TRACECA PROJECT EVALUATION

LEVEL CROSSINGS ON GEORGIAN RAILWAY TRACECA ROUTE

AUTOMATION OF 39 LEVEL CROSSINGS ON

THE MAIN LINE FROM AZERBADJAN BORDER TO POTI AND BATUMI PORTS

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PROJECT WITHIN THE CONTEXT OF RAILWAY MODERNISATION WITH SPEED INCREASE

TO 120 km/h

Methodology and Approach

• Level Crossings modernization (automation) is one component of the Modernization Project carried out by Georgian Railway.

• Modernization Project includes: Infrastructures, track, tunnels, bridges, electrification, signaling, Rolling Stock, depots and operation.

• CBA and Financial figures given here below are related to the whole project.

Mark the location of the project on the map with a plain, black line or dot.

Project

Regional Criteria• Georgia is a transit country ideally located on the

route between the Caspian Sea and the Georgian ports of Poti and Batumi on the Black Sea. The whole electrified double line crossing the country from East to West is mainly dedicated for the transportation of the mineral-rich and other hydro-carbonic. The freight traffic’s revenues are the source of positive cash surplus for GR. However, due to lack of significant investment during a long period of time, the reliability of the network is impacted as well as the safety at the Level Crossings.

Socio-Economic Criteria

• Road safety• The road safety is a critical issue of

transportation in Georgia. In spite of a quite low level of car owners, compared to Western Europe countries, the number of deaths and injuries due to road accidents is one of the highest in Europe, as shown below:

Socio-Economic Criteria

• The World Bank has estimated the cost of road safety for Georgia. The economic cost per fatality is the following:

• Cost per fatality (2008): 350,070 USD • Cost per non-fatality (2008): 20 % of fatalities

cost

Socio-Economic Criteria

From 2006 to 2010 • 43 car accidents occurred at the Level

Crossings generating 10 deaths and 1 injured• 136 pedestrian accidents generating 92

deaths and 44 injured• Total figures reach 102 deaths and 45

seriously injured• Economic cost of Level Crossing safety was

about 39 million USD during the period.

Economic Criteria• Total Project CAPEX: 564 M$• Level Crossings component: 5.06 M$ • Life duration of the project, i.e. 20 years• The EIRR of the chosen scenario is 11.2%. The

discount rate is 10%, the ENPV is positive and equal to 63.57 million USD 2009 (discounted in 2013)

ENPV mUSD 83.66EIRR % 11.6%

Economic Criteria

• The ENPV is made up of the following expenditure items. The heavy investments made for purpose of modernization are mainly recouped by the savings expected by GR in operation and the time saved by passengers.

Economic CriteriaTOTAL due to the project - discounted in 2013 - mUSD 2009

GR

CAPEX -563.97

OPEX 231.63

Residual value 43.15

TOTAL economic costs and savings -289.19

The society

Time savings - passengers 207.85

Safety benefits 66.77

Global warming 6.35

Operating benefits 91.89

TOTAL economic benefits 372.85

TOTAL (ENPV) 83.66

Financial Criteria

• The project is fully financed by the "Georgian Railway" LLC.

Project Gross Cash Flows

(200 000)

(100 000)

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Thou

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Project Gross Cash Flows

PROJECT INVESTMENT EXPENDITURES PROJECT OPERATING EXPENDITURES

PROJECT revenue PROJECT GROSS CASH FLOW

Major Financial Indicators

Financial indicator Value

MIN CASH FLOW 22,679,191

MIN ADSCR 1.41

Target Minimum Return on Equity 12.40%

Cost of debt 9.39%WACC After Tax 11.52%

Rail Project Ltd FIRR After Tax 14.09%

NPV @ WACC After Tax (kUSD) 80,649

Technical Criteria

• Safety improvement is the main criteria for the project

• Automation of level crossings should reduce the number of accidents and associated fatalities.

Political Criteria

Government is supporting the Project:

• To improve the railway freight transportation reliability

• To improve the road safety