CAREC Corridor 1 (Taraz Bypass) Project (RRP KAZ 45150)

SECTOR ASSESSMENT (SUMMARY): TRANSPORT, AND INFORMATION AND COMMUNICATION TECHNOLOGY

I. TRANSPORT SECTOR

A. Strategic Objective

1. The Government of Kazakhstan has adopted the 2020 Strategy for Economic Development (approved in February 2010) and the State Program on Accelerated Industrial-Innovative Development (SPAID, approved in March 2010) to diversify the economy and promote the balanced development of all sectors.1 To effectively support the 2020 Strategy and SPAID, the government’s road development plan for 2006–2012 has been revised as the Transport Sector Program for 2010–2014 (TSP), approved in July 2010. The TSP will develop an efficient transport system that is integrated into the international transport system.2

B. Challenges

2. Kazakhstan has a relatively low density of railways and waterways, and roads are the dominant means of transport. The total road length is 148,000 kilometers (km), including 93,600 km of national and local public roads. International and republican roads constitute 25% of public roads, and carry 50% of all freight.

3. Kazakhstan is located at the center of transport flows between Europe and Asia, and provides strategic avenues for emerging transcontinental routes, giving it great transit potential. Few land transport routes that link north and south or east and west can avoid Kazakhstan. Trade between Asia and Europe equaled $700 billion in 2009, and is expected to reach $1 trillion by 2015, 20% of which will pass through Kazakhstan. This transit traffic is forecasted to generate $1.1 billion in revenues for Kazakhstan.

4. Much of the road network is in poor condition, with 40% of republican roads requiring major rehabilitation and proper maintenance. The feeder road network serving the rural population is not fully developed. Roads on the six main international corridors are mostly paved with asphalt, but their technical and operational characteristics (e.g., evenness and strength) are below international standards, with traffic exceeding allowable loads. The average driving speed along the Europe–Caucasus–Asia transport corridor (one of the six international Central Asia Regional Economic Cooperation Program transit corridors) is less than 20 km per hour. Combined with cross-border impediments, deteriorated road infrastructure transit traffic has fallen short of projections.

5. In 2008, 13,739 road accidents were registered in Kazakhstan, killing 3,351 people and injuring 16,400. The number of road accidents has fallen, but speeding and inadequate road design still cause many accidents. Inadequate road operation and traffic management cause many problems, including high fatality rates, truck overloading, and depressed revenues from transit charges. Efficient road operations and traffic management require reliable road network data. Advanced information systems could be used that include axle load monitoring and control,

1 Kazakhstan’s previous Transport Strategy for 2006–2015, which supported the Asian Development Bank’s first multitranche financing facility for the Central Asia Regional Economic Cooperation Program Corridor 1, has been integrated into the 2020 Strategy, SPAID, and TSP. 2 The contents of the road development plan (e.g., vision, strategic focus, investment projects) are unchanged in the TSP. The TSP integrates the subsector development plans (for roads, railways, waterways, aviations, and ports) and in addition addresses (i) transport-related technology, competition and international standards; and (ii) transport in the context of economic and business interests, national security, and geopolitics. 2 road weather information systems, highway advisory radio and electronic signs, and traffic-recording equipment. Such systems would provide the data maintenance managers need to ensure road restrictions are minimized and costs are low, and to enable them to provide timely notifications of road conditions to road users.

6. Complete road and traffic data are crucial for efficient planning. The government will develop a road data management system that will provide reliable indications of the long-term consequences of the strategies and plans being implemented. Existing road inspection systems and traffic surveys need to be modified so as to collect information about road conditions and road work needs. Traffic surveys need to be strengthened and expanded, as does the quality of accident data, so that the causes of accidents can be identified.

II. TRANSPORT SECTOR PROGRAM

7. The government places a high priority on well-integrated investments in the international transit corridors and their connecting roads. Physical investments focus on reconstructing the corridors and improving road operations and maintenance systems to establish an efficient transport system that is well integrated into the international transport system.

A. Physical Investment

8. The TSP plans to upgrade 4,417 km of national roads on the six international corridors passing through Kazakhstan. Priority investment projects are (i) reconstructing the Western Europe–Western China Corridor; (ii) reconstructing the following 12 road sections, totaling 4,417 km: (a) Shuchinsk–Kokshetau–Petropavlovsk–Russian Federation border, (b) Russian Federation border–Uralsk–Aktobe, (c) Astana–Kostanai–Chelyabinsk, (d) Zhetybay–Turkmenistan border, (e) Astana–Karagandy, (f) Almaty–Kapshagay, (g) Taskesken–Bakhty, (h) Usharal–Dostyk, (i) Beyneu–Akzhigit–Uzbekistan border, (j) Omsk–Pavlodar–Maikapshagai, (k) Kurty–Burylbaytal, and (l) Beineu–Aktau; and (iii) exploring other potential west–east and north–south transit routes. The government plans to (i) construct or upgrade 7,127 km and repair 9,951 km of national roads (ii) and repair and improve the operation of 12,485 km of local roads. By 2020, 16,000 km of national roads are planned to be constructed or reconstructed, and the volume of traffic in Kazakhstan will be more than doubled compared to the 2010 level.

Table 1: Road Works by Road Type, 2010–2014 (kilometers) Road type Road works 2010 2011 2012 2013 2014 2010–2014 National Construction or 550 1,290 1,914 2,001 1,370 7,127 roads upgradinga Repair 1,429 2,720 3,424 4,942 4,563 17,078 Local roads 2,274 2,313 2,273 2,805 2,820 12,485 Total 3,703 5,033 5,697 7,747 7,383 29,563 a Including sections to be implemented through concession. Source: Ministry of Transport and Communications of Kazakhstan.

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Table 2: Construction, Upgrade, and Repair of Public Roads, 2010–2014 (T billion) Item 2010 2011 2012 2013 2014 2010–2014 National road construction or upgradinga 153.9 290.6 448.22 454.9 239.5 1,587.1 National road repairs 20.0 25.0 27.0 27.0 30.0 129.0 National roads subtotal 173.9 315.6 475.2 489.9 269.5 1716.1 Local roads 38.1 41.3 53.9 60.8 67.3 261.3 Total 212.0 356.4 529.1 542.7 336.8 1,977.4 External borrowing 89.6 153.0 182.5 21.2 43 489.3 Concession 94.2 215.9 257.4 39.2 606.7 T = tenge. a Including sections to be implemented through concession. Source: Ministry of Transport and Communications of Kazakhstan.

B. Nonphysical Investments

9. The TSP aims to improve managerial and strategic planning capacity; promote market reforms; enhance safety, construction, and maintenance standards; and promote private sector participation in transportation. It focuses on mitigating nonphysical barriers to transit cargo movement by addressing limited coordination among parties, inadequate technology at border crossings, and poor management of legal issues. A competitive environment for the provision of transport services will be created to accelerate the integration of Kazakhstan transport into the international transport system and realize the country’s transit potential.

10. Nonphysical investment opportunities are directed toward promoting private sector participation in selected road sections, applying cost-recovery principles, establishing a private sector participation framework that will ensure the transparent and competitive selection of project sponsors, developing a risk-sharing management framework, and enhancing road maintenance management. These will improve good governance and accountability and road sector sustainability. Improved good governance and accountability could also be achieved by improving the accountability and capacity of the Ministry of Transport and Communications (MOTC), clarifying the functions of different levels of governments, and enforcing stricter safeguard compliance. Improving transport operations through the application of information technology will ensure seamless cross-border movement. The government is aiming to improve road safety through comprehensive and coordinated programs, continuous improvement of road regulations, and the preparation of a better and more accountable road sector development program.

C. Policy Framework

11. A road sector policy framework for 2006–2012 was developed and included in the first multitranche financing facility (MFF).3 It embodies basic operating principles and best practice approaches with regard to good governance and accountability, sustainable financing, policy and regulatory frameworks, institutional reform and capacity development, road safety, and road sector sustainability and operations. MOTC has made the following progress under the policy framework: (i) bidding for concession projects is nearly completed, (ii) a law on concessions was amended; (iii) an anti-corruption manual was endorsed; (iv) a financial department was set up in

3 ADB. 2008. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing Facility and Administration of Loan to the Republic of Kazakhstan for the CAREC Transport Corridor I (Zhambyl Oblast Section) [Western Europe–Western People’s Republic of China International Transit Corridor] Investment Program. Manila.

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MOTC; and (v) fiduciary staff is being trained. The policy framework has been extended to 2014,4 reflecting progress to date and planned activities.

III. ADB SECTOR EXPERIENCE AND ASSISTANCE PROGRAM

A. External Assistance and Lessons Learned

12. The Asian Development Bank (ADB) is the lead agency in the transport, customs cooperation, and trade facilitation activities of the Central Asia Regional Economic Cooperation (CAREC) program. International financial institutions involved in Kazakhstan’s road sector include ADB, the European Bank for Reconstruction and Development (EBRD), Islamic Development Bank, Japan International Cooperation Agency, and the World Bank. ADB financed the Gulshad–Akchetau road, completed in 2002, and the Almaty–Bishkek road, completed in 2006. The Gulshad–Akchetau road project was rated successful, 5 with the government making progress in institutional development and policy reforms, and increasing road maintenance budgets have been increased. The Almaty–Bishkek road project was rated satisfactory.6 ADB approved an MFF for the CAREC Corridor 1 Investment Program (Zhambyl Oblast) and a $340 million loan for the 1st tranche in 2008, a $187 million loan for the 2nd tranche in 2009, a $173 million loan for the 3rd tranche in 2010, and a $112 million loan for the 4th tranche in 2011. ADB approved another MFF for the CAREC Corridor 2 Investment Program (Mangystau Oblast) and a $283 million loan for the 1st tranche in 2010. All the projects under implementation are complying with the requirements of their framework financing agreements and loan agreements; the capacity of the executing agency was inadequate in some areas (e.g., procurement), which has been addressed.

B. Strategic Context

13. The project will upgrade the Taraz bypass of the Western Europe–Western People’s Republic of China (PRC) corridor, part of CAREC Corridor 1 in Kazakhstan. The project is included in the government’s priority Western Europe–Western PRC Corridor investment program. It is compatible with the CAREC Transport and Trade Facilitation Strategy and Action Plan, as well as with ADB’s core business areas in Kazakhstan.

4 ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing Facility and Administration of Loan to the Republic of Kazakhstan for the CAREC Transport Corridor 2 (Mangystau Oblast Section) [Western Europe–Western People’s Republic of China International Transit Corridor] Investment Program. Manila. 5 ADB. 2006. Project Performance Evaluation Report on the Road Rehabilitation Project in Kazakhstan (Loan 1455). Manila. 6 ADB. 2007. Project Completion Report on the Almaty–Bishkek Regional Road Rehabilitation Project in Kazakhstan (Loan 1774). Manila.

Problem Tree

Lack of the Limited Insufficient Inadequate Inadequate Complicated Causes long-term human investments maintenance border cross-border road map resource infrastructure procedures capacity and facilities

Poor and Insufficient Institutional Inefficient piecemeal and weakness cross-border planning deteriorated movement roads infrastructure

Problem Inefficient transport system

Effects Inadequate and Higher transport cost Longer travel time Transit traffic ineffective transport realized less than services Kazakhstan potential level

Kazakhstan economy less integrated to the global economy

Sustainable economic development hampered due to increased economic vulnerability

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Sector Results Framework (Transport, 2012–2015) 6

Country Sector Outcomes Country Sector Outputs ADB Sector Operations Sector Main Outputs Outcomes with Indicators with Targets Sector Outputs with ADB Indicators with Planned and Ongoing ADB Expected from ADB ADB and Baselines Contribution Incremental Targets Interventions Interventions Contribution An efficient By 2015: A 65-km road section (Taraz By 2015: Planned key activity areas Planned key activity transport (i) average traffic bypass) upgraded and Road section from km Zhambyl Oblast road sections areas network volume increased to reconstructed comprising (i) 483–km 536 upgraded of Western Europe –Western 480 km of road developed in 7,000 vpd, from 4,000 upgrading of an and reconstructed with IRI PRC International Transit sections rehabilitated Zhambyl Oblast vpd in 2007; (approximately) 7.7-km of less than 3 m/km Corridor (ii) average travel time existing road, from category-II 65 km of district and through Zhambyl to category-IB with four lanes; Pipeline projects with rural roads upgraded Oblast (between the and (ii) construction of an estimated amounts and reconstructed southern Kazakhstan (approximately) 57.4-km Taraz Bypass Road Project border and Otar) category-II bypass road ($112 million) Ongoing projects reduced to 6 hours, 351 km of road from 10 hours in Ongoing projects with sections rehabilitated 2009; approved amounts (iii) transport cost for ADB approved MFF CAREC freight reduced to 5% Corridor 1: of the cargo value, (i) $340 million tranche 1 from 10% in 2008; loan for 125 km in 2008; and (ii) $187 million tranche 2 (iv) road accident rate loan for 79 km in 2009; reduced to 0.1 (iii) $173 million tranche 3 fatalities/km, from 0.3 loan for 98 km in 2010; fatalities/km in 2006. and (iv) $ 112 million tranche 4 loan for 49 km in 2011.

ADB = Asian Development Bank , CAREC = Central Asia Regional Economic Cooperation , PRC = People’s Republic of China , IRI = international roughness index , km = kilometer, meter = , MFF = multitranche financing facility , vpd = vehicle per day. Source: Asian Development Bank.