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Technical Assistance Consultant’s Report

Project Number: 37691-01 December 2006

Uzbekistan: Transport Sector Strategy 2006–2020 (Financed by the Japan Special Fund)

Prepared by PADECO Co., Ltd. Tokyo, Japan

For Uzbek Association of Transport and Transport Communication

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design.

Asian Development Bank December 2006 TA4659-UZB

Transport Sector Strategy

Final Report

Islohotkonsaltservis Ltd. TA 4659-UZB Transport Sector Strategy Final Report

Abbreviations and IMF International Monetary Fund IRU International Road Transport Union Acronyms ISO International Standards Organisation IT Information Technology AC alternating current ADB Asian Development Bank ADR European Agreement Concerning JBIC Japan Bank for International Cooperation the International Carriage of JV Joint Venture Dangerous Goods by Road KfW Kreditanstalt für Wiederaufbau AIFU Association of International km kilometres Freight Forwarders of LLE Limited Liability Enterprise AN Antonov mm millimetres ANS Air Navigation Services MOF Ministry of Finance ASA Air Service Agreement MOFER Ministry of Foreign Economic Relations, Investments ATC Air Traffic Control and Trade CACOM Common Market in MOI Ministry of Interior CAREC Central Asia Regional Economic MOT Ministry of Transport Cooperation MRC Malaysian Shipping Corporation CARs Central Asian Republics MTT International Transit Tariff CFS Container Freight Station MV motor vehicle CIF carriage insurance freight NAC National Air Company CIS Commonwealth of Independent O&D Origin and Destination States OOCL Overseas Orient Shipping Line Ckd completely knocked down ORR Outer Ring Road (vehicle) OSZhD Committee for Organisation for Cooperation CSATTF Central and South Asia Transport between Railways and Trade Forum OTIF Intergovernmental Organisation for International CSP Country Strategy and Programme Carriage by Rail DFR Draft Final Report Pass. Passengers EA Executing Agency p.km passenger kilometres EBRD European Bank for Reconstruction PPP Public Private Partnership and Development PPTA Project Preparation Technical Assistance EC European Commission PSO Public Service Obligation ECO Economic Cooperation PSP Private Sector Participation Organization RD Road Corridor ECOTA ECO Trade Agreement RL Road Corridor EMUO Equipment and Management and SAC State Air Company Utilization Organization SCO Shanghai Cooperation Organisation ESCAP Economic and Social Commission SJSC State Joint Stock Company for Asia and the Pacific SOE State Owned Enterprise EU European Union sq. square EurAsEC Eurasian Economic Community SSC State Stock Company FIATA International Freight Forwarders SWOT Strengths–Weaknesses–Opportunities – Threats Association TA Technical Assistance FOB free on board TACIS Technical Assistance for CIS Countries GDP Gross Domestic Product TAU Transport Authority of Uzbekistan HGV heavy goods vehicle TIR Transports Internationaux Routiers HP horse power t.km tonne kilometres HR human resources TOR Terms of Reference JSC Joint Stock Company TORR Outer Ring Road ICAO International Civil Aviation TRACECA Transport Corridor Europe-Caucasus- Organisation Asia ICD Inland Clearance Depot TTFA Transit Transport Framework IDB Islamic Development Bank Agreement IFRS International Financial Reporting TTTM Tashkent tram, trolleybus and metro Standards TU Tupolev IKS Islohotkonsaltservis TUPTA Tashkent Urban Passenger Transport Authority IL Ilyushin

PADECO/IKS Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report

TUTS Tashkent Urban Transport Services

UARRT Uzbek Agency for Road and River Transport UCAA Uzbekistan Civil Aviation Authority UIC International Union of Railways UIFFA Uzbekistan International Freight Forwarders Association UK United Kingdom of Great Britain and Northern Ireland ULD unit load device UNECE United National Economic Commission for Europe US United States US$ United States dollars USSR Union of Soviet Socialist Republics UTACA Uzbek Association for Transport and Transport Communications UTY Uzbekistan Temir Yullari (Uzbek Railways) UzA Uzbekistan Airways UZB Uzbekistan VAT Value Added Tax WTO World Trade Organisation YAK Yakovlev

3PL third party logistics

Rate of Exchange – 1 Dec. 2006

US$1 = Soum1240

PADECO/IKS Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report

Contents 3.6.1 Domestic Road Freight 3.6.2 Domestic Road Passenger 3.6.3 International Road Freight 1. INTRODUCTION 3.6.4 International Bus Services 1.1 Reporting and Study Activities - 3.7 Rail Services – 37 1 3.7.1 Rolling Stock 1.2 Contents of Final Report – 2 3.7.2 Domestic Freight 1.3 Contacts and Bibliography - 2 3.7.3 International Freight 1.4 Acknowledgements -3 3.7.4 Intermodal 3.7.5 Domestic Passenger 2. ECONOMY AND TRANSPORT 3.7.6 International Passenger DEMAND 3.8 Air Services - 40 3.8.1 Uzbekistan Airways 2.1 Economic Recovery 1991-2006 - 3.8.2 Other Airlines 4 3.8.3 Airport Services 2.1.1 GDP, Income and Trade 3.9 Logistics - 43 2.2 Output by Sector - 6 3.9.1 Freight Forwarding 2.2.1 Vehicle Production 3.9.2 Logistics Centres 2.2.2 Energy Resources 3.10 Inland Waterways Services - 45 2.2.3 Cotton and Other Agriculture 3.11 Urban Transport - 46 2.2.4 Industry 3.11.1 Tashkent 3.11.2 Other Cities 2.3 Economic Forecast 2006-20 - 8 2.3.1 Short Term Forecast 3.12 Institutional Responsibilities - 49 2.3.2 Long Term Forecast 3.13 Legal and Regulatory Position - 49 2.3.3 GDP/Capita Forecast 3.13.1 Cross-Cutting Law 2.3.4 Population Forecast 3.13.2 Road Infrastructure 2.4 Transport Demand 1996-2005 - 3.13.3 Road Transport Services 3.13.4 Rail 11 3.13.5 Aviation 2.4.1 Road 3.13.6 Logistics 2.4.2 Rail 3.13.7 Inland Waterways 2.4.3 Aviation 3.13.8 Urban Transport 2.4.4 Urban Transport

2.5 Transport Demand 2006-20 - 19 2.5.1 International and Regional 4. SECTOR CHALLENGES Developments 4.1 Road Infrastructure - 63 2.5.2 Demand Elasticities 4.1.1 Common Use/Other Roads 2.6 Demand by Mode 2006-20 – 21 4.1.2 International Road Corridors 2.7 Impact of Demand Growth - 23 4.2 Rail Infrastructure - 66 4.2.1 Corridors and Transit 3. TRANSPORT SECTOR 4.2.2 Neighbouring Infrastructure CURRENT STATUS 4.2.3 River Amudarya Bridge 3.1 Overview - 24 4.2.4 New Lines 4.2.5 Kyrgyz-China Corridor 3.2 Road Infrastructure - 24 4.3 Aviation Infrastructure - 67 3.2.1 Network 4.3.1 Airport Operations 3.2.2 Road Corridors 4.3.2 Regional Airports 3.3 Rail Infrastructure - 28 4.3.3 Domestic/International Terminals 3.3.1 Network 4.3.4 Security and Operations 3.3.2 International Links 4.3.5 Terminal Design 3.3.3 Corridors 4.3.6 Service Scheduling 3.4 Aviation Infrastructure - 32 4.3.7 Cargo 3.5 Inland Waterways 4.3.8 Transit Terminal Infrastructure- 33 4.3.9 Tashkent Airport Relocation 3.5.1 Waterways 4.4 Inland Waterways Infrastructure - 69 3.5.2 River Ports 4.4.1 Buildings and Equipment 3.6 Road Services - 34 4.4.2 Development Needs

PADECO/IKS Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report

4.5 Road Transport - 70 7.3 Policy Framework - 113 4.5.1 Truck Fleet Replacement 7.3.1 Policy and Strategy 4.5.2 Spare Parts 7.3.2 Legacy and International Issues 4.5.3 Fleet Profile 7.3.3 Conflicts Between Objectives 4.5.4 Taxation 7.4 Guiding Principles - 115 4.5.5 International 7.5 National Strategy - 116 4.5.6 Passenger Transport 7.6 Ferghana Valley Links - 116 4.6 Rail Transport - 74 7.6.1 Road Links and Services 4.6.1 Domestic Freight 7.6.2 Rail Links and Services 4.6.2 International Freight 7.6.3 Air Links and Services 4.6.3 Intermodal 7.6.4 Transit through 4.6.4 Domestic Passenger 7.7 Actions - 117 4.6.5 International Passenger 4.7 Air Services - 79 8. STRATEGY FOR ROADS AND 4.7.1 Uzbekistan Airways ROAD TRANSPORT 4.7.2 Other Airlines 4.7.3 Airport Services 8.1 Road Infrastructure - 119 4.8 Logistics - 83 8.1.1 Urban and Rural Roads 8.1.2 International Corridors 4.8.1 Freight Forwarding 8.1 3 Border Infrastructure 4.8.2 Logistics Centres 8.2 Road Freight Services - 121 4.9 Inland Waterways Services - 89 8.2.1 Imports of New/Used Vehicles 4.10 Urban Transport - 91 8.2.2 Spare Parts 4.10.1 Metro 8.2.3 Fleet/Operator Profile 4.10.2 Trams 8.2.4 International Market Access 4.10.3 Trolleybuses 8.2.5 International Agreements 4.10.4 Other Cities 8.2.6 PermitArrangements Legislation 4.11 Institutional Issues - 92 8.2.7 Institutional Arrangements 4.12 Legal and Regulatory Issues - 93 8.3 Road safety - 125 8.4 Road Passenger - 126 5. STRENGTHS, WEAKNESSES, 8.5 Actions - 126 OPPORTUNITIES AND

THREATS 9. STRATEGY FOR RAILWAYS AND 5.1 SWOT Analysis - 94 RAIL TRANSPORT

6. NATIONAL/INTERNATIONAL 9.1 Rail System Management - 129 9.1.1 System Rationalization AGENCIES 9.1.2 System Sustainability 6.1 Introduction – 105 9.1.3 System Development 6.2 Government Policy and the Draft 9.2 Development of International Corridors - 130 Concept - 107 9.2.1 New Initiatives 6.3 ADB Strategy and Assistance- 9.2.2 Amudarya Bridge Turkmenistan 108 9.2.3 Link to China 6.3.1 Assistance to Date 9.2.4 Border Facilities 6.3.2 Country Strategy and 9.3 Freight Services - 132 Programme 9.3.1 Developing/Protecting Markets 6.3.3 Regional Transport Sector 9.3.2 Quality of Service Strategy 9.3.3 Scope of Service 6.3.4 CAREC 9.3.4 Tariffs 6.4 Other International Assistance - 9.3.5 Marketing 111 9.4 Intermodal Services - 135 9.4.1 Quality of Service 9.4.2 Block Trains 7 NATIONAL STRATEGY 9.4.3 Traffic Imbalances 7.1 Introduction – 113 9.4.4 Through/Combined Bills of Lading 7.2 Strategy for Central 9.4.5 Intermodal Forwarding Asia/Uzbekistan -113 9.5 Passenger Services - 137

PADECO/IKS Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report

9.6 Actions - 137 12 STRATEGY FOR INLAND WATERWAYS 12.1 Inland Waterways - 153 10. STRATEGY FOR AVIATION 12.1.1 Role 10.1 Airports - 139 12.1.2 Security Issues 10.1.1 Airport Management 12.1.3 Infrastructure 10.1.2 Network Rational 12.1.4 Vessels 10.1.3 Dom/Int Terminal 12.1.5 Labour 10.1.4 Security and Operations 12.1.6 Master Planning 10.1.5 Design Issues 12.1.7 Logistics Centre 10.1.6 Cargo 12.2 Actions - 155 10.1.7 Transit Terminal 10.1.8 Privatization 13. STRATEGY FOR URBAN TRANSPORT 10.2 Airport Services - 140 13.1 National Level – 156 10.2.1 Monopoly 13.1.1 Government Policy and Strategy 10.2.2 Quality of Service 13.2 City Public Transport - 158 10.2.3 Catering 13.2.1 Metro 10.2.4 Retailing 13.2.2 Trams 10.3 UzA Airline Services - 142 13.2.3 Trolleybuses 10.3.1 Objective 13.3 Tashkent Ring Roads - 159 10.3.2 Relations With Government 13.3.1 Traffic Management 10.3.3 Domestic Services 13.3.2 Safety Audit 10.3.4 Booking System 13.3.3 Signposting and Road Marking 10.3.5 Interlining 13.3.4 Increasing Capacity and Land Use 10.3.6 Transit Passengers 13.4 Traffic Management and Parking - 161 10.3.7 Quality of Service 13.4.1 Traffic Management 10.4 Foreign Airline Services - 143 13.4.2 Parking 10.4.1 Demand 13.5 Actions - 164 10.4.2 Major Carriers 10.4.3 Cargo 14. STRATEGY FOR INSTITUTIONAL 10.5 Actions - 144 RESTRUCTURING AND HR

14.1 Introduction - 165 11 STRATEGY FOR LOGISTICS 14.2 Institutional Restructuring - 166 AND FREIGHT 14.2.1 Ministry of Transport FORWARDING 14.2.2 Future Sector Structure 11.1 Logistics - 146 14.2.3 Other Sector-Level Considerations 11.1.1 Supply Chain Management 14.3 Modal Institutional Issues - 170 11.1.2 Third Party Logistics 14.3.1 Road Providers 14.3.2 Rail 11.2 Logistics Centres - 147 14.3.3 Aviation 11.2.1 Demand 14.3.4 Inland Waterways, Logistics 11.2.2 Function and Urban Transport 11.2.3 New and Existing Facilities 14.4 Privatization and Role of Private Sector - 176 11.2.4 Modal Selectivity and Siting 14.4.1 Private Sector Participation Profiles 11.2.5 Consultation 14.5 HR Development and Capacity Building - 179 11.2.6 Attracting Investment 14.6 Actions - 180 11.3 Freight Forwarding - 149 14.6.1 Sector Level 11.3.1 Foreign Forwarders 14.6.2 Roads 11.3.2 Scope of Services 14.6.3 Rail 11.3.3 Legislation 14.6.4 Aviation 11.3.4 Capacity Building 14.6.5 Training 11.3.5 Institutional Arrangements 14.6.6 Investment and Private Sector 11.4 Actions - 151 Participation

PADECO/IKS Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report

15. STRATEGY FOR T2-11 Passenger Volume 2005 LEGISLATION AND T2-12 Road Traffic Volumes 1996-2005 REGULATION T2-13 Road Volume Indices 1996-2005 15.1 Overview - 188 T2-14 Cross Border Road Traffic 1998-2002 15.2 Cross-Cutting Law - 188 T2-15 Cross-Border Truck Traffic by Crossing point 2003-2005 15.2.1 UTACA/MOT T2-16 Rail Freight Traffic 2001-05 15.2.2 Investment Promotion T2-17 Rail Passenger Traffic 2001-05 15.3 Road Infrastructure - 188 T2-18 Transit Traffic by Commodity 2003 15.3.1 International Agreements T2-19 Container Traffic 2005 15.3.2 Domestic Law T2-20 Airport Passengers 2000-05 15.4 Road Transport Services - 189 T2-21 UzA Traffic 1996-2005 15.4.1 International Agreements T2-22 Tashkent Public Transport 2001-05 15.4.2 Domestic Law T2-23 Transport Volume 2005-20 15.5 Rail - 192 T2-24 Rail Traffic 2006-10 11.5.1 International Agreements T2-25 Air Passenger/Cargo Forecast 2005-20 11.5.2 Domestic law 15.6 Aviation - 193 T3-1 Road Lengths 15.6.1 International Agreements T3-2 Road Corridors 15.6.2 Domestic Law T3-3 Rail Corridor 15.7 Logistics - 194 T3-4 Airport Facilities and Traffic 15.8 Inland Waterways - 195 T3-5 Truck Fleet Age and Capacity 15.8.1 International Agreements T3-6 UTY Rolling Stock Age 15.8.2 Domestic Law T3-7 UzA Route Network 2006 T3-8 Foreign Airlines Services 16. INVESTMENT T3-9 Tram Routes 16.1 Investment strategy - 196 16.2 Investment Funding - 196 SWOT Analysis: T5-1 Transport Policy and Strategy 16.3 Road Investment programme - T5-2 Common Use Roads 202 T5-3 International Road Corridors 16.4 Railways Investment - 205 T5-4 Domestic Rail Network 16.5 Aviation - 208 T5-5 International Rail Corridors 16.6 Urban Transport Investment – T5-6 Aviation Infrastructure 209 T5-7 Inland Waterways 16.7 Inland Waterways - 210 T5-8 Domestic Road Transport T5-9 International Road Transport 17. ACTION PLAN T5-10 Domestic Rail Freight 17.1 Modal Plans – 211 T5-11 Rail Passenger T5-12 International Rail Freight

T5-13 Intermodal Services 18. SECTOR ROADMAP T5-14 Uzbekistan Airways T5-15 Other Airlines

T5-16 Airport Services Tables T5-17 Freight Forwarding T1-1 Input in Uzbekistan T5-18 Logistics Centres T5-19 Metro T2-1 Foreign Trade 1996-2004 T5-20 Trams T2-2 Per Capita Income by Region 2004 T5-21 Trolleybuses T2-3 Employment by Sector 2004 T5-22 Institutional Issues T2-4 Volume of Production 2002-04 T5-23 Legal and Regulatory Issues T2-5 Budget Economic Forecast 2006 T2-6 GDP Forecasts 2006-07 T6-1 ADB Rail Sector Interventions T2-7 Mapping Future Prospects to 2015 T6-2 CSP-National Priorities T2-8 Growth in GDP/Capita 2006-20 T6-3 CSP-Key Transport Problems T2-9 Population by Region 2000-20 T2-10 Freight Volume 2005 T13-1 Public Transport Service Issues

PADECO/IKS Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report

T13-2 Parking Policy Conventions Acceded to III-10 Bilateral Air Service Agreements T14-1 Establishing a Ministry of Transport III-11 General Structure of Air Code T14-2 MOT Road Initiatives III-12 Summary of Selected Proposed T14-3 UTY Management Accounting Amendments to Air Code T14-4 Secondary Benefits of PSO Support III-13 Air Secondary Legal Instruments T14-5 Measures to Realize PSP III-14 Typical Provisions of Open Skies T14-6 PSP Profiles by Mode Agreements T14-7 Realizing PSP III-15 Comments on Draft Freight Forwarding Law T16-1 Angren - Pap Line Construction Cost III-16 Secondary Law Concerning Urban T16-2 Primary Road Programme to 2020 Transport in Tashkent T16-3 Priority Project on Main Routes to 2020 T16-4 RP Complementary Measures T16-5 UTY Investment Priorities T16-6 UTY Investment Programme 2006- 10 T16-7 Major Projects 2010-2020 T16-8 UzA Fleet 2006/11 T16-9 UzA Investment Plan 2006/11

T17-1 Action Plan National Level - 207 T17-2 AP Roads and Road Transport T17-3 AP Rail and Rail Transport T17-4 AP Civil Aviation and Air Services T17-5 AP Logistics and Freight Forwarding T17-6 AP Inland Waterways T17-7 AP Urban Transport

Figures F2-1 Uzbekistan Road Corridors - 25 F2-2 Regional Road Corridors - 26 F2-3 Tashkent Metro and Tram Networks 48

Appendices I-1 Comments on Draft Final Report I-2 Seminar on Draft Final Report I-3 Tripartite Meeting 24 November IV Logistics Centres 2006 I-4 List of Contacts VI-1 Summary of UTACA Draft Concept I-5 Bibliography VI-2 Presidential Decree No 325 VI-3 Executive Order P-2482 III-1 UTY Long Distance Timetable III-2 Comments on Revised Road Law XIV-1 Existing Sector Organization Structure III-3 General Principles for a Regional XIV-2 Proposed Organization Structure Transit System III-4 Bilateral/Plurilateral Road XVI-1 Road Fund Charges Transport Agreements XVI-2 Transport Taxes and Duties III-5 Review of Law on Road XVI-3 Uzavtoyul Road Development Transport Programme (2007-10) Draft III-6 Road Transport Secondary Legal XVI-4 Construction/Reconstruction of Instruments Interchanges/Overpass 2011-20 III-7 Regional and Bilateral/Plurilateral XVI-5 UAART Vehicle Leasing Proposal Railway Agreements III-8 Structure of Railway Act (1999) III-9 International Civil Aviation

PADECO/IKS Tashkent, December 2006 KNOWLEDGE SUMMARY

The technical assistance project (TA) entailed the following tasks:

(i) conduct a comprehensive and analytical review of the current status of the transport sector, and prepare an update; (ii) evaluate choices regarding the mode of transport technology that will be used;, based on economic analyses of alternatives and their relative economic benefits; (iii) review the enterprise reform and restructuring of transport enterprises; (iv) identify the long-tern challenges for the transport sector, taking into account the global and regional context, and geographic and demographic features; (v) review government initiatives and prepare recommendations for privatization of state-owned enterprises, separation of regulatory from commercial function, development of regulatory frameworks for private sector participation in the transport sector, and provision of an enabling environment for private sector financing of infrastructure projects; (vi) review the impact of sectoral and thematic issues affecting the transport sector, including institutional, operation and maintenance, design standards, overloading, safety and security, governance, environment, social aspects, and health; (vii) examine issues related to rural, urban, and intercity transport in the context of national transport development; (viii) examine regional corridors with neighboring countries as well as the development of east-west and north-south international corridors, in the context of regional transport; (ix) examine the complementarity of different modes of transport and recommend suitable measures for improving their coordination; (x) recommend measures to enhance multimodal transport development – advise the government on establishing international logistic(s) centers to facilitate international transit traffic, promote international trade, and improve movement of vehicles and goods in accordance with international practices; (xi) conduct a strengths, weaknesses, opportunities, and threats analysis for each mode; (xii) develop a sector road map, clearly prioritizing actions to be taken in the short, medium, and long term for transport sector development; (xiii) recommend appropriate measures to improve human resource capacity in the transport sector; (xiv) prepare recommendations for transport financing and financial management capacity analysis of the transport sector, including assessment of financial requirements; and (xv) prepare a short-term, medium-term, and long-term transport development plan, based on sector review and stakeholder consultations.

TA4659-UZB Transport Sector Strategy Final Report

1. Introduction

1.1 REPORTING AND STUDY ACTIVITIES

Work commenced in Uzbekistan on 28 March 2006 and was completed in December 2006, with inputs as shown in Table 1. The cut-off date for receiving information was 1 December 2006.

T1 In-Country Input

Name Position Dates

International Peter Mansell Team Leader/Transport Planner 28/3-28/6, 13/7-13/9, 9/11-10/12 Bruce Winston Legal Specialist 6-26/4, 11/7-1/8 Tony Bayley Logistics Specialist 10-27/4, 2-4/5, 16/7-11/8, 6-29/9 Jerry Whittle Institutional Specialist 10/5-14/6, 15/7-7/8.

Domestic Team 3/4-8/12 (intermittent input). Note: day/month of arrival/departure Tashkent.

The first Steering Committee meeting was held on 11 April 2006 (Appendix B of the Inception Report provides a Summary of Proceedings and a list of Committee members). The Inception Report was submitted on 18/21 April (English/Russian) to the Executing Agency (EA), the Uzbek Association of Transport and Transport Communications (UTACA) and to the Asian Development Bank (ADB). An Inception Report workshop was held on 25 April: a Summary of Proceedings is given in Appendix I-1 of the Interim Report.

An ADB Mission, 2-6 May 2006 (Manmohan Parkash, Project Officer) reviewed work during the inception phase. A Tripartite Meeting (ADB/EA/Consultants), attended by members of the Steering Committee, was held on 5 May. A note on this meeting is given in Appendix I-2 of the Interim Report. A field trip to (ADB/Team Leader) was made on 6 May to visit UTY facilities. Urban transport and road developments in Samarkand, and Karshi were reviewed 6-12 May, with the Uzbekistan/Turkmenistan border crossing at Alat visited on 10 May.

The Interim Report was submitted on 27 June/10 July. An ADB Mission 18-25 July 2006 (Olly Norojono, Project Officer) reviewed work during the interim phase. An Interim Report Seminar, with participation by ADB, was held at the EA office on 20/21 July, with a Tripartite Meeting on 21 July. Summaries of Proceedings of the Seminar/Tripartite Meeting are given in Appendices I-1/2 of the Draft Final Report. Urban transport and road developments in Ferghana, and were reviewed on 23-25 August.

PADECO/IKS 1 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report

The Draft Final Report was submitted on 4/19 October. Written comments on the Report by Government and other agencies are given in Appendix I-1. A Seminar on the Draft Final Report, with participation by ADB, was held at the EA office on 20 November and a final Tripartitie Meeting/Videoconference on 24 November. Summaries of Proceedings of the Seminar and of the Tripartite Meeting are given in Appendices I-2/3.

1.2 CONTENTS OF FINAL REPORT

The Final Report is in three volumes (English/Russian): an Executive Summary; the main text (this volume); and an Appendix. It is available on CD-ROM. The contents of this volume are:

1. This chapter. 2. Transport demand 1991 – 2020. 3. Current status of the transport sector. 4. Current transport challenges. 5. Strengths, weaknesses, opportunities and threats (SWOT) analysis. 6. Transport policy and strategy and extenal assistance. 7. National transport strategy. 8-13. Strategies for road, rail, aviation, logistics and freight forwarding, inland waterways and urban transport. 14. Institutional restructuring and human resources. 15. Legal and regulatory issues. 16. Investment to 2020. 17. Action plans. 18. Sector Roadmap.

The contents of the Appendix are (with Roman numerals indicating the chapter to which appended): I-1 to I-5 As noted in this chapter. III-1. UTY long distance passenger timetable. III-2 to III-16 Legal and regulatory issues. IV Logistics centres. VI-1 UTACA Draft Concept paper on transport. VI-2/3 Presidential Decree No. 325 and Executive Order No. P-2482. XIV-1 Existing sector organization structure. XIV-2 Proposed organization structure. XVI-1 Source and application of Road Fund finance. XVI-2 Transport tax and duty rates. XVI-3/4 Road investment programme. XVI-5 UARRT vehicle leasing proposal.

1.3 CONTACTS AND BIBLIOGRAPHY

A contacts list is given in Appendix I-4 and a bibliography in Appendix I-5.

PADECO/IKS 2 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report

1.4 ACKNOWLEDGEMENTS

UTACA staff assisted on a day-to-day basis throughout, greatly contributing to the study outcome. Steering Committee agencies provided considerable assistance, as did many other persons and organizations contacted. The assistance of Mr. Fuod Bakhadirov and of Ms. Galina Magay is particularly acknowledged. The support of the ADB Uzbekistan Resident Mission is acknowledged. Remaining errors are entirely the responsibility of the Consultants.

PADECO/IKS 3 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report

2. National Economy and Transport Demand

2.1 ECONOMIC RECOVERY 1991-2006

2.1.1 GDP, Income and Trade The USSR operated as a highly integrated economy, in which the transport system played a key role. Each area specialized in particular commodities/products, necessitating long distance movements of semi-finished and finished goods. Transport intensity was by western standards exceptionally high, with tonne-km per dollar of USSR GDP in 1988 some 4.5 times those of China, 6 times those of the USA and 14 times those of Germany and the UK. (Source: Transport Strategy for Russia World Bank 1993). Intensity has fallen sharply throughout the CIS. The disintegration on independence was a severe shock to the legacy economies and to their transport operations. There was also the loss of large transfers from the USSR central budget to the regions.

In Uzbekistan the economic shock was contained and the country was the first in the CIS to recover to its 1991 level of GDP post-independence, but the impact on transport demand was nevertheless severe. A fall in the prices of main export commodities slowed international trade from 1997 and strict foreign exchange controls and trade restrictions were imposed to promote self-sufficiency, with a resulting decline in trade.

Immediately following independence GDP declined, by an average of 3.4 per cent a year 1992-96, recovering to a growth rate of 4.3 per cent 1997-03. Growth accelerated to 7.7 per cent in 2004, 7.0 per cent in 2005 and about 7.3 per cent in 2006. Growth in industrial production has been some two percentage points higher than GDP growth. On a purchasing power parity basis, GDP/capita in 2003 was US$1744. The annual rate of inflation, which averaged 32 per cent 1997-2001, fell sharply to 8 per cent in 2005.

Per capita GDP in 2004 was US$460, a little over half the average in the CARs of US$890. The percentage composition was: agriculture 31.1, industry 25.2 and services 43.7. Exports were vaued at 40.4 per cent of GDP and imports at 33.0 per cent. CIS countries accounted for one third of exports and for 38 per cent of imports, by value. Trade volume declined markedly 1996-2002, before recovering sharply. In total, the value of exports increased by 6 per cent 1996-2004, while the value of imports declined by 19 per cent. Per capita manufactured exports in 2003 totalled US$31, again a little over half the average in the CARs of US$57. Imports and exports by value 1996-2004 are given in Table 2-1. The trade balance improved sharply over the period.

PADECO/IKS 4 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report

Regional per capita incomes in 2004 are given in Table 2-2. Tashkent city’s income level was more than three times the national average, whilst income in the poorest region R. Karakalpakstan was 54 per cent of average. Employment by sector in 2004 is shown in Table 2-3: transport and communications accounted for nearly 1 in 20 jobs, with agriculture and forestry, the dominant sector, employing nearly 1 in 3.

T2-1 Foreign Trade 1996-2004 (billion US$) Item 1996 2001 2002 2003 2004

Exports:

CIS countries 0.97 1.53

Other countries 2.76 3.32

Total 4.59 3.17 2.99 3.73 4.85

Imports:

CIS countries 1.14 1.47

Other countries 1.83 2.34

Total 4.72 3.14 2.71 2.96 3.82

Trade balance -0.13 0.03 0.28 0.78 1.04

T2-2 Regional Per Capita Income 2004 Soum Soum

Region '000 US$ Region '000 US$

R. Karakalpakstan 158 150 Surkhandarya 217 205

Andijan 282 267Sirdarya 215 203

Bukhara 259 245Tashkent 312 295

Jizzakh 188 178Ferghana 272 257

Kashkadarya 230 217Khorezm 197 186

Navoi 451 426Tashkent city 904 855

Namangan 183 173 National average 295 279

Samarkand 203 192

PADECO/IKS 5 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report

T2-3 Employment by Sector 2004 Sector In '000 In %

Transport and communication 461 4.7

Agriculture and forestry 3068 31.0

Industry 1284 13.0

Education etc. 1321 13.3

Trade and catering etc. 858 8.7

Construction 808 8.2

Health and social services 689 7.0

Other 1422 14.3

Total 9911 100.0

Population 25707

Employment as % of population 38.6

2.2 OUTPUT BY SECTOR

2.2.1 Vehicle Production Vehicle production is concentrated on the 10-year old UzDaewoo plant in Asaka, near Andijan. Following the bankruptcy of the Korean parent company, the operation was taken over by a state- owned company, UzAvtoProm. GM Daewoo and Technology, a subsidiary of General Motors, the new owner of Daewoo, Korea signed a cooperation agreement in November 2006 to acquire a stake in UzDaewoo and to launch joint projects.

Vehicle production for January-October 2006 totalled 111,000 units, an increase of 33 per cent on the corresponding period of 2005. It comprised: 54 per cent medium saloon cars, 35 per cent small saloon cars and 11 per cent microbuses (Damas). The forecast output for 2007 is 180,000 vehicles, rising to 200,000 by 2009, when the plant would be operating at capacity.

UzAvtoProm and KOC Holding of Turkey set up a JV SamKOC Auto in 1999 to produce buses and trucks in Samarkand, with an anticipated annual output of 4000 vehicles. Few vehicles were produced and the venture went bankrupt. The Japanese company Isuzu signed an agreement in 2006 to assemble buses at the plant, with exemption from customs duties on the import of ckd sets and spare parts. Domestically produced vehicles enjoy a considerable tax advantage over imports and UzDaewoo accounts for the bulk of car and micro-bus sales.

PADECO/IKS 6 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report

2.2.2 Energy Resources The Statistical Review of World Energy 2005 estimated that Uzbekistan accounted for 1.0 per cent of world natural gas reserves, 1.9 trillion cu.m, with production of 60 billion cu.m.in 2004, representing 2.1 per cent of world output. Oil reserves were estimated at 600 million barrels, with production of 152 million barrels, 6.6 million tonnes of oil and condensate, in 2004. Coal production in 2004 was 2.7 million tonnes.

2.2.3 Cotton and Other Agriculture Under the USSR, almost a monoculture was encouraged, with cotton the dominant crop. Crop diversification has been the policy since independence, but Uzbekistan still has the fifth largest area of cotton plantation and is the second largest exporter of lint cotton, after the USA. Production of raw cotton in 2004 totalled 3.5 million tons, 977,000 tons of cotton fibre. Fruit and vegetable output in 2004 was 6.2 million tons and that of grain 6.0 million tons. Milk production was 4.3 million tonnes.

2.2.4 Industry Output of bulk materials is relatively small. In 2004 cement production was 4.8 million tons and steel production 0.6 million tons. Production of bulk chemicals: ammonia, fertilizer and sulphuric acid, amounted to 2.7 million tons.

Table 2-4 shows the production volumes of bulk items 2002-04.

T2-4 Volume of Output 2002-04 Item Unit 2002 2003 2004

Oil and condensate Million tonnes 7.13 6.58

Gas Billion cu.m. 57.757.5 59.9

Liquefied natural gas Thousand tonnes 161 197

Coal Million tonnes 2.741.90 2.70

Steel Thousand tonnes 462486 602

Cars/Microbuses Thousand 34.7 40.5 70.7

Fertilizer Thousand tonnes 791817 876

Ammonia Thousand tonnes 905993 1019

Sulphuric acid Thousand tonnes 842 802 834

Cement Million tonnes 4.06 4.80

Cotton fibre Thousand tonnes 1006 946 977

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Raw cotton Million tonnes 3.12 2.80 3.54

Grain Million tonnes 5.796.32 6.02

Vegetables Million tonnes 3.78 4.13 4.21

Fruit Million tonnes 1.841.76 1.99

Milk Million tonnes 3.724.03 4.28

2.3 ECONOMIC FORECAST 2006-20

2.3.1 Short Term Forecast The ADB Asian Development Outlook 2006 noted that annual growth in GDP could accelerate to eight per cent by 2010, given successful implementation of the reform programme. Budget forecasts for 2006 are given in Table 2-5. Actual performance is expected to be a little higher than forecast. ADB’s regional forecasts to 2007 are given in Table 2-6.

T2-5 Budget Economic Forecast 2006

Item 2005=100

Gross Domestic Product (GDP) 107.2 Consumer Price Index (% increase) 6.0 – 8.0 Volume of industrial production 109.0 Volume of agricultural production 105.2 Capital investment 107.5 Retail turnover 108.0 Budget Deficit (% of GDP) 1.5 Source: Annex 1 Resolution of the President No. 244 of 27 Dec. 2005

T2-6 Regional GDP Forecasts 2006-07 Country 2005* 2006 2007 (growth rate in %)

Uzbekistan 7.0 6.0 6.0 Azerbaijan 26.4 30.5 30.0 - 8.5 8.5 Kyrgyz Republic - 5.0 5.5 Tajikistan 6.7 8.0 6.0 Turkmenistan - 5.0-7.0 5.0-7.0 China 9.9 10.4 9.5 India 8.1 7.8 7.8 Source: ADB Asian Development Outlook/Outlook Update Apr./Sep. 2006 Note: * outcome.

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2.3.2 Long Term Forecast The ADB Working Paper Central Asia: Mapping Future Prospects to 2015 April 2006, considers the impact of three scenarios: (i) Business as usual (moderate policy reform); (ii) Closing the gap (strong commitment to policy reform, market friendly and aggressive implementation of regional cooperation); and (iii) Falling behind (inward-orientation, limited regional cooperation and policy reform and moderate internal political instability). The working paper illustrates the large economic gains which would result from opening up of the economy: the respective GDP forecasts and other indicators are given in Table 2-7.

T2-7 Mapping Future Prospects to 2015 GDP GDP/Capita Manufactured Poverty Scenario % pa US$ Exports US$/Capita Incidence %*

1 5.2 733 90 17.8 2 6.3 822 154 12.3 3 4.0 645 56 21.8 Source: Central Asia: Mapping Future Prospects to 2015 Note: * for 2015, actual in 2005 was 27.5%.

2.3.3 GDP/Capita Forecast Over the study period 2006-20, economic growth should approximate its long run average. In developed countries, annual per capita growth in GDP is typically 2-3 per cent. In developing countries undergoing rapid industrialization, per capita growth rates have been as high as 8 per cent for a decade or more. The dislocating impact and short period of independence do not provide a basis to determine Uzbekistan’s trend growth rate. It will depend crucially on the degree of economic liberalization and on the development of the regional and international economy.

By 2020, there is likely to have been (say a 60 per cent possibility) at least one event affecting world economic growth for a year or more (another 9/11, a bird flu pandemic or the like). A more serious event (a major war, a catastrophic natural disaster or an international economic depression) might have a 10 per cent probability during the period.

Table 2-8 gives a probability distribution of per capita growth rates: there is a 35 per cent probability that annual per capita GDP growth will be higher than 4 per cent. Transport strategy needs to be based on achieving above the median (50 per cent probability) growth rate: under provision of infrastructure and services is more costly in loss of economic opportunity than over provision. An annual per capita GDP growth of 4 per cent 2006-20 is appropriate for transport planning.

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T2-8 Growth in GDP/Capita 2006-20 Per Capita Probability in % Growth %pa Range Cumulative

<2 20 20 2-3 15 35 3-4 30 65 4-5 20 85 >5 15 100 Source: Consultants.

2.3.4 Population Forecast Uzbekistan has the third largest population and the fourth largest area of the 15 successor states to the USSR. Population by region in 2000/05 and forecasts to 2020 are given in Table 2-9. The gradual decline in the growth rate experienced in recent years is expected to continue. Of particular note is the slow growth for the city of Tashkent, much below the national average. In 1996, the capital contained 9.1 per cent of the population, but by 2020 this is forecast to have declined to 7.4 per cent. T2-9 Population by Region 2000-20 (million) Region 2000 2005 2010 2015 2020 2005- 2010- 2015- 10 15 20 Growth rate % pa Karakalpakstan Republic 1.52 1.57 1.64 1.70 1.76 0.83 0.75 0.67

Andijan 2.20 2.36 2.50 2.64 2.77 1.18 1.06 0.95

Bukhara 1.43 1.52 1.61 1.70 1.78 1.19 1.07 0.96

Jizzak 0.98 1.05 1.14 1.22 1.30 1.62 1.46 1.30

Kashhkadarya 2.19 2.40 2.58 2.75 2.91 1.44 1.30 1.15

Navoi 0.79 0.81 0.86 0.90 0.94 1.12 1.01 0.89

Namangan 1.94 2.09 2.23 2.36 2.48 1.30 1.17 1.04

Samarkand 2.69 2.89 3.08 3.27 3.44 1.31 1.18 1.05

Surkhandarya 1.75 1.91 2.06 2.20 2.33 1.49 1.34 1.19

Syrdarya 0.65 0.67 0.71 0.75 0.78 1.06 0.96 0.85

Tashkent 2.36 2.46 2.57 2.68 2.78 0.91 0.82 0.73

Ferghana 2.68 2.86 3.00 3.14 3.26 0.98 0.88 0.78

Khorezm 1.34 1.44 1.56 1.66 1.77 1.51 1.36 1.21

Tashkent City 2.14 2.14 2.18 2.22 2.25 0.39 0.35 0.31

Uzbekistan 24.65 26.17 27.71 29.17 30.54 1.15 1.04 0.92

Index 2005=100 94.2 100.0 105.9 111.5 116.7 - - -

Source: Centre for Economic and Social Research (2000/05/10), Consultants (2015/20).

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2.4 TRANSPORT DEMAND 1996-2005

The volume of transport in the CIS has not in general regained its pre-independence level. This contrasts with most of the world, where infrastructure capacity is a constraint, with congestion, particularly in urban areas and on main transport corridors. Prioritizing investment in network capacity enhancement and structuring markets to allocate resources efficiently between modes are the drivers of transport strategy in such circumstances. For the CIS, network capacity is likely to be adequate in all modes for the medium term. The focus in the CIS is on network sustainability, renovation, rationalization and upgrading of facilities and on renewing of the rolling stock/vehicle fleets.

Freight and passenger traffic volumes by road and rail in 2005 are given in Tables 2-10/11. Inland waterway and air freight traffic was negligible by comparison. Tonnage increased by 9.7 per cent and tonne km by 7.1 per cent over 2004, a year in which GDP/capita grew by 5.7 per cent. Long distance pipeline transport of petroleum products is important, performing more tonne km than rail and road transport combined.

T 2-10 Freight Volume 2005 Mode Tonne T. Km Haul Share in % Million Billion Km Tonne T.Km

Road 668.5 14.1 21 92.4 43.8 Rail 55.0 18.1 330 7.6 56.2 Total 723.5 32.2 45 100 100 Pipeline 71.5 36.9 516 Source: Statistical Review of Uzbekistan 2005 and UTY.

T2-11 Passenger Volume 2005

Mode Passengers Pass. Km Distance Share % Million Billion Km Pass. P.Km

Road 3830 39.0 10 95.8 92.9 Rail 16 2.1 131 0.4 5.0 TTM* 150 0.9 6 3.8 2.1 Total 3996 42.0 11 100 100 Air** 1 4.6 4969 - - Source: Statistical Review of Uzbekistan 2005 and UTY. Notes: * Tashkent tram, trolleybus and Metro. ** UzA domestic/international services.

2.4.1 Road A. Traffic Volume Table 2-12/13 show average daily traffic volumes 1996-2005 on major roads by region, in number of vehicles and as indices. There is wide variation between routes in the year on year changes: summing

PADECO/IKS 11 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report the counts shows growth of 21 per cent 2000-05 (Table 2-13), an annual rate of 3.9 per cent. Discussions with regional Uzavtoyul offices also provided no clear picture of growth rates, although traffic growth in the Ferghana Valley is much faster than in the rest of the country – possibly 10 per cent per annum in recent years.

T2-12 Road Traffic Volumes 1996-2005 Road/Region 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

М-34 Tashkent-Dushanbe Tashkent 6902 6916 6996 7014 6913 6784 7247 7069 7413 7237 Sirdarya 10283 16137 14921 8620 8642 10549 18085 15963 17807 17422 413 430 416 415 424 421 423 436 436 411 М-37 Samarkand-Ashgabad-Dushanbe Samarkand 8135 1174 8124 3603 3373 3497 3788 3373 5137 4991 Navoi 7056 7975 8820 8745 8851 8939 9037 9080 9140 9102 Bukhara 6605 6610 6676 6742 6809 6877 6945 7014 7084 7123

М-39 Almaty-Bishkek-Tashkent-Termez Tashkent 21252 21328 21469 22334 22398 22380 22337 23270 22787 23155 Sirdarya 8817 9796 82567414 7434 9837 18353 11454 1897218006 Jizzakh 7689 6701 75177689 8139 7689 10470 10530 1064810430 Samarkand 8298 17063 9359 10185 13642 13190 11598 13642 12071 13201 Kashkadarya 4396 4440 4485 4531 4576 4623 4669 4716 4764 4823 Surkhandarya 4819 4492 4481 4750 4418 4520 4480 4490 4498 4355 М-41 Bishkek-Dushanbe-Termez Andijan - - -8690 6251 6129 6775 4841 44404623 Surkhandarya 7210 6695 6710 6790 6884 6901 6781 6750 6931 6841 А-373 Tashkent- Tashkent 14854 14722 14073 14099 14134 14240 14102 15601 15333 15948 Namangan 10645 10876 11129 11243 11678 11901 11378 12326 12987 13003 Ferghana - - 13254 14737 16749 14722 13744 17336 22695 22909 Andijan - - -14919 13703 15100 12712 13019 1207212878 А-376 –Jizzakh Ferghana - - 3846 3899 4266 3534 3461 8586 8119 8226 Sirdarya 5767 7949 7118 6715 8741 3927 7017 8687 10172 9925 Jizzakh 6394 6520 6413 6394 6512 6265 7675 7710 8639 9006 А-378 Samarkand-Karshi Samarkand 5189 1649 3439 4201 4080 4288 1658 4080 2111 2536 Kashkadarya 6232 6295 6359 6423 6466 6553 6620 6686 6754 6924 А-379 Navoi-Uchkuduk Navoi 4399 5015 5567 5528 5594 5650 5713 5778 5836 5904 Bukhara 1315 1354 1396 1441 1485 1531 1578 1627 1677 1703 А-380 Guzar-Bukhara--Beyneu Kashkadarya 8403 8487 8573 8660 8747 8836 8925 9015 9106 9156 Bukhara 6708 6711 67156798 6752 6716 9095 10469 1140211687

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Khorezm - - -- 1482 1482 1485 1482 15131699 Karakalpakstan 7522 7523 7625 8113 8446 8325 8644 8122 9862 9888 А-381 Nukus-Tashauz Karakalpakstan 711 603 551 504 409 323 268 224 201 230 Source: Uzavtoyul.

T2-13 Road Volume Indices 1996-2005 Road/Region 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

М-34 Tashkent-Dushanbe Tashkent 102 102 103 103 102 100 107 104 109 107 Sirdarya 97 153 141 82 82 100 171 151 169 165 Jizzakh 98 102 99 99 101 100 100 104 104 98 М-37 Samarkand-Ashgabad-Dushanbe Samarkand 233 34 232103 96 100 108 96 147143 Navoi 79 89 9998 99 100 101 102 102102 Bukhara 96 96 9798 99 100 101 102 103104

М-39 Almaty-Bishkek-Tashkent-Termez Tashkent 95 95 96100 100 100 100 104 102103 Sirdarya 90 100 84 75 76 100 187 116 193 183 Jizzakh 100 87 98100 106 100 136 137 138136 Samarkand 63 129 7177 103 100 88 103 92100 Kashkadarya 95 96 9798 99 100 101 102 103104 Surkhandarya 107 99 99 105 98 100 99 99 100 96 М-41 Bishkek-Dushanbe-Termez Andijan - - -142 102 100 111 79 7275 Surkhandarya 104 97 97 98 100 100 98 98 100 99 А-373 Tashkent-Osh Tashkent 104 103 99 99 99 100 99 110 108 112 Namangan 89 91 9494 98 100 96 104 109109 Ferghana 90100 114 100 93 118 154156 Andijan 9991 100 84 86 8085 А-376 Kokand –Jizzakh Ferghana 109 110 121 100 98 243 230 233 Sirdarya 147 202 181 171 223 100 179 221 259 253 Jizzakh 102 104 102 102 104 100 123 123 138 144 А-378 Samarkand-Karshi Samarkand 121 38 80 98 95 100 39 95 49 59 Kashkadarya 95 96 9798 99 100 101 102 103106 А-379 Navoi-Uchkuduk Navoi 78 89 9998 99 100 101 102 103104 Bukhara 86 88 9194 97 100 103 106 110111 А-380 Guzar-Bukhara-Nukus-Beyneu Kashkadarya 95 96 9798 99 100 101 102 103104 Bukhara 100 100 100 101 101 100 135 156 170 174

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Khorezm 100 100 100 100 102115 Karakalpakstan 90 90 92 97 101 100 104 98 118 119 А-381 Nukus-Tashauz Karakalpakstan 220 187 171 156 127 100 83 69 62 71

All Counts Na na na na 100.0 100.0 108.6 112.2 119.9 121.1 Source: Uzavtoyul.

B. Cross-Border Traffic Cross-border truck movements fell 65 per cent and tonnage by half 1998-2002, as shown in Table 2-14. In 1998, 60 per cent of cross-border movements were transit, compared with 54 per cent in 2002. Turkish and Iranian transport accounted for some 80 per cent of transit movements. Cross-border volume has recovered somewhat since 2002 (see Table 2-15), but not to the volumes of the late 1990s. The resumption of transit traffic through both Tajikistan and particularly Afghanistan resulted in growth through Ayritom. The volume of truck traffic at Alat is almost double that at Yallama, emphasising the relative importance of the southern route through Turkmenistan. Freight traffic with the north now crosses at Yallama in place of Gisht Kuprik, which is primarily used for passenger transport. Security issues in 2005 affected traffic to the Kyrgyz Republic through Dustlik, with the volume halving 2003-05.

T2-14 Cross-Border Road Traffic 1998-2002 Item 1998 1999 2000 2001 2002

Total tonnage (in’000) 696 392 545 508 345 Total vehicles (in ‘000) 58.9 27.7 25.1 20.0 20.9 Entering 29.2 13.9 11.4 10.2 10.5 Of which transit 20.2 9.3 5.9 5.3 6.2 Exiting 29.6 13.8 13.6 9.8 10.4 Of which transit 15.7 6.8 6.0 5.3 5.1 Vehicles crossing Uzbekistan 28.8 13.7 11.4 10.2 10.4 Of which: from Turkey 14.6 5.2 5.3 4.7 5.3 From Iran 12.9 7.8 4.9 4.8 4.5 Vehicles to other countries 29.4 13.4 23.6 9.8 10.5 Of which: to Turkey 13.8 4.8 5.9 4.1 5.2 To Iran 10.9 5.9 7.0 5.4 4.7 Source: Customs Committee 2003

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T2-15 Cross-Border Truck Traffic by Crossing Point 2003-05

Border Movement 2003 2004 2005

Alat (RD1) Import 6506 7276 7606 Transit 6486 8347 8881 Yallama (RD1) Import 2233 645 1622 Transit 5609 6800 7328 Dustlik (RD2) Import 1488 767 511 Transit 647 357 326 Saryasiya (RD3) Import 58 378 665 Transit 2267 2468 2579 Ayriton (RD3) Import 64 80 18 Transit 28 326 503 Import 36 73 218 Transit 1010 858 984 Source: Customs

2.4.2 Rail Total freight traffic in 2005 was 55.0 million tonnes, 18.1 billion tonne km, with an average inland haul of 330km. Two thirds of tonnage was accounted for by five commodity groups: petroleum products 26.5 per cent, building materials 17.9, cement 9.0, chemicals and fertilizer 7.6 and coal 6.3 per cent.

In total, 17965 passenger services were operated, some 50 per day. The number of passengers was 16.0 million, with 2.1 billion passenger km, an average domestic journey of 131km. Total income from passenger activities was Soum 22.9 billion, against expenditure of Soum 27.9 billion, an operating loss of Soum 5.0 billion. Average monthly remuneration of the 4020 employees was Soum 137,000. Average seat occupancy was 34 per cent.

Freight and passenger traffic 2001-05 is given in Tables 2-16/17.

T2-16 Rail Freight Traffic 2001-05 Category 2001 2002 2003 2004 2005 (Million tonnes)

Domestic 34.8 34.0 38.0 37.2 38.3 Export 2.9 3.5 4.6 5.4 4.7 Import 3.9 3.6 3.3 3.9 4.0 Transit 5.2 6.2 7.2 7.3 8.0 Total 46.8 47.3 53.1 53.8 55.0

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(Billion tonne km) Domestic 9.63 11.37 11.10 11.06 10.25 Export 1.22 1.35 1.59 1.74 1.79 Import 1.24 1.12 1.09 0.91 0.90 Transit 3.55 4.58 5.17 4.30 5.20 Total 15.64 18.42 18.95 18.01 18.14 Sources: TA 4076-UZB Final Report and UTY

T2-17 Rail Passenger Traffic 2001-05 Category 2001 2002 2003 2004 2005 (Million passengers)

Domestic 14.45 14.41 14.82 14.80 14.60 International - departing 0.58 0.50 0.44 0.44 0.55 International - arriving 0.42 0.36 0.33 0.32 0.37 Transit 0.65 0.43 0.47 0.50 0.46 Total 16.10 15.70 16.06 16.06 15.98

(Billion passenger km) Domestic 2.10 1.97 1.48 1.44 1.50 International - departing 0.03 0.02 0.12 0.10 0.12 International - arriving 0.03 0.02 0.07 0.06 0.06 Transit 0.01 0.01 0.41 0.41 0.41 Total 2.17 2.02 2.08 2.01 2.09 Sources: TA 4076-UZB Final Report and UTY

Freight transit traffic by commodity in 2003 is given in Table 2-18 and container traffic in Table 2-19. The major transit movement is oil products, almost a third of the total. Other significant commodities are metals, construction materials, grain, flour and cotton. General cargo is becoming more important. Import and export traffic is mainly cotton, oil products, fertilizer, wheat and wheat flour and construction materials.

T2-18 Transit Traffic by Commodity 2003

Commodity Tonnes % ‘000 Wheat 399.9 5.4 Ferrous metals 548.4 7.5 Scrap of ferrous metals 74.9 1.0 Flour 354.8 4.8 Sugar 118.8 1.6 Oil products 2447.7 33.3

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Construction materials 405.2 5.5 Cement 54.4 0.7 Wood 15.3 0.2 Saw-timber 199.8 2.7 Chemical fertilizers 294.4 4.0 Coal 10.2 0.1 Coke 101.5 1.4 Cotton fibre 242.9 3.3 Non-ferrous metals 319.1 4.3 Ore 3.9 0.1 Others 1766.8 24.0 Total 7358.2 100.0 Source: UTY

UTY handles some 75,000 containers per year, almost all international. Traffic volume by country in 2005 (in twenty-foot equivalent units - TEUs) is shown in Table 2-19, including empty units being returned: about half is Asian traffic, 30 per cent European and 20 per cent regional. Transit traffic is an important component: 41 per cent of inbound containers and 47 per cent of outbound are in transit. The northern route to/from Kazakhstan accounted for 58 per cent, this corridor serving European and East Asian routes. Tajikistan accounted for 26 per cent. Traffic through Turkmenistan to Iran is relatively small, predominantly transit traffic to/from the north

T2-19 Container Traffic 2005 (in TEUs) From/To Imports Transit Exports Transit Total

Kazakhstan 17491 13723 25001 8668 64883 Tajikistan 16151 5079 567 7822 29619 Kyrgyz Republic - 611 84 1998 2693 Turkmenistan 2231 5116 927 4790 13064 Afghanistan - - 305 906 1211 Total 35873 24529 26884 24184 111470 Source: UTY

2.4.3 Aviation A. Airports Outbound passenger volume by airport 2000-05 is given in Table 2-20. Tashkent is the dominant airport, accounting for three-quarters of departures, a daily average of 2534 in 2005. Traffic at regional airports averaged 56 to 114 departing passengers per day, except at Nukus, which averaged 11.

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T2-20 Airport Passengers 2000-05 (Departures in ‘000) Airport 2000 20012002 2003 2004 2005 As %

Tashkent 1006.3 740.9664.3 838.3 911.1 926.5 74.5

Nukus 64.2 53.445.3 41.6 41.6 41.7 3.3

Samarkand 28.6 24.5 20.3 24.2 34.4 40.2 3.2

Bukhara 57.3 51.638.5 39.4 41.7 45.4 3.6

Urgench 87.3 70.960.2 54.3 50.2 48.0 3.9

Termez 48.6 39.837.5 32.6 30.1 46.1 3.7

Karshi 28.0 17.5 12.4 19.2 24.5 22.7 1.8

Namangan 29.9 16.0 12.3 13.4 11.4 23.5 1.9

Ferghana 65.1 42.8 28.3 22.8 19.5 25.8 2.1

Andijan 68.6 46.630.3 23.3 20.2 20.4 1.6

Navoi 0.2 1.64.4 4.4 4.0 4.0 0.3

Total 1484.0 1105.7953.8 1113.4 1188.6 1244.4 100.0

Index 2000=100 100.0 74.5 64.3 75.0 80.1 83.9

Source: UzA

B. Uzbekistan Airways UzA operated a daily average of 63 flights in 2005, 30 international/CIS and 33 domestic: 2.3 flights/day/passenger aircraft in service. In 1996, 91 flights were operated, with twice as many domestic services as in 2005. In 2005, 1.67 million passengers and 23,100 tonnes of freight were carried. Traffic volume 1996-2005 on international, CIS and domestic services is given in Table 2-21. The number of international passengers increased by 44 per cent 2001-05 and CIS traffic by 14 per cent, but there was a continuation of the long term decline in domestic traffic, which fell by 27 per cent. Domestic traffic has, however, stabilized since 2002, although at about 60 per cent of 1996 volume, with half the number of flights. Freight traffic has fluctuated since 2001, in 2005 volume was 28 per cent below that of 1996

T2-21 UzA Traffic 1996-2005 Item 1996 2001 2002 2003 2004 2005

No. of flights: 33277 27199 24002 23048 23530 22923 International 4955 4987 5621 5660 6474 5924 CIS 3918 4943 5028 4754 4869 5079 Domestic 24404 17269 13353 12634 12187 11920 Passengers ‘000: 1486.4 1545.9 1472.9 1480.6 1610.4 1666.6 International 359.9 471.1 550.8 595.2 680.2 680.8 CIS 426.6 495.2 501.3 465.5 523.7 565.5 Domestic 699.9 579.5 420.8 419.8 406.5 420.3

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Pass Index 2001=100 96.2 100.0 95.3 95.8 104.2 107.8 International 76.4 100.0 116.9 126.3 144.4 144.5 CIS 86.1 100.0 101.2 94.0 105.8 114.2 Domestic 120.8 100.0 72.6 72.4 70.1 72.5 No. of Pass/Flight: 44.7 56.8 61.4 64.2 68.4 72.7 International 72.6 94.5 98.0 105.2 105.1 114.9 CIS 108.9 100.2 99.7 97.9 107.6 111.3 Domestic 28.7 33.6 31.5 33.2 33.4 35.3 Freight '000 ton: 32.0 25.1 30.4 23.3 27.0 23.1 International 29.1 18.7 23.6 17.7 22.3 17.8 CIS 2.6 6.1 6.2 5.1 4.3 4.8 Domestic 0.3 0.4 0.6 0.5 0.4 0.5 Source: UzA

2.4.4 Urban Transport Public transport volume in Tashkent 2001-05 is given by mode in Table 2-22: average daily volume in 2005 was 1.9 million, 10 per cent below that of 2001. The introduction of minibuses and of higher quality buses changed modal shares significantly: the metro, tram and trolleybus share fell from 36.6 to 20.2 per cent. For 2001-05: Metro traffic fell 37 per cent, tram 53 per cent and trolleybus 77 per cent. Metro traffic has fallen particularly sharply in 2006 (by 23 per cent for January-October), hit by the withdrawal of the combined monthly ticket on 1 March. Metro traffic has halved 2001-06. Gross operating income in 2005 was Metro Soum 10.1 billion, trams Soum 3.4 billion and trolleybuses Soum 1.0 billion. The combined income of electric transport services fell by 0.4 per cent 2004-05.

T2-22 Tashkent Public Transport 2001-05 (million passengers)

Share % Mode 2001 2002 2003 2004 2005 2006* 2001 2005

Metro 142 136 114 96 90 70 18.2 12.5 Bus 494 484 401 397 390 382 63.5 54.1 Tram 92 80 64 50 43 46 11.8 6.0 Trolleybus 51 38 27 16 12 10 6.6 1.7 Minibus** - 37 133 156 166 na - 23.0 Total 778 775 739 715 701 na 100 100 Index (2001=100) 100 100 95 92 90 na - - Note: * Consultants’ estimates based on January-June actual, January-October for Metro. ** Consultants’ estimates based on traffic loss by other modes.

2.5 TRANSPORT DEMAND 2006-20

2.5.1 International and Regional Developments Three great 21st century power centres are developing in EurAsia: in Moscow, Beijing and Delhi. Uzbekistan is at the epicentre of a three-power triangle on the main Euro-Asia routes. It is richly endowed with natural resources. It is one of the countries likely to be least affected by global warming. It is particularly well placed to benefit from further globalization.

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Membership of two new organizations could have a significant impact on development: the Eurasian Economic Community (EurAsEC), founded 10 October 2000 (with other members Russia, Belarus, Kazakhstan, Kyrgyz Republic and Tajikistan) and the Shanghai Cooperation Organization (SCO), founded 15 June 2001 (with the same membership, except for China in place of Belarus). EurAsEC strategy focuses on a customs union and an eventual single currency, while the SCO is moving beyond an initial focus on security to facilitate wide-ranging cooperation. Since 2004, the Government has been proposing the establishment of a Common Market in Central Asia (CACOM), including as a top priority infrastructure projects of regional importance and the development of international transport corridors to create a Euro-Asia land bridge. CACOM implementation is seen as: (i) creation of free trade zone, 3-4 years; (ii) creation of Customs Union, a further 5 years; and (iii) creation of a Common Market, 5-7 years after the Customs Union.

An integrated Eurasia, with much improved infrastructure including a revived Silk Route, is a high priority on the international development agenda. Both external push (TACIS, TRACECA and CAREC) and internal/regional pull (EurAsEC and SCO) support it. Euro-Asia land links are seen as insufficient, given possible security issues on sea routes, piracy in the Malacca Strait etc. Land routes can offer large time savings over maritime links, with important benefits for moderately time-sensitive freight.

2.5.2 Demand Elasticities Transport demand growth 2006-20 will be influenced by international corridor developments, by changes in per capita income and population and by how the nature of demand alters: an expected increase in the proportion of higher value/tonne products, a change in travel patterns etc. Per capita income growth is a critical demand driver: the faster it is, the greater the transport demand intensity(a higher growth rate requires a disproportionate increase in investment). Elasticity to GDP/capita for freight traffic is taken as 0.7 for a 3 per cent annual growth in GDP/capita, as 0.8 for 4 per cent and as 0.9 for 5 per cent GDP/capita growth. For passenger traffic, elasticities of 0.9, 1.0 and 1.1 are applied respectively. Transport demand also increases in line with growth in population (an elasticity of 1.0),

Table 2-23 shows in index terms (2005 = 100) GDP/capita and population growth 2005-20 and the resulting growth expected in transport volume. On the central assumption of 4 per cent annual growth in GDP/capita, the volume of freight traffic is expected to increase by 91 per cent 2005-20 (an average annual growth of 4.4 per cent) and passenger volume by 110 per cent (average annual growth of 5.1 per cent).

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T2-23 Transport Volume 2005-20 Item 2005 2010 2015 2020

GDP/Capita (% pa) Index 2005 = 100 3.0-Low 100 116 134 156 4.0-Central 100 122 148 180 5.0-High 100 128 163 208 Population 100 106 112 117

Tonne Km 3.0-Low 100 118 138 162 4.0-Central 100 124 154 191 5.0-High 100 132 175 230

Passenger Km 3.0-Low 100 121 146 175 4.0-Central 100 129 165 210 5.0-High 100 138 189 255

Central Rail/Road Volume Tonne km/Passenger km - billion Freight 32.2 40.0 49.7 61.7 Passenger 42.0 55.5 73.3 96.6 Source: Consultants.

2.6 DEMAND BY MODE 2006-20

The demand forecasts are based on macro-economic factors. Actual national and regional growth rates will be determined by: growth in vehicle ownership, the relative competitive strengths of the modes, Government regional development policies, international trade developments, transport investment and taxation policy, policy on subsidies and tariffs and such factors.

The car fleet is about 1.1 million vehicles (42 per thousand population). Registration data show an annual growth in the fleet of 1.2 per cent 2001-05. Some 50 per cent are UzDaewoo vehicles less than 10 years old, the remainder being mostly old to very old vehicles, dating from the USSR. Owners of these latter vehicles will replace them with second hand vehicles, if at all, constraining fleet growth. The city of Tashkent, reflecting its above average income level, accounts for 21 per cent of registrations (104 per thousand population). Low growth may continue for some years, but at some point before 2020 it could accelerate dramatically, given favourable economic circumstances.

The competitive strength of road transport is expected to increase, compared with rail, given a policy change to encourage vehicle fleet replacement and an increase in the resources earmarked for road investment and maintenance. However, competition between the two modes is limited, with bulk and

PADECO/IKS 21 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report long distance freight a captive market for rail and relatively little passenger traffic by rail. Modest growth in rail traffic is still expected, despite increased competition from road transport. The UTY traffic forecast for 2006-10 is given in Table 2-24. Beyond 2010, growth in the economy and increasing discretionary personal income should provide opportunities for UTY to continue a modest growth in traffic, by focusing its resources on rail-favourable markets.

Growth in road transport, freight and passenger, is expected to be a little above the indices for all traffic growth given in Table 2-5.

T2-24 Rail Traffic 2006-10 (Billion tonne/passenger km)

Item 2006 2007 2008 2009 2010

Freight: Domestic 10.30 10.42 10.97 11.03 11.13

Transit 5.23 5.26 5.35 5.42 5.48

Export and import 2.65 2.69 2.95 2.99 3.02 (Including Guzar-Boysun- - (0.16) (0.66) (0.66) (0.67) Kumkurgan) Total 18.19 18.37 19.25 19.44 19.63

Passenger: Domestic 1.12 1.12 1.12 1.13 1.13

Transit 0.38 0.39 0.40 0.42 0.42

International 0.62 0.63 0.63 0.63 0.64 (Including Guzar-Boysun- - - (0.01) (0.02) (0.02) Kumkurgan) Total 2.12 2.14 2.16 2.18 2.20

There is great potential for growth in air travel, the question is when it will be realised. Annual volume of a little over 2 million passengers is low for a nation with a population of 26 million, of great international tourist interest and with an ideally located regional/transit hub airport. In 2005, the number of return domestic trips by residents was about six per thousand population, with a similar number of international return trips (assuming that all transit is by foreigners and that Uzbek nationals account for half of international trips and 80 per cent of domestic trips). By comparison, developed nations average multiple trips per capita per annum.

Airbus’ Global Forecast 2001-20 notes that “While demand will primarily be driven by economic growth, another increasingly powerful demand driver will be the level of real fares. Two factors are playing a role. Firstly, as markets develop and air travel becomes more generally affordable, a higher proportion of travel is for personal reasons, and more and more people will base their travel decisions

PADECO/IKS 22 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report on the availability of low and affordable fares. Secondly, the growing purchasing power of corporate travel offices resulting from the Internet and e-commerce is now making business travel at least as sensitive as leisure travel, if not more so. The increasing importance of low fares as a demand driver will be one of the key characteristics shaping the future evolution of the air travel industry, a factor highlighted by the recent success by a number of “no frills’ carriers. Another will be a continuing expansion of the global route network, with airlines offering non-stop connections between city-pairs.” On the basis of the ICAO/Boeing/Airbus forecasts, annual passenger growth worldwide of about 5 per cent is expected to 2020, but higher than this for East Asia.

While growth in passenger traffic may be close to the worldwide average in the short term, in the medium and long term it should be well above it. Renewal of the domestic and international fleets, improved ticketing and marketing, yield management opening up low fare opportunities, possible new direct routes between regional cities, tourism development and rapid economic growth, all on a low base traffic volume, could result in annual growth rates of: 5 per cent 2005-10, 8 per cent 2010-15 and 10 per cent 2015-20. Annual cargo volume worldwide is growing at some 7 per cent, driven by the East and South-East Asian market. Annual growth of 5 per cent is forecast. Based on departure statistics, and assuming similar outbound and inbound volumes and counting transit and domestic service passengers once, volume in 2005 was 2.15 million, including 310,000 transit passengers. Air traffic forcasts to 2020 are given in Table 2-25.

T2-25 Air Passenger/Cargo Forecast 2005-20 Year Passengers (million) Cargo (‘000 tonnes) 2005 2.15 23.1 2010 2.74 29.5 2015 4.03 37.7 2020 6.49 48.1

2.7 IMPACT OF DEMAND GROWTH

The forecast growth in demand to 2020 would result in: (i) better utilization of network assets; (ii) increased profitability for operators, given that marginal cost is below average cost; (iii) a requirement for a larger vehicle fleet, more rolling stock and more aircraft; and (iv) some additional network capacity.

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3. Transport Sector Current Status

3.1 OVERVIEW

Uzbekistan celebrated 15 years of independence on 31 August 2006. In this period, the role of transport has changed from playing a small part in the vast, integrated, centrally-planned economy of the USSR, to that of serving the needs of a new nation targetting economic self-sufficiency. Infastructure networks developed without reference to national borders became post-1991 suddenly dysfunctional. Independence transformed transport demand. Out of the immediate post- independence chaos, the basic elements of a sector fit for new purpose have been put in place. There is adequate network capacity and generally good coverage, although transport is still performed predominantly with the inherited rolling stock and vehicle fleets. Remaining concerns are: (i) under- funding of road and rail maintenance, priority having been given to constructing missing domestic links; (ii) replacment of the ageing bus, truck and rail rolling stock fleets; and (iii) reversing the deterioration in some urban transport services.

3.2 ROAD INFRASTRUCTURE

3.2.1 Network The main domestic road corridors are illustrated in Figure 3-1, with international corridors shown in Figure 3-2. Major corridors serve both domestic and international traffic (section 3.2.2). The length of road by type and category is given in Table 3-1. Primary (common use) roads have since March 2006 been administered and funded by the Road Fund, under the Ministry of Finance, while maintained by Uzavtoyul. Responsibility for other roads is split between regional and city authorities and state and other enterprises. Much of the network has been constructed to generous design standards, with major corridors in the main dual carriageway. Volume:capacity ratios are relatively low, with a high proportion of light vehicles.

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TA4659-UZB Transport Sector Strategy Final Report

T3-1 Length of Road Design Primary (Common Use) Km % Category Km

International 3626 2.0 I 2246 National 16909 9.2 II 5363 Regional 21995 12.0 III 7800 IV 19333 V 7788 Sub-Total 42530 23.1 Total 42530

Secondary and Urban Rural roads 59267 32.2 Rural streets 52152 28.4 Urban roads 17807 9.7 Others 12093 6.6 Sub-Total 141319 76.9 Total 183,849 100.0

3.2.2 Road Corridors Twenty corridors are designated in international agreements: the five mainly used by road transporters are given in Table 3-2.

T3-2 Prime Road Corridors

RD1 (Europe, Russia, China, Kazakhstan and Kyrgyz Republic) - Chimkent (Kaz) – Gisht Kuprik/Yallama – Tashkent – Samarkand – Bukhara – Alat - Farap (Turkmenistan) – (Iran and Turkey).

RD2 Tashkent – Kokand - Andijan – Dustlik - Osh (Kyrgyz Republic) – Kashgar (China).

RD3 Samarkand – Karshi – Termez – Saryasiya - Dushanbe (Tajikistan)/Termez – Ayritom - Hayratan (Afghanistan) – (Iran and Pakistan).

RD4 Samarkand – Jartepa - Panjikent (Tajikistan).

RD5 Bukhara-Nukus-Kungrad - Beyneu (Kazakhstan) – Astrakhan (Russia).

The most important is north-south corridor RD1: M39 Chimkent – Tashkent - Samarkand, M37/M371 to Bukhara and south to the Turkmenistan border at Alat. Road surface quality is fair/good, apart from short sections south of Bukhara, in particular approaching Alat, where some improvements are in progress. The direct Tashkent-Samarkand route transits Kazakhstan, a section generally bypassed, increasing the distance by 56km. A meeting between the Presidents of Uzbekistan and Kazakhstan in Samarkand in March 2006 resolved some of the transit issues.

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Corridor RD2, although important for domestic traffic, is less so for international/transit traffic. After the opening in 2000 of the twin tunnels on the A-373 under the Kamchik Pass, most Ferghana Valley traffic no longer transits northern Tajikistan. The A-373 is mostly dual carriageway, with widening of much of the remaining single carriageway in progress/planned.

International traffic on corridor RD3 declined due to security and other issues with Tajikistan and because of restrictions on traffic to/from Afghanistan, removed late-2005. Some sections of the Karshi-Surkhaendarya Valley route are difficult for heavy vehicles. The Bukhara-Karshi link is important for traffic through Farap (Turkmenistan) to Dushanbe.

Corridor RD4 carries little transit and international traffic due to the limited hinterland on the Tajik side. It is predominantly used for local trade and for activities relating to mining operations higher up the valley in Tajikistan.

Corridor RD5 is increasingly important for international traffic to Russia and is being upgraded. It is also the main domestic corridor west of Bukhara.

3.3 RAIL INFRASTRUCTURE

3.3.1 Network The UTY network is CIS gauge, 1520mm. The operational system length as of 1 January 2005 was 4014 route km, 430km of which were double-track. Continuous welded rail was installed on 2300 track km, with 3700 track km of reinforced concrete sleepers. Routes around Tashkent and the Tashkent-Samarkand mainline are electrified (in total 594 route km – 25kV AC). The line to Angren is being electrified. The rest of the system is worked by diesel traction. Automatic block signalling is installed on 2300 route km, with 1700km under centralized train control and 3900km with train radio communication. The rolling stock fleet comprises 565 locomotives (260 of which are in operation), 27,600 wagons and 800 coaches.

There are 56 privately operated networks serving 1210 enterprises, in total 4000 track km, 600 locomotives and 6000 wagons. Responsibility for these lines is split between three ministries and 39 agencies, with 14 local governments also involved.

Within the USSR, the railway was part of the Central Asian Railway, one of 32 divisions of Soviet Railways, under the Ministry of Railways in Moscow. In 1990 this division operated 6330 route km (4.3 per cent of the total Soviet Railways system), handling 111 billion tonne km (3.0 per cent) and 7.4 billion passenger km (1.8 per cent). Following the 1991 breakup, a successor organization, under the same name and headquartered in Tashkent, operated the railways in Uzbekistan, the southern part of Kazakhstan, the Kyrgyz Republic, Tajikistan and Turkmenistan. Uzbekistan Temir Yullari (UTY) was

PADECO/IKS 28 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report created in 1994, following division of the Central Asian Railway. The Central Asian Railway was developed primarily to connect the republics to the (now) Russian Federation, rather than as integrated local networks for the countries, with the then domestic borders not considered in routing decisions. After the break up, the now international borders divided many lines, necessitating transit arrangements between countries to accommodate essentially domestic movements. This situation has been the main driver of new line construction since independence throughout Central Asia.

Underinvestment since independence and a shortage of foreign exchange has led to a deterioration in the infrastructure (there are some 1500 temporary speed restrictions due to poor track condition) and in rolling stock (lack of spare parts, obsolete equipment). The previously integrated network has completely fractured, although opportunities for partial reintegration should be explored as cooperation between neighbours rebuilds. The railway is facing increasing competition from road transport. Real increases in long distance passenger fares led to a decline in traffic. Railway operation in the USSR was centrally directed, with traffic allocated under quantitative quotas: service quality and responsiveness to customers’ needs was not a prime consideration and there was little interest in intermodal transport.

The Government, with ADB assistance, has taken a number of steps to reform the railway. UTY has been converted to a State Joint Stock Company (SJSC) and non-core activities have been privatized and divested. Some core activities have been corporatized, with UTY retaining a 51 per cent shareholding: (i) passenger services (JSC Uzjeldorpass); (ii) wagon repair (JSC Uzremvagon); (iii) refrigerated transport (JSC Dorreftrans); (iv) container transport (JSC Uzjeldorcontainer); and (v) the Tashkent coach repair plant. All housing, schools and kindergartens have been transferred to local aithorities, as well as some medical facilities.

3.3.2 International Links History may well record 2000-20 as a second golden age of railway construction in Central and East Asia. A confluence of political and economic developments is transforming rail networks to an extent and in ways impossible to envisage pre-1990. The fracturing of the USSR, rapid globalization and the emergence of China have unleashed development pressures, not all pulling in the same direction. Lines are being built for purposes ranging from entirely strategic to wholly economic. Uzbekistan is surrounded by a building boom (and also contributing its own new lines). Paradoxically, the explosion in line construction follows an unprecedented collapse in rail traffic for the successor railways to Soviet Railways.

Central Asia gained rail access to open seas with the construction of the Alanshankou - Drujba line in 1991 and the Tedjen (Sarakhs) – Meshhed line in 1996, connecting Pacific and Indian Ocean ports. More recent and planned developments are of great scope:

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China is constructing the world’s largest dedicated high speed passenger network, which itself is only a small part of its 100,000km route expansion and upgrading programme to 2020, one of the focuses of the programme is to “look west”. Work started in November 2004 on a second route to the Kazakhstan border, the 295km Jinghe-Yining/Korgas border free trade zone, at a cost of US$770 million. The 480km Urumqi-Dostyk (Kazakhstan border) line is to be double tracked.

Iran opened the 800km Mashhad-Bafgh line in May 2005, facilitating traffic between Uzbekistan and Bandar Abbas via Serakhs (Turkmenistan border), reducing the Serakhs-Bandar Abbas distance by rail by 1000km. Although the line is single track, provision for a second track has been made. Bogie changing capacity at Serakhs is being increased from 160 to 300 wagons per day. The Kerman- Zahedan line linking to Pakistan is nearly complete. Iran is investing US$2.5 billion on further expansion, including a new 511km Astara (Azerbaijan)-Rasht-Qazvin Caspian Sea coast line linking Iran, Azerbaijan and Russia. A Sangan-Herat (Afghanistan) line is planned.

Kazakhstan and China signed a statement on cooperation in railway construction in July 2005. A US$6 billion project to construct a 3080km 1435mm gauge east-west line through Kazakhstan for Euro-Asia traffic has been announced. The line, originally planned for completion by 2011, would run from Dostyk to Aktau on the Caspian Sea. The 302km Dostyk-Aktogay section, expected to be built first, parallels the existing CIS gauge line: change of gauge would then move from Dostyk to Aktogay. The second stage, west from Aktogay, would be half on new alignment and half parallel to the existing CIS gauge lines. To complement the east-west project, a 540km Sakaulskaya-Beyneu dual gauge line is planned, to link the south with Aktau. Annual cross border traffic with China is about 8 million tonnes, but only some 1 million tonnes is transit traffic to Europe. A standard gauge line might increase this to up to 30 million tonnes.

Turkey is building a 14km cross-Bosphorus rail tunnel at a cost of US$930 million, expected to open in 2009. It is considering a line around the north of Lake Van, to replace the existing train ferry service.

Turkmenistan opened the US$2 billion 540km Ashgabat-Dashoguz Trans-Karakum line in March 2006, a north-south line of potential importance for Uzbekistan as part of a new corridor Russia- Kazakhstan-Uzbekistan-Turkmenistan-Iran. A new east-west line along Uzbekistan’s southern border, including a new Amuradya bridge, is nearing completion.

Other developments include reestablishing the north-south Korea rail link (Korea is an important trading partner), which is in test operation and linking South-east Asia with the Subcontinent.

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3.3.3 Corridors The four key international/transit rail corridors are given in Table 3-3.

T3-3 Rail Corridors

RL1 (Russia, PRC, Kazakhstan and Kyrgyz Republic) – Shymkent - Chengeldi (Kazakhstan) – Tashkent – Samarkand – Bukhara – Hodgadavlet – Farap (Turkmenistan) – Turkmenabad – (Iran and Azerbaijan).

RL2 Tashkent – Nou (Tajikistan) – Kanibadam (Tajikistan) – Andijan – Osh (Kyrgyz Republic).

RL3 Samarkand – Karshi - Talimarjan (Turkmenistan) – Kelif (Turkmenistan) – Termez – Dushanbe (Tajikistan)/Hayratan (Afghanistan).

RL4 Samarkand – Navoy – Nukus – Karakalpakiya – Oasis (Kazakhstan) - (Russia, Ukraine and Central Europe).

All the corridors are important international/domestic routes. Corridor RL2, Andijan – Tashkent, is operating well below capacity because of border facilitation issues and the high cost of the Tajikistan transit. Government strategy has been to either construct bypass lines to avoid transits, or to redirect traffic onto existing lines, despite the increase in distance involved.

The main international/transit route is north-south corridor RL1. Southbound, most of the transit traffic originates from Kazakhstan (89 per cent) and central Russia (10 per cent), northbound most transit traffic goes to Kazakhstan (74 per cent) and the Kyrgyz Republic (25 per cent). RL1 is also important for Uzbekistan’s trade, being the main route northwards to Russia, a major trading partner, and southwards for cotton exports to Bandar-e-Abbas, via Sarakhs and to Poti via Turkmenbashi. Transit through the Kazak enclave near Tashkent has been avoided by diverting traffic to the (longer) route via Khavast.

Corridor RL2 is an important domestic line, also used for international transit traffic to/from Osh region and the Leninabad region of northern Tajikistan: transit freight volumes are not high, with only a small catchment area around Osh. However, the route is important for imports/exports to/from the Ferghana Valley and for the UzDaewoo factory near Andijan, linking to its former parent company in Korea.

Corridor RL3 connects to Afghanistan. Traffic volumes have declined substantially in recent years due to the situation in Afghanistan and lower demand for construction materials from Kazakhstan, Russia, Belarus and the Kyrgyz Republic. The route passes through Turkmenistan, a transit that will be avoided with the opening of the Tashguzar-Boysun-Kamkurgan line end-2007. Sections at each

PADECO/IKS 31 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report end are already operating and a further 40km was expected to open in September 2006. This line and planned rehabilitation of the Marokand – Karshi line will facilitate Tajik transit traffic and provide an attractive route for shipments to Afghanistan from the north and west, Russia, the Ukraine and western Kazakhstan. Total southbound traffic is 4.2 million tonnes, but most of this passes through Turkmenistan to Serakhs and beyond via corridor RL1, with only 20 per cent on RL3.

Corridor RL4 is a main route to southern Russia and Eastern Europe, via Astrakhan. The corridor is important for Uzbekistan, Turkmenistan and Tajikistan trade with Russia, although RL1 is the primary route. The Navoi – Uchkuduk - Sultanuizdag – Nukus section was completed in 2004, eliminating the need to transit through Turkmenistan.

3.4 AVIATION INFRASTRUCTURE

UzA is responsible for airport operations through the Department of Maintenance of Ground Facilities and Management of Airports. Details of the airports and activities are given in Table 3-4. There are 11 civil aviation airports, of which 5 are accredited for international services. In 2005, traffic totalled 1.24 million passengers (departures) and 10,000 tonnes of freight, with 30,000 flight movements. Traffic is relatively light. Runway and terminal capacity is not at present a constraint. Each airport, other than Tashkent, has a single runway, which also doubles as the taxiway. Tashkent has two runways, although normally only the Category II runway is used, again acting as a taxiway.

Projects undertaken to upgrade airport support services and physical infrastructure include: (i) air traffic control (ATC) at Tashkent Airport, financed by Societe Generale (US$7.6 million); (ii) EBRD and KfW assistance at Tashkent (US$4.2 million), including rehabilitation of the international terminals and the provision of four airbridges; (iii) an aircraft servicing centre in Tashkent, developed in cooperation with Lufthansa Technik and KfW (US$17.8 million), servicing all UzA’s aircraft and providing maintenance for other airlines; (iv) reconstruction and development at Navoi, financed by the Government, Societe Generale and Bayerische Vereinsbank (US$35.7 million); (v) and upgrading at Samarkand, Bukhara and , funded by Japan and (vi) works at the other airports with internal funding.

Planned airport projects include: (i) modernization of Nukus and Termez; (ii) construction of cargo handling terminals at Tashkent and Samarkand; and (iii) completion of the modernization programme and improvement of safety systems at Tashkent.

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T3-4 Airport Facilities and Traffic Airport Passengers Freight Movements Terminals/ (2005) (2005 tonnes) (2004) Facilities Tashkent 926467 8773 15088 International Domestic Transit Cargo Maintenance Hangers Urgench 48042 30 1367 Passenger Termez 46134 830 3139 Passenger Bukhara 45415 19 1555 Passenger Nukus 41673 14 1417 Passenger Samarkand 40185 69 803 Passenger Maintenance Hangers Ferghana 25829 47 519 Passenger Namangan 23496 52 1761 Passenger Karshi 22661 5 966 Passenger Andijan 20422 18 614 Passenger Navoi 4032 3 354 Passenger Total 1244376 9961 27583 Source: UzA

3.5 INLAND WATERWAYS INFRASTRUCTURE

3.5.1 Waterways

Inland waterway traffic is concentrated on the Amudarya, which flows east-west from Tajikistan/Afghanistan as the Uzbek/Afghan border, turning north-west towards the Aral Sea, bordering Turkmenistan. East of Termez, the river is navigable as far as Shir Khan Bandar in Afghanistan and Nizhny Pianj in Tajikistan, some 100km upstream and westwards to Turkmenabad, some 400km downstream. Navigability is unconfirmed, in the absence of dredging operations in recent years.

Inland waterway transport was important when in the USSR, with navigation possible further downstream as far as Khorezm and Nukus in Karakalpakistan. However, the need for water for irrigation and hydro-electricity has reduced the flow and the Amudarya no longer flows to the Aral Sea and is considered non-navigable downstream of Turkmenabad, reducing the navigable length by about 400 km.

The only navigable section in regular use is between Termez and the Afghan port of Hayraton, 26km upstream. The water level is low in winter, but high in summer due to snow melt upstream. There are

PADECO/IKS 33 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report high levels of siltation, with numerous sandbanks making passage often difficult with the channel constantly changing. However, there is always in excess of 5m, more than sufficient for the tug and barge system in use, though support dredging is needed to maintain channels in the low water season.

3.5.2 River Port

There is only one major river port, near Termez, on the north bank of the Amudarya, close to the confluence with the Sukandarya. The port was commissioned in 1958 and rehabilitated in the 1970s. At its peak in the early 1980s it handled around 800,000 tonnes per year. Opening of the road/rail Friendship Bridge some 30km upstream has led to a steady decline in use since.

The 22 ha. port has a 1080m quay serving as river frontage. There are seven covered warehouses (four large and three small), an oil loading terminal and a river vessel shipyard. The port is rail- connected, with 12km of internal track and a handling capacity for 100 wagons simultaneously. There is a separate container handling area with a storage capacity of around 1000 TEUs. The Termez fleet consists of twelve 250-300 HP tugs and five dumb barges, with capacities of 120-500 tonnes.

3.6 ROAD SERVICES

3.6.1 Vehicle Fleet

The age and composition of the truck fleet is shown in Table 3–5. The fleet is outdated, with 97 per cent of vehicles over 15 years old and only 1 per cent under 5 years old. Another feature is the fleet profile: 75 per cent light trucks under 10 tonnes capacity, 21 per cent medium up to 16 tonnes and only 4 per cent heavy trucks over 16 tonnes capacity. The light end of the market is normally engaged in local transport and a small heavy end serves inter-regional domestic services. The vast majority of trucks are engaged in domestic transport, with only 600 vehicles registered for international use. Most of the fleet was inherited from the USSR. Following independence, most of the vehicles were sold to the private sector.

Most pre-1990 vehicles are Russian, in particular Kamaz. Unsuccessful attempts have been made to establish JVs for local assembly, because even with a relatively minor local content, quality has been a major problem. The failure of SamKOC Auto in Samarkand is an example: this facility is to assemble Isuzu buses and trucks from late-2006. With a relatively small fleet, demand for new vehicles is not sufficient to support the development of a truck manufacturing base, although the fleet age composition means that at some stage a large replacement programme is inevitable.

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T3-5 Truck Fleet Age by Capacity Capacity To 1991 1992-95 1996-00 2001-02 2003-05 Total As %

Up to 3 tonnes 16255 126 54 200 111 16746 9.6

>3 up to 10 112222 1373 588 370 450 115003 66.1

>10 up to 16 35486 490 210 150 310 36646 21.0

>16 up to 20 4259 315 135 60 45 4814 2.8

>20 0 560 240 40 50 890 0.5

Total 168222 28641227 820 966 174099 100.0

As % 96.6 1.6 0.7 0.5 0.6 100.0

Source: Uzbek Agency for Automobile and River Transport

The ownership pattern reflects the heritage of the fleet. According to industry sources, only about 5 per cent is own-account carriage, an estimated 35 per cent is individual owner drivers, 30 per cent operators with small fleets and 30 per cent larger trucking companies. The large companies may, however, account for about 70 per cent of the long distance market. Own account may be more significant than indicated, as many owner drivers are dedicated to a single client, sometimes the party from whom their vehicle was purchased, and these vehicles do not operate in the general transport market.

The truck fleet in the private sector in 2005 was 64,000, up from 44,000 in 2001. There were 22,400 private buses (two-thirds minibuses), compared with 13,500 in 2001. Private car ownership was 1.12 million, compared with 1.04 million in 2001.

3.6.2 Domestic Road Passenger Detailed monthly data by region is prepared by UARRT for the passenger and freight activities of regional road service associations. As more activity transfers to the private sector, however, these are declining in importance. They operated 5769 buses as of June 2006, with 53,382 seats (9 per vehicle - most are microbuses). In 2005 they carried 1.13 billion passengers, 5.58 billion passenger km. Inter- city services carried 28 million. Passenger income was Soum 54 billion, an average of Soum 10/passenger km.

Intercity bus services are franchised to private operators by UARRT through route tenders. Selection is based on a number of quality criteria. Untimetabled, but frequent services operate on all main routes. There are some 400 coach routes (1245 vehicles) and 50 routes for smaller buses (663 vehicles). The coach fleet is old, with an average age of 17 years. Most coaches were acquired second hand from Europe and the vast majority have run over 1 million km. The fleet is rundown (for example air conditioning is not operated, although fitted).

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3.6.3 International Road Freight A. Traffic Imbalance International road transport was a major beneficiary of independence, with a dramatic increase in demand occasioned by the move towards a market economy. In the USSR, goods were predominantly directed towards rail and long distance road traffic was almost non-existent. With the introduction of transport charging, road transport, with its greater flexibility and speed, became attractive for the movement of non-bulk traffic, even over longer distances. As Uzbekistan assumed responsibility for its imports and exports, it required road transport resources.

Initially there was an explosion in imports, partly because sources of supply were now in other newly independent countries and partly due to the demand for products not previously available, particularly luxury and consumer goods. These imports were predominantly of higher value products, moved in relatively small consignments, ideal for road transport. Exports remained predominantly bulk movements of raw materials, more suitable to rail. As a result, international freight road transport evolved during a period of major traffic imbalances, with imports significantly greater than exports. In the late 1990s, the imbalance reached around 90 per cent, with only 10 per cent of outbound vehicles being loaded. While an imbalance still exists, it is appreciably lower, but may be still over 50 per cent in terms of utilisation of transport capacity. It should be noted that similar conditions apply ithroughout the CARs: it is a regional problem.

The imbalance, with import routing control in the originating country and difficulty in obtaining suitable outbound loads to be in a position to compete for premium inbound cargo, has constrained the growth and market penetration of Uzbek carriers to a market share of 25 per cent.

B. Underinvestment in Vehicle Fleet/Non-Compliant Vehicles The vehicle fleet is old and in urgent need of renewal. Some 400 trucks have been imported in the last 10 years of which perhaps 15 were new. About 2,000 trucks have a EU compliance standard: (i) Euro 0 – 1000 units manufactured 1989-91; (ii) Euro I – 795 from 1992-95; (iii) Euro II – 83 from 1996-2000; and (iv) Euro III – 28 manufactured since 2001. Only 600 vehicles are licensed for international work.

The environmental regulations relating to emissions and noise permit only conforming vehicles (Euro II or III) to enter certain key countries. In effect, non-compliant vehicles cannot enter the EU, Iran or Turkey, all major potential markets for Uzbek transporters. Road transport with major markets is dominated by foreign carriers. Uzbek transporters tend to be restricted to intra-CIS trade, especially to the Russian Federation.

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C. Private Sector Dominance/Representation International road transport is almost exclusively performed by the private sector. International operators are issued with an operator’s licence for up to five years by the UARRT. The Uzbek International Road Transport Association represents the interests of the sector and has 26 full members. Uzbekistan has ratified the TIR Convention and the Association is affiliated to the International Road Transport Union (IRU) and is approved for issuing of carnets. The demand for TIR carnets has risen sharply, from 838 in 2003 to some 2000 in 2005, estimated to increase to about 3000 in 2006. This high growth in part reflects an increase in international transport activity by Uzbek transporters, but mainly the benefits obtained in using the system for transiting neighbouring countries – i.e. some shipments that previously moved without carnets are using them to avoid delays and costs in transit.

The largest operator is Central Asia Trans, with around 200 vehicles based in Tashkent, the other big carriers being BK Intrans, ATEK and Shokhrukh. Other transport members are mainly small to medium-sized enterprises. In general, these operators carry cargoes supplied by freight forwarders or their clients and depend particularly on export traffic. Traffic to CIS countries, especially Russia, is attractive as non-EU compliant vehicles can be used and the route sourcing is in Uzbekistan, particularly for food products. Some shipments of cotton are also being transferred to road to assist transporters on journeys to Iran, though volumes are small.

3.6.4 International Bus Services Scheduled cross-border bus services are no longer permitted due to security reasons. Some tour operators operate cross-border services, but this is limited to low volume premium traffic. Both rail and air are highly competitive, limiting the viability of long distance services. For travel in the region, an additional deterrent is problems at borders and the operation of Uzbek-registered vehicles on neighbouring road networks. In practice, buses tend to operate to the border, passengers crossing and then using a national carrier on the other side. This eliminates bus-crossing procedures and the payment of fees and taxes.

3.7 RAIL SERVICES

3.7.1 Rolling Stock As of May 2006, the UTY fleet comprised 564 locomotives, of which 75 were electric, 791 coaches and 25,407 wagons. Less than 2 per cent of UTY rolling stock is under 10 years old. The age distribution is given in Table 3-6. Of the active coach fleet, 22 per cent date from pre-1980 and 83 per cent are pre-1990. Coaches in general are old, with the exception of those on the Registan service and 25 acquired with Japanese support for use on the Tashkent-Moscow service. “The Shark” is operated with 16 renovated coaches. Pre-1989, 15 new coaches were supplied annually, compared with an average of only 2 per year since.

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T3-6 Age Distribution of UTY Rolling Stock (in Years)

Type Under 10 10-20 20-30 Over 30 Total Electric locomotive 12 32 1 30 75 Diesel locomotive - 63 171 - 234 Shunting locomotive - 42 170 43 255 Total locomotives 12 137 342 73 564 Coaches 35 284471 1 791 Wagons 416 715513009 4827 25407 Source: UTY

3.7.2 Domestic Freight UTY is predominantly a freight railway, in 2005 performing nearly nine times as many tonne km as passenger km. Most major industrial plants are rail-connected. The main bulk commodities are carried over long distances: cotton, grain, fertilizer, crude oil and petroleum products. Road transport is not a viable alternative for most of these movements and UTY is a quasi-monopolist, but it is subject to freight tariff approval by the Ministry of Finance. Rates are well below what the market would bear. Freight traffic is originated largely by the public sector and there is little commercial pressure on UTY to upgrade services, to innovate or to develop/withdraw services. Management is now reviewing the future of the business, collecting detailed data on traffic patterns. This is likely to show that there is a core of profitable bulk traffic flows, but that many customers originate too little traffic to be profitably served. In the medium term a large-scale rationalization of infrastructure and services should be undertaken.

3.7.3 International Freight Following independence, the volumes of both international and transit traffic declined. With centralised traffic routing discontinued, rail lost much of its premium traffic and many movements of intermediate goods became uneconomic. Rail was left with bulk and semi-bulk long distance traffic, with most higher value traffic transferred to road. A similar development occurred in many CIS countries with new market economies.

International rail freight services remain essential for economic development. Rail carries a large share of longer distance bulk movements: oil and oil products, wheat, fertilizer and cotton and of low value products such as construction materials. However, it has failed to retain or break into the more profitable added-value markets and as a result has become increasingly reliant on traffics for which road transport is not a serious competitor.

The quality and range of UTY freight services has not changed significantly over the last 10 years. Most traffic is either Government controlled or captive to rail, with little or no competition, other than

PADECO/IKS 38 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report for intermodal transport. There may be little incentive to improve quality of service or increase customer-focus, particularly as many of the service constraints are external. Customers are generally not particularly demanding and accept the level and variability of service in return for corresponding tariffs. This applies throughout the region and UTY performance is comparable to that of its neighbouring CIS railways.

3.7.4 Intermodal There is some rail/road intermodal transport (using more than one mode, usually under a single contract of carriage/consignment note), but overall, intermodal market penetration is low. Two major forwarders are engaged in intermodal container transport: (i) Shoshtrans - a true intermodal operator, providing integrated services, with a terminal at Chukursay, Tashkent and a smaller facility at Margulan, as well as its own road delivery fleet. It offers customs brokerage services and can provide a fully integrated intermodal service; and (ii) Uztemiryolkonteynor with 23 rail yards, of which 13 are equipped to handle containers, the largest at Tashkent-Tovarniy. While it also offers container forwarding, it has a much smaller road fleet and hire-in transport for distribution. As a UTY subsidiary, it focuses on booking and arranging container handling movements for UTY, including bookings made by Shoshtrans and other forwarders. It is consequently more engaged in railhead-to-railhead container movements and less in intermodal. There are 14 terminals that can handle ISO containers. The necessary equipment to handle intermodal traffic is generally available, though some modernization may be required.

Whilst there have been a number of attempts to establish dedicated block container trains under initiatives such as TRACECA and others, these have generally not been successful. The major reasons are the relatively small number of containers moving, the dispersed profile of origins and destinations and the trade imbalance. Thus, containers are carried on wagons in general freight trains, along with non-containerised cargo. The quality of service for rail container traffic is virtually the same as that for general cargo.

3.7.5 Domestic Passenger The long distance passenger timetable is given in Appendix III-1. In addition to international/transit services and local services, 46 service pairs are operated weekly. Principal trains are the daily Tashkent-Samarkand and twice daily Tashkent-Bukhara services, the 5-times weekly Registan service Tashkent-Samarkand (developed with the support of ADB) and the alternate day Tashkent-Karshi, Tashkent-Termez services. The latter transits Turkmenistan, but completion of the Guzar-Kumkurgan line end-2007 will avoid the transit and shorten the route by 80km. A daily Tashkent-Termez service will then operate. The weekly Andijan-Bukhara service transits Tajikistan. Service has been reduced from 3 times daily to weekly as a result of falling demand following improvement of the A-373 road. If this road is closed by snow, special train services are operated: two 20-car trains ran for some days in early-2006.

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A second daily Tashkent-Bukhara service (“the Shark” – 8 coaches) was introduced on 1 September 2006, reducing journey time from 12 to 8 hours. While the 6-car Registan operates at up to 120kph, other services are of up to 18 coaches and run at maximum speeds of 80-100kph. Load factors vary by season and route. In winter many trains are full.

About 80 per cent of suburban traffic is in the Tashkent/Jizzak regions: Tashkent-Khodjikent (4-times daily return), Tashkent-Angren (twice daily, reduced from 4-times daily due to a falling traffic) and Tashkent-Gulistan/Khavast (3-times daily). There are local services from Karshi, Samarkand and Bukhara. Suburban rolling stock is old. It includes 3-car electric multiple units acquired second hand in 1976-78.

Many service improvements are planned, stalled by lack of rolling stock, including a luxury tourist service Tashkent-Samarkand-Bukhara-Kashkadarya - Karshi-Tashguzar-Boysun-Kamkurgan-Termez. The Pamir Mountains Boysun-Termez route also has tourist potential. A Central Asia Railpass covering the region has been proposed and is under dicscussion. It would cover multiple systems thoughout the CARs.

3.7.6 International Passenger International passenger services account for 80 per cent of revenue. As part of the USSR, a large number of services were operated throughout the region and beyond, 20 pairs of trains daily between Tashkent and the north – the Kazakhstan border is 24km from Tashkent. As detailed in Appendix III-1, seven pairs of services operate weekly to Moscow, Saratov, Ufa and Chelyabinsk (operated by Russian Railways) and one to Harkov, Ukraine. A service to Novosibirsk is planned in 2007 and a Tashkent-Astana service has been agreed between the two railways, but no starting date has been set. There is a weekly service Almaty-Tashkent-Nukus operated by Kazakhstan Railways. International services have high load factors, averaging 80 per cent. Other cross-border trains are transit services of Tajikistan/Turkmenistan railways: most cannot be used by passengers boarding/alighting in Uzbekistan. Delays at the Uzbekistan/Kazakhstan border average 1 hour in Uzbekistan and 2 hours in Kazakhstan, with similar delays at the Kazakhstan/Russian Federation border.

3.8 AIR SERVICES

3.8.1 Uzbekistan Airways Uzbekistan Airways (UzA), the national airline, was formed in 1992 on independence out of the Uzbekistan division of Aeroflot. The company was established by a Decree of the Cabinet of Ministers and remains wholly Government owned, reporting to the Cabinet of Ministers. UzA has 15,000

PADECO/IKS 40 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report employees, with plans to reduce this number to 13,000 by 2010. It has operated since February 1992 under the ICAO code UZB.

UzA is the aviation sector, embracing not only scheduled domestic and international airline services, but also all airports, navigation services, maintenance and catering. For March-October 2006 UzA operated to 20 CIS cities (54 flights weekly), 18 international to 15 other countries (55 flights weekly) and to 11 domestic airports (151 flights weekly), where it is the sole domestic operator. The route network is under continuous review, the Tashkent-Shanghai route, for example, was discontinued after one year of operation due to its poor load factors. Cities served are shown in Table 3-7, including flights operated by other airlines with an HY flight number under code sharing arrangements.

T3-7 UzA Route Network March-October 2006 Domestic (RT weekly) CIS International

Andijan (3) Almaty Amritsar Bukhara (12) Astana Athens Ferghana (5) Asgabat Bangkok Karshi (16) Baku Birmingham Namangan (3) Bishkek Beijing Navoi/ (7) Chelyabinsk Delhi Nukus (21) Ekaterinaburg Frankfurt Samarkand (5) Kazan Hanoi Termez (21) Krasnoyatsk Istanbul Ungench (22) Kiev Kuala Lumpur Krasnadar London Heathrow Mineral Vody New York Moscow Osaka Novosibirsk Paris Omsk Rome Rostov Seoul Samara Sharjah St Petersburg Tel Aviv Ufa Urumchi Tyumen

Source: Uzbekistan Airways

3.8.2 Other Airlines

A number of foreign airlines provide international services, predominantly from Tashkent International Airport. These are listed in Table 3-8.

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T 3-8 Foreign Airlines Services

Carrier Route Weekly Frequency

Aeroflot Tashkent – Moscow 5 Aeroflot Don Tashkent – Rostov 1 Asiana Tashkent – Seoul 2 British Airways Tashkent – London 3 China Southern Tashkent – Urumqi 2 Dalavia Airlines Tashkent – Kharbarovsk 1 Domodedova Airlines Tashkent – Moscow 6 Samarkand - Moscow 2 Ferghana – Moscow 2 Bukhara – Moscow 1 Gazprom Air Nukus – Moscow 1 Grumov Air Namangan – Moscow 1 Andijan – Moscow 1 Bukhara – Moscow 1 IMAir Tashkent – Baku 2 Iran Air Tashkent – Tehran 1 Krasnayarsk Tashkent – Krasnayask 1 Kyrgyz Airlines Tashkent – Bishkek 1 Lufhansa Tashkent – Frankfurt Freight only Perm Airlines Tashkent – Perm 1 Pulkova Tashkent – St Petersburg 2 Bukhara – St Peterburg 1 Namangan – St Petersburg 1 Samarkand – St Peterburg 1 Samara Airlines Tashkent – Samara 1 Bukhara – Samara 1 Siberia Airlines Tashkent – Novosibirsk 1 Tbilisi Air Shili Tashkent- Tbilisi 1 TransAero Tashkent – Moscow 3 Bukhara – Moscow 1 Turkish Airlines Tashkent – Istanbul 4 UMAir Tashkent – Kiev 1 Uralsk Airlines Tashkent – Ekaterinaburg 1

Indications from foreign carriers suggest that their lack of penetration is in part due to the nature of the passenger/freight market, rather than to specific official or technical restrictions on access. Appendix III-10 lists the 37 Bilateral Service Agreements, many of which appear to be non- operational. The major growth is in services to the CIS, particularly Russia. Many of these are jointly operated with Uzbekistan Airways, with joint flight numbers. Moscow is the major hub for for other CIS destinations and also to countries not served by Uzbekistan Airways. A feature is the large number of once-a-week services: the minimum frequency for a scheduled service. This may be acceptable given the personal nature of much of the traffic – passengers are willing to wait a week for return as they are visiting relatives etc.

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3.8.3 Airport Services With the exception of some minor contracting-out of retail services, cafes etc, all airport services are provided by UzA as the airport owner and operator. At major airports, services provided by the airport authority or external parties include: (i) ground and approach radar; (ii) fire services; (iii) aircraft parking and pushback services; (iv) baggage handling; (v) passenger handling; (vi) cargo handling (vii) cargo terminal operations; (viii) aircraft refuelling; (ix) aircraft catering; (x) aircraft maintenance; (xi) car parking; and (xii) restaurants, duty free and retailing outlets.

3.9 LOGISTICS

3.9.1 Freight Forwarding A. Freight Forwarding Association

Freight forwarding is still relatively immature despite the significant progress achieved since the Uzbekistan International Forwarders Association (AIFU) was formed in 1996, when it became a full member of the International Association of Freight Forwarders (FIATA). AIFU’s registration with the Ministry of Justice gave the industry some much needed recognition. Some 42 companies (around 60 per cent of forwarders) are members of the Association, including foreign representations. Membership is concentrated in Tashkent, with minimal representation in the regions.

AIFU is a voluntary association of legal entities. It coordinates activities, represents and protects the interests of its members. In accordance with Resolution of the Cabinet of Ministers No.133-f of 2 April 1997, the Association has been assigned the task of ensuring further development of forwarding services in accordance with international standards and the requirements of FIATA, as well as to pursue a common policy in freight forwarding.

B. Legislative Framework The forwarding industry operates on the basis of two regulatory instruments: (i) Civil Code (Chapter 40 – Transport Forwarding Activities); and (ii) Regulations in Forwarding Enterprises and Procedures of the Provision of Forwarding Services approved by Resolution of the Cabinet of Ministers No. 348 of 9 September 2000 On the Enhancement of Forwarding Activities, which determines the types of forwarding services. By virtue of AIFU efforts, ‘Freight Forwarder’ was included in the national classification of professions in 2004.

C. Scope of Services The majority of forwarders are unimodal, with the rail sector dominated by two major forwarders – Shoshtrans and Uzbektemiryulexpediciya – that together handle large consignment rail shipments. However, there are a growing number of smaller entities that act as rail forwarders, arranging movements of other shipments, either directly with the railway or often through the two major forwarders, especially Uzbektemiryulexpediciya. The rail commission payment system makes

PADECO/IKS 43 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report this relatively easy and the responsibility of the small forwarder is usually completed when the goods are handed over to the rail organization – i.e. their responsibility is limited to the domestic operations. A significant part of the membership of AIFU is made up of these small organizations.

The road forwarding sector is dominated by foreign companies or their local representatives, as the dominant flow is inbound and routing control is thus overseas. Many local forwarding entities lack the necessary access to international forwarding networks through partnership arrangements or availability of foreign exchange to be able to effectively penetrate this market. In relation to imports, their primary role is the arranging of local services, such as Customs clearances and delivery, on behalf of foreign principals. For exports, their primary role is the arranging of international transport services and preparation of the necessary documentation. These functional responsibilities represent the traditional forwarder scope of services and to a certain extent reflect the current level of market maturity.

3.9.2 Logistics Centres The development of logistics centres is a Government priority and has been Government policy for many years. Feasibility studies have been undertaken, but no terminals have been developed, principally due to funding difficulties. The President referred to the need in an address of 10 February 2006. Article 2 of Minutes No.1 of the Cabinet of Ministers of 10 February 2006 states that: “Resulting from the socio-economic development in 2005 and the major priorities for the deepening of economic reforms in 2006 and having considered the issue of the establishment of logistics centres to provide the most balanced and effective organization of freight transport, the Ministry of Economy states: the experience of foreign countries shows that logistics centres formed on the basis of existing freight terminals have an important place in the logistics chain in promotion of the movement of raw materials and finished products from manufacturers to consumers……Taking into account that the main export movements are through railway border stations of Keles, Karakalpakiya and Hodjidavlet, it is reasonable to consider establishing logistics centres based at the following stations: (i) Chukursay (for Keles border); (ii) Bukhara (for Karakalpakiya and Hodjidavlet borders); (iii) Andijan (multimodal traffic on Andijan-Osh-Irkeshtam route); and (iv) Termez (Trans- Afghan transport corridor). Further, the cotton terminals at railway stations might possibly be considered as a base for establishing transport and logistics centres. This decision is based on the fact that freight railway stations handling large volumes have enough secondary tracks, warehouses, loading/unloading facilities, representative offices of shipping organizations and customs facilities… However, in order to develop an agreed common decision on establishing logistics centres, it is necessary to conduct both a preliminary examination and a detailed study.”

The Cotton Consolidation Centre at Bukhara and the Chukursay intermodal terminal are embryonic logistics centres. The former facility was developed in association with the TRACECA programme and

PADECO/IKS 44 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report conceived as a logistics centre, but it became a dedicated cotton terminal. While it has handled some other commodities, it remains predominantly a cotton facility.

Subsequent to the Cabinet of Ministers’ statement, on 14 February 2006 the Ministry of Economy assigned various parties to prepare proposals to ensure the most rational and efficient organization of export transport. It should be noted in this context that a logistics centre is simply a place for logistics and therefore what it contains and does is open to wide interpretation: the global logistics industry has not agreed on a definition. A conventional understanding within a developed logistics environment is a complex of warehousing and distribution facilities at a key transport node, predominantly used by third party logistics providers (3PLs).

3.10 INLAND WATERWAY SERVICES

Inland waterway transport flourished in the USSR, with annual volume of 800,000 tonnes per annum. Given the trade orientation toward Russia, there was significant demand north-westerly/south-easterly – i.e. along the river. However, with independenceand the consequent combination of the loss of state routing controls, transport rates becoming based on cost, the creation of national borders and the reduced traffic demand along the northwest-south east axis, led to a rapid decline in water transport. The construction of the Friendship Bridge at Ayritom led to a further reduction in its use.

The waterways staged a brief revival with the need for transfer of humanitarian aid across the river during the conflicts in Afghanistan. This consisted mainly of foodstuffs, fuel and construction materials. The primary need to use water transport was due to the inability of the competing road and rail modes to handle the demand at that time. However, such traffic has reduced considerably due to lower levels of aid being required in Afghanistan and the re-establishment of the road links between the north and the rest of that country. Theoretically, rail and road can now easily meet all the demand.

Restrictions were imposed in 2005 for security reasons on the movement of road traffic across the road/rail bridge. The majority of outbound trade tends to be destined for the northern provinces, particularly to Mazare Sharif, with its dominant Uzbek ethnic community. The result was that the road traffic had to be diverted to the port, where it was temporarily being stored and when sufficient tonnage was available a barge was sent upstream to Hayratan port, where it is discharged manually and forwarded by road to Mazar. Throughput rose sharply to 170,000 tonnes, of which 45,000 was UN cargo. Non-aid cargo consisted mainly of agricultural produce, such as pulses, onions and potatoes and there was an expanding trade northbound of fruit, mainly mandarin oranges and grapes. Given the seasonal nature of much of these goods, most traffic is handled November-May, when the river is at its lowest.

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The situation changed radically in 2006 with the reopening of the bridge to road traffic. Most of the traffic now moves directly across by road to Afghanistan, with the port only handling 18,000 tonnes in the first half of 2006. Traffic consists partly of agricultural produce and partly of aid shipments for the UN and supplies for the foreign military in Afghanistan, with the port acting as a consolidation centre prior to its distribution across the river.

The operational function of the port and vessels is to provide a cross-river ferry service. All cargo handled at the port is brought by road transport, or in the case of imports leaves by road. This is because the consignments tend to be relatively small and consist of potentially perishable products so need the speed and reliability of road transport.

3.11 URBAN TRANSPORT

3.11.1 Tashkent A. Organization The public transport organization structure was revised in 2006, as described in Appendix III-16. Since early 2006, public transport operations have been the responsibility of Toshshahartranskhizmat (ATUTS), to which 38 enterprises (17 joint stock companies, 6 LLEs and 15 unitary enterprises) report. The Department of Licensing and Coordination of Passenger Transport under Tashkent City Khokimiyat also has important responsibilities. The respective concerns of ATUTS and the Licensing Department are set out in Tables 1 and 2 of Appendix III-16.

Under a Presidential Resolution of 3 July 2006, the state bus company Tashavtobustrans was to be privatised in two stages, with 159 (paid for) Mercedes buses covered in the first stage 2006-07 and 362 (partly paid for) in the second stage 2008-10. A third stage is now envisaged, covering 300 Mercedes buses to be acquired in 2007-08. The US$40 million cost of these buses is expected to be financed by an advance payment of 50 per cent out of the Fund for Reconstruction and Development and an interest-free repayment of the balance over 7-years, possibly via a leasing arrangement.

B. Buses/Minibuses The operational bus network comprises 125 city and 5 country routes (2786 route km). There are 1270 buses in the fleet, with on average 93 per cent in operation during the morning peak period. The fleet includes 277 Mercedes 0405 buses acquired in 1994-97 and 306 Mercedes 0345 buses dating from 2003 (Annex 4 to Provision of the Cabinet of Ministers No 444 of 19 December 2002 Investment Programme 2003 at a cost of US$38.1 million). Load factors are generally high, with overcrowding at peak periods. Minibus routes are operated under franchise by the private sector: 172 routes, with a fleet of 1767 (including over 500 microbuses - Damas).

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C. Metro The Metro and tram route networks are illustrated in Figure 3-3. Construction of the metro was authorized in 1973. was opened in 1977, Line 2 in 1987 and Line 3 partially opened in 2002. There are 29 stations on the 36.1km network. A total of 942 end-to-end services are operated daily, with 39 4-car trains operating in peak periods, 74 per cent of the fleet of 212 cars. Construction of the northern section of Line 3, including three additional stations and a train depot, has been suspended due to financing problems and the bankruptcy of the construction company, with 27 per cent of work completed. The planned southern section of Line 3 may never be implemented: possibly to be replaced by high speed trams. The oldest rolling stock currently in service dates from 1980, with an average fleet age of 17 years. Both Skoda and Siemens have submitted proposals for a programme of rolling stock modernization.

The flat fare of Soum 160, applying from October 2004, was increased to Soum 200 on 1 December 2006. Bus, tram and trolleybus fares were similarly increased throughout the country. Average fare per trip for monthly card purchasers following the increase is estimated at Soum 110. Introduction of a contactless smart card fare system is under consideration. This should preferably not be introduced until a common ticketing system for all public transport modes is applied.

In the late-1980s, the two lines then operating carried 600,000 ppd, compared to the June 2006 figure of 183,000 on three lines. With the rundown in traffic, there is considerable spare capacity, even at peak periods. Stations are designed for 5-car trains, but all trains are 4-cars.

D. Trams Eight tram routes operate on the 122.4km network (see Table 3-9). Routes 6/13/17 are the busiest. There are 87 Tatra (Czech) and 30 Russian trams in the fleet, with the latter being obsolescent. In 2002, the fleet totalled 196Two locally-built trams are being tested. In total, there are 1115 daily end- to-end trips, with 98 trams in service in the morning peak.

T3-9 Tram Routes

Route Length Speed Route Length Speed No. km kph No. km kph

3 15.7 18.1 12 7.0 14.6 6 15.6 21.2 13 23.2 19.5 8 19.8 17.6 17 11.1 15.7 9 22.8 19.5 18 7.2 15.6

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TA4659-UZB Transport Sector Strategy Final Report

E. Trolleybuses There are 10 trolleybus routes over a 141km network. In total 1238 end-to-end services are operated daily, with 98 trolleybuses out of the fleet of 122 in service during the morning peak. As recently as 2002, the fleet totalled 213 units.

F. Other Services There are 35 designated taxi routes and licensed taxis operate for hire. Private cars have traditionally provided stop-on-request taxi services, but heavy penalties have been introduced to ensure that all transport is by licensed operators (see Appendix III-16).

There are three suburban railway lines. Frequency of service is low (see section 3.7.5) and rail plays a very minor role in the urban transport system, apart from the metro.

3.11.2 Other Cities Public transport in all cities has been transformed since the 1990s by the introduction of minibuses/microbuses, operated by the private sector under route franchises. Minibuses provide more frequent service over more extensive route networks, but most cities would like to rebuild their non- minibus networks to some extent. The trolleybus and large bus networks have lost most of their traffic to minibuses and have been largely abandoned or run down. The national trolleybus fleet fell from 344 in 2002 to 208 units in 2005. Small trolleybus systems operate in Nukus, Almalyk, Bukhara, Jizzak, Namangan,Ferghana and Urgench.

A. Samarkand Public transport serves an area population of 380,000. There are 100 privately operated minibus routes, 2700 vehicles, 6 ordinary bus routes, 90 buses (of 7m) and 2000 taxis. Of the larger buses, 65 are new Russian PAZ city buses acquired under World Bank Loan No.4547 (which financed 200 buses for five cities) and 40 are Turkish, 5 years old. The trolleybus system was closed in 2006, due to difficulties in maintaining the 30-40 year old vehicles. A fleet of 40 trolleybuses operated in the 1990s: reinstatement is under consideration.

B. Bukhara There are 27 minibus routes operated by over 500 vehicles, 4 bus routes operated by 37 new PAZ city buses (acquired under a World Bank loan) and 1 remaining trolleybus route, with 4 trolleybuses in service: there used to be three routes, with 16 trolleybuses. Construction of a 12km trolleybus line to Kargana was suspended in 2002. Minibuses, operated under private sector franchises and first introduced in 1995, carry 90 per cent of passengers.

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C. Ferghana Valley Urban public transport in Ferghana, Andijan and Namangan is dominated by microbuses, with imported used minibuses on suburban services. Large bus and trolleybus services have been run down and, as elsewhere, there is a desire to rebuild them on major corridors. The large number of Damas operating on main routes, notably in Namangan, is a contributor to congestion.

3.12 INSTITUTIONAL RESPONSIBILITIES

Institutional governance is characterized by powerful modal agencies: UTY, UzA and Uzavtoyul (road construction and maintenance) operating quasi-independently. Sector coordination is undertaken by the Office of the President, through legal and regulatory instruments and by the Cabinet of Ministers. UTACA (see section 3.13.1) has oversight responsibilities, but without power of enforcement. The Road Fund, under the Ministry of Finance assumed responsibility in March 2006 for the common use road programme, both its financing, planning and commissioning of work. The Ministry of Finance exercises various control functions (for example of rail freight and domestic air tariffs). UARRT is responsible for licensing, including inter-city bus services. Minibus services are franchised by city authorities. The Ministry of Foreign Economic Relations, Investments and Trade is responsible for international aspects of transport policy. There are safety regulatory agencies for rail and for aviation.

3.13 LEGAL AND REGULATORY POSITION

3.13.1 Cross-Cutting Law A. UTACA UTACA is a non-Governmental, not-for-profit association. The Decree of the President on Establishing UTACA, No. UP-3798 and the Resolution of the Cabinet of Ministers on Organizing the Functioning of UTACA, No. 470 are dated 12 October 2004. The UTACA charter includes general provisions (e.g., listing the members of the Association), sets out the legal position of the Association (“a coordinating organization of supervision”), its structure, main goals and objectives, the rights and obligations of its members, its property and economic activity, governing organs, an inspection commission, procedures for accounting and the keeping of documents and its reorganization/liquidation.

UTACA is tasked with strengthening transport coordination, increasing efficiency, expanding international cooperation and developing transit corridors. It is financed by its 13 founding members, comprising the major transport operators and supervisory agencies. UTACA’s organizational structure and responsibilities are set out in the Inception Report, Appendix A.

B. Investment Promotion

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The Law on Foreign Investment, the Law on Guarantees and Measures to Protect Foreign Investors' Rights and related legal and regulatory instruments offer a range of investment incentives based on investment size and sector classification. However, the existing laws and regulations promoting investment do not adequately cover transport.

3.13.2 Road Infrastructure A. International Agreements International conventions are international agreements open to accession by states willing to agree to the rules so established. The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) identified seven core land transport facilitation conventions in its Resolution 48/11 on Road and Rail Transport Modes in Relation to Facilitation Measures, 23 April 1992, including one related to road infrastructure, the Convention on Road Signs and Signals 1968, which prescribes uniform road signs, light signals, installations, symbols and road markings in order to facilitate international road traffic and improve road safety. Uzbekistan has acceded to this convention, as have a number of countries in the region (e.g. Kazakhstan, Tajikistan, Turkmenistan). However, although the Convention includes 4-15 year periods for installation of the required road signs and signals, implementation has stalled during organizational restructuring of the subsector.

B. Domestic Law Primary Law The Law Concerning Motor (or Automobile) Roads, No. 653-VII, 3 July 1992, is the primary legislative act governing the road subsector. Its aims concern the institutional arrangements regulating the design, construction, rehabilitation and maintenance of roads; interrelationships between and among roadworks entities, the State Traffic Police, the Ministry of Internal Affairs and the road users; and legal protection of the roads in the interests of the State, the national economy, national citizens and road users (Article 3). ADB TA 3118-UZB, Institutional Strengthening of the Road Sector in 1999, prepared a detailed assessment of this law and proposed revisions in most articles as well as some new articles. In part based on this assessment, Uzavtoyul has prepared a revised road law, which is now at an advanced stage of consideration. This revision of the road law is called for by the Decree of the President on Measures for Strengthening Control over Volumes and Quality of Road Construction Works and Approval of Construction Programme of Roads in 2006, No. UP-299, 3 March 2006, which in paragraph 8 mandates the Ministry of Justice along with the Ministry of Economy, the Ministry of Finance, and other interested organizations, to prepare such a revised road law.

Comments/suggestions on the proposed revised road law are given in Appendix III-2. For example, suggestions include the need to resolve issues related to the coordination of road management, the need to allow for use of Road Fund revenues on all roads and deletion of the provision that requires road agencies to compensate users for damage caused by road accidents that occur due to road conditions.

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Secondary Law There are a number of secondary legal instruments in the road subsector, including:

1. Resolution of the Cabinet of Ministers on Measures for Improvement of the Management System for Building and Operation of General Roads, No. 3292, 19 August 2003, which, among other things, (i) reorganized state concern Uzavtoyul into a state joint stock company, including the oblast road building organizations, and established within the structure of Uzavtoyul district contractual road repair organizations; (ii) defined the main tasks and directions of Uzavtoyul, including carrying out a single technical, investment, and foreign policy in the development of the country’s road network, coordination of road works mainly of international and national significance, specification of development perspectives for improvement of the road network and quality control compliance; (iii) replaced national, regional and local road funds in road body structures and established a Republican Road Fund under the Ministry of Finance, State Tax and Customs Committees; and (iv) defined specific tasks under the Road Fund;

2. Resolution of the Cabinet of Ministers on Issues of Activity Organization of State Joint Stock Company Uzvatoyul and the Republican Road Fund under the Ministry of Finance, No. 361, 21 August 2003, which provides details for implementation of Resolution No. 3292, establishing the organization and staff of the Uzavtoyul SJSC from state concern Uzavtoyul; and

3. Decree of the President on Measures for Strengthening Control over Volumes and Quality of Road Construction Works and Approval of Construction Programme of Roads in 2006, No. PP. 299, 3 March 2006, which among other issues: (i) establishes an organizational structure for the Road Fund; (ii) calls for the Cabinet of Ministers to make proposals to improve the organizational structure of state joint stock concern Uzavtoyul, taking into account the deepening privatization process in the industry and operational optimization; (iii) for the Ministry of Justice along with the Ministry of Economy, the Ministry of Finance, and other interested organizations, to prepare new legislation on roads, taking into account international experience and the latest trends; and (iv) assigning Soum15 billion from the Road Fund to the education sector in 2006.

4. Presidential Decree No. PP-499 of 26 October 2006 on Measures for Improvement of the Procedure for Design, Construction and Reconstruction of General Use Roads revised the activities of the Road Fund under the Ministry of Finance in order to improve the said procedures, as well as to ensure the optimization of the financing of operating and contracting entities in the road industry.

5. Presidential Decree No. PP-511 of 14 november 2006 on Measures for Improvement of the Organizational Structure of SJSC Uzavtoyul, which revises the structure of the enterprise as well as of organizations and enterprises under its control.

A key issue is the need to more fully develop the legal basis for the Road Fund.

3.13.3 Road Transport Services A. International Agreements Conventions Land Transport Facilitation Conventions Endorsed by ESCAP. Uzbekistan has acceded to all seven core land transport conventions called for in ESCAP Resolution No. 48/11 that relate to road transport: (i) the Convention on Road Traffic, 1968, which provides the foundation for international cooperation and

PADECO/IKS 52 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report harmonization in traffic; (ii) the Customs Convention on the International Transport of Goods under Cover of TIR Carnets (TIR Convention) 1975, which simplifies Customs procedures and the procedures for tax and duty exemptions for all forms of vehicular and container transport, provided that some part of the journey is by road; (iii) the Customs Convention on Containers, 1972, which provides for temporary import of containers, whether loaded or empty, on a tax and duty free basis, subject to re- export within three months; (v) the International Convention on the Harmonization of Frontier Control of Goods, 1982, which recommends a legal framework for the harmonization of operations to minimize border control measures in international transport, and to provide, if possible, for joint inspection locations; (v) the Convention on the Contract for the International Carriage of Goods by Road (CMR) of 1956, which establishes internationally acceptable regulations on the legal relationship between road carriers and consignors; (vi) the Customs Convention on the Temporary Importation of Commercial Road Vehicles, 1956, which provides for temporary admission of road vehicles engaged in international traffic, without payment of taxes or duties and free of import restrictions and prohibitions; and (vii) the Convention on Road Signs and Signals.

ESCAP also calls for accession to three international conventions recognizing the right of access to the sea by landlocked countries: (i) Convention and Statute on Freedom of Transit, Barcelona, 2001; (ii) Convention on High Seas, Geneva, 1958; and (iii) Convention on Transit Trade of Landlocked States, New York, 1965. Only the most recent of these has been acceded to by Uzbekistan, the New York Convention (iii), in February 1996.

A critical issue for these and other conventions relates to their implementation after ratification. As an example, the Customs Convention on the Temporary Importation of Commercial Vehicles. Implementation requires certain actions by: (i) the Government (e.g., acceptance of the convention in accordance with national legal procedures and modification, if required, of national laws, regulations, and administrative instructions in line with the Convention; authorization of a national guaranteeing organization and conclusion of a contract between the Customs authority and the national guaranteeing association; training of Customs officials in the operation of temporary importation procedures); (ii) the national guaranteeing association (e.g., establishment of the association; conclusion of a contract of commitment with the Customs authority; conclusion of a contract of commitment with an international association managing a guarantee chain; distribution of carnet de passage en douane to approved operators); (iii) transport operator(s) (e.g., appropriate use of duly filled-in and stamped carnets de passage en douane; compliance with the time frame provided in the temporary importation papers; upon re-exportation of the vehicle, obtaining the necessary exit stamp from the authorized Customs office of departure); and (iv) the international guaranteeing association (e.g., procurement of the acceptance of the national guaranteeing association by the international insurance pool; provision of information to all national guaranteeing associations and to national Customs authorities of the acceptance of the new guaranteeing association; issuance of carnets de passage en douane to the national guaranteeing association; administration of the carnet

PADECO/IKS 53 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report de passage en douane and the guarantee system). Similarly, other conventions require a series of actions by overnment and the private sector, as well as often by international organizations; training and capacity building are often necessary to facilitate implementation.

Other UN Land Transport Facilitation Conventions. Of the 55 international transport facilitation conventions prepared by the United Nations Economic Commission for Europe (UNECE), in addition to the six included in ESCAP Resolution 48/11 listed above, five have been acceded to: (i) the European Agreement Concerning the Work of Crews of Vehicles Engaged in International Road Transport (AETR), 1970; (ii) the Convention on the Taxation of Road Vehicles Engaged in International Goods Transport, 1956; (iii) the Protocol to the Convention on the Contract for the International Carriage of Goods by Road. (CMR), 1978; (iv) the Convention on Customs Treatment of Pool Containers Used in International Transport; and (v) the Agreement on the International Carriage of Perishable Foodstuffs and on the Special Equipment to be Used for Such Carriage (ATP), 1970.

Customs and Trade Conventions. While the convention establishing a Customs Council has been acceded to (with membership of the World Customs Organization), only a few Customs conventions have been: the Convention on Establishing a Customs Co-operation Council, 1950, and Annexes 1967; the Convention on Harmonized Commodity Description and Coding System, 1993; and the Convention on the Valuation of Goods for Customs Purposes, 1950. Like most other countries in the area, Uzbekistan has not acceded to the International Convention on the Simplification and Harmonization of Customs Procedures (the Kyoto Convention), a key international legal instrument for harmonization of cross-border procedures that provides recommended principles and key elements that a modern Customs administration should implement. A revised (updated) Kyoto Convention to meet the current demand of international trade entered into force in February 2006. Also worth noting is the Convention on Temporary Admission (Istanbul Convention) 1956, which among other things, provides for temporary admission of means of transport and an exclusion for fuel (contained in normal tanks of the means of transport) from import duties and taxes.

With observer status at the World Trade Organization (WTO), the third meeting on accession took place in October 2005. Accession to the WTO requires bilateral market access negotiations with WTO members and a review of domestic legislation to ensure that it is WTO consistent. Only the Kyrgyz Republic in the region is a WTO member and has been since 2004.

The information in this section and the following section was prepared on the basis of information received by 1 December 2006, but should be further verified and confirmed.

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Regional Agreements Uzbekistan is involved in a number of regional groupings, many of which have formulated and/or implemented transport/transit agreements. These include the CIS, the Economic Cooperation Organization (ECO), TRACECA, the Shanghai Cooperation Organization, the Eurasian Economic Community, and the Central and South Asia Transport and Trade Forum, initiatives of which are summarized below.

CIS Agreements on Transport and Transit. The Agreement on Transit through the Territories of CIS Member Countries, 4 June 1999, was signed by Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyz Republic, Moldova, the Russian Federation, Tajikistan, Turkmenistan, Ukraine, as well as by Uzbekistan. It establishes certain basic principles (e.g., Article 3: no Customs duties are to be charged on goods in transit), but does not provide for a full-fledged transit system. Accordingly, its purpose is more to establish policy rather than establish a complete mechanism or system to facilitate the movement of transit goods. Most significantly, it lacks a guarantee system to satisfy Customs that duties will be paid in the case that transit cargoes are not in fact re-exported.

Other relevant CIS agreements on transport and transit include: (i) the Agreement on the Weights and Dimensions of Road Vehicles Carrying Out Interstate Transport on the Roads of the CIS. 4 June 1999, which has been signed but not yet ratified and which specifies an axle load limit of 10 tonnes, compared with the 8 tons allowed under domestic law; and (ii) the Agreement on Introduction of International Weighing Certificates for Freight Vehicles on the Territory of CIS Member Countries, 16 April 2004, which if ratified, would eliminate the additional costs and delays of having to reweigh in Kazakhstan, the Russian Federation and Belarus, with associated costs and governance risks.

Economic Cooperation Organization Transit Transport Framework Agreement. Uzbekistan is a member of the ECO, a regional organization based in Teheran, with Afghanistan, Azerbaijan, Iran, Kazakhstan, the Kyrgyz Republic, Pakistan, Tajikistan, Turkey and Turkmenistan being the other members. An ECO Transit Transport Framework Agreement was formulated on 9 May 1998 and has been ratified by five of the signatory countries, but not Uzbekistan, and ratification by six countries is required. While the ECO Transit Transport Framework Agreement (TTFA) contains most of the required principles for facilitation of transit traffic, it does not contain any express provisions on a number of important issues, including: (i) transparency of legislation/regulation; (ii) protection of free competition; (iii) maintenance of a climate of law and order; (iv) language; and (v) border dispute resolution. The ECO TTFA is not fully self-contained and for substance also refers to annexes to be elaborated. Also, Article 28 on the Customs Transit Regime in the ECO TTFA is merely an expression of intent.

Basic Multi-lateral Agreement on International Transport for the Development of TRACECA. TRACECA members (Armenia, Azerbaijan, Bulgaria, Georgia, Kazakhstan, the Kyrgyz Republic, Moldova,

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Romania, Tajikistan, Turkey, Ukraine, and Uzbekistan) signed the Basic Multilateral Agreement on International Transport for Development of TRACECA routes along with technical annexes on 8 September 1998. An Intergovernmental Commission was established to administer the agreement (Article 8 and 9). Transit and interstate traffic rights in the territories of the contracting parties are to be exchanged (Technical Annex). Third country traffic is subject to special permits (Article 3). Home country driving licenses as well as vehicle certificates of roadworthiness and registration are recognized in the host country (Article 6). A transit regime for the vehicles themselves is not detailed. A project on harmonization of border crossing procedures was commenced in 2001 to standardize the documents and control processes, but its recommendations have yet to be implemented. Turkmenistan is a TRACECA member, but did not sign the agreement.

Intergovernmental Agreement on Facilitating International Road Transport under the Shanghai Cooperation Organization. The SCO members (Kazakhstan, Kyrgyz Republic, People’s Republic of China, Russian Federation, Tajikistan and Uzbekistan) have agreed to develop a multilateral agreement to facilitate international road transport. It is to include a Framework Agreement with eight parts: (i) general provisions, (ii) transport operations, (iii) traffic safety, security, and environmental protection; (iv) temporary admission of vehicles and containers; (v) facilitation of interstate and transit formalities; (vi) institutional arrangements; (vii) miscellaneous provisional; and (viii) final clauses. The eight protocols are to cover: (i) routes and border crossings for international road transport, (ii) permits for international road transport, (iii) permits for international road transport, (iv) dangerous goods, (v) weights and dimensions of road vehicles; (vi) compulsory and third-party liability insurance scheme for vehicles; (vii) documentation and procedures for frontier controls; and (viii) terms of reference of the joint working group on facilitation of international road transport. The Framework Agreement is understood to still be under negotiation.

Initiatives of the Eurasian Economic Community. The Eurasian Economic Community (EurAsEC), which grew out of the CIS Customs Union, includes Belarus, Kazakhstan, the Kyrgyz Republic, Tajikistan and the Russian Federation as original (2001) members; Uzbekistan joined in January 2006. EurAsEC has a series of agreements and protocols on customs convoy, registration, other conditions of transit, as well as on monitoring and information exchange. The grouping is now conducting a study to develop a programme for forming a single transport system to ensure the free movement of transport vehicles, passengers and freight. Uzbekistan has signed and ratified a number of agreements under EurAsEC auspices.

General Principles for a Regional Transit System Proposed under the Central and South Asia Transport and Trade Forum. The Central and South Asia Transport and Trade Forum (CSATTF) – initiated in July/August 2003 with members Afghanistan, Iran, Pakistan, Tajikistan, Turkmenistan and Uzbekistan - in December 2005 developed a series of draft general principles for a regional transit system to serve as a blueprint for bilateral/trilateral/regional agreements in the CSATTF subregion. Appendix III-

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3 presents these general principles as model agreement provisions. Issues covered include: (i) transit principle; (ii) interstate traffic; (iii) exemption of transit traffic from non-cost related charges; (iv) facilitation of road vehicle crew entry; (v) facilitation of road vehicle entry; (vi) facilitation of container entry; (vii) permission of foreign transport operator activity; (viii) facilitation of cargo entry; (ix) infrastructure design harmonization; (x) climate of law and order and foreigner-friendly environment; (xi) transparency; (xii) non-discrimination and national treatment; (xiii) protection of free competition; (xiv) facilitation of border crossing formalities; (xv) road traffic rules; (xvi) language, measurement units, and computer software; (xvii) banking, insurance, and communication systems; (xviii) border dispute resolution; (xix) institutional arrangements; (xx) cooperation in the repression of Customs fraud and tax evasion; (xxi) relationship of the regime with other instruments; and (xxii) relationship of the regime with national law. It may also be desirable to build in more conditions addressing market regulations and requirements, such as harmonization or safeguards and guarantee systems. Their expression is proposed, as is other optional language for consideration (see Appendix III-3).

Bilateral/Plurilateral Agreements Appendix III-4 lists a sample of neighbouring countries (in italics) and others with which there are road transport agreements. Recent analysis of the bilateral transport agreements in Central Asia by ADB (see, e.g., Central Asia Regional Cooperation in Trade, Transport and Transit, Briefing Report in Transit, 2005) found that most such agreements serve more of a political purpose highlighting economic intentions and outlining general policy and strategic goals, rather than actually improving interstate and transit transport. None of the agreements specifically provides for a regional transit mechanism, although some refer to the need for such a mechanism. This analysis also noted that the lack of reciprocity is often a problem in the development of bilateral transit agreements, as one country usually needs transit through the other country rather than vice versa; for example, this has been cited as a problem between Tajikistan and Uzbekistan, and between Uzbekistan and Turkmenistan.

B. Domestic Law Primary The primary legislative act on road transport is the Law on Motor (or Automobile) Transport, No. 674- I, 29 August 1998. Its purpose is to provide the legal basis for road transport activities. TA 3118-UZB prepared a detailed assessment of the existing road transport law, with the main suggestions as follows:

1. Supplementing the purpose of the law with a statement of objectives that underscores the importance of the transition to a more market-oriented economy. 2. Introducing a new article on the public service obligation of road transport operators, which should state the important general rule that the Government should pay compensation to operators who lose money due to mandated public service obligations. 3. Introducing responsibilities of passengers (in addition to the responsibilities of “freight clients”).

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4. Moving away from the approach by which road transport operators bear the full liability for damage or loss of cargo, in contravention of international practice whereby a carrier may stipulate a limited amount of compensation as part of the contract.

Article-by-article suggestions for revising the road transport law were provided in Interim Report I of TA 3118-UZB and are summarized in Appendix III-5; however, legal drafting, including of primary legislation, is beyond the scope of this study.

Another primary legal instrument is the Law on Road Safety, No. 818-1, 18 August 1999, which generally represented a major advance in providing a stronger legal basis for engineering, education and enforcement efforts aimed at improving road traffic safety. However, in certain instances the law appears to create overly burdensome responsibilities. For example, Article 11 assigns responsibility for road accidents caused by poor road conditions to the agencies dealing with roads: no country has the resources to provide a perfectly safe road environment and this provision should be repealed (analogous to the issue with Article 22 of the Road Law). Article 17 requiring pre-run and post-run physical examinations of drivers is also considered excessive.

Secondary There are a large number of secondary legal instruments in the road transport subsector, including those listed in Appendix III-6. Issues include a lack of clarity in law related to international transport and transit, the need for a law on intermodal transport, the need to amend the code of administrative responsibility to increase fines for the breach of road transport law, the need to revise tax and customs laws in transport, the need for a compulsory insurance system for road transport and the need to develop a regulatory basis to upgrade human resources in the transport sector. These issues are addressed with specific initiatives in Chapter 14.

3.13.4 Rail A. International Agreements Two basic agreements governing cooperation between connecting railways are available, that of (i) the Paris-based International Union of Railways (UIC) and Bern-based Intergovernmental Organisation for International Carriage by Rail (OTIF); and (ii) the Warsaw-based Committee for the Organization for Cooperation between Railways (OSZhD). As a former Soviet Republic, Uzbekistan is a member of the latter grouping and its basic agreements, e.g., Agreement on International Carriage of Passengers (SMPS), Agreement on the International Carriage of Goods (SMGS). However, operational details are necessarily of a site-specific nature, e.g., regarding border stations, interchange stations, type and quantity of rolling stock and are typically addressed in separate, usually bilateral, agreements. Appendix III-7 provides a sample of regional and bilateral/plurilateral railway agreements to which Uzbekistan is a party.

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B. Domestic Law Primary The Railway Law (No. 767-1), enacted in 1997 and revised on 15 April 1999, modified the initial Soviet-era model by establishing UTY as a JSC with some operational flexibility and discretion in pricing, promoting the adoption of more commercially-oriented practices. It includes 28 articles (see Appendix III-8), with key provisions including the following:

1. Article 3: Ownership in Railway Transport. This article provides that property directly involved in railway transport shall be exclusively in state ownership, while property not directly involved in railway transport may be privatized in accordance with procedures established by law.

2. Article 10: Management of Railway Transport. This article states that management of railway transport shall be exercised centrally, by the State Administration Board on Railways (UTY Board). Such management shall include the adoption of regulatory acts concerning railway transport, development of the transport services market, and determination of freight tariffs.

3. Article 13: Tariffs for the Carriage of Passengers, Goods, and Luggage by Railway Transport. This article provides that the State Administration Board on Railways must reflect orders of the Cabinet of Ministers on passenger tariffs, as this is a sensitive area.

A number of articles may provide too much detail for a primary-level law (e.g., Article 12, which provides that passengers shall be entitled to take with them one child under five years of age free of charge). Other provisions may be inappropriate for a more market-oriented economy. If the Government wishes the UTY passenger company to provide transport services for social purposes and the company is required to operate on a commercial basis, a legal provision should be added to introduce public service obligation (PSO) arrangements.

UTY has prepared a new revision of the Railway Law, which is now at an advanced stage of consideration. Most of the proposed revisions are technical (from a legal perspective), bringing the law more in line with recent and prior legal/regulatory enactments. For example, Article 3 is to be revised, among other things, to reflect a 3 March 2001 decree (see below) that equities issued during reorganization of UTY are state property and cannot be sold. Article 10 is to be revised to reflect the establishment of a railway safety regulatory authority (Uzgosjeldornadzsor; see below) and to name the Cabinet of Ministers as the state agency to “exercise state administration in railway transport”. Article 13 is to be revised, perhaps too vaguely, to state that tariffs are to be “as established by law”.

A critical outstanding issue relates to the need to rewrite the charter of UTY, which dates back to 1983 and reflects a Soviet era approach.

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Secondary There are a number of secondary legal instruments affecting railways, several since the enactment of the existing Railway Law on 15 April 1999, including the following:

1. Law on Natural Monopolies (No. 815-I, 19 August 1999), which provides the Ministry of Finance and the State Committee of Demonopolization and Competition Development of Uzbekistan (Antimonopoly Committee), with responsibilities in the sector.

2. Decree of the President on Measures for Demonopolization and Corporatization of Railway Transport (No. UP-2815), and Resolution of the Cabinet of Ministers on Improvement of Economic Management of UTY (No. 108), 3 March 2001 (as amended by Resolution of the Cabinet of Ministers No. 213, 22 September 2005), which divide UTY into four major groups (natural monopoly elements, including infrastructure, traction, dispatching, power supply, signaling and communications, which are to remain in UTY under 100 per cent state ownership; potentially competitive elements, including freight services, passenger services, containers services, refrigerated services, and coach and wagon repair, which were scheduled for partial/total privatization; social services for railway employees, many of which were transferred to local governments; and regulatory functions to be exercised separately by government, including a new railway safety regulatory authority (Uzgosjeldornadzsor), and tariff control shared by the UTY Board, the Ministry of Finance, and the Anti- Monopoly Committee) [see Final Report, TA 3529-UZB: Furthering Policy Reform in the Railway Sector].

3. Resolution of the Cabinet of Ministers on Further Improvement of UTY Management Structure (No. 378), 11 May 2002.

4. Resolution of the Cabinet of Ministers on Measures for Improvement of Activities of the State Inspection of the Republic of Uzbekistan on Railway Transport Safety Supervision (No. 101), 2 March 2004).

5. Resolution of the Cabinet of Ministers on Further Improvement of Economic Management of UTY (No. 366), 3 August 2004.

3.13.5 Aviation A. International Agreements Uzbekistan has acceded to the major international civil aviation conventions, as shown in Appendix III-9. Appendix III-10 lists countries with which there are bilateral air services agreements (ASAs) that have entered into force. ASAs have also been signed with several other countries, but the agreements have not entered into force; also, the country has initialled but not signed ASAs with some 20 other countries. Generally, the ASAs regulate traffic rights and related issues of bilateral importance (e.g., designation of airlines, frequency, capacity, aviation safety, tariffs, customs). Some ASAs are liberal, such as that with the United States, which, for example provides each party with the right to designate as many airlines as it wishes to conduct international transport under the agreement (Article 3); however, others are more restrictive, limiting the number of airlines that can compete and the amount of capacity they can offer.

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B. Domestic Law Primary The primary law in the air transport subsector is the Air Code, No. 864-XII, 7 May 1993, amended on 26 December 1997. Appendix III-11 presents the general structure of the existing Air Code. However, an amended version has been prepared with assistance of EuropeAid and is now at an advanced stage of consideration. The revisions better reflect new realities and would more closely align/harmonize civil aviation law with that of the international regime (e.g., as set out in the relevant Chicago and Warsaw conventions and standards and recommended practices of the International Civil Aviation Organisation and International Air Transport Association). Among others, changes relate to safety; the definition and conditions relating to the responsibility of carriers; and the content of agreements for the transport of freight, passengers and luggage. A summary of selected proposed amendments of the Air Code is presented in Appendix III-12.

Secondary There are a number of secondary legal instruments (e.g., regulations, rules, norms, guidelines instructions) affecting the air sector, including those in Appendix III-13.

3.13.6 Logistics The forwarding industry functions on the basis of two regulatory instruments: (i) Civil Code (Chapter 40 - Transport Forwarding Activities); and (ii) Regulations in Forwarding Enterprises and Procedures of the Provision of Forwarding Services approved by Resolution of the Cabinet of Ministers on the Enhancement of Forwarding Activities, No. 348, 9 September 2000, which determines the types of forwarding services. However, these are deemed inadequate for the evolving industry. The legal position of freight forwarding needs modernising.

A draft law on freight forwarding has been proposed, containing four chapters:

I General Provisions. II Rights and Obligations of the Freight Forwarder and the Client. III Claims and Suits. IV Final Provisions.

It is essential to reflect the global nature of the forwarding business, since most of any movement arranged by an Uzbek forwarding entity will take place outside the country. Proposals in the new law relating to liability may compromise rights under civil actions and be incompatible with documentation used in forwarder transactions, such as house bills of lading. Appendix III-15 provides detailed comments on the draft law.

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3.13.7 Inland Waterways A. International Agreements There is one international agreement relating to inland waterway transport, the Agreement between the Republic of Uzbekistan and the Government of Turkmenistan on International River Passenger and Freight Transport, 27 November 1996.

B. Domestic There are no primary and only a few secondary legal/regulatory instruments governing inland waterway transport, including:

1. Resolution of the Cabinet of Ministers about Approval of the Charter of Domestic River Transport, No. 106, 25 February 1997.

2. Rules of Navigation on Domestic Navigable Rivers, approved by the Uzbek Agency for Road and River Transport, No. 769, 9 July 1999.

3. Requirements for Registry of Domestic Vessels Operating in the Amudarya River approved by the Uzbek Agency for Road and River Transport, No. 769, 9 July 1999.

3.13.8 Urban Transport Primary Primary legal instruments include the Law on Urban Passenger Transport, No. 419-1, 25 April 1997 and the Law on Improvement of Free Urban Passenger Transport, No. 278-1, 30 August 1996. The former provides the legal basis of urban passenger transport activity, addressing some topics included in the primary Law on Road Transport, as well as other topics specific to urban passenger transport (e.g., state regulation and management of urban transport). The latter defines categories of persons eligible for free urban passenger transport.

Secondary There are a number of secondary laws concerning urban transport in Tashkent, which are summarized in Appendix III-16.

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4. Sector Challenges

This chapter considers the challenges facing the sector. The daunting transport problems faced by many countries, which constrain their economic development, are largely absent. With adequate, largely uncongested networks and relatively modest growth in demand, investment in infrastructure capacity is not an immediate priority. The relatively positive situation in the sector is being further improved with more attention being paid to maintenance, through organizational improvements and through an increase in financial resourcing. Strategy thus starts from a basically sound position. This provides time to plan and to reach a consensus on further development.

The immediate challenges are in the areas of fleet renewal (both road and rail), of organization (lack of a unified authority), in maintenance (overcoming the backlog) and in urban transport (unifying public transport from a user perspective). In the medium term, the challenge will be to exploit locational advantage, to develop logistics and to improve efficiency and to raise technical standards. In the long term, investment in capacity will be required in all modes and the challenge is to plan effectively to achieve a high return on capital.

4.1 ROAD INFRASTRUCTURE

4.1.1 Common Use/Other Roads

Maintenance has been and continues to be under-funded, although the situation is improving with increasing allocations to the Road Fund. Many sections of primary route are in a deteriorated condition and some may require expensive reconstruction. An Uzavtoyul needs assessment shows that expenditure on rehabilitation and maintenance is well below necessary for long term network sustainability at a desirable average level of surface roughness. Non-common use and some urban roads are particularly at risk: some have no source of funding for maintenance, previously being under the responsibility of enterprises now closed. Although ad hoc surveys are made by regional Uzavtoyul offices, there is no network condition database for roads or bridges. This is urgently required. An advanced survey vehicle was obtained under Japanese assistance in 2005. This should be used for a survey of all common use roads. Only with comprehensive data can the extent of the maintenance backlog be quantified and a prioritized remedial maintenance programme be developed. The Road Fund should commission a design institute to undertake this work as soon as practicable. On completion of the survey of common use roads, urban and other roads should be surveyed, with the work financed by central Government.

The road network is not user friendly: directional signposting and distance indicators are inadequate, road marking is poor and pedestrians are largely unprotected. Major routes such as Karshi-Bukhara

PADECO/IKS 63 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report and Namangan-A373, are particularly dangerous. There are numerous blind hillcrests on fast sections, but these are unmarked, without warning signs/markings to stop overtaking. Inexpensive signing could save lives. Accident data readily available in most countries, such as the number of fatalities, serious and slight injuries, is unobtainable and the seriousness of the problem is unclear. Attention needs to be given to data collection and analysis to facilitate prioritization of mitigation measures. With low traffic density, speeding (even in city centres) is a major problem. Speed limits need to be reviewed for adequacy, then to be more clearly signposted and enforced.

4.1.2 International Road Corridors There are few missing links and few sections approaching capacity. Routes such as Gulistan-Angren will need to be upgraded (and to be signposted) if they are to function effectively as through routes. The substantial decline in transit traffic since 1998 suggests that there is potential to expand such traffic. The decline was primarily a result of the fall of the rouble and was common throughout Central Asia, with a general reduction in international trade. Political and security problems since 1998 have resulted in border closures or restrictions, limiting the scope for recovery. The key challenge is to redevelop transit traffic.

A. Transit for Domestic Movements The priority has been to avoid transit for internal movements: for example, bypassing the Kazakhstan section of the M39 and improving the Kamchik Pass on the A-373 route to the Ferghana Valley. Some further improvement of main corridors is desirable. The Bukhara/Samarkand-Ferghana Valley connection is via Tashkent or involves a transit of Tajikistan. Planned improvement of the Angren- Gulistan route will address this.

B. Road Conditions The Karshi-Termez section is in poor condition, as are some sections of corridors RD1 to RD5. Improving corridors is a Road Fund priority and work in progress/planned will bring most sections up to standard by 2011. International corridors are generally in worse condition in neighbouring countries. Corridor development requires international cooperation.

C. Security It is important for trade security to have access to alternative international corridors. Options to the north are limited, with transit through Kazakhstan unavoidable. If the improved situation in Afghanistan is sustained, further options are available, such as the Termez-Herat to Islam Qala route for transit to Iran/Turkey bypassing Turkmenistan. The development of links through corridor RD2 using Irkestan or the Kulna Pass to the Karakorum Highway would reduce dependence on Kazakhstan for traffic to China via Khorgos.

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There is international competition for transit traffic. The Niznhy Pianj - Dushanbe – Osh – Bishkek – Almaty corridor could in future compete with the Dushambe/Termez – Tashkent – Almaty corridor. Improvement of the Osh – Bishkek route has already reduced the need for Kyrgyz traffic to transit Uzbekistan, even in winter.

D. Transit Costs A key factor in the economics of a corridor is the level of transit fees, requiring a balance between fully recovering the costs occasioned by transiting vehicles and discouraging use of the corridor. Uzbekistan is in a favourable position, with multiple corridors, but alternatives are being developed.

Fees for foreign transporters are quite high: US$400 for transit, plus US$90 for insurance, though CIS transporters have lower preferential rates. With a market share for Uzbek transporters of only around 25 per cent of international traffic and over 80 per cent of transit traffic being carried in Turkish and Iranian trucks, substantial revenue is generated from foreign transporters. Neighbouring countries also have high fees and the combined fees significantly increase transport costs in the region. There has been a decline of around 60 per cent in the number of transiting Turkish and Iranian trucks. While this is partly due to economic changes, with Kazakhstan for example sourcing more traffic via Russia, the high transit fees are considered by transporters to have been a factor.

Improvements in Afghanistan and completion of the bridge at Nizhny Pianj could result in transit traffic for much of Tajikistan bypassing both Uzbekistan and Turkmenistan. Similarly Turkish and Iranian truckers could route along the western shore of the Caspian into Kazakhstan. While these are only potential threats, Uzbekistan is not in a position to charge what it likes. There are market pressures on transit fees: transporters use the most cost effective routes.

E. Trade Facilitation Despite significant improvements, transit trade facilitation remains complex and time-consuming, especially for vehicles without TIR Carnets. The combination of transposing documentation at each border, different documentary requirements, a high percentage of physical examination of goods and payment of transit and other fees all mean border delays. Despite substantial investment in trade facilitation and Customs cooperation programmes, improvements in border processing over the last 10 years have been limited. Reduced border crossing times owe more to the reduction in traffic than to improved processing. While Customs have undertaken substantial investment in border post development at key crossings, such that infrastructure is not a constraint, investment has not been reflected in improved performance.

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4.2 RAIL INFRASTRUCTURE

4.2.1 Corridors and Transit

The investment focus since independence has been on line construction to avoid transit of neighbouring countries. This process will be largely completed with the opening of the Tashguzar- Kumkurgan line, expected by end-2007. The only remaining missing line is Angren-Pap, to link the Ferghana Valley network with the rest of the system. Topographic constraints make this a very expensive project, requiring 20km of tunnels and early construction is not in prospect.

The network inherited on independence was designed when the primary role of the CARs was to provide raw materials to industries in central and western Russia, with Ekaterinaburg and Moscow as the major rail hubs. It was not designed for inter-CIS traffic and did not provide good connectivity between countries. In the USSR, the railway criss-crossed borders, with costs/delays at new borders and interchanges between newly independent railways. Short transit sections incur high charges under the MTT tariff.

Uzbekistan, Kazakhstan and Turkmenistan have focused investment on eliminating transits, both for international and domestic movements. On corridor RL1, the Kazak enclave has been bypassed via Khavast, while on RL3 the Tashguzar-Boysun-Kamkurgan line will bypass Turkmenistan. The Navoi– Nukus line avoids transit of Turkmenistan on route to Beyneu. The remaining problem is the missing Angren-Pap section of corridor RL2 to avoid transit of northern Tajikistan.

4.2.2 Infrastructure Constraints in Neighbouring Countries Service quality on international corridors depends on the operating performance and state of the infrastructure of a number of railways. For most Uzbek international traffic and most transit movements, the majority of the journey is over foreign railways. There are many network interface issues, single track and limited train paths, track and signalling constraints on speed and access. Bogies have to be changed or traffic transferred to other wagons at Serakhs and Dostyk due to the change of gauge, with delays due to the limited technical resources.

4.2.3 Turkmenistan Amudarya Bridge Corridor RL1 crosses the Amudarya on a 1930m bridge shortly after entering Turkmenistan. The bridge was built in 1903 and is in poor condition. Several surveys have been undertaken to assess the technical feasibility of rehabilitation, estimated to cost some US$40 million. Turkmenistan Railways have indicated that they can no longer guarantee the safety of the structure.

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4.2.4 New Lines in Turkmenistan Turkmenistan has a similar strategy of constructing new lines to integrate the network and avoid transit, specifically through Uzbekistan. The new Ashgabat-Dashoguz Trans-Karakum line connects northern Turkmenistan with the capital, eliminating the long transit through Turkmenabad and transit through Urgench. The Turkmenabad-Kelif line connects to eastern Turkmenistan, avoiding the need to “loop up” through Uzbekistan. These developments will slightly reduce transit traffic (i.e. loss of Turkmenistan traffic) and will increase the distance for traffic to/from Serakhs on Turkmenistan Railways, if the Amudarya Bridge is closed, via the eastern Kerki - Kierkichi bridge.

4.2.5 Kyrgyz - China Corridor China is a critical market for rail, given that other modes are not competitive over the distances involved. The planned Uzbekistan-Kyrgyz Republic-China corridor passes through mountainous terrain, requiring extensive tunnelling, also a change of gauge. On 20 March 2006, the Prime Minister of the Kyrgyz Republic stated that this was one of his country’s key needs and that development of the line should be accelerated. A draft feasibility study has been prepared.

4.3 AVIATION INFRASTRUCTURE

4.3.1 Airport Operations

Airline services and airport operations are different businesses. Airports are not UzA’s core business. Airports should function as service providers to airlines, passengers and freight clients. With development controlled by the main customer, focused on improving its own financial position, (though concerned as a user to improve the infrastructure), infrastructure development may be given too low a priority.

4.3.2 Regional Airports A major strategic issue is whether the existing network is the optimum size. It is generally recognized that it is difficult to generate profitability on flights of under one hour, including allowance for landing and takeoff. Minimum separation between international airports is typically 400km and between domestic airports 200km. The actual catchment zones depend on population density: with special arrangements for remote areas with poor connectivity by other modes.

In practical terms, there is no major difference between international and domestic airports, other than terminal facilities and some ground layout features. Airports are less than 200kms apart in the Ferghana Valley, in the south central and north west. The combined demand in the Ferghana Valley is under 70,000 passengers a year, catered for by three airports.

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Running a larger than optimum network increases both ground operating costs and the operating cost of the air services. Airport modernization has largely depended on external funding.

UzA recognizes that the domestic airport network is too large and not commercially sustainable, especially in the Ferghana Valley. However, air connections between each region and Tashkent are considered by the Government to be a national priority. There is a conflict between airports as a commercial operation and as a social service. Domestic demand has fallen significantly in recent years, with improved road links. The necessity for local airports may have declined.

4.3.3 Domestic/International Terminals Domestic airports have two functions: (i) for domestic connections; and (ii) as feeders to/from international services. The latter function is not well served: international and domestic activities are seen as totally separate. At most international airports, domestic and international functions are integrated. In Tashkent, there is duplication of facilities and inefficient and timeconsuming transfers are necessary between the domestic and international terminals.

4.3.4 Security and Airport Operation Airport security is of primary importance and is a focus of concern worldwide. The challenge is to balance the need for effective security controls with the needs of the industry and its customers. The security procedures at Tashkent are almost unchanged since the Soviet period and may be dictating how the airport is operated, creating a negative image, for example: (i) separation of transit passengers means that expensive air-bridges are almost unused; (ii) departure level is closed to vehicles, passengers have to walk up from the arrivals level; (iii) bus arrangements to segregate arriving and transit passengers are confusing; (iv) rechecking of boarding documents at aircraft steps/bus boarding; (v) no public access to international departure terminal; and (vi) poor scheduling of departures, with bunching.

There needs to be a proper balance between the needs of security and of airport operation.

4.3.5 Terminal Design The functional design of airport terminals is poor, making them more difficult to operate and maintain. Modern terminal design (passenger and cargo) is based on ‘form follows function’. The Uzbek approach of ‘functions follow form’ puts processing into a pre-established architectural form, often designed by an institute working to norms without operational experience. This causes many of the problems in terminal design. At some airports (including the important tourist destination of Bukhara) arriving passengers leave airside via a side gate: the terminals are not designed to process inward passengers.

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4.3.6 Scheduling of Services At Tashkent, some congestion is being caused by poor scheduling, in particular by bunching of international flight departures, for example around 10:30 am. This puts unnecessary pressure on terminal capacity, causing delays and inconvenience to users, while for most of the day the facilities are little used.

4.3.7 Cargo Airport cargo facilities are basic, especially the cargo terminals processing loose and unitized cargo. This is recognized by the relevant authorities and there are plans to improve the terminals. However, the key challenge is how to upgrade facilities with such a low throughput, especially to mechanize them – workstations, roller beds, transfer vehicles, truck docks etc. Current traffic levels only low mechanization, facilities capable of handling about 5 tonnes per sqm per annum.

4.3.8 Transit Terminal UzA’s strategy is to develop the transit market. This to an extent reflects the constrained nature of national demand and taps into a much larger market, so increasing load factors. The Transit Terminal at Tashkent Airport is away from the main international terminal. This increases transfer costs and makes processing of transit passengers more difficult. The terminal is a temporary facility until a new terminal is constructed and is in poor condition with few facilities. This creates a poor image of both airport and airline.

4.3.9 Tashkent Airport Relocation Tashkent Airport is located close to the city, to the considerable benefit of users, who save on access time and cost. There may, however, be environmental concerns regarding noise and air pollution, as well as safety and security issues. In the region, only Dushanbe has an airport nearer to the city centre than Tashkent’s. A new airport south of the city was proposed many years ago, but the traffic decline and the very high cost of such a facility suggest that it should not be reconsidered before 2020.

4.4 INLAND WATERWAYS INFRASTRUCTURE

The Port of Termez has lacked the financial resources to remain a major river port, chiefly because of declining usage. Port revenue has only been sufficient to meet immediate operational needs and there is a significant maintenance backlog. The warehouses have deteriorated, the quay cranes are in need of rehabilitation and the river fleet is in poor condition, with only two of the 12 tugs and four barges operational.

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The estimated cost of infrastructure and equipment rehabilitation is US$0.5 to 1.0 million, the latter amount for full rehabilitation. Whether the port should be brought back into full operation, be modernised on a phased basis, or be down-sized requires a re-assessment of the port’s role. With the gradual transition from river port to ferry port, the tug and barge system with quay crane handling is no longer appropriate. A roll-on/roll-off vessel is required.

4.5 ROAD TRANSPORT

4.5.1 Truck Fleet Replacement The aged fleet of predominantly lighter vehicles has to be considered against the requirements of an increasingly developed distribution sector in the medium to long term. There is reliance on vehicles inherited from the USSR, with minimal subsequent investment – under 4 per cent of the fleet has been acquired in the last five years (less than 2000 units). The domestic road transport industry cannot be sustained without a major increase in fleet investment.

The key reason for lack of investment is the high cost of new and secondhand vehicles resulting from the 70 per cent import duty, 20 per cent VAT on gross cost and 20 per cent Road Registration fee on net cost. Imported vehicles sell for 2.25 times their border price. Special rates are available for lower standard vehicles from the Russian Federation, but are still almost 1.5 times the border price. The industry cannot afford fleet replacement at the current cost. A further issue is to generate foreign exchange in a highly competitive domestic market. The 70 per cent of small operators have minimal capital resources. Customs valuation on imported used vehicles is not based on the WTO valuation system. Duties and taxes are based on Customs’ own valuations, often assessed at close to the cost of new vehicles.

UARRT fully recognizes the problem of the high imposts on vehicle purchase and has developed proposals for procuring over a four year period 2000 trucks and 2000 buses by Uztransleasing, with duty and tax free import, for on-leasing to 16 national carriers. The proposal remains under review.

4.5.2 Spare Parts Similar issues relate to the purchase of spare parts and tyres. Their prohibitive cost of results in: (i) high vehicle downtime, with some operators having a large proportion of their fleet laid up awaiting parts: for tyres, industry sources indicated that it was necessary to buy a minimum of a truckload to make it viable to import; (ii) the tendency to ‘manufacture’ own spare parts to eliminate the need to import original parts; (iii) an almost complete lack of routine maintenance, because such practice would incur higher usage of parts; and (iv) a tendency to avoid parts and tyres replacement until failure: for example the large number of vehicles operating with damaged or treadless tyres. The high cost of spare parts and tyres leads to unsafe working practices and is a safety concern.

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4.5.3 Fleet Profile The fleet is mostly small vehicles of under 10 tonnes capacity, with fewer than 6,000 heavy vehicles. Vehicles are used in unsuitable roles, requiring more trucks than necessary and higher unit costs. Most heavy transport is undertaken by large operators, predominantly engaged on contract work that generates full loads and high return load ratios, the most efficient type of operation. For irregular contracts, shippers have to rely on smaller operators and owner drivers with smaller sized trucks, where maintenance standards are lower and service risks higher.

Owner drivers and small operators usually lack the financial resources to replace and maintain their vehicles. The industry is not becoming more professional or efficient because of a continued high dependence on small operators. This also makes it difficult to introduce modern logistics concepts. The larger more professional operator is concerned with profitability, whereas the small operator tends to focus on cash flow. The smaller operators offer low rates to generate cash flow and depress the market. In the short term this may be beneficial, but the larger operators cannot make sufficient returns and the depressed rates reduce investment in new equipment, parts and maintenance.

The situation is compounded by uneven regulation of large and small operators. The large operator is more highly regulated, partly because this is easier to do. Legitimate operators have higher costs than those bypassing regulation. Many small operators offer services with no cargo insurance cover and simply ‘disappear’ in the case of problems. Professional enterprises are not operating on a level playing field.

4.5.4 Taxation The taxation system is based predominantly on turnover tax, international accounting systems have not been fully introduced. The system does not provide tax allowances promoting investment or to enable operators to accumulate resources for investment. Although the same situation applies in other sectors, in most there is not the critical need for asset renewal. Owner-drivers and small operators may have more ‘flexibility’ in reporting turnover than established larger corporate entitities, reducing their tax burden and distorting the market.

4.5.5 International The key challenges facing international road transport are: (i) an aging non-compliant vehicle fleet; (ii) the high cost and unavailability of spare parts; and (iii) an inability to access premium traffic necessary to support heavy investment in compliant vehicles. There is a lack of resources to achieve a significant domestic penetration of international road transport.

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A. Fiscal Policy Even major operators such as Central Asia Trans have a substantial part of their fleets idle, including compliant vehicles, due to a lack of spare parts. Whilst this is also common in the domestic transport industry, the effect of high taxes is more severe for international transporters who need larger, more reliable trucks for long journeys through other countries and compliant vehicles to compete in premium markets. Expensive vehicles (and spares) are necessary for international transport and the impact of VAT and road tax is consequently greater. The 20 per cent road tax on registration is high for vehicles that operate mainly outside the country. Cheaper Russian trucks are available, but are non-compliant and unsuitable for access to the key European, Iranian or Turkish markets.

B. Premium Traffic Another key challenge is access to premium traffic to support expansion and replacement of the international fleet, a major investment requiring a secure revenue stream in hard currency. With most imports on a CIF basis, routing control lies predominantly with the foreign exporter or his agent. Foreign truckers arrive with full loads with tariffs covering most of the round-trip cost: export traffic is then a bonus and outbound rates are correspondingly substantially lower than inbound. Uzbek operators depend on outward loads to be in a position to obtain the more lucrative return loads. The risks involved in travelling empty in the hope of obtaining loads is considered high, unless advance bookings can be obtained. Access to outbound loads is problematic due to the dominance of rail and state control of key export products, limiting access by the private sector. Discussions with European operators suggest however that Uzbekistan is not considered a particularly attractive destination for them and therefore if Uzbek vehicles were on offer the carriers would probably sub-contract rather than carry it themselves. The market may be there, but access will be an increasing challenge as more vehicles become available.

C. Axleload Limit Overall vehicle dimensions and the 40 tonne gross weight limit comply with international standards, but the axleload limit is particularly low, at eight tonnes. The EU limit is generally 11.5 tonnes and in Iran it is 13 tonnes. The Agreement on the Weight and Dimensions of Road Vehicles Carrying out Interstate Transport in the Roads of the CIS dated June 1999 specifies a minimum of 10 tonnes. The low axleload means that vehicles cannot utilise their full capacity for export goods, which are generally heavy. Even for imports, which tend to be lighter, they may be restricted. The low axleload limit increases the cost of international transport and is a disincentive to transit traffic.

D. Ratification of Weighing Agreement The Agreement on Introduction of International Weighing Certificate on Freight Vehicles in the Territory of CIS Member States dated May 2004 has not been signed and Uzbek trucks have to be weighed in other countries. On signature and ratification, vehicles could be weighed in Uzbekistan and

PADECO/IKS 72 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report the weight certificate would be accepted in other CIS countries. This would eliminate the additional cost and delays of having to reweigh in Kazakhstan, the Russian Federation and Belarus, with the associated governance risks.

E. International Agreements While Uzbekistan has not ratified a number of major transport conventions and agreements, its transporters have to conform to the regulations in the course of international transit. For example, noise and smoke emission regulations in the EU exclude Uzbek transporters with non-compliant vehicles. In particular the ADR Convention on the movement of hazardous goods could have cost implications, with more transit countries now ratifying it. The trend is towards more environmental and safety regulation. Uzbek international transporters will have to conform, irrespective of whether Uzbekistan accedes to such agreements.

Permits are issued by countries to allow foreign transporters access either in transit or as a final destination. These are usually issued on a reciprocal basis, sometimes free, sometimes with a charge, but with additional permits sold on an ad hoc basis as required. Given the low penetration of its own international market, there is clearly more demand for permits by foreign than by Uzbek carriers. However, Uzbekistan needs to transit Kazakhstan or Turkmenistan more than Kazakh or Turkmen transporters need to transit Uzbekistan, thus parity is not present. While the availability of permits is not a critical issue, if the industry expands it could become an increasing problem for both transit and destination permits.

F. Legislation The national legislation relating to the international road transport industry needs to be modernised to reflect both the needs of the state and particularly of the industry. The International Transport Association is particularly concerned with the Resolution of the Cabinet of Ministers No 11 dated 1995 On Procedures for the Entry, Stay, Transit and Exit of Foreign Road Carriers and subsequent revisions and proposes that these be consolidated into a single piece of legislation and that ‘cabotage’ is defined and not permitted for foreign carriers. Despite their legal concerns, it is not considered that lack of effective legislation is actually constraining the sector, though improvements to and clarification of legislation are clearly needed.

4.5.6 Passenger Transport

A. Coach Fleet Replacement The key issue is the same as that for trucks - replacement of the fleet. Virtually all inter-city coaches are life-expired. Operators do not have the capital to replace them under the prevailing tax and duty regime and given the degree of competitive pressure in the market. Replacement will require Government assistance in the form of duty and tax free import of new/used vehicles and the leasing of such vehicles to the private sector. Better use of terminal facilities is needed. The spacious

PADECO/IKS 73 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report inter-city bus terminal in Tashkent is little used, with private operators preferring to use simple open air facilities close to a market area and with easy access to the ORR. An open outcry system of attracting passengers increases competition, but a more orderly arrangement may be preferable.

B. International Bus Services The major problem in reinstating international bus services is security restrictions. When/if they are permitted, the high direct and indirect costs involved in border transit and in travelling through neighbouring countries will need to be addressed. Buses with Uzbek plates have been subject to victimisation (as are cars), to illicit action and revenue collection, as well as to a variety of official payments. Given the air/rail competition, Almaty, Ashgabat, Bishkek, Charzhou, Osh and Shymkent might be the most attractive markets, with Russian cities probably too far for bus travel.

4.6 RAIL TRANSPORT

4.6.1 Domestic Freight Freight traffic growth has fallen well short of that expected. For example, at appraisal of Loan 1631- UZB, tonnage of 84.7 million was forecast for 2005, against actual tonnage of 54.5 million. Tonne km were 20 per cent below forecast. Economic development will not favour rail: improved roads and a renewed truck fleet will offer greater competition and industrial development will tend towards non- bulk goods. The key challenge is to move from an operational to a business focus: defining the medium to long term freight business and how traffic is to be retained/discarded and developed. This requires customer focus, marketing, management information systems, cost accounting and a transformation in attitude from those of an engineering-led rail service provider into those of a business-oriented freight carrier operating in an inceasingly competitive market. Such a transformation requires active support from the Ministry of Finance – a gradual freeing of freight tariff control, in exchange for performance guarantees. Tripartite (UTY/MOF/major customer) agreements should be sought setting out quality of service targets, wagon ownership and renewal policies and tariff policy for the medium term.

4.6.2 International Freight The key challenge is to protect markets and to increase penetration and to maintain the traffic growth achieved in recent years, although largely reliant for this on the performance and cooperation of other railways.

A. Quality of Service The customer is principally interested in door-to-door transit times. While rail offers lower rates than road, the difference is not always sufficient to offset the disadvantages of slow operating speeds and variable transit times. This is particularly the case for intermodal traffic. The slow speeds throughout Central Asia result from the poor condition of the infrastructure. Most of an international movement is

PADECO/IKS 74 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report likely to be outside Uzbekistan and UTY is highly dependent on the condition of the infrastructure of other railways. Other service constraints include the predominance of single track lines, limited train paths and delays at border crossings for technical and customs checks and to change locomotives.

Poor quality of service is the key constraint on attracting higher rated traffic. While rail is some 40 per cent cheaper than road for full wagon load traffic, operating speed and reliability has not improved significantly since independence and often does not meet customer demands, for example for enhanced logistics.

B. Scope of Service The international traffic best suited to rail is not specially targetted. In the USSR, all freight was carried by rail. In a more liberalised economy, the exporter/importer or their agent selects the mode. UTY offers railhead to railhead service, rather than a total logistics package. Railways are focusing on traditional types of cargo and services, without seeking new traffics and extending their product range. Interviews with forwarders suggest that there is very limited service and charge flexibility, with railways offering a ‘take it or leave it’ service. In developed countries railways have become much more efficient at selling a customised logistics package to attract added-value traffic.

C. Marketing UTY must seek to understand potential customers’ businesses and needs, particularly the requisite balance between price and quality of service. UTY has improved, especially their forwarding subsidiaries, but marketing capacity in the international sector is relatively weak, with UTY seen more as an institution than a service provider.

D. Freight Charges International tariffs for the CIS rail network are based on the MTT system. This did much to prevent a free-for-all escalation in transit tariffs after the break-up of the USSR, but it has failed to avoid some major disputes between neighbouring countries. An MTT characteristic is that it strongly penalizes short haul movements.

The MTT tariff is the base from which actual rates within the CIS (and the Baltic states) are computed – a discount factor is applied to the base rate depending on length of haul, tonnage and the countries transited. The MTT base rate is considered expensive and the discounts provide flexibility. Country specific and distance elements are taken into account by other coefficients.

The MTT tariff promotes long haul shipments and prices short hauls relatively highly, reflecting associated cost profiles. This is reasonable for UTY only if it accepts that short haul traffic is better served by road, with rail serving long haul markets and not competing for the regional market.

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E. Transit Traffic Transit traffic accounts for half of international tonnage. The logistics chain is only as good as its weakest link and most of the links are outside the country of origin or destination. Other railways depend on UTY for transit through Uzbekistan. UTY needs to maintain a high standard of service, as transit traffic is sensitive to even minor changes in pricing and service levels. Given the importance of the traffic, it merits priority handling to ensure retention. UTY can best seek service improvements from other railways by providing a similar or better quality of service itself.

F. Trade Facilitation It takes a minimum of 2-3 hours each side of the border to clear a train. The longest procedures tend to be technical checks by the railways and to a lesser extent Customs checks, with shipments of low value bulk items less susceptible to smuggling. Delays could be reduced by concurrent rather than consecutive processing and avoiding the need to complete new documentation at each border, particularly customs documentation. However, given the time taken to change locomotives, availability of locomotives and access to train paths from the border, trade facilitation issues do not have a significant impact on the quality of service.

G. Rolling Stock There are two problems with freight rolling stock. The first is overall quality. At each border crossing a technical check is undertaken and sub-standard wagons are rejected, because after acceptance a railway assumes responsibility. Wagons are frequently rejected and removed from trains for repair. This leads to escalating problems, because the consignment is incomplete. In some countries, for example Turkmenistan, the whole shipment may be stopped until the missing wagons catch up. Other countries demand new documentation. The second problem is availability of specialist wagons – flatbeds for containers, various types of liquid and dry bulk tankers etc. Traffic is delayed or lost to road due to the shortage of wagons. Again, the problem is mainly external in the case of transit and import traffic.

4.6.3 Intermodal ISO containers (20/40ft units) were developed for maritime trade to reduce handling costs and delays at the port interface. Containerised movements worldwide are typically part of a maritime transit. It is therefore unsurprising that, with no maritime links and main markets served by surface transport, the containerised share of imports/exports is relatively small. Being doubly landlocked and a long distance from main import/export markets, conditions are favourable for rail transport and potentially for intermodal transport. The building blocks for intermodal transport are already established.

A. Quality of Service Rail container traffic is similar to international road traffic: non-bulk cargoes, often of high unit value. Intermodal transport competes with all-road traffic where the latter is a realistic option, such as into

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Europe. The problem for intermodalism is that overall transit times are high and reliability levels are perceived as low compared with road transport. This results from: (i) low average running speeds of trains throughout the CIS; (ii) the absence of block trains, with containers carried in general freight trains; and (iii) a shortage of flatbed wagons with fittings to carry containers and low quality wagons, on occasion rejected at borders, with consequent delays.

B. Tariff The tariff system does not favour container traffic over wagonload traffic. Conventional wagons carry heavier loads per metre than a container, which is limited to around 20 tonnes gross due to the associated road transit (also by its design capacity). The tariffs favour moving cargo loose in wagons. In addition, unless flows are balanced, there is also an additional charge to return the empty container. Unless special rates can be negotiated with other railways it will be difficult for intermodal to be competitive with conventional road services, favouring the unstuffing of containers to move goods as conventional traffic.

C. Traffic Imbalances Traffic imbalances are a major challenge. There is inbound container traffic from many countries, but few return loads due to the lack of suitable export cargoes. For export traffic such as cotton, the tariff structure favours covered wagons and it is therefore not economic to containerise it. Such traffic is often sold ex-seaport warehouse, thus the cargo needs to be stored at port warehouses awaiting sale, with no end-receiver known and a container cannot be loaded in Uzbekistan for through transit.

The imbalance problem is compounded by imbalances in neighbouring countries. All of the surrounding countries have similar trade imbalances relating to container traffic, with empty containers sent back to China/Europe or returned to a seaport, involving a costly long-distance rail transit, even though there are special rates for empty container movements. Consequently container operators, particularly the shipping lines, are reluctant to allow their containers to travel to Uzbekistan as it will take them out of circulation for some time.

The combination of traffic imbalances and difficulties in control mean that shipping lines will not generally offer Through Bills of Lading to/from Central Asia. Some shipping lines hand their containers over to other transport organizations who become responsible for their return, usually secured by a financial deposit. The deposit paid and the incumbent risks are often prohibitive and the container is therefore often unstuffed. Despite the non-physical barriers, around 70,000 units are handled per year.

D. Intermodal Forwarder Services Most forwarders are unimodal. There are a large numbers of rail forwarders, dominated by the two main organisations handling container traffic, focusing almost exclusively on rail traffic. There are also

PADECO/IKS 77 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report road forwarders, many with foreign ownership or links, engaged solely in international road transport. Successful intermodal transport requires an effective partnership between road and rail operators. This does not exist, the road and rail forwarders are competitors, particularly given the significant presence of foreign road entities: limited choice is offered by forwarders.

E. Combined/Through Bills of Lading Comprehensive intermodal service, with through movement on a combined bill of lading, is lacking. None of the companies offer door-to-door shipments. For example, containers from South-East Asia are shipped to Lianyungang on maritime bills of lading and then transferred to rail for transit via Dostyk in Kazakhstan using through rail waybills. Following customs clearance, goods are either picked up by the receiver or sent by the forwarder on a domestic road consignment note. There is a minimum of three contracts. In general, forwarders limit themselves to activities within Uzbekistan and ‘arranging the carriage’, but do not accept liability for foreign services, as is common under an international through transport bill covering door-to-door liability.

Through/Combined Transport Bills of Lading are not fully recognised in relevant legislation. The inability to use them is a common problem in developing countries, inhibiting the growth of intermodal container transport. The Through Bill of Lading allows door-to-door, or terminal-to-terminal, shipments under a single transport document and is used extensively for container movements to avoid unloading at intermediate points. The ocean-carrier is responsible for inland transport, subcontracting parts of the logistics chain to third parties.

Under a Combined Transport Bill of Lading, the contract of carriage is also under a single document, with specific conditions, for example the use of rail and/or road (or other modes) in conjunction with the sea journey. The document extends liability to other modes – though in this case it is the issuing agent’s responsibility to arrange the journey (both sea and inland transport), subcontracting to third parties. The advantage is that the Combined Transport Bill covers the complete door-to-door transit, while the ocean carrier’s Through Bill of Lading covers only terminal-to-terminal.

Both Bills promote the through movement of containers from inland origins to inland destinations and should be fully recognised.

F. Terminals The growth of intermodal transport is not inhibited by a lack of terminal facilities, given the relatively low number of containers concentrated in Tashkent and the Ferghana Valley (for Daewoo traffic). Many of the railheads have overhead gantries or access to mobile cranes that can offload/load containers. As intermodal traffic grows, more larger terminals like Chukursay and Tashkentstovarniy will be needed, either on a unimodal basis or as part of logistics centres. Terminals are expensive to

PADECO/IKS 78 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report develop and to equip with reach stackers and large forklift trucks and require the necessary economies of scale to be viable. It is important to balance terminal supply and demand.

4.6.4 Domestic Passenger The market for domestic passenger services is limited. Road competition, both inter-city bus and private car, will intensify and air services will improve, with introduction of new aircraft and the possibility of direct services between regional cities and more competitive tariffs. While the passenger company has undertaken detailed market analyzes and has development and service enhancement plans, resources for implementation are lacking. The coaching fleet is old and expensive to renovate or replace. Passenger services are cross-subsidized by freight traffic. The requirement is to separate social from commercial services, secure Government support for the former, with definition of service standards and to exploit niche markets to develop the latter. Tashkent urban services may also merit development in the medium term.

4.6.5 International Passenger There is undoubtedly a market opportunity for developing international services. Competition from buses and private vehicles is restricted by border-crossing problems and air travel is much more expensive, although low cost carriers may enter the market at some stage. The immediate issue is to finance the coaches necessary to develop the route network.

4.7 AIR SERVICES

4.7.1 Uzbekistan Airways The most successful airlines are either fully privatized (British Airways/Cathay Pacific), or are operated as autonomous public companies (Singapore Airlines). As a small airline, UzA is at a disadvantage against carriers in large alliances (One World, Star Alliance, Skyteam etc.). Its operational and financial situation for domestic services is largely determined by the Government, which approves domestic fares and specifies the airports to be served.

A. Fleet Rationalization UzA is continuing to rationalize its fleet: replacing the residual Soviet fleet, which is high fuel burn and becoming obsolete and expensive to operate, nine aircraft types in a fleet of 33. There is a large inventory of surplus or low utilization aircraft, as in many CIS countries.

B. Domestic Monopoly UzA has a monopoly in the domestic market, as with many state airlines. The Ministry of Finance regulates fares through an approval process and airports served. Domestic fares do not cover costs, even with high load factors (over 80 per cent).

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C. Booking System The UzA reservation and ticketing system is problematic and adversely affects performance and image. Staff often indicate a flight to be full when seats are still available. There are significant governance concerns with the booking system. Connectivity by travel agents, particularly those located abroad, and by the public is limited as is authority to issue tickets.

UzA is not a member of any global alliance and there is little interlining (a single booking covering more than one airline). With more Uzbeks travelling to destinations not served by UzA and foreigners travelling on connecting flights, interlining is becoming a larger component of the market.

D. International/Transit Traffic As the national carrier, UzA is highly dependent on the national market for international services. The core UzA market is Uzbek nationals. A key challenge is that the market has been stagnant or declining. In 2005, throughput at all airports was 84 per cent of that in 2000.

International air travel is affordable by a relatively small proportion of the population. The situation is affected by increasing problems for Uzbek nationals in obtaining visas, particularly to the US and Europe. This is constraining growth in the international sector. There are also problems for foreigners, with the visa process and the purchase of tickets on UzA more time consuming and costly than to many competing destinations.

A feature of UzA is that it is a major transit operator. Transit traffic through Tashkent is a key market, providing volume to supplement originating/terminating traffic, which alone would not support the use of wide-bodied aircraft. The distance from important markets such as Europe means that only such aircraft are viable. UzA has been successful in establishing a market niche, particularly between Europe and South and East Asia. Competition is increasing, with other carriers introducing more direct flights. For example, Birmingham flights have a high percentage of transit passengers from India, but Indian Airlines is expected to open a direct flight. Both transit volume and yield could come under pressure, while direct traffic is only growing slowly.

E. Quality of Service UzA has improved service quality and image continuously, with the introduction of modern aircraft. In general, airlines are upgrading quality of service in an increasingly competitive market to establish product differentiation. Passengers are increasingly demanding. Consequently, there is a need to continue to improve, particularly at airport interfaces, where UzA lags behind many others. While the core Uzbek national market may be less concerned with service and more with price, this is less true of foreign/transit passengers. Ground handling procedures, such as combined weighing of checked

PADECO/IKS 80 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report and carry-on baggage and strict charging of any overweight, differ markedly from those at non-CIS airports and are generally seen as customer-unfriendly.

4.7.2 Other Airlines A. Traffic UzA’s market share is high and connectivity via foreign carriers relatively low. Non-CIS airlines are dependent primarily on foreign nationals. With close commercial links with Uzbekistan Iranian and Turkish airlines predominantly carry their own nationals. The main challenge facing carriers is the decline in the number of aliens based in/visiting the country. Seat occupancy levels are not high and growth in traffic is not expected. There are concerns that flight frequencies might be reduced.

The other market sector is that based on ethnic and commercial links: a mix of Uzbek’s living abroad, previous residents who have returned to Russia, ethnic and commercial links, such as with Korea. The primary demand is from outside the country. This sector is stable, but not considered a high growth market, though there is some increase in services to/from the CIS, with the rapid growth in regional airlines, especially Russian.

B. Moscow Over a third of flights are to/from Moscow. While flights to Sheremetova by such as Aeroflot and TransAero used to handle most of the international transit traffic and Domodedova mostly CIS transfer traffic, Domodedova is now offering more international connections. While a significant amount of the demand is point-to-point, Moscow is the key hub. It is possible to undertake interline transfer with foreign airlines, but Uzbekistan Airways does not in general offer interlining.

C. Route Network The schedule in Table 3-8 shows: (i) the dominance of Moscow; (ii) service to relatively few major international cities; and (iii) infrequent services to a variety of CIS cities, particularly Russian. This dominance of Moscow suggests appreciable hubbing activity, with few direct flights available. Although there are bilateral agreements, few airlines serve Tashkent. Many world airlines do not serve Central Asia at all: international connectivity is poor and is becoming more reliant on a few hubs. The challenge is to attract more major airlines.

D. Air Cargo There is limited cargo capacity and few services, which may in part account for the low volume of air freight. Only Lufthansa and Asiana have major cargo networks and focus both on cargo and passengers. Almost all the other carriers (and Uzbekistan Airways) either operate passenger aircraft with little underbelly capacity or have limited potential to handle cargo other than point-to-point. Freight connectivity may decline: the challenge is to stimulate air cargo in spite of the limited capacity and service coverage.

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4.7.3 Airport Services There is a monopoly in airport services, with no competition on service level or price. This is usual practice for common services such as airport-related air navigation, fire and emergency services and baggage handling, all of which are generally single sourced. Other services are often based on airlines negotiating direct contracts with service providers, or are delivered via operating concessions designed to stimulate competition and to promote higher customer service levels. As both the airport operator and the major airline customer, UzA is a monopoly service provider to competing carriers.

A. Passenger Handling Uzbekistan Airways is the sole passenger handler in all airports. Other than at Tashkent, it is also the only airline operating, thus in effect it is self-handling, a common international practice for national carriers. At Tashkent International Airport, foreign airlines such as Asiana and Turkish Airlines use UzA services, while UzA has the freedom to appoint its own passenger handling agents at foreign airports. Foreign carriers’ standards of passenger handling are determined to a major extent by UzA and may not be in accordance with their international standards, though an element of self handling is permitted.

B. Cargo Handling Cargo handling consists of two main elements: (i) airside handling, the loading/unloading of the aircraft and movement to/from the cargo terminal; and (ii) terminal handling, the stuffing/unstuffing of Unit Load Devices (ULDs) and loose cargo. These services are provided solely by UzA: although single sourcing is not common international practice.

C. Retailing and Catering The provision of efficient airport retailing and catering services is considered critical in terms of both customer service standards and revenue generation. Most international airports provide a range of catering and retail services, earning a substantial proportion of their operating revenue in the form of concessions relating to these facilities. Passengers have money in their pockets that they are willing to spend whilst waiting, provided the requisite services are available – usually referred to as ‘passenger spend’.

Passenger facilities at Tashkent International Airport fall short of international standards for catering and retailing. Limited facilities in the transit terminal create a negative image both of the airport and of UzA, which is actively promoting transit traffic. The passenger spend is minimal.

D. Raising Standards Both airport image and customer services need to be improved. Passenger processing has changed little over the last decade. While this may be less critical on domestic services, given the monopoly

PADECO/IKS 82 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report and the difficult operating conditions, in the developing tourism sector such issues are important. Other regional airports have implemented improvements to attract tourist traffic, for example a new terminal in Almaty, complemented by a major change in the approach to passenger processing and servicing. Standards at Tashkent need to be raised to ensure that passenger traffic, particularly transit, does not divert to such competing airports.

E. Passenger Facilitation International airports are borders and provide visitors with their critical first/last experience of the country. The ‘experience’ is determined by the standard of the airport infrastructure and the ease of facilitation, with Border Guard and Customs processing activities particularly important. Facilitation standards have not improved significantly in recent years, while they are being modernized and improved at competing airports. Delays in Customs processing both inwards and outwards are a particular concern, creating a negative image.

4.8 LOGISTICS

4.8.1 Freight Forwarding A. Routing Control The premium market is in higher value imports that mainly use road transport. This is an especially difficult market for national forwarders to penetrate, because under current terms of sale the routing control lies predominantly in the foreign country. Imports are generally moving on trading terms whereby the shipper is responsible for transport to Uzbekistan. This situation is compounded by the problems of the Uzbek international road transport industry, in that Uzbek transport usually is not available to carry the inbound movement. In addition, few Uzbek forwarders have the ability to make the necessary transport arrangements in the foreign country, let alone make the necessary hard currency payment arrangements.

The export market is dominated by the movement of raw materials and foodstuffs. Many of these products are considered strategic and still remain under state control. In general, both the export freight forwarding and transport services are highly monopolistic, with the major state-owned forwarding entities, such as Uzvneshtrans and UTY, having significant market share. Consequently, the opportunities for smaller national forwarders are somewhat restricted. In addition, because of the relatively lower value of many of the export products they are predominantly sent by rail. Small entities can relatively easily earn commission from UTY using local currency through organisations such as Uzbektemiryulexpediciya based on the shipments from their local clients. Essentially such forwarders tend to be booking agents rather than real forwarders in the international sense.

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B. Dominance of Foreign Operators The dominance of the import market by foreign forwarders results from the nature of forwarding and its buying and selling terms. Uzbek forwarders dominate export markets and foreign entities imports. There is a simple explanation for the dominance of foreign entities in handling import traffic.

Many Uzbek forwarders tend to concentrate more on intra-CIS movements. Given the historic and linguistic links, as well as the integrated rail system and ability to use non-EU compliant Uzbek trucks, forwarding activities between other CIS countries and Uzbekistan are more familiar to and ‘comfortable’ for Uzbek forwarders, as opposed to the more complex activities of non-CIS forwarding. It is likely, however, that growth will be faster in non-CIS movements, where current market penetration by Uzbek forwarders is low.

C. Third Party Logistics Providers The major international forwarders are increasingly becoming Third Party Logistics Providers (3PLs) with global coverage. Many 3PLs have adopted the strategy of becoming integrated operators, seeking to maximise their control over the whole of the logistics chain, thus providing cost and service advantages. Such operators usually opt to develop their own establishments in each country. This is a sector where Uzbek forwarder potential penetration is very limited, given the major investments necessary to achieve this type of operation. At this stage the integrated 3PLs share of the Uzbek import market is still small, but the major foreign forwarders are increasingly starting to offer 3PL-type services in Central Asia, though not yet in Uzbekistan.

Most of the foreign forwarding entities in Uzbekistan were established because the alternative of a local partnership was not available at the time. The legislative position was not transparent and there were few corporate entities with experienced personnel with whom such links could be established. There were also problems in relation to such partnerships, particularly with regard to exchange in hard currency for transactions undertaken. Though there are now more national forwarding companies, problems still remain, especially with regard to availability of experienced trained personnel, transfer of foreign exchange and potential scope of services.

Uzbek forwarders tend to offer a very limited range of services compared with 3PLs and tmajor international forwarding organizations. Few have the links with foreign companies that would enable them to offer comprehensive door-to-door service and advanced logistics. Few are willing to offer packages with service responsibility outside the country. There is a danger that the forwarding sector is focusing on limited types of service that are being phased out in many developing countries rather than comprehensive 3PL-type coverage.

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D. Legal Framework The legal position of freight forwarding needs to be improved. The Civil Code Chapter 40 and the Regulations in Forwarding Enterprises and Procedures for Provision of Forwarding Services are not an adequate legal basis for the evolving industry. The laws are particularly deficient in relation to transit, new transport methodologies and documents such as combined transport bills of lading, as well as with regard to the rights and responsibilities of the various parties engaged in forwarding. While such legislation is important in the domestic context, it is essential to reflect the global nature of the business – most of a movement arranged by an Uzbek forwarder takes place outside the country. It is therefore critical that legislation does not impose non-physical barriers for forwarders, be they national or foreign-owned. Like international road transport, freight forwarding tends to operate best in a relatively deregulated environment. Proposals in the new law relating to liability may compromise rights under civil actions and not be compatible with documentation used in forwarder transactions, such as a house bills of lading. Enforcement of such legislation may be difficult.

E. Foreign Exchange An issue for Uzbek forwarding companies is that whilst the forwarder can bill clients in foreign currency, the consignors often do not have access to such currency and therefore only pay in Soum. The forwarder then has a problem with currency exchange, as the majority of his payments will be for external services payable in foreign currency, especially in road forwarding. This can cause cash flow problems for smaller entities.

F. Capacity Building ‘Freight Forwarder’ is now listed in the national classification of professions, but training capacity is very limited, with the industry dependant on foreign training and on its ability to attract personnel from foreign entities. AIFU has accreditation from FIATA to provide professional training and has received international training via the TRACECA programme, but lacks the financial and physical resources to be able to sustain such initiatives. The establishment of a Regional International Freight Forwarding Training Centre remains an AIFU goal.

The AIFU has had to struggle for recognition with limited public and governmental understanding of the industry. This is a common problem in many parts of the world. The industry will only receive public recognition if it becomes more professional and this means capacity-building, with personnel qualified to an international standard.

4.8.2 Logistics Centres Issues concerning logistics centres are covered in full in Appendix IV-1, with a summary in this section.

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A. Development Requirements

The development of logistic centres has been Government policy for a number of years, but has not been implemented. One reason is lack of a clear focus on what is required. The need has been based on ‘other countries having them’, but the local logistics environment is relatively immature and comparisons are therefore not easy to make.

The key development requirements are to: (i) identify prerequisites for development, such as having 3PL operators; (ii) specify the core functions; (iii) assess demand and how facilities will support the logistics sector and supply chain management; (iv) specify whether facilities should be uni- modal/intermodal or both and why; (v) identify funding sources; (vi) clarify site management and development options; (vii) consult with the logistics community to ensure public-private sector compatibility; and (viii) effectively market the concept to industry and to potential funders.

B. Third Party Logistics Providers Internationally, most logistics centres are predominantly concerned with third party logistics – i.e. parties operating at the centres are not the owners of the goods, but major distributors, transporters and forwarders - 3PLs. A domestic 3PL industry has not yet developed with most domestic goods still carried on transport owned or directly controlled by the owner of the goods. International forwarders and transporters have yet to develop the scope of services normally associated with 3PL operators in developed countries. Each operator tends to have limited resources for handling traffic, with relatively minimal storage demand.

C. Functionality The core logistics centre functions are a combination of warehousing and distribution. The core domestic function is transit storage, particularly in the form of regional distribution warehousing. Such centres are mainly concerned with the reception of goods in bulk from the supplier, temporary storage, order picking and distribution to wholesalers, retail outlets or end-users. For international logistics, such centres are predominantly concerned with import processing and are synonymous with Inland Clearance Depots (ICD). Handling of exports tends to be limited to small scale consolidation, with the facility acting as a Container Freight Station (CFS).

The UIFA proposal broadly replicates the Silk Route strategy, whereby markets were established at key locations along the route to trade in local produce, as well as goods in transit. This is similar to the export warehouse infrastructure systems developed in the USSR, when exports were moved to large warehouses at the borders/ports, stored as export stock and then sold ex-warehouse. This is the system used in western China.

The Uzbek concept would be much more advanced, with added-value services such as electronic selling systems, marketing and purchasing capability, banking, arranging of export transport, packing,

PADECO/IKS 86 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report inventory control, hotels etc. all located within a Free Zone. A key driver is to save foreign exchange in the inventory cost for exports. Major products, such as cotton, are moved in bulk and held in port warehouses. The holding cost is paid in foreign currency, reducing export revenue. Local storage of inventory and direct sale would earn hard currency. The primary functions of the centre would be: (i) reception of export products from the points of production; (ii) stock storage awaiting sale; (iii) order picking against export orders; (iv) arranging of transport; and (v) delivery to overseas customers using local forwarding expertise.

The centres would change export logistics from despatching goods in bulk to overseas warehouses to one where the customer either collects from a local logistics centre or Uzbek forwarders/3PLs deliver the goods from the logistics centre direct to customers. This enables added-value logistics services to be offered and improves supply chain management.

D. Demand The requirement for logistics centres should be demand-driven. In the global model, domestic demand comes from large distribution companies and major retailers and international demand from multinationals, major exporters and from ICD customers. In the Uzbek variant, demand would come from exporters. Construction of such facilities is unlikely by itself to generate demand and it represents a high risk.

There is generally a surplus of warehousing capacity, but a lack of modern and specialised warehousing that is compatible with newer logistical systems. This is in part due to the lack of a vibrant domestic warehousing and distribution environment, with no real 3PL industry. Internationally, there may be some latent demand for stock warehousing and particularly ex-production line storage, such as for cotton after the ginnery activity. The holding of stocks closer to the border within a complex that has comprehensive export services could reduce export lead times.

In an international context, such centres are normally concerned with both transit and stock storage of imports. However, the profile of import traffic is not ideal for the development of logistics centres, due to economic conditions and limited access to foreign currency. The majority of imports by road and intermodal movements by rail tend to be of relatively small consignments, imported against orders received. Consequently, following clearance, they are delivered direct to the consignor’s premises by the vehicle that brought the goods into the country, with no significant demand for transit storage.

The demand for import stock storage is virtually non-existent. The economic and regulatory environment is such that foreign companies are reticent about holding inventory in local storage. Imports are mainly order-driven, with direct movement from the exporter to the local end-user, without the need for modern logistical practices such as just-in-time delivery that require holding

PADECO/IKS 87 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report inventory close to the end-user. The national policy of self-sufficiency and import substitution will further reduce the need for foreign exporters to hold inventory within the country.

Some intermodal terminals and the facility at Bukhara could undertake most of the functions of a logistics centre without major investment: many are underutilized.

E. Modal Connectivity Most logistics centres focus on domestic distribution and consist of warehouses adjacent to a key transport node, usually a motorway interchange. Most are uni-modal, principally road-based, because of road’s dominance in domestic distribution and supporting the central and regional distribution systems of developed countries. International centres tend to be multimodal, served by block trains from ports. It is rare for centres to handle both domestic and international traffic.

The basic consolidation, storage and export distribution function favours the use of multimodal links. The role of such centres for export consolidation clearly suggests that the onward movement will still be in relatively large-sized shipments and probably over long distances, favouring rail. However, in the medium to long term, as the range of manufactured exports widens, the pattern may change, with smaller, higher value goods exported by road.

Road generally requires proximity to major interchanges, whereas rail is less flexible, with most railheads in the middle of urban complexes. The location of such facilities often represents a compromise less than ideal for one mode.

F. Funding Difficulty in obtaining funding is a major factor in the lack of progress. Why foreign or domestic investors should invest in such centres, their level of return and how their investment could be recovered, particularly in hard currency, are unclear. There is an inability to sell the concept to investors.

G. Site Management and Development The Draft Concept suggests that the development of logistics centres might involve increased Government intervention in international logistics. Given that much of the export sector is Government controlled, this may not be a major problem in the short term. However, in the longer term, the private sector will become increasingly important, especially for added-value products such as garments and processed foods. Private export sector SMEs may fear that goods will be ‘directed’ towards state facilities, compromising the choice of logistics chain.

Logistics centres are normally operated by 3PLs. The centre may be owned by national or regional governments, but more often by a developer, with operators free to undertake commercial activities without recourse to or reporting to Government. 3PLs would be reticent to use state facilities if this

PADECO/IKS 88 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report involved any operating conditionalities. The private sector will need persuading of the benefits of relocating to logistics centres, particularly if they are state-controlled.

H. Consultation The Draft Concept clearly states the need for logistics centres. However, demand from prospective users, exporters, forwarders and international transporters, is yet to be confirmed. UIFA is actively promoting the concept on the basis of its involvement in management and operation, rather than from members wanting to use the terminals. There has not been wide consultation with the market, reflected in the lack of identified demand. The logistics centre concept is currently institutional-driven rather than demand-driven.

4.9 INLAND WATERWAY SERVICES

A. Inland Water Services Inland waterway transport may have a limited future. The key strategic issues are assessing the potential to revive the sector and determination of likely demand. Movement is limited to a 500km stretch of river running generally east-west. Uzbekistan-Afghanistan demand runs north-south, with the primary road and rail corridors at right angles to the River Amudarya. In recent years the emphasis has been on upgrading these north-south links, with improvements to the Friendship Bridge at Termez, development of river crossings in Turkmenistan and new road and rail facilities in Afghanistan at Hayratan. A new Tajikistan-Afghanistan bridge is to be built upstream at Niznhy Pianj– Shir Khan Bandar.

Waterway transport has a similar competitive profile to rail: its prime attraction is its ability to move cheaply lower value bulk and semi-bulk shipments over longer distances, but the navigable section is comparatively short. Movements on the Volga-Don system, the Rhine-Danube system, the India- Pakistan, the Chinese and Mekong-Red River systems all rely on significantly longer hauls for viability. Whether water transport could ever be viable over short distances, considering the rail and road alternative, is questionable. There is no real demand for a Turkmenabad-Termez service, the longest link involving Uzbekistan. There is no bulk traffic by any mode between these areas and there is a parallel rail link. Similarly, there is no significant traffic between Turkmenabad and Afghanistan and, if it developed, it would probably use the Torghundi railhead in Afghanistan, currently being used mainly for oil and gas imports, but with potential to handle much higher traffic levels. Similarly, there is no evidence of demand east-west between Shir Khan Bandar and Termez and given that this is only 100km water transport is unlikely to be competitive.

B. Cross-River Ferry Services The potential lies in cross-river traffic – i.e. a ferry link. A major potential was demand associated with the reconstruction of Afghanistan. However, the situation has changed significantly

PADECO/IKS 89 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report within Afghanistan with the road corridor through Pakistan via Torkham being improved and it is now reasonably reliable and safe, as is the route from Bandar Abbas to Islam Qala and Herat. The opening of the Selang Tunnel and the completion of the central ring road will enable enhanced national connectivity and thus the previous accessibility constraints to northern Afghanistan have largely been removed. The need to route emergency traffic across the Amudarya has correspondingly declined, as demonstrated by the major reduction in UN shipments.

There is demand for the movement of fuel and agricultural produce across the river, with significant potential for localised trade between northern Afghanistan and Central Asia. The rehabilitation of the fuel facilities at Hayratan should enhance the handling of tank wagons, though institutional problems still need to be resolved to eliminate the slow turnaround of wagons. However, the rail connection with the depot on the Afghan side will remain the optimal means of handling the fuel traffic. This leaves the important agricultural produce movements between Central Asia and Siberia and Afghanistan, mainly carried by road and some potential for construction materials that could arrive at Termez by either rail or road.

C. Bridge Constraints The optimum logistics strategy is to use road transport via the bridge into Afghanistan, clear Customs at Hayraton and then to proceed direct to Mazar – i.e. no modal change. This is demonstrated by the collapse in port tonnages in 2006, as soon as the bridge reopened to road traffic.

Some residual traffic has been retained by the port due to the official and unofficial charges imposed by both sides for using the bridge. Port management indicated that using the port-port barge transfer can be US$100-150 per load cheaper than by the bridge. This is attractive to some Uzbek forwarders, as the port-port system avoids many of the facilitation problems of direct road shipment, particularly if the cargo is to be transhipped to Afghan trucks in Hayraton.

D. Equipment The ferry service uses barges designed for river transit, thus the need for higher carrying capacities for the longer distances involved. The 300 tonne barges are too large for cross-river work and this can result in service delays until sufficient traffic is available to provide an economic load. The relatively low power of the tugs also extends the crossing time, but this is less critical, given delays in load consolidation.

E. River Maintenance The Amudarya is subject to high levels of siltation that result in moving sandbanks and alterations in the navigable channel. Due to its lack of use and the sensitivity of movements along the river, there has been no significant maintenance work or surveys undertaken. It is assumed that the river is

PADECO/IKS 90 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report navigable between Turkmenabad and Nizhny Pianj/Shir Khan Bandar, but this is by no means certain. Some substantial dredging work may be needed to reopen the waterways.

F. Port Development in Afghanistan There are no firm proposals for rehabilitation of the ports on the Afghan side of the river or funding being allocated to do so. Hayratan has one old 60 tonne crane for handling containers, but otherwise all cargo is carried on and off the barges manually. The only investment taking place in the port is the development of a road transport terminal by the World Bank. At Shir Khan Bandar a new bridge under construction immediately downstream of the port is expected to virtually eliminate the need for any port development there.

4.10 URBAN TRANSPORT

4.10.1 Metro Metro traffic has fallen sharply in 2006, following on from years of steady decline. The system has the appearance of being in a run down state. Spare parts for cars are difficult to source and local manufacture is not always an alternative. Basic housekeeping tasks, such as replacement of failed lighting, are not being performed adequately. Staff morale is hard to sustain in such conditions. The Metro is a national asset, but also a visible legacy of the USSR period. Some stations have been “Uzbekinized” in their design, but everything possible needs to be considered to arrest the traffic loss and to attract passengers back onto the system.

4.10.2 Trams The tram system is also rundown, with deteriorated track and an aged tram fleet. The trams are in generally poor condition and part of the fleet is obsolescent. Operation of routes 2/26 was suspended in 2003/4 and route 27 was suspended in 2006, as a result of low demand, although the track and catenary remain in situ.

4.10.3 Trolleybuses The problems of the tram system apply to an even greater extent to trolleybuses, with a rapid fall in usage following the introduction of high quality buses and of minibuses. The trolleybus fleet is in poor condition and there is frequent detrolleying, inconveniencing passengers and, as it occurs mainly at intersections, other road users.

4.10.4 Other Cities The primary issue in most cities is the impact of minibuses on the existing bus and trolleybus services, which have seen a dramatic decline in traffic volume and correspondingly limited recent investment. Many cities report a shortage of larger buses: in Samarkand 150 are needed (purchase of 40 Turkish

PADECO/IKS 91 Tashkent, December 2006 TA4659-UZB Transport Sector Strategy Final Report buses is planned for 2006). Bukhara requires 50 large buses to open five more routes and the trolleybus fleet in also in need of renewal. The four bus routes serve only a third of the city area, while 25 routes previously operated, 21 being withdrawn following the introduction of minibuses.

4.11 INSTITUTIONAL ISSUES

The sector’s institutional structure is characterised by devolution of powers and responsibilities from the Cabinet of Ministers to individual entities, without the benefit of an intermediate leading body to coordinate and to form/implement policy. This has resulted in a mix of regulatory and commercial functions being vested in agencies with a sub-sector focus. Policy implementation is fragmented at the sector-wide level and there is little uniformity of structuring between sub-sectors. UTACA was established to provide a co-ordinating function and represent the sector as a whole, but these responsibilities were not supported by a formal capacity to require compliance with policy specifications, either at the sector level or between sub-sectors.

Monopoly service supply continues to be a major characteristic, particularly for rail and air. The policy is to curb the powers of monopolistic suppliers through regulatory control exercises by the Anti- Monopoly Commission, rather than actively seeking to promote competitive structures in the sector - with the exception of road services, where the private sector is active.

Institutional reform has been an ongoing theme over recent years, with privatization and divestiture of non-core activities having been applied to most of the major entities. Whilst this has provided the initial stepping stones to a core transport focus and subsequent commercial orientation, privatization has not been extended to cover core transport activities, particularly for rail and aviation.

Private sector participation is effectively limited to the provision of road-based services. There have been some limited initiatives to promote broader-based participation, but as with other aspects of policy implementation, such initiatives have been piecemeal in terms of both focus and results and have not sought to address sector-wide issues.

Training and HR development support is well catered for by modal specific institutions, in terms of traditional technical, engineering and management requirements. The position however, is less satisfactory for training relating to newly enhanced management and marketing requirements associated with commercial orientation and the greater emphasis on practical experience and training in relation to participation in international markets.

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4.12 LEGAL AND REGULATORY ISSUES

The primary concern is that the sector is governed chiefly by decree, by regulation or through the exercise of monopoly power. With some exceptions (minibuses, inter-city buses and road freight), transport is not managed as a business, albeit one with a social element. Freeing management from over-regulation would best serve the interests of users. A more lightly regulated sector, coordinated by MOT, with Government support limited to social service elements, should be the medium term goal.

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5. Strengths, Weaknesses, Opportunities and Threats

5.1 SWOT ANALYSIS

The strengths, weaknesses, opportunities and threats (SWOT) analysis focuses strategy on key issues. The objective is to: (i) build on strengths; (ii) eliminate/minimize weaknesses; (iii) exploit opportunities; and (iv) counter threats.

T5-1 Transport Policy and Strategy Strengths Weaknesses

1. Few pressing issues. 1. Weak database for planning, particularly for 2. Improving sector coordination through urban areas. UTACA. 2. Long term transport policy objectives 3. UTACA Draft Concept provides step are undefined. towards transport strategy. 3. No Ministry of Transport, fragmented 4. Presidential Decree No. 325 focuses on administrative structure. medium term planning. 4. Few staff assigned to sector administration.

Opportunities Threats

1. Efficiency gains from improved transport 1. A Ministry of Transport not set up. administration. 2. Inter-agency conflicts hinder 2. Modal objectives clarified for enhanced strategy acceptance and implementation. sector management. 3. Necessary funding not provided. 3. Government support and investment to be better targeted. 4. Increased resources allocated for transport.

T5-2 Common Use Roads Strengths Weaknesses

1. Adequate capacity in system. 1. Maintenance backlog, much of network in 2. Good network coverage, few missing links. deteriorated condition. 3. Establishment of Republican Road Fund 2. Poor signposting and road marking. under Ministry of Finance provides 3. Difficult connection with Ferghana Valley. more assured financing. 4. Road Fund responsibility for construction 4. Modest traffic growth rate. supervision lacks resources for effectiveness. 5. Variable quality of asphalt (Ferghana plant). 6. Weak competition for roadwork: limited capacity of private contractors. 7. Inadequate funding. 8. Safety concerns.

Opportunities Threats

1. Few major investments needed, funding 1. Adequate funding for rehabilitation and can be focused on rehabilitation and maintenance may not be provided. upgrading.

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T5-3 International Road Corridors Strengths Weaknesses

1. Key location within Central Asia. 1. Decline in international traffic. 2. Few viable alternatives for regional transit 2. Poor road condition on some corridors, both traffic. inside and outside Uzbekistan. 3. Substantial direct and indirect income from 3. Relatively high transit fees for foreign foreign transporters. transporters. 4. Generally sufficient infrastructure with only 3. Poor regional trade facilitation, delaying a few missing links. traffic and increasing costs. 5. Investment in modern border infrastructure.

Opportunities Threats

1. New road corridors to China. 1. Border closures or restrictions for political or 2. Alternative corridors through Afghanistan. security reasons. 3. Underutilised capacity. 2. Development of alternative corridors bypassing Uzbekistan. 3. Overpricing adversely affecting corridor viability. 4. Changes in import sourcing by Kazakhstan and the Kyrgyz Republic, favouring corridors via Russia.

T5-4 Domestic Rail Network Strengths Weaknesses

1. Spare capacity in system. 1. Loss of synergies from disintegration of Central 2. Good network coverage. Asian Railway and from competitive 3. Experienced and dedicated system development of new lines. operations management. 2. Track maintenance backlog, deteriorated track. 3. No domestic connection to Ferghana Valley.

Opportunities Threats

1. Opening of Tashguzar-Boysun-Kumkurgan 1. Investment funding diverted to construction of line end-2007 will improve system. Angren-Pap line. 2. Operating benefits from investment in new 2. Maintenance under-funding. lines in the region.

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T5-5 International Rail Corridors Strengths Weaknesses

1. Access to compatible CIS rail network. 1. CIS network designed for Soviet needs, 2. Corridor network becoming more causing problems post-independence. integrated within Uzbek territory, thus 2. Costs/delays in transit through Tajikistan. reducing border transit costs and delays. 3. Infrastructure problems and restrictions in 3. Improvements in domestic rail neighbouring states. infrastructure also benefit 4. Gauge change required to reach key markets. international corridors. 5. Poor condition of Amudarya Bridge.

Opportunities Threats

1. Angren – Pap line to attract 1. Deterioration of infrastructure on neighbouring international/transit traffic. networks resulting in more speed restrictions. 2. China link through Kyrgyz Republic 2. Increased transit distance in Turkmenistan if generating transit/international traffic. Amudarya bridge closes. 3. Angren - Pap line too expensive to construct. 4. Lack of funding for Kyrgyz – China link due to high cost. 5. Development of Kazak east-west corridor could divert some transit traffic.

T5-6 Aviation Infrastructure Strengths Weaknesses

1. Comprehensive airport network providing 1. Ownership and management by largest local connectivity. customer- UzA. 2. Tashkent Airport close to city. 2. Cost of maintaining comprehensive airport network. 2. Expenditure at minor airports limits funding at core airports. 3. Airports considered as a social amenity. 4. Security dictating rather than supporting operations. 5. Poor operational design of most terminals. 6. Poor scheduling resulting in traffic peaking problems. 7. Cargo volume insufficient to support increased mechanization. 8. Sub-standard transit facilities.

Opportunities Threats

1. Commercialization of airport sector. 1. Deteriorating standard of regional airports. 2. Possible future privatization of Tashkent 2. High reliance on UzA to generate demand. Airport. 3. Pressure to relocate Tashkent 3. New approaches to increase revenue, with Airport on environmental grounds. private provision of services.

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T5-7 Inland Waterways Strengths Weaknesses

1. Port of Termez a strategic asset on a 1. River transport assets are in poor sensitive border. condition and in need of rehabilitation. 2. Port be critical for cross-border trade in the 2. Lack of demand for movements along the event of bridge closure. river. 3. River service offers a viable alternative to 3. Function of river transport has changed to use of the road bridge. being a ferry service, without the optimal 4. Nucleous of resources and expertise in resources for this. river transport should the sector ever 4. Lack of investment in port infrastructure in redevelop. Afghanistan. 5. River may not be navigable over its 500km length.

Opportunities Threats

1. Ferry avoids many of the trade 1. Optimal logistics would mean no demand for a facilitation problems in using direct ferry link. road services. 2. Changes in official and unofficial charges could threaten the economic viability of the ferry service.

T5-8 Domestic Road Transport Strengths Weaknesses

1. Low rates in short term with old 1. Lack of investment due to high duties and vehicles undercutting larger taxes: old fleet. carriers, depressing overall rates. 2. High import cost of spare parts reduces 2. High level of driver ownership promotes efficiency and affects road safety. employment opportunities. 3. Lack of heavy vehicles for long distance work, smaller less efficient vehicles being used. 4. High reliance on owner drivers and small operators, lacking resources to reinvest. 5. Small operators are less subject to regulatory forces, depressing rates and distorting the market. 6. Taxation system defers reinvestment and favours smaller, less efficient operators.

Opportunities Threats

1. Increased efficiency of operators could 1. Increased fleet redundancy and idle time support extra investment costs. awaiting parts will result in shortage of road 2. More heavy vehicles reduce unit costs for transport. This could lead to substantial rise in long distance movements. costs in the medium to longer term. 3. Domestic distribution industry develops 2. Transport rates need to rise to support with appropriate resources. major reinvestment programme. 3. Increased road safety concerns as operators cut corners in maintenance and replacement of parts/tyres. 4. Loss of employment by owner drivers and small operators as vehicles become redundant/inoperative. 5. Increased fuel costs and pollution due to low fuel efficiency of older vehicles.

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T5-9 International Road Transport Strengths Weaknesses

1. Adequate traffic available, provided it can 1. High cost of importing new and secondhand be accessed. vehicles, aging fleet with vehicle shortages. 2. Lower operating costs than most foreign 2. Lack of internationally compliant equipment transport entities. (Euro II and III) restricts market access. 3. Some experienced national operators. 3. High cost of and lack of spares results in excessive vehicle downtime. 4. Difficulties in penetration of the higher value import market due to routing controls, lack of export loads and vehicle shortages. 5. Low axle load limit raises unit transport costs. 6. Lack of international weight certificates raises external transit costs. 7. Potential longer term problem of access to permits as market share increases. 8. Outdated and complex legislation. 9. Lack of cross border bus services.

Opportunities Threats

1. Potential for Uzbek carriers to obtain 1. Lack of investment leading to reduction in increase in market penetration, given the market share by Uzbek carriers. current low market share. 2. Shortage of spares increases vehicle downtime 2. Future added-value export traffic that even further. should help to reduce imbalance problems. 3. Increasing environmental/safety requirements 3. Potential to attract foreign transporters to become even more of a barrier to market establish JVs with Uzbek carriers, thus access. bringing in external investment resources. 4. Foreign carriers reduce direct services in 4. Potential to replace fleet with second-hand favour of transhipment in neighbouring conforming units to reduce investment countries. costs. 5. Increases in transit fees in key transit countries. 6. Perceived security risks on cross border bus services

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T5-10 Domestic Rail Freight

Strengths Weaknesses

1. Spare capacity for new traffic. 1. Domestic freight tariff controlled by Ministry of 2. Good connections to traffic generators. Finance. 3. Favourable freight market – long distance 2. Wagon maintenance backlog. movement of bulk commodities. 3. Wagon fleet needs to be modernized. 4. Limited experience of freight marketing.

Opportunities Threats

1. Opening of Tashguzar-Boysun-Kumkurgan 1. Development of new lines elsewhere will line end-2007 improves competitive increase competition for transit traffic. position on Tashkent-Termez corridor. 2. Increasing domestic competition from trucking 2. Favourable location to develop transit industry. traffic. 3. Road rehabilitation programme will improve 3. Major investment in new lines in the performance of road transport. region will increase rail freight market. 4. Development of local trucking industry and vehicle fleet renewal will increase competition.

T 5-11 Rail Passenger Strengths Weaknesses

1. Some spare network capacity for new 1. Domestic passenger tariffs controlled by services. Ministry of Finance. 2. Good network coverage. 2. Coach maintenance backlog. 3. Coach fleet needs to be modernized. 4. Deteriorated track condition with many speed restrictions, delaying passenger services. 5. No all-domestic connection to Ferghana Valley. 6. Limited focus on marketing.

Opportunities Threats

1. Opening of Tashguzar-Boysun-Kumkurgan 1. Loss of traffic to private transport/air services. line end-2007 will improve competitive 2. Road rehabilitation programme and fleet position on Tashkent-Termez corridor. replacement will improve performance of intercity bus services. 3. Inadequate funding of rolling stock.

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T5-12 International Rail Freight Strengths Weaknesses

1. Access to a comprehensive rail network 1. Poor services levels for added-value traffic. throughout the CIS. 2. Service levels predominantly dependent on rail 2. Highly competitive over long distances, performance in other countries. especially for the movement of lower value 3. Inability to offer premium services. commodities. 4. Tariffs favour long distance movements and 3. Good connectivity to China and its network disadvantage short distance traffic. compared to road. 5. Tariffs and monopolistic position limits rate 4. Wagon tracking system to indicate where flexibility. goods are at any time. 6. Inability to offer total logistics packages. 5. Growth in transit traffic. 7. Lack of customer orientation. 6. UTY experienced operator. 8. Unavailability of specialist rolling stock.

Opportunities Threats

1. Growth in trading links with China and East 1. Increased movement of high-rated traffic at Asia favours rail. the expense of raw materials. 2. Potential growth in Afghanistan as an 2. Lack of investment in CIS rail system leading import/export market. to longer, less reliable transit times. 3. Potential of intermodal services to handle added-value traffic.

T5-13 Intermodal Services Strengths Weaknesses

1. Lower transport costs on key routes 1. Service and reliability problems make compared to the road mode. intermodal less attractive that all road unless 2. Comparative transit times if block trains cost is major issue. could be established. 2. Many of the problems are external and 3. Significant potential for expansion. therefore difficult to resolve. 4. Many of the facilities are already 3. Lack of use of through and combined transport operational. bills of lading. 5. Reduces congestion at road borders 4. Unimodal nature of the forwarding sector. 5. Shortage of specialised wagons. 6. Existing tariffs do not encourage container traffic.

Opportunities Threats

1. Development of door-to-door services, thus 1. Shipping lines, forwarders and railways do not lowering overall transport costs. support and encourage the concept. 2. Cost benefits to emerging Uzbek export 2. Too many facilities without necessary critical manufacturers/processors. mass to be viable 3. Sea carriers to establish own depots in Uzbekistan.

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T5-14 Uzbekistan Airways Strengths Weaknesses

1. Locational advantage of Tashkent as 1. Impact of Government interventions. regional hub/transit point for Euro-Asian 2. Poor financial position, worsened by current connections. high cost of fuel and slow ability to rationalize. 2. Protected position as national carrier. 3. Lack of fleet standardization. 3. Ferghana valley services face weak 4. Retention of aircraft for spares, creates competition from other modes. negative image 4. Good multi-destination tourism potential in 5. Outdated aircraft with high fuel burn used on home market. domestic routes. 5. Rapid economic growth in many 6. Domestic tariffs subject to approval by Ministry international markets. of Finance. 7. Need to service all domestic airports. 8. Outdated ticketing and reservation systems. 9. Dependence on Uzbek customers. 10. Visa restrictions on Uzbek nationals and visa requirements for foreign visitors limit market opportunities. 11. Increasing competition in the transit sector 12. Quality of service issues.

Opportunities Threats

1. New aircraft 2007-11 will rationalize fleet 1. Increasing competition from other carriers, and improve services. especially for the transit market. 2. Move to e-ticketing and reservations 2007 2. Small size compared to competitors. will reduce costs and stimulate demand. 3. Possible increase in losses could result in 3. Rationalization of domestic operations reductions in service. could reduce loses. 4. Bird flu pandemic and other risk factors 4. Increased commercialization could improve reducing travel demand. performance and financial viability. .

T5-15 Other Airlines Strengths Weaknesses

1. Limited competition with few carriers 1. Low growth in domestic demand. operating. 2. Reduction in volumes of foreign nationals. 2. Poor route coverage provides potential for 3. Dependence on low frequency services by carriers with passenger and cargo hubs small carriers. and interlining arrangements. 4. Need for hubbing to have international connectivity. 5. Poor connectivity because of lack of major carriers. 3. Lack of cargo capacity and services.

Oppoertunities Threats

1. Scope for new carriers given limited 1. Uzbekistan Airways quasi-monopoly service coverage. may stifle competition. 2. Many bilateral agreements unused. 2. Even greater reliance on foreign hubs. 3. High growth in regional airlines, especially Russian and possibly in future in the rest of the CIS.

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T5-16 Airport Services Strengths Weaknesses

1. Sole provider potentially improves 1. Lack of competition in the airport services coordination of services sector, particularly in passenger and cargo 2. Monopoly provides necessary economies of handling limits improvement in service scale, particularly at domestic airports standards. 2. Poor catering and retail facilities constrain ‘passenger spend’ and creates negative image of both airport and national carrier. 3. Poor passenger facilitation services. 4. Overall service standards have not improved in parallel with trends at other airports

Opportunities Threats 1. Potential to increase airport revenue 1. Improved service standards at competing through increased ‘passenger spend’ and airports in the region may result in diversion of concession agreements passenger traffic, especially transit and tourist. 2. Improvements in passenger related service 2. Monopoly may dissuade new carriers from could raise image enabling increases in opening up services as service levels not fares/changes compatible with their brand image.

T5-17 Freight Forwarding Strengths Weaknesses

1. There are a number of experienced major 1. Foreign forwarders control much of the forwarders, especially in the rail sector. important higher value import sector. 2. Uzbekistan has developed a vibrant 2. Limited service packages offered by national forwarding sector with foreign participation forwarding companies with reliance on despite the difficult operating environment. traditional forwarder-type roles. 3. National Association (AIFU) enjoys strong 3. Outdated and complex legislation. support/contact from Government and 4. Poor state of the Uzbek international road FIATA. transport sector means increased dependence by forwarders on foreign road carriers. 5. High dependence on rail sector by national forwarders. 6. Currency and tax restrictions on national entities. 7. Lack of personnel trained in modern forwarding technologies

Opportunities Threats

1. To develop overseas networks and joint 1. Government intervention to discriminate venture arrangements to increase against foreign forwarders based in penetration of the import sector and offer Uzbekistan. more comprehensive service packages to 2. Further restrictions on foreign exchange clients. transactions. 2. Future growth in the export manufacturing 3. Government action to ‘control’ exports that sector creating increased potential for would benefit a few major forwarders but Uzbek forwarders. reduce opportunities for new entrants. 3. To develop a regional training centre to 4. Changes in trade pattern with higher growth in improve national forwarding capacity. non-CIS traffic. 5. Inability to provide 3PL-type service packages or greater range of services.

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T5-18 Logistics Centres Strengths Weaknesses

1. Savings in storage charges at overseas 1. No 3PL industry and supply chain management locations expertise. 2. Potentially enhances the supply chain 2. Domestic distribution systems not compatible management of Uzbek exports. with logistics centre concept. 3. Concentrates export-related logistics 3. Core functions of planned centres are not activities within specific sites. transparent, particularly in terms of benefits to 4. Could improve efficiency of the users. international transport sector by 4. Export logistics terminals will increase the better coordinating use of transport complexity of the export logistics chain with resources. additional costs. 5. Provides purpose-built modern transit and 5. No clear evidence of demand or stock storage capacity as the economy potential volumes that could be attracted to develops. such centres. 6. Surplus of warehousing and some existing facilities can perform many of the functions of the centres. 7. Multimodal terminals are difficult to locate and represent a compromise on optimal siting. 8. Inability to sell the concept to potential investors. 9. Private sector concern that export traffic be directed towards state owned facilities. 10. Concept may be institutionally-driven rather than demand-driven.

Opportunities Threats

1. Provides modern warehousing complexes, 1. Lack of necessary implementation funding. possibly within a free zone, that can be 2. Potential lack of support by exporters’ foreign developed to handle other traffic. clients due to changes in logistics chain. 2. Could create opportunities for forwarders 3. Potential conflict of interest with UTY and and transporters to become more engaged existing operators of intermodal centres. in added-value export services, especially if 4. Fears that the development will seek to exert goods are sold on free delivered terms. increased control over exports. 3. Facilities could hold stock from other 5. Changes in export patterns due to future countries for export, such as at Termez emphasis on manufactured goods will favour where the alternative approaches are few. direct delivery, thus bypassing local facilities. 4. Could create a 3PL-type logistics 6. Viability may be dependent on a few key environment to help develop national export commodities whose volumes may be distribution later. volatile due to world pricing system.

T5-19 Metro Strengths Weaknesses

1. Spare capacity in system. 1. Long term decline in usage accelerated by new 2. Integrated network with good city bus fleet and competition from minibuses. coverage. 2. Dramatic fall in usage in 2006 as a result of 3. Well designed system, with architecturally withdrawal of multi-mode network card. significant stations. 2. Lack of investment funding to complete Line 3 4. Technical competence in system operation. and for other works. 5. Extreme winter/summer climate favours 3. Trains and stations need refurbishing. metro use. 4. Ticket system not integrated with other modes. 5. Lack of spare parts and shortage of funds for

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maintenance. 6. Low service frequency on Line 3 (8-minute headway). Opportunities Threats

1. Completion of northern section of Line 3 1. Development of other modes could further would substantially increase usage. reduce traffic. 2. Integrated public transport ticketing 2. Rolling stock will become increasingly difficult system would increase usage. to maintain and an aging system will increase 3. Considerable potential for improvements to the cost base. ambience of trains and stations. 3. Loss of traffic with increasing car ownership. 4. Possibility of reorganizing transport network to further improve integration with metro. 5. Recognition of strategic importance of metro in public transport system should result in an increase in financial support.

T5-20 Trams Strengths Weaknesses

1. Spare capacity in system. 1. Long term decline in usage is continuing, 2. Most of network is on reserved accelerated by competition from buses and (segregated) track, reducing conflicts with minibuses. other modes. 2. Lack of funds for track and system 3. Less affected by winter conditions than maintenance. other surface modes. 3. Trams need refurbishment/replacement. 4. Many users prefer trams to other modes. 4. Track in poor condition, poor quality of ride – increases vehicle maintenance cost. Track unsuitable for introduction of new trams. 5. Three routes suspended in last five years due to low traffic levels.

Opportunities Threats

1. Reserved track suitable for upgrading to 1. Development of competing modes could light system. further reduce usage. 2. Planned acquisition of 60 new trams 2007- 2. Potential loss of traffic to private transport. 2010 provides opportunity for 3. Aging system will increase cost of maintenance. comprehensive route modernization of four lines. 3. Possibility of reorganizing transport network to feed traffic onto an LRT network.

T5-21 Trolleybuses Strengths Weaknesses

1. Spare capacity in system. 1. Dramatic decline in usage, due to competition 2. Environmentally friendly mode, no roadside from minibuses and new buses. pollution from vehicles, quiet operation. 2. Lack of funds for vehicle and system maintenance. 3. Fleet needs refurbishment/ replacement. 4. System in deteriorated condition, giving poor

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quality of service, frequent detrolleying. 5. Low service frequency.

Opportunities Threats

1. Planned acquisition of new vehicles could 1. Development of competing modes could be combined with selective route further reduce usage. modernization. 2. Potential loss of traffic to private transport.

T5-22 Institutional Isues Strengths Weaknesses

1. Established institutional structure with 1. No leading entity for policy formation, strong communication channels. co-ordination and implementation. 2. Experienced staff well-versed in technical 2. Subsector focus at the expense of sector-wide and procedural requirements. considerations. 3. Responsibilities and authorities clearly 3. Absence of transport policy framework means stated in enabling legislation. that individual institutions are not strategically focused. 4. Limited commercial and international expertise. 5. Preponderance of monopoly supply in several subsectors. 6. Over-dependence on reporting directly to the Cabinet of Ministers. 7. Poorly defined competitive structures. 8. Combinations of commercial and regulatory responsibilities.

Opportunities Threats

1. Coordination and strategic focus from 1. Ministry of Transport proposal may not be establishing MOT. accepted. 2. Economic gains through sector-wide focus. 2. Conflicts between agencies hinder policy 3. Enhanced finance base through PPP. implementation. 4. Commercial gains through training focus. 3. Resistance to change. 4. Subsequent changes in Government policy re investment and PPP.

T5-23 Legal and Regulatory Issues Strengths Weaknesses

1. Accession to six of the seven international 1. Implementation of international land transport land transport facilitation called for ESCAP facilitation conventions may be lagging in some Resolution 48/11. cases. 2. Active in many regional groupings with a 2. Road, road transport, railway, air, and freight number of bilateral and plurilateral forwarding laws may not always reflect market agreements with neighbouring countries. orientation and/or the latest realities. 4. Existing road, road transport, road safety, 3. Need for improved transit mechanisms. railway, and air laws/codes and modernized versions of many of these under preparation, as well as a new law on freight forwarding.

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Opportunities Threats

1. Accession to additional international land 1. Not entering into/implementing appropriate transport facilitation conventions. international transport agreements. 2. Upgrading/implementation of bilateral and 2. Not modernizing laws and regulations. plurilateral road transport agreements with 3. Not instituting modern transit procedures. neighbouring countries. 3. Expanding the number of countries with which Uzbekistan has bilateral air services agreements. 4. Enactment of updated, modernized legislation.

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6. National/International Agencies

6.1 INTRODUCTION

This chapter reviews transport policy and strategy as set out in the UTACA Draft Concept paper and in international agency policy statements. It also notes external financial and technical assistance provided to the sector.

6.2 GOVERNMENT POLICY AND THE DRAFT CONCEPT

In 2004-05, UTACA prepared a Draft Concept for the Development of Transport and Communications in the Republic of Uzbekistan to 2015 (the Draft Concept). This is summarized in Appendix VI-1. It should be noted that work on the Draft was suspended to await the outcome of this study. The Concept laid out transport sector development objectives, focusing primarily on the legislative and regulatory environment.

Government policy is to restructure the sector and to encourage market-based management and operations, for example to date this has included the franchising of urban and intercity bus services and the introduction of privately operated minibus services in most cities. The road sector has been reorganized, with the creation of the Road Fund under the Ministry of Finance, taking over financing and planning responsibilities for common use roads from Uzavtoyul.

The legal and regulatory framework is being modernized to support the development of a market economy and infrastructure and maintenance is being improved. Under Presidential Decree No.325 of 17 April 2006 On Measures for Enhancement of the Development of Service Industry 2006-10 transport agencies prepared medium term development programmes. The transport section of the Decree is given in Appendix VI-2. By Executive Order of the President No. P-2482 of 20 April 2006 On Establishment of a Commission to Develop a Programme to Form a Single Integrated Strategy for Regional Development 2007-11, a Concept has been developed, covering programme goals, objectives and methodology. The Decree, which applies also to the transport sector, is given in Appendix VI-3. The President announced by Decree of 11 May 2006 the establishment of a Fund for Reconstruction and Development, with initial assets of US$1 billion, which are in part being used for transport projects.

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6.3 ADB STRATEGY AND ASSISTANCE

6.3.1 Assistance to Date ADB assistance has focused on the rail sector. It has acted as lead donor coordinator for rail activities undertaken by other development agencies, primarily JBIC, EBRD and the EC, ensuring close coordination and complementarity in infrastructure development and policy reform. ADB interventions to date have been: (i) three feasibility study TAs (which also identified institutional reform issues); (ii) three TAs on institutional reform; and (iii) two loans for railway rehabilitation and modernization. These are listed in Table 6-1.

T6-1 ADB Interventions in the Railway Sector

Technical Assistance 2754-UZB Technical Assistance to Uzbekistan for Railway Rehabilitation Project, approved 28 January 1997. 3040-UZB Building Project Implementation Capacity of Uzbekistan Railways, 7 July 1998. 3068-UZB Institutional Strengthening of UTY, 15 September 1998. 3218-UZB Uzbekistan Railway Modernization Project, 6 July 1999. 3529-UZB Furthering Railway Sector Reform in Uzbekistan, 31 October 2000. 4076-UZB Third Railway Development Project, 19 December 2002.

Loans 1631-UZB Railway Rehabilitation Project (US$70 million programmed, US$62.6 million drawn). 1773-UZB Railway Modernization Project (US$70 million, effective 21 September 2001).

The loans included a number of covenants relating to restructuring and operational performance. For example, UTY agreed to cut core railway staff from 52,000 in 1996 to 46,000 in 2003: the target was more than achieved with actual establishment in 2003 of 32,900.

The TA 3529 Final Report, December 2002 includes a Railway Master Plan and Financial Forecast for 2002-10. (Actual GDP growth since 2002 and forecast growth to 2010 are both much higher than the study forecasts.) The study covered: (i) railway subsector policy and regulation; (ii) the preparation of a railway master plan and financial forecast; (iii) operationalisation of a small business fund to assist former UTY employees; (iv) the development of rail tourism; and (v) an assessment of soil salinity and its influence on railway transport.

A comprehensive railway reform agenda was developed under TA 3068. This was refined under TA 3529 and further reviewed in TA 4076. The latter, a PPTA for the ADB Third Railway Development Project, prescreened five projects: (i) rehabilitation of Samarkand - Karshi (137km); (ii) rehabilitation of Navoi – Uchkuduk (182km); (iii) rehabilitation of Khavast-Bekhabad-Kanibadam-Ferghana (191km); (iv) a modernized traffic control and wagon control system; and (v) construction of the Angren – Pap line (118km). Rehabilitation of the Marokand-Karshi Line was selected for detailed study. This opened

PADECO/IKS 108 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report in 1970, providing transport for water facilities construction for the development of the Karshi Steppe. Single track and non-electrified, it is part of the Tashkent-Termez corridor, with connection to Afghanistan via the Amudarya bridge and to Tajikistan. The proposed Project would rehabilitate track and modernize signalling and telecommunications. The track and roadbed have deteriorated due to deferred maintenance. Severe speed restrictions apply on 21 per cent of the route and moderate speed restrictions on 25 per cent. When the Guzar-Boysun-Kumkurgan line opens at end-2007, Marokand-Karshi will also be part of wholly-domestic route to the Surkhandarya region and Termez. is relatively isolated, with traffic for it currently transiting Turkmenistan.

6.3.2 Country Strategy and Programme to 2010 The ADB Country Strategy and Programme Uzbekistan 2006-10 February 2006 (the CSP) notes that transitional and development challenges continue and that a reinvigorating of structural reforms is required to sustain a high growth rate. The overall priorities of the CSP are given in Table 6-2 and the key transport problems identified in Table 6-3.

T6-2 CSP - National Priorities

1. Accelerate environmentally sustainable rural development. 2. Enable private sector development. 3. Promote regional cooperation through developing transport corridors and customs transit. 4. Improve access of the poor to education.

T6-3 CSP - Key Transport Problems Road:

1. Poor and deteriorating infrastructure, resulting from a number of problems. 2. Weak sector management, with lack of a Ministry of Transport. 3. Gaps in regulations and policies. 4. Inefficient border controls.

Rail:

1. Lack of competition in railway services, no clear basis for management and investment, limited management information, outdated rolling stock and telecommunications. 2. Obsolete, poor quality technology and limited orientation to marketing. 3. Numerous cross-border operating problems. 4. Excessive international tariffs, inconvenient billing and inadequate consignment information for shippers.

The CSP notes that road and railway improvements are in prospect on the Uzbekistan-Kyrgyz Republic-China corridor (Andijan-Osh-Kashgar) and that work is in progress to connect Uzbekistan and South Asia through Afghanistan and that regional corridors through Uzbekistan are being upgraded.

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The ADB programme for 2006 includes an ongoing regional infrastructure (roads) PPTA, which includes a pre-feasibility study of the Gulistan-Angren corridor, together with TAs for a traffic enhancement project and for the harmonization of cross-border transport initiatives in Central Asia. A regional railway development TA is included in the 2007 programme. The loan programme includes a regional transport (roads) project (of US$20 million) in 2007 and a regional railway rehabilitation project (of US$20 million) scheduled for submission to the ADB Board in 2008.

ADB’s future role in the transport sector is to focus on: (i) developing a reliable network, on existing infrastructure, for links to ports and to regional and international markets; (ii) integrating systems for improved safety, high-quality service and an improved framework of international agreements to further integration; (iii) harmonizing the regulatory framework to promote efficiency; (iv) sector restructuring and modernization, through promoting competition; (v) competitive marketing and tariff- setting; and (vi) improving financing and management efficiency and effectiveness. The CSP also notes that an effective and relatively inexpensive system of intra-regional customs transit is badly needed, but that this requires concerted efforts by the CARs and adjacent countries.

6.3.3 Regional Transport Sector Strategy ADB’s regional strategy is to support cooperation in the following areas: (i) strengthening infrastructure to meet regional needs; (ii) improving inter-railway payments; (iii) supporting regulatory reform to promote efficient and safe international transport services; (iv) improving track access and streamlining border station formalities to improve operational efficiency; (v) coordinating repair and overhaul activities of the region’s railways; (vi) coordinating tariff policies to avoid traffic losses on competing routes; (vii) developing traffic costing systems to establish realistic tariff policies; (viii) coordinating the development of railway information systems; and (ix) developing facilities and institutions for multimodal transport.

A Draft Strategy for ADB interventions was set out in Central Asia: Reassessment of the Regional Transport Sector Strategy January 2003, based on an assessment of country needs and of the obstacles to the effective functioning of regional networks.

TA 5818-REG Transport Sector Study identified high priority road and railway infrastructure and regional cooperation projects. Trade facilitation issues, including border crossing for freight and passenger traffic, were addressed.

6.3.4 CAREC The Central Asia Regional Economic Cooperation (CAREC) programme was created in 1997, with the support of ADB. In 2003, EBRD, the IMF, IDB, UNDP and the World Bank joined. Member countries are: Uzbekistan, Afghanistan, Azerbaijan, China (focusing on Xinjiang Uygur Autonomous Region), Kazakhstan, Kyrgyz Republic, Mongolia and Tajikistan. Key transport projects being supported include:

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(i) Southern Transport Corridor Road Rehabilitation, Kyrgyz Republic (US$32.8 million, completion 2009), improving the Andijan-Osh-Kashgar corridor; (ii) Dushanbe-Kyrgyz Border Road Rehabilitation, Tajikistan (US$21 million, completion 2008); and (iii) East-West Highway Improvement Project, Azerbaijan (US$52 million).

The CAREC Strategy and Programme Update 2006-08 Development Through Cooperation October 2005 sets out the strategic priorities for transport: (i) harmonizing and simplifying cross-border transport procedures and documentation; (ii) harmonizing transport regulations; (iii) developing and improving regional and international transport corridors; (iv) restructuring and modernizing railways, through private sector participation and improved corporate governance; and (v) improving sector funding and management to properly develop and maintain the transport network.

ADB is the lead agency for CAREC transport sector and customs cooperation/trade facilitation activities. The Transport Sector Coordinating Committee first met in June 2004: its fifth meeting was held in Urumqi in March 2006. A wish list of priority transport projects of each member country was reviewed by senior officials and discussed at ministerial level in Urumqi. The CAREC Trade Policy Coordinating Committee is supervised by the IMF.

CAREC is also active in trade facilitation projects, considering that a regional transport agreement is vital to reduce non-physical trade barriers. Drawing on GMS experience, ADB supported the SCO countries in drafting an agreement under TA 6223-REG Formulating and Implementing an International Agreement of the SCO Member States on Facilitation of International Road Transport, approved 23 December 2004.

The CAREC core programme includes a Regional Railways Rehabilitation Project (Uzbekistan, US$20 million, 2006); TAs for Regional Traffic Enhancement Project; Harmonization of Cross Border Initiatives for the Transport Sector; and Regional Road Development (2006 - ongoing); Regional Railway Development (2007) and Policy Reforms in the Transport Sector in Central Asia (2008).

6.4 OTHER INTERNATIONAL ASSISTANCE

International assistance to the sector has also been provided inter alia by the following:

The Government of Japan: is providing a loan of US$151 million, through JBIC, for construction of structures on the Guzar-Boysun-Kumkurgan line (250km). JBIC also financed the Railway Passenger Transport Improvement Project providing 25 new coaches and spare parts and coach repair facilities and a project providing repair facilities for electric locomotives. JBIC has financed airport development projects at Bukhara, Samarkand and Urgench.

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European Commission: the Transport Corridor for Europe-Caucasus Asia (TRACECA) programme, financed by the EC, has undertaken a number of studies, assisting 13 countries, including Uzbekistan. This has seen Uzbek traffic rerouted via Black Sea ports, in place of the Baltic Ports used in the USSR. UTY has exploited the new routes, with up to 70 per cent of cotton exports passing through the Iranian Port of Bandar-e-Abbas. The EC provided assistance for the enhancement of cotton exports, a key export commodity for both Uzbekistan and UTY, providing funding for the development of the BukharaTransTerminal, a logistics centre for cotton consolidation and storage.

EBRD: provided a Euro33.1 million loan (signed 1 December 1999) to UTY for the Freight Traction Renewal and Management Project, which included the purchase of 12 electric freight locomotives from China and a Euro56.3 million loan (signed 12 November 2001) for the Locomotive Repowering Project of 90 diesel locomotives of class TE-10M and the reconstruction of UTY foundry facilities. It has provided a number of technical assistance projects for UTY, including assistance in the development (in association with ADB) of a reform framework and investment strategy. EBRD provided Euro31.8 million for the rehabilitation of Tashkent Airport (signed 18 December 1997). In 2003-04, the EBRD’s Restructuring and Privatization Implementation TA assisted in a number of key areas.

EBRD’s Strategy for Uzbekistan, 26 July 2005 (valid to mid-2007), notes that: “Uzbekistan remains a laggard in economic reform. State intervention and control of the economy is pervasive, in particular in the financial system and external trade. A further tightening of import substitution policies and the attempt to eliminate informal economic transactions has led to a further deterioration in the economic climate. Growth prior to 2004 has been well behind the regional average. Other international organizations have expressed serious concerns regarding the transparency and consistency of Uzbek national accounts data, which impedes an accurate assessment of the macroeconomic situation. The financial system remains largely dysfunctional. Progress with privatization, in particular of large enterprises, has been slow. The trade regime is among the most restrictive within the group of transition countries and further contributes to the adverse investment environment.”

EBRD will “continue to support private sector investment and entrepreneurship” and engage in policy dialogue, but will not undertake any new public sector projects during the currency of the Strategy.

World Bank: under the Urban Transport Project, about US$12 million was disbursed for bus service improvements in Samarkand, Namangan, Bukhara, Nukus and Almalyk, including the acquisition of 200 buses of 7m. from Russia, the rehabilitation of 100 buses and the provision of technical assistance and training to improve bus operations and franchising.

KfW: the German agency Kreditanstalt fuer Wiederaufbau has financed airport equipment projects and is supporting the electrification of the Tukimachi-Angren section of the Tashkent-Angren line.

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7. Regional/National Transport Strategy

7.1 INTRODUCTION

Transport strategy is set out in chapters 7-13, with associated institutional and legal measures in chapters 14 and 15 and investment requirements in chapter 16. Timebound action plans and agency responsibilities are in chapter 17. Implementation actions are indicated in bold italic. Actions are coded: N – national, RD – road, RL- rail, A – aviation, LF – logistics/freight forwarding, IW – inland waterways, U – urban transport, I – institutional, L – legal and INV – investment.

7.2 STRATEGY FOR CENTRAL ASIA/UZBEKISTAN

It is important to distinguish between transport strategy for Central Asia and for Uzbekistan. The former would be based on minimizing transport costs in the region. The latter is based on optimizing the national interest of Uzbekistan in regional transport. The two have different outcomes. The newly independent countries of Central Asia have quite naturally developed country-focused strategies, with limited attention to regional concerns. While this is changing gradually, under CAREC facilitation, the primary goals remain national. This study develops a transport strategy for Uzbekistan.

International projects typically benefit the countries involved, but in Central Asia security concerns, transit fees and charges and facilitation issues combine to bias decisions away from otherwise optimal network development. Domestic projects are often inequitable, one region/area benefits at the expense of others: hence transport’s high political profile. Each project serves particular and local needs. While resource allocation based solely on economic rate of return would be widely perceived as unfair, disadvantaging remoter areas and the poor, economic considerations need to play a greater role in policy decisions.

7.3 POLICY FRAMEWORK

7.3.1 Policy and Strategy Strategy implements Government policy, optimizing the operation, management, economic performance and financing of the sector. Primary concerns are thus timing and prioritization of actions, the assigning of responsibilities and funding of investment. Government responsibility is to set the agenda, define the parameters for sector managers, to monitor performance and to make any necessary adjustments to ensure the achievement of its policy objectives.

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Effective policy and strategy requires an accurate understanding of the condition of the sector. Chapters 2-4 provide this, but on the basis of currently available information, and need to be developed further, with an improved database. Origin-destination surveys, household interviews, infrastructure condition surveys and the like are needed, to refine priorities and to better allocate resources. With fragmented responsibilities for sector management (lacking a Ministry of Transport), there has not been the rationale for systematic data collection.

The sector comprises: (i) a stock of capital, the infrastructure, vehicle and rolling stock fleets; (ii) a pattern of demand, part of which is being met profitably, part not; (iii) a legal, institutional and organizational governance structure; (iv) a management and operating staff skill base; (v) a cost and tariff structure with concomitant requirement for Government support; and (vi) an investment requirement for sustainability, modernization and augmentation of supply.

7.3.2 Legacy and International Issues Independence introduced a period of dysfunctionality, the legacy of which remains. Infrastructure and transport services generally evolve in parallel with demand, with strategy fine-tuning them to optimize performance. For CIS countries, Soviet cartography and central planning bequeathed a legacy of infrastructure and services at variance with post-independence needs: infrastructure in the wrong place (in other countries), particularly the rail networks, service patterns tailored to demand that quickly evaporated. The economically rational objective of cooperation in Central Asia to maintain integrated networks conflicted with the priority for newly independent countries of nation building and of gaining domestic control of infrastructure and services.

A revolution in the world economy since the early 1990s has added a new dimension. The emergence of a dynamic Chinese economy and subsequently of India’s rapid development, together with the almost universal acceptance of globalization as the mantra for progress, runs counter to new-nation priorities of economic self-sufficiency and independent transport networks. These tensions persist: there is on the one hand a desire to exploit Uzbekistan’s locational advantage and to attract transit traffic, while on the other of becoming less dependent on foreign suppliers and on transit through other countries.

Clearly, fostering transit traffic itself has some risk, increasing dependence on others. Competition from alternative corridors may be subsidized and land corridors are vulnerable to advances in maritime technology (for example the development of high speed container vessels). There is, however, a strategic advantage in having alternative supply sources and transport corridors which is enabled by development of transit routes.

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7.3.3 Conflicting Policy Objectives There is a pressing requirement for a top level specialist policy group to reconsider objectives in the interest of the most economic and socially just use of resources. For example: Government policy is to localize vehicle, rolling stock and parts manufacture, but this may result in an increase in transport costs and will delay the introduction of new technology. Long term support for UzA, the national flag carrier, may hinder tourism sector development and Tashkent acting as a Central Asian hub. Prioritizing new lines may slow the development of railway services. Financing only primary roads from the Road Fund may disadvantage secondary and urban roads. Seeking to make each urban mode self-financing results in diseconomies and may conflict with social objectives. An inappropriate policy will lead to a poor strategy.

7.4 GUIDING PRINCIPLES

The overarching policy and strategy is that the respective spheres of Government and of sector management should be clearly defined and where possible be separated. Government has two concerns: (i) defining sector priorities, based on economic and social considerations; and (ii) deciding the amount of public investment and support. Management concerns are to: (i) maximize the financial return on investment and capital employed; and (ii) ensure efficient day-to-day operation. Government and management responsibilities require different skills. General principles for Government and management might be defined as follows:

Government 1. Ensure unified sector governance with modes operating on a level playing field. 2. Clearly define national, regional and social development objectives for sector managers. 3. Ensure that the balance between investment and maintenance is consistent with long term network sustainability. 4. Compensate for loss-making services provided for social purposes. 5. Ensure that due account is taken of negative sector externalities and that provision is made for mitigating measures.

Management 1. Within the remit from Government, operate each area of the business to maximize its financial performance. 2. Seek to develop new businesses, where profitable, and to withdraw from non-profit- making activities. 3. Incentivize staff to improve their performance. 4. Seek arrangements with similar businesses abroad to improve market share, to attract investment and to improve quality of service, both domestic and international/transit.

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7.5 NATIONAL STRATEGY

The policy objectives for the domestic sector are that it should: (i) operate efficiently in a competitive and fair environment, while preserving the network in good condition, with due concern for externalities: environmental damage, safety and intrusion; (ii) limit operating subsidies from the public purse to support for social services and to investment in projects of a strategic nature; (iii) finance infrastructure based on the user pays principle, wherever possible; (iv) prioritize infrastructure development based on clear economic and social objectives; (v) coordinate governance at central level for accountable management; and (vi) foster private operation of infrastructure and services wherever appropriate.

The policy objectives for international transport are that it should: (i) facilitate trade, travel and tourism; (ii) foster good relations within Central Asia; and (iii) promote transit traffic. In many cases domestic and international policy are implemented in parallel: for example, upgrading international corridors largely benefits domestic traffic.

National strategy to implement these policies needs to be evolutionary, not revolutionary. Transport problems and issues are far from daunting. They require attention to detail, recognition of the benefits from better governance and management and consideration of the economic return on resources. Sector managers do not in general have clear business objectives (apart from day-to-day operating responsibilities), for planning and accountability. What UTY, UzA, Uzavtoyul and the Road Fund do is largely decided internally, but in a vacuum concerning objectives. Given a central administrative department (a Ministry of Transport), a planning database and management information systems, cross-sector objectives will be definable at operational level. Until then, the sector will remain under- governed and ineffectively (from a national point of view) managed.

Restructuring sector administration could be fast-tracked by upgrading UTACA into a Government agency, the Transport Authority of Uzbekistan, under the Cabinet of Ministers, financed from the Government budget. Existing shareholders should retain an important role as members of an Advisory Board. Staff and powers would be progressively transferred to the Authority from other agencies and ministries. The Authority should subsequently be designated the Ministry of Transport, preferably by 2010.

7.6 FERGHANA VALLEY

Links between the Ferghana Valley and the rest of the country are a primary national concern and need to be addressed as a whole. The densely populated area is home to over a quarter of the population and includes some of the biggest cities (Andijan, Ferghana, Namangan and Kokand). It has

PADECO/IKS 116 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report many important industrial facilities, including the UzDaewoo plant. Connectivity is impeded by the intervening mountain range.

7.6.1 Road Links/Services Heavy investment has been made in upgrading the only domestic road connection, the A373, with construction of two tunnels at the summit of the Kamchik pass, which opened in 2000. The A373 is dual carriageway throughout the mountainous section, on a good alignment within the constraints of the terrain. The road is generally passable in winter, although it closed for five days in 2006. Public transport is provided by taxis (saloon cars), which are expensive for passengers. There is a transport barrier to communication. Bus service is not permitted on safety grounds.

7.6.2 Rail Links/Services Strategy for Angren Pap is to reach an early go/no go decision (after feasibility study) including the conditions under which it would proceed. A phased construction programme is the most likely option, possibly beginning in 2010-15. The tunnel section may be linked to associated developments: a Kyrgyz Republic-China (Kashgar) line.

7.6.3 Air Links/Services There are 11 services per week Tashkent - Ferghana Valley, but these are split between three airports, resulting in less than daily frequency at each. This is an inefficient arrangement, given the good and further improving road links between Andijan, Ferghana and Namangan. Concentrating service at one airport, with twice-daily connection to Tashkent, would enhance overall connectivity. A single airport would possibly support direct services to regional cities: Ferghana Valley - Samarkand/Bukhara/Urgench.

7.6.4 Transit of Tajikistan Rail and road transit routes through Tajikistan are important and, for rail, essential, to maintain a link to the Ferghana Valley network. Strategy is to improve bilateral cooperation to facilitate transit. As the countries depend on each other for transit, there is a reciprocal incentive to negotiate an improved regime, addressing issues on a holistic basis. Both countries are disadvantaged under the existing regime.

7.7 ACTIONS

National N-1: Define/endorse policy objectives for sector. (Cabinet of Ministers, 2007) N-2: Restructure administration to effectively manage the sector and to implement strategy. (Cabinet of Ministers, 2007-10) N-3: Develop sector planning database. (UTY, Road Fund, Uzavtoyul, regional and city authorities – coordinated by UTACA, 2007-08)

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N-4: Develop/introduce PSO compensation payments for urban transport, railway passenger services and domestic air services (UTY, UzA and city transport authorities – coordinated by MOF, 2008-10). N-5: Review sector financing, including tariff policy, Government support and financial objectives of operating agencies. (MOF/MOT – and precursor, with participation of agencies concerned, 2008-10). N-6: Recharter operating agencies with guidelines on function and objectives, governance and management accountability etc. (MOT 2011) N-7: Renegotiate transit arrangements Uzbekistan-Tajikistan. (MOFER 2007)

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8. Strategy for Roads and Road Transport

8.1 ROAD INFRASTRUCTURE

8.1.1 Urban and Rural Roads Strategy for common use roads is determined primarily by the available funding, as discussed in chapter 16. While the primary Government focus is on common use roads (through the Road Fund and Uzavtoyul), rural and urban roads also need to have assured financing: together they account for over three-quarters of the network. Some 60 per cent of the roads are overdue for periodic maintenance. Maintenance is mainly restricted to urban areas, funded out of regional/local budgets. The ongoing denationalization of agricultural and stock-raising farms has left many rural roads without ownership, while local governments have no funds to maintain them.

The effective functioning of common use roads also depends on that of the rural and urban road networks. As an interim measure, perhaps 5 per cent of the Road Fund might be allocated for these roads, in particular those which may be redesignated common use, due to their network impacts. Vehicle fuel taxes should be applied for use on road projects. Half the revenue from the auctioning of road-adjoining land might be applied to road improvement. Land improvement projects should provide for overall infrastructure development, including roads. For rural and country roads, PPP projects with the Association of Farming Enterprises, the Association of Water Consumers, oil and gas companies, mining companies, Chambers of Commerce and Mahalla (local community) Committees may be appropriate.

8.1.2 International Corridors The strategic objective is to develop corridors to serve all users, while attracting transit traffic. Transit use increases Road Fund revenue and generates income from other charges and expenditures. As network capacity is available on transit corridors, the marginal cost of transit movements is limited to surface wear and tear, and externalities such as accidents, noise and air pollution.

A. Surface Condition Improving corridor surface condition is a priority. Upgrading sections of international corridors, in particular RD1, is necessary. Bukhara-Alat and Tashkent Outer Ring Road-Kazakstan border are the remaining single carriageway sections of corridor RD1. This is expected to remain the main international corridor. Developments in Kazakhstan on the Almaty - Bishkek route and to the north to Astana and in Russia have made Almaty a regional logistics hub. Proposed development through to Khorgos will enhance this role. Upgrading Almaty–Tashkent, with improved links to China, could

PADECO/IKS 119 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report generate substantial traffic for Uzbekistan and further south. No major developments are programmed in Turkmenistan, though roads are being improved in Iran and Turkey.

The Karshi-Termez section needs upgrading. The improving situation in Afghanistan, with completion of the ring road and border connections, offers significant opportunities for international/transit traffic. Transit through Turkmenistan is becoming more expensive and difficult and Afghanistan could provide an alternative. Improvements could also generate traffic to/from Pakistan and India on the corridor through Termez. As economic conditions improve in Tajikistan, there will be increased demand on the corridor to Dushanbe.

On corridor RD3, the main requirement is to avoid transit through Tajikistan. A high proportion of transit traffic is carried by Iranian/Turkish transporters via Farap, some of this traffic being for the Ferghana Valley and the Kyrgyz Republic. This has to transit Tajikistan or to route via Tashkent. An improved Angren-Gulistan route would be of considerable benefit.

B. Transit Fees Transit fees internationally are often set on a reciprocal basis. This may not be possible, given the low market penetration and size of the Uzbek international road transport industry. One reason cited for the decline in transit traffic has been the level of fees, with rates high by regional standard. Other countries charge Uzbek transporters high fees on a reciprocal basis. Transit fees need to be set at a competitive level to promote traffic.

C. Alternative Corridors Corridors that could be developed to provide alternatives to improve trade security include:

1. RD2+ link via Osh to China, via either Irkeshtan or the Kulna Pass in Badakhshan. 2. RD3+ link to Pakistan and India via Kabul. 3. RD3+ link to Iran and Turkey.

These are at present uncompetitive, either due to bad road conditions or to poor security. In the medium to long term they may become attractive, improving trade security. Euro-Asia corridors through Uzbekistan are unlikely to be commercially viable in competition with maritime and rail modes. Transit traffic will remain mainly dependent on regional trade, with some potential for the development to/from the west of China.

D. Trade Facilitation Trade facilitation costs in Central Asia are amongst the highest in the world. Border procedures have changed little over the last decade and performance is low by international standards. It is recommended that simplified procedures and performance, as promoted initially under the TRACECA programme and more recently by CAREC, be endorsed and implemented. While border performance is

PADECO/IKS 120 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report better than that of some neighbouring countries, this is not a ground for complacency. A higher level of automation/increased use of risk management is required at border crossings.

While border processing may not be put under the control of the Ministry of Transport, it might assign staff to borders to check/issue permits and collect road fees. Such services could also be undertaken by Customs, using integrated management techniques designed to reduce the number of authorities needing to be physically present at the border.

8.1.3 Border Infrastructure A. Development Needs Customs have made substantial investment in border infrastructure. Facilities on main corridors, especially at Alat, Dustlik, Termez and Gisht Kuprik, are amongst the best in Central Asia. Remaining needs are for the improvement of smaller crossings, such as in the Ferghana Valley and in the west, although these are not urgent, given the low traffic volumes. An exception is the need for improved border checkpoint facilities on the fast developing corridor RD5, towards Beyneu, which requires early action.

A problem at border approaches in the past, when traffic was higher, was an inability to segregate traffic. TIR vehicles with expedited procedures were unable to reach the border, blocked by non-TIR traffic. Border approach roads should be widened where necessary to permit traffic streaming.

The principal border problems result from reliance on traditional approaches to import, export and transit clearance procedures. Enhanced use of IT is necessary at main borders, with on-line connection to a central customs clearance system, interfacing where possible with similar systems in neighbouring countries. Customs are seeking funding for vehicle x-ray machines at all key borders. Whilst this may be necessary to address security concerns, unless there are parallel changes to inspection and examination, it will not enhance border performance.

8.2 ROAD FREIGHT SERVICES

Investment in both international and domestic road transport needs to be substantially increased to replace obsolescent vehicles and to augment the heavy vehicle fleet. The domestic market is not sufficiently remunerative to generate the funding for a major investment programme, given the high cost of imports. Resolution of this problem will require a multifaceted approach. For international road transport, problems are compounded by difficulty in accessing premium traffic which would support investment in EU compliant vehicles required for much of the international work.

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8.2.1 Import of New/Used Vehicles Both the industry and the Government accept that the current situation is unsustainable and major changes are planned for introduction in 2007. Fleet investment has virtually ceased. This is leading to operational problems, while not generating income for the Government: without investment there is no duty or tax being paid. The key requirement is to facilitate fleet renewal, for international transport, with compliant equipment: Euro III tractor units and TIR compliant trailers. A high quality transport fleet has the flexibility to optimise utilization in international markets.

Unless action is taken, dependence on foreign transport will increase. High duties/taxes benefit foreign carriers and discriminate against Uzbek international transporters. Import duty, which is expected to be cut to 5 per cent on trucks and large buses in 2007, might even be waived for a limited period. The same rate should apply to Russian vehicles as to those from other countries. The larger Russian vehicles are generally under-powered, have a higher tare weight, are less fuel efficient and are not EU compliant and thus should not have preferential treatment. Imposition of VAT on vehicles primarily engaged in international transport should be reconsidered: it should be either exempted or the rate be reduced to reflect the proportion of domestic activity in operations.

The vehicle registration charge should be abolished. A major step towards this goal is in prospect in 2007, with an expected reduction in the charge from 20 to 6 per cent. International practice is for an annual licence fee, with only a small administration charge on initial registration. This reduces initial investment and spreads fee payments over the operational life of the vehicle, which is consistent with the impact it has on the road network.

Given the investment backlog and current market conditions, financing of new vehicles will be difficult without leasing arrangements (such as those proposed by UARRT). Truck fleet renewal should also include the import of used vehicles, to reduce the total cost. The Customs valuation of a used vehicle should be the price on the pro-forma invoice, as per the WTO valuation system (this will be mandatory should Uzbekistan join WTO), unless deliberate under-valuation is suspected. A temporary alternative would be to establish a database of valuations from international Customs. If Customs value used vehicles close to new vehicle prices, as at present, investment will be stifled. Import of used vehicles should be restricted to those under 10 years old and complying with international standards at the time of production.

8.2.2 Spare Parts Duty/tax should be reduced on spare parts for trucks and trailers (but not necessarily for cars, vans etc.). The reduced costs of spares, including tyres, would bring part of the fleet back into operation, increasing capacity and also encourage timely replacement of worn parts, with road safety benefits. After implementation, tighter enforcement of safety rules should be introduced.

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In the medium to long term, suppliers should be encouraged to hold stock locally to improve spare parts availability. This is already the case in countries such as Kazakhstan and there is a danger that Uzbek transporters will become increasingly reliant on stock held in neighbouring countries. This may require some form of promotion such as ‘bonding’ arrangements for deferred duty and tax payments, to reduce inventory cost.

8.2.3 Fleet/Operator Profile A significant increase in the international vehicle fleet with a load capacity over 20 tonnes is needed, particularly trucks with a gross weight of 40 tonnes and a maximum axleload of 11.5 tonnes, which is becoming the international standard. In the domestic market the main increase in demand will be for inter-regional long distance transport. There is a particular need for medium/heavy trucks for cotton, grain and other agricultural products. The development of modern logistics systems will in particular require the availability of larger capacity transport. There is also an urgent need for specialized vehicles, especially trailers - heavy lift, dry and liquid bulk, powder, liquid gas, reefer etc. as well as standard tilt-trailers. Thus, it is not just the traction unit that is needed, but also support equipment.

The operator profile will gradually change, with the establishment of more larger operators. This will result from the scrapping of old vehicles, as they become unrepairable, with only the larger operators having the resources for investment in new/used vehicles. When larger companies renew their fleets, they sell on older vehicles to owner-drivers and small operators, in some cases contracting them back on beneficial terms. There is a ‘cascade’ effect of fleet investment.

Industry professionalism would be encouraged by not discriminating against larger operators. Enforcement should also apply to owner-drivers and to small operators. Operator licensing promotes professionalism and establishes transparent standards for compliance and for enforcement measures to be applied across the whole sector without discrimination. Licensing should, however, be simple (in the Russian Federation road transport activities are unlicensed). Professional development can be promoted by tax concessions to encourage the commitment of resources to it by operators.

8.2.4 International Market Access Constraints Traffic imbalances and routing control issues are expected to continue into the medium term, until the volume of manufactured exports increases. One option is for organizations such as Uzvneshtrans to assign a share of state-controlled exports for movement by road in place of rail, to assist Uzbek transporters to access the more lucrative inbound traffic. It is understood that this approach has been used for major carriers such as Central Asia Trans and this could be extended to other carriers without a significant impact on UTY, especially given the relatively small size of the international trucking fleet.

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An alternative would be to encourage the development of JV companies with foreign partners, providing appropriate measures to encourage them to invest. For example, a major foreign transporter could transfer part of its existing fleet to Uzbekistan and register it locally, a method that has been very successful in countries such as Bulgaria and Belarus. However, this will need a significant improvement in the investment climate, with a clearer understanding of the needs of the foreign party.

Foreign carriers are a potential opportunity not a threat. Not only can they provide investment and expertise, but also access to the vital inbound traffic. The development of commercial networking with foreign entities acting as transport brokers is essential to obtain inbound loads until Uzbek transporters establish overseas offices and marketing resources.

8.2.5 Implementation of International Agreements Uzbekistan should ratify the Agreement on the Weight and Dimensions of Road Vehicles Carrying Out Interstate Transport in the Roads of the CIS 1999. This would raise the maximum permitted axleload to 10 tonnes. In the long term, the axleload limit should be raised to 11.5 tonnes. This need not have a detrimental effect on road pavements, if the limit is incorporated in design criteria at an early stage, replacing the present design standards, based on 10 tonnes. An 11.5 tonne limit is increasingly the international benchmark. An increase would encourage transit traffic by lowering unit costs. Uzbekistan should also accede to the Agreement on Introduction of International Weighing Certificate on Freight Vehicles in the Territory of CIS Member States May 2004 to enable Uzbek carriers to operate throughout the CIS without reweighing on entering a country. Conventions on temporary imports should also be acceded to.

The scope of international regulations relating to the environment and safety is likely to increase. The Draft Concept objective of ‘supporting the activity of Uzbek carriers in foreign markets in the event of international organizations and foreign governments implementing new more rigid environmental, technical and other requirements’ may be counter-productive. Compliance will be necessary to compete in such markets. Only where conditions are specifically protectionist or discriminatory is support necessary. In the longer term, international environmental and safety regulations should be applied locally. Assistance should be given to the industry for training and accreditation in the application of such regulations. For example, the international movement of dangerous goods should be subject to ADR conditions, even before ratification of the Convention. This would permit transporters to carry dangerous goods in other countries by having certified drivers.

8.2.6 Permit Arrangements/Legislation Availability of permits is likely to be an increasing problem as the market develops, with extra demand for transit and destination permits for a larger Uzbek fleet. Uzbekistan has a combined transit or road tax that includes the permit. It is recommended that the charge be divided into permit and road tax

PADECO/IKS 124 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report elements. The permits would be obtained by foreign carriers from their Ministries of Transport, or more commonly from their international road transport associations, on a reciprocal free of charge basis (or for a basic administrative charge). In addition, there should be a set fee for non-reciprocal transit or destination permits that can be obtained either at the border or in advance. In such cases the revenue from the permits is normally remitted to the Ministry of Transport to administer the system, but the road user charge collected at the border would be remitted to the Road Fund, as at present. Whilst permits are generally negotiated between Ministries of Transport, these are under a bilateral framework that has been negotiated by the equivalent of MOFER – i.e. the MOT is only the implementing agency. Where national transport associations issue permits, they act as executing agencies on behalf of governments, not on their own behalf.

Legislation relating to international road transport needs to be consolidated and modernized to reflect the needs of the subsector, rather than to change it adversely in order to apply the legislation. International road transport operates best in a relatively deregulated environment, given the dominance of the private sector. It is essential that there is not over-regulation, though legislative controls are necessary, particularly in respect of the environment, safety and for licensing issues.

8.2.7 Institutional Arrangements Under an MOT, new institutional arrangements will be required. A department/section under the Directorate of Road Services should handle both international operator licensing and permits. Vehicle licensing should be in a separate section that also covers domestic operations. The negotiation of permits should remain with MOFER, but with the new department responsible for advising MOFER and for physical implementation.

8.3 ROAD PASSENGER SERVICES

With bus service operations franchised, the strategic objective is to facilitate higher service standards. This cannot be achieved without replacement of the coach fleet. Actions RD-16 to RD-19 (section 8.4) should apply also to coaches. With an average fleet age of 17 years, major benefits can be obtained through the import of up to say 8 year old used coaches, with a much lower capital requirement than for new vehicles. Operators should be encouraged to offer a range of services in terms of quality: with freedom to differentiate fares accordingly. In many countries up to four types of service are available: basic, standard and luxury services should be the target for intercity routes. Tachographs should be mandatory to monitor operating speed.

The suspension of international bus services due to perceived security risks, especially within the Ferghana Valley (Uzbekistan to/from Kyrgyz Republic), means that a market opportunity and the provision of international transport for lower income groups is closed. Legislative and regulatory

PADECO/IKS 125 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report provisions should be in place to allow international bus services to resume as soon as conditions permit. Inter-regional bus services provide low cost connectivity, where rail is not available.

8.4 ROAD SAFETY

Responsibilities for road safety are defined in the Law On Road Safety No.818-I of 19 August 1999. They are split between agencies: UARRT and Uzavtoyul have joint responsibility for enhancing road safety, the former through its vehicle certification and regulatory activities and the latter through its road design policies. The Ministry of Internal Affairs is responsible through GAI (State Traffic Police) for the development of safety standards, rules and regulations and for their observance, for vehicle inspection, and the recording of road accidents and offences.

A key concern is the low profile of accident statistics. None are published on road deaths and injuries, only on the number of accidents. The public may not be aware of the level of risk, nor of whether the situation is improving or worsening. Speeding is widespread, facilitated by relatively low traffic levels. Pedestrian protection is poor on many roads, many multilane roads having no central pedestrian refuges. Driver observance of pedestrian priority on marked crossings is particularly weak.

There are a number of safety issues on the Kamchik pass section of the A-373: (i) brake failure on the long, steep descents is extremely dangerous. Although turnouts are provided at intervals, these need to be better signposting (with distance to next turnout indicated every 500m) and possibly need to be supplemented; (ii) excessive speeds by light vehicles on descent should be controlled (by speed cameras etc.); (iii) avalanche and rock fall hazards should be further mitigated; (iv) snow clearing and de-icing equipment should be continuously upgraded; (v) sharp curves should be indicated and at some stage over-road gantries should be placed every 1-2km on the descents, camera equipped, indicating maximum speeds for each lane in the prevailing conditions, monitored by a control centre. All accidents should be logged by location, cause and severity to assist in designing preventive measures. Although accidents are unavoidable on the mountainous section, it needs to be made sufficiently safe for specially maintained buses to operate, at least for most of the year.

8.5 ACTIONS

Common Use Roads RD-1: Undertake road/bridge condition survey and develop traffic database (2007-08). RD-2: Define standards for road surface condition (IRI level or equivalent) and for volume:capacity ratios to apply by end-2013, consistent with available Road Fund and other resources (Road Fund/Uzavtoyul/Ministry of Finance, 2008-2009). RD-3: Undertake expanded 5-year development, reconstruction and maintenance programme (Road Fund/Uzavtoyul 2009-13).

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RD-4: Augment Road Fund resources to support RD-3 (MOF 2009+).

Rural/Urban Roads RD-5: Inventory rural and urban network identifying routes, category, traffic volume, pavement type and surface condition (2008-09). RD-6: Classify roads by function (2009). RD-7: Identify maintenance responsibilities (2009). RD-8: Establish special-purpose fund for development under the Council of Ministers of the Republic of Karakalpakstan, regional Khakimiyats and the City of Tashkent (2009).

International Corridors RD-9: Upgrade main transit corridors: Bukhara-Alat, Tashkent Outer Ring Road- Kazakhstan border, Karshi-Termez, the Kamchik pass and Kungrad-Beyneu. RD-10: Set transit fees/charges to ensure that they: (i) are commercially competitive; (ii) promote transit traffic; and (iii) do not result in retaliatory actions by neighbours. RD-11: Promote the development of additional international corridors to improve trade security (for example through Afghanistan). RD-12: Improve trade facilitation, reduce border delays and facilitate transit by applying new technologies. RD-13: Improve IT connectivity and use it to enhance border crossing performance. RD-14: Improve approach roads to key borders (where necessary allow traffic streaming). RD-15: Invest in border infrastructure at smaller crossings.

Road Transport RD-16: Consider further reducing import duty on trucks and parts post-2007 measures. RD-17: Abolish Road Tax Registration fee. RD-18: Value used vehicle imports at the price in the pro-forma invoice. RD-19: Restrict imports of used vehicles to those under 10 years old. RD-20:Encourage foreign suppliers to hold stock locally to improve spare parts availability. RD-21: Encourage investment in trucks of over 20 tonnes capacity. RD-22: Improve industry professionalism through tax concessions for professional development. RD-23: Consider local/foreign leasing of new compliant vehicles. RD-24: Encourage foreign transporters to link with or form JVs with national companies. RD-25: Provide incentives to foreign carriers to assign part of their fleets to Uzbekistan. RD-26: Raise axle load limit in stages to 11.5 tonnes. RD-27: Revise the permit and road tax system for foreign transporters to accord with international best practice. RD-28: Restore international bus services as and when conditions allow. RD-29: Introduce special bus services Tashkent-Ferghana Valley.

Road Safety RD-30: Publish monthly statistics on road accident deaths and injuries by area. RD-31: Improve signage and road markings to reduce risks, prioritizing accident blackspots. RD-32: Enforce wearing of seat belts. RD-33: Revisit speed limits for appropriateness: raise/lower as necessary, then enforce. RD-34: Introduce roadside cameras to supplement radar monitoring of operating speed. RD-35: Strictly enforce ban on use of mobile phones while driving, which comes into effect on 1 January 2007

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RD-36: Limit U-turn movements on high speed sections. RD-37: Implement phased safety programme on A-373 Kamchik Pass section.

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9. Strategy for Railways and Rail Transport

9.1 SYSTEM MANAGEMENT

9.1.1 Network Rationalization Changes in the pattern of demand since independence have resulted in parts of the UTY and other rail networks becoming surplus to requirements. Many industrial facilities have closed and others are originating/receiving so little traffic that they are uneconomic to service. Much of the rolling stock fleet is deteriorated beyond economic repair. A piecemeal approach to eliminating surplus capacity and assets would result in the problem dragging on indefinitely. A structured housecleaning has a number of advantages: (i) it would focus attention on defining the “continuing” railway, separating economic from uneconomic services (both passenger and freight); (ii) it would simplify accounting issues in the disposal of assets; (iii) it would produce a more manageable system, fit for long term purpose; and (iv) it would be a largely self-financing process, realising gains from the disposal of surplus land and from recovery of valuable materials. A Surplus Assets Authority under the Ministry of Finance should be set up (by 2009), to which all surplus land, infrastructure and rolling stock identified in a network- wide inventory (2007-08) would be transferred. The inventory should have three components: (i) identification of surplus assets; (ii) documentation of the condition of the continuing railway; and (iii) asset utilization levels, based on a detailed analysis of traffic. The Authority would be responsible for the sale/disposal of all of its assets within say five years. Profits from disposal would be returned to UTY and the other railways.

The rationalization process would also assist in providing a basis for introducing PSO support payments for those uneconomic services considered to be of social importance.

9.1.2 Network Development A prioritized medium term programme of asset renewal (infrastructure and rolling stock) should be developed on the basis of the inventory to provide for the long term sustainability of the system. This would include remedial maintenance and repair.

Network development comprises replacement of rolling stock, new line construction, capacity enhancement, raising of speed limits and electrification: large-scale investment projects. These need to be considered together and to be prioritized. This is recognized as a difficult process for all railways, as departments have differing priorities. To date development has been largely driven by Government requirements for nation building and transport self-sufficiency. With the exception of the Angren-Pap line, the main elements of this stage will be largely complete by 2008, although a number of new line projects are under consideration post-2010 (see chapter 16).

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Investment priorities should be proposed by UTY, based on customer needs, rather than be engineering-led. This requires a cultural change, from that of operator to service provider. Such a change needs strong leadership to carry through and needs to be initiated by the Government. UTY management objectives should be defined such that the railway’s priorities align with the priorities of its customers. The independence of the passenger business, for example, is more nominal than real. Passenger managers are well aware of the developments necessary for their business, but have little authority to determine priorities and access gto the investment resources to implement them.

Customer focus is management intensive – it requires dialogue, building relationships, demonstrating responsiveness to requests, market testing and research and marketing actions. These are not seen as key concerns in an engineering-led railway, traditionally focused on the demanding task of keeping the system operating. Customer-based management is a more generalist skill than is engineering and few managers are good at both. Recruiting the necessary skill base from outside the railway (a small number of high-level posts) is probably unavoidable, but must be done with care to avoid alienation.

A business-led, customer-focused railway is only possible if management has the freedom to act – on tariffs, with support for social obligations, ability to withdraw services and close lines if necessary and the resources to implement necessary projects. The Government, once it has set the parameters, has to stand back and let managers manage, accountable if they fail and well rewarded if they succeed. Transforming the culture of an organization as old as a railway is a long and difficult process, but that is not a reason to avoid doing it.

9.1.3 Rail Safety Although rail is inherently a much safer mode than road transport, there is a potential for occasional major accidents. Uzgorjeldornadzor has prepared a list of 20 measures which could form the basis of an accident prevention programme. Some of the measures (for example replacement of obsolescent rolling stock) are covered in the main investment programme. The others should be prioritized on the basis of a cost: benefit analysis of accident records (probability of avoiding an accident x cost of accident/cost of measure) in a long term prevention and mitigation programme. In particular, emphasis should be given to preventing accidents at level crossings, which are typically the result of reckless behaviour by road drivers, with serious consequences. The Uzgorjeldornadzor list is given in Appendix I-1 section 9 (Appendix p. viii).

9.2 DEVELOPMENT OF INTERNATIONAL CORRIDORS

9.2.1 New Initiatives With completion of a domestic Tashkent-Termez corridor by end-2007, the only remaining corridor requiring transit will be corridor RL2, the Angren-Pap section of which is missing.

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The strategy is benefit from ongoing/planned rail construction in the region. UTY should seek to benefit from investment by other railways. Availability of funding is likely to be the determining factor in how quickly planned developments are realized. Some proposed new lines that appear financially “problematic” may nevertheless be built for strategic reasons. UTY needs to adopt a responsive role and in some cases be proactive.

New initiatives have emerged for the development of alternative southern corridors to Iran, connecting with Bandar-e-Abbas and Chahbahar ports. New routes to Pakistan and India transiting Afghanistan are also under consideration. The Government desires to strengthen links with Afghanistan in particular and in January 2003 the governments of Afghanistan, Iran and India agreed to develop a new corridor: Port of Mumbai (other Indian ports) by sea to Port Chahbahar-Milak border (Iran)-Zaranj-Delaram-Herat (Afghanistan)-Termez. Termez-Port Chabahar is 2170 km compared with 2215km Termez–Bandar-e-Abbas. In April/May 2003, the UTY Railway Institute carried out a preliminary study of the Trans-Afghan Corridor, concluding that: (i) there is considerable traffic potential; and (ii) that construction is technically feasible. In June 2003 Uzbekistan, Afghanistan and Iran signed an agreement in Teheran to accelerate the development of transit routes, including study of the Mashhad (Iran)-Sanghan-Heart-Termez line. The Herat-Termez section is common to both of the 2003 agreements.

There are four issues: (i) the Termez-Chahbahar and Termez-Bandar Abbas routes differ by only 45km, but substantial construction is required; (ii) routing via Serahks provides some economies of scale, as it includes traffic for Europe, whereas the Chabahar route does not; (iii) the major shipping lines do not favour Chabahar as it increases the number of calls required (the draft is only sufficient for feeder vessels); and (iv) there are no firm proposals for rail funding in the Afghan Government development programme agreed with donors (other than for the short section Quetta - Spin Boldak/Kandahar). The Mashhad-Termez route bypasses Turkmenistan and is much cheaper. Upgrading of the Sarakhs interchange to handle larger volumes will improve performance.

The proposed 1435mm gauge east-west line through Kazakhstan is both a threat and an opportunity. Some transit traffic between China and Caucasus/Southern Europe would bypass Uzbekistan. An opportunity is provided by the Kazakh Prime Minister’s invitation to build a north-south line Uchkuduk- Jeskasghan, as Jeskasghan would interchange with the line. The problem with this corridor is that the benefits to other countries are partly at the expense of Uzbekistan: while generating additional transit traffic, especially for Iran and Turkmenistan, traffic would bypass RL1. A feasibility study of the Uchkuduk-Jeskasghan line should be undertaken.

9.2.2 Amudarya Bridge Turkmenistan The condition of the Amudarya Bridge in Turkmenistan on RL1 is a cause for concern. With the construction of bridges at Kerki-Kierkichi and in the Khorezm Region, alternative routes will become

PADECO/IKS 131 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report available, but these substantially increase the transit distance on Turkmenistan Railways and the overall haul, in particular for the important cotton traffic from Bukhara. UTY should study the impact of bridge closure, technical aspects, such as availability of train paths and transit times and financial/economic impacts, payments between the two railways and the effect on freight charges. On the basis of the study, an appropriate financing plan for reconstruction of the bridge should be negotiated with Turkmenistan.

9.2.3 Link to China The Uzbekistan-Kyrgyz Republic-Kashgar (China) corridor passes through difficult terrain, with a final alignment not selected. The Kyrgyz Republic may find difficulty in attracting international funding. A large volume of transit traffic China - Middle East/Europe would be required to justify construction. There is maritime competition for such traffic and rail competition from the Trans-Siberian Railway. The proposed Kazakh east-west line would also be a competitor. The line is only likely to be built if China considers it a national priority.

9.2.4 Border Facilities There has been substantial investment in road border infrastructure. At rail borders, Customs and other border organisations use facilities provided by UTY. In general, these are sub-standard and there has been little investment. This contributes to slow processing. There is a reluctance by border personnel to be posted to rail, rather than road, borders. Investment in border processing facilities, both by UTY and border organizations, is required. UTY should develop a programme to rehabilitate border infrastructure, prioritized by volume of activity, similar to the Customs strategy for road borders.

9.3 FREIGHT SERVICES

9.3.1 Developing/Protecting Markets The management objective is to protect existing markets, where economic, while maintaining growth in international/transit freight in an increasingly competitive market. Imports and to a lesser extent exports, have been dominated by trade with the Russian Federation. However, it is expected that trade will become more diverse and with it the demand for international transport. China in particular offers major growth opportunities. Improvement of the existing route through Dustyk (Kazakhstan) and a possible link through Khorgoz will increase capacity. Road is not a major competitor, except for higher value consumer goods, due to the distances involved and to entry restrictions.

South-East Asia offers growth potential, via Lianyungang (China), Nakhodka (Russia) or Bandar Abbas. Rail could be highly competitive on each of these routes. Afghanistan offers opportunities, even though there is no rail system. A substantial proportion of cross-border trade at Ayritom is carried by rail.

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Wagonload and less-than–wagonload traffic with the west and north may face increased road competition. On these routes, the objective would be to seek to retain traffic rather than traffic growth. Quality of service and rate flexibility are critical for this.

Transit traffic accounts for 15 per cent of UTY tonnage and almost half of international traffic. It is also the only freight sector to show consistent growth over the last five years. While security problems with the Kyrgyz Republic and Tajikistan may have temporarily constrained growth, the improving situation in Afghanistan and its growing need for fuel could provide higher volumes of transit traffic. The improving economic conditions in Kazakhstan and to a lesser extent in Tajikistan should also promote regional transit trade. The new link being developed between Ashgabat and central Kazakhstan could also generate additional transit traffic.

Europe-Asia rail traffic has considerable growth potential, particularly for trainload and conventional traffic, where maritime competition is weaker.

9.3.2 Quality of Service A major problem for rail customers is service unreliability. ‘Generally we do not know when we will receive our goods’. This necessitates more inventory in transit than with a reliable service. The CIS network has a sophisticated wagon tracking system, but does not provide on-line tracking capability. Its main use is for enquiries about missing wagons – reactive rather than proactive. In Europe and the USA, customers can access on-line information about shipments, particularly critical for movements crossing several countries.

Service quality for import/export traffic is largely dependent on neighbouring railways. While improvements in transit times are important, it is equally important to have ‘control’ of traffic throughout the journey. This will require improved communications between railways and possibly the establishment of performance indicators relating to service reliability. Transit through Uzbekistan must also be reliable.

9.3.3 Scope of Service UTY and its forwarding organizations offer conventional freight services railhead to railhead, both trainload and wagonload. These are appropriate for lower value products. For higher value products, where road is more competitive, more developed logistical systems are increasingly being introduced. Railways in developed countries project themselves as logistics providers, not merely train operators.

Logistics providers assume greater responsibility for goods throughout the logistics chain, including goods collection/delivery, where not using private sidings, and documentation, storage, inventory management etc. Either UTY or an organisation such as Uzbektemiryulexpediciya should provide such services, with the logistics environment being developed, level of service responding to customers’ growing demands.

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9.3.4 Tariffs The domestic tariff is subject to approval by the Ministry of Finance, as UTY is considered a monopoly service provider. While this may apply for bulk freight, it is becoming less so and a phased move to relax tariff control should be part of the transformation to a business-led railway. This would involve agreeing under MOF auspices long term contracts (10 years) with all major customers, setting out the responsibilities of both parties, with appropriate incentives and penalties for non-performance. Wagon fleet development would form part of the agreement, financed either by UTY via tariff increases, or by the customer.

The international MMT tariff system has been successful in promoting long distance traffic. It is less competitive over shorter distances. This is a concern, with the reducing journey lengths and the emphasis on intra-regional trade. Given improved service reliability and more flexible charging, rail could be competitive over shorter distances. The yield may be lower, but is still attractive given the excess network capacity.

It is important that UTY monitors international road transport rates and sets tariffs to attract targeted traffics, moving towards market pricing in place of a fixed tariff structure. This is particularly important for shorter-distance regional traffic, where road competition is significant.

The intermodal tariff favours conventional over unitised cargo. It is necessary to develop special rates to encourage intermodal transport. This may be difficult, as the current practice of de-stuffing at the port and sending forward in conventional covered wagons may generate more revenue. However, this increases handling costs, particularly if the goods have to change wagons at the gauge changing points – Dustyk, Sarakhs etc. It is more efficient to transfer containers between gauges than loose handle cargo. There should also be special rates for the return of empty containers. Even under the conventional rail system there is a cost for returning empty wagons when a traffic imbalance exists. The intermodal tariff structure needs to be reviewed, in coordination with regional railways, to promote traffic development.

9.3.5 Marketing In general UTY marketing is weak, especially of international traffic. This may in part be due to the dominance of state-controlled export traffic. UTY and its forwarders tend to focus marketing effort on domestic service elements and have no effective marketing plan or strategy for attracting import/transit cargo: which is viewed as the responsibility of the railway in the country of origin.

For imports this had some justification, with in most cases routing control being with the foreign exporter. However, in the medium to long term, as logistical services to Central Asia become more reliable, the purchasing terms are likely to change, with Uzbek importers increasingly becoming

PADECO/IKS 134 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report responsible for routing. This will require new marketing approaches and skills. To project the image and customer-focused service quality that UTY wishes to offer, it is important that marketing is undertaken by personnel with relevant skills and equally importantly with knowledge of both international transport and the commercial environment of the customer.

Instead of each country marketing separately, the regional railways should set up a regional marketing organization. This would be especially beneficial for traffic to non-CIS countries, where regional cooperation is essential.

Marketing of intermodal transport is dependent on forwarders, in particular Uztemiryulcontainer and Shoshtrans. This is not sufficient to develop the volumes necessary to support block trains. UTY should promote the establishment of a regional intermodal service and marketing organisation involving key rail organisations. The main clients would be the ocean carriers (Maersk Sealand, Hanjin, K Line, OOCL and MSC etc.). A comprehensive service package for Central Asia, including rail carriage of containers, terminals, inventory control, distribution etc. would encourage operators to remove the impediments by allowing containers to be shipped to Uzbekistan/Kazakhstan and to promote them issuing Through Bills of Lading or allowing forwarders the necessary security to issue combined transport bills of lading. Ocean carriers’ support for through intermodal transport is essential to develop viable traffic volumes and this requires focused marketing by regional railways.

9.4 INTERMODAL SERVICES

9.4.1 Block Train Container Services Intermodal transport demands high quality of service, with reliability as or more important than journey time, although improved transit times reduce inventory cost. Currently, intermodal transport does not offer either reliability or speed and so premium rates cannot be charged. Unless an effective block train system can be developed, the intermodal transport market will be limited. Carrying containers on standard freight trains is not generally acceptable to customers.

The major intermodal market is through China: because of the long distances involved there is no viable road alternative and it benefits from the high growth rates of East and South-East Asia. The route through Lianyungiang could be used to consolidate container traffic to/from Central Asia, (preferably without transhipment, which would increase cost and damage and require a change of documentation). This route might support block train operation – for a viable weekly service, over 10,000 containers per year.

An alternative is via Nakhodka through Russia, with the whole route on the CIS network and no gauge change. However, it needs to offer comparable service quality. The Trans-Siberian line is considered by many European importers to be unreliable.

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The Bandar Abbas via Sarakhs route to the Middle East and South Asia, and possibly Istanbul, is another option. Routes to Russia and Europe (even TRACECA), however, offer poor prospects with most non-port traffic uncontainerized. Road and conventional rail are very competitive. Consequently, it may be difficult to obtain the volume to support block train container services.

Establishment of container block train services requires a regional approach and a high level of cooperation to provide a ‘seamless’ service. Customers need to deal with a single organization. UTY should seek to establish a special organization to market, negotiate rates and operate block trains, with the railways of Kazakhstan, Russia and China and later with those of Iran and Turkmenistan. A separate business would provide product differentiation between intermodal and conventional freight services. Closer operational links with Kazakh Railways are necessary as combined traffic volume may be sufficient for block train operation. Initially, on-carriage Almaty - Tashkent may be low volume, but should develop as customers realise the service benefits.

A 1435mm gauge line through Kazakhstan would boost Euro-Asia container traffic through Central Asia. However there is strong competition from advancing maritime technology and from standard rail services.

One problem for intermodal traffic is the traffic imbalance. Uzbekistan has ‘control’ over much of its export traffic. The main export, cotton, is however usually sent to ports in bulk, for storage awaiting sale. If and when export logistics centres are developed, an increasing amount will be sent direct to end users. It could then be advantageous to use containers and intermodal transport. As other export industries with higher value goods moving in smaller consignment sizes develop, there will be increased potential to use containers and intermodal transport, particularly if there is a maritime leg. Exporters should be advised of the advantages of intermodal transport. Given the trade imbalance, there is scope for attractive pricing, with lower rates for outbound container movements.

9.4.3 Through/Combined Bills of Lading In order to develop intermodal transport in landlocked countries it is essential to promote the use of through/combined transport bills of lading. This is particularly important where imports exceed exports, as in Uzbekistan. For imports, it promotes the ocean carrier to organise inland transport and for exports, a 3PL provider/forwarder to take overall responsibility for the door-to-door movement. Relevant legislation should be adapted to recognise the validity of through/combined bills of lading.

9.4.4 Intermodal Forwarding Forwarding activities are predominantly unimodal. While both Uztemiryulcontainer and Shoshtrans offer intermodal services their coverage in the logistics chain is limited mainly to local activities and responsibilities. They should gradually develop into 3PL providers, including intermodal transport.

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Intermodal service operators require specialist organizations, but forwarders should be less specialised, so that customers do not need to employ different forwarders for different markets. They need to extend services outside Uzbekistan along the logistics chain and be able to offer combined transport bills of lading on export traffic.

9.5 PASSENGER SERVICES

Route by route development plans have been prepared and there is a good knowledge base within the passenger company. International passenger services are the most profitable (reflecting the revenue allocation mechanism, which favours Uzbekistan), but few are operated compared with USSR days. In 2007, services to Astana and to Novosibirsk will be added. The main constraint is a lack of rolling stock. International services require expensive high-quality coaches. Domestic service development is also hindered by financing constraints on rolling stock acquisition. The new Tashkent- Bukhara Shark service operates with refurbished coaches, although refurbishing cost was little less than that for new coaches.

Social service obligations need to be clarified and compensated for under a PSO arrangement as a basis for the development of local and suburban services.

9.6 ACTIONS

System Rationalization/Management

RL-1: Set up Surplus Assets Authority. RL-2: Inventory all assets. RL-3: Vest surplus assets in SAA. RL-4: Prepare medium term programme for asset renewal. RL-5: Define UTY objectives appropriate for a business-led railway in new Charter – relax tariff control.

Corridor Development

RL-6: Undertake feasibility study to decide on Angren-Pap line. RL-7: Staged construction of Angren-Pap (subject to RL-6). RL-8: Provide political support for developments in other countries (Mashhad-Termez, Uzbekistan-Kyrgyz Republic-China corridor). RL-9: Undertake feasibility study of Uchkuduk-Jeskasghan alternatives. RL-10: Ensure fundcing for Amudarya Bridge,Turkmenistan rehabilitation. RL-11: Invest in border post rehabilitation.

Freight Services

RL-12: Service quality improvements to protect domestic markets and maintain growth in international/ transit traffic. RL-13: Develop services to/from China and South East Asia. RL-14: Exploit improving situation in Afghanistan, in advance of rail network construction.

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RL-15: Expand range of services and accept responsibility for the logistics chain to attract higher value traffics. RL-16: Introduce market pricing and develop special tariff (with regional railways) for intermodal traffic. RL-17: Market (regionally and domestically) directly to the shipping industry. RL-18: Introduce block trains on key routes (Tashkent - Lianyungiang, Nakhodka and Bandar Abbas).

Passenger Services

RL-19: With regional railways, rebuild network of international services. RL-20: Offer wider range of services (quality/frequency) with differential tariffs. RL-21: Reduce/eliminate border delays with on-train passport and customs inspection. RL-22: Improve marketing to grow demand, focusing on tourist traffic and the development of niche markets.

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10. Strategy for Aviation

10.1 AIRPORTS

Airport strategy is to: (i) maintain high quality passenger and freight service: (ii) match competition from other regional airports: and (iii) to provide an environment encouraging the development of international traffic and of the use of airports by foreign carriers.

10.1.1 Airport Management Airline operation and airport management require different business skills and management responsibility for the two should be separated. Divestment of airports to a new organization under the proposed Uzbekistan Civil Aviation Authority (UCAA) would enable UzA to focus on its fleet rationalization, service improvement and commercialization programmes. This is compatible with international practice, wherever private ownership is not possible or realistic. The first stage would be to establish a JSC and to transfer the assets and management responsibilities: state- owned and concentrated on the core business of a service provider to the aviation industry, with a contractual relationship with UzA and other carriers. UzA may negotiate beneficial commercial terms, as the major user. The arrangement should enable additional resources to be provided for airport development.

10.1.2 Network Rationalization The airport network is not sustainable economically in the long term. Airport and air service developments should target economies of scale, particularly when higher capacity aircraft are introduced. The first requirement is to rationalize airports in the Ferghana Valley. Andijan, Ferghana and Namangan are some 70km apart, with good and further improving road connections. A single airport handling 100,000 passengers or more a year should be the goal. Most passengers would probably prefer frequent flights from a Ferghana Valley gateway airport.

There may be scope for further rationalisation: Navoi is 100 kms from Bukhara, with a motorway link and Urgench 150km from Nukus. The Study for Air Transport Development 1998 should be updated as a basis for rationalization planning.

10.1.3 Tashkent International Airport Transfer between the domestic and international terminals should be simplifed, with a direct bus service. Security restrictions should be reviewed and brought into line with those at other international airports. The ‘form follows function’ approach should be adopted in the design of facilities such as the new transit terminal, with designs developed and agreed with operating staff prior to approval.

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Cargo handling facilities, in particular the cargo processing terminal, should be improved. There is increasing use of Unit Load Devices (ULDs) on wide-bodied and freighter aircraft and declining volumes of loose cargo. More mechanization, particularly for storing and processing ULDs, is required. Expected annual traffic by 2020 is 45,000 tonnes. This would justify a facility of 10,000 sqm, with some bi-directional workstations and a simple transfer vehicle (TV) system for ULD storage. Limited improvements are also required to cargo handling at Samarkand.

It is proposed to convert the airside building of the main passenger terminal between the two arms into a transit terminal. This is the optimal location and will enable aircraft to use the air-bridges. Passengers will be separated at the in-feed to the transit terminal, with those for Tashkent proceeding to the existing terminal and vice versa for departures. This, together with the enhanced facilities for transit passengers, will provide a major improvement in services and operations.

A key issue is the need to segregate transit passengers, with a resulting duplication in facilities. At other international airports, transit passengers, after initial processing, proceed directly to the departure lounges. All passengers in this area are in a common zone and have ‘left the country’ following customs and passport controls. The existing international facilities are poor by world standards and a common zone with a larger floor area could be developed to a higher standard. The need to separate transit and departing passengers should be reviewed.

10.2 AIRPORT SERVICES

10.2.1 Service Provision If airport and airline operations are separated, it will be necessary to define which services the airport operator should provide, either within a new state entity or by concession arrangements. The core functions of an airport operator are to provide an efficient, safe and user-friendly airport. Within that remit there is a requirement to provide the necessary common airport services for all users. This includes both infrastructure management and provision of centralized services, such as navigation, fire and rescue, on-airport transport etc.

The potential for out-sourcing non-core functions depends on the scale of operations. Traffic volumes at airports other than Tashkent are probably insufficient to justify significant outsourcing. The limited throughput at these other airports requires retention of the single service provider system in order to achieve the necessary economies of scale to enable an acceptable level of service at a reasonable cost.

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Competition for airport services at Tashkent should be introduced. Specific activities that should be considered include: (i) passenger handling – permission for a second operator; (ii) fuel – two suppliers with direct contracting between the carriers and the suppliers; (iii) ground handling - permission for a second operator; (iv) ramp handling - permission for a second operator; (v) aircraft engineering and maintenance - permission for a second operator; and (vi) airline catering - permission for a second operator.

Competition should enhance level of service by providing choice of supplier, particularly by giving access to enterprises whose core business may be in one of these activities, as opposed to having to use a non-core service by the airport or national airline. The interest of independent operators in providing such services will depend on sufficient revenue being available. In the medium term there should be sufficient volume at Tashkent to be able to support at least two operators in each of these areas without any negative impact on the performance of the national carrier. While UzA retains a large market share, the establishment of alternative suppliers will be constrained. However, the initial strategy should be to remove restrictions that prohibit the establishing of competing services.

Cargo operations are too small to support the activities of a second operator: tonnages would need to at least double before a second terminal operator could be justified.

10.2.2 Quality of Service While air services have improved with the acquisition of new aircraft, ground passenger handling has not. There has in recent years been almost no change in facilitation and processing and only a marginal improvement in service facilities within airports. The investment focus has been on fleet modernization, not on airport services. There is a growing gap between the quality of services and facilities provided at airports such as Almaty and Astana and those at Tashkent. For Tashkent to remain competitive in regional aviation it must improve at least in step with the competition. This issue needs to be addressed by UzA (and a successor airport operator). MOT should act as an industry watchdog to promote higher standards.

10.2.3 Retailing Failure to exploit retailing opportunities represents a lost opportunity, particularly at Tashkent, reflected in the low level of passenger spend. International passengers have time and money, but little is on offer, with a limited duty free selection: an opportunity is being lost. At some major international airports, retail revenue exceeds that from aircraft operations and provides a key source of development funding. It is recommended that retailing be actively promoted, through concession agreements, based for example on space utilisation or percentage of turnover, particularly at Tashkent, Samarkand and Bukhara, which have significant tourist traffic.

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In-terminal catering facilities are poor and undeveloped. Current security procedures only allow passengers to enter the international terminals, while international practice is for general access land side of immigration. Catering services should be developed, especially at Tashkent, to the standard of other international airports. Services for transit passengers in particular need substantial improvement.

10.3 UzA AIR SERVICES

10.3.1 Objective The objective is to transform UzA into a profitable, well-managed world-class airline, competing successfully with other carriers. UzA has already come far in terms of fleet modernization and service improvements. The most efficient airlines are fully autonomous private companies. UzA should be given more autonomy, while remaining for the medium term a public corporation, with management answerable for performance and appropriately rewarded for success. Government interventions should focus on strategy and policy issues, with UzA focusing on commercial operation of the airline. This requires a transparent corporate structure, introduction of full international accounting systems and a significant change in corporate culture. In the short term UzA should seek to develop a cooperation arrangement with an international carrier(s). This would provide access to state-of-the-art yield management and marketing techniques and facilitate further improvment of service quality.

Supporting UzA as the national flag carrier at the expense of other airlines, may in the long tem conflict with the objective of exploiting Tashkent International Airport’s locational advantage and of developing tourism. An open skies policy would maximize such opportunities.

10.3.2 Domestic Services Social services, such as flying to all domestic airports, as required by the Government, should be compensated for under a PSO-type arrangement, making their financial cost transparent. Approval of domestic fares might at some stage be switched from the Ministry of Finance to the proposed Regulatory Commission for Aviation, to provide specialist input in the approval process. Domestic services should be rationalized on the introduction of larger aircraft.

10.3.3 Booking System Modernisation of the booking system is urgent. A system is being developed internally, not by a specialist software developer or by use of bespoke software. UzA may not have the necessary technical expertise and resources for such a critical system. Architecture, firewalls, accessibility by travel agents and online booking and e-ticketing are critical. Also, enhanced connectivity with other airlines for interlining. The system must support yield management, with flexible tariffs, depending on load factors and booking conditions. Equally important will be the training and HR components. The new booking system should result in a culture change and also address any governance concerns.

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10.3.4 Interlining UzA can only serve a limited number of international destinations. The demand for interline services will therefore increase, often through hubs. Interlining arrangements are limited, compared to those offered by other carriers. This diverts traffic to foreign carriers, particularly members of global alliances. It is difficult for foreigners to interline inwards and to purchase UzA tickets from foreign locations. Interlining arrangements should be reviewed and enhanced. Easing of money transfers/payment restrictions would simplify interlining.

10.3.5 Transit Passengers Increased competition for transit traffic is inevitable, but within an expanding market. However, UzA will need to protect its market niche by enhancing quality of service. The most urgent need is to upgrade the transit facilities in Tashkent, which are sub-standard. Unless transit standards are raised, traffic will be put at risk.

10.3.6 Quality of Service UzA has made significant progress in quality of service, but lags in areas such as ground handling and in-flight entertainment systems, in an increasingly competitive market. To retain market penetration, it is critical to monitor the standards offered by competing airports and carriers and to match or exceed them.

10.4 FOREIGN AIRLINE SERVICES

Foreign airlines complement and compete with UzA services. Competition stimulates efficiency and improves both quality of service and connectivity. It is important to have alternatives, particularly with UzA expected to rationalize its route structure.

More foreign airlines should be ‘encouraged’ to serve Tashkent: for example Thai Airways International from Bangkok and Emirates from Dubai, to improve connectivity and offer alternatives to Moscow. Airlines to be ‘encouraged’ should be those with extensive route networks. In parallel, UzA should improve interlining arrangements, code sharing and the like.

10.4.1 Passenger Foreign airlines may not view Uzbekistan as a particularly attractive market. Major carriers, such as Air France, British Airways and Lufthansa have suspended passenger services as a result of falling demand. To retain and attract carriers, market and image concerns need to be overcome. Long term strategy is to attract major non-CIS carriers. Immediate strategy is to seek to retain existing non- CIS carriers.

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Moscow–based carriers are less dependent on non-CIS demand. Moscow is of growing importance, with rapidly developing commercial interests by Russian investors and demand by Uzbek passengers for visits/transit. Strategy reflects Moscow’s critical role for connectivity. Moscow will continue to play a critical role.

Low frequency inter-CIS services are dominated by regionally-based airlines, mainly Russian. Such services are with destinations of minor interest to UzA. They provide a degree of regional connectivity. It is important to monitor the operations of smaller carriers, however, as many operate old Soviet-era aircraft and have limited financial reserves. This may result in safety and security of service concerns.

10.4.2 Cargo Following the suspension of British Airways’ services in October 2006, only Asiana of the scheduled passenger carriers is a significant cargo operator. Lufthansa, a major freight operator, operates cargo- only services. Access to an international flight network is critical. On average, 60-70 per cent of cargo passing through major airports is transshipment traffic. Uzbekistan will not generate sufficient volume to support a freight hub: this requires 30-40 per cent of traffic to be locally generated. It will therefore continue to depend for connectivity on other hubs. Improving connectivity to such hubs and not relying on the limited UzA network, which is passenger-focused, is essential.

Uzbekistan is overflown on one of the main Europe-South East Asia air freight corridors. It may be possible to encourage passing aircraft to call. Developing Tashkent as a freight ‘gateway’, a regional freight distribution centre, would encourage such activity. Foreign carriers would provide long distance services and UzA or regional carriers, regional connections. It would require a review of arrangements concerning freight connectivity and greater involvement by foreign operators. Major changes in trade facilitation would be necessary to simplify the processing of transit cargo.

10.5 ACTIONS

Airports A-1: Divest airport operation from UzA. A-2: Rationalize airport network, especially for Ferghana Valley. A-3: Improve connectivity between Tashkent domestic/ international terminals. A-4: Review security in line with international best practice. A-5: Modernise approach to design of structures. A-6: Increase mechanization of cargo terminals. A-7: Review function of Tashkent transit terminal. A-8: Establish separate financial records for airports/Tashkent IA. A-9: Develop Tashkent as regional freight gateway.

Airport Services A-10: Remove legal/regulatory constraints restricting competition, provide supplier choice, particularly for passenger, cargo and ramp handling.

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A-11: Improve service, particularly in passenger handling and customer-orientation, to international standards to meet regional competition. A-12: Improve arrangements for transit passengers. A-13: Improve catering, especially in international/transit areas. A-14: Exploit retailing opportunities and grow terminal passenger spend.

Uzbekistan Airways A-15: Increase management autonomy, limit Government intervention to policy and strategy issues. A-16: Focus on commercial operation. A-17: Complete fleet rationalization. A-18: Introduce e-ticketing and yield management, interline with more carriers. A-19: Improve quality of service and marketing of UzA as a brand. A-20: Rationalize Tashkent-Ferghana Valley air services. Introduce direct services between regional cities where demand warrants.

Other Airlines A-21: Seek in short term to retain operations by major carriers. A-22: Encourage in medium term more carriers to provide services, to reduce reliance on Moscow hub. A-23: Monitor small CIS regional carriers for safety and financial stability.

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11. Strategy for Logistics and Freight Forwarding

11.1 LOGISTICS

11.1.1 Supply Chain Management Supply chain management is almost non-existent due to the predominance of traditional wholesaling and retailing systems and lack of necessary market expertise. Internationally, logistics development has been pioneered by large retailers, especially of food. There are no equivalents in Uzbekistan. Groups such as MIR and Ardus are small and focused on Tashkent. There is no demand for national distribution services, with transport fleets and central and regional warehouses, the precursor to modern logistics. Given the limited demand for logistics and distribution, there is little expertise available either in supply chain management or supporting complex distribution technologies. No universities, institutes or associations offer training in these subjects.

As economic conditions improve, with higher average customer spend, there is expected to be a gradual transition in the wholesaling and retailing sector to larger outlets/stores. This, together with increasing transport and distribution costs, will result in pressure to introduce more sophisticated logistical techniques.

11.1.2 Third Party Logistics Providers The main providers of these resources and expertise are Third Party Logistics Providers (3PL). Logistics is not the business of retailers, wholesalers and most manufacturers and they outsource to specialist 3PL operators. In most countries, the 3PL industry has developed in stages from domestic road transporter, to national distributor, to national 3PL.

The domestic road transport industry is the principal component of a logistics industry. The lack of demand for such services and the severe problems of road transport impede the development of logistics. As economic conditions improve, creating demand and with vehicle fleet renewal, there should be scope to introduce supply chain management techniques and develop an environment whereby national road transporters can become 3PLs, possibly with international expertise to support the gradual transition.

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11.2 LOGISTIC CENTRES

11.2.1 Demand Development of logistics centres should focus on moving forward from Government policy statements to the physical commissioning of facilities around the country, translating an institutional-driven approach to one of demand-driven operations.

The core domestic function of logistics centres is for transit storage, particularly regional distribution warehousing. Such centres receive goods in bulk from suppliers, provide temporary storage, order picking and localized distribution to wholesalers, retail outlets or end-users and they may have a stock warehousing function. In almost all cases domestic logistics centres will be road-based and located at key road transport nodes.

The development of logistics centres for domestic purposes is not yet practical due to the lack of demand and of relevant transport resources/expertise. It is important to reserve suitable areas for later use at key nodes. These are likely to be on the outskirts of major cities, close to key road junctions.

Uncertainty about demand is delaying the development of international logistics centres. Such centres elsewhere have been developed in coordination with domestic centres, or as part of ICDs. Significant domestic demand is unlikely in the short to medium term, although international demand should grow, given the rapid development of international logistics. Demand for international facilities should be addressed first.

Access to data to assess demand is a key issue. Uzbek Customs do not yet have an automated clearance system to generate imports and exports by origin, destination and commodity code, to simplify demand forecasting. Traffic data in raw form should be made available. This, combined with production data, could provide a profile of export traffic from point of production to destination to assess the optimal location for terminals. Such data, required for planning, is considered confidential.

A TRACECA project (Euro5.5 million) is expected to begin in 2007, with Uzbekistan as a lead promoter. The project would assess the demand for logistics centres throughout Central Asia.

11.2.2 Function The Government has proposed that logistics centres should be export consolidation facilities, principally to reduce the high cost of storage abroad. This will involve a significant change in export logistic and terms of sale. The purchaser or the Uzbek exporter will become responsible for the complex movement from the consolidation point to the FOB point at the port or foreign railhead

PADECO/IKS 147 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report where the goods are currently stored for the Uzbek exporter. Goods will move against orders received, rather than in bulk, with major changes to the export logistics for the end-user. Many goods are raw materials purchased by brokers who then hold strategic stock and deliver against orders received. Changes in export logistics should be acceptable to customers and not place Uzbekistan at a competitive disadvantage. The full implications of developing logistics terminals have to be taken into account.

Consideration should be given to handling import traffic. Traffic at the centres will need export clearance and Customs etc. will have a permanent presence and it would be simple to increase the scope of service. Imports generally have a higher unit value and thus potentially can generate higher processing revenue. Although most imports move direct to end-users, there may be some demand to use logistics centres, particularly if they have an ICD status. If centres are within a Free Zone, they could be attractive for import traffic.

11.2.3 New and Existing Facilities The relationship between existing terminals and logistics centres needs to be clarified. Article 2 of Minutes No.1 of the Cabinet of Ministers 10 February 2006 indicates Chukursay, the intermodal terminal operated by Shoshtrans in Tashkent and Bukhara as sites for centres. If existing terminals can function as logistics centres, there is less need for new developments, although there may be a requirement for facilities in the Ferghana Valley and at Termez. The site at Ayritom, close to the border zone, is ideal, but maybe not for UTY, which would lose revenue from the movement across the bridge to Hayraton.

Logistics centres should be developed in stages, using a combination of existing and purpose-built facilities. The use of existing facilities is a low risk strategy until demand is confirmed.

11.2.4 Modal Connectivity and Siting Rail connection is essential, given the dominance of cotton. Most ginneries are rail-connected and transport from the ginneries to the consolidation point is best accomplished by rail. Changes in export logistics may favour the increased use of road, as against bulk transport by rail. The Article 2 proposals are logical and existing intermodal terminals should be developed in Tashkent, at Bukhara and at one of the facilities in the upper Ferghana valley. A terminal on a greenfield site at Termez should be considered, in combination with a Free Zone. Once the viability of these facilities is demonstrated, additional centres may be considered.

11.2.5 Consultation Development of export terminals will involve major changes in logistics, based on consolidation and sale/delivery from the terminals. The agreement of interested parties to secure the necessary level of ‘ownership’ should be obtained to confirm traffic levels. Infrastructure alone will not generate

PADECO/IKS 148 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report demand. For exports such as cotton it is possible to direct traffic, but it is important that brokers and buyers are prepared to adapt to the changes. An increasing proportion of exports will be non- Government controlled and exporters will need to buy into the system and forwarders, international road transporters and UTY will need to give their support. A prerequisite for the development of logistics centres is cross-industry consultation.

11.3 FREIGHT FORWARDING

11.3.1 Foreign Forwarders Given the difficult conditions for Uzbek forwarders, especially in the non-rail sector where foreign forwarders dominate, there is a temptation to consider the introduction of discriminatory action to create a level playing field, but this is undesirable and impractical. Until Uzbek importers change their buying terms to give them control and responsibility for the inward movement, routing control will remain with the consignor, who will usually assign the goods to a national forwarder: in a similar manner Uzbek export traffic is predominantly handled by Uzbek forwarders. For Uzbek import organizations to change their purchasing terms would only be warranted if Uzbek forwarders had offices or resources to offer their services in the exporting countries.

Develop relationships with foreign forwarders. Uzbek forwarders are already strong in the export sector, but must increase their penetration or participation in the key import sector. This presents them with two options: (i) establish their own overseas organisation; or (ii) form partnership arrangements with overseas forwarders to develop a network. The former is difficult because of the high cost of entry and the necessity for a ‘base traffic’ to support development. The more attractive option is the establishment of partnership arrangements.

In the short term, foreign forwarders may prefer to have agency-type arrangements to limit their investment risk with foreign entities not already established seeking local representation. Local forwarders are looking for similar arrangements in new markets: initially they will not have the traffic to support their own offices. There is clearly a mutual interest in cooperation. Uzbek companies have limited experience in marketing and networking and AIFU could play an important role in facilitation, possibly through FIATA, to encourage such contacts.

In the medium/long term, focus increasingly on the establishment of JVs. Given the growth in 3PL-type forwarders with integrated services, there is a need to ensure participation in the international logistics industry. National forwarders do not have the financial and physical means to be major players in this market, but can participate through links with other players. Joint ventures represent a more participative and secure approach than agency arrangements, which can be changed at short notice, given the limited commitment necessary. Clearly, improvement in the general climate for foreign investment is critical.

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11.3.2 Scope of Services Uzbek forwarders are predominantly concerned with traditional freight forwarding services. These consist mainly of arranging and booking the means of transport for the movement, production of transport and customs documentation, customs clearance and general advice on import/export regulations. However, the international trend is increasingly towards freight forwarders becoming ‘logistics providers’ (3PLs). This means offering more comprehensive services covering an increasing proportion of the logistics chain, such as warehousing, inventory control, order picking, packing, labelling, national collection and distribution and ‘real time’ control of the shipment. Most of these types of service are identified under Article 5 of the new Law, but are not practised.

It is critical that as the market evolves, Uzbek companies be in a position to meet the challenges posed by fundamental changes to their business. In Europe, for example, smaller entities that provide only traditional services are gradually being squeezed out of the market. Uzbek forwarders need to establish closer relationships with new types of operator so that their range of services is made available. For example, the proposed development of export logistics centres and ‘just-in-time’ logistics to reduce the need for stockholding in foreign ports will rely on these new types of service to give the required levels of service. It is necessary to transform the freight forwarding industry into providers of international logistics by enhancing the range of services offered by national companies.

11.3.3 Legislation Forwarding legislation is necessary, but should not constrain sector development, particularly as regulation in other countries tends to be limited. The proposed new Law should be re-examined prior to ratification. The key concerns relate to Chapter II Rights and Liabilities of the Freight Forwarder and the Client and Chapter III Claims and Suits, both of which may contravene or be in conflict with the rights of both parties under existing civil laws. Other concerns are Article 6 that stipulates the contents of contracts, which it is considered should be mutually agreed between the parties, rather than be set out in primary legislation. A revised and simplified Law should be developed regulating the relationship between parties, excluding operational and litigation issues.

11.3.4 Capacity Building The industry has no formal licensing system or accreditation process: anyone can set up as a forwarder. With ‘Forwarder’ now included in the national classification of professions, it is important that its status be recognised as a necessary qualification to practice. An operator licensing system should be reinstated, similar to that used for transport operator licences – based on repute, capital resources and reserves and professional competence. Competency should be based on each company having at least one nationally certified freight forwarder. The conditions relating to capital resources

PADECO/IKS 150 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report should make allowances for size of business and potential trading liabilities, such that it does not bar smaller new entrants.

Forwarders should be provided with appropriate training, followed by certification, to allow them to practice. Courses should be similar to those provided by TRACECA. This could be organised through AIFU, open to both members and non-members. For foreign entities, certification by their national organizations should be accepted as an alternative. A training centre for forwarders is required. This could either be a national facility or a regional facility, as proposed by the Associations in neighbouring countries at a recent TRACECA regional training event. It is recommended that training be provided in new forwarding technologies, such as international logistics, in place of the current focus on traditional forwarding skills.

11.3.5 Institutional Arrangements Should a Ministry of Transport be established, new institutional arrangements will be required. A Department under the General Policy and General Transport Services Directorate should be responsible for regulating freight forwarding. Its role would be to assist sector development, issue licenses, monitor training standards and legal matters, without becoming involved in the physical operation of freight forwarding.

11.4 ACTIONS

Logistics/Logistics Centres LF-1 Include training in logistics and supply chain management in road transport courses. LF-2: Further develop domestic road transport into a distribution industry and then into a 3PL sector. LF-3: Identify locations for logistics centres and reserve land. LF-4: Switch from institutional-driven approach to demand-driven operation. LF-5: Confirm demand for international facilities on the basis of Government-held data. LF-6: Evaluate impact of logistics centres on the export logistics chain. LF-7: Extend range of service to include some import capability. LF-8: Clarify the relationship between existing terminals and logistics centres. LF-9: Develop logistics centres in stages using existing and purpose-built facilities. LF-10 Rail-connect all logistics centres. LF-11: Agree, through cross-industry consultation with interested parties, to secure the necessary level of ownership. LF-12: Undertake feasibility studies to provide commercial business plans to attract investment. LF-13: Establish regional logistics dispatching service and associated web-site.

Freight Forwarding LF-14: Develop relationships with foreign forwarders, by agency-type arrangements and then establish further JVs.

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LF-15: Extend the range of services of Uzbek forwarders and increase their involvement in the international logistics chain, to develop them into 3PL providers. LF-16: Legislate to formalise the status of the industry,(without over-regulation or constraints on development). LF-17: Introduce a licensing system to confirm the professionalism of the industry. LF-18: Provide training facilities to ensure sufficient trained personnel for forwarding companies (to include new technology and approaches).

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12. Strategy for Inland Waterways

12.1 INLAND WATERWAYS

12.1.1 Role The role of inland waterways has fundamentally changed from carrying goods up and down the river to that of providing cross-river ferry services. This is unlikely to change and the future role of inland waterways and the resources required need to reflect this fact.

The major concern is that cross-river services are only viable due to an artificially created situation that is contrary to optimal international logistics. The problems of trade with Afghanistan - unwillingness of Uzbek drivers to proceed into Afghanistan without premium payments due to security concerns and the official and unofficial costs involved in crossing the road bridge - combine to make a system whereby goods can be sold free-delivered or CIF Hayratan attractive. If the loads are to be transhipped in Hayraton to Afghan vehicles under such trading arrangements, then the cost of the modal change to use river transport is correspondingly reduced.

Organizations such as the UN and US forces have and are continuing to use the port as a forward logistical supply centre, though with much reduced volumes. Consolidation at a point close to the border is a logical supply strategy and the port is one of the only locations with suitable warehousing. In the medium to long term it is expected that as conditions in Afghanistan improve, this type of operation would be phased out in favour of direct just-in-time supply.

Traffic levels through the port are expected to remain low in the foreseeable future, under 50,000 tonnes per annum, servicing a small segment of cross-border trade.

12.1.2 Security Issues The trade between Uzbekistan and Afghanistan, including transit traffic, is highly dependent on the road/rail Friendship Bridge. The critical strategic issue is what would happen if the bridge were ever closed due to political, structural or security problems or even an act of terrorism. The effect of closure in 2005 is shown in the difference in port throughput 2005/2006.

It is important to retain an alternative transport link to the bridge to provide the necessary trade security of this developing corridor. It is considered that the future of the port is more dependent on its strategic importance rather than its commercial value. The key issue is how to retain this critical security asset operational on such minimal traffic flows, in case it is required at some future date as an alternative to the bridge.

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12.1.3 Infrastructure The port has a major backlog of infrastructure and equipment rehabilitation. Whilst the port may be providing a cost efficient ferry service, the revenue generated is considered insufficient to enable this backlog of work to be funded internally. Indeed, if able, much of the work would already have been done. Given that the need for the port is only as an alternative to the optimum logistics strategy it is not considered that port investment of some US$1 million is either justified or is a priority.

It is considered that the port is attempting to maintain and develop facilities for a market that no longer exists, inland waterways transport rather than ferry transport. Given the financial restrictions the result is that the port is gradually deteriorating and its operational ability will be increasingly compromised. It is recommended that urgent consideration be given to downsizing the scale of operations at the Port of Termez. The objective of downsizing would be to maintain a smaller more efficient modernized facility given that the overall size of the site, its infrastructure and equipment is not considered to be compatible with both existing and future demand.

Subject to more detailed analysis it is considered that 2-3 warehouses, 2-4 cranes, 6 fork lift trucks, 2 tugs and 4 barges would be sufficient to handle the likely traffic even in the event of bridge closure. This would reduce the cost of rehabilitation to around US$200,000 and possibly increase profitability to enable some internal development funding.

12.1.4 Vessels The tug and barge system is not the optimal set-up for such a short transit, which would normally be undertaken by a self-propelled unit, such as a roll-on/roll-off unit. With the indicated traffic profile, a unit with a capacity of 100 tonnes would be ideal to provide a service with reasonable frequency – several round trips per day. The difficulty is that there are no suitable second-hand vessels in the immediate vicinity. Though the local shipyard could probably construct such a vessel, this development is unlikely to be justifiable. Thus, it is considered that the current tug and barge system should be retained, but that some urgent rehabilitation work be undertaken, such as re- engining two of the tugs with larger engines.

12.1.5 Labour The labour force at Termez port is around 180. In common with most ex-Soviet river ports, the labour force has not been reduced to match changes in demand and the introduction of new cargo-handling systems. Most of these ports provide social support facilities for the workforce. For example, the equivalent manning in a European river port with volume of under 200,000 tonnes per year would be 20-30 persons, though with a higher investment in handling equipment.

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A key problem for the port is that all the revenue generated is required to support the labour force, thus the port has no financial capacity for investment. It is recognised that availability of alternative sources of employment in Termez may be difficult and therefore the port provides a social service. However, it is considered that this is not sustainable and therefore it is recommended that there should be a major reduction in the workforce, probably by two thirds.

12.1.6 Master Planning The port currently lacks a clear future focus, both in terms of economic viability and resources. The emphasis is backward rather than forward looking. It is recommended that a Master Plan 2007-20 be prepared for Termez Port to assist management in optimizing both its role and to ensure financial stability. The plan should consider the case for conditional funding to upgrade a smaller port.

12.1.7 Termez Logistics Centre Termez has been identified as a potential location for a logistics centre, given its direct cross-river access to Afghanistan. However, it is not considered that the port site is competitive with the alternative site proposed adjacent to the security zone at the Ayritom border crossing, which has better road and rail connectivity.

12.2 ACTIONS

IW-1: Facilitate road/rail services through Ayritom: Termez to serve as a back-up facility. IW-2: Assume that primary IW demand will be for cross-river ferry service. IW-3: Maintain reserve capacity at Termez, as alternative to Ayritom-Hayraton road/rail bridge. IW-4: Ensure Termez has sufficient long term capacity (including for emergency operations), while rationalizing infrastructure, equipment and labour force. IW-5: Prepare Port Master Plan to support development funding as necessary. IW-6: Provide essential renewals and spare parts for continuing operations.

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13. Strategy for Urban Transport

13.1 NATIONAL LEVEL

13.1.1 Government Policy and Strategy Transport is highly important for the effective functioning of urban areas: it has a major impact on the quality of life. Strategy is multi-faceted, reconciling the conflicts of interest between users of different modes: primarily between those of private and of public transport. Tashkent and other cities are fortunate in having few of the congestion problems that blight many, if not most, world cities. Given effective planning, this fortunate position can be preserved over the study period. Integrated provision of services, some management of demand and subvention of social services are the main requirements. Strategy is simple to formulate, more difficult to implement: promote efficient use of infrastructure capacity and cost-effective service management.

The Government’s strategy for urban transport was set out in a Statement of 17 April 2000, provided in support of the World Bank Urban Transport Project. This noted: (i) that a Framework Law on Urban Transport was enacted in April 1997 to allow tendering of bus franchises; (ii) that tendering was introduced in late-1997 in five pilot cities: Almalyk, Bukhara, Namangan, Nukus and Samarkand and extended to all cities in 1999; (iii) that the Uzbek Agency for Automobile and River Transport was established to rationalize transport licensing and to take over road sector regulation; (iv) that the number of exempt passenger categories had been reduced from 17 to seven; (v) that the private sector was being encouraged to develop associations and to participate in bus route tendering; and (vi) that fares had been regularly increased in line with input cost increases. The Government had also adopted a Concept for the Development of Urban Passenger Transport. In the medium to long term the Government was committed to developing a financially self-supporting, economically and environmentally sustainable urban transport sector capable of sustaining operations and renewing vehicle fleets without financial support from the central and municipal authorities. The Government was committed to separating regulatory and operationing functions by decentralizing planning responsibility from Uzavtotrans to City Transport Commissions and operating responsibility to independent commercial companies.

There are weaknesses in Government policy and some of its implications may not have been worked through: for example on modal split (the distribution of traffic between modes). Financial self- sufficiency requires fares to reflect long run average costs, encouraging a probably undesirable (in urban areas) switch from public to private transport and a redistribution between modes within public transport, irrespective of available capacity. Introducing minibus services parallelling metro or tram lines for example may increase total transport cost: there are no operating cost savings on the

PADECO/IKS 156 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report latter modes and the full cost of the minibuses is added. That the minibus services may themselves be financially self-supporting is irrelevant: decisions need to be based on system impacts. The starting point for strategy is the existing infrastructure and service provision and the objective is to use it effectively and to develop the system from that given starting point. Synergies are lost if each mode is treated separately. Public transport should function and be seen by users as an integrated system, with seamless connections between modes: an integrated ticketing system being an essential component. Route networks should be designed as a whole to encourage use of low marginal cost modes (those with spare capacity) and to promote interchange between modes to this effect.

Strategy cannot be effectively operationalized without a detailed knowledge of the demand pattern (public and private) and of the expected structural changes in each urban area. It is known that there have been dramatic changes in demand in Tashkent and other cities since independence, but no analysis seems to have been made since then. Comprehensive traffic count, origin-destination and household interview surveys should be undertaken in each city at the earliest opportunity, to develop a computerized planning database. Proprietary urban transport planning models are widely available. For Tashkent’s complex multimodal network, model-based planning is essential. Model building and data collection should proceed in parallel and be supported by technical training of the staff concerned. There will be a hiatus of two years, possibly more, before informed decisions can be made, based on survey results and model testing. In the interim, no preemptive decisions should be taken.

Promoting private sector service operation can be an effective way of increasing operational efficiency, but that promotion needs to be within and in support of an overall strategy. If passengers switching to minibus from electric transport had been seen as increasing the operating subsidy required by those modes by almost the full fares they would have paid on them, minibus services might have been structured very differently. Minibuses have produced great user benefits, but possibly at high cost to the public purse.

Under a PSO compensation system, ATUTS should be fully reimbursed for having to carry various classes of passenger free. Although the number of such classes has been reduced, the financial impact remains considerable. The revenue loss from free travel in 2005 was Soum3.19 billion, of which under 30 per cent was compensated.

Table 13-1 notes issues in urban transport which may disadvantage public transport operations.

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T13-1 Urban Transport Issues

1. Tax avoidance – bus/minibus service tax evasion, taxis operate illegally without licences. 2. Lack of control over activities of private carriers by the tax committee. 3. Low level of fines - carriers evading tax or working without licences are subject to minimal fines. 4. UARRT/Ministry of Justice need norms for transport policy to strengthen control over private carriers. 5. Accounts receivable by passenger transport enterprises from Government agencies are in arrears. 6. Transport licence fees should support urban transport development.

13.2 CITY PUBLIC TRANSPORT

13.2.1 Metro The Tashkent metro is a national asset, the centrepiece of the city’s public transport system. A revitalization programme is needed to arrest and reverse the dramatic decline in usage. This would also improve the overall image of public transport. The programme need not be costly: for example, the first stage might comprise: (i) improving ambience, revamping of station accesses, replacement of missing lights; (ii) refurbishing trains, upgrading interiors, new colour schemes, new lighting; (iii) station improvements (these could be franchised to the private sector in exchange for advertising rights); (iv) rebranding of the metro (new logo/new system maps etc); and (v) improved ticketing, compatible with other modes to encourage modal interchange.

The focus should be on user-friendliness: for example, platform clocks show the time elapsed from the departure of the previous train – counting up. This should be reversed to show the time to next train – counting down. Local area maps should be posted at stations showing location of exits. Signs to metro stations should be placed within 500m of entrances. Station entrances should be better marked with larger signs. While for safety reasons, retailing is not permitted in stations, the policy should be reviewed to allow where possible shops/stalls which would improve station ambience – newspapers and magazines, fruit, flowers etc.

With effect from 1 March 2006, metro use has been restricted to token or plastic cards valid only on the metro, with cards for metro plus other modes withdrawn. This has led to a large fall in traffic. An integrated ticketing system has social and economic benefits. It needs to be carefully considered to prevent further loss in traffic and not to discourage use of public transport. Electronic ticketing should be introduced covering all modes.

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Once the existing system has been modernized (a 3-5 year project), consideration should be given to completing the northern section of Line 3, which is expected to increase traffic volume by 100,000- 150,000 ppd.

13.2.2 Trams The tram system is in a deteriorated state and has lost much of its traffic in recent years. Many cities have abandoned their tram networks, but many have later regretted the decision. Much of the network is on reserved track and the tram system has a long term future. There needs to be a strategy for fleet renewal (the purchase of 60 Spectr tramcars is planned), track renovation and system upgrading. The route network should be reviewed once the survey results are processed, taking into account the existing pattern of demand and the impact of planned city development. The long term network should be defined and a staged upgrading programme be formulated. This should be a route-by-route modernization, with new trams concentrated on fully refurbished routes – renovated track, provision of covered waiting areas at stops, posted timetables and possibly electronic indication of time to arrival of next tram etc. Rerouting of bus/minibus services to channel demand onto the modernized tram routes is essential. Corridors with the greatest demand might be upgraded to Light Rapid Transit standard.

An electronic stored value ticketing system to facilitate modal transfer (including metro) is essential and it should include minibus. The user should see urban transport as a fully integrated system. With the current system, single ticket purchase only permits travel on the one route.

13.2.3 Trolleybuses Trolleybuses are the most environmentally friendly public transport mode: quiet, with no roadside emissions. To abandon the extensive system could be viewed as a step backward. However, with a low quality of service, low frequency, old vehicles and frequent detrolleying, trolleybuses do not compete effectively with other modes. Once the proposed surveys have been conducted, options for change need to be considered. These range from network closure, to rationalization onto key routes, to limited development, to full system upgrading.

13.3 TASHKENT RING ROADS

The Tashkent inner and outer ring roads, the former recently upgraded, require special attention. The 64km Outer Ring Road (ORR) will increase in importance, attracting commercial developments – out-of-town shopping centres etc. which generate high trip volumes. Growth in traffic is likely to be much faster than average. The ORR is a dual carriageway: dual 3-lane on the north- eastern and eastern sections and dual 2-lane on other sections, except for short sections. Widening is in progress on the western section, one of the most congested areas. The ORR has multiple functions, some sections are primarily urban, with frequent signalized at-grade (level) intersections. Some

PADECO/IKS 159 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report sections have grade-separated interchanges, serving primarily through traffic and longer-distance movements. A phased improvement programme needs to be developed, including:

13.3.1 Traffic Management Most sections of the ORR have sufficient capacity for the medium term, but sections adjacent to main markets and bus termini are congested, with conflicts between uses. On-road parking disrupts through traffic, pedestrians cross at-grade and there are no frontage roads for local access. Traffic management (separation of through and local movements), pedestrian overpasses/underpasses and frontage roads are required on a minimum of 5km, possibly 10km of the ORR.

13.3.2 Safety Audit There are many road safety concerns, including the large number of unprotected pedestrian crossings and the many u-turn and unprotected left turn movements. These ideally have no place on a ring road, but only in the long term could they all be eliminated. A staged improvement programme is required, based on a safety audit comprising a visual survey, review of accident data (anecdotal evidence is that there are a large number of accidents at u-turns, particularly at night), a survey of all u-turn and left-turn movements and of where pedestrians are crossing. The surveys should be carried out during school terms on weekdays and weekends. The lowest volume u-turns should then be closed. Remaining u-turns should be more clearly signposted, the turning area provided with street lighting and the carriageway widened to provide some protection for the turning movements. The highest volume turns should be considered for grade separation in the medium term. All left turn movements should be signallized. At-grade pedestrian crossing should be stopped by median fencing (which would also improve vehicle safety) and provision of grade-separated crossings. Median barriers should be provided on all open sections, with street lighting poles in the median protected with crash barriers to reduce the severity of accidents. Lighting is being installed on the section being widened and remaining unlit sections should be considered for lighting, particularly where pedestrians may still cross.

13.3.3 Signposting and Road Marking Both signposting and road marking are poor. The ORR should be specially indicated. An ORR symbol should be designed, for use on all signposting, both on-route and on access routes. The symbol might be the subject of a prize design competition, open to the public and graphic design companies, with a distinguished panel of judges. All ORR intersections and exits should be numbered, starting from zero at a major intersection, then given the clockwise number of km from the intersection. Where there is more than one exit/intersection in a km, numbering would be Exit 7A, 7B etc. Clockwise and anticlockwise exits would have the same number. Km posts should be prominently placed on the whole ring, consistent with the numbering system.

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All signposting should be to a common high quality design. Each exit/intersection, other than in urban areas, should be signposted 1km and 0.5km in advance. Lane marking should be to a consistent lane width, with all turning movements, in particular u-turns, lane marked. Access routes to the ORR should be signposted. At all external approaches the areas of the city accessed by clockwise/anticlockwise directions should be indicated and the direction to take for through traffic to principal destinations.

13.3.4 Increasing Capacity and Land Use Traffic growth by section should be monitored, with the installation of automatic traffic counters. A medium/long term widening and upgrading programme should be prepared, to maintain a good quality of service (service level objectives would differ by section).

Land use control adjacent to the ORR may be required to reserve land for future widening and frontage road construction.

13.4 TRAFFIC MANAGEMENT AND PARKING

13.4.1 Traffic Management There is little congestion in Tashkent and other cities and few parking problems. This is the result of a generous provision of roadspace, a relatively low level of car ownership, restrictions on truck use (inside the ORR for Tashkent) and extensive public transport systems. Economic growth will, however, increase car ownership and travel demand. This may largely be catered for by improved traffic management, without the need for major investment in road improvements, other than grade separation.

Traffic management encompasses a range of relatively inexpensive “soft” initiatives: (i) redesign of intersections; (ii) lane marking and signposting to channel traffic; (iii) rephasing and better positioning of traffic lights; (iv) segregation of pedestrian and vehicle flows; (v) restrictions on turning movements; (vi) parking controls; (vii) one-way systems; and (viii) road pricing. Traffic management should always be applied to the maximum extent before major infrastructure work is undertaken. It is economically highly efficient and can significantly increase network capacity. Many measures widely used in other cities are not applied in Tashkent: road marking to control parking (the double/single yellow line system, for example); box junctions (areas marked on the road which may not be entered if the exit from them is blocked); traffic lights positioned in the median; properly protected u-turn movements, with many existing turning movements banned (for example u-turns on undivided roads); clearly marked and enforced speed limits, varied by type of road and area; and central pedestrian refuges on wide roads. In general, attention needs to be given to pedestrian safety. Pedestrians have to cross multi-lane roads with little or no protection (including the high speed ORR). The same applies on the inter-urban network where it passes through urban areas.

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13.4.2 Parking Navoi St. in Tashkent, on the section fronting the white goods and electrical retailers, illustrates the negative impact of parking. Traffic flow is disrupted, there are safety concerns and the environment in the area is degraded. Parking is “controlled” by unofficial paid minders and facilitators. A local area traffic management plan is required, developed with the cooperation of representatives of the retailers. The first question concerns zoning and land use: should such establishments, which generate a large number of private vehicle trips, in the medium to long term be located in the city centre at all. If so, the area should be redesigned to provide separately for three categories of users: (i) customers, who require short term parking, up to 1 hour; (ii) delivery vehicles, and (iii) owners and staff who need whole day parking. Improved public transport access should also be provided, with bus bays and a taxi stand.

Navoi St. is one of the worst affected areas and other parking problems occur mainly adjacent to markets. Of particular concern are those close to the Outer Ring Road. On-road parking is disrupting the traffic flow, with dangerous pedestrian/vehicle interaction.

Worldwide experience shows that parking policy is a key to balanced mobility management in cities. However, many cities have addressed parking issues in isolation, without considering the implications and opportunities parking offers in the context of urban transport planning. Parking (on-street and off- street) should be an important concern for any city, especially Tashkent, with a population of 2+ million. An adequate parking supply is needed to encourage retail and commercial activities and to satisfy residential and visitor demands. Parking, however, is a complicated and multifaceted issue that has far-ranging impacts upon modal preference, urban and regional transport, mobility, accessibility, development, environmental quality and land use. Planning is needed to provide, operate and manage parking facilities.

Parking policy is a city responsibility: there is a close relationship between parking and the quality of city life, as it is an essential part of the city environment. Parking issues are related to the local urban, social and mobility structures and each city has special concerns, there is no general parking solution. The critical issue is the relationship between supply and demand. Lack of parking capacity may restrict growth and reduce economic efficiency. However, over supply may increase the number of vehicles entering the city (especially work commuters), reduce public transport use and adversely impact on the environment and on the quality of life. Providing parking near activity centres well served by public transport and/or in the city centre, instead of on the fringes or outskirts of the city, may also result in higher vehicular usage and congestion.

Parking fees and regulations influence the level of congestion and the use of public transport. If on- street parking is cheaper than off-street parking, there may be under-utilization of the latter and

PADECO/IKS 162 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report increased on-street congestion. Cheap or free parking encourages commuting. Free parking at markets without time limit, while an incentive for shoppers, may result in other use of valuable space, at the expense of market users. Long-term parking in residential areas without regulations or special provisions for residents, may result in residents having to park elsewhere, away from their homes, with commuters occupying the spaces during the day. Unpenalized parking violations, or lax enforcement of penalties, encourages illegal parking.

Parking is an integral element of the economic and social well-being of an urban area. Parking policies and management initiatives need to be balanced and planned, with consideration of overall urban transport and city planning priorities. A coherent parking strategy should form part of urban transport strategy: it can contribute to a better city environment and to a balanced use of urban transport. A central objective is that parking provision should contribute to a better quality of life in an accessible city. At present parking is virtually unregulated. Moving, as well as parked cars contribute to a pedestrian-unfriendly atmosphere, detrimental to the attractiveness of the city. The city centre is a focal point, with the central offices of national and local governments, banks, commercial activities, together with main shopping areas, markets and museums, but it is also an important residential area. These functions cannot coexist without proper accessibility. This is a dilemma many cities are confronted with. The pressure of traffic and parking on the environment can be eased without unduly restricting accessibility through effective parking management, as set out in Table 13-2.

T13-2 Parking Policy

1. Improve the environment by promoting a pedestrian-friendly atmosphere in the city centre. 2. Limit through traffic in the city centre. 3. Control the number of on-street parking spaces. 4. Increase off-street parking facilities. Parking demand will rise, whatever policies are pursued. 5. Locate public off-street parking facilities close to main destinations, such as markets. 6. Give priority to residents’ parking and short-stay parking for visitors. Provide parking for commuters only where it does not conflict with the requirements of residents and visitors. 7. Give residents priority parking in residential areas. Permission for use by commercial activities of such spaces should be subject to strict control. The fee for non-residential permits will be higher than for residents’ permits and business-permits will only be valid during working hours. Exemptions from parking restrictions should be strictly limited. 8. Parking restrictions and paid parking will be limited to key areas. The strictest measures will apply in districts which attract the heaviest parking pressure. Tariffs for on-street parking will be higher than for off-street parking, with a stricter time-limit, in order to encourage use of off-street facilities. 9. Encourage private sector operation of parking facilities, including on-street parking, within a defined strategy (on pricing, capacity provision and parking accessibility). 10. Operation of parking facilities and enforcement of parking measures (especially on-street) should be separated. Effective enforcement of parking regulations and compliance will protect the income-stream from paid parking, which can be used for investment in parking and mobility.

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13.5 ACTIONS

U-1: Apply traffic management to maximize capacity of existing infrastructure. U-2: Develop planning database through passenger surveys and household interviews. U-3: Develop transport model for Tashkent. U-4: Reintegrate ticket system in Tashkent to cover all modes. U-5: Define medium and long term route networks for electric transport modes. U-6: Rationalize route bus/minibus networks in Tashkent to promote integration with electric transport modes. U-7: Review policy of seeking financial self-sufficiency for each mode. U-8: Manage each mode to support policy for the whole city transport system. U-9: Develop investment programme for Metro rehabilitation and development.

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14. Strategy for Institutional Restructuring and HR

14.1 INTRODUCTION

This chapter addresses: (i) institutional reform; (ii) human resources (HR) development/training; and (iii) financing/investment and private sector participation. These issues are essentially cross-cutting and modal references are restricted to sub-sector specific observations, in order to present ideas and action proposals for the sector. Section 14.8 presents the elements of a strategy for institutional reform. The usage of key terms is defined below:

Infrastructure comprises the various elements (both physical and intangible) that constitute the basic structures or features of the network used by suppliers to service customers. Rail infrastructure includes track, bridges, tunnels, marshalling yards, transformers and electrical catenary, telecommunications and train control systems. Infrastructure in other subsectors follows a similar theme. Rolling stock (wagons, vehicles etc.) is usually excluded.

Transport services provide direct benefit to the public or commercial customers, through the conveyance of freight/passengers by the use of infrastructure.

Regulatory responsibilities cover a broad spectrum, ranging from safety to technical considerations to commercial interventions as a means of promoting social or economic policies which the market is not able to promote efficiently. For strategy, regulatory responsibilities are generally those vested by Government as a means of achieving specific objectives in conditions where free market operation is expected to have undesirable consequences. Regulatory responsibilities are however equally important in terms of risk allocation as a fundamental precept of Public/Private Partnerships (PPP).

Commercial responsibilities relate to an entity’s underlying objective of profitability or financial self-sufficiency. Commercial considerations require that decisions be made and resources allocated in a manner consistent with their impact on financial outcomes rather than adherence to alternative objectives such as social impact or engineering excellence. Commercial responsibilities therefore require that entities address their business activities with a clear view to financial implications and hence adopt an underlying profitability motive in all their actions.

Core activities are those that relate to the central theme of an entity’s operation – for rail, management of the infrastructure network, provision of transport services. Non-core activities comprise all others, such as provision of social services (housing, medical benefits, education services etc.) or associated commercial pursuits not directly related to transport (advertising, hotels, land development etc). Some activities are borderline and cannot be clearly denoted as core or non-core. These need to be evaluated on a case by case basis (e.g. tourism-related initiatives, specialized marketing programmes).

Private sector participation (PSP) is the situation where both the public and private sector take part in a specified area of economic activity. Participation can be undertaken separately or in the form of joint activities between the public and private sectors.

Public Private Partnerships (PPP) are a special case of PSP, where the private sector joins agencies from the public sector to achieve specified goals either in a finite time context or on an ongoing basis. From an international viewpoint, PPP has been typically adopted in the development of infrastructure rather than service delivery.

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14.2 INSTITUTIONAL RESTRUCTURING

For policy formulation, structuring and implementation, the absence of a leading entity that elsewhere typically takes the form of a Ministry/Department of Transport is a serious impediment. Executive responsibility is vested in a number of ministries and departments, with implications for both continuity and co-ordination. The result is that whilst individual responsibilities are being addressed diligently, the absence of a clear policy framework and implementation coordination has resulted in piecemeal progress and less than optimally prioritized focus. That leadership vacuum is all the more problematical given the fundamental structural changes that have been implemented over recent years: privatization processes, movements towards development of private sector participation and promotion of competitive structures have each been pursued with varying degrees of success, but they have essentially been undertaken in isolation, being promoted and managed by individually, without the benefit of either unified policy implementation or, in some instances, reference to associated implications.

A Ministry of Transport should be established as a high priority to drive sector development.

14.2.1 Ministry of Transport The sector’s existing organization structure is presented in Appendix XIV-1: the major modal entities predominantly report directly to the Cabinet of Ministers. Whilst other Ministries (Finance, Economics, Justice etc.) fulfil specialized sector functions, individual agencies have been vested with responsibility for specific tasks in their sub-sector through a series of Presidential Decrees and other enabling legislation. Similarly, agencies such as the Anti-Monopoly Commission and State Property Commission have oversight responsibility in relation to clearly specified programmes. Each of these agencies reports directly to the Cabinet of Ministers, with the core focus of such reporting being on the manner in which their assigned responsibilities have been executed.

Agencies are only empowered to address issues specified in enabling legislation – and typically enabling instruments are very specific. While routine tasks are addressed competently and consistently, critical considerations such as policy development and implementation across the sector, resource allocation between modes together with associated prioritisation considerations and responses to changing business and market conditions, have to be dealt with by the Cabinet of Ministers - which has an onerous burden of other responsibilities and, as such, lacks the capacity to address policy level issues adequately.

UTACA was formed to provide the all-important co-ordination between sector agencies and to constitute a sector-wide forum where policies and associated issues could be discussed, with UTACA undertaking a representative role as necessary. That representation, however, takes the form of a

PADECO/IKS 166 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report lobbying function. UTACA has not been vested with specific policy derivation or implementation powers and does not have direct access to the Cabinet of Ministers and hence is constrained in its capacity to realise specific objectives.

The sector is manacled in its efforts to innovate and adapt in the face of changing needs and business conditions. Whilst individual agencies have a clear imperative in terms of responsibilities, powers and implementing capacity, the sector as a whole is required to adopt a piecemeal approach to policy formation and implementation. This leads to delay, dilution of focus and hence an ongoing constraint on capacity to realise full potential – with implications for both economic development and efficiency. The wealth of talent and experience available in UTACA is being deployed in a peripheral context and other agencies are required to attend to sector needs when the sector itself has both the capacity and ability to undertake many of these tasks in a more structured and policy-oriented context.

Two examples illustrate this situation: (i) road transport has long been seeking support for fleet renewal in terms of a reduction, or alternative forms of relief from the heavy import duties and other taxes levied on vehicles. Despite having prepared extensive supporting documentation and approaching the relevant Government agencies, limited relief is only now planned in the 2007 budget; (ii) investment promotion programmes are undertaken by UTACA, the State Property Commission and the Chamber of Commerce – each is addressing its responsibilities seriously and consistently, but to a significant extent in isolation. The result has been limited progress from multiple interventions, with little co-ordinated ‘flair’.

A Ministry of Transport could resolve these and numerous other issues, structure policy-based proposals and identify sector-wide implications within an overall strategy. In its absence, sector needs are lost in a sub-sectoral focus, with convoluted communication channels: resources may be misallocated and commitment be diluted.

The Ministry of Transport is best established using the existing UTACA structure as an institutional base. This will facilitate a rapid transition to revised sector composition, as much of the required expertise and experience is already available within UTACA. Preparatory steps are set out in Table 14-1.

T14-1 Establishing a Ministry of Transport

1. In close consultation with stakeholders, prepare a draft mission statement for the Ministry with associated objectives and critical milestones over the transition period. 2. Identify through stakeholder consultations and reference to international best practice the range of responsibilities and coverage to be vested in the Ministry. 3. On the basis of 1 and 2, prepare MOT organization structure, including staffing requirements, communication flows and relationships with sector entities. 4. Prepare job descriptions and responsibility analyses for critical positions identified in the organizations structure.

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5. Consider and formulate recommendations for the institutional foundations upon which the MOT should be based. In particular, the relative merits of building on existing structures as compared with establishment of the Ministry on a ‘green field’ basis. The study recommends building on the existing UTACA structure, but it is appropriate to consider alternatives. 6. Analyze the responsibilities to be vested in the Ministry and prepare systems-based proposals for the realization of those responsibilities. Undertake HR capacity assessment to determine the potential for meeting responsibilities. 7. Formulate training and HR development programmes to meet identified needs in relation to responsibility fulfilment. 8. Consider the roles of sector regulatory bodies and formulate recommendations for their positioning and subsequent development within the Ministry’s areas of responsibility. 9. Prepare budget estimates for the identified structure and responsibility base for the Ministry, together with associated resource requirements. 10. Prepare a full set of structured recommendations for the establishment of the MOT, together with a time bound and resource-conscious action plan.

Preparation could be assisted by technical assistance from development partners or from local sources. Appendix XIV-2 shows how the Ministry of Transport might be structured, with core elements of the sector.

14.2.2 Future Sector Structure The proposed structuring covers primary perceived responsibilities and coverage, but precise structuring will depend on findings arising from the preparatory work proposed in Table 14-2. The structuring covers the sector’s core elements, but does not extend to functional inter-linkages with other Ministries or include the regulatory functions proposed as a medium term need.

The essence of the new structure comprises a clear line of communication, both upwards and downwards. So rather than having a multitude of sector agencies reporting directly to the Cabinet of Ministers, all sector related matters will pass through MOT, which will be responsible for policy coordination and implementation. That arrangement will provide the all-important opportunity for evaluation at a sector-wide level and between sub-sectors and will hence facilitate the development of a focal point for prioritization and structured briefings to the Cabinet of Ministers, as necessary. Similarly, agencies will have a clear access route for the resolution of difficulties and determination of policy issues, without having to recourse to the piecemeal approaches currently necessitated.

At the lower levels of the proposed structure, it has been assumed that recommendations for sub- sector structures will have been implemented and Appendix XIV-2 should be viewed, at that level, as the structure that will be applicable in the medium term, rather than immediately on establishment of the MOT. The structure assumes that recommendations pertaining to investment activity in the sector will be implemented and as these are medium term considerations, the structure as presented will not be fully realisable in the short term.

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14.2.3 Other Sector–Level Considerations The sector is characterized by poorly-defined competitive structures. In both aviation and rail, there are monopoly service suppliers which, while subject to monitoring by the Antimonopoly Commission, results in little incentive to provide the service delivery profiles demanded by users. Enhanced competition would facilitate the provision of that incentive and market-driven economies, without having to resort to distorting interventions. Whilst there have been some limited moves towards the promotion of competitive structures, these have tended to be very small in impact and have not addressed core issues. For example, UTY provides network access to privately-owned rolling stock, but that initiative has not been extended to facilitating private operation of train movements. UzA is the monopoly supplier of domestic services, with the exception of two very small freight companies. For roads, whilst the majority of maintenance and construction companies have now been converted into JSC’s, they are tightly constrained in their capacity to operate nationwide by both equipment availability and mobility issues. Road service providers are predominantly private sector and as such competition flourishes - albeit subject to tight tariff control.

The time is now appropriate for implementation of policies to address enhancement of competitive structures at the core of these subsectors. This will not be achieved in the short term and requires concerted action over many years. Specific measures to meet the required restructuring will need to be supported by an overall competition policy. This should be addressed as part of the preparatory work for establishing MOT.

A critical element of sector institutional structure is separating regulatory and commercial functions. Whilst price regulation of rail and air transport is the responsibility of the Anti-Monopolization Commission and the Ministry of Finance, other regulatory functions are vested in the Cabinet of Ministers. On a day-to-day basis, monopoly operators regulate their own activities. The central challenge of regulatory policy is to balance economic efficiency and social equity in service provision. On the one hand, sustainable provision of infrastructure typically necessitates pricing and tariff regimes that permit a reasonable return on investment. On the other hand, ignoring social concerns will risk consumer discontent. It is therefore important that regulatory bodies address this core issue, functioning within the MOT on a part-time or occasional basis, supported by a small secretariat.

To realize the required balance between financial viability and social equity, particularly where PSP is actively sought, regulators require a degree of independence from political influence, while at the same time being responsive to Government policies. International experience of seeking that balance suggests that the following arrangements are helpful: (i) provide the regulatory agency with a distinct statutory authority, free of ministerial control; (ii) prescribe in advance the criteria for appointments and mandate the participation of both the executive and legislative branches of government in the appointment process; (iii) appoint regulators for fixed periods and prohibit their removal, except for

PADECO/IKS 169 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report clearly defined due causes; and (iv) fund the agency’s operation with user fees or levies on the regulated industry at a level that allows adequate remuneration of regulators and their staff.

Measures for holding regulators accountable and their actions transparent include: (i) specifying the duties, responsibilities, rights and obligations of regulatory agencies in laws; (ii) allowing for judicial review of regulatory decisions; (iii) mandating reporting and monitoring procedures by legislative oversight committees; and (iv) requiring publication of decisions and allowing for reviews by interested parties.

The use of well-specified contracts for service provision allows for the gradual development of regulatory capabilities. Discretion can be limited initially, with emphasis placed on monitoring and enforcement functions. Explicit policies governing the behaviour of infrastructure operators, the scope for competition, and the setting and adjustment of tariffs on the basis of clear and simple formulas, all can narrow the scope of regulation, reduce regulatory discretion and prepare the ground for transferring broader responsibilities as regulatory capacity increases. In the short term, it is evident that regulation through contract will be the likely option, in part because there will be comparatively little scope for direct competition. It is important that contracts be carefully designed to facilitate the regulatory function and allow for expanded competition in the future.

14.3 MODAL INSTITUTIONAL ISSUES

14.3.1 Road Road construction and maintenance is the responsibility of three coordinating and managing units and a relatively large number of small and localized road engineering companies – the majority of which have been privatized. The three leading units are: (i) the Road Fund Board, which is the policy formation body chaired by the Deputy Prime Minister; (ii) Uzavtoyul (wholly Government owned), which has prime responsibility for managing the infrastructure in terms of policy implementation planning and subsequent detailed management of works contracting with roads companies; and (iii) the Road Fund, which was transferred from Uzavtoyul in 2003 to the Ministry of Finance – the transfer did not merely comprise a shifting in responsibility for financial management, but included the transfer of staff from Uzavtoyul to MOF to cover engineering and quality control responsibilities. Staffing at the Road Fund is relatively small, with implications for workloads, particularly the consistent application of works quality control procedures. Traditionally, Uzavtoyul has been ‘the client’ as regards the majority of roadworks but that role has been passed to the Road Fund, coordination of responsibilities in practice needs to be established between the two.

In order to streamline the structure and to provide the necessary subsequent environment for enhanced PSP, it is recommended that the functions of the Road Fund Board be incorporated into the

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(to be formed) MOT, together with all aspects of Road Fund Management, with the exception of treasury management, which should remain with the Ministry of Finance. The (small) regulatory body for roads could initially be incorporated into MOT, with subsequent statutory establishment as development progresses.

Financing of the Road Fund should be revisited, as financing arrangements are not directed towards focusing on road user charges, but draw funds from a wider array of economic activities. It is understood, however, that the Cabinet of Ministers are considering a revised package relating to Road Fund financing and operation.

Competitive structures at the road maintenance/construction company levels are constrained in terms of both competition from a geographical context and in relation to the very limited plant and equipment that is available to those companies for undertaking all but the smallest work packages.

Work programmes for roads which could initially be addressed by MOT staff are detailed in Table 14- 2. No institutional issues were identified in respect of road services.

T14-2 MOT Road Initiatives

1. Examine the structure and capacities of the roads maintenance/construction companies to identify practical steps for enhancement of competition, quality standards and operating procedures. 2. Revisit the proposal for establishment of an Equipment Management and Utilization Organization (EMUO). Consider the need for the establishment of an equipment pool for “arms length” leasing of construction equipment to road companies as means of enhancing their operational capacity and hence ability to compete on a broader market front. Establish the requisite administrative and financial procedures for operating the equipment unit and prepare working manuals as necessary ensuring that sector staff are fully trained in the operation of those systems and procedures. 3. Review existing documents available for competitive bidding of roadworks and associated procedures during the project stages of detailed design, production of contract documents, pre-qualification of contractors and invitation for tenders. Formulate proposals for updating those documents and procedures to bring them into line with current best practice and undertake required training to ensure that staff at Uzavtoyul and private and JSC enterprises throughout the country are conversant with those procedures. This could be undertaking on a ‘‘training the trainers’’ basis as appropriate. 4. Review currently applied road design and construction standards and determine the necessity for their enhancement to comply with current best practice. On the basis of findings, prepare detailed action proposals to adopt and implement those indicated changes in close collaboration with stakeholders. 5. Review the cost of road usage and formulating recommendations for road user cost recovery in the medium and long term. In particular review the position regarding the availability of funds for road maintenance from the road user charge policies if they have been adopted, otherwise formulate recommendations for such policies. Further estimating the economic costs of road maintenance and providing the required funds, and estimate allocation of road costs by vehicle type as a basis for subsequent development of cost recovery proposals should be undertaken. 6. Revisit the operations of the Road Fund and examining the effectiveness of current operating procedural financing and quality control procedures. Formulate recommendations for

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necessary enhancements. In particular examine the road fund financing arrangements with a view to enhancement of financing in accordance with usage. 7. Review procedures currently adopted for planning, prioritizing and implementing road works in relation to established and projected policies. Formulate proposals for the enhancement of those practices as necessary and arrange appropriate training to ensure that sector staffs are proficient in their implementation.

14.3.2 Rail The rail sector is dominated by UTY, with a monopoly in the provision of both passenger and freight services. Over the last decade, UTY has undergone fundamental structural changes. As of December 2006, transfer of stock in the corporatized core enterprises was proceeding slowly. Initiatives had stalled - either for lack of interest on the part of potential investors or inability to negotiate mutually acceptable terms. The slow progress could be overcome by providing technical assistance to the State Property Commission to undertake the requisite preparatory work necessary for speedy resolution.

Whilst the institutional restructuring UTY has undergone has been fundamental in terms of converting it to a railway-focused enterprise unencumbered with non-core activities, there is still much to be done to promote competition and hence make optimal use of the infrastructure. Splitting UTY’s infrastructure management responsibilities from those in its role as a commercially-oriented service provider may be considered. Technical assistance should be provided to UTY to review the costs and benefits of a possible split, identifying the required action sequence, assessing alternative structures and developing policy recommendations for the resolution of associated operational, financial and administrative issues. The assistance should also consider whether the core freight business would in the long term be suitable for privatization, if the separation of infrastructure management from service delivery is recommended.

If an Infrastructure Management Company is established, there will be a need to develop mechanisms for regulating infrastructure access. If there is a separation, the Government will need to consider policy formation to permit private operators, both freight and passenger, access to the network.

A major constraint on UTY’s capacity to benefit from structural reforms devolves on its inability to provide management with financial information that is internally focused and supports resource allocation decisions. With assistance from ADB, UTY is installing computerized financial accounting systems, but these are directed towards preparation of historical financial reports for external users and will not directly assist in generating the important financial information required by management.

The initial steps to develop a management accounting function are set out in Table 14-3.

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T14-3 UTY Management Accounting

1. Review existing financial function and financial reporting procedures with a view to the derivation of proposals for the introduction of fully functional management accounting and operational costing procedures. As an output from that review, prepare a brief outlining the needs and coverage of the envisaged systems, together with an assessment of associated resource and implementation requirements. 2. Evaluate the computer-based financial accounting system with particular reference to its capacity to be upgraded/adapted to meet the needs of management accounting and traffic costing/tariff modelling requirements. 3. On the basis of 1 and 2, identify hardware software and HR needs to realize the required management accounting systems and formulate proposals for their sourcing together with the associated budget estimates. 4. Review existing chart of accounts and allocative algorithms incorporated into the financial accounting system and determine the necessary steps for implementing coding systems appropriate for the derivation of management-focused financial reports identified in 1. 5. Review operational maintenance traffic and rolling stock data availability and formulate proposals for the integration of that data with available financial data as the basis for the development of traffic and costing systems. 6. Prepare detailed procedural specifications for the identification, capture pre-analysis and input/validation of non-financial data for subsequent analysis against financial information as the basis for the derivation of traffic costs and job costing initiatives. 7. Prepare detailed systems specifications and appropriate supporting working manuals for preparation of core management accounting reports and tools, such as annual budget cash flow forecasts, periodic management accounts, variance analysis and associated MIS needs. Ensure that these systems and procedures are compatible with the needs assessment identified in 3 and chart data capture, pre-analysis input processing output and verification requirements. 8. Prepare appropriate bidding documents for securing the necessary hardware and software in accordance with the above findings. 9. On implementation of hardware and software by the selected vendors undertake all necessary training testing and reconciliation procedures with periodic financial statements. 10. Develop routine traffic costing procedures based on installed systems and extend to tariff and PSO application as the required database grows. 11. Develop and implement follow-up procedures associated with management accounting reports to managers and activate appropriate systems for the derivation of remedial measures as necessary. 12. Provide training in management accounting reports with non-financial executives and ensure that the use and limitations of such reports is well understood.

ADB TAs have recommended that UTY address marketing. With some exceptions in the area of rail tourism, this does not appear to have been done. It is recommended that marketing initiatives as previously specified (e.g. See TA3068-UZB Final Report Vol. 4, Queensland Rail Consulting Services, Jan. 2000) be implemented.

Two further areas that need attention are accounts receivable control systems and tariff structuring. Resolution of the difficulties being experienced with accounts receivable requires the implementation of a dynamic credit control system, which keeps management advised of status on an ongoing basis and restricts the granting of additional credit where customers are in arrears. The credit control system further needs to be adopted in conjunction with specific policy instruments to ensure that

PADECO/IKS 173 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report major public sector customers meet their obligations to UTY on a timely basis – abuse of public sector relationships is only sustainable through Government’s inactivity. The Ministry of Finance is actively seeking a solution to this issue, which is dominated by late payment by a single customer.

The introduction of service-based PSO systems for commuter and short haul passenger services should be considered. Without information on the cost of providing such services, the passenger company is not in a position to enter negotiations with Government, other than on a preliminary basis. The matter will require further attention, particularly given an infrastructure/service split.

A. PSO Policy Most railways worldwide lose money on suburban and branch line services. If the pricing policy of Uzjeldorpass is to be commercially-based, uneconomic services need to be separated financially from other services. A possible future subsidy policy for passenger service operation would be one where the Government reimburses Uzjeldorpass for the revenue shortfall from operating for example commuter trains. Pricing for these services would be subject to approval from the Government. Pricing for other trains, however, would be totally at the discretion of Uzjeldorpass; these would be defined as “commercial” services for which no subsidy for operation would be received. The “uneconomic” services (commuter and branch line) would be operated only with Government subsidy. Note that any subsidy for capital investment in rolling stock may also need to be reviewed.

The Government and Uzjeldorpass need to establish policy on subsidizing mandated services (i.e., those services defined as public service obligations) and to define the methodology to be used for cost determination for their operation. Once the methodology is defined, its component elements would be agreed upon by both parties, as well as the application techniques. Uzjeldorpass would compute the costs and subtract the revenue. The Government would, after audit, provide an annual subsidy to cover the balance.

B. PSO Requirements

PSO establishes the Government as a customer who will meet the commercial price for services demanded – thus enabling Uzjeldorpass to operate services without loss and hence in line with its statutory obligations. Establishment of a commercial relationship between Uzjeldorpass and the Government needs to be supported by contractual obligations specifying service range and quality, pricing and determination of associated costs. Retaining publicly supported services brings the secondary benefits noted in Table 14-4.

T14-4 Secondary Benefits of PSO Support

1. Extends the base over which some indirect and joint costs can be spread. 2. Provides scope for productivity enhancement of both fixed and moveable assets. 3. Potentially provides feeder services to other, profitable, services.

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4. Extends railway coverage and hence marketing impact. 5. Sustains benefits from economies of scale. 6. Enhances the role of the railways in the transport sector and society as a whole. 7. Favourably impacts on staff morale. 8. Provides incentives to management for greater efforts through the achievement of specified performance objectives. 9. Provides Government with the capacity to specify those services which it feels will have the broadest impact in political terms, whilst also facilitating the specification of service quality requirements, fare levels and performance standards.

Enactment of successful/clear PSO contracts and mechanisms will have significant benefits for UTY, Government and passengers. Exercise of such service-based contractual relationships is, however, ultimately dependent on the availability of financial and operational data.

C. Costs and Revenues

The primary need to support PSO initiatives will be to convert Uzjeldorpass’s functional analysis of costs (i.e. costs which are gathered in relation to specific functions, such as locomotive operations, signalling, administration, salaries etc.) into a “line and service” specific dimension. Most of the procedures, bases and cost allocation devices needed to attain this goal will be incorporated in the (to be implemented) computer-based management accounting system.

Uzjeldorpass does not retain financial data analyzed in an operational dimension, rather it accumulates costs by the six operational divisions: traffic, locomotive, wagon, track, signalling and telecommunications and electrification (catenary) - costs are generated within each division by activities, these currently being: (i) Main activities; (ii) Auxiliary activities; (iii) General overheads; (iv) Administrative and Management overheads; (v) Social overheads; and (vi) Special overheads. In order to determine line and service specific costs and revenues under existing financial analysis procedures, cost and allocation drivers need to be applied to each category.

14.3.3 Aviation From an institutional viewpoint, aviation is in a very similar situation to rail. UzA is the monopoly supplier of domestic air services, but also retains responsibility for infrastructure management in the form of airport operation, provision of air navigation services and numerous ground handling activities. UzA activities, and those of other airlines operating in Uzbekistan, are subject to oversight by the Aviation Safety Inspectorate, which also undertakes technical and operational regulatory functions – excluding commercial aspects.

As an initial step towards the separation of infrastructure management and service delivery responsibilities, it is recommended that the Government establish an Uzbekistan Civil Aviation Authority (UCAA). This could be based on the existing Aviation Safety Inspectorate but would require

PADECO/IKS 175 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report application of additional budgetary, human and other resources to that inspectorate so as to facilitate the responsibilities as noted subsequently. It should be noted however, that resources required by UzA would be subsequently reduced so that net resource impact would be negligible after the initial changeover period.

It is anticipated that the UCAA would be vested with responsibility for operating and managing all airports within the country and would also take responsibility for air and ground-based navigation/control services, which are currently the responsibility of UzA’s Central Navigation Unit. In the first instance UCAA may be incorporated under the “umbrella” of the MOT to facilitate the gestation period – subsequently it should be structured as a statutory body and seek membership of ICAO with associated expansion of responsibilities. It would also be feasible to incorporate the recommended Air Regulatory body within MOT/UCAA initially, but the medium term objective should be to structure the regulatory body as an independent statutory body.

Subsequently the potential for privatizing airport operations may be considered with suitable output based support from the Government, if social/strategic considerations pertaining to the smaller domestic airports are viewed as critical. Indications are that only Tashkent is of a suitable size for privatization, possibly through a concession agreement.

Subsequent to the separation, the Government should consider in the long term the privatization of UzA. Whilst strategic and social issues need to be resolved before this can be implemented, those objectives could be realized through various forms of output-based assistance, such as PSO arrangements of contract-based incentives. Prior to any such privatization, however, it would be critical to bring UzA into a marketable package by rationalizing its aircraft inventory and undertaking a close financial and operational examination of current and projected routes.

The Government should give consideration to a phased introduction of Open Skies Policies.

14.3.4 Inland Waterways, Logistics and Urban Transport No institutional issues were noted in respect of inland waterways. For logistics and freight forwarding, no institutional recommendations arise. It is anticipated that regulatory components will be the responsibility of MOT, with institutional structures continuing as at present. No institutional issues relating to urban transport were encountered.

14.4 PRIVATIZATION AND ROLE OF PRIVATE SECTOR

This section considers private sector participation requirements in some detail and develops recommendations concerning participation profiles. The core emphasis pertains to potential involvement in infrastructure development, although some observations are included in relation to

PADECO/IKS 176 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report service provision. Private sector involvement in services is predominantly in roads, but there is ample scope and justification for enhancing that presence as a means of both promoting the rate of economic development and broadening the finance base potentially available to the sector.

The realization of Private Sector Participation (PSP) and Public Private Partnerships (PPP) is contingent on the establishment of an investment environment that is attractive to the private sector. That process starts with clearly articulating the Government’s objective of promoting private participation. It is then necessary to reconcile the needs of investors with the needs of users by; (i) preventing the abuse of market power; (ii) providing credible regulation; and (iii) enabling effective competition. Balancing the interests of users and operators is the core role of regulation.

For the Government to realize its PSP aspirations it will need to undertake the steps detailed in Table 14-5.

T14-5 Measures to Realize PSP

1. Define, publish and socialize basic goals and policies for PPP. 2. Develop transport sector plans that clearly define approaches for restructuring and promoting competition. This will need to be accompanied by adoption of competitive tendering as the norm in the sector and the adoption of mainstreamed benchmarking as a means of pressuring monopoly business’s to improve their performance. 3. Complete the process of sector law revision, accelerating the issue of implementing regulations, and moving ahead with establishing and empowering non-ministerial regulatory agencies. 4. Develop a carefully prioritized and systematic plan for reducing risk perceptions, which include streamlining procedures, a better documenting and communicating policy, particularly in relation to regulatory achievements. 5. Develop a sound policy framework on public support for private projects. Such a framework should ensure that the implications of all possible alternatives (including the adoption of policy and market reforms that might eliminate the need for public support) are duly considered. This in turn requires that the authorities with the mandate and incentives to carefully consider such issues are key participants in the decision-making process. 6. The cost of government support needs to be adequately estimated and reflected in budgets. 7. Develop a comprehensive plan to restore tariffs to cost-reflective levels and to explain the rationale for increases to the public. 8. Invest in building capacity as part of the process of empowering government agencies to respond to the challenge of dealing efficiently with private transport infrastructure developers and communicating effectively with the public regarding PPP issues.

Once the Government has taken the decision in principle to move forward aggressively to attract private sector investment, the practicalities and derivation of the detailed action frameworks noted above, need to be developed. It is important to formulate private sector participation profiles in terms of specific applicability to the local situation.

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14.4.1 Private Sector Participation Profiles This section identifies PSP Profiles that will best suit the situation in the sector. It identifies international experience in this context, where some common patterns are evident. In overall terms, internationally, private ownership of services has been much higher than of infrastructure, it is more prevalent in freight than passenger transport, it has been predominant in road haulage and freight forwarding, but remains exceptional for rail services. Evidently the situation is consistent with that experience. Table 14-6 summarises the situation.

T14-6 PSP Profiles by Mode Sub-Sector Profile Road Road Infrastructure: construction, rehabilitation and maintenance is expected to be financed mainly by the public sector with work executed under competitively bid contracts. PPP potential is in respect of the provision of major highways, bridges and tunnels. It is also likely that multi-year, area-wide maintenance contracts will provide increasing opportunities for the private sector. Road Services: generally speaking provision by the private sector is preferable. In the case of passenger services, competitive or periodically contestable operations are desirable with PSO to meet social requirements; staged approaches to private sector service delivery are frequently a sound approach. Inland Waterways Public ownership of port infrastructure is common throughout the world, however, the sub-sector is so small and future potential so limited that PPP seems unnecessary. Aviation Air Navigation Infrastructure: air navigation, which is a geographical monopoly, is provided by the public sector in most countries. There would seem to be little to recommend an alternative approach, although the corporatization of such services might be considered. Airport Infrastructure: From the international viewpoints, airports are predominantly publicly owned but private sector operation is gaining popularity. There seems little likelihood of PPP interest in airports, other than Tashkent, but corporatization and franchised operation may be a possibility. Airport Services: airport services internationally are a prime focus for PSP and PPP initiatives and hold good potential in Uzbekistan. Airline and Airfreight services: Airline and general aviation are usually best provided by the private sector and provide an ideal opportunity for PSP provided that competitive markets are developed. Rail Rail Infrastructure: concessioning or privatisation of vertically integrated (predominantly freight) railways has been the main focus of PPP on the international stage. PPP initiatives are highly suited to “greenfield” projects such as high speed lines, new freight lines, new telecommunication systems, major station redevelopments etc. It is much harder to graft a PPP approach onto an already operating railway, as is the case with UTY. Interface considerations are typically the core areas of difficulty. Train Operations: the potential for PSP in this area is essentially dependent on adopting a freer competitive structure in rail operation. Franchises and contestable network access arrangements constitute the cornerstones of that involvement Urban Transport Privatization of Tashkent metro may be a possible PPP opportunity. Otherwise PSP is already well represented in this sector.

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14.5 HR DEVELOPMENT AND CAPACITY BUILDING

Broad-ranging discussions were held with various sector stakeholders to evaluate training needs and the broader issues of human resource development. From these it is apparent that, within the limited resources available, training in the traditional skills required in each sub-sector is being provided on a consistent and regular basis at dedicated training institutes and academies throughout the country. The critical point is that the noted training opportunities relate to skills and expertise that has traditionally been required in the sector to meet entity responsibilities in a production-led context.

With the move towards heightened competitive structures, the focus on commercial sustainability and the extension of activities beyond borders, a whole new range of demands are being placed on staff. These require urgent attention through training workshops, experience placements and overseas visits to determine how other countries have addressed the same or similar problems.

Nearly every institution where training and HR needs were examined indicated the broad needs noted above – the problem is to rationalize what should be instigated by reference to potentially available budgets. The most pragmatic approach to resolving training and practical experience needs is to first address issues that can be dealt with as part of recommended technical assistance programmes, which although primarily focused on matters other than purely training, present opportunities for know-how transfer and shorter-term training inputs.

At sector level, the most readily apparent training need within all sub-sectors relates to management focus within a commercial context, notably in relation to general and financial management, marketing and business/customer development. That need could be addressed by a series of relatively short workshops and seminars.

Also at the sector level, there is a need for training and practical (case study) based opportunities to develop expertise in investment promotion and the practicalities of private sector participation in areas that have hitherto been predominantly in the public sector. Similarly issues relating to strategic planning, prioritization of works and strategy implementation need to be addressed.

Rail and logistics/freight forwarding have urgent needs that it is recommended be attended to in the short term. UTY would benefit across many functions by a clear understanding of what is possible and realizable from a structured set of management accounting systems. A training programme is recommended for both financial and non-financial staff, focusing on the practicalities of management accounting development within the context of computer-based systems, traffic costing for railways and the broader implications for resource based decision-making processes.

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The logistics and freight forwarding elements of the road sector also have urgent training needs to equip them to operate outside their traditional CIS markets. It is proposed that a training intervention following the accreditation standards along the path set by FIATA be adopted.

14.5.1 Labour Restructuring, Labour Contracts, Pension Liabilities and Retraining Programmes A detailed review of the recent experience of all sector agencies regarding labour restructuring was beyond the scope of the study, but can be found in previous ADB TA’s. The period 2004-06 has been relatively uneventful in this connection and as such the earlier findings are still pertinent.

A standard labour contract applies to all sector agencies that requires payment of one month’s terminal benefit or one month per year of service for employees with 20/25 years of service for males/females. All other benefits are payable in accordance with the national pension policy and are the responsibilities of the Ministry of Labour. Retraining programmes are also the responsibility of the Ministry of Labour. Under these circumstances, contingent liabilities in the event of subsequent downsizing by sector agencies do not constitute material obligations.

14.6 ACTIONS

14.6.1 Sector Level I-1: Establish a Ministry of Transport. The establishment of a Ministry of Transport is seen as a core requirement for sector development to provide both a policy formation lead institution and to establish regulatory and coordination functions throughout the sector.

I-2: Establish Regulatory Commissions for Road, Rail and Air. Competent and transparent regulation is critical to development of the transport sector and a prerequisite to successful initiatives in private sector participation. Regulation is needed to promote economic efficiency and provide a mechanism for the correction of market failures. Good regulatory institutions lead to an improved investment climate for the sector by promoting broader participation, fostering innovation in service provision and creating incentives to expand access to customers.

Whilst at the present time, some of these functions are scattered amongst Government organs, it is proposed that that regulatory authority for the main transport modes be invested in Regulatory Commissions for the Road, Rail and Air sectors. Regulatory functions initially should be incorporated in the MOT, but as a medium term objective they should be divested to become statutory bodies.

I-3: Include the Transport Sector as Eligible to Benefit from Investment Promotion Incentives. There are a range of investment incentives according to both the size and location of the

PADECO/IKS 180 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report investment and sector classification. Given the importance of developing the transport sector and in particular promoting private sector participation in that sector, it is recommended that such incentives be extended to transport. Specific proposals should be developed by the MOT Policy Directorate, bearing in mind conditions at the time.

14.6.2 Roads I-4: Review Operation of the Road Fund. The Road Fund is primarily managed under the auspices of the Ministry of Finance with disbursements from the fund being determined ultimately by MOF decision – albeit under advisement from the Road Board and Uzavtoyul and broader input from an engineering viewpoint.

It is recommended that day to day operation of the Road Fund be vested in MOT, with only the financial management components to be retained by the Ministry of Finance. Such revision of procedural aspects will facilitate clearer decision channels as to disbursement profiles and hence facilitate continuity of support for works prioritization processes.

The Road Fund is financed from a number of sources not directly related to road use, i.e. amongst others 1.5 per cent of general VAT. Financing should be restructured to recognize the user pays principle, so that the revenue base is modified to reflect road usage. Specific provision should be made for raising Road Fund revenue from the use of fuel for transport.

The levy of 20 per cent of cost imposed on new or temporarily imported commercial vehicles as a contribution to the Road Fund should be abolished and replaced with an annual license fee (a reduction in the fee to 6 per cent is included in the draft 2007 budget).

I-5: Enhance Competition in Road Maintenance and Construction. The majority of road maintenance and construction companies have been privatized, but they are typically very small and constrained in their activities to relatively localized areas of operation.

Competition in the road sector as regards infrastructure maintenance and renewal/construction could be radically enhanced by a detailed examination of company structuring and capacities. It is recommended that MOT/Uzavtoyul, with possible external assistance, undertake a detailed evaluation of corporate structuring as a first step to competitive enhancement.

I-6: Establish Equipment Pool for Road Maintenance Activities. ADB Road Sector TA 3118- UZB proposed the establishment of a road maintenance and construction equipment unit to provide sector companies with appropriate equipment to meet engineering needs – such equipment to be leased to the companies at a market determined rate and hence foster subsequent sustainability.

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Acute equipment shortages still radically constrain sector activities and as such it is recommended that this initiative be revised.

I-7: Cost Recovery - Road User Charges. In conjunction with In4, an annual licensing fee for vehicles should be introduced as a core element of Road Fund revenue. MOT Policy Directorate should undertake a thorough review of all road user charges to charge in accordance with actual use.

I-8: Competitive Bidding. Competitive road bidding procedures have improved, but there is still some way to go before internationally acceptable standards are reached. To facilitate continued enhancement of both procedures and documentation, it is recommended that they be reviewed as a matter of urgency once the MOT is established.

I-9: Planning and Prioritization of Roadworks. Planning and prioritization of road works is the responsibility of Uzavtoyul and the Road Fund. Procedures are applied in relation to road classification, traffic flows and funds availability, rather than in relation to an overall plan and reference to specified prioritization criteria. The processes should be reviewed in detail and appropriate enhancements implemented, in conjunction with staff from MOT policy directorate.

I-10: Quality Control of Road Programme. One of the major concerns as to the effectiveness of the road programme is the quality and consistency of work undertaken. Responsibility for quality control and work acceptance is held by engineering staff attached to the Road Fund, but staff numbers are totally inadequate to undertake all but the most limited quality control programme.

Staffing requirements at the Road Fund need to be reviewed at an early stage and the necessary officers recruited to address these responsibilities on a nationwide basis. The establishment of regional offices for the Road Fund would also be appropriate.

14.6.3 Rail I-11: Study Separation of Infrastructure Management from Service Delivery. UTY has made significant progress in restructuring, having divested most of its non-core activates. It is also in the process of privatizing some core activities, such as the passenger service company, specialized freight units and maintenance/repair workshops. The separation of infrastructure management from service provision is the norm in the EU, with the establishment of separate companies to promote enhanced competition. This would require detailed planning, ranging from legal implications to operational, financial and administrative considerations. A detailed action plan will need to be prepared, with appropriate implementation assistance.

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I-12: Assist in Ongoing Privatizations. Five major UTY entities are in the process of privatization: (i) Wagon Repair Plant – Uzvagontamir; (ii) Coach Repair Plant – Yulovchiwagonlartamirlash; (iii) Container Transport Company Uztemiryulcomteyner; (iv) Refrigerated Transport Company Yulreftrans; and (v) Passenger Transport Company Uzjeldorpass.

Whilst some progress has been realized in procedure, for predominantly commercial reasons further progress appears to be stalled. Procedures being adopted should be revisited and outside assistance be sought to facilitate progress.

I-13: Implement Management Accounting Systems and Capacities. UTY’s financial accounting systems have been the subject on ongoing concern from both auditors and users over recent years. Whilst the movement toward IFRS’s and implementation of a computerized financial accounting system, both of which are currently being undertaken, may alleviate some of these difficulties, they will make very little contribution to management’s need for reliable and timely financial information focused on internal needs and specifically enhanced decision making processes in a resource- conscious and commercially determined environment.

The need for UTY to develop management accounting systems and capacities has been recommended in three ADB TA’s, but little has been realized to date. This is perhaps understandable when consideration is given to the major changes ongoing in the financial accounting systems, with disruptions of both systems and processes consequent on institutional restructuring. UTY, however, still lacks timely and relevant internally-focused financial information, which has implications for its capacity to make good decisions. Such information will be critical should the separation of infrastructure management from service delivery proceed, given all the associated resource allocation and pricing decisions integral to that initiative.

UTY cannot develop management accounting systems and capacities without assistance. There is no history of preparing management-focused financial reports and financial staff do not have the requisite practical expertise. Direct practical external support should be provided in the short term: ‘hands-on’ assistance is needed.

I-14: Enhance Marketing Functions. UTY’s marketing function has been the subject of recommendations for enhancement in previous ADB TA’s. (Note: particularly Queensland Rail Consulting Services Report of October 1999 – Volume 4.) Whilst there have been some advances, particularly in relation to tourism marketing, fundamental issues pertaining to freight and passenger services still remain to be addressed. External assistance is recommended.

I-15: Establish Infrastructure Access Fees. If separation of infrastructure management from service delivery proceeds, some form of infrastructure (or track) access fee arrangement will be

PADECO/IKS 183 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report necessary to promote competition. Determination of an appropriate arrangement has proved to be a lengthy process in other railways, and external assistance should be provided.

I-16: Resolve Operational Difficulties Re Accounts Receivable and Tariffs. UTY has been suffering from substantial arrears in accounts receivable for many years. Whilst movement towards the adoption of IFRS have enhanced systems for providing for bad and doubtful debts and hence valuing associated assets at realizable price, accounts receivable continue to be a major component of financial difficulties and remedial measures need to be implemented as a matter of urgency.

The tariffs applied by UTY and other CIS railways are based on the MTT system inherited from the USSR. Whilst the system is not ideally suited to UTY’s requirements, as there are policies incorporated which are not directly applicable, MTT tariff rates are subject to some flexibility in their application and as such have proved to be generally acceptable. MTT rates and associated discounts/premiums are applied without reference to the underlying costs of providing services. Until UTY has developed an appropriate management accounting and costing system, however, accurate cost-based tariffs are not a feasible proposition. It is, however, appropriate that an interim review of tariffs and their relevance to UTY’s ongoing operational circumstances be undertaken. Both these requirements can be addressed by UTY and action proposals should be formulated.

I-17: Introduce PSO for Commuter and Branch Line Services. If Government wishes UTY’s passenger company to provide transport services for social purposes and the passenger company is required to operate on a commercial basis, it is entitled to seek Government support for that public service obligation. Such support should be service specific rather than a lump sum payment and as such before such a system can be put into operation UTY’s passenger company will need to be able to identify the costs associated with providing specific services. Whilst that cost awareness will not be possible until traffic costing systems have been developed and implemented, interim arrangements should be adopted now to enable the passenger service company to operate in a commercially oriented and competitive manner. This matter will need to be addressed in the medium term once financial management capacity has been enhanced.

14.6.4 Aviation I-18: Establish a Civil Aviation Authority. With the exception of the Air Safety Commission, UzA has responsibility for both service provision and infrastructure management activities, such as airport operation provision of air navigation services (ANS) and ground based control services (ATC). Whilst those arrangements have sufficed in the past with very limited competition domestically, it is appropriate to consider restructuring the sector both as a means of fostering further competitive initiatives and establishing a clear separation between regulatory and commercial responsibilities.

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I-19: Divest Airport Operation and ANS from UzA and Transfer to UCAA. It is recommended that airport operation and ANS services be transferred from UzA and vested in the (to be formed) Uzbekistan Civil Aviation Authority. The rationale for that proposal is to separate infrastructure management activities from service delivery and hence promote competitive structures in the sub-sector.

I-20: Privatize Airport Operations. Airport operation and management should be a candidate for privatization, although not in the short term given the need to establish PSO arrangements for maintenance of those domestic airports that are unlikely to be commercially viable but which Government would wish to retain for social and strategic purposes.

I-21: Initiatives Towards an Open Skies Policy. “Open skies” is not a single policy, but a package. Most importantly, this may include (i) removing investment and ownership controls; (ii) permitting multiple designation; (iii) removing route capacity controls; (iv) relaxing restrictions on gateways; and (v) allowing wet leasing of aircraft (aircraft plus crew). Additional policy options that comprise the building blocks of an open skies package include (i) relaxing fare restrictions; (ii) granting low demand route rights, both within Uzbekistan and beyond; (iii) allowing third party operations; (iv) liberalization of charters; (v) enhancing market competition; (vi) allowing domestic cabotage; (vii) removing restrictions on ground handling;, and (viii) cargo liberalization. The Government should consider these liberalizations in the medium to long term.

I-22: PSO Structuring. UzA should consider the need for entering into Public Service Obligation contracts with Government once it has separated its air service activities from other sector related responsibilities. Precisely the same arrangement as are recommended for the rail sub-sector are applicable and as such a pre-requisite to those negotiations is a clear understanding of the cost profile associated with specific routes and service.

I-23. Attract Private Investment/Privatize UzA. Once the above have been realized it will be appropriate for the Government to consider the potential for privatizing UzA air services. Whilst this is seen as a medium to long term term proposal, it should be considered in the light of recommendations for enhancing the level of private sector participation.

14.6.5 Training I-24: Training in Commercially-Oriented Financial Management. A clear theme that runs through the sector is the relative lack of financial management capacity in a commercial context. Whilst financial staff are well equipped to meet the demands of external financial reporting, there is little evidence of capacity or understanding of the need for internally-focused financial information for enhanced decision making processes by managers. Similarly non-financial managers have had little

PADECO/IKS 185 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report exposure to regular, consistent financial information to help them in their resource allocation and general management decisions.

Training opportunities should be provided for both finance and non-finance staff throughout the sector, to enhance their commercial awareness and the role that structured internally focused financial information can play in that context.

I-25: Transport Planning, Prioritization and Strategy Implementation Workshops. A series of workshops should be provided for participants across the sector focusing on planning, prioritization and strategy implementation in a commercial context. These functions are typically undertaken within a ‘production’ context, with reference to financial and resource allocation decisions being limited to overall constraints considerations. The workshops could be provided as part of other external assistance.

I-26: Railway Management Accounting and Traffic Costing Training. The core requirement is to provide training for UTY finance staff on the specific practical elements of using the (to be developed) computerized systems for management accounting and traffic costing/tariff modelling applications. The envisaged work programme would be in addition to that provided by the system supplier, as it will focus on UTY specific requirements.

14.6.6 Investment and Private Sector Participation I-27: Enhance Investment Climate. The realization of Private Sector Participation (PSP) involvement in the sector is contingent on the establishment of an investment environment that is attractive to the private sector. That process starts with clearly articulating Government’s objective for promoting private participation. It is then necessary to reconcile the needs of investors with the needs of transport users by; preventing the abuse of market power, by providing credible regulation and enabling effective competition. Balancing users and operators interests is the core role of regulation. For the Government to realize PSP, the steps outlined in Table 14-7 are necessary.

T14-7 Realizing PSP

1. Define, publish and socialize basic goals and policies for PSP. 2. Develop transport sector plans that clearly define approaches for restructuring and promoting competition. This will need to be accompanied by adoption of competitive tendering as the norm in the sector and the adoption of mainstreamed benchmarking as a means of pressuring monopoly business’s to improve their performance. 3. Complete the process of sector law revision, accelerating the issue of implementing regulations, and moving ahead with establishing and empowering non-ministerial regulatory agencies. 4. Develop a carefully prioritized and systematic plan for reducing risk perceptions, which include streamlining procedures, a better documenting/communicating policy and regulatory achievements. 5. Develop a sound policy framework on public support for private projects. Such a framework should ensure that the implications of all possible alternatives (including the adoption of policy

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and market reforms that might eliminate the need for public support) are duly considered. This in turn requires that the authorities with the mandate and incentives to carefully consider such issues are key participants in the decision-making process. 6. Adequately estimate and reflect in budgets the cost of Government support. 7. Develop a comprehensive plan to restore tariffs to cost-reflective levels and to explain the rationale for increases to the public. 8. Invest in capacity building as part of the process of empowering government agencies to respond to the challenge of dealing efficiently with private transport infrastructure developers and communicating effectively with the public regarding PSP issues.

Once the Government has taken the decision in principle to move forward aggressively to attract private sector investment in the transport sector, the practicalities and derivation of the framework in Table 14-8 should be provided through external assistance

I-28: Training in Investment Promotion. A consistent theme of investment promotion relates to the practicalities of responsible Government agencies screening applications from potential investors to ensure bone fide and streamline subsequent procedures. All too frequently, responsible officers are faced with the situation of having to devote valuable time and effort to inquiries that are subsequently found to be spurious or inadequately financially supported.

There is therefore a need to establish practical working procedures to streamline the processing of investment applications and to facilitate determination of validity at an early stage to avoid the inappropriate deployment of scarce time and personnel resources.

Programmes to achieve that expertise will comprise two primary components: first to establish screening and monitoring processes to rapidly ascertain the validity of investment applications and second, to specify systems and procedures for the subsequent processing, promotion and facilitation of investment activity in accordance with localized institutional structures and responsibilities.

In each case the required program will develop, specify, and facilitate the implementation of systems- based procedures for addressing the two core issues. In relation to the preliminary screening, it is anticipated a workshop will be appropriate to present and train officers in the necessary procedures.

The programme will not be simply restricted to derivation of procedural and system specifications but will also seek to directly facilitate implementation and practical training where necessary, to ensure that on completion, systems are fully activated and all officers charged with responsibility therein are fully able to meet the demands placed on them. External assistance would be appropriate.

I-29: Develop Private Sector Participation Profiles. MOT should prepare a briefing for Government identifying specific profiles at the time when this medium term requirement becomes operational.

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15. Strategy for Legislation and Regulation

15.1 OVERVIEW

This chapter sets out legal and regulatory requirements associated with and in support of the strategy, including those arising from the review of the existing legal environment (see chapter 3). No initiatives are considered to be required solely for urban transport.

15.2 CROSS-CUTTING LAW

15.2.1 UTACA/MOT L-1: Establish Legal Basis for a Ministry of Transport. Further to the discussion in chapter 10 on institutional restructuring: while it is apparent that individual agencies are fulfilling their responsibilities in a conscientious and diligent manner, they are empowered only to address issues that are specified in enabling legislation – and typically those enabling instruments are very specific in what can, and what cannot, be done by given agencies. While identified routine tasks are well addressed, such critical considerations as policy development and cross-sector implementation, resource allocation between modes and associated prioritisation considerations and responses to changing business and market conditions have to be addressed by the Cabinet of Ministers - which has numerous responsibilities and as such, limited capacity to address policy level issues. (2007; see I-3).

15.2.2 Investment Promotion L-2: Extend Investment Promotion Laws to Include Transport. Considering the importance of the transport sector and promoting private participation in the sector, the existing laws and regulations promoting investment should be extended to transport. (2007; see I-3)

15.3 ROAD INFRASTRUCTURE

15.3.1 International Agreements L-3: Implement Convention on Road Signs and Signals. Even though this UN Convention includes 4-15 year periods for installation of the required road signs and signals, implementation has stalled with the redirection of efforts in the subsector. Considering the linkage between compliance with this convention and road safety, as well as the legal obligation to implement the convention, it is urged that work be undertaken for implementation. (2006-15)

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15.3.2 Domestic Law L-4: Revise Law Concerning Motor (or Automobile) Roads. As called for by the Decree of the President on Measures for Strengthening Control over Volumes and Quality of Road Construction Works and Approval of Construction Programme of Roads in 2006, No. UP-299, 3 March 2006, paragraph 8, a revised Law Concerning Motor Roads should be prepared and enacted, in part to incorporate recommendation of ADB TA 3118-UZB, Institutional Strengthening of the Road Sector in 1999, as well as this TA and others (e.g., the, Uzbek Agency for Road and River Transport, Department on Development of Legal Documents), e.g., deleting the provision that requires road agencies to compensate users for damage caused by road accidents that occur due to road conditions, amending Article 10-11 so that it (and indeed the entire act) covers the planning and financing of all roads, not just roads of general use, revising Chapter 2 after resolution of coordination and state management issues. (2006)

L-5: Develop/Revise Secondary Legal Instruments in a Manner Consistent with the Amendments of the Primary Law Concerning Motor (or Automobile) Roads and the Requirements of Institutional Restructuring. Pursuant to the amendment of the primary road law in L-4, secondary legal instruments on the road subsector should be developed and/or amended for consistency with the primary law. Also, revisions in secondary law may be required to implement various of the institutional restructuring initiatives such as I-5: Enhance Competition Structures in Road Maintenance and Construction, In6: Establish Equipment Pool for Road Maintenance Activities, and I-8: Competitive Bidding. (2007-12)

L-6: Further Develop the Legal Basis of the Road Fund with a Primary Road Fund Law. In putting the Road Fund on a sounder legal footing, the following should be taken into account: (i) the need ideally for a primary law on the Road Fund, as there have sometimes been conflicts between it and other secondary legal instruments; (ii) the need for sufficient levies to meet the requirements of road subsector legislation; (iii) the need to define the uses of the Road Fund (i.e., to make clear that it is inappropriate to use it for purposes other than roads); and (iv) the need to stipulate the mutual rights and responsibilities of the Road Fund and payers into it. A draft primary Road Fund Law was prepared in TA 3118-UZB. This legal/regulatory initiative may also take note of related institutional restructuring initiatives, i.e., I-4: Revisit Operation of the Road Fund and I-7: Cost Recovery (Road User Charges). (2007-10)

15.4 ROAD TRANSPORT SERVICES

15.4.1 International Agreements

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L-7: Consider Accession to the Convention on Temporary Admission (Istanbul Convention) 1956. As recommended by AIRCUZ, accede to the Istanbul Convention, which among other things, provides for temporary admission of means of transport and an exclusion for fuel(contained in normal tanks of the means of transport) from import duties and taxes. As with any international convention, it is necessary to examine it thoroughly prior to signature and ratification. (2011-15)

L-8: Accede to the European Agreement Concerning the International Carriage of Dangerous Goods by Road (ADR), 1957. This Agreement aims at ensuring the highest possible level of safety in the transport of dangerous goods at an economically acceptable cost. The ADR identifies substances that are considered as dangerous goods and that can be admitted in international transport as well as those that cannot be admitted. It provides for a high level of safety and security during international carriage of dangerous goods; it also facilitates transport and trade of such goods resulting from mutual recognition of tank, vehicle and driver training certificates. (2009- 10)

L-9: Ratify the Agreement on the Weight and Dimensions of Road Vehicles Carrying Out Interstate Transport on the Roads of the CIS, 4 June 1999. The axle load limit in the Agreement is greater than the 8 tonnes under existing law; IRT 1 proposes that the axle load limit be gradually raised to 11.5 tonnes. (2006-10)

L-10: Accede to the Agreement on Introduction of International Weighing Certificates for Freight Vehicles on the Territory of CIS Member Countries, 16 April 2004. Ratification of this CIS Agreement would eliminate the additional costs and delays of having to reweigh in Kazakhstan, the Russian Federation and Belarus, with associated costs and governance risks. (2006- 10)

L-11: Continue the Process of Negotiating Land Transport Facilitation Arrangements within Regional Groupings. Since some, albeit limited, success had been achieved to date in negotiating regional transit agreements in regional groupings, e.g., the CIS, ECO, TRACECA, EurAsEC, the Shanghai Cooperation Organisation, it is recommended to continue these efforts. In Europe the process has taken decades and in the Greater Mekong Subregion the process has been ongoing for 10 years; patience is required. (2006-20)

L-12: Develop/Revise Bilateral Agreements Based on the Model Central and South Asia Transport and Trade Forum (CSATFF) Transit Principles. Given the challenges of pursuing multilateral approaches, which are necessarily more complicated as there are more parties involved, the ADB’s Briefing Report on Transit, 2006, has found benefits to progressing initially on a bilateral

PADECO/IKS 190 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report basis, while at a subsequent stage combining these bilateral agreements into a multilateral arrangement. This may avoid the problems experienced e.g. by ECO and TRACECA of pursuing wide- ranging agreements that are not implemented. The key to this pragmatic, phased approach is to assure that such bilateral agreements have common provisions that can be used to subsequently forge multilateral agreements. In this regard, it is recommended to consider following the model transit principles developed by ADB for the CSATTF in developing bilateral agreements.

15.4.2 Domestic Law L-13: Consider Amending the Primary Law on Motor (or Automobile) Transport. It is recommended that consideration be given to amending the primary Law on Motor (or Automobile) Transport, because as was noted by AIRCUZ at the Seminar on the Draft Final Report, when initially prepared the law favoured state-owned structures, but reforms have since favoured the private sector. For example, specific suggestions coming out of the analysis reported in the study include supplementing the purpose of the law with a statement of objectives that underscores the importance of the transition to a more market-oriented economy; introducing responsibilities of passengers (in addition to the responsibilities of “freight clients”); moving away from the approach by which road transport operators bear the full liability for damage or loss of cargo, in contravention of international practice whereby a carrier may stipulate a limited amount of compensation as part of the contract; and revising the article on insurance to more closely follow international practice. The details would necessarily be developed at a later stage, as such legislative drafting is beyond the scope of this study. (2007-08)

L-14: Develop a Primary Law on International Transport and Transit. As recommended by the Association of International Road Carriers of Uzbekistan, the national legislation regarding the international road transport industry should be modernized to reflect both the needs of the state and particularly of the industry. The Resolution of the Cabinet of Ministers on Procedures for the Entry, Stay, Transit and Exit of Foreign Road Carriers, No. 11, dated 11 January 1995, and numerous subsequent amendments, should be consolidated into a single (ideally primary) piece of legislation and “cabotage” should be defined and not permitted for foreign carriers. (2008-09)

L-15: Develop the Legal Basis for a Road Transport Regulatory Commission. This legal/regulatory initiative has been defined to implement I-2, which among other things involves establishment of a regulatory commission for the road transport subsector. While it is recommended that the regulatory functions initially be incorporated in the Ministry of Transport, it has been recommended that as a medium term objective that it be divested to statutory bodies (2008-15)

L-16: Develop a Law on Intermodal Transport. A new law is required to better meet the requirements of intermodal transport, as the existing related laws do not adequately facilitate such practice (see, e.g., several articles of the Civil Code such as 713 on Direct Mixed Routes and 723 on

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Agreements between Transport Organizations and Article 8 of the Law on Railway Transport, which do not allow for readily organizing transport in different modes and the conclusion of contracts between modal operators). (2007-08)

L-17: Amend the Code of Administrative Responsibility to Increase Fines for Breach of Law on Motor (or Automobile) Transport. Amendments are required to increase fines for breach of the road transport law – specifically Articles 254, 287, and 291 require revision. (2007)

L-18: Revise the Tax and Customs Laws Affecting Transport. Tax and Customs policy may be productively re-examined and the laws concerned revised accordingly. (2007)

L-19: Introduce a Compulsory Insurance System for Motor (Automobile) and Inland Waterway Passenger Transport. A draft law was under consideration by the Oliy Majilis (Parliament) as of report preparation; it was included in the Prospective [Legal and Regulatory] Development Programme of UARRT 2006-10. Among other things, it would govern both compulsory and voluntary insurance (Articles 7 and 8), establish a prevention action fund with 40 per cent of the (compulsory) insurance premiums collected (Article 10-12), set a maximum charge for insurance premiums (Article 13), and set out the procedure and conditions for payment after accidents (Article 18). While the need for this law is much less urgent for inland waterways, both road and waterways may be addressed together. (2006-07)

L-20: Develop Law on Regulation of Free Passes and Privileged Travel by Motorized Passenger Transport in Suburban and Urban Areas. The Prospective [Legal and Regulatory] Development Programme of UARRT 2006-10 includes for 2006-07 preparation of such a law since, in accordance with a number of regulations, some dating back to the Soviet era, 4 million citizens in 31 categories qualify for free use of public transport. The new law would regulate such free travel in accordance with Article 18 of the Constitution of the Republic of Uzbekistan, which provides that such privileges are awarded only under law and in accordance with principles of social justice.

15.5 RAIL

15.5.1 International Agreements L-21: Align International Railway Agreements with the Paris-based International Union of Railways (UIC) and Bern-based Intergovernmental Organisation for International Carriage by Rail (OTIF). Over the longer term, aligning international railway agreements with those of the UIC and OTIF may be considered, to allow for seamless connections with European railways. (2016-20)

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15.5.2 Domestic Law L-22: Revise the Railway Law in Accordance with the Suggestions of UTY and Proposed Institutional Changes. UTY has prepared a new revision of the Railway Law, which is at an advanced stage of consideration. Most of the proposed revisions are technical (from a legal perspective), bringing the law more in line with recent and prior legal/regulatory enactments and they should be implemented. It will also be necessary to revise the Railway Law in accordance with the related institutional restructuring proposals of chapter 10, including I-11: Separation of Infrastructure Management from Service Delivery, I-12: Assistance in Privatization of Currently Identified Privatization Objects, I-13: I-15: Establishment of Infrastructure Access Fees, and I-17: Introduction of PSO Arrangements for Commuter and Other Short Haul Passenger Services. (2006-12)

L-23: Develop a New Charter for UTY. Rewriting the charter of UTY, which dates back to 1983 and reflects a Soviet era approach, is necessary for smooth implementation of the various institutional restructuring proposals. (2007-08)

L-24: Develop the Legal Basis for a Railway Regulatory Commission. This legal/regulatory initiative has been defined to implement I-2, which among other things involves establishment of a regulatory commission for the railway subsector. While it is recommended that the regulatory functions initially be incorporated in the Ministry of Transport, as a medium term objective they should be divested to statutory bodies. (2008-15)

L-25: Develop/Revise Secondary Legal Instruments in the Railway Sector in Accordance with the Revision of the Primary Law and Proposed Institutional Changes. The regulatory development proposed here would follow on the specific changes to be made in the primary Railway Law, as well as providing for implementation of the related institutional restructuring proposals listed above. (2007-12)

15.6 AVIATION

15.6.1 International Agreements L-26: Increase the Number of Countries with which Uzbekistan Has Bilateral Air Services Agreements (ASAs) and Revise Existing Bilateral Agreements to Encourage Foreign Airlines to Serve Uzbekistan. In the short term, expanding the number of countries with which there are bilateral ASAs may be considered. Tajikistan is one obvious candidate. It may also be productive to consider revising existing agreements to make it more attractive for foreign airlines to come to Uzbekistan. (2006-10)

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L-27: Consider Moving Towards Open Skies Agreements. Over the medium to long term and concurrent with I-26, moving toward open skies arrangements with civil aviation partners may be considered. In general, such agreements set more liberal ground rules than do existing ASAs. Thus, for example, open skies agreements may contain some or all of the provisions shown in Appendix III- 16. Open skies agreements may be multilateral, regional/plurilateral, or bilateral. The primary benefits from liberalization would be experienced by (i) passengers, who gain from lower fares and better services; and (ii) airlines, which lose out from lower fares, but gain to the extent that costs fall and from access to new markets; the main secondary benefits come from the economic benefits of tourism. (2011-20)

15.6.2 Domestic Law L-28: Revise the Air Code in Accordance with the Current Proposed Amendments and Proposed Institutional Changes. An amended version of the Air Code has been prepared with assistance of EuropeAid and is now at an advanced stage of consideration; the revisions better reflect new realities and would more closely align/harmonize Uzbekistan’s civil aviation law with that of the international regime (e.g., as set out in the relevant Chicago and Warsaw conventions and standards and recommended practices of the International Civil Aviation Organisation and International Air Transport Association). Also, it may be productive to amend the Air Code to reflect the institutional changes set out in chapter 10, e.g., I-19: Divestiture of Airport Operation and air navigation services from Uzbekistan Airways and Transfer to Uzbekistan Civil Aviation Authority, I-20: Privatization of Airport Operations, I-22: PSO [Public Service Obligation] Structuring. (2006-07)

L-29: Develop the Legal Basis for a Civil Aviation Regulatory Commission. This legal/regulatory initiative has been defined to implement I-2, which among other things involves establishment of a regulatory commission for the civil aviation subsector. While it is recommended that the regulatory functions initially be incorporated in the Ministry of Transport, it has been recommended that as a medium term objective that it be divested to statutory bodies. (2008-15)

L-30: Revise Secondary Air Legal Instruments in Accordance with the Revision of the Air Code and Proposed Institutional Changes. The regulatory development proposed here would follow on the specific changes to be made in the primary-level Air Code, as well as providing for implementation of the related institutional restructuring proposals listed above. (2007-12)

15.7 LOGISTICS

L-31: Enact Law on Freight Forwarding. The proposed law on freight forwarding should be enacted after consideration of the comments in Appendix III-15. As requested by the Association of International Freight Forwarders, the law adequately indicates the relationship between forwarders

PADECO/IKS 194 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report and other parties, but the latter parts of the draft may require reconsideration as they are arguably too complicated and delve too much into commercial matters.

15.8 INLAND WATERWAYS

15.8.1 International Agreements L-32: Develop a Bilateral Inland Waterway Transport Agreement with Afghanistan. Currently, Uzbekistan has a bilateral inland waterways transport agreement with Turkmenistan. If demand were to materialize, a similar agreement could be made with Afghanistan. (2016-20)

15.8.2 Domestic Law L-33: Prepare a Law on Inland Waterway Transport. The Prospective [Legal and Regulatory] Development Programme of UARRT 2006-10 includes for 2006-07 preparation of a Law on River Transport in order to define the legal and organizational bases for river transport, state regulation and management of the subsector and relations between river transport organizations. It is proposed that this effort proceed as planned. (2006-07)

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16. Investment and Financing

16.1 INVESTMENT STRATEGY

The Government, in the shape of MOT, needs to take control of the investment process, ensuring consistent and high quality project appraisal (supported by the necessary planning database), the necessary implementation guarantees from agencies and to review the programme against a sector Roadmap to maximize its effectiveness. This involves primarily informed dialogue with management and a clear division of responsibilities between Government and management. Investment strategy is that: (i) projects should be prioritized in line with Government policy and according with the Roadmap; (ii) investment should be based on approved business plans: (iii) projects should be competitively tendered for; (iv) project implementation and subsequent performance against plan should be effectively monitored; and (v) facilities and equipment should be efficiently operated and properly maintained.

16.2 INVESTMENT FUNDING

16.2.1 Private Funding Transport can be a voracious consumer of capital, if demand exceeds capacity. In the study period, however, there are expected to be few capacity concerns. Investment will be largely financed from: (i) operating agencies’ cash flow; (ii) the Government budget (for example, for roads by hypothecation of revenues to the Road Fund); (iii) private sector transport operators, primarily for the vehicle fleet; and (iv) loans/grants from international organizations. The more efficient sector operation is, the greater the share of self-financing. Particular issues in each mode are considered below.

Investors and lenders seek rewards commensurate with perceived risks, but projects become untenable when these risks are too high. Infrastructure projects pose particular risks that are compounded by an unfavourable overall investment climate. Typically investors’ main concerns include bureaucratic “red-tape”, a poor judicial system, excessive increases in minimum wages, arbitrary imposition of taxes and levies by governments, and governance concerns.

The Government is committed to improving the investment climate, but, changing investor perceptions will take time and efforts will be needed in the interim to reduce investor risks at the sector and at project levels. It is important to improve the regulatory process, but promoting transparency in the project award process is also critical. These reforms should be complimented with better allocation and mitigation of investment risks.

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The guiding principle in this process is that risks should generally be borne by the party best able to assess, control, and manage them (or by the party with the best access to hedging instruments, greatest ability to diversify the risks or lowest cost of bearing them). There may be a tendency for the public sector to assume too much risk in its contacts with private providers. However, it is appropriate to consider the nature of the risks, for example for toll road projects. The Government will have to carefully select projects and proceed to address some of the crucial risks. Key issues include the regulatory risks related to the setting of initial tariffs and their subsequent adjustment, and land acquisition also poses serious risks if an effective compulsory purchase mechanism is not in place. Once initial toll roads have been constructed, financing risks could be reduced by packaging the development of new links with concessions to operate adjoining links that already generate a solid cash flow. It will also be important to award contracts through transparent and competitive tendering to promote contractual integrity.

Public support for private infrastructure projects can improve economic efficiency by remedying market failures, including those attributable to Government’s own actions and by helping to achieve distributional objectives, such as extending services to poor communities. Public support involves the provision of some form of direct or indirect subsidy from the Government budget, at a level just sufficient to enable a service to be provided on a commercially viable and sustainable basis by an efficient private operator (PSO). Such public support should be distinguished from forms of public participation that are expected to yield satisfactory financial returns for the providing entity. Up to now, Uzbekistan has tended to view infrastructure services as being provided exclusively by the public sector.

16.2.2 Funding of Primary Roads - Tolls and PSP The construction and maintenance of primary roads is financed out of public funds. The funding sources and planned expenditures of the Road Fund for 2006 are given in Appendix XVI-1. An increase in funding of 30 per cent is expected for 2007. Part of Road Fund revenue was reallocated in 2006, with Soum 15 billion transferred to the education budget (under Presidential Resolution PP- 299). Transport generates Government revenue: tax and duty rates are given in Appendix XVI-2. In addition, licence fees are payable by commercial vehicle operators, three quarters of the fees collected by UARRT pass to the state budget. A Draft Resolution under consideration by the Cabinet of Ministers (as of December 2006) to reduce the import duty on trucks and large buses to 5 per cent and to reduce the Vehicle Registration Charge from 20 to 6 per cent, to encourage fleet renewal: measures expected to come into effect in early 2007. Given the recent low level of fleet investment, the changes should have little net impact on Government finances.

The weakness of road financing is that it is not related to the use of the network. This needs to be addressed in a review of Road Fund financing. Hypothecating revenue from fuel taxation would be the simplest approach. In addition, the medium term aim should be to encourage private sector

PADECO/IKS 197 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report investment in the road network, both capital and current: the former through participation in projects and the latter through privatization of maintenance.

Road tolls have been widely introduced internationally to generate additional funds for sector investment. They have been used to finance: (i) major structures such as bridges and tunnels; (ii) controlled-access roads, such as motorways; and (iii) in urban areas, to produce a modal shift from private to public transport through congestion pricing (prime examples – Singapore and London). In the main, tolling is associated with PSP. In developing countries it is used to attract foreign capital into the sector, as exemplified by China. There, existing publicly financed toll roads have been sold on the private sector, with the sale proceeds used to finance other projects.

In Uzbekistan, there is no tradition of paying tolls and their introduction would need to have a transparent rationale. Funding via PSP is much more expensive than Government borrowing, typically international investors require a financial internal rate of return on equity of around 20 per cent over the life of an operating concession (typically 20 years or more). They may also require some sharing of project risk by the Government. Negotiating concession agreements is a time-consuming and complex process and the Government would need to be closely advised by specialists to avoid accepting disadvantageous terms. Clearly, PSP may only be justified in special cases: for example, for major engineering projects where foreign expertise is necessary to implement them or to reduce capital cost, for complex projects in urban areas, or for road pricing, for which sophisticated charging and verification technology is necessary. Within the study period, few such PSP opportunities will arise.

This does not, however, mean that there is not a case for tolling. The strategy should be to implement a demonstration project. The Kamchik pass section of the A-373 is the ideal candidate: it is expensive and difficult to maintain; expensive slope protection, safety improvement and other investment is necessary; tolls would be simple to introduce at existing checkpoints; and with the only alternative route being via Tajikistan, there would be virtually no diversion to avoid tolls. If toll revenue were to be applied firstly to finance high-specification buses for Tashkent-Ferghana Valley services, it would have a visible result and would reduce barriers to movement, easing public acceptance. Once the toll principle is established, further applications could be considered. A second candidate would be high- volume sections of the Tashkent-Samarkand route requiring upgrade to near-motorway standard, post-2010. A third possibility would be to toll sections of the Tashkent ORR where grade separation and full access control is needed. In the long term, as techniques for road pricing become more cost effective, area or network road pricing may be considered. This could be combined with congestion pricing in inner-city areas.

The Chinese example could be emulated, with tolled sections being sold on to private operators after a few years of operation. This would enable better terms to be negotiated in the Concession

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Agreement, as most project risk factors would have become transparent: volume, traffic growth rate etc. The prime remaining concern of potential foreign investors would be currency risk.

A simple alternative to tolling would be to hypothecate part of road fuel taxation. This approach has been adopted in India (the Cess). It has a number of advantages: (i) it is administratively simple, with virtually no collection cost; (ii) fuel demand is inelastic and the tax has little impact on demand; (iii) it provides a direct link between road use and road funding; (iv) if introduced in a period of declining fuel prices, it is relatively uncontroversial.

16.2.3 Funding of Secondary and Urban Roads This is a particular area of concern, because many previous funding sources have been lost, as a result of structural change in the economy, and no replacement has been earmarked. The cost of bringing the networks up to standard cannot be quantified, pending a condition survey, but well over half of the networks are believed not to be receiving adequate or any maintenance. Once the need is identified, it should be funded on a shared basis: a national contribution (perhaps 30 per cent from an enhaced Road Fund); a regional contribution (30 per cent); a local public sector contribution and, where appropriate, a contribution from major local private users. Key secondary and urban roads should be transferred to the primary network, in phases.

16.2.4 Funding of Aviation A. Aircraft Fleet Renewal Aviation investment is lumpy, with some US$500 million required for aircraft to be delivered 2010-11. While such funds can be obtained by a combination of short term (4-year) and long term (12-year) bank financing (at rates close to LIBOR, given a sovereign guarantee), a guarantee limits the Government’s borrowing capacity for other purposes. Government should therefore be concerned that the UzA investment case is sound and that measures will be in place before aircraft delivery to provide a reasonable assurance that the loans will be repaid out of earnings. This requires: (i) a commitment to the introduction of e-ticketing and yield management; (ii) a revisionl of the route structure to optimize aircraft utilization; (iii) a commitment to higher-quality service, in particular ground handling (this requires the cooperation of other agencies, in particular Customs, requiring Government direction to provide the necessary resources – Customs processing for example at Tashkent is grossly understaffed); (iv) agreeing targets with Uzbek Tourism for visitor arrivals by market; (v) detailed market research by foreign specialists to assess markets and market pricing opportunities; and (vi) consideration of a tie-up with a foreign airline to gain access to state-of-the-art operating and planning technology.

B. Airports If the forecast increase in traffic is realized, large scale investment will be needed post-2015 in airports: runway upgrading, terminal buildings and facilities etc. International experience shows that

PADECO/IKS 199 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report airports can generate substantial funds from retailing: a retailing plan should be developed by commissioning specialist international consultants. Development first at Tashkent could extend to airports with significant tourist traffic: Samarkand, Bukhara and Urgench. Business-led operation of Tashkent would provide a strong foundation for eventual full or partial privatization, to finance a major upgrade of facilities. An alternative is to concession various facilities. The first requirement is separate accounting of airport operations, to establish a track record for investors.

16.2.5 Funding of Railways The railway investment programme can be largely financed by UTY (supported by foreign assistance), given some relaxation of the control of freight rates. The exception is Angren-Pap, the cost of which is estimated at US$1.5 billion (prior to geo-technical survey): cost by section is given in Table 16-1. The cost excludes rolling stock and associated electrification: Pap-Namangan-Andijan (137km) and Pap- Kokand-Ferghana-Andijan-Karasu-Osh (Kyrgyz Republic) (222km to border). It should be noted that major engineering projects often come in at a cost of up to double the initial estimate. Construction would take 4-5 years. Some 40 per cent of the cost is accounted for by a 20km tunnel. UTY estimates that initial annual freight traffic would be 8-9 million tonnes, with passenger traffic of 1-2 million. Clearly, Angren - Pap is not financially or economically viable and there is an alternative route through Tajikistan. If/when a decision is taken to construct the Kyrgyz Republic-China (Kashgar) line, foreign financial support for Angren-Pap may become available.

The tunnel is in the central 24km section. The adjoining sections are much cheaper per km to build and could be constructed first, with an intermodal road link between them pending construction of the tunnel. The tunnel might serve road-on-rail traffic, avoiding the mountainous section of the A-373 to guarantee all-year-round corridor operation. Whether this is feasible will depend on safety concerns. It would require a larger tunnel cross-section and should be evaluated in the feasibility study.

T16-1 Angren – Pap Line Construction Cost (including electrification)

Section Length km Construction Cost US$ million Angren – Sardala 34.6 258 Sardala – Sansalyk, 23.6 782 (including tunnel) (19.7) (604) Sansalyk – Khanabad 21.5 165 Khanabad – Pap 39.5 295 Total 119.2 1500 Source: UTY

16.2.6 Funding of Bus/Truck Fleet Renewal - Leasing Fleet renewal is a pressing issue. The financial position of transporters and of bus companies is such that, even with the expected cut in import duties and in the Vehicle Registration Fee in 2007, they may not be able to invest. However, should investment be undertaken by a leasing company (which would benefit from VAT exemption), the on-leasing cost to operators would be within their financial

PADECO/IKS 200 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report capability. UARRT developed a leasing proposal to feasibility study level in 2005 and UTACA drafted a Presidential Decree to implement it (see Appendix XVI-5). Such an approach was under consideration by EBRD for a large-scale bus fleet renewal (in association with a Belgian company), but the project was not implemented. The World Bank urban bus project used a leasing approach.

16.2.7 Funding of Logistics Centres Logistics centres have not been developed due to a lack of funding. Despite a number of pre- feasibility studies, most of which recommend foreign investment, documentation falls well short of a viable business case that would satisfy foreign investors’ needs. Feasibility studies should include commercial business plans to form a prospectus for investors. Development of a greenfield site at Termez would be a suitable pilot project, with other locations developed as extensions of existing facilities.

16.3 FINANCIAL MANAGEMENT CAPACITY

Financial management will become increasingly important, as business plans are used as the basis for investment strategy. This applies throughout the sector, from Government agencies down to private sector transport operators. There is great scope for improvement in this area.

A broadly-based review of financial management capacities was undertaken by reference to published reports and stakeholder consultations. The only major sector agency to prepare audited accounts is UTY. The most recent audit report (2004) was reviewed and the auditor’s qualification noted. That arose essentially because the financial statements were not in accordance with International Financial Reporting Standards (IFRS), or the records maintained by UTY were not in a format where such compliance could be determined. Other major agencies do not prepare accounts that are subject to external audit, but rather operate under the national budget system. There are however no indications of material arrears of accounting work and financial reporting is in accordance with national requirements.

While sector agencies are well able to meet national and taxation authority reporting requirements, adoption of IFRS is only proceeding very slowly and to date has not been widely adopted. There is very little evidence of management-focused financial reporting, with preparation of budget system and tax determined reports being the core focus of sector financial management.

Training initiatives should be activated to enhance financial management capacity in the commercial context. Capacity in relation to potential executing agency roles needs to be enhanced on a case by case basis. It should be specifically noted that whilst several development partners have assisted with the introduction of IFRS capacities, that effort has not included agencies financed from the state

PADECO/IKS 201 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report budget and as such, excluding UTY, non-traditional financial expertise in most sector agencies is extremely limited.

16.3 ROAD INVESTMENT PROGRAMME

The 42,530km primary road network comprises 53 per cent concrete/asphalt concrete, 41 per cent bitumen and 6 per cent gravel/earth. On the basis of typical pavement life data, this would require for sustainability that 3250 km be resurfaced and 7450km have major maintenance each year. Additional remedial maintenance is also required to address the current backlog.

In 2005, Uzavtoyul developed a detailed primary road investment programme 2006-10, based on a comprehensive needs analysis carried out by each region. The estimated cost of the programme was Soum 2.77 trillion (at 2005 prices). The percentage composition of the programme was: construction/reconstruction 24 (2133 km); interchanges 6 (55 locations); motorways 5 (181 km); rehabilitation 34 (6177 km); periodic maintenance 15 (19073 km); and routine maintenance and other items 16.

The actual 2006-10 programme, in accordance with the expected Road Fund budget will be about Soum 1.3 billion, under 40 per cent of the requirement, allowing for the substantial increase in the real cost of roadwork materials since 2005. The 2006 reconstruction and maintenance programme for international/regional primary roads is given in Table 16-2, a total of Soum124.7 billion (US$100 million).

Responsibility for investment planning and programming passed to the Road Fund in 2006. While the Fund develops an in-house planning capability, the programme be largely that inherited from Uzavtoyul. A 2007-10 programme developed by Uzavtoyul is given in Appendix XVI-3, consistent with Road Fund budget limits. Priority projects for main routes to 2020 were identified for this study: these are given in Table 16-3. Interchanges/overpass projects are given in Appendix XVI-4. In addition, general maintenance work is planned to improve safety, focusing on sections of international E- routes and Asian Highways, which are also part of SCO and Trans-Afghan corridors.

The road programme could be improved at relatively low cost with the complementary measures set out in Table 16-4.

A feasibility study should be undertaken of the 18km missing link to the Kazakhstan border from Kukayaz and of upgrading the rest of this north-south corridor (Uchkuduk-Kizil Orda), in cooperation with Kazakhstan. The route could form part of a combined rail/road corridor and is already designated as an international corridor. Complementary construction/improvement of the Navoi-Samarkand route would complete a new north-south corridor from Afghanistan-Kazakhstan.

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T16-2 Primary Road Programme 2006 International Regional Category of Work Km Soum* Km Soum*

Reconstruction 147 42.2 70 23.0 Major maintenance 105 13.9 192 16.8 General maintenance 264 14.2 1131 14.7 Total 516 70.2 1403 54.5 Source: Uzavtoyul Note: * billion.

T16-3 Priority Projects on Main Routes to 2020 Project Km Soum Date billion

А-380 Guzar-Nukus-Beyneu km 609-641 32 12.8 2012-15 А-380 Guzar-Nukus-Beyneu km 563-609 (Turtkul by-pass) 46 18.4 2011-14 Contruction of Amudarya bridge at Kipchak on 4R181 from А-380 380 m 9.3 2011-13 Guzar-Nukus-Beyneu (km 716) Kipchak quay berth - Mangit – Tashauz (Turkmenistan) Total – Republic of Karakalpakstan 78 40.5 А-373 Tashkent-Osh 11 4.7 2015-17 Asaka bypass (4R112 - 4К92) with 1400m interchange 15 26.8 2013-15 Karasuv bypass (4RР136 km 29 - 4R248 km 61) with 109m 13 8.1 2016-18 interchange Total – Andijan 39 39.6 4R137 - 4Н98 (Yangiaryk-Raish) with bridge (56 m) 3 2.0 2011 4R134 - 4R112 (Siza - Oltinkul) with bridges (204+37+18) m 3 7.7 2013 4К89а - 4R116 (Maygir - Paytug) 5 1.9 2015 Reconstruction of А-380 GuzarBukhara-Nukus-Beyneu km 365-394 29 6.1 2012-14 Reconstruction of А-379 Navoi-Uchkuduk km 60-83 23 1.8 2016-18 Total – Bukhara 63 19.4 А – 376 Kokand-Djizak km 242-258 16 1.3 2011-13 Reconstruction of 4R40 Dashtabad-Zaamin-Bakhmal-Gallyaaral km 6 0.3 2010 120-126 4R197 Pakhtakor-Chimkurgan-Zafarabad-Gagarin 6 0.2 2007-09 Reconstruction of bridge on 4R37 Djizak-Chimkurgan-Arnasay-Jetysay-Chardara 0.8 2009 Construction of the approach road to Djizak on 4R23g М-39 9 3.9 2007-10 Tashkent –Termez on km 1007 4R37 Djizak-Arnasay-Jetysay-Chardara 3 1.3 2007-09 4R43 М-39 Tashkent -Termez-Marjanbulak-Zarmitan-Kushrabot 47 1.7 2007-10 Total – Djizak 87 9.3 Construction of М-37 Samarkand-Ashgabad-Turkmenbashi km 12 20.0 2011-14 141-180 ( bypass) Recounstruction of Uchkuduk-Akbaytal-border of Kyrgyz Republic 16 9.0 2015 km 0-16 Recounstruction of Uchkuduk-Akbaytal km 0-151 151 30.2 2015-20 Reconstruction of approach road to Kukayaz km 0-32 32 19.2 2017-20 Total – Navoi 211 78.4

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Construction of Namangan sourthern bypass 40 24.4 2017-20 Total – Namangan 40 24.4 Reconstruction of М-39 Tashkent-Samarkand-Termez km 1095- 12 2.4 2011-12 1107 Construction of М-37 Samarkand-Bukhara-Republic of 4 2.6 2012-13 Turkmenistan Dakhbet bypass km 9-13 Recosntruction of 4R46 Samarkand-Djuma- section km 47 6.5 2008-10 15-62 Construction of bridge/approaches across Karadarya to link 4К495 5 0.5 2017 Loyish – Ovozali - Yangikurgan - Odil – Akchelak with 4К547 Djuma – Guzalkent – Chimbayabad Total – Samarkand 68 12.0 А-373 Tashkent - Osh (km 9-145) 36 10.7 2015-20 Total – Tashkent 36 10.7 4R112 Ferghana Ring from km 214 of road 4R112 with the access 9 4.1 2018-20 to km 207 of Ferghana city. Southern part 4R146 Ferghana -Chimion 16 km, to bypass Kyrgyz Republic km 0- 10 2.9 2017-19 10 4R150 Kokand-Mulkabad-Gulbog-Pungan 13 1.5 2018-19 Total – Ferghana 32 8.6 А-380 Guzar-Nukus-Beyneu km 490-520 30 8.1 2011-14 Total – Khorezm 30 8.1 Reconstruction of М-39 Almaty-Bishkek-Tashkent-Termez km 16 32.0 2008-09 1402-1410/1427-1435 Reconstruction of 4R106 Denau-Bobotag-Okmachit 60 17.5 2012-16 Reconstruction of 4N605 Derbend-Machay N 7.0 2011-12 Total – Surkhandarya 76 56.5 Total 308.3 Source: Uzavtoyul T16-4 Road Programme Complementary Measures

1. Asphalt: improve quality of asphalt from Ferghana plant. In the interim use other sources - for example Russia.

2. Construction Supervision: the Road Fund has only 22 staff positions for supervision, many unfilled. This is insufficient to guarantee work quality. Supervision engineers should be recruited (working as on-site and roving supervisors in the regions) from the 225 Uzavtoyul staff previously assigned to supervision.

3. Soft Works: some funds (up to 5%) should be allocated for “soft” works, comprising:

- re-signposting the whole network to a new common design providing network identity, clearly indicating class of road (with a road numbering system/sign colour for each class) and showing routes for through traffic/local traffic, distances etc. A design competition should be sponsored – it will become a symbol of national identity. A revised route numbering system, incorporating international corridor numbers, should be considered; - road marking, including consistent lane width, roadside parking indicators, double centrelines on non-overtaking sections, box junctions; and - pedestrians – provision of central refuges, protected crossings; and - speed limits – review of all limits, better signposting of limits and stricter enforcement.

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16.4 RAILWAYS

UTY’s investment priorities are set out in Table 16-5. The 2006-10 investment programme is given in Table 16-6 and major projects for 2010-20, excluding Angren-Pap, in Table 16-7. The programme focus is on line construction, optimizing operations, resource-savings and renewal/development of track, signalling and telecommunications systems. Funding is from UTY’s internal resources, with assistance from ADB, EBRD, JBIC, KfW German Bank, the Kuwait Fund for Arab Economic Cooperation and the OPEC Fund. The ADB-supported Samarkand–Bukhara track rehabilitation and Tashkent- Bukhara signalling/communications system project will be completed in 2006. ICB for the EBRD- funded supply of diesel-driven generating sets for locomotive modernization and reconstruction of the foundry of Uzjeldorremmash is planned for 2006. Long-term investment projects supported by IDB and JBIC loans include: (i) developing and equipping the Uzbekistan-Afghanistan link; and (ii) procurement of equipment for the development of wagon repair facilities. The reconstruction, rehabilitation and modernization of wagons and locomotives is included. Wagon construction is undertaken by Andijan Mechanical Plant and Foundry, part of Uzjeldorremmash. Modernization and re-equipment of repair depots is planned. Resources are allocated for scientific and research work and engineering development, including automation and software development, to reduce operating costs.

The 2006-10 programme is not well balanced, with the pressing problem of rolling stock replacement underfunded and no coaches to be acquired. Uzjeldorpass has estimated that only 425 of its coaches will remain serviceable by 2011. Renovation of coaches is expensive and only extends their life by a few years: it is more economic to acquire new or good used coaches. The minimum requirement is for 30 coaches a year over the whole period to 2020, with preferably 50 a year up to 2010. A detailed study of the passenger business was undertaken in 2004 (Report on Strategic Marketing and Development to 2010), but planned service improvements will not be possible without investment in rolling stock.

T16-5 UTY Investment Priorities Short Term 1. Completion of Tashguzar – Boysun – Kumkurgan line. 2. Track rehabilitation Samarkand – Bukhara. 3. Signalling/communications improvement Tashkent – Bukhara. 4. Modernization of diesel locomotives. 5. Reconstruction of foundry operation - Uzjeldorremmash. 6. Electrification Tukimachi-Angren. 7. Navoi – Uchkuduk – Sultanuizdag – Nukus line facilities.

Long Term 1. Electrification, including Samarkand-Bukhara/Termez. 2. Construction of Angren – Pap line. 3. Track rehabilitation. 4. Rolling stock repair facilities. 5. Rolling stock rehabilitation/modernization, provision of spare parts.

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6. Wagon construction. 7. Upgrading of signalling/communications systems. Source: UTY

T16-6 UTY Investment Programme 2006-10

US$ Million Project/Financing 2006 2007 2008 2009 2010 Total

New lines: 1. Navoi-Uchkuduk-Sultanuizdag-Nukus (361km – US$103 million) UTY 1.7 10.3 4.6 11.2 5.0 32.8

2. Guzar-Boysun-Kumkurgan (250km - 447.4) State budget (29.9) 4.5 6.5 6.0 - - 17.0 UTY (266.0) 85.0 47.1 34.4 - - 166.5 JBIC (151.5) 4.1 98.4 48.5 - - 151.0

Line/structures rehabilitation: 3. Modernization Samarkand-Khodjidavlet Phase 2 (341km – 143.5) ADB (60.4) 3.2 - - - - 3.2 UTY (76.0) 12.7 - - - - 12.7 4. Rehabilitation Marokand-Karshi Phase 3 (139km – 43.0) UTY (43.0) - - 13.0 20.0 10.0 43.0 5. Reconstruction Termez-Galaba stations/Amudarya bridge (27.4) IDB (5.0) - - - 2.5 2.5 5.0 EC grant funds (1.2) 1.0 0.2 - - - 0.2 JBIC (10.0) - - - 5.0 5.0 10.0 UTY (11.1) - - - 5.0 6.1 11.1

Electrification: 6. Tukumachi-Angren (114km – 79.4) UTY (28.0) 2.5 13.2 8.8 - - 24.5 KfW (31.3) - 14.0 17.3 - - 31.3 Kuwait fund (20.1) - 8.1 12.0 - - 20.1

7. Marokand-Navoi (145km – 200.0) UTY (120.0) - - - - 5.0 5.0 Foreign (80.0) - - - - 5.0 5.0

8. Marokand-Karshi-Boysun-Kumkurgan (250.0) UTY (250.0) - - - 28.0 28.0 56.0

Rolling stock: 9. Equipment and technology (25.6) UTY 1.6 2.0 6.0 8.0 8.0 25.6

10. Modernization of 90 diesel locomotives (54.2) EBRD (54.2) 17.8 14.4 20.0 - - 52.2

11. Construction of tank cars and wagons UTY (62.3) 10.3 11.0 15.0 11.0 15.0 62.3

12. Rolling stock modernization (84.0) UTY 12.0 18.0 18.0 18.0 18.0 84.0

13. Spare parts/assemblies for wagon construction (24.4) JBIC (24.4) - - - 8.4 10.0 18.4

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14. Other infrastructure UTY 7.5 3.0 5.0 8.0 7.0 30.5

Repair facilities: 15. Reconstruction of Uzjeldorremmas (65.5) EBRD (12.2) 1.2 5.5 5.5 - - 12.2 JBIC (30.0) - - - 16.0 6.0 24.0 UTY (27.0) 1.0 2.0 2.0 6.0 6.0 17.0

16. Reconstruction of Andijan mechanical plant (12.0) UTY 1.0 1.0 1.0 2.0 2.0 7.0

17. Development of UTY wagon repair facilities (25.2) IDB (18.2) - - - 10.2 8.0 18.2 UTY (7.0) - - - 4.0 3.0 7.0

Telecommunications: 18. Fibre-optic line Tashkent-Bukhara Phase 2 (13.6) ADB (9.6) 1.0 - - - - 1.0 UTY (4.0) 4.0 - - - - 4.0

19. Telecoms facilities for 5. above IDB (1.0) - - - 0.5 0.5 1.0 EC grant funds (1.0) 0.5 0.5 - - - 1.0

20. Fibre-optic line for 1. Above (5.0) UTY (5.0) - - 1.0 4.0 - 5.0

Total 172.6 252.9 210.1 155.8 150.6 942.1 Source: UTY

T16-7 Major Projects 2010-20

US$ million Project Cost / Financing 2011-15 2016-20 Total New Lines Shavat – – Djumurtau UTY – 30 - 30 30 Savay– Sultanabad (to bypass UTY – 5 - 5 5 ) New North-South Corridor Uchkuduk – Kzyl-Orda – Djezkazgan, Total – 290 In Uzbekistan: Uchkuduk – Kokpatas – UTY - 175 175 Yuzkuduk – Akboytal – Kazakh border Foreign - 115 115 180 km Alternative route: Nukus – Chimbai – Takhtakupyr- Total - (320) Kazakh border 255 km UTY - (205) (205) (Including new construction 155 km, Foreign - (115) (115) rehabilitation 100 km) Track rehabilitation Marokand-Karshi, 139 km UTY - 43 20 - 20 Electrification Marokand- Karshi-Tashguzar-Boysun- UTY - 250 97 97 194 Kumkurgan

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Marokand – Navoi, 145 km UTY 55 60 115 Foreign 40 35 75 Modernization Wagon spare parts/assemblies JBIC - 24 6 - 6

Other projects UTY 65 70 135

UTY 674 Foreign 196 Total 283 587 870 Source: Consultants/UTY Note: excluding Angren-Pap

16.5 AVIATION

Many of the ex-Aeroflot aircraft were barred from flying to Europe in the late-1990s on environmental grounds (IL-62s, IL-86s and TU154s). These were replaced by A-310s (delivered in 1992), Boeing 767-300ERs (1996) and by Boeing 757-200s (purchased/leased in various years). Further fleet rationalization is planned, to reduce the number of aircraft types to five by 2011: see Table 16-7. The A-310s, RJ-85s, TU-154s, YAK-40s and AN-24s will be replaced by 10 A-320s (delivery 2010-11) for international services and a further nine 54-seater Il-114s for domestic services. Financing will be by foreign banks, under sovereign and Eximbank/other bank guarantees. The 2006-11 investment programme is given in Table 16-8. Net of disposals, the fleet will increase from 33 to 35. The freighter fleet will be retained. Fleet rationalization with more advanced aircraft with improve fuel efficiency. The 767s will be 20 years old in 2016 and may need to be replaced before 2020.

T16-8 UzA Fleet 2006/11

Type 2006 2011 Type 2006 2011

A-310 3 0 IL-114-100 1 10 A-320 0 10 TU-154 6 0 B-757-200 5 5 IL-76 (freighter) 6 6 B-767-300ER 4 4 YAK-40 3 0 RJ-85 2 0 AN-24 3 0 Total 33 35

Source: UzA

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T16-9 UzA Investment 2006-11 Item 2006 2007 2008 2009 2010 2011

No. of aircraft Il-114-100 2 2 3 2 0 0 A-320 0 0 0 0 5 5

Estimated cost (US$ million) Il-114-100 16 16 24 24 0 0 A-320 0 0 0 0 250 250

Tashkent ATC (Euro mill) <6.6> 0 0 0 0 Source: UzA

Planned airport projects include: (i) modernization of Nukus and Termez; (ii) construction of cargo terminals at Tashkent and Samarkand; and (iii) completion of the modernization and safety improvement programme at Tashkent. The forecast growth in air traffic, if realized, would require large scale expenditure post-2015 in runway and terminal upgrading at Tashkent and at some regional airports. One of the first tasks of the new airports agency should be to review long term investment needs on the basis of a range of growth scenarios.

16.6 URBAN TRANSPORT

While urban transport investment plans should be prepared locally, there are synergies in fleet acquisition (for example any replacement of the trolleybus fleet), which need to be coordinated centrally.

For Tashkent, bus fleet renewal is expected to include 195 LAZ buses 2006-07 and 300 Mercedes buses 2007-09. In addition, 60 Spectr trams from the Czech Republic may be ordered in 2007. The 80 bus terminals were upgraded in 2006, with 13 new or completely rebuilt terminals.

The Metro has prepared a 2007-20 investment plan, with a total cost of Soum 61 billion. This is the basic minimum to keep the system operational. It includes Soum 24 billion for the modernization of the 192 metro cars, but this project is spread over the whole period. Even the basic investment plan is as yet unfunded. There is nothing for station modernization or to finish Line 3 north (a project 24 per cent complete). There was a request for this to be supported by the new Fund for Reconstruction and Development, but it was turned down. Investment in the Metro should be given a higher priority and it must be recognized that financing will not be internally generated – currently the system covers about 90 per cent of its operating cost and cannot support investment. The planned southern extension to Line 3 is unlikely to be built, being replaced by either an LRT or express buses. The first

PADECO/IKS 209 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report priority is to renovate the existing system to arrest and reverse the decline in traffic. If this is successful, work should resume on Line 3, possibly by 2010.

Investment in Tashkent’s suburban rail system should be considered: it plays a very limited role for a city of such a size.

16.7 INLAND WATERWAYS

Investment in inland waterways should be limited to modernizing and rationalizing facilities in the Port of Termez and to upgrading the ferry fleet.

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17. Action Plans

The Action Plans in Tables 17-1 to 17-8 show proposed agency responsibilities and implementation timing.

T17-1 Action Plan - National

Implementation Ref. Action Responsible Short Medium Long Term Term Term 1. Sector Wide

Define/endorse sector policy N-1 Cabinet of Ministers 2007 objectives

N-2 Restructure sector administration Cabinet of Ministers 2007-10 UTY, Road Fund, Uzavtoyul, regional N-3 Develop planning database and city authorities 2007-08 – coordinated by UTACA UTY, UzA and city Develop/introduce PSO mechanism transport for urban transport, railway N-4 authorities – 2009-10 passenger services and domestic air coordinated by services MOF MOF/MOT – and Review sector financing, including precursor, with N-5 tariff policy and financial objectives 2008-10 participation of of operating organizations agencies concerned Recharter transport operating N-6 MOT 2011 agencies Renegotiate transit arrangements N-7 MOFER 2007 Uzbekistan-Tajikistan 2. Institutional

I-1 Establish Ministry of Transport Cabinet of Ministers 2010 Establish Regulatory Commissions I-2 Cabinet of Ministers 2010 for road, rail and air Include the transport sector in I-3 eligibility for Investment Promotion MOF 2008 Incentives Provide training in commercially- I-24 UTACA 2008-09 oriented financial management Provide transport planning, I-25 prioritization and strategy UTACA 2008-09 implementation workshops 3. Investment and Private Sector Participation

I-27 Enhance investment climate Various 2008-10

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Provide training in investment I-28 MOF 2008-09 promotion Develop private sector participation I-29 MOF 2009-10 profiles 4. Legal Establish legal basis for Ministry of L-1 Cabinet of Ministers 2007-09 Transport Extend investment promotion laws L-2 MOF 2007 to include transport

T17-2 Action Plan - Roads and Road Transport

Implementation Ref. Action Responsible Short Medium Long Term Term Term

1. Primary Roads

Undertake road/bridge condition Road RD-1 2007-08 survey and prepare traffic database Fund/Uzavtoyul Define standards for road surface Road Fund/ condition and for volume:capacity RD-2 Uzavtoyul/ 2008-09 ratios to be achieved network-wide Ministry of Finance by end-2013 Undertake 5-year development, Road RD-3 reconstruction and maintenance 2009-10 2011-13 Fund/Uzavtoyul programme to achieve RD-2 Augment Road Fund resources, as necessary, to fund RD-3. Introduce RD-4 road tolls, first on A-373 Kamchik MOF 2009-10 2011-15 2016-20 Pass. Sell on toll sections to private sector

2. Secondary/Urban Roads

Local RD-5 Inventory network on sample basis agencies/Uzavtoyul 2008-09 supervision Uzavtoyul RD-6 Functionally classify 2009 supervision Identify maintenance RD-7 UTACA/MOT 2009 responsibilities Establish development fund to RD-8 MOF 2010 ensure sustainable funding

3. International Corridors

Upgrade Bukhara-Alat, Tashkent Outer Ring Road-Kazakhstan Road RD-9 2009-10 border, Karshi-Termez, Kamchik Fund/Uzavtoyul Pass and Kungrad-Beyneu Set transit fees/charges to: (i) be RD-10 MOF etc. 2008 commercially competitive; (ii)

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promote transit traffic; and (iii) not result in retaliatory actions by neighbours Promote developments to improve RD-11 trade security, for example through MOFER 2008-10 2010-12 Afghanistan Improve trade facilitation, reduce RD-12 border delays and facilitate transit Customs 2008-10 2010-12 by introducing new technologies Improve IT connectivity to enhance RD-13 Customs 2008-10 border crossing performance Improve approach roads to key Road RD-14 borders, where necessary, to allow 2008-10 Fund/Uzavtoyul traffic streaming Invest in border infrastructure at RD-15 Customs 2010-12 smaller crossings. 4. Institutional

I-4 Review operation of Road Fund Cabinet of Ministers 2010

Enhance competition in road I-5 UTACA/MOT 2011 maintenance and construction Establish equipment pool for road Road I-6 2010 maintenance activities Fund/Uzavtoyul Seek cost recovery from users I-7 MOF 2012 through road user charges

I-8 Competitive bidding Road Fund 2012

Planning and prioritization of Road I-9 2009 roadworks Fund/Uzavtoyul

I-10 Quality control of road programme Road Fund 2008+

5. Legal

Implement Convention on Road L-3 MOT/Uzavtoyul 2007-10 2011-15 Signs and Signals Revise Law Concerning Motor (or L-4 MOJ/Uzavtoyul 2006 Automobile) Roads Develop/Revise secondary legal instruments consistent with the Amendments of the Primary Law L-5 UARRT/MOJ/MOT 2007-10 2011-12 Concerning Motor (or Automobile) Roads and the requirements of institutional restructuring Further develop legal basis of Road Road L-6 2007-10 Fund with a primary Road Fund Law Fund/Uzavtoyul

6. Road Transport

Consider further reductions in RD-16 vehicle import duties post-2007 MOF 2009 measures RD-17 Abolish Road Registration Fee MOF/UARRT 2009

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Value used vehicle imports at the RD-18 Customs 2007 price in the pro-forma invoice Give import preferences for used RD-19 Customs 2007 vehicles under 10 years old Encourage foreign suppliers to hold RD-20 stock locally to improve parts Various 2008 availability Foster investment in vehicles of RD-21 UARRT/MOF 2008 over 20 tonnes capacity Improve industry professionalism RD-22 Various 2008-10 through tax concessions Consider local/foreign leasing of RD-23 UARRT/MOF 2007 new compliant vehicles Encourage foreign transporters to RD-24 link with/form JVs with national Various 2008-10 companies Provide incentives to foreign RD-25 carriers to assign part of their fleets MOF 2008 to Uzbekistan Raise axle load limit in stages to RD-26 MOT 2010 2015 11.5 tonnes Revise the permit and road tax system for foreign transporters to RD-27 UARRT 2009 accord with international best practice Restore international bus services RD-28 UARRT TBD TBD TBD as and when conditions allow Introduce Tashkent-Ferghana Valley RD-29 GAI/UARRT 2008 bus service 7. Legal Accede to Customs Convention on Oliy Majlis/Cabinet L-7 Temporary Importation of of Ministers/ 2011-15 Commercial Vehicles, 1956 MOFER/Customs Accede to European Agreement Oliy Majlis/Cabinet Concerning the International L-8 of Ministers/ 2009-10 Carriage of Dangerous Goods by MOFER/UARRT Road (ADR), 1957 Ratify Agreement on Weight and Dimensions of Road Vehicles L-9 Oliy Majlis 2007-10 Carrying Out Interstate Transport on CIS Roads, 4 June 1999 Accede to Agreement on Introduction of International Oliy Majlis/Cabinet L-10 Weighing Certificates for Freight of Ministers/ 2007-10 Vehicles on the Territory of CIS MOFER/Customs Member Countries, 16 April 2004 Cabinet of Continue negotiating land Transport Ministers/MOFER/ L-11 facilitation arrangements within 2007-10 2011-15 2016-20 UARRT/Customs/ regional groupings MOT Develop/revise bilateral agreements Cabinet of based on the model Central and Ministers/MOFER/ L-12 2007-10 2011-15 2016-20 South Asia Transport and Trade UARRT/Customs/ Forum (CSATFF) Transit Principles MOT

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Revise primary Law on Motor (or L-13 UARRT/MOJ 2007-08 Automobile) Transport Develop a primary Law on UARRT/MOJ/ L-14 2008-09 International Transport and Transit Customs Develop legal basis for Road L-15 Cabinet of Ministers 2008-10 2011-15 Transport Regulatory Commission Develop a Law on Intermodal L-16 UARRT/MOJ 2007-08 Transport Amend Code of Administrative Responsibility to increase fines for L-17 MOF/UARRT/MOJ 2007 breach of Law on Motor (or Automobile) Transport Revise tax and Customs laws L-18 MOF/Customs/MOJ 2007 affecting transport Introduce compulsory insurance system for motor (automobile) and L-19 UARRT/MOJ 2007 inland waterway passenger transport Develop Law on Regulation of Free Passes’Privileged Travel by UARRT/MOJ/Local L-20 2007 Passenger Transport in Suburban/ Govt. Urban Areas 8. Road Safety Publish monthly statistics on road

RD-30 accident deaths and injuries by GAI – Traffic Police 2007

area. Improve signage/road markings, RD-31 Uzavtoyul 2007-09 prioritizing accident blackspots.

RD-32 Enforce wearing of seatbelts. GAI – Traffic Police 2007-08

Revisit speed limits and strictly RD-33 GAI – Traffic Police 2007-10 enforce revised limits. Introduce roadside speed RD-34 GAI – Traffic Police 2010 monitoring cameras. Strictly enforce ban on mobile RD-35 GAI – Traffic Police 2007-08 phone use while driving. Limit U-turn movements on high RD-36 Uzavtoyul 2008-10 speed routes. Phased safety enhancement RD-37 GAI?Uzavtoyul 2007-09 programme for A-373 Kamchik Pass

T17-3 Action Plan - Railways and Rail Transport

Implementation Ref. Action Responsible Short Medium Long Term Term Term 1. System Rationalization/Management

RL-1 Set up Surplus Assets Authority MOF 2008

RL-2 Inventory all assets UTY 2007-08

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RL-3 Vest surplus assets in SAA MOF 2008

Prepare medium term programme RL-4 UTY 2009 for asset renewal Redefine UTY management for a RL-5 business-led railway in new UTACA/MOT/MOF 2009-10 Charter– relax tariff control

2. Corridor Development

RL-6 Feasibility study of Angren-Pap UTY 2007-08

Stage construction of Angren-Pap RL-7 UTY 2012-14 2018-20+ on basis of RL-6 Provide political support for developments in other countries, RL-8 MOFER 2007-10 (Mashhad-Termez, Uzbekistan- Kyrgyz Republic-China) Undertake feasibility study of RL-9 Uchkuduk-Jeskasghan and UTY 2008-09 alternative routes Ensure funding for Amudarya RL-10 MOFER/MOF/UTY 2007-08 Bridge, Turkmenistan rehabilitiation

RL-11 Invest in border post rehabilitation UTY/Customs 2008

3. Freight Services

RL-12 Improve service quality UTY 2007-10

Develop services to/from China and RL-13 UTY 2011-15 South East Asia Capitalize on improving situation in RL-14 Afghanistan, in advance of rail UTY 2007-10 network construction Expand range of services and RL-15 accept responsibility over logistics UTY 2008-10 chain Introduce market pricing and RL-16 develop special tariff (with other UTY 2009 railways) for intermodal traffic Market directly to the shipping RL-17 UTY 2008+ industry Introduce block trains on key routes RL-18 (Tashkent - Lianyungiang, UTY 2011+ Nakhodka and Bandar Abbas)

4. Passenger Services

Rebuild network of international RL-19 UTY 2008+ services, with regional railways

RL-20 Offer wider range of services UTY 2008+

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Reduce/eliminate border delays by RL-21 introducing on-train passport and Customs 2009 customs inspection Improve marketing, focusing on RL-22 tourist traffic and the development UTY 2008+ of niche markets 5. Institutional

Study separating infrastructure I-11 MOF/MOT/UTY 2019 management and service delivery

I-12 Assist in ongoing privatizations UTY 2007+

Implement management accounting I-13 UTY 2008 systems and capacities

I-14 Enhance marketing functions UTY 2007+

I-15 Establish infrastructure access fees UTY 2015

Resolve operational difficulties re I-16 MOF 2007-08 accounts receivable and tariffs Introduce PSO for commuter and I-17 MOF 2010 branch line services Provide training in management I-26 UTY 2009-10 accounting and traffic costing 6. Legal Align international railway agreements with the International Union of Railways (UIC) and L-21 UTY 2016-20 Intergovernmental Organisation for International Carriage by Rail (OTIF). Revise the Railway Law in accordance with the suggestions of L-22 MOJ/UTY 2006-10 2011-12 UTY and proposed institutional changes L-23 Develop a new Charter for UTY UTY 2007-08

Develop the legal basis for a Cabinet of L-24 2008-10 2011-15 Railway Regulatory Commission Ministers/UTY Develop/revise secondary legal instruments in accordance with the L-25 MOJ/UTY 2007-10 2011-12 revision of the primary Law and proposed institutional changes

T17-4 Action Plan - Civil Aviation and Air Services

Implementation Ref. Action Responsible Short Medium Long Term Term Term Airports

A-1 Divest airport operations from UzA Cabinet of Ministers 2011

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Rationalize airport network, UzA/Cabinet of A-2 2010 especially for Ferghana Valley Ministers Improve inter-terminal connections A-3 UzA 2008 at Tashkent

A-4 Review security procedures Various 2008

Modernize approach to design of A-5 UzA 2008 structures Increase mechanization of cargo A-6 UzA 2007-09 terminals Review function of Tashkent transit A-7 UzA 2007 terminal Establish separate financial A-8 UzA 2007 reporting for airports Develop Tashkent as regional A-9 UzA 2011-15 freight gateway Airport Services

Remove legal/regulatory constraints A-10 restricting competition in airport MOJ 2009 services Improve service, particularly in A-11 passenger handling and customer- UzA 2007+ orientation Improve arrangements for transit A-12 UzA 2007-08 passengers Improve catering, especially in A-13 UzA 2007+ international/transit areas Exploit retailing opportunities and A-14 UzA 2007+ grow terminal passenger Uzbekistan Airways

A-15 Increase management autonomy Cabinet of Ministers 2008-10

A-16 Focus on commercial operation UzA 2008-10

Complete fleet rationalization, agree A-17 UzA/MOF 2007-10 2011 programme of supporting measures Introduce e-ticketing and yield A-18 UzA 2007-09 management, improve interlining Improve quality of A-19 UzA 2007-10 2011-15 2016-20 service/marketing of UzA brand Rationalize Tashkent-Ferghana A-20 UzA 2011 Valley services. Foreign Airlines

In short term, seek to retain service A-21 UzA 2007-10 by major carriers Encourage more carriers to provide A-22 UCAA/UzA 2011-15 services Monitor small CIS regional carriers A-23 UCAA 2007-10 2011-15 2016-20 for safety and financial stability

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Institutional

Establish Uzbekistan Civil Aviation I-18 Cabinet of Ministers 2010 Authority (UCAA) Divest ANS from UzA and Transfer I-19 Cabinet of Ministers 2011 to UCAA

I-20 Privatize airport operations MOT 2013

I-21/L- Initiatives towards an Open Skies MOT/MOFER/MOJ/ 2012-15 2016-20 27 policy UCAA

I-22 PSO structuring MOF 2010

Attract private investment/privatize I-23 Cabinet of Ministers 2018 UzA Legal Increase number of countries with MOFER/State which Uzbekistan has Bilateral Air Inspectorate for L-26 Services Agreements (ASAs) and Supervision of 2007-10 revise ASAs to encourage foreign Safety of airlines to serve Uzbekistan Aviation/UzA MOFER/MOJ/State Revise Air Code in accordance with Inspectorate for L-28 proposed amendments and Supervision of 2007 institutional changes Safety of Aviation/UzA Develop legal basis for a Civil L-29 Cabinet of Ministers 2008-10 2011-15 Aviation Regulatory Commission MOT/UCAA/MOJ/ Revise secondary air legal UzA/State instruments in accordance with the L-30 Inspectorate for 2007-10 2011-12 revision of the Air Code and Supervision of proposed institutional changes Safety of Aviation

T17-5 Action Plan - Logistics and Freight Forwarding

Implementation Ref. Action Responsible Short Medium Long Term Term Term 1. Logistics/ Logistics Centres

Add training in logistics and supply LF-1 chain management to relevant MOT/UIFA 2008+ courses Further develop domestic road LF-2 transport into a distribution UIFA 2008+ industry/ 3PL sector Identify locations for logistics LF-3 UARRT 2008 centres and reserve land Switch from institutional-driven LF-4 approach to demand-driven Various 2007+ operations Confirm demand for international LF-5 facilities using data held by UARRT 2007 Government Departments

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Evaluate impact of logistics centres LF-6 UARRT/UIFA 2008 on export logistics chain Extend ran LF-7 - 1 -ge of services to UIFA 2007+ include some import capability Clarify the relationship between LF-8 existing terminals and logistics UARRT 2007 centres Develop logistics centres in stages, LF-9 using existing and purpose-built UARRT 2008+ facilities LF-10 Rail-connect all logistics centres UTY 2008+ Agree, through cross-industry LF-11 consultation, to secure necessary Various 2008-10 level of ownership Undertake feasibility studies to LF-12 provide commercial business plans UARRT/UIFA 2009-10 for attracting investment Establish regional logistics LF-13 dispatching service and associated Various 2008 website.

2. Freight Forwarding

Develop relationships with foreign LF-14 UIFA 2007+ forwarders Extend the range of services LF-15 UIFA 2007+ offered by Uzbek forwarders Legislate to formalise industry LF-16 MOJ 2008 status Introduce licensing system to LF-17 UARRT 2009 confirm industry professionalism

LF-18 Provide training facilities UARRT 2008-10

3. Legal

L-31 Enact Law on Freight Forwarding UARRT/MOJ 2008

T17-6 Action Plan - Inland Waterways

Implementation Ref. Action Responsible Short Medium Long Term Term Term Facilitate road/rail services through IW-1 UTY/Uzavtoyul 2008 Ayritom Plan for primary demand to be for UARRT/Port of IW-2 2007+ cross-river ferry service Termez Maintain reserve capacity at Port of UARRT/Port of IW-3 2007-10 2011-15 2016-20 Termez Termez Ensure sufficient long term capacity at UARRT/Port of IW-4 Termez rationalize infrastructure, 2007+ equipment and labour force Termez

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IW-5 Prepare Port Master Plan UARRT 2008 Provide essential renewals and IW-6 spare parts for continuing Port of Termez 2007-08 operations Legal

Inland Waterway Agreement with L-32 MOFER/MOT 2016-20 Afghanistan Prepare Law on Inland Waterway L-33 UARRT/MOJ 2007 Transport

T17-7 Action Plan - Urban Transport

Implementation Ref. Action Responsible Short Medium Long Term Term Term Apply traffic management to U-1 maximize capacity of existing Various 2007-10 2011-15 2016-20 infrastructure Develop planning database through U-2 passenger surveys and household Various 2007-08 interviews Develop transport model for U-3 Various 2007-09 Tashkent

U-4 Reintegrate ticketing in Tashkent Various 2007-08 Define medium/long term route U-5 networks for each electric transport Various 2011 mode Rationalize Tashkent bus/minibus U-6 Various 2011 networks Review policy of financial self- Cabinet of U-7 2007 sufficiency goal for each mode Ministers/MOF Manage each mode in support of U-8 policy for whole city transport Various 2008+ system Approve Metro rehabilitation and U-9 MOF 2009 investment programme

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18. Sector Roadmap

A sector Roadmap is a combination of aspirational goal-setting and a monitoring tool. It documents what should be achieved and when. It is a flexible instrument and should be updated every 2-3 years to reflect the prevailing conditions. The scope of the Roadmap can be defined, but most of the data necessary to calibrate it needs to be collected. The first goal is to have a partly calibrated Roadmap available by end-2007, with full calibration and sector-wide agreement on targets by end-2008. This requires considerable survey activity in the interim. Notes for the preparation of the Roadmap are given in the following pages. Targets should in nearly all cases be physical, not financial.

Roadmap targets must be set with great care: a target of X implies the commitment of the necessary resources to achieve it. It is important that: (i) X is the right measure to be targetted; (ii) X is itself the right number, should it not be X- or X+ (this depends on the marginal costs and benefits of exactly achieving it at the set date) and (iii) whether the resources used to achieve X could not better be used elsewhere in the sector to achieve say Y or even be better employed outside the sector. For example, a road safety target can be reached through a combination of many initiatives, some of which are very costly, but avoid few accidents. The cost per potential life saved or injury avoided must be reasonable in every intervention.

Targets should be developed by experts in the field, their cost implications should be carefully assessed and then they should be agreed to in principle by the funding agency as well as the implementing agency. This targetting process itself should lead to better allocation and more efficient use of resources. Thus, targets should be realistic, achieveable and fundable. They should further a sector-wide debate on what can be afforded and the opportunity cost of doing/not doing something. For example, Angren-Pap would be a major commitment of resources: what are their alternative uses – is the community willing to pay this price for the security and other benefits of the project.

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PREPARING A SECTOR ROADMAP

1. Road Network Sustainability Primary (Common Use): survey roughness and traffic volume on whole network. Classify by traffic volume (equivalent passenger car units – pcus, or if insufficient data is available by average daily traffic ADT). Set surface condition targets for each volume range (international roughness index - IRI or similar measure), as in Table A, using actual data for 2007 – the figures in the table are indicative only. The degree of improvement to be set should be a realistic target with respect to likely available funding, but the target and funding requirement need to be considered in parallel with the objective of recovering the primary network to a stable long term state by 2020, following which a normal maintenance cycle can be followed, with little or no backlog – in particular for volumes over 2000 ADT. Note that the targets are more demanding than they might appear: as they are periodically reviewed, traffic growth will be placing more of the network in the higher volume classes.

Table A – Example of Roadmap for Primary Roads % of Route Km in Class Surface Condition/ADT 2007 2010 2015 2020

1. ADT > 7500 or >15000 pcu (equivalent to be confirmed) Good IRI < 5 20 30 45 50 Fair IRI 5<7 30 30 30 40 Poor IRI 7<10 40 35 25 10 Bad IRI>10 10 5 0 0 2. ADT 2000<7500 Good IRI < 5 15 20 30 40 Fair IRI 5<7 30 30 30 30 Poor IRI 7<10 40 40 35 30 Bad IRI >10 15 10 5 0 3. ADT <2000 Good IRI < 5 10 15 20 30 Fair IRI 5<7 20 20 25 30 Poor IRI 7<10 40 40 35 30 Bad IRI >10 30 25 20 10

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Secondary (Non-Common Use) Rural: sample survey in same detail as for primary roads covering some 40 per cent of the route network. Same targetting process as for primary roads, differentiated by region. Starting in many regions from a far worse 2007 base than for primary roads, aspiration might be to at least recover to long term sustainability roads with volume over 7500 in 2020. Extrapolated survey results will indicate funding requirements for network rehabilitation.

Urban Roads: similar procedure, with reduced sample size perhaps 30 per cent. Similar approach to targetting as for secondary roads.

Bridges and structures: should be surveyed in parallel with surface condition, with classification into: good, fair, poor and dangerous categories, based on international best practice. A programme for sustained improvement should be costed, reappraised against likely resource availability and a set of targets be developed. Given that the cost varies considerably between items, this target may need to be defined in financial terms – as an annual percentage of the total required to bring the network up to a desirable standard.

Signage, Road Marking, Accident Prevention: in parallel with the condition surveys, surveys should determine and cost necessary associated measures to improve the user friendliness and safety of the networks.

2. Road Network Capacity In parallel with the road condition surveys, the volume:capacity (v/c) ratio should be assessed for each homogeneous route section. Daily v/c for inter-urban roads and morning peak hour v/c for urban roads. Typical traffic growth rates should be applied to the 2007 v/c ratios to determine the network length approaching capacity over time – say sections with v/c of > 0.8 for inter-urban and > 1.0 in the urban peak. Route upgrading/traffic management should then focus first on these sections.

3. Road Transport Fleet While responsibility for roads is within the public sector, road transport is largely under private operation. However, it is in the public interest that the intercity bus and truck fleets be renewed. This could be monitored in terms of targets for the number of vehicles less than 5 years old in each fleet, with trucks differentiated into Euro-3 compliant, heavy, medium and small categories.

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4. Road Accidents After analysis of available data and collection of supplementary survey data, targets should be set for reducing the number of annual fatalities and for serious injuries per 10000 vehicles, by at least 5 per cent annually for the first 5 years. Note that with a growing vehicle fleet, accident totals would change by less than the set percentage. Note that the definition of fatality should be clear and consistent: death at the scene, within 48 hours or a particular period following the accident.

5. Railway Rolling Stock/Electrification (UTY) Rolling stock renewal is as important as for the vehicle fleet and targets for new) or second hand) stock could be set by type on the basis of a needs assessment. For locomotives, this needs to proceed in parallel with the development of an electrification programme. The objective by 2020 would be to have a typical, sustainable age distribution across the fleet.

6. Rail Network Rationalization Following an assessment of continuing needs, targets for transfer of surplus assets to a Surplus Assets Authority should be defined for track km, rolling stock, stations, yards and other facilities, including in particular land.

7. Rail Network Sustainability The network, net of that to be transferred to the Surplus Assets Authority, should be surveyed for condition of track and structures.

8. Border Facilitation Targets for border processing and trade facilitation times are not best defined in a national context. They should be reviewed under CAREC auspices on a regional basis.

9. Urban Transport Targets for Tashkent electric transport should be set in terms of system volume: the objective being to increase usage. Targets could also be developed for number of Metro stations to be refurbished and number of Metro cars to be renovated. For trams, targets on a route basis.

PADECO/IKS 225 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Final Report

10. Transport Finances Targets should be developed for the share of public sector expenditure to be recovered directly from facility users: for roads for example from fuel taxation, licence fees, duties etc. with a medium term objective of complete user funding. Non-user financing of the Road Fund could be maintained during the period of heavy expenditure required to rehabilitate the network.

PADECO/IKS 226 Tashkent, December 2006 Asian Development Bank December 2006 TA4659-UZB

Transport Sector Strategy

Final Report Appendix

Islohotkonsaltservis Ltd. TA 4659-UZB Transport Sector Strategy Final Report Appendix

Abbreviations and Acronyms

3PL Third Party Logistics ADB Asian Development Bank ADR Accord Dangereux Routiers AIFU Association of International Forwarders of Uzbekistan AIRCUZ Association of International Road Carriers of Uzbekistan ATUTS Toshshakhartranskhizmat – Association of Tashkent Urban Transport Services CAA Civil Aviation Authority CAREC Central Asian Regional Economic Cooperation CARs Central Asian Republics EC European Commission EDI Electronic Data Interchange Fob Free on board Km Kilometres ICAO International Civil Aviation Organisation ICD Inland Clearance Depot/Inland Container Depot IKS Islohotkonsaltservis IT Information Technology JSC Joint Stock Company KfW Kreditanstalt für Wiederaufbau MOF Ministry of Finance MOT Ministry of Transport PPP Public Private Partnership Sq Square TA Technical Assistance TAPOich Tashkent Aircraft Production Company TIR Transports Internationaux Routiers TRACECA Transport Corridor Europe Caucasus Asia UARRT Uzbek Agency for Road and River Transport URM Uzbekistan Resident Mission (ADB) US$ United States dollar UTACA Uzbek Association for Transport and Transport Communications UzA Uzbekistan Airways UTY Uzbekistan Temir Yullari (Uzbek Railways) UZB Uzbekistan VAT Value Added Tax

Rate of Exchange – 1 December 2006

US$1 = Soum 1240

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Contents Page

I-1 Written Comments on Draft Final Report i I-2 Seminar on Draft Final Report 20 November 2006 xviii Summary of Proceedings I-3 Tripartite Meeting/Video Conference 24 November 2006 xxiv Summary of Proceedings I-4 List of Contacts xxvii I-5 Bibliography xxx

III-1 UTY Long Distance Passenger Timetable – 28 May 2006 xxxiv III-2 Comments on Revised Road Law xxxvi III-3 General Principles for a Regional Transit System xxxix III-4 Bilateral/Plurilateral Road Transport Agreements xlii III-5 Review of Law on Road Transport xliii III-6 Road Transport Secondary Legal Instruments xlvi III-7 Regional and Bilateral/Plurilateral Railway Agreements xlviii III-8 Structure of Railway Act (1999) xlviii III-9 International Civil Aviation Conventions Acceded to xlix III-10 Bilateral Air Service Agreements li III-11 General Structure of Air Code li III-12 Summary of Proposed Amendments of the Air Code lii III-13 Air Secondary Legal Instruments lv III-14 Typical Provisions of Open Skies Agreements lvi III-15 Comments on Draft Freight Forwarding Law lvi III-16 Secondary Law Concerning Urban Transport in Tashkent lvii

IV Logistics Centres lix

VI-1 Summary of UTACA Draft Concept lxx VI-2 Presidential Decree No. 325 – 17 April 2006 lxxiii VI-3 Executive Order of the President P-2482 of 20 April 2006 lxxiv

XIV-1 Existing Sector Organization Structure lxxvii XIV-2 Proposed Sector Organization Structure lxxviii

XVI-1 Road Fund Financing 2006 lxxix XV1-2 Transport Taxes and Duties lxxxi XVI-3 Draft Road Development Programme 2007-10 lxxxiii XVI-4 Construction/Reconstruction of Interchanges/Overpasses lxxxviii XVI-5 UARRT Proposal for Vehicle Fleet Renewal xcii

Note: Roman numerals indicate chapter to which appended.

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Appendix I-1

WRITTEN COMMENTS ON Draft Final Report

1. Association Toshshakhartranskhizmat

The Association has reviewed the Draft Final Report and kindly requests the Consultants to take into account the following amendments and comments:

- there is no subsection Trolleybuses in the section Urban Transport (pages 32-34, Russian text); - page 88 (Russian text) Item 3.10.1 Metro contains unclear conclusions on staff morale and the symbolism of the metro. Also, the statement concerning an increase in metro revenue following the changes to the ticketing system is incorrect. This section should be revised. - it is necessary to exclude the statement concerning a 45 per cent increase in revenue in item T4-19 Metro, Strengths. - 16.6 Investment in Urban Transport should be modified due to the change to the source of funding for the procurement of 300 Mercedes-Benz buses.

We have no other comments, amendments or proposals.

Sh.Mukhamedjanov, Deputy Khokim of Tashkent City, Chairman of Association

2. Association of International Road Carriers of Uzbekistan

Dear Ravshan Faizullaev,

In accordance with the letter of the general information analysis department of the Cabinet of Ministers No. 02/96-184 of 27 October 2006, please find enclosed the comments and remarks on the Draft Final Report.

Attachment: 4 pages.

K.M.Sidiknazarov, President of AIRCUZ

Comments and Remarks on the Draft Final Report

1. Para.2.2.2 – The list of road corridors does not include the corridor through Nukus towards Europe and western Russia, part of highway E-40, which is heavily used by Uzbek carriers for international transport.

2. Para.2.13.3 - Incorrect indication of conventions signed by Uzbekistan. Regional agreements under EurAsEC signed and ratified by Uzbekistan are not taken into account.

3. Para.3.5.5.A – When purchasing heavy vehicles, which are mainly used in international transport, the excise tax is not paid.

4. Para 3.5.5.E – The analysis of the permit system does not reflect the impact of basically non-permit system of admittance of foreign carriers to the market for international road transport services existing in the Uzbekistan or the situation of international road transport.

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5. Para.4.1 T4-9 Weaknesses – Based on the existing wording “Increasing numbers of international conventions are placing additional requirements on Uzbek carriers” one may draw a conclusion on the negative impact of international conventions on organization of international road transport, raising doubts.

6. Para.5.4.1. The analysis of transport demand 1996-2005 pays little attention to an analysis of the demand for road transport. Road transport is not disaggregated to show traffic volume (cars, freight trucks, buses). This section does not show the correlation between export/import transport, transit transport; movements performed by foreign and national road carriers; and no consideration was given to the types of cargo carried and their impact on the demand for different vehicle types.

7. Para.5.6. – Section ‘Demand by Mode 2006-20’ considers only the issues of railway and air transport; road transport is not considered, surprising considering that the high share of road transport in the total volume of freight and passenger transport.

8. Para.8.1.4 – It is mentioned that the need for infrastructure improvement at smaller crossings in the west of Uzbekistan is not urgent. In this regard, it is necessary to refer to the need for border checkpoint facilities on highway E-40 towards Beyneu.

9. Para.8.2.1 9.1. It was recommended to establish import duties of 5-10 per cent. Currently, the specified level of fees is already applied to individual categories of the road transport fleet used for international transport; however, renewal of the road transport fleet is not taking place. Hence, it would be desirable to fully exempt such vehicles from import fees, especially given the degree of fleet wear-and- tear. 9.2. It was recommended that the road tax registration charge should be replaced by an annual vehicle license fee. However, significant such fees are already charged that requires recommendations to reduce them. Furthermore, there is no growth of the number of licences, as noted in previous chapters, and there are only 600 licences were issued for implementation of international road transport. 9.3. Recommendation on offsetting VAT charged on the purchase of road transport vehicles are not specific enough, i.e. there are no recommendations on the type of activities where it is necessary to offset VAT.

The recommendation to keep VAT on the purchase of freight vehicles for international transport is also questionable, since the amounts concerned are considerable.

10. Para.8.2.3. 10.1. The proposal to support the development only of larger operators is not consistent with the tendency to develop small and medium sized businesses implemented in modern economy. 10.2. Proposal to introduce operators’ licensing to promote their professionalism is not clear for two reasons. Firstly, licensing is already in place, including by professionalism criteria. Secondly, taking into account the lack of dynamic development of international road transport it would be more logical to suggest the simplification of licensing (for instance, in the Russian Federation, road transport activities are not licensed). An increase in professionalism can be promoted by other methods, for example concessional taxation for resources devoted to the increase of professionalism of road transport company personnel. Such promotion is already implemented in Uzbekistan to accelerate the introduction of quality standards.

11. Para.8.2.5. Conventions on temporary importation are not considered.

12. Para.8.2.6. It is stated that foreign carriers would obtain permits from either an Uzbek embassy, or … from their international road transport association, that is contrary to the fact.

13. Para.8.2.7. This paragraph contains contradictory propositions regarding quality and functions on licensing and permit systems.

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14. Section 8.4. Rd9 – Does not include a link Kungrad – Beyneu, or the link through the Kamchik pass. Rd16 – Instead of “Reduce import duties/taxes” we suggest the following wording “temporarily exempt from import duties/taxes” Rd 17 – In this item we suggest envisaging the abolishment of the registration fee, rather than its replacement with licence fee. Rd19 – The Action Plan wording differs from the wording in 8.4. On page 261 (Russian version) State Customs Committee is specified as the responsible agency, however it cannot be responsible for granting concessional customs fees. Rd22 – Instead of “…by supporting larger operators” we suggest “… by applying concessional taxation”. Rd23 – We suggest deleting this.

15. Section 14.7. This section does not consider the road transport subsector and its integral part – international transport.

16. Para.15.4.1. It would be desirable to give consideration to the Istanbul Convention under proposal Ll7.

17. Chapter 16. Investments in the road transport subsector were not considered (except urban transport). However, the stated share of road transport in the overall volume of transport (section 5.4 (T5-10/11)) exceeds 90 per cent, as well as noted problems of road transport subsector, this demonstrates the need to pay more significant attention to this subsector proportionate to its share in traffic.

19. Para.15.4.2. It would be desirable to recommend the development of a primary law “On international road transport”.

In general the Draft Final Report concerning road transport provides a collection of statistical material; however detailed analysis is not provided.

It would be desirable to revise some conclusions regarding measures for the development of road transport.

The Draft Final Report does not provide sufficient detail to prepare a road transport development Concept.

We think it would be advisable to revise the Draft Final Report in accordance with the above comments.

3. Department of Licensing and Coordination of passenger transport under Tashkent City Khokimiyat

Dear Ravshan Faizullaev,

Re: Draft Final Report

The Department on Licensing and Coordination of movements of passenger transport under the Tashkent City Khokimiyat (hereinafter referred to as the Department) has reviewed the Draft Final Report and submits herewith comments and proposals on the part of this document related to the development of urban passenger transport:

Section 2.11. Urban Transport Para.2.11.1 Tashkent – Strategy developers should indicate the regulatory role of the Department in the area of urban passenger transport in Tashkent City, considering the latest Government resolutions adopted in 2006, namely:

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Decree of the President No. UP-3713 of 11 January 2006 “On further improvement of the passenger transport system in the City of Tashkent”, aimed at the creation of favourable conditions for transparent competition of carriers of all forms of ownership, abiding by and improvement of the quality standards of services provided and en-route traffic schedule, clear distinction of the customer and contractor of movements, increase of material interest of the passenger transport staff, reduction of dead and administrative-and-managerial expenses;

Resolution of the President No. PP-262 of 18 January 2006, “On activities of TUTS and the Department for Passenger Transport Licensing and Coordination under the Municipality of the City of Tashkent”;

Resolution of the President No. PP-294 of 28 February 2006 “On further measures to provide safe passenger transport in Tashkent City and the region” and Resolution of the President No. PP-303 of 9 March 2006 “ On Regulating the conduct of various entrepreneurial activities in the sphere of motorized passenger transport” and some others.

In this regard, it is necessary to edit a sentence stating that “public transport in Tashkent City is the responsibility of the Tashkent Urban Transport Passenger Authority”. Also it would be useful to clarify the meaning of the sentence “Private cars have provided stop-on-request taxi service, but this is being discouraged by the authorities on safety grounds”.

Para.5.4.4. Urban transport, T 5-21 Tashkent Public Transport 2001-05, it should be clarified how the the share of private minibus operations was calculated.

Para. 8.2.7. It is stated that “It is important to separate the operator and any potential future vehicle licensing functions”. The Department remarks that this issue was fully resolved in Tashkent city through the above-mentioned Government resolutions.

Chapter 13 Strategy for Urban Transport. The weaknesses in Government policy regarding minibus services are not stated clearly. It would be useful to provide additional clarification of synergies.

Table 13-1 The phrase competitive distortions is not clear. Item 3 should be deleted, since a new article 176-3 Provision of passenger transport services by road transport without a licence was added to the Code of Administrative Responsibility, whereby provision of passenger transport services on road transport without a license involves the imposition of a fine of 20-100 minimum wage rates for individuals and 50-150 minimum wage rates for officials. It would also be useful to clarify the rationale for the statement on the lack of proper control of private operator activities on the part of the tax committee.

Section 13.5. Actions and T 17-7 Action Plan for Urban Transport should be further revised as, in the Department’s opinion, actions are too abstract and they cover only short-term prospects, however the Strategy is expected to be long-term.

Yu.Aripdjanov, Head of Department

4. Ministry of Finance

In accordance with your instructions No. 20/96-184 of 27 October 2006, the Ministry of Finance has reviewed the Draft Final Report and is pleased to inform as follows:

Transport serves the most important economic, social and strategic functions being an integral part of the national economy complex and an interface between manufacturers and consumers.

Pursuant to the Resolution of the President No. 325 On measures for enhancement of the development of services industry in Uzbekistan in 2006–10 of 17 April 2006, the target parameters for service industries for 2006-10 were defined, where the volume of road transport operations in 2010

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should be increased by 1.7 times compared to 2005. In order to achieve these targets and to perform the projected events, sectoral development programmes were formulated for 2006-10, which provide specific sources of financing.

Current transport sector development has the following specific features, such as deepening of the demonopolisation processes, formation of market relations and creation of a competitive environment, improvement of the management system, accelerated development of the private sector and enhancement of its role and significance in the national economy.

In order to improve the system of state regulation in air, railway, road and river transport the following agencies were established:

- State inspection of the Republic of Uzbekistan on flight safety oversight (Resolutions of the Cabinet of Ministers Nos.255 of 1998 and 90 of 26 February 2004) - State inspection of the Republic of Uzbekistan of railway transport safety supervision (Resolutions of the Cabinet of Ministers of 3 March 2001 and No.101 of 2 March 2004) - Uzbek Agency on Road and River Transport (Resolutions of the Cabinet of Ministers of 11 July 1998 and No.118 of 10 March 2004)

With a view to improving the management structure for aviation and railway transport, deepen the processes of monopolization and corporatisation of enterprises and organsations in transport industries, ensure on this basis the development of transport communications, technical upgrading of rolling-stock, improve the quality of transport service to the population, various industries and branches of the national economy, the National Air Company Uzbekiston Havo Yullari (Decree of the President of 29 January 1992 On establishment of National Air Company of the Republic of Uzbekistan), SJSRC Uzbekiston Temir Yullari (Decree of the President of the Republic of Uzbekistan No.UP-2815 of 2 March 2001), and Association Toshshakhartranskhizmat (Decree of the President No.UP-3713 of 11 January 2006) were set up.

The coordination of activities of all modes of transport in the territory of the Republic in terms of optimization, enhancement of efficiency and rationalization of freight and passenger transport, priority development sustained functioning of transport communications, expansion of international cooperation in transport and development of transnational transport corridors is performed by UTACA, established in pursuance of the Decree of the President No. UP-3494 of 11 October 2004.

UTACA is a non-commercial organization with the right of legal entity, which has specific tasks and responsibilities concerning:

- coordination of all transport modes; - management of development and implementation of integrated advanced development programmes; - coordination of works on development of the transport network and logistics system; - assistance in attraction of investment; - representation of the interests of Uzbekistan in international organizations; and - implementation of a range of measures concerning stability and the security of the transport system.

Also the activities of the Road Fund under the Ministry of Finance were revised (Resolution of the President No.PP-499 of 26 October 2006) in order to improve the procedures for the design, construction and reconstruction of roads, as well as to ensure the optimization of the performance financing of operating and contracting entities in the road industry.

At this time a Draft Resolution of the Cabinet of Ministers is under consideration, which stipulates the exemption from customs duties and Road Fund charges on imported road transport vehicles.

E.Tursunov Deputy Minister

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5. Ministry of Justice

Having reviewed the Draft Final Report there are no comments and proposals from the legal viewpoint.

Kh.M.Isakov, Deputy Minister

6. State Customs Committee

In fulfilment of the instructions of the Cabinet of Ministers No. 02/96-184 of 27 October 2006: in general the State Customs Committee has no specific comments or proposals on the Draft Final Report.

Concerning the establishment of the logistics centre (Appendix III-3), previously State Customs Committee in association with the Ministry of Foreign Economic Relations, Investments and Trade, SJSRC Uzbekiston Temir Yullari, Agency for Road and River Transport, NAC Uzbekistan HavoYullari have worked on the issue of transport logistics in terms of export of fruit and vegetables to Russia.

The analysis of geography for delivery of agricultural products from Uzbekistan covers more than 23 large cities in Russia. The destination of fruit and vegetables can conditionally be identified in three largest regions of Russian Federation – Central region (Moscow, St. Petersburg, etc.), Urals region and cities in Siberia. In particular, last year the volume of traffic to the Central Region totaled 55.4 per cent of the total volume of export of agricultural products to Russia.

The analysis of situation regarding transport of agricultural products to Russia gives evidence of underutilized potential for implementation of road movements, due to the numerous non-physical barriers when transiting the Republic of Kazakhstan.

By individual estimates the cost of all official/unofficial payments per vehicle for transiting Kazakhstan totals US$1800-2500. The following statutory payments are charged:

- payment for disinfection of road transport vehicle; - environmental fee charged for entry to environmentally protected areas, natural reserves, payment for movement through Almaty and Taldykurgan cities US$2/tonne; - execution of contracts of third party insurance; - payment for traffic rerouting; - payment for transit across bridges; - payment for completion of freight customs declaration in transit (Euro50 for basic sheet, Euro20 for additional sheets); and - mandatory availability of special permits for entry.

Thus, it is necessary to pay some US$1300-1800 of legally established payments for transit of one freight vehicle. Even when the freight is transported under TIR carnet, expenses exceed US$500.

As reported by the carriers, any cargo originating from Uzbekistan is subject to obligatory customs escort through Kazakhstan. According to the legislation of the Republic of Kazakhstan, customs escort shall be performed by specialist companies. Paid escort service by such companies essentially avoids any further controls from competent authorities. The cost of such service is US$1000-1300.

Also, it was reported that unofficial payments of Roubles1500–2000 are charged from road vehicles at the border checkpoint for accelerated passage: Roubles500-600 for border control, Roubles120 for transport control, Roubles200-300 for phyto-sanitary control and Roubles120 environmental fee.

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In view of the above, it would be practical to consider the issue of establishing in major southern cities of Russia (Astrakhan, Volgograd, Engels, Samara, Orenburg) logistics centres in the form of trading houses, consolidation terminals and further promotion of agricultural products to other regions of Russia, taking into account that transport to these cities can be performed across the shortest and least problematic route through the Republic of Karakalpakstan (Kungrad – Karakaplakiya – Beyneu) Republic of Kazakhstan. This route would also ensure increased utilization of Uzbek carriers.

Sh.Khairullaev, First Deputy Chairman

7. State Inspection for Flight Safety Oversight

Dear Ravshan Fazhullaev,

We have reviewed the Draft Final Report and have no comments or proposals concerning it.

Sincerely,

Kh.A.Trobov, Head of State Inspection for Flight Safety Oversight

8. State Joint Stock Company Uzavtoyul

Having reviewed the Draft Final Report Uzavtoyul has the following comments in regard to the roads section:

1. The project does not consider the construction in the medium term of the road to link the industrial and regional centres Navoi and Karshi. Currently the traffic between these cities goes via Bukhara, construction of this road would reduce the distance by more than 120 km. 2. The Consultants are recommended to review in the Final Report the recent Resolutions of the President on development and improvement of roads; revised Law on Roads; Resolution “On classification of road maintenance and repair work”; on the structure of Uzavtoyul; and Regulations on the procedures for road engineering. 3. The Report does not consider the most important (in the short-term) northern transport corridor Guzar – Nukus – Kungrad – Beyneu, where intensive roadwork is in progress. 4. It is mentioned in the comments on Articles 4 and 6 of the revised Law “On roads” that these articles were proposed by PADECO. However, the toll-road concept was proposed on the initiative of engineering departments of Uzavtoyul. 5. It is necessary to revise the format of some tables which do not have headings, etc.

N.Shosaidov, Deputy Chairman

9. State Inspection of Rail Safety Uzgosjeldornadzor

Concerning the instructions (No. 02/96-184 of 27 October 2006) we advise you as follows: the Draft Final Report was reviewed by our specialists and there are no comments and remarks on it.

A.S.Dusmatov Head of Licensing Department

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Dear Ravshan Faizullaev,

Please find enclosed the proposals of State inspection Uzgosjeldornadzor on ensuring rail transport safety to be included in a list accident-prevention measures for UTY and transport and transport communications development concept.

Attachment: 1 page.

Sincerely,

B.V.Yusupov, Head of Inspection, Uzgosjeldornadzor

Proposals of State Inspection Uzgosjeldornadzor to ensure rail transport safety to be included in a list of accident-prevention measures of UTY

1. Give priority to safety improvement of railway operation as one of the most important qualitative indicators of railway transport activities. Take measures to prevent and remove causes generating violations of railway transport safety rules. (Instructions of State inspection Uzgosjeldornadzor No. GI1-6-4-5 of 29 April 2004 On measures for ensuring of safety in railway transport operations. 2. Ensure continuous maintenance of technical facilities, as well as introduce diagnostic devices and systems to prevent emergency situations. 3. Rehabilitate railway tracks overdue for repair. 4. Guarded railway crossings shall be equipped with crossing barriers. 5. Purchase new model detector car (ultrasonic). 6. Purchase bridge inspection and bridge examination research car. 7. Furnish diesel locomotives with the radio train communication and driver’s alertness control devices. 8. Platforms at stations on electrified routes should be of car-floor height. 9. Replace old remote-control machines of station master-on-duty with the new ones with track and point occupancy control. 10. Provide automatic recording of trains sheets on sections with centralized traffic control. 11. Provide two-way radio train communication: driver – passenger train master. 12. Purchase track test car to ensure catenary system control. 13. Purchase brake inspection car. 14. Furnish guarded railway crossings with radio train communications with the driver, and sections with centralized traffic control – with traffic controller. 15. Purchase dynamometre test car to determine tonnage rating. 16. Purchase training simulator car equipped with electronic examiners, other technical facilities and visual aids to solidify knowledge and acquire the skills of actions in abnormal situation by the station masters-on-duty. 17. Purchase rolling-stock (freight wagons, locomotives, specialized rolling stock) to replace rolling stock with expired service life or obsolete (worn out). 18. Provide locomotives with integrated locomotive safety device. 19. Purchase hoisting railway cranes for accident recovery trains to work under overhead wires. 20. Provide accident recovery trains with specialists and equipment to work with chemical agents.

10. SJSRC Uzbekiston Temir Yullari (UTY)

In accordance with the instructions of the Cabinet of Ministers No. 02/96-184 of 27 October 2006 SJSRC Uzbekiston Temir Yullari has reviewed the Draft Final Report and submits herewith its comments.

Chapter 2. Transport Sector Status

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Para.2.3.1 Network – We suggest deleting the following: “Entities have been converted to State Joint Stock Company (SJSC) status. These are responsible for: (i) passenger services; (ii) wagon repair; (iii) refrigerated transport; (iv) container transport; (v) passenger coach repair; (vi) quarrying; (vii) sleeper manufacturing plant; (viii) electrical-mechanical workshops; (ix) Railway Design Institute; and (x) railway establishments repair. The remaining State interest in the SJSC’s is held by the State Property Committee. Further, 26 repair and miscellaneous units have been transformed into independent legal entities. Progress has been made in the divestiture of health, education and housing services, which in most cases have been turned over to local authorities” and replacing it with: “The Company was converted to State Joint Stock Company (SJSC) status. Non-core activities enterprises were privatised and divested, and also some core activities enterprises were corporatised: Open Joint-Stock Company Uzjeldorpass, Open Joint-Stock Company Uzjeldorcontainer, Open Joint-Stock Company Uzremvagon, Open Joint-Stock Company Tashkent passenger coach repair plant, Open Joint-Stock Company Dorreftrans. 51 per cent of shares of these enterprises were turned over to SJSRC Uzbekiston Temir Yullari. All housing facilities, schools and kindergartens were transferred to local authorities, as well as part of medical institutions”.

Para 2.3.3 Corridors – In the last sentence describing Corridor RL1: “Transit through the Kazak enclave near Tashkent has been avoided by diverting traffic to the line via Khavast, though part of this route is single track and distance is increased” we suggest excluding the words: “though part of this route is single track” since Kazak enclave on the section Pakhtaaral – Jetysai is also single track, while a section of the line passing through Khavast (Syrdaryinskaya – Khavast) is double track.

Chapter 14. Strategy for Institutional restructuring and human resources. Para. 14.3.2 Railway Transport, we suggest the sentence “As of September 2006, divestiture initiatives had stalled” be replaced with the following sentence “As of September 2006, privatisation of the blocks of stocks of these enterprises proceeds at a slow pace…”.

Also, it is necessary to amend T16-5 UTY Investment Programme 2006-10 in accordance with the attached Table.

Attachment:

A.S.Shukurov, Chief Manager – Chief Engineer of the Company

UTY INVESTMENT PROGRAMME 2006-10 Project Total Financing US$ Million Cost 2006 2007 2008 2009 2010 Total

New Lines Navoi- State budget ------Uchkuduk- UTY 1.7 10.3 4.6 11.2 5.0 32.8 Sultanuizdag- Nukus 361 km Angren – Soum UTY - - - - 0.5 0.5 Pap 1500 145 km Guzar – 447.4 State budget 4.5 6.5 6.0 - - 17.0 Boysun – 29.9 Kumkurgan UTY – 266 85.0 47.1 34.4 - - 166.5 250 km JBIC – 151.5 4.1 96.1 48.5 - - 148.7

Track rehabilitation Track 141.4 ADB – 60.4 3.2 - - - - 3.2 modernisation OPEC – 5.0 ------

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Samarkand – UTY – 76.0 12.7 - - - - 12.7 Khodjidavlet, 341 km (phase 2) Track 43.0 UTY – 43.0 - - 5.0 8.0 10.0 23.0 rehabilitation Marokand – Karshi 139 km Reconstruction IDB- 5.0 - - - 2.5 2.5 5.0 of stations 27.4 EC grant Termez – funds – 1.2 1.0 0.2 - - - 1.2 Galaba and JBIC – 10.0 - - - 5.0 5.0 10.0 River Amudarya UTY – 11.1 - - - 5.0 6.14 11.1 Bridge

Telecommunications Construction 13.6 ADB – 9.6 1.0 - - - - 1.0 of fibre-optic UTY – 4.0 4.0 - - - - 4.0 line Tashkent - Bukhara (Phase 2) Navoi- 5.0 UTY – 5.0 - - 1.0 4.0 - 5.0 Uchkuduk- Sultanuizdag- Nukus – fibre-optic line Telecoms 2.0 IDB – 1.0 - - - 0.5 0.5 1.0 facilities EC grant Termez – funds – 1.0 0.5 0.5 - - - 1.0 Galaba and River Amudarya bridge project

Development of repair facilities Reconstruction 65.5 EBRD – 12.0 1.2 5.5 5.5 - - 12.2 of Uzjeldorremmas, JBIC – 30.0 - - - 16.0 6.0 22.0 Foundry and UTY – 27.0 1.0 2.0 2.0 6.0 6.0 17.0 Mechanical Plant Reconstruction of Andijan 12.0 UTY-12.0 1.0 1.0 1.0 2.0 2.0 7.0 mechanical plant Development 25.2 IDB – 18.2 - - - 10.2 8.0 18.2 of UTY wagon UTY – 7.0 - - - 4.0 3.0 7.0 repair facilities

Electrification Tukumachi 79.4 UTY – 28.0 2.5 13.2 8.8 - - 24.5 –Angren KfW – 31.3 - 14.0 17.3 - - 31.3 - 114 km Kuwait fund - 8.1 12.0 - - 20.1 - 20.1 Marokand- 250.0 UTY – 250.0 - - - 28.0 28.0 56.0 Karshi-Tashguzar-Boysun- Kumkurgan (projected) Marokand – Approx. UTY – 120.0 - - - - 5.0 5.0 Navoi 200.0 Foreign - - - - - 5.0 5.0 145 km investments- 80.0

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(projected)

Modernization 90 diesel loco. 54.2 EBRD 17.8 14.4 20.0 - - 52.2 power units Equipment 25.6 UTY 1.6 2.0 6.0 8.0 8.0 25.6 and technology Construction 62.3 UTY 10.3 11.0 15.0 11.0 15.0 62.3 of tank cars and wagons Procurement 24.4 JBIC - - - 8.4 10.0 18.4 of spare parts and assemblies for construction of freight wagons Modernization 84.0 UTY 12.0 18.0 18.0 18.0 18.0 84.0 of rolling stock Other infrastructure UTY 7.5 3.0 5.0 8.0 7.0 30.5 facilities of the company

UTY 139.3 107.6 100.8 113.2 113.6 574.6 Budget 4.5 6.5 6.0 - - 17.0 Foreign investment 28.8 138.9 103.3 42.6 37.0 305.6 Including: Credits 27.3 138.1 103.3 42.6 37.0 348.3 Grants 1.5 0.8 - - - 2.2 Grand Total 172.6 252.9 210.1 155.8 150.6 942.1

11. Uzbek Association of International Freight Forwarders

The Association has reviewed the Draft Final Report. AIFUz has twice submitted proposals to be included in the Transport Sector Strategy Reports, aimed at furthering development of the transport forwarding industry in Uzbekistan. These proposals were elaborated in consultation with international experts within USAID programme, the TRACECA regional programme and UNDP.

AIFUz’s proposals were included in the Draft Final Report submitted, except those concerning the establishment of Regional Logistics Dispatching Service and a specialized web-site. In view of the above, you are kindly requested to add an item 18 “Establishment of Regional Logistics Dispatching Service and specialized web-site” to section 11.4 Actions of Chapter 11 Strategy for Logistics and Freight Forwarding.

A.Mukhidov, First Deputy Chairman

12. Uzbek Agency for Road and River Transport

In accordance with the instruction of the Cabinet of Ministers, we have reviewed the Draft Final Report and have the following comments:

In general, a large volume of information was provided on the current state of transport sector of Uzbekistan and directions of perspective development have been given. However, the following comments and proposals are seen as appropriate to improve the Report and the Strategy (comments and proposals are given not in accordance with the chronology of the Report, but on the priority of significance of the issue from the Agency’s point of view).

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I. In relation to the proposed amendments to the Law of Uzbekistan “On road transport” (Appendix XV-4):

Article 2 The Consultants write that “….The article presents four definitions that differ from those commonly used internationally. The first definition, that of motor transport, seems more consistent with a command economy than with a market economy. The second definition, of motor vehicles, is awkward as it refers, for example to semi-trailers carrying passengers. Consideration should be given to introducing standard international definitions. For example, dangerous goods may be defined according to the Convention Regarding Agreement for the Transport of Dangerous Goods (Accord Dangereux Routiers in French, ADR).”

There are questions in this regard: a) What edition is proposed by the Consultants on the first definition? b) What is awkward with the explanations related to transport vehicles? (FYI current edition: Motor vehicles – cars, cars-carriers, trailers and semi-trailers designated to transport passengers, baggage, freight and accomplishing special works”) What edition would the Consultants offer? c) Where are the comments on the other two definitions? d) What is the relation of dangerous goods to Article 2 of the Law

Article 6. Proposal about adding “taxi” to the definition of passenger motor vehicles is not appropriate. Taxi – it is variety of transportation, but not the class of motor vehicle.

Article 10. Unclear proposals adding to the responsibility of state body on management of road transport the conditions like “provide information regarding road transport to citizens, legal entities”. What information?

Article 15. Unclear proposals on this article. The sentence that is supposed to change it with new article is not well formulated.

Article 22. Absolutely unclear proposals.

Existing edition of Article 22. The responsibility Proposals of consultants (word by word from of carrier in case of loss, shortage and damage the report) of freight or luggage.

The carrier is responsible for loss, shortage and The first paragraph of the article sensibly damage of the freight or baggage to be places the burden of proof on the operator delivered if he can not prove that loss, (presumably requiring a “more likely than not” shortage and damage of the freight or baggage showing) for showing that loss, shortage, or was not his fault damage of freight or luggage was not his/her Damage caused while transportation of the fault. A critical question remains as to the freight or luggage shall be compensated by the degree of fault required under the law; the carrier in the amount of loss, shortage or consultants suggest that a lack of due diligence damaged freight or luggage as well as on the part of the carriers should be sufficient transportation cost received from the customer to create liability. The consultants urge that the for the delivery of loss, shortage or damaged third paragraph be replaced, as it allows for a freight or luggage if this cost is not included in wide range of damages, which is inconsistent the cost of freight or luggage. with all international regimes and the domestic The customer has the right to claim from the regimes of most developed countries, and carrier the compensation and other losses which creates a virtually uninsurable burden on caused by the loss, shortage and damage of carriers that can seriously distort market prices. the freight. The consultants also urge that an additional paragraph be added to cover the liabilities of successive transport operators.

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The Consultants should be aware that in accordance with Convention about the agreement of international freight transport (Geneva, 19 May 1956), burden of proof of those that loss of the freight, its damage and delay in the delivery took place not because of fault of carrier, but still is the responsibility of the carrier (article 18).

Article 23. Unclear proposals.

Article 28. Unclear proposals as well.

Existing edition. Proposals of consultants

Passengers while using road transport in An article on insurance is critical for the international and intercity routes are obliged to implementation of traffic safety and revisions personal insurance. of Article 28 could sensibly be introduced to The order of compulsory personal insurance is more closely follow international practice. The set up by the legislation consultants have recommended such language Voluntary insurance of passengers’ life, health and also recommend re-titling the article as well as insurance of baggage and luggage is Insurance Required by Road Transport realized on the basis of insurance agreements Operators. in accordance with legislation

Taking into account that the Law of Uzbekistan “About road transport” is basic legal act in the sphere of road transport, the consultants should have proposed not broaf advises but concrete and justified proposals. Accordingly please clarify clause 15.4.2.

II. Comments and proposals on chapter 8 Strategy for Roads and Road Transport

Clause 8.2.3. In the first paragraph of this clause, where it is stated that “ about necessity of significant increase in the vehicle fleet with a load capacity over 20 tonnes is needed, particularly trucks with a gross weight of 40 tonnes and a maximum axleload of 11.5 tonnes” it is required one more time to clarify that it has to do with international shipments. With regard to domestic shipments, this subsector is in great need of cotton carriers, wheat carriers and other types of freight trucks the load capacity of which is significantly less than 20 tons.

Not a clear proposal about the necessity of introducing licensing of operators in order to stimulate the professionalism and how do the Consultants justify their idea that larger operators are in a worse situation because of stricter regulations of them than private drivers and small operators? Additional clarification is needed.

Clause 8.2.7 Institutional mechanisms.

The Consultants state that “It is important to separate the operator and any potential future vehicle licensing functions”. The Consultants must be aware that today this task has been completed and it was supposed to be reflected in section 2 of clause 2.12 “Institutional state”, characterizing mutual relations of operators and UARRT, as well as description in clause 2.11 did not take place from the point of view of Agency.

Section 8.2 It is preferable to clarify additionally about the idea of changing road fee that is taken while registering transport vehicle to the annual licensing fee.

Section 8.4 Actions:

a) Indicated actions should be reflected in (should comply with) section 17 “Action Plans”

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b) Add actions that is proposed in the description part of the Strategy, for example, the measures to join Uzbekistan to the Agreements on weights and dimensions of transport vehicles, about introduction of international certificate of weighing of freight transport vehicles. c) Exclude action Rd 23 (introduction of licensing of operators to increase the qualification), as it is already in place; d) Clarify action Rd 21.

III Section 12.1

Actions for inland waterway transport should be supplemented by: “Renewal of vessels by building vessels designed for navigation in specific conditions, replacement of spare parts and assemblies of hoist gantry cranes, renewal of transfer fork lift trucks.

IV Chapter 13 Strategy for Urban Transport T13-1 Urban Transport Competitive Distortions

a) Exclude clause 3 (low penalty fees - low level of fines - carriers evading tax or working without licences are subject to minimal fines). For the information of the Consultants - The Law of the Republic of Uzbekistan dated 27 September 2006 # ZRU – 56, an article 176-3 “Dealing with transport of passengers without licence” was added to the code of administrative responsibility, in accordance with dealing with transport of passengers by road transport without licence by citizens is punishable by a penalty of 20-100 minimum wage rates and for official entities from 50-100 minimum wage rates. In general, section 13 in the presented format is not seen as appropriate.

V Section 2.12. Institutional state

This clause does not describe correctly the current institutional state in transport sector. It was not shown in the report the significance of the decree of the #UP-3358 dated 9 December 2003 On Improving the System of the Republican Body of State Governance and also the resolutions issued to implement this decree # 118 dated 10 March 2004 About measure on further improving the activity of the Uzbek Agency of Road and River Transport, # 90 dated 26 February 2006 About measures to improve the the activity of the State inspection of Uzbekistan on the safety control of flights”, #101 dated 2 March 2004 About measures to improve the activity of state inspection of Uzbekistan on safety control of railway shipments and some other documents.

It is probably because of this that there was such limited vision of the Consultants on the status of UARRT that is described only in that “The Road and River Agency is responsible for licensing, including inter-city bus services. Minibus services are franchised by city authorities, as well as regarding incapability of the Agency on issues optimizing the custom duties on importing motor vehicles (paragraph 5 in clause 14.2.1).

VI. It is necessary to exclude from the whole text words, phrases, sentences and other remarks included without any justification and in some cases opposite to the Legislation of Uzbekistan.

In particular:

Clause 2.5.2. River ports. Unclear information about two 20 tonne cranes Takraf. Such cranes are not available in Termez port. Paragraph three in clause 14.2.3 regarding the creation of regulating bodies.

Sh.Shavakhabov Deputy Head

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13. Ministry of Foreign Economic Relations, Investments and Trade

1. It is necessary to check data in the Report on traffic volumes by mode of transport compared with official statistics. 2. Para 2.3.2 International Links – It is necessary to exclude sentence 6, as the efficiency of new railway line construction shall be identified through the thorough analysis based on the prescribed feasibility study. Also, it was mentioned in the Para. “Kazakhstan” that following the construction and commissioning of the Trans-Kazakhstan railway the annual volume of cross- border and transit traffic with China may increase from 8 to 30 million.tonnes. It is necessary to provide the calculation and source of information. 3. Para 2.12., last sentence – replace “Ministry of Foreign Affairs” with “Ministry of Foreign Economic Relations, Investments and Trade” 4. Para.3.5.5. D – replace “ratified” with “signed” 5. Para.3.8.2. Logistics Centres – Logistics issues were not sufficiently covered within the local context. 6. Table 4-9 International Road Transport - Item 3 of “Strengths” should be revised; in “Weaknesses” item 7 should be deleted, since the adoption of international conventions cannot be a weakness in international road transport. 7. Table 4-17 – Items 1 and 3 in “Strengths” should be deleted; Item 1 should be revised to adequately address the issue. Item 1 in “Threats” should be deleted since, in Uzbekistan, equal conditions are created for the operation of both national and international freight forwarders. 8. Para.8.2.2 Spare parts, first paragraph – explain the meaning of “practices”. 9. Para.15.4.1 should be excluded, because Uzbekistan is a signatory to the Customs Convention on the Temporary Import of Commercial Vehicles, 1956.

In general the Report considers (examines) the current status of the transport sector and formulates aspects for further development strategy, which can be used as an ancillary factor for prioritization of further sector development.

However, the Report should be amended. For instance, in terms of international road transport, it should be noted that due to the inadequate provision at Uzbekistan customs border points of vehicle weighing equipment, efficient control of foreign carriers’ across the country is weakened. Also, this factor is the main barrier to Uzbekistan’s ratification of the Minsk Agreement on the Weight and Dimensions of Road Vehicles Carrying Out Interstate Transport on the Roads of the CIS (4 June 1999).

N.Najimov, First Deputy Minister

14. UTACA

1. Transport Sector Status Overview (Chapters 2-6)

In general the Report is sound, however, some amendments should be made in the overview of the current situation in the sector and the prospects for future economic indicators, in particular for the long-term perspective after 2010.

2. Proposed National Strategy 2.1. Roads and road transport (Chapter 8)

Proposals to define minimum standards for road surface condition and for volume:capacity ratios network-wide by end-2013 can be accepted on the assumption of tightening.

In proposals to upgrade main transport corridors it would be useful to pay special attention to the development of the road section Samarkand-Navoi-Bukhara.

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The proposal to liberalize the procedure for the import of used vehicles is unacceptable, as it is inconsistent with the country’s long-term strategy on road transport fleet development. The Government considers the possibility for sensible reduction of customs payments charged on the import of new heavy Euro-3 compliant trucks to further diversify road transport geography and to develop freight transport services by national road carriers.

Meanwhile, the proposal to limit import of used vehicles to those under 10 years and to value used vehicle imports at the price in the pro-forma invoice is not consistent with the established international practice on the regulation of road transport vehicle imports. Incremental rates of customs duties are normally imposed on such vehicles, in the form of combined rates (a combination of ad valorem and specific rates).

In regard to the proposal to introduce operator licensing, it should be noted that passenger and freight transport operations are subject to licensing.

Proposal to accede to the Agreement on the Weight and Dimensions of Road Vehicles. At present, Uzbekistan is a signatory to these conventions and brings up the question to neighbouring countries to increase their axle load limits, which are lower in some adjacent countries than in Uzbekistan.

Proposal to replace road tax registration charge by an annual vehicle license fee. At this time in the registration of vehicles in the agencies of the Ministry of Interior, the charges are levied rather than road tax on the cost of purchased and temporarily imported road transport vehicles, as well as contributions to the Road Fund by the road transport enterprises, the core business of which is in freight and passenger transport, charged on the basis of product sales (works, services), less VAT that by implication is coincident with the proposed fee. At this stage it would not be practical to abandon the vehicle registration charge.

2.2. Railway transport (Chapter 9)

We consider the proposal to set up a Surplus Assets Authority to be impractical. The State Committee for State Property Management is assigned to keep records and maintain a register of state property and to implement a series of measures to increase the operating efficiency of enterprises with state ownership (shares), to develop and implement the denationalization and privatization programmes, to introduce an effective pre-privatization and presales preparation of enterprises for further sell-off to private ownership.

The proposal to reduce/eliminate border delays by introducing on-train passport and customs inspection will be gradually considered taking into account security issues.

2.3. Air transport (Chapter 10)

The proposal to divest airport operations from UzA with further privatization and to set up an Uzbekistan Civil Aviation Authority to be assigned to perform supervising functions on airport operation is sound, though premature.

Proposal to review security procedures can be accepted on the assumption of tightening thereof.

Proposal to establish separate financial reporting for airports. In accordance with the legislation of Uzbekistan, financial reporting is maintained separately for each individual airport. At this time a computerized accounting system based on 1-S software (Russian) is being introduced.

We think that it would be practical to consider the proposal to remove legal/regulatory constraints restricting competition in airport services providing a choice of supplier, particularly in passenger, cargo and ramp handling, when the relevant infrastructure is in place and when airport traffic volumes are higher.

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The proposal to increase UzA management autonomy with Government interventions limited to strategy and policy issues in general is consistent with the principle of administrative reforms and would be performed in stages.

2.4. Strategy for Institutional Restructuring and Human Resources (Chapter 14)

A significant part of the proposals has already been implemented. Thus, in regard to actions specified in Para.14.7.2, relevant legal acts have been adopted and are under implementation.

However, some of the proposals in Para.14.7.4 are premature and require deeped analysis, in particular, those on establishing an Uzbekistan Civil Aviation Authority, divesting airport operation and ANS from UzA and transferring them to UCAA.

2.5. Strategy for Legislation and Regulation (Chapter 15)

This chapter is approved; however, it is necessary to verify a list of conventions and regional agreements signed and ratified by Uzbekistan, as well as to examine thoroughly individual agreements and conventions prior to their signing and ratification.

3. Action Plan (Chapter 17)

The proposed Action Plan is essentially designed for the short and medium terms and it includes to a considerable extent those structural reforms and measures which are already being implementation in the transport sector. In this regard it is necessary to refine the Action Plan in a long-term perspective and to take into account the above comments.

A fundamental proposal of the study, which the proposed actions are based on, is the establishment of a Ministry of Transport.

However, the administrative reforms strategy implemented in the transport sector implies staged limitation of Government intervention in the sector, which is largely responsive to the introduction of market mechanisms of economic management and self-regulation. In this context, the Government has adopted a number of resolutions aimed at establishment by the state of explicit principles of regulation in the sector and the creation of conditions for the conduct of effective commercial activities by transport companies.

Thus, UTACA was assigned to perform the coordination of interaction of all modes of transport, development of all types of transport communications, including international corridors. The Ministry of Economy is responsible for strategic planning of the industry and formulation of the development policy as part of the requirements of various industries and of the population for transport. The Ministry of Finance is entrusted to perform tariff policy regulation of transport companies. Supervisory and control functions are performed by State inspection of rail safety oversight in the rail transport, State inspection on flight safety oversight in air transport, UARRT together with the State Tax Committee and Ministry of Interior in road transport.

In the light of the above administrative arrangements, it is not necessary to set up a Ministry of Transport.

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Appendix I-2

SEMINAR ON Draft Final Report 20 NOVEMBER 2006: SUMMARY OF PROCEEDINGS

I INTRODUCTION

The Seminar programme is given in Attachment 1 and the list of attendees in Attachment 2.

Mr. Ravshan Faizullaev (Chairman, UTACA) welcomed all participants to the Seminar and introduced the new head of the ADB Uzbekistan Resident Mission Mr.Hong Wei. The Chairman noted that the study was important. A particular current issue is financing of the transport sector. Many reforms have taken place in the road sector, including the establishment of the Road Fund and the development of a road investment programme to 2010, approved by Government. These are significant steps, but work is still needed on road design issues to ensure compliance with world standards. Much work has also been done in the rail sector, with considerable attention being paid to the Transafghan corridor and links with/through Iran, including a $452 million project co-financed by JBIC. Other issues include the lack of logistics centres and of qualified market-oriented personnel. The Chairman particularly noted PPP as one of the weakest aspects. The size of the transport market is such that there is significant potential for PPP and he asked the Consultants to consider further steps to stimulate it.

Mr. Hong Wei (Country Director, ADB URM) welcomed participants and noted the active participation of stakeholders by the large attendance at the Seminar. He had reviewed the Draft Final Report and found it comprehensive and useful and thanked the Consultants for their work. He also pointed out that the strategy would act as a basis and guide for the country’s transport development and thanked all the parties involved for their cooperation and for their comments on the Report. Mr. Wei remarked on the good basic transport infrastructure and network coverage. Major issues concern rehabilitation of roads and railways and in particular the renewal of the bus and truck fleets. He noted that comments received should be addressed in the final strategy, which should be practical and implementable.

Mr. Wei stressed Uzbekistan’s central location in the global trade chain. ADB is ready to support the country’s development, particularly of the transport sector. It is critical to clearly prioritize what is needed and to formulate long term plans and visions.

II COMMENTS AND DISCUSSION ON PRESENTATIONS

Mr. Sidiknazarov, President, Uzbek Association of Automobile Transport Carriers commenting on Peter Mansell’s opening presentation noted that he had previously suggested reviewing alternative transport development models to define the one most appropriate for Uzbekistan’s situation and that the basis for strategy formulation is to define gaps in the legal and regulatory framework. He referred to the Law on Automobile Transport and said that when it was initially prepared it favoured state-owned structures, though reforms in the transport sector now favour the private sector and asked what suggestions could be made in this regard. He asked in particular whether it was considered what changes are proposed in the Law and the subsequent normative base. He also raised the issue of whether the individual (franchised minibus) or company (large bus) approach is more appropriate for the development of Tashkent urban passenger transport, favouring the former approach. He also raised the issue of introducing quotas for freight forwarders, which is normal practice in some European countries. He also asked why the Report did contained only limited information on investment.

Peter Mansell responded that legal and regulatory comments are being considered by Bruce Winston and will be reflected in the Final Report. He noted that it would be difficult to adapt a single model for Uzbekistan’s particular circumstances. He explained that some of the investment data was outstanding

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and that the Final Report would include more detailed plans. He also noted that all comments received by 24 November will be addressed in the Final Report.

Mr. Eshonkhodjayev, Professor, Automobile Road Transport Education Institute, asked whether the extension of existing metro lines and the completion of Line 3 had been considered as options for Tashkent’s urban transport development.

Peter Mansell replied that the metro is capital intensive and investment should be carefully prioritized based on an analysis of expected future travel patterns, which is not yet possible because of the lack of basic travel data. It is first necessary to rehabilitate the existing system and to attract additional passengers through measures such as an integrated ticketing system. A second stage might be the completion of the northern extension of Line 3, 24 per cent of the work for which has been done. This might add over 100,000 daily journeys by metro.

Mr. Faizullaev said that metro extension is one of the issues which needs to be looked at carefully by the Government since, for example, the Yunusabad section is served by other modes, with a tram route parallel to Line 3. Trams should be provided in other areas, where they are really needed.

Mr. Faizullaev rejected Mr. Sidiknazarov’s proposal to develop the individual-based approach to Tashkent urban transport, as this would create a situation in which the city would be overloaded with Damas-type minibuses, creating peak-hour congestion and that therefore traditional passenger transport should be developed further, i.e. a company-based approach. He also endorsed Peter Mansell’s suggestion to establish an integrated ticketing system, which would encourage modal interchange. The Chairman stressed that the improvement of public transport should not be neglected.

Mr. Faizullaev asked Mr. Bakhadirov to obtain all agency comments and responses to the Report by 23 November in order that the Consultants could address them in the preparation of the Final Report.

Mrs. Galina Magay, (UAART) said that the Report was quite comprehensive and provided a lot of information, however, UARRT had submitted written comments and she pointed out some of the major ones concerning the Consultants’ proposals on road transport law, which needed to be concise and concrete, especially in defining articles of law. She also pointed out that the Consultants were not apparently aware of some decrees and resolutions already adopted by the Government and therefore had made some recommendations which had already been implemented.

Mr. Tulyaganov, Gosavianadzor (State Inspection of Flight Safety) noted that in Appendix XV-11, Articles 90/91 had been omitted and that these should be included, as they had been discussed and agreed with EuropeAid. Peter Mansell accepted the comment.

Peter Mansell raised the issue of Government compensation for social obligations (free/subsidized urban transport tickets, provision of uneconomic local rail services, domestic air services etc.). Mr. Faizullaev agreed that this issue should be addressed now, as operators might not be able to carry the burden in future. There should be a joint public:private approach.

Mr. Tagirov (UTACA) asked whether the implications on the road network of increasing the axle load to 13 tons had been considered and whether the higher limit was consistent with the existing road technical standards. He also asked why the Navoi-Uckuduk-Kzil-Orda road had been considered for development as an international corridor.

For the Consultants, Abror Eshankoluv replied that the road surface condition should be improved to meet the requirements of the recommended axle load. He said that Kazakhstan/Russian Federation had recently increased their axle load limits to 13.0/11.5 tonnes respectively. He also noted that it was recognized that in practice many trucks already exceeded the 10 tonne limit in Uzbekistan. Some road sections were substandard and had been damaged/destroyed by overloaded trucks. A large number of oil tankers were using the Kamchik pass A373, damaging the pavement. Asphalt quality from the Ferghana plant needed to be improved, or high quality asphalt should be imported.

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Mr. Faizullaev asked whether railway electrification had been considered and, if not, recommended that it be included, since there are long term benefits, even given the large capital investments needed.

Mr. Saifnazarov asked whether there were any legal documents regulating airport landing and customs clearance procedures. For the Consultants, Alisher Satirov replied that such documents existed, but there were problems of coordinating the many agencies involved. Mr. Faizullaev noted that the Japanese Ministry of Trade and Tourism had recently passed to UzA a leaflet concerning problems encountered at Uzbekistan airports and that this was being reviewed. Mr. Faizullaev also said that it was necessary to consider the appropriate strategy for UzA, how it could retain existing domestic market-share. He noted that UzA had lost traffic on the Samarkand/Bukhara routes due to improved rail services and that this would happen on Ferghana Valley routes, should the Angren-Pap line be constructed.

Mrs. Magay asked what impact the unloading of road and rail transport had on river transport. For the Consultants, Abdukhakim Djumankulov replied that currently Termez port is used as a logistics centre and serves as a storage place for road and rail.

Mr. U. Arifdjanov, Head, Tashkent City Department for Transport Licensing, said that his Department’s role was not reflected in the Report and also that there are some legal documents already approved at state level clarifying some of the issues, for example separation of the roles of customer and operator. He hoped that his written comments would be addressed in the Final Report.

Mrs. Magay also asked why some sub-sectors were provided principally with short-term action plans. Peter Mansell replied that not all data were available to develop the medium/long term plans and that traffic surveys were necessary, particularly to support planning for urban transport, but that the Final Report would provide additional details on investment programmes and more extensive medium/long term action plans.

Mrs. Magay addressed the proposal to set up a Ministry of Transport. She supported it, but noted that some of the proposed responsibilities were already being well covered under the existing organization structure. For example, regulatory agencies for the sub-sectors exist and are functioning. What is missing is coordination of activities, which she agreed would be better performed under a single agency. She requested that the Final Report document the existing institutional arrangements.

Mr. Bakhadirov asked the Consultants to take Mrs. Magay’s comments into account.

Mr. Kuznesov (Association of Automobile Road Carriers) said that the Association had provided detailed comments to the Consultants and asked them in particular to look into the issue of formulation an investment plan for fleet renewal. He noted in particular that currently 80-90 per cent of freight was carried by road and, as the Report notes, 90 per cent of the truck fleet is life expired and needs to be replaced, why then is there no recommendation to support a financing plan for such replacement.

Peter Mansell responded that fleet replacement is the most expensive sector investment outstanding and that further consideration is now being given to the financing issue.

Mr. Bakhadirov agreed, but remarked that the former management in this sub-sector had not taken sufficient measures to maintain their fleets when they had an opportunity to do so, thus contributing to the existing situation. UTACA, together with the Consultants, would try to develop appropriate measures.

III COMMENTS BY STEERING COMMITTEE MEMBERS

Mr. Azamov (Uzavtoyol) acknowledged that a lot of work had been done and everybody should appreciate the amount of information gathered and presented in the Report, which would enable further analysis for sector development. He recommended reviewing and assessing the regulatory base for consistency with the Consultants recommendations.

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Mr. Aliyev Tokhir, Ministry of Foreign Economic Relations, Investment and Trade, agreed that the most pressing and difficult transport issue is vehicle fleet renewal. He said that the Final Report should be used as a basic document to facilitate transport sector development and to assist the Government, ministries and agencies in further work and in formulating the most appropriate Concept for the sector. He said that all relevant ministries and agencies needed to work further on developing the transport sector.

IV COMMENTS BY ADB

Rafael Nadyrshin, National Portfolio Officer, ADB URM, thanked everyone for their active participation in the discussion of the Draft Final Report and also for their valuable comments, as provided to the Consultants. He said that ADB wanted the Final Report to provide a practical roadmap to facilitate future ADB support for the sector. He noted that ADB is a long-term partner for Uzbekistan in many sectors, including transport, the previous interventions in which sector he detailed. He said that this would continue. He also said that the transport strategy will be valuable for ADB, as it will allow the Bank, in collaboration with the Government, UTACA, ministries and agencies, to initiate the next steps on project financing to support the transport sector’s development goals. He added that the final Tripartite Meeting was on 24 November.

V CLOSING REMARKS

Mr. Bakhadirov in his closing remarks noted key issues raised during the Seminar, he noted that a lot of information had been collected and that this should lead to further analysis. He rejected Mr. Sidiknazarov’s proposal for a quota system for freight-forwarders, since this is appropriate for saturated markets. In Uzbekistan this does not apply and the suggestion is irrelevant. He said that Uzbekistan is the leader in the region in signing transport conventions and asked the Consultants to consider the best way of applying the conventions in Uzbekistan so that they work for Uzbekistan, based on their international experience. He noted that he had raised this issue previously and requested that it be reflected in the Final Report, where possible. Mr.Bakhdirov asked about other countries’ experience in implementing conventions after signature/ratification. He asked the Consultants to consider the results of other donors’ activities in fleet-related issues and to consider the options of new purchase against renovation with respect, for example to the railway coach fleet.

Mr. Bakhadirov thanked participants and wished the Consultants success in finalizing their work.

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Attachment 1

Seminar Programme 20 November 2006

09.00-09.45 Registration 09.45-10.00 Opening Remarks by UTACA (Rafshan Faizullaev) 10.00-10.15 Introduction by ADB (Hong Wei) 10.15-10.45 1. Study Overview and Draft Final Report (Peter Mansell) 10.45-11.00 2. Legal and Regulatory Framework (Peter Mansell) 11.00-11.30 3. Logistics (Anvar Uronov) 11.30-11.45 Refreshments 11.45-12.10 4. Roads and Road Transport (Abror Eshonkulov) 12.10-12.35 5. Railways and Rail Transport (Kholmurad Ismailov) 12.35-13.00 6. Airports and Air Transport (Alisher Sattarov) 13.00-13.15 Comments and Open Discussion

13.15-14.45 Lunch

14.45-15.05 7. Inland Waterway Transport (Abdukhakim Djumankulov) 15.05-15.30 8. Urban Transport (Bakhtiyar Umirshaykhov) 15.30-16.20 9. Institutional Issues, Investment, Next Steps (Peter Mansell) 16.20-16.30 Comments and Open Discussion 16.30-16.35 Comments by Members of Steering Committee 16.35-16.50 Comments by ADB (Rafael Nadyrshin) 16.50-17.00 Closing Remarks by UTACA (Fuod Bakhadirov) 17.00-17.15 Refreshments

Attachment 2

List of Registered Seminar Attendees

ADB Uzbekistan Resident Mission Hong Wei R.Nadyrshin B.Rakhmatov Association of International Freight Forwarders A.Mukhidov Association of International Road Carriers of Uzbekistan K.Sidiknazarov N.Kuznetsov Association Toshshakhartranskhizmat V.Nugumanov Central Asia Trans R.Azimbaev Department for Licensing of Coordination of Passenger Transport Operations under Municipality of Tashkent City Yu.Aripdjanov EBRD Khurshida Uzakova

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Islohotkonsaltservis (IKS) M.Mirakhmedov Ministry of Economy B.Mirbabaev Ministry of Finance D.Soimov Ministry of Foreign Economic Relations, Investments and Trade T.Aliev State Inspection for Supervision of Flight Safety R.Tulyaganov State Inspection for Supervision of Rail Safety A.Rakhimjanov Tashkent Automobile and Road Institute (TADI) Mukhitdinov Shermukhabov Askarkhujaev Eshonkhujaev Sidiknazarov Uzbekiston Temir Yullari (Uzbek Railways) Kh.Khamidov Z.Kurbanov Uzavtoyul V. Azamov Uzbek Agency for Road and River Transport G.Magai Uzbekistan Airlines E.Ubaidullaev Uzjeldorexpediciya A.Yunusov Uzvheshtrans R.Mirsamatov Uzyulloyikha Design Institute A.Mukhamedov UTACA R. Faizullaev F.Bakhadirov Domestic Consultants Sh.Mirkhamidov A.Djumankulov S.Mustapov A.Eshonkulov R.Dadakhodjaev A.Sattarov Kh.Kazakkhxanov Kh.Ismailov M.Yusupov A.Urunov U. Taymetov B.Umirshaykhov Akmal Abdullaev International Consultant Abdugofir Abdullaev Peter Mansell A.Elmurodov A.Tagirov R.Khudaibergenov J.Rakhmanov

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Appendix I-3

TRIPARTITE MEETING/VIDEO-CONFERENCE 24 NOVEMBER 2006: SUMMARY OF PROCEEDINGS

Rafael Nadyrshin (ADB URM) introduced those present in Tashkent to Olly Norojono in Islamabad, Pakistan (attending by videolink) – see Attachment.

Mr.Norojono apologized for not being able to attend the Draft Final Report Seminar. He confirmed that he had received the consolidated agency comments on the Report and the minutes of the Seminar and asked Peter Mansell how he was planning to address the comments in the remaining time.

Peter Mansell noted that comments had been passed to other members of the team and that meetings had been arranged with relevant agencies. He anticipated that the Final Report would be submitted by 9 December, with the Executive Summary to follow after about one week.

Mr. Norojono asked what were the major comments that the Government wished the Consultants to address in the Final Report. Mr.Bakhadirov said that all comments had been discussed at the Seminar. He noted again an issue raised both by the Chairman of UTACA and by the Head of the URM Hong Wei: the development of transport operators in Uzbekistan. Another major comment was that medium and long term action plans were largely missing in the Report. He remarked that other issues and comments were being discussed at working level with Peter Mansell.

Mr. Norojono asked whether the comments could be addressed within the time left and Peter Mansell replied that they could be, with many of the specific comments not time consuming, but that ADB comments might require more time.

Concerning the Government’s comment on long term action plans, Mr. Norojono said that the investment plans included in the Report were proposed by the modal agencies and that the Consultants should develop their own investment programme, compare it with those of agencies and develop a practical programme.

Peter Mansell accepted the comment and noted that next week he would be meeting with the Ministry of Finance to discuss the financial implications from the Government viewpoint on issues such as leasing for bus/truck fleet renewal, aircraft purchases and railway electrification and that the investment programme would be expanded in the Final Report.

Mr. Norojono said that it was good to review modal agency investment programmes, but it was also critical to comment on these plans in terms of their feasibility. Peter Mansell accepted this.

Mr. Bakhadirov also remarked that the Consultants should develop their own investment programmes based on their international experience, as local agencies have a narrow view due to a lack of experience.

Mr. Norojono asked whether the SWOT analyses were discussed in the Seminar. Peter Mansell replied that most Government agencies agreed with the SWOTs, but noted that the comment made by ADB to quantify them was difficult due to data problems. Mr. Norojono said that where data were not available, the Consultants should do their best to represent the current situation in some other way. Mr. Bakhadirov noted that from the Government side there was no major comment on the SWOTs, as they reflected the real situation in the sector.

Mr.Mukhidov (Deputy Chairman of International Freight Forwarders Association) noted that it was very important to determine the real current situation in the sector and as discussed in the Seminar, what would be the long term perspective action plan to meet the requirements.

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Mr. Norojono said that it was good that there was a consensus on the current situation and asked the Consultants to provide guidance on how to act in the future to meet the challenges. He asked Rafael Nadyrshin for his comments.

Rafael Nadyrshin said that the Seminar had gone well and he understood from Peter Mansell that all the comments would be reflected in the Final Report: those attending the Seminar had stressed that they should be. He also noted that it was critical that, after completion of the project, the Report should not lie on the shelf. It should serve as a basis for any future Government transport document. ADB had it own vision and participation of ADB in future programmes would be in compliance with the ADB Country Strategy and Programme. The new URM Head Mr.Wei, after consultation with Ministries and agencies, is about to amend the CSP, including the transport sector section. Rafael Nadyrshin noted that it would be useful for Mr. Norojono to meet Mr. Wei in Manila.

Mr. Norojono thanked Rafael Nadyrshin for his support during the TA and returned to the issue of the completion schedule and asked for a Final Report submission date.

Peter Mansell noted that all comments had been received, except those of the Ministry of Foreign Economic Relations Investments and Trade. Provided that this comment was provided shortly, the Final Report (English) would be submitted by 9 December, within the scheduled date of mid- December, the Russian version possibly a little later than this.

Mr. Norojono asked whether the Final Report would be discussed further before printing. Peter Mansell said that comments would be discussed with individual agencies. Mr. Norojono asked Mr. Bakhadirov to take an active part in these discussions to make sure that all the comments were incorporated and he accepted the request.

Mr. Norojono said that he had had an experience on an Afghan project where the consultants did not incorporate some of the Government’s major comments, causing a lot of problems. He stressed that this should not be repeated on this project. Peter Mansell proposed to work closely with UTACA, as they were coordinating issues related to comments, to be more effective.

Peter Mansell asked for confirmation that the office equipment purchased under the TA should be transferred to UTACA. Mr. Norojono confirmed that it should go to the EA.

Mr. Mukhidov supported ADB participation in the transport sector and noted that action on paper should be implemented. He said that as ADB had initiated this study, it should also help in the implementation of the action plans. On the basis of his recent meetings with Mr. Norojono in Tashkent, it was expected that this study would result in further TAs. As an example, one of the action plans is HRD development in international freight forwarding and we should start to formulate with Rafael Nadyrshin some TAs concerning it.

Mr. Norojono confirmed the discussion and said that TAs will be provided by ADB in accordance with ADB’s CSP and based on this, further programmes would be implemented, although ADB could not be involved in all transport sectors. There was agreement with the Government to focus on rail and road projects.

Peter Mansell noted that there was an opportunity for ADB to support the leasing of buses/trucks to renew the vehicle fleet, action on which was required urgently.

Mr. Bakhadirov said that many projects of a historic and strategic, although not necessarily commercial, nature are undertaken (for example Eurotunnel and the Trans-Siberian railway). He said that ADB deals a lot with regional issues and could act as an facilitator of a project of a historic nature: the Uzbekistan-Kyrgyz Republic-China railway link. Accelerated implementation of this project could have a big impact on transit/trade between these countries, as well as in the region. A second such project is construction of a railway Nukus - Kzyl-Orda, to connect Kazhakstan and Uzbekistan via a north-south corridor. Mr. Bakhadirov asked Mr. Norojono to raise these projects while visiting the countries concerned. Mr. Norojono said that a TA had been allocated for railways and that these issues

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could be addressed therein. He also noted that in 2007 ADB would be returning to the road sector and could also consider parallel issues.

Mr. Norojono thanked participants and closed the Tripartite Meeting.

Attachment

List of Attendees at Tripartite Meeting

ADB Olly Norojono (by videolink from Pakistan) ADB Uzbekistan Resident Mission R.Nadyrshin UTACA F. Bakhadirov Consultants Peter Mansell A. Urunov Assocation of International Freight Forwarders A. Mukhidov IKS M. Mirakhmedov

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Appendix I-4

LIST OF CONTACTS

Organization Name Position

ADB Manmohan Parkash Olly Norojono Project Economist, CWAD ADB Uzbekistan Resident Mission Sean O'Sullivan Country Director (until May 2006) Hong Wei Country Director (from September 2006) Rafael Nadyrshin Portfolio Management Officer Rustam Abdukayumov Portfolio Management Officer Abbas Ofarinov Portfolio Management Officer Laura Shamsutdinova Regional Cooperation Specialist Association of International Road Kakhramon President Carriers of Uzbekistan (AIRCUZ) Sidiknazarov Nikolay Kuznetzov Head of International Department BK Trans Batir Kasimov General Director Central Asia Trans Abdujabarov Chairman Addugaorivich Chamber of Commerce and Industry Mr.Kasimov Deputy Chairman Mr.Khodjaev Head, Information and Business Consulting Department Dainichi Consultant Inc. David Lupton Team Leader, TA 6293-REG EBRD Andrzej Witak Head of Office/Senior Banker Hurshida Uzakova Analyst EuropeAid Kasim T. Rasulov Project Coordinator Bakhtiyar Sadriddinov Deputy Coordinator Ministry of Economy Sakhib Saifnazarov Head, Transport, Communications and IT Division Ministry of Finance Mr.Adkhamjanov Head, Department for Financial and Price Regulation of Consumer Market and Transport Dior Saimov Head, Transport and Communications Division Mrs.Davidova Deputy Head of Division Ministry of Foreign Economic Relations, Dr Akmal Kamalov Deputy Minister Investments and Trade Ministry of Labour and Social Protection Mr.Edgorov Chief State Technical Inspector of Labour Namangan City Khokimiyat Bakhrom Urban Passenger Transport Department Abdurakhmanov Samarqandtrans-Markazi F.S. Raxmonov Head, Public Passenger Transport Department Shoshtrans Anvar Yuldoshev Executive Manager

State Committee for Management of Mr.Vakhabov Head of Department State Property Mr.Ziaev Head of Department

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Mr.Toshpulatov Head of Division State Committee for Demonopolization Mrs.Dubrovskaya Head, Department for Analysis and and Promotion of Competition and Promotion of Competition Entrepreneurship Mr.Davrukov Head, Department for Analysis of Financial and Goods Market, Antimonopoly Regulation, Control and Monitoring of Antimonopoly Law State Inspection for Flight Safety Oleg Lim Head of Certification, Licensing and Flight Oversight Safety Oversight Management Tashkent Regional Association of Greengauze Victor Deputy Chairman of the Board Passenger and Cargo Transport Michaylovich Chervyakov Evgeniy Director of Economics Vasilevich Toshshakhartranskhizmat (Association of Shukhrat Ibadullaev Deputy Chairman Tashkent Urban Transport Services) UTY Mr.Erkinov Head, ADB PIU Mr.Imomaliev Deputy Head, ADB PIU Shukhrat Irgashev Chief Consultant, ADB PIU Mr.Babakhalov Head, Economics Department Mrs.Kuzmina Head, Tariff Division Mr.Babajanov Head, Legal Department Ms.Nazarova Head, Foreign Investment Division Mr.Mirkhamidov Head, Marketing Department Mr.Chumichev Head, Department for Privatization and Restructuring Ulugbek Sadykov Head, Foreign Econ. Relations Dept. UTY Expedicia Davron Dehkanov Uzavtoyul Murodullo Abdullaev Chairman Mr.Shosaidov Deputy Chairman Umidjon Makhmatov Head, Division for International Relations and Monitoring Mr.Azamov Head, Department for Completion Assessment and Technical Condition Rashid Shodmonov Director, Bukhara Division Mr.Yuldashev Deputy Head, Kashkadarya Division Abdulboki Sharopov Director, Ferghana Division Sultanmirza Ismonov Director, Andijan Division Rakhmatullo Director, Namangan Division Ubaydullaev Uzbek Agency for Road and River Shaalim Shavakhabov Deputy Head Transport Ms. Galina S. Magay Head, Department on Development of Legal Documents Mr.Jamalkhadjaev Deputy Head, Division for Legislation F.S. Rakhmanov Head, Samarkand Division for Passenger Transport Mr. Nishanov Head, Ferghana Regional Office Abdumajid Head, Andijan Regional Office Egamberdiyev Bakhodir Abduraimov Head, Namangan Regional Office

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Uzbekistan Airways Dmitriy Davidov Director, Financial and Economic Department Mirzaannvaar Director of Ground Facilities, Exploitat and Vakhabov Airport Management Uztemiryolkonteyner Yusupov Ahat Chairman

Murod Khalisov Deputy Chairman

Uzbekistan International Forwarders Mr.Matchanov Chairman Association (AIFU) Davronbek Khamraev Secretary General Mr.Mukhidov Deputy Chairman UTACA Ravshan Faizullaev Chairman Fuod Bakhadirov Head, Department for Intermodal Coordination Mr.Mirkhamidov Deputy Head, Department for Intermodal Coordination Mr.Mustapov Head, Department for Coordination of Transport Maintenance and Operations Abdurashid Tagirov Head, Division for International Cooperation and Transport Development Rustam Dadakhodjaev Head, Investment Department MirsultonYusupov Chief Expert, Investment Department

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Appendix I-5

BIBLIOGRAPHY

Reports and articles are listed by organization responsible in date order of publication. Reports focusing on strategy are highlighted.

1. ADB/CAREC

Road Rehabilitation Project RRP:UZB 29567 Nov. 1998.

Institutional Strengthening of UTY Draft Final Report (4 vols.) TA 3068-UZB Oct. 1999, Queensland Rail Consulting Services.

Uzbekistan Road Sector Institutional Strengthening and Policy Support Project Interim Report I, TA 3118-UZB Dec. 1999, PADECO Co. Ltd.

Transport Facilitation in Azerbaijan, Kyrgyz Republic, Tajikistan and Uzbekistan: Challenges and Opportunities Conference Paper Jan. 2003, Prianka N. Seneviratne.

Central Asia: Reassessment of the Regional Transport Sector Strategy Draft Strategy Jan. 2003, Ian Jenkins, Paul Pezant.

Regional Cooperation in Transport Projects in Central Asia Road Sector Draft Final Report (5 vols.) TA 6024-REG 2 May 2003, TERA International Group, Inc.

The Central Asian Transit Challenge Bernard Touboul, Paper for Regional Seminar on Trade Facilitation and Customs Modernization, Issyk-Kul, Kyrgyz Republic, 4-8 Aug. 2003.

Furthering Policy Reform in the Railway Sector in Uzbekistan Final Report TA 3529-UZB Feb. 2004, Harral Winner Thompson Sharp Lawrence, Inc.

Capacity Building for Reconstruction and Development (Sub Component 3c) – Development of Framework and Legislation for Cross-Border Trade TA 3874-AFG PADECO Co. Ltd. Mar. 2004.

Second Ministerial Conference on Transport and Trade in Central and South Asia Draft Record of Discussion, Manila, Philippines, 3-4 Mar. 2005. Central Asia Regional Cooperation Strategy and Programme Update 2006-2008 Development Through Cooperation Oct. 2005.

Central Asia Regional Development Partners Matrix Nov. 2005.

Afghanistan Transit Study RSC C40965/6-AFG, PADECO Co. Ltd., Dec. 2005.

Facilitation of Transport Cooperation Among Central Asia Regional Economic Cooperation Countries (Phase 1) TA 6294-REG Board of Directors 28 Dec. 2005.

Regional Cooperation in Transport Projects in Central Asia Rail Sector Final Report TA 6024- REG 16 Jan. 2006, TERA International Group, Inc.

Transport Sector Strategy: Central Asia Regional Economic Cooperation (2005- 2007); Kazakhstan (2004-2006); Kyrgyz Republic (2004-2006) in CSPs.

Country Strategy and Programme Uzbekistan (2006-2010) Feb. 2006.

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Final Report of Regional Railway Rehabilitation Project, TA 4076-UZB, PADECO Co. Ltd., Mar. 2006. Uzbekistan: Railway Rehabilitation Project Loan No.1631-UZB Project Completion Report Apr. 2006.

Asian Development Outlook 2006, Apr. 2006.

Central Asia: Mapping Future Prospects to 2015 ERD Working Paper Series No.80, Apr. 2006.

2. EBRD

Strategy for Uzbekistan 26 Jul. 2005

Filling the Gap in Urban Transport: Private Sector Participation in Transition Countries Kominek Zbiginiew Working Paper No.93, Nov. 2005

3. ESCAP

Landlocked and Transit Developing Countries Landlocked Developing Countries Series, No. 1, 2003.

Report of the Regional Meeting for Drafting the Intergovernmental Agreement on the Trans- Asia Railway Network Bangkok, 22-23 Nov. 2004.

Report of the Intergovernmental Meeting to Develop the Intergovernmental Agreement on the Trans-Asia Railway Network Bangkok, 28-30 Nov. 2005.

Report of the Working Group on the Asian Highway on its First Meeting; Proposals for Amendments to the Agreement; Status of Implementation of the Intergovernmental Agreement on the Asian Highway Network Working Group on the Asian Highway, First Meeting, Bangkok, 14-15 Dec. 2005.

4. JICA

Study for Air Transport Development in the Republic of Uzbekistan Final Report, Japan Airport Consultants, Inc., Aug. 1998.

Basic Design Study on the Project for Supply of Road Construction and Maintenance Equipment Phase II, Construction Project Consultants, Inc., Oct. 2004.

5. REPUBLIC OF UZBEKISTAN

Development of a Simplified Transit System Discussion Paper Regional Seminar on Trade Facilitation and Customs Modernization, Issyk-Kul, Kyrgyz Republic, 4-8 Aug. 2003. Proposal for Establishment of Common Market in Central Asia (CACOM) 2006.

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Statistical Review of the Republic of Uzbekistan 2005, 20 Feb. 2006.

Transport and Communications in Uzbekistan 2005, State Committee on Statistics 4 Oct. 2006

6. UTACA

The Uzbek Association of Transport and Transport Communications Brochure 2004.

Concept for the Development of Transport and Communications in the Republic of Uzbekistan to 2015 Draft 2 2005.

7. WORLD BANK

Urban Transport Project, Project Appraisal Document on Proposed Loan of $29 Million Report No.18872-UZ, 20 Apr. 2000.

Uzbekistan Urban Passenger Transport Project Component Four Draft Final Report Aug. 2002, Dornier Consulting and Hughes Economic Planning.

Transport and Trade Facilitation Issues in the CIS 7, Kazakhstan and Turkmenistan Eva Molnar and Lauri Ojala Paper for Lucerne Conference of the CIS-7 Initiative, 20-22 Jan. 2003.

Trade and Regional Cooperation between Afghanistan and its Neighbours Report No. 26769, 18 Feb. 2004.

Reducing the “Economic Distance” to Market – A Framework for the Development of the Transport System in South East Europe Final Report, Dec. 2004.

8. OTHER REPORTS

Simplification of Procedures for International Rail and Motor Cargo Transport (Tajikistan); Development of Simplified Transit Systems Working Group Report Regional Seminar on Trade Facilitation and Customs Modernization, Issyk-Kul, Kyrgyz Republic, 4-8 Aug. 2003

Euro-Asian Transport Links Economic Commission for Europe, 12 Aug. 2004.

Study on Transit Trade for the Trade and Customs Working Group, Central and South Asia Transport and Trade Forum Douglas J. Cruickshank; Central and South Asian Transport and Trade Forum Customs Cooperation Briefing Report Trade and Customs Working Group Meeting, Bangkok, 27-28 Oct. 2004. Transit Transport Arrangements between Afghanistan and Its Neighbouring Countries Philippe Cabanius, Second Ministerial Conference on Transport and Trade in Central and South Asia, 3- 4 Mar. 2005.

Central Asia: Integrating into the International Trading System Through Regional Cooperation in Trade Policy, Transport and Customs Transit 2006.

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Uzbekistan Economy Statistical and Analytical Reviews 2003/2004 Centre for Effective Economic Policy, Tashkent, Apr.2004/Mar.2005.

9. ARTICLES

Central Asia’s Rail Network and the Eurasian Land Bridge Shigeru Otsuka, Japan Railway and Transport Review, Sep. 2001.

KTZ Starts on Trans-Asian Link Railway Gazette 1 May 2004.

Asia-Europe Link Begins International Railway Journal Aug. 2004.

Kazakh Rail Link Completed Railway Gazette 1 Jan. 2005.

Iran Invests in Network Expansion Railway Gazette 1 Mar. 2005.

Iran Plans 50 % Network Expansion as Mashhad-Bafgh Line Opens Railway Gazette 1 May 2005.

“Friendship Corridor” Opens Up Trade Route from Central Asia to the Gulf Railway Gazette 1 Jun. 2005.

Iron and Coal will Dominate Traffic Flows on Iran’s New Railway Railway Gazette 1 Jun. 2005.

China Railways Network Expansion Plan Aims to Reach 100,000km by 2020 Railway Gazette 1 Aug. 2005.

Astana Takes New Direction for Railway Construction Marat Yerrmukanov, Eurasia Daily Monitor 20 Oct. 2005.

Turkmenistan Completes New Railway Link 17 Mar. 2006.

Trans-Karakum Link Completed Railway Gazette 1 Apr. 2006.

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Appendix III-1

UTY LONG DISTANCE PASSENGER TIMETABLE - 28 MAY 2006

No. Route Departure Time Arrival Time Tashkent – 7-00 Monday, Thursday, Friday, 10-50 Monday, Thursday, Friday, 2 Samarkand Saturday, Sunday Saturday, Sunday Samarkand – 17-00 Monday, Thursday, Friday, 20-50 Monday, Thursday, Friday, 1 Tashkent Saturday, Sunday Saturday, Sunday Tashkent – 15-20 Wednesday, Friday, 5 18-25 Sunday, Tuesday, Friday Moscow Monday Moscow – 21-35 Saturday, Monday, 6 23-16 Wednesday, Friday, Monday Tashkent Thursday Tashkent – 50 19-00 –daily 23-55 – daily Samarkand Samarkand – 49 7-00 – daily 11-55 – daily Tashkent Tashkent – 54 17-40 Wednesday, Saturday 18-20 Thursday, Sunday Kungrad Kungrad – 53 9-25 Friday, Monday 9-25 Saturday, Tuesday Tashkent Tashkent – 56 17-40 Monday, Friday 13-05 Tuesday, Saturday Urgench Urgench – 55 14-45 Tuesday, Saturday 9-25 Wednesday, Sunday Tashkent 321 Almaty – Nukus From 9 June, 20-40 Friday From 11 June, 23-20 Sunday 322 Nukus – Almaty From 12 June, 13-30 Monday From 14 June, 15-43 Wednesday 18-20 30 May and 3, 5, 9, 13, 17, 12-09 2, 6, 8, 12, 16, 20, 22, 26, 332 Tashkent-Saratov 19, 23, 27 June 30 June 17-30 5, 9, 11, 15, 19, 23, 25, 29 331 Saratov – Tashkent 20-16 2, 6, 8, 12, 16, 20, 26, 30 June June 380 Tashkent – Termez 17-10 – even days 12-54 odd days 379 Termez – Tashkent 14-25 odd days 9-00 even days 381 Tashkent – Ufa 23-00 Sunday, Thursday 2-57 Wednesday, Sunday 382 Ufa – Tashkent 8-48 Wednesday, Sunday 13-10 Friday, Tuesday 391 Andijan – Bukhara 12-45 Friday 12-10 Saturday 392 Bukhara – Andijan 14-20 Saturday 13-20 Sunday 395 Tashkent – Harkov 20-50 Thursday 1-31 Monday 396 Harkov – Tashkent 11-52 Monday 20-00 Thursday Chelyabinsk – From 14 June, 13-10 486 From 11 June, 23-50 Sunday Tashkent Wednesdays Tashkent – 485 From 14 June, 23-00 Wednesday 9-53 Saturday Chelyabinsk 660 Tashkent - Andijan 17-25 Thursday 10-00 - Friday 659 Andijan – Tashkent 16-35 Sunday 9-15 Monday Tashkent – 662 20-00 daily 7-40 daily Bukhara

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Bukhara – 661 18-40 daily 6-30 daily Tashkent 666 Tashkent – Karshi 20-10 odd days 6-36 even days 665 Karshi – Tashkent 20-12 even days 6-05 odd days 917 Kungrad – Beyneu 9-08 daily 21-40 daily 918 Beyneu – Kungrad 8-45 daily 18-45 daily 18-49 28, 31 May, 4, 6, 8, 12, 14, 8-42 1, 4, 8, 10, 12, 16, 18, 22, 336 Hudjand – Saratov 18, 20, 22, 26, 28 June 24, 26, 30 June 11-22 1, 4, 8, 10, 12, 18, 22, 24, 26, 17-22 4, 7, 11, 13, 15, 19, 21, 335 Saratov –Hudjand 30 June 25, 27, 29 June Dushanbe- 367 9-06 Thursday, Saturday 15-25 Friday, Sunday Kanibadam Kanibadam – 368 11-10 Thursday, Saturday 19-37 Friday, Wednesday Dushanbe Kanibadam-Kurgan 389 11-10 Saturday 20-39 Sunday Tyube Kurgan Tyube – 390 6-42 Monday 15-25 Tuesday Kanibadam 319 Dushanbe-Moscow 5-12 Monday, Thursday, Friday 3-10 Friday, Monday, Tuesday 15-51 Friday, Sunday, 320 Moscow-Dushanbe 12-08 Monday, Wednesday, Saturday Wednesday 329 Kulyab – Moscow 19-44 Friday, Monday 3-10 Wednesday, Saturday 330 Moscow – Kulyab 12-08 Friday, Tuesday 0-24 Wednesday, Sunday

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Appendix III-2

COMMENTS ON REVISED ROAD LAW

Article 1: The Purpose of the Present Law. This is a new article stating that the purpose of the law is to regulate relations in the road sector.

Article 2: The Main Concept. This article generally incorporates Article 1 (Interpretation and Contents) of the existing law, as well as definitions, as suggested by ADB TA 3118-UZB, although it would be helpful to as much as possible adopt definitions of roads and road components more in line with international standards, e.g., based on the Vienna Convention on Road Traffic, 1968. It may also help to introduce the distinction between common-access and restricted access roads, with the former roads of general use and the latter roads the use of which is limited to motor vehicle owners permitted by the owner. Following the recommendation of TA 3118-UZB, the article introduces the concept of toll roads. The Uzbek Road and River Transport Agency, Department on Development of Legal Documents, has recommended that there be further classification of institutional and private motor roads.

Article 3: Legislation Concerning Motor Roads. This article corresponds to Article 2 in the existing law, but deleting a paragraph providing special treatment for Karakalpakstan. It also includes a provision that if the rules set in international agreements on roads differ from those in domestic laws, then the international agreement(s) will prevail; this provision is found in Article 24 of the current law.

Article 4: Classification of Motor Roads. This article corresponds to Article 3 of the current law. At the initiative of Uzavtoyul, a category of private roads has been defined, although the definition only covers (restricted-access) roads for private use and not common-access toll roads. The article might better be titled Classification of Motor Roads by Access, Ownership, and Significance, with the content to follow the suggested title.

Article 5: Streets of Cities and Other Populated Settlements. This is a useful new article that requires maintenance and development of such streets to be financed by local budgets.

Article 6: Toll Roads. At the initiative of Uzavtoyul, an article on toll road infrastructure has been added.

Article 7: Ownership Rights of Roads. This article corresponds to Article 8 (Entities Responsible for Each Category of Roads) of the current law. The article provides for private ownership of roads. As noted by the Uzbek Road and River Transport Agency, Department on Development of Legal Documents, this article reiterates certain content of Articles 2, 4, and 5, and should therefore be omitted or corresponding corrections be made in the earlier articles (they prefer the latter option).

Article 8: Land Necessary for the Construction, Reconstruction, and Maintenance of Roads. This article corresponds to Article 5 of the current law. As TA 3118-UZB noted, if a separate article on land is necessary in the road law, it and, to the extent necessary, the Land Code should be amended to make clear that fair compensation will be paid for the taking of land for state-owned roads. Therefore, the consultants recommend that the article be amended to state that “fair value will be paid for land taken”. According to internationally accepted principles, “fair value” should be determined based on current market value in the absence of development, or if the market is so thin that this cannot be determined, it should be based on discounted future value of lost income and amenity of the landholder.

Article 9: Roadworks with the Road Reserve. This article corresponds to Article 6 of the current law, except that it has been amended to take private roads into account. The article addresses the use of rights of way (the road reserve) and is generally acceptable as providing sensible protections that

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rights of way will not be acquired and misused. As noted by TA 3118-UZB, the first sentence might be amended to permit use by road users.

Article 10: Authority of the Government in the Field of Roads. This new article sets out the authority of the Government in the road sector, e.g., policy coordination, general management and control, setting financing norms and fees for passage of foreign vehicles, setting road improvement programmes, approving toll roads, international cooperation. The Uzbek Road and River Transport Agency, Department on Development of Legal Documents, has noted that the authority of the Cabinet of Ministers is not shown in this article as drafted; they further state that coordination and state management issues of the entire road network have not yet been resolved, and therefore it may be necessary to revise Chapter II of the draft law (i.e., Articles 12-16).

Article 11: Authority of Road Bodies for General Motor Roads. This new article sets out specific functions to be carried out by authorized bodies. The Department on Development of Legal Documents, Uzbek Agency for Road and River Transport, points out that this article (and indeed the entire act) should cover the planning and financing of all roads, not just roads of general use.

Article 12 [the order in the draft]: Planning Road Network Development; Article 14: Road Design, Construction, and Reconstruction; and Article 15: Road Repair and Maintenance. These articles correspond to Articles 9, 11, and 12 of the current law, although changes have been made to allow for private roads and for technical documentation to be subject to public examination in accordance with legislatively mandated procedures. However, as suggested by TA 3118-UZB, the articles might be revised to better achieve the aim of separating governmental functions from service delivery functions, and creating a competitive environment. One approach might involve separation of the responsibilities for planning and implementation of road programmes and projects, since the nature of roadworks requires a significant degree of centralization of the planning process, but implementation of programmes (including the management of contracts with external contractors) may be decentralized.

Article 13: Financing of Roadworks. This article corresponds to Article 10 of the current law. As noted by the Uzbek Road and River Transport Agency, Department on Development of Legal Documents, Road Fund revenues should be applied to all roads, not only roads of general use. The article is to be productively amended to include consideration of financing of roads managed by the private sector. Also, as noted by TA 3118-UZB, (a) an initial paragraph might be added to emphasize that expenditures on common-access motor roads will be made based on detailed information on the actual condition and use of such roads; (b) it should be clearly indicated that road financing may come from certain sources other than the Road Fund, e.g., revenues of road authorities, expenditures from the general budget, foreign bilateral or multilateral economic assistance; and (c) a clear statement should be added to prevent the use of Road Fund resources for non-road uses.

Article 16: Employees of Road Entities. This article corresponds to Article 13 of the current law. As noted in TA 3118-UZB, it would be helpful if it began by stating that “State road agencies shall have the power to prescribe standards and features of motor roads and road work”. The article includes certain features that are inconsistent with a more market-oriented approach to the road sector and which might be better deleted (e.g., a grant of power to require assistance from truck drivers for transport free of charge).

Article 17: Rights and Duties of Road Users. This article corresponds to Article 14 of the current law, which sensibly states the rights and obligations of road users. As recommended in TA 3118-UZB, the article has been amended to include private roads. In addition, a provision has been added to recognize the road use rights of non-residents of Uzbekistan. The last paragraph of the current law has been sensibly revised to require road users to report only emergency damage to road infrastructure.

Article 18: Legal Provisions for Road Use. This article corresponds to Article 15 of the current law, but the revised article provides for passage of foreign country vehicles.

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Article 19: Restrictions on Activity Detrimental to Roads and Road Trafficability. This article corresponds to Article 16 of the current law, which sets out a generally sensible list of restrictions on activity detrimental to roads and road “trafficability”. A provision that has been added requiring approval for building trading/catering/service establishments should be limited to some specific distance from the roadway. As recommended in TA 3118-UZB, an enforcement provision could productively be added at the end of the article.

Article 20: Road Traffic Restrictions and Prohibitions. This article corresponds to Article 17 of the current law. The road traffic prohibitions and restrictions included in this article are generally included in road acts and are reasonable. However, as noted in TA 3118-UZB, the phrase “in other cases” in the first paragraph is best deleted as it is too vague.

Article 21: Duties of Land Owners and Land Users. This article corresponds to Article 18 of the current law. The duties set out are generally sensible, although the article could be emerged with Article 19 on Activity Detrimental to Roads and Road Trafficability. Also, while the final paragraph appears in other CIS road laws (e.g., that of the Kyrgyz Republic), the consultants query whether the distance stated in the prohibition for the storage of various materials (50m from the road centre line) could be shortened, while assuring visibility and road safety.

Article 22: Vehicle Recovery and Medical Aid on Roads. This article corresponds to Articles 19 and 20 of the current law, which have been combined. The consultants question the necessity of these provisions in a market economy or just from the viewpoint of sound public policy.

Article 23: Road Entity Liability under Law for Violation of Road Legislation. This article corresponds to Article 22 of the current law. As recommended in TA 3118-UZB, the second paragraph, which requires road agencies to compensate users for damage caused by road accidents that occur due to road conditions should be deleted, since Uzbekistan clearly does not have the resources to provide a perfectly safe road environment. In certain countries (e.g., the USA), such a clause would tie up the courts with litigation; even in Japan, a wealthy country, the roads are filled with obstructions (e.g., utility poles), but these do not present a legal issue. Over the longer term, when the road sector is adequately funded, perhaps the paragraph could be re-enacted. The third paragraph of the article is appropriate but could be presented in a separate article titled “Collection of Road Traffic Accident Database”.

Article 24: Road User Liability under the Law. This article corresponds to Article 23 of the current law. As noted in TA 3118-UZB, provision should be made for exceptions to the enumerated prescriptions in case of genuine need (i.e., public utilities), with the written permission of the road management authority.

Article 25: Declaration of Invalidity of Legislative Act. This new article would declare the current road law invalid.

Article 26: Entry into Force. This new article would state the law comes into effect as of the date of its publication.

Notes: (1) The order of presentation of the articles follows that in the matrix of text and comments provided by Uzavtoyul. (2) Also as recommended in TA 3118-UZB, new articles could be included for a Road Sector Annual Report, to increase transparency and accountability, and on Penalties, so that the road law goes beyond merely stating policy (the Thai Road Act provides a useful model).

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Appendix III-3

GENERAL PRINCIPLES FOR A REGIONAL TRANSIT SYSTEM

1. Transit Principle

Subject to the conditions in this agreement, the contracting parties mutually grant freedom of transit through each others’ territory for cargoes (and passengers) inbound to and outbound from the other contracting party.

2. Interstate Traffic

The contracting parties mutually grant freedom of transit through (and access to) each others’ territory for cargoes (and passengers) inbound to and outbound from the other contracting party.

3. Exemption of Transit Traffic from Non-Cost Related Charges

Transit traffic shall be exempted from all non-cost related charges and duties, other than those charged domestic transport operations.

4. Facilitation of Road Vehicle Crew Entry

(a) The people engaged in transport operations shall be granted multiple entry visas for prolonged periods. (b) The contracting parties shall mutually recognize the driving licenses issued by the other contracting parties (subject to harmonization in accordance with the Vienna Convention on Road Traffic, 1968). (c) The people engaged in transport operations shall be exempted from Customs duties with respect to personal effects. They shall be treated in accordance with (World Health Organization) international health regulations.

5. Facilitation of Road Vehicle Entry

(a) The contracting parties shall admit to their territory the road vehicles registered in another contracting party and in conformity with the technical standards applicable in the vehicle’s country of registration. (b) For that purpose they shall mutually recognize the roadworthiness inspection certificate and the third-party motor vehicle liability insurance issued in the vehicle’s country of registration (subject to harmonization in accordance with the Vienna Convention on Road Traffic, 1968). (c) The contracting parties shall exempt from import duties the motor vehicles registered in another contracting party, admitted temporarily into their territory for the purpose of performing the transit transport operation, but subject to their re-exportation (in accordance with the Convention on the Temporary Importation of Commercial Road Vehicles, 1956) (subject to security provided by a guarantor).

6. Facilitation of Container Entry

The contracting parties shall exempt from import duties the containers registered in another contracting party, admitted temporarily into their territory for the purpose of performing the transit transport operation, but subject to their re-exportation (in accordance with the Customs Convention on Containers, 1972) (subject to security provided by a guarantor).

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7. Permission of Foreign Transport Operator Activity

(a) The contracting parties shall allow transport operators established in another contracting party to (i) perform the transit transport operation in their territory (within the limits and frequency and capacity to be set reciprocally by the contracting parties), and (ii) establish a branch office in their territory. (b) The contracting parties shall mutually recognize the transport operator’s license issued by the transport operator’s country of establishment (subject to harmonization of the requirements).

8. Facilitation of Cargo Entry

(a) The contracting parties shall exempt cargo transiting through their territory from routine Customs physical inspection, Customs escorts, and the deposit of a bond per transport operation and operator (but subject to the application of the Customs Convention on the International Transport of Goods Under the Cover of TIR Carnets, 1975) (subject to security provided by a guarantor). (b) The cargo shall be processed in accordance with international health and quarantine (sanitary and phytosanitary) regulations. (c) The following categories of cargoes shall be restricted or prohibited for transit operations: (to be determined based on negotiations).

9. Infrastructure Design Harmonization

The contracting parties shall adopt the following design standards for:

(a) road and bridge construction; (b) road signs and signals; and (c) border crossing infrastructure and equipment.

(To be specified based on negotiations.)

10. Climate of Law and Order and Foreigner-Friendly Environment

(a) The contracting parties shall install/restore/maintain law and order in their border region and territory. (b) They shall fight corruption, e.g., by providing a legal basis for all fee and tax collection, by specifying the civil servants authorized to collect fees and taxes, by requiring the issuance of an official receipt for each payment of fee or tax, and by criminalizing corruption. (c) They shall protect foreign people and property and shall help and assist foreign vehicle and transport operators.

11. Transparency

The contracting parties shall publish in the English language on the Internet all relevant laws, regulations, procedures, and documents related to the transit transport through their territory.

12. Non-Discrimination and National Treatment

(a) The contracting parties shall not discriminate or reserve a privileged treatment on the basis of nationality, origin, or destination of either one element of the transit operation (e.g., driver, vehicle, cargo, operator). (b) For the purpose of the transit transport operations, foreigners shall be granted the same treatment as nationals.

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13. Protection of Free Competition

The contracting parties shall safeguard the transport market against competition distortion (e.g., cartels, abuse of dominant market position, dumping practices, public subsidization).

14. Facilitation of Border Crossing Formalities

The contracting shall facilitate the border crossing formalities for transit transport operations via:

(a) simplification of border crossing procedures (advance and inland clearance, coordination of border clearance, and one-stop clearance procedures); (b) harmonization of commodity description and coding; (c) harmonization of a cargo valuation system; and (d) harmonization of the document lay-out.

15. Road Traffic Rules

The contracting parties shall harmonize their road traffic rules in accordance with the Vienna Convention on Road Traffic, 1968.

16. Language, Measurement Units, and Computer Software

(a) The contracting parties shall use in all communications and documents the English language, without prejudice to the possible parallel use of the national language(s). (b) The contracting parties shall harmonize their measurement unit system and coordinate the use of computer software.

17. Banking, Insurance, and Communication Systems

The contracting parties shall install a modern banking, insurance, and communication system to support transit transport operations.

18. Border Dispute Resolution

The contracting parties commit to start the procedure to resolve their border disputes if any, either via submitting them to arbitration or to the United Nations International Court of Justice.

19. Institutional Arrangements

(a) A permanent Transit Trade and Transport Coordination Committee shall be established. It will consist of a representative of each country’s national Inter-Ministerial Transit Trade and Transport Coordination Committee. (b) The national Inter-Ministerial Transit Trade and Transport Coordination Committee shall be composed of representatives of the relevant Ministerial departments and the private sector involved in transit operations. (c) The Transit Trade and Transport Coordination Committee shall assess and monitor the functioning of the agreement, serve as a platform for discussion and proposals for amendment of the agreement, and as a forum for amicable settlement of disputes. (d) The contracting parties shall set up or charge a traffic police section with the special duty of inspection, controlling, and protecting the transit transport operations in their territory.

20. Cooperation in the Repression of Customs Fraud and Tax Evasion

The contracting parties shall share information and coordinate their actions to cooperate in the fight against Customs fraud and tax evasion.

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21. Relationship of the Regime with Other Instruments

(a) The present agreement shall automatically supersede or be superseded by any other instrument to the effect that the most liberal and facilitating one prevails. (b) The most favoured nation treatment principle will apply.

22. Relationship of the Regime with National Law

(a) The contracting parties undertake to conform their national body of law to the contents of this agreement. (b) This agreement shall not prevent the contracting parties from unilaterally granting greater facilities to transit transport operations.

Source: PADECO Co., Ltd., Afghanistan Transit Study (RSC No. C40965-AFG and RSC No. C40966 AFG), prepared for ADB, December 2005, pp. 8-11, 41-45.

Appendix III-4

BILATERAL/PLURILATERAL ROAD TRANSPORT AGREEMENTS

Afghanistan (2002, 2003, 2004) Kazakhstan (1995, 1998, 2006) Afghanistan and Iran (2002, 2003, 2004, 2005) Kyrgyz Republic (1996, 1997) Austria (2001, 2002) Latvia (1995, 1996, 1997, 1998) Azerbaijan (1996) Lithuania (1997) Azerbaijan, Georgia and Turkmenistan (1996) Moldova (1995) Belarus (1994, 2005) Netherlands (2002) Bulgaria (1998, 1999, 2003) Pakistan (1993) China (1993) (2003) China and Kyrgyz Republic (1998) Romania (1996) Czech Republic (1999) Russian Federation (1993, 2000) Finland (1997) Slovak Republic (1997) Georgia (1995) Slovenia (2005) Germany (2001) Switzerland (2002) Greece (1999) Tajikistan (2005) Hungary (1992, 2002) Turkey (1991, 1992) Iran (1992, 1993, 2002, 2003) Turkmenistan (1993, 1996) Italy (2000) Ukraine (1993)

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Appendix III-5

REVIEW OF AND PROPOSED REVISIONS TO LAW ON ROAD TRANSPORT

Article 1: The Purpose of the Present Law. This article might be supplemented with a clearer statement of objectives underscoring the importance of the transition to a more market-oriented economy purpose of the law. Possible text might be: “The provisions of this Law are based upon the philosophy of use of private enterprise for road transport services that essentially commercial in nature, fostering competition among road transport operators to provide more varied services to customers, and the setting of passenger fares/freight tariffs by such operators based on market demand”.

Article 2: General Provisions. The article presents definitions of four key terms and is broadly satisfactory, although perhaps due to translation issues, these definitions at least arguably differ from those commonly used internationally.

Article 3: Legislation on Motor Transport. The article meets technical legal requirements of the Republic of Uzbekistan.

Article 4: Types of Property of Motor Transport. The first sentence of the article provides for both public and private ownership of motor transport enterprises. The second sentence states the principle of nondiscrimination between public and private transport operators; objectives, which should underscore the importance of the transition to a more market-oriented economy; this principle could be made clearer (and more encompassing) by stating that “[t]he Law shall apply under equal conditions, without discrimination on grounds of nationality, place of establishment, or ownership of a transport operator.”

Article 5: Land for Motor Transport. This article sensibly leaves questions related to this topic to the general law on land.

Article 6: Classification of Motor Vehicles. This article supplements the definitions provided in Article 2 and is generally satisfactory.

Article 7: Types of Road Transport. This article also supplements the definitions provided in Article 2 and is generally satisfactory.

Article 8: International Transportation of Passengers. Luggage, and Freight. This article, which could be combined with the preceding article, restricts international transport operations to roads designated by domestic law or international agreement as do many countries, although a freer approach may be considered in the intermediate to the longer term.

Article 9: State Regulation and Management of Motor Transport Activities. The article is broadly satisfactory. However, the meaning of the phrase “socially significant transport” in the first sentence is unclear and accordingly could be deleted. Also, the words “and management” may be added after “state regulation” in the first sentence as scientific and technical policy seems more of a form of management than regulation.

Article 10: Scope of Powers of the State Body on Management of Motor Transport. This article provides the general competence of the State body on the management of motor transport and is satisfactory.

Article 11: Scope of Powers of Local Authorities. The article is generally sensible. The word “equal” in the second subparagraph of the first paragraph is unclear and accordingly the subparagraph may be deleted. In the third subparagraph of the first paragraph the focus on improvement of “social bases” of transport may need to be re-evaluated in the longer term view of

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the transition toward a market-based approach to road transport.

Article 12: Standardization, Meteorological Support, and Certification of Motor Vehicles. The article, which leaves the details to secondary and tertiary laws and regulation, is broadly acceptable. However, it is unclear from a policy perspective whether motor vehicles should require certification from the viewpoint of labour protection or sanitary requirements.

Article 13: Licensing for Road Transport. The article is suitable as far as it goes (although it leaves policy decisions to secondary laws and regulations).

Article 14: The Right to Drive Motor Vehicles. This article is acceptable.

Article 15: Agreements on Passenger, Luggage, and Freight Transport. The first two paragraphs sensibly establish the principle that road transport shall be carried out on the basis of a contract between the parties, the road transport operator and the client, and the conditions of contract shall be set by the parties themselves. While the second paragraph provides for a free-market approach to setting rates, the third paragraph provides for regulated tariffs on certain types of road transport and the fourth paragraph provides for State reimbursement of expenses related to the transport of persons who are exempt from fares. The fifth paragraph sensibly allows for a single transport document for multimodal carriage; it should also allow for a single contract for successive road transport operations.

Proposed New Article: Public Service Obligations of Operators. The consultants suggest consideration of a new article covering public service operations of road transport operators. The article would state the types of public service obligations that are generally provided but permit other obligations based upon the needs of isolated areas and similar national geographic, economic, and security requirements. In addition, the article would set out an important provision that such public service obligations may be set either by government regulation or by contracts between the authority and the operator concerned. The article would also state the important general rule that the Government should pay compensation to operators that lose money because they must carry out public service obligations.

Article 16: Operation of Motor Transport in Cases of Emergency. This article covers a specific example of a public service operation.

Article 17: The Rights of Operators. The article is broadly satisfactory as written. However, the term “public roads” may be replaced with the term “common-access roads” to cover the case of private roads open for public use.

Article 18: The Responsibilities of an Operator. The article is broadly satisfactory as it states a number of standard international provisions regarding the obligations of road transport operators to freight and passenger clients, although internationally it may be more common to treat the responsibilities to freight clients separately from responsibilities to passengers.

Article 19: The Rights of the Client. The article is broadly satisfactory although it could be argued that passengers could be protected by establishing General Terms of Conditions of Transport established by the transport industry and approved by the Government and given the force of law. Such General Terms and Conditions could be changed more easily to meet changed circumstances than a law.

Article 20: The Responsibilities of the Client. This article rather simply states some of the responsibilities of the freight client; for the most part, the responsibilities do not relate to passengers. It may be worthwhile considering including separate paragraphs stating the responsibilities of freight clients and passengers, respectively.

Article 21: Responsibility for Liabilities Coming Out of the Agreement on Transport. The second paragraph of Article 21, which when read along with the first two paragraphs of Article 22, appears

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to require a carrier to bear the full liability for damage or loss of cargo, in contravention of international practice whereby a carrier may stipulate a limited amount of compensation as part of the contract. This approach creates a virtually uninsurable burden on carriers that can seriously distort market prices. Accordingly, the consultants urge repeal of this paragraph.

Article 22: Responsibility of Operator in Case of Loss, Storage, or Damage of Freight or Luggage. The first paragraph of the article sensibly places the burden of proof on the operator (presumably requiring a “more likely than not” showing) for showing that loss, shortage, or damage of freight or luggage was not his/her fault. The Consultants urge that the third paragraph be reconsidered, as it allows for a wide range of damages, including consequential damages, which creates a virtually uninsurable burden on carriers that can seriously distort market prices. The consultants also urge that an additional paragraph be added to cover the liabilities of successive transport operators.

Article 23: Responsibility of the Operator for Delay in Transport of Freight; Article 24: Responsibility of the Client for Non-Utilization of Motor Vehicle Provided by the Operator for Transport of Freight; Article 25: Responsibility of the Operator for Delay in Passenger Operation; Article 26: Liability of the Operator for Death or Damage to Passenger’s Health; and Article 27: Liability of the Client for Damages. No specific proposals are put forward, although the Consultants would ask whether the provisions of these articles might be better covered by general contract law rather than in a specific road transport law.

Article 28: Insurance of Passengers, Luggage, and Freight. An article on insurance is critical for the implementation of traffic safety and revisions of Article 28 could be considered to more closely follow international practice. For example, consideration might be given to replacing the first paragraph with the following:

“No owner or holder shall use, or with his or her consent permit the use of, any motor vehicle on the road without maintaining obligatory insurance to meet damages from any traffic accidents or related matters covering:

- losses suffered to life, health, or property by passengers except when it is proven that the losses have occurred through no fault of the owner/holder or his/her employees/agents; and - losses suffered to life, health and property by third parties caused by road transport operators and their drivers and employees.”

Article 29: Securing Safety and Environmental Requirements on Motor Transport. The article repeats and elaborates some of the obligations of road transport operators set out in Article 18. The words “and escort” may be deleted from the second paragraph as an escort presumably would not be required for all kinds of dangerous freight.

Article 30: Settlement of Disputes. This article provides for the settlement of all disputes by the judiciary. The consultants urge, to the extent possible, that disputes be settled by arbitration.

Article 31: Responsibilities for Violations of Legislation on Motor Transport. The article importantly provides for penalties for violation of the law. However, it is important to state specific penalties (as a range or ceiling) or in the general administrative and criminal laws.

Source: After PADECO Co., Ltd., Institutional Strengthening of the Road Sector, Interim Report I, for ADB, December 1999, Chapter 4 [Modified based on comments from UARRT, Department on Development of Legal Documents, July 2006 and on comments on the Draft Final Report.]

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Appendix III-6

ROAD TRANSPORT SECONDARY LEGAL INSTRUMENTS

Resolution of the Cabinet of Ministers on Procedures for the Entry, Stay, Transit and Exit of Foreign Road Carriers, No. 11, 11 January 1995.

Resolution of the Cabinet of Ministers on Establishment of Uzbek Agency on Road and River Transport, No. 296, 11 July 1998.

Resolution of the Cabinet of Ministers on Organization of Open Tenders for Urban Passenger Routes Franchising, No. 350, 17 August 1998.

Resolution of the Cabinet of Ministers on Organization and Conduct of Open Tenders in Suburban and International Road Passenger Transport, No. 368, 29 July 1999.

Law on Licensing of Individual Forms of Activities, No. 71-II , 25 May 2000.

Resolution of the Cabinet of Ministers on Measures for Improving Road Transport Organizational Management Structure, No. 245, 6 May 2001.

Decree of the President on Demonopolization and Improvement in the Field of Transport (on liquidation of Uzavtotrans), No. UP-2871, 4 June 2001.

Resolution of the Cabinet of Ministers on Approval of Regulations on Licensing Individual Forms of Activity in Transport, No. 360, 21 August 2003.

Resolution of the Ministry of Finance, Uzbek Agency on Road and River Transport, on Concept of Fare Policy for Passenger Transport of General Use Until 2010, Nos. 7 and 103, 6 September 2003.

Resolution of the Cabinet of Ministers on Approval of Rules of Motor Transport and Luggage Requirements for Providing Safe Bus Transport, No. 482, 4 November 2003.

Resolution of the Cabinet of Ministers on Measures for Further Improvement of Activities of the Uzbek Agency for Road and River Transport, No. 118, 10 March 2004.

Decree of the President on Further Improvement of Organization System for Passenger Transport in the City of Tashkent, No. UP-3713, 11 January 2006.

Decree of the President on Establishing the Association Toshshahartranshizmat and a Department of Licensing and Coordination for All Forms of Passenger Transport at the City of Tashkent Hokimiyat, No. UP-262, 18 January 2006.

Resolution of the Cabinet of Ministers on Measures for Further Improvement of Passenger Transport System in the City of Tashkent, No. 11, 31 January 2006.

Decree of the President on Further Measures for Providing Safety of Passenger Transport in Tashkent City and Region, No. UP-294, 28 February 2006.

Decree of the President on Regulating Individual Enterprises in the Field of Motor Passenger Transport, No. UP-303, 9 March 2006. Resolution of the Cabinet of Ministers on Procedures for the Entry, Stay, Transit and Exit of Foreign Road Carriers, No. 11, 11 January 1995.

Resolution of the Cabinet of Ministers on Establishment of Uzbek Agency on Road and River Transport,

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No. 296, 11 July 1998.

Resolution of the Cabinet of Ministers on Organization of Open Tenders for Urban Passenger Routes Franchising, No. 350, 17 August 1998.

Resolution of the Cabinet of Ministers on Organization and Conduct of Open Tenders in Suburban and International Road Passenger Transport, No. 368, 29 July 1999.

Law on Licensing of Individual Forms of Activities, No. 71-II , 25 May 2000.

Resolution of the Cabinet of Ministers on Measures for Improving Road Transport Organizational Management Structure, No. 245, 6 May 2001.

Decree of the President on Demonopolization and Improvement in the Field of Transport (on liquidation of Uzavtotrans), No. UP-2871, 4 June 2001.

Resolution of the Cabinet of Ministers on Approval of Regulations on Licensing Individual Forms of Activity in Transport, No. 360, 21 August 2003.

Resolution of the Ministry of Finance, Uzbek Agency on Road and River Transport, on Concept of Fare Policy for Passenger Transport of General Use Until 2010, Nos. 7 and 103, 6 September 2003.

Resolution of the Cabinet of Ministers on Approval of Rules of Motor Transport and Luggage Requirements for Providing Safe Bus Transport, No. 482, 4 November 2003.

Resolution of the Cabinet of Ministers on Measures for Further Improvement of Activities of the Uzbek Agency for Road and River Transport, No. 118, 10 March 2004.

Decree of the President on Further Improvement of Organization System for Passenger Transport in the City of Tashkent, No. UP-3713, 11 January 2006.

Decree of the President on Establishing the Association Toshshahartranshizmat and a Department of Licensing and Coordination for All Forms of Passenger Transport at the City of Tashkent Hokimiyat, No. UP-262, 18 January 2006.

Resolution of the Cabinet of Ministers on Measures for Further Improvement of Passenger Transport System in the City of Tashkent, No. 11, 31 January 2006.

Decree of the President on Further Measures for Providing Safety of Passenger Transport in Tashkent City and Region, No. UP-294, 28 February 2006.

Decree of the President on Regulating Individual Enterprises in the Field of Motor Passenger Transport, No. UP-303, 9 March 2006.

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Appendix III-7

REGIONAL AND BILATERAL/PLURILATERAL RAILWAY AGREEMENTS

Austria (2001) Kazakhstan, Kyrgyz Republic, Tajikistan Azerbaijan (1996) and Turkmenistan (1993, 1994, 1996) Azerbaijan, Georgia, and Turkmenistan (1996) Kyrgyz Republic (1992, 1993, 1996) Belarus (1994) Latvia (1996, 1997, 1998) China (1992, 1996) Romania (1996) China and Kyrgyz Republic (1997) Tajikistan (1994, 1995, 1996) Georgia (1995) Turkmenistan (1992, 1996, 2000) Iran (1997, 2002) Ukraine (1998, 2003) Kazakhstan (1994, 1995, 1997, 1998)

Appendix III-8

STRUCTURE OF RAILWAY ACT (1999)

Article 1: Basic Concepts Article 2: Legislation on Railway Transport Article 3: Ownership in Railway Transport Article 4: Establishment, Reorganization, and Liquidation of Railway Transport Enterprises Article 5: Property of Railway Transport Enterprises, Establishments, and Organizations Article 6: Railway Transport Land Article 7: Security Zones of Railway Transport Article 8: Types of Railway Traffic and Special Movements Article 9: Departmental Railway Sidings Article 10: Management of Railway Transport Article 11: Movement of Goods Article 12: Movement of Passengers, Freight, and Luggage Article 13: Tariffs for the Carriage of Passengers, Goods, and Luggage by Railway Transport Article 14: Financial and Economic Activity of Railway Transport Article 15: Relationships of Enterprises of Railway Transport with Legal Entities and Physical Persons Article 16: Labour Relations with Railway Transport Employees Article 17: Warranties and Compensation in connection with the Travel Character of work and Privileges Provided for Railway Transport Employees Article 18: Discipline in Railway Transport Article 19: Official Time in Railway Transport Article 20: Traffic Safety Control, Operation of Transport and Other Technical Facilities Article 21: Basic Traffic Safety Requirements in Railway Transport Article 22: Safeguarding of Goods and Facilities in Railway Transport Article 23: Railway Transport in Emergencies Article 24: Mobilization Preparedness and Civil Protection Management on Railway Transport Article 25: Insurance of Passengers, Individual Categories of Employees of Railway Transport, Goods and Luggage Article 26: Liability of Rail Transport Enterprises Article 27: Liability of Consignor and Consignees, Passengers, Other Legal Entities and Persons to Railway Transport Enterprises Article 28: Examination of Claims

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Appendix III-9

INTERNATIONAL CIVIL AVIATION CONVENTIONS ACCEDED TO

No. Title Place Accession Date 1. Convention on International Civil Chicago 03.07.1992 Aviation of 07.11.1944 2. Protocol on Amending the Convention Montreal 07.05.1993 on International Civil Aviation of entered into force for 25.07.1947 Uzbekistan on 24.02.1994 3. Protocol on Amending the Convention Montreal 07.05.1993 on International Civil Aviation of 14.06.1954 4. Protocol on Certain Amendments to the Montreal 07.05.1993 Convention on International Civil Aviation of 14.06.1954 5. Protocol on Amending the Convention Montreal 07.05.1993 on International Civil Aviation of 21.06.1961 6. Protocol on Amending the Convention Rome 07.05.1993 on International Civil Aviation of 05.09.1962 7. Protocol on amending the Convention on New York 07.05.1993 International Civil Aviation of 12.03.1971 8. Protocol on Amending the Convention Vienna 07.05.1993 on International Civil Aviation of 07.07.1971 9. Protocol on Amending the Convention Montreal 07.05.1993 on International Civil Aviation of 16.10.1990 10. Protocol on Amending the Convention Montreal 07.05.1993 on International Civil Aviation of 30.09.1977 11. Protocol on Amending the Convention Montreal 07.05.1993 on International Civil Aviation of 06.10.1980 12. Protocol on Amending the Convention Montreal 07.05.1993 on International Civil Aviation of 10.05.1984 13. Protocol on Amending the Convention Montreal 07.05.1993 on International Civil Aviation of 06.10.1989 14. Protocol on Amending the Convention Montreal 07.05.1993 on International Civil Aviation of 26.10.1990 21. Protocol on Authentic 5-Language Text Montreal 05.07.1996 of the International Convention on Civil Aviation of 29.09.1995 23. Convention Supplementing the Warsaw Guadalajara 27.12.1996 Convention of 1929 on Unification of Entered into force for Some Rules Related to International Air Uzbekistan on

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Transportation Carried Out by Persons 27.05.1997 Who Are Not Carriers under Contract 24. Agreement on Transit in International Chicago 27.12.1996 Air Communications of 07.12.1944 25. Additional Protocol #1 on Amending the Montreal 27.12.1996 Convention on Unification of Some Rules Entered into force for Related to International Air Uzbekistan on Transportation, signed in Warsaw on 12 28.05.1997 October 1929, and Amended by Protocol done in Montreal on 25 September 1929, 25.09.1975 26. Additional Protocol #2 on Amending the Montreal 27.12.1996 Convention on Unification of Some Rules Entered into force for Related to International Air Uzbekistan on Transportation, signed in Warsaw on 12 28.05.1997 October 1929, and Amended by Protocol done in Montreal on 25 September 1929, 25.09.1975 27. Montreal Protocol #4 on Amending the Montreal 27.12.1996 Convention on Unification of Some Rules Entered into force for Related to International Air Uzbekistan on Transportation, signed in Warsaw on 12 12.09.1998 October 1929, and Amended by Protocol done in Hague on 28 September 1955, 25.09.1975 28. Convention on International Recognition Geneva 27.12.1996 of Rights to Air Vessels of 19.06.1948 Entered into force for Uzbekistan on 06.08.1997

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Appendix III-10

BILATERAL AIR SERVICE AGREEMENTS

Austria (2000) Republic of Korea (1994) Azerbaijan (1996) Kyrgyz Republic (1996) Bahrain (1996) Latvia (1995) Belarus (1994) Lithuania (1995) Bulgaria (1999) Maldives (1996) Canada (date to be confirmed) Moldova (1995) People’s Republic of China (1994) Netherlands (1995) Egypt (1992) Pakistan (1992) Finland (1996) Poland (1995) Georgia (1996) Romania (1996) Germany (1995) Russian Federation (1994) India (1993) Slovakia (1997) Indonesia (1995) Switzerland (1994) Iran (2001) Thailand (1993) Ireland (1996) Turkmenistan (1996) Israel (1994) Ukraine (1993, 2001) Japan (date to be confirmed) United Kingdom (1993, 1999) Kazakhstan (1994, 2002) United States (1998) Viet Nam (1995)

APPENDIX III-11

GENERAL STRUCTURE OF AIR CODE (No. 864-XII, 7 May 1993)

Section I: General Provisions (Articles 1-5)

Section II: Utilization of the Air Space (Articles 6-22) Chapter I: Air Space Management (Articles 6-22)

Section III: Aviation of Uzbekistan (Articles 23-93) Chapter II: General Provisions (Articles 23-25) Chapter III: Airdrome. Airports (Articles 26-34) Chapter IV: Aircraft (Articles 35-43) Chapter V: Aircraft Operators (Articles 44-46) Chapter VI: Aeronautical Personnel (Articles 47-53) Chapter VII: Air Traffic (Articles 54-61) Chapter VIII: Aircraft Flights (Articles 62-73) Chapter IX: International Flights (Articles 74-78) Chapter X: Search and Rescue (Articles 79-84) Chapter XI: Air Flight Safety Supervision. Investigation of Accidents and Incidents in the Air (Articles 85-90) Chapter XII: Prevention of Unlawful Intervention in Aviation Activities (Articles 91-93)

Section IV: Air Transport and Aerial Work (Articles 94-135) Chapter XIII: General Provisions (Articles 94-97) Chapter XIV: Air Transport (Articles 98-127) Chapter XV. Aerial Works (Articles 128-135)

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Appendix III-12

SUMMARY OF SELECTED PROPOSED AMENDMENTS OF THE AIR CODE

Article 37: Operation Allowance. States that “maintenance and repair of aircraft is to be carried out by organizations approved by the Civil Aviation Authority in accordance with established rules; this follows the Standards and Recommended Practices of the International Civil Aviation Organisation (ICAO) (Annex 6, Operation of Aircraft, Clause 8.7).

Article 43: The Transfer of Rights and Responsibilities under Leasing of Aircraft. To be amended following the requirements of international standards of ICAO and the Chicago Convention, Article 83 bis.

Article 45: Recognition of the Certificate of the Operator. Follows the requirements of Article 33 of the Chicago Convention requiring that all contracting states are to recognize certificates issued by other contracting states that at least meet the minimum standards required by ICAO.

Article 49: Preparation and Admission to Professional Activity. Provides that “medical certification of the aviation personnel in civil and experimental aviation is to be carried out by the appointed medical commissions according to the rules established by the Civil Aviation Authority”; follows the Standards and Recommend Practices of ICAO (Annex 1, Personnel Licensing, Clauses 1.24.4 and 1.2.4.6.2).

Article 55: Air Traffic Services. Provides that “according to provisions of international agreements of the Republic of Uzbekistan, Air Traffic Services in established areas of air space of the Republic of Uzbekistan can be delegated to the Authorities of other States”; follows the Standards and Recommended Practices of ICAO (Annex 11, Air Traffic Services, Clause 2.1.1)

Article 63: Journey Log Books. Follows Article 33 of the Chicago Convention that states that all contracting states are obliged to recognize the certificates issued by other contracting states that at least meet the minimum standards established by ICAO.

Article 79: Rescue of Passengers and Crew of Aircraft on Distress. “Local administrative bodies” changed to “local authorities” pursuant to the Law on Local State Authorities, 2 September 1993.

Article 80: Organisation of Search and Rescue of Aircraft in Distress. Reference added to the Ministry of Emergencies based on Resolution of the Cabinet of Ministers No. 143, 11 April 1996, Appendix 1 and advice of the Ministry of Justice.

Article 81: Notification on Aircraft Suffering Distress. A reference to the Uzbek Agency of Communication and Informatization has been added pursuant to Resolution of the Cabinet of Ministers No. 328, 23 September 2002.

Article 86: Organization and Realization of Investigation. Provides that “in case of an accident with a foreign civil aircraft the state of registry, the state of the operator, the state of the designer and the state of the manufacturers of the aircraft has [have] the right to appoint its [their] authorized representative to participate in the investigation of the aviation accident”; follows the Standards and Recommended Practices of ICAO (Annex 13, Aircraft Accident Investigation, Clause 5.18).

Article 91: Aviation Security as a Set of Measures Bringing Together Human and Other Resources to Protect Civil Aviation from Illegal Acts. This article defines illegal acts in this context, this reflects Resolutions of the Cabinet of Ministers in 2000 and 2003; the existing Air Code did not consider aviation security.

Article 92: Protection of Civil Aviation from Illegal Acts. This article sets out various means for

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protecting civil aviation against illegal acts; it draws on a national programme for this purpose as well as from Annex 17, the Chicago Convention, paragraph 4.7.3.

Article 94: Definitions. Includes an extended definition of “carrier” to avoid confusion with the definition of the term in the Customs Code.

Article 95: Rules of Performance of Air Transport and Aerial Works. The article title is to be changed to Regulation of Activity on Performance of Air Transport to better reflect the article content. A number of changes have been put forward, e.g., expanding provisions related to the interaction of government departments and carriers.

Article 96: Licensing. Revised to not require a licence for activities outside of Uzbekistan.

Article 99: Charter Contract. A provision is to be added that “transport under charter contracts is to be carried out according to the general rules and performance of transport, and also in conformity with the special conditions stipulated in these contracts”.

Article 100: Reservation of Seats. Expanded based on the Law on the Protection of Rights of Consumers.

Article 101: Transport Documents. Substantially expanded to reflect forms of transport documents established by ICAO and the International Air Transport Association based on the Warsaw Convention.

Article 102: Services and Privileges Provided to Passengers. Retitled as “Organisation of Passenger Service” and expanded (e.g., on safety grounds, passengers are accorded the right to take children up to two years old (only) without purchasing a separate seat for them).

Article 103. Termination of Air Transport Agreement on the Initiative of the Carrier. Defines conditions under which the carrier has the right to deny the passenger performance of the transport agreement for reasons of safety; follows Annex 17 of the Chicago Convention and IATA Recommended Practice 1724).

Article 104: Termination of Air Transport Agreement on the Initiative of the Passenger. The words “and consignor” have been added to the title. The article now defines rules and conditions for termination of the transport agreement, from the side of the passenger and consignor, as well as from the side of the carrier; see IATA Resolution 737. Also reflects regulations concerning consignor rights provided for in Articles 12-14 of the Warsaw Convention.

Article 105: Tariffs, Charges, Rates, and Rules for Sale of Conveyances. Modernized rules for tariff approval (e.g., it states that air fares are to be established by carriers, while according to the current law all carriers are to charge the same tariffs on the same routes).

Article 106: Non-receipt of Cargo or Untimely Reception of Cargo by the Consignee. Retitled as Non-receipt of Cargo and Luggage by the Addressee/Consignee, Disposal of Unclaimed Cargo/Luggage and Cargo/Luggage Delivered to the Wrong Destination. Revisions proposed pursuant to Article 12 of the Warsaw Convention and Chapters 3 and 4 of Annex 9 of the Chicago Convention.

Article 107: Special Conditions of Transport. Expands the list of dangerous goods following Annex 18 of the Chicago Convention.

Article 108: Information and Advertising Support of Transport. Expands the set of information to be provided to the consumer of air transport (e.g., on routes, schedule, tariffs, carrier rules regarding sale of transport, on-board service, passenger rules of behavior) in accordance with the Law on Protection of the Rights of Consumers and air safety requirements as set out in Annex 17 of the Chicago Convention.

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Article 111: Activity of Foreign Carriers in the Territory of the Republic of Uzbekistan. More precisely defines the right of access to the market based on the provisions of the Chicago Convention and ICAO documents (DOC 9626, Manual on Regulation of International Air Transport).

Article 112: General Principles of Carrier Liability Regulation. Considering that the responsibility of carriers is not well defined in the existing Air Code, reference has been made here to the relevant Warsaw system of documents and appropriate revisions of Articles 112-18 drafted.

Article 113: Carrier Liability for Damage Caused to the Life and Health of the Passenger. Developed based on the Warsaw system of documents.

New Article 114. Degree of Carrier Liability for Damage Caused to Life and Health of the Passenger. Developed based on the Warsaw system of documents.

Article 115: Carrier Liability for Safety of Cargo. Re-titled as Carrier Liability for Damage Caused during the Transport of Luggage. Developed based on the Warsaw system of documents.

Article 116: Extent of Carrier Liability for Loss, Shortage, or Damage of Cargo or Luggage, and Passenger’s Belongings. Re-titled as Extent of Carrier Liability for Damage Caused during Transport of Luggage; developed based on the Warsaw system of documents.

Article 117: Carrier Liability for Delay in Delivery of the Passenger, Luggage, or Cargo. Developed based on the Warsaw system of documents.

Article 118: Carrier Liability for Loss, Damage, and Delay in Delivery of Mail. Re-titled as Extent of Carrier Liability for Damage Caused in Transport of Cargo. Developed based on the Warsaw system of documents.

Article 120: Agreement on Increasing Limitation of Liability. Re-titled as Liability of Consignor for Violation of Air Transport Agreement for Cargo and revised to reflect Article 10 of the Warsaw Convention.

Article 121: Drawing Up of Commercial Documents. Retitled as Drawing Up of Documents on Violations of Air Transport Agreement and more precisely defines these documents.

Article 123: Persons Entitled to Submit Claims. Developed in view of provisions of Articles 14 and 24 of the Warsaw system of documents.

Article 124: Time Limit for Bringing Claims in International Transport. Re-titled as Time Limit for Bringing Claims during Performance of Transport in the Territory of the Republic of Uzbekistan and International Transport. Revised to more precisely meet the provisions of the Warsaw system of documents.

Source: Adapted from material provided by the State Inspection for Supervision of the Safety of Aviation Flights

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Appendix III-13

AIR SECONDARY LEGAL INSTRUMENTS

Decree of the President on Establishment of the National Airline Company of Uzbekistan, No.UP-326, 28 January 1992, from the territorial civil aviation unit that had been part of the Ministry of Civil Aviation of the USSR.

Resolution of the Cabinet of Ministers on the International Civil Aviation Organization, No. 271, 7 June 1993.

Resolution of the Cabinet of Ministers on Certifications of Air Transport Operators of the Republic of Uzbekistan, No. 481, 10 October 1993.

Resolution of the Cabinet of Ministers on Amendments to the Decree of the Cabinet of Ministers No. 44 on Air Transport Management System in Uzbekistan, No. 53, 14 February 1995.

Instructions on Procedure for Screening of Hand Baggage, Luggage, and Personal Search of Civil Aircraft Passengers at Airports and by Other Officers of the Air Security Divisions of the National Security Services, National Security Services Department of Uzbekistan, No. 219, 29 April 1997.

Resolution of the Cabinet of Ministers on Regulations on Utilization of Airspace of Uzbekistan, No. 549, 12 December 1997.

Resolution of the Cabinet of Ministers on Regulations on State Inspection of Uzbekistan on Air Safety Supervision, No. No. 255, 16 June 1998.

Resolution of the Cabinet of Ministers on Expansion of International Flights, No. 343, 13 July 1999.

Resolution of the Cabinet of Ministers on National Programme for Safeguarding Civil Aviation Safety of Uzbekistan against Acts of Unlawful Interference, No. 256, 5 July 2000, and Amendments, No. 130, 11 March 2003.

Resolution of the Cabinet of Ministers on Civil Aircraft and Accident Investigation Procedures of Uzbekistan, 27 December 2000, No. 505.

Order of the Head of the State Inspection for Supervision of the Safety of Aviation Flights, No. No. 155, 21 December 2005, registered by the Ministry of Justice on 12 January 2006, No. 1360-1, Amendments and Additions to the Instructions on Issuing Certificates Related to Civil Aircraft Noise.

Order of the Head of the State Inspection for Supervision of the Safety of Aviation Flights, No. 129, 19 October 2005, Aviation Rules of Uzbekistan, Part 195, General Rules of Air Transport of Passengers and Baggage.

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Appendix III-14

TYPICAL PROVISIONS OF OPEN SKIES AGREEMENTS

1. Open markets (whole or partial abandonment of restriction relating to routes, number of designated airlines, capacity, frequency, and types of aircraft that may be operated).

2. “Level playing field”: provisions that enable countries that are parties to the agreement to compete on a fair and equal basis (e.g., freedom to establish sales offices in countries that signatories to the agreement; non-discriminatory user charges based on cost).

3. Pricing: much greater flexibility compared to traditional ASAs; usually a fare can be disallowed only if both governments concur (“double disapproval” pricing and then only if certain conditions are met.

4. Charter market: provisions freeing up the charter market.

5. Safety and security: agreement to observe established standards of aviation safety and security.

Source: After Monash International Pty Ltd (Peter Forsyth, John King, Cherry Lyn Rodolfo, and Keith Trace), Preparing ASEAN for Open Sky, AADCP [ASEAN Australia Development Cooperation Programme] Regional Economic Support Facility Project 02/008, Final Report, February 2004

Appendix III-15

COMMENTS ON DRAFT FREIGHT FORWARDING LAW

Article 3: Definitions. The words “and associated services” could be added after “provision of freight transport”.

Article 5: Types of Forwarding Services: One may ask whether the reference to chartering marine vessels is relevant in Uzbekistan.

Article 6: Agreement on Freight Forwarding and Implementation: One may ask whether the details of contracts needs to be specified in primary law. Would the contract be invalid if a section is omitted? The details suggested (e.g., routing description of cargo) would not normally be in a contract. Forwarders tend to have informal relationships with their clients and certainly do not have a contract for each shipment.

Chapter II: Rights and Obligations of the Freight Forwarder and the Client and Chapter III: Claims and Suits: It may be questioned whether these matters should be included a primary law on freight forwarding. The main concern is its enforceability if a problem occurs outside of the country with a foreign forwarder. More importantly, these terms may compromise the rights of the client to seek due redress under either Uzbek civil law or foreign law; would the conditions of Uzbek law be compatible? These terms may also be counter to the clauses contained on the back of House Bills of Lading, Combined Transport Bills, and the like; it is not clear whether they are compliant with FIATA (International Federation of Freight Forwarders Associations, Fédération Internationale des Associations de Transitaires et Assimiliés in French) conditions.

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Appendix III-16

SECONDARY LAW CONCERNING URBAN TRANSPORT IN TASHKENT

Provisions for the development of urban transport in Tashkent 2000-05 were set out in Resolution of the Cabinet of Ministers No. 513 of 26 November 1999:

1. Development of governance and regulation, fleet improvement, completion of Phase 1 of Tashkent metro Yunusabad line and rehabilitation of vehicle maintenance facilities.

2. In 2001-2003, attraction of foreign investment and co-financing of projects. Modernization of the tram and trolleybus fleets.

3. Computerization of public transport enterprise and automatic system operation.

In accordance with the Order of the President No. UP-3713 of 11 January 2006 Concerning Further Improvement of the Passenger Transport System in the City of Tashkent, Toshshahartranshizmat (Association of Tashkent Urban Transport Services - ATUTS) was established as successor to the Tashkent Urban Passenger Transport Authority. The Association is responsible for coordinating economic societies, state, private and other organizations working in the sphere of passenger transport and has the status of an independent legal entity.

ATUTS’ main objectives are set out in Table 1.

T1 ATUTS Objectives

1. Provide for the public demand for urban passenger transport, operate reliable and safe passenger transport. 2. Monitor the safety of the property of transport enterprises, including motor vehicles and their use, provide assistance to joint-stock companies in selling state assets. 3. Improve the transport infrastructure, serving all carriers on a contractual basis, regardless of their type of ownership, including all types of repair and modernization and maintenance of rolling stock. 4. Participate in tariff setting for urban passenger transport, arising from the demand for such services, fairly based expenses and increasing the economic efficiency of passenger transport. 5. Organize training, retraining and advanced training of personnel.

Presidential Decree No. UP-3713 of 11 January 2006 also aimed at the creation of favourable conditions for transparent competition of carriers of all forms of ownership, abiding by and improvement of the quality standards of services provided and en-route traffic schedule, clear distinction of the customer and contractor of movements, increase of material interest of the passenger transport staff and reduction of dead and administrative and managerial expenses.

Under provision of the Decree of the President No. PP-262 of 18 January 2006, Concerning ATUTS and the Department for Passenger Transport Licensing for the Municipality of Tashkent, it is ordered that: licensing passenger motor transport in Tashkent and control of licensing requirements and conditions will be carried out by the Department for Passenger Transport Licensing. The Department is to be financed out of: (i) funds received from carriers for the purchase of bidding documents; (ii) funds received from carriers for services rendered and the use of infrastructures for urban passenger transport, as provided in the contracts; (iii) a portion of state duties for rendering license to carry out urban passenger motor transport in Tashkent City; and (iv) levies for processing applications for receiving licenses and other sources, not prohibited by the legislation.

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Under Provision of the President No. PP-294 of 28 February 2006 Concerning Further Measures to Provide Safe Passenger Transport in Tashkent City and the Region, carriers of passenger motor transport without a license are to be subject to a fine of 20-150 times the minimum wage rate. For a second offence, their vehicles are to be confiscated and the persons responsible are to be brought before the courts.

Under Provision of the President No. PP-303 of 9 March 2006 Regulating the Conduct of Various Entrepreneurial Activities in the Sphere of Motorized Passenger Transport, city, regional, inter-city and international motor passenger transport of a commercial basis is exclusively to be carried out by legal entities. The Council of Ministers of the Republic of Karakalpakistan, the regions, Municipalities and Tashkent City are to licence by 1 June 2006 individual entrepreneurs conducting city, regional, international and inter-city motor passenger transport who wish to continue carrying out these activities as legal entities.

The centre coordinating transport under the Municipality of Tashkent has been converted to a Department for licensing passenger transport, as a subdivision of the Municipality of Tashkent. Its principal objectives are given in Table 2.

T2 Tashkent Passenger Licensing Objectives

1. Coordinate passenger transport, to regulate and optimize the route network, to fulfil functions of consumer on city passenger transport with rights to issue licenses and tender routes; 2. Develop a competitive environment and to create equal conditions to access the market of transport services for all carriers, including private, assess the effectiveness and suitability of public transport operations; 3. Present agreed financial proposals to the Municipality of Tashkent on fixing tariffs for passenger transport on city transport, and to control their application; and 4. Introduce a computer-based control system for passenger transport in Tashkent, including computerization of a system recording fares for land transport and controlling the routes of the city passenger transport.

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Appendix IV

LOGISTICS CENTRES

I UTACA DRAFT CONCEPT

The Draft Concept indicates that, in order to ensure Government support for developing transit capacity, it is necessary to provide conditions for accelerated development of services, including logistics centres. It notes that an integrated transport management information system is needed to ensure balanced and coordinated transport development, to improve sector supervision and to ensure the optimum allocation of financial and physical resources, and that this would require the establishment of logistics centres and transport and forwarding base points.

The Draft Concept notes that state-of-the-art transport technologies (multimodal transport, logistics, global logistics providers etc.) create synergies between modes to promote rapid economic growth. The main trends in the organization and development of such technologies are improvements in transport infrastructure at key intermodal connection points by the creation of multi-functional terminal complexes, information and logistics centres and technical provision for modal interchanges (packing, handling equipment etc.), based on international experience.

The Draft Concept states that one of the priority objectives is to develop measures to establish logistics centres. President Karimov referred in his address of 10 February 2006 to the need to develop such centres. Protocol 8 from the extended Collegium of the Ministry of Economy 14 February 2006 assigned U.Rozukulov, Sh.Tulyaganov, the Department of Communications and the Transport and Development of Information Technologies (Saifnazarov), together with UTACA and the Ministry of Finance to prepare within one month proposals for the establishment of logistics centres to ensure the most rational and efficient organization of the transport of exports. The development of logistics centres has been Government policy for many years and detailed feasibility studies were undertaken 2000-2003 by organisations such as Kreditanstalt fuer Wiederaufbau (KfW). Centres have not been developed principally due to funding difficulties.

Additional Article 2 of Minutes No.1 of the session of the Cabinet of Ministers 10 February 2006 states that “Resulting from the social-economic development in 2005 and the major priorities for the deepening of economic reforms in 2006” and having considered the issue of establishment of logistical centres to provide the most balanced and effective organization of freight transport, the Ministry of Economy states:

“The experience of foreign countries shows that logistical centres formed on the basis of existing freight terminals have an important place in the logistics chain in promotion of the movement of raw materials and finished products from manufacturers to consumers. In this case, terminal means the set of engineering facilities equipped with modern technological equipment providing the whole range of services related to freight traffic and distribution processes, freight forwarding, preparation of traffic documents, legal services, insurance and other services.”

Taking into account that the main portion of goods being exported is going through railway border stations of Keles, Karakalpakiya and Hodjidavlet, it is reasonable to consider establishing logistics centres based at the following stations: (i) Chukursay (freight traffic towards Keles border station); (ii) Bukhara (freight traffic towards Karakalpakiya and Hodjidavlet border stations); (iii) Andijan (organization of multimodal traffic on Andijan-Osh-Irkeshtam route); and (iv) Termez (Trans-Afghan transport corridor).

Together with this, the cotton terminals at railway stations might possibly be considered as a base for establishing transport and logistics centres. This decision is based on the information that railway stations dealing with freight operations in large volumes have enough secondary tracks, warehouses, loading/unloading facilities, representative offices of shipping organizations and customs units.

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However, in order to develop an agreed common decision on establishing logistic centres, it is necessary to conduct preliminary examination and detailed study of the following issues: (i) determination of designation of logistic centres (by types of freight), forecast of export traffic volumes for the next 10-15 years; (ii) conducting exploratory design studies and development of preliminary feasibility studies that include determination of implementation mechanisms, examination of the legislative base conditions, determination of efficiency and attraction of the project as investment; and (iii) determination of the financial sources for a feasibility study and the implementation of the project as a whole.”

II DEVELOPMENT ISSUES

The key requirements considered necessary for the successful development of logistics centres are given in Table 1.

T1 Development Requirements for Logistics Centres 1. Clearly indicate why such facilities are required and how they support the logistics sector and supply chain management. 2. Specify whether they should be unimodal or intermodal or both and why. 3. Indicate whether they are principally for export distribution or could handle other traffic. 4. Specify their core functions. 5. Indicate the proposed method of development funding. 6. Propose site management and development options. 7. Highlight any prerequisites to development, such as reaching a certain stage of development of distribution services, identification of a specific level of demand etc. 8. Be agreed in advance in consultation with the relevant transport ‘community’, to ensure compatibility of approach between the public and private sectors. 9. Be marketable to both the transport industry and to potential funders.

The strategy for developing such centres proposed by AIFU consists of a 5-stage programme: (i) identification of optimal locations and demand; (ii) undertaking of feasibility studies designed to attract investors and funding; (iii) establishment of a management organization; (iv) issuing of tenders for construction of core facilities; and (v) development of warehousing. Implementation would be by the development of a pilot centre, possibly at Termez, followed by others based on the success of the pilot.

The European Commission’s TRACECA programme is considering a Euro5.5 million project, to commence in 2006/07, on the development of logistics centres in Central Asia. Uzbekistan is an active participant in promoting and participating in the study, which would address in detail all of the issues discussed above and others. Strategic decisions on logistics centres should therefore not be taken before the conclusions of the TRACECA study.

III THIRD PARTY LOGISTICS PROVIDERS

Internationally, most logistics centres are predominantly concerned with third party logistics – i.e. those parties operating at the centres are not the owners of the goods, such as major distributors, transporters and forwarders. Companies operating at such facilities are often referred to as Third Party Logistics providers or 3PLs.

A domestic 3PL industry has not yet developed. A major proportion of goods are still carried on transport owned and controlled by the owner of the goods – i.e. ‘in-house transport’ – the system prevalent during the Soviet period. Many domestic transporters are owner-drivers rather than corporate entities. In general, domestic logistics centres globally also tend to be predominantly retailer-driven. While the 3PL companies tend to be the main operators present at such centres, they are only there to meet the demands of the major retailers and wholesalers and their need for regional

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and central distribution facilities. Uzbekistan does not have such a logistics environment due to the absence of large retailers/wholesalers and the predominance of bazaar-selling systems.

The international logistics market is now predominantly operated by 3PLs, such as the major forwarders and international road transporters, like Shoshtrans and Central Asia Transport. The presence of the larger entities is partly due to the high cost of entry to the international market, thus the need for a corporate entity, and partly due to the presence of major foreign carriers and forwarders with their dominance of import shipments that are being routed by overseas exporters.

There is a significant difference between the logistics profile of the domestic and international distribution markets in Uzbekistan. In terms of international traffic, there is some evidence of embryonic logistics centre activity, with developments such as the intermodal terminals at Chukursay and Tashkentstovarniy and particularly at Bukhara.

IV PROGRESSING LOGISTICS CENTRES

It is necessary to consider: (i) the philosophy behind logistics centres; (ii) the type of services to be provided; (iii) the sources of demand; (iv) the location; and (v) how the facilities should be developed.

A. Centre Concept A logistics centre is technically any centre where logistics takes place and therefore is open to wide interpretation: the global logistics industry cannot agree on a standard definition. However, a more conventional understanding in a developed logistics environment is of a complex of warehousing and distribution facilities located at a key transport node and which are predominantly used by 3PLs providers. The core functions of any such centres are a combination of warehousing and distribution. In general, there are two types of storage – transit and stock. Transit storage is temporary storage with a low storage dwell time, such as occurs at regional distribution warehouses that are predominantly concerned with transit storage in that goods are normally stored for relatively short periods of time prior to final delivery within the local area – i.e. the facility is principally concerned with distribution rather than storage. The storage requirement is a by-product of the distribution function in that it arises from the interface between longer distance transport carrying products in large consignments and local transport delivering order-picked consignments to wholesale and retail outlets.

However, many logistics centres also have some stock warehousing function. There are three main reasons for this activity. Firstly, manufacturers have tended to reduce their warehousing facilities on their own sites in order to maximise the use of their site for core production purposes and have consequently contracted out the warehousing to 3PLs who pick up the goods from the end of the production line and store them in their own premises awaiting final sale. Secondly, the system of central warehouses is used predominantly to respond to the growth in global sourcing methodologies and storage the slower-moving product lines or large items that would otherwise inhibit the performance of the regional warehouses if stored there. Thirdly, to hold strategic stocks of products close to the end-users, such that they are able to respond quickly to orders received. This is particularly important in relation to international traffic due to the longer delivery lead times between the shipper and the consignee.

In relation to international traffics, the logistics centre concept tends to be predominantly related to imports and is synonymous with Inland Clearance Depots (ICD). Again, goods are often entering in bulk quantities and then placed into transit warehouses awaiting customs and other clearances prior to final distribution to the receiver. Similar to the domestic regional warehouse situation, the facility is acting as an interface between the long distance international transport and its local distribution, and the transit storage is a by-product caused by delays in clearances. Export traffic tends to by-pass such centres and proceed direct to the external border, as export clearances generally are not required. The exception is if the export volumes are relatively small and the ICD offers an export consolidation service for less that container load traffic – i.e. it operates as a Container Freight Station (CFS) as well as an ICD.

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The concept promoted by Uzbek International Freight Forwarding Association (AIFU) broadly replicates the Silk Route strategy, whereby markets were established at key locations along the route to trade in local produce, as well as goods from other countries transiting along the route. In the proposed developed variant, the Uzbek concept is currently based on the establishment of such markets in the form of export and transit warehousing complexes located close to the national borders, similar to the export warehouse infrastructure systems developed during the Soviet period when export goods were moved to large warehouses at the borders/ports, stored as export stock and then sold from those warehouses. This is still the prevalent system currently being used in western China whereby major export warehouses are located at strategic border locations at Khorgos and near Kashgar which traders from Central Asia can visit and purchase Chinese goods. The proposed Uzbek model would be similar, but much more advanced with added-value services, such as electronic selling systems, marketing and purchasing capability, banking, arranging of export transport, packing, inventory control, hotels etc. all located within a Free Zone. An example cited is the facility at Bukhara that initially was established as a cotton consolidation centre, but which is now 60 per cent handling other export products and where foreign traders have established their own warehouses to hold inventory.

It is clear from discussions with UTACA and AIFU, which is a key promoter of the concept of logistics centres, that there are significant conceptual differences between the proposed logistics centre model and the global logistics concept. The Uzbek model is predominantly oriented towards stock storage of international export cargo, whereas the global modal is more distribution-orientated.

B. Function The core functions of logistics centres in a developed transport environment are warehousing and distribution. While it is acknowledged that added-value services such as inventory control, repackaging, labelling etc. may also be undertaken at such centres, they are not usually the core functions, though they may be critical in terms of additional revenue generation. In the case of domestic logistics centres, the main functions are as follows: (i) reception of goods from suppliers; (ii) reception of goods from central warehouses; (iii) temporary storage; (iv) order-picking in response to retailers/wholesalers instructions; (v) consolidation for delivery; and (vi) distribution to retail outlet or wholesalers customer.

In relation to international traffic, the principal reasons for transit storage are a modal interchange, customs clearance; awaiting quality checks etc. whereby there is a need to store goods only for a few days maximum, such as within an ICD. Such storage is essentially a by-product of some other event, rather than specifically to store the goods. When the goods are cleared they will be immediately redistributed. The exception may be ‘bonded’ warehousing where goods can be stored under customs control without having to pay import duty, excise taxes or VAT until the goods physically leave the warehouse. This practice is common in respect of imports of alcohol and tobacco products that have high duties, thus the advantage of delayed payments offsets the additional storage costs.

With regard to stock storage, logistics centres often may contain central distribution centres. The principle function of this type of facility is to hold stock in bulk until such time as sale orders are obtained. Goods are then order picked and delivered direct to the customer or channelled through a regional distribution centre. Thus, its dominant function is the holding and management of inventory. In the case of international traffic, while as indicated there is some stock storage within an ICD of certain high value dutiable commodities, the majority of imports will be cleared and sent to the importer who may then stock store the goods prior to sale. In this case he can use a domestic logistics centre for this function. Alternatively, in many countries the goods can be stored in secure premises and only cleared by Customs when the goods move into domestic circulation. Such facilities may be located within a free zone or ‘bonded’ area.

Most logistics centres concentrate on domestic distribution and consist of a series of warehouses within a designated zone adjacent to a key transport node, usually a major junction between motorways. The vast majority of logistic centres are uni-modal, being principally road-based facilities. This is because of the dominance of the road mode in the domestic distribution sector and the logistical principles of central and regional distribution systems used in developed countries. In general, the goods that pass through such facilities are mainly break-bulk and general cargo goods, rather than bulk cargoes, and are higher value commodities that can support the additional cost of

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using the more complex distribution and supply chain methodologies. Indeed, the value of the goods is a primary driver in the use of modern logistical concepts in order to improve service levels and, most critically, to minimise inventory levels. Consequently, the road mode will always tend to be the dominant transport mode.

In the case of international centres, they often tend to be multimodal as a significant proportion of goods come in by rail from the ports on dedicated ‘block’ trains. While theoretically a logistics centre could be handling both domestic and international traffic, in practice this is rarely the case. Thus, there are some differences in functional emphasis in relation to the transport and distribution, though the storage functions may be more similar.

The Uzbek model is oriented towards stock storage of export traffic only. A key driver for this proposal has been indicated as the potential savings in foreign exchange in inventory costs in relation to its export traffic. Traditionally major export products, such as cotton, have been moved in bulk and held in warehouses at foreign ports, initially at Riga and Illychevosk and more recently at Bandar Abbas, Dubai, Mersin and Poti. The cost of holding such inventory abroad not only uses up vital foreign exchange but is seen as reducing the revenue generated on export products. If the inventory were to be held domestically and sold direct from that point additional export revenue could be earned in hard currency.

The primary functions of such a centre would be: (i) reception of export products from the various points of production; (ii) stock storage awaiting sale; (iii) order picking against export orders; (iv) arranging of transport; and (v) delivery from the centre to an overseas customs using local forwarding expertise.

These functions will change the current export logistics whereby goods are presently despatched in bulk to overseas warehouses from where the customer collects his purchases to one where the customer either collects from the logistics centre in Uzbekistan or Uzbek forwarders/3PLs deliver the goods from the logistics centre direct to the customer. Theoretically, this will enable added-value logistics services to be offered compared to the current methodology and improve the supply chain management.

This basic consolidation, storage and export distribution function favours the use of multimodal links. The role of such centres for export consolidation clearly suggests that the onward movement will still be in relatively large-sized shipments and probably over long distances given Uzbekistan’s landlocked status, thus favouring the rail mode. However, in the medium to longer term as Uzbekistan increases its range of manufactured products for export the pattern may change. These will tend to be higher value products moving in smaller consignment sizes where road will be more competitive, particularly given the international road transport imbalance whereby westbound rates are much lower than eastbound rates. Thus, in the functional planning of such centres potential changes in the export composition and modal usage will need to be considered.

The current strategy emphasises the need for such facilities to service transit traffic. This would not be a normal function of such facilities, compared to the global model. Basically, transit traffic once it has begun its international transit would not normally change its surface transport mode. The concept of swapping road and rail transport at such strategic centres appears logistically unfavourable. Such a transfer represents a break in the optimal logistics chain and therefore would normally increase logistics costs. The Uzbek model however foresees the opportunity for other countries to similarly hold such export stock within these centres closer to potential buyers, thus shortening their delivery lead times. However, even this would not strictly be transit, as the ‘temporary’ destination would be Uzbekistan and it would only ‘transit’ to another country at a later stage when sold.

A good example of this would be at Termez, due to the particular circumstances in Afghanistan. Such a facility could service cross-border trade by Uzbekistan with other countries also holding goods that the Afghans wish to buy, particularly as holding such stock in Afghanistan is unrealistic in the short to medium term. However, this concept would partially rely on Afghans being permitted to access to such a facility to purchase goods and return with them on their own transport. This is similar to the

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situation at Khorgos where Kazaks and others visit the export warehouses in PRC each day and load up their trucks for the sale of Chinese goods not only within Kazakhstan but the region as a whole.

V TRANSPORT MANAGEMENT INFORMATION SYSTEM

The Draft Concept proposes that an integrated transport management information system is needed to ensure balanced and coordinated development of transport sectors, to improve the supervision of individual sectors and that this requires the establishment of logistics centres. This implies that such an information system is an integral requirement for such a facility and suggests that there is a direct linkage between infrastructure development and IT systems, whereas in a modern logistics environment no such direct inter-relationship exists. At logistics centres, while there may be a central administration charged with overall site management of the facility, each of the operators normally maintains their own individual IT warehousing and logistics management systems. Indeed, in almost all cases the IT system is remote from the facility, though with online EDI connectivity.

It is recognised that there is significant benefit in developing a centralised transport information system capability that leads to improved planning of the transport sector. Indeed, this would address one of the concerns that current transport data is not readily available in the required comprehensive format in order to ensure that transport planning reflects the current situation and identifies evolving developments and trends in the transport sector. However, it is considered that this type of activity could probably be developed more effectively by means of a ‘transport observatory’, as in some other countries in the region, or similar mechanism, rather than as an integral part of planning of logistics centres. It is considered that such centres should probably focus on their core operational functions indicated above rather, than become involved in the collection of data for external policy planning purposes.

Clearly under the Uzbek model there is a need for electronic systems to facilitate the export process, indeed this is seen as one of its key attractions. IT systems can be used to undertake sales, banking transactions, arranging of export transport, stock management, customs clearance etc. all within a single complex. Therefore, there are major benefits in developing such IT systems, though there may be different views as to whether this should be based on a centralised or dispersed architectural system.

However, there is a danger that proposals to develop such centralised IT systems may be perceived as a covert move to ‘control’ international exports and logistics. Some non-governmental users may be reluctant to support the development of such facilities if that were to be a functional objective. This is particularly important in relation to IT systems that may require the submission of sensitive commercial data to a third party (management of the logistics centre). This is not to suggest that certain neutral services such a transport brokerage that may require site IT developments would not be beneficial in supporting activities within such centres. The provision of a central information system is not considered to be a prerequisite in order to establish such centres and, unless carefully managed, may even be potentially detrimental. The functional scope of such IT systems needs to be carefully considered and discussed in advance with potential users.

VI GOVERNMENT INTERVENTION

The Draft Concept suggests that the development of logistics centres may involve increased Government intervention in the operations of the international logistics sector. Given that presently much of the export sector is Government controlled, in the short term this may not be a problem. However, in the longer term it is expected that the private sector will become increasingly important, especially in relation to added-value products such as garments and processed foods. In this case, users may fear that goods will be ‘directed’ artificially towards such facilities. While this may not be the intention, it will be important to be able to convey that the development of such logistics centres is principally to assist and support the competitiveness and modernisation of the export industry, rather than to revert to previous ‘control’ mechanisms. Industry support will be essential to the successful implementation of any strategy, particularly as the issue of payment for the transport from the point of production to the centres and cost of holding of inventory may be for user’s account.

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It can be seen therefore that there is a significant difference in functions. The proposed Uzbek model is more of a ‘Trading Centre’ dealing predominantly with export products, whereas the more conventional global logistics centre is more concerned with domestic and import distribution functions. In assessing the key issues both models have been considered, partly as the possibility of handling imports and domestic distribution within these centres might be an option later, even if it were not initially a core role.

VII DEMAND

The first critical development issue is that such facilities are essentially demand-driven not infrastructure-driven. Logistics centres are normally developed on the basis of identified demand by 3PLs or other potential customers that result in them investing in facilities at optimum locations. In the case of the global model the demand would come domestically from the large distribution companies and major retailers and internationally from the overseas multinationals or similar major foreign exporters or from ICD customers. In the case of the Uzbek model, the demand would come from the exporters, including those exporting strategic products, such as cotton that are still indirectly ‘controlled’ through the state selling systems. Construction of such facilities in itself is unlikely to generate demand in isolation and such a strategy would represent a high-risk option. It is clear that under either model identification of demand is the primary requirement.

While it may be that the Government or state organisations should be actively involved in the promotion and possible part investment in such centres, unless the demand, either overt or latent, is present the facility will probably not be viable and will be poorly supported by the market. This type of situation has occurred in a number of countries and is not one that should be repeated. Merely, because other countries have such centres is not in itself a reason for developing them. It is clearly important that the development logic should reflect the specific domestic situation, not slavishly replicate that of other countries where the transport environment may be significantly different. Thus, the fact that a somewhat different model to that of many developed countries is proposed should not in itself be a major concern.

There is generally a surplus of warehousing capacity, but a lack of modern and specialised warehousing. As indicated, this is in part due to the lack of a vibrant domestic warehousing and distribution environment. Consequently, they may be some latent demand for stock warehousing and particularly ex-production line storage, such as for cotton after the ginnery activity. In addition, the holding of stocks closer to the border within a complex that has comprehensive export services could reduce export lead times. Thus, the Uzbek model potential has two of the three demand characteristics for stock storage present in a developed logistics environment. Given that such a facility would only be storing export products, the actual storage logistics are virtually identical to a domestic operation.

However, if the centre is to process international traffic it will have to offer ICD-type services that would allow traffic to be sent from the external border to the centre in the case of transit and vice versa for exports without having to undertake full border clearance procedures. Assuming that Customs gave approval for the centre to be an ICD and had a physical presence with full clearance capabilities, in the case of rail transit connectivity to the facility there should be no problem as UTY acts as the ‘guarantor’ from a Customs transit perspective. This is the current situation for example at Chukursay. Road transport would also be able to transit between the centre and the border if travelling under TIR transit conditions. However, to make the facility more attractive it may be necessary to consider developing new transit arrangements that would allow non-TIR road transport to transit between the centre and the border, preferably without the need and cost of escort services. Given the limited transit distances between the proposed facilities and the border and the reduced liabilities in relation on export as opposed to import traffic, the potential to develop a simplified transit scheme should be correspondingly much easier.

In an international context such centres would normally be concerned with both potential transit and stock storage of imports. However, the profile of the Uzbek import traffic is not currently ideal for the

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development of logistics centres, other than for the transit storage activities related to the ICD activity – temporary storage of goods awaiting release. This is because, due to the economic conditions and limited access to hard currency, the majority of imports by road and intermodal by rail tend to be relatively small consignments. Much of the traffic is only imported against orders received. Consequently, following clearance they are mainly delivered direct to the consignor’s premises by the truck that brought the goods into the country – i.e. there is no transfer between the long distance international transport and local domestic transport and thus need for intermediate warehousing. Similarly, most container traffic brought in by rail is delivered direct to the consignee without storage. Initial discussions with the forwarding community suggest that the demand for such import-related transit storage may be limited.

More importantly, the demand for import stock storage is currently virtually non-existent. Unfortunately, the present economic and regulatory environment is such that foreign companies are reticent about holding inventory in local storage. Imports as indicated are mainly order-driven with direct movement from the overseas exporter directly to the Uzbek end-user. The need to use modern logistical practices such as just-in-time deliveries that promote the use of holding inventory close to the end-user are not present. The national policy of self-sufficiency and import substitution, whilst in the interest of the country as a whole may unfortunately run counter to the need for holding large inventory levels by foreign exporters with in country.

These conditions tend to favour the Uzbek model with its export orientation as opposed to the global model. Given the limited demand for import storage and lack of a developed domestic transport and distribution environment, the proposed emphasis on exports appears more logical, as well as the increased potential to ‘encourage’ exporters to use such facilities in that the Government has some influence on the logistics of key strategic export products. Nevertheless, it will be imperative that the logistics of using such centres involving a break in the logistics chain can be demonstrated to be more efficient than the current system of direct exports from within the country or holding of stock at foreign locations, such as at Bandar Abbas, Poti, Dubai and Mersin.

Given that one of the reasons for developing logistics centres is to save storage costs at these foreign locations, it is important to consult with potential buyers to ensure their support for what to them could be a significant change in logistics. The key reason for this overseas storage was to make the goods readily accessible to clients on a Free on Board (FOB) basis to ship to the final point of delivery. Thus, they were not responsible for the cost of the movements from the point of production to the port and therefore this limited their risks in relation to what was the most complex part of the logistics. While the transport logistics in the region have improved and hence become more reliable, nevertheless there are still problems and hence risks. Consequently, it is important that not only Uzbek exporters but also foreign importers ‘buy-in’ to the proposed concept. ‘Free delivered ex-logistic centres’ or CIF destination represents a major change from ‘FOB Bandar Abbas’, and thus the implications of potential changes in selling terms will need to be considered in determining demand.

There is growing use of global direct sourcing to improve profit margins. Improvements in fast reliable and expanding logistics networks are making global sourcing more viable while more sophisticated real-time IT system are allowing companies to have better visibility of their supply-chains. This will mean increased competition for Uzbek exports in the global market. It is therefore critical that such centres and the consequent changes in the supply chain can support this global sourcing trend, rather than merely supporting Uzbekistan’s narrower logistic interest.

VIII RAILWAY ISSUES

One issue that needs to be resolved is the potential conflict between the railways and the development of such centres. Currently, the railways have a series of intermodal centres, some of which are owned by rail subsidiaries. The development of such centres could result in the transfer of goods from the current intermodal centres to the logistics centres, with consequent repercussions for these operators of the intermodal terminals. In addition, in the case of Termez if the goods are taken to a logistics centre this would result in the loss of fees generated for moving wagons over the bridge into

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Hayraton. Thus, it is important to ensure that UTY supports the strategy of logistic centres as a key player, given its possible implications.

The Memorandum suggests both the development of four strategically located logistics centres and ‘cotton terminals at railway stations that exist on the territory of the Republic might be possibly considered as a base for establishing transport and logistics centres’. Logistics centres need demand in the form of a ‘critical mass’ to be viable. There is concern that with both centres and cotton terminals as to whether the demand will be dispersed rather than consolidated and that the critical mass can be achieved.

IX TIMING

This is also a critical issue. Clearly, logistics will develop significantly over the next few years. In terms of domestic distribution, the potential demand for such logistics centres will gradually come about from an increase in consumer spending and changes in wholesaling and retailing methodologies. While this may be unlikely in the short to medium term, it would be expected that in the longer term goal a more developed domestic logistics industry will materialise to reduce national distribution costs. As regards exports, there is expected to be a gradual increase in exports of manufactured products, particularly in the textile and food sectors, possible at the expense of the raw material sectors. This has implications on the demand for such facilities as the current concept is predominantly based on export consolidation of raw materials and such a concept becomes less a requirement for finished product. Even in the short term such changes can be evident as the overall trend is to gradually increase the added value of Uzbek exports in the medium to longer term. As regards imports the demand is already present in the need for ICD facilities and bonded warehouses but may be suppressed in the short term due to the policy of import substitution, self-sufficiency and constraining the import bill. However, as economic conditions improve in the medium to longer term imports will grow and with that the need for import processing facilities, such as logistics centres. Thus, it can be seen that there is a changing market demand and thus need to consider the optimum timing for development of such centres in relation to their functional role.

X LOCATION

A critical issue is facility location. Assuming sufficient demand, the success of the facility will largely be determined by its positioning, particularly in relation to its modal usage. If a logistics centre is in the wrong location for its customers, it will never be successful because it will not attract the necessary traffic levels for viability – critical mass. It is at this stage that the issue becomes significantly more complex. This is because it requires evaluation of sub-issues as to how and where such facilities might be developed: (i) on a uni-modal or multimodal/intermodal basis; and (ii) developed solely for international or domestic traffic or in combination.

The principal impact of this modal question relates to positioning of such facilities. Rail by its very nature is more rigid in its positioning in that such a multimodal facility has to be located at an existing railhead, or immediately adjacent to an existing line that would allow a spur connection to be constructed. In the case of the former, most railheads are within an urban environment, such as at the Chukursay terminal in Tashkent. Conversely road transport distribution centres are normally located outside the city on the ring roads at key intersections where long distance transport and local delivery transport interface – transport nodes. It can be seen therefore that that the optimal modal siting requirements therefore differ significantly. In the case of the option of developing spur lines to connect centres to main rail lines, provided that the site is close to the optimum road locations, then the differences would become less critical. In the case of smaller cities, such as for example Bukhara, where urban access is less of a problem, then the differing location requirements again would be less critical.

Given that the Uzbek model is based on being an Export Trading Centre the location issues theoretically relate to positioning at strategic points on the major transit corridors close to the borders. However, an important issue will also be accessibility, both for those that store their export goods there and buyers who may wish to visit to inspect stock, as well as availability of labour in relation to

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employment generated by such centres. Many Uzbek borders are somewhat remote and the road and rail alignments often differ at that point, such that joint facilities would be impractical. Most rail borders tend to be difficult to access by road. Bukhara represents such a compromise in that it is the largest city close to the border with Turkmenistan on the key north-south corridor and has reasonable access for users, given the good road, air and rail connectivity. The major road border at Alat is somewhat remote with communication problems and the rail border at Khodjidavlet is some distance from Alat. Both are in rural areas with low population densities and thus the logical attraction of siting a logistics terminal at Bukhara to overcome these constraints. However, even given the export orientation, similar optimum siting problems will exist in relation to selection of the optimum location in the , either within the city or outside near the ring road.

Given that the development of such centres is demand-driven, it is necessary to consider where the local demand might be. Were the development to be based on the international concept the import, and even domestic demand, would tend to be dictated by a combination of population and economic activity. Given that such facilities are more suited to the processing of higher value products, such as consumer goods, population would be likely to be the dominant demand-driver. There are generally logistics centres on the outside of most large cities in developed logistics environments. However, there may also be pockets of commercial activities that also create a more localised demand.

The siting of logistics centres would need to meet not only specific demand but also cumulative demand. For example, it may be better to locate one facility between two centres of demand rather than construct two separate centres, depending on the distance between them. Nevertheless, the optimal location will always tend to be weighted towards the points of heaviest demand, balanced by distribution distances and the location of key transport nodes. This suggests that the primary site for any standard logistics centre would be in Tashkent or its immediate environs at a strategic location possibly near the western ring road. The secondary sites balance the more dispersed demand outside Tashkent with the distribution time/distance from such a facility. These factors would initially suggest potential demand for a further facility at Samarkand and a third somewhere in the upper Ferghana valley. As indicated there could be potential for an additional facility at Termez, but its role would probably be significantly different to the others.

However, under the Uzbek model the demand pattern is different in that access to the border along a transit corridor is more important than the traffic source, which would relate to centres of export activity. Existing internal studies have suggested that in addition to Bukhara such logistics centres should be developed at Termez, in the Tashkent region (Churkursay) and Andijan in the Ferghana valley. Thus, it can be seen that whilst the concept and functions between the international and Uzbek model differ significantly the overall potential siting of such facilities are not totally dissimilar. This is because of the location of several large cities not far from the external borders. This suggests that the Uzbek model could potentially be used to handle some import traffic and even domestic traffic at a later stage, as well as acting as export centres.

XI IMPLEMENTATION

There are several development and management options for the actual physical development of such logistics complexes. In most cases the central and/or local government designates specific areas for development of logistics facilities through land use planning mechanisms and more detailed planning through planning consents and building regulations. This would probably be the case irrespective of whether the development was based on public or private funding and whether it was the Uzbek or international model.

Most logistics centres tend to be developed by the private sector. The main exception is the case of intermodal centres where the state railways may be a significant investor. In certain countries, such as in Germany, the regional government may also be an investor in order to ‘promote’ logistic developments in their region, rather than in neighbouring regions. However, the most common scenarios are that 3PLs or other users lease the land or the facilities from a property developer or construct their own facilities on leasehold or even freehold land. The site infrastructure – such as roadways and utilities - is usually provided either by the local government or the overall site developer.

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Initial indications are that development of such centres would principally be undertaken using private sector funding with land leasing.

The difficulty in obtaining funding has been cited as the major factor in the lack of progress in developing such centres. This may be in part due to an inability to be able to present to potential investors a plausible reason as to why foreign or domestic investors should invest in such centres, what would be the level of the returns that could be generated and how could the investment be recovered, particularly in hard currency. It may also be that some type of ‘guarantees’ may be required to promote or even secure investment. For example, the cotton exports are handled by Uzvneshtrans and a potential investor may wish such key players as either partners or to help underwrite the development by using the facility in order to generate the necessary critical mass.

In order to attract investment it will be as important to concentrate on what the potential investor is likely to want to be attracted, as on the infrastructural and technical issues. This will require those organisations actively promoting such centres to also consider themselves as investors in order to fully comprehend investor needs. Unless certain levels of return/ profitability can be generated, and in the case of foreign investors those returns can be transferred overseas, then logistics centres will have to be funded by the central Government or on developed on the basis of phased upgrading of existing facilities to minimise capital expenditure.

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Appendix VI-1

SUMMARY OF UTACA DRAFT CONCEPT

In 2004/5, UTACA, in cooperation with its member organizations, prepared a Concept for the Development of Transport and Communications in the Republic of Uzbekistan to 2015. This is a statement of the transport community’s vision of the future. The Draft Concept is summarized below:

Problems: (i) almost no competition in air transport, because only one national company – Uzbekistan Airlines - is permitted to operate scheduled international services; (ii) institutional reform of the railway sector is progressing relatively slowly compared to that of other modes; (iii) institutional reforms have not ensured the optimum use of infrastructure, given the new economic conditions with an international redistribution of freight and passenger transport flows; (iv) freight forwarding and multimodal transport both remain underdeveloped; (v) post-independence surplus capacity in practically all modes (both infrastructure and rolling stock) unevenly distributed by mode and area.

Draft Concept objectives: (i) developing a single, internally and externally integrated transport system; (ii)improved coordination of transport infrastructure development, major project design and implementation, and the introduction of new transport technologies and equipment; (iii) integration of domestic transport networks in the world transport system; (iv) developing competitive international transport corridors through Uzbekistan and creating the conditions necessary to exploit the improved potential for transit traffic; (v) integration of the transport, production and distribution processes, establishment of a multimodal transport system, based on logistics principles; (vi) development of a database and forecasting model (with comprehensive transport data) to improve the quality of management decision-making; (vii) establishment of a flexible tariff system; and (viii) introduction of the most environmentally friendly and energy-efficient transport technologies and reduction in its adverse environmental impact to a level conforming with international norms and standards.

International agreements: (i) prepare the legal groundwork, technical and technological support for International Conventions and Agreements to which Uzbekistan has acceded, as well as Intergovernmental Agreements signed and ratified by Uzbekistan; (ii) identify International Conventions and Agreements of priority for Uzbekistan and arrange legal and logistics support; (iii) ensure active and appropriate activity for the protection of Uzbekistan’s legal and economic interests in various regional and international organizations and to coordinate activity based on the interests of the national transport system; (iv) develop common approaches to tariff and customs policy with those countries whose territories the main transit routes of importance to Uzbekistan cross, in order to unify transport procedures and management rules; (v) remove non-physical obstacles to passenger and freight traffic through Uzbekistan; and (vi) provide technical equipment at border crossing points to accelerate and to facilitate border crossing procedures. Develop transit capacity (i) priority attraction of investment for the technical development of infrastructure forming part of international transport corridors; (ii) provision of conditions for accelerated development of services (logistic centres, passenger and freight terminals, communications facilities, rolling stock maintenance and repair, motels, camping, etc.) in transit corridors, including the attraction of foreign capital; (iii) establishment of transit areas in international airports, with the provision of adequate services; (iv) expansion and deepening of cooperation with international transport organizations and in the implementation of intergovernmental transport agreements, including bilateral agreements; (v) establishment of an efficient Government control system for the activity of Uzbek and international transport operators; (vi) implementation of appropriate measures to secure and support the activity of Uzbek carriers in foreign and domestic markets, in the event that international organizations and foreign governments implement new, more rigid, environmental, technical and other requirements for transport; (vii) amending the communications development strategy for international traffic arteries, as appropriate for the international transport and economic situation; (viii) acceding to international conventions and agreements of priority for the Republic; and (ix) pursuing an agreed and economically sound foreign

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policy, both with neighboring countries and countries on international transport routes. Key tasks: define priority transit corridors and development priorities. Regulatory and legal: (i) develop laws and regulations to control sector activity; (ii) further restructure sectors with a monopoly market position; (iii) improve tariff policy to ensure that economic transport demand is provided for and to reduce transport costs; (iv) augment working capital to renew vehicle fleets; (v) formalize the legal tendering procedures for the right to provide urban, regional, intercity and international passenger transport services of social importance; (vi) establish a legal basis for the development and construction of privately operated roads and toll roads; (vii) develop the operating and regulatory mechanisms and a legal basis to apply modern transport technology – logistics and intermodal transport, etc.; and (viii) improve (harmonize) the regulatory basis of the transport certification system, bringing vehicle technical operating rules into conformity with international standards. Framework acts, which develop and adapt other regulations and laws, will be adopted. Legal support will be given to tendering procedures for the operation of passenger services, where the basic principles will be: free access of carriers to the market, an exclusive right of successful tenderer to provide services on a route, minimization of budget subsidies etc. Tariffs: (i) gradual change from applying high tariffs to the utilization of a principle of ascertainment of a “ceiling” profitability and further, as the competitive environment develops, to the free pricing of carriers’ services; (ii) development of marginal tariff indexing mechanisms based on inflation, while safeguarding the social safety net; (iii) granting preferences, as established by law, to organizations providing passenger services of social importance, in particular in rural areas. (iv) ensure pricing freedom in those transport market sectors with a high level of competition; (v) exercise control of actual costs and profitability for monopoly transport enterprises; (vi) set fixed tariffs for natural monopoly transport services, coordinating tariff regulation measures with other incentive or restrictive measures; and (vii) ensure the improvement of tariff policy and maintenance of a single tariff system in accordance with intergovernmental agreements on pursuing agreed policy in the area of transport tariffs. Cross-subsidy and support of loss-making activities at the cost of profitable activities will cease, while maintaining transport of social importance. Investment policy: (i) identify priority projects subject to budgetary co-funding, with adequate budgetary provision; (ii) establish financial and investment structures for transport, to attract private, including foreign, capital; (iii) work with international organizations and financial institutions to provide financial and technical assistance for road rehabilitation, improvement of railway lines and reconstruction of airports on transit corridors; and (iv) ensure the implementation of investment projects on a competitive basis. Human resources: (i) implement measures to mitigate the adverse social impact of economic reforms and of structural reorganization; (ii) maintain the practice of making sectoral tariff agreements, including timely wage indexation, measures to keep highly-skilled staff; (iii) improve qualifications and the control system for transport personnel and communications enterprises in all areas, primarily in terms of ensuring transport safety; and (iv) develop and support departmental higher and secondary specialist institutions for skills development.

National security: (i) agree and mutually adjust the transport system development strategy in accordance with national security strategy, the state defence doctrine and for emergency operations; (ii) give priority to the development of those transport systems and facilities which are of defence importance and/or used for emergency response, establishing, if necessary, a special procedure for logistics and the supply of such facilities and systems; (iii) make state defence orders to transport organizations, with funding from the State budget and the exercising of State control over their implementation; (iv) undertake the development of necessary regulatory documents on transport system preparedness activity and develop a preparedness activity system and a mobilization agencies structure for the new economic circumstances; and (v) ensure sustained functioning of information, communications and management under specific conditions.

To improve the country’s economic security concerning transport, dependence on the use of the

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transport infrastructure of other countries will be ended.

Information system: (i) establish a computerized transport information system and database, based on the interfacing of information systems between modes of transport and monitoring of the transport services market; and (ii) forecast freight and passenger traffic flows at regional, national and international level, as well as advanced development plans for the overall transport system and its individual elements.

Logistics centres: (i) establish logistics centres and transport and forwarding base points; (ii) improve infrastructure at key modal interchange, by creation of multifunctional terminal complexes, information and logistics centres; (iii) technical provision for modal interchanges (packing, handling equipment etc.) based on international experience; (iv) ensuring organizational assistance to combined and multimodal transport, development of a multimodal operator network; and (v) establish transport leasing companies to ensure agricultural and urban passenger transport of social importance.

Road transport: (i) replace the urban bus fleet, including high capacity vehicles, with a modern fleet; (ii) develop vehicle maintenance and servicing facilities, including corporate services; and (iii) develop local assembly plants for vehicles, sufficient to cater for maximum demand. Transit corridors: (i) upgrade main highways to conform with international standards and maintain them in good condition, including rehabilitation of individual deteriorated road sections; repairs, widening and increasing of bridge capacity; and (ii) procurement of modern road building equipment; and (iii) development of safety standards. Rail transport: (i) construct routes to ensure the shortest links between regions; (ii) upgrade lines on transit corridors and high-speed lines; (iii) computerize control centres, providing modern software and communications facilities; (iv) procure modern track rehabilitation and repair equipment; and (v) renew rolling stock. Inland waterway transport: (i) fleet modernization and renewal to maintain river navigable waterways; (ii) establish modern maintenance facilities for river vessels; and (iii) construct modern cargo handling terminals. Air transport: (i) establish facilities for aircraft maintenance and repair; (ii) renew the aircraft fleet on a leasing basis; (iii) bring the technical condition of main airports into conformity with the norms and recommendations of the International Civil Aviation Organisation (ICAO) and a transition to European standards; and (iv) improve the air traffic control system, utilizing satellite communications, navigation and surveillance systems.

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Appendix VI-2

PRESIDENTIAL DECREE No. 325 - 17 APRIL 2006: On Measures to Enhance the Development of Service Industries 2006 – 10

Development of Period Target Executing Agencies Transport Services Road Increase export services 2006-10 Volume of road freight traffic export UTACA, Ministry of provided by road transport services to increase to 362 million Foreign Economic tonne/km by 2010, 30 per cent Relations, Investment increase on 2005 and Trade Develop route network of 2006-10 Volume of freight and passenger Council of Ministers of the cities, provinces and traffic, improve the quality of public Republic of republic; create equal service. Growth of wholesale Karakalpakstan, regional conditions for carriers volume of transport services by 110 Khokimiyats and irrespective of form of per cent by end-2010, including Tashkent Municipality, ownership; develop rural areas by 80 per cent. Increase Uzbek Agency of Road competitive environment in the share of transport services and River Transport passenger transport provided to the rural population to services market 28 per cent of the overall amount of transport services Rail Commence service on the 2007-8 Cost of passenger transport UTY, Ministry of Finance new line Tashguzar – Tashkent – Termez to decrease by Boysun – Kumkurgan 30 per cent cost of freight transport to decrease by 50 per cent. Traffic volume to increase by 20 per cent. Increase the volume of rail 2006-10 Increase rail export services volume UTY export services by on average 16 per cent, increase export volume Uzjeldorexpediciya by 25 per cent, of Uztemiryullarta’mir by 50 per cent, of Tashkent coach repair plant by 40 per cent. Air Renew domestic fleet with 2006-10 Ensure the development of TAPOiCH; IL-114-100 aircraft: domestic passenger services, while UzA; Ministry of Finance; 2006 – 2 units; increasing traffic volume by 20 per National Bank for Foreign 2007 – 2; cent. Economic Activities 2008 – 2; 2009 – 3 Increase export services 2006-10 Increase international passenger UzA provided by air transport, and freight traffic by 15-17 per cent including an expansion in on average, increase the economic the frequency of viable efficiency of flights international services Expand navigation and 2006-10 Increase the intensity of use of the UzA other services handling civil aviation ground infrastructure, transit flights of foreign increase revenue generated by on airlines average 20 per cent

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Appendix VI-3

Executive Order of the President No. P-2482 of 20 April 2006: On establishment of commission for development of the programme to form a single integrated strategy for regional development 2007 - 11

In order to carry out a detailed analysis of the extent of regional social and economic development, to ensure the optimum combination of sectoral and territorial principles and approaches in economic development, to set out a single integrated strategy for regional development in the medium term:

1. Set up Commission for elaboration of the Programme on formation of a single integrated strategy for regional development 2007-11, consisting of the persons noted in the appendix. 2. The Commission (Mirziyoev Sh.) shall: (a) within 10 days, clearly define main directions for elaboration of the Programme, form working groups from among the qualified specialists and researchers, develop methodological approaches, indicators and performance measures, methods and models for a comprehensive analysis of the level of social and economic development in the regions; (b) within two months undertake a detailed qualitative analysis of the potential existing in the regions, basic factors and pre-conditions for sustainable development and the attained level of social and economic development of the regions. Herewith, special attention shall be given to: - determination and assessment of the level of efficient and rational use of natural, mineral, land and water potential available in the regions; - assessment of demographic situation in the regions, the extent of resolving of able-bodied population employment issues; - critical analysis of economic development levels in the regions, industries and sectors of economy, assessment of balance and complexity of development in the regions, efficiency of utilization of established economic potential; - assessment of the development level of market infrastructure, transport network and engineering and communications system (energy, heating supply, natural gas and drinking water supply); - assessment of financial sustainability (self-sufficiency) level of the regions, reasons and factors of local budgets subsidizing, sources of investment resources formation; and - analysis of the standards of living of population, extent of social infrastructure and service industry development. 3. Based on the detailed analysis, the Commission in association with the Council of Ministers of the Republic of Karakalpakstan, regional khokimiyats and Tashkent City, ministries, departments, companies, associations and other bodies of economic management shall undertake the development in two stages of the Programme to form a single integrated strategy of regional development 2007-11. In the first stage, by 1 July 2006, a Concept shall be developed, which envisages: - elaboration of methodological approaches and methods of economic analysis and forecasting inclusive of the combination of sectoral and territorial principles of future development of the economy and social sphere of the regions; - clear definition of the main goals and objectives of the Programme, justification of the most important factors, conditions and prerequisites for sustainable, dynamic and integrated development of the regions; and - justification of main parameters, which should serve as targets for Programme formation. In the second stage, by 1 October 2006, set out a Programme to ensure a single integrated strategy of regional development 2007-11.

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4. The Commission shall be entitled to enlist the services of highly skilled specialists of the Republic and local authorities, individual employees and collectives of scientific and research and design organizations for the development of the Programme. 5. The Prime Minister, Mr. Sh.M.Mirziyoev, shall be entrusted with the control of the implementation of this Executive Order.

Main Directions for Programme Development

In the context of economic liberalization and deepening of market reforms, the role of territorial factors and conditions in the support of sustainable economic growth is significantly increasing.

The need for effective use of existing natural economic potential, creation of equal conditions and quality of life for the population, assurance of balance of territorial and sectoral interests, coordination of functioning of various market participants in the regions would require the elaboration of the target Programme on formation of single integrated strategy for regional development for the medium term.

The main areas for the development of the Programme are:

1. Development of Concept envisaging the elaboration of the methodology and technique, fundamental approaches based on correlation of international and national experience in the area of regional development regulation, justification of objectives and tasks, factors and backgrounds, target milestones for the formation of a Programme. 2. Detailed analysis of the social and economic development of the regions 2000-5 to include: - assessment of the current structure of the economy in the regions taking into account its equation and complexity, determination of a level of interregional differentiation in the development of the economy and social sphere; - analysis of the level of industrial development and localization, primarily in production of consumer goods, assessment of created economic potential use efficiency, level of localization based on the utilization of mineral resources, the situation in siting of small business enterprises, enterprises with foreign investments, including those in the rural areas; - analysis of development and location of agriculture, deepening of specialization in production given the agricultural climatic conditions, quantitative and qualitative characteristics of rational use of land and water resources; - assessment of the living standards of the population, development and location of the service industry, social infrastructure in the regions, identification of specific features of generation of income and costs of the population in the regions, development of social infrastructure, the extent of differentiation in the consumption of services by the population of different regions; - analysis of coverage of the regions by the transport network and communications systems, in rural areas in particular, assessment of balance between the population settlement system and development of engineering and town planning infrastructure; - assessment of demographic potential, employment of population, level of balance between demand and supply in the labour market; - analysis of institutional reforms, development and location of the market infrastructure facilities, status of the development of private sector, and of local economies as well; and - assessment of formation and distribution of investment resources, analysis of inter- budgetary relations and the role of local budget in the social and economic development of the regions, level of donation in the regions, factors and reasons for their appearance. Based on the detailed analysis of individual industries and sectors of the economy, it is necessary to identify the most problematic districts, cities and regions as a whole, which would require purpose-oriented support and stimulation. 3. Assessment of factors, conditions and backgrounds for sustainable and complex development of the regions, justification of internal reserves and opportunities for ensuring of economic growth. The forecast estimates of the demographic potential and the labour market, mineral

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resources base, land and water resources. Identification of export potential through competitive advantages of individual territories, reserves of interregional economic integration, etc. 4. Justification of parameters of development and location of individual industries and sectors of economy, social sphere for 2007-11 and a system of measures on their achievement, given the particulars of each of the regions (Tashkent city, Republic of Karakalpakstan, regions). Ensuring of balance of the development parameters in individual sectors of the economy on the basis of individual target programmes under implementation or development with their regional correlation. 5. Calculation of required volumes and sources of investment and financial resources for the implementation of the Programme, which envisages gradual reduction of support for the regions, increase of the investment attractiveness of the regions and development of various mechanisms to encourage investment. 6. Assessment of expected results of the Programme aimed at reducing the level of interregional differentiation by the development of the economy and social sphere, efficient use of local resources, growth of employment and income of the population and creation of necessary conditions for regional economic development. 7. Development of specific mechanisms of the Programme through the improvement of the legal and regulatory base, deepening of institutional reforms, which clearly identify the functions and objectives of central and local authorities, development of regional management, economic instruments for stimulation and support of the regions, formation of the monitoring and regional statistics system.

The composite, sectoral and functional working groups established for the development of the Concept and Programmes within the prescribed period shall prepare analytical and forecasting reports concerning all above areas to ensure the combination of sectoral and regional principles of complexity in regional development.

V. Group on the development and localization of transport network, engineering and communication systems

5.1. Sub-group on development and localization of transport network

1. S.M.Mustapov Head of Department, UTACA , Head Sub-group 2. Sh.Sh.Shovakhabov Deputy Director of the Uzbek Agency on Road and River Transport 3. S.Saifnazarov Head of Department, Ministry of Economy 4. Kh.Z. Nishanbaev Head of Group, Centre for Social and Economic Research 5. A.S. Mukhammedov - Director, Design Bureau Uylloyikha

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Appendix XIV-1 Existing Sector Organization Structure

Cabinet of Ministers

Anti-Monopoly State Property Commission Commission

UTACA Chamber of Commerce

ROADS/Urban RAIL Transport AIR Inland Waterways

UTY Rail Safety Uzavtoyul Agency for Road & Uzbekistan Airways Inspectorate of Flight Agency for Road & Inspectorate River Transport Safety Oversight River Transport

Passenger Company Refrigerated Wagon Regional Units Uzbekistan Company and JSC’s Navigation Centre

Maintenance Depots Others Road Fund Under AIFU International Airports MOF

Rail Freight Container Company ATUTS AIRCUZ Domestic Airports Forwarder

Notes: 1. Ministry of Finance and Ministry of Economy have functional oversight responsibilities 2. Ministry of Foreign Economic Relations, Trade and Investment is responsible for international transport issues. 3. State Customs Committee interfaces with the transport sector at borders. 4. Ministry of Justice provides legislative and judicial guidance to the sector where necessary 5. See the main text for additional comments on this structure 6 UTACA does not report to the COM, but to its founders, but has been shown in this chart as a COM assistant for the sake of presentational simplicity.

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Appendix XIV-2 Proposed Sector Organization Structure

Cabinet Of Ministers

Ministry of Transport

State Property Chamber of Commission Commerce

Rail Directorate Road Directorate Road Services Urban Transport Directorate of Policy Aviation Directorate Directorate Directorate and General Transport Services

Infrastructure Uzavtoyul Road Freight Tashkent Planning Division Investment Division Civil Aviation Forwarding Authority (UCAA)

Passenger Services Road Fund Passenger Transport Other Urban Centres Division of Logistics, Legal Services Aviation Services Intermodal and Inland Waterways

Freight Services Freight Transport Department of International Relations

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Appendix XVI-1

ROAD FUND

T1 Rates of Charges and Withholdings Item % Enterprises, establishments and organizations (except those specified below) – of sales of 1.5 products (works, services), less VAT and excise tax Procurement, supply and sales organizations, trading and catering enterprises – of turnover, 1.0 less VAT Organizations providing intermediary services – of the amount of commissions, less VAT 1.0 Wholesale and retail pharmaceutical organizations – of the gross revenue 1.0 Commercial banks, credit unions, insurance organizations, video parlors (movie projection 1.5 points) auctions, casinos, enterprises generating revenue from duplication, rental of video- and audio media, operations of game machines with pecuniary advantage, premium drawing and other risk based games, as well as other performing arts presentations - of revenue Enterprises, the core activities of which is the provision of property for leasing 1.5 Construction, construction and mounting, repair and construction, start-up and 1.5 commissioning, design and exploration, research organizations – of the volume of works performed by own means, less VAT Enterprises of heating, water and gas supply of the communal services system – of the 1.5 sales of products (works, services), less VAT and acquisition value of heat energy for heating supply enterprises, water for water supply enterprises and natural gas for gas supply enterprises respectively Road transport enterprises – of the sales of products (works, services), less VAT 2.5 Charges on the cost of acquired and temporarily imported road transport vehicles paid by the owners (users) of such vehicles when registering with the bodies of internal affairs of Uzbekistan - of the price of acquired and temporarily imported cars 6.0 - of the price of other acquired and temporarily imported road transport vehicles: trucks, 20.0 buses, special-purpose vehicles Total amount of resources generated from the reacquisition of the enterprises and 50.0 organizations of Uzavtoyul, which is subject to receipt to the budget Source: Annex 22 Resolution of the President No. 244 of 27 Dec. 2005

T2 Entry, Exit and Transit of Road Transport Vehicles of Foreign Countries

Item US$ Fee for entry per road transport vehicle for foreign countries (except for countries specified 400 below) Fees for entry and transit for vehicles of the Republic of Tajikistan: For each commercial vehicle and bus 130 For each day in excess of 8 days 50 For transit traffic of commercial vehicles and buses to third countries (except CIS countries) 90 Fees for entry or exit of commercial vehicles of the Republic of Kazakhstan, except transit 300 Fees for entry and transit for commercial vehicles and buses of Kyrgyz Republic: 300 Fees for entry and transit for vehicles of Turkmenistan: Commercial vehicles with the capacity of: <10 tonnes 50 10 - 20 tonnes 100 >20 tonnes 150 Buses with number of seats:

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<12 seats 25 13 - 30 seats 50 >30 seats 100 Cars in transit 30 Motorcycles in transit 15 Source: Annex 23 Resolution of the President No. 244 of 27 Dec. 2005 Note: For transport of humanitarian aid a reduction factor is applied to the rate of charges levied for entry and transit of road transport vehicles.

T3 Road Fund Revenue and Expenditure Budget 2006

Revenue Soum Billion

Obligatory deductions from the sales of products (works, services) 181. 9 Including: Procurement, supply and sales organizations, facilitating agencies, wholesale and retail pharmaceutical organizations, trading and catering (21.9) Commercial banks, credit unions, insurance organizations etc. (8.9) Road transport enterprises (4.1) Enterprises of other industries (147.0) Charges on the cost of acquired and temporarily imported road transport vehicles to owners (users) 10.9 Entry fees charged from road transport vehicles of foreign and adjacent countries 8.2 Other receipts 1.0 Total 2006 revenue 202.0 Expected carry-forward balance begin-2006 22.4* Revenue Including Carry-Forward 224.4

Expenditure Soum Billion

Public roads engineering 3.0 Public roads construction and rehabilitation 37.7 Public roads repair and maintenance 149.4 Procurement of machinery and mechanisms for public roads operating maintenance 10.0 Administrative staff of the Republican Road Fund 0.3 Central management staff of Uzavtoyul 0.3 Management staff of the regional subsidiary road construction organizations of Uzavtoyul 1.6 Provision for disaster recovery – Resolution of Cabinet of Ministers No.361 of 21 Aug 2003 9.5 Other expenditures:** 12.6 Reconstruction of Tashkent Inner Ring Road 10.0 Reconstruction of roads in Termez, Surkhandarya 0.3 Reconstruction of roads in Karshi, Kashkadarya 2.0 Implementation of agreement on mutual cooperation between the Republican Road Fund, State Customs Committee and service banks 0.3 Total Expenditure 224.4

Source: Annex 4 Resolution of the President No. 244 of 27 Dec. 2005 Notes: * Excluding Soum50.0 billion transferred to meet deficit payments of off-budget pension fund under the Ministry of Finance. ** In accordance with the Resolution of the President No.216 of 8 November 2005 “On Investment Programme for 2006” Reallocation of expenditures can be made between items within the overall limit.

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Appendix XVI-2

TRANSPORT TAXES AND DUTIES

T1 Rates of Local Taxes and Charges on Transport Fuel

Tax Rate Tax charged on physical persons for consumption* of: Petrol/diesel fuel for vehicles Soum60/litre LPG for vehicles Soum60/kg Source: Annex 21 Resolution of the President No. 244 of 27 Dec. 2005 Note: * The specified tax rates are uniform within Uzbekistan. The specific amount of the tax rate shall be determined by the Cabinet of Ministers at the suggestion of the Ministry of Finance.

T2 Duties on Excisable Goods Produced in Uzbekistan

Item % of ex-factory price (Including excise tax)

Cars produced by Daewoo Auto** 22.5*

Source: Annex 12-1 Resolution of the President No. 244 of 27 Dec. 2005

Notes: * In accordance with the Resolution of the Cabinet of Ministers No.390 of 13 Nov 2002 “On measures for encouragement of market saturation with consumer goods and improvement of relationships between manufacturers and trading organizations” the amount of excise tax shall remain at the disposal of the enterprise with targeted commitment of set funds for the increase in output, diversification of production and improvement of competitiveness of consumer goods produced. ** The payers and the procedure for payment of excise tax on Daewoo Auto cars, on natural gas and condensed gas shall be determined by the Ministry of Finance in agreement with the State Tax Committee.

T3 Duties on Excisable Imported Goods

Goods Foreign Economic Activity In % of Customs (Commodity Group 87) Commodity Classification Value of Goods or Code US$/unit Passenger vehicle for transport of 10 8702 10 119, 70.0 and more, including driver, with 8702 10 199 engine over 2500 cm3 New transport vehicles produced in 8703 5.0 and imported from Russian Federation (except medical) Vehicles (including second hand) with engine of Not more than 1000 cm3 8703 21 (except 8703 21 101, US$2.4 / cm3 8703 21 901) Over 1000 cm3, but not exceeding 8703 22 (except 8703 22 101, US$2.5 / cm3 1500 cm3 8703 22 901) Over 1500 cm3, but not exceeding 8703 23 (except 8703 23 199, US$2.6 / cm3 1800 cm3 8703 23 909)

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Over 1800 cm3, but not exceeding 8703 23 (except 8703 23 199, US$2.9 / cm3 9000 cm3 8703 23 909) Over 3000 cm3 8703 24 (except 8703 24 101, US$3.1 / cm3 8703 24 901) Vehicles (including second hand) with compression ignition conventional engines of: Not more than 1500 cm3 8703 31 (except 8703 31 101, US$2.5 / cm3 8703 31 901) Over 1500 cm3, but not exceeding 8703 32 (except 8703 32 191, US$2.9 / cm3 2500 cm3 8703 32 901) over 2500 cm3 8703 33 (except 8703 33 191, US$3.1 / cm3 8703 33 901) Commercial vehicles with the engines 8704 21 310, 70.0 over 2500 cm3 8704 21 390 Chassis with mounted engines for 8706 00 11 70.0 vehicles classified in commodity positions 8702, 8704 Spare parts for cars 8708 70.0 Source: Annex 12-2 Resolution of the President No. 244 of 27 Dec. 2005

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Appendix XVI-3

T1 Road Development Programme 2007-10 (Draft) At Expected Outturn Prices

Total 2007 2008 2009 2010 No. Road Section Soum Soum Soum Soum Soum Km Km Km Km Km mill. mill. mill. mill. mill. International corridors - Ongoing projects: 1 М-34 Tashkent - Dushanbe km 54 - 56 (with construction of overpass) 2 5000 2 5000 2 М-37 Samarkand-Ashgabat-Turkmenbashi, km 73-83 (Bypass 8 3270 8 3270 Kattakurgan, Phase 2) 3 M-37 Samarkand-Ashgabat-Turkmenbashi, km 346-363 (excl. 12 3585 12 3585 351-356) 4 M-39 Almaty-Bishkek-Tashkent-Termez km 1260-79 19 4400 19 4400 5 M-39 Almaty-Bishkek-Tashkent-Termez, km 1287-1313 26 1080 26 1080 6 M-39 Almaty-Bishkek-Tashkent-Termez, km 1335-43 8 8960 4 4330 4 4630 7 А-378 Samarkand-Karshi, km 6-57 (Phase 2, lay-out) 1400 1400 8 A-380 Guzar-Bukhara-Nukus-Beyneu km 327-366 39 6775 25 4485 14 2290 9 A-380 Guzar-Bukhara-Nukus-Beyneu km 445-470 25 5544 14 3010 11 2534 Sub-Total 139 40014 110 30560 29 9454 New projects: 10 М-34 Tashkent-Dushanbe, railway bridge km 83 0.15 2290 0.15 2290 11 М-37 Samarkand-Ashgabat-Turkmenbashi, River Karadarya 0.16 2440 0.16 2440 bridge km 6 12 М-37 Samarkand-Ashgabat-Turkmenbashi km 263 Bukhara 5 4190 1640 5 2550 bypass to km 203 А-380 Guzar-Bukhara-Nukus-Beyneu PADECO/IKS lxxxiii Tashkent, December 2006

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13 М-37 Samarkand-Ashgabat-Turkmenbashi km 331-346 15 5500 5 1750 10 3750 14 А-373 Tashkent-Osh km 9-14 5 4000 1000 5 3000 15 А-373 Tashkent - Osh km 109 - 116 (bypass of Angren coal 6 2700 6 2700 strip mine) 16 A-373 Tashkent-Osh avalanche protection km 154-170* 0.3 9487 0.1 3030 0.1 3140 0.1 3317 17 А-373 Tashkent-Osh km 216-274 (Kokand Bypass) 50 16639 10 2690 23 8029 5 1770 12 4150 4Р126 Balikchi-Mingbulak-Nayman-Pungan km 81-91 10 2690 10 2690 4Н904 Ferghana Channel - Rapkan - Vorut km 0 - 15 15 4974 15 4974 4Р148 "Navbahor-Kokand" - Yangikurgan - Uchuy - Altiarik - 13 4825 8 3055 5 1770 Chimiyon - Vuadil, 0-15 km 4К911 Yangikadam - Shamsuddinov km 0-12 12 4150 12 4150 18 А-379 Navoi - Uchkuduk km 39-59 20 3190 10 1540 10 1650 19 А -380 Guzar-Bukhara-Nukus-Beyneu railway bridge km 208 0.1 1920 0.1 1920 20 А-380 Guzar-Bukhara-Nukus-Beyneu km 405-429 24 6950 7 1870 17 5080 21 А-380 Guzar-Bukhara-Nukus-Beyneu km 470-490 20 4990 10 2435 10 2555 22 Angren-Gulistan existing roads upgrading: 63 44740 20 10330 22 12800 17 16800 4 4810 4Р25 Buka-Gijgan-Syrdarya-Sayhun-Baht-Mirzakent km 0-25 25 13500 13 6880 12 6620 4Р24 Chinaz - Askarlik - Akkurgan - Syrdarya - Navbahor - 28 15480 7 3450 10 5780 11 6250 Akaltin km 59-87 М-34 Tashkent-Dushanbe intersection railway bridge km 0.15 4450 0.15 4450 104 Bypass Gulistan in new direction from 24 km from 104 km, М-34 Tashkent - Dushanbe to 21 km, 4Р29 Gulistan- 10 11310 400 6 6100 4 4810 Gagarin* 23 Tashkent outer bypass: 19 61543 7490 7 23850 12 30203 Tashkent Outer Ring Road km 63 to 4Р12 - 14 33700 2490 7 14510 7 16700 Gazalkent-Charvak ( bypass 22 km)* Tashkent-Angren road railway bridge 50 1000 50 1000 Bridge at Chirchik, between M 34 Tashkent - Dushanbe 0.2 8000 4000 0.2 4000 and А 373 Tashkent - Osh

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New 12 km link from km 18 of 4Р12 Bektemir -Chirchik - Gazalkent - Charvaq to km 14 of 4Р6 Tashkent - Chirchik - 5 18843 5340 5 13503 Chimgan including River Chirchik bridge* Sub-Total 227 170579 43 20030 62 36429 54 56215 68 57905 24 Design and survey 14056 3004 3577 3675 3800 25 Final 5% payment upon expiry of warranty 14355 3075 3650 3730 3900 26 Procurement of equipment/road maintenance 53500 11500 12500 14000 15500 technology International Corridors -Total 366 292504 153 68169 91 65610 54 77620 68 81105

International Corridors -Total US$ million ** 209 53 48 54 54 Notes: * Completion after 2010 ** Assuming annual Soum depreciation of 5% from US$1=Soum1236 – as of 30 Aug. 2006.

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T1 (cont.) Road Development Programme 2007-10 (Draft) At Expected Outturn Prices

Total 2007 2008 2009 2010 No. Road Section Soum Soum Soum Soum Soum Km Km Km Km Km mill. mill. mill. mill. mill. Other Common Use - Ongoing projects: 1 4Р45б approach road Samarkand km 0-4 (Phase 2) 4 4900 3 3000 1 1900

2 Roads to frontier 45 579 45 579

Sub-Total 49 5479 48 3579 1 1900 New projects: 3 4Р57 Kizilkum ring km 110-172 (bypass Aydarkul lake 62 km)* 53 19677 10 3242 15 5010 15 5510 13 5915 4 Link 4Р112 Ferghana ring and 4Р134 Kuyganyar-Siza-Eski 3 6710 3710 1 1110 2 1890 Hakkulabad incl. Karadarya bridge 260m. 5 Link 4Р112 Ferghana Ring (86 km) and 4Р126 Balikchi – Mingbulak - Nayman - Pungan (14 km) incl.Syrdarya bridge 8 7950 1 3000 7 4950 336m. 6 4Р253 Tashkent - Turkestan - Kazakhstan border km 2-8 6 1980 6 1980

7 4Р87 Guzar – Chim - Kukdala km 0-73 73 16700 15 3030 20 4320 20 4760 18 4590

Sub-Total 143 53017 32 11252 42 17990 36 11380 33 12395

Total 192 58496 80 14831 43 19890 36 11380 33 12395

Other Common Use -Total US$ million ** 42 11 15 8 8 Notes: * Completion after 2010 ** Assuming annual Soum depreciation of 5% from US$1=Soum1236 – as of 30 Aug. 2006.

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T2 Road Development Programme 2007-10 Summary (Draft) At Expected Outturn Prices

Total 2007 2008 2009 2010 Soum Soum Soum Soum Km Soum mill. Km Km Km Km mill. mill. mill. mill. Category: International corridors 366 292504 153 68169 91 65610 54 77620 68 81105 Other Common Use 192 58496 80 14831 43 19890 36 11380 33 12395 Total = Road Fund Budget 558 351000 233 83000 134 85500 90 89000 101 93500 Incl.: Balance 5% of 2005 Programme payable on 14363 3075 3650 3738 3900 expiry of warranty period Design and survey works 14056 3004 3577 3675 3800 Procurement of equipment and road- 53500 11500 12500 14000 15500 maintenance technology Net Construction Amount 269081 65421 65773 67587 70300 Net US$ million * 193 50 48 47 47 Note: * Assuming annual Soum depreciation of 5% from US$1=Soum1236 - as of 30 Aug. 2006.

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Appendix XVI-4

Construction/Reconstruction of Interchanges/Overpasses 2011 - 20

Intersected Road Soum Project Dimensions Date million Title Cat. Veh./day

Rep. Karakalpakstan

International roads А-380 Guzar-Nukus-Beyneu km 610.5 G-11,5 750 4Н115 3 3560 2011 Km 661 G-11,5 750 4R182 3 3680 2012 Km 716 G-11,5 825 4R177 3 4102 2013 Km 818 G-11,5 825 4R177 3 3809 2014 Km 848 G-11,5 900 4R181 2 3520 2015 Mainline railway Railway overpasses: Tashkent - Beyneu А-380 Guzar-Nukus-Beyneu G-21,5 900 Kungrad-Beyneu 1120 2016 National roads Road 4R176 Nukus-Chimbay-Takhtakupyr G-21,5 1420 4R174 2 8650 2014 4R161 Urgench towards Chalish quay G-11,5 650 Miskin-Nukus 2600 2016 Beruni-Bustan 4R182 Guzar-Nukus-Beyneu (659 km) G-11,5 650 Miskin-Nukus 2410 2017 towards Kizilkal'a –Buston-Guldirsin-Turtkul 4R176в towards the road Guzar-Nukus- G-11,5 715 Miskin-Nukus 3560 2018 Beyneu 4R160 Urgench-Gurken-Mangit G-11,5 780 Mangir-Jumurtau 3200 2019

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4R176в to the road Guzar-Nukus-Beyneu G-11,5 790 Miskin-Nukus 3450 2020 4R179 village Karauzyak-railway station G-11,5 870 Nukus-Chimai 1120 2020 Kumshungul Total 10825 Andijan А-373 Tashkent – Osh 11,5+2х1,5 1470 4R-139 II 2168 2014 А-373 Tashkent – Osh 21,6+2х0,75 3460 4R-112е II 3260 2013 А-373 Tashkent – Osh 21,6+2х1,5 3500 4R-130 I 8907 2011 А-373 Tashkent – Osh 19+2х0,75 21000 4R-112 I 2016-17 А-373 Tashkent – Osh 2х9+4х0,75 2220 4R-17d, 4R-130 II 7044/5951 2020 А-373 Tashkent – Osh 11,25+2х0,75 1470 4R-251 II 2018 4-112 Ferghana ring road 21,6+2х0,75 12000 4К-91б I 9465 2016-18 Total 45120 Bukhara Reconstruction of interchange km 363 М- By-pass of Bukhara 12 3500 I 15000 2018 37 Samarkand-Bukhara-Turkmenbashi М-37 363 km Reconstruction of interchange km 228 А- By-pass of Bukhara А- 12 3500 I 12000 2014 380 Guzar-Bukhara-Nukus-Beyneu 380 228 km Reconstruction of interchange km 227 М- By-pass of Bukhara 12 3000 I 10000 2013 37 Samarkand-Bukhara-Turkmenbashi М-37 227 km Reconstruction of interchange km 207 А- By-pass of Bukhara 12 2430 I 11000 2015 380 Guzar-Bukhara-Nukus-Beyneu А-380 207 km Total 12430 Djizak Reconstruction of interchange М-39 24 1200 М-39 by-pass I 11280 2012-13 Tashkent-Termez on 1012 km

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Railway overpass bridge km 8 4R23g 10 1700 2014 approach road М-39 to Djizak (1007 km)

Railway overpass bridge km 12 4R23 g 16 1200 2016 approach road М-39 to Djizak (1007 km)

Railway overpass km 19 4Р23 g approach 16 1400 2019 road М-39 to Djizak (1007 km)

Total 5500 Namangan From the road 4R117 to Namangan 18.6m 3850 4R261 1 14850 2012 Namangan - Kasansay - border of the 18.6m 850 4R114 1 14120 2016 Kyrgyz Republic Total 4700

Samarkand Reconstruction of the bridge on the road М- 9.25+2х0.7 1600 Karadarya river I > 10000 2008-09 37 Samarkand-Bukhara-Turkmenistan 6 km

Construction of the bridge across Karadarya 4К547 Juma- river to link with the road 4К495 Loyish- 7+0.75 1000 Guzalkent - IV > 1100 2018-20 Ovozali-Ynagikurgan-Odil-Okchelak. Chimboyobod

Traffic interchange on km1095 М-39 4R45 to by-pass 1200 I > 8000 2014-15 Tashkent-Samarkand-Termez Samarkand on km 0 Traffic interchange on km 1054 М-39 4К502 Jomboy - 1600 I > 10652 2017 Tashkent-Samarkand-Termez Gazara Traffic interchange on km1056 М-39 4R48 Zarafshan 1800 I > 10652 2016-17 Tashkent-Samarkand-Termez highway on 0 km Traffic interchange on km1085 М-39 А-377 Samarkand- 2000 I >11000 2013-15 Tashkent-Samarkand-Termez Ayniy on km 2

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4R56 Oktosh- Traffic interchange on km105 М-37 2000 Yangirabot-Langar- I > 6730 2017-17 Samarkand-Bukhara-Turkmenistan Kushrabot- Total 11200 Tashkent 18 1000 Railways 2017 М-34 Tashkent – Dushanbe, 43km, 56km 18 4800 Railway 2011-12 19 1350 М39 1 >7000 2014 4R1 Tashkent Ring Road, 27km, 32km,

34km 19 1200 4К700 1 >7000 2016 19 1600 Kh.Abdullaev str. 1 > 7000 2019 18 700 Railway 2013 4R6 Tashkent - Chirchik - Chimgan, 23km, 18 700 Railway 2014

36km, 46km, 56km 18 700 Railway 2016 18 700 Railway 2010 4R253 Tashkent - Turkiston - border of the 18 1200 4R4 2 3700 2020 Republic of Kazakhstan, 2 km Total 13950 Grand total 103725

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Appendix XVI-5

UARRT PROPOSAL FOR VEHICLE FLEET RENEWAL

1. Summary

The vehicle fleet has not been renewed for 13 years: it is outdated and in very poor condition.

The average age of the bus fleet is 17 years, against a norm of 6-7 years.

A quarter of intercity and suburban bus routes are not operating due to fleet problems.

There are insufficient grain and cotton carriers during the harvest.

Small consignments are being moved in heavy vehicles, increasing operating cost.

National carriers cannot operate in international markets due to old, non-conforming fleet.

More than 90 per cent of the international fleet is barred from the European market as non-compliant with European environmental and safety standards.

Despite a competitive and favourable location, Uzbekistan has almost has lost its position and is continuing to loose share in the international transport market.

The old fleet has a negative environmental impact and is accident prone.

Keeping an old fleet operational is far more expensive than maintaining a new fleet.

UTACA has prepared a draft Resolution (3. below): On measures for renewal of the general use road transport fleet that envisages gradual procurement of passenger and freight vehicles based on leasing.

The feasibility study prepared shows the economic benefits of such replacement most of all by dramatic increase in the share of national carriers in the export and import freight shipments and in hard currency earnings to the budget, creation of about 10 000 new jobs and creation of favorable condition for legal, institutional and financial environment because of usage of new transport vehicles.

Taking into account the feasibility and fast pay back of the freight trucks the most effective way is domestic bank loans to the leasing company Uztransleasing.

2000 trucks and 2000 buses are planned to be procured in accordance with the schedule (2005-08) for 16 domestic carriers.

2. Justification

Three points are highlighted:

(i) Brief description of the technical condition of general use vehicle fleet. (ii) Proposed measures to be taken to renew the fleet. (iii) Expected economic benefits of fleet renewal.

Under Point (ii) it is noted that:

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1. The procurement cost of a vehicle with an ex-works price of US$50,000 includes:

Import duty - 30% of the ex-works value =US$15,000 Excise tax – up to 70% of the ex-works value =US$35,000 VAT – 20% of the ex-works value of the vehicle plus import duty and excise tax =US$20,000

a total cost of US$120 000, which domestic carriers cannot afford.

2. A minimum of 2000 buses and 2000 trucks should be acquired over 4 years. With a remission of duties and taxes, carriers could buy new vehicles and benefit the state budget only for 3-3.5 years, ensuring annual payments to the state budget and road fund as income tax and compulsory fees (a spreadsheet supporting example is provided).

It is more beneficial to procure and then lease the vehicles to carriers, as the existing law of the Republic provides substantial tax and customs benefits for this. After comparing the funds that the state budget would receive from duties and taxes on procuring new vehicle, with annual budgetary receipts (from income taxes and fees) from the operation of the vehicles, state budget would get only US$70,000 once on import of a vehicle, whereas if these duties and taxes were exempted, state budget would receive annually US$20,800 per truck and US$18,500 per bus.

The cost of procuring 4000 vehicles at an ex-works price of US$50,000 would be US$200 million. While operating procured vehicles, the state budget and road fund would get payments of US$21- 22 million, provided that they are granted remission from customs duties and taxes, granted benefits could be paid back within 2.5-3 years. Customs duties and taxes on 4000 vehicles would amount to US$280 million.

The volume of international freight transport in 2004 and forecasts to 2009 and options for removing customs duties and taxes are given.

3. Draft Resolution of the President (Prepared by UTACA)

On Measures for Renewal of the General Use Road Transport Fleet

In order to create conditions for quality and sustainable road transport services to the population and enterprises, stable and secure functioning of transport sector and ensure economic carriage of freight and passengers by road transport, integration thereof in the international transport communications system, and enhancement of role of national carriers in the international road transport market, I hereby Resolve to:

1. Accept the proposal of Uzbek Association of Transport and Transport Communications on the implementation of the project on Renewal of Public Road Transport in Uzbekistan, which envisages gradual purchase of passenger and freight road transport vehicles under a leasing scheme.

Appoint a leasing company Uztransleasing working with UARRT as a lessor of road transport vehicles

2. Approve a schedule for gradual purchase of road transport vehicles and a list of potential lessees in accordance with the Annex.

3. Exempt from payment of customs duties, excise tax and value added tax subject to the availability of a proper confirmation from an authorised bank any technical equipment (road transport vehicles, equipment, spare parts and component parts) purchased and imported by the company Uztransleasing for lease to road transport carriers.

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4. The control of the implementation of this Resolution shall be entrusted to the Prime Minister Mr. Sh.M.Mirziyoev.

I.Karimov, President of the Republic of Uzbekistan

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Transport Sector Strategy

Executive Summary

Islohotkonsaltservis Ltd. TA 4659-UZB Transport Sector Strategy Executive Summary

Abbreviations and Acronyms

ADB Asian Development Bank AIFU Association of International Freight Forwarders of Uzbekistan CACOM Common Market in Central Asia CAREC Central Asia Regional Economic Cooperation MOT Ministry of Transport CARs Central Asian Republics MTT International Transit Tariff CIS Commonwealth of Independent States ORR Outer Ring Road CSP Country Strategy and Programme p.km passenger kilometre EA Executing Agency PPP Public Private Partnership EBRD European Bank for Reconstruction and PPTA Project Preparation Technical Assistance Development PSO Public Service Obligation EC European Commission PSP Private Sector Participation ECO Economic Cooperation Organization SCO Shanghai Cooperation Organisation ESCAP Economic and Social Commission for SJSC State Joint Stock Company Asia Pacific (UN) SWOT Strengths, Weaknesses, Opportunities, Threats EU European Union TA Technical Assistance EurAsEC Eurasian Economic Community TACIS Technical Assistance for CIS Countries FIATA International Freight Forwarders t.km tonne kilometre Association TRACECA Transport Corridor Europe-Caucasus- GAI State Traffic Police Asia GDP Gross Domestic Product TTTM Tashkent tram, trolleybus and metro HR human resources UARRT Uzbek Agency for Road and River JSC Joint Stock Company Transport ICAO International Civil Aviation UCAA Uzbekistan Civil Aviation Authority Organisation US$ United States dollar ICD Inland Container Depot USSR Union of Soviet Socialist Republics IFRS International Financial Reporting UTACA Uzbek Association for Transport and Transport Standards Communications JBIC Japan Bank for International UTY Uzbekistan Temir Yullari (Uzbek Railways) Cooperation UzA Uzbekistan Airways JV Joint Venture UZB Uzbekistan KfW Kreditanstalt für Wiederaufbau WTO World Trade Organisation km kilometre VAT Value Added Tax MOF Ministry of Finance 3PL Third Party Logistics MOFER Ministry of Foreign Economic Relations, Investments and Trade MOI Ministry of Interior Rate of Exchange – 1 Dec. 2006

US$1 = Soum 1240

PADECO/IKS Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary

Contents

1. OVERVIEW Tables

2. ACKNOWLEDGEMENTS T1 FREIGHT VOLUME 2005 3. FOREIGN ASSISTANCE T2 PASSENGER VOLUME 2005 T3 TRUCK AGE BY CAPCITY 4. GOVERNMENT POLICY T4 RAIL ROLLING STOCK BY AGE T5 ANGREN-PAP CONSTRUCTION COST 5. INSTITUTIONAL REFORM T6 TASHKENT PUBLIC TRANSPORT 2001-05

6. LEGAL ISSUES

7 FINANCIAL MANAGEMENT Figures 8. INVESTMENT F1 SECTOR ORGANIZATION - CURRENT

F2 SECTOR ORGANIZATION – PROPOSED 9. NATIONAL ECONOMY

10. DEMAND

11. AVIATION Annex

12. ROADS Action Plans

13. ROAD TRANSPORT

14. TRADE FACILITATION

15. FREIGHT FORWARDING

16. LOGISTICS

17. RAILWAYS

18. URBAN TRANSPORT

19. INLAND WATERWAYS

20. TRAINING

21. SECTOR ROADMAP

PADECO/IKS Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary

1. OVERVIEW The study was undertaken from March-December 2006. The Final Report (English/Russian) is in three volumes: the Executive Summary (this volume); the Main Text; and an Appendix. It is available on CD-ROM. The Main Text includes two summaries: a Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis (chapter 5), which provides an overview of the state of the sector and a set of Action Plans (chapter 17). These are not suitable for further summarizing. In order for this to be a stand-alone volume, the Action Plans are reprinted in the Annex.

The Inception Report was submitted on 18/21 April to the Executing Agency (EA), the Uzbek Association of Transport and Transport Communications (UTACA) and to the Asian Development Bank (ADB). An Inception Report workshop was held on 25 April. An ADB Mission, 2-6 May 2006 reviewed work during the inception phase. A Tripartite Meeting (ADB/EA/Consultants) was held on 5 May.

The Interim Report was submitted on 27 June/10 July. An ADB Mission 18-25 July 2006 reviewed work during the interim phase. An Interim Report Seminar, with participation by ADB, was held on 20/21 July, with a Tripartite Meeting on 21 July.

The Draft Final Report was submitted on 4/19 October. A Seminar on the Draft Final Report, with participation by ADB, was held on 20 November and a final Tripartite Meeting/Videoconference on 24 November. Seminar proceedings, written comments on the Draft Final Report, a bibliography and a list of contacts are provided in the Main Text and Appendix.

2. ACKNOWLEDGEMENTS UTACA staff assisted throughout, greatly contributing to the study outcome. Steering Committee agencies provided considerable assistance, as did many other persons and organizations contacted. The assistance of Mr. Fuod Bakhadirov and of Ms. Galina Magay is particularly acknowledged. The support of the ADB Uzbekistan Resident Mission is also acknowledged. Remaining errors are entirely the responsibility of the Consultants.

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3. FOREIGN ASSISTANCE TO SECTOR ADB assistance has focused on rail, as coordinating lead donor for JBIC, EBRD and EC interventions. ADB has undertaken: (i) three feasibility study TAs (which also identified institutional reform issues); (ii) three TAs on institutional reform; and (iii) two loans (total of US$133 million) for railway rehabilitation and modernization. The ADB Country Strategy and Programme Uzbekistan 2006-10 February 2006 (the CSP) considers that transitional and development challenges continue and that reinvigorating structural reforms is required to sustain high growth rate. Key road problems noted are: (i) poor and deteriorating infrastructure; (ii) weak sector management, no Ministry of Transport (MOT); (iii) gaps in regulations and policies; and (iv) inefficient border controls. Key rail problems are seen as: (i) lack of competition, no clear basis for management and investment, limited management information, outdated rolling stock and telecommunications; (ii) obsolete, poor quality technology, limited marketing; (iii) cross-border operating problems; and (iv) excessive international tariffs, inconvenient billing and shipper information.

ADB is to focus on: (i) developing a reliable network, on existing infrastructure; (ii) integrating systems for improved safety, high-quality service and improved international agreements; (iii) harmonizing the regulatory framework; (iv) sector restructuring and modernization, through competition; (v) competitive marketing and tariff-setting; and (vi) improving financing and management efficiency and effectiveness. An effective system of intra-regional customs transit is badly needed, requiring concerted effort by the CARs and adjacent countries.

ADB is the lead agency for the CAREC transport sector and customs cooperation/trade facilitation. The CAREC Strategy and Programme Update 2006-08 Development Through Cooperation sets out strategic priorities: (i) harmonizing and simplifying cross-border procedures and documentation; (ii) harmonizing regulations; (iii) developing and improving regional and international corridors; (iv) restructuring and modernizing railways, through private sector participation (PSP) and improved corporate governance; and (v) improving sector funding and management to develop and maintain the network.

The Government of Japan loaned US$151 million, through JBIC, for the Guzar- Boysun-Kumkurgan railway (250km). JBIC financed the Railway Passenger Transport

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Improvement Project for coaches and a project for repair of locomotives. JBIC financed airport development at Bukhara, Samarkand and Urgench. The European Commission’s Transport Corridor for Europe-Caucasus Asia (TRACECA) programme has undertaken studies and facilitated rerouting of exports via Black Sea ports, most cotton now passing through Bandar-e-Abbas. The EC part-funded the BukharaTransTerminal for cotton. EBRD made a Euro33 million loan to UTY for 12 electric locomotives and a Euro56 million loan for reengining 90 diesel locomotives. It has provided TAs for UTY. EBRD provided Euro32 million for Tashkent Airport. The World Bank Urban Transport Project provided US$12 million for bus service improvements in five cities. Kreditanstalt fuer Wiederaufbau (KfW) financed airport projects and the electrification of the Tukimachi-Angren railway. Other national and international aid agencies have also provided assistance.

4. GOVERNMENT POLICY Central Asia’s new nations have country-focused strategies, which pay limited attention to regional reintegration. This is changing gradually, under CAREC facilitation. Security concerns, transit fees and charges and facilitation issues currently bias decisions away from regionally optimal development. While transport strategy for Uzbekistan has to be based primarily on its national policy interest, it needs also to be outward looking.

Centrally located on the Euro-Asia Silk Road, at the epicentre of a future great power triangle (Moscow, Beijing and Delhi), Uzbekistan is particularly well-placed to benefit from globalization through membership of the Eurasian Economic Community (EurAsEC) and the Shanghai Cooperation Organization (SCO). EurAsEC is focusing on a customs union and an eventual single currency, while SCO is involved in wide- ranging cooperation. The Government has proposed the establishment of a Common Market in Central Asia (CACOM), including infrastructure projects and the creation of a Euro-Asia land bridge. A revival of the Silk Route is a high international priority. A dynamic Chinese economy and India’s rapid development facilitate globalization. There is an intention to exploit locational advantage and to attract transit traffic, while becoming less dependent on foreign suppliers and on transit through other countries.

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In 2006, Uzbekistan celebrated 15 years of independence. Transport has changed from playing a small role within the USSR system to serving the needs of a new nation. Out of post-independence chaos, a sector fit for a new purpose is developing, although it is still relying on the inherited rolling stock and vehicle fleets.

The USSR operated as a highly integrated economy. Transport intensity was by international standards exceptionally high. It has since fallen sharply throughout the CIS. The disintegration on independence was a severe shock to the legacy economies and to their transport operations. There was also the loss of large transfers from the central budget. Soviet cartography and central planning bequeathed a legacy of infrastructure and services at variance with post- independence needs: infrastructure in the wrong place (in other countries) serving demand that quickly evaporated.

The daunting transport problems faced by many countries which constrain economic development are largely absent. With adequate, largely uncongested networks and relatively modest growth in demand, investment in infrastructure capacity is not an immediate priority. The relatively positive situation in the sector is being further improved with more attention being paid to maintenance, through organizational improvements and through an increase in financial resourcing. Strategy thus starts from a basically sound position.

Rail and road transit routes through Tajikistan remain important and, for rail, essential for the Ferghana Valley service. Strategy is to improve bilateral cooperation to facilitate such transit. As the countries depend on each other for transit, there is a reciprocal incentive to negotiate an improved regime, addressing issues on a holistic basis. The weekly Andijan-Bukhara rail service transiting Tajikistan currently suffers 4-hour delays at each border.

The immediate challenges are in the areas of fleet renewal (both road and rail), of organization (lack of a unified authority), in maintenance (overcoming the backlog) and in urban transport (unifying public transport from a user perspective). In the medium term, the challenge will be to exploit locational advantage, to develop logistics and to improve efficiency and to raise technical standards. In the long term,

PADECO/IKS 4 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary investment in capacity will be required in all modes and the challenge is to plan effectively to achieve the best mix of investment.

Attention to detail, improved governance and management, and cost:benefit analysis is required. Sector managers need clear business objective for planning and accountability. Under an MOT, with access to a planning database and management information systems, cross-sector objectives will be definable, implementable and monitorable.

Domestic transport policy objectives are to: (i) operate efficiently in a competitive and fair environment, while preserving the network in good condition, with due concern for externalities: environmental damage, safety and intrusion; (ii) limit operating subsidies from the public purse to support for social services and to investment in projects of a strategic nature; (iii) finance infrastructure based on the user pays principle, wherever possible; (iv) prioritize infrastructure development based on clear economic and social objectives; (v) coordinate governance at central level for accountable management; and (vi) to foster private operation of infrastructure and services where appropriate.

International transport policy objectives are to: (i) facilitate trade, travel and tourism; (ii) foster good transport relations within Central Asia; and (iii) to promote transit traffic. In many cases domestic and international policy can be achieved together: for example, upgrading international corridors largely benefits domestic traffic.

A high level specialist policy group should consider a number of issues to facilitate the economically and socially desirable use of resources in further developing the Roadmap (see section 21). Government policy is to localize vehicle, rolling stock and parts manufacture: this may increase total cost and hamper the introduction of new technology. Support of Uzbekistan Airways (UzA), the national flag carrier, needs to be balanced against the need to develop tourism and Tashkent’s role as a Central Asian hub. Prioritizing new railway line construction may be diverting resources too much away from service development. Seeking to make each urban transport mode self-financing conflicts with social objectives and results in diseconomies.

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5. INSTITUTIONAL REFORM Government policy is to restructure the sector and to encourage market-based management and operation, but without centralizing administrative responsibility. UTY has, with ADB assistance, been restructured to focus on core rail activities. Bus services, both urban and inter-urban, have been franchised to the private sector. Institutional reform continues, with privatization and divestiture of non-core, although not of core activities.

Creating a Ministry of Transport The weakness of the administrative structure (see Figure 1) is that powers and responsibilities are devolved from the Cabinet of Ministers to agencies. Executive responsibility is split between ministries and departments, affecting continuity and co-ordination. There is no clear policy framework or coordinated cross-sector implementation, resulting in piecemeal progress and sub-optimal focus.

The administrative structure leads to delays, lack of focus and an inability to realise full potential and efficiency. It constrains efforts to innovate. Agencies are driven by specifications in enabling legislation, which is typically very specific. Cross-sector policy development and implementation, modal resource allocation, prioritization and responses to changing business and market conditions are left to the Office of the President and the Cabinet of Ministers, which, given their numerous other responsibilities, have limited capacity to address them.

The lack of a coordinating agency focused on the sector – a Ministry of Transport - is a serious constraint on policy formulation, structuring and implementation. An MOT should be established as a high priority to coordinate sector development. It would resolve issues, structure policy-based proposals and identify sector-wide implications within overall strategy – developed with a central database and management information system by transport specialists. In its absence, sector-wide needs are not addressed, there are complex communication channels, resources may be misallocated and commitment is diluted. A streamlined future administrative structure is shown in Figure 2.

PADECO/IKS 6 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary Figure -1 Existing Sector Organization Structure

Cabinet of Ministers

Anti-Monopoly State Property Commission Commission

UTACA Chamber of Commerce

ROADS/Urban RAIL Transport AIR Inland Waterways

UTY Rail Safety Uzavtoyul Agency for Road & Uzbekistan Airways Inspectorate of Flight Agency for Road & Inspectorate River Transport Safety Oversight River Transport

Passenger Company Refrigerated Wagon Regional Units Uzbekistan Company and JSC’s Navigation Centre

Maintenance Depots Others Road Fund Under AIFU International Airports MOF

Rail Freight Container Company ATUTS AIRCUZ Domestic Airports Forwarder

Notes: 1. Ministry of Finance and Ministry of Economy have functional oversight responsibilities 2. Ministry of Foreign Economic Relations, Trade and Investment is responsible for international transport issues. 3. State Customs Committee interfaces with the transport sector at borders. 4. Ministry of Justice provides legislative and judicial guidance to the sector where necessary 5. See the main text for additional comments on this structure 6 UTACA does not report to the COM, but to its founders, but has been shown in this chart as a COM assistant for the sake of presentational simplicity.

PADECO/IKS Tashkent, December7 2006 TA 4659-UZB Transport Sector Strategy Executive Summary

Figure - 2 Proposed Sector Organization Structure

Cabinet Of Ministers

Ministry of Transport

State Property Chamber of Commission Commerce

Rail Directorate Road Directorate Road Services Urban Transport Directorate of Policy Aviation Directorate Directorate Directorate and General Transport Services

Infrastructure Uzavtoyul Road Freight Tashkent Planning Division Investment Division Civil Aviation Forwarding Authority (UCAA)

Passenger Services Road Fund Passenger Transport Other Urban Centres Division of Logistics, Legal Services Aviation Services Intermodal and Inland Waterways

Freight Services Freight Transport Department of International Relations

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From UTACA to MOT The non-Governmental, not-for-profit Uzbek Association for Transport and Transport Communications (UTACA), was set up in 2004 to improve coordination, increase efficiency, expand international cooperation and develop transit corridors. It is financed by 13 founding members, the major transport operators and supervisory agencies. UTACA represents the whole sector, but its responsibilities are not supported by a formal capacity to require policy compliance. It does not have specific policy derivation or implementation powers or direct access to the Cabinet of Ministers and it is therefore constrained in achieving its objectives.

UTACA is the only agency with cross-sector focus and experience. Restructuring administration should be fast-tracked by upgrading UTACA: (i) immediately into a Government agency under the Cabinet of Ministers, financed from the budget; and (ii) by 2010 into the MOT. This will ensure a rapid transition, as expertise and experience is already available within UTACA. Existing shareholders should retain an important role as members of an Advisory Board. Staff and powers would be progressively transferred to UTACA from other agencies. Clear lines of communication, upwards and downwards are required in the new administrative structure. Instead of agencies reporting to the Cabinet of Ministers, all sector-related matters should pass through MOT, which would be responsible for policy coordination and implementation.

Separating Airline and Airport Operations UzA is responsible for almost the whole of the aviation sector: domestic and international services, airports, navigation services, maintenance and catering. Airline operation and airport management are different businesses and responsibility for the two should be separated. Airports should be divested to a new state-owned organization, acting as service provider to airlines, under a contractual relationship. This would report to a proposed Uzbekistan Civil Aviation Authority (UCAA), based on the existing Aviation Safety Inspectorate. The first step is to establish a JSC and to transfer assets and management responsibilities from UzA. UzA may negotiate special operating terms, as the dominant airports user. Administrative separation would: (i) enable additional resources to be provided for airport development; (ii) enable UzA to focus on fleet rationalization, service improvement and

PADECO/IKS 9 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary commercialization programmes; and (iii) facilitate the eventual privatization of Tashkent International Airport.

Expanding Road Fund Responsibilities The Road Fund (under the Ministry of Finance - MOF) assumed responsibility in 2006 for primary road financing and planning, providing the necessary separation of road management and work implementation. The Road Fund should be incorporated into MOT, treasury management remaining with the MOF. Road Fund responsibilities should be expanded to cover sections of the secondary and urban network: many of the previous funding sources have been lost as a result of changes in the structure of the economy and no replacement is in place.

The Road Fund should pursue road tolling, leading eventually to PSP in network operation. Competition in road maintenance/construction is limited by availability of plant and equipment for companies undertaking all but the smallest work packages. This needs to be fostered by the Road Fund to improve efficiency in construction and maintenance. A regulatory body for roads, initially within MOT, with subsequent statutory establishment should be set up.

Administering Monopolies Monopoly suppliers remains, in domestic aviation and in rail services. Government policy is to regulate through the Anti-Monopoly Commission, rather than to develop competition. It is important to have regulatory control of monopoly, within a framework that allows businesses to function commercially: balancing economic efficiency, social equity and commercial freedom. Tariff regimes need to permit a reasonable return on investment, without ignoring social concerns. Regulatory bodies functioning within MOT should address such issues, with the objective of facilitating commercial freedom and efficient operation, without exploitation.

6. LEGAL ISSUES The legal framework is being modernized to support the development of a market economy. Under Presidential Decree No. 325, April 2006, On Measures for Enhancement of the Development of Service Industry 2006-10 transport agencies prepared medium term development programmes. By Executive Order of the President No. P-2482, April 2006, On Establishment of a Commission to Develop a

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Programme to Form a Single Integrated Strategy for Regional Development 2007-11, a Concept has been developed, covering programme goals, objectives and methodology. The President announced by Decree of 11 May 2006 the establishment of a Fund for Reconstruction and Development, with initial assets of US$1 billion.

The sector is governed chiefly by decree, by regulation or through the exercise of monopoly power. Freeing management from over-regulation would best serve the interests of users. A more lightly regulated sector, coordinated by MOT, with Government support focusing on social service elements, should be the medium term goal.

Key legal issues include the need to more fully develop the basis of the Road Fund. to rewrite the 1983 UTY Charter, which reflects a Soviet era approach, and to ensure that the law on freight forwarding, under preparation, reflects the global nature of the business.

Uzbekistan is involved in a number of regional groupings, many of which have formulated and/or implemented transport/transit agreements: CIS, the Economic Cooperation Organization (ECO), TRACECA, SCO, EurAsEC and the Central and South Asia Transport and Trade Forum. Uzbekistan has acceded to the seven core land transport conventions in ESCAP Resolution No. 48/11 on road transport and to the major international civil aviation conventions. The 2004 Agreement on Introduction of International Weighing Certificate on Freight Vehicles in the Territory of CIS Member States has not been signed and Uzbek trucks have to be weighed in other countries. Uzbekistan should ratify the 1999 Agreement on the Weight and Dimensions of Road Vehicles Carrying Out Interstate Transport in the Roads of the CIS.

7. FINANCIAL MANAGEMENT Financial management is increasingly important, from Government agencies down to private sector operators, with business plans becoming the drivers of investment. There is great scope for improvement, with only UTY preparing audited accounts. Other major agencies operate under the national budget system and report in accordance with national requirements. Adoption of IFRS is proceeding slowly and to

PADECO/IKS 11 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary date has not been widely adopted. Management-focused financial reporting is limited and capacity in relation to potential executing agency roles needs to be enhanced.

8. INVESTMENT The Government is committed to improving the investment climate, but changing investor perceptions will take time and effort will be needed to reduce investor risk at sector and project level. It is important to improve the regulatory process and to promote transparency in awarding projects. Risk should generally be borne by the party best able to assess, control, and manage it.

Realising PSP and Public Private Partnerships (PPP) requires an attractive investment environment, starting with a clear statement of Government intent. Balancing the interests of users and operators is the core role of regulation. PSP is effectively limited to the provision of road-based services. There is no tradition of paying tolls and their introduction would need to have a transparent rationale. Funding via PSP is more expensive than Government borrowing, typically international investors require a financial internal rate of return on equity of around 20 per cent over the life of an operating concession (typically 20 years or more). They may also require some sharing of project risk by the Government.

Negotiating concession agreements is a time-consuming and complex process and the Government would need to be closely advised by specialists to avoid accepting disadvantageous terms. Clearly, PSP may only be justified in special cases: for example, for major engineering projects where foreign expertise is necessary to implement them or to reduce capital cost, for complex projects in urban areas, or for road pricing, for which sophisticated charging and verification technology is necessary. Within the study period, few such PSP opportunities will arise.

Road tolls have been widely introduced internationally to generate additional investment funds. They have been used to finance: (i) major structures, such as bridges and tunnels; (ii) controlled-access roads, such as motorways; and (iii) in urban areas, to produce a modal shift from private to public transport through congestion pricing (prime examples – Singapore and London). In the main, tolling is associated with PSP. In developing countries it is used to attract foreign capital, as

PADECO/IKS 12 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary exemplified by China. where existing publicly financed toll roads have been sold on to the private sector, with the sale proceeds then used to finance new projects.

Strategy is to implement a demonstration project: with the Kamchik Pass section of the A-373 the ideal candidate. With toll revenue used to finance a Tashkent- Ferghana Valley special bus service, it would have a visible result, reduce barriers to movement and facilitate public acceptance. Once the toll principle is established, further applications could be considered. The Chinese example could be emulated, with tolled sections being sold after a few years of operation. This would improve Concession Agreement terms by reducing investor risk.

A simple alternative to tolling would be to hypothecate part of road fuel taxation. This approach has been adopted in India (the Cess). It has a number of advantages: (i) it is administratively simple, with virtually no collection cost; (ii) fuel demand is inelastic and the tax has little impact on demand; (iii) it provides a direct link between road use and funding; (iv) if introduced in a period of declining fuel prices, it is relatively uncontroversial.

Aviation investment is lumpy, with US$500 million required for fleet replacement in 2010-11. While it can be obtained from the international market under sovereign guarantee, this limits the Government’s borrowing capacity for other purposes. The investment requires clear justification and a guarantee on the part of UzA that necessary measures will be in place to provide a reasonable guarantee that the investment will be fundable.

Large scale investment may be needed post-2015 in airports. International experience shows that airports can generate funds by exploiting retail opportunities. Business-led operation of Tashkent airport would provide a strong foundation for full or partial privatization by 2015, in time to finance a major facilities upgrade.

The railway investment programme, with the exception of Angren-Pap, can be largely financed by UTY, given some relaxation of tariff control and continued foreign support.

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Bus and truck fleet renewal is a pressing issue. The financial position of transporters and of bus companies is such that, even with the cut in import duties and in the Vehicle Registration Fee expected in 2007, they may not be able to invest significantly in new vehicles. A leasing alternative of UARRT in 2005, for which UTACA drafted a Presidential Decree, offers an alternative approach.

The general requirement is that: (i) projects should be prioritized in line with Government policy; (ii) be part of approved sector business plans: (iii) should be competitively tendered for; (iv) their implementation and subsequent performance against business plans should be effectively monitored; and (v) facilities and equipment acquired should be efficiently operated and be properly maintained.

9. NATIONAL ECONOMY The economic shock of independence was relatively contained and Uzbekistan was the first CIS country to regain the 1991 GDP level, but the impact on transport demand was nevertheless severe. Immediately following independence GDP fell (by 3.4 per cent a year 1992-96), before recovering (with 4.3 per cent growth 1997-03) and then accelerating to a growth rate of 7.7 per cent in 2004, 7.0 per cent in 2005 and some 7.3 per cent in 2006. Industrial production has increased by two percentage points above GDP growth. The annual rate of inflation, which averaged 32 per cent 1997-2001, had fallen to 8 per cent by 2005.

Per capita GDP in 2004 was US$460, a little over half the CAR average of US$890 (on a purchasing power parity basis, GDP/capita in 2003 was US$1744). Exports were valued at 40 per cent of GDP and imports at 33 per cent. CIS countries accounted for one third of exports and for 38 per cent of imports. Trade volume declined markedly 1996-2002, before recovering sharply. Exports increased by 6 per cent overall 1996-2004, while imports decreased by 19 per cent. Manufactured exports per capita in 2003 totalled US$31, compared with the CAR average of US$57.

Regional income levels vary widely: Tashkent city’s per capita income in 2004 was more than three times the national average, whilst income in the poorest region, R. Karakalpakstan, was 54 per cent of average.

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Uzbekistan accounts for an estimated 1.0 per cent of world natural gas reserves, 1.9 trillion cu.m. Production, 60 billion cu.m, represented 2.1 per cent of world output in 2004. Oil reserves are estimated at 600 million barrels, with production of 152 million barrels, 6.6 million tonnes of oil and condensate. Coal production was 2.7 million tonnes.

Almost a cotton monoculture was agriculture policy in the USSR, but crop diversification has been pursued since independence, although Uzbekistan still has the fifth largest area of cotton plantation and is the second largest exporter of lint cotton, after the USA. Production of raw cotton in 2004 totalled 3.5 million tons, 977,000 tons of cotton fibre. Fruit and vegetable production was 6.2 million tons and grain 6.0 million tons. Milk production was 4.3 million tonnes. Output of bulk materials is relatively small. In 2004 cement production was 4.8 million tons and steel output 0.6 million tons. Production of bulk chemicals: ammonia, fertilizer and sulphuric acid, amounted to 2.7 million tons.

10. GROWTH IN DEMAND Uzbekistan has the third largest population (and the fourth largest area) of the 15 successor states to the USSR. A gradual decline in the population growth rate in recent years is expected to continue, with population in 2020 forecast to be 30.5 million, 17 per cent more than in 2005. The city of Tashkent is growing much slower than the national average, accounting for 9.1 per cent of the population in 1996, but with this forecast to fall to 7.4 per cent by 2020.

Over the study period to 2020, economic growth should tend to the long run average. There is considered to be a one in three chance that annual per capita GDP growth will exceed 4 per cent. Strategy is based on catering for above the median (50 per cent probability) growth rate, given that under-provision of infrastructure and services is more costly in terms of lost economic opportunity than is over- provision. GDP growth of 4 per cent per capita to 2020 is an appropriate assumption for transport planning.

Transport demand growth to 2020 will be influenced by international corridor and trading developments, but be largely determined by growth in per capita income and in population and by changes in the structure of demand: an increase in the

PADECO/IKS 15 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary proportion of higher value/tonne products and a change in travel patterns and in modal split. Per capita income growth is the critical factor, as demand elasticity also varies with it. With a 4 per cent GDP/capita growth, elasticity of transport demand is assumed to be 0.8 for freight and 1.0 for passenger traffic, with elasticity to population growth of 1.0. On these assumptions, freight traffic would increase by 91 per cent 2005-20 (average annual growth rate of 4.4 per cent) and passenger traffic by 110 per cent (5.1 per cent).

Transport demand in the CIS has not in general regained its final USSR level and in consequence network capacity should be adequate in all modes for the medium term. Passenger and freight volumes by mode in 2005 are given in Tables 1 and 2.

T1 Freight Volume 2005 Mode Tonne T. Km Haul Share in % Million Billion Km Tonne T.Km

Road 668.5 14.1 21 92.4 43.8 Rail 55.0 18.1 330 7.6 56.2 Total 723.5 32.2 45 100 100 Pipeline 71.5 36.9 516 Source: Statistical Review of Uzbekistan 2005 and UTY.

T2 Passenger Volume 2005 Mode Passengers Pass. Km Distance Share % Million Billion Km Pass. P.Km

Road 3830 39.0 10 95.8 92.9 Rail 16 2.1 131 0.4 5.0 TTM* 150 0.9 6 3.8 2.1 Total 3996 42.0 11 100 100 Air** 1 4.6 4969 - - Source: Statistical Review of Uzbekistan 2005 and UTY. Notes: * Tashkent tram, trolleybus and Metro. ** UzA domestic/international.

Cross-border truck movements fell by 65 per cent and tonnage by half 1998-2002, recovering somewhat since, but not to the level of the late 1990s. The resumption of transit traffic through both Tajikistan and particularly Afghanistan resulted in growth through Ayritom. Truck traffic at Alat is almost double that at Yallama, showing the

PADECO/IKS 16 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary relative importance of the route through Turkmenistan. Security issues in 2005 affected traffic to the Kyrgyz Republic through Dustlik, with volume halving 2003-05.

Passenger modal split will largely depend on the rate of growth of the car fleet. Vehicle production at UzDaewoo, the only major producer, January-October 2006 was 111,000 units: 54 per cent medium saloon cars, 35 per cent small saloon cars and 11 per cent microbuses (Damas). The forecast for 2007 is 180,000 vehicles, rising to 200,000 by 2009: the plant would then be operating at capacity. The car fleet is about 1.1 million vehicles (42 per thousand population). Registration data show an annual growth of 1.2 per cent 2001-05. Some 50 per cent of the fleet is UzDaewoo vehicles under than 10 years old, with the remainder mostly old to very old vehicles, dating from the USSR. Owners of these latter vehicles will replace them with second hand vehicles, if at all, constraining fleet growth. The city of Tashkent, reflecting its above average income level, accounts for 21 per cent of registrations (104 per thousand population). Low growth in the fleet may continue for some years, but could accelerate dramatically before 2020, given favourable economic circumstances.

11. AVIATION Traffic Growth May Increase Markedly For March-October 2006, UzA served 20 CIS cities, 18 other cities in 15 countries and was sole operator to the 11 domestic airports. Traffic volume in 2005 was 1.67 million passengers and 23,100 tonnes of freight. Non-CIS international passenger volume increased by 44 per cent 2001-05, with CIS traffic up 14 per cent. Domestic traffic has stabilized since 2002, at about 60 per cent of its 1996 volume - twice as many domestic services were operated in 1996 as in 2005. Freight volume in 2005 was 28 per cent below that of 1996

Annual passenger traffic of some 2 million (for all airlines) is very low, given the population of 26 million, the international tourist interest in the country and an ideally located regional/transit hub airport. There were only about 6 domestic return trips per thousand population and a similar number of international return trips in 2005. Some developed nations see multiple trips per capita each year.

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While traffic growth may be modest in the short term, in the medium and long term it should accelerate. Renewal of the domestic and international fleets, improved ticketing and marketing, opening up of low fare opportunities, direct service between regional cities, tourism development and good economic growth, all from a low base, could see annual growth rates of 5 per cent to 2010, 8 per cent for 2010-15 and 10 per cent for 2015-20.

Commercializing Airline Operations UzA is operating in a difficult market and is unprofitable. Its medium term commercial objective is to become a profitable regional airline, competing successfully with other carriers. It has partly modernized its fleet and improved service. While remaining a public corporation, management should be answerable for performance and appropriately rewarded for success, with Government intervention focusing on strategy and policy issues. UzA should seek a cooperation arrangement with an international carrier to provide access to state-of-the-art yield management and marketing techniques and to facilitate further service improvement.

UzA needs to rationalize its route network, based on high-quality market research, to optimize use of aircraft and to increase yield. This should be done in close cooperation with the tourism sector. With 10 aircraft to enter service in 2010-11, this work is urgent.

Improving Service As the national carrier, UzA is highly dependent on the national market for international services, a market that has been stagnant or declining. International air travel is affordable by a relatively small proportion of the population and Uzbek nationals have problems obtaining visas, particularly to the US and Europe. There are also visa problems for foreign visitors.

UzA is not a member of a global alliance and there is little interlining. It is difficult for foreigners to interline inwards and to purchase UzA tickets. Interlining arrangements should be reviewed and enhanced, with additional code sharing.

To retain market share, it is critical to monitor the standards offered by competing airlines and to match or exceed them. UzA has improved in-flight service quality and

PADECO/IKS 18 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary image with the introduction of modern aircraft, although entertainment systems remain poor. Service quality at airport interfaces lags far behind. While the Uzbek national market may be concerned more with price than service quality, this is less true of foreign/transit passengers.

An outdated ticketing system affects performance and image. Connectivity by travel agents, particularly those located abroad and by the public is limited, as is authority to issue tickets. Modernisation of ticketing is urgent to support yield management and flexible tariffs, with important training and HR components. The new system, including full e-ticketing, should result in a culture change while addressing governance concerns.

Facilitating Transit Traffic UzA is a major transit operator, with traffic through Tashkent supplementing originating/terminating traffic, which alone would not support the use of wide-bodied aircraft. UzA has established a market niche, particularly between Europe and South and East Asia. Competition is increasing, with other carriers introducing more direct flights. Both transit volume and yield could come under pressure, while direct traffic is only growing slowly. The most urgent need is to upgrade the transit facilities in Tashkent, which are sub-standard. Unless transit standards are raised, traffic will be put at risk.

Fleet Modernization UzA is continuing to rationalize its fleet: replacing the residual Soviet fleet, which is high fuel burn and becoming obsolete and expensive to operate. There are currently nine types of aircraft for a fleet of 33, but this will be cut to five types for a fleet of 35 by 2011. There is a large inventory of surplus or low utilization aircraft.

PSO Compensation UzA has a domestic monopoly, with MOF approving fares and specifying that all airports be served. Fares do not cover cost, even with high load factors (over 80 per cent). Such social service obligations should be compensated for under a PSO-type arrangement, making their financial cost transparent. Approval of domestic fares might at some stage be switched from MOF to an Aviation Regulatory Commission, to provide specialist input in the process.

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Developing a Freight Gateway Uzbekistan does not generate the freight volume to support a hub operation: this requires that 30-40 per cent of traffic be locally generated. It will therefore continue to depend for connectivity on other hubs. Improving connectivity to such hubs and not relying solely on UzA (which is passenger-focused) is essential. Uzbekistan is overflown on a main Europe-South East Asia air freight corridor. It may be possible to encourage passing aircraft to call. Developing Tashkent as a freight ‘gateway’, a regional freight distribution centre, would encourage such activity. Foreign carriers would provide long distance services and UzA or regional carriers, regional connections. This would require a review of arrangements concerning freight connectivity and greater involvement by foreign operators. Major changes in trade facilitation would be necessary to simplify the processing of transit cargo.

Encouraging Foreign Airline Operation Foreign airlines both complement and compete with UzA. Competition stimulates efficiency, improves quality of service and enhances connectivity. More foreign airlines should be encouraged to serve Tashkent to improve connectivity and to offer alternatives to using Moscow as a hub.

Upgrading Airport Services Ground handling procedures differ markedly from those at non-CIS airports and are generally seen as customer-unfriendly. Customs and other agencies need to be part of a comprehensive upgrading of passenger processing. This has changed little over the last decade. Other regional airports have been improved to attract tourist traffic, for example a new terminal in Almaty, with significant benefits for passenger processing and servicing. Standards at Tashkent need to be raised if passenger traffic, particularly transit, is not to divert. This needs to be addressed urgently by the new airport authority. MOT should act to promote higher standards.

Competition should be introduced for airport services at Tashkent with a second operator for: (i) passenger handling; (ii) fuel – direct contracting between carrier and supplier; (iii) ground and ramp handling; (iv) aircraft engineering and maintenance; and (v) airline catering.

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Retailing opportunities are undeveloped, with a low level of passenger spend in terminals. At some airports, retail revenue exceeds that from aircraft operations, providing development funding. Retailing should be actively promoted, through concession agreements, particularly at Tashkent, Samarkand and Bukhara, which have significant tourist traffic.

Airport strategy is to: (i) develop higher quality passenger and freight service: (ii) match competition from other regional airports: and (iii) provide an environment encouraging the development of international and tourist traffic and of service by foreign carriers.

Rationalizing the Airport Network Maintaining service to each region from Tashkent is considered by the Government to be in the national interest. Domestic demand has, however, fallen significantly in recent years, with improved road links. The necessity for all airports to be served should be reviewed. The existing airport network is uneconomic to serve and maintain. Airport and air service strategy needs to target economies of scale, particularly when higher capacity aircraft are introduced. There are for example 11 services per week Tashkent - Ferghana Valley, split between three airports. This is an inefficient arrangement. Concentrating service at one Valley airport, with twice- daily service to Tashkent, would improve connectivity and also facilitate inter- regional services.

12. ROADS Road maintenance and rehabilitation continues to be under-funded, although the situation is improving with an increase in Road Fund resources. Many sections of primary (common use) road are in deteriorated condition and require rehabilitation and some may require expensive reconstruction. A needs assessment undertaken by Uzavtoyul suggests that expenditure on periodic and routine maintenance is well below that necessary for long term network sustainability at a desirable average level of surface roughness. Secondary roads and some urban roads are particularly at risk: some have no source of funding for maintenance, previously being under the responsibility of enterprises now closed. Although ad hoc surveys are made by regional Uzavtoyul offices, there is no network condition database for roads or bridges. The Road Fund should commission a design institute to undertake this work

PADECO/IKS 21 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary as soon as practicable. On completion of the survey of primary roads, urban and secondary roads should be surveyed, with the work financed by central Government.

The road network is not user friendly: directional signposting and distance indicators are inadequate, road marking is poor and pedestrians are largely unprotected. There are few missing links and few sections approaching capacity. However, Gulistan- Angren will need to be upgraded if it is to function more effectively as a through routes. Some new routes need to be considered post-2010: for example, a north- south link to Kazakhstan, with in association a direct Navoi-Samarkand route.

While the primary Government focus is on primary roads (through the Road Fund and Uzavtoyul), secondary and urban roads also need to have assured financing: together they account for over three-quarters of the network by length. Some 60 per cent of these roads are overdue for periodic maintenance. Maintenance is mainly restricted to urban areas, funded out of regional/local budgets. The ongoing denationalization of agricultural and stock-raising farms has left many rural roads without ownership, while local governments have no funds to maintain them.

Tashkent Ring Roads The Tashkent inner and outer ring roads (ORR) are important for urban and inter- urban movements. Most sections of the ORR have sufficient capacity for the medium term, but sections adjacent to main markets and bus termini are congested, with conflicts between uses. On-road parking disrupts through traffic, pedestrians cross at-grade and there are no frontage roads for local access. Traffic management (separation of through and local movements), pedestrian overpasses/underpasses and frontage roads are required on a minimum of 5km, possibly 10km of the ORR. Land use control adjacent to the ORR may be required to reserve land for future widening and frontage road construction. Traffic growth should be monitored, with the installation of automatic traffic counters. A medium/long term widening and upgrading programme should be prepared, to maintain an appropriate level of service (the levels vary by section).

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Ferghana Valley Links with the Ferghana Valley (with a quarter of the population and some of the biggest cities) are of national concern, with difficult domestic connections due to the intervening mountain range. Heavy investment has been made in upgrading the only road link, the A373, with two tunnels at the summit of the Kamchik pass, opened in 2000. Surface public transport is restricted to expensive taxis, a barrier to communication, with bus service not permitted on safety grounds.

Improving Road Safety Responsibilities for road safety are defined in the Law On Road Safety No.818-I of 19 August 1999. They are split between agencies: UARRT and Uzavtoyul have joint responsibility for enhancing road safety, the former through its vehicle certification and regulatory activities and the latter through its road design policies. The Ministry of Internal Affairs is responsible through GAI (State Traffic Police) for the development of safety standards, rules and regulations and for their observance, for vehicle inspection, and the recording of road accidents and offences.

A key concern is the low profile of accident statistics. None are published on road deaths and injuries, only on the number of accidents. The public may not be aware of the level of risk, nor of whether the situation is improving or worsening. Speeding is widespread, facilitated by relatively low traffic levels. Pedestrian protection is poor on many roads, many multilane roads having no central pedestrian refuges. Driver observance of pedestrian priority on marked crossings is particularly weak. There are other concerns, including the numerous U-turns and unprotected left-turn movements and some safety issues on the difficult Kamchik Pass section of the A- 373.

13. ROAD TRANSPORT Aged Truck Fleet The vehicle fleet is old and in urgent need of renewal (see Table 3). Only about 400 trucks have been imported in the last 10 years, of which perhaps 15 were new. The aged fleet of predominantly lighter vehicles has to be considered against the requirements of an increasingly developed distribution sector in the medium to long term. There is reliance on vehicles inherited from the USSR, with minimal subsequent

PADECO/IKS 23 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary investment – under 4 per cent of the fleet has been acquired in the last five years (less than 2000 units). The domestic road transport industry cannot be sustained without a major increase in fleet investment.

T3 Truck Fleet Age by Capacity Capacity To 1991 1992-95 1996-00 2001-02 2003-05 Total As %

Up to 3 tonnes 16255 126 54 200 111 16746 9.6 >3 up to 10 112222 1373 588 370 450 115003 66.1 >10 up to 16 35486 490 210 150 310 36646 21.0 >16 up to 20 4259 315 135 60 45 4814 2.8 >20 0 560 240 40 50 890 0.5 Total 168222 2864 1227 820 966 174099 100.0 As % 96.6 1.6 0.7 0.5 0.6 100.0 Source: UARRT

The key reason for lack of investment is that imported vehicles sell for 2.25 times their border price as a result of the high levels of import duty, VAT and Road Registration Fee. Customs valuation on imported used vehicles is not based on the WTO valuation system. Duties and taxes are based on Customs’ own valuations, often assessed at close to the cost of new vehicles.

UARRT has developed proposals for procuring over a four year period 2000 trucks and 2000 buses through Uztransleasing, for on-leasing to 16 national carriers. The proposal remains under review.

The challenges facing international road transport are: (i) an aging non-compliant vehicle fleet; (ii) the high cost and unavailability of spare parts; and (iii) an inability to access premium traffic necessary to support heavy investment in compliant vehicles. There is a lack of resources to achieve a significant domestic penetration of international road transport.

Another key challenge is access to premium traffic to support expansion and replacement of the international fleet, a major investment requiring a secure revenue

PADECO/IKS 24 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary stream in hard currency. With most imports on a CIF basis, routing control lies predominantly with the foreign exporter or his agent.

Overall vehicle dimensions and the 40 tonne gross weight limit comply with international standards, but the axleload limit is particularly low, at eight tonnes. The EU limit is generally 11.5 tonnes and in Iran it is 13 tonnes. The Agreement on the Weight and Dimensions of Road Vehicles Carrying out Interstate Transport in the Roads of the CIS dated June 1999 specifies a minimum of 10 tonnes. The low axleload means that vehicles cannot utilise their full capacity for export goods, which are generally heavy. Even for imports, they may be restricted. The low axleload limit increases the cost of international transport and is a disincentive to transit traffic.

About 2,000 trucks have a EU compliance standard: (i) Euro 0 – 1000 units manufactured 1989-91; (ii) Euro I – 795 from 1992-95; (iii) Euro II – 83 from 1996- 2000; and (iv) Euro III – 28 manufactured since 2001. Only 600 vehicles are licensed for international work. Environmental regulations on emissions and noise permit only conforming vehicles (Euro II or III) to enter certain key countries. Non-compliant vehicles cannot enter the EU, Iran or Turkey, all major potential markets for Uzbek transporters. Road transport with major markets is thus dominated by foreign carriers, with Uzbek transporters largely restricted to intra-CIS trade, especially to the Russian Federation. The key requirement is to facilitate fleet renewal, for international transport, with compliant equipment: Euro III tractor units and TIR compliant trailers.

Fleet renewal should include imports of used vehicles, to reduce the total investment. The Customs valuation of a used vehicle should be the price on the pro- forma invoice, as per the WTO valuation system (this will be mandatory should Uzbekistan join WTO), unless deliberate under-valuation is suspected. A temporary alternative would be to establish a database of valuations from international Customs. If Customs value used vehicles close to new vehicle prices, as at present, investment will be stifled. Import of used vehicles should be restricted to those under 10 years old, complying with the international standards at the time of production.

A significant increase in the international vehicle fleet with a load capacity over 20 tonnes is needed, particularly trucks with a gross weight of 40 tonnes and a

PADECO/IKS 25 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary maximum axleload of 11.5 tonnes. In the domestic market the main increase in demand will be for inter-regional long distance transport. There is a particular need for medium/heavy trucks for cotton, grain and other agricultural products. The development of modern logistics systems will in particular require the availability of larger capacity transport. There is also an urgent need for specialized vehicles, especially trailers - heavy lift, dry and liquid bulk, powder, liquid gas, reefer etc. as well as standard tilt-trailers. Support equipment is needed in addition to tractor units.

Foreign carriers are a potential opportunity, not a threat. They provide investment and expertise and access to vital inbound traffic. The development of commercial networking with foreign entities acting as transport brokers is essential to obtain inbound loads while Uzbek transporters establish overseas offices and marketing resources.

Buses Scheduled cross-border bus services are no longer permitted due to security reasons. Some tour operators operate cross-border services, but this is limited to low volume premium traffic. There has been no redevelopment of international bus services. Both rail and air are highly competitive, limiting the viability of long distance services. For travel in the region, an additional deterrent is problems at borders and the operation of Uzbek-registered vehicles on neighbouring road networks. In practice, buses tend to operate to the border, passengers crossing and then using a national carrier on the other side. This eliminates bus-crossing procedures and the payment of fees and taxes.

The key issue for the inter-city coach fleet is the same as for trucks - replacement of life-expired vehicles, most of which have travelled over 1 million km. Operators cannot afford the replacement cost, given the competitive pressure in the market. This will require Government assistance by import of new/used vehicles and then on- leasing.

14. TRADE FACILITATION Trade facilitation costs in Central Asia are amongst the highest in the world. Border procedures have changed little over the last decade and performance is low by international standards. Simplified procedures and performance (promoted by

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TRACECA and by CAREC) should be endorsed and implemented. Although border performance is better than that of some neighbours, more automation and increased use of risk management is required. Despite significant improvements, transit trade facilitation remains complex and time-consuming, especially for vehicles without TIR Carnets. Transposing documentation at each border, different documentary requirements, a high percentage of physical examination of goods and payment of transit and other fees all result in border delays.

Fees for foreign transporters are quite high: US$400 for transit, plus US$90 for insurance, though CIS transporters have lower preferential rates. The market share of Uzbek transporters is 25 per cent of international traffic, with over 80 per cent of transit traffic carried in Turkish and Iranian trucks. Neighbouring countries also have high fees and the combined fees significantly increase regional transport costs. The number of transiting Turkish and Iranian trucks has declined, partly due to Kazakhstan sourcing more traffic via Russia, but high transit fees have been a factor.

Substantial revenue is generated from foreign transporters. Improvements in Afghanistan and completion of the bridge at Nizhny Pianj could result in transit traffic for much of Tajikistan bypassing both Uzbekistan and Turkmenistan. Similarly Turkish and Iranian truckers could route along the western shore of the Caspian into Kazakhstan. While these are only potential threats, Uzbekistan is not in a position to charge what it likes. There are market pressures on transit fees: transporters will use the most cost effective routes.

Through/Combined Transport Bills of Lading are not fully recognised in relevant legislation, inhibiting the growth of intermodal container transport.

15. FREIGHT FORWARDING The distribution sector is immature (with no central, regional or local distribution) and there is a relatively high proportion of local movement and little inter-regional traffic. This reflects regional self-sufficiency and the dominance of direct supplier to end-user movements. Supply chain management is almost non-existent, due to the predominance of traditional wholesaling and retailing and a lack of necessary market expertise. There is little expertise in supply chain management or supporting complex distribution technologies and no training is offered in these subjects.

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There has been progress since the Uzbekistan International Forwarders Association (AIFU) was formed in 1996, a full member of the International Association of Freight Forwarders (FIATA). AIFU’s registration with the Ministry of Justice gave the industry some much needed recognition. Some 60 per cent of forwarders are members of the Association, including foreign representations. The industry will, however, only receive public recognition by becoming more professional through capacity-building, with personnel qualified to an international standard.

Most forwarders are unimodal. There are a large numbers of rail forwarders, with the main organizations Shoshtrans and Uzbektemiryulexpediciya handling container traffic, focusing almost exclusively on rail. Road forwarders, many with foreign ownership or links, engage solely in international road transport. Successful intermodal transport requires partnership between road and rail operators, but with road and rail forwarders competing, little choice is offered.

Uzbek forwarders are strong in the export sector. There are two options to handling imports, the latter the more attractive: (i) establish an overseas organisation; or (ii) form partnership arrangements with overseas forwarders. In the medium/long term, forwarders should focus increasingly on the establishment of JVs. Given the growth in 3PL-type forwarders with integrated services, there is a need to ensure participation in the international logistics industry. It is necessary to transform the freight forwarding industry into international logistics providers by enhancing the range of services offered by national companies.

Road forwarding is dominated by foreign companies or their local representatives, as the dominant flow is inbound and routing control is thus overseas. Their primary role for imports is in arranging local services, such as Customs clearances and delivery, on behalf of foreign principals. For exports, their primary role is arranging international transport services and preparation of documentation. Uzbek forwarders have few links with foreign companies and lack access to international forwarding networks. They do not generally offer door-to-door service or advanced logistics, taking responsibility outside the country. A domestic 3PL industry has not developed with most domestic goods still carried on transport owned or directly controlled by

PADECO/IKS 28 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary the owner. International forwarders and transporters have yet to develop 3PL services.

International forwarders are increasingly Third Party Logistics Providers (3PLs) with global coverage and integrated operations, maximizing control over the logistics chain, with cost and service advantages. Uzbek forwarder penetration may remain very limited, given the major investment necessary. While the 3PLs’ share of the import market is small, such services are developing in Central Asia.

16. LOGISTICS The development of logistics centres has been Government policy for many years, but no terminals have been developed, principally due to funding difficulties. The President referred to the need in February 2006. “..consider establishing logistics centres at: (i) Chukursay; (ii) Bukhara; (iii) Andijan (multimodal traffic on Andijan- Osh-Irkeshtam route); and (iv) Termez and at railway cotton terminals.”

Pre-feasibility studies recommended foreign investment, but without a viable business case for investors. Development should move from Government policy statements to physical commissioning of facilities. In almost all cases domestic logistics centres will be road-based and located at key road transport nodes. Development at a greenfield site at Termez would be a suitable pilot project, in combination with a Free Zone, with other locations developed as extensions to existing facilities. The development of logistics centres for domestic purposes is not yet practical due to the lack of demand and of relevant transport resources/expertise.

Uncertainty about demand is delaying the development of international logistics centres. Such centres elsewhere have been developed in coordination with domestic centres, or as part of ICDs. As a low risk strategy, logistics centres should be developed in stages, using a combination of existing and purpose-built facilities. Rail connection is essential, given the dominance of cotton. Existing intermodal terminals should be developed in Tashkent, at Bukhara and at one of the facilities in the upper Ferghana Valley.

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The Cotton Consolidation Centre at Bukhara and the Chukursay intermodal terminal are embryonic logistics centres. The former facility was developed in association with the TRACECA programme and conceived as a logistics centre, but it became a dedicated cotton terminal.

The key to the development of logistics centres is to: (i) identify prerequisites for development, such as having 3PL operators; (ii) specify the core functions; (iii) assess demand and how facilities will support the logistics sector and supply chain management; (iv) specify whether facilities should be uni-modal/intermodal or both and why; (v) identify funding sources; (vi) clarify site management and development options; (vii) consult with the logistics community to ensure public-private sector compatibility; and (viii) effectively market the concept to industry and to potential funders.

17. RAILWAYS The period to 2020 may be a second golden age of railway construction in Central and East Asia. A confluence of political and economic developments is transforming rail networks to an extent and in ways impossible to envisage pre-1990. The breakup of the USSR, rapid globalization and the emergence of China have unleashed railway development. Lines are being built for purposes ranging from entirely strategic to wholly economic. Uzbekistan is surrounded by a building boom and itself contributing new lines. Paradoxically, the explosion in line construction follows an unprecedented collapse in railway traffic since the days of Soviet Railways.

Rationalizing Capacity Changes in the pattern of demand since independence have resulted in parts of the UTY and other rail networks becoming surplus to requirements. Many industrial facilities have closed and others are originating/receiving so little traffic that they are uneconomic to service. Much of the rolling stock fleet is deteriorated beyond economic repair. A piecemeal approach to eliminating surplus capacity and assets would result in the problem dragging on indefinitely. A structured housecleaning has a number of advantages: (i) it would focus attention on defining the “continuing” railway, separating economic from uneconomic services (both passenger and freight); (ii) it would simplify accounting issues in the disposal of assets; (iii) it would produce a more manageable system, fit for long term purpose; and (iv) it would be a

PADECO/IKS 30 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary largely self-financing process, realising gains from the disposal of surplus land and from recovery of valuable materials. A Surplus Assets Authority under the Ministry of Finance should be set up (by 2009), to which all surplus land, infrastructure and rolling stock identified in a network-wide inventory (2007-08) would be transferred. The inventory should have three components: (i) identification of surplus assets; (ii) documentation of the condition of the continuing railway; and (iii) asset utilization levels, based on a detailed analysis of traffic. The Authority would be responsible for the sale/disposal of all of its assets within say five years. Profits from disposal would be returned to UTY and the other railways.

Aged Rolling Stock As of May 2006, the UTY fleet comprised 564 locomotives, of which 75 were electric, 791 coaches and 25,407 wagons. Less than 2 per cent of the rolling stock is under 10 years old (see Table 4). Of the in-service coach fleet, 22 per cent dates from pre- 1980 and 83 per cent is pre-1990. The only new coaches are on the Registan (Tashkent-Samarkand) and Tashkent-Moscow services. Pre-independence, 15 coaches were acquired annually, compared with an average of only 2 since. Suburban rolling stock is particularly old: it includes electric multiple units acquired second hand in 1976-78.

There are problems with the wagon fleet: (i) overall quality - there is a technical check at borders and sub-standard wagons are frequently rejected leading to escalating problems, with incomplete consignments. In Turkmenistan, for example, a whole shipment may be stopped until missing wagons catch up, while other countries demand new documentation; and (ii) availability of specialist wagons – flatbeds for containers, liquid/dry bulk tankers etc. with traffic delayed or lost to road. For transit and import traffic, the problems concern mainly foreign owned wagons.

T4 Age Distribution of UTY Rolling Stock (in Years) Type Under 10 10-20 20-30 Over 30 Total Electric locomotive 12 32 1 30 75 Diesel locomotive - 63 171 - 234 Shunting locomotive - 42 170 43 255

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Total locomotives 12 137 342 73 564 Coaches 35 284 471 1 791 Wagons 416 7155 13009 4827 25407 Source: UTY

Commercial Focus A major constraint on UTY’s capacity to benefit from its structural reforms is poor financial management information, internally focused, to support resource allocation planning.

Economic development to 2020 may not be in rail’s favour: improved roads and a renewed truck fleet will offer greater competition and industrial development will tend towards non-bulk goods. The key challenge is to move from an operational to a business focus: defining the medium to long term freight business and how traffic is to be retained/discarded and developed. This requires customer focus, marketing, management information systems, cost accounting and a transformation in attitude from those of an engineering-led rail service provider into those of a business- oriented freight carrier operating in an increasingly competitive market. Such a transformation requires active support from MOF – a gradual freeing of freight tariff control, in exchange for performance guarantees. Tripartite (UTY/MOF/major customer) agreements should be sought setting out quality of service targets, wagon ownership and renewal policies, and tariff policy for the medium term.

If the pricing policy of Uzjeldorpass is to be commercially-based, uneconomic services need to be separated financially from other services. Most railways lose money on suburban and branch line services. A possible future subsidy policy for passenger service operation would be one where the Government reimburses Uzjeldorpass for the revenue shortfall from operating for example commuter trains. Pricing for these services would be subject to approval from the Government. Pricing for unsubsidized commercial services, however, would be set by Uzjeldorpass. Uneconomic services (commuter and branch line) would be operated with Government subsidy.

Enactment of successful/clear PSO contracts and mechanisms will have significant benefits for UTY, Government and passengers. Exercise of such service-based

PADECO/IKS 32 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary contractual relationships is, however, ultimately dependent on the availability of financial and operational data.

Investment Network development comprises replacement of rolling stock, new line construction, capacity enhancement, raising of speed limits and electrification: large-scale investment projects. These need to be considered together and to be prioritized. This is recognized as a difficult process for all railways, as departments have different priorities. The investment focus since independence has been on line construction to avoid transit of neighbouring countries. This will be largely completed with the opening of the Tashguzar-Kumkurgan line, expected by end-2007. To date development has been driven by Government requirements for nation building and transport self-sufficiency.

Investment priorities should be proposed by UTY, based on customer needs, rather than be engineering-led. This requires a cultural change, from that of operator to service provider. Such a change needs strong leadership to carry through and needs to be initiated by the Government. UTY management objectives should be defined such that the railway’s priorities align with the priorities of its customers. The independence of the passenger business, for example, is more nominal than real. Passenger managers are well aware of the developments necessary for their business, but have little authority to determine priorities and access to the investment resources to implement them.

Amudarya Bridge, Turkmenistan Shortly after entering Turkmenistan, the Amudarya is crossed on a 1930m bridge (built in 1903) in poor condition. Rehabilitation is estimated to cost some US$40 million. Turkmenistan Railways cannot guarantee the safety of the structure. With the construction of bridges at Kerki-Kierkichi and in the Khorezm Region, alternative routes will become available, but these substantially increase the transit distance on Turkmenistan Railways and the overall haul, in particular for the important cotton traffic from Bukhara. UTY should study the impact of bridge closure, technical aspects, such as availability of train paths and transit times and financial/economic impacts, payments between the two railways and the effect on freight charges. On

PADECO/IKS 33 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary the basis of the study, an appropriate financing plan for reconstruction of the bridge should be negotiated with Turkmenistan.

Angren-Pap Line – Should it be Built? Strategy for Angren - Pap is to take an early go/no go decision in principle on the basis of a feasibility study: implementation timing to be contingent on funding and on associated developments, primarily progress with the link through the Kyrgyz Republic to China. The Uzbekistan-Kyrgyz Republic-Kashgar (China) corridor passes through difficult terrain, with a final alignment not selected. The Kyrgyz Republic may find difficulty in attracting international funding. A large volume of transit traffic China - Middle East/Europe would be required to justify construction. There is maritime competition for such traffic and rail competition from the Trans-Siberian Railway. The proposed Kazakh east-west line would also be a competitor. The line is only likely to be built if China considers it a national priority. China is a critical market for rail, given that other modes are not competitive over the distances involved. The planned Uzbekistan-Kyrgyz Republic-China corridor passes through mountainous terrain, requiring extensive tunnelling, also a change of gauge. On 20 March 2006, the Prime Minister of the Kyrgyz Republic stated that this was one of his country’s key needs and that development of the line should be accelerated. A draft feasibility study has been prepared.

The cost is estimated at US$1.5 billion (see Table 5). Construction would take 4-5 years. It should be noted that such major engineering projects often come in at a cost of up to double the initial estimate. Clearly, the project is not financially or economically viable and is strategic in nature, with an alternative route through Tajikistan, although with associated transit fees. The central section includes the tunnel. Adjoining sections are much cheaper per km to build and could be constructed first, with an intermodal road link between them as an interim measure. The tunnel might also serve road-on-rail traffic, to avoid the mountainous section of the A-373 for heavy vehicles, guaranteeing an all-year-round corridor.

T5 Angren – Pap Line Construction Cost (Including Electrification)

Section Length Km Cost US$ Million Angren – Sardala 34.6 258 Sardala – Sansalyk, 23.6 782

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(including tunnel) (19.7) (604) Sansalyk – Khanabad 21.5 165 Khanabad – Pap 39.5 295 Total 119.2 1500 Source: UTY

Freight Services Freight traffic in 2005 was 55 million tonnes, 18 billion tonne km, with an average domestic haul of 330km. Two thirds of tonnage was petroleum products, building materials, cement, chemicals and fertilizer, and coal.

UTY carries some 75,000 containers annually, almost all international: about half Asian traffic, 30 per cent European and 20 per cent regional. Transit traffic acccounts for 41 per cent of inbound containers and 47 per cent of outbound. The northern route to/from Kazakhstan accounts for 58 per cent of all intermodal units, this corridor serving the European and East Asian routes. Tajikistan is the second route accounting for 26 per cent of traffic. Traffic through Turkmenistan to Iran is relatively small, predominantly transit traffic to/from the north.

Transit traffic accounts for half of international tonnage. The logistics chain is only as good as its weakest link and most of the links are outside the country of origin or destination. Other railways depend on UTY for transit through Uzbekistan. UTY needs to maintain a high standard of service, as transit traffic is sensitive to even minor changes in pricing and service levels. Given the importance of the traffic, it merits priority handling to ensure retention. UTY can best seek service improvements from other railways by providing a similar or better quality of service itself.

The major transit movement is of oil products, with metals, construction materials, grain, flour and cotton also important and general cargo becoming more important. Import and export traffic is mainly cotton, oil products, fertilizer, wheat and wheat flour and construction materials.

There have been unsuccessful attempts to establish block container trains by TRACECA and others, hindered by low volume, a dispersed profile of origins and destinations and trade imbalances. Containers are generally carried on wagons in ordinary freight trains, with the same quality of service as general cargo.

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UTY is predominantly a freight railway, in 2005 performing nearly nine times as many tonne km as passenger km. Most major industrial plants are rail-connected. The main bulk commodities are carried over long distances: cotton, grain, fertilizer, crude oil and petroleum products. Road transport is not a viable alternative for most of these movements and UTY is a quasi-monopolist, but it is subject to freight tariff approval by MOF. Rates are well below what the market would bear. Freight traffic is originated largely by the public sector and there is little commercial pressure on UTY to upgrade services, to innovate or to develop/withdraw services. Management is now reviewing the future of the business, collecting detailed data on traffic patterns. This is likely to show that there is a core of profitable bulk traffic flows, but that many customers originate too little traffic to be profitably served. In the medium term a large-scale rationalization of infrastructure and services should be undertaken.

The quality and range of UTY freight services has not changed significantly over the last 10 years. Most traffic is either Government controlled or captive to rail, with little or no competition, other than for intermodal transport. There may be little incentive to improve quality of service or increase customer-focus, particularly as many of the service constraints are external. Customers are generally not particularly demanding and accept the level and variability of service in return for corresponding tariffs. This applies throughout the region and UTY performance is comparable to that of its neighbouring CIS railways.

The competitive strength of road transport is expected to increase, compared with rail, given a policy change to encourage vehicle fleet replacement and an increase in the resources earmarked for road investment and maintenance. However, competition between the two modes is limited, with bulk and long distance freight a captive market for rail and relatively little passenger traffic by rail. Modest growth in rail traffic is still expected, despite increased competition from road transport. The Beyond 2010, growth in the economy and increasing discretionary personal income should provide opportunities for UTY to continue a modest growth in traffic, by focusing its resources on rail-favourable markets.

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The tariff system favours cargo loose in wagons rather than in containers favouring the unstuffing of containers to move goods as conventional traffic. Conventional wagons capacity per metre is higher, with containers limited to around 20 tonnes gross by the road transit and their design capacity. For unbalanced flows, there is an additional charge to return the empty container. Unless special rates can be negotiated with other railways it will be difficult for intermodal to be competitive with conventional road services.

Traffic imbalances are a major challenge. There is inbound container traffic from many countries, but few return loads due to the lack of suitable export cargoes. For export traffic such as cotton, the tariff structure favours covered wagons and it is therefore not economic to containerise it. Such traffic is often sold ex-seaport warehouse, thus the cargo needs to be stored at port warehouses awaiting sale, with no end-receiver known and a container cannot be loaded in Uzbekistan for through transit.

Service quality on international corridors depends on the operating performance and state of the infrastructure of a number of railways. For most Uzbek international traffic and most transit movements, the majority of the journey is over foreign railways. There are many network interface issues, single track and limited train paths, track and signalling constraints on speed and access. Bogies have to be changed or traffic transferred to other wagons at Serakhs and Dostyk due to the change of gauge, with delays due to the limited technical resources.

Passenger Services The number of passengers carried in 2005 was 16 million, 2.1 billion passenger km, an average domestic journey length of 131km.

The market for domestic passenger services is limited. Road competition, both inter- city bus and private car, will intensify and air services will improve, with introduction of new aircraft and the possibility of direct services between regional cities and more competitive tariffs. While the passenger company has undertaken detailed market analyzes and has development and service enhancement plans, resources for implementation are lacking. The coaching fleet is old and expensive to renovate or replace. Passenger services are cross-subsidized by freight traffic. The requirement is

PADECO/IKS 37 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary to separate social from commercial services, secure Government support for the former, with definition of service standards and to exploit niche markets to develop the latter. Tashkent urban services may also merit development in the medium term.

International passenger services account for 80 per cent of all passenger revenue. While part of the USSR, a large number of services which are now international were operated throughout the region and beyond, 20 pairs of trains used to operate daily between Tashkent and the north – the Kazakhstan border is only 24km from Tashkent. Seven pairs of services per week now operate to Moscow, Saratov, Ufa and Chelyabinsk (operated by Russian Railways) and one to Harkov in the Ukraine. International services have high load factors, averaging 80 per cent.

There is undoubtedly a market opportunity for developing international services. Competition from buses and private vehicles is restricted by border-crossing problems and air travel is much more expensive, although low cost carriers may enter the market at some stage. The immediate issue is to finance the coaches necessary to develop the route network.

Route by route development plans have been prepared and there is a good knowledge base within the passenger company. International passenger services are the most profitable (reflecting the revenue allocation mechanism, which favours Uzbekistan), but few are operated compared with USSR days. In 2007, services to Astana and to Novosibirsk will be added. The main constraint is a lack of rolling stock. International services require expensive high-quality coaches. Domestic service development is also hindered by financing constraints on rolling stock acquisition. The new Tashkent-Bukhara Shark service operates with refurbished coaches, although refurbishing cost was little less than that for new coaches.

Apart from international and transit services and local services, 46 service pairs are operated weekly. Principal trains are the daily Tashkent-Samarkand and twice daily Tashkent-Bukhara services, the 5-times weekly Registan service Tashkent- Samarkand (introduced with ADB support) and alternate day Tashkent-Karshi, Tashkent-Termez services.

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About 80 per cent of suburban traffic is carried in the Tashkent/Jizzak regions. There are also local services from Karshi, Samarkand and Bukhara.

Rail Safety Although rail is inherently a much safer mode than road transport, there is a potential for occasional major accidents. Uzgorjeldornadzor has prepared a list of 20 measures which could form the basis of an accident prevention programme.

18. URBAN TRANSPORT There have been dramatic changes in demand since independence, but these have not been systematically analyzed and urban transport planning is generally ad hoc. Strategy needs to be based on a detailed knowledge of the demand pattern (public and private) and of likely future structural changes in each urban area. For a complex multimodal system such as in Tashkent, model-based planning is considered essential. There will be a hiatus before any well-informed decisions can be made, awaiting surveys and calibration of a transport model. In the interim, no major investment decisions should be taken for Tashkent.

Public Service or Self-Financing? Government policy is that each urban mode should become financially self-sufficient: requiring fares to reflect long run average costs. This would encourage a switch from public to private transport and redistribute traffic between public transport modes. Synergies are lost if each mode is treated separately. Public transport should function as, and be seen by users to be, an integrated system, with seamless connections between modes: an integrated ticketing system is an essential component. Route networks should be designed as a whole to encourage use of low marginal cost modes (in particular the Metro) and to promote interchange between modes.

Public Transport Demand Daily public transport volume in Tashkent in 2005 was 1.9 million passengers. The start of minibus operations and a major improvement in the quality of bus services resulted in rapid changes in modal shares: the electric transport (Metro, tram and trolleybus) share falling from 36.6 to 20.2 per cent 2001-05 (see Table 6). There was an overall decline in public transport volume of 10 per cent 2001-05: Metro

PADECO/IKS 39 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary usage fell by 37 per cent, tram by 53 per cent and trolleybus by 77 per cent, unusually sharp declines for a short period. Metro traffic fell sharply in 2006 (by 23 per cent January-October over 2005), with the ending of the combined monthly ticket from 1 March. Metro traffic halved 2001-06.

T6 Tashkent Public Transport 2001-05 (million passengers)

Share % Mode 2001 2002 2003 2004 2005 2006* 2001 2005

Metro 142 136 114 96 90 70 18.2 12.5 Bus 494 484 401 397 390 382 63.5 54.1 Tram 92 80 64 50 43 46 11.8 6.0 Trolleybus 51 38 27 16 12 10 6.6 1.7 Minibus** - 37 133 156 166 na - 23.0 Total 778 775 739 715 701 na 100 100 Index (2001=100) 100 100 95 92 90 na - - Note: * Consultants’ estimates based on January-June actual, January-October for Metro. ** Consultants’estimates.

Impact of Minibuses Public transport in all cities has been transformed since the 1990s by the introduction of minibuses/microbuses, operated by the private sector under route franchises. Minibuses provide more frequent service over more extensive route networks, but most cities would now like to partially rebuild their non-minibus networks. The trolleybus and large bus systems lost most of their traffic to minibuses and have been largely abandoned or run down.

While private sector service operation is effective in increasing operating efficiency, it needs to be based within and in support of overall strategy. Passengers switching to minibus from other modes increase the operating subsidy for those modes by almost the full fares they would have paid on them (as long as service continues). Minibuses have produced benefits, but not to the public purse. Restructuring of both electric mode, bus and minibus services can redress this. Minibus services parallelling metro or tram routes increase total transport operating costs: there are no operating cost savings on the latter modes and the minibus cost is added. Even if the minibus services are themselves financially self-supporting, the total impact analysis is the one that counts.

PADECO/IKS 40 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary

Reversing the Decline of the Metro The Metro is a national asset, which should be the centrepiece of Tashkent public transport. A revitalization programme is needed to arrest and reverse the dramatic decline in usage. This would also improve the overall image of public transport. The Metro appears to be in a run-down state. The Metro is a national asset, everything possible needs to be considered to arrest the traffic loss and to attract passengers back.

With effect from 1 March 2006, metro use was restricted to token or plastic cards valid only on the metro, with cards for metro plus other modes withdrawn. This has led to a large fall in traffic. An integrated ticketing system has social and economic benefits. It needs to be carefully considered to prevent further loss in traffic and not to discourage use of public transport. Electronic ticketing should be introduced covering all modes. An electronic stored value ticketing system to facilitate modal transfer (including metro) is essential and it should include minibus. The user should see urban transport as a fully integrated system. With the current system, single ticket purchase only permits travel on the one route.

Once the existing system has been modernized (a 3-5 year project), consideration should be given to completing the northern section of Line 3, which is expected to increase traffic volume by 100,000-150,000 ppd.

Renovating the Tramway The tramway is rundown, with deteriorated track and an aged tram fleet. The trams are in generally poor condition and part of the fleet is obsolescent. It has lost much of its traffic in recent years and some routes have been closed. Many cities have abandoned their tram networks, to subsequently regret the decision. Much of the network is on reserved track and the tram system has a long term future. There needs to be a strategy for fleet renewal (the purchase of 60 Spectr tramcars is planned), track renovation and system upgrading. The route network should be reviewed once the survey results are processed, taking into account the existing pattern of demand and the impact of planned city development. The long term network should be defined and a staged upgrading programme be formulated. This should be a route-by-route modernization, with new trams concentrated on fully

PADECO/IKS 41 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary refurbished routes – renovated track, provision of covered waiting areas at stops, posted timetables and possibly electronic indication of time to arrival of next tram etc. Rerouting of bus/minibus services to channel demand onto the modernized tram routes is essential. Corridors with the greatest demand might be upgraded to Light Rapid Transit standard.

What to do about Trolleybuses? Trolleybuses are environmentally friendly: operating quietly, with no roadside emissions. To abandon the previously extensive systems in many cities could be viewed as a step backwards. However, with low quality of service, old vehicles and frequent detrolleying, trolleybuses do not compete effectively with other modes. Once the proposed surveys have been conducted, options for change need to be considered. These range from network closure, to route rationalization, to limited development, to system renovation.

Improving Traffic Management There is little congestion in Tashkent and other cities and few parking problems. This is the result of relatively wide streets, a low level of car ownership, restrictions on truck use (inside the ORR in the case of Tashkent) and the good public transport systems. Economic growth will, however, increase car ownership and urban travel demand. This may largely be catered for by improved traffic management, without the need for major investment in road improvements, other than some grade separation.

Parking policy is part of mobility management, however, many cities have addressed parking in isolation. Parking policy is complex and has far-ranging impacts upon modal preference, urban and regional transport, mobility, accessibility, development, environmental quality and land use. Provision, operation and management of car parking should be systematic and integrated with urban transport planning.

19. INLAND WATERWAYS Inland waterway transport flourished in the USSR. With trade oriented toward Russia, there was significant demand along the river Amudarya. However, with independence there was a rapid decline in volume and the opening of the Friendship Bridge at Ayritom led to a further fall.

PADECO/IKS 42 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary

The role of inland waterways has fundamentally changed from carrying goods along the river to that of cross-river ferry service. Inland waterway transport may have a limited future. The key strategic issues are assessing the potential to revive the sector and determination of likely demand.

The Port of Termez has lacked the financial resources to remain a major river port, chiefly because of declining usage. Port revenue has only been sufficient to meet immediate operational needs and there is a significant maintenance backlog. All cargo handled at the port is brought by road transport, or in the case of imports leaves by road Traffic is expected to remain low in the foreseeable future, under 50,000 tonnes per annum.

20. TRAINING Training and HR development support is well catered for by modal specific institutions, in terms of traditional technical, engineering and management requirements. The position however, is less satisfactory for training relating to newly enhanced management and marketing requirements associated with commercial orientation and the greater emphasis on practical experience and training in relation to participation in international markets.

The training need is to focus on commercial management, notably in relation to general and financial management, marketing and business/customer development. Training and practical (case study) based opportunities to develop expertise in investment promotion and PSP practicalities in areas that have hitherto been predominantly in the public sector. Training initiatives should be activated to enhance financial management capacity in the commercial context. Similarly issues relating to strategic planning, prioritization of works and strategy implementation need to be addressed.

Rail and logistics/freight forwarding have urgent short term needs. For UTY, training should focus on the practicalities of computerized management accounting, traffic costing and resource based decision-making processes. For logistics and freight forwarding, to equip them to operate outside the traditional CIS markets, with training following the accreditation standards as set by FIATA.

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A training centre for forwarders is required, either be a national or a regional facility. with training in new forwarding technologies, such as international logistics, in place of the current focus on traditional skills.

21. SECTOR ROADMAP A sector Roadmap is a combination of aspirational goal-setting and a monitoring tool. It documents what should be achieved and when. It is a flexible instrument and should be updated every 2-3 years to reflect the prevailing conditions. The scope of the Roadmap can be defined, but most of the data necessary to calibrate it needs to be collected. The first goal is to have a partly calibrated Roadmap available by end- 2007, with full calibration and sector-wide agreement on targets by end-2008. This requires considerable survey activity in the interim. Notes for the preparation of the Roadmap are given in the following pages. Targets should in nearly all cases be physical, not financial.

Roadmap targets must be set with great care: a target of X implies the commitment of the necessary resources to achieve it. It is important that: (i) X is the right measure to be targetted; (ii) X is itself the right number, should it not be X- or X+ (this depends on the marginal costs and benefits of exactly achieving it at the set date) and (iii) whether the resources used to achieve X could not better be used elsewhere in the sector to achieve say Y or even be better employed outside the sector. For example, a road safety target can be reached through a combination of many initiatives, some of which are very costly, but avoid few accidents. The cost per potential life saved or injury avoided must be reasonable in every intervention.

Targets should be developed by experts in the field, their cost implications should be carefully assessed and then they should be agreed to in principle by the funding agency as well as the implementing agency. This targetting process itself should lead to better allocation and more efficient use of resources. Thus, targets should be realistic, achieveable and fundable. They should further a sector-wide debate on what can be afforded and the opportunity cost of doing/not doing something. For example, Angren-Pap would be a major commitment of resources: what are their alternative uses – is the community willing to pay this price for the security and other benefits of the project.

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PREPARING A SECTOR ROADMAP

1. Road Network Sustainability Primary (Common Use): survey roughness and traffic volume on whole network. Classify by traffic volume (equivalent passenger car units – pcus, or if insufficient data is available by average daily traffic ADT). Set surface condition targets for each volume range (international roughness index - IRI or similar measure), as in Table A, using actual data for 2007 – the figures in the table are indicative only. The degree of improvement to be set should be a realistic target with respect to likely available funding, but the target and funding requirement need to be considered in parallel with the objective of recovering the primary network to a stable long term state by 2020, following which a normal maintenance cycle can be followed, with little or no backlog – in particular for volumes over 2000 ADT. Note that the targets are more demanding than they might appear: as they are periodically reviewed, traffic growth will be placing more of the network in the higher volume classes.

Table A – Example of Roadmap for Primary Roads

% of Route Km in Class Surface Condition/ADT 2007 2010 2015 2020

1. ADT > 7500 or >15000 pcu (equivalent to be confirmed) Good IRI < 5 20 30 45 50 Fair IRI 5<7 30 30 30 40 Poor IRI 7<10 40 35 25 10 Bad IRI>10 10 5 0 0 2. ADT 2000<7500 Good IRI < 5 15 20 30 40 Fair IRI 5<7 30 30 30 30 Poor IRI 7<10 40 40 35 30 Bad IRI >10 15 10 5 0 3. ADT <2000 Good IRI < 5 10 15 20 30 Fair IRI 5<7 20 20 25 30

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Poor IRI 7<10 40 40 35 30 Bad IRI >10 30 25 20 10

Secondary (Non-Common Use) Rural: sample survey in same detail as for primary roads covering some 40 per cent of the route network. Same targetting process as for primary roads, differentiated by region. Starting in many regions from a far worse 2007 base than for primary roads, aspiration might be to at least recover to long term sustainability roads with volume over 7500 in 2020. Extrapolated survey results will indicate funding requirements for network rehabilitation.

Urban Roads: similar procedure, with reduced sample size perhaps 30 per cent. Similar approach to targetting as for secondary roads.

Bridges and structures: should be surveyed in parallel with surface condition, with classification into: good, fair, poor and dangerous categories, based on international best practice. A programme for sustained improvement should be costed, reappraised against likely resource availability and a set of targets be developed. Given that the cost varies considerably between items, this target may need to be defined in financial terms – as an annual percentage of the total required to bring the network up to a desirable standard.

Signage, Road Marking, Accident Prevention: in parallel with the condition surveys, surveys should determine and cost necessary associated measures to improve the user friendliness and safety of the networks.

2. Road Network Capacity In parallel with the road condition surveys, the volume:capacity (v/c) ratio should be assessed for each homogeneous route section. Daily v/c for inter-urban roads and morning peak hour v/c for urban roads. Typical traffic growth rates should be applied to the 2007 v/c ratios to determine the network length approaching capacity over time – say sections with v/c of > 0.8 for inter-urban and > 1.0 in the urban peak. Route upgrading/traffic management should then focus first on these sections.

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3. Road Transport Fleet While responsibility for roads is within the public sector, road transport is largely under private operation. However, it is in the public interest that the intercity bus and truck fleets be renewed. This could be monitored in terms of targets for the number of vehicles less than 5 years old in each fleet, with trucks differentiated into Euro-3 compliant, heavy, medium and small categories.

4. Road Accidents After analysis of available data and collection of supplementary survey data, targets should be set for reducing the number of annual fatalities and for serious injuries per 10000 vehicles, by at least 5 per cent annually for the first 5 years. Note that with a growing vehicle fleet, accident totals would change by less than the set percentage. Note that the definition of fatality should be clear and consistent: death at the scene, within 48 hours or a particular period following the accident.

5. Railway Rolling Stock/Electrification (UTY) Rolling stock renewal is as important as for the vehicle fleet and targets for new) or second hand) stock could be set by type on the basis of a needs assessment. For locomotives, this needs to proceed in parallel with the development of an electrification programme. The objective by 2020 would be to have a typical, sustainable age distribution across the fleet.

6. Rail Network Rationalization Following an assessment of continuing needs, targets for transfer of surplus assets to a Surplus Assets Authority should be defined for track km, rolling stock, stations, yards and other facilities, including in particular land.

7. Rail Network Sustainability The network, net of that to be transferred to the Surplus Assets Authority, should be surveyed for condition of track and structures.

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8. Border Facilitation Targets for border processing and trade facilitation times are not best defined in a national context. They should be reviewed under CAREC auspices on a regional basis.

9. Urban Transport Targets for Tashkent electric transport should be set in terms of system volume: the objective being to increase usage. Targets could also be developed for number of Metro stations to be refurbished and number of Metro cars to be renovated. For trams, targets on a route basis.

10. Transport Finances Targets should be developed for the share of public sector expenditure to be recovered directly from facility users: for roads for example from fuel taxation, licence fees, duties etc. with a medium term objective of complete user funding. Non-user financing of the Road Fund could be maintained during the period of heavy expenditure required to rehabilitate the network.

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ANNEX Action Plans

The Action Plans show proposed agency responsibilities and implementation timing.

1. Action Plan - National

Implementation Ref. Action Responsible Short Medium Long Term Term Term 1. Sector Wide

Define/endorse sector policy N-1 Cabinet of Ministers 2007 objectives

N-2 Restructure sector administration Cabinet of Ministers 2007-10 UTY, Road Fund, Uzavtoyul, regional N-3 Develop planning database and city authorities 2007-08 – coordinated by UTACA UTY, UzA and city Develop/introduce PSO mechanism transport for urban transport, railway N-4 authorities – 2009-10 passenger services and domestic air coordinated by services MOF MOF/MOT – and Review sector financing, including precursor, with N-5 tariff policy and financial objectives 2008-10 participation of of operating organizations agencies concerned Recharter transport operating N-6 MOT 2011 agencies Renegotiate transit arrangements N-7 MOFER 2007 Uzbekistan-Tajikistan 2. Institutional

I-1 Establish Ministry of Transport Cabinet of Ministers 2010 Establish Regulatory Commissions I-2 Cabinet of Ministers 2010 for road, rail and air Include the transport sector in I-3 eligibility for Investment Promotion MOF 2008 Incentives Provide training in commercially- I-24 UTACA 2008-09 oriented financial management Provide transport planning, I-25 prioritization and strategy UTACA 2008-09 implementation workshops 3. Investment and Private Sector Participation

I-27 Enhance investment climate Various 2008-10 Provide training in investment I-28 MOF 2008-09 promotion

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Develop private sector participation I-29 MOF 2009-10 profiles 4. Legal Establish legal basis for Ministry of L-1 Cabinet of Ministers 2007-09 Transport Extend investment promotion laws L-2 MOF 2007 to include transport

2. Action Plan - Roads and Road Transport

Implementation Ref. Action Responsible Short Medium Long Term Term Term

1. Primary Roads

Undertake road/bridge condition Road RD-1 2007-08 survey and prepare traffic database Fund/Uzavtoyul Define standards for road surface Road Fund/ condition and for volume:capacity RD-2 Uzavtoyul/ 2008-09 ratios to be achieved network-wide Ministry of Finance by end-2013 Undertake 5-year development, Road RD-3 reconstruction and maintenance 2009-10 2011-13 Fund/Uzavtoyul programme to achieve RD-2 Augment Road Fund resources, as necessary, to fund RD-3. Introduce RD-4 road tolls, first on A-373 Kamchik MOF 2009-10 2011-15 2016-20 Pass. Sell on toll sections to private sector

2. Secondary/Urban Roads

Local RD-5 Inventory network on sample basis agencies/Uzavtoyul 2008-09 supervision Uzavtoyul RD-6 Functionally classify 2009 supervision Identify maintenance RD-7 UTACA/MOT 2009 responsibilities Establish development fund to RD-8 MOF 2010 ensure sustainable funding

3. International Corridors

Upgrade Bukhara-Alat, Tashkent Outer Ring Road-Kazakhstan Road RD-9 2009-10 border, Karshi-Termez, Kamchik Fund/Uzavtoyul Pass and Kungrad-Beyneu Set transit fees/charges to: (i) be RD-10 MOF etc. 2008 commercially competitive; (ii)

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promote transit traffic; and (iii) not result in retaliatory actions by neighbours Promote developments to improve RD-11 trade security, for example through MOFER 2008-10 2010-12 Afghanistan Improve trade facilitation, reduce RD-12 border delays and facilitate transit Customs 2008-10 2010-12 by introducing new technologies Improve IT connectivity to enhance RD-13 Customs 2008-10 border crossing performance Improve approach roads to key Road RD-14 borders, where necessary, to allow 2008-10 Fund/Uzavtoyul traffic streaming Invest in border infrastructure at RD-15 Customs 2010-12 smaller crossings. 4. Institutional

I-4 Review operation of Road Fund Cabinet of Ministers 2010

Enhance competition in road I-5 UTACA/MOT 2011 maintenance and construction Establish equipment pool for road Road I-6 2010 maintenance activities Fund/Uzavtoyul Seek cost recovery from users I-7 MOF 2012 through road user charges

I-8 Competitive bidding Road Fund 2012

Planning and prioritization of Road I-9 2009 roadworks Fund/Uzavtoyul

I-10 Quality control of road programme Road Fund 2008+

5. Legal

Implement Convention on Road L-3 MOT/Uzavtoyul 2007-10 2011-15 Signs and Signals Revise Law Concerning Motor (or L-4 MOJ/Uzavtoyul 2006 Automobile) Roads Develop/Revise secondary legal instruments consistent with the Amendments of the Primary Law L-5 UARRT/MOJ/MOT 2007-10 2011-12 Concerning Motor (or Automobile) Roads and the requirements of institutional restructuring Further develop legal basis of Road Road L-6 2007-10 Fund with a primary Road Fund Law Fund/Uzavtoyul

6. Road Transport

Consider further reductions in RD-16 vehicle import duties post-2007 MOF 2009 measures

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RD-17 Abolish Road Registration Fee MOF/UARRT 2009

Value used vehicle imports at the RD-18 Customs 2007 price in the pro-forma invoice Give import preferences for used RD-19 Customs 2007 vehicles under 10 years old Encourage foreign suppliers to hold RD-20 stock locally to improve parts Various 2008 availability Foster investment in vehicles of RD-21 UARRT/MOF 2008 over 20 tonnes capacity Improve industry professionalism RD-22 Various 2008-10 through tax concessions Consider local/foreign leasing of RD-23 UARRT/MOF 2007 new compliant vehicles Encourage foreign transporters to RD-24 link with/form JVs with national Various 2008-10 companies Provide incentives to foreign RD-25 carriers to assign part of their fleets MOF 2008 to Uzbekistan Raise axle load limit in stages to RD-26 MOT 2010 2015 11.5 tonnes Revise the permit and road tax system for foreign transporters to RD-27 UARRT 2009 accord with international best practice Restore international bus services RD-28 UARRT TBD TBD TBD as and when conditions allow Introduce Tashkent-Ferghana Valley RD-29 GAI/UARRT 2008 bus service 7. Legal Accede to Customs Convention on Oliy Majlis/Cabinet L-7 Temporary Importation of of Ministers/ 2011-15 Commercial Vehicles, 1956 MOFER/Customs Accede to European Agreement Oliy Majlis/Cabinet Concerning the International L-8 of Ministers/ 2009-10 Carriage of Dangerous Goods by MOFER/UARRT Road (ADR), 1957 Ratify Agreement on Weight and Dimensions of Road Vehicles L-9 Oliy Majlis 2007-10 Carrying Out Interstate Transport on CIS Roads, 4 June 1999 Accede to Agreement on Introduction of International Oliy Majlis/Cabinet L-10 Weighing Certificates for Freight of Ministers/ 2007-10 Vehicles on the Territory of CIS MOFER/Customs Member Countries, 16 April 2004 Cabinet of Continue negotiating land Transport Ministers/MOFER/ L-11 facilitation arrangements within 2007-10 2011-15 2016-20 UARRT/Customs/ regional groupings MOT

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Develop/revise bilateral agreements Cabinet of based on the model Central and Ministers/MOFER/ L-12 2007-10 2011-15 2016-20 South Asia Transport and Trade UARRT/Customs/ Forum (CSATFF) Transit Principles MOT Revise primary Law on Motor (or L-13 UARRT/MOJ 2007-08 Automobile) Transport Develop a primary Law on UARRT/MOJ/ L-14 2008-09 International Transport and Transit Customs Develop legal basis for Road L-15 Cabinet of Ministers 2008-10 2011-15 Transport Regulatory Commission Develop a Law on Intermodal L-16 UARRT/MOJ 2007-08 Transport Amend Code of Administrative Responsibility to increase fines for L-17 MOF/UARRT/MOJ 2007 breach of Law on Motor (or Automobile) Transport Revise tax and Customs laws L-18 MOF/Customs/MOJ 2007 affecting transport Introduce compulsory insurance system for motor (automobile) and L-19 UARRT/MOJ 2007 inland waterway passenger transport Develop Law on Regulation of Free Passes’Privileged Travel by UARRT/MOJ/Local L-20 2007 Passenger Transport in Suburban/ Govt. Urban Areas 8. Road Safety Publish monthly statistics on road

RD-30 accident deaths and injuries by GAI – Traffic Police 2007

area. Improve signage/road markings, RD-31 Uzavtoyul 2007-09 prioritizing accident blackspots.

RD-32 Enforce wearing of seatbelts. GAI – Traffic Police 2007-08

Revisit speed limits and strictly RD-33 GAI – Traffic Police 2007-10 enforce revised limits. Introduce roadside speed RD-34 GAI – Traffic Police 2010 monitoring cameras. Strictly enforce ban on mobile RD-35 GAI – Traffic Police 2007-08 phone use while driving. Limit U-turn movements on high RD-36 Uzavtoyul 2008-10 speed routes. Phased safety enhancement RD-37 GAI?Uzavtoyul 2007-09 programme for A-373 Kamchik Pass

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3. Action Plan - Railways and Rail Transport

Implementation Ref. Action Responsible Short Medium Long Term Term Term 1. System Rationalization/Management

RL-1 Set up Surplus Assets Authority MOF 2008

RL-2 Inventory all assets UTY 2007-08

RL-3 Vest surplus assets in SAA MOF 2008

Prepare medium term programme RL-4 UTY 2009 for asset renewal Redefine UTY management for a RL-5 business-led railway in new UTACA/MOT/MOF 2009-10 Charter– relax tariff control

2. Corridor Development

RL-6 Feasibility study of Angren-Pap UTY 2007-08

Stage construction of Angren-Pap RL-7 UTY 2012-14 2018-20+ on basis of RL-6 Provide political support for developments in other countries, RL-8 MOFER 2007-10 (Mashhad-Termez, Uzbekistan- Kyrgyz Republic-China) Undertake feasibility study of RL-9 Uchkuduk-Jeskasghan and UTY 2008-09 alternative routes Ensure funding for Amudarya RL-10 MOFER/MOF/UTY 2007-08 Bridge, Turkmenistan rehabilitiation

RL-11 Invest in border post rehabilitation UTY/Customs 2008

3. Freight Services

RL-12 Improve service quality UTY 2007-10

Develop services to/from China and RL-13 UTY 2011-15 South East Asia Capitalize on improving situation in RL-14 Afghanistan, in advance of rail UTY 2007-10 network construction Expand range of services and RL-15 accept responsibility over logistics UTY 2008-10 chain Introduce market pricing and RL-16 develop special tariff (with other UTY 2009 railways) for intermodal traffic

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Market directly to the shipping RL-17 UTY 2008+ industry Introduce block trains on key routes RL-18 (Tashkent - Lianyungiang, UTY 2011+ Nakhodka and Bandar Abbas)

4. Passenger Services

Rebuild network of international RL-19 UTY 2008+ services, with regional railways

RL-20 Offer wider range of services UTY 2008+ Reduce/eliminate border delays by RL-21 introducing on-train passport and Customs 2009 customs inspection Improve marketing, focusing on RL-22 tourist traffic and the development UTY 2008+ of niche markets 5. Institutional

Study separating infrastructure I-11 MOF/MOT/UTY 2019 management and service delivery

I-12 Assist in ongoing privatizations UTY 2007+

Implement management accounting I-13 UTY 2008 systems and capacities

I-14 Enhance marketing functions UTY 2007+

I-15 Establish infrastructure access fees UTY 2015

Resolve operational difficulties re I-16 MOF 2007-08 accounts receivable and tariffs Introduce PSO for commuter and I-17 MOF 2010 branch line services Provide training in management I-26 UTY 2009-10 accounting and traffic costing 6. Legal Align international railway agreements with the International Union of Railways (UIC) and L-21 UTY 2016-20 Intergovernmental Organisation for International Carriage by Rail (OTIF). Revise the Railway Law in accordance with the suggestions of L-22 MOJ/UTY 2006-10 2011-12 UTY and proposed institutional changes L-23 Develop a new Charter for UTY UTY 2007-08

Develop the legal basis for a Cabinet of L-24 2008-10 2011-15 Railway Regulatory Commission Ministers/UTY

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Develop/revise secondary legal instruments in accordance with the L-25 MOJ/UTY 2007-10 2011-12 revision of the primary Law and proposed institutional changes

4. Action Plan - Civil Aviation and Air Services

Implementation Ref. Action Responsible Short Medium Long Term Term Term Airports

A-1 Divest airport operations from UzA Cabinet of Ministers 2011

Rationalize airport network, UzA/Cabinet of A-2 2010 especially for Ferghana Valley Ministers Improve inter-terminal connections A-3 UzA 2008 at Tashkent

A-4 Review security procedures Various 2008

Modernize approach to design of A-5 UzA 2008 structures Increase mechanization of cargo A-6 UzA 2007-09 terminals Review function of Tashkent transit A-7 UzA 2007 terminal Establish separate financial A-8 UzA 2007 reporting for airports Develop Tashkent as regional A-9 UzA 2011-15 freight gateway Airport Services

Remove legal/regulatory constraints A-10 restricting competition in airport MOJ 2009 services Improve service, particularly in A-11 passenger handling and customer- UzA 2007+ orientation Improve arrangements for transit A-12 UzA 2007-08 passengers Improve catering, especially in A-13 UzA 2007+ international/transit areas Exploit retailing opportunities and A-14 UzA 2007+ grow terminal passenger Uzbekistan Airways

A-15 Increase management autonomy Cabinet of Ministers 2008-10

A-16 Focus on commercial operation UzA 2008-10

Complete fleet rationalization, agree A-17 UzA/MOF 2007-10 2011 programme of supporting measures

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Introduce e-ticketing and yield A-18 UzA 2007-09 management, improve interlining Improve quality of A-19 UzA 2007-10 2011-15 2016-20 service/marketing of UzA brand Rationalize Tashkent-Ferghana A-20 UzA 2011 Valley services. Foreign Airlines

In short term, seek to retain service A-21 UzA 2007-10 by major carriers Encourage more carriers to provide A-22 UCAA/UzA 2011-15 services Monitor small CIS regional carriers A-23 UCAA 2007-10 2011-15 2016-20 for safety and financial stability Institutional

Establish Uzbekistan Civil Aviation I-18 Cabinet of Ministers 2010 Authority (UCAA) Divest ANS from UzA and Transfer I-19 Cabinet of Ministers 2011 to UCAA

I-20 Privatize airport operations MOT 2013

I-21/L- Initiatives towards an Open Skies MOT/MOFER/MOJ/ 2012-15 2016-20 27 policy UCAA

I-22 PSO structuring MOF 2010

Attract private investment/privatize I-23 Cabinet of Ministers 2018 UzA Legal Increase number of countries with MOFER/State which Uzbekistan has Bilateral Air Inspectorate for L-26 Services Agreements (ASAs) and Supervision of 2007-10 revise ASAs to encourage foreign Safety of airlines to serve Uzbekistan Aviation/UzA MOFER/MOJ/State Revise Air Code in accordance with Inspectorate for L-28 proposed amendments and Supervision of 2007 institutional changes Safety of Aviation/UzA Develop legal basis for a Civil L-29 Cabinet of Ministers 2008-10 2011-15 Aviation Regulatory Commission MOT/UCAA/MOJ/ Revise secondary air legal UzA/State instruments in accordance with the L-30 Inspectorate for 2007-10 2011-12 revision of the Air Code and Supervision of proposed institutional changes Safety of Aviation

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5. Action Plan - Logistics and Freight Forwarding

Implementation Ref. Action Responsible Short Medium Long Term Term Term 1. Logistics/ Logistics Centres

Add training in logistics and supply LF-1 chain management to relevant MOT/UIFA 2008+ courses Further develop domestic road LF-2 transport into a distribution UIFA 2008+ industry/ 3PL sector Identify locations for logistics LF-3 UARRT 2008 centres and reserve land Switch from institutional-driven LF-4 approach to demand-driven Various 2007+ operations Confirm demand for international LF-5 facilities using data held by UARRT 2007 Government Departments Evaluate impact of logistics centres LF-6 UARRT/UIFA 2008 on export logistics chain Extend range of services to include LF-7 UIFA 2007+ some import capability Clarify the relationship between LF-8 existing terminals and logistics UARRT 2007 centres Develop logistics centres in stages, LF-9 using existing and purpose-built UARRT 2008+ facilities LF-10 Rail-connect all logistics centres UTY 2008+ Agree, through cross-industry LF-11 consultation, to secure necessary Various 2008-10 level of ownership Undertake feasibility studies to LF-12 provide commercial business plans UARRT/UIFA 2009-10 for attracting investment Establish regional logistics LF-13 dispatching service and associated Various 2008 website.

2. Freight Forwarding

Develop relationships with foreign LF-14 UIFA 2007+ forwarders Extend the range of services LF-15 UIFA 2007+ offered by Uzbek forwarders Legislate to formalise industry LF-16 MOJ 2008 status Introduce licensing system to LF-17 UARRT 2009 confirm industry professionalism

PADECO/IKS 58 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary

LF-18 Provide training facilities UARRT 2008-10

3. Legal

L-31 Enact Law on Freight Forwarding UARRT/MOJ 2008

6. Action Plan - Inland Waterways

Implementation Ref. Action Responsible Short Medium Long Term Term Term Facilitate road/rail services through IW-1 UTY/Uzavtoyul 2008 Ayritom Plan for primary demand to be for UARRT/Port of IW-2 2007+ cross-river ferry service Termez Maintain reserve capacity at Port of UARRT/Port of IW-3 2007-10 2011-15 2016-20 Termez Termez Ensure sufficient long term capacity at UARRT/Port of IW-4 Termez rationalize infrastructure, 2007+ equipment and labour force Termez IW-5 Prepare Port Master Plan UARRT 2008 Provide essential renewals and IW-6 spare parts for continuing Port of Termez 2007-08 operations Legal

Inland Waterway Agreement with L-32 MOFER/MOT 2016-20 Afghanistan Prepare Law on Inland Waterway L-33 UARRT/MOJ 2007 Transport

7. Action Plan - Urban Transport

Implementation Ref. Action Responsible Short Medium Long Term Term Term Apply traffic management to U-1 maximize capacity of existing Various 2007-10 2011-15 2016-20 infrastructure Develop planning database through U-2 passenger surveys and household Various 2007-08 interviews Develop transport model for U-3 Various 2007-09 Tashkent

U-4 Reintegrate ticketing in Tashkent Various 2007-08 Define medium/long term route U-5 networks for each electric transport Various 2011 mode

PADECO/IKS 59 Tashkent, December 2006 TA 4659-UZB Transport Sector Strategy Executive Summary

Rationalize Tashkent bus/minibus U-6 Various 2011 networks Review policy of financial self- Cabinet of U-7 2007 sufficiency goal for each mode Ministers/MOF Manage each mode in support of U-8 policy for whole city transport Various 2008+ system Approve Metro rehabilitation and U-9 MOF 2009 investment programme

PADECO/IKS 60 Tashkent, December 2006