Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized HARRAL · WINNER · THOMPSON · SHARP · KLEIN R R A F 15 October 2006 P R INAL INAL EPORT ROJECT AILWAY AILWAY ESTRUCTURING RMENIAN FINAL REPORT ARMENIAN RAILWAY RESTRUCTURING PROJECT 15 October 2006 Prepared by HARRAL WINNER THOMPSON SHARP KLEIN, INC 8606 Timber Hill Lane Potomac, Maryland 20854 [email protected] CONTENTS CONTENTS.........................................................................................................................................................I 1: EXECUTIVE SUMMARY................................................................................................................................1 Project Objectives.......................................................................................................................................................1 Armenian Economy....................................................................................................................................................2 Railway Markets...........................................................................................................................................................2 The Need for Restructuring ......................................................................................................................................3 Restructuring Options................................................................................................................................................4 Legal and Regulatory Structures ...............................................................................................................................4 Social Mitigation Efforts............................................................................................................................................5 Accounting and Management Structures ................................................................................................................5 Structure of the Final Report ....................................................................................................................................5 2: BACKGROUND .............................................................................................................................................1 Existing Situation and Structure ...............................................................................................................................3 Productivity Measures ................................................................................................................................................7 AR Capital Needs......................................................................................................................................................10 Locomotive Fleet........................................................................................................................................................................... 10 Wagon Fleet................................................................................................................................................................................. 12 Infrastructure................................................................................................................................................................................ 13 The Need for Restructuring .......................................................................................................................................................... 14 3: MARKET ANALYSIS & TRAFFIC FORECASTS...........................................................................................1 Summary.......................................................................................................................................................................1 Competitive Setting.....................................................................................................................................................2 Freight Market Analysis .............................................................................................................................................3 Market Analysis: Domestic Traffic................................................................................................................................................ 5 Market Analysis: Import Traffic.................................................................................................................................................... 8 Market Analysis: Export Traffic .................................................................................................................................................. 9 Freight Traffic Forecasts..........................................................................................................................................12 Low Forecast................................................................................................................................................................................ 13 Most Likely Forecast ................................................................................................................................................................... 13 Most Likely Forecast ................................................................................................................................................................... 14 High Projection, with Abkhazia Reopening ................................................................................................................................. 15 Border Re-openings and the Potential for Transit Traffic .................................................................................17 Traffic Potential of Ayrum-Gyumri-Kars Transit Corridor.......................................................................................................... 20 Passenger Traffic.......................................................................................................................................................22 HARRAL · WINNER · THOMPSON · SHARP · KLEIN Page i Armenian Railway Restructuring Project: Final Report Contents 4: RAILWAY RESTRUCTURING ANALYSIS .....................................................................................................1 Armenian Railway’s Future Without Restructuring....................................................................................................................... 2 Selling AR Rolling Stock............................................................................................................................................................... 6 Armenian Restructuring Options .............................................................................................................................6 AR Commercial, Operational, and Organizational Restructuring.................................................................................................. 7 Recommended Restructuring Options..................................................................................................................15 Full Concession ............................................................................................................................................................................ 15 Operating Concession/Management Contract for Infrastructure.................................................................................................... 16 Concession Operator and Infrastructure Manager: ........................................................................................................................ 18 Financial Analysis....................................................................................................................................................................... 18 Full International Concession .................................................................................................................................19 Financial Analysis....................................................................................................................................................................... 22 Operating Concession with Management Contract for Infrastructure ............................................................................................. 27 Financial Analysis....................................................................................................................................................................... 28 Summary.....................................................................................................................................................................33 Sensitivity to Changes in Traffic.............................................................................................................................34 Recommendations.....................................................................................................................................................35 5: LEGAL AND REGULATORY ISSUES............................................................................................................1 Transport Law .............................................................................................................................................................1 Considerations in Refining the Legal Framework:.........................................................................................................................