figure 26: Main trade partners of Armenia 2007 ...... 36 Figure 27: Exports of Armenia to countries in Black Sea region 2007 ...... 37 Figure 28: Imports of Armenia from countries in Black Sea region ...... 37 Figure 29: Armenia: Exports, imports and trade balance 2003-2007 (by quarters, mln US $) (Statistical Yearbook of Armenia, 2008) ...... 38 Figure 30: Armenia: Exports by commodity groups 2003-2007 (m US-$) ...... 39 Figure 31: Armenia: Imports by commodity groups 2003-2007 (m US-$) ...... 40 Figure 32: Armenia: Imports and exports to CIS countries (%) (2005-2007) ...... 40 Figure 33: Armenia – Rail cargo transport: share of commodity groups ...... 41 Figure 34: Main trade partners of Azerbaijan, 2008 ...... 41 Figure 35: Azerbaijan: Exports to neighbouring countries 2007 ...... 42 Figure 36: Azerbaijan: Imports from neighbouring countries 2007 ...... 42 Figure 37: Azerbaijan: Imports and exports by commodity groups, 2007 ...... 43 Figure 38: Main trade partners of Georgia, 2008 ...... 43 Figure 39: Georgia: Exports to neighbouring countries 2007 ...... 44 Figure 40: Georgia: Imports from neighbouring countries 2007 ...... 44 Figure 41: Main trade partners of Moldova, 2008 ...... 45 Figure 42: Moldova: exports of goods 2008 to neighbouring countries (in thsd US-$) ...... 45 Figure 43: Moldova: imports of goods 2008 from neighbouring countries (in thsd US-$) ...... 46 Figure 44: EU27 Merchandise trade with Moldova by product (2007) ...... 46 Figure 45: Main trade partners of Ukraine, 2008 ...... 47 Figure 46: Ukrainian exports of goods 2008 to neighbouring countries (in thsd US-$) ...... 47 Figure 47: Ukrainian imports of goods 2008 from neighbouring countries (in thsd US-$) ...... 47 Figure 48: EU27 merchandise trade with Ukraine by product (2007) ...... 48 Figure 49: Transport network in Armenia ...... 49

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Figure 50: Armenia: Cargo transported by mode 2003-2007 ...... 49 Figure 51: Share of commodity groups on rail cargo transport...... 50 Figure 52: Transport network in Azerbaijan ...... 50 Figure 53: Transport network in Bulgaria ...... 51 Figure 54: Transport network in Georgia ...... 52 Figure 55: Georgia: Freight turnover by mode 1996-2007 ...... 52 Figure 56: Truck Movement in Export, Import and Transit in 2008 ...... 53 Figure 57: Railway Cross-Border Transportation in 2004-2008 ...... 53 Figure 58: Transport network in Moldova ...... 54 Figure 59: Transport network in Romania ...... 55 Figure 60: Transport network in Turkey ...... 55 Figure 61: Annual daily traffic on Turkish road network 2004 ...... 56 Figure 62: Turkish rail freight traffic flows, 2004 ...... 56 Figure 63: Transport network in Ukraine ...... 58 Figure 64: Ukraine: Cargo transported by mode 2000-2007 ...... 59 Figure 65: Ukraine: Cargo transported by mode 1980-2007 (indexed at 1996) ...... 60 Figure 66: Structure of transit transportation in Ukraine ...... 60 Figure 67: GDP growth and air cargo growth rates 1987-2007 ...... 61 Figure 68: Annual average growth rates of GDP, productivity and employed people in 2006 – 2030, percent/year ...... 62 Figure 69: Three scenarios about future economic developments: (a) high/optimistic (top), (b) medium/neutral (middle), (c) low/pessimistic...... 65 Figure 70: Container ports in Black Sea Region: container turnover and capacities 2007 ...... 68 Figure 71: Black Sea region: Container turnover 2007 at main container ports ...... 69 Figure 72: Black Sea region: development of container handling volumes ...... 70 Figure 73: Container throughput in Ukraine: Forecasts capacities vs. demand ...... 72 Figure 74: Container throughput in Black Sea ports: Forecasts capacities vs. demand ...... 72 Figure 75: Total cargo turnover at airports in beneficiary countries (in tonnes, most recent year) ...... 73 Figure 76: Airport cargo turnover: development 1998-2008 ...... 74 Figure 77: Share of exports going from TRACECA countries to EU15, CIS and other countries in 2006 . 78

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LIST OF TABLES

Table 1: Basic economic features of the beneficiary countries 2006 ...... 8 Table 2: Length of E-roads by type of road 1995-2000 (km) ...... 13 Table 3: Length of E-road sections by average annual daily traffic (AADT) 1995-2000 (km) ...... 14 Table 4. List of TRACECA ports in beneficiary countries ...... 17 Table 5: Ferry connections in the Black Sea region ...... 20 Table 6: Trade Volume of beneficiary countries 2006 [m US$] ...... 27 Table 7: Export rates: value of exports in % of GDP 2002 – 2006 ...... 28 Table 8: External Trade EU27 with TRACECA Beneficiary Countries: Development in 2008 (in 1,000 tons) ...... 29 Table 9: External Trade EU27 with TRACECA Beneficiary Countries: Development in 2008 (in m EUR) ...... 29 Table 10: Total exports and imports from EU27 to TRACECA beneficiary countries (tons, all modes of transport) ...... 31 Table 11: Trade Ukraine and Turkey with neighbouring EU27 countries 2005-2008 (tons) ...... 34 Table 12: Trade Ukraine and Turkey with neighbouring EU27 countries 2005-2008: modal split (% of modes on trade) ...... 35 Table 13: Transport volumes in Turkish port regions, 2004 ...... 57 Table 14: Container turnover and capacities in main Black Sea region ports 2007 and in future ...... 71 Table 15: Forecast Container Throughput Capacity in Ukraine in TEU (Source: HPC, 2008b) ...... 71 Table 16: Exports from TRACECA countries in 2006 [million US$] ...... 77 Table 17: Exports and imports of Ukraine in 2008 by continent and by selected countries ...... 78 Table 18: Main trade partner of Azerbaijan 2007 (imports, exports; in thsd. US-$) ...... 80 Table 19: Armenia – Exports and Imports (in 1,000 US-$) ...... 81 Table 20: Foreign trade of Moldova (Exports/imports), 2005-2007 ...... 82 Table 21: Growth rates of GDP, productivity and employed people (%/year) ...... 83 Table 22: Nominal GDP in 2007-2030 when EU27 = 10000 in 2007 and purchasing power parity (PPP) GDP in 2007 when EU27 = 10000 and (PPP) GDP per capita in 2007 when EU27 = 1000 in 2007 ...... 85 Table 23: Export forecasts ...... 85 Table 24: Exports by country/country group as a percentage of whole export ...... 87

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1 TRANSPORT NETWORKS AND MAIN LINKS IN THE BENEFICIARY COUNTRIES 1.1 Overview of the Overall TRACECA Corridor and Related Transport Networks Developing transport is of vital importance for the countries of the Caucasus and Central Asia region interested in exporting or importing goods at the lowest possible costs, and for countries seeking access to the international markets. International trade relations are not conceivable without transport components. The extension of Trans-European Transport Networks to neighbouring countries is one of the objectives set out in the recent Communication of the European Commission (2007). The development of Trans-Asian transport networks that include the combined use of railways, roads, inland waterways, maritime shipping and aviation through the TRACECA Program is responding to that objective. TRACECA In order to facilitate trade and transport in the region and to integrate the Caucasus & Black Sea region into the World economy, it is necessary to organise the movement of non-oil cargo from Asia via the Caucasus to Europe in a more efficient manner. The recognition of priority links (rail, road, sea) and strategic intermodal logistic nodes, organised as a consistent network will serve as an important precondition for the optimisation of cargo flows (import, export, transit) and will contribute to the integration process of the local transport network and its connection to the PAN-TC. TRACECA consists of multi-modal corridors and the participating countries are committed to the optimal development of sound and reliable transportation chains (see Figure 1). In the TRACECA Long-Term Strategy up to 2010, an emphasis is given to ensuring the smooth and uninterrupted flow of freight in the region, across the different modes of transport and across the different countries. Figure 1: TRACECA area and TRACECA transport networks

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Currently, new roads and railways are being built along the whole length of the TRACECA corridor. New bridges, ports and other transport infrastructure are being constructed, accompanied by simultaneous rehabilitation of the existing roads and railways, as well as bridges and ports. Corresponding unified regulatory basis and tariff rules are being developed. TRACECA countries join the international conventions and agreements. Transport infrastructure necessary for the development of multimodal transport is being established supported by adequate capacity building required for professional international transportation. In the countries of this project, new rail links are being constructed or are planned (Georgia- Turkey, Armenia-Turkey, tunnel crossing the Bosporus, etc.), port development projects are under way (Azerbaijan, Georgia, Moldova), TRACECA road corridors are being upgraded in all countries. This project is confined to the following direct beneficiary countries, as given in Figure 2: • Armenia, • Azerbaijan, • Georgia, • Moldova, • Ukraine, and to indirect beneficiaries • Bulgaria, • Romania and • Turkey. Table 1 gives an overview on the basic economic feature of the beneficiary countries. The largest economy is Turkey with a GDP of 350m US$, followed by Romania and Ukraine. at the end of the scale are Armenia and Moldova. However, it has to be mentioned, that exchange rates are distorting the picture severely. Therefore, the per capita GDP was ppp adjusted. Bulgaria is the wealthiest country followed by Turkey, Romania and Ukraine, poorest country is Azerbaijan with only 526 $/Inhabitant. Table 1: Basic economic features of the beneficiary countries 2006 GDP GDP/Capita Share on GDP ppp [m US$] nominal Agriculture Industry Services weighted Armenia 3.582 1.203 4.931 24% 35% 41% Azerbaijan 12.872 1.616 526 n.a. n.a. n.a. Bulgaria 33.571 4.545 11.538 9% 31% 60% Georgia 5.971 128 3.655 17% 30% 54% Moldova 2.694 603 1.876 21% 24% 55% Romania 81.476 3.653 8.841 10% 36% 54% Turkey 353.782 5.041 9.034 11% 30% 58% Ukraine 77.829 1.666 8.175 8% 46% 35% Another important indicator is how the GDP is produced. Armenia and Moldova still have a large share of agricultural production amounting to more than 1/5 of GDP. In industrialised countries this value is below 5%. Industrialisation is highest in Ukraine at 46%. The service sector is most developed in Bulgaria, closely followed by Turkey. Ukraine has the lowest share of services on GDP.

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Figure 2: Map on beneficiary countries

From 2000 to 2007 the average annual growth rates of GDP ranged between 12% for Armenia and Azerbaijan and 5% in Romania, Bulgaria and Turkey. Assuming returning to similar growth rates (well above the average European level) in the future – after the present financial crisis, which is discussed later in the text - the GDP would double every seven to 14 years. This implies that demands for goods, especially from highly industrialised countries, as well as exports would grow at the same speed. This necessitates improvements in the logistic transport systems of these countries.

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1.2 Overview and General Characterisation of the TRACECA Road Network Figure 3 gives an overview on the road networks relevant for this project. In the Caucasus countries, TRACECA corridors are covering the main network, which is complemented by a smaller number of E-Roads. In Turkey and Ukraine the TRACECA roads are confined to major transport corridors and thus comprise only a small share of the national road networks. This implies as well, that the capital cities of these countries, Kiev and Ankara, are not connected to the TRACECA network. Additionally, some direct links to the TEN networks are missing: Turkey - Bulgaria, Turkey -Greece, Ukraine -Romania. Network densities in Bulgaria and Romania, consisting mainly of TEN roads, are much higher than in the remaining countries. Figure 3: TRACECA road corridors, TEN road corridors and E-roads in beneficiary countries

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The following figures (Figure 4 to Figure 7) and tables (Table 2 and Table 3) are based on UN- ECE database values for the year 2000. The consultants are aware that this base year will not in all cases be accurate for the situation in 2009, as development has happened since then. UN- ECE point out, that the data for 2005 are in preparation; but until now they have not been published. With reservation due to this fact, the following figures and tables shall give an overview on situation and development on the road infrastructure and use in the beneficiary countries in the past. As soon as more up to date data are available from UN-ECE or other sources, they will replace the old ones. The TRACECA corridors in Turkey and Ukraine are mostly identical with E-Roads, with the exception of a section of the D10 road along the Black Sea in Turkey. This holds not true for the Caucasus, where TRACEA corridors form a denser network than the E-roads. The quality of the E-road network is – compared to central European standards – low. Only a few sections are built with more than one lane per direction (see Figure 4). These sections are mainly located around metropolitan areas (e.g. Kiev, Bucharest, Sofia, Istanbul, Ankara). A similar situation appears with the average design speeds (see Figure 5). Except Turkey, where the design speeds vary between 81 and 120 km/h, the design speeds mainly are between 51 and 80 km/h. Figure 4: E-road census 2000 – Number of lanes

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Figure 5: E-road census 2000 – Average design speeds

Table 2 shows the length of the E-Roads in the project countries in 1995 and 2000. The overall length increases during this period by 25% from 19,924 km to 24,924 km. The largest increase was registered in Ukraine, where the network more than doubled. One third of the road network is located in Ukraine, followed by Turkey (29%) and Romania (22%), while Armenia and Georgia only contribute little to the whole network. Since motorways and express roads only comprise to 2% the network, the biggest parts of the road network are Normal Roads, which are mostly two lanes. This explains the fact - as depicted in Table 3 - that traffic volumes on these roads are fairly low. In Armenia and Georgia, none of the roads registers traffic volumes higher than 10,000 vehicles per day. In Bulgaria 10% of the network carries more than 10,000 vehicles, followed by Romania, where this share amounts to 12% and Ukraine with 14%. The highest traffic volumes can be found in Turkey, where 15% of the road network carries more than 10,000 vehicles. This is the only country where traffic volumes above 50,000 vehicles per day may be observed. It can be assumed, that the low capacity utilisation on the E-Roads may be observed on the remaining parts of the road networks as well.

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Table 2: Length of E-roads by type of road 1995-2000 (km)

E ROADS Armenia Bulgaria Georgia Romania Turkey Ukraine ROUTES E 1995 2000 1995 2000 1995 2000 1995 2000 1995 2000 1995 2000 1. All E Roads 430 430 2574 2579 1045 1045 4682.2 5586. 7698 7126 3495 8158 (126) (131) 2 Of which since 1995 have become motorways1 431 4722 By number of lanes Normal road 2258 2231 4586.7 5490. 3495 8158 (79) (83) 7 - With 1 lane - - - - With 2 lanes 1852 1810 1038 1038 3947.1 4706. 6520 5401 2400 7297 (52) (52) 8 - With 3 lanes 136.0 142.1 127.4 145.9 - 179 327 (11) (11.3) - With 4 lanes 430 430 248.1 256.3 7 7 512.2 638.0 406 408 761 149 (15.9) (15.9) - With 5 lanes and 2.64 3.59 - - 108 23 - over - unknown 19.8 19.2 - - - 132 385 Express road 23 29 - With 1 lane - - - - With 2 lanes - - 11 11 - With 3 lanes - - - - With 4 lanes - - 12 18 - With 5 lanes and - - - over - unknown - - - Motorway 315.5 347.9 95.5 95.5 749 1180 0 0 (47.5) (47.9) - With 2 lanes 17 17 95.5 95.5 131 139 - With 3 lanes - - 618 995 - With 4 lanes 279 308.1 - - 46 (38.8) (38.8) - With 5 lanes and 19.5 22.7 - - - over (8.7) (9.1) - unknown - - - Source: UN-ECE (2003), UN-ECE does not provide information on Moldavia and Azerbaijan

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Table 3: Length of E-road sections by average annual daily traffic (AADT) 1995-2000 (km) Average Annual Daily Traffic Length of road section (km) (AADT) Armenia Bulgaria Georgia Romania Turkey Ukraine 1995 2000 1995 2000 1995 2000 1995 2000 1995 2000 1995 2000 1 Up to 999 60.0 162.9 135.8 381.0 353.0 39.0 6.2 802 186 - 12 2 1 000 - 1 999 110.0 62.1 128.3 130.0 127.0 284.6 362.4 1328 852 - 481.9 3 2 000 - 3 999 135.0 520.2 720.2 405.0 322.0 1286.2 1777.3 2353 2105 378.7 1891.8 4 4 000 - 5 999 85.0 615.0 518.2 28.0 142.0 1234.0 1317.1 1111 1342 523.5 1854 5 6 000 - 9 999 40.0 521.9 501.2 75.0 75.0 986.1 1467.9 1409 1546 1302.9 2418.8 6 10 000 - 14 215.2 176.314.0 14.0 387.8 408.6 396 548 960.7 763.8 999 7 15 000 - 19 31.7 64.5 94.2 157.3 127 198 155.9336 999 8 20 000 - 24 8.4 22.1 29.1 61.5 17 122 41 15 999 9 25 000 - 29 12.4 - 11.971 46 - 999 10 30 000 - 39 - - 15 22 - 999 11 40 000 - 49 - 16.027 60 - 999 12 50 000 - 59 20 33 - 999 13 60 000 - 79 - 26 - 999 14 80 000 - 99 - - - 999 15 100 000 - 119 999 21 18 - 16 120 000 - 149 999 1 - - 17 150 000 and over - 22 - 18 Unknown 424.9 312.5 341.2 - - - 132 384.8 19 TOTAL 430.0 2573.7 2579.2 1033.0 1033.0 4682.2 5586.2 7698 7126 3494.7 8158.1 1/ Unknown Road sections where no counts were taken (such as in built-up and peripheral urban areas) are inserted under "unknown" in this table. However, where countries have established counts covering the total E Road network, including in these areas, the total of these figures are given. In both case the totals of tables No.1 and No.2 coincide. Source: UN-ECE (2003) Traffic volumes in the beneficiary countries are mainly low, especially in rural areas. Around agglomerations however, volumes increase. In general, the predominant part (50 – 70%) of the traffic is caused by heavy vehicles especially in Ukraine, Turkey and Bulgaria. This share is higher than in other EU27 countries (e.g. Poland, Hungary).

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Figure 6: Annual average daily traffic (AAD)

Figure 7: Percentage of heavy motor vehicles

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1.3 Overview and General Characterisation of the TRACECA Railway Network The rail networks of the TRACECA countries are depicted in Figure 8. Generally, TRACECA railways only comprise a share of the total network. In Caucasus, Moldavia and Turkey, TRACECA railways constitute the backbone of the national railway system. E.g. in Turkey the only East-West corridor is a TRACEA railway. In Ukraine only one corridor passes through the country and it does not connect to the capital Kiev. The density of the network is generally much lower than the TEN networks of Rumania and Bulgaria. Border crossing connections are missing from Turkey to Bulgaria and Greece, from Armenia to Turkey and Azerbaijan. Figure 8: TRACECA rail corridors and TEN rail corridors in beneficiary countries

Railway length and density of the beneficiary countries is given in Figure 9. The longest networks may be found in the large countries of Ukraine, Romania and Turkey. Highest

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International Logistics Centres for Western NIS and the Caucasus densities are as well in Ukraine and Romania, followed by Bulgaria, Moldova and Armenia. However, these data give no indication about the quality and the maintenance condition of the network. Figure 9: Length and density of railways in beneficiary countries

1.4 Overview of the TRACECA Ports and Maritime Network Table 4 and Figure 10 provide an overview on the maritime ports in the TRACECA countries that are well covering the coastline around the Black Sea. Between the ports, numerous ferry lines are regularly operating. However, it has to be mentioned that inland water ports are not included in TRACECA. High potentials for inland water shipping can be assumed in Ukraine on the Dnepr and in Bulgaria and Romania along the Danube. Table 4. List of TRACECA ports in beneficiary countries Name COUNTRY Baku AZ Burgas BL Varna BL Batumi GE Poti GE Constantsa RO Istanbul TR Samsun TR Ilyichevsk UA Odessa UA Tekirdak TYR Bandirma TYR Giurgiulesti MD

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Figure 10: TRACECA ports, Black Sea ferry connections and navigable inland waterways in beneficiary countries

Figure 11 and Table 5 show the ferry connections in the black sea, their destinations and frequencies. Noticeable is a concentration in the western part. From Turkey, the connections comprise only Ukraine and Russia, but no other TRACECA countries. From Ukraine connections operate to all other black sea countries. There is only one connection between Ukraine and Russia (between Chushka and Kerch), which is a local ferry connection operated several times a day.

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The connections are mainly operated once a week. The Russian connections from Novorossysk operate less than once a week; the connections between Sochi and Georgia/Turkey operate more frequent (several connections per week). Information on capacity utilisation of the ferries is not available. Figure 11: Ferry connections in the Black Sea

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Table 5: Ferry connections in the Black Sea region Travel time Operation Origin Destination Frequency Ferry type (hours) months Turkey - Ukraine Eupatoria Istanbul 11 1/w 1-12 CF (Crimea) Derince Ilichevsk 36 1/w 1-12 RP Istanbul Kherson 32 1/w 1-12 CF Istanbul Odessa 35 1/w 1-12 CF Sevastopol Istanbul 32 1/w 1-12 CF (Crimea) Istanbul Yalta (Crimea) 32 1/w 1-12 CF Turkey - Russia Istanbul Sochi 45 1/w 1-12 CF Trabzon Sochi 11-12 2/w 1-12 CF Georgia - Russia Poti Novorossiysk 24 3-4/m 1-12 F Batumi Sochi 6 1-3/w 1-12 FF / CF Poti Sochi 4,5 1-3/w 1-12 FF / CF Georgia -Ukraine Batumi Ilichevsk 44 1/w 1-12 RP Poti Ilichevsk 41 1/w 1-12 RP / F Georgia- Bulgaria Poti Burgas 48 3-4/m 1-12 F Poti Varna 96 1/w 1-12 F Russia – Ukraine Kavkaz Kerch (Crimea) 0.5 4-8/d 1-12 CF Bulgaria – Ukraine Varna Ilichevsk 18-20 1/w 1-12 F / RP Varna Odessa 9 1/w 6-9 FF Bulgaria – Romania Varna Constanta 4 1/w 6-9 FF Romania - Ukraine Constanta Odessa 6 1/w 6-9 FF Notes: F = Freight ferry with limited cabin space; FF = Fast ferry, CF = car ferry, RP = RoPax combined ferry, Source: Ferrylines.com (2009). Figure 12 shows the main cargo sea and inland ports as well as the navigable waterways of Ukraine, where the main 7 cargo sea ports and 15 inland water harbours are operating. The small waterway in the south is a section of the Danube Waterway System that connects the Rhine with the Black Sea.

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Figure 12: Main cargo seaports and river ports in Ukraine

1.5 Overview of Relevant Logistics Hubs in the TRACECA Network Freight Villages (logistic freight centres), airports and other logistic hubs are depicted on the map in Figure 13. Generally, the distribution of the airports gives an impression of a spatial equilibrium. However, not all of the airports listed may serve as freight logistic hubs, since some of them have no freight handling capacities. Freight Villages seem to be concentrated in Bulgaria. This might be due to fact, that up to date the information on Freight Villages in the beneficiary countries is incomplete. During the short period of Phase 1, it was not possible to verify this issue. Data shall be updated during Phase 2 of the project.

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Figure 13: Freight villages and airports in beneficiary countries

All 19 Ukrainian sea ports on the Black and Azov Seas play a significant role in the regional transport structure. Their total throughput is almost equal to the total throughput of the rest ports of the Black-Azov seas region. The port activities in Ukraine are described in Figure 14, with Odessa being the largest harbour with an annual turnover of some 35m tons. Odessa is followed by Yuzhny and Ilichevsk. However, the remaining ports have a total turnover of some 60m tons, which is nearly double the volume of Odessa. If the development of ports is regarded, an enormous growth took place in the last years. Seven ports increased turnover by more than 10% p.a., and three were above 20%. If this development would continue, where turnover doubles in less than four years, the ports would reach their capacity limits in the near future.

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Figure 14: Ukrainian port activities 2008

Figure 15 shows that the turnover of containers in the port has exploded in the past years. Between 2002 and 2006 annual growth rate amounted to more than 40%. Figure 15: Port of Odessa: Handling of containers

The graphs Figure 16 and Figure 17 show the activities of the Georgian ports Poti and Batumi. Cargo traffic increased considerably, while containers have nearly tripled since 2004.

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Figure 16: Container Revenues in Georgian Ports 2004-2008

Figure 17: Cargo Traffic by Type of Cargo in the Poti Port 2004-2008

Port of Constanta had a peak in ship movements and total cargo in 2005, and was able to reach this level again in 2008 (Figure 18). The increase in container handled was about 500% between 2003 and 2008. The absolute figure is about ten times higher than Varna. Figure 19 shows the activities of the Bulgarian ports Burgas and Varna. Container movements increased in both ports, whereas ship movements were stable and total cargo decreased in Burgas and increased in Varna. Figure 20 shows the development of the port of Varna from 1999 to 2008. Whereas the ship movements and total cargo saw a peak in 2004/05 like Constanta, there is a constant decline since then. The number of containers handled increased continuously with a sharp rise in 2008.

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Figure 18: Port of Constanta, Romania – main cargo handling indicators

Figure 19: Ports of Bulgaria – main cargo handling indicators

Figure 20: Port of Varna, Bulgaria – main cargo handling indicators

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2 INTERNATIONAL AND DOMESTIC CARGO FLOWS

2.1 Foreign Trade of Beneficiary Countries The total trade volume of beneficiary countries amounted to 404 bn US$ in 20061 (see Table 6). 46% is traded by Turkey, 22% by Ukraine and 18% by Romania. With the exception of Turkey and Ukraine, the export - import ratio is negative, i.e. the countries are importing more than they are exporting. Table 6: Trade Volume of beneficiary countries 2006 [m US$] Exports Imports Total Share Armenia 830 1,620 2,450 1% Azerbaijan 7,650 5,458 13,108 3% Bulgaria 14,060 16,460 30,520 8% Georgia 1,822 2,870 4,692 1% Moldova 1,070 2,414 3,484 1% Romania 32,470 42,040 74,510 18% Turkey 77,530 108,400 185,930 46% Ukraine 45,740 44,350 90,090 22% Total 181,172 223,612 404,784 As depicted in Figure 21, 43% of the exports from beneficiary countries have EU15 countries as a destination and 13% are directed towards CIS countries (former USSR). If single countries are regarded, the EU share varies between 58% for Romania and 17% for Ukraine and Georgia. Exports to CIS fluctuate between 40% for Georgia and Moldova and 4-5% for Bulgaria and Romania. Georgia, Moldova and Ukraine trade more with CIS countries than with EU15 countries. More data are given in the Annex.

1 As not all data are available for 2007 or 2008, it was decided to show the 2006 values in order to ensure comparability between the countries.

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Figure 21: Destination of exports from beneficiary countries 2006

The export orientation of the beneficiary countries is given in Table 7, described by the ratio of export values compared to GDP. In 2006, Bulgaria, Moldova and Ukraine had the strongest export orientation. However, strong fluctuations, especially for Moldova distort the picture. Table 7: Export rates: value of exports in % of GDP 2002 – 2006 2002 2003 2004 2005 2006 Armenia 21 24 15 15 13 Azerbaijan 35 26 28 20 34 Bulgaria 33 33 37 40 59 Georgia 10 12 12 14 16 Moldova 39 40 38 37 60 Romania 30 30 31 28 36 Turkey 18 19 20 19 25 Ukraine 41 45 50 41 51 TRACECA * 31 31 30 29 37 * = Average of TRACECA countries Source: World Economic Factbook 2007 (Euromonitor International) As mentioned above, the European Union is the most important trading partner for the beneficiary countries. From January to November 2008, the trade volume between EU27 and the beneficiary countries amounted to 76 million tons. The largest trade partner was the Ukraine, which amounted to 70% of the total volume, followed by Azerbaijan with roughly one quarter of the weight traded. Georgia and Moldova both amount to 2.5% and Armenia 0.2%. Trade patterns show strong seasonal fluctuations, with a considerable increase in the beginning of the year and a massive decrease in August, which again was compensated to November.

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Table 8: External Trade EU27 with TRACECA Beneficiary Countries: Development in 2008 (in 1,000 tons) EU27 Country Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov ARMENIA 11,31 13,96 13,74 16,59 14,81 11,87 16,10 9,64 12,54 22,14 12,82 AZERBAIJAN 2046,70 1898,97 2265,61 1903,57 1845,86 1670,70 2397,39 1320,39 1321,36 985,50 1191,54 GEORGIA 140,48 183,02 188,71 219,31 99,50 207,62 223,45 56,94 192,24 228,40 193,16 MOLDOVA 104,66 144,73 165,21 173,85 175,45 157,76 151,03 174,51 187,67 196,46 156,30 UKRAINE 4571,16 3723,55 4720,44 5185,37 4964,10 5030,66 4989,21 5163,54 4912,34 5526,13 4088,06

Figure 22: External Trade EU27 with TRACECA Beneficiary Countries: Development in 2008 (tons, Jan 08 = 100)

The above trade volumes of EU27 with the beneficiary countries, listed in Table 9, amounted to 54 bn Euro in the fist 11 months of 2008. 68% of the value was traded with the Ukraine, followed by 22% with Azerbaijan, while the remaining countries prevail below 5%. Again, a similar annual fluctuation of the trade values was observed as given in Figure 23. Table 9: External Trade EU27 with TRACECA Beneficiary Countries: Development in 2008 (in m EUR)

EU27 Country Jan Feb Mar Apr May Jun July Aug Sept October November ARMENIA 70.2 81.1 63.0 86.7 102.1 73.6 82.1 75.5 92.0 111.4 80.6 AZERBAIJAN 1,105.6 1,015.2 1,284.1 1,135.3 1,163.2 1,185.1 1,737.6 1,100.3 946.6 691.4 651.7 GEORGIA 147.9 176.1 180.7 201.6 140.5 220.9 239.0 85.5 171.4 182.3 158.4 MOLDOVA 148.2 197.0 205.7 213.0 202.1 212.8 222.2 217.3 232.5 234.4 190.2 UKRAINE 2,656.0 3,112.73,268.8 3,489.6 3,340.8 3,633.0 3,890.6 3,509.4 3,806.5 3,646.3 2,759.4

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Figure 23: External Trade EU27 with TRACECA Beneficiary Countries: Development in 2008 (Euros, Jan 08 = 100)

Total imports to EU27 from the beneficiary countries (Table 10) amounted to 63m tons in 2008, of which 68% stemmed from Ukraine and 29% from Azerbaijan. These goods were transported by all modes. Total exports from EU27 to the beneficiary countries amounted to only 12 m tons in 2008, of which 82% are destined Ukraine, while the remaining countries ranged below 10%. The large difference of exports and imports may be explained by the large share of fuels and gas exported from Ukraine and Azebaijan. These countries have a surplus of exports compared to imports, while Moldova and Armenia have negative ratios. The trade imbalance might entail a larger share of empty cargo trips. Georgia shows a mixed balance since 2005. The trade volume developed very positive since 2005, with total EU27 exports increasing by 50%. Figure 24 shows that EU imports from Ukraine were increasing strongest at 70%, while the other countries registered only a slight increase in tonnage. EU exports to the beneficiary countries increased as well at 20%, with Azerbaijan and Georgia doubling their trade volumes.

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Table 10: Total exports and imports from EU27 to TRACECA beneficiary countries (tons, all modes of transport) Country 2005 2006 2007 2008 Exports from EU27 to ARMENIA 112020 126374 155434 127935 AZERBAIJAN 325588 326251 261990 308896 GEORGIA 762019 873476 844544 772823 MOLDOVA 945574 976706 1052996 1032014 UKRAINE 5956648 8131140 9513764 10177848 Imports to EU27 from ARMENIA 29509 39873 50261 27577 AZERBAIJAN 7497508 12964491 18095233 18538697 GEORGIA 576764 934313 700225 1159999 MOLDOVA 539538 648918 901260 755619 UKRAINE 44169267 45161749 48081630 42696713 Figure 24: Exports and imports EU27 – beneficiary countries, 2005-2008 (in tons, 2005=100)

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Bilateral trade flows between neighbouring countries are depicted in Figure 25. The biggest flows are exports from Ukraine to Poland, which are mainly done by rail (94%). Imports from Poland amount to less than half of export volumes. 59% of the volume is transported by road and 41% by rail. The second biggest transport volumes are exports to Slovakia from Ukraine, which are predominantly done by rail. Rail transport is the most important mode for the given trade relations while maritime transport is of major importance for trade between Greece and Turkey. Figure 25: Trade Flows between Beneficiary countries and EU27 countries by mode (2008, in 1,000 tons)

Trade from Ukraine with neighbouring countries, as given in Table 11, amounted to 16m tons in 2008. Biggest trading partner was Poland, followed by Slovakia and Hungary. Trade Volume increased from 2005 to 2008 by 5%, with exports decreasing by -7% and imports increasing by remarkable 72%. However, in 2008 the volume of exports was three fold the import volume. This imbalance increases to more than 6 if only transport by rail is regarded. Rail exports to Slovenia exceed rail imports by the factor 11, which implies a large number of empty trips. For road modes the ratio is inverse and the imbalances are much smaller. In 2008, 79% of the tonnage was transported by rail and 19% by road (Table 12). The rail share of rail was highest

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International Logistics Centres for Western NIS and the Caucasus with Slovakia (92%) and lowest with Hungary (64%). Since 2005, rail transport carried the additional transport volume, while the share of road and sea was decreasing. For Turkey and Greece, listed in Table 11 as well, trade volume amounted to 2.6 m tons. Trade volume increased from 2005 by 4%, with imports from Greece decreasing by -46% and exports increasing by 63%. Again, in 2008 the volume of exports was 2.5 fold the import volume. The disequilibrium is enormous for road and rail where nearly nothing is imported. In 2008, 69% of the transport volume was transported by ship.

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Table 11: Trade Ukraine and Turkey with neighbouring EU27 countries 2005-2008 (tons)

Ukraine Exports to Imports from Total Change Change Change Country Mode 2005 2006 2007 2008 2005 2006 2007 2008 2005 2006 2007 2008 05-08 % 05-08 % 05-08 % Hungary Rail 1678046 1889617 845933 1153427 -31,3 89568 73199 72248 140119 56,4 1767614 1962816 918181 1293546 -26,8 Road 320436 319968 955036 198357 -38,1 192327 242772 302190 255274 32,7 512763 562740 1257226 453631 -11,5 All modes 2321004 2739145 2411943 1574531 -32,2 288046 364451 451535 459646 59,6 2609050 3103596 2863478 2034177 -22,0 Poland Sea 18930 6590 20468 20596 8,8 6091 5283 4207 3149 -48,3 25021 11873 24675 23745 -5,1 Rail 4794644 3738749 7247807 6849901 42,9 585511 1229014 1288788 1311189 123,9 5380155 4967763 8536595 8161090 51,7 Road 1538276 3191927 540341 429682 -72,1 1001716 1534757 1813260 1863597 86,0 2539992 4726684 2353601 2293279 -9,7 All modes 6353048 6937638 7809036 7307077 15,0 1642418 2867147 3183887 3239596 97,2 7995466 9804785 10992923 10546673 31,9 Slovakia Sea 15 408 274 24 60,0 293 2112 3096 1104 276,8 308 2520 3370 1128 266,2 Rail 4338547 4859304 4048396 3185812 -26,6 380156 332225 333628 287446 -24,4 4718703 5191529 4382024 3473258 -26,4 Road 81930 81573 93528 83528 2,0 137227 160679 173772 222398 62,1 219157 242252 267300 305926 39,6 All modes 4420503 4941573 4156584 3269618 -26,0 518653 496038 514091 512353 -1,2 4939156 5437611 4670675 3781971 -23,4

Turkey Exports to Imports from Total Change Change Change Country Mode 2005 2006 2007 2008 2005 2006 2007 2008 2005 2006 2007 2008 05-08 % 05-08 % 05-08 % Greece Sea 801840 1292736 1599428 1058549 32,0 1036789 1005638 752686 730160 -29,6 1838629 2298374 2352114 1788709 -2,7 Rail 1128 1335 2477 2161 91,6 3419 592 10 -99,7 4547 1927 2477 2161 -52,5 Road 332095 362641 433494 444275 33,8 304394 323732 140448 2068 -99,3 636489 686373 573942 444275 -30,2 All modes 1135446 1657000 2048094 1850054 62,9 1347126 1334279 895095 732238 -45,6 2482572 2991279 2943189 2582292 4,0

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Table 12: Trade Ukraine and Turkey with neighbouring EU27 countries 2005-2008: modal split (% of modes on trade)

Ukraine Exports to Imports from Total Change Change Change Country 2005 2006 2007 2008 2005 2006 2007 2008 2005 2006 2007 2008 05-08 % 05-08 % 05-08 % Hungary Rail 72,3 69,0 35,1 73,3 1,3 31,1 20,1 16,0 30,5 -2,0 67,7 63,2 32,1 63,6 -6,1 Road 13,8 11,7 39,6 12,6 -8,8 66,8 66,6 66,9 55,5 -16,8 19,7 18,1 43,9 22,3 13,5 other 13,9 19,3 25,3 14,1 1,8 2,1 13,3 17,1 14,0 554,6 12,6 18,6 24,0 14,1 12,0 modes Poland Sea 0,3 0,1 0,3 0,3 -5,4 0,4 0,2 0,1 0,1 -73,8 0,3 0,1 0,2 0,2 -28,1 Rail 75,5 53,9 92,8 93,7 24,2 35,6 42,9 40,5 40,5 13,5 67,3 50,7 77,7 77,4 15,0 Road 24,2 46,0 6,9 5,9 -75,7 61,0 53,5 57,0 57,5 -5,7 31,8 48,2 21,4 21,7 -31,6 All modes 0,0 0,0 0,0 0,1 400,6 3,0 3,4 2,4 1,9 -36,3 0,6 1,0 0,7 0,7 3,3 Slovakia Sea 0,0 0,0 0,0 0,0 116,3 0,1 0,4 0,6 0,2 281,4 0,0 0,0 0,1 0,0 378,3 Rail 98,1 98,3 97,4 97,4 -0,7 73,3 67,0 64,9 56,1 -23,5 95,5 95,5 93,8 91,8 -3,9 Road 1,9 1,7 2,3 2,6 37,8 26,5 32,4 33,8 43,4 64,1 4,4 4,5 5,7 8,1 82,3 All modes 0,0 0,0 0,3 0,0 3021,9 0,2 0,2 0,7 0,3 45,6 0,0 0,0 0,4 0,0 119,3

Turkey Exports to Imports from Total Change Change Change Country Mode 2005 2006 2007 2008 2005 2006 2007 2008 2005 2006 2007 2008 05-08 % 05-08 % 05-08 % Greece Sea 70,6 78,0 78,1 57,2 -19,0 77,0 75,4 84,1 99,7 29,6 74,1 76,8 79,9 69,3 -6,5 Rail 0,1 0,1 0,1 0,1 17,6 0,3 0,0 0,0 0,0 -99,5 0,2 0,1 0,1 0,1 -54,3 Road 29,2 21,9 21,2 24,0 -17,9 22,6 24,3 15,7 0,3 -98,8 25,6 22,9 19,5 17,2 -32,9 All modes 0 0 1 19 55195,4 0,2 0,3 0,2 0,0 -100,0 0,1 0,2 0,5 13,4 11380,6

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2.2 Country Analysis of Foreign Trade Patterns

2.2.1 General remarks on data To access required data needed for this project, the team investigated in three different directions: 1. To make use of the achievements of completed and on-going TRACECA and TACIS projects, especially the project "Analysis and forecasting of traffic flows for the TRACECA countries and interregional transport integration” (referred to as “Traffic flows project”). 2. To collect data from stakeholders during meetings and interviews and later on during follow-up. 3. To assess primary / empirical and secondary data publicly available. The efforts of the project team through the first two channels have not led to satisfactory results so far. The traffic flows project was up to date only able to provide preliminary data, which are presented in this report. Nevertheless, the consultants would expect that during the course of the project, the final outputs of the traffic flows project will be available and will provide the necessary input for this project. The second direction did show reasonable results, but mainly in qualitative data. The stakeholders that were contacted are willing to cooperate, but often need more time to deliver than that available in Phase 1. Besides that, the consultants spent reasonable effort in the third direction. The results are shown in the following sub-chapters and will be updated and complemented step by step during the course of the project according to availability of the outputs of the other projects or statistical databases.

2.2.2 Foreign Trade of Armenia The main trade partners of Armenia are shown in Figure 26. Again, as in Ukraine, Russia is the dominant trade partner. Germany comes after a large gap as second partner, followed by Ukraine, Belgium and China. The graph shows as well the large imbalance between imports and exports. The only exception are the Netherlands, where Armenian exports account for around 90% of the trade volume between the two countries. Figure 26: Main trade partners of Armenia 2007

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Figure 27 and Figure 28 show maps about the trade with neighbouring countries of Armenia. Most of the exports are destined to Russia, while the imports stem as well from other countries of the region. Trade with EU15, which amounts to a large share, is not depicted here. Figure 27: Exports of Armenia to countries in Black Sea region 2007

Figure 28: Imports of Armenia from countries in Black Sea region

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The Armenian foreign trade developed rapidly since 2003 as given in Figure 29. While the imports exploded during the period, exports could not hold pace and thus the trade deficit increased. Figure 29: Armenia: Exports, imports and trade balance 2003-2007 (by quarters, mln US $) (Statistical Yearbook of Armenia, 2008)

The export structure (Figure 30) is dominated by raw material and un- or semi-processed goods, such as non precious metal, mineral products and gems. The share of metals and food items increase in the past years steadily. The latter has large requirements on the logistic chains (cold chain) and thus on the logistic centres. The goods transported by the Armenian railways (Figure 33) are typical rail affine goods, such as building material, metal ore, with petrol and chemical produce only transported to a minor extent.

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Figure 30: Armenia: Exports by commodity groups 2003-2007 (m US-$)

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Figure 31: Armenia: Imports by commodity groups 2003-2007 (m US-$)

Figure 32: Armenia: Imports and exports to CIS countries (%) (2005-2007)

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Figure 33: Armenia – Rail cargo transport: share of commodity groups

2.2.3 Foreign Trade of Azerbaijan The main trade partners of Azerbaijan are shown in Figure 34. The three strongest trade ties from Azerbaijan are to Turkey, Russia and Italy. The relationships with a predominance of Export are to Italy, Iran, Israel and Georgia. Almost only imports originate from the United Kingdom, Germany and the Ukraine. Figure 34: Main trade partners of Azerbaijan, 2008

Trade Patterns for imports and exports of Azerbaijan to its neighbouring countries, given in Figure 35 and Figure 36, eflect these data. Main trading partners are Turkey, followed by Russia, Ukraine, Georgia and Iran. Trade with Armenia is practically inexistent.

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Figure 35: Azerbaijan: Exports to neighbouring countries 2007

Figure 36: Azerbaijan: Imports from neighbouring countries 2007

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Figure 37 shows, that Azerbaijan’s exports were dominated by mineral and chemistry products, which are shipped by tankers or pipelines. Thus, for the majority of exports Logistic Centres are not necessary. However, the imports have a large share of machinery, vehicles and electrical equipment and are thus much more relevant for this study. The figure explains as well, why Azerbaijan has unbalanced export/import ratios. Figure 37: Azerbaijan: Imports and exports by commodity groups, 2007

2.2.4 Foreign Trade of Georgia The main trade partners of Georgia are shown in Figure 38. In general, imports by far outweigh exports. The main trade partner is Turkey, followed by Ukraine, Russia, Azerbaijan, Germany and the USA. Export to Turkey, to the USA and to Azerbaijan is around the same level. Figure 38: Main trade partners of Georgia, 2008

Main cargo flows from Georgia are destined at the neighbouring countries Turkey, Ukraine, Russia and Azerbaijan (Figure 39 and Figure 40).

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Figure 39: Georgia: Exports to neighbouring countries 2007

Figure 40: Georgia: Imports from neighbouring countries 2007

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2.2.5 Foreign Trade of Moldova The main trade partners of Moldova are shown in Figure 41. Ukraine, Russia and Romania are the most dominant trade partners, followed by Italy and Germany. There is also an imbalance towards imports, but not as distinctive as in Georgia. Figure 41: Main trade partners of Moldova, 2008

Trade Patterns for imports and exports of Moldova with its neighbouring countries, given in Figure 42 and Figure 43 are fairly similar. Main trading partners are Russia, Ukraine and Rumania Figure 42: Moldova: exports of goods 2008 to neighbouring countries (in thsd US-$)

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Figure 43: Moldova: imports of goods 2008 from neighbouring countries (in thsd US-$)

Moldova’s commodity trade structure with EU27 is given in Figure 44. Exports from Europe are dominated by machinery, transport equipments and chemicals. Imports to Europe are textiles and agricultural produce. The large imbalance of exports and imports, already explained in Table 6, is visualised in this graph as well. Figure 44: EU27 Merchandise trade with Moldova by product (2007)

2.2.6 Foreign Trade of Ukraine The main trade partners of Ukraine are shown in Figure 45. Russia by far is the most dominant trade partner, with a volume of 35 bn US$, which equals the total of the five following countries altogether. Import and export from and to Russia are balanced, whereas imports from Turkmenistan, China, Germany and Poland outweigh exports to these countries. The only country in this list of 10 main trade partners with higher exports from Ukraine than imports is Turkey.

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Figure 45: Main trade partners of Ukraine, 2008

Figure 46 shows the export values 2008 from Ukraine to its neighbouring countries, which is still dominated by the historic relations to Russia, to where the largest share of the transport volume is transported. Second largest partner is Turkey, which is connected through maritime links on the Black Sea. The other neighbouring countries only contribute with a minor volume to total exports. Figure 46: Ukrainian exports of goods 2008 to neighbouring countries (in thsd US-$)

Figure 47 shows import values from Ukraine to his neighbouring countries. The patterns are similar to the exports, with the links to Russia, Poland and Kazakhstan even more important, while imports from Turkey are of minor importance.

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Figure 47: Ukrainian imports of goods 2008 from neighbouring countries (in thsd US-$)

Products traded by EU27 with Ukraine are depicted in Figure 48. Machinery is exported from Europe in large numbers followed by chemicals and transport equipment. Imports to Europe are predominantly agricultural produce and energy. Even though trade with EU27 is imbalanced, the strong ties to Russia are compensating for the deficits. Figure 48: EU27 merchandise trade with Ukraine by product (2007)

2.3 Cargo Flows in the Beneficiary Countries

2.3.1 Armenia - transport and logistics sector Transport facilitation is of utmost importance for economic growth in land-locked Armenia (see Figure 49). The transport market share in Armenia has been increasing over the recent years, due to progressive recovery of the local economy over the last decade. However, a comprehensive analysis of the entire Armenian transport system may denote several infrastructural and structural weaknesses. The industrial sectors develop and the agriculture and food processing sectors show large export potential. But, to achieve successful growth in

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International Logistics Centres for Western NIS and the Caucasus these sectors, affordable and reliable transport and efficient, effective logistics services are necessary. Figure 49: Transport network in Armenia

In Armenia freight transport volumes boosted by 40-50% since 2003, similar to Ukraine. In absolute terms, the tonnage transported by roads increased most (see Figure 50). In 2007, the freight modal split for roads was 57%, for rail below 29% and for pipelines above 13%. Air cargo can be neglected. Figure 50: Armenia: Cargo transported by mode 2003-2007

Regarding the share of commodity groups on rail cargo transport, Figure 51 depicts a radical decrease of non-ferrous metal ore between 2003 and 2007. The major increase has been in mineral building materials and cement.

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Figure 51: Share of commodity groups on rail cargo transport

2.3.2 Azerbaijan - transport and logistics sector Azerbaijan is well situated on the crossroad of major international traffic routes including the Silk Road and the South-North corridor (see Figure 52). Its convenient location emphasises the strategic importance of the transport sector in the country’s economy. In terms of share in GDP, transport it generally showing growth. Azerbaijan is well connected in terms of highways, serving international cargo movements. Here, the TRACECA, regional Baku-Alat-Ganja-Kazakh-Georgian Boarder corridor, and the North-South Corridor are of great importance. The rail transport sector is not in optimal performance condition, and freight market share has deteriorated during the last years. Maritime transport plays an important role, especially for the oil industry. Direct maritime connections only exist with Iran, Kazakhstan, Russia and Turkmenistan, but the Volga-Don canal also provides Azerbaijan with maritime access to the high seas, if the licences for the transit can be obtained. Oil products serve as the main maritime transport commodity and shipping in the Caspian Sea. Figure 52: Transport network in Azerbaijan

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Political conflicts have kept Armenia and Azerbaijan from fully partaking in peace, stability, and economic development. Some costs of conflict result in limited ability of the region to fully exploit trade and transportation networks. Since 1989, the railways, road and pipelines from Azerbaijan traversing its territory to Armenia are non-operating. Transport and communications obstructions and stoppages affect economic development in Armenia and Azerbaijan and stymied the full utilisation of links on East-West and North-South corridor.

2.3.3 Bulgaria - transport and logistics sector Five of the ten Pan-European corridors cross at the territory of Bulgaria. These are Corridors IV, VII, VIII, IX and X. With that in mind, the country's potential to become a major transport leader in Southeast Europe and a future EU transportation hub can be assumed as very high. The GIS representation of Bulgarian transport network is presented in the Figure 53 below. Figure 53: Transport network in Bulgaria

2.3.4 Georgia - transport and logistics sector Georgia’s geographical location holds various advantages for the country. For transport corridor connections of Georgia see Figure 54 below. It comprises a distinctive competitive advantage in terms of transit cargo and also links various economies. It functioned as a natural transport corridor between Europe and Central Asia and also for the North-South transport link, between Russia and Turkey via Armenia to Iran. Offering the shortest transport link for goods and materials from Azerbaijan and Central Asia to the West also highlights its advantageous location. The Georgian railways play a unique role in the country’s economy, especially in terms of the Eurasian transit link. This system also provides a direct link between the railway systems of Armenia and Azerbaijan. Railway-ferry transit is also playing an important role, through linking lines from the Batumi and Black sea ports with the Caucasus and Central Asia.

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Figure 54: Transport network in Georgia

In domestic transport, the railways are carrying the largest share of the transport volume, measured in tonne-km2. The background of this development might be the increasing demand in oil and oil products. Roads only play a minor role in domestic freight transport, with stagnating volumes. Maritime shipping used to be the dominant mode in the 1990s, but a severe dropdown to zero in 2000 ended this. Figure 55: Georgia: Freight turnover by mode 1996-2007

Border crossing traffic is depicted in Figure 56 for trucks and in Figure 57 for railways. On border crossing roads transit traffic is dominating, often comprising half the transport volume. Imports are mainly coming in through Poti, Batumi, Scarpi and Vale, while exports only comprise a small share of traffic volumes.

2 The graphs of the other countries used tons

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Figure 56: Truck Movement in Export, Import and Transit in 2008

Figure 57: Railway Cross-Border Transportation in 2004-2008

2.3.5 Moldova - transport and logistics sector Moldova is a landlocked country - with only an imprecisely defined 500 to 900 meter frontage on the Danube – situated between Romania and Ukraine. The Pan European Corridor IX (Moscow- Kiev-Bucharest) crosses Moldova from East to West, traversing the capital city Chisinau. Moldova also lies on the TRACECA East – West connection. Moldova is a net importer of transport services. The country's economy relies heavily on trade. Moldova can be considered as a "hub" for the region. Moldova's economy is largely based on agriculture and agro-industry.

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Moldova’s exports are mostly agricultural/food and vegetable products which are sensitive to the cost of transport. It is therefore highly dependent on a well functioning transport industry and a solid transport infrastructure. Figure 58: Transport network in Moldova

2.3.6 Romania - transport and logistics sector The Romanian transport network is presented in the Figure 59 below. Key issue for the Romanian economy in years 2007-2013 will be the development of transport infrastructure to increase economic competitiveness, facilitate the economic accession to the EU, and contribute to the actual development of the internal market. The operation transport programme is aimed at creating the conditions for increased investment activity, the promotion of sustainable transport and spatial cohesion. Logistics and multimodal transport development is one of the core elements of the programme.

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Figure 59: Transport network in Romania

2.3.7 Turkey - transport and logistics sector Turkey's geopolitical position as a link between the East and the West makes the transport sector crucial for the economic development of the region. The GIS representation of the Turkey transport network is presented in the Figure 60 below. Turkey is a major player both as a transit country and as an origin and destination of freight. Transport demand in Turkey has grown significantly over the past five decades. Turkey has an advantageous position between Europe and Asia, giving it an important transit function. Transport is primarily carried out by sea and by road mode. The rail system has been neglected for years for cargo transportation. Most logistics service providers have set up their facilities near Istanbul and profit from the generally favourable economic outlook. Figure 60: Transport network in Turkey

Figure 61 and Figure 62 give an overview on the traffic on road and rail networks in Turkey, derived from the TINA Turkey project. For both modes, east-west corridors to Caucasus States carry fairly low traffic volumes, while the North-South routes are much stronger used. The turnover on Turkish ports (Table 13) show a concentration in Izmir and Izmit (Kocaeli).

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Figure 61: Annual daily traffic on Turkish road network 2004

Figure 62: Turkish rail freight traffic flows, 2004

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Table 13: Transport volumes in Turkish port regions, 2004

TINA TURKEY has prioritised a number of rail, road, ports and terminals, only a smaller number of them can be relevant for Logistic Centres in Western NIS and Caucasus.

2.3.8 Ukraine - transport and logistics sector Ukraine is a major hub in European multimodal transport networks connecting Ukraine westbound to the EU, eastbound to (Central) Asia and north-south with CIS countries. Out of nine international transport corridors that cross Europe, three go through the territory of Ukraine. This makes Ukraine an important transit country for Europe with potentials to accommodate regional logistics hubs. In addition, since the opening of the Black Sea – Danube Canal, Ukraine is directly connected to Corridor VII, the Danube. EU TACIS supports the further development of the TRACECA corridor (see Figure 63), eastbound through the Black and Caspian Sea to Central Asia. Ukraine also features prominently on the map of “Networks for Peace and Development. Extension of the Major trans- European transport axes to the neighbouring countries and regions”. However, the North-South corridor, carrying vast quantities of minerals and energy products is still dominant in volume terms. To enhance Ukraine’s competitive position as a transit country and location for regional logistics hub, infrastructure development is a necessary but not sufficient condition. Also trade and transport facilitation and establishment of adequate logistics nodes, contributing to improved level of service and lower transport costs, are of vital importance.

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Figure 63: Transport network in Ukraine

The development of the modal split in Ukraine is given in Figure 64. The picture contrasts to the description of exports given above. While trade is dominated by rail transport, most of the national cargo volumes are dominated by road transport. 53% of tons are transported by roads in 2008, with the volumes increasing strongly over the past years. Railways handle 38% of the transport volumes, with a tendency to increase, but slower than road freight. Pipelines have a modal share of 9%, with stagnating volumes over the past years. Maritime transport, inland waterways and Air freight are not playing a significant role.

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Figure 64: Ukraine: Cargo transported by mode 2000-2007

Figure 65 shows the development of the transport volumes since 1980. The impressing decline of transport volume was caused by the breakdown of the economy in the beginning of the 90s as a consequence of the radical change from central planning to a market economy. Volumes only started to increase after the beginning of this millennium. This explains the volume increases given in Figure 64.

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Figure 65: Ukraine: Cargo transported by mode 1980-2007 (indexed at 1996)

Regarding the transit transportation in Ukraine, oil and oil products represent only 10% of the transported volume (Figure 66). Ore, ferrous metals and coal represent 60%, the rest of 30% is chemicals, chemical fertilizers, grain and grinding products and other goods. Figure 66: Structure of transit transportation in Ukraine

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2.4 General Remarks on the Impacts of the Financial Crisis

2.4.1 Expected growth rates before economic downfall In the past, a positive correlation between GDP growth and logistics development could be observed (Figure 67 exemplarily shows the correlation of GDP growth and air cargo traffic growth). Thus, GDP growth rates are widely used to estimate future development in freight transportation. The growth rates for the beneficiary countries, depicted in Figure 68 were compiled by various sources (see bottom). Figures describe an annual growth rate of GDP of the beneficiary countries between almost 4% (Ukraine) and almost 6% (Armenia), with Azerbaijan topping with about 9.5%. More detailed tables are presented in Annex 1 – Part 1 (Table 21 to Table 24). Figure 67: GDP growth and air cargo growth rates 1987-2007

Source: Boeing WORLD AIR CARGO FORECAST 2008-2009 Those forecasts assume that development takes place continuously. The current economic downfall however, marks a discontinuity in a heavy dimension. This makes it impossible to make further use of these forecasts without adjustments that try to estimate possible effects – duration, severity – of the current economic situation. The following chapters describe an approach developed by the consultant’s team that could form the basis for further project activities. As the current crisis started already during 2008, the expectations of the project team to the traffic flows project would be that the effects would already be included in their forecasts. As soon as the outputs of the traffic flows project are available to this project, they are incorporated in the activities.

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Figure 68: Annual average growth rates of GDP, productivity and employed people in 2006 – 2030, percent/year

-2 % 0 % 2 % 4 % 6 % 8 % 10 %

World

EU27

EU15

EU12

USA

China

India

Russia

Iran

Armenia GDP Azerbaijan Productivity Bulgaria Employed Georgia

Kazakhstan

Kyrgystan

Moldova

Romania

Tajikistan

Turkey

Turkmenistan

Ukraine

Uzbekistan

Source: Traffic Flows Project, Scenario paper

2.4.2 Discontinuity in business and traffic development The consultant’s view is that, because of the global recession, it is impossible to make traffic forecasts based on past trends with any confidence. In our interviews with transport operators we have heard reports that cargo volumes have declined by 30-85%. No respondent has been willing to speculate on when demand is likely to grow again.

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But we cannot conduct feasibility studies or formulate business plans without traffic forecasts. To address this problem we have devised a set of scenarios, the purpose being to initiate productive debate, leading to an agreed basis for traffic forecasting. In the following sections we identify the determinants of future traffic over a 20-year period. Then we suggest a set of scenarios, defined qualitatively and then with values applied to each of the variables.

2.4.3 Determinants of Future Traffic Global Recession The most obvious determinants are the length and depth of the global recession and the strength of the recovery. We share the assumption that all our interviewees have made, explicitly or implicitly: that there will be a recovery of some kind. It may not be rapid and it may not be a return to ‘business as usual’. But eventually we can expect consumption and production to rise above today’s depressed levels, involving larger volumes of goods moving across international borders. Last year many experts and political leaders were predicting that the global recession would last until the second half of 2009. Now the most optimistic predictions are for recovery starting in 2010. There is a growing feeling that the global economy is in the early phase of a systemic change. Many respected commentators talk about a deep recession persisting for several years3. The following questions have to be answered if we are to make a forecast: • Has demand for traded goods reached its nadir? • If not, how much lower will it go? • When will positive growth resume? • Will there be a ‘catch-up’ period of strong growth? • If so, how long will that last and how strong will the growth be? • How will the global recovery affect demand for freight transport in this project’s beneficiary countries? This last question deserves some discussion. It appears from our interviews that freight traffic in the region has declined by more than in the main production and consumption centres in North America, Western Europe, China and Japan. In those centres one hears figures of -30% to -50%. Typically our interviewees have reported decline in the range -50% to -70%. A very broad-brush explanation would be to say that these are marginal economies in the global context. Importers and investors and likely to turn away from them before they turn away from partners that appear more stable, more reliable and more strategically significant. It may be that their above-average decline will be mirrored by above-average growth in the recovery phase. Or it may be that they will be losers in the restructuring of the global economy that will take place.

3 For example, in April 2008 Reuters reported Warren Buffet as saying, “My general feeling is that the recession will be longer and deeper than most people think. This will not be short and shallow.” He called the recession “an economic Pearl Harbor” and suggested it would last for five more years. In November 2008 George Soros told a Congressional committee that “a deep recession is now inevitable and the possibility of a depression cannot be ruled out." In an interview in March 2009 Soros pointed to “fallout in the real economy, which is now gathering momentum. At this point, repairing the financial system will not stop a severe worldwide recession.”

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Long-term Growth Let us assume that within a period of years the global economy resumes a more-or-less stable, sustainable growth trajectory. This is the general expectation. Then the following questions have to be answered: • What long-term economic growth rate can be expected? • Will this project’s beneficiary countries’ economies grow at the global rate, faster or slower? • Will economic growth translate, as in the past, into a higher growth rate for internationally traded goods? • Will the recovery phase take the world economy up to the level of demand that would have been attained if the global recession had not occurred? • If not, how many years of global economic growth will be lost?

2.4.4 Scenarios We suggest three scenarios. These may be crudely described as High, Medium and Low. They might also be called Optimistic, Neutral and Pessimistic. They relate to the following broad assumptions: High/Optimistic • The global recession will be short, with no decline in activity below current levels. • Recovery will be rapid. • The global economy will resume its previous long-term growth trajectory, there being full convergence with the pre-recession trend line. • The region will enjoy a rebound proportional to its earlier decline. Medium/Neutral • The global recession will last until 2011, with no decline in activity below current levels. • The rate of recovery will be modest. • The global economy will adjust to a slightly slower long-term rate of economic growth, with the loss of 2 years’ growth. • The region will enjoy a rebound proportional to its earlier decline. Low/Pessimistic • The global recession will last until 2013, with a further 5% ndecline in activity below current levels. • Recovery will be slow. • The global economy will adjust to a significantly slower long-term rate of economic growth, with the loss of 5 years’ growth. • Recovery in the region will be in line with global recovery. The three scenarios are depicted in Figure 69 below.

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Figure 69: Three scenarios about future economic developments: (a) high/optimistic (top), (b) medium/neutral (middle), (c) low/pessimistic

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3 OVERVIEW OF CARGO FLOWS BETWEEN MAIN LOGISTICS HUBS IN THE BENEFICIARY COUNTRIES

3.1 Cargo Flows Data Cargo flows data on individual infrastructure links, like road sections or rail links, are special data that are not available in standard statistics databases. The effort to develop these data is high, as comprehensive traffic surveys need to be undertaken. Thus, the design of this project does not include activities for surveys or own transport modelling and traffic forecasts, but builds on the results of previous or current projects. The main project in this respect is the ongoing project of the TRACECA program: Analysis and forecasting of traffic flows for the TRACECA countries and interregional transport integration. In the very beginning of this project, in January 2009, the project team contacted the traffic flows project to receive their results. Unfortunately, their progress was not as expected, so that the available data was very preliminary. Especially for this chapter, where cargo flows between main logistics hubs in the beneficiary countries should be described, the data was not sufficient. As soon as new data is available, it shall be presented in the following report. Cargo flows on maritime – and to a minor extent air – transport are an exception insofar, as turnovers and capacities are partially published. The following chapters describe the situation as far as data is presently available.

3.2 Cargo Flows on Main Maritime Transport Links Constanta is by far the port with the highest turnover of containers (see Figure 70), followed by Odessa and Illichevsk. The other ports show considerably lower figures. Varna, Poti, Constanta and Novorossysk operate close to their capacity, whereas the other ports, especially Odessa and Illichevsk seem to have room for growth on the basis of their current capacities. Plans for further enlargement of the container handling capacities exist in Batumi, Nikolaev, Filyos and especially in Sevastopol.

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Figure 70: Container ports in Black Sea Region: container turnover and capacities 2007

Constanta, as the by far largest container port in the region, owes its prime position to the exceptional high transhipment activities (Figure 71).

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Figure 71: Black Sea region: Container turnover 2007 at main container ports

The container handling activities increased particularly since 2004 with highest annual growth rates. Figure 72 depicts the growth to be continued also in the future (please see chapter 2.4 General Remarks on the Impacts of the Financial Crisis on the validity of this forecast).

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Figure 72: Black Sea region: development of container handling volumes

The ports are planning to extend their capacities. Table 14 describes the situation in 2007 and the plans for further extension. Table 15 forecasts the container throughput capacity in Ukraine. Please see chapter 2.4 General Remarks on the Impacts of the Financial Crisis on the validity of these forecasts.

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Table 14: Container turnover and capacities in main Black Sea region ports 2007 and in future Container Future container Container Port Country capacity 2007 capacity throughput 2007 (`000 TEU) (`000 TEU p.a.) Burgas Bulgaria 30 150 200 Varna Bulgaria 99 100 600 Constanta Romania 1411 1500 2000 Illychevsk Ukraine 527 1000 4000 Odessa Ukraine 523 750 1700 Novorossiysk Russia 342 350 1500 Poti Georgia 184 200 >1000 Yushny Ukraine --- 400 >800 Nikolaiev Ukraine ------(250, 780, 1400)* Sevastopol Ukraine ------975 Batumi Georgia ------250 Filyos Turkey ------??? * Construction planned in three stages Source: HPC 2008 Table 15: Forecast Container Throughput Capacity in Ukraine in TEU (Source: HPC, 2008b) Terminal units 2008 2010 2012 2014 2018 Capacity Odessa '000 TEU 740,000 980,000 1,230,000 1,480,000 2,000,000 thereof HPC '000 TEU 640,000 800,000 1,050,000 1,300,000 1,600,000 thereof others '000 TEU 100,000 180,000 180,000 180,000 400,000 Illychevsk '000 TEU 850,000 1,000,000 1,700,000 1,700,000 1,700,000 Yuzhny '000 TEU 300,000 400,000 700,000 700,000 Nikolaev '000 TEU 125,000 600,000 900,000 900,000 Total '000 TEU 1,590,000 2,405,000 3,930,000 4,780,000 5,300,000 Market '000 TEU 1,302,357 1,860,929 2,501,338 3,189,938 4,681,505 Potential Ukraine TEU per 1000 Inhabitants Ukraine* TEU 28.3 40.5 54.4 69.3 101.8 * current level in Northern Europe: 144 TEU per thou. inhabitants (Source: Drewry) Comparing the plans for expanding the capacities of the ports in Ukraine and the black sea region with the predicted turnover as in Figure 73 and Figure 74, it becomes obvious, that the capacities will be much higher than the demand. Especially when taking into account the effects of the current economic situation, the plans most likely will have to be reconsidered. As a consequence for this project, the focus is expected not to be on the infrastructure measures but on the operational and technological improvements.

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Figure 73: Container throughput in Ukraine: Forecasts capacities vs. demand

Figure 74: Container throughput in Black Sea ports: Forecasts capacities vs. demand

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3.3 Cargo Flows at Main Airports A relatively high number of airports in the beneficiary countries offer cargo handling facilities (Figure 75), but there are only a few that show remarkable volume (Istanbul/Turkey with the highest volume, followed by Gyandzha and Baku/Azerbaijan). In Turkey, Ukraine and Georgia, there is only one airport as the major hub in the country, i.e. Istanbul, Kiev and Tbilisi; in Romania and Bulgaria two airports share the dominant part of air cargo (Bucharest/Sibiu and Sofia/Bourgas). Figure 75: Total cargo turnover at airports in beneficiary countries (in tonnes, most recent year)

All airports in the beneficiary countries show considerable growth (Figure 76). An exceptional development has Adana/Turkey, where since 2004 the cargo turnover is 14 times higher than in base year 2001. Constanta, Kiev, Bourgas and Istanbul more than doubled their turnover since 2001; all other airports at least recovered from 2001.

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Figure 76: Airport cargo turnover: development 1998-2008

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4 REFERENCES CI-Online (2008): Containerisation International. CI-Online. www.ci-online.co.uk/. London: CI. Constanta South Container Terminal (2009): Welcome to DP World Constanta. www.csct.ro. ESRI (2008): Digital Charts of the world. Redmond: ESRI Com. Euromonitor International (2008): World Economic Factbook 2007. European Bank for Reconstruction and Development and LABORSTA (2005): TRACECA countries employment: Transition Report 2005. Business in transition. ILO. Eurostat (2009): ComExt Database. Online. Luxembourg: Eurostat. Eurostat (2009): Statistical Regime 4. Luxembourg: Eurostat. Eurostat (2009): Modal split of freight transport. % in total inland freight tonne-km. http://epp.eurostat.ec.europa.eu. Luxembourg: Eurostat Ferrylines.com (2009): Fähren sind unser Geschäft. www.ferrylines.com/de/europaeisches- buchungsportal-fuer-faehren/ HPC (2008a): Main Container Ports in Black Sea Region. Hamburg: Hamburg Port Consult (HPC). HPC (2008b): HPC Market Study. Hamburg: Hamburg Port Consult (HPC). Ifmo (ed.) (2008a): Ost-West-Güterverkehre 2030. Analysen, Prognosen und verkehrspolitische Herausforderungen für Deutschland und ausgewählte europäische Länder. Abschlussbericht. Berlin: Institut für Mobilitätsforschung. Ifmo (ed.) (2008b): Ost-West-Güterverkehre 2030. Analysen, Prognosen und verkehrspolitische Herausforderungen für Deutschland und ausgewählte europäische Länder. Anlage Länderprotraits. Berlin: Institut für Mobilitätsforschung. Ifmo (ed.) (2008c): Ost-West-Güterverkehre 2030. Analysen, Prognosen und verkehrspolitische Herausforderungen für Deutschland und ausgewählte europäische Länder. Anlage bilaterale Güterstromanalysen. Berlin: Institut für Mobilitätsforschung. IMF (2007): TRACECA countries GDP. World Economic Outlook. Spillovers and cycles in the global economy. IMF. Index Mundi (2009: Land Auflistung, Bulgarien und Rumänien. www.indexmundi.com/de/ Louis Berger SAS et al. (2008): Analysis of Traffic Flows for TRACECA countries and interregional transport dialogue between EU and NIS. Transportation Demand Scenarios. Draft Paper September 2008. Ministry of Economic Development of Georgia (2009): Statistical Yearbook of Georgia 2008. www.statistics.ge. Tblisi: Ministry of Economic Development of Georgia, Department of Statistics. Moldova National Bureau of Statistics (2008): Exports and imports of Moldova 2005-2007. Moldova National Bureau of Statistics (2009): General Statistical Information on Moldova. National Bank of Moldova, National Bureau of Statistics (2008): Economic growth figures 2001- 2007.

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National Institute of Statistics (2009): Online database, Foreign trade, transport, post and telecommunications. Bucharest: INS. National Statistical Service of the Republic of Armenia (2009). General Informationon Armenia. www.armstat.am/en. Yerevan: NSS RA. National Statistical Service of the Republic of Armenia (2008). Statistical Yearbook Armenia 2008. Yerevan: NSS RA. Odessa Commercial Seaport (2009): Port of Odessa, handling of containers. Odessa. RRG (2009): RRG GIS Database. www.brrg.de/database.php?language=de. Oldenburg i.H.: RRG. Republic of Bulgaria, National Statistical Institute (2009). Online Database, Foreign Trade and Transport. www.nsi.bg/Index_e.htm . Sofia: NSI. Schmöcker, K. (2008): Throughput capacity and investments in development of the Black Sea ports. Container Transport. Presentation Odessa October 2008. State Statistical Committee of the Republic of Azerbaijan (2009): Azerbaijan in figures. www.azstat.org. Baku. State Statistical Committee of the Republic of Azerbaijan (2009): Statistical Yearbook 2008. www.azstat.org. Baku. State Statistics Committee of Ukraine (2009): Statistical Information Online. www.ukrstat.gov.ua/ TINA Turkey Joint Venture (2007): Technical Assistance to Transportation Infrastructure Needs Assessment for Turkey. Final Report. TRACECA (2006): TRACECA Transport Corridor Europe-Caucasus-Asia. GIS Database. www.traceca-org.org. Baku: PS IGC TRACECA. Ukraine Port Authority (2009): Ukraine port activities 2008. Ukraine State Center of Transport Service (2009): Container and combined trailer trains passing through Ukraine. www.liski.com.ua/eng/index.php?thisPage=intermodal. Liski. UN (2006): UN Trade Statistics Database - ComTrade Database 2006. UN-ECE (2003): Combined census of motor traffic and inventory of standards and parameters on main international traffic arteries in Europe in 2000. Geneva: UNECE Transport Division.

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5 APPENDIX Table 16: Exports from TRACECA countries in 2006 [million US$] Annex 1/1 Exports from Traceca counties in 2006 million $US

Export to World EU15 CIS Germany France UK Netherlands Italy USA China India Russia Iran Afghanistan Armenia 1004.0 459.1 198.0 147.1 3.9 7.4 98.0 28.6 64.3 0.5 0.6 116.5 29.1 0.1 Azerbaijan 6372.2 3488.1 929.7 9.0 347.6 5.6 42.3 2845.4 98.2 6.4 1.0 344.3 295.9 32.2 Bulgaria 15101.5 7609.4 547.7 1461.6 633.4 388.7 194.9 1529.7 429.3 78.4 32.9 229.9 45.0 2.5 Georgia 991.5 167.4 394.7 45.4 30.9 24.4 8.3 24.0 58.9 10.4 8.7 75.7 2.7 0.8 Kazakhstan 38244.4 15946.9 5570.7 551.2 3347.0 1143.9 432.6 6891.6 462.3 3592.5 59.4 3730.0 2077.6 178.5 Kyrgyzstan 794.1 25.7 378.9 2.2 0.3 5.2 1.3 6.5 6.0 38.1 3.7 153.8 7.3 74.8 Moldova 1051.6 269.1 424.1 51.9 23.9 27.3 14.0 116.9 16.2 0.4 1.2 182.0 0.2 Romania 32336.0 18845.5 1542.4 5078.7 2424.8 1520.9 584.3 5846.6 827.5 217.6 240.8 374.1 62.7 6.7 Tajikistan 750.0 209.0 165.6 31.4 14.4 0.9 29.1 51.5 62.2 18.0 8.0 125.9 153.2 Turkey 85526.0 40941.7 6992.3 9683.5 4604.3 6812.8 2160.6 6752.9 5061.2 693.0 222.2 3237.5 1066.5 91.1 Turkmenistan 9500.0 424.9 4345.5 46.8 43.4 59.7 1.1 212.7 81.2 16.0 12.0 78.9 Ukraine 38367.6 6701.4 12665.5 1283.8 351.4 388.2 250.6 2505.3 1201.8 544.7 850.1 8650.7 318.3 5.1 Uzbekistan 5000.0 379.6 2148.4 68.1 64.6 22.2 15.9 126.3 153.3 565.9 33.8 1290.4 SUM 235038.9 95467.8 36303.5 18460.7 11889.9 10407.2 3833.0 26938.0 8522.4 5781.9 1474.4 18589.7 4058.5 391.8 Index 100.0 40.6 15.4 7.9 5.1 4.4 1.6 11.5 3.6 2.5 0.6 7.9 1.7 0.2

Armenia Azerbaijan Bulgaria Georgia Kazakhstan Kyrgyzstan Moldova Romania Tajikistan Turkey Turkmenis Ukraine Uzbekistan Armenia 1.3 47.5 3.9 0.1 0.8 0.2 0.2 1.7 22.4 1.1 Azerbaijan 6.3 285.3 105.7 7.0 0.3 80.1 130.9 388.1 9.5 38.4 6.9 Bulgaria 15.8 10.5 98.1 23.7 1.0 23.9 635.2 1.4 1750.5 3.0 111.8 4.1 Georgia 73.6 92.2 62.3 15.4 0.5 0.2 5.7 2.6 124.9 71.8 57.0 2.6 Kazakhstan 14.6 226.4 0.9 44.4 267.6 31.2 747.1 157.4 348.2 20.7 622.8 384.6 Kyrgyzstan 1.9 1.9 1.3 162.6 0.4 0.7 23.9 27.2 2.1 4.1 27.9 Moldova 1.9 4.8 14.1 4.1 24.2 1.1 155.6 0.2 28.5 0.4 128.8 2.8 Romania 7.1 5.1 911.2 197.8 35.5 0.3 427.0 2498.5 9.9 424.3 52.9 Tajikistan 0.3 18.7 0.1 27.7 2.8 0.1 3.0 118.4 4.3 Turkey 695.2 1568.0 408.0 696.8 132.1 107.3 2349.9 71.8 281.3 1121.4 176.0 Turkmenistan 169.0 369.0 0.1 101.1 132.6 1.8 0.1 45.2 188.6 3492.0 Ukraine 137.2 422.0 595.7 312.4 828.0 38.0 671.2 625.9 39.8 2390.0 132.8 210.7 Uzbekistan 1.8 27.5 10.1 6.3 319.1 65.0 4.0 153.6 406.4 418.0 SUM 421.0 1854.9 3190.6 1506.4 2375.2 517.3 1266.5 4802.0 428.2 8269.5 533.2 6445.3 869.6 Index 0.2 0.8 1.4 0.6 1.0 0.2 0.5 2.0 0.2 3.5 0.2 2.7 0.4 Source: Traffic Flows Project

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Figure 77: Share of exports going from TRACECA countries to EU15, CIS and other countries in 2006

Source: Traffic Flows Project, Scenario paper Table 17: Exports and imports of Ukraine in 2008 by continent and by selected countries Exports 2008 Imports 2008 Balance 2008 thsd.USD in % to 2007 thsd.USD in % to 2007 Total 67002502,8 135,9 85534445,7 141,1 –18531942,9 CIS countries 23819222,7 128,0 33569461,8 131,3 –9750239,1 Azerbaijan 910572,5 144,3 75694,2 243,4 834878,3 Belarus 2105593,6 134,8 2809645,7 194,4 –704052,1 Armenia 263681,5 122,6 25456,2 71,1 238225,3 Georgia 655988,4 124,3 191582,6 191,3 464405,8 Kazakhstan 1832582,7 127,8 3118852,3 184,9 –1286269,6 Kyrgyzstan 83650,1 117,1 9119,7 144,1 74530,4 Moldova 1178142,0 129,3 169569,7 100,8 1008572,3 Russian Federation 15739123,5 124,2 19414249,7 115,3 –3675126,2 Tajikistan 77673,6 151,8 5355,6 123,0 72317,9 Тurkmenistan 376943,9 191,7 5631673,5 119,6 –5254729,6 Uzbekistan 595271,0 171,6 2118262,6 388,0 –1522991,6 Europe 19736731,8 133,6 30475821,2 132,2 –10739089,4 Austria 593449,1 138,2 1030023,7 128,7 –436574,6 Albania 80405,6 77,3 407,0 291,4 79998,6

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Exports 2008 Imports 2008 Balance 2008 thsd.USD in % to 2007 thsd.USD in % to 2007 Belgium 364665,6 192,0 725433,7 129,1 –360768,0 Bulgaria 1105978,1 199,6 239398,5 141,2 866579,6 Bosnia and Herzegovina 101168,1 129,5 10816,2 163,8 90352,0 Greece 339036,6 153,4 171837,2 146,5 167199,4 Denmark 195240,0 98,7 339300,4 118,3 –144060,5 Estonia 173878,1 79,8 177643,5 116,3 –3765,3 Ireland 28798,7 210,8 126273,5 143,6 –97474,8 Iceland 35,5 1,0 43008,9 114,8 –42973,4 Spain 870009,4 156,1 660186,3 153,8 209823,1 Italy 2911728,8 108,8 2431985,0 136,0 479743,8 Latvia 280543,6 108,5 113102,5 95,4 167441,1 Lithuania 432298,3 119,0 724077,0 190,3 –291778,7 Liechtenstein 321,5 250,4 3568,9 707,5 –3247,4 Luxembourg 7882,8 510,9 22959,8 107,5 –15077,0 Macedonia, the former Yugoslav Repablic of 184134,5 189,6 7311,7 87,8 176822,8 Malta 53110,2 164,0 2439,0 321,7 50671,3 Netherlands 1118017,1 146,0 1283690,1 145,7 –165673,0 Germany 1836326,2 111,7 7165233,3 122,9 –5328907,1 Norway 139453,2 121,4 280504,8 116,4 –141051,6 Poland 2338290,7 142,8 4280347,8 146,6 –1942057,1 Portugal 63138,5 78,2 61679,8 165,5 1458,7 Romania 670802,7 106,7 1171079,9 150,4 –500277,2 Serbia 560455,6 – 87942,4 – 472513,2 Slovakia 910208,2 141,1 742466,6 141,8 167741,7 Slovenia 27472,2 64,7 231951,9 42,5 –204479,7 United Kingdom 640619,7 197,2 1375785,8 155,2 –735166,1 Hungary 1367110,1 110,7 1282661,2 103,4 84448,9 Finland 59100,9 127,4 686345,9 126,0 –627245,0 France 513472,1 105,7 1682505,5 126,5 –1169033,4 Croatia 136162,3 129,8 60162,3 107,8 76000,0 Czech Republic 670804,7 156,4 1376032,9 119,2 –705228,2 Montenegro 2703,5 – 997,0 – 1706,5 Switzerland 831253,9 861,3 1171550,6 272,6 –340296,6 Sweden 105131,6 162,0 696224,8 114,1 –591093,2 Asia 15263929,2 147,4 15306353,6 171,2 –42424,3 India 1005577,2 135,1 649935,0 139,8 355642,2 Iraq 142965,2 487,2 127517,4 55961,6 15447,8 Iran, Islamic 859231,4 169,6 71676,3 148,3 787555,2

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Exports 2008 Imports 2008 Balance 2008 thsd.USD in % to 2007 thsd.USD in % to 2007 Republic of China 547524,8 126,8 5601530,5 169,4 –5054005,6 Cyprus 451420,5 258,8 66598,7 343,8 384821,7 Saudi Arabia 956391,9 182,7 12238,7 309,6 944153,2 Syrian Arab Republic 1037415,7 122,5 104003,2 285,9 933412,5 Turkey 4633417,2 127,1 1950342,8 200,6 2683074,4 Japan 115671,4 127,1 2795769,5 198,8 –2680098,1 Africa 3903658,9 139,8 1559056,2 231,6 2344602,7 America 4144124,7 154,3 4190567,2 185,8 –46442,6 United States of America 1949129,5 184,2 2808221,9 199,9 –859092,3 Australia and Oceania 63960,1 407,3 431680,5 336,1 –367720,4 Others 70875,4 119,0 1500,8 192,0 69374,6

Table 18: Main trade partner of Azerbaijan 2007 (imports, exports; in thsd. US-$) Trade Countries Turnover % Import % Export % balance Total 11766882.2 100 5708573.5 100 6058308.7 100 349735.2 Turkey 1680819.6 14.3 624496.6 10.9 1056323 17.4 431826.4 Russia 1529756.5 13 1002704.2 17.6 527052.3 8.7 -475651.9 Italy 1081761.3 9.2 140832.8 2.5 940928.5 15.5 800095.7 Iran 539966.8 4.6 105235.7 1.8 434731.1 7.2 329495.4 USA 496600.3 4.2 268404.2 4.7 228196.1 3.8 -40208.1 Ukraine 494742.3 4.2 465554.2 8.2 29188.1 0.5 -436366.1 Germany 490724.2 4.2 470993 8.3 19731.2 0.3 -451261.8 United Kingdom 413989.5 3.5 410906.1 7.2 3083.4 0.1 -407822.7 Georgia 406711.3 3.5 62930.8 1.1 343780.5 5.7 280849.7 Israel 400688.3 3.4 30842.5 0.5 369845.8 6.1 339003.3 ?ndonezia 396304 3.4 6011.3 0.1 390292.7 6.4 384281.4 France 362565.1 3.1 103722.4 1.8 258842.7 4.3 155120.3 Kazakhstan 349888.5 3 222294.2 3.9 127594.3 2.1 -94699.9 Japan 294955.7 2.5 294954.6 5.2 1.1 0 -294953.5 China 288894.5 2.5 278790.9 4.9 10103.6 0.2 -268687.3 India 216923.5 1.8 71975.6 1.3 144947.9 2.4 72972.3 Republic of Korea 216269.8 1.8 91498.7 1.6 124771.1 2.1 33272.4 Brazilia 186683.1 1.6 117508.2 2.1 69174.9 1.1 -48333.3 Finland 151566.6 1.3 151485.2 2.7 81.4 0 -151403.8 Greece 145857.8 1.2 30780.9 0.5 115076.9 1.9 84296 Malta 120111.8 1 475.1 0 119636.7 2 119161.6 Chili 114710.5 1 81.4 0 114629.1 1.9 114547.7 Netherlands 108078.9 0.9 100726.8 1.8 7352.1 0.1 -93374.7 Romania 88425.9 0.8 3024.5 0.1 85401.4 1.4 82376.9 Belarus 79264.8 0.7 76940.5 1.3 2324.3 0 -74616.2 Other countries 1110621.6 9.4 575403.1 10.1 535218.5 8.8 -40184.6

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Table 19: Armenia – Exports and Imports (in 1,000 US-$)

2004 2005 2006 2007 Country Exports imports exports imports exports imports exports imports Total 722911.5 1350697.6 973920.5 1801735.9 985108.2 2191612.6 1152300.8 3267788.0 Azerbaijan 0.0 0.5 0.2 1.6 0.0 0.0 0.0 0.0 Belarus 2035.0 6986.4 2528.6 12991.7 3797.4 17543.3 2487.2 23604.6 Georgia 29061.9 13127.3 46832.9 19212.0 54648.8 35462.4 87868.9 46334.0 Kazakhstan 1748.2 12007.7 2637.2 1052.9 3988.9 159418.3 7248.5 14618.0 Kyrgyzstan 17.6 1.7 24.6 757.3 162.1 9.0 154.4 16.4 Moldova 180.1 1959.8 763.0 3089.4 836.6 2719.7 2465.2 1688.6 Russia 77897.7 159687.2 119004.2 242632.4 121155.6 304170.8 201542.5 720440.4 Tajikistan 0.1 0.0 4.7 3.3 242.1 0.0 60.2 236.0 Turkmenistan 610.1 103071.9 1034.6 113528.4 1797.4 11861.5 2520.2 9539.3 Uzbekistan 849.3 8539.5 438.6 3113.1 1174.4 1857.3 1519.6 10434.8 Ukraine 10479.4 80724.0 13702.5 125390.4 22553.6 163194.1 46258.2 251787.1 RNK 2211.3 750.1 879.2 0.0 2130.5 0.0 3219.4 0.0 Austria 1639.1 5828.9 3041.9 5161.0 3840.4 44849.2 5502.1 123429.3 Belgium 107929.4 102344.1 124598.3 144254.1 108846.4 119977.7 100223.0 116437.6 United 1193.5 11181.5 419.3 11279.0 7618.4 22117.5 2794.6 42253.4 Kingdom Germany 83179.6 79166.5 152108.0 141355.8 148027.8 145334.5 169676.9 221144.6 Greece 828.6 28890.9 814.8 25400.1 645.6 51388.8 2740.7 40722.5 Denmark 22.8 1626.5 20.0 2739.2 31.2 2924.5 104.9 4152.6 Ireland 15.4 1522.2 2.0 1993.0 1.3 2825.3 66.9 4229.9 Spain 806.7 6721.3 3030.8 10197.0 26779.1 10492.4 15505.7 20543.8 Italy 28432.7 44909.5 25594.0 60032.8 28927.6 86768.6 30035.8 113946.3 Luxembourg 701.7 61.2 1196.2 1592.9 1487.5 1490.7 1585.5 519.5 Netherlands 26269.1 7327.1 133110.4 9009.5 126946.4 11571.5 156007.4 21183.0 Portugal 1.1 1325.4 2.5 562.9 0.0 702.1 0.7 2239.0 Finland 372.5 3048.4 1435.2 4502.5 3839.6 4951.0 8823.4 11310.0 France 1835.0 18818.5 2015.3 47421.5 4128.0 71070.2 9427.2 150217.2 Sweden 24.9 5731.8 176.0 4626.5 233.2 5705.3 244.0 26169.0 Hungary 654.9 5678.6 1475.8 6571.0 20.6 7002.0 675.0 23745.2 Czech 47.7 1891.6 217.2 7481.1 308.4 8647.9 2301.0 15963.1 Republic Slovenia 0.0 1849.7 0.0 4440.9 14.0 4725.8 25.4 6328.7 Slovak 34.6 3547.3 3.6 4079.6 5.8 5032.1 20.1 9436.2 Republic

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2004 2005 2006 2007 Country Exports imports exports imports exports imports exports imports Poland 69.4 9200.7 717.0 11616.5 7866.6 9941.1 7079.8 17616.7 Bulgaria 4717.7 53057.2 841.8 27354.9 1285.3 41606.8 46927.6 87493.0 Romania 253.2 34007.4 295.7 75244.4 37.2 83784.9 706.4 68381.0 Malta 5.0 58.0 0.0 48.7 10.3 2.2 0.0 2.3 Cyprus 59.2 1658.2 1152.8 827.0 90.4 814.6 389.7 4561.2 Latvia 838.2 319.7 1830.1 536.2 1380.3 752.6 1272.0 1220.3 Lithuania 135.7 345.5 147.0 440.3 86.2 479.3 195.3 1350.2 Estonia 75.0 358.9 5.1 340.2 1026.3 1061.5 477.5 734.0 Other 337678.0 533365.4 331819.5 670855.6 299137.3 749355.8 234148.0 1053758.9 countries Switzerland 45354.4 57638.2 34666.0 45810.3 72099.5 19106.2 49255.9 22252.9 Iran 30559.6 62284.7 28513.3 89166.6 29642.9 114399.5 38507.4 141663.0 USA 70646.2 88948.8 62219.1 111310.6 65055.7 106271.3 51400.3 144995.7 Syria 728.1 997.8 469.9 2090.5 231.5 4344.8 150.6 1960.7 UAE 8923.7 13538.5 10383.2 21334.5 5596.8 9143.7 6773.4 19124.0 Serbia and 48.8 605.2 2.5 484.0 655.5 421.8 242.6 910.0 Montenegro Lebanon 488.2 964.9 145.1 1761.0 365.5 5828.3 284.7 8276.3 India 289.5 17055.5 369.5 16161.8 577.1 22791.6 3222.0 21519.5 China 21749.9 38496.2 9245.4 65584.6 463.8 111074.2 7871.8 194762.8 Canada 8231.8 8301.2 11482.2 18651.4 11132.5 10847.6 5938.2 11288.2 RSA 1.3 3392.8 116.6 2345.9 10.5 3978.2 33.2 6031.5 Egypt 25.2 337.5 18.1 696.2 20.3 2231.9 67.2 587.5 Turkey 2021.2 44804.7 2473.4 66928.0 2370.5 95422.9 3033.0 130631.3 Israel 98356.0 98416.9 112240.6 103796.9 87447.6 87776.9 26432.6 34755.0 Another 50254.1 97582.5 59474.6 124733.3 23467.6 145716.9 40935.0 311000.5 countries

Table 20: Foreign trade of Moldova (Exports/imports), 2005-2007 Export, % Import, % % share of total 2005 2006 2007 2005 2006 2007 CIS 50.5 40.3 41.0 39.5 37.9 36.1 Russia 31.8 17.3 17.3 11.7 15.5 13.5 Ukraine 9.2 12.2 12.5 20.9 19.2 18.6 Belarus 6.5 7.0 6.1 3.7 2.8 3.2 Other 3.0 3.8 5.1 3.2 0.4 0.8

Non CIS 49.5 59.7 59.0 60.5 62.1 63.9

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Export, % Import, % % share of total 2005 2006 2007 2005 2006 2007 Romania 10.2 14.8 15.7 11.2 12.9 12.2 Italy 12.2 11.1 10.4 6.6 7.3 7.3 Germany 4.4 4.9 6.4 8.3 8.0 8.7 Poland 2.3 3.7 3.6 2.8 2.7 2.4 Turkey 2.3 2.7 2.4 4.1 4.2 4.5 Bulgaria 0.7 1.3 2.0 1.3 1.3 1.4 France 1.5 2.3 1.8 2.8 2.3 2.6 United States 3.4 1.5 1.1 1.8 1.3 1.3 Others 12.5 17.4 15.6 21.6 22.1 23.5 Source: National Bureau

for Statistics Table 21: Growth rates of GDP, productivity and employed people (%/year) Activity 2000-2005 2006-2010 2011-2020 2021-2030 rate 2005 World GDP 4.1 3.6 3.2 3 65.7 Productivity 2.5 2.1 2.1 2.2 Employed 1.6 1.5 1.1 0.8 EU27 GDP 2.2 2.6 1.6 1.2 57.4 Productivity 1.3 2.2 1.9 1.6 Employed 0.9 0.4 -0.3 -0.4 EU15 GDP 2.1 2.5 1.5 1.1 57.3 Productivity 1 1.8 1.7 1.4 Employed 1.1 0.7 -0.2 -0.3 EU12 GDP 4.8 5.5 3.6 2.8 57.7 Productivity 4.8 5.7 4.4 3.8 Employed 0 -0.2 -0.8 -1 USA GDP 2.6 2.3 2.2 1.8 66.2 Productivity 1.8 1.4 1.6 1.3 Employed 0.8 0.9 0.6 0.5 China GDP 9.4 9.9 6.8 4.5 75.7 Productivity 8.4 9.1 6.6 4.4 Employed 1 0.8 0.2 0.1 India GDP 6.3 8.2 7.6 5.3 58.5 Productivity 5 6.4 6.0 4.4 Employed 1.6 1.8 1.6 0.9 Russia GDP 6.8 6 4.9 3.8 60.4 Productivity 5.5 6.1 6 4.5 Employed 1.3 -0.1 -1.1 -0.7 Iran GDP 5.5 5 4.2 3.5 56.6 Productivity 1.3 1.5 2.4 2.7 Employed 4.2 3.5 1.8 0.8 Armenia GDP 11.2 7.9 6 4.8 53.6 Productivity 11.6 7.4 5.8 5.2 Employed -0.4 0.5 0.2 -0.4 Azerbaijan GDP 11 22.6 11 6 66.3

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Activity 2000-2005 2006-2010 2011-2020 2021-2030 rate 2005 Productivity 10.4 20.1 10.2 5.7 Employed 0.6 2.5 0.8 0.3 Bulgaria GDP 5 6 4 3 46.6 Productivity 4.5 6.7 4.8 4 Employed 0.5 -0.7 -0.8 -1 Georgia GDP 6.5 6.9 6.2 3.4 62.2 Productivity 4.5 7.3 6 4.1 Employed 2 -0.4 -0.2 -0.7 Kazakhstan GDP 10.3 8.5 8.5 6 69.8 Productivity 7 7.8 7.3 5.5 Employed 3.3 0.7 1.2 0.5 Kyrgyzstan GDP 4.1 5.6 6.3 5.5 64.3 Productivity 2.6 3.5 4.9 5 Employed 1.5 2.1 1.4 0.5 Moldova GDP 6.3 4.9 4.4 3.9 62.8 Productivity 8.8 4.3 4.7 4.5 Employed -2.5 0.6 -0.3 -0.6 Romania GDP 5.1 5.6 4.1 3.3 56.1 Productivity 7.7 6.3 4.6 3.9 Employed -2.6 -0.7 -0.5 -0.6 Tajikistan GDP 9.2 7.8 6.7 5.8 54.1 Productivity 7.7 5.2 4.3 4.6 Employed 1.5 2.6 2.4 1.2 Turkey GDP 5 5.8 5.5 4.2 52.2 Productivity 4.5 4.3 4.2 3.5 Employed 0.5 1.5 1.3 0.7 Turkmenistan GDP 15.9 9.7 6.5 4.5 66.6 Productivity 13.5 7 4.9 3.2 Employed 2.4 2.7 1.6 0.8 Ukraine GDP 7.5 5.4 3.5 3.5 55.7 Productivity 7.5 6.1 5.2 4.4 Employed 0 -0.7 -1.7 -0.9 Uzbekistan GDP 5.2 7.5 6 5.3 64.5 Productivity 3 4.3 4.6 4.5 Employed 2.2 3.2 2.3 0.8 TRACECA GDP 7.9 8.0 6.1 4.6 59.6 (mean of the Productivity 7.2 6.9 5.5 4.5 countries) Employed 0.7 1.1 0.6 0.05 Sources: TRACECA countries GDP: World Economic Outlook. Spillovers and Cycles in the Global Economy. World Economic and Financial Surveys. IMF April 2007

TRACECA countries employment: Transition report 2005. Business in transition. European Bank for Reconstruction and Development and LABORSTA Internet, ILO

EU countries: European Commission > Eurostat home pace > Data navigation three > General Economic Background

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Table 22: Nominal GDP in 2007-2030 when EU27 = 10000 in 2007 and purchasing power parity (PPP) GDP in 2007 when EU27 = 10000 and (PPP) GDP per capita in 2007 when EU27 = 1000 in 2007 Real GDP (PPP) Nominal GDP based on exchange GDP per rates GDP capita 2007 2010 2020 2030 2007 2007 World 33022.0 36718.0 50312.5 67615.8 48376.9 304 EU27 10000.0 10800.0 12657.9 14261.5 10000.0 1000 EU15 9360.0 10079.7 11697.9 13050.3 8827.7 1141 EU12 640.0 751.51070.4 1410.8 1172.3 471 US 9031.4 9669.012019.6 14367.1 9057.0 1242 China 1810.1 2402.74638.9 7204.0 7761.7 244 India 598.0 757.51575.8 2641.1 3161.2 116 Russia 674.1 802.91295.4 1881.0 1276.7 373 Iran 152.2 176.2265.9 375.0 433.1 253 Armenia 4.4 5.5 9.8 15.7 13.4 160 Azerbaijan 13.6 25.1 71.3 127.6 48.8 236 Bulgaria 21.6 25.7 38.0 51.1 56.0 304 Georgia 5.3 6.5 11.9 16.6 12.2 116 Kazakhstan 55.4 70.8 160.1 286.7 107.8 296 Kyrgyzstan 1.9 2.2 4.1 6.9 8.1 64 Moldova 2.3 2.7 4.2 6.1 7.0 86 Romania 83.4 98.2 146.8 203.1 159.8 307 Tajikistan 1.9 2.4 4.6 8.1 7.0 45 Turkey 275.0 325.7 556.3 839.5 483.2 272 Turkmenistan 14.9 19.7 37.0 57.4 32.9 263 Ukraine 89.8 105.1 148.3 209.1 267.4 239 Uzbekistan 11.7 14.5 26.0 43.5 45.5 70 TRACECA * 581.2 704.1 1218.2 1871.5 1249.2 189* * = Average of TRACECA countries Source: Traffic Flows Project, Scenario paper Table 23: Export forecasts 2007 2010 2020 2030 World Export rate 28.0 29.0 31.0 33.0 Export index 100.0 115.2 168.7 241.3 GDP index 100.0111.2 152.4 204.8 EU27 Export rate 43.0 44.0 46.0 49.0 Export index 100.0 110.5 135.4 162.5 GDP index 100.0108.0 126.6 142.6 EU15 Export rate 42.0 43.0 45.0 48.0 Export index 100.0 110.3 133.9 159.3 GDP index 100.0107.7 125.0 139.4 EU12 Export rate 63.0 64.0 67.0 70.0 Export index 100.0 119.3 177.9 244.9 GDP index 100.0117.4 167.2 220.4 USA Export rate 8.0 8.0 9.0 10.0

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2007 2010 2020 2030 Export index 100.0 107.1 149.7 198.8 GDP index 100.0107.1 133.1 159.1 China Export rate 36.0 37.0 39.0 40.0 Export index 100.0 136.4 277.6 442.2 GDP index 100.0132.7 256.3 398.0 India Export rate 13.0 14.0 17.0 20.0 Export index 100.0 136.4 344.7 679.7 GDP index 100.0126.7 263.6 441.8 Russia Export rate 40.0 41.0 39.0 37.0 Export index 100.0 122.1 187.4 258.1 GDP index 100.0119.1 192.2 279.0 Iran Export rate 26.0 27.0 30.0 32.0 Export index 100.0 120.2 201.6 303.3 GDP index 100.0115.8 174.7 246.4 Armenia Export rate 15.0 17.0 22.0 26.0 Export index 100.0 141.7 328.3 620.1 GDP index 100.0 125.0 223.9 357.8 Azerbaijan Export rate 32.0 30.0 31.0 32.0 Export index 100.0 173.0 507.6 938.5 GDP index 100.0 184.6 524.0 938.5 Bulgaria Export rate 54.0 50.0 52.0 57.0 Export index 100.0 110.2 169.6 249.8 GDP index 100.0 119.0 176.1 236.7 Georgia Export rate 16.0 18.0 22.0 30.0 Export index 100.0 138.0 307.7 586.3 GDP index 100.0 122.6 223.8 312.7 Kazakhstan Export rate 43.0 44.0 46.0 48.0 Export index 100.0 130.8 309.1 577.6 GDP index 100.0 127.8 288.9 517.5 Kyrgyzstan Export rate 29.0 30.0 33.0 38.0 Export index 100.0 119.8 242.7 477.4 GDP index 100.0 115.8 213.3 364.4 Moldova Export rate 48.0 50.0 55.0 63.0 Export index 100.0 122.3 206.9 347.5 GDP index 100.0 117.4 180.6 264.7 Romania Export rate 34.0 36.0 40.0 46.0 Export index 100.0 124.7 207.0 329.4 GDP index 100.0 117.7 176.0 243.5 Tajikistan Export rate 40.0 38.0 37.0 47.0 Export index 100.0 120.0 223.5 498.9 GDP index 100.0 126.3 241.6 424.6 Turkey Export rate 25.0 26.0 28.0 34.0 Export index 100.0 123.2 226.6 415.2 GDP index 100.0 118.4 202.3 305.3 Turkmenistan Export rate 30.0 30.0 31.0 36.0 Export index 100.0 132.2 256.5 462.5 GDP index 100.0 132.2 248.2 385.4 Ukraine Export rate 51.0 52.0 55.0 57.0

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2007 2010 2020 2030 Export index 100.0 119.3 178.0 260.3 GDP index 100.0 117.0 165.1 232.9 Uzbekistan Export rate 40.0 43.0 47.0 52.0 Export index 100.0 133.2 260.8 483.6 GDP index 100.0 123.9 221.9 372.0 TRACECA Export rate 35.2 35.7 38.4 43.5 (mean of the Export index 100 129.9 263.4 480.5 countries) GDP index 100 126.8 237.4 381.2 Source: Traffic Flows Project, Scenario paper Table 24: Exports by country/country group as a percentage of whole export Export from Export to Arme Azer Bulg Geor Mold Roma Turke Ukra Whole export 100 100 100 100 100 100 100 100 EU15 2006 45.7 54.7 50.4 16.9 25.6 58.3 47.9 17.5 2020 46.6 55 50.5 18.5 27.0 58.4 48.5 19.9 2030 48.0 56.0 52.0 20.0 28.4 58.4 50.0 22.3 CIS 2006 19.7 14.6 3.9 39.8 40.3 4.8 8.2 33.0 2020 17.4 15.6 4.2 39.6 37.8 4.7 7.7 33.5 2030 16.3 16.6 5.4 39.4 35.3 4.6 6.8 34.2 USA 2006 6.4 1.5 2.8 5.9 1.5 2.6 5.9 3.1 2020 6.7 1.7 2.9 6.1 1.7 2.6 5.6 3.2 2030 7.0 2.0 2.9 6.3 1.8 2.6 4.7 3.3 China 2006 0.5 1.0 0.7 0.8 1.4 2020 0.6 1.1 0.7 0.9 1.6 2030 0.7 1.2 0.8 1.0 1.8 India 2006 0.2 0.9 0.1 0.7 0.3 2.2 2020 0.2 1.0 0.1 0.7 0.4 2.3 2030 0.3 1.1 0.1 0.8 0.5 2.5 Russia 2006 11.6 5.4 1.5 7.6 17.3 1.2 3.8 22.5 2020 8 4.5 1.0 7.0 15.0 1.0 3.4 18.5 2030 4.0 3.0 0.6 5.5 12.1 0.8 2.1 14.0 Iran 2006 2.9 4.6 0.3 0.3 0.2 1.2 0.8 2020 3.0 5.5 0.3 0.3 0.2 1.4 0.8 2030 4.0 6.0 0.4 0.4 0.2 1.8 0.9 Armenia 2006 0.0 0.1 7.4 0.2 0.0 0.4 2020 0.0 0.1 7.5 0.2 0.0 0.5 2030 1.0 0.1 7.6 0.2 0.3 0.6 Azerbaijan 2006 0.0 0.1 9.3 0.5 0.5 1.1 2020 0 0.1 9.3 0.5 0.5 1.2 2030 1.0 0.1 9.3 0.5 0.5 1.4 Bulgaria 2006 0.1 0.1 6.3 1.3 2.8 1.8 1.6 2020 0.1 0.1 6.3 1.7 2.9 1.8 1.7 2030 0.2 0.2 6.3 2.2 3.0 1.8 1.8 Georgia 2006 4.7 4.5 0.6 0.4 0.6 0.5 0.8 2020 5 5 0.7 0.4 0.6 0.5 1 2030 6.0 6.2 0.7 0.4 0.5 0.6 1.2 Moldova 2006 0.1 0.0 0.2 1.3 0.1 1.7 2020 0.2 0.1 0.2 1.4 0.1 1.9 2030 0.3 0.5 0.3 1.5 0.1 2.0

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Export from Export to Arme Azer Bulg Geor Mold Roma Turke Ukra Romania 2006 0.0 1.3 4.2 0.6 14.8 2.7 1.6 2020 0.5 1.7 4.4 0.6 14.9 2.7 2.1 2030 1.0 1.9 4.6 0.7 15.0 2.7 2.6 Turkey 2006 0.0 6.1 11.6 12.6 2.7 7.7 6.2 2020 0.4 6.6 11.8 12.6 2.8 7.6 6.2 2030 0.7 7.0 12.0 12.7 2.9 7.5 6.4 Ukraine 2006 2.2 0.6 0.7 5.7 12.2 1.3 1.3 2020 2.5 1.0 0.9 5.7 12.5 1.4 1.3 2030 3.0 1.5 1.0 5.7 12.8 1.5 1.3 Uzbekistan 2006 0.1 0.3 0.3 0.2 0.2 0.5 2020 0.1 0.3 0.3 0.2 0.2 0.5 2030 0.1 0.3 0.3 0.1 0.2 0.4 Source: Traffic Flows Project, Scenario paper

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ANNEX 3

PART 2

TRANSPORT INFRASTUCTURE AND MAIN LOGISTICS NODES

International Logistics Centres for Western NIS and the Caucasus

TABLE OF CONTENTS 1 TRANSPORT INFRASTUCTURE AND MAIN LOGISTICS NODES...... 9 1.1 COUNTRY REPORTS - DIRECT BENEFICIARY TRACECA COUNTRIES...... 9 1.1.1 Armenia ...... 9 1.1.2 Azerbaijan ...... 23 1.1.3 Georgia ...... 43 1.1.4 Moldova ...... 63 1.1.5 Ukraine ...... 81 1.2 COUNTRY REPORTS - INDIRECT BENEFICIARY TRACECA COUNTRIES ...... 109 1.2.1 Bulgaria ...... 109 1.2.2 Romania ...... 127 1.2.3 Turkey ...... 145 1.3 PRELIMINARY LIST OF SUITABLE LOCATIONS FOR LOGISTICS CENTRES ...... 177 1.3.1 Summary ...... 177 1.3.2 Main determinants of an international logistics centre ...... 177 1.3.3 Results to be achieved ...... 178 1.3.4 Methodology of multicriteria analysis for evaluation of the logistics nodes ...... 178 1.3.5 Country specific justification for macro location ...... 182 2 APPENDIXES ...... 201 2.1 APPENDIX 1 – TABLES: STATISTICAL DATA AND INFO - GEORGIA ...... 201 2.2 APPENDIX 2 – TABLES: STATISTICAL DATA AND INFO - ROMANIA ...... 205

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LIST OF FIGURES Figure 1: Old and New TRACECA Maps of Armenia ...... 12 Figure 2: North South Corridor in Armenia ...... 13 Figure 3: MOTC railway terminal ...... 16 Figure 4: Bulk loading facility ...... 17 Figure 5: APAVEN terminal ...... 18 Figure 6: Share of GDP for Transport Sector – 2008 ...... 25 Figure 7: Maritime links of CASPAR on the Caspian Sea ...... 30 Figure 8: Rail Ferry at the berth ...... 31 Figure 9: Port of Baku ...... 32 Figure 10: EU – financed equipment at the container terminal...... 33 Figure 11: Container terminal at the Port of Baku ...... 33 Figure 12: Location of the new port of Baku ...... 35 Figure 13: Individual Logistics Terminals and Warehouses ...... 37 Figure 14: Baku Cargo Terminal – warehouse handling ...... 39 Figure 15: Road between Zestaphoni and Khachuri in Georgia ...... 44 Figure 16: Senaki Railway station ...... 46 Figure 17: Samtredia railway station ...... 46 Figure 18: Zestaphoni railway station ...... 47 Figure 19: Khachuri railway station ...... 47 Figure 20: Rail ferry operation in Poti Port ...... 49 Figure 21: Access road to the container terminal, Status: February 2008 ...... 50 Figure 22: Gate of the container terminal ...... 50 Figure 23: Bert No. 14 Poti Port (the buildings behind do not belong to the port) ...... 51 Figure 24: Aluminium from Central Asia in the Port of Poti ...... 52 Figure 25: Container Terminal Poti ...... 53 Figure 26: Inland Terminal Poti ...... 53 Figure 27: Oil terminal in Batumi ...... 54 Figure 28: Dry Cargo and bulk Berth in Batumi ...... 55 Figure 29: Industrial Free Zone Area Phasing ...... 56 Figure 30: Tbilisi Airport Cargo Handling Facility ...... 57 Figure 31: Tbilisi Airport Cargo Handling Area ...... 58 Figure 32: Land plot near the Tbilisi Airport ...... 58 Figure 33: Land plot near the Airport Tbilisi ...... 59 Figure 34: Cargo Operation at Poti Port ...... 60 Figure 35: Road Network of Moldova ...... 67 Figure 36: Moldovan Railway Network ...... 68 Figure 37: General View of Chisinau Rail Freight Cargo ...... 70 Figure 38: Gantry and Wagons at Chisinau Rail Freight Terminal ...... 70 Figure 39: Control Room at Chisinau Rail Freight Terminal ...... 71 Figure 40: GIFP Master Plan ...... 72 Figure 41: GIFP Oil Terminal Facilities ...... 73 Figure 42: GIFP Container Handling Facilities (Artist’s Impression) ...... 74 Figure 43: GIFP Office Facilities (Photo March 2009) ...... 75 Figure 44: Organisational Structure of Moldovan Transport Agency ...... 76 Figure 45: Location of Moldovan Customs Houses ...... 77 Figure 46: TRACECA map 2008 of Ukraine ...... 84

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Figure 47: International road network of Ukraine ...... 85 Figure 48: E-road network of Ukraine ...... 86 Figure 49: Railway network of Ukraine ...... 87 Figure 50: TRACECA road and railway corridors in Ukraine ...... 88 Figure 51: Important container and combined trailer train routes passing through Ukraine ...... 89 Figure 52: “Viking” system ...... 90 Figure 53: Scheme of Odessa Commercial Sea Port ...... 92 Figure 54: Odessa Port Container Terminal ...... 93 Figure 55: Ilyichevsk Port Container Terminal ...... 95 Figure 56: Scheme of Ilyichevsk Commercial Sea Port ...... 96 Figure 57: LISKI Freight terminal in Kiev ...... 99 Figure 58: Railway station Kovel ...... 100 Figure 59: Cargo Terminal Services ...... 102 Figure 60: Pan-European transport corridors crossing Bulgaria ...... 112 Figure 61: Railway line in Sofia ...... 112 Figure 62: Master Plan of Sofia- Location of the planned Intermodal Terminal ...... 114 Figure 63: Varna West- Bulk Cargo Terminal ...... 116 Figure 64: Container terminal at Varna West...... 116 Figure 65: Varna West- Container Terminal ...... 117 Figure 66: Rail ferry in the Port of Varna ...... 118 Figure 67: Bulk cargo complex in Port of Bourgas ...... 119 Figure 68: Wagon loading station at the bulk cargo complex ...... 120 Figure 69: Cold storage facility at the Port of Bourgas ...... 121 Figure 70: Pan-European Transport Corridors in Relation to Romania ...... 130 Figure 71: Romanian Railway Network ...... 131 Figure 72: CFR Marfă Container Terminal Bucharest Sud (1) ...... 132 Figure 73: CFR Marfă Container Terminal Bucharest Sud (2) ...... 132 Figure 74: CFR Marfă Intermodal Terminal Bucharest Progress (1) ...... 133 Figure 75: CFR Marfă Intermodal Terminal Bucharest Progress (2) ...... 133 Figure 76: CFR Marfă Intermodal Terminal Bucharest Progress (3) ...... 134 Figure 77: Plans of Constantza Port and Satellite Ports Midia and Mangalia ...... 136 Figure 78: General View of Constanza Port ...... 137 Figure 79: Potential Logistics Centre Locations in Romania ...... 142 Figure 80: Locations of BALO Project and TDCC Logistics Villages ...... 148 Figure 81: Old TRACECA route in Turkey ...... 150 Figure 82: Updated TRACECA route ...... 150 Figure 83: Trucks waiting at the border (Turkish side) Mar. 2009 ...... 151 Figure 84: The Turkish / Georgian Border in Sarp March 2009 ...... 151 Figure 85: Railway network of Turkey ...... 152 Figure 86: Industrial lines of Turkey ...... 153 Figure 87: Haydarpasa port ...... 155 Figure 88: Container terminal Haydarpasa, Istanbul. Status: March 2009 ...... 156 Figure 89: Congested access road to the container terminal Haydarpasa, Status: March 2009 ...... 157 Figure 90: Port of Tekirdag operated by AKPORT ...... 158 Figure 91: Ferry links Tekirdag Bandirma and Gemlink. Rail connection Tekirdag – Muratli- Main Railway line ...... 159 Figure 92: Port of Izmir ...... 160 Figure 93: Izmir port Extension area blue marked ...... 160

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Figure 94: Port of Izmir with heavy traffic. Status March 2009 ...... 161 Figure 95: Activities within the Izmir container terminal area. Status: March 2009 ...... 162 Figure 96: Port of Samsun ...... 163 Figure 97: From the blue ship the grain loaded onto trucks to be transported 200 m to the silo. The queuing trucks loaded with grain ...... 164 Figure 98: Unloading of a truck inside a RoRo ferry ...... 164 Figure 99: The area for future rail ferry operation ...... 165 Figure 100: The railways land plot and the rail connection at Gelemen ...... 166 Figure 101: Port of Trabzon: The port of Trabzon with break water ...... 166 Figure 102: Container Vessel in the port of Trabzon March 2009 ...... 167 Figure 103: RoRo ship in Trabzon March 2009 ...... 168 Figure 104: Port of Hopa source: port publication ...... 169 Figure 105: Newly built warehouse for logistics service in Manisa ...... 170 Figure 106: MNG Warehouse next to Istanbul airport. Source: MNG presentation ...... 171 Figure 107: Evaluation scheme - Macro locations for logistics nodes project ...... 180 Figure 108: Total Cargo Revenues 2004-2008 ...... 201 Figure 109: Railway Cargo 2004-2008 ...... 201 Figure 110: Trucking Industry 2004-2008 ...... 202 Figure 111: Air Cargo Handling in 2004-2008 ...... 202 Figure 112: Cargo Revenues in Georgian Ports 2004-2008 ...... 203 Figure 113: Container Revenues in Georgian Ports 2004-2008...... 203 Figure 114: Cargo Traffic by Type of Cargo in the Poti Port 2004-2008 ...... 203 Figure 115: Railway Cross-Border Transportation in 2004-2008 ...... 204 Figure 116: Truck Movement in Export, Import and Transit in 2008 ...... 204

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LIST OF TABLES Table 1: Contribution of the Transport Sector to GDP – Azerbaijan 2002-2008 ...... 24 Table 2: Azerbaijan Total Passenger and Freight Traffic 1997-2008 ...... 25 Table 3: Freight Volume Handled by ADDY in 2004 – 2008 ...... 27 Table 4: Azerbaijan Maritime Freight Traffic 2000-2008 ...... 28 Table 5: Overview Port of Baku ...... 34 Table 6: Cargo handling at Baku Port in 2007-2008 ...... 34 Table 7: Azerbaijan Freight Traffic in 2000-2008 ...... 38 Table 8: Azerbaijan Road Freight Traffic 2000-2008 ...... 39 Table 9: Chisinau Airport: Air Cargo 2006-08 (tonnes) ...... 75 Table 10: Albă – Midia – Năvodari Channel Technical Parameters ...... 134 Table 11: Constantza Port Characteristics ...... 135 Table 12: Road network surface ...... 149 Table 13: Main Hubs analysed for preliminary list of locations at ports, large cities, cross-roads ...... 182

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1 TRANSPORT INFRASTUCTURE AND MAIN LOGISTICS NODES

1.1 Country Reports - Direct beneficiary traceca countries

1.1.1 Armenia

Source: UN Map Database Background Information Introduction Armenia is a land-locked country with a population of 3 million people and a territory of about 30,000km2. Two of the countries’ borders (with Azerbaijan and Turkey) have been closed since the conflict around Nagorny Karabach shortly after independence in 1991. Thus, Armenia is heavily dependent on the road and rail links to Georgia and its Black Sea ports and on a single road connection to Iran. About 65% of the population live in urban centres, the capital Yerevan being the main economic centre with a population of just under 1 million and contributing about 2/3 of GDP. Almost half the population is occupied in agriculture, which generates about 18% of the GDP. The service sector accounts for 32%. Other important sectors are mining, energy and, traditionally, the processing of raw diamonds and other precious stones and jewellery. Armenia is heavily dependent on imported goods. The trade balance reported in 2007 indicates an import-export ratio of 3:1. The main export items are mining products (copper ore concentrate, ferrous metals, etc.), diamonds and foodstuff (including the Armenian brandy, which accounts for about 10% of export revenues).

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Current Economic Situation After stable and significant average annual growth rates of about 12.6% in 2001-2007, the Armenian economy was hit by several blows in 2008 and 2009. Chief among these were falling commodity prices for Armenian mining products, crisis in Russia, causing a downtrend in both remittances and foreign direct investment, and others. As a result, economic activity slowed down dramatically, the trust in the financial system of the country was weakened, causing an outflow of capital. According to the IMF, who provided a US$540 million loan facility to counter the effect of these problems in March 2009, the GDP growth will be negative this year. Current Situation of Freight Transport and Logistics Sector Trucks dominate freight transport (5 million tonnes in 2008 vs. 2,7 million tonnes by rail), although in terms of tonne-kilometres the share of the railway and, especially, pipeline transport is dominant (but the international distance component is included in the statistics). Grain and petroleum products account for more than 50% of Armenian imports by rail via Georgia, mineral ore being the main commodity for export by rail (more than 2/3). Only 1/4 of the traffic volume by rail is generated domestically, cement and other raw materials being the main commodities transported. The development of an efficient transport and logistics sector is still emerging. Most producers and retailers do not refer to logistics services of specialized companies, but organize warehousing, sometimes deliveries and transportation themselves. Sophisticated manufacturing is not developed in Armenia. Consequently, the demand for logistics services from industry is relatively low. International retailer chains have not entered the Armenian market yet. 3PL services are not provided so far. Multimodal transport and logistics are still underdeveloped. The World Bank ranked Armenia 131st out of 150 countries in its Logistics Performance Index in 2007 • Customs and other border control agencies – Rank 118 • Quality of Transport and IT infrastructure for logistics – Rank 143 • Ease and affordability of arranging shipments – Rank 140 • Competence in the local logistics industry – Rank 121 • Ability to track and trace shipments – Rank 113 • Domestic logistics costs – Rank 8 • Timeliness of shipments in reaching destination – Rank 122 The Armenian transport sector is heavily affected by the global financial and economic crisis. Imports, exports and local economic activity are on a downward trend since autumn 2008. Main stakeholders speak of a 47% reduction in operations in March 2009, in comparison with the same month of 2008. Analysis of Transport Infrastructure During the USSR period an extensive transport network had been built in Armenia, based on central planning and dominated by rail. After sovereignty, traffic volumes fell dramatically by over 90%, the whole economy being converted from a heavy industrial to an agricultural/light industry/service economy. Thus, the planned capacity of the inherited existing network is underutilised at current traffic volumes. In 1988, the traffic by road and rail was 320 million tonnes compared to 8,7 million tonnes in 2008 (with the provision that actual traffic is higher than documented in the official statistics).

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As a result of the conflict around Nagorno Karabakh, the borders to Turkey and Azerbaijan were closed, including the main rail/road link through Azerbaijan/Nachichevan to Iran, the main highway from Yerevan to Tbilisi and Russia through Azerbaijan, the railway to Turkey (Gyumri- Kars) and the road connection to Turkey (Yerevan-Karakala). After independence, there was virtual standstill in infrastructure capital and maintenance. For almost a decade the Armenian state (for various reasons: conflict with Azerbaijan, lack of funds, structural and social problems, poverty reduction being the main issue, lack of awareness) was not in the position to maintain the inherited network, adjust it to the change of routes, to a new structure of commodities and new trade patterns. Bottlenecks in infrastructure on the new routes (narrow bridge at the border to Georgia at Bagratashen) remained; new challenges (as for instance rapid household motorisation rates in Yerevan) were not addressed. During the last five years, a major maintenance and investment backlog on interstate roads and other transport facilities has been addressed. However, according to a recent assessment of the ADB, it will take Armenia 6-10 years to focus on routine maintenance of the rail and road infrastructure. International financing institutions participated actively in this process in the fields of road and air transportation in the past. Significant projects are ongoing or in the pipeline at present. Reforms in the transport sector towards an open market economy and efforts of the government to promote export and investment (simplifying customs clearance procedures, reducing bottlenecks in the overall business environment, shortening procedures for registration and licensing, etc.) had positive effects. According to stakeholders, cross-border transportation is much less problematic now, in comparison with previous years, although there is still room for improvement. High transport costs are a major problem in the transport sector and an obstacle for the economy of Armenia and the attractiveness of the country for investment – in comparison with other countries of the European and Central Asian region. Road Network The total road network of Armenia is about 10.000km, with a non-urban network of about 7.700km, 1.560 of them being classified as interstate. Due to the chronic lack of maintenance funds, poor quality of maintenance work (mainly pothole patching) and postponement of repair work, the condition of the road system in Armenia does not meet international standards. International financing institutions have played an active role in the rehabilitation and upgrading of the Armenian road network and are continuing their activities. The World Bank alone took part in rehabilitation of 900km of Armenian roads after independence (source: website of the World Bank in Armenia). Currently the Bank is financing the improvement of some 100km of the rural roads network (“Lifeline Road Network”) in 2009-2010. ADB is contributing to the same programme, financing the rehabilitation of some 213km of the overall rural roads network of about 3.000km. Other projects in the field of promoting rural development (and, subsequently, poverty reduction) by rehabilitation of the rural road network are ongoing (financed by Lincy Foundation and Millennium Challenge Corporation). The ABD provided technical assistance for the elaboration of a Transport Sector Development Strategy for 2009-2019, the results of which were presented at the end of 2008. For international trade and transport and the realization of the transit potential of Armenia the road connections between the Armenian capital Yerevan and the Georgian Black Sea ports Poti and Batumi and the road connection to Iran play a decisive role. Within the Transport Strategy 2009-2019 the following are named as the three first strategic objectives:

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1. Upgrade international and interstate road corridors, in phases. 2. Rehabilitate and develop infrastructure to an economically appropriate standard. 3. Institute sustainable maintenance, adequately resourced and effectively managed. (presentation received from the Ministry of Transport and Communication). As a priority project in the road transport sector, a substantial upgrade of the north-south corridor connecting Georgia and Iran via Yerevan is being promoted by the Armenian Government and supported by the ADB as a result of consultation in September 2008, the first step being assistance for developing the Transport Strategy mentioned above. The new routing of the southern part of the corridor (Yerevan/Sevan – Iran) has been included in the new TRACECA map, published by the EU-financed Traffic Flow project. Figure 1: Old and New TRACECA Maps of Armenia

Source: TRACECA map as on TRACECA-website and the version distributed by the Traffic Flow project The first priority project for the international road network includes upgrading of the road Bavra (Georgian border) – Gumri – Yerevan (Asian Highway 82) and further through Eraskh, Eghenadzor, Sisian, Goris, Kapan to Meghri (Iranian border). This will entail widening to 4 lanes with 3.65m carriageways and grade separation

Further important sections to be newly constructed or upgraded are: • By-pass road Yerevan. • An alternative road in Tatev region, as the existing is hazardous and time consuming due to difficult mountainous conditions (seeFigure 2 ).

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Figure 2: North South Corridor in Armenia

Source: MOTC of Armenia Besides of the main highways there is a lack of bypass roads around the main Armenian cities. For the Yerevan node two possible variants (East and West) are under consideration, construction depending on availability of funds. On the Georgian side, an upgrade of the road connection from the Armenian Border to the Port of Batumi is planned. Thus a future improvement is foreseen for the whole road transport route for Armenian imports and exports. In spring 2009, the ADB first technical assistance mission for the definition of priority sections of the highway Yerevan – Gumri – Bavra is planned. The final report is scheduled for June 2009. Construction/upgrading of the first section will start in the second half of 2009. It is assessed that the upgrade of the whole north-south corridor from Georgia to Iran will take 5-10 years, depending on available funding. Other international financing institutions, such as the World Bank are considering participation in this project. The time schedule for the implementation of the project will probably be postponed as a result of the current international financial and economic crisis.

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Upgrading is also under consideration for the other road connections to Georgia: Yerevan – Sevan – Dilijan (118km) - (further to Tibilisi-Poti, Asian Highway 81). But this is not defined as an urgent priority at the moment. Railway Network The majority of the Armenian railway network was constructed during the Soviet era, as part of the Transcaucasian branch of the Soviet Railways, determined by central planning and designed to handle large traffic volumes (30 million tonnes and 5 million passengers in 1988). The whole network is electrified, based on Soviet standards and on technologies of the Soviet period. After independence, traffic collapsed by 1999 to just 1.5 million tonnes and 1.3 million passengers. By 2008, freight traffic had recovered to 3.0 million tonnes, but passenger traffic continued to decline, to 0.7 million passengers. The rolling stock, mostly inherited from Soviet times, is old. Large parts of the 732km route network are in bad condition, little used or not operational (due to border closures, the conflict with Azerbaijan and the earthquake in 1988). The main line is Yerevan - Georgian border. Speeds are low, due to track condition and the mountainous terrain. Many structures (bridges, tunnels) need major repairs. There was rehabilitation work on somelines during recent years, financed by the World Bank (72km of the line Yerevan – Gyumri – Airum – Georgian border). The Government tendered a concession to operate Armenian Railways as a vertically- integrated system. The Concession Agreement was signed with Russian Railways which has set up a wholly-owned company, South Caucasian Railway (SCR), to operate Armenian Railways. It came into effect on 1 June 2008. The concession period is 30 years with an option exercisable at any time after 20 years for a further 20 years. The fee paid was US$5.5 million plus an annual 2% of gross revenue. SCR is obligated to invest US$572 million by 2035, two- thirds on infrastructure. SCR has purchased the locomotive fleet and other rolling stock. The Armenian Government still owns the fixed assets and access charges will be defined by the public railways authority. With comparatively small distances to be covered to the Georgian ports (680km by rail), low speed and the rehabilitation of the road network, which has unused capacity, the competitive position of the SCR against truck transport is relatively weak. Additional traffic could develop if closed borders were re-opened or new lines to neighbouring countries (Iran for example) constructed. The most promising project in this regard is the re-opening of the railway line to Turkish Kars from Gumri. It may not lead to an increase in transit traffic: between Georgia and Turkey, with support of Azerbaijan, work is under way to open a new railway line from Georgia to Kars. But some traffic (imports from Turkey, land connection to Europe through the Bosporus tunnel) might switch to this new alternative. As mentioned during meetings with stakeholders, Armenian forwarding companies, together with Turkish partners are preparing for this potential opening by acquiring land plots close to the planned border station (where bogie exchange will be needed). On the other hand, there is a risk, that suitable commodities and containers will be trucked from there to destinations in Armenia. At the moment funds are lacking to do the repair works on the line, including major repair of 8 bridges, as the line was not in use for many years. The World Bank has estimated the necessary investment at about US$30 million (source: World Bank PID of 2006). Another envisaged project to stimulate international traffic is the construction of a 47km railway line between Vanadzor and Dilijan (Fioletovo). This would shorten the distance for domestic traffic and, in the event that the Turkish border is re-opened, provide a potential opportunity for

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International Logistics Centres for Western NIS and the Caucasus future transit traffic from Turkey to Azerbaijan. The ultimate potential of this new line is subject to an opening of the border to Azerbaijan (the remaining part from Dilijan to Azerbaijan border is not operational, due to landslides since 1993). This project is currently under consideration with the ADB. The proposed new 470 km railway line from Sevan area to Iran is a very costly project (more than US$1 billion), partly due to its passing through some mountainous terrain, and will not be operating in the foreseeable future. This line would duplicate the closed, but existing, line through Nachichevan. Furthermore, talks are going between Iran, Azerbaijan and Russia about a possiblenorth south railway corridor from Russia to the Persian Gulf, with considerably lower operation and construction costs because of the lower terrain. These factors would hamper international financing for this project. In the future, both railway lines marked on the TRACECA map (from Dilijan to the Azerbaijan border and the formerly main railway connection from Baku along the Iranian border through Nachichevan to Gumri and Kars) could play an important role in the TRACECA corridor. Both are closed at the moment and not operational. Their revival is subject to political decisions and would involve considerable investment. Unfortunately, no meeting could be arranged with SCR during the stay of the experts in Yerevan. The information above was obtained mostly from the MOTC and meetings with the IFIs in Yerevan. Analysis of Main Logistics Nodes The main logistics node in Armenia is the capital itself. There are four intermodal terminals with rail connection in the Yerevan area. One is owned by a closed joint stock company owned by MOTC and the other three are privately owned. Most of the operational multi-modal container handling facilities in Yerevan are located in one area, not far from the Zvartnots Airport and near to Erubeni military airfield, on Aratyan Street, which is running parallel to a railway line connecting this formerly industrial area to the rail network. During the expert mission in February 2009, the following facilities were visited. MOTC Terminal Presently the terminal belongs to the Government. The terminal is eventually going to be privatised but it is not yet decided whether this will be in the form of a JSC. Formerly the container terminal belonged to the Armenian Railways, has not been included in the concession of SCR, and is now a 100% Government enterprise. Although the territory of the terminal generally belongs to this company the container operations area, which had been built by the railways (with un-loading and loading by cranes), is still under the Armenian Railways (the remaining company). During the meeting with the Minister of Transport and Communications it was indicated that this problem will be solved soon. Plans about a (partial) privatisation of the MOTC terminal are under discussion. During the meeting an interest of the SCR was mentioned; there is no clear decision from the MOTC yet. Road access to the terminal is sufficient, the location of the terminal is only 2-3km away from the nearest junction to the highway, and there is a plan to construct a bypass road in this part of Yerevan. There is no possibility for extension of the present terminal area, which currently occupies 5ha. This is considered too small for a possible logistics centre. There are no warehouse facilities at the terminal at present.

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If the annual turnover is 5,000 containers or more, the terminal will need to find the necessary warehouse space. The required space might be more than 30ha, The traffic figures are to be confirmed by the feasibility study of the project of the new railway line to Iran. Figure 3: MOTC railway terminal

The terminal handles mostly containers arriving or departing by rail. In 2008, the turnover of the terminal was 4,500-5,000 containers. The main part of the containers carried by rail wagons goes via Poti, in transit through Georgia. The peak of activities is autumn when harvest of fruits etc. takes place. For 2009 a decrease by 20% is foreseen. Apaven terminal The second container handling terminal in Yerevan, visited during the expert mission, was the terminal operated by Apaven Co. Ltd., historically a freight forwarding company. This is located at Abelyan Street, not far from the MOTC rail terminal. Apaven was founded in 1993 and has offices in Tbilisi, Poti and Batumi. It also has its own trucks, as it owns two trucking companies in Georgia and one trucking company in Armenia. The total fleet is 100 trucks. Road access is sufficient at the moment, see the neighbouring railway terminal. The company is offering full services for its usual customers, the range of goods being broad. Fuel, oil products and liquid gas are the main exceptions. Apaven offers combined rail-road services and moderate storage facilities (3,000m2., mainly used for customs clearance). Transport routes served are mainly going via Poti port; 90% of the turnover goes via Poti and Batumi. Trucks and rail wagons go directly to Poti (transit through Georgia). The connection to Iran is being developed, in order to send goods by road to/from this direction. The considered future rail connection is seen as a substantial business development option. The company has a 50% market share of containers in Armenia. The turnover in 2008 of Apaven’s terminal was 10,000 TEU (outgoing + incoming).

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Apaven Company has got a container terminal with two portal cranes (one with a lifting capacity of 55 tonnes). There are 3 railway tracks in the terminal. Other terminal equipment includes 8 fork-lifts and 2 locomotives. The share of container transport by railway and truck respectively is fifty-fifty. For Ro-Ro (trucks with trailers) the turnover in 2008 was 9,800 trucks. Around 50,000 trucks came in from Iran to Armenia in 2008. Of these, 9,000 were served in Apaven’s terminal. There is also bulk handling and loading to rail wagons (copper ore concentrate, trucked from the mines by the company’s own trucks). In 2008, there was 90,000 tonnes carried in 1,250 rail wagons. Figure 4: Bulk loading facility

Before the crisis, the terminal was at the limit of its capacity concerning container handling and considering extension (plots on the other side of the railway line, cold-storage warehouse). There is a Customs clearance office located in the terminal area as well, including a customs brokerage service. Negotiation is ongoing with a bank to establish a bank office to facilitate payment of fees etc. related to Customs clearance. After the crisis, the company’s revenue went down by 47% (from month in 2008 to month in 2009). The company kept its clients, but they had problems themselves of decreasing revenues. At present the capacity is sufficient and investment plans are on hold. Apaven acquired a land plot near the Turkish border in the Shirak Marz/region, at the first railway station in Armenian territory. In the event that the border is opened, the company plans to have a fifty-fifty joint-venture with a Turkish freight forwarding company, which has bought land at the first railway station on the Turkish side.

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Figure 5: APAVEN terminal

Trans-Alliance Freight Forwarding Company and terminal The head office of Trans-Alliance is in Yerevan. There are offices also in the company’s container terminal (in Yerevan) and in Tbilisi, Poti and Baku. The partners for sea transport of containers are Maersk, MSC, and CMA-CGM (French company). The company is mainly dealing with land container transportation between Yerevan and Poti Port. The modal split between rail and road transportation is fifty-fifty. The company mainly deals with combined land transport and cooperates with partners in sea transportation. The company has its own customs container terminal in Yerevan (located in the same area as the rail cargo terminal and Apaven’s terminal). Trans-Alliance does not deal with trailers (Ro-Ro) and air cargo. In the terminal, the company has 6,600m2 of warehouse space. The storage is mainly in the containers, including refrigerated containers, mainly for storage before passing Customs clearance; after this the client must take the goods out only, minor amounts of goods are kept for traditional storage. There is a customs office in the terminal owned by the company. It does not do complete customs clearance as yet, only inspections. However, it is foreseen to have customs clearance fully established in the terminal, including a bank office and customs brokerage services. Trans-Alliance provides some loading/unloading service, with special equipment, for containers. Incoming containers (imported via Poti) contain all kind of goods, including even construction materials. If the volume of construction materials is modest, e.g. only up to 20 tonnes, containers are preferred to bulk transport. The origin countries of containers are EU, China, sometimes US. Bulk cargo is mainly imported via Poti from other CIS countries. The majority of exported goods is scrap (in bulk) going to China and India. Molybdenum concentrate is exported to Europe.

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In 2008, the company’s throughput of import containers was 10,000 TEU (5,800 containers), i.e. 85% of the total. Exports accounted for 545 containers, i.e. 15% of the total. Around 90% empties returned from Armenia. There is no expansion possibility for the existing terminal location. Due to the global financial and economic crisis activity has slowed down. Throughput in January-February 2000 was 70% lower than a year before. Air Cargo hubs Air cargo has less importance for the Armenian transportation market than other transport modes. There are only two international airports in Armenia: Zvartnots in Yerevan and Shirak near Gumri. The latter is used as a regional airport and an alternate to Zvartnots during bad weather conditions. Erubeni airport, located 3km from Zvartnots in Yerevan, is mostly used by the military, although civil helicopters and general aviation are allowed use this airport too. Nine other local and regional airports, inherited from Soviet times, are not operational at the moment. Both international airports are operated and maintained under a 30-year concession by Armen- ian International Airports (AIA), which has the right to extend the agreement. The concession agreement for Zvartnots was commenced in 2001. The complete operation started from 2003. AIA’s concession was expanded to include Shirak in 2007. Zvartnots has a 3,850m single runway and can accommodate ICAO class E4 aircrafts, B747- 400. In 2006 a new terminal building was opened. In 2008, 1.5 million passengers and 10,800t of air cargo were handled at Zvartnots. The airport has a modern air cargo centre with 10,000m2 of warehouse space, fully equipped and with a capacity of 100,000t per year. Reportedly, adjacent land with rail access are included in the concession, to be developed as a multi-modal logistics centre by the concessionaire. During the expert mission there was no possibility to interview the airport operator. Analysis of Stakeholders in Freight Transport and Logistics Sector Ministries and Related Public Authorities Ministry of Transport and Communication The Ministry of Transport is responsible for transport policy, regulation and planning of roads, road transport and railways. The ministry is in charge of development and implementation of transport strategy and implementation of the state investment policy in the field of transport. The main priorities of the transport strategy (among others) are to develop and revive international transport corridors, and to manage demand and balance modal supply to reduce congestion. Armenian Roads Directorate (ARD) The Armenian Roads Directorate (ARD) as a non-commercial state organization assists the MOTC in management of interstate and republican roads (including rural roads redesignated as republican). ARD is organized into divisions for: (i) planning and feasibility studies; (ii) procurement; (iii) construction monitoring; (iv) maintenance monitoring; and (v) safety. The road safety group is also responsible for traffic surveys, analysis and safety audits. ARD also has environmental officers. Railway Authority within MOTC The Railway Authority was created within the new railway law to facilitate the concessioning of the railway. The new organization will have responsibility for concession supervision, ensuring safety and reviewing the audited accounts of SCR.

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General Department of Civil Aviation Civil aviation is the responsibility of Office of the Prime Minister, through the General Depart- ment of Civil Aviation of the Government of the Republic of Armenia (GDCA) which oversees the regulation of air transport. The primary functions of the Department are to: (i) provide safety oversight of the users’ agencies involved in civil aviation; (ii) interpret ICAO Recommendations and Standards regarding air transport safety, security and facilitation; (iii) establish regulations relating to all manner of civil aviation; and (iv) collect civil aviation statistics and report on air transport activity. State Revenue Committee The Armenian Customs Service has been integrated into the newly founded State Revenue Committee. Given the land-locked situation of Armenia, the closed borders to two neighbouring countries and the country’s import-dependence, the removal of customs barriers and trade facilitation are strategic issues. The Customs Service is responsible for cross-border cooperation, namely with Georgia, on customs issues. Logistics Service Providers The market for logistics services in Armenia is currently emerging. The sector (at least as far as container transport is concerned) is dominated by a few freight forwarders, offering some logistics services. There are also a large number of small and micro transportation companies. The national companies mainly concentrate on the typical logistics services: road freight and rail freight. Warehousing and distribution are mostly done by producers or retailers themselves. The main problem is a lack of logistical know-how by the national logistics providers and lack of investment in logistics infrastructure and modern technology. Freight Forwarding Companies The core businesses of the big Armenia freight forwarding companies are import logistics from the Georgian ports and Iran and some export operations. Few are offering customs clearance services additionally. The focus of these companies is on road transportation. The majority of national freight forwarders own private fleets of trucks. The warehouse and storage facilities are limited. The prices of services of freight forwarders in Armenia are very high. The main reasons for this are a lack of competition in the transportation market, and high transportation costs due to lack of adequate infrastructure. Operators of Transport Infrastructure The operation of the railway and main airport infrastructure has been given on a concession basis to private operators. The infrastructure itself remains state property, the concessionaires taking responsibility for the development of infrastructure during the concession period. Operators of Logistics Nodes There are container transhipment facilities, offering some additional services, only in Yerevan at the moment. No significant development of the warehousing sector or logistics parks is evident yet, although some warehouses (most only road-connected) have been built by private companies in recent years. Railway Operators The railway operator is South Caucasian Railways, a 100% subsidiary of Russian Railways. Access of other companies to use the infrastructure is granted by the concession agreements, the tariffs for this potential use being established by public authorities.

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Chamber of Commerce During a meeting with representatives of the Chamber of Commerce of Armenia the main transport and logistics issues from the point of view of local entrepreneurs were raised: • An International Logistics Centre in Yerevan would be welcomed and some members of the Chamber could potentially be interested in making investments and/or using the facilities of an ILC; the Chamber could be interested in joining the ILC, e.g. as board member. • If/when the Turkish border is reopened, an alternative or complementary location could be in Gumri (in the Shirak/Marz region) around 130km from Yerevan. Gumri is located close to the border with Turkey and bordering Georgia. • A stronger role of the – cheaper – railway transport was stressed, as high transport costs are hampering Armenian exports. In this regard a new railway connection to Iran may be promising. • Customs services need to be further improved. Missing Links and Bottlenecks in the Transport and Logistics Network The main missing links are the severed cross-border connections to Azerbaijan and Turkey, including the closed TRACECA rail route through Nachichevan; with respect to Turkey, there is visible movement to resolve this issue. Intermodal capabilities and modern logistics are underdeveloped in Armenia. The existing logistics nodes will not cope with future growth, and possibilities for their extension seem to be limited at the moment. The railway is in a difficult competitive position due to relatively short distances, low speed caused by infrastructure conditions, and ongoing improvement to the road network to the main destinations (Georgian ports). At present, there is no blocktrain service from Yerevan to Poti or Batumi. The lack of competition, intermodality and fast and competitive railway connections are the reasons for the extremely high transportation costs in Armenia, which hamper exports and investment. Border control issues need to be further improved, in co-operation mainly with Georgia. Conclusions and Initial Recommendations The interviews with the main stakeholders of the transportation sector and visits to facilities in Yerevan made clear that there is a necessity for an International Logistics Centre (ILC) in Armenia. At the macro-level a location in or near Yerevan is very promising. Yerevan is the main transport node of Armenia. It is located in the middle of the country and thus serves north- south transport flows well. 75% of the industry is concentrated in the Yerevan area. Railway access is required and offered in the Yerevan location as well. A potential specific location could be in the industrial south-western part of the city, on the way to the airport, where there is railway access. Road infrastructure has to be further improved. In particular the north-south corridor is important for attracting further international traffic to Armenia. There is potential to attract further cargo (previously trucked) to the railway, if the line to Turkish Kars is opened and container flows are synchronised with the Turkish block train schedules. The upgrade of the railway network will result in higher average speed. Recent statements by the Turkish Government indicate, however, that this opening is subject to the opening of the Armenia-Azerbaijan borders.

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A consolidation of the present container handling in Yerevan in one logistics centre would create sufficient cargo flow to allow regular block train services to compete with trucking. Such a logistics centre could also be used for consolidation of small consignments for export and domestic transportation.

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1.1.2 Azerbaijan

Source: UN Map Database Background Information Introduction Azerbaijan covers an area of about 86,600 square kilometres on the south-eastern flanks of the Caucasus Mountains bordering the Caspian Sea, between Iran and Russia. Its population was 8,6 million in 2007. Azerbaijan is the least urbanised country of South Caucasus, as only 56% of its population lives in urban areas. Azerbaijan is one of the world’s oldest oil exporters. The oil industry and transit for regional oil reserves remain central to its economic future.The two major pipelines to the west, the Baku - Supsa (Georgia) and Baku – Tbilisi – Ceyhan (Turkey) are the most important pipelines for Central Asia and Europe bypassing Russia. Agriculture is also important, with the country benefiting from fertile farmland and a diverse climate that allows the cultivation of a wide range of crops. In recent years, Azerbaijan has faced a major oil boom. Azerbaijan has put into place both the infrastructure needed to realize rapid growth in oil and gas exports as well as a credible framework to effectively manage the increase in resource flows. But the oil boom will not exceed 15-25 years, and the challenge ahead is for Azerbaijan to ensure growth in the non-oil economy.

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Current Economic Situation The economy of Azerbaijan has been facing difficulties common to many of the ex-Soviet republics since independence. During the late 1990s, in cooperation with the International Financial Institutions (IFIs) and other internationals organizations, Azerbaijan pursued a successful economic stabilization program, with annual growth exceeding 10% since 2000. Real GDP rose 10.2% in 2004 and accelerated to 34.5% in 2006 and in 2007 its growth was recorded as 25%. The national statistics analysis of 2008 data shows 10.8% growth in the economy. The latest IMF assessment of performance of the Azerbaijani economy against the backdrop of the global recession took place in December 2008. According to IMF, the economy maintained a very strong growth performance over the first 10 months of 2008. Growth in the oil sector is estimated at 10 percent. The non-oil sector, namely construction, services and agriculture, grew at about 15 percent responding to the fiscal stimulation programme. The outlook for 2009 was quite uncertain. Current Situation of Freight Transport and Logistics Sector Azerbaijan is well situated on the crossroad of major international traffic routes including the Silk Road. The TRACECA, regional Baku-Alyat-Ganja-Kazakh-Georgian Border corridor, and the north-south corridor from Russia via Baku to Iran are of great importance. The international road network is generally well developed and is being constantly upgraded. The rail transport sector is not in optimal condition but workable. Maritime transport plays an important role, especially for the oil industry. There are direct maritime connections with Iran, Kazakhstan, Russia and Turkmenistan. The Volga-Don canal also provides Azerbaijan with maritime access to the high seas, if the licences for the transit are obtained. Oil products are the main maritime transport commodity in the Caspian Sea. There is also scattered containerized transportation for the oil industry: equipment spare parts, machinery, chemicals or food supplies. Logistics Performance Indicator The World Bank logistics performance indicator ranks Azerbaijan 111th out of 150 countries analysed. Within this overall ranking are the following rankings for individual components of logistics performance: • Customs - rank 95 • Infrastructure - rank 116 • International shipments - rank 90 • Logistics competence - rank 128 • Tracking & tracing - rank 96 • Domestic logistics costs - rank 87 • Timeliness - rank 124 In 2008, the freight transport sector accounted for 5% of Azerbaijani GDP. Its share of GDP started to decrease in 2005 and levelled at the amount of 5% due to the rising share of the oil sector in the economy. Table 1: Contribution of the Transport Sector to GDP – Azerbaijan 2002-2008 Year 2002 2003 2004 2005 2006 2007 2008 % of GDP 7,3 7,3 7 6 5,3 4,7 5

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Figure 6: Share of GDP for Transport Sector – 2008

Table 2: Azerbaijan Total Passenger and Freight Traffic 1997-2008 1997 1998 1999 2000 2001 2002 Passengers, ’000 605,370 693,907 727,269 748,264 769,948 773,346 Freight, ’000 tonnes 33,798 40,563 53,756 65,122 76,131 82,614 2003 2004 2005 2006 2007 2008 Passengers, ’000 791,182 816,080 852,657 902,142 972,713 1,041,732 Freight, ’000 tonnes 92,779 99,172 109,472 117,651 119,855 127,320 Source: Ministry of Transport, Azerbaijan Current demand for LCs At meetings conducted with freight forwarders, transportation firms, importers and exporters, representatives favoured the idea of a regional logistics centre to consolidate and organize more efficient distribution of cargoes. The respondents also elaborated on the features of a logistics centre (a) to be established in a free trade zone, (b) to provide bonded warehouse facilities and (c) to function as a distribution centre. Most interest was expressed in the first and third of these possibilities Analysis of Transport Infrastructure The reduction in investment in the transport sector, combined with strong traffic growth in recent years, has caused a steady deterioration in the condition of the infrastructure and rolling stock. This has yet to be fully addressed. The public road network (25,013km) is sufficient in terms of both length and coverage for interregional road transport in Azerbaijan, as well as for international connections with neighbouring countries. However, as with rail, the condition of road infrastructure is close to critical (61% of roads in poor condition). Road Network Azerbaijan occupies a key location in the regional transport network of the southern Caucasus. The country’s east–west road routes carry traffic between the Caspian and Black Seas on a section of the TRACECA corridor linking Asia to Europe.

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The country’s north–south road routes connect the Russian Federation and Iran. Road links are disrupted with Armenia because of the unresolved issue of Nagorno-Karabakh. Travel between the mainland and the detached enclave of Nakhichevan is by air or by road through Iran. Nakhichevan has a 33-kilometre strategic border with Turkey. Like other sectors, Azerbaijan’s roads are facing the challenges of the transition from a centrally planned to a market-based economy. Although many important laws, regulations, and procedures are in place, the major challenge is related to implemention. In this regard, a number of issues need to be addressed, particularly in the areas of road maintenance, axle-load control, and road safety. The public road network in Azerbaijan comprises 25,013km of roads, out of which 4,498km are in the Nagorno-Karabakh area. The total length also includes 2,078km of roads in the Nakhichevan Autonomous Area. The public road network in mainland Azerbaijan (excluding Nakhichevan) falls under the jurisdiction of the Road Transport Service Department. Nakhi- chevan has its own road agency, named Nakhavtoyol. In terms of ownership, roads in Azerbaijan are divided into state, municipal and private roads. The state roads are divided into four classes: M - Major arterial roads; R - Collector roads; K - Minor arterial roads; Y - Local roads. Eight roads are classified as M-roads, and sixty-six as R- roads. The M-roads are the following: 1. Baku - Guba - Russian Border (Ml- 199km); 2. Baku - Alyat - Yevlakh - Georgian border road (M2-498km); 3. Alyat - Astara - Iranian Border (M3-243km); 4. Baku - Shamakhi -Yevlakh (M4, 180km); 5. Yevlakh - Zagatala - Balaken (M5); 6. Hajiqabul - Ali Bayramli - Saatly - Zangilan (M6); 7. Ordubad - Nakhichevan (M7); 8. Nakhichevan - Sadarak (M8). Approximately 52% of the roads are paved (all M roads are paved), 47% gravel, and the remainder are earth tracks. The road network was primarily developed under the former Soviet Union for higher than current traffic volumes. Due to lack of resources for maintenance, about 75% of the network is in poor condition. Based on the road condition data available, 61% of the east–west and north–south highways, 76% of other national roads, 66% of secondary roads, and 76% of rural roads require rehabilitation. Only 191km are four-lane highways. In recognition of the importance of improving the road network to facilitate socioeconomic development, the Government embarked on a transport development program (2005–2014), starting with the east–west and north–south highways. The Government is also finalizing a program for improving secondary roads. Potential for improvement Azerbaijan has developed regulations to limit vehicle axle load to 13 tonnes, but enforcement is still weak. As a result, vehicle axle overloading is prevalent. Surveys conducted shows than around 20% of 4-axle trucks, 5-axle trucks, and buses exceeded the axle-load limit. Heavy vehicle weights are one of the primaries causes of rapid pavement deterioration and damage to bridges. Most technical standards and specifications for road design, construction, and maintenance date from the Soviet era. Although the standards are based on sound technical principles, they contain rigid criteria for upgrading road capacity that are based on traffic volumes and do not

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International Logistics Centres for Western NIS and the Caucasus consider the level of services or economic viability. The inappropriateness of such standards for a market-based economy is widely recognized; they need to be updated to reflect the needs and economic resource base in the country. Railway Network The current network of railways is about 2,122km, of which 805km are double tracked and 1,317km are electrified on the overhead system at 3kV DCThe railway network is over 30 years old and around 40% of the track length needs to be rehabilitated. The locomotive fleet has been heavily-used and is technically obsolete: about two thirds of the fleet requires replacement and modernization. In general, the main railway assets are about 60% life-expired. Azerbaijan State Railway (ADDY) is the sole main line rail operator in the state of Azerbaijan. ADDY is a state owned enterprise that operates under the direction of the Ministry of Transport of the Republic of Azerbaijan. The main routes consist of a west-east link from the Black Sea ports of Georgia and the Georgian capital Tbilisi to Baku on the Caspian Sea, where there are connections to train ferries operating to Aktau in Kazakhstan and Turkmenbashi in Turkmenistan. There is also a north-south link operating from the Russian border near Makhachkala to the Iranian border at Astara, and an east-west line linking Baku to Nakhitchevan that is currently non-operational. In addition, there are a number of small branch lines radiating from the main routes and an intensive rail network in the Apsheron peninsula surrounding Baku. While passenger services are profitable in terms of surplus of passenger revenue over direct operating costs, they are not based on long term profitability, measured in the ability to fund capital renewal or refurbishment of locomotives and rolling stock. ADDY is in discussion with international banks regarding the provision of capital to fund the purchase of new equipment and repair facilities to allow them to embark on renewals. ADDY’s freight statistics is shown below: Table 3: Freight Volume Handled by ADDY in 2004 – 2008 HUNDRED THOUSAND ('000,000) TONNES PER ANNUM 2003 2004 2005 2006 2007 2008 Internal 5,376.8 5,525.2 7,333.5 Import 3,527.4 4,897.9 5,755.7 Export 2,298.6 2,845.5 6,104.7 Transit 9,142.5 7,402.6 7,327.7 Total 20,385.3 20,674.2 26,201.6 29,687.0 28,007.3 27,391.6 Much of the volume of rail traffic is represented by a crude oil volume, for which rail remains the most significant transportation mode. Oil traffic represented 75% of all traffic in 2008, however the transportation of other goods by rail started to increase. This implies growth in transport of steel products (140% growth), cement (64% growth), foodstuffs (266% growth) and chemicals (82% growth) has had a major impact on the overall carryings. Much of this traffic is imported into Azerbaijan by rail from Georgia and Russia. It should be noted that there has been a shift in emphasis between transit and export traffic. The draft railway law proposes an EU type railway structure with separate operating and infrastructure companies and transparent accounting arrangements. This will go a long way to making future financing requirements clear. The east-west line between Baku and Tbilisi carries the most traffic (20 to 25 train pairs per day), with the line north from Baku to the Russian border carrying the second highest (about 10

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International Logistics Centres for Western NIS and the Caucasus trains per day). These lines are double tracked and electrified. The remaining lines are single track and diesel operated. All of ADDY’s main lines were designed to be operated at 80km/h for freight and 100km/h for passenger services. ADDY’s infrastructure has seen limited investment in the last 15 years, and significant sections are due for rehabilitation. Much of the rail track and rolling stock is in need of repair or replacement. Of the total track length 70% is electrified, while the other 30% is operated by diesel traction. 1,512km of the railway routes are equipped with full automatic block signalling giving high route capacity on single and double line sections, while 479km of the rest is equipped with semi-automatic block control by a centralised dispatcher with no intermediate signalling between passing loops. The railways has 176 stations, 2 of which – Bilajari and Shirvan – are big automated sorting stations. 12 stations have container depots with the necessary handling equipment for 20’ containers, 3 stations – Keshle, Gandja and Khirdalan – can handle 40’ containers. ADDY’s two main lines are electrified at 3kV DC. ADDY has 204 two-section electric locomotives in its fleet, of which 96 are in active use. Some 46 of these are under 15 years old. The remaining units are VL-8 locomotives of more than 35 years of age. The VL-8 locomotives are beyond their design life and are experiencing a high level of failures: roughly one failure per locomotive per month. These locomotives will need to be rehabilitated or replaced soon. 3kV DC electrification is not widely used, although it exists in Georgia, Armenia and some parts of Russia. ADDY has identified a manufacturer of new 3kV locomotives and a number of options exist for renewing and modernizing the 3kV locomotive fleet. ADDY would like to convert its electrification to the more general European standard of 25kV AC, but has recognized that the capital cost of convertinon is likely to be prohibitively expensive. De- electrification and using diesel power is also a potential option. ADDY’s freight wagon fleet is also aging. ADDY has more wagons in aggregate than it needs, with 7,771 wagons in the working fleet, another 10,162 wagons that are usable and spare, and a further 5,655 wagons could be rehabilitated if they were needed. ADDY, however, anticipates shortages of semi-wagons and tank wagons in the near future. Maritime sector Sea and and inland waterway cargo transportation is of vital importance for the country. Azerbaijan has direct maritime connections only with other Caspian littoral states (Iran, Kazakhstan, Russia, and Turkmenistan). However, it can reach the high seas via the Volga-Don canal or through Georgia by rail or road to the Black Sea. Azerbaijan has also limited shipping activities on other basins. For the coming future it is essential to develop the maritime infrastructure and fleet to satisfy growing demand, in terms of both volume and quality of service and including intermodal containerised cargos. This demand is coming mainly from the oil industry in the Caspian basin. Table 4: Azerbaijan Maritime Freight Traffic 2000-2008 Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 Freight (’000 tons) 8.779 10.247 11.381 13.272 13.209 13.682 13.507 10.173 11.898 The Government has decided to relocate the existing International Seaport in Baku to Alyat, 65km to the south at the intersection point of TRACECA and north-south corridor road and rail corridors. This decision is under execution and the masterplan for the new port should be ready by June 2009 including a land plot for a logistics centre.

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Air network The domestic air network links regional centres. The demand is relatively high (up to 50% of the air passenger traffic) due to the specific situation of the Nakhichevan. Azerbaijan has 22 airports, of which only five are fully operational: Heydar Aliyev International Airport at Baku and the regional airports at Ganja, Lenkoran, Zaqatala and Nakhichevan. Heydar Aliyev International Airport is located 25km east of downtown Baku. Being the busiest in the Caucasus, the airport is the home of Azerbaijan Airlines, the national flag carrier. During 1998 and 1999 the airport was almost completely renovated. The airport has two runways, Heading 16/34 which is 8,858 feet long and heading 18/36 which is 10,498 feet long. The rehabilitation of Nakhichevan Airport was completed in May 2004 and can now receive 300 passengers per hour. The project included a new cargo terminal and runway. Project cost was estimated at US$54M. The other three airports are of minor importance for cargo operation. Analysis of Main Logistics Nodes Sea Ports General The maritime industry of Azerbaijan consists of state owned companies with a monopolistic behaviour. These are Maritime Administration and Caspian Shipping Company: The Maritime Administration of Azerbaijan is the national regulatory body for implementation of State policy in the maritime sector. It is responsible for safety of navigation, help to navigators, service of waterways and channels, management of ship movements and pilotage, as well as hydrographic services. The Caspian Shipping Company (CASPAR) is a biggest ship owning company of the region. Its basic activity is the transportation of freight, with a prevalence of petroleum and petroleum products. CASPAR carries out its commercial operations in an independent way and contributes to the Government and general funds through taxes on revenues and payments to the social fund. The company determines its tariffs for freight and passenger transport. It is active mainly in the Caspian Sea, the Black Sea and the Mediterranean, and to a lesser extent in the Sea of Marmara. The General Director of the Company is appointed by the President. Some freight is brought to the Caspian Sea from the ports of the Baltic and the Black Sea and Mediterranean basins through the Volga-Baltic and Volga-Don navigable systems of Russian inland waterways. This is mostly destined for the ports of Iran. More than 70% of CASPAR’s activities are in the Caspian Sea, where it faces hardly any competition. Kazakhstan, Russia and Iran are carrying out shipping activities at a lower level. Turkmenistan is not involved in commercial shipping.

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Maritime links of CASPAR on the Caspian Sea Figure 7: Maritime links of CASPAR on the Caspian Sea

CASPAR owns a fleet of 86 vessels, of which 41 are tankers (including 1 water-carrier), 35 are universal dry cargo ships, 2 are Ro-Ro type and 8 are marine railway cargo-passenger ferries. The total deadweight tonnage of the fleet is 443,782 tonnes. The volumes of non-oil cargo transported by CASPAR are low (12% of the total) and the number of passengers transported dropped drastically in recent years, to 18,400 in 2005 in comparison with 1,122,000 in 1997. CASPAR’s operations were criticised for unreliable departure and arrival schedules, and for high freight rates. The International Sea Trade Port of Baku (ISTPB) In the former Soviet Union all of the ports of the Caspian Sea, except the Iranian ports, were part of CASPAR. Nowadays, the ISTPB functions as an independent State Own Enterprise. The berth facilities at the Dubendi Oil Terminal belong to ISTPB but are rented out to the company Middle East Petrol.

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Figure 8: Rail Ferry at the berth

Baku is the largest port in the Caspian Sea. Spread along the seashore of Baku Bay, Baku Port mainly comprises a ferry terminal, a container terminal, the fishery port and the oil terminals with refineries. The former timber terminal was converted in 2000 into a modern oil handling facility. The port and port facilities are owned by the public sector and managed by ISTPB, which had a near-total freight handling monopoly in the past. Competition comes from operations of the former timber terminal, now oil terminal, operated by AZPETROL; the Dubendi Oil Terminal operated by Middle East Petrol; and the supply port of Sahil operated by oil companies.

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Figure 9: Port of Baku

The ISTPB operates 365 days per year, 24 hours per day. Port, facilities and equipment are suitable for handling all major commodity groups including containers. Some of the equipment requires total replacement or is in need of repair. The new container handling equipment financed by an EU TACIS project appears to be in good condition, however rarely used due to very low volumes of containers. In the framework of the said EU project one warehouse was completely refurbished and dedicated as a container freight station. The construction of an internal container yard (however without direct connection to berths) as well as the supply of relevant handling equipment, as part of the EU TACIS programme exceeding US$3.0 million, was finalized in 2002. The first small container depot for shipping agencies has been established.

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Figure 10: EU – financed equipment at the container terminal

The port was also used as a station for switching cargo between the road and rail transport modes. The administrative departments as well as the operational staff of the terminals can now communicate and exchange data via an EDP network. Figure 11: Container terminal at the Port of Baku

The proposed EBRD financing of the rehabilitation of the ferry terminal, costing around US$20 million, was rejected by Port Authorities in 2002.

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However, with the assistance of the EU TACIS TRACECA budget (US$1 million) ISTPB has refurbished its navigational aids equipment in Baku and Dubendi terminals. The port has seventeen berths, of which five are dedicated to crude oil and petroleum products, two are used for passengers, and the remaining ten handle timber and other general cargo. The port can accommodate vessels up to 12,000 tonnes, and its facilities include portal cranes, tugboats, and equipment for handling petroleum and petroleum products. The port area has 10,000m2 of covered storage and 28,700m2 of open storage. Table 5 gives the technical details of the port. Table 5: Overview Port of Baku Particulars Baku

1 Position: ϕ = 40,0° 23,0‘ N; λ = 49,5° 51,0 ‘ W 2 Nautical details Protected /Bay Depth (depends on wind direction) 3 6 to 9 m Draught alongside 4 Anchorage two inside the bay, one outside 5 Pilots Available, compulsory only for foreign vessels 6 Customs In the port 7 Maintenance and repair facilities Available, also shipyards 8 Railway connection Adequate 9 Shore-based railway ramp Existing 10 Road connection Adequate 11 Cranes 18 cranes of 6 to 40 t Since 1990, cargo handled in the Port of Baku dropped dramatically. The figures for 2003 and 2004 show a recovery compared with the level of throughput in 1995. The results were mainly due to a large increase of the handling of liquid cargo reaching a level of 4Mt. In the past about 85% of the cargo handled in the port of Baku consisted of dry transit cargo. At present there is hardly any dry cargo in the Port of Baku. Container traffic via Baku is also very modest. Table 6: Cargo handling at Baku Port in 2007-2008 2007 2008 Port total – ’000 tonnes 7,250 7,860 Oil terminal – ‘000 tonnes 3,843 4,228 Dry cargo terminal – ‘000 tonnes 125 136 Container terminal – ‘000 tonnes 17 85 Containers (TEUs) 1,000 1,500 Ferry terminal – ‘000 tonnes 3,265 3,412 Rail cars (number) 43,665 45,487 Cars (number) 3,000 3,252 New port of Alyat Azerbaijan is located at the crossroads of north-nouth and east-west corridors. The physical crossing point for road and rail links is the Alyat region. Some 30km North of Alyat is the oil terminal of Sangachal and on the road between them are many well established oil industry service companies. In 2007 the Government decided to move the current port facilities out of the capital city Baku. The new port will be built within 5-6 years on a completely new site 70km south of Baku, near Alyat settlement, thus giving easy and fast access to both rail and road connections on east-

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International Logistics Centres for Western NIS and the Caucasus west and north-south corridors. 1st Phase development will include the construction of following facilities: • dredged areas such as access channel, turning/manoeuvring basin and harbour basin; • reclamation area; • coastal revetments; • breakwater; • quay walls and jetties as required in the first phase: - one standard finger pier for ferries (one berth at either side); - three dry cargo berths inclusive of container berth; - one port fleet service berth (tugboats, pilot vessels etc.); - one Ro-Ro berth. • Onshore facilities (buildings, communications and utilities, roads, etc.); Near to Alyat there are a number of industrial sites including rail sleeper manufacture, a rail wagon washing facility for “Thermo” wagons, a rail repair facility for “Thermo” wagons, and operating chemical and cement factories. About 30km south of Baku there are privately owned commercial logistics centres operated by the forwarding companies Murphy and Bertling. The basic business of these companies is to serve the oil industry, but they are also in the process of expanding their activities to encompass other freight movements in Azerbaijan and neighbouring countries. Already many private enterprise companies have established a base in that region. Figure 12: Location of the new port of Baku

The Ministry of Transport envisages that the new port will be the real hub for all transport and logistics. A logistics centre is included in the master plan of the new port. Inland Hubs and Terminals Transport facilitation is an important requirement for Azerbaijan’seconomic growth and part of this requirement is the need to generate greater efficiency and coordination between all transport modes.

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Private enterprises have recognised the potential of the country and are developing facilities for their own strategic needs (for example Murphy Shipping terminal, Baku Air freight Terminal). The overall coordination and integration of the regional transport system is not being considered. In October 2001, the EBRD received a business plan and a set of technical documentation from AZERTRANS for the creation of the first logistics centre for motor transport in Azerbaijan, located at their motor transport terminal in Binaghadi, near Baku. It was planned to offer services like customs-free storage, packing, labelling of various goods, consolidation, distribution etc. The proposed facilities would include a 2-way warehouse, multi-store storage premises, container yard, rail link to the terminal, hotel, unloading and loading equipment, parking area for trucks, vehicle service centre etc. It was planned to purchase trucks for long haulage and city distribution to provide future customers with distribution services. The total estimated cost of the project was US$1.6 million. This project has never been implemented. The list below depicts various individual logistics centre initiatives in Azerbaijan: • Baku Airport area • Lenkoran Airport area • Gandja Airport area • Baku Port Complex and Dry Freight Terminal • Samur/Yalama area (Russian border) • Astara area (Iranian border) • Qazakh area (Georgian border - road) • Beyuk Kesik area (Georgian border - rail) • Zakatala/Balaken area (Georgian border – road) • Gandja TIR terminal • Baku TIR terminals • Yevlakh, new terminal for Murphy • Bertling cargo terminal • Alyat, at the point where the N/S and E/W road and rail corridors cross • The potential new port complex in Sangachal/Alyat area • Sangachal Azerpetrol terminal • Sangachal fruit and vegetable consolidation point • Baladoak rail terminal • Kischli container rail terminal – plenty of room for expansion • TransGlobal distribution points • Panalpina distribution points • M&M distribution points • All road and rail border crossing points in Azerbaijan along the two main transport corridors

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Figure 13: Individual Logistics Terminals and Warehouses

Air Cargo hubs The air freight transport sector in Azerbaijan is relatively small in volumetric terms when compared to the other modes of transport, but it represents more than 20% of transport income (2005). It provides a vital service support role in the development of trade in the region and its role is expected to grow rapidly within the strategic planning period. This is due to the projected increase in higher technology industrial activity and greater presence of overseas joint venture companies, both of which are expected to be major users of airfreight services. Airfreight should be considered as the premium transport mode, in terms of both cost and the services being offered. The main requirement for Baku Airport to increase its penetration of the air freight market is to improve its facilities and equipment in order to retain existing airlines and attract new carriers. Baku Cargo Terminal Baku Cargo Terminal to the north of Baku is an international airport with a modern cargo terminal. Here private and state-owned cargo offices provide air freight forwarding and air logistics activities as a regional hub for deliveries to Azerbaijan and for transit to many locations including Pakistan, Dubai and China Baku Cargo Terminal was opened in March 2005 and it is the largest one in the CIS. Equipped to international standards, the terminal will allow servicing such cargo planes as Boeing 747 and Antonov 124. The terminal was built by local Khazar Construction Company. Construction

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International Logistics Centres for Western NIS and the Caucasus materials were delivered from the USA, Great Britain and Canada. The new facility is among the top 10 terminals in Europe. The total investment was US$19.5M. The terminal building area is 12,000m2. The total apron area is 163,000m2. The apron area provides space for handling 9 B-747/AN-124 aircrafts or up to 15 IL-76s. The 3,500m CAT-3 certified runway can land aircraft in close to zero visibility. Daily turnover of cargo at the terminal is 160-200 tonnes, which is far below its capacity. The warehouse is equipped with modern facilities for handling large dimension cargo, and perishables. There are coolers and freezers, a safe room for valuables, and special facilities for all types of dangerous goods ranging from explosives to radioactive items. It operates as a hub and transit consignments are being transported through the country to the United States, Great Britain, France, Germany, China, Afghanistan and Ukraine, as well as Central Asia. The volume of cargo transported via the airport increased by 25% in 2004. The figure was 10% in regional countries and 8% around the world. The most important strategic carriers from a freight perspective are CargoLux (Luxembourg), Lufthansa (Germany) and Silkway Airlines (Azerbaijan). Table 7: Azerbaijan Freight Traffic in 2000-2008 Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 Freight (‘000 tonnes) 37 31 31 52 75 74 73 52 42 Analysis of Stakeholders in Freight Transport and Logistics Sector Ministries and Related Public Authorities The Ministry of Transport and Communications The Ministry is supervising the project of reallocation of the Port of Baku to Alyat, and supporting the establishment of the international logistics centre within the territory of the Alyat port. This is already envisaged by the Port Master plan. Port Administrations The Administration of the Port of Baku is involved in the development of the Port Master Plan. The Administration supports the idea of creation of the logistics centre at Alyat. Logistics Service Providers Murphy Shipping Murphy Shipping and Commercial Services is a private enterprise JV that operates a modern logistics area some 30km south of Baku, near Sangachal. This logistics centre is only used for Murphy Shipping clients’ cargo. At this location it operates an intermodal rail/road and warehouse storage facility with a bonded warehouse service and can also provide airfreight and maritime links for clients based on complementary services provided by other companies in Azerbaijan. The site started as a speculative venture based on existing contracts and contacts in the oil industry and has slowly branched out into other transport areas as demand is identified. Additionally, Murphy has developed another logistics centre in Yevlakh on similar lines as this Baku site, but on a smaller scale, for road and eventually rail transit traffic to and from Georgia. Murphy compete in an open market with all other freight forwarders such as Blue Water, Transglobal, K&N, Bertling and Panalpina and have also to compete against the small, unregistered companies in the market that need to be better controlled by the government.

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Figure 14: Baku Cargo Terminal – warehouse handling

Trucking Companies The environment for road transport services is competitive in Azerbaijan. The private sector accounted for more than 95% of freight and passenger transport in 2003. The state-owned road transport operators were largely privatized and foreign road transport operators are allowed to set up their businesses. Freight charges for domestic road transport are determined based on market conditions, though the Government sets tariffs for cross-border and international transit vehicles. No vehicle licensing has been required since September 2003, but the Government introduced it at the end of 2005 to enhance axle-load control and improve road safety, which is implemented to limited extent. Table 8: Azerbaijan Road Freight Traffic 2000-2008 Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 Freight (‘000 tonnes) 40,430 50,463 53,738 59,070 65,214 69,518 74,384 81,622 87,989 Operators of Transport Infrastructure The National Railway Company (ADDY) is the main railways infrastructure operator. Azerbaijan Airlines (Azeri: Azərbaycan Hava Yolları - AZAL) is an airline based in Baku, Azerbaijan. It is the state-owned national airline operating scheduled passenger and cargo services from Baku to the CIS, Europe, China and the Middle East. Its main base is Heydar Aliyev International Airport (BAK).

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Shippers and Consignees State Oil Company (SOCAR) Being one of the major player in the oil industry in Azerbaijan, SOCAR is also active in shipping and operates its own fleet. However the operations are limited to transportation of its own materials and products within Azerbaijan’s territorial waters to supply its offshore installations. This company has the potential to become a client of a logistics centre since some equipment supplies, chemicals for explorations and machinery for oil industry arrive to Azerbaijan in containers. AZPETROL (Oil Terminal – Baku) & AZERTRANS (Sangachal Oil terminal) From the time of its establishment in 1997 to mid-2005 Azpetrol has been a national company operating a network of state-of-the-art petrol and LPG stations, meeting international standards and providing high quality services to its clients on the country's fuel sale market. It controls more than 50% of the domestic fuel market. The company had an oil depot and a fleet of trucks fitted out with modern foreign-manufactured electronic equipment, a reliable fire safety system, and an alarm and safety system, all of which comply with the international requirements. Azpetrol's facility in Baku has the capacity to handle 10 million tonnes of oil and oil products per year. The recently-built Sangachal terminal of Azpetrol, managed by AZERTRANS, has a similar capacity and will handle transhipments of oil from Kazakhstan. Azertrans, which is a member of the Azpetrol group of companies, with its Baku and Sangachal terminals is involved in transportation of oil and oil products from Kazakhstan and Turkmenistan (totalling 3.3 million tonnes in 2005). At the dnd of 2005 the construction of the second 30-inch (76cm) pipeline connecting the oil terminals of Azertrans Ltd. and British Petroleum-Azerbaijan in Sangachal has been completed. Putting the pipeline into operation demonstrates Azerbaijan’s readiness for the transit of Kazakh oil to world markets through the BTC pipeline, which starts from the Sangachal terminal at the Caspian seashore. The supplies for oil industry could be handled and distributed via a proposed logistics centre in the vicinity of Baku. Missing Links and Bottlenecks in the Transport and Logistics Network The transit corridors (TRACECA and north-south) need improvement in order to ensure future growth of traffic. Up to 45% of regional and local roads, which play an important social role in rural areas, are deteriorated. In country areas the poor road condition hampers all-year access. The condition of the rural roads also causes vehicle damage and increases the volume of emissions. The most significant bottleneck is the ferry connection to Turkmenistan for trucks. The visa regime is very complicated and time consuming. Consequently road traffic to Central Asia via Turkmenistan is practically non-existent. Intermodal traffic, especially container traffic to Central Asia, is underdeveloped. One of the major reasons is the lack of a liner service across the Caspian Sea with sufficient capacity. The International Seaport of Baku is situated in the centre of the city of Baku. All transport via this port has to cross the city, causing congestion. Road transport regulations allow a maximum axle load of 13 tonnes, but about 20% of all heavy vehicles exceed this limit causing deterioration of roads and bridges.

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Even having improved the custom procedures at border crossings at the point of final custom declaration, trucking and freight forwarding companies still report cases of irregularity. It was also reported that the EU standard documents are not always accepted. Conclusions and Initial Recommendations Achieving Azerbaijan’s potential as a transit country is essential for non-oil economic development. There are a number of reasons to expect that the long-anticipated regional transit corridor will take off over the next few years: • Growth of the regional economy lead by two of Azerbaijan’s biggest and fastest growing neighbours: Russia and Kazakhstan. • Implementation of the EU Neighbourhood Policy (ENP) including the three South Caucasus countries will likely bring closer trade links within the region and with Europe. • The specific situation of Azerbaijan on the Caspian Sea ensures Baku’s becoming a regional logistical trade hub. International organizations’ studies project a dramatic rise in transit cargo volumes, in line with oil and non-oil related investments. In 2008, the transit cargo through Azerbaijan (around 37Mt) rose by 2,5% and more than 55% of these cargoes were transported by rail. Oil and oil products are dominant, with up to 75% of the total transit traffic). Therefore transit conditions on the territory of the republic should be improved, developed and continuously made competitive with alternative international transport corridors. Reinforcement of the two transit corridors has to acommodate growing trade between Europe, the Russian Federation and Asia. The Transport Sector Development Strategy was elaborated to face this and other long-term challenges. Establishment of the new Port of Aylat is an important component of the strategy. The problem of the visa regime with Turkmenistan is being handled at high political level to find a solution. The first trials have been made with Volga–Balt type vessels carrying containers. This type of vessel can carry about 100 TEU. These initiatives are recommended for further development. The Government of Azerbaijan is recommended not only to focus on the adoption of regulations and rules but also on enforcement, execution and control procedures. This goes hand-in-hand with improving socio-economic status of the staff of the execution authorities. Regular public consultations with stakeholders on implementing policies are recommended. The shipping business is recommended to explore the potential for regular container services to the other Caspian ports to link the Caucasus with Central Asia. The potential ILC is recommended to be located within the new port of Alyat, as envisaged by the port master plan. The location meets all the prerequisits of the international logistics centres. Further investigations and coordination with stakeholders will be needed at phases B and C.

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1.1.3 Georgia

Background Information Introduction Georgia's geographic location makes it an important transport link between East and West (the Black Sea and the Caspian Sea) and North and South (between Russia and Turkey). The location of Georgia as entrance to the Southern Caucasus and TRACECA corridor with its ports of Poti, Batumi, Kulevi and Supsa gives the country a superior position in transportation of oil, and oil products from Central Asia and Azerbaijan. The pipelines from Baku to Supsa and the Baku-Tbilisi-Ceyhan (BTC) pipeline are of strategic importance in the world energy policy. With its gates Georgia is the beginning of the transit corridor from the Black Sea to Armenia and Azerbaijan. Current Economic Situation Georgia is natural resource rich. In addition, the country’s Black Sea coast, mountains, and cultural history offer strong tourist potential. The economy of Georgia is dominated by tourism at the Black Sea coast; tea, citrus fruits and wine production; and the mining of copper and manganese. In addition, the industrial sector produces machinery, chemicals, textiles and metal ware. Georgia has to import most of its energy in the form of natural gas and oil products. However, recent investments in oil exploration have indicated oil and gas potential.

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The only energy reserve currently exploited is hydropower for electricity. Consumer goods and food stuffs are also imported to a major extent. Transport plays a significant role in the economy of Georgia. Regional trade offers a window of opportunities for the Georgian economy, especially realising its potential as a transit country. According to IMF, real economic growth suffered a dramatic decline from 12½ percent in 2007 to an estimated 2 percent in 2008, after a sharp contraction in the second half of the year. Current Situation of Freight Transport and Logistics Sector General Overview The share of road transportation has increased in Georgia in recent years. Most import cargo is transported by truck to the final destinations in Georgia. The fleet of trucks has been consequently modernised during the last years. The trucking industry works predominantly on behalf of the forwarding industry, but sometimes their services are in competition with the forwarders. Figure 15: Road between Zestaphoni and Khachuri in Georgia

In fact, combined services are not well developed in Georgia. The main obstacle is a lack of intermodal infrastructure and cooperation between the transportation companies. The only combined operation in place is handling from ship or rail to truck or to inland terminals and final destinations. In almost all cases the forwarding industry is involved in the hinterland transportation. The single transport document is very rarely used. The main players on the Georgian transportation market are the freight forwarding companies. The service portfolios of the freight forwarders are very limited. Their core business is import/export logistics. There is a big demand for complex logistics service providers, which the

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Georgian logistics companies are not able to meet due to their lack of know-how and experience. There are underdeveloped warehouse facilities in Georgia. The existing warehouses are characterized by poor infrastructure conditions, outdated equipment, low service levels and extremely high storage prices. Logistics Performance Indicator The results of the recently completed World Bank study are not covering a logistics performance indicator and ranking for Georgia. Analysis of Transport Infrastructure Road Network The total road network in Georgia has about 20,300km, thereof about 7,900km1 are paved and in a very good technical condition. With the help of the International Financing Institutions the improvement process continues. Presently negotiations are ongoing with the Japan Bank of International Cooperation (JBIC) for a loan to finance the “60-70 Kuisi”, a Zestaphoni – Samtredia road section with a length of about 60km. The project is to start in 2010. Negotiations are ongoing with the ADB to finance a feasibility study for the Ajara bypass road, including the Kobuleti and Batumi bypasses. The total construction budget is estimated at more than US$100 million. The WB funded projects include: • East–west highway improvement from Againi to Igoeti 43km-55km (Phase 1). • East–west highway improvement from Igoeti to Sveneti km55-km80 and up to Gori (Phase 2). • East–west highway improvement from Gori up to Tanu Sveneti-Ruisis km80-km95 (Phase 3). This phase will also include rehabilitation of the existing Rikoti tunnel. The phase will not include a widening of the existing 2-lane cross section, but widening to 4 lanes (e.g. in the form of two tunnels with 2 lanes each) will be included in future plans. Presently there is only one short section of toll-road (on E60 between Kashuri and Tbilisi). As from 2020, proposals for concession contracts (PPP) are to be presented (e.g. in the form of a BOT model). So far this is only in the conceptual stage. Railway Network The railway network consists about 1,600km, mostly broad gauge and electrified2. The main railway network predominantly lies on a west-east axis, connecting the Black Sea ports to Tbilisi via Samtredia, Zestaphoni, Khachuri and Gori, From Tbilisi a line go east into Azerbaijan and to the Caspian Sea at Baku. Two more lines go south into Armenia, one of which then branches west into Turkey.

1 CIA – The World Factbook – Georgia (2006) 2 CIA – The World Factbook – Georgia (2006)

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Figure 16: Senaki Railway station

Figure 17: Samtredia railway station

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Figure 18: Zestaphoni railway station

Figure 19: Khachuri railway station

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From Poti to Senaki the line has single track, from Senaki to Samtredia double track. From Batumi to Samtredia a single track line is in place, from Samtredia to Zestaphoni double track. From Zestaphoni to Khachuri only 4km are single track while the remaining section is double track. There is a double track from Khachuri to Tbilisi, from Tbilisi to the Azerbaijani Border (Gardobani) and from Tbilisi to the Armenian Border (Sadakhlo). The new Azerbaijani financed railway line to Kars in Turkey via Akhalkaluki is under construction. Finalisation is planned for 2010. The J-Park in Poti (enlargement of the shunting facilities) including new office facilities for booking, paying, custom clearance will be finalised by the end of 2009 There are projects planned to be realised in the short term with an investment of US$500 million. The main one is the railway bypass of Tbilisi to the north of the city. Financing is expected to come equally from the EBRD and the EIB. Further, mainly in connection with the Poti Industrial Free Zone project, the railway line from Senaki to the junction Poti/Kulevi should have a second track. Another project is the link between Zestaphoni and Khachuri. It is foreseen to have the line with double track and improved geometry: in places the radii are only 200m and there are gradients of 2.9% in the mountain section. The railway authority intends to tender a concept and feasibility study. The Railway indicated at the meeting that the assistance from Europe Aid would be appreciated. Analysis of Main Logistics Nodes The findings below are based on the field missions. This included site visits to the major ports of Poti and Batumi as well as various locations around Tbilisi. Reports on the capacities, facilities and the overall condition have been prepared. These reports also contain information on the bottlenecks identified. The summary information of the analysis is presented below. Sea Ports The ports of Poti and Batumi are the main hubs for goods coming to Georgia by sea. The information below is a summary of the site visit to Poti and Batumi. Poti Sea Port The operation and management of the Seaport of Poti has been concessioned to RaK Georgia, a 100% daughter company of the Ras-al-Khaimah UAE member-state. The new management is to improve the operations and also to invest in port modernization. Poti is the biggest container port in Georgia with about 220,000 TEU per annum. The turnover and the detailed ports descriptions are outlined in the annex.

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Figure 20: Rail ferry operation in Poti Port

The two most urgent investment projects are the access road to the port and the rehabilitation of berth no.14 to be used as a multipurpose terminal. The access road is in the ownership of the Poti municipality. RaK Georgia has offered to take over the rehabilitation provided that Municipality of Poti sells the access road and a land strip 2m wide along the road to allow it to be widened. However, no result has been achieved so far in this respect. The photos in Figure 21 and 22 show the access road and the entrance gate to the container terminal.

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Figure 21: Access road to the container terminal, Status: February 2008

Figure 22: Gate of the container terminal

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Berth no. 14 has not been used for more than a decade. Its technical condition is badly deteriorated. Figure 23 below gives an impression of the situation. During the last 10 years the Port of Poti has made some investments. The breakwater has been rehabilitated and a tug boat has been bought. Inside the port no major repair or investments in the field of dry cargo operation have been made. Several areas of the port are rented out to private companies for their operations. The new owner of the port only owns the land where these companies operate. The investment for the rehabilitation of the berth no. 14 is estimated at up to US$4 million and should be finalized by the end of 2010. This berth should be operated as a multi purpose terminal with a water depth of 11m. For cargo handling mobile equipment will be purchased. Figure 23: Bert No. 14 Poti Port (the buildings behind do not belong to the port)

The infrastructure investments sponsored by the European Commission – i.e. the rail ferry ramp and the parking area next to this ramp – are still in good condition. It is planned to build an industrial free zone to the North of the Port of Poti. This project is initiated by RAKIA Georgia, a consortium managed by Ras-al-Khaimah. In Poti Sea Port the storage of goods in covered and uncovered areas is possible, but limited.

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Figure 24: Aluminium from Central Asia in the Port of Poti

Weaknesses The present practice of container operation at the port is costly and time consuming. This is caused mainly for lack of storage facilities in the port. So, due to absence of storage areas in the port the inland terminals have to be used. The arriving containers are directly loaded on truck and transported to one of the eight inland terminals in the vicinity of Poti.

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Figure 25: Container Terminal Poti

Figure 26: Inland Terminal Poti

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Sea Port Batumi The seaport of Batumi has been rented out to two different entities. The port of Batumi is the biggest port in liquid cargo handling. More then 9 million tonnes of oil and oil products are shipped annually via Batumi. Figure 27: Oil terminal in Batumi

The oil terminal and the conventional cargo and bulk berths, excluding dry cargo berth no.6 and the rail ferry ramp, is on a lease contract for 49 years with a Kazakhstan based company.

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Figure 28: Dry Cargo and bulk Berth in Batumi

The container terminal, ferry ramp and berth no.6 is leased by the Manila based ICTSI Group for almost the same period of time. While the container terminal is completely renovated and new mobile equipment has been purchased (see detailed report) the conventional port is still not in good condition. A mobile crane with 36t capacity was purchased a year ago. In Batumi Sea Port the storage of goods in covered and uncovered areas also is possible. The size and dimension of the storage facilities are described in the appendix. Weaknesses In the port the operational areas of the berths nos 6 and 7 are used to marshal the rail cars before leaving the port. In fact, the operation areas are used as a shunting yard. In addition, the access rail is crossing the main road of the TRACECA corridor from Turkey to Azerbaijan and causes congestion. The issue of absence of modern equipment is acknowledged by the port management. It is planned to invest in total US$15-20 million for new gantry cranes and renovation of tugboats. In the next 2 years up to US$5 million are planned to be spent. Conclusion Ports of Georgia Both ports are in working condition. They can still be operated as the entrance gates to the Caucasus states and the transit route to Central Asia. Nevertheless, investment is needed. The project “Industrial Free Zone” with its new port in Poti will attract traffic to the corridor.

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Figure 29: Industrial Free Zone Area Phasing

Inland Hubs and Terminals Dry cargo destined for Georgia is carried in mainly by trucks. More than half of the freight is directed then to warehouses at Tbilisi and to Kutaisi, Rustavi and several smaller cities. The cargo arriving in Tbilisi is scattered around the city at several locations, but the dominant terminal is Lilo-1. Lilo-1 Ltd is a private company and the biggest customs and warehouse terminal in Georgia, located in Tbilisi 5km east of the International Airport. There is also an old railway terminal in Tbilisi operated by Intertrans, which has a road connection. Tbilisi also has an opportunity to become the country’s inland hub. To a certain extent the warehouse LiLo-1 could be seen as inland hub. However, from a connection and operation point of view this warehouse is nearly 100% truck oriented. Most of the cargo to be distributed is unloaded in the warehouse. (The facilities could not be visited.) In other Georgian cities, e.g. Kutaisi and Rustavi, the same operation is practiced. If goods are not directly delivered by truck the final destinations, they are directed to warehouses. The ports of Batumi and Poti possess storage capacity for general cargo but not for containers. The containers are handled outside the port in inland or hinterland terminals. Weaknesses Both Intertrans and LiLo-1 inland terminals in Tbilisi are old and in need of investment. The LiLo-1 terminal needs major repair of warehouse and storage facilities. The usage of Intertrans terminal is only based on a ten-year lease contract, of which 6 years are left. The terminal is located in the middle of the city. This causes traffic congestion and impacts the environmental amenity of the city. The access road to the terminal is unpaved and in very poor condition. The terminal is very small and there are no expansion possibilities. According to

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International Logistics Centres for Western NIS and the Caucasus the plan of the city municipality the railway network should be relocated outside of the city. In this case the existing terminal will become less important. Air Cargo hubs Georgia has three international airports: Batumi, Kutaisi and Tbilisi. The airports of Batumi and Kutaisi are of minor importance for air freight. The main airport with 90% of the total air cargo is Tbilisi International Airport, operated by TAV, a Turkish company. The air cargo is handled by specialised companies. These companies are situated within the airport with direct access to the airfield. They have to have special storage facilities and custom bounded areas. The air cargo handling companies also organise distribution for air cargo. The total cargo handling was approximately 17,000t (including humanitarian goods) in 2008, of which 500t was for exort. However, because of the global financial and economic crisis these figures are decreasing. A 25% decrease is expected this year. Air cargo handling is outsourced to two companies, which lease equipment from the airport owner as well as having some of their own. Both companies have storage areas and custom bonded facilities. They also possess truck fleets for the distribution of cargo. The split of air cargo between the two companies is 85%/15%. The larger company is completing construction of a new cargo handling facility and has indicated its interest in participating in a logistics centre provided it is located close to the airport. It was pointed out that their own and rented land plots could be made available for a logistics centre. Currently there are three land plots, each of about 30ha, under consideration for a logistics centre. However, the access road to this location is not paved. The railway line is also not maintained. But the land plots are very close to the airport and the trunk TRACECA railway line. The main highway to the east on the TRACECA route is at a distance of an about 3 km. Figure 30: Tbilisi Airport Cargo Handling Facility

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Figure 31: Tbilisi Airport Cargo Handling Area

Figure 32: Land plot near the Tbilisi Airport

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Figure 33: Land plot near the Airport Tbilisi

Analysis of Stakeholders in Freight Transport and Logistics Sector Ministries and Related Public Authorities The principal governmental body related to the transport sector in Georgia is the Ministry of Economic Development. The responsible unit is the Transport Administration. There are also sector specific authorities: the Road Agency and the Maritime Administration. For import of cargoes the Customs Department is involved too. Regional and Municipality Authorities The overall planning of infrastructure especially in urban areas is stipulated in the city development plan (Transport and Traffic Master Plan). Freight Forwarding Companies Almost all cargo shipments to Georgia are organised via the forwarding industry. These companies have their corresponding facilities on the place of destination, contracts with the trucking industry and the possibilities of direct booking with the railway companies. Railway Operator Georgian Railway LLC is a state-owned corporation, but the government wishes to privatize it with separation of the ownership/management of infrastructure from the operation of passenger and freight services. The railway has concentrated on three core activities: 1. Passenger service via a Branch Company 2. Infrastructure, Electric, Track dealing with • Planning • Financing • Maintenance

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• New construction 3. Freight services • Traction • Rolling Stock • Freight – Terminals • Stations • Dispatching • Schedules All other activities are outsourced already or going to be outsourced. Shippers and Consignees Currently, there exist only a few regular services from or to the ports of Georgia. Batumi has the MSC Container Vessel line twice a month and the Rail Ferry with two calls per month to Burgas and Ilyichevsk. All other calls are shipped with chartered tonnage. Figure 34: Cargo Operation at Poti Port

Trade facilitation institutions Several donors are looking at methods to improve Georgia’s transport and infrastructure. hey include the EU via national programmes and via TRACECA: the USA via USAID, Millennium Challenge Corporation, Overseas Private (OPIC) and EXIM Bank; the World Bank; EBRD; and the Japan Bank for International Cooperation (JBIC). The Millennium Challenge Georgia (MCG) has allocated over US$100 million for construction and reconstruction of roads in Georgia for a multi-year programme.

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In the classical way trade facilitation is under the jurisdiction of the chamber of commerce and the associations of transport and forwarding firms. In addition, the City Governments or the National Government are facilitating transport sector with their targeted development plans. Missing Links and Bottlenecks in the Transport and Logistics Network As mentioned before, the main bottleneck of the Port of Poti is the access road to the container terminal. The rail connection is also problematic. However, a second rail track has been built by Georgian Railways to connect the port to the rail network. The Batumi Sea Port and the container terminal with the rail ferry ramp share the same railway access. Conclusions and Initial Recommendations Tbilisi It was not possible to meet the management and to visit the largest terminal and warehouse LiLo-1 in Tbilisi. This will be done during further investigations. Storage and distribution functions are managed in several locations in Tbilisi mentioned above. There are several land plots, owned by different companies near the airport, which could qualify for the development of an International Logistics centre. Ports The project “Industrial Free Zone” with its new port in Poti will open opportunities to develop logistics facilities and add container handling capabilities, which are limited in the existing ports, provided that the project will be realized as planned before the economic crisis. Currently, the forwarding industry is not aware of the advantage of logistics facilities used in common in a logistics centre. Their main concern is that several competitors are supposed to be allocated at the same centre and customers may switch to a competitor. Therefore, a follow up on increasing awareness of the advantages of the logistics centres will be provided.

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1.1.4 Moldova

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Background Information Introduction

Moldova is a small south-east European country comprising one-third of the territory of the former principality of Moldavia plus a narrow strip of land to the east of the River Dniestr. This strip is now known as Transdnistria3 and is under the de facto control of a separatist movement. The rest of Moldavia now forms parts of Romania, whose border with Moldova follows the River Prut, and Ukraine. Moldova’s population of 4.3 million (July 2009 estimate) is 78% Moldovan/Romanian, 16% Ukrainian/Russian and 6% other ethnic minorities. The population has declined due to a low fertility rate and large-scale temporary emigration to find employment. The Moldovan language is very close to Romanian. Russian is also widely used and has a special status; for example laws are written in both Moldovan and Russian. The terrain is rolling steppe with a maximum elevation of 430m. The climate is mild, giving Mold- ova comparative advantage in agriculture, with 77% of its territory under cultivation. The country is landlocked except at its southern tip, where it has access to the River Danube 134km from its mouth through the new Port of Giurgiulesti. A TRACECA link was recently added on the new TRACECA map. It connects Giurgiulesti to the capital, Chisinau, supplementing the two pre- existing links numbered 17 (14 before the most recent changes to TRACECA map in December 2008): • Ilyichevsk – Odessa – Tiraspol (main city of Transdnistria) – Chisinau – Ungeny (across the border from Yassy, Romania). • Klimentovo (Ukraine) – Rybnitsa – Ungeny. In addition the following non-TRACECA corridors pass through Moldova: • Pan-European Corridor IX (Moscow-Kiev-Bucharest) passing through the capital Chisinau. • TEN Corridor 9 (highway). • TEN Corridor 7 (rail/river). Current Economic Situation Agriculture accounts for 17% of GDP and 40% of employment. The country is well-known for its wine and brandy. Vegetables, fruit and tobacco are also important crops. Manufacturing, much of it agriculture-related, accounts for 22% of GDP and 16% of employment. There are no major mineral deposits and the country is dependent on imported energy. A disproportionate share of manufacturing industry is located in Transdnistria, including power generation, cement, textiles, machine tools and steel milling. Its control by the separatist regime is a serious loss to the Moldovan economy. Heavy dependence on the Russian economy, in particular its wine market and energy supplies, has been a serious problem. In 1998 Moldova was hit hard by the Russian financial crisis. Then in 2005 Gazprom cut off gas supplies; a Russian-owned power station in Transdnistria cut off

3 Also referred to as ‘Transnistria’ and in Ukraine, as Pridnestrovie.

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International Logistics Centres for Western NIS and the Caucasus electricity supplies; and the Russian Federation banned imports of Moldovan wine and other agricultural products because of alleged contamination. The Moldovan economy is heavily import-dependent and suffers a wide trade imbalance. Imports were equivalent to about 64% of GDP in 2007 while exports were only 24%. Much of the difference is made up by remittances: 25% of the population of working age are abroad. Average per capita income in 2008 was equivalent to about US$1,420 (PPP US$2,440). Rural poverty is a serious problem, reflected in the disparity between agricultural production (17% of GDP) and employment (40%). 30% of the population officially lives below the poverty line. This had fed the emigration and trafficking referred to above. Moldova’s economic performance has been encouraging, however. By 2007 it is thought to have regained the 50% drop in GDP that it suffered in the 3 years following the dissolution of the USSR. Average economic growth was 6%pa during 2000-05, before the interruption of energy supplies and agricultural exports to Russia. It was about 5% in 2007 and forecast to exceed 7% in 2008, buoyed by gross fixed capital formation equivalent to 36% of GDP. But, like every other country in the region, Moldova has been hit hard by the global financial and economic crisis. No authoritative recent statistics are available, but interviewees reported a 70- 90% drop in transport volumes, which suggests a significant economic contraction. The collective GDP of all CIS countries was estimated to have declined by 11% between January 2008 and January 2009, and it is almost certain that Moldova fared worse than the average. The main component of Moldova’s economic development strategy is the establishment of nine free economic zones (FEZs) around the country. It is hoped that emigrant workers will be tempted back by new employment opportunities associated with the FEZs, bringing with them skills learned abroad. Continuing expansion and development of Giurgiulesti International Free port (GIFP) is considered to be an important contributor to the FEZ project. Current Situation of Freight Transport and Logistics Sector General Overview The freight transport sector is small but has experienced rapid growth. In 2007 (the latest year for which official statistics are available) the total freight transport volume was 40.8 million tonnes. The road and rail shares were respectively 71% and 29%. The total freight transportation services was 5,865 million tonne-kilometres, with rail accounting for 53%. The air and river modes together accounted for less than 0.5% of total freight transport volume and total freight transportation services. Since 2000 the road freight freight transportation services increased by 152%, the rail freight transportation services task by 106%. However road freight operators report a 70% decline since 2007 as a result of the global financial and economic crisis, and rail freight volumes have reportedly declined by 85-90%. Private Moldovan operators carry 65% of the road freight and another 18% is mixed public/ private. Foreign operators carry 12%. Transit traffic accounts for 40% of road freight movements in Moldova and Moldovan hauliers are active in TIR traffic, travelling as far as China. According to AITA Moldova ranks 4th in the CIS for TIR activity, with 8,500 TIR trips in 2008.

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Logistics Performance Indicator The study of the World Bank suggests the overall rank of Moldova as 106 out of 150 studied countries. The rank is combined of the following performance evaluation results: • Customs – rank 110 • Infrastructure – rank 128 • International shipments – rank 105 • Logistics competence – rank 112 • Tracking & tracing – rank 86 • Domestic logistics costs – rank 79 • Timeliness – rank 111 Analysis of Transport Infrastructure Road Network The motorway network is essentially cruciform (see Figure 35 below) with Chisinau at the centre of the cross. From Chisinau the M14 runs north past Beltsy; the M3 runs south to Giurgiulesti; the M1 runs west in the direction of Bucharest; and the M21 runs eastward through Transdniestria and into Ukraine to join the M5, which links Kiev to Odessa and Ilyichevsk. The top investment priorities in the roads sector are as follows, in order of importance: • Rehabilitation of the M3 from Chisinau to Giurgiulesti. A feasibility study has been completed, with TRACECA funding and detailed engineering design is under way. The estimated cost of the rehabilitation works is €750 million. The northern half of the road (Chisinau–Comrat) is to be funded jointly by the Moldovan Government and the EBRD; the southern half (Comrat– Giurgiulesti) by the Millennium Challenge Corporation (MCC, an US Government agency) from a total budget of $300 million for the Moldovan roads sector. • Improvement of the M13 from Beltsy to Chisinau, a distance of 135km. This is the busiest highway in Moldova, carrying 15,000 vehicles per day. The improvement works are expected to be financed by EBRD. • For the longer term, consideration is being given to developing a road transport link through Moldova linking western Ukraine to the ports of Odessa and Ilyichevsk, offering a more direct route than via the Ukrainian city of Vinnitsia (240km south-west of Kiev). Investment in road rehabilitation and improvement is constrained at present, because the EBRD and World Bank halted their involvement in road projects in Moldova due procurement irregularities. However, the EIB and MCC are still active in the roads sector. The condition of Moldova’s road network is far from uniform. Some links are good and others are bad or very bad. The problem of road maintenance has been addressed in previous reports. For example the World Bank’s Moldova Transport Strategy Update in 2002 classified most of the network as either ‘poor’ or ‘extremely poor’; reported that annual funding for maintenance was equivalent to only 1% of the value of road assets. Another World Bank report in 2004 and background information for a road sector support project in 2007 indicate that the problem has persisted.

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Figure 35: Road Network of Moldova

Kiev

o Bălţi

M14 M5

M21

Bucharest Giurgiulesti

Note: The ‘A’ marker at Beltsy (Bălţi in Moldovan language) is superfluous. Railway Network The Moldovan railway network is shown in Figure 36 on the following page. Moldovan Railway has a total of 1,138km of track, mostly of the CIS gauge (1,520mm). However, since 2006 it has built 14km of standard gauge (1,435mm) track; and at GIFP there is dual-gauge track allowing goods going through the port to arrive or depart to either of its neighbouring countries without subsequent bogey exchange or unloading/reloading. For other traffic a bogey exchange operates at Ungheni, near the Romanian border. There is capacity to handle 20’ containers at Ungheni and Chisinau, but currently no container trains are operated for transit cargoes and there is virtually no intermodal movement.

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Figure 36: Moldovan Railway Network

New Cahul-Giurgiulesti link

There are three railway lines that cross Moldova east-west: • Northern: from Ungheni on the Romanian border through Baltsi (Moldova’s second city) to Slobidka in Ukraine. • Central: from Ungheni through Chisinau and Tiraspol (in Transdniestria) to Odessa and Ilyichevsk in Ukraine.

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• Southern: from Kantenir on the Romanian border to Bessarabia on the Ukrainian border, and thence to Ilyichevsk and Odessa from the south. The third of these is significant as a route to the Ukrainian ports of Odessa and Ilyichevsk that does not go through the separatist territory of Transdniestria. The route via Tiraspol was closed for many years but opened in 2008 through EU mediation. It was reported to us that it is closed again now. We have added the latest addition to the network to the railway map in Figure 36: extension of the Cantemir-Cahul line south to Giurliulesti. This provides Chisinau with a direct connection to the Giurgiulesti International Free Port (GIFP). Only one major infrastructural development is planned: conversion of the line from Chisinau to Ungheni to standard gauge. Analysis of Main Logistics Nodes There are no logistics centres as such in Moldova. There is a railway freight terminal in Chisinau, with the potential to take on an expanded role; AITA has bought a small industrial site from Chisinau Municipality to develop as a logistics centre; two transport companies, one of them an IATA member, have nearby sites; a new customs facility is being on a 2ha site on the outskirts of Chisinau; and individual wholesale and retail companies have their own warehousing operations. Railway Freight Terminal, Chisinau The terminal is extensive and reasonably well-equipped (see Figure 37 to Figure 39 below). It has gantry cranes capable of lifting 20’ containers. Some are inoperable at present but could be repaired or replaced. There is a Soviet-era warehouse with a rail line entering to allow goods to be loaded onto and unloaded from railway wagons. There is no special provision for temperature controlled cargoes or hazardous cargoes.

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Figure 37: General View of Chisinau Rail Freight Cargo

Figure 38: Gantry and Wagons at Chisinau Rail Freight Terminal

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Figure 39: Control Room at Chisinau Rail Freight Terminal

Before the global financial and economic crisis the Chisinau terminal loaded/unloaded several trains per day. Now the volume can be counted in wagon-loads. During our 2-hour inspection we saw a single wagon being loaded with wine; several bundles of timber that had been unloaded recently; and some stacked containers. There were no train movements or container movements during that time. With a population of about 700,000 Chisinau is probably the only centre in terms of population and economic activity in Moldova that could support a substantial logistics centre. Giurgiulesti International Free Port (GIFP) GIFP has a territory of 120ha and the status of a free economic zone (FEZ). It consists of a petroleum terminal, cereal cargo handling and storage facilities and an industrial free zone. As yet only the petroleum terminal is operating. Other facilities, including grain and other bulk materials handling, container terminal, warehouse are being constructed according to a phased master plan. Due to its location on the Lower Danube with available water depths of up to 7m, GIFP is capable of receiving both inland and sea going vessels (up to about 10,000DWT). It is promoted as: • The only direct sea/river-borne transshipment and distribution point to and from the Republic of Moldova. • A regional logistics hub on the border of the EU with access to road, rail, river and sea. • a good location for business development, because of its strategic location, tri-modal transport infrastructure, low-cost environment and a unique customs and tax regime. The port is situated at km 133.8 (nautical mile 72.2) of the River Danube in the South of Moldova, sandwiched between Romania (and therefore the European Union) and Ukraine. GIFP benefits from its location on international trade and transportation routes such as the Rhine-Main-Danube waterway corridor. This connects the Black Sea to 14 European countries and the North Sea; the European standard and Russian railway systems; and the international

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International Logistics Centres for Western NIS and the Caucasus road network. It lies close to and provides feeder services to the Commercial Sea Port of Constantza (Romania), the leading port of the Black Sea for transshipment cargo. The master plan (see Figure 40 below) forms the basis and guidelines for the further planning and development of GIFP. There will be four different functional areas: • Oil terminal (operating now). • Dry cargo terminal and storage. • Industrial Free Zone. • Administration centre. The Oil Product Terminal (see Figure 41 on the following page) consists of one berth, a tank farm consisting of eight tanks; tanker truck loading facilities; and, from mid-2008, rail tank car loading/ unloading facilities. The berth can accept sea vessels and river barges with draughts of 7m and can load/unload up to three different types of oil products simultaneously. Technical parameters: • Tri-modal transport infrastructure consisting of a jetty with water depth of a minimum of 7m, road access and a planned railway link. • Total storage capacity of 63,600m3, divided between 8 tanks with capacities ranging from 4,200 to 12,600m3. • Maximum transshipment capacity in excess of 2 million tonnes per annum. Figure 40: GIFP Master Plan

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Figure 41: GIFP Oil Terminal Facilities

In 2008-2010 Danube Logistics plans to construct a multi-purpose Dry Cargo Terminal, consisting of up to six berths, capable of handling typical bulk cargo such as grain and construction material as well as containers. Gantry cranes will be used for the transshipment of bulk cargo and containers. In 2007 Danube Logistics’ business partner Trans Cargo installed specialized equipment to load grain onto vessels as well as grain cargo storage facilities with a total storage capacity of 45,000 tonnes. The water depth at the six berths will vary – one berth with a water depth of 7m will be dedicated to sea vessels and the others with a water depth of 3-5m will be dedicated to river vessels. Technical parameters: • Tri-modal transport infrastructure consisting of up to six berths, road access and railway links to CIS and standard gauge railway systems • Storage capacity with a warehouse of 2,000m2. • Bulk Cargo open storage area – 160m x 35m = 5,600m2. • Container and general cargo open storage area – 60m x 45m = 2,700m2.

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Figure 42: GIFP Container Handling Facilities (Artist’s Impression)

The customs regime and services are designed to be attractive to potential users: • Exports – Goods originating from GIFP4 and exported from GIFP to the rest of Moldova or abroad are exempt from any form of customs duties, except for a nominal customs procedure fee. • Imports – Goods imported to GIFP from the rest of Moldova or from abroad are exempt from any form of customs duties, except for a nominal customs procedure fee. • Autonomous Trade Preferences – From March 1st 2008 Republic of Moldova has benefitted from the new scheme of trade preferences granted by the European Union, known as Autonomous Trade Preferences (ATP). ATP allows virtually all products originating in the beneficiary countries to enter the EU without quantitative restrictions and customs duties, the only exemptions being imports of wine, veal and some fishery products to which tariff quotas apply. • Custom services at the Port have been reported as being highly professional, efficient and transparent. Danube logistics will offer a range of optional services to its clients, including residents of the planned Industrial Free Zone: • Logistics – Transshipment, storage, distribution and other transportation services for oil products, bulk dry cargo, containerized cargo and general cargo. • Port services – Vessel Services include but are not limited to the supply of potable water and food, agent services, tug boat services, piloting services, communications services and waste removal services, etc.

4 Goods originating from GIFP mean any goods fully produced or sufficiently processed within GIFP, provided that they have changed their position according to the classification code at the level of one of the first four figures, or the final value of the goods exported from GIFP exceeds the initial value of the goods imported to GIFP by at least 35%, due to the value added.

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• Land and office leasing – Short- to long-term leases of land within GIFP, which is connected to electricity, gas, water, telecommunications, road infrastructure as well as in close proximity to rail and port infrastructure. • Administrative services – Short- to long-term lease agreements for fully furnished or unfurnished office space (see below). Figure 43: GIFP Office Facilities (Photo March 2009)

The port management recognizes the need for the highest health, safety, security and environmental standards. It complies with all relevant EU Conventions, Regulations and Directives, which are strictly enforced by the Company’s security personnel 24 hours per day. The visiting consultants were shown: • Comprehensive Security Response Plan. • Comprehensive Fire and Disaster Response Plan (the whole area and offices are a “non- smoking/open fire” restricted area). • 3rd Tier Environmental Disaster Response Plan (in progress). • In-house training programmes for all employees (in progress). Chisinau International Airport Chisinau has the country’s only international airport. It has an air cargo facility but volumes are small: less than 2,500t in 2008 including mail (see Table 9 below). The trend is strongly upward, however. Even in 2008, when the global financial and economic crisis was being felt, there was an increase in volume. Table 9: Chisinau Airport: Air Cargo 2006-08 (tonnes) Exports Imports Total cargo Mail Total including mail 2006 289.2 1,207.5 1,496.6 342.9 1,839.5 2007 425.5 1,430.5 1,856.1 468.3 2,324.4 2008 393.3 1,537.7 1,931.0 537.8 2,468.8 Source: Chisinau Airport administration

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The cargoes mainly comprise high-value and/or urgent items, for example equipment, spare parts and pharmaceuticals. There is no transit cargo. No international air cargo operator has located at Chisinau as yet. There is a warehouse and associated handling equipment, dating from Soviet times, in a secure 0.8ha compound beside the passenger terminal. Part of the compound is used by a private company for warehousing, not exclusively for air cargo. The usage of air cargo facilities is well below their capacity. However the airport administration expects strong growth to continue, so that expansion and modernization will become necessary. An additional 3.5ha of land is available for expansion. EBRD/EIB funding is expected for this purpose. EBRD already financed the upgrading of the passenger terminal to cope with a 20% average annual growth rate of passenger numbers, driven by European tourism and Moldovans travelling abroad for work. The loan was repaid 4 years ahead of schedule. Analysis of Stakeholders in Freight Transport and Logistics Sector Ministries and Related Public Authorities Transport Agency There have been several recent governmental restructurings in the transport sector. At the moment there is no Ministry of Transport, but a Transport Agency responsible for policy-making, legislation, research and monitoring in the fields of terrestrial transport (road and rail), water transport and aviation. Its organisational structure is shown in Figure 44. Figure 44: Organisational Structure of Moldovan Transport Agency

Source: Transport Agency of the Republic of Moldova website Customs Service The Customs Service is defined as a central public administration body. It is independent of any ministry. Its role and work are prescribed in a number of laws passed during 1997-2002.

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In furtherance of its mission the Customs Service operates eight customs houses: three on the Romanian border, one on the Ukrainian border and four serving major urban centres (see Figure 45 on the following page). According to our interviews with representatives of the private sector, the Customs Service fulfills its mission well. Electronic data interchange (EDI) is operating successfully, with e- declarations routinely made; there is a ‘traffic light’ risk management system in place; clearance times are reasonable; and operational meetings between the Customs Service and private operators’ representatives ensure that any problems are dealt with quickly. However a special report by Transparency International indicates that corruption is widespread and frequent, albeit at an affordable level. A fuller summary appears in Annex 4 to the Inception Report. Figure 45: Location of Moldovan Customs Houses

Source: Customs Service of the Republic of Moldova website Hauliers and Freight Forwarding Companies International Association of Road Hauliers (AITA) Moldovan road hauliers which operate internationally are represented by AITA, which has 400 members operating 6,000 trucks with a capacity of at least 20t. AITA is a member of IRU, the international body responsible for managing the TIR carnet system. The Association engages in

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International Logistics Centres for Western NIS and the Caucasus training managers and drivers, vehicle testing and insurance (with 50% shareholding in an insurance company). Association of Forwarders and Customs Brokers (AEM-TRANS) AITA works closely with AEM-TRANS which has only five members, all of them AITA members too. They are large firms engaged in railway freight forwarding and customs broking. The Association drafted a new law on freight forwarding, which is yet to be passed, and is engaged in lobbying and training activities. Operators of Transport Infrastructure Ministry of Construction and Territorial Development The Ministry of Construction and Territorial Development is responsible for constructing and maintaining roads, except within the urban area governed by Chisinau Municipality; and for developing the road network to accommodate demand and to support the Government’s economic and spatial development policy. Railway of Moldova The railway system is owned and operated by Railway of Moldova (CFM), a state-owned enterprise. As one would expect, it predominantly carries bulk commodities: coal, petroleum products, building materials including cement, iron ore and scrap, fertilizer etc. Operators of Logistics Nodes The only significant logistics node in the present context is Giurgiulesti International Free Port (GIFP), which is operated by the private company Danube Logistics SRL. Danube Logistics’ shareholders are the Dutch EASEUR Holding BV and the European Bank for Reconstruction and Development, holding 80% and 20% of the shares respectively. In December 2004 Danube Logistics signed an investment agreement with the Government of Moldova for the construction of Giurgiulesti International Free Port. The company was closely involved with formulating the legal framework for the port. Both company and Government are committed to realizing the master plan. Shippers and Consignees There are no dominant shippers/consignees. Missing Links and Bottlenecks in the Transport and Logistics Network Now that the railway link from Chisinau to Giurgiulesti is complete, there are no significant missing links in Moldova’s transport network. There is an absence of high-quality logistics facilities and services, which should be addressed at some time by developing a logistics centre in the vicinity of Chisinau, but in the present depressed economic climate this lack is not a brake on economic activity. The road network is in need of rehabilitation and ongoing adequate maintenance, and this is well recognized. Upgrading is necessary – or will soon be necessary – on the north-south motorways (M13 Belsty-Chisinau and M3 Chisinau-Giurgiulesti). Again, these needs are recognized and projects have been formulated and partially funded. The cancellation of World Bank and EBRD funding of road projects in Moldova, mentioned above, is a significant setback. A major botteleck is the separation of Transdniestria, cutting off some of the most developed regions of the country and cutting traditional road and railway connections to Ukraine. The solution of this problem is subject to political decisions.

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Conclusions and Initial Recommendations The Consultant agree with the Government of Moldova that beside of Chisinau region GIFP is the most significant asset in the transport and logistics network, capable of further expansion, development and promotion. It lacks a hinterland that would provide a sufficiently strong production/consumption base to support a full-scale ILC and at the moment no significant non- oil cargo volumes will be handled. But it has other advantages: • It is the only port directly serving Moldova, which should ensure it a certain base-load of demand. Petroleum products are already flowing through the port and which are expected to continue producing a reliable revenue stream. • It can accommodate both river- and sea-going ships (up to about 10,000DWT) and effect transshipment between them. • The Danube offers the possibility of very cheap transport into a very large hinterland, extending to the North Sea. • Giurgiulesti can transship directly onto either railway gauge (standard or CIS) for onward transport in any direction, and there is a bogey exchange facility within the port. • Since completion of the rail link, the railway travel time to or from Chisinau is 17 hours. • Giurgiulesti now lies directly on a TRACECA corridor . • It is already a mature example of PPP with substantial private investment and private management, and a master plan for its future development. Therefore the Consultant recommend that GIFP should be considered for further investigations in the next project phases with promising potentials as a regional logistics centre in the TRACECA based international network of ILCs. The Chisinau region provides due to its concentration of population and economic potentials as well as transport node of two international transport corridors promising opportunities for a future regional logistics centre.The Consultant also recommend to include the Chisinau region for further project investigation and evaluation.

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1.1.5 Ukraine

Source: UN Cartographic Section Background Information Introduction Ukraine is the second largest country in Europe (after the European part of Russia, before metropolitan France) in terms of area (603,700 sq. km) and fifth in Europe in terms of population 46,2 million people). It is the world's 44th-largest country. Ukraine is bordered by Belarus to the north, Russia to the east, the Sea of Azov and the Black Sea to the south with a coastline of 2,782 kilometres, Moldova and Romania to the southwest, and Hungary, Slovakia, and Poland to the west. In the far southeast, Ukraine is separated from Russia by the Kerch Strait, which connects the Sea of Azov to the Black Sea. Ukraine is subdivided into twenty-four oblasts (provinces) and one autonomous republic, Crimea. Additionally, the cities of Kiev, the capital, and Sevastopol, both have a special legal status. The 24 oblasts and Crimea are subdivided into 490 rayons (districts), or second-level administrative units.

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Current Economic Situation Overview Ukraine is a lower middle-income country with significant economic potential as a result of its well educated labour force, fast growing domestic market, access to a variety of resources including some of Europe's best agricultural land, significant coal and some oil and gas reserves, and a strategic location connecting Europe, Russia, and Asian markets5. In the south of Ukraine at the coast and on the Crimea there is wine production and fruit cultivation. In the remainder of the country the predominant crops are wheat, potato and sugar beet. In former times Ukraine was well-known as the granary of Europe due to its black, fertile soil. At the time of independence 55% of the Ukrainian territory was cultivated for agriculture. The Agro-industrial complex produced about 40% of the national income in 1991. Ukraine has raw materials in the form of metals and coal. About 5% of the world-wide iron ore deposits lie in Ukraine. In addition the country has bauxite, lead, chrome, steatite, gold, mercury, nickel, titanium, uranium and zinc. At the shelf of the black sea oil and natural gas reserves were discovered. In the regions of Krywyj Rih, Dnipropetrowsk and Saporischschja iron ore is mined and processed. In addition there is mechanical engineering, building of electrical appliances as well as an extensive shipyard industry. In the Donets Basin are many mines. Further main economic regions are Kiev, Kharkov, Donezk, Nikolajevsk, Odessa and Lviv. Economy growth By the time of the 1998-1999 crisis, Ukraine’s GDP had fallen to less than 40 percent of its level before the USSR’s collapse in 1991. Ukraine has experienced a solid recovery since then, with growth averaging above 7% p.a. between 2000 and 2007, and industrial production growing more than 10 percent per year. By 2006 GDP had recovered and slightly exceeded its 1991 level. Nominal GDP (in U.S. dollars, calculated at market exchange rate) was estimated at $198 billion in 2008, ranked 41st in the world. Its GDP per capita in 2008 according to the CIA was estimated at $6,900 (in PPP terms), ranked 83rd in the world. By July 2008 the average nominal salary in Ukraine reached 1,930 UAH ($420) per month. The industry and services sectors accounts for 39.3 and 43.8 percent of GDP respectively. Agriculture accounts for 16.9 percent of GDP and is a sector with strong potential. The Ukrainian economy's dependence on steel exports made it particularly vulnerable to the effects of the global financial and economic crisis of 2008. According to the Cabinet of Ministers of Ukraine, Ukraine's GDP will grow by 0.4% in 2009, however International Monetary Fund lowered its forecast for Ukraine's GDP growth in 2009 to minus 5% in December 2008. The IMF approved a stand-by loan of $16.5 billion for the country. International trade In 2008 Ukraine’s visible exports amounted to $67.0 billion (+35.9 per cent over 2007), the imported goods $85.5 billion (+ 41.1 per cent). Traditionally, the most important Ukrainian export goods are metallurgical products, chemical goods, machines, food and textiles6. Ukraine exports mainly raw materials to the EU: metal (~30%), fuel and energy (~20%), textiles (~10%), agricultural products (10%) and minerals (~9%).

5 The World Bank 6 Federal Foreign Office of Germany

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The main import products are equipment, vehicles and chemical products which account for two-thirds of the total volume7. To a large extent Ukraine depends on Russia as an energy supplier, although lately Ukraine has been trying to diversify its sources. Russia by far is the most dominant trade partner, with a volume of $35 billion. Import and export from and to Russia are balanced, whereas imports from Turkmenistan, China, Germany and Poland outweigh exports to these countries. The majority of Ukrainian exports are marketed to the European Union and CIS. Current Situation of Freight Transport and Logistics Sector General Overview Ukraine is a major hub in European multimodal transport networks connecting Ukraine westbound to the EU, eastbound to (Central) Asia and north-south with CIS countries. EU TACIS supports the further development of the TRACECA corridor, eastbound through the Black and Caspian Sea to Central Asia. Ukraine also features prominently on the map of “Networks for Peace and Development. Extension of the Major trans-European transport axes to the neighbouring countries and regions”. However, the North-South corridor, carrying vast quantities of minerals and energy products, is still dominant in volume terms. To enhance Ukraine’s competitive position as a transit country and location for regional logistics hubs, infrastructure development is a necessary but not sufficient condition. Also trade and transport facilitation and establishment of adequate logistics nodes, contributing to improved level of service and lower transport costs, are of vital importance. Enterprises of freight transport and logistics sector play an important role in the Ukrainian economy. These companies have a 39% share of the services market, produce 12% of GDP and pay 15% of all payments to State budget from production industry8. The road transport sector is 100% privatized. This fact speeds up development of the road transport system and promotes service improvement. The sector is still rather open and its competitiveness is now developing. Road transport has a 22% share of the cargo market in Ukrainian9. In January-September 2008 Ukraine’s logistics market grew by about +8%. But in result of the global crisis the Ukrainian logistics market is considerable negatively affected. The main task for Ukraine’s road transport sector until 2015 is to provide necessary terms for Ukrainian international carriers to enter the European transport system. Currently Ukraine has built up relations in international road haulage with 48 countries10. The most recent EU project in Ukraine, inter alia dealing with logistics and intermodal services, is the recently commenced project “Support to the Integration of the Ukraine into the Trans- European Transport Network TEN-T”. Logistics Performance Indicator The World Bank logistics sector performance indicator suggests the rank number 73 out of 150 for Ukraine. The overall rank is composed of the following components:

7 Transport & Logistics Report 2006, Logistics Platform LLC 8 Transport & Logistics Report 2006, Logistics Platform LLC 9 Transport & Logistics Report 2006, Logistics Platform LLC 10 Transport & Logistics Report 2006, Logistics Platform LLC

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• Customs - rank 97 • Infrastructure - rank 74 • International shipments - rank 83 • Logistics competence - rank 90 • Tracking & tracing - rank 80 • Domestic logistics costs - rank 21 • Timeliness - rank 55 Analysis of Transport Infrastructure The Ukrainian infrastructure mainly has a north-south traffic orientation (Moscow - Kiev - Odessa, Moscow - Kharkov - Crimea) which is a legacy from times of the former Soviet Union. However, since independence, the country has tried to reorganize the infrastructure into a west- east orientation with connections to Poland, Slovakia and Hungary to intensify links to Pan- European Corridors III and V. Out of ten Pan-European Transport Corridors that cross Europe, three go through the territory of Ukraine: • Corridor III – Berlin/Dresden-Wroclaw-Krakow-Lviv-Kiev • Corridor V – Venice-Trieste/Koper-Ljubljana-Budapest-Lviv • Corridor IX – Helsinki-St. Petersburg-(Moscow)-Kiev-Odessa Ukraine is an important transit country for Europe with potential to provide the shortest transit routes between Europe and Asia as well as accommodate regional logistics hubs. In addition, since the opening of the Black Sea - Danube Canal, Ukraine is directly connected to Corridor VII, the Danube. Figure 46: TRACECA map 2008 of Ukraine

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In Ukraine the main mode of transport is the railway, followed by road traffic and inland navigation on the Dnepr. Ukraine transport system and possibilities in relation of the TRACECA corridor and logistics centres network, e.g. new terminals in Ilyichevsk and Odessa ports, Ro-Ro ferry fleet are a good basis for the Logistics centres network on the TRACECA corridor development. Today Ro- Ro Shipping lines are going to Georgia, Turkey and Bulgaria transporting road and railway wagons, trucks and cars. There is an increasing volume of container transportation via Ukraine ports. However a decline is expected in 2008 and 2009 due to the global financial and economic crisis Ukraine transport system has ongoing plans and programs for transport system development, some of which need update and review. Every transport sector has its own development program. Two main planning/policy initiatives are in preparation: the National Transport System Strategy and a new Port Law, which is in Parliament now for adoption. Road Network Ukraine has a total road network of about 170,000km, of which about 165,000 kilometres11 are paved roads. Most of the Ukrainian road system has not been upgraded since the Soviet era, and is now outdated. A coherent motorway network does not exist yet and the quality of the motorways is not satisfying. However there are motorway-like upgraded freeways and national routes. Figure 47 shows the international road network of Ukraine with a total length of about 8,100 km. It comprises E-prefixed roads that cross international borders, numbered by UNECE; and 23 roads with M prefixes, some of which are also numbered in the E series. Figure 47: International road network of Ukraine

11 CIA – The World Factbook - Ukraine

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The M 06 from Hungary to Kiev was reconstructed in the last years and is now continuous in a very good condition from the border over the Carpathians to Lviv. The Ukrainian government has pledged to reconstruct and build some 4,500 km of motorways by 2012. The TRACECA road corridor in Ukraine from Yagodin to Odessa/Ilyichevsk is mostly identical with the E-Roads (see Figure 48): Yagodin (M07, E373) - Kovel (M19, E85) - Lutsk - Ternopil (M12, E50) - Khelmnytski - Vinnytsa - Nemirov - Uman (M05, E95) - Odessa - Ilyichevsk (M22) Figure 48: E-road network of Ukraine

The three Pan-European Transport Road Corridors crossing Ukraine also are mostly following the E-Road network: • Corridor III – Berlin/Dresden-Wroclaw-Krakow-Lviv (E40,M11)-Kiev (E40,M06) • Corridor V – Venice-Trieste/Koper-Ljubljana-Budapest-Lviv (E471,M06) • Corridor IX – Helsinki-St.Petersburg-(Moscow)-Kiev (E95,M01/E101,M02)-Odessa (E95, M05) Railway Network Until the break-up of the Soviet Union, the Ukrainian railways were an integral part of its broad- gauge network with the exception of a few standard-gauge links across the western borders. Since independence in 1991, it has evolved technically and operationally in accordance with the changing national political and economic framework, in which road competition has increased significantly, and some minor rail services have been withdrawn. Nevertheless, the rail network remains an important part of the national transport infrastructure, and investment continues, notably in renovating major stations. Rail transport in Ukraine plays the role of connecting all major urban areas, port facilities and industrial centres with neighbouring countries. The railway network in Ukraine extends for 22,473 kilometres, of which 9,250 kilometres is electrified (42% of the total).12

12 CIA – The World Factbook - Ukraine

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Railway density of Ukraine is one of the highest among other CIS countries and is close to France, Italy and Romania. The heaviest concentration of railroad track is located in the Donbass region of Ukraine. The railway network of Ukraine is depicted in Figure 49. Especially the Western part of the country is well integrated in regional rail networks. Figure 49: Railway network of Ukraine

Source: www.uz.gov.ua In Ukraine only one TRACECA railway corridor passes through the country, from Yagodin to Odessa/Ilyichevsk, and it does not connect to the capital Kiev (see Figure 50): Yagodin - Kovel - Rovno - Zdobulnov – Shepetovka – Kazatin - Vinnytsa - Klimentovo - Odessa - Ilyichevsk

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Figure 50: TRACECA road and railway corridors in Ukraine

Inter-modal train services are operating with simultaneous transportation of universal and specific containers, trucks, detached automotive bodies and semi-trailers. Privately operated container and combined transport services use the routes shown in Figure 51. Extensions of this network are planned which connect Odessa/Ilyichevsk with Dnipropetrovsk and Khmelnytsky, further extensions to Central Asia (‘New Silk Routes’) are also in the planning stage.

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Figure 51: Important container and combined trailer train routes passing through Ukraine

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The combined container-trailer train system “Viking” (see Figure 52) links the ports of Klaipeda – Odessa – Ilyichevsk as well as logistics and intermodal centres in Klaipeda, Vilnius, Minsk and Kiev. This railway route crosses Lithuania, Belarus and Ukraine enabling a connection of the Pan-European Transport Corridor IX with the TRACECA Corridor. Figure 52: “Viking” system

In the context of the EU "Tacis" programme, various studies are being made of possible trans- European routes consisting of new or upgraded railway infrastructure between St-Petersburg and Odessa. Inland Waterway Network The inland waterway network consists of about 1,670 km (of which most is on the Dnepr River), but technically it is possible to carry goods from Ukraine sea ports up to the Belarusian port of Mozer. However since 2005 no cargo was carried on this route. In Ukraine 15 inland harbours are in operation. The main cargo on inland waterways is construction materials, some steel and other bulk cargoes. At the end of May 2007 navigation by channel to the River Danube was reopened. Russia’s inland waterways transport policy allows only Russian-flagged ships on its inland waterways. This has stopped inland waterway activity for ships of other nations on the Volga – Don inland waterway system. Analysis of Main Logistics Nodes Sea Ports Ukraine possesses the most powerful seaport potential among the countries of the Black Sea region. Along its Black Sea and Sea of Azov coastline there are 19 merchant sea ports. All of Ukraine’s major merchant ports are state-owned enterprises. This status is prescribed by the Merchant Shipping Code of Ukraine. The most important are the two ports of Odessa and Ilyichevsk (container terminal ports), situated not far from each other on the north western part of the Black Sea coast.

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These two ports and the port of Yuzhniy account for about 57% of the total cargo turnover in Ukraine sea ports and offer the best sea approaches, accommodating large vessels with a draft from 11,5m to 14,5m while other Ukrainian ports can only accommodate vessels of considerably lesser drafts. Moreover there are a number of ports and terminals/berths locations not subject to the control and management of the Ministry of Transport of Ukraine, working in fields such as fisheries, metallurgy, shipbuilding and repair and oil and gas exploration operations. According to GOSKOMSTAT and UKRMORRECHFLOT of Ukraine, all merchant sea ports, river and sea fishery ports and other port complexes handled 158 million tons of cargo in 2006, an increase of 2,9% over 2005. In the first months of 2009 the container handling of the Ports of Odessa and Ilyichevsk decreased by about 60%13. In recent years political instability in Ukraine has been accompanied by frequent rotation both in the transport ministry’s headship and in administration of merchant sea ports. This situation is still valid today and as a consequence has hampered the main ports competiveness and cargo volume growth substantially. Odessa Commercial Sea Port The Port of Odessa has good possibilities in relation of the TRACECA corridor and Ro-Ro lines linking Odessa port with other ports in the Black sea region. New terminals have been developed. The port turnover in 2008 was 34,6 million t, comprising dry cargo 17,4 million t and liquid cargo (mainly oil and oil production) 17,2 million t.

13 Meeting with Executive Director of HPC Container Terminal in March 2009

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Figure 53: Scheme of Odessa Commercial Sea Port

The Port of Odessa has a container terminal (HPC) and a small Ro-Ro ferry terminal. A Ro-Ro passenger shipping line links Odessa with Istanbul (3 calls per week). The annual capacity of the container terminal is more than 700,000 TEU (572,170 TEU in 2008) and there are plans for the improvement of the container terminal. Also there is an area for the simultaneous storage of 580 reefer containers. Hamburg Port Consultant (HPC) Container Terminal rented a concession from the Port Authority and cooperates on the basis of an informal JV agreement with the

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International Logistics Centres for Western NIS and the Caucasus privately owned LLC Euro Terminal outside of the port area14. Until 2015 are planned investments of about 220 million EUR, 30 % of which is planned as foreign investment capital. The main target of the port is container transhipment. Figure 54: Odessa Port Container Terminal

Overview of cargo handling volumes in 2008: • Containerised cargo – 572,170 TEU • Raw materials – 17,196,000 t (oil) • Bulk cargo – 5,751,500 t • Heavy industrial products – 5,994,600 t (metals) • Light Industry, automotive – 5,000 t • Consumer products – 24,000 t • Reefer goods – 342,500 t • Food products – 34,460 t • Others – 159,590 t The biggest port operated container vessels are PANAMAX type with container loading capacity of 4,500 TEU (length 286m). About 50% of the containers are transcontinental containers. The average container storage time at the terminal is 13-14 days. About 60% of the containers are opened and physically inspected by the Customs Service. About 88% of the containers are to or from the Ukraine market and about 12% are in transit. About 70% of the outbound containers from Ukraine are empty. The Port of Odessa has a development program and feasibility studies up to 2015, which include container terminal extension, construction of a dry port (“logistic centre”) outside the city with a road link to the public road network to allow heavy vehicles to avoid crossing the city. This work should be finished in end of 2009. There are bottlenecks at the Port of Odessa in relation to the TRACECA logistics centres network. These mainly involve road and railway access to the port and terminals. In addition there is limited space for containers and other goods storage, a very complicated port organization structure (typical of a Soviet-era commercial port, with no HPC container terminal). Railway access at the moment is useful, but in case of increasing cargo flows, especially containers, it will be necessary to improve it. According to Ukraine Railway Authorities, the utilisation of the railway access in Odessa direction already has exceeded its capacity.

14 Meeting with Executive Director of HPC Container Terminal in March 2009

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Ilyichevsk Commercial Sea Port Through the commercial sea port of Ilyichevsk Ukraine maintains trade relations with 100 other countries. It is also a crucial TRACECA node in the northern Black Sea. The Port of Ilyichevsk is a modern, international, highly mechanized, multipurpose transport node specialized in transhipping general, dry and liquid bulk cargoes. It occupies a key position at the interface of the main transport routes between Europe and Asia, the North and the South, Central and Eastern Europe and is at the heart of the ‘Motorways of the Sea’ network. A number of international transport corridors pass through the Port of Ilyichevsk: • TRACECA transport corridor • Pan-European transport corridor IX • Baltic-Black Sea transport corridor It is planned to include the Port of Ilyichevsk into the route of a circular corridor to be formed around the Black Sea, which will link the countries of the Black Sea Economic Cooperation Organization. The principal part of the TRACECA transport corridor is formed by the railway ferry lines crossing the Black Sea: Ilyichevsk – Varna – Poti/Batumi and Ilyichevsk – Derince. A favourable factor for the development of freight traffic through the Port of Ilyichevsk is its immediate proximity to the motorway Kiev-Odessa through which access to Pan-European transport corridor III (Berlin/Dresden – Wroclaw – Lviv – Kiev) and V (Trieste– Ljubljana – Budapest – Chop– Lviv) is gained. Port of Ilyichevsk has Container terminal and Ro-Ro ferry terminal. The capacity of the container terminal is about 1,000,000 TEU (670,556 TEU in 2008). After renovation the projected capacity should be up to 4 million TEU. The total cargo turn-over of the port in 2008 was 18,9 m t, thereof: • General cargo – 10,88 m t incl. containerised cargo – 670,560 TEU = 4,51 m t • Dry (bulk) cargo – 6,59 m t • Liquid cargo – 1,44 m t

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Figure 55: Ilyichevsk Port Container Terminal

The biggest container vessel which will regular call at Ilyichevsk is the PANAMAX type with a container capacity of 4,200 TEU. The usual movement per container ship is between 300 and 2,000 TEUs. The average container storage time at the terminal is from 12 to 14 days. More than 20% of the containers are physically inspected by the Customs Service. As at Odessa, about 90% of the containers are to or from the Ukraine market. Ilyichevsk Port Ro-Ro terminal was constructed for the railway Ro-Ro ferries, and is now used for both Ro-Ro railway and road transport purposes. Its capacity is about 5,5 million t per year. There are plans at the Port of Ilyichevsk to: • renovate quay walls 3 and 4; • construction a yard for the container terminal; and • renovate quay walls No. 1 and No. 2 for the POSTPANAMAX type of ships (mainly for container traffic).

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Figure 56: Scheme of Ilyichevsk Commercial Sea Port

The Port of Ilyichevsk consists of: • facilities with a handling capacity of over 32,0 million t of cargo annually • quay of 6,000m with modern berths No.1-29 • storage facilities which can accommodate 1,5 million t of different cargoes. Total open storage area – 575,000 m2; warehouse area – 28,000 m2 • navigable depths: - in outer roadstead – up to 21m - in approach channel – 16m - in port water area – 7,5 – 14m • transhipment techniques for unique heavyweight and oversized cargoes up to 400 t with application of floating cranes • railway infrastructure – 6 rail entrances for moving wagons into the port and to the berths, with 10 railway tracks to enable wagon turnover up to 1,800 wagons per day • a developed network of internal roads, allowing the entrance of motor vehicles through 5 port checkpoints The Port of Ilyichevsk is a member of the Black and Azov Seas Port Association (BASPA) recognized by the European Commission, Intergovernmental Commission TRACECA and Black Sea Economic Cooperation Organization. Bottlenecks of the Port of Ilyichevsk are road access (construction of about 25km to the public road network is required) to the port and terminals, especially to the Ro-Ro terminal (from the terminal to the public transport network); limited space for containers and other goods storage;

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International Logistics Centres for Western NIS and the Caucasus and a very complicated port organization structure (typical of a Soviet-era commercial port) and procedures for vessels and cargo. It will be necessary to expend the area for cargo storage cargo by using Dry port or use ILC is required15. Weaknesses of Ukrainian Sea Ports The main weaknesses can be summarized as follows: • A new Merchant Maritime Law on Port Administration is still a draft (since 2006), whereby the Ministry is seeking a still tighter grip on the administration of Port matters. This draft law is according to insiders a further step back from more liberal port policies and planning, development and privatization as well as more transparency in all port matters • Current Port Rules and Regulations and Inspection regimes (customs, port state control, port health and environmental inspections, as well as a port tariff system that is complicated and not transparent), has given the most important ports in Ukraine a poor reputation in the world of ship owners. • A vessel’s port turn-around time is very long due to port cargo handling inefficiency and tedious (physical) custom inspections. Container dwell times in Ukrainian Ports are ranging from 12 to 15 days after discharging, which increases port cargo congestion. • Ship owners are complaining of high penalties for minor, non- or ill-specified deficiencies recorded during inspections by the several inspection agencies on board visiting vessels. • The Port Management Agencies have no or little authority to manage their own affairs and are often in conflict with one another. • There is a lack of in-depth and detailed knowledge of Port Management, e.g. operations, administration, maintenance, efficiency and quality control, at the top and middle management levels. • Lack of intermodal terminals and logistics centres in relation to the main transport junctions creates additional problems for increasing existing capacities in ports terminals. Inland Hubs and Terminals In Ukraine there is still a lack of intermodal terminals and logistics centres with comparable international standards and capabilities. In recent years the Ukrainian Government has expended 48,7 million UAH on upgrading the six LISKI logistics centres. There are many privately operated logistics centres (warehousing facilities or distribution centre) in Ukraine (mainly in the Kiev region), but mainly they have road access, only. In Odessa region there is the currently still port related LLC (Limited Liability Company) Euro Terminal. The Port of Ilyichevsk intends to acquire about 80ha land for a dry port outside the city, but at the moment it is agriculture land. LLC Euro Terminal - Odessa The LLC Euro Terminal is a 100% private owned company. The Euro Terminal was established in 2005 and has a total area of about 50ha (currently using 45ha). The area is situated outside of Odessa city and approximately 5km from the Odessa Port. The overpass road (viaduct), which links Odessa port and the Euro Terminal should be ready in September 2009. Currently, the Euro Terminal only stores empty containers and 5,5 ha is being used for truck parking area. Regarding the further development of the site, a master plan with storage areas and warehousing facilities has already been prepared. Additional land for expansion is available just outside the dry port (total approx. 700ha).

15 Meetings with Port Authorities of Ilyichevsk Commercial Sea Port in March 2009

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By 2010 Euro Terminal is planning to extend the area for customs clearance from the current 6,5ha to 10ha. Furthermore warehouse facilities of about 20,000m2 will be constructed in 2011. Currently Euro Terminals and Hamburg Port Consultants are working on the basis of an informal JV agreement which will be an official legalized JV company in the near future, for the stuffing and stripping of containers on the Euro Terminal (Dry Port Area). LLC Euro Terminal co-operates with Logistic operators which will use the LLC Euro Terminal on a JV basis16. LISKI Freight Terminal - Kiev The state-owned LISKI Freight terminal in Kiev was established in 1995 and is operated by Ukrainian Centre of Transport Service. The USCTS “LISKI” is a structural subdivision of the State administration of the Ukrainian Railway Transport (Ukrzaliznytsya). There are in total 6 terminals throughout the country in Kiev, Chop, Odessa, Kharkow, Lugansk and Donetzk. The opening of a new terminal in Dnepopetrovsk is planned in 2009. LISKI is situated in the eastern part of Kiev (adjacent to railway station Kiev-Liski) and has an area of about 27ha, but no available extension areas. This is the only road/rail freight terminal serving Kiev. In 2008 a total of 193,500 TEUs were handled and transported by railway. The terminal is equipped with two container sites with a technical processing capacity of 500 containers per day. Now, because of the recession, only 100 per day are handled and the working day is 8 hours instead of 2417. There is an open bonded warehouse of 2,000m2 as well as a covered general warehouse (total area of 6000m2) with railway tracks input for 34 carriages, end ramp for arranging piggyback trains. There is an open area to store 1,100 TEUs. There is no refrigerated storage, but reefers (refrigerated containers) can be plugged in. A special area exists for hazardous cargo containers. The terminal has 9 cranes, of which 3 are for container handling. The fleet consists of about 3,700 container cars (20’ and 40’), 730 specialised railway wagons for cars (rented to clients) and 80 trucks. At the terminal it is possible to carry out loading-and-unloading works, related to handling of containers and other cargo, with subsequent delivery by road transport. Most deliveries are in the Kiev area with an average haul of 100km, maximum 150km. At the moment no international logistics service providers are established on the LISKI. The zone of customs examination, which is situated within the terminal, is able to carry out all the necessary operations of customs registration of the cargo, including change of means of transport.

16 Meeting with Director of LLC Euro Terminal in March 2009 17 Meeting with Head of Technology Department of LISKI Freight Terminal

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Figure 57: LISKI Freight terminal in Kiev

In 1996 the through container train “Ukraine-Express”, connecting ports of Hamburg and Bremerhafen (Germany) with Ukraine (Kiev-Liski station), was founded. In prospect there is transportation of perishable goods in refrigerated containers with technical servicing at terminal facilities: Port Hamburg (Germany) – terminal Slawkow (Poland) – USCTS “Liski” (Ukraine). The terminal transports cargo in container trains on several routes: Budapest – Moscow (“Chardash”), Odessa-Moscow (“Odessa”), Gdansk-Odessa/Iliechevsk (“Baltica”), Nikolaev- Moscow. Over 90% of the containers are carried on special container trains (block trains), including the ‘Viking’ train to/from Belarus and Lithuania (Klaipeda). A standard container train is 57 wagons long. Rail transit times: Kiev-Odessa 24 hours (this is long because of many stops), Kiev-Kovel 10 hours (but there are no dedicated container trains on this route yet, ‘mixed trains’ take 3 days because of frequent stops and shunting). Cargo in large-tonnage containers takes three days from the Black Sea ports of Ukraine to stations of Moscow railway junction. The container train “Baltica” delivers cargo from Gdansk/Gdinya (Poland) to Odessa/Iliechevsk in 72 hours. Additional trains to Poland and a new railway route to China are projected. From 1998 the LISKI terminal Kiev provides the possibility to transport cargo by piggyback trains. From Slavkov (Poland) to LISKI terminal Kiev piggyback train needs less than one day.

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Railway station Kovel The city of Kovel is located in north-west Ukraine close to the border with Poland (70km) and Belarus (90km). The city has 68,000 inhabitants and is well connected to the international road and railway network. It is directly situated on the TRACECA Corridor and the important traffic axis Berlin – Warsaw – Brest – Kovel – Kiev. Figure 58: Railway station Kovel

The railway node Kovel is directly linked to the European standard-gauge and Russian broad- gauge networks. The railway station of Kovel was built in 1907 and covers a total area of 240ha. There is no available area for spatial extension. The main use of Kovel is the axle-gauge changeover between the different gauge networks. To change one train (40-45 wagons) takes about 8 hours. There are no cargo transhipment or container handling activities at the railway node. The main functions and location characteristics of the railway node Kovel are as follows: • Operating personnel in the goods traffic sector approx. 120 persons. • 24 hours per day operation, throughout the year. • Residential zone borders directly on the station area, limiting possibilities for expansion. The goods being transported today are mainly bulk cargo: coal, iron ore, metal scrap and construction material. Containers constitute less than 5% of transit volume. About 90% of all cargo flows through Kovel are crossing from Ukraine to border stations in the west, about 10%

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International Logistics Centres for Western NIS and the Caucasus are incoming from the West. About 90% of the outbound goods through Kovel go to Poland, about 10% to Brest/Belarus18. Before the global crisis 3 to 4 trains per day (with 45-50 wagons each) were carried from Kovel to Ysov (in Poland, close to the Ukrainian border). One train per day went to Yagodin (in Ukraine, close to border to Poland) and one train per two days went to Brest (Belarus). The travel time of a freight train from Kovel to Yagodyn is about 2-3 hours. In Soviet times, there was one train per hour to Brest. Currently Kovel railway station has lost the importance that it once had as a railway node and interface between the two railway systems. This is mainly attributable to the opening of the borders in Europe, free choice of the modes of transport and the consequent change in modal split favouring road. Kovel also is a customs point. Goods coming from or going to Poland are customs cleared in Kovel (average duration: 12 hours). Air Cargo hubs All important large cities in Ukraine have international airports. Ukraine’s international airlines, Aerosvit airlines and Donbassaero, are the most well-known airlines in Ukraine. The airport of Kiev (Borispol), airport Odessa and airport Dnipropetrowsk are the most important international airports of Ukraine. International Airport Kiev - Borispol The International Airport Borispol is by far the biggest airport in Ukraine, accounting for 62% of passenger transportation and 74% of cargo and mail handling in Ukraine. The cargo throughput of Borispol airport was 33,500t in 2007 and 36,100t in 2008. The first quarter 2009 shows a decrease of 35% in comparison with same period 2008, but the overall decrease in cargo for 2009 is estimated at 20%, as Ukraine International Airlines has opened the first regular cargo flight to Vienna for which a second cargo plane will be obtained by this airline soon19. The cargo handling facilities (a secure temporary customs storage area of 5,072 square metres with automated cargo processing) are sufficient at the moment. This complex includes specialist warehousing for: dangerous, bonded, valuable, chilled and frozen foods with temperature control down to -18C if required. They will be extended in 2011, when the new passenger terminal D is operational. This terminal is currently under construction, financed through the Japan Bank for International Cooperation (JBIC). The Cargo Terminal provides handling, storage and clearance services for all forms of general and special cargo. The cargo handling is mainly done by the airport, with a small share to Swissport Ukraine.

18 Meeting with Deputy Station Manager of Kovel Railway Station in February 2009 19 Meeting with Management of International Airport Borispol in April 2009

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Figure 59: Cargo Terminal Services

A new low-cost terminal building is planned as well. Till 2011 it will be used as a low-cost terminal for charter-flights. Afterwards, the building will be internally redesigned for use as a cargo terminal. The airline Aerosvit has its own cargo handling facilities, but is not specialising in the field. DHL and TNT have offices at the airport and have distribution centres outside the airport territory to which cargo is taken after collecting it from the airport cargo centre or directly from the plane. The airport Zhulhany, located within the city perimeter on the other bank of the river Dnepr, is much smaller although the runway allows A-320 planes to operate. There is no substantial passenger or cargo traffic at the moment. Odessa International Airport Odessa International Airport is one of the biggest airports in Ukraine, ranked third with respect to volume. It is connected by air lines with most of the cities in Ukraine and CIS countries, as well as countries of Western Europe, Asia and Africa. The Airport is located in the south- western part of Odessa at a distance of 1.2km from the built-up area of the city. This is convenient for both passengers and air cargo carriers.

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Analysis of Stakeholders in Freight Transport and Logistics Sector Ministries and Related Public Authorities The Ministry of Transport and Communications of Ukraine Ministry of Transport and Communications (MoTC) of Ukraine is the leading authority in the central executive authority system of Ukraine. It is responsible for implementation of state policy in the field of road, railway, maritime and inland water transport. The MoTC is responsible for developing and implementing the activities aimed at establishing interoperability and coordination of all transport modes. The activity of the State Road Administration of Ukraine and of the State Aviation Administration of Ukraine are directed and coordinated through the Minister of Transport and Communications of Ukraine. Within MoTC, the Directorate of Transport and Communication System Development and Coordination (DTCSDC) is responsible for transport policy formulation. The following other departments and administrations are integral or linked to the MoTC: • Ukravtodor for the road network (infrastructure) • Ukravtotrans for road transport (vehicles) • Road Transport Department • State Road Transport Inspectorate • Ukrzaliznytsia for the rail transport sector • The State Department for Maritime and Inland water transport • The State Aviation Administration of Ukraine for the airports and air transport sector. The overall management and coordination of the sector is made at the highest level of the MoTC. The road transport inspections are carried out by the State Road Transport Inspectorate of the Ministry of Internal Affairs and the Service of International Road Carriage. Customs Service An overview of the Customs Service in Ukraine is described in Annex 4. Freight Forwarding Associations There two freight forwarding associations in Ukraine – the Association of International Freight Forwarders of Ukraine (AIFFU) and the Association of International Freight Forwarding Organ- izations of Ukraine “Ukrzovnishtrans” Association of International Freight Forwarders of Ukraine The Association of International Freight Forwarders of Ukraine (AIFFU) was established by the initiative of more than 100 freight forwarding Ukrainian enterprises of all kinds of ownership on 27 September 1994. It is a professional voluntary non-profitable union of international freight forwarders. AIFFU is a national association of FIATA (International Federation of Freight Forwarding Associations). AIFFU represents more than 170 freight forwarding companies, 47 of which are also individual members of FIATA. AIFFU expresses and protects interests of members and the industry as a whole and therefore is directly involved in developing freight forwarding activity and the country’s transport potential. The members of AIFFU work in all regions of Ukraine and abroad, with all kinds of transport and goods; and render services that relate to foreign trade operations (customs regulation, logistics,

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International Logistics Centres for Western NIS and the Caucasus insurance, tracing etc.) associated with the transportation of export, import and transit goods. AIFFU members are involved in about 50% of Ukrainian exports and imports and 70% of transit movements. Association of Freight Forwarding Organizations of Ukraine "Ukrzovnishtrans" The Association of Freight Forwarding Organizations of Ukraine "Ukrzovnishtrans’ was established in 1992. Since 1994 it has been a FIATA National Member, and from 2006 it received Observer Member Status. The main association activities are: • representation and lobbying for the legal interests of association members; • adaptation of international and implementation of domestic standards of freight forwarding services by association members; • development of business and professional relations with carriers and their organizations; • development of proposals on simplification of customs procedures, related with export- import and transit cargoes transporting via Ukraine; • improvement of transport and forwarding activity. The Association consists of 30 companies, 20 of which are the individual FIATA members, and covers 14 regions of Ukraine: Dnepropetrovsk, Transcarpathian, Kiev, Poltava, Odessa, Donetsk, Zaporozhye, Crimea and Nikolaev. Logistics Service Providers The market for logistics services in Ukraine is not yet well developed. The majority of companies positioning themselves as logistics operators (about 100) actually provide storage and transporting services, but in some cases they provide delivery to regions. In fact according to different sources there are between 20 and 30 true logistics operators in Ukraine. According to UVK (logistics operator) data the turnover of each key operator is about $50-60 million per year. The main logistics operators in Ukraine are international companies (Kuehne & Nagel, FM Logistics, Revival Express, ІСТ GmbH, Raben Ukraine, Schenker Ukraine, FM logistics, Revival Express, Maersk Logistics Ukraine, DHL Logistics Ukraine) and national operators (Komora- S/SAV-service, UVK – Ukrainian Vantazhni Couriers, Ost-West Express, REWICO). The majority of logistic centers of “A”, “B+” and “B” class in Ukraine (about 85%) are based in the Kyiv region. As at January 2009, the stock of modern warehouses in Kiev stood at approximately 735,000 sq.m. In 2008 there was a tendency towards development of logistics centers in the major Ukrainian regional cities including Odessa, Dnipropetrovsk, Kharkiv, Zaporizhzhya, Donetsk and Lviv. Freight Forwarding Companies At the moment the Ukrainian market for freight forwarding services is developing spontaneously. It is characterized by a large number of freight forwarding companies, providing low qualitative services; a large number of companies providing only one service; and considerable differences in the servicer charges. Due to these reasons there are no exact statistics on the number of freight forwarding companies in Ukraine. In March 2009, in order to strengthen the state control of transport and forwarding companies and decrease the number of low qualified forwarders the MoTC drafted the Law “On amendments to some Laws of Ukraine (as regards licensing of the enterprises providing transport and forwarding activity”.

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Among the leading freight forwarding companies providing high quality services are Intertrans JSC, PLASKE JSC, GAL-GeneralTrans, Trans-Magister Ltd, T-Trans Ltd and Transservice. Railway Operator Railway transport is controlled by the Government-owned company “Ukrzaliznytsia” founded in 1991. Ukrainian Railways cooperate with the railways of 7 neighbouring countries at 56 border crossings and with 13 sea ports of the Black and Azov seas. The Ukrainian railway network consists of six regional divisions: Lvivska (western part of Ukraine), Pivdenno-Zakhidna (central and northern part), Odes'ka (southern part), Pivdenna (north-eastern part), Donetska (eastern part) and Prydniprovska (south-eastern part). The Ukrainian government is continuously developing plans for restructuring in the railways to improve efficiency. The MoTC is planning to make Ukrainian Railways (UZ) a separate unit. UZ has submitted to the Ministry of Transport its 10-year commercialisation strategy, which describes a phased unbundling of state regulation and business management functions once the new company is established with a proposal for its conversion from a state administration to a state joint stock company (“SJSC”). Transport activities will be separated from the ownership and management of infrastructure; freight and passenger services will be run independently; rolling-stock and other assets will be re-organised. Railway infrastructure shall remain in state ownership and control and separated from ownership of train operations. The restructuring plans create the basis for the subsequent unbundling and partial privatisation of some activities of the railways at a later stage. In result of the global crisis the rail freight volume is down by 35%. At the moment there is no projection or expectation of the rate or timing of recovery. Missing Links and Bottlenecks in the Transport and Logistics Network The main bottlenecks of the Ukrainian transport and logistics network regarding the future development of international logistics centres along the TRACECA corridor are the following: • No coherent motorway network and limited traffic capacities • Poor quality of road conditions • Lack of intermodal hubs and logistics nodes • Poor or overloaded road and railway access to the Sea Port Terminals of Odessa and Iliychevsk • Limited infrastructure and service facilities on the crossing border points Conclusions and Initial Recommendations Relevant location factors for the establishment of an International Logistics Centre (ILC) are beside of the location situation, the market potentials and logistics added values, the integration in the international, national and regional transportation network as well as integration of the location into intermodal transport systems. Therefore a location for a ILC is considered as optimal, if promising sustainable market potentials, having good access links to the long- distance traffic network (in particular road and railway network) and a favourable intermodale interface. International logistics providers and container terminal operators have entered the logistics and transportation market of Ukraine, mainly in Kiev region and close to the main Ukrainian ports. Some of them have investment plans for the future. On basis of the Terms of References (geographical area to be covered) and these criteria, the following regions for ILC locations are the main candidates:

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• South part of Ukraine – Odessa region; • Central part of Ukraine – Kiev region; • West part of Ukraine – Lviv region. These regions also were stated and recommended in interviews from national and international logistics providers as well as stakeholders of the transport and logistics sector in Ukraine. South part of Ukraine – Odessa region The Ukrainian ports have a very large potential to become important nodes in the network of the logistics centres. The main challenge is to bring the operation of these logistics centres into the synergy and to promote the best for their development in the interregional concept. Currently rail and, to a lesser extent, road access to port terminals is the main transport bottleneck with regard to the logistics centres network and TRACECA. On average about 85– 90% of the ports’ inbound and containers are carried by road transport and just 10–15% are carried by railway. There are several private sector initiatives in the port region of Odessa, Ilyichevsk and Yuzhniy, which is a clear indicator of the attractiveness of this region: Ilyichevsk region - already planned dry port, Odessa region - LLC Euro Terminal. At the junction of the rail links to the three ports of Odessa, Ilyichevsk and Yuzhniy, LISKI Odessa Intermodal terminal is under construction nearby the village and railway station of Usatovo, with direct road link to three ports. This location might be of future importance and will be elaborated during the next Phases of the project. Central part of Ukraine – Kiev region Kiev is the capital and with about 3 million inhabitants it is the largest city in Ukraine. Kiev is home to the centre of government administration, the steel industry, machine building, aircraft construction, the chemical industry, the food and food processing industry (Roshen) and the solar industry, among other economic and administrative activities. Kiev is not directly located on the TRACECA Corridor, but is an important traffic node and linked with the three Pan-European Transport Corridors III, V and IX. The state-owned LISKI Freight Terminal is situated in the eastern part of Kiev and has a limited area of about 27ha, but no available extension areas. There are several privately operated logistics centres (warehousing facilities) in the Kiev region, e.g.: • Logistics Centre nearby the village of Chaika, nearby and in the west of Kiev close to highway E40 (the main road to Zhytomyr). The LC is operated and owned by the privaet company “Fordor Logistics”. The site has railway access and also a customs terminal for railway cargo. The warehouse area is about 140,000m2 on a site of 50–60ha. • Raben Ukraine operates about 40,000m2. of warehousing in Brovary. The site is private owned and located near Kiev to the northeast, with access to mainroad E95 and the railway. In 2008 the EBRD also launched a project for the development of a logistics centre of international standard in Brovary. • Logistics Centre Gostomel is located in the North-West of Kiev (outskirts) on the road M07 (E373) and operated by Kuehne & Nagel Ltd (K & N). The K & N operates about 44,000 sq.m. of warehousing and logistics facilities in Kiev. In the Kiev region there is a significant lack of modern and high quality warehousing facilities (A- Class) as well as special warehousing (refrigerated and temperature-guided). However there is

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International Logistics Centres for Western NIS and the Caucasus initial interest shown by interviewed international freight forwarding companies (Kuehne & Nagel, Willy Betz, M&M Militzer & Muench, Panalpina) to invest in Kiev region in a future logistics centre. Potential ILC sites should be located in the west and south-west of the Kiev Region, because of imports of containerised high-value consumer goods as well as machinery and equipment from Poland and Western Europe. West part of Ukraine – Lviv region The city Lviv in lies in the west of Ukraine approximately 80km from the eastern border of Poland. It is the district capital of the Oblast of the same name. The city has 735,000 inhabitants (2007) and has a favourable connection to the international road and railway network. The Lviv International Airport (LWO) is situated 6 km from the city centre. As host city for the UEFA EURO 2012 it will benefit from investment in the road and railway infrastructure (EURORAILWAY) as well as modernisation of the airport. Two Pan-European Transport corridors are crossing the city of Lviv: • Corridor III – Berlin/Dresden-Wroclaw-Krakow-Lviv-Kiev • Corridor V – Venice-Trieste/Koper-Ljubljana-Budapest-Lviv Lviv is an economic and industrial centre in the region. In 2007 there were direct foreign investments of about $580 million in the city’s economy. Major industries are machine building, metal industry and food processing. Furthermore there is bus production (marshrutkas) in Lutsk (north-east of Lviv) and fertilizer production in Kalush (south of Lviv). There is already a strategic project for the development of the logistics node “YavirCentre” in the north-west of Lviv. The project developer is “KAMENYAR” Co., Ltd. YavirCentre intends to offer a wide range of opportunities for transport service companies, warehousing, distribution services in farming and industry as well as export-import services. Based on many years of experience in Europe with logistics centres and freight villages, Lviv appears to be a potential location for a logistics centre. It has substantial manufacturing activity and trade with a high volume of containerised goods. North-West part of Ukraine - Kovel The region Kovel region is only thinly settled: Kovel city has about 68,000 inhabitants and Oblast Wolhynien has about 1 million. There are few industries and no significant cluster of industrial enterprises. There is little potential export cargo from the region, which might be transported through Kovel, nor is there high demand for imported goods either for intermediate processing or for final consumption. Transit cargo flows are large, but they are mainly bulk commodities which do not create demand for value services such as would be found at a logistics centre. The modernisation and further development of the railway station at Kovel to become a regional distribution hub and rail terminal could enhance the region’s development potential. The railway station could serve as a future regional hub for the distribution or collection of goods by road transport to/from Ukraine regions. However, the development potential of the site as a promising logistics centre with international significance is limited, due to its location, the low level of economic activity in the region, and the low volume of containerised cargo. The shifting of cargo volumes from the road to railway transport is not yet evident, because of poor railway competitiveness and operating efficiency. Road cargo from abroad will continue to be carried directly to their destinations in the Ukrainian market without stopping in Kovel, and

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International Logistics Centres for Western NIS and the Caucasus vice versa. Currently block trains from the Kiev region are going to directly to Poland and Slawkow.

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1.2 Country Reports - INDirect beneficiary traceca countries

1.2.1 Bulgaria

Background Information Introduction Bulgaria is situated in south-east Europe and occupies the eastern part of the Balkan Peninsula. To the north it borders on Romania, to the west on the Republic of Macedonia and the Federal Republic of Yugoslavia, to the east on the Black Sea, to the south on Greece and to the south- east on Turkey's European part. Bulgaria has a favorable geographical location, which provides good conditions for bridging West and Central Europe with the Near East, West and Central Asia, as well as the north and the south of Europe. Five Trans-European Transport Corridors (corridors: ІV, VІІ, VІІІ, ІХ, and Х) pass through the territory of Bulgaria, which make a country a natural transit hub for Eastern Europe. Current Economic Situation The global financial and economic crisis has negatively influenced Bulgaria’s economy. After a successful development in the first three quarters of 2008, Bulgaria’s economy slowed significantly in the last quarter of 2008. The economic slowdown reduced the external demand and affected the abilities of Bulgarian companies to export. According to statistical data from the

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Bulgarian National Statistical Institute, Bulgaria's gross domestic product (GDP) grew by a preliminary 3.5% in the last quarter of 2008 to an estimated BGL 18,69 billion (9,5 billion EUR). According to the available statistics, Bulgaria's GDP increased by 6% in 2008, slower than the 6.2% growth recorded in 2007. The Bulgarian Finance Ministry and Central Bank forcast 2-2.5% growth of Bulgarian GDP in 2009. The IMF forecast 2% growth. Current Situation of Freight Transport and Logistics Sector General Overview The Bulgarian transportation and logistics sectors are undergoing immense changes. The importance of logistics is increasing. An entrance of international manufacturers and retailers (Metro, Praktiker, Gorenje) into the Bulgarian market resulted in growing demand for complex logistics services in the country. International logistics providers Shenker, Rhenus, DHL have already entered the Bulgarian market and are providing for their customers contract logistics services. The demand for sophisticated logistics facilities in Bulgaria continues to be strong. As in the previous period it is mostly driven by Third Party Logistics (3PL) providers and FMCG retailers and distributors. The most important logistics locations for the development of logistics real estate are Sofia, Plovdiv, Russe, Varna and Bourgas. Due to the relatively underdeveloped railway system and inflexibility of rail, road transport has taken a greater proportion of the freight task in recent years. Trucks are clearly the preferred way to move goods around Bulgaria. The Bulgarian freight transport market is very fragmented and mostly occupied by small sized national freight forwarders, which are mainly concentrating on typical transportation services. Usually the 3PL services are provided by international logistics providers. The Bulgarian transportation market is very negatively influenced by the global financial crisis. According to personal interviews with the stakeholders of the transportation sector the cargo volume decreased by 25% in the first quarter of 2009. The port system of the Republic of Bulgaria has a strong impact on the economy of the country. The system comprises two types of ports – river and sea ports. The river ports are situated along the Bulgarian sector of the Danube River, which is the northern border of the country. The sea ports are situated on the Black Sea shore, which is the eastern border. Logistics Performance Indicators Unlike in Western NIS and Caucasus TRACECA countries, Bulgaria scored in the upper 30% of the countries in terms of the logistics performance indicator. The overall rank of the country in 2007 was 55 out of 150. Below this cumulative indicator is presented in its composing dimensions. • Customs - rank 66 • Infrastructure - rank 64 • International shipments - rank 59 • Logistics competence - rank 53 • Tracking & tracing - rank 39 • Domestic logistics costs - rank 81 • Timeliness score - rank 43

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Analysis of Transport Infrastructure Modernization of the transport infrastructure in Bulgaria is a main condition for the successful integration in the European transport system. It is the one of the main factors to strengthen the country’s attractiveness and competitiveness. For the sustainable development of the transport infrastructure the Ministry of Transport of the Republic Bulgaria elaborated the ‘Strategy for the Development of the Transport Infrastructure of the Republic of Bulgaria by 2015’. One of the main tasks of the Bulgarian Government for financing the infrastructural projects is to create better conditions for strengthening the role of the private sector. This condition includes the opportunities for various forms of public-private partnerships (PPP). The trend is towards improving and developing the majority of the ports, airports and highways by giving them on concession. Road Network Due to the chronic lack of maintenance funds and previously postponed repair work, the condition of the road system in Bulgaria does not meet international standards. In particular, the road connections between the Bulgarian capital Sofia and Black Sea ports Varna and Bourgas play a decisive role in the fulfillment of national transportation system. Besides the main highways there is a lack of bypass roads around the main Bulgarian cities and the existence of road sections with poor technical parameters that do not guarantee a sufficient level of comfort and safety according to European standards. The main targets of the development of road infrastructure in Bulgaria are: • Construction of the Bulgarian highway system, which includes in the first stage the completion of the major highways in Struma, Trakia, Maritza and Hemus. • Reconstruction and rehabilitation of road sections along the Trans-European Transport Corridors. • Improvement and standardization of the transport-operational parameters of the Bulgarian road network through reconstruction and rehabilitation.

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Figure 60: Pan-European transport corridors crossing Bulgaria

Railway Network Lack of intermodal infrastructure is one of the main problems of the Bulgarian transportation system. The technical condition of the railway is relatively underdeveloped. The level of maintenance of the existing railway lines is low. Technology and equipment in the existing intermodal terminals are mainly outdated. Figure 61: Railway line in Sofia

Besides the infrastructural weaknesses in the railway terminals there is a lack of know-how in terminal management and administration. Railway terminals are operated by Bulgarian State

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Railways, BDZ. Private carriers are usually unsatisfied with the existing quality of service in the terminals operated by BDZ. According to the information of the Ministry of Transport, railway terminal operations are being privatized step-by-step. Improving the technical condition of railway infrastructure is the main target of BDZ in the coming years. The main ongoing infrastructure projects in the railway sector are: • Construction of a second bridge across the Danube River at Vidin – Kalafat. Construction project is financed by ISPA, the European Investment Bank, the German KfW Banken- gruppe, and the French Development Agency (AFD). Total cost of the project is €226 million. Deadline for completion: 2009 • Electrification and upgrading of the railway line Plovdiv – Svilengrad. Total cost of the project is €340 million. Deadline for completion: 2010 Rehabilitation and modernization of the railroads along the Trans-European Transport Network have highest priority for BDZ. The following railway projects are planned by Bulgarian authorities: Trans-European transport corridor IV • Electrification and reconstruction of the railway line Svilengrad – the Turkish border • Doubling and electrification of the railway line Purvomay – Yabulkovo • Modernization of the railway line Sofia – Pernik – Radomir • Modernization of the railway line Sofia – Plovdiv • Modernization of the railway line Vidin – Sofia • Modernization of the railway line Radomir - Blagoevgrad Trans-European transport corridor VIII • Reconstruction of the railway line Plovdiv – Zimnitza • Replacement of rail sections along the railway line Plovdiv – Burgas • Doubling and electrification of the railway line Karnobat - Sindel; Trans-European transport corridor X • Modernization of the railway line Sofia – Dragoman Trans-European transport corridor IX • Reconstruction of the railway line Ruse – Gorna Oryahovitza. Projects along the additional connections along the TINA network: • Renovation of railway sections along the Mezdra – Gorna Oryahovitza line • Reconstruction of the railway line Ruse – Varna Projects that do not lie on the priority axes: • Reconstruction of the railway line Sofia – Karlovo – Zimnitza • Reconstruction of the railway line Gorna Oryahovitza – Kaspichan. The Bulgarian Government recognizes the problem of underdeveloped intermodal infrastructure. For this reason the construction of railway terminals in Sofia, Plovdiv and Rousse is planned. The completion of Sofia intermodal terminal is the first stage of this programme. According to the approved Master Plan of Sofia the intermodal terminal will be located close to the city centre.

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Figure 62: Master Plan of Sofia- Location of the planned Intermodal Terminal

The total area of the territory amounts approximately to 73ha. An estimated investment in construction is around €26 million. The costs of construction will be covered partly by the Bulgarian state and partly by European funding. The beneficiary of the container terminal is the Infrastructure Company of Bulgarian State Railway (BDZ). Analysis of Main Logistics Nodes Sea Ports Bulgaria has two main ports on the Black Sea: Varna and Bourgas. Both ports are the main gateways of the country. Port facilities are generally adequate for bulk commodities. Bulgarian ports are the most important nodes, handling 60% of all imports and exports of the country. Bulgarian ports are state-owned companies, controlled by Executive Agency "Port Admin- istration". The border position of these ports is a precondition for their key role in the economy of the country, because of the fact that all goods transported by water, whether they are intended for the domestic market, the export market or are in transit, are processed in them. With the joining of the country to the European Union, the Black Sea ports turned into the Eastern border of the Union. In the future they will perform a mainly transit function and through them the connection between the EU and countries of Central Asia, the Near-, the Middle and the Far East, as well as with the countries of the Black Sea basin will be established. National Port Development Programme (2006 – 2015) The National Port Development Program is developed in compliance with article 103a, paragraph 2 of the Law for Sea Space, Inland Water Ways and Ports of the Republic of Bulgaria. The Programme’s mission is to improve the efficient and quality services provided to the economy of the Republic of Bulgaria through ports’ modernization and to ensure fast, safe and

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International Logistics Centres for Western NIS and the Caucasus secure services, increased transit traffic through the territory of the country and enhanced competitiveness of the Bulgarian ports. The reform that started in the ports is an important priority of the development of the transport sector of Bulgaria. Bulgarian ports are part of the national transport system, which is integrated into the multimodal European transport network. That is why the development and modernization of the state transport infrastructure is extremely important in providing a suitable environment for the country’s development and integration into the EU. The major port development projects have been determined on the grounds of the analysis and forecasts of cargo flows. The construction of container and Ro-Ro terminals, for the fast growing modes of transport, is of great significance. Port of Varna The Port of Varna is the largest Bulgarian port. It implements the quality standards ISO 9001:2000 and it is one of the first Black Sea ports to be certified as per the requirements of the International Ship and Port Facility Security (ISPS) Code. The target of the port’s management is to become a fully fledged landlord port. Port services are mostly offered by private companies. Pilotage and tugboat services are privatized. The infrastructure in the port is mostly under a 35 year concession contract. The Port of Varna includes two component port units: Varna East and Varna West. In both port units there are 9 specialised terminals. Each terminal is provided with adequate equipment and storage space for the handled goods. Typical for the Port of Varna is that, with the exception of those berths which are dedicated to particular types of liquid or bulk cargo or containers, all other berths are multi-purpose and are used for handling general goods and other cargo types (for example kaolin, silica sand, sugar, etc.). Varna has 32 berths. The total quay length amounts to 5,601 m. A total area of 240,800m2 is available for open-air storage. The total storage area consists of 77,500m2. Varna East is located 1km away from the city centre. Varna East is a main link in the canal- river-sea transport corridor for the transit traffic to/from Central Europe routed via the Danubian port of Rousse. The main section of this link is the transit rail section Rousse – Varna. Varna East has 14 berths with a maximum depth of 11.3m. The total quay length amounts to 2,378m. Varna East is equipped with 28 portal cranes (up to 32t) and one gantry crane (30.5t). There is a container terminal with a storage capacity of 1.600 TEU. The terminal has 3 conventional cranes (32t) and one gantry crane (30,5t). Varna West is situated 30 km away from the city, close to the chemical factories of Devnya. The port has the technological lines for handling of soda, fertilizers, cement, coal, ores, phosphates, silica and liquid chemicals. There is a lack of maintenance of existing facilities. Varna West has 18 berths with a maximum 11m depth and total quay length of 3,223m. There are 7 different terminals (containers, sulphur acid, soda, cement, coal, clinker, general cargo). Varna West has 27 portal cranes (up to 16t), 2 gantry cranes (35t), one mobile crane (100t), 2 reach stackers, 3 systems of rubber belt conveyors, 2 quay shiploaders for soda and fertilizers and a loading facility for sulphuric acid.

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Figure 63: Varna West- Bulk Cargo Terminal

The second container terminal is situated in Varna West. The terminal storage capacity is 2.600 TEU. The berth is specialised in the handling of bigger vessels of 1.000 TEUs. The terminal is equipped with two gantry cranes (35t). The container berth is used also by Ro-Ro vessels. A parking area can accommodate 500 cars. Figure 64: Container terminal at Varna West

There is a lack of specialization of the port terminals. The internal infrastructure has poor technical parameters. The technology and equipment in the existing terminals are mainly outdated.

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In the last 6 years the Port of Varna achieved 10% annual growth of cargo revenue. In 2008 the port handled 7,7Mt of cargo (2007: 6,6Mt) and 155.300 TEU (2007: 99.700 TEU). In 2008 Varna had 59% growth in container handling as a result of strikes in the Port of Thessaloniki. This year the management of the port expects 20-30% decrease of cargo revenue. The main container ship operators in the port of Varna are Maersk (50%) and MSG (30%). A customs office is located within the port territory. Customs clearance services are satisfactory. Online custom clearance is available. Figure 65: Varna West- Container Terminal

The Port of Varna has rail ferry services to Poti, Iliychevsk and Odessa and feeder container lines to Mediterranean and West European ports.

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Figure 66: Rail ferry in the Port of Varna

Road transport plays an essential role in the distribution of cargo from the port. Only 13% of cargo is shipped by rail. 100% of containers are trucked. The main destinations of containers from the port are Sofia and Plovdiv. There is a lack of competition in the truck service between Varna and the main container destinations in Bulgaria. For this reason the shipment prices are extremely high (the price for transporting one container from Varna to Sofia is €600-700). Approximately 5km away from Varna East, construction of a new container terminal is planned. The planned annual terminal capacity is 500.000 TEU. The quay length will be 800m, the berth depth 12,5m. The total investment will be €180 million. The financing for the construction of the terminal has been provided by Japan International Cooperation Agency (JICA). Operation of the terminal have to be tendered and will go under the concession contract. Main development projects for the modernisation and upgrade of Port of Varna: • Building of passenger terminal with business-centre in the Port of Varna-East • Building of container terminal on the North shore of the Varna Lake • Building of grain terminal on the North shore of Varna Lake • Building of liquid cargos terminal in Konstantinovo - South shore of Varna Lake • Extension of container terminal Varna-West • Building of liquid hazardous cargos terminal - Varna-West • Ecological evaluation of General Plans Actualization of the Ports in the region Port of Bourgas Port of Bourgas is the second largest port in Bulgaria and is in close proximity to Greece and Turkey. Like Varna, Bourgas is certified under ISO 9001:2000. The existing facilities in the port are generally adequate for bulk commodities. The total quay length is 5,5km. The average depth is 15,5m. There are 72 cranes installed. 70 of them are in operation. The Port of Bourgas has developed the largest complex for bulk cargoes in Bulgaria. Total investment is US$190 million. Financing for the facility was provided by JICA. The terminal is for

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International Logistics Centres for Western NIS and the Caucasus handling and storing bulk commodities: coal, coke, ores and concentrates etc. The facility comprises several portal cranes, grab gantry unloader type “Ceretti Tanfani” and state-of-the-art screw type coal unloader “Siwertell”, capable of handling 1,500 tonnes per hour. The transfer of coal is carried out by conveyor belts, stackers and reclaimers. Figure 67: Bulk cargo complex in Port of Bourgas

At the terminal a wagon loading station is located. Special facilities for handling of oils, chemicals and ethanol are installed on berth. A pipeline connects the site with the tank farm, near to Terminal West. There are also a filling station for tanker rail cars and ethanol storage tanks in the vicinity. The port completed an ammonium nitrate facility, which is not in operation and has never been used. The real reasons are unknown.

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Figure 68: Wagon loading station at the bulk cargo complex

The container terminal is located at Terminal West. It includes two berths for container vessels with a maximum depth of 11m. The total area is approximately 60,000m² with 1,330 ground slots. The containers are stowed 3 high. The reefer installations include 60 plugs for such kind of containers. There are two multi-purpose 40t cranes using semi-automatic spreaders. The main customers of the container terminal are: MSC, Bulcon, ZIM, K-Line and Happag Lloyd. In 2008 the Port of Bourgas handled in total 4,6Mt of cargo (2007: 5,2Mt; 2006: 6,7 Mt) and 46.000 TEU (2007: 31.000 TEU). The prognoses of the port’s management for 2009 are: 3Mt and 45.000 TEU. The main source of containerised import traffic is China (60%). Only 65% of containers are trucked from port to different destinations (the main distribution destination is Sofia). 35% are shipped by block trains to Sofia and Serbia. In 1998 Bourgas put into operation a cold storage facility with the capacity of 10,000t. The total area is 7,000m². The warehouse area is 5,280m² with a cooling volume of 52,800m3. The maximum allowable height of goods is 6.80m. Cold storage is designed for all kinds of deep frozen and chilled goods, requiring temperatures in the range -26°/0°/+17°C. HACCP system implemented.

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Figure 69: Cold storage facility at the Port of Bourgas

In cooperation with JICA, the Port of Bourgas planned the construction of a new container terminal with the total annual capacity of 400.000 TEU. The quay length of the terminal will be 550m with a maximum depth of 15,5m. The total investment for the terminal is €120 million. The construction works should start in 2010 and finish by 2015. Main development projects for the modernisation and upgrade of Port of Bourgas are: • Expansion of Port of Bourgas: - Building of Terminal 2А - Building of new East pier - Building of new access channel • Building of passenger terminal with business - centre in the Port of Bourgas East • Building of container terminal in the Port of Bourgas • Reconstruction and building of new infrastructure in Port Terminal Rosenets, Bourgas The expansion of the Port of Bourgas is financed according to a loan agreement between the Governments of Republic of Bulgaria and Japan. Sea ports - SWOT Analysis Strong sides • Traditional cargo stream, which cannot be attracted from the competitors • Free capacity • Highly qualified personnel • Built land and railway connections with the national road and railway network. Weak sides • Insufficient specialization of the terminals • Insufficient technical conditions of the ports installations and the reloading equipment • Working after the old system, which does not comply with the new market requirements

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• Poor condition of the internal transport infrastructure Opportunities • Completing the reform in correspondence with standards and practices of the EU • Increase of the transit cargos through the territory of Bulgaria • Concession of the port terminals • Liberating and competition of the port services • Modernization of the existing infrastructure and cargo processing installations • Developing the transit European corridors – 7, 8, 4, 9, TRACECA • Improvement of the safety and security systems in the ports Threats • Competition from the ports of Constantza and Solon • Lack of investments in new infrastructure and port technologies • Incomplete reform Air Cargo hubs Air cargo has much less importance for the Bulgarian transportation market than other transport modes. There are four international airports in Bulgaria. The biggest is Sofia Airport, which is the country’s main air cargo hub. Plovdiv International airport is mainly used for charter flights for the ski resort of Pamporovo. The international airports of Varna and Bourgas are used for local flights from Sofia, as well as for charter flights in summer, serving the beach resorts on the Black Sea coast. In 2008 total air cargo turnover of Sofia Airport amounted to 17.000t, an increase of 7% over the previous year. In 2006 the airport put its new runway into operation, which is 3.600m long. New rapid and connecting taxiways are built additionally to allow 200 aircraft movements per hour at a high level of safety. The navigational aids installed on the new runway enable landing operations under low visibility conditions at category III of the ICAO standards. In the last 3-4 years the location of Sofia Airport has become the most popular site for international logistics providers, setting their warehouses and distribution centres there. Within 3- 5km radius from the airport the facilities of DHL, UPS, Rhenus, Schenker, Orbit etc are located. There is also a railway access available, but not used at the moment. The location of Sofia Airport could be considered as a “logistics park” for Sofia. The prices of land are very high in comparison with other areas around the city. At the moment the location of Sofia Airport is acting as the most favourable territory for the development of distribution centres and warehouses. Air Cargo plays an insignificant role in this supply chain (apart from DHL and UPS). The preferred transport mode for the companies located around the airport is road. Analysis of Stakeholders in Freight Transport and Logistics Sector Ministries and Related Public Authorities Ministry of Transport The Ministry of Transport is responsible for transport policy; development and implementation of transport strategy; and implementation of the state investment policy in the field of transport. The Ministry is also responsible for implementation of the Strategy for the Development of Transport Infrastructure in Bulgaria by 2015. One of the main priorities of the transportation strategy is development of intermodal transport.

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Port Administration Executive Agency Port Administration is a corporate body of the Ministry of Transport. It consolidates regional divisions in Varna, Bourgas, Rousse and Lom. Its legal authority covers all civilian ports. It is responsible forort regulation and tariffs. Bulgarian Ports Infrastructure Co., with a director representing the Directorate in every Port, is in charge of the development and maintenance of infrastructure in the ports. Regional and Municipality Authorities Sofia Municipality is the biggest owner of real estate after the state. The municipality has the right to ownership of its property and is completely autonomous in deciding its use. In exercising its powers it does not require the approval of other bodies, and of state bodies in particular. According to the Local Self-Government and Local Government Act (LSGLGA) Sofia Municipality is an administrative and territorial unit with the status of a region. It combines self- government of the community with the implementation of government policies for the development of the capital city. Customs Administration The Bulgarian Customs Administration is a centralized administrative structure, organized within the National Customs Agency (NCA) under the Minister of Finance. NCA is a legal body financed by the state budget. The Central Customs Directorate is located in Sofia. There are five Regional Customs Directorates located in the main cities of the country: Bourgas, Varna, Plovdiv, Rousse, Sofia. After Bulgaria’s entrance into the EU the volume of customs bonded cargo has decreased greatlyly. The rest of the EU accounts for 90% of Bulgaria’s imports. For this reason the Customs Administration has become less important. Generally customs in Bulgaria is functioning without any serious troubles, except that excessive time is needed for customs clearance procedures in the terminals and ports. Logistics Service Providers The market for logistics services in Bulgaria is very fragmented. Mainly international logistics operators are able to offer their customers complex logistics services and third party logistics. The national logistics companies are mainly concentrated on the typical logistics services: road freight, sea freight and rail freight. Only warehousing and distribution are provided by certain national logistics companies. The main problem is a lack of logistical know-how by the national logistics providers and lack of investment in logistics infrastructure and modern technology. Freight Forwarding Companies The core business of the Bulgarian freight forwarding companies is import/export logistics. They are also offering customs clearance services. The focus of these companies is on road transportation. Most national freight forwarder own private fleets of trucks. The warehouse and storage facilities are owned and operated only by certain companies. The prices of services of freight forwarders in Bulgaria are usually very high. The main reason for this is a lack of competition in the transportation market. Operators of Transport Infrastructure The main operator of the infrastructure in railway terminals and ports is the Bulgarian State. The main operator of the railway terminals is the National Railway Infrastructure Company (the daughter company of Bulgarian State Railways, BZD). Bulgarian Ports Infrastructure Company, which is a corporate body of the Ministry of Transport of Bulgaria, is responsible for the infrastructure in the Ports. According to the plans of the Ministry of Transport the operations of railway terminals should be given under concession contracts. The same is planned for container terminals in the ports. The main infrastructure in the Bulgarian ports (railway, berth

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International Logistics Centres for Western NIS and the Caucasus etc.) will stay under the responsibility of the Bulgarian Ports Infrastructure Company. The Bulgarian Airports are operated mainly by private companies. The operator of the airports of Varna and Bourgas is the German company Fraport. Operators of Logistics Nodes There are several newly developed logistics parks in Sofia. They have usually the territory of 30-40ha and are owned by private logistics companies, retailers or real estate firms. There is no operator in this logistics parks. The companies located there are acting independently. Shippers and Consignees The largest shippers in Bulgaria are Maersk, MSC, ZIM and Happag Lloyd. They are operating their container ships in the ports of Varna and Bourgas. Railway Operators The main railway operator is the Bulgarian State Railways, which was split into three different companies: BDZ Passenger Services Ltd, BDZ Freight Services Ltd and BDZ Infrastructure Company. In recent years different private railway operators entered the market. The main ones are: Bulgarian Railway Company, Bulmarket and Unitranscom. Entering of Romanian and Austrian railway carriers in Bulgaria has resulted a big competition on the market. Romanian carriers have most advantages particularly on the Varna-Constanta rail connection. There are no regular block train services between Varna/Bourgas and Sofia at this moment. The most important directions for the implementing block train services are: Varna-Sofia, Bourgas-Sofia, Sovia-Plovdiv. Missing Links and Bottlenecks in the Transport and Logistics Network The main bottleneck in the Bulgarian transportation sector is the relatively underdeveloped railway network and lack of intermodality. The existing rail network in Bulgaria is lacking the network effect, which is the one of the main features of a sophisticated transport system. Due to the insufficient connection and coordination of rail, road and sea transport the synergies are not being realised. Road infrastructure has to be improved and capacities extended. In particular road sections along the Trans-European Transport Corridors and road connections between Sofia and the Black Sea ports are important for smooth operations. Due to the lack of optimized railway routes and transhipment connections between the Bulgarian Black Sea ports, main industrial cities and high density areas, the prices of transport services are extremely high. The reason for this is also a lack of competition in the market. This factor is a serious barrier to Bulgaria’s attractiveness as a logistics location. For the optimization of routes between the main logistics locations it is necessary to have regular block trains and transshipment services, with reasonable prices. Absence of the logistics centres, lack of logistics parks and intermodal terminals are problems that must be addressed if a powerful logistics network is to be created. They give the possibilities to their customers (logistics providers, retailers, distributors, industry, etc.) to optimize supply chains and save costs. It is very important to choose the right location for these facilities. The existing or planned intermodal terminals and logistics parks are mostly located in the city centres or very close to them. There is no possibility for future expansion, which will be an obstacle for the development of high-capacity logistics chains and for the attraction of global players. On the other hand it will have a negative impact on the environment.

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Conclusions and Initial Recommendations The interviews with the main stakeholders in the transportation sector and visits to facilities made clear that there is a need for an International Logistics Centre (ILC) in Bulgaria. Development of an ILC in Sofia is most necessary. There are several factors determining a logistical necessity of ILC in Sofia. Sofia is the largest Bulgarian city with nearly 1,5 million population and the major industrial centre. The Bulgarian capital is located at the crossroads of European transport corridors. Three Trans-European Transport Corridors cross the city: IV, VIII and X. Using regular block trains and transshipment services to the Ports of Varna and Bourgas the routes to the Bulgarian Black Sea ports can be optimized and sea freight integrated in the logistics network of ILC Sofia. The bottleneck in container handling and logistics operations in and around Sofia is being addressed by the Bulgarian Government and the private sector. The Ministry of Transport and Bulgarian State Railways identified a plot of approximately 73ha for the development of an intermodal terminal. The territory is approved by the Municipality of Sofia and is integrated into the Sofia Master Plan. Advantages: Planned location has good connectivity to road and railway junction. Weaknesses: It’s located very close to the city centre. Expansion possibilities are very limited. Land price per m² is very high. Implementation of an ILC at this location might have a negative impact on traffic in the city as the location is situated within the city limits. TheBulgarian Association for Freight Forwarders favours a location for the development of storage facilities and logistics installations just outside of Sofia City, adjacent to the ring road, approximately 2km away from the railway shunting yard and close to two main highways (to Belgrad-Zagreb-Vienna, corridor X, and to Northern Romania). There is area for expansion of around 50ha both outside and inside the ring road. Warehouses and retail centres of the different companies (Metro, Gorenjie, Prakticer etc) are located close by, which are creating a natural logistics and trade park around the territory. Advantages: Good connectivity to rail. Proximity to the highway (2-3km). Good expansion possibilities, close to the warehouses and trade centres. Weaknesses: Large number of different land owners and very difficult land acquisition. Investment needs in the road section, connecting the plot with the central road connection of the city. Furthermore, warehouses of leading logistics companies are mushrooming in the area around Sofia Airport. The airport location can be considered as a logistics park for Sofia already. Advantages: Excellent connectivity to the road and air. Proximity to the potential clients (3PL providers, wholesalers and retailers). Possibility for future expansion. Weaknesses: Relatively large investment in the rail connection. Extremely high land prices. In the long term, locations for warehouse and logistics complexes beyond the city limits will have a competitive advantage in comparison with complexes within the city (lower land prices, better possibilities for expansion, less burden on the traffic in the city).

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1.2.2 Romania

Background Information Introduction Romania is situated in south-east Europe bordering Bulgaria, the Republic of Serbia, Hungary, Ukraine, Moldova and to the east the Black Sea. Romania has a favorable geographical location, allowing it to connect west and central Europe with the Near East, West and Central Asia and China; and also to connect the north and south of Europe. Four Trans-European Transport Corridors (corridors ІV, VІІ, VІІІ and ІХ) pass through Romania, which make the country a natural transit hub for Eastern Europe and the Black Sea region. Current Economic Situation The global financial and economic crisis has negatively influenced Romania’s economy. After healthy growth in the first three quarters of 2008, Romania’s economy slowed significantly in the last quarter of 2008 and in first quarter 2009. The economic slowdown reduced external demand and affected the abilities of Romanian companies to export. According to statistics from the Romanian National Statistical Institute, Romania's GDP increased by 6.7% in 2008, slower than the 7.5% growth recorded in 2007. The Romania Finance Ministry, Central Bank and IMF all forecast about 0% growth of Romania GDP in 2009.

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Current Situation of Freight Transport and Logistics Sector General Overview The Romanian transportation and logistics sectors is undergoing immense changes. The importance of logistics is increasing. The entry of international manufacturers and retailers into the Romania market has resulted in growing demand for complex logistics services in the country. International logistics providers DB Schenker, DP World, AP Maersk, K&N and DHL have already entered the Romanian market and are providing contract logistics services. The market continues to be dominated by 2PL and 3PL providers and fast-moving consumer goods (FMCG) retailers and distributors. Usually the Third Party Logistics (3PL) services are provided by international logistics providers. Due to the relatively underdeveloped railway system and inflexibility of railway services, road transport took a greater share of the freight task in recent years. Trucks are clearly the preferred way to move goods around Romania and to Western Europe. The Romanian freight transport market is very well developed. The National Union of Road Hauliers (UNTRR) has 13,000 members, mostly small and medium sized national freight forwarders concentrating on normal transportation services. It is a typical truckers’ association, representing and defending its members interests, training their personnel according to ADR Agreement requirements and providing TIR carnet services. UNTRR members work mainly in EU Countries (about 90%) as well in Moldova and Ukraine. They generally avoid travelling to Russia and other CIS countries because of difficulties associated with customs and other border procedures. The Romania transportation market has suffered a 25-30% decline in the first quarter of 2009 because of the global financial and economic crisis. Logistics Performance Indicator Due to the World Bank logistics performance the country is ranked 51, being four positions better than Bulgaria, but with huge potential for improvement in domestic logistics sphere. The rank consists of the following components: • Customs – rank 56 • Infrastructure – rank 50 • International shipments – rank 35 • Logistics competence – rank 52 • Tracking & tracing – rank 56 • Domestic logistics costs – rank 123 • Timeliness – rank 66 Analysis of Transport Infrastructure Modernization of the transport infrastructure in Romania is a main condition for its successful integration in the European transport system. It is the one of the main factors to strengthen the country’s attractiveness and competitiveness. For the sustainable development of the transport infrastructure the Ministry of Transport of the Romania is preparing the Romania Transport Strategy, in which is included a section on logistics centres. Until now Romania has no legal basis for the development of public logistics centres. One of the main tasks of the Romanian Government with regard to financing the infrastructural projects is to create better conditions for strengthening the role of the private sector. This

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International Logistics Centres for Western NIS and the Caucasus should include creating opportunities for various forms of public-private partnership (PPP). The trend is to improve and develop ports, airports and highways by giving them on concession. Road Network Roads around Bucharest and main links to the Port of Constantza are well connected with the national and European road network. The connection with the Pan-European Transport Corridor No.IV has a strategic importance, linking the Port of Constantza with the landlocked countries of Central and Eastern Europe (see Figure 70 below). There is a permanent concern for the upgrading of the port road network and the enhancement of road traffic inside the Port of Constantza. Trucks benefit from facilities offered by the Port of Constantza, ensuring a fast and flexible door-to-door transport of all kinds of cargo. The A2 motorway, nicknamed the Sun's Motorway (Autostrada Soarelui in Romanian) is a partially built motorway which will, upon completion, link Bucharest to Constantza. Construction began in the 1980s. The first section Fetesti-Cernavoda (about 18km) opened in 1987. This section includes the complex system of motorway and railway bridges and viaducts over the River Danube and one of its branches at Cernavoda. As of August 2007, 152 km of the motorway's total 224km length are finished and operational, from Bucharest to to Cernavoda. Completion to Constantza is due in 2011. Another motorway links Bucharest with Pitesti city (117 km) on Transport Corridor No. 4. The main targets of the future development of road infrastructure, included in the Romania Transport Strategy (under preparation) are: • Construction of the Romania highway system, which should link Constantza – Bucharest - Hungarian border. • Reconstruction and rehabilitation of road sections along the Trans-European transport corridors. • Improvement and standardization of the transport-operational parameters of the Romania road network through reconstruction and rehabilitation.

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Figure 70: Pan-European Transport Corridors in Relation to Romania

Railway Network The railway network is extensive throughout the country, with multiple cross-border connections20 (see Figure 71 below). It is owned and operated by the state-owned railway company CFR21. The technical condition of the railway is relatively underdeveloped and the level of maintenance is low. Renovation of the line between Bucharest and Constantza is now under way. The railway network of the Port of Constantza connects with the national and European railway network system, Constantza being a starting and terminus point for the Pan- European Transport Corridor No. IV. Round-the-clock train services carry high volumes of cargo to the most important economic areas of Romania and Eastern Europe, the Port of Constantza being also an important TRACECA node, providing a connection between Europe, the Caucasus and Central Asia. Lack of intermodal infrastructure is one of the main problems of the Romanian transportation system. Technology and equipment in the existing railway intermodal terminals are generally outdated. Photos of the CFR Marfă terminals at Bucharest Sud and Bucharest Progress are shown in Figure 72 to Figure 76.

20 Indicated in Figure 71 by a broad arrow-head symbol. 21 Full name: Compania Nationala de Cai Ferate ‘CFR’ SA.

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Constantza Port’s internal railway system is quite extensive, with seven railway stations and two marshaling yards. Every port terminal has direct access to the railway system. Every day shuttle trains carry containers to national destinations for just-in-time delivery. In view of the rail traffic growth in the south part of the Port of Constantza and the estimated cargo growth traffic, N.C. Maritime Ports Administration S.A. Constantza is promoting two projects to develop railway infrastructure within the port: • Development of railway capacity in south area of Constantza. • Development of the railway system in the maritime-river sector (berths 86 - 103). Figure 71: Romanian Railway Network

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Figure 72: CFR Marfă Container Terminal Bucharest Sud (1)

Figure 73: CFR Marfă Container Terminal Bucharest Sud (2)

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Figure 74: CFR Marfă Intermodal Terminal Bucharest Progress (1)

Figure 75: CFR Marfă Intermodal Terminal Bucharest Progress (2)

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Figure 76: CFR Marfă Intermodal Terminal Bucharest Progress (3)

Inland Waterways Romania has a good inland waterway system, which includes networks of natural and artificial lakes. The technical parameters of the Poarta Albă – Midia – Năvodari Channel are presented in Table 10 below as an example. This channel joins the Danube – Black Sea Channel at km 35, providing river access to the ports of Midia and Luminiţa. Table 10: Albă – Midia – Năvodari Channel Technical Parameters Total length 27.5 + 5.5 km Width (at the bottom of the transversal section) 36 – 50 m Maximum depth 5.5 m Sea gauge (current) 4.5 m Double locks (twins) 2 (Ovidiu, Năvodari) Maximum barge convoy - tonnage 3,000 t - number of barges 1 x 3,000 t - maximum length 120 m - maximum width 11.5 m - sea gauge 3.8 m River-going or sea-going ships 2,000 DWT Class of waterway (EEC–UNO classification) Class V Number of inland ports 2

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Analysis of Main Logistics Nodes Freight Terminals, Bucharest The state-owned railway company CFR Marfă operates two freight terminals are on the outskirts of Bucharest: • Bucharest Sud Container Terminal has a land area of 2.5ha; two railway lines, each 300m long; two 32t capacity stacker cranes; space to store 700-800 TEU; and road access. It has the capacity to handle more than 3,000 containers per year. Infrastructure and superstructure are in need of renovation. The location is good (close to the public railway network and close to Bucharest ring road) but nearby land has been privatized which, although the land remains unused, constrains future expansion. The terminal could be integrated into the intermodal terminals system, but not improved to ILC standard. • Bucharest Progress Intermodal Terminal is 20km south-west of Bucharest Sud. It has a land area of 5ha and one 32t capacity crane. The condition of infrastructure and superstructure require renovation, as at Bucharest Sud. Bucharest Progress is now considered a reserve terminal and mainly used to store scrap and other goods. The terminal location is favourable, with good access to the public railway network and proximity to the road network (about 1,5km from Bucharest ring road). The terminal could be integrated into the intermodal terminals system. Sea Ports Constantza Port is one of the biggest ports in Europe. Traffic statistics are appended. The port’s main characteristics are presented in Table 11 below. Table 11: Constantza Port Characteristics Port territory 1,124 ha Docks 2,596 ha Length of the quay 29.8 km Number of berths 145 Maximum depth in berth 19 m Maximum capacity of the ships 250,000 DWT Cargo handling capacity 120 Mt/year There are also two satellite ports to Constantza, each about 30km distant: Midia (to the north) and Mangalia (to the south). Both have a maximum depth of 9m. In 2004 Midia handled 1.1Mt of cargo (livestock over a dedicated wharf, crude oil, petroleum products, natural gas and minerals including iron ore). In the same year Mangalia handled 209 thousand tons of cargo (petroleum products and construction materials including cement). Foreign vessels are barred from certain parts of Mangalia Ports. Plans of Constantza Port and its satellites appear in Figure 77 below. In Figure 78 there is a general view of the port. Constantza Port has specialised terminals for general cargo, ores, cereals, chemical products, petroleum products, Ro-Ro, ferries, building materials, containers, refrigerated products and bitumen. Their technical specifications, capacities and operators are presented in the Romania appendix at the end of Annex 3, Part 2. Four container terminals operate in the Constantza Port, with strongly growing throughput over the last 10 years. The terminals are operated by Socep, DP World (Constantza South Container Terminal), Umex and APM Terminals. Demand growth has necessitated the development of new container handling facilities. Consequently a new container terminal became operational recently in the south part of Constantza Port-Pier IIS, being designed to

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International Logistics Centres for Western NIS and the Caucasus accommodate Post-Panamax container ships with an annual capacity of 325,000 TEUs in the first stage and up to 1,000,000 TEU's in the final stage. The terminal is operated by Constantza South Container Terminal. Constantza Port offers users’ the usual range of services, including a traffic tracing and management system, pilotage, towage, berthing/unberthing of ships, electricity and water supply, waste disposal and emergency response to fire and pollution. Constantza Port is state-owned. Together with its satellite ports it is managed by NC Maritime Ports Administration SA Constantza, which acts as the port authority for all Romanian seaports. It is responsible for providing high-quality and competitive services to the ports’ customers, as well as high levels of security, safety and environmental conditions. It engages in port infrastructure development, dredging and maintenance work. However, all port commercial activities are undertaken by private companies: stevedoring, stuffing and re-stuffing, towage, piloting and other services. And the Maritime Authority is responsible for navigation safety, PSC, FSC. Figure 77: Plans of Constantza Port and Satellite Ports Midia and Mangalia

Note: These plans are not presented to the same scale. Constantza Port has a land area of 1,124ha, 156 berths with total quay length of 29.8km. The comparable figures for Midia are 234ha, 14 berths and 2.2km; and for Mangalia they are 27.5ha, 4 berths and 0.5km

Source: Aries Shipping Agency website

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Figure 78: General View of Constanza Port

Constantza Port is connected to the Pan-European Corridor No.VII (the River Danube: see Figure 70 above) through the Black Sea – Danube Canal. The Canal is 64.4 km long and 90m wide and has a water depth of 7m with 17.5m clearance under bridges. River traffic through Constantza Port in 2008 was almost 11.4 million tonnes, the dominant cargoes being coal, ore, cereals and steel products. The railway network connects Constantza Port (and each of its terminals) with the national and European railway network systems. The internal road network connects via ten separate port gates to the national and European road networks. The international airport Mihail Kogălniceanu is situated 20km from Constantza Port, promoting regional development. Mihail Kogălniceanu has a 3,500m concrete runway; can accommodate wide-bodied aircraft; and is serviced by five scheduled airlines and thirteen charter airlines. It has also been a US military base since 1999, being used for the operations in Iraq and subsequent counter-insurgency operations. The national pipeline network is connected to Constantza Port, affording direct access to the main Romanian refineries. Constantza Port is located at the crossroads of trade routes linking the markets of the landlocked countries of Central and Eastern Europe with the Transcaucasus, Central Asia and Far East. It is the main Romanian port and ranks among the top ten European ports. Its favourable geographical position and importance are recognized by its inclusion in two Pan- European Transport Corridors: Corridor VII (Danube inland waterway) and Corridor IV (railroad). It is no exaggeration to say that its hinterland includes Austria, Bulgaria, Hungary, Moldova, Slovenia, Germany, the Czech Republic, the Serb Republic and Croatia. Regular shipping services to Constantza Port are provided by the state-owned CFR Marfă ferry company, created 25 years ago to operate Ro-Ro railway ferries. It has two Ro-Ro vessels, Eforie and Mangalia, each with a capacity of 1,680 loading metres (80 trucks) and space for 12 passengers. They work the Constantza – Derince (Turkey) route and make two voyages per month. The standard tariff for a crossing is €40 per linear metre, which is equivalent to rather less than €2 per truck-kilometre.

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There are plans for expansion and upgrading of Constantza Port and associated infrastructure: • Improvement of operating conditions inside the port, by diminishing wave impact in the port basins, improving navigation safety. The Feasibility Study & Technical Project were drawn up by SC IPTANA in 2002; a fully revised version was delivered in April 2007. Estimated cost = €122 million. Financing: EU structural funds and State Budget sources. • Extension of the railway system in the river-maritime area of Constantza Port. Purpose: improvement of railway operations in the river-maritime area by building a systematized railway complex. In the first stage new railway lines will be built to match the 2020 traffic forecast. Estimated cost of the first stage = €15 millions. • Infrastructure on Pier III South. New container terminal to be built with container handling capacity of 700,000 TEU/year. This will entail reclaiming 34ha of land from the sea. Estimated cost of the project = €67 millions. • Infrastructure on Pier IV South. After completing the infrastructure new specialized terminals will be created, allowing SuperPost Panamax vessels to be accommodated. Stage I 35ha = €118 million, Stage II 55ha = €155 milllion, Stage III 70ha = €140 milllion. There is ample space for further port expansion towards the south. Such expansion is envisaged as Constantza’s role as a major European intermodal transport node grows, the ‘motorways of the sea’ concept develops and private investors (such as DP World) extend their activities. There are some obstacles to the port’s development, however. Chief among them are: • Absence of a by-pass from CSCT to the highway, including a new bridge over the Danube channel as well as increased capacity of the rail link. • The condition of the CFR Marfă ferries, which are both more than 25 years old. They have a maximum speed of only 10 knots (compared to new ships for which 16.5 knots is normal) and they consume about 1t of fuel per hour22. Personnel costs are high, with 150 employed in the office and a crew of 33 on each ship. The company in a poor financial situation. Air Cargo hubs Air cargo has much less importance for the Romania transportation market than other transport modes. There are seven international airports in Romania with annual cargo throughput totaling less than 30,000t. The tonnages for 2008 were: International Airport Henri Coanda Bucharest ...... 22.464 t International Airport Bucharest Baneasa-Aurel Vlaicu ...... 1.070 t International Airport Mihail Kogalniceanu Constantza ...... 1.092 t International Airport Traian Vuia Timisoara ...... 1.201 t International Airport Arad ...... 537 t International Airport Cluj- Napoca ...... 496 t International Airport Iasi ...... 1.846 t The biggest Romanian airport is International Airport Henri Coanda Bucharest. It is the main air cargo hub for Romania, as the above figures show. In the last 3-4 years Bucharest Airport has become the most popular location for international logistics providers, siting their warehouses and distribution centres there. Within a radius of between 3 and 8km from the airport the facilities of DHL, UPS, Rhenus, Schenker, Orbit and others are located. There is also railway access.

22 Fully loaded, this is equivalent to about 0.8 litre per truck-kilometre.

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Analysis of Stakeholders in Freight Transport and Logistics Sector Ministries and Related Public Authorities Ministry of Transport Ministry of Transport Romania, General Directorate for Infrastructure and Road Transport is responsible for the development of logistic centres. It is currently preparing the Romania Transport Strategy, which includes a section on logistics centres. It is understood that this aspect of the strategy is being given high priority. Until now Romania has no legal basis for the public logistics centres development. Maritime Administration The executive agency is the Maritime Administration, which is a corporate body of the Ministry of Transport. It consolidates regional divisions in Constantza and river ports. The Maritime Administration is responsible for navigational safety in Romania waters; search and rescue; environmental protection; and other conventional matters. Its legal authority covers all civilian ports. Port regulation and tariffs are under the responsibility of the Port Administration. Regional and Municipality Authorities Bucharest Municipality is the biggest owner of real estate after the state. The municipality has the right to ownership of its property and is completely autonomous in deciding its use. In exercising its powers it does not require the approval of other bodies, and of state bodies in particular. Customs Administration The Romanian Customs Administration is a centralized administrative structure, organized within the National Customs Agency (NCA) under the Minister of the Interior. NCA is a legal body financed by the state budget. The Central Customs Directorate is located in Bucharest. There are a number of Regional Customs Directorates located in the main cities of the country including Constantza, Midia and Mangalia. Generally the customs system in Romania is functioning without any serious troubles, though there are some problems concerning the time needed for customs clearance procedures at terminals and ports. Logistics Service Providers The market for logistics services in Romania is still developing. Mainly international logistics operators are able to offer their customers complex logistics services and third party logistics. The national logistics companies are mainly concentrated on the typical logistics services: road freight, sea freight and rail freight. Warehousing and distribution are provided by national and international logistics companies. ‘Logistic Park’ is a typical ILC located in Constantza Industrial Zone. It is owned by CELCO Company (a group of private companies engaged in logistics centre management). It is relatively small, with an area of about 15 ha and an original investment of about €13 million. 35 logistics service providers rent land and operate within Logistic Park. The rentals depend on usage: €1.50/m2/month for storage; €3.00/m2/month for production/manufacturing activities; €8.00/m2/month for offices; €4.50-4.80/m2/month for multi-purpose areas of 2,000–5,000m2; and €4.00-4.50/m2/month for multi-purpose areas of at least 10,000m2.

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The biggest operator is the the Coca-Cola Company, which rents about 13,000m2, of which 40%, is used for storage, 4% for offices and the remainder for manufacturing. The main problems are (a) national logistics providers’ lack of logistical know-how and (b) lack of investment in the logistics infrastructure and modern technology. Freight Forwarding Companies The core business of the Romania freight forwarding companies is import/export logistics including customs clearance services. The focus of these companies is on sea, road and railway transportation. Most national freight forwarders have their own fleets of trucks. The warehouse and storage facilities are owned and operated by state organisations such as CFR Marfă, road transport companies and international companies. UNTRR member companies using intermodal terminals – for example in Constantza port and the Arat terminal close to the Hungarian border – have an interest in ILC development. Inland Waterway Shipping Services Several shipping lines provide container services on the inland waterways. The principal routes are Constantza–Giurgiu and Constantza–Belgrad. Capacity on the Constantza–Giurgiu route is 300 TEU/week; current demand is 200 TEU/week. Operators of Transport Infrastructure The main operator of transport infrastructure is the state-owned railway company CFR SA which is responsible for the rail infrastructure. Separate but related train operating companies are responsible for passenger and freight train services; see below. Informatică Feroviară is a commercial company which provides IT infrastructure and application services for the rail sector. Autoritatea Feroviară Romănă (Romanian Rail Authority, AFER) regulates the rail sector. It is subordinate to the Ministry of Transport. Operators of Logistics Nodes There are several newly developed intermodal logistics centres in Bucharest and Constantza. ‘Logistics Park’ in Constantza Industrial Zone is typical for Romania. Port terminals in Constantza, especially container terminals, provide logistics services and have organisational structures. According to CFR Marfă representatives in Bucharest there are at least six intermodal terminals which work with containers: CFR Marfă itself has three (Bucharest Sud, Bucharest Progress and Bucharest Noi) and there are three private terminals: Van der Vlist (Holland) in the southern part of Bucharest just close to the ring road; Sud Terminal inside ring road not far from Bucharest Sud; and a new one close to the center of the city. Some industrial companies that have recently established south of Bucharest have set up their own freight handling and storage facilities. Outside the ring road there is ample land which is not yet occupied. Most is privately owned and much is currently for sale. Shippers and Consignees The largest shippers in Romania are DP World, MSC, Maersk, ZIM and Happag Lloyd. They are operating their container ships to/from Constantza port.

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Railway Operators CFR Călători operates passenger trains on the track for which CFR SA is responsible; and CFR Marfă operates freight train services. CFR Marfă’s role includes operation of railway ferries, as discussed above. AFER regulates the whole railway sector, comprising infrastructure as well as the operating of trains and related services. Missing Links and Bottlenecks in the Transport and Logistics Network The main bottleneck in the Romania transportation sector is the relatively underdeveloped railway network and lack of intermodality. The existing rail network in Romania is lacking the network effect, which is the one of the main factors in the development of a sophisticated transport system. Because of poor connection and coordination of rail, road and sea transport the potential synergies effect are not fully realised. Well located logistics centres and intermodal terminals have a crucial role to play in this regard. Road infrastructure, especially in mountain regions, needs to be improved and capacities expanded. Of particular importance are road sections along the Trans-European Transport Corridors and road connections between the Hungarian border and the Black Sea (Constantza). More specifically, the 2-lane road between the small village of Besarabi and Highway A2 is a serious bottleneck. Conclusions and Initial Recommendations Our interviews with the main stakeholders of the transportation sector and visits to facilities made clear that there is a need for and strong interest in the development of logistics centres in Romania. The Locations where logistics centres are most necessary and most likely to succeed are Bucharest and Constantza. Of secondary interest are Arad, Iasi and Braila. These five locations are marked on the map in Figure 79 below

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Figure 79: Potential Logistics Centre Locations in Romania

Potential logistics centre location

There are several factors that point to a location close to Bucharest: • Bucharest is the largest Romanian city with a population of nearly 3 million, and the leading industrial centre with the highest income level. • It is located at the crossroads of three Trans-European Transport Corridors. • The main manufacturers, international retailers and leading logistics operators are already located in Bucharest. • Bucharest has good tri-modal access with road, rail and air. Using regular block train and transshipment services to Constantza Port, the inland waterway routes to the Black Sea ports can be used to integrate sea freight into the logistics network. • Bottlenecks in container handling and logistics operations in and around Bucharest are being addressed by the Romania Government and the private sector, which is now starting to develop. • The ideal location would be close to the ring road and Motorway A2. Constantza Port is also a strong contender for development of logistics services: • It is the leading Black sea port in terms of cargo throughput, vessel turnaround time, transit cargo volumes, organizational structures, tariff system and clarity of regulations. (These claims are supported by ISO certification, ISPS, EHS prevention and the quality, completeness and nature of services provided to calling ships, stevedores, shippers, agents and other port users.)

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• The Port is supported by two of the biggest Container Terminal Operators in the world (DP World and APM Terminals) and stands in the front line of the EU transport policy and regulations implementation process. • Having become a full member of the European Sea Ports Organization, Constantza Port is making better use of the European know-how and becoming directly involved in European legislative initiatives on port related matters. • The ideal location would be between Motorway A2 and the railway, about 8km to the west of Constantza City. The secondary locations are characterized as follows: • Arad is in the west of the country near the Hungarian border. The town has a population of only 200,000, but it is relatively prosperous with over 40% of employment in the industrial sector. It is already recognized as an important transport node. • Iasi is in the north-east close to the Moldovan border. The population exceeds 300,000 and it is an important educational and industrial centre, with metallurgy, pharmaceuticals, food processing and textiles. Moldovan Railway runs direct services to its two railway stations. • Galati and Braila both lie on the River Danube in south-east Romania, close to the borders with both Moldova and Ukraine. Galati has a population of about 300,000 and the country’s largest iron and steel plant and largest shipyard (on the River Danube). Braila’s population is rather smaller at about 200,000, with large grain-handling facilities and metal, textile and food-processing industries. Both towns are close to the Giurgiulesti International Free Port (GIFP) in Moldova.

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1.2.3 Turkey

Source: UN Map Database Background Information Introduction Turkey is located in South-eastern Europe and South-western Asia. It is an important regional player and a bridge between East and West, The country is bordering the Black Sea, between Bulgaria and Georgia, and the Aegean Sea and the Mediterranean Sea, between Greece and Syria. Turkey shares 779 km of border with TRACECA countries: 268 km with Armenia, 9 km with Azerbaijan, 240 km with Bulgaria, and 252 km with Georgia. Turkey is rich in natural resources such coal, iron ore, copper, chromium, antimony, mercury, gold, barite, borate, celestite, emery, feldspar, limestone, magnetite, marble, pumice, pyrites, and clay. The country has rich hydropower resources and arable land. According to the World Bank statistics the total population counted 73.89 m people. The estimate suggests that population will reach 76,8 m by July 2009. Over 73% of its population lives in urban areas. The country has 81 administrative provinces. Turkey's dynamic economy is a complex mix of modern industry and commerce along with a traditional agriculture sector that still accounts for more than 35% of employment. The largest industrial production is textiles and clothing. Other sectors, especially the automotive and hi- tech industries, are significant within Turkish GDP composition. Turkey 's economy is among the world's 20 largest, with a GDP of around USD 400 billion in 2007. Agriculture accounts for

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International Logistics Centres for Western NIS and the Caucasus about 11% of its GDP, industry for 29.5%, and services for 59.5%. Turkey today is the main economic player in the Near- and Middle East and for the Caucasus. The country has a strong and rapidly growing private sector. However, public structures still play a major role in industry, banking, transport, and communication. Асcording to World Trade Organisation (WTO) statistics, both export and import volumes where growing in 2006-2007, constituting 0.77% and 1.19% share in the world’s exports and imports respectively. In 2007, the economy’s total export comprised agricultural products (9.4%), fuels and mining products (10%), and manufactured goods accounted (79.6%). The import structure by main commodity groups was dominated by manufactured goods (22.7%), followed by fuels and mining products (22.7%) and agricultural products (5.9%). The major trade partners are European Union (57.2 % in export and 40.4% in import), followed by Russian Federation (4.4% and 13,8%). Other important trade partners for export are the United States (3.9%) and United Arab Emirates (3.0%). Turkey had imported 7.8% from China and 4.8% from the United States. The commercial services amounted 0.86% in country’s exports and 0.46% in country’s import. The main services items were transportation 21.8% in export breakdown and 46.1% in import, followed by travel services 65.5% and in exports and 30.9% in imports. Current Economic Situation In 2007 and 2008, financial markets in Turkey reflected the significant domestic political turmoil influenced by various reasons. Despite economic fundamentals are sound, the Turkish economy is likely to face more negative economic indicators in 2009 as a result of the global economic slowdown. The International Monetary Fund (IMF) forecasts a 1.5% decline in the Turkish economy in 2009 before recovering to 4,25% per cent in 2010, in line with the global recovery. Turkish manufacturing industry is exposed to the world trade, especially to Europe, where, the main trade partners are slipping into a deep recession. Notably motor vehicle exports that increased dramatically from 2000-2007, making Turkey one of the leading manufacturing bases for the European market, have experienced a negative shock in 2008, with a decline by 60.3% in January, 2009, followed by a 55.7% % contraction in electronics. These are Turkey's most export-oriented sectors and classic logistics centre cargo in terms of transportation. Current Situation of Freight Transport and Logistics Sector General freight transport sector development: Turkey is one of the major transit points and destinations for freight, having a substantial transport and logistics demand generated by industry and private consumers. The country may provide logistics services to neighbouring regions in EU, Balkans, Middle East, Russia Caucasus, the Black Sea and Mediterranean countries. Turkey is a part of IV and X Pan-European corridors. The plans made in 2008 were aimed at reduction of congestion, particularly in Istanbul, and at crossing the Bosporus. Projects such as the Bosporus tunnel construction will offer a missing link between Turkey's two continents. The overall economic recession has slowed down the pace of these projects, but did not put them on hold. The development of the Turkish transport sector goes hand in hand with growth of export oriented industrial production. The export of agricultural production such as vegetables and citrus fruits to Western Europe and CIS countries also pushes the development of freight transport. . The trucking industry used this challenge to generate business. Today, Turkey has the largest fleet of trucks in the region. With its 22.000 registered heavy trucks it can reach all markets in

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Europe and CIS. With several links from Turkish ports to TRACECA ports at Black Sea or to South and Western European ports with RoRo ships, the Turkish transport industry has made a huge step towards intermodal solutions and partly realised “Motorways of the Sea” concept. The railway sector has so far not managed to cope with requirements of modern transport logistics, the reason being the missing link for Bosporus crossing and the strong competition of trucking industry. The Government of Turkey is working on the subject. Block trains have been introduced both for domestic and international destinations. The Bosporus crossing by rail will be possible from 2011 on. The very ambitious tunnel project from Europe to Asia is nearly completed, The line will link the European railways with Turkey and after bogie changes with the railways of the former USSR countries via the railway link Kars to Ahalkalaki in Georgia. Further to that, the Government is realising a so-called Logistic Villages Programme to offer all kind of logistics services at 12 locations throughout Turkey that have a railway connection. Development trends: The Turkish freight transport report (2008) by Business Monitor international suggests the following trends for the five-year forecasting period23. By the end of 2013, sea freight is anticipated to be the largest transport sub-sector, accounting for approximately 50% of all shipments, compared with 43% for road freight. By transport mode, fastest growing is likely to be airfreight with 9.3% annual expansion rates, followed by maritime cargo at 6.6%; road haulage at 5.1% and rail freight at 2.7%. According to Business Monitor international forecasts, in 2009-2013 the transport and communications sector will continue outpace the economy as a whole in value terms. The trend is likely to be kept even under the current economic recession. The total value of transport and communications GDP is forecasted to represent 11.4% of Turkey’s GDP in 2013. Despite road transport continues to be a backbone of the Turkish land transport system, the importance of railway transport due to investment programme of the government is increasing. According to the 2006 figures in Turkey, the share of railways in freight transportation was approximately 5% this figure is likely to further increase in the next years. Facilitation to this trend is one of the government’s transport policy priorities. Logistics Performance Indicator: The World Bank study 200724 gives Turkey rank 34 among all the countries analysed in the overall logistics services performance indicator. The components of indicator show the performance of Turkey as follows: • Customs – rank 33 • Infrastructure – rank 39 • International shipments – rank 41 • Logistics competence – rank 30 • Tracking & tracing – rank 34 • Domestic logistics costs – rank 112 • Timeliness – rank 52

23 See BMI (2008) - Turkish freight transport report (BMI's Europe Freight Reports are based on an extensive network of multilateral organisations, government departments, Freight industry associations, chambers of commerce and company reports. 24 Seehttp://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTTRANSPORT/EXTTLF/0,contentMDK:21 514122~menuPK:3875957~pagePK:210058~piPK:210062~theSitePK:515434,00.html – Logistics Performance Index, WB, 2007

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Turkey scored the best among all TRACECA countries in logistics performance. Rapidly growing trade and industrial development have created a promising perspective for the logistics sector, and the trend is expected be maintained. Initiatives in logistics centres development: There are three mainstreams in development of logistics centres in Turkey. These entail: Governmental initiatives – according to the development strategy of the Ministry of Transport and Communication, Turkish Railways (TCDD) plans to organise 12 logistics villages on its network on the basis of the existing transhipment points. Public – private initiatives – organisation of the logistics centres next to industrial zones, or at private ports. One of the most successful examples is a BALO Project – a project of Western Anatolia Logistics Organisations. This comprises the efforts of Turkish Chamber of Entrepreneurship, the industrial zone of Bursa, Eskisehir, Manisa, Denizli, the Aegean Region Chamber of Industry, Barsan Global Logistics, and Akport Tekirdag company. Based on this initiative logistics nodes are planned in Tekirdag port, Bandirma port, Okcugol Istasyonu station, Eskisehir consolidation centre, Manisa organised industrial zone, Izmir consolidation centre and Denizli organised industrial zone. These logistics villages will also be supported by block train operations. These two most remarkable initiatives are schematically presented in the picture below: Figure 80: Locations of BALO Project and TDCC Logistics Villages

Private warehouses operated by various trucking/freight forwarding companies, industrial entities or other private companies dealing with storage business. Such warehouses are misleadingly called logistics centres. As they are not designed or equipped to provide modern logistics services, neither allow the presence of more than one operator, such entities were not considered in the present survey, since they do not fall under the category of the international logistics centres. Analysis of Transport Infrastructure The transport network infrastructure analysis in Turkey was predominantly based on the TRACECA map published by the Permanent Secretariat of the Intergovernmental Commission TRACECA. In December 2008, the TRACECA member-states have enlarged the network and especially the hubs linked with TRACECA. This new map is still not published at the PS

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International Logistics Centres for Western NIS and the Caucasus webpage, and new changes are anticipated at the IGC meeting in June 2009. In the inception period, not all of additional hubs and links were visited in Turkey. The findings are based on the field missions. This includes site visits to the Black Sea Ports of Samsun, Trabzon and Hopa. A site visit to the Turkish/Georgian Border in Sarp(Sarpi) has been made and the Istanbul port of Haydarpasa has been also visited. The management and operation company of Akport in Tekirdag with its railway link to Muratli and its logistic village have been interviewed. Road Network The dominant role of the trucking industry as well as the growing mobility has forced the Government during the last decades to develop the road network. The development of land transportation in Turkey is critical for the economic development of the country and has much importance for the neighbouring regions of Europe, the Middle East, the Balkans, Caucasus, and the Black Sea area. The share of highways in both passenger and freight land transportation is about 95%, while railways do not handle more than 5%. As per information published at General Directorate’s of Highways website25 the total length of highway controlled by this entity is 63 899 km, comprising motorways, state highways and provincial roads. General Directorate of Highways is a legal entity within the Ministry of Public Works responsible for planning, design, construction, maintenance and operation motorways, state highways and provincial roads. Table 12: Road network surface

ROAD NETWORK - SURFACE TYPES (KM) 01.01.200826 Asphaltic Surface Stone Stabilised Earth Primitive Total Concrete Treatment Block Motorways 1 987 1 987 State 6 538 24 205 213 49 106 222 31 333 Highways Provincial 868 26 414 1 583 109 841 764 30 579 Roads Total 9 393 50 619 1 796 158 947 986 63 899 The old version of the TRACECA route in Turkey has depicted a national highway crossing the Northern part of the country from West to East. Namely, this is a link of the Corridor IV from Istanbul and Izmit in the West, via Merzifon, Samsun port to Trabzon, Hopa to Sarpi at the Eastern Turkish border to Georgia.

25 http://www.kgm.gov.tr/indexe.htm 26 Source: Ibid

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Figure 81: Old TRACECA route in Turkey

Source: webpage of PS IGC TRACECA, status April 2009 The updated route includes the upper part of the Turkish fishbone land transport network in the Central and Northern part of the country. The two highways starting from the port of Izmir switch an important Manisa industrial zone onto the TRACECA route. The highway follows then by the port of Bandirma with further access to ports of Marmara region and to the existing TRACECA road Istanbul – Samsun-Hopa. Figure 82: Updated TRACECA route

Source: MAP produced by the EU financed Traffic Flows project, status April 2009. In addition, the TRACECA route is enforced with the almost parallel highway through the Central Turkey: Izmir – Afyon-Karahisar-Ankara-Sivas-Erzinkan-Kars. The both highways are connected with radial roads leading mostly to the ports. The road network is also supported by the railway network crossing the whole country from the West to the East and contributing with road fishbone network of TRACECA route in Turkey.

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During the expert mission almost 800 km were travelled by car following the main TRACECA route. It should be pointed out that roads are from 2 to 4 lanes and are in excellent condition. TRACECA Road Border Crossings: Currently, TRACECA border crossing to Georgia at Sarp is operated at the juxtapose method, clearance procedure is automated, reducing human mistakes and red tape that may occur. The drivers interviewed at the Sarp border from the Turkish side reported about a waiting time variing from 1 to 3 hours, but the clearance procedure from both side takes less than 5 minutes. Figure 83: Trucks waiting at the border Figure 84: The Turkish / Georgian Border in (Turkish side) Mar. 2009 Sarp March 2009

Bottlenecks: The Bosporus crossing is one of the major bottlenecks for road transport. Two bridges are heavily congested. Alternative routes using ferries are on various locations in and around Istanbul. The Turkish government is addressing this issue having launched the Marmaray project. Railway Network The length of the main lines of railway in Turkey is currently 10.991 km. About 22% of the main network is electrified, while about 28% are equipped with signalling systems. Five percent of the network has a double track. The railway system received modest investments for several decades. The importance of railways as an alternative to highways, waterways, and airways has only been recognised in recent years.

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Figure 85: Railway network of Turkey

Source: TCDD presentation, March 2009, Ankara TCDD, The Turkish State Railways, is the operator of national railway network, both freight and passengers. Other businesses include ports that have not been privatised yet, manufacturing and repairing rolling stock, transhipment of cargo and cargo handling. The railways participate in export, import and transit operations. In discussions with the representatives of the Turkish railways it was revealed that the company will be outsourcing its secondary activities to concentrate on its core business – i.e. on train operation and railway infrastructure development. There are several internationally supported programs and railway projects. The EU and the World Bank are the most important financial and technical supporters to strengthen the sector and to ensure the integration into the EU transport systems. Private companies have become significant players in freight transportation since they were given the right to operate their own block trains, wagons and containers on TCDD railway lines. The current figure of annual carriages by TCDD is 17 million tons, although the capacity is estimated to be 50 million tons. The private sector is expected to raise this figure with the help of block train and intermodal transport. Already in 2003, the TCDD launched first block trains operation. Since then, , freight volumes increased. Currently 4000 domestic block trains are operated a month as per TCDD information. International block trains are operated to destinations in Europe, Asia, as well as in the TRACECA region, including . Kazakhstan, Turkmenistan and Romania. In interviews, however, it was noted that a TRACECA related block train project of Turkey and Kazakhstan from Almaty to Istanbul has been cancelled. Duringa trial period, weekly container trains did not meet the plannes schedule. Block train operations are now influenced by the global economic crisis.

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Considering the importance of the railway in the national network, Turkish government has taken several measures to and investments to modernise and rehabilitate the railway infrastructure. The main project is the railway tunnel crossing the Bosporus linking the European part of Turkey and the Asian part. The railway link between Turkey (Kars) and Georgia (Ahalkalaki) is under construction and should be finalised in 2010. As a result, these links will create a direct connection between South and West Europe and the southern network of the former USSR states, giving the railway a stronger position in the international transport. With the direct railway link from Turkey to the CIS railway network a new and important link to the TRACECA corridor (Cetral Asia, Azerbaijan) will be opened. The capacity of this link will depend on the bogie change facility needed to operate the European railcars on CIS gauge and vice versa. TCDD makes efforts to increase its share in freight transportation by construction of so-called industrial lines which are directly connecting industrial zones private centres with high freight potential to its network. Currently about 450 km of industrial lines exist connecting the organised industrial zones of Turkey. Figure 86: Industrial lines of Turkey

Industrial lines of Turkey: Combined transport operations are done in Halkali, Haydarpasa, Kosekoy, Ankara, Alsancak, Bogazkopru, Iskenderun, Mersin and Gaziantep (Baspinar), which have container depots. Implementation of future investments is planned as to merge such container terminals into new logistic villages. The TCDD is planning to construct 12 Logistics Villages in Halkali/Ispartakule (Istanbul), Kosekoy (Izmit), Gelemen (Samsun), Hasanbey (Eskisehir), Bogazkopru (Kayseri), Gokkoy (Balikesir), Yenice (Mersin), Ushak, Palandoken (Erzurum), Konya, Kaklik (Denizli) and Muratli (Tekirdag). However, the interviews revealed that an overall nationwide freight master plan for the networking is missing. The visited logistics village location Gelemen in the vicinity of Samsun

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International Logistics Centres for Western NIS and the Caucasus explained that there was no master plan for the logistics village as well, which complicates the attraction of foreign investors Bottlenecks: The main bottleneck of the TRACECA railway links is the railway crossing of the Bosporus. The tunnel under construction will be opened by 2011 and solve this problem.

Analysis of Main Logistics Nodes Sea Ports The map available at the official TRACECA webpage depicts two TRACECA ports Istanbul and Samsun. The updated TRACECA map includes in addition the ports of Bandirma and Tekirdag in Marmara region. New TRACECA routes now lead to Izmir port in the Aegean region, which will be included into the TRACECA routes in Turkey as new Western gateway to this corridor as per information of the Ministry of Transport. The Black Sea ports as Trabzon, Derince, Zonguldak located on the TRACECA route, but not nominated as TRACECA ports, are connected by the regular lines to other ports in TRACECA countries. Thus they constitute important links with TRACECA corridors. The following ports were included into the analysis: Istanbul (Haydarpasa), Samsun, Trabzon, Hopa, Tekirdag, and Izmir. General: There are four categories of ports regarding their ownership and operations in Turkey: 1. Public ports: State owned and operated ports, which belong to Turkish Republic State Railways (TCDD) and the Turkish Maritime Administration (TDI). Both public entities report to the Ministry of Transport and have a separate Department of Ports, which is responsible for planning and coordination. All the provided services to ship and cargo are given by the port’s own labour and equipment. Main services are given by the ports. 2. Public/Private Ports: State owned, but operated by private enterprises after privatisation 3. Private Ports: owned and operated by private enterprises. The third group of ports comprises special private ports ranging from multipurpose ports confined for particular needs of an industrial plant. As for instance Tekirdag port a new operated by a private company Akport included recently into the TRACECA network 4. Municipal ports: managed by responsible municipalities. These ports are comparatively small and serve the local needs of towns. The Black Sea ports of Samsun, Trabzon and Hopa (to a minor extend) and the port of Izmir as well as some of the Marmara ports are the main hubs for goods coming to TRACECA corridor by sea. The dry cargo with destination to the South Caucasus and Central Asia are carried by trucks. Cargo coming from Europe by is transported by feeder vessels to the TRACECA Ports of Georgia, Ukraine, Romania and Bulgaria. The main feeder ports so far are Izmir and Haydarpasa. Current status of port privatisation in brief: TCDD included six ports that have domestic railway connections in the privatisation program: Haydarpasa, Samsun, Bandirma, Derince, Izmir and Iskenderun. The privatisation process is either completed or underway. The privatisation of the ports of Mersin, Iskenderun, Bandirma (TRACECA port) and Samsun (TRACECA port) is in different stages, but the investors are already known.

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The operation of Mersin and Iskenderun ports is granted to a consortium, which is formed by a Singapore company, PSA, and a Turkish Akfen. The right to operate the port of Bandirma, in North-Western Turkey, and the port of Samsun, on the northern Black Sea coast, was granted in two separate auctions to Celebi Joint Venture Group and to Ceynak Lojistik, respectively. Haydarpasa port Haydarpasa is a TRACECA port on Bosporus operated by the Turkish Railways (TCDD). The port serves the most industrialised area of Turkey. Figure 87: Haydarpasa port

Source TCDD publication The port has regular services to and from Europe, Asia and the USA. The main ship-owners calling the port are Yang Ming from Taiwan, Bulcon, MSC, Maersk-Sealand and CMA from Europe. The port has two breakwaters so. Pilotage is compulsory and is provided by the Turkish Maritime Organisation. Towage is not necessary for the vessels up to 1500 GT, one tugboat is compulsory for the vessels of more than 1500 GT, two tugboats compulsory for the vessels of more than 5000 GT according to national regulations. Towage is provided by the Port Administration round the clock. The port handles general cargo, containers, serves Ro-Ro vessels and passenger vessels. There are berths with a total quay length of 2134 m. and with alongside depths ranging from 6 m. to 9.5 m. Container handling operations at the yard are carried out by 4 quayside gantry cranes of 40 tons capacity, 18 rubber tired transtainers of 40 tons capacity, 9 reach stackers of 25 to 42 tons capacity and 8 empty container forklifts . 9 shore and yard cranes of 3 to 35 tons, 6 mobile cranes of 5 to 25 tons capacity, 8 standard and 30 small masted forklifts. The floating crafts comprise 1 floating crane of 250 tons cap., 5 tugboats, 3 rail ferries and 4 mooring boats. The port of Haydarpasa is the second largest container port. In 2008, the port handled approx. 400 thousand TEU according to the port manager. The handling capacity is appox. 750 000 TEU (4 quayside gantry cranes and an operation concept using transtainers and forklifts/reach

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International Logistics Centres for Western NIS and the Caucasus stacker). The storage facilities of Haydarpasa include 126.750 sq. m. of open and 29.808 sq.m. of covered storage. The annual storage capacity of these areas is 762.000 tons /year and 476.928 tons /year respectively. The space for container terminal is nearly 100.000 sq.m. The holding capacity of the container terminal is 60000 TEU (both loaded and empty).There are two areas used outside the port for stacking the empty containers. A container freight station of 3.600sq.m.is available behind the container quay. Figure 88: Container terminal Haydarpasa, Istanbul. Status: March 2009

Unfortunately, the available storage capacity of the port is limiting its operation capacity to the before mentioned appox. 400 000 TEU, so the port has to use an inland terminal (land terminal Goeztepe) of 55 000 sq.m. with a storage capacity of 52 800 TEU. This land terminal is used for container stuffing/stripping and custom clearance for LCL containers. Maersk, CMA and Arkas group have rented land plots of about 10 000 sq.m. each in the port area. The container stuffing and stripping of LCL containers is done by these companies and not by the port. The covered warehouses for LCL operations are 1500 sq.m. the total closed storage area is 21ths sq.m.. 90 % of all containers are moved by trucks and only 10% by the railways. An improvement of these figures in favour of the railways is expected after finalisation of the railway tunnel crossing the Bosporus. The RoRo berth has 160 m length with an alongside depth of 8 m. Berth no 3 serves the dry bulk traffic. The length of the berth is 190 m. with an along side depth of 8.2 m. A grain silo of 35.000 tons capacity is available and has a conveyor connection with the quay. The bulk cargo handling is outsourced to the Turkish Grain Board with own conveyor and a silo capacity of 34000 tons. Bottlenecks: The access road and rail to the port are not sufficient. The port is situated in the middle of the city. Especially the access road is congested. It is used not only by incoming and outgoing port traffic but also for a central bus station located nearby. The three more operators within the terminal (Maersk, CMA, and Arkas) and 4 gates for entrance and exit of the terminal cause crowded operation within the terminal itself.

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Soft constraints: The port management is well aware about TCDD planning to privatise the port. This results in a non-investment policy. The management maintains the status-quo and shows limited motivation to eliminate the existing port maintenance and operation problems. Figure 89: Congested access road to the container terminal Haydarpasa, Status: March 2009

The Akport at Tekirdag The AKPORT in Tekirdag is a private port operated by Akport Tekirdag Liman Isletmesi A.S. a daughter company of the Akkoek Group of Companies. This is one the largest holding in Turkey with a turnover of USD 1.637 billion in 2007.

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Figure 90: Port of Tekirdag operated by AKPORT

Source: AKPORT publication The port has excellent location for a creation of the international logistics centre for a Marmara region. The logistics centres and block train operation with utilisation of the Akport at Tekirdag are included into the BALO logistics project at the Marmara region. The port is located at the Marmara Sea approx. 140 km to West of Istanbul in a main industrial area: . cement, ceramics, food, paper, glass, textile production, oil and oil products - approx. 1000 factories located on the area of 21 sq km. In the radius of from 40 to 150 km the major cities of Marmara regions are located including Istanbul, Edirne, Kiklareli, Kapikule, Corlu, Cerkezkoy, Silivri and Ipsala. A logistic village is planned close to Muratli in the industrial hinterland of the port. The railway line will be finalised by June 2009 linking Muratli with main connection Edirne – Istanbul as well as the new port of Tekirdag. Liner services of the Arkas Group are linking the port with Bulgaria, Romania, Spain, Italia, North Africa and Egypt. RoRo facilities linking Tekirdag with Bandirma and Gemlik by ferry services. In the first phase the Akport will have 3 berths and an area of 71thds sq.m. and a storage capacity of 2500 TEU on 600 ground slots. In 2008 the port has already handled 35.000 TEU. The port has modern handling equipment. 9 mobile harbour cranes are available. The container moves within the terminal are operated by 4 reach stacker, 3 forklifts and 7 tractor/trailer units. The port is handling general cargo and bulk on separate berths and is one of the London metal exchange approved ports. The port operation company intends to further develop of the port. In three stages the capacity should be enlarged to 1.5 million TEU. The plans of the port is to attract sea containers to Akport, utilising the concept of the motorways of the sea and providing logistics value-added services, as well as being the transit port for the Marmara and Black Sea Region. Already now the port can receive Panamax-type vessels and is planning to have a water depth of 17 meters on one of the berth. The time schedule is not fixed and depends on the utilisation of the stage one, which is slowed down by the current crisis.

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Figure 91: Ferry links Tekirdag Bandirma and Gemlink. Rail connection Tekirdag – Muratli- Main Railway line

Source: AKPORT publication The Port of Izmir The port of Izmir is one of the largest container ports in Turkey operated by the Turkish Railways (TCDD). The port is situated on the Aegean sea, in the Western Part of Turkey. The port is not only a gateway for the Turkish industry in the Aegean region, but also a gateway to Turkey in general. The port is located in the middle of the city. As one of the main feeder ports, Izmir is also very important for the ports of the Black Sea. The shipping lines MSC, Grimaldi, Yang Ming, Emes, Tarros, Maersk- Sealand, CMA/CGM, UASC, CSCL, CCL, Turkon, Admiral, COSCO, Borchard, NYK, Hamburg Suede, MCL, UFS, HMM, MOL, K-Line are calling the port on a regular bases. The main client of the port is the Industrial Free Zone of Manisa, 45 km north-east, contributing 30%.of cargo. On average, the port has 10 calls a day. The waiting time is for 90% of the vessels less then 9 hours and for almost 70 % the waiting time is below three hours. From Izmir several ferry connections to the European side of Turkey are operated.

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Figure 92: Port of Izmir

Source: publication of TCDD

Figure 93: Izmir port Extension area blue marked

Source: publication of Izmir Port The port has 24 berths and water depths down to 10 m. In 2008, the port has handled 895.000 TEU and 490.000 tons of general cargo. The work force of the port is 670 persons in average. The port is equipped with 5 gantry cranes of 40 tons, 10 rubber tired transtainers, 19 reach stacker and 20 forklifts for empty containers.

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The total area of the port is 760.000 sq.m. whereas 29000 sq.m. are covered areas with storage capacity and container freight stations. Empty containers are stored outside the port. The transport of empty containers is organised by train. The port is temporarily not connected to the railway network of Turkey due to metro construction works in the city of Izmir. The traffic within the container terminal seems to be not very organised in comparison to European Standards. Persons on the operation areas of a container terminal are allowed, causing in high dangers for their safety. The container business has decreased by almost 20% in the first two months of 2009, compared to the figures of the end of 2008. Within the port, the Turkish Grain Board has a conveyor system connected with the quayside and silos with a capacity of 70.000 tons. Despite the port is put for privatisation, the extension master plan is available and some upgrade works are underway:.the entrance channel will be dragged down to 14 meters, The dragging material will be used to fill up an extension area. This will help increase ports territory by more than two times. As the port is going to be privatised the investment projects are slowed down. Nevertheless, the management of the port is highly motivated and very cooperative. Figure 94: Port of Izmir with heavy traffic. Status March 2009

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Figure 95: Activities within the Izmir container terminal area. Status: March 2009

Bottlenecks: The port is temporarily not connected to the railway network of Turkey. The reasons for this are a construction of municipal metro system and extension of road network. This caused congestions of the port access road and in the around the port. Dredging is constantly needed in the port to accommodate large container ships. The Port of Samsun The port of Samsun is a TRACECA railway port operated by the Turkish Railways (TCDD) at the Black Sea. The new investor, Ceyhan Logistics Group, is already nominated, but the handover has not yet taken place.

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Figure 96: Port of Samsun

Source: publication TCDD With a total berth length of 1756 meters and a maximum draft of -12 meters the port is able to handle all vessels normally calling ports in the Black Sea Area. The port area is 356.000 sq.m. and in total 2008 1.5 million tons of cargo has been handled. Samsun is in first line a ferry port. The port is 24 hours open and offers all kind of operations. RoRo ships carrying export cargo to Russia and Ukraine are also calling the port. Mainly vegetables, fruits of the season and citrus fruits are going for export. The goods are coming from the south of Turkey by truck. Railway transport is so far not very much developed. The import cargo is mainly coal and grain. Coal is imported from Russia or Ukraine for a steel factory 100km away in the hinterland of the Port. The steel products as well as the import of scrap are going via a separate pier to the East of the port owned by the steel factory. The grain is coming mainly from Ukraine and Russia. The import in 2008 was 500.000 tons, export was 1.0 m tons. The transit was only 5400 tons. All figures are rounded and obtained from the port management. It was observed, that some core activities of a port are in the hands of private entities. Lack of investments has created costly operations. For instance, the grain coming in by motor vessels are unloaded direct on truck or via a hoper to trucks and then carried about 200 meters to a conveyer of the silo owned by the Turkish grain board with its 30.000 tons capacity.

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Figure 97: From the blue ship the grain loaded onto trucks to be transported 200 m to the silo. The queuing trucks loaded with grain

Other example of costly operation was observed at RoRo vessels transporting fruits. The trucks carrying citrus fruits are unloaded inside a ferry by forklifts and then stowed into the vessel. Switching to containers and small container vessels would eliminate this costly operation. The alternative costs are higher then by investing into a adequate container equipment. Figure 98: Unloading of a truck inside a RoRo ferry

In addition to the RoRo activities a renewal of the rail ferry operation is planned. The port has already built the concrete part of a link span for rail ferries. The final design of the link span will accommodate European standard gauge and Russian standard gauge. A bogie change station will be build. It is not clear when these investments are finalised. It may be delayed because of the privatisation project and overall economic recession.

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Figure 99: The area for future rail ferry operation

Bottlenecks: Lack of investment and the uncertain situation of the privatisation had brought the infrastructure upgrading activities to a certain extend on hold. Planned logistics centre (logistic village) in Samsun: There is an ongoing discussion about a logistics village in Samsun. The Turkish Ministry of Transport has pointed out that Samsun will be one of the nominated network locations. The site visit took place during the field expert mission to Turkey. The railway possesses a land plot and a loop station at Gelemen in the vicinity of Izmir port. The plot could be sufficient for a location of such a logistics centre. However, the forwarders and shipping agents together with Samsun Municipality are lobbying a location of a logistics village on the other side of Samsun. In fact, only the railway has a rail connected plot of land. Still, no master plan exists the logistic village, neither figures about potential users and nor market potential estimates exist. The railway company also seems to be reluctant to allow for competition and cooperation with other transport companies within the borders of the existing plot. Currently, Gelemen logistics village operates as a freight yard with standard railway operation. The railway in Samsun had been advised to work on a master plan and on a market analysis.

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Figure 100: The railways land plot and the rail connection at Gelemen

Port of Trabzon Figure 101: Port of Trabzon: The port of Trabzon with break water

Source: Printout from Albayrak Sirketler Grubu The Black Sea port of Trabzon in the North-East of Turkey is privatised and operated by the Al- Port, Trabzon Liman Isletmeciligi A.S., a daughter company of the Albayrak Sirketl Grubu, Istanbul.

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The port seems to be the most modern one on the Black Sea Coast of Turkey, being not only well equipped, but also with a dynamic management; the latter constitutes the principle difference between the State owned and the private ports observed during the mission. With its container yard, the general cargo berths and the storage area (covered 8390 sq.m. and uncovered paved area of 200.000 sq.m.) the port has sufficient space to handle and store any kind of cargo. The capacity of the port is estimated with 5 million tons for cargo handling, 3 million tons of storage. The yearly acceptance of vessels is 2000 ships. The port is protected by two break waters one of 1.135 meters and a second one of 380 meters. In total there exist 5 Berths including RoRo, ferry and general cargo, container and bulk facilities. The cargo handling equipment comprise 1 mobile crane with 100 tons capacity, 9 gantry cranes from 3 to 25 tons, 7 mobile crane from 5 to 25 tons, 1 reach stacker 40 tons 13 forklifts, 6 loaders terminal tractors and trailers. The management has a clear picture about the cargo to be handled in the port. Trabzon was and is the northern gateway to Iran. Currently, Iran imports goods via Dubai in a total amount of USD 23 billion, Trabzon is aiming at a share of USD 6-7 billion, worth 3 million tons of goods. Figure 102: Container Vessel in the port of Trabzon March 2009

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Figure 103: RoRo ship in Trabzon March 2009

Main import cargo is coal, timber and wooden articles and the main exported cargo is cement shipped to Romania, Azerbaijan and Georgia. Wheat, green vegetables and citrus fruits are shipped to the Russian Federation. With total 5 RoRo vessels and 5 Ferry boats a regular service is operated to Sochi/Russian Federation. Containerised export or transit cargo is going via Trabzon to, IIyichevsk, Viking and Novorossiysk to Northern Europe. The MSC shipping line has 3 calls a week. CMA has shipped 100.000 tons of chrome ore via Trabzon and Tekirdag to China last Year. This ore was loaded into container. Bottlenecks: The port has no railway connection. Since 1922, a railway link between Trabzon and Erzurum has been under discussion and has still no clear perspective. For the cargo handled the existing road access is sufficient, the expected Iranian cargo will cause congestion in the city, due to the limited capacity of the access roads. Port of Hopa Hopa is a small port 15 km away from the Georgian border. The port is owned by PARK DENIZCILIK Hopa Liman Isletmeleri AS. The shareholder of this company is with 60 % Ciner Group and with 40 % IMISK.

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Figure 104: Port of Hopa source: port publication

With 4 berths with an water depth of 10 Meters the port is able to receive the feeder vessels and smaller container ships used in the Black Sea. During the site visit no containers were stored and no ship was in the port. A rail ferry ramp scheduled for 2004 has not been built. The newest investment is a mobile harbour crane with a capacity of 40 tons and a reach stacker with a capacity of 42 tons. In addition the port has 5 Mobile cranes from 10 to 25 tons, 5 shore cranes with 5 to 25 tons and 10 forklifts with capacities from 2.5 tons up to 10 tons. The open area of the port is 40.000 sq.m. and a dedicated area for container of 15000 sq.m. are paved with concrete in good condition. The covered storage is 18220 sq.m. and used for the storage of cotton from Tajikistan and Uzbekistan. This cotton arrives by truck and is for the Turkish textile industry. There are no regular ship calls or liner services in Hopa. The role of Hopa as one of the entrances to the TRACECA corridor is only visible in cases of congestions in the other Black Sea ports of Turkey. The silo capacity is in total 10.000 tons and the discharging capacity is 300 tons per hour. The port would win from the construction of a railway link to Batumi in Georgia and the CIS railway network but this is not included in investment plans, so far. Bottlenecks: As there is currently no activity in the Port of Hopa, so no bottleneck was visible. Inland Hubs and Terminals An inland hub should be based on at least two modes of transport, where the combination of rail and road has the highest potential in terms of efficient logistics. At the country macro level, to such inland hub locations belong Ankara, Manisa, Sivas, Adana, Erzurum, and other major Turkish cities located at the crossroads of rail and road routes. These cities have with high consumer demand, and industrial and agricultural concentration.

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Since no logistics locations have to be selected for Turkey within the project scope, during the initial field mission in Turkey no specific inland terminals linked with the TRACECA Corridor have been visited, expect one site located in Manisa Organised Industrial Zone, 45 km to the North-East of Izmir. This node includes a logistics facility which is not in operation, yet. The reason is linked to a management problem. The organised industrial zone is operated by the Chamber of Commerce on a non-profit basis, and in accordance with the new regulation in Turkey should operate the logistics facility in the same way. Therefore, the investor interested in operation – a consortium of MASBAR (Manisa Free Zone and Barsan Logistics) – had to be released, since it was not in the interest of a private enterprise to participate in a project on a non-profit basis. Another problem for suspension of this project was that the railway link from Manisa to Izmir port, exists, but could not be put into operation, since the section of a port railway connection is closed due to a construction of the light rail system in the city of Izmir. Figure 105: Newly built warehouse for logistics service in Manisa

Traditionally the land-based infrastructure of Turkey is highly dependent on road transport. So, to satisfy a classical criteria for an inland hub, a railway connection is essential. The future of rail freight in Turkey will probably very much depend upon the ability to bring new rail services to inland nodes with high cargo potential. This will also strengthen the position of Turkey in international rail transport. The inland terminals in Turkey are likely to be relevant only for the domestic logistics. For regional logistics and in terms of importance for the whole TRACECA corridor, the Turkish ports are of supreme importance as major logistics hubs.

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Air Cargo hubs The main aviation cargo hubs are Istanbul, Ankara and Izmir. During the mission, a presentation of the leading Turkish cargo airline MNG was delivered. The company provides scheduled cargo services to Europe. This includes chartered cargo, bonded warehouse and export warehouse facilities, as well as aircraft maintenance services and ramp services. It has also EASA 145 and JAR 145 approved jet-maintenance facility. The company has warehouses in Istanbul (main base), Ankara and Izmir. Figure 106: MNG Warehouse next to Istanbul airport. Source: MNG presentation

Analysis of Stakeholders in Freight Transport and Logistics Sector Ministries and Related Public Authorities The Ministry of Transport and Communications: Within its scope of jurisdiction related to overall management of the transport sector the Ministry can take over a masterminding process for improvement of Turkey’s nation-wide logistics sphere. The following spheres could be taken over by the Ministry. • To define, implement and control provisions related to freight transport and logistics • To take into account the nationwide logistics aspects in determination and planning transportation needs and demand. • To determine main policies and strategies in freight transport and logistics and coordinate activities related to their implementation. It is crucial that the Ministry develops the freight and logistics Masterplan to enhance position of Turkey in the world logistics and to improve the domestic performance on the sector. • Take measures to monitor and control implementation of the set objectives and defined policies. • Encourage research to determine and implement State’s transportation and communication goals and policies related to logistics sector. • To designate legal requirements of establishment of the logistics sector with consultation to all involved stakeholders.

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• To promote advanced logistics solutions in its activity of taking measures to encourage road and railway transport on provision of economic, safe and quality services. The roadmap and action plan for this is conventionally formulated in a freight transport and logistics master plan. The Ministry of transport has determined the strategic goals. One of the targets (Target 1.6) is to promote combined transport. This implies the development of Halkali, Ispartakule (Istanbul), Kosekoy (Izmit), Kaklik (Denizli), Eskisehir, Bogazkopru (Kayseri), Balikesir, Yenice (Adana), Palandoken ( Erzurum), Konya and Ushak as logistics centres, building 11 logistic villages on these centres. In the meantime, this has been extended to 12 locations, including Muratli (Tekirdag). It is highly recommended to base this development on a nation-wide freight transport and logistics master plan and to facilitate the creation of an individual master plans for each of the location. Port Administrations: The Port Administration in the Ports visited take care about safety, security and pollution subjects as well as have sovereign tasks related to port development. It was not reported that any hindrance are coming from these authorities in terms of logistics processes, as long as the law and regulation of Turkey are respected and the visa regime not violated. Associations of transporters: The most influential association of transporters are International Transporters Association UND, Ro-Ro and Ro-La association (RODER), and Turkish Transporters Association TND. They are also involved in the analysis of efficiency of the transport process on the national level, elaboration of priority projects representing interests of their member including logistics, and in research activities. A meeting was held with UND. There has been no interview with RODER and TND during the first mission, but their influence and interest in development of efficient logistics has been emphasised in interviews with other stakeholders. International Transporters Association (UND) http://www.und.org.tr: UND encourages Turkish road transporters to enter partnerships on national and international scales and concerning strategic cooperation issues; spends efforts in removing obstacles in international road transportation towards more effective and sustainable services to the society; establishes cooperation with the related international organisations and sector associations in other countries. The association is involved in the development of logistics projects in the vicinity of Istanbul. Involvement of UND in the development of the TRACECA network is essential as.it possesses a unique and updated knowledge base on international road transport and supports the development of the logistics centres. Regional and Municipality Authorities During the interviews an interest of Istanbul municipality was revealed to develop logistics centres in the vicinity of Istanbul together with UND and other stakeholders. The interest of Samsun municipality was revealed to develop a logistics centres together with a group of 11 private investors, some of them represent forwarders and shipping lines. The location is determined on the Western side of Samsun which currently does not have a railway connection. This location is proposed as an alternative to the railway-based Gelemen logistics village at the eastern edge of Samsun.

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Logistics Service Providers Logistics services and freight forwarding business are very often mixed up in Turkey. According to analysis of MOT, about 80% of companies do not outsource their logistics, but are doing this themselves. One of the largest logistics service providers in Turkey, Barsan Logistics, was interviewed. During other interviews, stakeholders referred to companies as Omsan Logistcis, Horoz Group, Reysan Logistics as thethe most successful enterprises in Turkey proving logistics services. Barsan Global Logistics (BGL) is owned by Barsan Holding and was founded in 1982 as a customs clearance firm. Currently, BGL is the only logistics firm in the market offering its customers exclusive customs clearance services. With its rich logistics services portfolio, BGL also provides international transportation through land, air, sea, rail and multi-modal freight forwarding, bonded and non-bonded warehousing, and stock management. As a logistics service provider to many multinational companies in the Turkish marketplace, BGL currently operates in an indoor area of 350,000 m² over an area of 750,000 m² in total in Turkey. The national organisation of BGL is represented by 6 regional office, beyond Turkey BGL is positioned in 6 countries, each having its own warehouses, and reporting to Head Office in Istanbul.BGL handles 10% of Turkish foreign trade volume. Barsan is mainly focused in iron and steel, chemicals, food, automotive, brown and white goods industries. It is the main logistics provider for the industrial village in Manisa. The company has formed a consortium together with the Manisa Organised Industrial Zone on development of the logistics centre project. The project is put on suspension due to unclear situation with management (the operating company should work as a non-profit organisation according to the Turkish regulations, the railway link to Izmir port is currently closed). During the interview the company revealed a long-term interest in participation in the logistics centres in TRACECA countries. It was advised to contact the regional manager on business development once the investment sites are concretised. The Barsan is operating in TRACECA countries. While discussing establishing of international logistics centres in the Caucasus, Ukraine and Moldova, the company has not excluded an interest to participate in the operation. Further discussions about Barsan’s investment interest will be carried out after determination of the locations in the beneficiary countries. Freight Forwarding Companies The forwarding industry is mainly combined with the trucking industry. Almost all forwarder are as well truck operators. These truckers are organised in the UND the International Transporters Association which are members of the DEKRA, IRU, Kalder, BESEC URTA, FIATA and SECI. In meetings with trucking/forwarding companies, the situation of transport within the TRACECA corridor was explained. More then 90% of cargo transported in this corridor is export or transit cargo to these countries. The trucking companies working Europe-wide arecarrying goods to Georgia, Armenia and Azerbaijan. On the way back the trucks are empty. It has turned out that shippers in the Caucasian states are very often not aware of the proper documentation, and that delays on the border are more costly then the additional earnings. During the discussion, the idea to create logistics centres in Caucasian countries, dealing with the problem of documentation and providing consignment consolidation was welcomed by the representatives of freight forwarders and the trucking industry.

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Operators of Transport Infrastructure The main operators of transport infrastructure are road administration who construct and maintain roads, The operation of the railway network is under jurisdiction of state railways. However, the railway is going to have a clearer concept concentrating on core activities and privatizing the ports under their jurisdiction. Counting parts of the ports as Infrastructure the port operators are as well operators of infrastructure. Shippers and Consignees The almost each Turkish province has its organised industrial zone. Most interesting industries from the logistics point of view are in the region of Tekirdag and Manisa. The main export is coming from the region around Tekirdag on the European side of Turkey. With more then 1000 factories in this region the port has an attractive natural hinterland. The consignees of the cargoes generated in the region are Turkey and mainly abroad. The companies located in the Organised Industrial Zone of Manisa are the main shippers of the lines calling the port of Izmir,contributing nearly 30 % of the in - and outgoing cargo of the port. More then 400 trucks are attending the Industrial Free Zone daily. The railway connection to the port is not in operation because the access to the port is temporarily interrupted. Manisa Organised Industrial fulfils all requirements of a modern industrial zone. It creates added value and gives rise to an increase of possibilities for sub-industries. Many companies are based in Manisa including multinational companies and the largest companies of Turkey. Exports from Manisa OIZ are sent to more than 100 countries in the world. For the Black Sea ports the main shippers are the agricultural entities situated in the South of Turkey. The consignees of these goods are in the states of the former Soviet block. Missing Links and Bottlenecks in the Transport and Logistics Network As already mentioned before the main bottlenecks are the railway links: the Bosporus crossing and the rail connection to Georgia. But this is being currently settled with the investment programmes of the Turkish government. The concept of Logistics Villages with actual 12 locations is not based on a country-wide master plan for transport and logistics. The hinterland of the Logistics Village in Samsun is without basic industry except one steel factory with own port facilities. The main cargo comes from the South of Turkey and is going in transit to the former USSR States. The logistics centre in the zone in Manisa is on hold because of a regulation to operate it on a non-profit basis. According to the regulations, the manager should belong to the Chamber of Commerce and operate the logistics centre on a non-profit basis. The main settlers in the zone are currently companies producing electronics, white consumer goods and parts for the automotive industry for the world markets, they dealing with their logistics themselves or using logistics provider. The zone is not yet equipped with a functional logistics centre. The ports situated in the middle of the cities such as Istanbul, Haydarpasa and Izmir Port are faced with severe access problems and congestion on the access roads.

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Haydarpasa Port Additionally, the port of Haydarpasa has in addition the problem of not (Istanbul) having extension possibilities. The access road to is heavily congested and has crossing traffic with a central bus station. The railway is suffering from the missing rail crossing of the Bosporus and, consequently, more then 90% of all containers are transported by trucks over two bridges. The inland terminal of Haydarpasa has only connection during the night time. The outsourced terminals for Maersk-Sealand and CMA have generated an additional problem with capacity and operation process. These companies have their own access to the port area via the 4 gates and within the port area. This makes the operation inside the port rather complicated and leads to crowed operation. Due to the fact that the port is going to be privatised necessary investment or changes in the field of operation are on hold. Izmir Port The access to the port by railway is temporarily not in function due to construction work in the public transport rail based system. A remaining railway track is used for the transport of container to a storage area with the port area. The access by road is crossing the whole city of Izmir. The port itself can be extended. There is a plan to use an area next to port. The entrance channel will be dragged up to 14 meters and the sediment and sand will be used for the extension area. Due to the privatisation process investments are on hold. The port is in general well managed but the safety regulation either not sufficient or not executed properly. Persons were observed standing next to the container operation alongside of ships. This is does not comply with European standard of container operation. Conclusions and Initial Recommendations Amongst all TRACECA countries, Turkey has the highest potential in terms of intermodal transportation. Still, if Turkey does not improve existing transport infrastructure notably railway, it will not be able to take a full advantage of its strategic advantages. For improved performances, well-connected links should be developed. The observed Turkish ports, especially those which are in the privatisation pipeline, suffer from uncertainties of their further development. There are a number of obstacles identified to be tackled in improvement of the multimodal transportation of Turkey at the major ports relevant as links to the TRACECA corridor and logistics. This includes, but is not limited to the following factors • Many ports are located in urban areas and have limited possibilities for extension (Izmir, Haydarpasa, Trabzon) • Port congestion resulting from using the port area for storage purposes, reluctance to develop inland terminals for such purposes (Haydarpasa) • In principle the links to the TRACECA Corridor are functioning. It is advisable to develop operation concepts oriented towards business generation for the railway ports. However, in the Consultant’s opinion the future operator after the privatisation will promote exposure of ports towards international business. It has to be pointed out that the private ports in Tekirdag as well as in Trabzon are much better organised and that the management of these port have a clear vision about the future. This will generate competition between the ports with the effect that standards and tariffs will reach a better level. • Ports (e.g. Samsun, Haydarpasa) outsource profitable and logistics value added services to many different agencies. This is a soft factor that could be changed with business

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oriented mentality of the new management. In some cases, like in Izmir, the TCDD port manager has demonstrated an open-minded and business oriented approach of successful port operation and development. The business mentality case of Izmir could be used as an example for other TCDD ports still under operation • The lack and inadequacy of master plans and uncertainty under privatisation. Most of the governmental port visited, with an exception of Izmir, had no clearly defined master plans and development perspectives estimations. All private ports conduct marketing analysis and develop their master plans and extension programme on the basis of research and projections either prepared by the professional external advisers or by the business development units within these entities. • The lack of promotional activities and the insufficiency of port marketing efforts, outdated brochures and promotional materials • The absence of connecting roads and railways in ports. Turkey should develop a framework for an optimal integration of different modes to enable an efficient and cost-effective use of the transport system. Customer-oriented door-to-door services enhanced by the development of the logistics centres need to be promoted to enhance competition between transport operators. While planning new logistics infrastructure, special attention must be paid to meet the requirement of international intermodal standards. EU transport and logistics standards will play an important role in this process. All the partners of the intermodal transport should take part in the formulation of such plans. Further development of the railways will help avoid congestion at roads and ports. Ports need efficient railway connections. The ports are advised to calculate the opportunity costs of not using and not upgrading existing inland terminals for container operations. From the institutional point of view, Turkey must develop a transportation and shipping policies taking on board all players of the international trade and transport industry. For improved logistics capabilities a national wide freight transport and logistics Masterplan is highly recommended. The non-profit operation philosophy for the logistics villages has to be reconsidered.

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1.3 Preliminary list of suitable locations for logistics centres

1.3.1 Summary This chapter consists of five sections. They explain applied methodology, determine logistics centres features, demonstrate the model characteristics of an international logistics centre and benchmark the locations specified in the TOR against such requirements. The chapter starts with defining the main determinants of a logistics centre as parameters for multicriteria analysis. Then the results to be achieved by the Consultant in terms of determination of priority projects are summarised. A two-step approach will be used for this. Both steps involve multicriteria analysis on macro and micro level consequently. The macro level analysis results in determination of locations for international logistics centres. Then a micro level analysis will be applied for specific sites in the Phase B. The methodology for the multicriteria analysis is described. This implies the selection of the macro criteria, their sub-determinants and corresponding weights. These criteria are derived from a model logistics centre and outline requirements for benchmarking. For each direct beneficiary country an evaluation is presented. The results summarised reveal to which extent the proposed locations are suitable for establishment of logistics centres. Those locations that match the model for at least 70% will be proposed for site specifications in the phase B. The sites defined will undergo the micro level of the multicriteria analysis to determine the locations for which feasibility studies will be prepared.

1.3.2 Main determinants of an international logistics centre Transport nodes are essential for the efficiency and competitiveness of intermodal solutions. They serve as interface between transport modes, transport and logistical operations. During the field missions, the Consultant has revealed that understanding of a logistics centre’s functions varies across the region. Many stakeholders tend to call terminals or warehouses a logistics centre, which is not justified. Therefore, the Consultant will use the commonly adopted methodology of EUROPLATFORMS in defining this notion. The term “logistics centre” applies for sites especially organised for carrying out logistics activities. The name of these hubs may vary across Europe and imply such notions as Centres logistiques de fret, Gares routières de marchandises, Logistics park, Platform freight terminal, Interporto, Centro integrado de mercancias, Güterverkehrzentrum, Transport centre, Freight village or Transport center27 "A logistics centre is a defined area within all activities relating to transport, logistics and the distribution of goods, both for national transport and international transit, are carried out on commercial basis by various specialised service operators”. These operators can either be owners or tenants of buildings and facilities (warehouses, break-bulk centres, storage areas, offices, car parks, etc.) which have been built there. Also in order to comply with free competition rules, a logistics centre must allow access to all companies involved in the activities set out above.

27 See “What is a logistics centre”, EUROPLATFORMS EEIG, January 2004

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A logistics centre must also be equipped with facilities necessary to meet requirements to carry out the above mentioned operations. If possible, it should also include public services for the staff and equipment of the users. In order to encourage intermodal transport for the handling of goods, a logistics centre must preferably be served by a multiplicity of transport modes (road, rail, deep sea, inland waterway, air). Finally, it is imperative that a logistics centre is managed by a single body, either public or private"28. This definition was established by EUROPLATFORMS in the Appendix to the Statute of Europlatforms E.E.I.G. in 1992.

1.3.3 Results to be achieved For each direct beneficiary country, the Terms of Reference specify areas and indicate preliminary locations to be investigated. However, the indicative number of logistics centres is not suggested. The Consultant anticipates that each direct beneficiary country may favour the location of at least one logistics centre. The final identification of priority projects will be derived from multicriteria analysis in order to establish one logistics centre per country to form a TRACECA network of logistics centres in Western NIS and Caucasus. The application of macro-location criteria enables to identify aggregated locations. The micro- location criteria is précising a concrete hub. The macro criteria should be common for all TRACECA countries to define comparable locations on the network, while micro-criteria may be country specific. Within the scope of the project identification exercise is executed in two phases within two consequent tasks: A – Analysis of the TRACECA logistics network and of the related operation of transport and logistics within the network; and B – Identification, ranking and promotion of the logistics centre projects. Within the scope of the task A the macro locations will be identified. Within these locations the sites for priority projects will be ranked to create a short-list of priority projects as a result of the task B.

1.3.4 Methodology of multicriteria analysis for evaluation of the logistics nodes Location is a key factor for all the transport operators as optimisation of delivery time and transport saving costs is one of the elements for taking a decision on logistics centre location. Interoperability of transport connections and coordination of the transport modes are essential. That is why most European Logistics Centres are located at hub points at intersections of main transport routes and closed to the markets. The logistics centres are established where major traffic flow are concentrated and distributed. These are normally sea ports, inland multimodal terminals, inland ports and railway ports. For establishment of an international logistics centres in TRACECA the following aspects are essential:

28 Adapted text

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• Initial general considerations and willingness to finance logistics centres by various types of actors; • Reference of potential locations for logistics centres to TRACECA corridor – application of the network principle; • Application of multicriteria analysis to justify the location on macro-level (regional level), including market potential and level of economic activity; • Defining and categorising the logistics centre to be established at the macro location as either sea port, inland hub, inland port, rail port stressing intermodality solutions and core network access; • Definition of the specific sites within selected location in direct beneficiary countries using the multicriteria analysis with micro-criteria and in consultation with stakeholders. Derived from the definition of a logistics centre, and in full compliance with the TOR, the following criteria groups were used to select an attractive location for an international logistics centre. 1. Possibility of financing (macro-micro criterion mix) 2. Relevance for TRACECA corridor and location at the network (macro) 3. Market potential for a logistics centre (macro) 4. Economic activities around the location (macro-micro criterion mix) 5. Quality of the location in terms of intermodality (macro-micro criterion mix) 6. Core network access (macro-micro criterion mix) These six criteria were assigned specific shares (weights) to reveal to which extent they satisfy the locations are suitable for logistics centres. These criteria groups may either include macro or macro-micro criterion mix. Macro criteria are those that only depict the aggregated level at the regional of concerned parameters. Macro- micro criterion group can be used at both stages of analysis consequently with fine-tuned micro parameters. This approach allows to consider realistic sites for location already at the macro- level. The scheme below presents the components to run a macro multi-criteria analysis. The weight attributed to each criteria group, and weights of sub-parameters within each criteria group are also shown.

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Figure 107: Evaluation scheme - Macro locations for logistics nodes project

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These criteria are summarised in the table below in a form of evaluation grid. The requirements for a model logistics centre are also summarised. This table is used to benchmark locations in TRACECA countries and to reveal their potential to accommodate a modern international logistics centre: Criteria for determination of macro- Requirements of a model ILC for 0 or 1 Score locations TRACECA Inland hub / port / inland port / rail Types port 1. Financing model 10% 1.1 public Yes 1 0.33 1.2 private Yes 1 0.33 1.3 IFIs N/A 1 0.33 2. TRACECA corridor 20%

2.1 Direct location at the TRACECA route Yes 1 0.67 2.2 Importance as a hub to direct traffic onto TRACECA Yes 1 0.33 2.2.1International importance Yes 1 0.40 2.2.2 National importance Yes 1 0.35 2.2.3 Regional importance Yes 1 0.25 3. Market potential 25% 3.1 International importance yes (medium - high) 1 0.3 YES, e.g. food stuff / chemical products / consumer goods / collective consignments -Commercial 3.1.1Suitable for logistics activities goods 1 0.4 3.1.2Hub for container operation yes (medium - high) 1 0.4 3.1.3 Hub for international trade yes (medium - high) 1 0.2 3.2 National importance yes (medium - high) 1 0.3 YES, e.g. food stuff / chemical products / consumer goods / collective consignments -Commercial 3.1.1Suitable for logistics activities goods 1 0.4 3.1.2Hub for container operation yes (medium - high) 1 0.4 3.1.3 Hub for distribution of goods yes (medium - high) 1 0.2 3.3 Export yes 1 0.2 3.4 Import yes 1 0.2 4. Economic activities yes (medium - high) 1 15% 4.1 Industrial areas yes 1 0.25 4.2 Potential for consumers yes 1 0.35 4.3 Potential for the logistics activities (value added) yes 1 0.4 5. Quality of the location 15% 5.1 Intermodality status medium / high 1 60% 5.1.1 multimodal Priority 1 1 0.4 5.1.2 road-rail Priority 1 1 0.3 5.1.3 road-inland waterway Priority 2 1 0.15 5.1.4 road air Priority 2 1 0.15 5.2 Intermodality potential medium / high 1 40%

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Criteria for determination of macro- Requirements of a model ILC for 0 or 1 Score locations TRACECA 5.2.1 multimodal Priority 1 1 0.4 5.2.2 road-rail Priority 1 1 0.3 5.2.3 road-inland waterway Priority 2 1 0.15 5.2.4 road air Priority 2 1 0.15 6. Core network access 15% 6.1 Road network Priority 1 1 0.25 6.1.1 international road network Priority 1 1 0.6 6.1.2 national road network Priority 1 1 0.4 6.2 Railway network 0.25 6.2.1 Railway network international Priority 1 1 0.7 6.2.2 Railway network national Priority 1 1 0.3 6.3 ports (only for port LC) Priority 1 1 0.2 6.4.inland ports Priority 2 1 0.15 6.5 airports Priority 2 1 0.15 Total score: 100% The results of applied analysis are presented in the next section as a summary table. The country-per-country location fact sheets are also enclosed to demonstrate the results of individual evaluations. For the locations scored more than 70% the specific sites will be proposed for the phase B. These sites will be evaluated using the multicriteria analysis at the micro level. For most successful projects (one site per country) feasibility studies will be prepared in the phase C.

1.3.5 Country specific justification for macro location The following table summarises the locations that were to be inspected by the Consultant in order to check if they comply with the requirements for creation of the international logistics centre in countries. The table also contains additional locations checked by the Consultant to investigate and justify the potential of establishment of an international logistics centre. Table 13: Main Hubs analysed for preliminary list of locations at ports, large cities, crossroads

Matching Locations Main hubs Location Specification and Country criteria of in TOR analysed Type29 classification of ILC ILC in %30 Armenia Vicinity of Yerevan 2 80% Inland hub (dry port with Yerevan intermodal terminal) , major international traffic junction / node, cargo potential in the caption region, intermodal transport potential Azerbaijan Caspian Baku / Alyat 1 87% Sea port, major international ports traffic junction / node, large cargo potential in the caption region, intermodal transport

29 1 - Sea Port; 2 - Inland hub (Dry port with a intermodal terminal); 3 - Inland port; 4 - Rail port 30 See fact sheets per country for a detailed evaluation

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Matching Locations Main hubs Location Specification and Country 29 criteria of in TOR analysed Type classification of ILC ILC in %30 Georgia Tbilisi Tbilisi 2 82.6% Inland hub (dry port with intermodal terminal), major international traffic junction / node, large cargo potential in the caption region, intermodal transport Port of Poti Port of Poti 1 51.8%% Sea Port, major traffic junction / node, limited cargo potential in the caption region, intermodal transport Port of 1 50.5% Sea Port, major traffic junction Batumi / node, limited cargo potential in the caption region, intermodal transport Moldova Chisinau Chisinau 2 86.2% Inland hub (dry port with intermodal terminal), major international traffic junction / node, limited cargo potential in the caption region, intermodal transport Giurgiulesti, 3 77.5% Inland port, important junction GIFP / node, limited cargo potential in the caption region, intermodal transport Ukraine Kiev Kiev 2 84% Inland hub (dry port with intermodal terminal) , major international traffic junction / node, large cargo potential in the caption region , intermodal transport Ilyichevsk Ports area 1 97% Sea Port, major international of Odessa / traffic junction / node, large Ilyichevsk cargo potential in the caption region region, intermodal transport (Odessa, Ilyichevsk / Yuzhny) Kovel Kovel 4 32.7% Basis for Rail-Rail connections, limited logistics cargo potential in the caption region, mostly unimodal Lviv 2 74.4% Inland hub (dry port with intermodal terminal) , major international traffic junction / node, large cargo potential in the caption region, intermodal transport

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Armenia Yerevan location factsheet MACRO LOCATION: YEREVAN, Evaluation Remarks ARMENIA results Weight Types Inland hub Score 10% 1. Financing model 7% 33.3% 1.1 public 1 Yes state promotion 0.33 There is an initial interest of the national private companies interviewed to invest in Yerevan (Apaven, Trans Alliance). According to the Information of Camber of Commerce of Armenia several retail and real estate companies would be also 33.3% 1.2 private 1 Yes interested to invest 0.33 Further investigations 33.3% 1.3 IFIs 0 NA needed 0.00 20% 2. TRACECA corridor 20% 2.1 Direct location at the Importance for the 67% TRACECA route 1 Yes TRACECA route 0.67 2.2 Importance as a hub to direct Importance for the 33% traffic onto TRACECA 1 Yes TRACECA route 0.33

Important node in the 40% 2.2.1International importance 1Yes network of logistics centres 0.40 Main distribution - for Yerevan Population 3,213,011 M.(2001). 29.800 sqkm Density of the population 107 35% 2.2.2 National importance 1Yes inhabitants /sq km 0.35 Important node in the 25% 2.2.3 Regional importance 1Yes network of logistics centres 0.25 25% 3. Market potential 21% 30% 3.1 International importance 1 0.12 In terms of absence the political problems and limited transport connections with the neighboring countries (Azerbaijan, Turkey) Yerevan can’t be considered as hub with the international 40% 3.1.1Suitable for logistics activities 0No importance at the moment. 0 40% 3.1.2Hub for container operation 1 Yes 0.4 20% 3.1.3 Hub for international trade 0No 0 30% 3.2 National importance 1 0.3 food stuff /consumer goods / 40% 3.1.1Suitable for logistics activities 1 collective 0.4

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MACRO LOCATION: YEREVAN, Evaluation Remarks ARMENIA results Weight Types Inland hub Score consignments / commercial goods There is a long term growth potential for container traffic. Yerevan is the main 40% 3.1.2Hub for container operation 1 medium container hub for the country. 0.4 20% 3.1.3 Hub for distribution of goods 1high 0.2 20% 3.3 Export 1 Yes 0.2 20% 3.4 Import 1 Yes 0.2 Source: National Statistics Service of the Republic of Armenia (2007): In 2007, Yerevan’s share in the total industry output of the country 15% 4. Economic activities accounted 48%. 15% Source: National Statistics Service of the Republic of Armenia (2007): In 2007, Yerevan’s share in the total industry output of the country 25% 4.1 Industrial areas 1 Yes accounted 48%. 0.25 37% of Armenian population 35% 4.2 Potential for consumers 1 Yes is leaving in Yerevan. 0.35 4.3 Potential for the logistics 40% activities (value added) 1 Yes 0.4 15% 5. Quality of the location 8% 60% 5.1 Intermodality status medium 18% 40% 5.1.1 multimodal 0no 0 30% 5.1.2 road-rail 1 Yes 0.3 15% 5.1.3 road-inland waterway 0No 0 15% 5.1.4 road air 0No 0 Increase of containerization of cargos and open of connection with Turkey will add attractiveness of 40% 5.2 Intermodality potential high Yerevan as a regional hub. 34% 40% 5.2.1 multimodal 1 Yes Aviation sector 0.4 30% 5.2.2 road-rail 1 Yes 0.3 15% 5.2.3 road-inland waterway 0No 0 Yerevan is relatively small but a main destination for air cargo - (courier - express parcel) CEP services in the 15% 5.2.4 road air 1Yes country 0.15 15% 6. Core network access 10% 25% 6.1 Road network 0.25 60% 6.1.1 international road network 1 Yes Istanbul-Gumri-Yerevan 0.6 40% 6.1.2 national road network 1 Yes Poti-Tbilisi-Yerevan 0.4

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MACRO LOCATION: YEREVAN, Evaluation Remarks ARMENIA results Weight Types Inland hub Score 25% 6.2 Railway network 0.25 70% 6.2.1 Railway network international 1 Yes Poti-Tbilisi-Yerevan 0.7 30% 6.2.2 Railway network national 1 Yes Poti-Tbilisi-Yerevan 0.3 20% 6.3 ports (only for port LC) No 0 15% 6.4.inland ports 0 No 0 15% 6.5 airports 1 Yes Yerevan international airport 0.15 80%

Azerbaijan Baku location factsheet MACRO LOCATION: BAKU, Evaluation Remarks AZERBAIJAN results Weight Types Sea port Score 10% 1. Financing model 3% state promotion, Presidential support and execution by the 33.3% 1.1 public 1 Yes Ministry of Transport 0.33 Further investigations 33.3% 1.2 private 0 Not known needed 0.00 Further investigations needed, IFI involvement against corresponding state 33.3% 1.3 IFIs 0 NA guarantees 0.00 20% 2. TRACECA corridor 20% 2.1 Direct location at the Importance for the 67% TRACECA route 1 Yes TRACECA route 0.67 2.2 Importance as a hub to direct Importance for the 33% traffic onto TRACECA 1 Yes TRACECA route 0.33 Important node in the 40% 2.2.1International importance 1Yes network of logistics centres 0.40 Metropolitan region 2.255 268 (2009), City of Baku 1.194.524 (2009), density of 35% 2.2.2 National importance 1Yes population 4.594 inhabitants 0.35 Important node in the 25% 2.2.3 Regional importance 1Yes network of logistics centres 0.25 25% 3. Market potential 25% 30% 3.1 International importance 1 0.3 TRACECA and North-South 40% 3.1.1Suitable for logistics activities 1Yes corridors 0.4 regular container services Alyat-Turkemenbashi, Alyat - 40% 3.1.2Hub for container operation 1Yes Aktau 0.4 Regional and interregional 20% 3.1.3 Hub for international trade 1Yes trade flows 0.2 30% 3.2 National importance 1 0.3 food stuff The old port of Baku does not /consumer have the capacity for such 40% 3.1.1Suitable for logistics activities 1 goods / activities, the new port will 0.4

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MACRO LOCATION: BAKU, Evaluation Remarks AZERBAIJAN results Weight Types Sea port Score collective take over this function consignments / commercial goods This will be the major hub for container operation on 40% 3.1.2Hub for container operation 1high Caspian sea 0.4 Market of Baku and containerized goods for oil 20% 3.1.3 Hub for distribution of goods 1high industry 0.2 20% 3.3 Export 1 Yes 0.2 20% 3.4 Import 1 Yes 0.2 15% 4. Economic activities 15% Baku is location 65km to the North of Alyat and will be in port hinterland and in a logistics centre capture region. More than 25% of population of Azerbaijan reside in Baku. The major supply basis for the containerized goods of the oil industry is 25% 4.1 Industrial areas 1 Yes located 30 km away from Alyat. 0.25 35% 4.2 Potential for consumers 1 Yes 0.35 4.3 Potential for the logistics activities 40% (value added) 1 Yes high 0.4 15% 5. Quality of the location 11% 60% 5.1 Intermodality status high 42% 40% 5.1.1 multimodal 1 Yes 0.4 30% 5.1.2 road-rail 1 Yes 0.3 15% 5.1.3 road-inland waterway 0 No 0 The air cargo operation in Baku 15% 5.1.4 road air 0 No airport 0 40% 5.2 Intermodality potential high 28% 40% 5.2.1 multimodal 1 Yes Maritime-road-rail 0.4 30% 5.2.2 road-rail 1 Yes Priority 1 0.3 15% 5.2.3 road-inland waterway 0 No 0 Baku is the main air hub, distance from Alyat is about 80 15% 5.2.4 road air 0 Yes km 0 15% 6. Core network access 13% 25% 6.1 Road network 0.25 Baku-Tbilisi, Baku - Iran, Baku- Russia, Main TRACECA road 60% 6.1.1 international road network 1 Yes from Caucasus to Central Asia 0.6 40% 6.1.2 national road network 1 Yes 0.4 25% 6.2 Railway network 0.25 Railway connection to Western 70% 6.2.1 Railway network international 1 Yes TRACECA countries 0.7 30% 6.2.2 Railway network national 1 Yes 0.3 20% 6.3 ports (only for port LC) 1 Yes 0.2 15% 6.4.inland ports 0 No 0 15% 6.5 airports 1 Yes 0.15 87%

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Georgia Tbilisi location factsheet MACRO LOCATION: TBILISI, Evaluation Remarks GEORGIA results Weight Types INLAND HUB Score 10% 1. Financing model 10% need for a logistics centre is formulated by the 33.3% 1.1 public 1 Yes municipality of the city 0.33 Land plots available at private landowners and real 33.3% 1.2 private 1 Yes estate companies 0.33 Possible EBRD in cooperation with a real estate 33.3% 1.3 IFIs 1 Yes company 0.33 20% 2. TRACECA corridor 20.0% 2.1 Direct location at the TRACECA Direct location at TRACECA 67% route 1 Yes route 0.67 2.2 Importance as a hub to direct 33% traffic onto TRACECA Yes 0.33 important node in the 40% 2.2.1International importance 1Yes network of logistics centres 0.40 important node in the 35% 2.2.2 National importance 1Yes network of logistics centres 0.35 important node in the 25% 2.2.3 Regional importance 1Yes network of logistics centres 0.25 25% 3. Market potential 20.0% 30% 3.1 International importance 0.3 40% 3.1.1Suitable for logistics activities 1 Yes 0.4 leading freight forwarding companies confirmed 40% 3.1.2Hub for container operation 1Yes increase of container traffic 0.4 20% 3.1.3 Hub for international trade 1 Yes 0.2 30% 3.2 National importance 0.3 40% 3.1.1Suitable for logistics activities 1 high main land hub of Georgia 0.4 40% 3.1.2Hub for container operation 1high 0.4 20% 3.1.3 Hub for distribution of goods 1high 0.2 export is not well developed, due to absence of a logistics 20% 3.3 Export 0 low hub 0 20% 3.4 Import 1 high 0.2 15% 4. Economic activities 15% 25% 4.1 Industrial areas 1 high machinery, aircraft, textile 0.25 potential use as a hub for distribution of goods in the country level - metropolitan region 1270 000 inhabitants (2008) - almost 27% of 35% 4.2 Potential for consumers 1 high Georgian population 0.35 4.3 Potential for the logistics collection and consolidation 40% activities (value added) 1 high of cargo-regional hub 0.4 15% 5. Quality of the location 7.80% 60% 5.1 Intermodality status high 18% 40% 5.1.1 multimodal 0no 0

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MACRO LOCATION: TBILISI, Evaluation Remarks GEORGIA results Weight Types INLAND HUB Score 30% 5.1.2 road-rail 1 Yes 0.3 15% 5.1.3 road-inland waterway 0No 0 15% 5.1.4 road air 0 no International airport 0 40% 5.2 Intermodality potential high 34% 40% 5.2.1 multimodal 1 Yes 0.4 30% 5.2.2 road-rail 1 Yes 0.3 15% 5.2.3 road-inland waterway 0No 0 potential to integrate air 15% 5.2.4 road air 1Yes cargo 0.15 15% 6. Core network access 10% 25% 6.1 Road network 0.25 East-West Highway, Turkish border-Batumi-Poti-Tbilisi- 60% 6.1.1 international road network 1Yes Azerbaijani Border 0.6 40% 6.1.2 national road network 1 Yes East-West Highway 0.4 25% 6.2 Railway network 0.25 70% 6.2.1 Railway network international 1 Yes TRACECA 0.7 30% 6.2.2 Railway network national 1 Yes TRACECA 0.3 20% 6.3 ports (only for port LC) 0 No 0 15% 6.4.inland ports 0 no 0 15% 6.5 airports 1 Yes 0.15 82.6% Poti location factsheet MACRO LOCATION: POTI, Evaluation Remarks GEORGIA results Weight Types SEA PORT Score 10% 1. Financing model 3% 33.3% 1.1 public 0 No not visible 0.00 The project of the industrial free zone is under development and will include all logistics services requested. This project is implemented by U.A.E. investors (Ras Al Khayman - Rakia). This project is in a very early planning status. Before this project is implemented there is no interest of private investors in 33.3% 1.2 private 1 Yes ILC. 0.33 Only in the development of 33.3% 1.3 IFIs 0 No the industrial free zone 0.00 20% 2. TRACECA corridor 20.0% Direct location at TRACECA 2.1 Direct location at the TRACECA route - main gateway to 67% route 1 Yes Caucasus 0.67 2.2 Importance as a hub to direct 33% traffic onto TRACECA Yes 0.33 main gateway to Caucasus 40% 2.2.1International importance 1Yes on Black Sea 0.40

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MACRO LOCATION: POTI, Evaluation Remarks GEORGIA results Weight Types SEA PORT Score main gateway to Caucasus 35% 2.2.2 National importance 1Yes on Black Sea 0.35 main gateway to Caucasus 25% 2.2.3 Regional importance 1Yes on Black Sea 0.25 25% 3. Market potential 7.5% 30% 3.1 International importance 0.18 No consumer area in the 40% 3.1.1Suitable for logistics activities 0No capture region 0 yes, 220 000 TEU per year, but not stripped in Poti - final destination in Tbilisi and transit to Armenia and 40% 3.1.2Hub for container operation 1Yes Azerbaijan 0.4 20% 3.1.3 Hub for international trade 1 Yes 0.2 30% 3.2 National importance 0.12 no consumer area, the 40% 3.1.1Suitable for logistics activities 0No population is 60000 people 0 40% 3.1.2Hub for container operation 1high 0.4 20% 3.1.3 Hub for distribution of goods 0No 0 20% 3.3 Export 0 low export is not well developed 0 The hub is used in domestic 20% 3.4 Import 0 low and international transit, 0 15% 4. Economic activities 0% 25% 4.1 Industrial areas 0 no currently no 0 35% 4.2 Potential for consumers 0 no 60000 inhabitants 0 4.3 Potential for the logistics 40% activities (value added) 0 low to medium 0 15% 5. Quality of the location 10.5% 60% 5.1 Intermodality status medium 42% 40% 5.1.1 multimodal 1 Yes 0.4 30% 5.1.2 road-rail 1 Yes 0.3 15% 5.1.3 road-inland waterway 0No 0 15% 5.1.4 road air 0 no no international airport 0 40% 5.2 Intermodality potential medium 28% 40% 5.2.1 multimodal 1 Yes 0.4 30% 5.2.2 road-rail 1 Yes 0.3 15% 5.2.3 road-inland waterway 0No 0 15% 5.2.4 road air 0No 0 15% 6. Core network access 11% 25% 6.1 Road network 0.25 60% 6.1.1 international road network 1 Yes Poti-Tbilisi-Azerbaijani Border0.6 40% 6.1.2 national road network 1 Yes East-West Highway 0.4 25% 6.2 Railway network 0.25 70% 6.2.1 Railway network international 1 Yes TRACECA 0.7 30% 6.2.2 Railway network national 1 Yes TRACECA 0.3 20% 6.3 ports (only for port LC) 1 Yes 0.2 15% 6.4.inland ports 0 No 0 15% 6.5 airports 0 No 0 51.8%

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Batumi location factsheet MACRO LOCATION: BATUMI, Evaluation Remarks GEORGIA results Weight Types SEA PORT Score 10% 1. Financing model 0% 33.3% 1.1 public 0 No not observed 0.00 33.3% 1.2 private 0 No not observed 0.00 33.3% 1.3 IFIs 0 No no indication 0.00 20% 2. TRACECA corridor 20.0% Direct location at TRACECA 2.1 Direct location at the TRACECA route - main gateway to 67% route 1 Yes Caucasus 0.67 2.2 Importance as a hub to direct 33% traffic onto TRACECA Yes 0.33 main port for oil and liquid petroleum products coming from Azerbaijan and Central 40% 2.2.1International importance 1Yes Asia 0.40 main gateway to Caucasus 35% 2.2.2 National importance 1Yes on Black Sea 0.35 main gateway to Caucasus 25% 2.2.3 Regional importance 1Yes on Black Sea 0.25 25% 3. Market potential 9.5% 30% 3.1 International importance 0.18 No consumer area in the capture region, population of 121 000, oil cargo as main 40% 3.1.1Suitable for logistics activities 0No commodity 0 yes, 35 000 TEU in 2009, most of the containers are stripped to use railcars with higher capacity (sugar, grain 40% 3.1.2Hub for container operation 1Yes and wheat) 0.4 20% 3.1.3 Hub for international trade 1 Yes 0.2 30% 3.2 National importance 0 small consumer area, oil 40% 3.1.1Suitable for logistics activities 0No cargos 0 transit - domestic and 40% 3.1.2Hub for container operation 0No international transit 0 20% 3.1.3 Hub for distribution of goods 0No 0 seasonal export of citrus 20% 3.3 Export 1 medium fruits, oil products 0.2 20% 3.4 Import 0 low bulk cargoes 0 15% 4. Economic activities 0% 25% 4.1 Industrial areas 0 no currently no 0 35% 4.2 Potential for consumers 0 low 0 4.3 Potential for the logistics low to 40% activities (value added) 0 medium 0 15% 5. Quality of the location 10.5% 60% 5.1 Intermodality status medium 42% 40% 5.1.1 multimodal 1 Yes 0.4 30% 5.1.2 road-rail 1 Yes 0.3 15% 5.1.3 road-inland waterway 0No 0 15% 5.1.4 road air 0 no International airport - mainly 0

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MACRO LOCATION: BATUMI, Evaluation Remarks GEORGIA results Weight Types SEA PORT Score for tourists 40% 5.2 Intermodality potential medium 28% 40% 5.2.1 multimodal 1 Yes 0.4 30% 5.2.2 road-rail 1 Yes 0.3 15% 5.2.3 road-inland waterway 0No 0 15% 5.2.4 road air 0No 0 15% 6. Core network access 11% 25% 6.1 Road network 0.25 Batumi-Samtredia-Tbilisi- 60% 6.1.1 international road network 1Yes Azerbaijani Border 0.6 40% 6.1.2 national road network 1 Yes East-West Highway 0.4 25% 6.2 Railway network 0.25 70% 6.2.1 Railway network international 1 Yes TRACECA 0.7 30% 6.2.2 Railway network national 1 Yes TRACECA 0.3 20% 6.3 ports (only for port LC) 1 Yes 0.2 15% 6.4.inland ports 0 No 0 15% 6.5 airports 0 No only tourist purposes 0 50.5% Moldova Chisinau location factsheet MACRO LOCATION: CHISINAU, Evaluation Remarks MOLDOVA results Weight Types Inland hub Score 10% 1. Financing model 7% 33,3% 1.1 public 1 Yes 0,33 33,3% 1.2 private 1 Yes initial interest of international 0,33 companies to invest to be further investigated 33,3% 1.3 IFIs 0 to be further investigated 0,00 20% 2. TRACECA corridor 20,0% 67% 2.1 Direct location at the TRACECA 1 Yes 0,67 route 33% 2.2 Importance as a hub to direct Yes 0,33 traffic onto TRACECA 40% 2.2.1 International importance 1 high 0,40 35% 2.2.2 National importance 1 Yes important node in the network 0,35 of logistics centres 25% 2.2.3 Regional importance 1 Yes important node in the network 0,25 of logistics centres 25% 3. Market potential 22,0% 30% 3.1 International importance 0,18 40% 3.1.1Suitable for logistics activities 1 Yes 0,4 40% 3.1.2Hub for container operation 0low 0 20% 3.1.3 Hub for international trade 1 medium 0,2 30% 3.2 National importance 1 0,3 40% 3.1.1Suitable for logistics activities 1 Yes actual statistics is to be 0,4 obtained from the relevant authorities and stakeholder. 40% 3.1.2Hub for container operation 1 high relevant statistics to be 0,4

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MACRO LOCATION: CHISINAU, Evaluation Remarks MOLDOVA results Weight Types Inland hub Score obtained in Phase B 20% 3.1.3 Hub for distribution of goods 1high 0,2 20% 3.3 Export 1 Yes 0,2 20% 3.4 Import 1 Yes 0,2 15% 4. Economic activities 15% 25% 4.1 Industrial areas 1 Yes 0,25 35% 4.2 Potential for consumers 1 Yes 0,35 40% 4.3 Potential for the logistics activities 1 Yes suitable cargo for logistics 0,4 (value added) activities 15% 5. Quality of the location 12,75% 60% 5.1 Intermodality status high 51% 40% 5.1.1 multimodal 1 Yes currently modest 0,4 30% 5.1.2 road-rail 1 Yes 0,3 15% 5.1.3 road-inland waterway 0No 0 15% 5.1.4 road air 1 Yes 0,15 40% 5.2 Intermodality potential high 34% 40% 5.2.1 multimodal 1 Yes region is significant for 0,4 containers 30% 5.2.2 road-rail 1 Yes 0,3 15% 5.2.3 road-inland waterway 0No 0 15% 5.2.4 road air 1 Yes 0,15 15% 6. Core network access 10% 25% 6.1 Road network 0,25 60% 6.1.1 international road network 1 Yes TRACECA transport corridor 0,6 40% 6.1.2 national road network 1 Yes 0,4 25% 6.2 Railway network 0,25 70% 6.2.1 Railway network international 1 Yes TRACECA transport corridor 0,7 30% 6.2.2 Railway network national 1 Yes 0,3 20% 6.3 ports (only for port LC) 0 No 0 15% 6.4.inland ports 0 No 0 15% 6.5 airports 1 Yes 0,15 86,2% Giurgiulesti location factsheet MACRO LOCATION: Evaluation Remarks GIURGIULESTI, MOLDOVA results Weight Types Inland hub Score 10% 1. Financing model 10% 33,3% 1.1 public 1 Yes 0,33 GIFP is operated by Danube Logistics S.A., already first 33,3% 1.2 private 1 Yes settlement of private companies 0,33 33,3% 1.3 IFIs 1 Yes EBRD 0,33 20% 2. TRACECA corridor 20,0% 2.1 Direct location at the TRACECA 67% route 1 Yes 0,67 2.2 Importance as a hub to direct 33% traffic onto TRACECA Yes 0,33 40% 2.2.1 International importance 1 high 0,40 35% 2.2.2 National importance 1 Yes important node in the network of 0,35

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MACRO LOCATION: Evaluation Remarks GIURGIULESTI, MOLDOVA results Weight Types Inland hub Score logistics centres important node in the network of 25% 2.2.3 Regional importance 1Yes logistics centres 0,25 25% 3. Market potential 19,0% 30% 3.1 International importance 0,06 40% 3.1.1Suitable for logistics activities 0low 0 40% 3.1.2Hub for container operation 0low 0 20% 3.1.3 Hub for international trade 1 medium 0,2 30% 3.2 National importance 1 0,3 actual statistics is to be obtained from the relevant 40% 3.1.1Suitable for logistics activities 1Yes authorities and stakeholder. 0,4 relevant statistics to be obtained 40% 3.1.2Hub for container operation 1high in Phase B 0,4 20% 3.1.3 Hub for distribution of goods 1high 0,2 20% 3.3 Export 1 Yes 0,2 20% 3.4 Import 1 Yes 0,2 15% 4. Economic activities 6% 25% 4.1 Industrial areas 0 low 0 35% 4.2 Potential for consumers 0 No region is rural area 0 4.3 Potential for the logistics activities suitable cargo for logistics 40% (value added) 1 Yes activities 0,4 15% 5. Quality of the location 12,75% 60% 5.1 Intermodality status high 51% 40% 5.1.1 multimodal 1 Yes currently modest 0,4 30% 5.1.2 road-rail 1 Yes 0,3 15% 5.1.3 road-inland waterway 1 Yes 0,15 15% 5.1.4 road air 0No 0 40% 5.2 Intermodality potential high 34% 40% 5.2.1 multimodal 1 Yes 0,4 30% 5.2.2 road-rail 1 Yes 0,3 15% 5.2.3 road-inland waterway 1 Yes 0,15 15% 5.2.4 road air 0No 0 15% 6. Core network access 10% 25% 6.1 Road network 0,25 60% 6.1.1 international road network 1 Yes TRACECA transport corridor 0,6 40% 6.1.2 national road network 1 Yes 0,4 25% 6.2 Railway network 0,25 70% 6.2.1 Railway network international 1 Yes TRACECA transport corridor 0,7 30% 6.2.2 Railway network national 1 Yes 0,3 20% 6.3 ports (only for port LC) 0 No 0 15% 6.4.inland ports 1 Yes 0,15 15% 6.5 airports 0 No 0 77,5%

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Ukraine Kiev location factsheet MACRO LOCATION: KIEV, Evaluation Remarks UKRAINE results Weight Types Inland hub Score 10% 1. Financing model 10% 33,3% 1.1 public 1 Yes state promotion 0,33 initial interest of interviewed international freight forwarders to invest in Kiev (Kuehne & Nagel, Willy Betz, 33,3% 1.2 private 1 Yes Militzer & Muench, Panalpina) 0,33 EBRD - e.g.LC in Brovary, interest in case international 33,3% 1.3 IFIs 1 Yes companies are involved 0,33 20% 2. TRACECA corridor 6,6% 2.1 Direct location at the TRACECA 67% route 0 No 0,00 2.2 Importance as a hub to direct 33% traffic onto TRACECA Yes 0,33 important node in the network 40% 2.2.1International importance 1Yes of logistics centres 0,40 important node in the network 35% 2.2.2 National importance 1Yes of logistics centres 0,35 important node in the network 25% 2.2.3 Regional importance 1Yes of logistics centres 0,25 25% 3. Market potential 25,0% 30% 3.1 International importance Yes 0,3 40% 3.1.1Suitable for logistics activities 1 Yes 0,4 40% 3.1.2Hub for container operation 1 Yes 0,4 20% 3.1.3 Hub for international trade 1 Yes 0,2 30% 3.2 National importance Yes 0,3 actual statistics is to be obtained from the relevant authorities and stakeholder. The leading forwarding companies have confirmed the existence of container 40% 3.1.1Suitable for logistics activities 1Yes traffic and potential. 0,4 relevant statistics to be 40% 3.1.2Hub for container operation 1high obtained in Phase B 0,4 20% 3.1.3 Hub for distribution of goods 1high 0,2 significant regional export 20% 3.3 Export 1 Yes cargo volumes 0,2 significant regional import 20% 3.4 Import 1 Yes cargo volumes 0,2 15% 4. Economic activities 15% SOURCE: MFA PUBLICATIONS UKRAINE (2007) In 2006, Kiev region accounted for 1.5% in the total volume of Ukraine’s 25% 4.1 Industrial areas 1 Yes commodities export and 0,25

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MACRO LOCATION: KIEV, Evaluation Remarks UKRAINE results Weight Types Inland hub Score contributed 4.6% to Ukraine’s commodities import. largest city and capital of 35% 4.2 Potential for consumers 1 high Ukraine 0,35 In 2006, the regional authorities examined and processed 227 document packages submitted by foreign investors, representatives of foreign investors, and business 4.3 Potential for the logistics entities registered in Kiev 40% activities (value added) 1 high region. 0,4 15% 5. Quality of the location 15,0% 60% 5.1 Intermodality status high 60% increase of containerisation of cargos will add to attractiveness of Kiev as a 40% 5.1.1 multimodal 1Yes regional hub. 0,4 30% 5.1.2 road-rail 1 Yes 0,3 15% 5.1.3 road-inland waterway 1 Yes 0,15 15% 5.1.4 road air 1 Yes 0,15 40% 5.2 Intermodality potential high 40% 40% 5.2.1 multimodal 1 Yes 0,4 30% 5.2.2 road-rail 1 Yes 0,3 15% 5.2.3 road-inland waterway 1 Yes 0,15 15% 5.2.4 road air 1 Yes 0,15 15% 6. Core network access 12% Corridor III - Berlin - Wroclaw - Krakow - Lviv - Kiev, Corridor V - Trieste - Ljubljana - Budapest - Lviv , Corridor IX - Helsinki - Kiev - Odessa - Chisinau - Bucharest - Plovdiv 25% 6.1 Road network - Alexandropoulos 0,25 60% 6.1.1 international road network 1Yes 0,6 40% 6.1.2 national road network 1 Yes 0,4 Corridor III - Berlin - Wroclaw - Krakow - Lviv - Kiev, Corridor V - Trieste - Ljubljana - Budapest - Lviv , Corridor IX - Helsinki - Kiev - Odessa - Chisinau - Bucharest - Plovdiv 25% 6.2 Railway network - Alexandropoulos 0,25 70% 6.2.1 Railway network international 1 Yes 0,7 30% 6.2.2 Railway network national 1 Yes 0,3 20% 6.3 ports (only for port LC) 0 Yes 0 15% 6.4.inland ports 1 Yes planned new inland river port 0,15 15% 6.5 airports 1 Yes 0,15 84%

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Ilyichevsk/Odessa location factsheet MACRO LOCATION: Evaluation Remarks ILYICHEVSK/ODESSA, UKRAINE results Weight Types SEA PORT Score 10% 1. Financing model 7% 33,3% 1.1 public 1 Yes 0,33 33,3% 1.2 private 1 Yes stakeholders have interest 0,33 33,3% 1.3 IFIs 0 further investigations needed 0,00 - Phase B and C

20% 2. TRACECA corridor 20% 67% 2.1 Direct location at the 1 Yes 0,67 TRACECA route 33% 2.2 Importance as a hub to direct Yes 0,33 traffic onto TRACECA 40% 2.2.1International importance 1 Yes Important node in the network 0,40 of logistics centres 35% 2.2.2 National importance 1 Yes Important node in the network 0,35 of logistics centres 25% 2.2.3 Regional importance 1 Yes Important node in the network 0,25 of logistics centres 25% 3. Market potential 25% 30% 3.1 International importance 1 0,3 40% 3.1.1Suitable for logistics activities 1 Yes due to seaport 0,4 40% 3.1.2Hub for container operation 1 high due to seaport 0,4 20% 3.1.3 Hub for international trade 1 high due to seaport 0,2 30% 3.2 National importance 1 0,3 40% 3.1.1Suitable for logistics activities 1 Yes due to seaport and economic 0,4 region 40% 3.1.2Hub for container operation 1 high due to seaport and economic 0,4 region as well as hinterland connection 20% 3.1.3 Hub for distribution of goods 1 high due to seaport and economic 0,2 region as well as hinterland connection 20% 3.3 Export 1 Yes 0,2 20% 3.4 Import 1 Yes 0,2 15% 4. Economic activities 15% 25% 4.1 Industrial areas 1 Yes 0,25 35% 4.2 Potential for consumers 1 Yes 0,35 40% 4.3 Potential for the logistics 1 Yes high 0,4 activities (value added) 15% 5. Quality of the location 15% 60% 5.1 Intermodality status high 60% 40% 5.1.1 multimodal 1 Yes 0,4 30% 5.1.2 road-rail 1 Yes 0,3 15% 5.1.3 road-inland waterway 1 Yes 0,15 15% 5.1.4 road air 1 Yes 0,15 40% 5.2 Intermodality potential high 40% 40% 5.2.1 multimodal 1 Yes 0,4 30% 5.2.2 road-rail 1 Yes 0,3 15% 5.2.3 road-inland waterway 1 Yes 0,15 15% 5.2.4 road air 1 Yes 0,15

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MACRO LOCATION: Evaluation Remarks ILYICHEVSK/ODESSA, UKRAINE results Weight Types SEA PORT Score 15% 6. Core network access 15% 25% 6.1 Road network 0,25 60% 6.1.1 international road network 1 Yes TRACECA transport corridor 0,6 and Pan-European transport corridor IX 40% 6.1.2 national road network 1 Yes 0,4 25% 6.2 Railway network 0,25 70% 6.2.1 Railway network international 1 Yes TRACECA transport corridor 0,7 and Pan-European transport corridor IX 30% 6.2.2 Railway network national 1 Yes 0,3 20% 6.3 ports (only for port LC) 1 Yes Baltic-Black Sea transport 0,2 corridor 15% 6.4.inland ports 1 Yes 0,15 15% 6.5 airports 1 Yes 0,15 97% Kovel location factsheet MACRO LOCATION: KOVEL, Evaluation Remarks UKRAINE results Weight Types INLAND HUB Score 10% 1. Financing model 3% 33.3% 1.1 public 1 Yes state promotion 0.33 private sector revealed little 33.3% 1.2 private 0 No interest 0.00 Limited interest of IFIs if there is no private company as an 33.3% 1.3 IFIs 0 No operator 0.00 20% 2. TRACECA corridor 17.4% 2.1 Direct location at the 67% TRACECA route 1 Yes 0.67 2.2 Importance as a hub to direct 33% traffic onto TRACECA Yes 0.20 40% 2.2.1International importance 0 No 0.00 35% 2.2.2 National importance 1 Yes 0.35 25% 2.2.3 Regional importance 1 Yes 0.25 25% 3. Market potential 0.0% 30% 3.1 International importance 0 Region is insignificant for 40% 3.1.1Suitable for logistics activities 0No distribution of containers 0 40% 3.1.2Hub for container operation 0No 0 20% 3.1.3 Hub for international trade 0No 0 30% 3.2 National importance 0 40% 3.1.1Suitable for logistics activities 0low 0 relevant statistics to be 40% 3.1.2Hub for container operation 0low obtained in Phase B 0 20% 3.1.3 Hub for distribution of goods 0low 0 in terms of logistics operation cargo - containerized cargos - 20% 3.3 Export 0 low not relevant 0 20% 3.4 Import 0 low in terms of logistics operation 0

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MACRO LOCATION: KOVEL, Evaluation Remarks UKRAINE results Weight Types INLAND HUB Score cargo - containerized cargos - not relevant 15% 4. Economic activities 0% low concentration of logistics 25% 4.1 Industrial areas 0 Low suitable industry 0 Kovel Ukraine city population - 35% 4.2 Potential for consumers 0 low 67,000 (2008). 0 4.3 Potential for the logistics 40% activities (value added) 0 low 0 15% 5. Quality of the location 4.50% 60% 5.1 Intermodality status high 18% 40% 5.1.1 multimodal 0low 0 30% 5.1.2 road-rail 1 Yes 0.3 15% 5.1.3 road-inland waterway 0No 0 15% 5.1.4 road air 0 No No international airport 0 40% 5.2 Intermodality potential high 12% 40% 5.2.1 multimodal 0 Yes Container traffic is modest 0 30% 5.2.2 road-rail 1 Yes 0.3 15% 5.2.3 road-inland waterway 0No 0 15% 5.2.4 road air 0 Yes low potential 0 15% 6. Core network access 8% 25% 6.1 Road network 0.25 Corridor Berlin-Warsaw- 60% 6.1.1 international road network 1Yes Brest-Kovel-Kiev) 0.6 40% 6.1.2 national road network 1 Yes Motorway E 373 Kovel - Kiev 0.4 25% 6.2 Railway network 0.25 Corridor Berlin-Warsaw-Brest- 70% 6.2.1 Railway network international 1Yes Kovel-Kiev 0.7 30% 6.2.2 Railway network national 1 Yes Rail port of Ukrainian railway 0.3 20% 6.3 ports (only for port LC) 0 No 0 15% 6.4.inland ports 0 No 0 15% 6.5 airports 0 No 0 32.7% Lviv location factsheet MACRO LOCATION: LVIV, Evaluation Remarks UKRAINE results Weight Types Inland hub Score 10% 1. Financing model 7% 33,3% 1.1 public 1 Yes no conception so far 0,33 33,3% 1.2 private 1 Yes initial interest of international 0,33 players of freight forwarding industry to invest to be further investigated 33,3% 1.3 IFIs 0 to be further investigated 0,00 20% 2. TRACECA corridor 6,6% 67% 2.1 Direct location at the 0 No 0,00 TRACECA route 33% 2.2 Importance as a hub to direct Yes 0,33 traffic onto TRACECA 40% 2.2.1International importance 1 Yes 0,40

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MACRO LOCATION: LVIV, Evaluation Remarks UKRAINE results Weight Types Inland hub Score 35% 2.2.2 National importance 1 Yes important node in the network 0,35 of logistics centres 25% 2.2.3 Regional importance 1 Yes important node in the network 0,25 of logistics centres 25% 3. Market potential 25,0% 30% 3.1 International importance 1 0,3 40% 3.1.1Suitable for logistics activities 1 Yes 0,4 40% 3.1.2Hub for container operation 1 Yes 0,4 20% 3.1.3 Hub for international trade 1 Yes 0,2 30% 3.2 National importance 1 0,3 40% 3.1.1Suitable for logistics activities 1 Yes actual statistics is to be 0,4 obtained from the relevant authorities and stakeholder. 40% 3.1.2Hub for container operation 1 high relevant statistics to be 0,4 obtained in Phase B 20% 3.1.3 Hub for distribution of goods 1high 0,2 20% 3.3 Export 1 Yes 0,2 20% 3.4 Import 1 Yes 0,2 15% 4. Economic activities 15% 25% 4.1 Industrial areas 1 Yes 0,25 35% 4.2 Potential for consumers 1 Yes population in Lviv: 735,000 0,35 40% 4.3 Potential for the logistics 1 Yes suitable cargo for logistics 0,4 activities (value added) activities 15% 5. Quality of the location 11,4% 60% 5.1 Intermodality status high 42% 40% 5.1.1 multimodal 1 Yes currently modest 0,4 30% 5.1.2 road-rail 1 Yes 0,3 15% 5.1.3 road-inland waterway 0No 0 15% 5.1.4 road air 0low 0 40% 5.2 Intermodality potential high 34% 40% 5.2.1 multimodal 1 Yes region is significant for 0,4 containers 30% 5.2.2 road-rail 1 Yes 0,3 15% 5.2.3 road-inland waterway 0No 0 15% 5.2.4 road air 1 Yes 0,15 15% 6. Core network access 10% 25% 6.1 Road network 0,25 60% 6.1.1 international road network 1 Yes Motorway E 40, M06, M09, M10, 0,6 M11, M12, Corridor: Dresden- Praha-Krakow-Lviv-Kiev - a very high potential of traffic 40% 6.1.2 national road network 1 Yes 0,4 25% 6.2 Railway network 0,25 70% 6.2.1 Railway network international 1 Yes 0,7 30% 6.2.2 Railway network national 1 Yes 0,3 20% 6.3 ports (only for port LC) 0 No 0 15% 6.4.inland ports 0 No 0 15% 6.5 airports 1 Yes 0,15 74,4%

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2 APPENDIXES

2.1 Appendix 1 – Tables: Statistical Data and Info - Georgia Figure 108: Total Cargo Revenues 2004-2008

Figure 109: Railway Cargo 2004-2008

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Figure 110: Trucking Industry 2004-2008

Figure 111: Air Cargo Handling in 2004-2008

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Figure 112: Cargo Revenues in Georgian Ports 2004-2008

Figure 113: Container Revenues in Georgian Ports 2004-2008

Figure 114: Cargo Traffic by Type of Cargo in the Poti Port 2004-2008

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Figure 115: Railway Cross-Border Transportation in 2004-2008

Figure 116: Truck Movement in Export, Import and Transit in 2008

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2.2 Appendix 2 – Tables: Statistical Data and Info - Romania Constantza Port Terminals Iron ore, coal, bauxite Operator: Comvex 8 berths, water depths up to 19 m Direct transshipment from sea-going vessels to barges Iron ore storage capacity: 3.5 milion tons Coal storage capacity: 2 million tons Bauxite storage capacity: 3.2 million tons Operator: MinMetal 4 berths, water depths up to 14.5 m 3 platforms with total surface of 113,500 m2 Storage capacity: 629,000 tons Oil products Operator: Oil Terminal 9 berths, water depths between 11.3 m and 19 m Annual handling capacity 24 mil. Tons Maximum storage capacity for oil products: 1.7 mil. Tons 33 coupling installations for loading/unloading tankers and/or river barges Transport pipelines with diameters of 100 to 1,000 mm Remote control facilities located by berth Laboratories Cereals Handling capacity: 8 milion tons/year 2007 Traffic : 4,258 thousand tons 2008 Traffic : 6,670 thousand tons Operators: TTS, North Star Shipping, Silo Trans,United Shipping Agency, Barter Port Operator Cement Operator: Ceminter International 5 berths, water depths up to 10.7 m Rate/hour : 700 tons Cement silo with storage capacity of 50,000 tons Terminal can accommodate ships up to 45.000 dwt Capacity: 1.000.000 tons/year Ro-Ro Terminal Surface of storing area: 2.5 ha – 1,600 vehicles (will be extended up to 5 ha – 3,700 vehicles) Handling capacity: 110 cars/hour Annual capacity: 234,000 cars Operator: Romcargo Maritim Ro-Ro connections : Direct lines with Fos sur Mer (Marseille), Valencia, Alger, Pireu, Ilyichevsk/Derince Constantza South Container Terminal – CSCT Terminal size - 31 ha Post Expansion Works Terminal size – 65 ha Ship to shore cranes

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3 x Post-Panamax Mitsubishi Gantry Cranes 2x Super Post-Panamax ZPMC Cranes 3 x Mobile Harbor Cranes Operated by Dubai Port World (aka DP World) Current capacity - 1,100,000 TEUs/year

Constantza Port Turnover

Summary Statistics, 2003-08 2003 2004 2005 2006 2007 2008 Total Traffic (’000t) 43,222 50,433 60,632 57,131 57,784 61,838 Bulk Cargo (’000t) Liquid bulk 10,004 11,356 31,144 14,681 14,010 14,404 Dry Bulk 21,072 26,098 15,484 27,619 24,736 29,595 General Cargo (’000t) 12,146 12,979 14,004 5,290 6,119 4,809 Containers Gross Weight (’000t) 1,880 3,878 7,404 9,815 12,643 13,030 Number 133,953 249,090 493,214 672,443 912,509 894,876 TEUs 206,449 206,449 768,099 1,037,077 1,411,414 1,380,935 Sea-going vessels 5,023 5,302 5,510 5,049 5,663 5,905 River vessels 6,578 7,593 8,778 8,115 7,135 8,018 Source: Constantza Port website

Port Throughput by Cargo Type, 2003-08 2003 2004 2005 2006 2007 2008 Cereals 3,744 3,884 6,010 7,171 4,258 6,670 Potatoes, other fresh or 131 156 169 180 179 132 frozen fruits and vegetable Livestock, sugar beet 73 35 20 40 75 20 Wood and cork 995 1,101 1,012 906 971 836 Textile products and fibres, other raw materials of 19 14 0 6 8 14 animal and vegetal origin Food stuff and animal feed 714 888 551 538 302 432 Oil seeds, oleaginous fruits 422 446 454 877.07 896 1,131 and fats Coal, coke 1,088 2,424 3,472 3,413.82 4,798 7,109 Crude oil 5,357 7,185 8,683 8,567.46 8,543 8,814 Oil products 4,209 4,558 5,295 4,978.2 3,772 4,135 Iron ores, scrap 11,942 12,534 12,626 8,670 10,794 11,379 Non-ferrous ores and scrap 2,137 3,139 3,442 3,127.3 999 694 Metal products 3,434 2,352 4,163 2,804.7 3,694 2,133 Cement, lime, prefabricated 1,761 2,263 2,302 1,605.6 1,134 953 materials for constructions Raw or processed minerals 660 478 651 610.51 674 505 Natural & chemical fertilizers 2,065 1,854 2,311 2,093.17 1,864 1,896 Chemical products from coal 7 212 253 410.14 372 367 and tar Other chemical products 1,714 1,748 1,355 1,039 1,561 1,291 Cellulose and waste paper 0 0 5 9.2 4.8 0

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2003 2004 2005 2006 2007 2008 Machines, transport 166 53 92 88.31 137 179 equipment Metalware 544 861 12 9 6 6 Glassware and ceramic 28 3 0 5.3 22 47 products Leather, textiles, clothes & 631 68 14 other manufactures Miscellaneous 2,029 4,242 7,753 9,979 12,723 13,086 Total 43,245 50,433 60,632 57,131 57,783 61,837 Source: Constantza Port website

Container Traffic, 2003-07 2003 2004 2005 2006 2007 TEUs unloaded 102,158 190,007 385,997 525,211 708,933 Full 72,138 144,583 281,406 372,802 516,357 Empty 30,020 45,424 104,591 152,408 194,576 TEUs Loaded 104,291 196,275 390,597 511,857 702,481 Full 84,325 162,831 246,878 316,995 436,531 Empty 19,966 334,444 143,719 194,862 265,950 Total TEUs 206,449 386,282 776,594 1,037,068 1,411,414 Full 156,463 307,414 528,284 689,797 950,888 Empty 49,486 78,868 248,310 347,271 460,426 Source: Constantza Port website

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International Logistics Centres

for Western NIS and the Caucasus

in Armenia, Azerbaijan, Georgia, Moldova and Ukraine

Inception Report – Annex 4 Description of the main issues encountered by operators

April 2009

This project is funded by A project implemented by the European Union Dornier Consulting GmbH / NTU / Inros Lackner AG

International Logistics Centres for Western NIS and the Caucasus

TABLE OF CONTENTS LIST OF ABBREVIATIONS...... 5 1 EXECUTIVE SUMMARY ...... 7 2 METHODOLOGY ...... 8 3 OVERVIEW OF ISSUES IDENTIFIED ...... 8 4 DISCUSSION AND ANALYSIS OF ISSUES ...... 12 4.1 GENERAL DISCUSSION ...... 12 4.1.1 Other TRACECA projects ...... 12 4.1.2 Legal issues ...... 13 4.1.3 Institutional issues ...... 14 4.1.4 Procedural issues ...... 14 4.1.5 Corruption ...... 15 4.1.6 Operating costs ...... 16 4.1.7 Infrastructure and equipment ...... 17 4.1.8 Overall assessment ...... 17 4.2 ARMENIA ...... 17 4.2.1 General ...... 17 4.2.2 Customs clearance ...... 18 4.2.3 Infrastructure and intermodal terminals ...... 18 4.2.4 High transport prices ...... 18 4.3 AZERBAIJAN ...... 19 4.3.1 Legal issues ...... 19 4.3.2 Institutional issues ...... 19 4.3.3 Procedures ...... 19 4.3.4 Infrastructure ...... 19 4.4 GEORGIA ...... 20 4.4.1 Transport policy ...... 20 4.4.2 Organisational arrangements ...... 20 4.4.3 Procedural issues ...... 20 4.4.4 Infrastructure and facilities ...... 21 4.5 MOLDOVA ...... 21 4.5.1 General ...... 21 4.5.2 Legal issues ...... 22 4.5.3 Institutional issues ...... 22 4.5.4 Costs ...... 22 4.6 UKRAINE ...... 22 4.6.1 Policy ...... 22 4.6.2 Legal issues ...... 23 4.6.3 Customs ...... 24 4.6.4 Facilities and services ...... 25

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4.7 BULGARIA ...... 25 4.7.1 Institutional issues ...... 25 4.7.2 Customs ...... 25 4.7.3 Infrastructure and facilities – land transport and logistics ...... 25 4.7.4 Infrastructure and facilities – Black Sea ports ...... 26 4.8 ROMANIA ...... 26 4.8.1 Legal and policy issues ...... 26 4.8.2 Customs ...... 27 4.8.3 Facilities and services ...... 27 4.9 TURKEY ...... 28 4.9.1 General ...... 28 4.9.2 Trade facilitation aspects ...... 28 4.9.3 Transit ...... 28 4.9.4 Intermodal transport ...... 29 5 PROPOSALS FOR ACTION PROGRAMME FORMULATION ...... 29 5.1 LEGAL AND REGULATORY ...... 30 5.2 PROCEDURAL ...... 30 5.3 CORRUPTION ...... 31 5.4 OPERATING COSTS ...... 31 5.5 INFRASTRUCTURE AND EQUIPMENT ...... 31 5.6 ACTION PROGRAMME FORMAT ...... 32

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LIST OF FIGURES

Figure 1: Sample Entry in TRACECA Hotline List ...... 15

LIST OF TABLES

Table 1: Reported Issues in Each Country ...... 9 Table 2: Country-wise Incidence of Issues ...... 12 Table 3: Proposed Action Programme Format ...... 32

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LIST OF ABBREVIATIONS ADB Asian Development Bank. ADDY Azerbaijan State Railway AFER Romanian Railway Authority. AGTC European Agreement on Important International Combined Transport Lines and Related Installations. ASYCUDA Automated SYstem for CUstoms DAta (computer software developed by UNCTAD). ATP Autonomous Trade Preferences (EU scheme to extend selective preferences to non- member countries, including Moldova). BDZ Bulgarian State Railways. CASPAR Azerbaijan State Caspian Shipping Company CFR National Railway Company (Romania). CIS Commonwealth of Independent States (former republics of the USSR) also called NIS. CWG Customs Working Group. EC European Commission. ECMT European Conference of Ministers of Transport. EDI Electronic Data Interchange. EU European Union. EUR Euro (also abbreviated as €). FEZ Free Economic Zone (where imports and internal transactions are free of tax). FSU Former Soviet Union. GDP Gross Domestic Product (the value of goods and services produced within a country, usually an annual amount either in the domestic currency or in US dollars. It may be expressed in terms of purchasing power parity (PPP: see below). GIFP Giurgiulesti International Free Port. GRECO Council of Europe Group of States Against Corruption. IFI International Financial Institution (for example EBRD, EIB, World Bank). IFZ Industrial Free Zone (similar to an FEZ, intended for manufacturing and related activities). ILC International Logistics Centre. IRU International Road Transport Union (association of the road transport industry, including truck operators, and international guarantor of the TIR carnet system). ISO International Organization for Standardization. JHA Justice and Home Affairs (the 3rd pillar of the EU, covering corruption inter alia). JSC Joint Stock Company. LLC Limited Liability Company. MCA Multi-Criteria Analysis (also known as Multi-Variate Analysis, MVA).

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MLA Multilateral Agreement (TRACECA) MoT Ministry of Transport MoTC Ministry of Transport and Communication MTT International Railway Transit Tariff (originally a Soviet tariff schedule) NIS Newly Independent States (former republics of the USSR) also called CIS NLWG National Legal Working Group OIZ Organized Industrial Zone (Turkey) PPP (1) Public-Private Partnership PPP (2) Purchasing Power Parity (GDP or some other measure of national or per capita income, adjusted for price levels relative to those of the USA) Ro-Ro Roll on – Roll off (applied to rail and ferry operations where road vehicles are carried). SNCFR Romanian Railways National Company (now defunct). TEN-T Trans-European Transport Network TEU Twenty-foot Equivalent Unit (a 20’ shipping container or its equivalent; for example a 40’ container is 2 TEUs) TFWG Trade Facilitation Working Group TI Transparency International TIR Transports Internationaux Routiers (usually pronounced ‘Teer’ in all langages) TIR carnet Single document that must accompany transit cargoes under the TIR system TOR Terms of Reference (of the present project, unless stated otherwise) TRACECA TRAnsport Corridor Europe Caucasus Asia UNCTAD United Nations Conference on Trade And Development UNDP United Nations Development Programme UNECE United Nations Economic Commission for Europe UNTRR Romanian Road Hauliers’ Union USA United States of America. USD United States Dollar (also abbreviated as US$) USSR Union of Soviet Socialist Republics (Soviet Union). Since its dissolution it is often referred to as the Former Soviet Union (FSU).

Note: Standard ISO abbreviations are used where appropriate; for example ha [hectare(s)], kV [kilovolt(s)], m [metre(s)], m2 [square metre(s)], m3 [cubic metre(s)], t [tonne(s)], kt [kilotonne(s)], Mt [megetonne(s)]. An apostrophe may denote minutes [for example: 39°27′20″N] or feet in the imperial measurement system [for example: 20’ container].

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1 EXECUTIVE SUMMARY Obstacles to international trade and transport have been addressed often in the course of earlier TRACECA projects. In many cases there have been useful outcomes. In others the adoption and implementation of recommended solutions have proved too difficult. The Consultant does not propose to pursue such issues. There is considerable variation between the issues that have been raised with us by transport operators in the eight beneficiary countries, but these issues fall into six broad categories: • Organizational and administrative. • Legal and regulatory. • Procedural. • Corruption. • Operating costs. • Infrastructure and equipment. The Consultant has taken the view that organizational and administrative issues arise from causes that are too broad to be addressed in the narrow context of international trade and transport. Legal and regulatory issues relate mainly to: • Contradictions between national laws and international conventions. • Contradictions between national laws and the regulations that should give effect to them. • The legal framework for multi-purpose logistics centres and intermodal/transit transport. • The legal framework for public-private partnership. It is proposed that the International Legal Expert visit the beneficiary countries where substantial legal and regulatory issues have been identified, and with the assistance of TRACECA National Secretaries and local experts define the causes and formulate a realistic action programme to address them. Procedural issues mainly concern customs enforcement. In Ukraine, where the team includes a local Customs Expert, we have begun a process of defining underlying problems and formulating solutions. We propose to continue this in Phase 2 and then use the Ukraine exercise as a model to apply elsewhere. Corruption is pervasive and, like organizational/administrative issues, we do not believe that it can be tackled effectively in a sectoral context. Besides, the nature and extent of the problem is already known and steps are being taken to combat it, often with external support. We do not propose to formulate an action programme to reduce corruption; but we intend to use a measure of corruption as one criterion for site selection in the multi-criteria analysis (MCA). Not surprisingly, many of the comments received from transport operators concerned excessive operating costs. To some extent these relate to burdensome official procedures and infrastructural deficiencies, dealt with under other headings. But there are also indications of uncompetitive price-setting, for example where state-owned entities are free to set prices without the constraint of market discipline. We propose to consult with National Secretaries individually to identify specific causes of excessive transport costs that impact international and transit traffic particularly, and concentrate on formulating practical proposals to address those.

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As in other surveys and studies, we found that the most frequently mentioned problems involve deficiencies of infrastructure and equipment. In many cases these problems are attributable to broader issues such as weak planning, inadequate public funding or outdated systems of ownership and control. We consider these to be beyond the scope of the present study and propose to concentrate on site-specific problems such as: • Infrastructure whose design and location are no longer appropriate to their use. • Road or rail bottlenecks, especially where ports and terminals are sited within urban areas. This will be appropriate only in Phase 3 of the project, when sites have been selected through the MCA. The MCA will take account of site specific advantages and disadvantages, physical and otherwise, through differential scoring.

2 METHODOLOGY This task was undertaken in three parts. • First, in the course of structured interviews conducted in all the beneficiary countries, stakeholders were asked about issues that they experienced, observed or foresaw. The focus was on issues that currently affect the efficiency of freight transport; that are likely to constrain its future development; or that might affect the successful establishment of an ILC. The stakeholders’ responses were compiled and summarized. • Then an objective assessment was made of these responses and supporting information was gathered. This information came from reports on previous TRACECA projects and from a variety of local sources, drawing on the local knowledge and contacts of the experts based in each beneficiary country. In some cases there were follow-up interviews with stakeholders. • Finally, an action programme was drawn up to address those issues which were assessed as significant. In some cases actions were identified to be undertaken by stakeholders. In others the actions are to be undertaken by the consultants themselves in the second phase of the project. In each case a priority is assigned, responsibility is defined and a timeframe is indicated.

3 OVERVIEW OF ISSUES IDENTIFIED The issues raised vary greatly between countries, but broadly fall into the following categories: • Inappropriate organizational or administrative arrangements. • Inappropriate legal environment. • Incorrect or unhelpful application of laws and procedures, including corrupt practices. • Excessive costs borne by transport operators. • Physical deficiencies: land, infrastructure, technology. The reported issues are listed by country in Table 1 below, with an indication of the source of the information. Where the source is another TRACECA project it is shown as ‘Expert opinion’. Table 2 summarises the country-wise incidence of reported issues.

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Table 1: Reported Issues in Each Country Country Issues Reported by Armenia Closure of Armenia/Turkey and Armenia/Azerbaijan borders General observation. since the conflict over Nagorno Karabakh in 1993. EU does not allow tobacco and alcohol (an important Forwarders. Armenian export) to be carried under TIR carnet. Customs procedures obstruct trade; eg the ‘customs price Business community. list’ always takes precedence over invoice values, which often penalises legitimate trade. CIS countries do not accept more than 3 consignments per Forwarders. container. If 1 consignment in a container fails to comply with customs Forwarders. requirements, all consignments are held up until the matter is resolved. Trucks and trains wait 1 hour to 2 days at the Forwarders. Armenia/Georgia border, queuing for customs processing and waiting for locomotives to be exchanged. Land area constrains expansion of railway container Armenian Railway. terminal. Seasonality of traffic because of agricultural activity cycle. General observation. Inflexible Armenian Railway tariffs make road a cheaper Forwarders. mode for 40’ containers. High transport costs to Russia (Armenia-Moscow costs 2 x Forwarders. Moscow-USA).

Azerbaijan Many international conventions have been signed but are not made operational by effective enforcement. Alleged non-recognition of EU standard documents. Forwarders in Georgia. Important international conventions on customs procedures and liability of terminal operators have not been signed. Lengthy border crossing procedures due to slow operation Forwarders. of ITC equipment. State-owned enterprises dominate the rail and maritime sectors and are said to behave monopolistically. In particular, Caspian Shipping Co is criticised for high freight rates and unreliable service. 61% of roads are said to be in ‘poor condition’ due to continued use of Soviet-era rigid maintenance criteria and ineffectual enforcement of the 13t axle load limit. Since independence there has been under-investment in railway infrastructure and rolling stock; 60% of capital assets are said to be life-expired.

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Country Issues Reported by Georgia Generally poor infrastructure, in particular access roads to Transport operators. ports and terminals. Interference between city traffic and vehicles accessing Transport operators. ports and terminals. Land areas at ports and terminals are too small for efficient Logistics service container handling. providers. Short land lease from Georgian Railways Ltd inhibit private Logistics service. investment in improved terminal facilities. The trucking industry’s development is slowed by its being Forwarders. dominated by small units. Inexperienced customs officers due to high turnover. Business community.

Moldova Small scale of the domestic market. General observation. Frequent changes to organisational structures and Forwarders. responsibilities in Government. A new law on forwarding is not yet passed. Forwarders. Except for the special case of Giurgiulesti International Free Business community & Port, the law does not yet define the mechanism for land forwarders. privatisation and pricing is uncertain. Plans to upgrade selected roads and convert rail links to EU Forwarders. gauge have been shelved. Hauliers suffer a competitive disadvantage in the EU Forwarders. because of high insurance and visa costs. Perishable food exports to Ukraine suffer from long border Forwarders. delays.

Ukraine There is no official transport policy, only an approved Expert opinion. concept including strategic objectives. Administrative arrangements work against coherent policy- Expert opinion. making for and administration of all transport modes. The legal system is not conducive to the realisation of the Expert opinion. law-maker’s intentions. In particular, customs laws are not correctly implemented by Transport operators. the Customs Service and international conventions (eg TIR) are not observed, causing costly delays. Dedicated container trains do not run on all routes, and Railway terminal mixed trains are very slow. operator. Freight insurance rates are unreasonably high. Expert opinion. Tax law puts Ukrainian transport firms at a disadvantage Expert opinion. vis-à-vis their foreign competitors.

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Country Issues Reported by Bulgaria Burgas and Varna ports are managed from Sofia, where Port management. regulations and tariffs are set; decisions are not always well- informed. Officious customs enforcement, by officers whose work load Forwarders. has been diminished by EU membership. Bad roads (especially in the north-west). Forwarders. Underdeveloped railway infrastructure. Forwarders. Intermodal terminals are obsolete and poorly managed. Forwarders, MoT. Lack of regular block train services. Forwarders. High-cost road transport services with few firms competing Forwarders. (Varna-Sofia, 469km, €600-700 per container).

Romania No legal basis exists for logistics centre development; but MoT General Directorate this will be included in the Romanian Transport Strategy for Infrastructure & Road now being prepared by MoT. Transport. Customs officers physically inspect all containers. Forwarders. Under-investment in and poor maintenance of railway Observation. infrastructure, including intermodal terminals. State-owned Ro-Ro ferries are old, slow, inefficient and Ferry operator. loss-making.

Turkey Managers of Organised Industrial Zones (OIZs) are legally Logistics operators, required to work on a non-profit basis. Expert opinion A lengthy privatisation process causes delays in modern- Expert opinion. isation and necessary investments. Restrictive quotas apply to foreign-registered goods vehicles Forwarders, Expert carrying transit cargo. opinion. Operation of infrastructure and transhipment facilities is not Expert opinion. optimised to meet the needs of logistics centres. Congested access roads to ports that are situated in city Expert opinion. centres (Istanbul, Izmir). Lack of the road-railway inland hubs of the Turkish railway Forwarders. network. Inadequate unloading equipment for grain (quayside Expert opinion. conveyors) in some ports lead to costly operations. Lack of ICT interoperability. Forwarders.

Regional Few countries of the region have ratified or implemented Expert opinion. agreed rules on customs procedures, documentation etc. Most sea ports are state-owned and under direct manage- Terminal operators ment and supervision of a ministry. In some cases private operators have uncertain legal/contract conditions. There are few multimodal operators in the region. Expert opinion. Electronic data interchange (EDI) is rare. Expert opinion. National railways overcharge transit cargo. Expert opinion.

Source: Consultant’s interviews.

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Table 2: Country-wise Incidence of Issues

Issues

Country costs costs Other Other practices practices equipment compliance arrangements arrangements framework or laws laws or framework Inappropriate legal logistical purposes logistical purposes Customs: Unhelpful Excessive operating operating Excessive Inadequate or Inadequate poorly Inappropriate organis- Inappropriate Other border controls: controls: border Other Lack of modern techn- modern Lack of ology, in particular ITC. ology, in particular ITC. procedures or practices or procedures practices Non-recognition or non- Non-recognition ational or administrative ational or administrative Unhelpful procedures or procedures Unhelpful Unavailability of land for International agreements: agreements: International maintained infrastructure/ infrastructure/ maintained Armenia 3 3 3 3 3 Azerbaijan 3 3 3 3 3 Georgia 3 3 3 3 Moldova 3 3 3 3 3 Ukraine 3 3 3 3 3 Bulgaria 3 3 3 3 Romania 31 3 3 Turkey 3 3 3 3 Regional 3 3 3 3 3 Source: Consultant’s interviews and Table 1 above.

4 DISCUSSION AND ANALYSIS OF ISSUES 4.1 General Discussion 4.1.1 Other TRACECA projects Several earlier regional TRACECA projects addressed the issues raised with us. Within the past 10 years the most significant in the present context are: • Inter-Governmental Commission for the Implementation of the Multilateral Agreement on Transport – Continuation [No.28 in the list of technical assistance projects on the TRACECA website]. Contractor: AXIS. Commenced in January 2001 with a duration of 12 months. • Harmonisation of Border Crossing Procedures [No.29]. Contractor: Scott Wilson Kirkpatrick. Commenced in November 2001 with a duration of 24 months. • Unified Policy on Transit Fees and Tariffs [No.30]. Contractor: Scott Wilson Kirkpatrick. Commenced in December 2001 with a duration of 24 months. • Common Legal Basis for Transit Transportation [No.34]. Contractor: Lamnides & Associates. Commenced in November 2002 with a duration of 24 months.

1 But this is recognized and is being addressed.

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• Trade Facilitation and Institutional Support [No.41]. Contractor: Dornier Consulting GmbH. Commenced in August 2004 with a duration of 24 months. We have reviewed the Progress and Completion Reports of these projects, using them as a reference while writing the following sections. 4.1.2 Legal issues The following legal and related issues, addressed in earlier TRACECA projects, stand out as relevant to the present project: • Harmonisation of transit procedures and documentation. Comprehensive recommendations were made in 2003. National Legal Working Groups (NLWGs), Customs Working Groups (CWGs) and Trade Facilitation Working Groups (TFWGs) were set up in each TRACECA country to bring about their implementation. One component is the universal introduction of electronic data interchange (EDI) to allow customs declarations and other documents to be submitted in advance, thereby minimizing border crossing times. EDI is not yet universal but is becoming more common. Most TRACECA countries now have legislation allowing it. Not all declarants are equipped to use it or see any advantage in doing so. • Promotion of customs brokerage, to reduce the incidence of incorrect and incomplete documentation. The ‘Harmonisation’ project proposed an institute of Customs Brokers which would train practitioners, ensure professionalism and foster a more trusting relationship between consignors/ consignees and customs authorities. Customs brokers now exist in most of the beneficiary countries and at least in Moldova they have their own association (in combination with forwarders). There is some suspicion that some brokers participate in ‘grey’ customs clearance schemes. • Creation of a ’TRACECA Visa’ to enable truck drivers to cross borders with minimal delay and expense. This has proved problematic and to date it has not been possible to establish it. Nor is the issue confined to the TRACECA region: it is mentioned frequently in a background report written for a recent seminar organized by UNECE, the International Transport Forum and the World Bank2, for example. • A ‘TRACECA Permit’ and quota system were conceived to allow a limited number of trucks registered in TRACECA countries automatic entry to other TRACECA countries. In February 2008 a status report was made to the High Level Group on the development of coordinated national transport policies (ref HLG-1-4). It said that: “Amendments to the MLA Technical Annex were drafted proposing a TRACECA permit and quota regulation, and these amendments have been improved since then. However, the proposed amendments were never signed and ratified. “ • A legal and operational environment conducive to multi-modal transport3. An Action Plan was annexed to Progress Report 1 of the ‘Transit Transportation’ project, which also drew attention to discriminatory rail tariff policies in two countries. The ‘Transit Fees & Tariffs’ project identified inflexible tariff policies and legal constraints, especially with respect to rail transportation and port services, as an obstacle to developing multimodal transit

2 Seminar on Overcoming Border Crossing Obstacles, 5-6 March 2009, Paris. Background Report ‘ITF Survey on Border Crossing Obstacles’ prepared by Peter Ranger, Consultant. 3 According to the IRU, multimodal or combined transport “shall mean a transport of goods where different means of transport than the one initially applied are used for at least one leg.” A more rigorous definition requires that the carrier take full responsibility for the goods from door to door, irrespective of the transport mode and irrespective of the liability accepted by any transport provider.

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routes. Analyses of rail, port and shipping costs and tariffs were made, and recommendations given. We have not yet been able to find out the extent to which those recommendations have been accepted and implemented. Inquiries have commenced to find out which recommendations of earlier projects have been accepted, implemented and found successful; which in the course of being implemented; which have been rejected or found to be impracticable; which deficiencies have been eliminated by other means; and which critical obstacles remain. This work will continue into Phase 2. Our inquiries to date have revealed some specific legal deficiencies in individual countries, in particular relating to the legal framework for the development of logistics centres, public-private partnership, multimodal transport and transit transport. This work will also be pursued at country level in Phase 2. 4.1.3 Institutional issues Several countries have experienced institutional restructuring in the transport sector, sometimes several times within a short period. Common complaints about the current structures are that: • Planning and policy-making for the transport sector as a whole is weak, either because the function is poorly resourced or because subsectoral (or modal) responsibilities are fragmented. • Mode-specific departments and agencies have a high degree of autonomy, allowing them to make plans and policy independently, to the detriment of a sector-wide approach. This applies principally to railway agencies which have historically operated autonomously in some countries. • The planning/policy function is often separated from the construction/maintenance function, with the result that there may be a mismatch between centrally determined priorities and physical implementation. • Governance systems usually provide for inter-agency consultation when policies and laws are being formulated, but in practice this is often weak. Agencies are naturally territorial and competitive; and many of the organizations representing private stakeholders’ interests are at early stages of development. 4.1.4 Procedural issues Laws are not always translated perfectly into regulations, or regulations into practice. This may be because the laws are too general in their wording and allow lax interpretation. It may also be because they are not matched by provision of funds, staff or equipment. And the laws and/or regulations may take too little account of practical realities. There are also fundamental differences between stakeholders. Our interviews with transport operators and our reading of TRACECA documents all imply that the top priority is to move cargoes at maximum speed and minimum cost. The objective is economic efficiency, increased trade and competitiveness. But customs officers and finance ministries have a different point of view. Their objective is revenue maximisation, within the limits of the law at least. In Ukraine, for example customs duties represent over 50% of government revenue. It is ineffectual to argue that increased trade will maximise revenue in the long term. There is an inclination to achieve short-term fiscal targets, especially in a time of crisis with severe revenue shortfalls. The differences extend to perceptions of traders, truckers, forwarders, customs brokers, agents, consignors and consignees. Border guards and customs officers are paid to catch the bad

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International Logistics Centres for Western NIS and the Caucasus ones, so they tend to see them all as potential cheats. And there are enough detected cases of fraud, deception and outright smuggling to make this understandable. There is wide agreement that improved systems and technology can help customs officers to do their job with respect to enforcement and revenue collection without unduly hampering trade. Many of the recommendations of earlier TRACECA projects have been directed at such improvement. But implementation costs money, relies on development of new skills and may requires systemic changes. Therefore several years may elapse between a country’s making a commitment and its becoming operational. 4.1.5 Corruption Corruption is not included as an issue in Table 1 or Table 2. It was mentioned to us frequently by interviewees, however, usually in the context of the enforcement of customs regulations. It is also recognised as a significant issue by the EU and by the governments of the beneficiary countries. For example the EU-Ukraine Action Plan (in connection with the European Neighbourhood Policy) includes the following actions: • Ensure the effectiveness of the fight against corruption • Join the Council of Europe Group of States Against Corruption (GRECO) and implement relevant recommendations, including a revision of the Ukrainian national strategy for the fight against corruption; • Promote transparency and accountability of the administration, in particular concerning the reform of the civil service based on European standards; • Implement relevant measures as foreseen under the JHA4 scoreboard. It has also been addressed in earlier TRACECA projects. For example, Progress Report 1 of the project ‘Harmonisation of Border Crossing Procedures’ includes the following candid paragraph: “No other career is faced with quite so much temptation quite so often as Customs and sometimes that presents itself not by committing corrupt acts, but by simply doing nothing at all. No other sector can damage a country’s economy on the scale that a corrupt Customs can. Automation can assist materially in the reduction of corruption, but will not of itself eradicate it, and unless it is checked corruption will nullify all the effects and benefits of modernization.” Corruption was the main impetus behind the idea of a ‘TRACECA Hotline’ to allow truck drivers (principally) to get help at any time if they suffer harassment, extortion or other problems in a TRACECA country. But the system is apparently very little used. Figure 1: Sample Entry in TRACECA Hotline List Country Name Institution Contact Details Website of State Customs Armenia Mr Gagik TRACECA Phone: + 374 10 523 862 In Armenian: Grigoryan Permanent Fax: + 374 10 54 59 79 http://www.customs.am/armenian/index.php Representative Email: In Russian: [email protected] http://www.customs.am/rus/index.php In English: http://www.customs.am/

Source: TRACECA website

4 Justice and Home Affairs: the third pillar of the European Union ,covering racism,xenophobia, terrorism, trafficking, corruption and fraud.

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The issue is excluded from the tables because corruption exists everywhere to some degree, and in the inception phase of the project we considered it unfair to make specific allegations or to compare countries on the basis of a limited number of interviews with stakeholders. The most authoritative and objective source of such information on corruption is Transparency International (TI), which monitors the perceived general level of corruption in 180 countries. This project’s eight direct and indirect beneficiary countries are perceived as follows, in terms of their scores5 and their ranking among 180 countries for which relevant survey data are available: Arm- Azer- Mold- Bul- Rom- enia baijan Georgia ova Ukraine garia ania Turkey Score (0-10) 2.9 1.9 3.9 2.9 2.5 3.6 3.8 4.6 Rank (1-180) 109 158 67 109 134 72 70 58 In any one country, the extent to which corruption is an obstacle to international trade and transport may be assumed to correlate more or less with its general level in that country. In fact, the relative ranking among the eight countries shown above roughly agrees with the incidence and severity of corruption reported to us by transport operators. In recent years Georgia has showed that decisive Government action against corruption can, in fact, bring about positive effects. The general level of corruption in a country, and the specific level affecting international trade and transport where that can be assessed, is important to the present project because it suggests: • The possibility to achieve some of the benefits that improved infrastructure would deliver, by other means and at much lower cost. • The extent to which the benefits from investment in infrastructural projects are likely to be eroded. • The attractiveness of a country to potential private investors. • The need for pre-conditions to investment, entailing (a) policy adjustment and/or (b) specific anti-corruption measures in the form of management systems, surveillance systems or (as mentioned in the quotation above) automation to minimize human discretion. Consequently we intend to include the level of corruption as a criterion for selection of potential ILC locations in the multi-criteria analysis (MCA) in Phase 2. 4.1.6 Operating costs Our interviewees chiefly complained about the following with respect to their operating costs: • Excessive rail tariffs, especially for transit cargoes, which are still based on the Soviet era MTT (International Railway Transit Tariff), in some countries at least. • Excessive road haulage tariffs in allegedly monopolistic (or near-monopolistic) conditions. • High cargo handling charges at Black Sea ports, and lack of transparency in port dues, charges and penalties. A typical handling charge in the range US$250-280 per container in a Black Sea port compares with a global average ofUS$128. • High freight insurance costs, which presumably reflect insurers’ perception of risk in the region.

5 A maximum score of 10 would mean no perceived corruption at all.

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• The cost of long and unpredictable delays due to customs procedures. 4.1.7 Infrastructure and equipment All the direct beneficiaries of this project have experienced political and economic trauma in the past 20 years. The effect has been felt in all sectors and is particularly visible in the case of transport-related infrastructure. In many cases: • Road maintenance has been neglected because of budget constraints and perhaps institutional weaknesses. • As economies went through sectoral and regional shifts, infrastructural priorities changed faster than new investments could be made. Many infrastructural assets are now under- used, imposing a burden on the maintenance budget. Others are suffering congestion. Many existing multi-modal and container-handling sites suffer access problems and cannot be expanded into ILCs, being hemmed in by urban development. Many border facilities pose a particular problem. Before the dissolution of the Soviet Union they lay on boundaries between constituent Soviet republics; or, in the case of ports and airports, they largely catered to domestic trade and travel. Now they have an international function that was not envisaged when they were designed and built. The situation is exacerbated in countries with separatist regions and de facto borders within their own territories. In the case of Armenia, Azerbaijan and Turkey, closed borders have transferred demand to other border crossings, without relieving the need to maintain existing facilities in the expectation of eventual re-opening. With regard to equipment, the main deficiencies relate to border control and customs enforcement. Not all the customs posts of the beneficiary countries are equipped to receive e- declarations. Probably a minority have the capacity to scan containers. In some cases there is reportedly too little space to operate new equipment properly; or the physical layout of infrastructural facilities does not allow efficient channeling and management of traffic. 4.1.8 Overall assessment In summary, it appears that there are some intractable issues that prolonged efforts have failed to resolve and initiatives that have failed to reach fruition. The TRACECA visa is a good example. There are many other cases were transport operators suffer inconveniences, increased costs and reduced competitiveness. At the margin some trade is undoubtedly lost and consumers ultimately bear higher prices. But in most respects there has been improvement. This may be because of legislative changes, institutional restructuring and strengthening, upgraded facilities, training in the public and private sectors, or simply incremental adaptation to changing circumstances. The list of issues that resulted from our interviews with stakeholders and other inquiries does not include any insurmountable barriers to the development of ILCs in the region.

4.2 Armenia 4.2.1 General Armenia is logistically isolated due to the political troubles with the neighbouring countries (Azerbaijan, Turkey) and closed borders with them. Approximately 80% of the total country imports, which exceed exports four times, have been handled in the Georgian Black Sea ports Poti and Batumi. The potential new or re-opened rail connections to Turkey and via Iran via to the Port of Bandar Abbas take on special significance for the country. The Government is

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International Logistics Centres for Western NIS and the Caucasus addressing these problems by seeking additional funding from the IFI (ADB, World Bank, Armenian diaspora) and concessions (railways, airports). Due to the global financial and economic crisis cargo turnover has decreased by 40-60% in Armenia. 4.2.2 Customs clearance Despite progress during the past years, introducing electronic declaration, ‘traffic light’ risk management etc, customs is still considered an obstacle for developing the transport market and trade in Armenia. There are some artificial obstacles imposed by customs: • Waiting time for trucks at the border crossing depends on the queues: 1 hour to 2 or even 3 days. It is around the same waiting times for rail wagons. The problems are believed to occur on the Armenian side of the border • Custom clearance procedure usually takes up to 48 hours. • Customs cannot commence clearance procedures until the cargo is physically present. This done while the cargo remains on the trucks, because unloading into warehouses would be too costly and time-consuming. • It is not allowed to put more than three consignments in one container (said to be a CIS restriction, not specific to Armenia). • In a case where several consignments are transported together, they are all delayed if one consignment fails to comply with customs requirements. The trucks picking up the other consignments will have to wait, implying extra costs for storage, late deliveries, lease of container and truck etc. It is claimed that some positive steps have been taken in recent years, for example towards harmonizing cross-border procedures with Georgia and with international standards, and reducing corruption. 4.2.3 Infrastructure and intermodal terminals Neither road nor rail infrastructure meets European standards. There plans to upgrade international transport corridors between the Georgian border and Yerevan, further to Iran, with a re- opened railway connection to Turkey. There are four railway terminals located in Yerevan (the Armenian capital, which is also the country’s major centre of industry with at least 50% of total industrial output). Three terminals are operated by national freight forwarding companies, creating a monopolistic structure for terminal operation in the country. With recovery from the global financial and economic crisis it will be necessary to expand cargo handling capacities in Armenia to meet growing demand. 4.2.4 High transport prices The transport prices in Armenia are extremely high. According to the Armenian Chamber of Commerce this is one of the obstacles to developing the country’s export potential. The main reasons for the high transport prices are the underdeveloped intermodal infrastructure and lack of competition in the market. Transporting goods from Poti to Yerevan is much cheaper by rail than by road. But due to the irregular rail services between Poti and Yerevan most cargo is trucked. Truck services are mainly provided by Georgian companies.

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4.3 Azerbaijan 4.3.1 Legal issues The dominant legal issue is the unresolved dispute with Armenia over Nagorno-Karabakh, which has caused the border between the two neighbours to be closed since 1992. This has increased the cost of Azerbaijan’s maintaining contact with the Autonomous Republic of Nakhchevan – by air and via a road link through Iran. The dispute is unlikely to be resolved soon and lies well beyond the scope of the present project, except that it will be taken into account in determining the most promising ILC sites. Azerbaijan is a signatory to many international agreements concerning international trade and transport, including the TIR Convention. But it is alleged that compliance and enforcement are weak in many areas. There are other such conventions that Azerbaijan has not acceded to, most notably: • International Convention on Simplification & Harmonization of Customs Procedures 1973. • Convention on Customs Treatment of Pool Containers Used in International Transport 1994. • United Nation Convention on the Liability of Operators of Transport Terminals in Inter- national Trade 1991. 4.3.2 Institutional issues While the private sector accounts for 95% of road transport operations, the railway and maritime sectors are dominated by state-owned enterprises: Azerbaijan State Railway (ADDY) and the shipping company CASPAR. Both are criticized by their customers for exploiting their monopoly status by providing inefficient services at high prices. In contrast, the Port of Baku is state- owned but facilities are now leased to private companies which operate them commercially. A similar situation prevails at the 4-year-old Baku (air) Cargo Terminal. There is a draft law that would create separate companies to manage railway infrastructure and operate freight and passenger services. This may open the way for private sector participation in the rail sector, with the possibility of its becoming more competitive and better capitalized. There is already functional separation of freight tariff-setting and operations, but this does not appear to have improved ADDY’s ability to operate competitively in the freight market. 4.3.3 Procedures It is acknowledged that substantial regulatory improvements have been made with respect to customs administration. However, there is still dissatisfaction with the ways in which the procedures are carried out. Operators complain of long delays at border crossings and slow operation of computer systems (installed with EC-UNDP support). It is alleged that Turkmenistan’s visa regime for drivers hampers trans-Caspian ferry operations, but that this issue is being addressed at the political level. 4.3.4 Infrastructure 75% of Azrebaijan’s roads are said to be in ‘poor condition’, imposing unnecessarily high operating costs on vehicle owners. Two specific reasons for this have bee advanced: • Road construction and maintenance standards are still based on Soviet norms, which are rigid and unresponsive to operational needs. • Azerbaijan’s legal axle load limit is relatively high at 13t. But even this high limit is not effectively enforced. Surveys show that 20% of heavy vehicles are illegally loaded.

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Because the ‘road damage factor’ varies with the fourth power of the axle load this is a major cause of road deterioration. In the railway sector too, substantial track rehabilitation and rolling stock replacement is said to be required. It has been estimated that 60% of ADDY’s capital assets are life-expired; in addition there is an imbalance between the composition of the wagon fleet and the composition of demand. Discussions are under way with IFIs, which may lead to loans for rehabilitation works and new equipment purchases. A critical decision is whether to retain the Soviet 3kV DC electrical system, which limits the range of equipment suppliers and the scope for interoperability; to convert to the more widely used 25kV AC system; or to de-electrify and rely on diesel traction. Access to the Port of Baku is through the city, causing congestion and delays. But this problem will last only until port operations are moved 70km south to the new Port of Aylat. It is generally true that intermodal and logistics facilities are poorly developed in Azerbaijan, with only low-level services offered and many companies providing for their own needs.

4.4 Georgia 4.4.1 Transport policy The Ministry of Economic Development of Georgia is responsible for transport policy in the country. So far, however, there is no state strategy and plan for the transport sector and transport infrastructure. This is an essential obstacle for planning and developing Georgia’s transport system. Vital infrastructure has been privatised without having a clear strategy for its future development. Unless this deficiency is addressed the potential synergies in the system – between ports, intermodal terminals, airports etc – will not be realised. 4.4.2 Organisational arrangements Only one issue was raised under this heading with regard to government: the inexperience of customs officers due to high turnover. Further inquiries indicated that this was a one-off problem caused by a campaign to rid the service of corrupt customs officers. One interviewee mentioned that customs officers do not work on Sundays, which may be due to understaffing, with the same underlying cause. 4.4.3 Procedural issues We heard no complaints against the Georgian Customs Service, which is well advanced in: • Introduction of EDI (using UNCTAD’s ASYCUDA software), which should be fully operational by May 2009. • Harmonized transit documentation. • Single window. • Scanning of containers. • ‘Traffic light’ risk management6.

6 The ‘traffic light’ system entails classification of cargoes by the colours red (check everything), yellow (check selectively) and green (no checking required).

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4.4.4 Infrastructure and facilities Space and access are the key infrastructural issues at Batumi and Poti Ports and the Intertrans inland freight terminal at Tblisi. The concessionaire of Poti Port , Ras Al Khaimah Investment Authority (Rakia), is developing a new port close to the existing facilities. The total area of the new port will be 400ha. An essential part of this new port is the container terminal. The Georgian government has accepted responsibility for providing rail and road access. According to the plan of the Tbilisi municipality the railway network should be relocated outside of the city. In this case the existing Intertrans terminal will become less important or perhaps redundant. The Government acknowledges that road and rail infrastructure are deficient generally, and in need of remedial investment and upgrading. The new Ministry of Regional Development and Infrastructure is charged with addressing such issues, and the Road Agency will ‘refer’ to this ministry. Its success will depend on funding, of course. In 2006 the Georgian Government started construction of the Tbilisi-Poti highway. The construction works will be finished by 2012. The project is financed partly by World Bank. On the positive side, Georgia/Turkey border facilities have been modernized and there appears to be good cooperation between the two customs services.

4.5 Moldova 4.5.1 General Moldova has many disadvantages: • It is a small, poor, predominantly rural country, with a population depleted by emigration to find employment. • It relies heavily on an industry (wine production) that has suffered badly from global overproduction, the current global recession and a recent 2-year ban on its exports to Russia because of alleged contamination. • It is almost land-locked, bordering two much larger neighbours, one of which (Romania) has the weight of the EU behind it. • The strip of land between the Dniestr River and Moldova’s eastern border is held by separatists and operated as the de facto independent state of Transdniestria. On the other hand the following advantages were also cited to us. • Because of its size, Moldova’s surplus labour can be absorbed relatively easily by other countries while it pursues a strategy of employment generation, with the focus on free economic zones. Citizens who return to take up new employment opportunities in Moldova will bring with them skills, ideas and capital from abroad. • As a small neighbor to the EU, Moldova enjoys advantages under the EU’s Autonomous Trade Preferences (ATP) scheme. • Moldova is strategically located to provide transit services between the CIS and the EU. • The new privately owned Giurgiulesti International Free Port (GIFP) 134km from the mouth of the River Danube provides an interface between (a) the Black Sea and (b) both

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the River Danube and the railway networks of Europe and the CIS7. At present it handles only petroleum products, but it is being progressively developed to handle grain and other bulk cargoes, general cargo and containers; and to incorporate an industrial free zone (IFZ). 4.5.2 Legal issues The biggest legal issue is the status of Transdniestria. However it appears to be of political rather than commercial significance. Railway services were blocked for many years, but with EU mediation they were restored in 2008 between Chisinau and Odessa via Tiraspol. Trucks and cars cross the Moldova/Transdniestria and Transdniestria /Ukraine borders with little more delay than they at the single Moldova/Ukraine border further north. The legal framework is evolving slowly in response to the needs of a modernising transport sector and the demands of private investors. The absence of laws on freight forwarding and land privatization are directly relevant to the present project. 4.5.3 Institutional issues The most recent of a series of changes to the government’s institutional structure for the transport sector is seen as retrograde by some. The Ministry of Transport has been dissolved. Most of its responsibilities now rest with the Transport Agency (also known as the Agency of Transport), which has Departments of Terrestrial Transport (road and rail), Water Transport and Aviation. Construction and maintenance of transport infrastructure are the responsibility of the Ministry of Construction. 4.5.4 Costs Moldovan hauliers suffer significantly higher costs than their EU-based competitors (chiefly Romanian) when they carry freight through EU member countries. Their ‘green card’ insurance costs are signifcantly higher and the driver must buy a visa at every border crossing. This is estimated to add around €500 per trip, depending on the number of border crossings and the competitor’s insurance costs. There are also complaints about excessive road transport charges to/from the Ukrainian ports of Odessa and Ilychevsk (a straight-line distance of about 155km). A figure of US$1,500/TEU was quoted to us, together with a comparative figure of €1,500 (equivalent to U$2,000) for Moscow- Chisinau. A specific issue was raised with respect to perishable food exports to Ukraine, which were said to suffer high rates of deterioration and loss because of border crossing delays. It was recommended that the two countries negotiate a ‘green corridor’ to allow such products to be fast-tracked.

4.6 Ukraine 4.6.1 Policy There is no official transport policy in Ukraine. A draft document is being prepared by consultants under the current TRACECA project ‘Support to the Integration of Ukraine in the Trans-European Transport Network (TEN-T)’. However there is already a Development Programme for International Transport Corridors 2006-10, which was approved by the Cabinet of Ministers in 2006. This arose from the work of

7 With dual-gauge (or mixed-gauge) track accommodating rolling-stock of standard gauge (1,435mm) and CIS gauge (1,520mm).

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International Logistics Centres for Western NIS and the Caucasus the High Level Group to develop high-priority TEN-T routes. The document includes the following stated objectives and expectations, which clearly indicate alignment with the objectives of the present project: • Integration of the Ukraine's transport system into the Trans-European network through harmonising the national transport network with EU standards and regulations. • Efficient transport support for foreign trade. • Attraction of European and Asian transit flows into Ukraine. • To render transport services according to EU standards. • To initiate development and implementation, together with neighbouring countries, of joint technologies for transit traffic and through rates. • To support intermodal traffic and open new container services routes. • To adapt the relevant regulative framework to EU standards and regulations. • To create transport-storage/retrieval logistic centres. • Growing the transit traffic volumes. • Revenues gained from rail and maritime transit services are expected to increase 20-25%. There is also an established policy of rail sector reform involving (a) corporatisation with full or partial privatization in the future; and (b) institutional separation of infrastructure, passengers services and freight services. There appears to be strong commitment to this policy, but full implementation will take some time. 4.6.2 Legal issues The perceived weaknesses in Ukraine’s legal system are general in nature. They do not relate only to the transport sector. Consequently they cannot realistically be addressed within the context of this project. They may be summarized as follows: • Normative laws made by Parliament are broad statements of intent. They are given effect through regulations, decrees (by the Cabinet of Ministers) and orders (by individual ministers). • Decrees are issued only on advice from the government agencies concerned. This advice should be given to the Cabinet of Ministers only after a process of consultation with interested parties and, in matters affecting the business community, after screening by the Council of Entrepreneurs of Ukraine. • However it is claimed that (a) regulations, orders and decrees often negate the purpose of the normative laws to which they relate, working to the advantage of the agencies that enforce the law at the expense of citizens and businesses to whom the law applies; and (b) the consultation process is ineffective, at least with regard to customs regulations. It should be added, however, the Customs Service denies this and claims that many of its proposals have had to be modified or withdrawn. • To express it in constitutional terms, there is an absence of separation of powers which leads to conflict of interest. The same agency effectively regulates, executes and audits. To put it in less formal language, the same agency makes the rules, enforces the rules and oversees to ensure that the rules have been correctly applied. • It is also claimed that current law-making is not always in the direction of greater transparency, devolution of power and encouragement of private enterprise. The draft Port Law was cited as an example. A freight forwarding law exists, to which the forwarding industry had input. A decree is now being prepared to give effect to the law. It will include a provision for the Customs Service to

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International Logistics Centres for Western NIS and the Caucasus categorise enterprises on the basis of their reliability, with a black-list (always to be checked), a white-list (never or rarely to be checked) and lists of intermediate colours. We understand from some sources that such a system is operated informally already, with quick and easy clearance for the cargoes of firms that have a god record of accurate and complete documentation and no ‘black marks’ against them. There is no law specifically dealing with logistics centres, but it is the expert view that existing laws governing customs services, bonded warehousing etc provide a sufficient legal framework. 4.6.3 Customs Many negative comments were received from transport operators about the Customs Service in Ukraine. They claimed that customs procedures were unnecessarily slow and burdensome, contradicted the intent of the law and imposed heavy costs on consignors/consignees. During a meeting with customs officials the following position was voiced: • Clearance is usually quick and easy if a correct declaration is made, with correct supporting documentation. For example a container can be cleared within 1 hour. (One logistics company confirmed this to us.) • In some cases the Customs Service is blamed for delays caused by other departments’ procedural requirements – for example veterinary, phytosanitary, radiological and ecological. • E-declarations are now possible, since a law was passed in 2008. Several companies are submitting them but most lack the necessary equipment, lack electronic signatures or see no advantage. • In many cases declarants make incorrect declarations or present incomplete or incorrect documentation. Common faults are: incorrect nomenclature, under-valuation and under- statement of quantities. • More than 1,000 containers are stored at ports at present because consignees under- declared and are unwilling to pay duty on the corrected values. • Only 5% of containers are physically inspected at entry points, and the percentage is lower for transit cargo. • Constantza Port has fewer ship-calls than Odessa/Ilychevsk because of its tougher customs procedures. • The Customs Service is currently working with the 44 shipping lines that use Odessa/ Ilychevsk to complete a Cooperation Agreement whereby the Customs Service would get ‘preliminary information’ about the cargoes being carried. • Some transit cargoes have values so high that the present TIR carnet guarantee level is unacceptably low. This is under review internatonally. • The Deputy Director of the Customs Service is the current Chairman of the Executive Committee of IRU, the body responsible for ensuring TIR compliance. In addition there are concerns about: • Discrepancies between customs regulations or procedures and he TIR Convention. These result, for example, in more documents than the TIR carnet being required when transit cargo enters Ukraine. • Duplication of effort by Customs Service because procedures have to be implemented at the border and at inland customs posts. • A discriminatory rule adopted by the IRU (which administers the TIR system) from 1 January 2009, requiring e-carnets for TIR cargoes entering EU countries.

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4.6.4 Facilities and services Among the potential ILC sites nominated in our TOR, Odessa Port presents the biggest problems with respect to facilities, services and limited space for extension. The average container dwell-time within the port is said to be 13-14 days, partly due to limited space. Therefore a private investor (Euro Terminal LLC) has developed an inland freight terminal west of the port territory and linked to it by a private elevated road. However, many terrestrial border posts as well as sea-ports were designed during the Soviet era when all or most traffic was domestic, not international. Therefore they were designed in such a way that efficient international cargo handling and traffic management is difficult. There is a programme of border post upgrading under way, with video security and X-ray machine being installed at customs posts to bring them to EU standard. The programme is on hold at present because of budgetary constraints. But 10 X-ray machines have already been provided by the US Government and installed a western border posts and sea ports. At some locations their productivity is below their rated capacity because of space constraints. Training of staff is under way, on completion of which all will be operational.

4.7 Bulgaria 4.7.1 Institutional issues We have heard complaints from the management of the Port of Varna against the Executive Agency Port Administration, which is a corporate body of the Ministry of Transport. There is a lack of involvement of the port management in decision making. Decisions regarding infrastructure development, tariffs and other important issues have been made in Sofia by the Port Administration. The management of the Port of Varna was of the opinion that the port’s requirements have not been fully taken into consideration by the authorities in Sofia. 4.7.2 Customs There are some problems created with customs clearance procedures. Since Bulgaria’s entrance into the EU the volume of customs bonded cargo has decreased greatly. For this reason the Customs Administration has become less important. It is alleged that the Customs Administration is trying to retain power by means of artificially created problems. 4.7.3 Infrastructure and facilities – land transport and logistics In spite of several implemented projects in the road sector the existing road network does not meet international standards. In particular: • The main problem is the chronic lack of maintenance funds and previously postponed repair works. • The Bulgarian Government is concentrating on the completion of main highways and reconstruction and rehabilitation of road sections along the Trans-European Transport Corridors. Other parts of the road network, which may also need improvement, are accorded lower priority. • The existing road network has a lack of bypass roads around the main Bulgarian cities and many road sections with poor technical parameters that do not meet EU standards. • The road connection between Varna/Bourgas and Sofia is in poor condition and does not have sufficient capacity. The technical condition of the railway is underdeveloped and there is an unsatisfactory level of maintenance. The freight forwarders complain against the slowness of railway services. One of

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International Logistics Centres for Western NIS and the Caucasus the main obstacles to the efficiency of the railway is an absence of regular rail connections between the main industrial and high density regions in Bulgaria. Intermodal infrastructure is unsatisfactory. In particular the existing intermodal terminals suffer from: • A low level of maintenance. • Outdated technology and equipment. • Lack of expertise in terminal management and administration. • Generally low customer satisfaction with the railway terminals operated by Bulgarian State Railways (BDZ). The Ministry of Transport of Bulgaria is planning to develop a new railway container terminal in Sofia. A 73ha plot of land has been identified close to the city centre. The planned location has good connectivity to road and rail but no potential for future expansion. Implementation of an intermodal terminal at this location might have a negative impact on traffic in the city, being within the city limits. 4.7.4 Infrastructure and facilities – Black Sea ports The Bulgarian Black Sea of Varna and Bourgas both have a lot of free capacity at the moment due to the global financial and economic crisis. It may also be partly due to some observed weaknesses that have eroded their competitiveness, in particular: • Lack of specialised terminals. • Absence of regular block trains between the ports and the principal container destinatons. • Lack of competition in the road transport sector, leading to high prices: for example €600- 700 to transport a container from Varna to Sofia (a distance of 469km). Individually the ports have distinct characteristics. Varna has: • Generally poor technical parameters with respect to its internal infrastructure. • Outdated technology and equipment. • No regular railway services, so that 100% of cargo is trucked. Bourgas has: • Generally well maintained infrastructure. • The country’s largest bulk cargo facility, for ammonium nitrate, which has not yet begun operation.

4.8 Romania 4.8.1 Legal and policy issues At present there is no legal basis for ILCs, and there is no formal statement of policy for the transport sector yet. Both issues are being addressed by the Ministry of Transport, which is preparing the Romania Transport Strategy. This document is expected to: • Emphasise the need for improved intermodal and logistics services. • Provide for a legal framework to realize that improvement. • Open the way for new opportunities for public-private partnership (PPP). Land acquisition for ILCs should not present a problem. For projects of national importance the central government has responsibility and legal powers to acquire land.

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4.8.2 Customs The Romanian Customs Administration is a constituent of the National Customs Agency, which reports to the Interior Ministry. In general it is said to work efficiently and honestly. Discussions are under way between the Customs Administration and UNTRR about establishing a port information system. However, complaints have come from transport operators that customs clearance procedures take too long, the main reason being the Customs Administration’s practice of physically inspecting an unreasonably high proportion of cargoes. One source alleged that 100% of cargoes are inspected, but this is unverified. 4.8.3 Facilities and services The most serious obstacles to developing Romania’s international trade and transport activities are related to infrastructure, in particular railway infrastructure. In 1998 the Romanian Railways National Company (SNCFR) was split into five separate entities: • Autoritatea Feroviară Romănă (Romanian Railway Authority, AFER) which regulates the rail sector on behalf of the Ministry of Transport, to which it is subordinate. • Compania Natională de Căi Ferate ‘CFR’ SA (National Railway Company, CFR) which owns, maintains and operates the railway network. • CFR Călători SA which operates passenger services. • CFR Marfă SA which operates freight services, including intermodal terminals and railway ferries. • Informatică Feroiară which provides IT services to the rail sector. Except for AFER, these are all commercial companies with the possibility of coming under private ownership, at least partly. For example, it is CFR Marfă’s present intention to sell 49% of the equity in the branch of its business that provides delivery by road from its terminals. No inquiries were made regarding passenger services. But the view of freight transport operators is that the railway network and CFR Marfă’s assets suffer from under-investment and inadequate maintenance. More specifically: • Infrastructure and superstructure at the CFR Marfă freight terminals in Bucharest are in need of renovation and upgrading. • Intermodal connectivity is weak, which has led to rail losing market share to road, which has the inherent advantage of flexibility and a record of reliablity. • The two ferries that carry railway wagons between the ports of Constantza and Derince (Turkey) are more than 25 years old and consequently have high operating costs (excessive crew requirements, high fuel consumption and high overhead expenses). This threatens the commercial viability of the ferry operation. The reasons for under-investment and inadequate maintenance have not been explored. They may be related to the continuing full public ownership of the CFR family of companies, and consequent (a) limited access to capital and/or (b) limited flexibility to negotiate tariffs and other conditions with customers to ensure adequate asset utilisation and cash flow.

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4.9 Turkey 4.9.1 General A dynamic logistics industry, combined with a large international road vehicle fleet, are indicative of Turkey’s potential to become a significant logistics location and an important transit country in the TRACECA region. Turkey scores the best among all TRACECA countries in the World Bank’s Logistics Perform- ance Index, demonstrating reasonable efficiency in organisation of the logistics processes. International players are increasing their presence in the country. All major international logistics companies are already active in Turkey. The intensifying competition being fuelled by their presence is leading to significant quality improvements in the services being offered and a constantly rising service standard. In the field missions, the interviewed operators mainly pointed out the barriers and bottlenecks experienced in the TRACECA countries. Within Turkey, physical infrastructural problems were rated more significant than ‘soft barriers’ related to legislation, procedures, institutions etc. 4.9.2 Trade facilitation aspects Turkey has committed itself to reforms, good neighbourly relations and progressive alignment with the EU accession requirements. Transport facilitation and promotion of the free flow of goods indicators of Turkey’s performance in this respect. The European Parliament’s Resol- ution of 12 March 2009 states the following with regard to Turkey’s progress in 2008. • Number of commitments made by Turkey within the EC-Turkey customs union remain unfulfilled, distorting bilateral trade relations and causing decrease in freight flows. • Greater trans-border cooperation between local authorities and businesses with the neighbouring EU members Greece and Bulgaria took place. • Favourable climate to the normalisation of relations between Armenia and Turkey was welcomed, Turkish government is appealed to re-open its border with Armenia and to restore full economic and political relations with Armenia. These indicators are all relevant to improving trade and transport facilitation on the Europe-Asia transport axis. 4.9.3 Transit The international freight forwarders pointed out the problems with restrictions imposed on the transit quota of road transport permits. Such restrictions pose obstacles to road transport operators and reduce the amount of traffic in transit via Turkey to the Caucasus and Central Asia. This also discourages TRACECA road transport operators from Black Sea countries from using a transit route via Turkey. The Turkish government addressed this subject together with the UNECE Inland Transport Committee. A special task force was proposed to explore the disadvantages of the transit regime related to such permits. According to the UNECE website8 as of February 2009, the establishment of such a task force is envisaged but not yet implemented. Turkish operators have started to develop Ro-Ro services to provide alternatives to road transit. In addition to this, through the additional and multi-entry permits (such as ECMT Licences) obtained during the year, it is hoped to minimise the shortage of permit quota in the country.

8 http://www.unece.org/trans

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4.9.4 Intermodal transport Road is traditionally a better developed mode of transport in Turkey. The domestic consignors and consignees say that most of their cargo is transported by road. The global freight forwarding companies also point out the predominance of the road sector transport and lack of intermodal solutions. Turkey needs to develop intermodal transport solutions that can rapidly yield results of transport chain efficiency without losing the advantages of its competitive road transport system. International road transport operators have adapted to the international context by implementing innovative solutions which combine road, sea and Ro-Ro transport. However, the southern regions of Turkey as main exporting areas for the Black Sea ports are not efficiently connected to the railway network. The producers of vegetables and citrus fruits do not possess container handling facilities, so resort to the costlier transportation of classical container goods by truck. The railway sector has shown less inclination to adapt to the requirements of intermodal transport. The railway network has insufficient capacity and many parts of the infrastructure are underdeveloped. The existing railway network is concentrated on a few major routes, so railway services are available only in certain areas and between certain cities. Regulatory reform, innovative solutions and investments in a range of infrastructure projects are aimed to bridge this gap. Nevertheless, it is important that railway operators have a clear vision on market needs and development opportunities. Maritime transport is one of the most liberalised sectors in Turkey, with a strong private shipping sector. Major ports are accessible by railways. Turkey has five ports which have been registered as international ports/ferry links and container terminals by the European Agreement on Main International Combined Transportation Lines and Related Facilities (AGTC). Public ports however show a lack of motivation to cope with growing demand for services, supporting logistics and value-added activities in the port areas. The process of commercial- ization of port services should subsequently improve service capacity and efficiency. Consignors have pointed out that bottlenecks have an impact on the operators’ service level and costs. For instance, the management of the Organised Industrial Zone (OIZ) has pointed out that the temporary closure of the railway link at Izmir Port has delayed commencement of operation of the new logistics facility at Manisa. The port managers in Haydarpasha port mentioned a capacity problem for storage of empty containers in the port terminals. However, they did not recognise an obvious congestion problem at the port entrance. Operational safety standards in the container ports are not fully in compliance with European Standards (for example persons were observed walking in operational areas).

5 PROPOSALS FOR ACTION PROGRAMME FORMULATION Formulation of the action programme should focus on issues that pose significant potential obstacles to ILC development, and on solutions that are achievable. Earlier TRACECA studies have identified needs and recommended actions, many of which have been or are being implemented. Others have proved too difficult, for example the TRACECA visa, permit and hotline. We do not propose to pursue those.

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Nor do we propose to pursue organizational and administrative issues that arise from the various governments’ constitutional arrangements, legal systems or structures. These are significant in some cases but it would be unrealistic to suppose that meaningful changes could be brought about within the narrow context of international trade and transport. They are broader in nature. The significant issues, which may have achievable solutions, fall under the following general headings and are discussed in subsequent sections: • Legal and regulatory. • Procedural. • Corruption. • Operating costs. • Infrastructure and equipment.

5.1 Legal and Regulatory There appear to be a number of legal and regulatory deficiencies that would pose potential obstacles to the development of ILCs. The most significant ones relate to: • Contradictions between national laws and international conventions, for example the TIR Convention. • Contradictions between national laws and the regulations that are intended to give effect to them. This is common in countries with a Soviet legal tradition, where normative laws are framed in general terms as a guide for subsequent regulations, decrees and orders. • The legal framework for multi-purpose logistics centres, intermodal transport and transit transport. It may be necessary, where the law does not make specific provision for such services, to make new laws or amend existing laws. In most cases, however, it is likely that existing laws and regulations can accommodate novel situations; but authorities may need advice on their interpretation. • The legal framework for public-private partnership, which is not a familiar concept in all countries. This encompasses issues of land ownership; the co-existence of activities that are governed by different laws (eg customs bonded warehousing, temporary storage, hazardous goods handling, manufacturing); relationships between ILC managers, private tenants and public regulators; and financial arrangements. There is great variation between the beneficiary countries, so these issues will have to be addressed on a country-specific basis. We propose that our International Legal Expert should visit beneficiary countries where substantial legal and regulatory issues have been identified in order to meet relevant officials and others as advised by the TRACECA National Secretaries.

5.2 Procedural It is clear that procedures are not always in accord with the law or even with the regulations of the organizations involved. By far the most common complaints have been against customs authorities and concern demands for excessive documentation, unnecessary physical inspections and procedures that impose costly delay on the transport industry. However, there is evidence that the situation is improving in most countries. The transport lobby has become better organized and more influential; the customs brokerage industry is developing in size and professionalism; and there is a growing realization among governments that efficient, expeditious border procedures are an aspect of a country’s competitive profile.

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We are furthest advanced in Ukraine in defining problems, their causes and possible remedial measures. This is because the team includes a Ukraine-based Customs Expert. We intend to continue this exercise in Phase 2 and extend it to other countries where procedural issues have emerged. Locally engaged consultants would do the work under the direction of Key Expert No.3, with the Ukrainian work as a model.

5.3 Corruption Corrupt practices were mentioned almost everywhere as an obstacle to international trade and transport, and to doing business generally. As explained in Chapter 4, we have kept our discussion of this important issue at the regional level, without a country-specific analysis. The authorities in each country are aware of the problem, where it exists and how it should be addressed. There are programmes to address it, in some cases with external financial support and/or technical assistance. While corruption may be particularly common and damaging in the areas of border control and customs enforcement, it pervades the regional economies and political structures. Attempting to find solutions within the narrow context of this project is unlikely to be fruitful. Therefore we do not propose to address it specifically in Task A2. However, it is certainly relevant to the selection and appraisal of alternative ILC locations. We therefore propose to include a measure of corruption (at least the TI national scores as shown on page 16) in the multi-criteria analysis.

5.4 Operating costs In the course of our interviews we have gathered incomplete information that generally supports the contention that transport costs are higher than they should be in the Black Sea region. The ways in which high costs are manifested are listed on page 16. The causes are diverse and include: • Low levels of competition. • Irrational tariff-setting in an imperfect market. • Inefficiencies and delays imposed by regulations, border procedures, discriminatory treatment of foreign vehicles and/or drivers etc. • Poor transport infrastructure resulting in long journey times and high operating costs. Again, many of the issues are wider than the scope of this project. We propose to consult with TRACECA National Secretaries to identify specific causes of excessive transport costs that particularly impact international and transit freight traffic, and concentrate our effort on formulating realistic, practicable proposals to address those.

5.5 Infrastructure and Equipment Infrastructural deficiencies are the most commonly cited issues. Interestingly, this was also the case in a survey and study conducted by PriceWaterhouseCoopers on the EC’s behalf two years ago9. Their findings including the following: “ … the most important bottlenecks are represented by the inadequacy of physical infrastructures (49,8%). … Mainly in the road transport, stakeholders highlighted missing links

9 ‘Preparatory Study for an Impact Assessment on a EU Freight Logistics Action Plan’ for EC Directorate General Energy & Transport, April 2007.

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and physical bottlenecks (54%), capacity scarcity and congestion problems (34%). Lack of interoperability (12%) has been stressed in the railways.” In many cases the deficiencies can be attributed to institutional/managerial causes, such as: • A weak or fragmented planning function. • Inadequate public funding for maintenance, rehabilitation and/or upgrading. • Systems of ownership and control that have not adapted to changing economic and competitive realities. This is true mainly of railways, associated handling facilities and ports. These causes come into the category of ‘too broad to be addressed within the context of a narrowly focused study’. In any case they are already known and courses of action have already been recommended and in some cases are known to be in the course of adoption and implementation. Other deficiencies are site-specific, such as: • Infrastructure whose Soviet-era design and location are no longer appropriate to their use. For example, many border facilities and ports are unsuited to handle large volumes of international traffic, now largely containerized, having been designed mainly for traffic that was internal to the USSR and other Comecon member countries. • Road or rail bottlenecks, especially where ports and terminals are sited within urban areas. We propose to pursue these issues only in Phase 3, when the ILC sites have been selected. In Phase 2 the existence of site-specific problems may influence that selection.

5.6 Action Programme Format We propose to formulate the action programme according to the matrix in Table 3 below. Table 3: Proposed Action Programme Format COUNTRY / Issue Action Priority Responsibility Timeframe ARMENIA AZEBAIJAN GEORGIA MOLDOVA UKRAINE BULGARIA ROMANIA TURKEY REGIONAL Source: Consultant.

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