Completion Report

Project Number: 43441-013 Loan Number: 2737 July 2018

Turkmenistan: North–South Railway Project This document is being disclosed to the public in accordance with ADB’s Public Communications Policy 2011.

CURRENCY EQUIVALENTS

Currency unit – Turkmen manats (TMT)

At Appraisal At Project Completion (16 February 2011) (22 March 2017)

TMT1.00 = $0.3509 $0.2857 $1.00 = TMT2.850 TMT3.500

ABBREVIATIONS

ADB – Asian Development Bank APFS – audited project financial statement CAREC – Central Asia Regional Economic Cooperation CPS – country partnership strategy EIRR – economic internal rate of return FIRR – financial internal rate of return ICB – international competitive bidding IEE – initial environmental examination km – kilometer LIBOR – London interbank offered rate MRT – Ministry of Railway Transport NBT – Nazar Business and Technology LLB NPV – net present value P&T – Plasser & Theurer Export von Bahnbaumaschinen Gesellschaft

m.b.H, Austria PMC – project management consultant PMU – project management unit PPMS – project performance monitoring system PSST – Power Supply, Signaling, and Telecommunication Department,

MRT RRP – report and recommendation of the President SCADA – supervisory control and data acquisition SERF – shadow exchange rate factor tkm – ton-kilometer TSCRME – Turkmenistan State Commodity and Raw Materials Exchange TSSS – Turkmenistan State Standards Service WACC – weighted average cost of capital

NOTES

(i) The fiscal year (FY) of the Government of Turkmenistan ends on 31 December. “FY” before a calendar year denotes the year in which the fiscal year ends, e.g., FY2018 ends on 31 December 2018.

(ii) In this report, “$” refers to United States dollars.

Vice-President Wencai Zhang, Vice-President (Operations 1) Director General Werner Liepach, Central and West Asia Department (CWRD) Director Dong-Soo Pyo, Transport and Communications Division, CWRD Country Director Cevdet Denizer, Country Director, Turkmenistan Resident Mission Team leader Ko Sakamoto, Senior Transport Specialist, CWRD Team members Ederlyn Norte, Associate Project Analyst, CWRD Narendra Singru, Principal Portfolio Management Specialist, CWRD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page BASIC DATA i MAP v I. PROJECT DESCRIPTION 1 II. DESIGN AND IMPLEMENTATION 2

A. Project Design and Formulation 2 B. Project Outputs 2 C. Project Costs and Financing 5 D. Disbursements 6 E. Project Schedule 6 F. Implementation Arrangements 6 G. Technical Assistance 7 H. Consultant Recruitment and Procurement 7 I. Safeguards 7 J. Monitoring and Reporting 8

III. EVALUATION OF PERFORMANCE 9

A. Relevance 9 B. Effectiveness 9 C. Efficiency 10 D. Sustainability 11 E. Development Impact 12 F. Performance of the Borrower and the Executing Agency 12 G. Performance of the Asian Development Bank 13 H. Overall Assessment 13

IV. ISSUES, LESSONS, AND RECOMMENDATIONS 13

A. Issues and Lessons 13 B. Recommendations 14

APPENDIXES 1. Design and Monitoring Framework 16 2. Project Cost at Appraisal and Actual 18 3. Project Cost by Financier 19 4. Disbursement of ADB Loan Proceeds 21 5. Contract Awards of ADB Loan Proceeds 22 6. Chronology of Main Events 23 7. Status of Compliance with Loan Covenants 25 8. Traffic Forecast 31 9. Economic Re-evaluation 34 10. Financial Re-evaluation 40 11. Contribution to ADB Results Framework 46 12. MRT Track Maintenance Results for the Whole Railway Network in Turkmenistan 47

BASIC DATA A. Loan Identification

1. Country Turkmenistan 2. Loan number and financing source 2737-TKM, Ordinary Capital Resources 3. Project title North–South Railway Project 4. Borrower Republic of Turkmenistan 5. Executing agency Ministry of Railway Transport of

Turkmenistan 6. Amount of loan

- Approved $125,000,000.00 - Actual $116,273,204.00

7. Project completion report number 1685 8. Financing modality Project loan

B. Loan Data

1. Appraisal – Date started – Date completed

14 March 2010 18 March 2010

2. Loan negotiations – Date started – Date completed

20 April 2011 21 April 2011

3. Date of Board approval 15 March 2011 4. Date of loan agreement 20 July 2011 5. Date of loan effectiveness – In loan agreement – Actual – Number of extensions

03 September 2011 29 August 2011 0

6. Project completion date – Appraisal – Actual

30 September 2012 21 January 2016

7. Loan closing date – In loan agreement – Actual – Number of extensions

31 March 2013 30 November 2016 5

8. Financial closing date – Actual

22 March 2017

9. Terms of loan – Interest rate

– Commitment charge – Maturity (number of years) – Grace period (number of years)

Sum of LIBOR and 0.60% as provided by Section 3.02 of the Loan Regulations, less a credit of 0.30% as provided by Section 3.03 of the Loan Regulations 0.15% per annum 25 years 5 years

10. Terms of relending (if any) – Interest rate

N/A N/A

– Maturity (number of years) N/A – Grace period (number of years) – Second-step borrower

N/A N/A

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11. Disbursements

a. Dates

Initial Disbursement 15 January 2012

Final Disbursement 22 March 2017

Time Interval 62.27 months

Effective Date

29 August 2011

Actual Closing Date 22 March 2017

Time Interval 66.80 months

b. Amount ($ million)

Category

Original Allocation

(1)

Increased during

Implementation (2)

Canceled during

Implementation (3)

Last Revised

Allocation (4=1+2–3)

Amount Disbursed

(5)

Undisbursed Balance (6 = 4–5)

1. Equipment 118.01 0.00 3.81 114.20 114.20 0.00 2. Consulting

Services 2.70 0.00 0.69 2.01 2.01 0.00

3. Interest and Commitment Charges

4.28 0.00 4.22 0.06 0.06 0.00

Total 125.00 0.00 8.73 116.27 116.27 0.00

C. Project Data

1. Project cost ($ million)

Cost Appraisal Estimate Actual

Foreign exchange cost 117.34 117.83 Local currency cost 49.32 14.87 Total 166.67 132.70

2. Financing plan ($ million)

Cost Appraisal Estimate Actual

Implementation cost Borrower financed 41.67 14.81 ADB financed 120.72 116.21 Other external financing 0.00 0.00 Total implementation cost 162.39 131.02

Interest during construction costs Borrower financed 0.00 1.56 ADB financed 4.28 0.06 Other external financing 0.00 0.00 Total interest during construction cost 4.28 1.62

Grand Total 166.67 132.70

ADB = Asian Development Bank.

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3. Cost breakdown by project component ($ million)

Component Appraisal Estimate Actual

A. Base Costs 1. Equipment

a. Design, Supply, Installation, and Commissioning of Power Supply, Signaling, and Telecommunications Systems

105.29 104.74

b. Supply of Track Maintenance Machinery 12.72 9.45 Sub-Total Equipment 118.01 114.20

2. Institutional Capacity Improvement 2.70 2.01 3. Recurrent Costs 0.16 0.09 4. Environmental Monitoring and Mitigationa 1.44 0.00 5. Taxes and Duties 19.27 14.78

Sub-Total (A) 141.58 131.08 B. Contingencies

1. Physical 13.57 0.00 2. Price 7.22 0.00

Sub-Total (B) 20.80 0.00 C. Financing Charges During Implementation

1. Interest During Construction 4.21 1.62

2. Commitment Charges 0.07 Sub-Total (C) 4.28 1.62

Total Project Cost 166.67 132.70

a Actual cost included in Item 1.a, “Design, Supply, Installation, and Commissioning of Power Supply, Signaling, and Telecommunications Systems”. 4. Project schedule

Item Appraisal Estimate Actual

Design, Supply, Installation, and Commissioning of Power Supply, Signaling, Telecommunications Equipment

Invitation for bids Q4 2010 29 July 2011 Date of award Q1 2011 28 May 2012 Completion of work Q1 2012 21 January 2016 Supply of Track Maintenance Machinery Invitation for bids Q4 2010 Q1 2011 Date of award Q4 2010 14 April 2012 Completion of equipment installation Q4 2012 September 2013 Consulting Services for Project Management and Institutional Capacity Improvement

Recruitment notice Q4 2010 Q4 2010 Date of award Q1 2011 16 September 2011 Date of completion Q1 2013 30 September 2014 Start of operations Operational acceptance certificate 30 September 2012 28 July 2016 Beginning of start-up 30 September 2012 21 January 2016 Other milestones

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5. Project performance report ratings

Implementation Period Ratings From 15 March 2011a to 31 December 2011 b Potential Problem From 01 January 2012 to 31 December 2012 On Track From 01 January 2013 to 31 December 2013 On Track From 01 January 2014 to 31 December 2014 On Track From 01 January 2015 to 31 December 2015 On Track From 01 January 2016 to 31 December 2016 On Track From 01 January 2017 to 31 March 2017 On Track

a The loan was approved on 15 March 2011 and the loan agreement was signed on 20 July 2011. b The loan was declared effective on 29 August 2011.

D. Data on Asian Development Bank Missions

Name of Mission Date No. of

Persons No. of

Person-Days Specialization of Membersa

Reconnaissance mission 2–10 September 2009 4 8 a(2), n, o Consultation mission 14–18 March 2010 1 4 i Loan negotiation 20–21 April 2011 5 1 i(2), j, k, l Project consultation 8–12 July 2011 2 4 i, m Project consultation 2–10 September 2011 1 8 i Loan inception 11–16 April 2012 4 6 d, f, g, i Project review 24–29 November 2012 2 6 d, i Mid-term project review 26 June–1 July 2013 5 6 a(2), d, g, i Project review 2 September 2013 3 1 a, g, d Project review 20–26 November 2013 3 6 a, g, f Project review 23–29 April 2014 1 7 a Project review 25–26 April 2014 1 2 g Project review 28 August–5 September 2014 5 8 a, d, f, g, i Project review 22–26 September 2014 3 5 a, d, g Project review 1–6 December 2014 3 5 a, c, g Project review 4 December–19 December 2014 3 15 a, c, g Project review 26 January–6 February 2015 6 11 a, c, e(3), g Project review 1–5 June 2015 4 5 a, c, f, g Project review 28 September–6 October 2015 7 8 a, c, g, e(4) Project review 30 November–8 December 2015 1 8 a Project review 27 January–3 February 2016 1 7 a Project review 2–5 May 2016 2 3 a, b Project review 6–8 February 2017 1 3 a Project consultation 24–26 January 2018 3 9 a, e(2) Project completion review 17–26 April 2018 1 9 e, g, o

a a = transport specialist; b = environment specialist; c = country director, Turkmenistan Resident Mission; d = representative of the resident mission; e = consultant; f = project analyst; g = country coordination officer; h = director; i = portfolio management specialist/project administration unit head; j = deputy director-general; k = counsel; l = treasury specialist; m = procurement specialist; n = liaison officer; o = interpreter

I. PROJECT DESCRIPTION 1. Railways play a major role in transportation in Turkmenistan. In 2011, 16.28 million tons of freight were moved by rail, with an average haul length of 563 kilometers (km). The rail tonnage increased to 20.83 million tons in 2016 with an average haul length of 578 km. While road transport moved more tonnage (314.31 million tons in 2011 and 420.12 million tons in 2016), the average length of haul was only 26 km in 2011 and 30 km in 2016.1 Because major cities are far apart, the long-haul capability of railways in intercity transport is an important contributor to Turkmenistan’s economy.

2. In October 2007, the Government of Turkmenistan signed a multilateral agreement with Kazakhstan and Iran to construct a north–south railway line to promote regional trade, cooperation, and integration. Under the agreement, Turkmenistan committed to connect with its neighboring countries to the north and south through a new single track non-electrified railway line of 934.5 km between Uzen in Kazakhstan and Gorgan in Iran.

3. The north–south railway line was aimed at developing and improving Turkmenistan’s accessibility to Kazakhstan, countries on the Persian Gulf, the Russian Federation, and South Asia. It was designed and built to increase regional trade, contribute to sustainable economic growth in Turkmenistan, and develop an integrated and efficient railway system in the region. The north–south railway line reduces the distance for transportation of goods from Central Asia to the ports on the Persian Gulf by about 680 km. The line is expected to become an important link in the transcontinental transport corridor between Asia and Europe. The railway has been envisioned to improve the efficiency of train operations through a reduction in travel distance and time, as well as a decrease in operating costs.

4. The north–south railway line has two parts. The northern section, from Uzen (Kazakhstan) to Bereket (Turkmenistan) is 596.0 km long, with 466 km in Turkmenistan and 130 km in Kazakhstan. For this northern section, the governments of Kazakhstan and Turkmenistan financed the construction of the tracks in each of their territories. The southern section, from Bereket (Turkmenistan) to Gorgan (Iran) is 338.5 km long, with 256.5 km in Turkmenistan and 82.0 km in Iran. The southern section intersects with the east–west corridor linking Turkmenbashi to Ashgabat. The Turkmenistan part of this southern section was constructed with the financial assistance of the Islamic Development Bank.

5. The government requested the Asian Development Bank (ADB) to finance only the design, procurement, and installation of the power supply, signaling, and telecommunication systems for 311 km of the northern section, from Bereket to Hazar (formerly known as Buzkhun),2 once the tracks were laid using government funds.

6. Following due diligence, on 15 March 2011, ADB approved a loan of $125 million to finance the project.3 The project’s intended impact was increased trade between Turkmenistan and other countries in the region, and the intended outcome was an efficient, safe, and reliable railway transport network developed and operated in Turkmenistan with better connectivity with

1 Government of Turkmenistan, National Statistics Department. 2017. Statistics Yearbook of Turkmenistan, 2007–

2016. Ashgabat. 2 In 2013, the government replaced the former Soviet-era names of stations to Turkmen names. In this project

completion report, Turkmen names are used with former names indicated in parentheses, as needed. 3 ADB. 2011. Report and Recommendation of the President to the Board of Directors on Proposed Loan to

Turkmenistan: North–South Railway Project (Project No. 43441). Manila.

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neighboring countries.4 The loan agreement with the Ministry of Railway Transport (MRT) of Turkmenistan was signed on 20 July 2011 and became effective on 29 August 2011. The MRT is the borrower and the executing agency. On 18 July 2011, the government decided to urgently construct a four-directional interchange at Bereket and operationalize about 22.8 km of railway line up to the station of Akyol (formerly Chilmammet) by the end of September 2011, with additional tracks, power supply, signaling, and telecommunication. The construction proceeded with government financing. This reduced the length of the ADB-financed section from 311 km (Bereket to Hazar) to 288.2 km (Akyol to Hazar).

II. DESIGN AND IMPLEMENTATION A. Project Design and Formulation

7. The project was ADB's first lending operation in Turkmenistan. At the time of the project appraisal, ADB had no country partnership strategy (CPS) for Turkmenistan. Instead, an Economic Report and Interim Operational Strategy for Turkmenistan, approved in 2002, guided operations.5 The interim operational strategy was aligned with the government’s medium-term development strategy and contained three strategic objectives: (i) enhancing human and social development, (ii) supporting sustainable and stable economic growth in Turkmenistan, and (iii) promoting regional economic cooperation. The project was directly in support of all three goals, and in particular, (ii) and (iii). The project was also aligned with ADB’s Sustainable Transport Initiative Operational Plan launched in 2010,6 which acknowledged railways as a sustainable mode of transport.

8. The project was formulated in the immediate wake of Turkmenistan joining the Central Asia Regional Economic Cooperation (CAREC) program in 2010 and was consistent with CAREC’s overall objective of regional connectivity. The project railway line was recognized in the CAREC Transport and Trade Facilitation Strategy 20207 as part of CAREC Corridor 6, connecting Europe, the Middle East, and South Asia through Central Asia.

B. Project Outputs

9. Directly complementing the basic infrastructure built by the government—including new rail, concrete sleepers, ballast, and switches—the ADB-financed project was designed to achieve three outputs and associated targets.

10. Output 1: Safe and efficient movement of trains with the installation of signaling, power, and telecommunications systems between Bereket and Buzkhun. The following three targets were set for Output 1:

(i) Power supply: by June 2012, two 10.0 kilovolt (kV) overhead power lines, distribution system, substations, and supervisory control and data acquisition (SCADA) system designed, installed, and commissioned along 311 km of the rail line.8

4 The design and monitoring framework is available in Appendix 1. 5 ADB. 2002. Economic Report and Interim Operational Strategy for Turkmenistan. Manila. 6 ADB. 2010. Sustainable Transport Initiative Operational Plan. Manila. 7 ADB. 2014. CAREC Transport and Trade Facilitation Strategy 2020. Manila. 8 The electric power is not for traction, but rather to feed electricity to stations and other facilities along the track to

operate signals, switches, and other devices.

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(ii) Signaling: by September 2012, the detailed design, supply, installation, and commissioning of all types of signaling equipment, as well as the required spare parts and training, are provided.9

(iii) Telecommunications: by August 2012, complete the detailed design, supply, installation and commissioning of (a) a communication system between and within Ashgabat and the stations along the Akyol–Hazar section; (b) a mobile train radio communication system in locomotives; and (c) a long distance telecommunication network using optic fiber cable with associated switching and transmission system, copper cables for last-mile connectivity, and appropriate equipment including provision of the required spare parts and training.10

11. All three targets were met. The issuance of the invitation to bid for a fixed-price turnkey (plant) contract for design, supply, installation, and commissioning of power supply, signaling, and telecommunication systems (TCP-1) was initially planned for Q4 of 2010. However, since the loan agreement was signed on 20 July 2011, and government procedures required this to be a condition for the invitation to bid, actual invitations could only be issued on 29 July 2011. Following five sessions of contract negotiations in Ashgabat on 12–16 March 2012; 28 March–1 April 2012; 13–17 April 2012; 4–8 May 2012; and 25–28 May 2012, the TCP-1 contract was awarded on 28 May 2012, some 14 months after the planned award date. The consortium of АSPМК 519 Limited Liability Partnership of Kazakhstan and KEC International Limited of India was selected.

12. Due to the delays to the contract award, it was evident from the outset that the targeted project completion date of 30 September 2012 would not be met. Actual completion of the TCP-1 contract was delayed till 21 January 2016 due to the following reasons: (i) this was the first project for the MRT with funding received from ADB and many procedural requirements of government agencies as well as oversight functions for contractors were new to MRT staff. It also took considerable time to coordinate requirements with other agencies; (ii) the contractor encountered delays by the government on the processing of visas; (iii) clearance from numerous agencies to allow importation of fiber optic cable and telecom equipment was time-consuming; (iv) frequency (bandwidth) allocation for Global System for Mobile Communications – Railway (GSM-R) equipment from the Ministry of Communication was delayed; and (v) certification by the Turkmenistan State Standards Service (TSSS) to allow importation of equipment took a long time, involving detailed review of technical specifications and equipment catalogs.

13. Output 2: Tracks are well-maintained and kept safe. The target for this output was: starting from 2012, the approved annual MRT budget includes the required annual maintenance expenditure for new tracks.

14. There is evidence to suggest that this output has been achieved. The MRT now uses the annual budget allocation and monitoring system for track maintenance. Annualized summary statistics for various kinds of track maintenance from 2012 to 2016 are included in Appendix 12. Maintenance works are based on information regarding actual loads on the track, supported by frequent inspection of track and components rather than the traditional time-based maintenance.

15. In support of this output, the project included the procurement of one ballast cleaning machine and two sand removal machines (TCP-2). Both types of machines are typically used by

9 Electronic interlocking with light emitting diode-lit color lighting was provided for all signals, together with track circuits

including points/switches, and crossings and electrical operation of all switches at every station. 10 A fiber optical fiber cable was laid along the railway track on the Akyol–Buzkhun section. Synchronous digital

hierarchy and all other associated equipment, system and sub-systems was provided.

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railways operating in arid desert regions to maintain safe and efficient operations. The invitation to bid was issued in February 2011 following international competitive bidding (ICB) procedures based on ADB’s Standard Bidding Document for the Procurement of Goods.11

16. The award of the TCP-2 contract was planned for Q4 2010. Actual award was made to Plasser & Theurer Export von Bahnbaumaschinen Gesellschaft m.b.H of Austria (P&T) on 14 April 2012 following contract negotiations on 15–16 February 2012. Equipment installation was completed in September 2013, compared to the planned completion date of Q4 2012. The importation of the equipment experienced the same problems as the TCP-1 contract with delays in obtaining visas for the supplier’s technicians as well as those responsible for on-site training on operations and maintenance. In addition, certification by the TSSS was time-consuming.

17. Output 3: Support provided for the project management and MRT’s institutional capacity improvement. To meet the targets of this output, project management consultants (PMC) were mobilized to provide project management and institutional capacity improvement. Following the Guidelines on the Use of Consultants by Asian Development Bank and its Borrowers (April 2010),12 the consultants were mobilized on 2 January 2012, 14 months from the publication of the opportunity on ADB’s website. The contract was awarded to TERA International Group, Inc. of the United States. Achievements against targets set under this output are summarized in Table 1.

Table 1: Achievements under Output 3 Targets set at appraisal Actual achievement

(i) PPMS fully operational within 6 months from loan effectiveness.

The ADB loan became effective on 29 August 2011. The PMC was mobilized four months later, on 2 January 2012. With the first monthly progress report covering the period January–February 2012 issued on 6 March 2012, the initial formatting and setting of contractor performance reporting were established. As TCP-1 and TCP-2 contracts became effective and work commenced, periodic reporting of performance, as well as overall progress, were continued. MRT staff in financial administration were trained in the PPMS formatting and updating.

(ii) MRT staff trained by March 2012 in the following areas:

(a) 20 operational staff in SCADA system, signaling, and telecommunication;

(b) 10 staff in track maintenance and safety equipment operation;

(c) 15 staff in modern scheduling of routine and periodic maintenance for locomotive utilization;

(d) 10 staff in updating and maintaining the inventory of all MRT assets and asset utilization data;

(e) 2 staff in preparing the MRT’s environmental policy and standard operating procedures in conformity with the

(a) More than 20 staff in Ashgabat traffic control center and the signaling and dispatch staff in the 11 stations along the Akyol–Hazar section received on-site training from the TCP-1 contractor on SCADA, signaling, and telecommunication systems as these were installed, tested, and operated.

(b) P&T trained 14 technicians from the MRT at its training center in Austria for 2 weeks. In addition, P&T’s technicians visited Turkmenistan twice to provide operational and maintenance training to MRT staff.

(c) The PMC could not deliver the training due to the inability to obtain a visa for its expert. However, following installation of the locomotive-based mobile radio-telecom equipment, the supplier provided training to MRT locomotive engineers on this equipment and the GSM-R system operation and maintenance.

(d) The PMC could not deliver the planned training due to the inability to obtain visas.

(e) Fifteen members of the MRT and its design institute were trained on

improving the implementation of environmental safeguards in November 2013 by NBT; consultants retained by ADB under the Improving the Implementation of Environmental Safeguards in Central

11 ADB. 2010. User’s Guide: Procurement of Goods, as amended from time to time. Manila. 12 ADB. 2010. Guidelines on the Use of Consultants by Asian Development Bank and its Borrowers, as amended from

time to time. Manila.

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Targets set at appraisal Actual achievement

government’s regulations and international practice;

(f) 30 staff in managing loans and ICB contracts, construction supervision, testing and commissioning of equipment, and timely reporting of progress; and

(g) 20 staff in sound financial controls.

and West Asia.13 NBT conducted hands-on training for MRT staff and contractors.

(f) The PMC provided these trainings from January 2012 to August 2014 on inspection of equipment and materials that arrived on site in more than 200 shipments, preparation of legal forms for receipt and turnover of property to the TCP-1 contractor for installation on site, supervision of work performed by contractors, and other tasks required for construction supervision and reporting.

(g) The PMC provided training to MRT accounting staff on project-related financial management, assisting the MRT in establishing the imprest account and preparing an accounting policies and procedures manual.

(iii) Environmental sustainability achieved during and after the project implementation.

NBT provided assistance and support for achieving compliance with environmental safeguards, albeit with delay.

(iv) By December 2012, proposals finalized for the new railway financing operating modalities including the use of public–private initiatives.

The government continues to view the railway network as a strategic asset best suited for public sector control and operation. Within this public sector framework, the MRT developed proposals for presentation to appropriate agencies and obtained funding for the Atamurat–Imambazar–Akina railway in 2012, which became operational in 2014. The MRT has also developed proposals for improvement of the Turkmenabad–Mary–Ashgabat–Turkmenbashi mainline for ADB financing.

ADB = Asian Development Bank, ICB = international competitive bidding, MRT = Ministry of Railway Transport, NBT = Nazar Business and Technology LLB, PMC = project management consultant, PPMS = project performance monitoring system, SCADA = supervisory control and data acquisition. Source: Asian Development Bank.

C. Project Costs and Financing

18. Appendix 2 compares the actual detailed costs for each component of the project with appraisal estimates. For cost comparison, local currency costs incurred by the MRT have been converted into dollars at the prevailing rate at the time of each transaction. Appendix 3 provides actual costs and appraisal estimates for components by financier. A summary of contracts financed by ADB is in Appendix 5.

19. At appraisal, the project was estimated to cost $166.67 million. Foreign exchange cost accounted for $117.34 million (about 70% of the estimated total). Local currency cost was estimated at $49.32 million (about 30% at the estimated total), including taxes and duties. As envisaged at appraisal, ADB was to provide a loan for the equivalent of $125 million from its ordinary capital resources to finance 75% of the project cost, 100% of the foreign exchange cost. The borrower was to fincance the remaining cost, equivalent to $41.67 million (25%). The appraisal estimate included physical contingencies and provisions for price escalation on the foreign exchange and on the local currency costs, as well as an estimate of government taxes and financing charges during construction.

20. The actual project cost is $132.70 million, including a foreign exchange cost equivalent to $117.83 million (88.8%) and local currency cost equivalent to $14.87 million (11.2%). The local cost for power supply, signaling, telecommunications, and track maintenance machinery represented installation, testing, and commissioning costs all funded by ADB, which were included in the TCP-1 and TCP-2 contracts. ADB financed the equivalent of $116.27 million, or 88.7% of the project implementation cost. The government financed the remaining cost, equivalent to $14.81 million (11.3%). Actual interest during construction amounted to $1.62 million of which ADB financed $0.06 million (3.7%) and the government funded $1.56 million (96.3%).

13 ADB. 2010.TA-7548: Improving the Implementation of Environmental Safeguards in Central and West Asia. Manila.

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21. The actual cost of equipment is $114.20 compared to the appraisal estimate of $118.01; actual cost of project management and capacity development is $2.01 million compared to $2.70 estimated at appraisal. This cost does not include $488,728 separately funded by ADB under Improving the Capacity and Integrity of Procurement Processes in Central and West Asia14 for three technical consultants (international railway signaling specialist, international railway telecommunication specialist, and international railway SCADA specialist) to assist the MRT with project management after the PMC suspended its services.

22. Recurrent costs do not show a significant difference between actual and estimated values. Environmental monitoring and mitigation costs estimated at $1.44 million were included in the actual cost of the TCP-1 contract. Taxes and duties estimated at $19.27 at appraisal are estimated to be $14.78 million at completion, a difference of $4.49 million (23.3%).15 No actual physical and price contingency was used for the project, resulting in a reduction of $20.80 million from the project cost estimated at appraisal. Financing charges during implementation estimated at $4.28 million at appraisal were $1.62 million at completion, mainly because of significantly larger drawdowns at the beginning assumed during appraisal.

D. Disbursements

23. At appraisal, disbursement was envisaged to take place over 2 years from 2011 to 2012. Actual implementation was spread over 6 years from 2012 to 2017. As a result, actual disbursements are more spread than initially planned, despite measures to minimize delays as described in paras. 59 to 61. The original disbursement projections were ambitious and did not reflect the impact of the lack of experience of the executing agency with complex projects involving financing from international financial institutions and the delays caused by other agencies in providing the necessary approvals and visas during implementation.

E. Project Schedule

24. The ADB Board approved the loan on 15 March 2011. The loan agreement was signed on 20 July 2011 and became effective on 29 August 2011. The original closing date of the loan was 31 March 2013, and this was extended five times at the request of the borrower. The actual loan closing date was 30 November 2016 and the financial closing date was 22 March 2017.

25. The principal cause of the delay in project implementation was the late completion of the TCP-1 contract (paras. 11 to 12). The contractor’s lack of experience in international projects of this nature, coupled with the project being the first project for the MRT financed by ADB caused the 4-year delay in project completion.

F. Implementation Arrangements

26. The MRT was the sole executing agency of the project. There was no project management unit (PMU) established to oversee the implementation of the project. The PMC was hired and heavily relied on by MRT for the implementation of the project. In turn, the PMC relied on MRT officials for the issuance of instructions. Coordination between the PMC and MRT was made more

14 ADB. 2014. TA 8665: Improving the Capacity and Integrity of Procurement Processes in Central and West Asia.

Manila. 15 Taxes and duties on civil works, goods and consultancy services financed by ADB were exempted. Here, an estimate

is made on exempted taxes and duties, using the same methodology used at appraisal.

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difficult when the MRT relocated to its new building and the PMC offices stayed at the old building at the other end of Ashgabat.

G. Technical Assistance

27. ADB approved project preparatory technical assistance (TA) of $350,000 on 14 May 2010, financed by ADB’s Technical Assistance Special Fund. Project preparation was accomplished through the close coordination of consultant inputs by a senior ADB project officer. An international procurement specialist, an environmental specialist, and a signaling/telecommunication expert were hired as individual consultants as TERA International Group, Inc. provided experts for the international positions of transport economist/team coordinator, railway operations expert, and social safeguards specialist. The terms of reference for each expert were prepared in response to the MRT’s needs for installation of power supply, signaling, and telecommunication systems, and the procurement of track maintenance equipment for the improved safety of railway operations. The MRT’s main need at the preparatory stage was to introduce modern signaling and telecommunications equipment for the north–south railway. The technology that the ADB TA designated for the Akyol–Hazar section (para. 10) also became the model for other sections of the north–south railway.

H. Consultant Recruitment and Procurement

28. Recruitment of the PMC was undertaken in accordance with ADB’s Guidelines on the Use of Consultants (2010, as amended from time to time). Because of the MRT’s lack of experience and the urgency to implement the project, ADB acted on behalf of the MRT in soliciting and evaluating proposals. On 30 November 2010, ADB advertised through the Consulting Services Recruitment Network the opportunity to submit expressions of interest (EOI) for consulting services for project management and institutional capacity improvement. The deadline for EOI submissions was 24 November 2010.

29. Following evaluation of EOIs received, on 25 March 2011, a shortlist was made of six companies, which were invited to submit technical and price proposals to ADB. Proposals were submitted to ADB on 9 May 2011. On 15 June 2011, financial proposals were publicly opened and TERA International Group, Inc. was awarded the contract for project management services. TERA International Group, Inc. was invited to Ashgabat to negotiate and execute the contract with MRT. The contract was executed on 16 September 2011, the notice to proceed was issued on 29 December 2011, and the PMC mobilized on 2 January 2012.

30. With the mobilization of the PMC, negotiations and contracting was accelerated for the TCP-1 contractor for the turn-key delivery of design, supply, installation, and commissioning of the power supply, signaling, and telecommunication systems; and the TCP-2 supplier of goods. The TCP-2 contract was executed with P&T on 14 April 2012 and the contract TCP-1 was awarded to the consortium of ASPMK 519 Limited Liability Partnership and KEC International Limited on 28 May 2012.

31. All claims from contractors under all procurement actions have been paid. There are no pending claims and all accounts have been closed.

I. Safeguards

32. The basic infrastructure including embankment, subbase, base, ballast, rail with sleepers, turnouts, station buildings, and culverts were being built by the MRT at the time of appraisal with

8

only a few kilometers of track laying at the end of the railway near Hazar station, which was ongoing and completed by the end of 2011. This basic infrastructure was treated as associated facilities for the project. Only the three components financed by ADB were new (incremental), and these did not require civil works, new land, or resettlement. Therefore, at appraisal, it was envisaged that the project itself would not have any major environmental impacts. In line with ADB’s Safeguard Policy Statement (2009), the project was classified as environment category B. An initial environmental examination was prepared for the project in September 2010 and was disclosed on ADB’s website. The project did not result in any major environmental impacts.

33. Installation of signaling and telecommunications under the project and the completed 288.2 km of railway track under government financing did not involve land acquisition or involuntary resettlement or affect ethnic minority groups. The north–south railway’s right-of-way was established during the Soviet era, but implementation was postponed until October 2007, when the government signed a multilateral agreement with Kazakhstan and Iran to construct the north–south railway line. The land use of the area along the north–south railway has not changed since the initial allocation of land was made. The project was therefore classified as category C for both involuntary resettlement and indigenous peoples. To account for any reputational risk that may arise from resettlement activities for the associated facilities, a due diligence report on land acquisition and resettlement was prepared during project preparation and presented to the Board as part of the report and recommendation of the President.16

J. Monitoring and Reporting

34. The project administration manual (PAM) described in detail all project monitoring activities, including compliance with environmental and other safeguards, and financial requirements. The project’s design and monitoring framework was formulated with appropriate impact, outcome, and output statements and with relevant targets and performance indicators. The PMC collected baseline information for environmental monitoring, independent of the contractor’s requirement for monitoring and reporting of environmental impacts associated with project implementation. MRT disseminated the contractor monitoring reports and PMC reports.

35. The government and the MRT generally complied with the loan covenants. Appendix 7 lists the status of compliance with all general and special loan covenants.

36. The MRT’s Finance and Economy Department was responsible for implementing financial controls and procedures in conformity with Turkmenistan’s law. Compliance with such laws is a precondition for successful monitoring of and reporting on financial matters, including audit reports. All audited financial reports have been submitted to ADB. Some of the reports were delayed due to the time needed to prepare reports in line with ADB requirements (Table 2).

Table 2: Submission of Audited Project Financial Statements Year of Audited Project Financial Statements

Comments

FY 2011 covering 29 August 2011 up to 31 December 2011, due on 30 June 2012

During the inception mission on 24–29 November 2012, it was clarified that as no expenses were made from the project funds in 2011, there was no need for auditing accounts for FY 2011. Thus, when the MRT submitted the APFS for FY 2012, the report also covered the period from 29 August 2011 up to 31 December 2011.

FY 2012 inclusive of 29 August 2011 up to 31

ADB found the first submission substandard and requested for the report to be strengthened to an acceptable standard. The revised APFS for FY2012 inclusive of 29 August 2011 to December 2011 was submitted on 04 July 2014, a delay of 13 months.

16 ADB. 2011. Report and Recommendation of the President to the Board of Directors: Proposed Loan to Turkmenistan

for the North–South Railway Project. Manila.

9

Year of Audited Project Financial Statements

Comments

December 2011, due 30 June 2013 FY 2013, due 30 June 2014

Submitted on 14 May 2015. ADB requested the resubmission of the APFS due to incomplete information. The MRT resubmitted the APFS on 29 May 2015. ADB advised the MRT that the information still did not satisfy the requirement and requested a further revision. On 26 August 2015, ADB received the revised APFS, a year later than the due date.

FY 2014, due 30 June 2015

ADB reminded the MRT through letters dated 01 September 2015 and 21 December 2015, and during a mission on 30 November–8 December to submit the APFS. ADB received the APFS on 17 March 2016, a delay of 9 months.

FY 2015, due 30 June 2016

Submitted on 29 May 2017. ADB requested the resubmission of the APFS due to inconsistencies on the information. The MRT resubmitted the revised APFS on 10 November 2017, a delay of 17 months.

FY 2016 inclusive of Q1 2017, due 30 June 2017

Submitted on 30 October 2017. ADB requested clarifications and a resubmission of the AFPS due to inconsistencies on the information. The MRT resubmitted the revised APFS on 06 April 2018, a delay of 10 months.

ADB = Asian Development Bank, APFS = audited project financial statement, FY = fiscal year, MRT = Ministry of Railway Transport, Q = quarter. Source: Asian Development Bank.

III. EVALUATION OF PERFORMANCE

A. Relevance

37. The north–south railway line aimed to improve Turkmenistan’s accessibility to Kazakhstan, the Persian Gulf countries, the Russian Federation, and South Asia. It was meant also to increase regional trade, contribute to sustainable economic growth in Turkmenistan and develop an integrated and efficient railway system in the region. The project supported the medium-term development strategy of the government at that time and, later, the National Program for Social and Economic Development (NPSED), 2011–2030,17 both of which aim to achieve sustainable economic growth and strengthen regional integration. During appraisal, ADB’s first country partnership strategy (CPS) for Turkmenistan was being planned. The project is in line with the most recent CPS for 2017–202118 and supports the CAREC Transport and Trade Facilitation Strategy 2020 as it provides a key north–south link between two east–west CAREC corridors. The project was aligned with ADB’s Sustainable Transport Initiative Operational Plan because the project railway (i) is accessible, (ii) is safer than travel by road, (iii) produces fewer emissions per ton hauled than road transport, and (iv) is more affordable than road transport. The design and monitoring framework appropriately emphasized the contribution of the project to improved regional integration and accessibility. At completion, the project confirmed its relevance as evidenced by the actual use of the railway line for transit and domestic traffic. In these respects, the project is rated relevant.19

B. Effectiveness

38. The delivery of project outputs led to the achievement of the project outcome. The first outcome target was that by 2015 (the third year of operation), total national transit tonnage increased to 6 million tons. Delays to the project implementation meant that operations

17 Government of Turkmenistan. 2010. National Program for Social and Economic Development, 2011-2030.

Turkmenistan. 18 ADB. 2017. Country Partnership Strategy 2017-2021—Catalyzing Regional Cooperation and Integration, and

Economic Diversification. Turkmenistan. 19 The reduction of the project’s length from 311 km to 288.2 km did not affect the project’s relevance.

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commenced in 2016 with the third year of operation in 2018. The most recent year for which the MRT can provide traffic data is 2017, during which the transit volume of the national railway network was 6.4 million tons. The second target was that by 2015 (the third year of operation), about 1.6 million tons of minerals would be transported on the project railway. Based on actual train movements during 1Q 2018, the annual minerals traffic on the project railway is estimated at 2.2 million tons. The third target was that by 2015, a performance tracking system would be developed for periodic inspection, supervision, and testing. The performance tracking system was developed during 1Q 2012 when performance monitoring was established for use in monthly and quarterly progress reports. The fourth target is that by 2020, CO2 emissions will be reduced to 26,800 tons. The target year is not yet reached, but based on projections, this target is likely to be met. In summary, three of the four targets are met. The project is therefore rated effective.

C. Efficiency

39. Economic efficiency at appraisal. The economic evaluation at appraisal covered all the project components, including the associated cost of the 288.2 km Akyol–Hazar section of the north–south railway funded by the MRT outside the scope of the ADB-financed project.20 Annual operating costs were also included in the analysis. The economic internal rate of return for the project was estimated at 16.65%. Benefits from freight traffic, including those attributable to generated traffic, were calculated as the major economic benefits, with passenger benefits contributing minimally, and other benefits as noted in paras 7 and 8, making up the balance. The sensitivity analysis tested 10 scenarios to assess the robustness of the results. This showed that the project would maintain its economic viability under plausible scenarios of variability in key parameters.

40. Economic efficiency at completion. The EIRR was recalculated at completion. The same approach and parameters as at appraisal were used, except for (i) updated traffic projections, (ii) actual project costs, and (iii) actual timing of project implementation and commissioning. The analysis period covered 5 years of implementation, from 2011 to 2015, and 30 years of operation, from 2016 to 2045. The recalculated EIRR for the project is 9.62%, considerably lower than the EIRR at appraisal and below the minimum required EIRR of 12% at the time of the project appraisal. However, it is still higher than the revised minimum EIRR of 9% as required under ADB’s revised economic guidelines.21 The principal reasons for the lower reevaluated EIRR are (i) lower traffic than initially estimated and (ii) delays to project implementation. The lower project capital costs did not offset the effects of lower traffic and delay in implementation. The project implementation delays did not adversely affect the actual project cost, as TCP-1 and TCP-2 contracts were fixed in price and the actual cost of the PMC contract was $0.7 million lower than the $2.70 million estimated at appraisal. Sensitivity tests show that the project is sensitive to certain changes in parameter values. It is important that traffic projections be realized for the project’s economic efficiency to remain above the 9% threshold. Details are in Appendix 9.

41. Assessment of process efficiency. Process efficiency was below expectations due to significant delays in project implementation. The actual completion on 21 January 2016 represents a delay of 40 months compared to the implementation period of 24 months estimated at appraisal. ADB’s cost of project administration was adversely affected, due to the increased number of missions that were required. From September 2012 to January 2016, ADB completed 15 missions involving 35 persons. After completion, four more ADB missions involving five

20 This included civil works to build the embankment, lay new track, construct stations, and provide rolling stock. 21 ADB. 2017. Guidelines for the Economic Analysis of Projects. Manila.

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persons were made for project review and consultation. Loan funds were readily made available from ADB and payments were made on time once ADB received withdrawal applications. However, due to delays by the borrower in approving payments to the TCP-1 and the PMC, the contractor suspended operations on 19 September 2013 and, in the case of the PMC, the contract was cancelled on 30 September 2014, resulting in additional cost and effort by ADB to support the borrower with additional TA funds.

42. Based primarily on the EIRR at completion, which remains beyond the 9% threshold, the project’s remains efficient.

D. Sustainability

43. Financial sustainability. At appraisal, the financial analysis of the project covered the 2-year implementation period from beginning-2011 to end-2012, including a 6-month defects liability period, and 30 years of operation from 2013 to 2042. The financial internal rate of return (FIRR) of the project was estimated based on constant 2010 prices, which included all capital costs, operating expenses (fixed and variable expenses), and business and other financial metrics related to the components of the project. Details are described in Appendix 10. The weighted average cost of capital (WACC) calculated at appraisal was 4.41% and the FIRR 7.71%.

44. At completion, the FIRR is recalculated at 8.61%, compared to a recalculated WACC of 3.33%. The difference in WACC is principally due to (i) higher nominal cost for equity and (ii) the reduced weight of equity in WACC due to the lower level of contribution by the government to the total project cost. The results at completion are more robust than at appraisal mainly due to the lower project capital costs. Sensitivity tests at both appraisal and completion showed that results are more sensitive to the variation of freight revenue than other parameters.

45. The MRT will operate the project as part of its railway network with the financing of all operating and maintenance costs borne by the government. The government maintains low levels of debt (24% of GDP), and its revenues and surpluses are not seriously decreasing due to the low prices for oil and gas worldwide. The MRT is sufficiently solvent to increase the length of its network, purchase additional new rolling stock, and upgrade its technologies. Importantly, the railway is strongly committed to asset maintenance, and maintenance schedules are followed fully. Costs have been reduced and train schedules are met with only a few service interruptions. The project railway will be largely for freight and will attract considerable transit traffic. Freight tariffs are adequate to meet all project costs. Passenger tariffs are low and cross-subsidized by freight revenues, which is common in many countries.

46. Environmental sustainability. The project supports the environmentally sustainable growth of Turkmenistan. With the project, CO2 emissions are expected to be reduced to 26,800 tons. The environmental monitoring reports indicated that the impact of the project components (power supply, signaling, and telecommunications equipment and track maintenance machines) had limited adverse environmental impact.

47. Technical sustainability. The project is technically sustainable since the components installed and the track machinery procured are of tested and proven technology with little likelihood of becoming obsolete in the foreseeable future.

48. Institutional sustainability. The project owner, the MRT, is a government agency, which is expected to continue its functions, and the railway transport is a long-established service, which will continue to operate. The Power Supply, Signaling and Telecommunication (PSST)

12

Department of the MRT is the unit responsible for maintaining operability of the project components. In particular, telecommunication and signaling equipment included in the project represent new technology for the MRT. Therefore, maintaining the equipment in good operating condition is a challenge that should be monitored to ensure long-term sustainability.

49. On the basis of the above assessment of financial, environmental, technical, and institutional sustainability, the project is rated as likely sustainable.

E. Development Impact

50. Social impacts. About 3,200 people live in nine villages 3–10 km from the railway line. They are involved mainly in sheep herding. The project impact area is arid with only limited water sources. With the increase in passenger service, the local inhabitants will be able to benefit from the mobility offered by the railway. Although poverty reduction was not specifically targeted in the project’s design, improved rail passenger transport will allow easier reach of markets and other parts of the country to visit family and friends as well as benefit from improved access to health and educational facilities. The project has not exacerbated gender inequities.

51. Employment impacts. In addition to the train crews, the railway will employ about 175–200 people at 11 stations on the line north of Bereket. Currently, about 110 railway workers are working in the stations and along the line. As traffic increases, some of the new positions will be filled by people from the local areas. With the increase in passenger traffic, small shops and food outlets will also be set up at the new passenger and freight stations.

52. While economic activity is currently limited, the project impact area contains mineral resources that could not be exploited before because of the lack of low-cost transport. The railway will enable the exploitation of these deposits, including coal, gold, kaolin, and platinum. As of April 2018, small-scale mineral extraction for export has started around the Kyzyl Kaya area along the Akyol–Hazar section and generated traffic is expected to increase gradually. Therefore, the project is expected to generate additional jobs for people living in the project impact area.

53. Impact on trade volumes. The design of the project at appraisal envisaged national impact in terms of increased trade between Turkmenistan and other countries with the target of Turkmenistan’s total external trade reaching $17.9 billion in 2015. The actual foreign trade in 2015 was $14.5 billion, mainly due to the worldwide economic slowdown. In the first year of the project railway’s operations in 2016, Turkmenistan’s foreign trade increased to $20.6 billion. It should be emphasized, however, that this increase in annual foreign trade is not fully attributable to the project railway since sufficient time has not passed yet for traffic to materialize.

54. The ADB results framework (Appendix 11) shows the railway upgrade through the installation of power, telecommunications, and signaling systems along 288.2 kilometers of the railway line as achieved. The project’s rating of development impact is satisfactory.

F. Performance of the Borrower and the Executing Agency

55. The performance of the MRT, the borrower and the executing agency, is rated satisfactory. Although with considerable delay, the project was implemented according to the arrangements envisaged at appraisal. However, the MRT was non-compliant on environmental safeguards for an extended period, and also could not preempt the delays to payments to the TCP-1 contractor and the PMC, resulting in the suspension of operations as described in para. 41.

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G. Performance of the Asian Development Bank

56. ADB’s performance is highly satisfactory. Twenty-five missions were fielded during project implementation, including one mission each for reconnaissance, loan negotiation, loan inception, and project completion; four missions for consultation; and 17 missions for project review. Communication and coordination between ADB and the MRT were effective. ADB’s response to MRT’s requests and consultations was prompt and constructive. The MRT benefited from ADB’s guidance and cooperation in resolving implementation issues, particularly its support in providing timely funds to assist the project manager in technical areas. The MRT particularly benefited from the timely disbursement of the loan proceeds. Furthermore, ADB mobilized additional individual consultants to support the MRT on contract management and environmental safeguard compliance.

H. Overall Assessment

57. The project is rated relevant. It supported ADB’s interim operational strategy for Turkmenistan as well as regional connectivity as facilitated through CAREC. The project is effective as all outputs were achieved. Its intended outcome of an efficient, safe, and reliable railway transport network developed and operated in Turkmenistan with better connectivity with neighboring countries, has been met. With a recalculated EIRR of 9.62%, the project is efficient. With the recalculated FIRR at 8.61% compared to the WACC at 3.33%, the project is financially sustainable. Combined with an assessment of environmental, technical, and institutional sustainability, the project is likely sustainable. From the above, the project’s overall assessment is rated as successful. Its development impact and performance of the borrower are satisfactory and ADB performance is highly satisfactory.

Overall Ratings Criteria Rating Relevance Relevant Effectiveness Effective Efficiency Efficient Sustainability Likely sustainable Overall Assessment Successful Development impact Satisfactory Borrower and executing agency

Satisfactory

Performance of ADB Highly satisfactory ADB = Asian Development Bank. Source: Asian Development Bank.

IV. ISSUES, LESSONS, AND RECOMMENDATIONS A. Issues and Lessons 58. The project offered a unique opportunity for both ADB and the government to prepare and implement an ADB loan operation in Turkmenistan for the first time since Turkmenistan becoming a member of ADB in 2000, and soon after Turkmenistan joining of the CAREC program in 2010. Lessons were learned at each stage of the project cycle as follows:

59. Project conceptualization. ADB selected a sector of strength for itself, and a project with strong government backing and ownership. It purposefully kept the scope of its physical interventions limited to the procurement of signaling, power supply, and telecommunication systems, for which international competitive bidding would add value to Turkmenistan, and where

14

ADB’s technical advice would promote innovation. Given the limited understanding by the government on ADB’s safeguards policies, an explicit consideration on the part of ADB was to scope the project in a manner that would not involve land acquisition and resettlement.

60. Project preparation and approval. ADB aimed to synchronize the timing of its approval to the general timing of the government’s efforts on the north–south railway project. The project preparation, supported by project preparatory TA, provided the government with an opportunity to understand ADB’s due diligence requirements. Nevertheless, the project was approved with certain residual risks associated with it being the first for Turkmenistan. Special arrangements needed to be followed, for example, finalizing the terms of the loan after Board approval.

61. Project implementation. On the part of ADB, the project provided the chance to fully understand how Turkmenistan’s internal regulations and legislation affect project preparation and implementation. On the part of the executing agency, a key lesson involves the need for dedicated staff to be available for projects financed by international financing institutions such as ADB. This was not the case for the project, often resulting in scheduling conflicts between multiple assignments and lack of focus on project requirements. Agencies outside of the MRT had limited knowledge of ADB guidelines and procedures and were not sensitive to project schedules, often resulting in delays in implementation. In particular, the following delays were commonly observed:

(i) Official registration of contracts and contract variations by Turkmenistan State Commodity and Raw Materials Exchange (TSCRME) took as long as 2–3 months due to the requirement for review and approval by multiple agencies.

(ii) Issuance of visas for foreign experts and staff of consultants and contractors required excessive time (i.e., 2 months) with rejection experienced in many cases. The visa applications for multiple entry 6-month validity were consistently rejected by the migration agency causing the PMC to apply for 1-month visas, which were easier to obtain, but resulting in a work schedule for 3 weeks fieldwork and 1 week in the home country waiting for the next visa. The 3-week in, 1-week out caused significant problems in the PMC’s service delivery.

(iii) Customs clearance delays were frequently faced. One reason for delays was the long time required by the Turkmenistan State Standards Service (TSSS) for certification of the technical information for an item to be imported. Without this certification, customs would not process the documents to import the item.

(iv) Local approvals and registration caused delays in implementation due to a lack of proper coordination by local MRT officials.

B. Recommendations

62. Program management unit. For the implementation of future ADB-financed projects, a program management unit (PMU) should be created. The PMU should be staffed with full-time experts dedicated to working in the implementation of the project. The PMU must be adequately staffed and headed by a senior official of the MRT with direct access to the minister to report progress, seek guidance, and request intervention when needed.

63. Interagency steering committee to resolve implementation problems. An interagency steering committee (ISC) or similar should be established, chaired by the Minister of Railway Transport and consisting of senior officials from at least the Ministry of Finance and Economy, Ministry of Foreign Affairs, Central Bank of Turkmenistan, TSSS, TSCRME, General Directorate of Customs, Turkmenistan Tax Authority, and Ministry of Environment. The director of the PMU

15

may serve as secretary of the ISC. The chair of the ISC should regularly report to the Deputy Prime Minister at the Ministerial Cabinet on the ISC’s deliberations including project progress, problems faced, and delays experienced and recommended mitigation measures.

64. Project-specific presidential resolution with norms. To ensure a clear understanding of the roles and responsibilities of different government agencies in the implementation of ADB-financed projects, a project-specific presidential resolution could be issued outlining specific norms. Such norms may include, but not be limited to the following:

(i) Reduce from the time of review and approval of contracts, concurrent evaluation of contract documents by multiple agencies to be followed with each agency taking not more than 7 working days to respond to the TSCRME. The TSCRME to decide within 3 weeks after a contract is delivered for approval and registration.

(ii) The MRT to issue visa application letters within 1 working day after receipt of the request from contractors and consultants. The Ministry of Foreign Affairs to facilitate the review of visa applications and visa issuance within 10 days after receipt of application from the MRT.

(iii) The MRT and the General Directorate of Customs to work closely to facilitate customs clearance of goods. Ideally, customs clearance to be completed within 7 days after the arrival of goods in Turkmenistan.

(iv) The MRT and the TSSS to facilitate review and approval of the standards for equipment and materials. The MRT and PMU to encourage all suppliers to apply for TSSS registration and approval as soon as contracts are awarded, rather than wait for the arrival of goods in Turkmenistan.

65. Future monitoring. A review mission by ADB should undertake a review of the project in 5 years. In particular, the mission should reevaluate traffic and local business activity along the Akyol–Hazar section, including mineral extraction activities, operation of the installed equipment, maintenance of track and equipment, and other issues that may arise. Discussions should be held with the MRT for any further assistance needed to ensure continuity of operations.

66. Covenants. The covenants are largely appropriate and suitable for future projects. Additional conditions are suggested to assure successful implementation, such as minimal interference by other government agencies, reduced time for approvals, and other measures to improve efficient and timely performance by contractors. Increased involvement of the relevant Deputy Prime Minister in the Cabinet of Ministers should be included in the covenants.

67. Further action or follow-up. ADB should continue to review traffic levels of the project railway and operating conditions of the equipment financed through the ADB loan. These discussions with the MRT and other agencies would be useful in identifying emerging issues that need to be addressed and exchanging views on mitigating problems.

68. Timing of the project performance evaluation report. No deferment of the performance evaluation report is proposed. It can be timed in accordance with the scheduling of the Independent Evaluation Department of ADB.

16 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Summary Performance Targets and Indicators

with Baselines Project Achievements

Impact Increased trade between Turkmenistan and other countries in the region

By 2015 Turkmenistan’s total external trade increased to $17.9 billion (2008 baseline: $11.9 billion)

In 2015: exports of $8.94 billion, imports of $5.54 billion, total $14.5 billion of external trade achieved.1 In 2016: exports of $7.5 billion, imports of $13.1 billion, total of $20.6 billion achieved.2

Outcome An efficient, safe and reliable railway transport network developed and operated in Turkmenistan with better connectivity with neighboring countries

By 2015 Total national transit tonnage increased to 6 million tons (2008 baseline: 3 million tons) About 1.6 million tons of minerals transported on the project railway in 2015 Performance tracking system developed for periodic inspection, supervision, and testing By 2020 CO2 emissions reduced to 26,800 tons (2008 baseline: estimated at 37,000 tons)

Total international traffic materialized as follows: 2015: 6.2 million tons 2017: 7.1 million tons Project railway commenced operations in 2016. In the third year (2018) it is expected to carry 2.2 million tons of minerals. Established in 2012 and is being sustained. Target year not yet reached, but generally on track to meeting the target.

Outputs 1. Safe and efficient

movement of trains with the installation of signaling, power, and telecommunications systems between Bereket and Buzkhun

By June 2012 Two 10.0 kilovolt overhead powerlines, distribution system, substations, and SCADA system designed, installed, and commissioned along 311 km of the rail line By September 2012 Signaling equipment procured and installed By August 2012 Mobile train radio communication and long-distance telecommunication network supplied, installed, and commissioned

Completed by January 2016 for the 288.2 km Akyol-Hazar section Completed by January 2016 for the 288.2 km Akyol-Hazar section Completed by January 2016 for the 288.2 km Akyol-Hazar section

2. Tracks are well maintained and kept safe

Starting 2012, approved annual MRT budget includes the required annual maintenance expenditure for new tracks

Since 2012 MRT annual budget includes the required annual maintenance expenditure for all tracks, including new tracks

1 JG Simoes, CA Hidalgo. 2011. The Economic Complexity Observatory: An Analytical Tool for Understanding the

Dynamics of Economic Development. Workshops at the Twenty-Fifth AAAI Conference on Artificial Intelligence. Available at: https://atlas.media.mit.edu/en/profile/country/tkm/

2 US Department of Commerce. 2017. Turkmenistan – Market Overview. Available at: https://www.export.gov/article?id=Turkmenistan-Market-Overview

Appendix 1 17

Design Summary Performance Targets and Indicators

with Baselines Project Achievements

3. Support provided for the project management and MRT’s institutional capacity improvement3

PPMS fully operational within 6 months from loan effectiveness MRT staff trained by March 2012: (i) 20 operational staff in SCADA system, signaling, and telecommunication; (ii) 10 staff in track maintenance and safety equipment operation; (iii) 15 staff in modern scheduling of routine and periodic maintenance for locomotive utilization; (iv) 10 staff annually in updating and maintaining the inventory of all MRT assets and asset utilization data; (v) 2 staff in preparing the MRT’s environmental policy and standard operating procedures in conformity with the government’s regulations and international practice; (vi) 30 staff in managing loans and ICB contracts, construction supervision, testing and commissioning of equipment, and timely reporting of progress; and (vii) 20 staff in sound financial control Environmental sustainability achieved during and after the project implementation By December 2012, proposals finalized for new railway financing operating modalities including the use of public-private initiatives

PPMS was fully operational as of 6 March 2012, some 6.25 months after loan effectiveness of 29 August 2011 By January 2016 or before: (i) At least 20 operational staff

trained;

(ii) At least 20 staff trained;

(iii) At least 20 locomotive engineers trained on mobile radio telecom system with GSM-R;

(iv) Visa applications rejected. Could

not comply; (v) Complied with;

(vi) Hands-on training provided by

ADB resource persons and PMC from January 2012 to August 2014; and

(vii) All Economy and Finance

Department staff were provided training on accounting and financial controls.

Complied with environmental safeguards with the support of ADB consultants, albeit with delay. Proposals developed by MRT for (i) Atamurat-Imambazar-Akina railway in 2012, funding for which has been approved and the railway became operational in 2014, (ii) Extension of this railway from Akina to Andkoy (Afghanistan), and (iii) improvement of the Turkmenabad-Mary-Ashgabat-Turkmenbashi mainline for ADB financing.

CO2 = carbon dioxide, ICB = international competitive bidding, IsDB = Islamic Development Bank, MRT = Ministry of Railway Transport, SCADA = supervisory control and data acquisition. Source: Asian Development Bank.

3 Refer to Table 1 in the main text of the PCR for a fuller description on achievements under Output 3.

18 Appendix 2

PROJECT COST AT APPRAISAL AND ACTUAL ($ million)

Appraisal Estimate Revised Cost Actual

Item Foreign

Exchange Local

Currency Total Cost Cost1 Cost2 Cost3 Foreign

Exchange Local

Currency Total Cost

A. Base Costs 1. Equipment a. Design, Supply, Installation, and Commissioning of Power Supply, Signaling, and Telecommunications Systems

83.72 21.57 105.29 104.784 104.78 104.74 104.74 0.00 104.74

b. Supply of Track Maintenance Machinery

12.62 0.10 12.72 9.455 9.45 9.45 9.45 0.00 9.45

Sub-Total Equipment 96.34 21.67 118.01 114.24 114.24 114.20 114.20 0.00 114.20 2. Project Management and Capacity Development

2.70 0.00 2.70 2.586 2.22 2.01 2.01 0.00 2.01

3. Recurrent Costs 0.00 0.16 0.16 0.00 0.00 0.00 0.00 0.09 0.09 4. Environmental Monitoring and Mitigation7

0.00 1.44 1.44 0.00 0.00 0.00 0.00 0.00 0.00

5. Taxes and Duties 0.00 19.27 19.27 0.00 0.00 0.00 0.00 14.78 14.78 Subtotal (A) 99.04 42.54 141.58 116.82 116.46 116.21 116.21 14.87 131.08 B. Contingencies 0.00 0.00 0.00 1. Physical 11.05 2.52 13.57 0.00 0.00 0.00 0.00 0.00 0.00 2. Price 2.97 4.25 7.22 0.00 0.00 0.00 0.00 0.00 0.00 Subtotal (B) 14.02 6.78 20.80 0.00 0.00 0.00 0.00 0.00 0.00

C. Financing Charges During Implementation

1. Interest During Implementation 4.21 0.00 4.21 0.06 0.06 0.06 1.62 0.00 1.62

2. Commitment Charges 0.08 0.00 0.08 Subtotal (C) 4.29 0.00 4.29 0.06 0.06 0.06 1.62 0.00 1.62

Total (A+B+C) 117.40 49.30 166.70 116.88 116.52 116.27 117.83 14.87 132.70 Source: Asian Development Bank Consultants estimate based on data provided by Asian Development Bank and Ministry of Railway Transport.

1 On 25 June 2012, an amount of US$8.12 million was cancelled as requested by MRT through its letter dated 06 June 2012. 2 On 17 February 2016, an amount of US$362,243.28 was cancelled as requested by MRT through its letter dated 25 January 2016. The cancellation took effect on 25 January 2016. 3 On 22 March 2017, an unutilized loan balance of US$247,049.42 was cancelled. 4 Contract amount awarded to the consortium of ASPMK 519 Limited Liability Partnership and KEC International Limited on 28 May 2012. 5 Contract amount awarded to Plasser & Theurer Export von Bahnbaumaschinen G.m.b.H. on 14 April 2012. 6 Contract amount awarded to TERA International Group, Inc. on 16 September 2011. 7 Actual cost included in Item 1.a, “Design, Supply, Installation, and Commissioning of Power Supply, Signaling, and Telecommunications Systems”.

Appendix 3 19

PROJECT COST BY FINANCIER

Table A3.1: Project Cost at Appraisal by Financier ($ million)

ADB Government

Item Amount % of Cost Category Amount

% of Cost Category

Total Cost

A. Base Cost

1. Equipment a. Design, Supply, Installation, and Commissioning of Power Supply, Signaling, and Telecommunications Systems

105.29 100% 0.00 0.00 105.29

b. Supply of Track Maintenance Machinery 12.72 100% 0.00 0.00 12.72 Sub-Total (1) 118.01 100% 0.00 0.00 118.01 2. Institutional Capacity Improvement 2.70 100% 0.00 0.00 2.70 3. Recurrent Costs 0.00 0.00 0.16 100% 0.17

4. Environment Monitoring and Mitigation 0.00 0.00 1.44 100% 1.44 5. Taxes and Duties 0.00 0.00 19.27 100% 19.27

Sub-Total (A) 120.71 85.3% 20.87 14.7% 141.58 B. Contingencies 1. Physical 0.00 0.00 13.57 100% 13.57 2. Price 0.00 0.00 7.22 100% 7.22 Sub-Total (B) 0.00 0.00 20.80 100% 20.80 C. Financial Charges During Implementation 1. Interest During Implementation 4.21 100% 0.00 0.00 4.21 2. Commitment Charges 0.08 100% 0.00 0.00 0.08 Sub-Total (C) 4.28 100% 0.00 0.00 4.28

Total Project Cost (A+B+C) 125.00

41.67 166.67 % Total Project Cost

75%

25%

Notes: 1. Numbers may not sum precisely because of rounding. Sources: Asian Development Bank; Ministry of Railway Transport.

20 Appendix 3

Table A3.2: Project Cost at Completion by Financier ($million)

ADB Government

Item Amount % of Cost Category Amount

% of Cost Category

Total Cost

A. Base Cost

1. Equipment a. Design, Supply, Installation, and Commissioning of Power Supply, Signaling, and Telecommunications Systems

104.74 100% 0.00 0.00 104.74

b. Supply of Track Maintenance Machinery 9.45 100% 0.00 0.00 9.45 Sub-Total1 114.20 100% 0.00 0.00 114.20 2. Institutional Capacity Improvement 2.01 100% 0.00 0.00 2.01 3. Recurrent Costs 0.00 0.00 0.09 100% 0.09

4. Environment Monitoring and Mitigation2 0.00 0.00 0.00 0.00 0.00 5. Taxes and Duties 0.00 0.00 14.78 100% 14.78

Sub-Total (A) 116.21 88.7% 14.87 11.3% 131.08 B. Contingencies 3. Physical 0.00 0.00 0.00 0.00 0.00 4. Price 0.00 0.00 0.00 0.00 0.00 Sub-Total (B) 0.00 0.00 0.00 0.00 0.00 C. Financial Charges During Implementation 3. Interest During Implementation

0.06 3.7% 1.56 96.3% 1.62 4. Commitment Charges Sub-Total (C) 0.06 3.7% 1.56 96.3% 1.62

Total Project Cost (A+B+C) 116.27 87.6% 16.43 12.4% 132.70 % Total Project Cost

Notes: 1. Numbers may not sum precisely because of rounding. 2. Actual cost included in Item 1.a, “Design, Supply, Installation, and Commissioning of Power Supply, Signaling, and Telecommunications Systems”. Source: Asian Development Bank Consultants estimate based on data provided by Asian Development Bank and Ministry of Railway Transport.

Appendix 4 21

DISBURSEMENT OF ADB LOAN PROCEEDS

Table A4: Annual and Cumulative Disbursement of ADB Loan Proceeds Annual Disbursement Cumulative Disbursement

Year Amount

($ million) % of Total

Amount ($ million)

% of Total

2011 0.00 0.00% 0.00 0.00% 2012 35.15 30.20% 35.15 30.20% 2013 36.70 31.60% 71.84 61.80% 2014 16.69 14.40% 88.54 76.20% 2015 6.32 5.40% 94.86 81.60% 2016 21.31 18.30% 116.17 99.90% 2017 0.10 0.09% 116.27 100.00% Total 116.27 100.00% 116.27 100.00%

Source: Asian Development Bank.

Figure A4: Projection and Cumulative Disbursement of ADB Loan Proceeds

Notes: 1.The total disbursement amount includes the $0.06 million allocated for the IDC. 2.Due to several extensions of the effectivity of the loan, the disbursement was adjusted. The loan was extended on the following dates: (i) 30 September 2014; (ii) 30 September 2015; (iii) 30 June 2016; (iv) 30 September 2016; and (v) 30 November 2016..

73.50

125.00

-

20.00

40.00

60.00

80.00

100.00

120.00

140.00

2011 2012 2013 2014 2015 2016 2017

$million

Annual Disbursement Cumulative Disbursement

Projected Cumulative Disbursement

22 Appendix 5

CONTRACT AWARDS OF ADB LOAN PROCEEDS

Table A5: Annual and Cumulative Contract Awards of ADB Loan Proceeds Annual Contract Awards Cumulative Contract Awards

Year Amount

($ million) % of Total

Amount ($ million)

% of Total

2011 2.22 1.90% 2.22 1.90% 2012 114.24 98.30% 116.46 100.20% 2013 0.00 0.00% 116.46 100.20% 2014 0.00 0.00% 116.46 100.20% 2015 0.00 0.00% 116.46 100.20% 2016 0.00 0.00% 116.46 100.20% 2017 (0.25) (0.20)% 116.21 100.00% Total 116.21 100.00% 116.21 100.00%

Source: Asian Development Bank.

Figure A5: Projection and Cumulative Contract Awards of ADB Loan Proceeds

121.10

125.00

(20.00)

-

20.00

40.00

60.00

80.00

100.00

120.00

140.00

2011 2012 2013 2014 2015 2016 2017

Annual Contract AwardsCumulative Contract AwardsProjected Comulative Contract Awards

Appendix 6 23

CHRONOLOGY OF MAIN EVENTS

Date Event 2009

02–10 September Reconnaissance Mission

2010 14–18 March Project appraisal held.

25 August–03 September Fact-finding mission fielded. 06 October Management Review Meeting held.

2011

15 March 2011 ADB Loan 2737 approved. 20–21 April Loan negotiation held. 08–12 July Project consultation held.

20 July 2011 ADB Loan 2737 signed. 29 August ADB Loan 2737 became effective

16 September Contract on consulting services for Project Management and Institutional Capacity Improvement signed.

02–10 September Project consultation mission held.

2012 02 January Project Management Consultant commenced.

14 April Contract for supply of track maintenance machinery, and supply and installation of track safety equipment awarded.

11–16 April Project inception mission held. 14–18 May First training workshop on project accounting and financial

management was held. 28 May Contract for design, supply, installation, and commissioning of

power supply, signaling and telecommunication equipment awarded.

07 November All the equipment was formally handed over to MRT. 24–29 November Project review mission held.

2013

26 June–01 July Project mid-term review mission held. 02 September Project review mission held.

24–29 November Project review mission held.

2014 23–29 April Project review mission held.

28 August–05 September Project review and consultation mission held. 22–26 September Project consultation mission held.

30 September Contract for consulting services for project management and institutional capacity improvement was terminated.

01–06 December Project review mission held. 04–19 December Project consultation mission held.

2015

26 January–06 February Project review mission held. 01–05 June Project review mission held.

24 Appendix 6

Date Event 2015

28 September–06 October Project review mission held.

30 November–08 December Project review mission held.

2016 21 January Project was completed.

27 January–03 February Project review mission held. 02–05 May Project review mission held.

28 July Operational acceptance certificate was issued. 30 November The loan was closed.

2017

06–08 February Project review mission held. 22 March Actual closing of the loan.

2018

24–26 January Project consultation 17–26 April Project completion review mission

Source: Asian Development Bank.

Appendix 7 25

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenant Reference in

Loan Agreement

Status of Compliance

Financials

Borrower shall (i) maintain, or cause to be maintained, separate accounts for the project; (ii) have such accounts and related financial statements audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB; (iii) furnish to ADB, not later than 6 months after the end of each related fiscal year, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto, all in the English language; and (iv) furnish to ADB such other information concerning such accounts and financial statements and the audit thereof as ADB may request.

Section 4.05 Complied for FY2012, 2013, 2014, 2015, and 2016 and up to 31 March 2017.

Borrower shall establish and maintain a sound financial management system, including the establishment of separate project bank account and the maintenance of minimum balances to ensure smooth cash flow and the timely settlement of anticipated and contingent project construction liabilities. The financial management system shall comprise: (a) financial planning, budgeting and budgetary control; (b) accounting consistent with International Financial Reporting Standards; (c) internal controls; (d) data processing; and (e) financial reporting.

Schedule 5 Para. 6

Complied. MRT uses government accounting and financial management system.

Safeguards

Borrower shall ensure that design, construction, and operation of the project are in accordance with the environmental safeguards and requirements set forth in the ADB’s Safeguards Policy Statement and the borrower’s environmental laws. Borrower shall ensure that potential adverse impacts arising from the project are minimized by implementing all mitigation measures in IEE and EMP.

Schedule 5, Para. 2

Complied, following remedial actions during implementation.

Borrower shall ensure that (i) during construction, the contractor has primary responsibility for implementing the EMP and

Schedule 5, Para. 3

Complied, with additional support from ADB consultants.

26 Appendix 7

Covenant Reference in

Loan Agreement

Status of Compliance

mitigation measures, and MRT has access to sufficient resources to ensure that all environmental management provisions are included in the relevant contract; (ii) MRT monitors and records the implementation of the EMP; (iii) MRT, with the assistance of the project management consultants, prepares semi-annual environmental monitoring reports, satisfactory to ADB, and submits such to ADB, within 3 months of the end of each half of the calendar year, from the start of project implementation and until the project completion.

1) EMR for July-December 2012 disclosed on 23 July 2013.

2) EMR for January-June 2013 disclosed on 2 April 2014.

3) EMR for July 2013-December 2014 disclosed on 10 August 2015.

4) EMR for January 2015-August 2016 disclosed on 30 September 2016.

The Borrower shall ensure that the project is implemented within the boundaries of its existing right-of way for the project Railway or on otherwise state-owned land duly allocated for such purpose. If however, the project requires land acquisition and resettlement, then the Borrower shall ensure prompt preparation of a resettlement plan (RP) acceptable to ADB and implements such RP promptly and efficiently.

Schedule 5, Para. 4

Complied. No RP was necessary in the course of Project implementation.

Borrower shall comply with ADBs Anticorruption Policy for the purposes of the project. The Borrower agrees (a) that ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive or coercive practices relating to the project and (b) to cooperate fully with any such investigation and to extend all necessary assistance. The Borrower shall ensure that all contracts financed by ADB under the project include provisions specifying the right of ADB to audit and examine the records and accounts of any and all contractors, suppliers, consultants, and other service providers as they relate to the project.

Schedule 5, Para. 7

Complied.

Social

Borrower shall ensure that contractors engaged under the project (i) comply with all applicable

Schedule 5, Para 5

Complied.

Appendix 7 27

Covenant Reference in

Loan Agreement

Status of Compliance

labor laws; (ii) use their best efforts to employ women and local people, including disadvantaged people, living in the vicinity of the project; (iii) provide equal pay to men and women for work of equal type; (iv) provide and adequately equip first-aid, health and sanitation, and personal hygiene facilities for male and female workers at the project site; (v) maximize female training and employment; (vi) conduct an information and education campaign on sexually transmitted diseases and HIV/AIDS for construction workers as part of the health and safety program at campsites and adjacent communities during project implementation; and (vii) abstain from child labor. Relevant Works contracts financed under the project must include specific clauses on these undertakings.

Sector

Borrower shall cause the project to be carried out with due diligence and efficiency and in conformity with sound applicable technical, financial, business, and development practices

Section 4.01 (a)

Complied.

In the carrying out of the project and operation of the project Railway, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 5 of the Loan Agreement.

Section 4.01 (b)

Complied.

Borrower shall make available funds, facilities, as required, for the carrying out of the project and for the operation and maintenance of the project Railway.

Section 4.02 Complied. Operation and maintenance phase has started after project completion.

In carrying out of the project, the Borrower shall cause competent and qualified consultants and contractors, acceptable to ADB, to be employed to an extent and upon terms and conditions satisfactory to the Borrower and ADB.

Section 4.03 (a)

Complied.

Borrower shall cause the project to be carried out in accordance with plans, design standards, specifications and work schedules, and any material modifications subsequently made therein, in such detail as ADB shall reasonably request.

Section 4.03 (b)

Complied.

28 Appendix 7

Covenant Reference in

Loan Agreement

Status of Compliance

Borrower shall ensure that the activities of its departments and agencies with respect to the carrying out of the project and operation of the project Railway are conducted and coordinated in accordance with sound administrative policies and procedures.

Section 4.04 Complied with delays. Ministerial order to assign counterpart staff, delineate responsibilities to MRT departments were approved. MRT staff worked closely with the PMC. As per agreed implementation arrangements, no PMU was envisaged. Coordination with government departments other than MRT was less than optimal, leading to project delays.

Borrower shall enable ADB’s representatives to inspect the project, the Goods and Works, and any relevant records and documents.

Section 4.06 Complied.

Borrower shall ensure that the project Railway are operated, maintained and repaired in accordance with sound applicable technical, financial, business, development, operational and maintenance practices.

Section 4.07 Complied.

Before granting time extension for contract completion, or any contract modification, the Borrower shall seek ADB's no objection.

Schedule 4, Para 9

Complied.

The Borrower and the Ministry of Railway Transport shall ensure that the project is implemented according to the PAM.

Schedule 5, Para. 1

Complied, but with major delays to the implementation schedule.

Borrower shall ensure that (i) the project Railway and related facilities are constructed and installed in accordance with design specifications and construction norms; and (ii) construction supervision, quality control and contract management are performed in accordance with best international practices.

Schedule 5, Para. 8

Complied.

Borrower shall ensure that the proposed railways between the towns of Buzkhun and Pogranichnaya and between the towns of Bereket and Etrek are completed and operational, in conformity with sound applicable technical, environmental, and development practices, prior to the project completion.

Schedule 5, Para 9

Complied.

Appendix 7 29

Covenant Reference in

Loan Agreement

Status of Compliance

Borrower shall ensure that: (a) any additional counterpart funding necessary for successful project completion is promptly provided; (b) in each fiscal year starting from 2012, adequate funds are allocated and/or generated for operation and maintenance (O&M) of the project Railway and related facilities in accordance with best international engineering and O&M practices; and (c) MRT operates and maintains the project Railway based on O&M plans to be developed in accordance with the equipment suppliers’ recommended O&M practices and guidelines.

Schedule 5, Para. 10

Complied, although operation and maintenance started 4 years late in 2016 as opposed to 2012 due to the delay in project completion.

Borrower shall ensure that railway transport tariffs are revised, as per existing practice, to maintain financial sustainability of the project Railway.

Schedule 5, Para. 11

Complied. Transport tariffs continue to be revised as per government practice.

Borrower shall ensure that ADBs consent is obtained at least 6 months prior to the implementation of any of the following: (i) any change in ownership of the project Railway; (ii) any sale, transfer, or assignment of interest or control in the project Railway; or (iii) any modification of the functions and authority of MRT over operation and maintenance of the project Railway. The Borrower shall ensure that any such changes are carried out in a legal and transparent manner.

Schedule 5, Para. 12

Complied. No such circumstances have taken place.

Borrower shall ensure that relevant government agencies provide strict border controls and railway patrols to prevent trafficking of humans, wildlife, endangered species, and illegal substances.

Schedule 5, Para. 13

Complied.

Others

The procurement of goods, works and consulting services shall be subject to and governed by the Procurement Guidelines, and the Consulting Guidelines, respectively.

Schedule 4, Para. 1

Complied. Contract for consulting services was awarded in Sep 2011 following the Consulting Guidelines. MRT awarded the TCP-2 contract for supply of track maintenance machinery on 25 April 2012 and awarded the turnkey contract for design, supply, installation,

30 Appendix 7

Covenant Reference in

Loan Agreement

Status of Compliance

and commissioning of power supply, Signaling, telecommunications equipment (Contract TCP-1) on 28 May 2012 following ADB Procurement Guidelines.

Goods and works shall only be procured on the basis of International Competitive Bidding.

Schedule 4, Para. 3

Complied. ICB has been followed in the procurement of TCP-1 and TCP-2

The method of procurement is subject to the detailed arrangements and threshold value set forth in the Procurement Plan.

Schedule 4, Para. 4

Complied.

Borrower shall apply quality-and cost-based selection for engaging consultants.

Schedule 4, Para. 5

Complied.

Borrower shall ensure that all goods and works procured do not violate or infringe any industrial property or intellectual property right or claim of any 3rd party

Schedule 4, Para. 6

Complied.

Borrower shall ensure that all ADB-financed contracts with consultants contain appropriate representations, warranties and, if appropriate, indemnities from the consultants to ensure that the Consulting Services provided do not violate or infringe any industrial property or intellectual property right or claim of any third party.

Schedule 4, Para. 7

Complied.

Contracts procured under international competitive bidding procedures and contracts for consulting services shall be subject to prior review by ADB.

Schedule 4, Para. 8

Complied.

Appendix 8 31

TRAFFIC FORECAST 1. As part of economic and financial evaluation of the 288.2-km North-South Railway project, traffic forecasts (Table A8.1) were prepared for the 30-year period from 2012 to 2041 during appraisal. The forecasts have been in line with MRT’s estimates that were summarized in an internet press release on Turkmenistan.ru in 2010, which stated “According to estimates, up to 3–5 million tons of cargo per year will be transported via this railway right from the start. In the future, the volumes of freight traffic will increase to 10–12 million tons per year.” 2. The project was designed essentially as a freight railway with limited passenger traffic. At appraisal it was estimated that in 2041 passenger-km would total about 45.6 million, whereas freight traffic would total about 3,463 million ton-kms. This wide difference reflects the low population density in the project area and the fact that it is unlikely that there will be many transit passengers traveling via railway. Passengers generally prefer to fly for distances of more than 800 km. The entire North-South Railway is 934.5 km, indicating that for most travelers air travel will be preferred. From the beginning of operations, it was anticipated that there will be 1 pair passenger train operating in each direction on the railway. This was anticipated to increase as demand increases. 3. For freight, the following traffic sources have been identified: (i) imports diverted from rail; (ii) imports diverted from road; (iii) exports diverted from rail; (iv) exports diverted from road; (v) national production diverted from rail; (vi) national production diverted from road; (vii) transit diverted from rail; (viii) transit diverted from road; and (ix) generated traffic. The first 8 types of traffic have been disaggregated into 9 principal commodity groups that reflect Turkmenistan’s production and trade. 4. For generated traffic, there are 5 commodity or product groups reflecting the project Impact Area’s (PIA) resources and production. During appraisal and currently, the PIA is entirely agricultural based, with livestock constituting the primary activity. It is likely that some agricultural activity will also increase given that access to markets will become significantly easier and cheaper. However, the PIA appears relatively rich in certain mineral resources that can be developed as the railway continues operations to neighboring countries. These resources include coal, kaolin, oil and gas, phosphate rock, and other minerals such as uranium and gold. It should also be noted that the PIA’s mineral resources have not been fully identified and evaluated. Therefore, the traffic could be substantially greater than projected values. 5. At appraisal generated traffic accounted for 29.6% of total traffic and diverted traffic 70.4%. The project railway reduces transit distance between Kazakhstan and Iran by about 680 km. Thus, transit diverted from other railways would be significant and reflects a much-improved connection between Central Asia and Persian Gulf ports. As the percentages indicate, traffic diverted from roads has been conservatively estimated. 6. The railway started operations in 2016 and a new set of traffic forecasts was necessary based on actual traffic during the two-year (2016-2017) operating period and train operations during the first quarter of 2018. Table A8.2 provides a comparison of traffic projections at appraisal and updated traffic forecast. Due to the economic slowdown experienced in the region as a result of depressed world prices in oil and gas, traffic during the initial years of operation has not materialized as projected at appraisal

32 Appendix 8

Table A8.1: Traffic Forecasts at Appraisal (Million Ton-kilometers/Passenger-kilometers, 2012–2041)

Traffic Source/

Year

Imports Diverted from Rail

Imports Diverted

from Road

Exports Diverted

from Rail

Exports Diverted

from Road

National Production

Diverted from Rail

National Production

Diverted from Road

Transit Diverted from Rail

Transit Diverted

from Road

Generated Traffic

Total Freight Passengers

2012 18.100 5.287 8.397 3.732 0.963 0.642 83.970 16.483 0.000 137.574 2.876

2013 86.147 10.574 93.456 7.464 2.461 0.661 378.487 24.693 181.800 785.743 3.164

2014 93.039 10.891 100.932 7.688 2.535 0.681 408.766 25.617 235.980 886.129 3.480

2015 100.482 11.218 109.006 7.919 2.611 0.702 441.467 33.406 308.538 1,015.348 3.828

2016 108.520 11.554 117.727 8.156 2.689 0.723 476.785 34.609 400.453 1,161.217 4.211

2017 117.202 11.901 127.145 8.401 2.770 0.744 514.927 35.859 409.150 1,228.100 4.632

2018 126.578 12.258 137.317 8.653 2.853 0.767 556.122 37.157 418.524 1,300.229 5.095

2019 136.704 12.626 148.302 8.912 2.939 0.790 600.611 38.506 427.965 1,377.355 5.605

2020 147.641 13.005 160.166 9.180 3.027 0.813 648.660 39.906 437.862 1,460.260 6.165

2021 159.452 13.395 172.980 9.455 3.118 0.838 700.553 41.360 448.316 1,549.466 6.782

2022 172.208 13.797 186.818 9.739 3.211 0.863 756.597 42.871 459.462 1,645.566 7.460

2023 185.985 14.211 201.763 10.031 3.307 0.889 817.125 44.441 471.488 1,749.240 8.206

2024 200.864 14.637 217.904 10.332 3.407 0.915 882.495 46.072 485.067 1,861.693 9.027

2025 216.933 15.076 235.337 10.642 3.509 0.943 953.095 47.767 499.784 1,983.085 9.929

2026 234.287 15.528 254.164 10.961 3.614 0.971 1,029.342 49.528 516.527 2,114.923 10.922

2027 253.030 15.994 274.497 11.290 3.722 1.000 1,111.690 51.359 527.383 2,249.966 12.015

2028 273.273 16.474 296.457 11.629 3.834 1.030 1,200.625 53.262 538.833 2,395.416 13.216

2029 295.135 16.968 320.173 11.978 3.949 1.061 1,296.675 55.240 550.629 2,551.808 14.538

2030 303.989 17.477 329.778 12.337 4.068 1.093 1,335.575 57.296 562.788 2,624.401 15.991

2031 313.108 18.002 339.672 12.707 4.190 1.126 1,375.642 59.434 575.941 2,699.822 17.591

2032 322.502 18.542 349.862 13.088 4.315 1.160 1,416.912 61.658 587.086 2,775.123 19.350

2033 332.177 19.098 360.358 13.481 4.445 1.194 1,459.419 63.969 598.494 2,852.635 21.285

2034 342.142 19.671 371.168 13.885 4.578 1.230 1,503.201 66.374 610.174 2,932.424 23.413

2035 352.406 20.261 382.304 14.302 4.716 1.267 1,548.297 68.874 622.137 3,014.564 25.754

2036 362.978 20.869 393.773 14.731 4.857 1.305 1,594.746 71.476 634.392 3,099.126 28.330

2037 373.868 21.495 405.586 15.173 5.003 1.344 1,642.589 74.181 646.950 3,186.188 31.163

2038 385.084 22.140 417.753 15.628 5.153 1.385 1,691.866 76.997 659.824 3,275.830 34.279

2039 396.636 22.804 430.286 16.097 5.307 1.426 1,742.622 79.926 673.027 3,368.132 37.707

2040 408.535 23.488 443.195 16.580 5.467 1.469 1,794.901 82.974 686.572 3,463.180 41.478

2041 420.791 24.193 456.490 17.077 5.631 1.513 1,848.748 86.146 700.473 3,561.062 45.625 Source: ADB. 2011. Report and Recommendation of the President to the Board of Directors: Proposed Loan to Turkmenistan for the North–South Railway Project. Manila.

Appendix 8 33

Table A8.2: Traffic Forecasts at Appraisal

Source: ADB. 2011. Report and Recommendation of the President to the Board of Directors: Proposed Loan to Turkmenistan for the North–South Railway Project. Manila.

Table A8.3: Updated Actual (2016–2018) and Projected (2019–2041) Traffic Estimates in the Project Railway at Completion

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Freight Tons (Thousand) 936.23 1,248.30 2,184.53 2,339.67 2,506.84 2,687.02 2,881.30 3,090.87 3,317.25 3,561.50 3,825.46 4,106.47 4,409.34

Freight Ton-km (Million) 220.54 295.82 520.71 560.95 604.47 651.54 702.43 757.45 816.91 881.15 950.53 1,025.89 1,107.34

Passengers (Thousand) 1.44 1.44 1.44 2.16 2.88 3.60 4.32 5.04 5.76 6.48 7.20 7.92 8.64

Passenger-km (Million) 0.19 0.19 0.19 0.28 0.38 0.47 0.57 0.66 0.76 0.85 0.95 1.04 1.13

2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041

Freight Tons (Thousand) 4,736.03 4,876.72 5,022.00 5,170.44 5,323.33 5,480.83 5,643.08 5,810.21 5,982.38 6,159.75 6,342.48 6,530.72 6,724.66

Freight Ton-km (Million) 1,195.48 1,231.89 1,269.37 1,308.15 1,348.12 1,389.32 1,431.78 1,475.55 1,520.65 1,567.14 1,615.05 1,664.43 1,715.32

Passengers (Thousand) 9.36 10.08 10.80 11.52 12.24 12.96 13.68 14.40 15.12 15.84 16.56 17.28 18.00

Passenger-km (Million) 1.23 1.32 1.42 1.51 1.61 1.70 1.80 1.89 1.99 2.08 2.17 2.27 2.36 Source: Asian Development Bank Consultants based on actual traffic data for 2016, 2017, and 1Q 2018 provided by MRT.

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Freight Tons (Thousand) 452.2 2,971.0 3,421.2 4,007.1 4,691.8 4,927.9 5,182.3 5,453.1 5,743.6 6,055.6 6,391.3 6,753.6 7,147.8 7,573.3 8,037.2

Freight Ton-km (Million) 127.5 741.3 838.2 963.3 1,105.2 1,167.8 1,235.2 1,307.4 1,384.9 1,468.3 1,558.1 1,655.0 1,760.2 1,873.7 1,997.0

Passengers (Thousand) 21.9 24.0 26.5 29.1 32.0 35.2 38.8 42.7 46.9 51.6 56.8 62.4 68.7 75.6 83.1

Passenger-km (Million) 2.9 3.1 3.4 3.8 4.2 4.6 5.1 5.6 6.1 6.8 7.4 8.2 9.0 9.9 10.9

2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041

Freight Tons (Thousand) 8,497.7 8,993.0 9,524.4 9,787.2 10,061.4 10,330.6 10,607.6 10,892.5 11,185.7 11,487.3 11,797.8 12,117.3 12,446.2 12,784.8 13,133.3

Freight Ton-km (Million) 2,122.9 2,258.4 2,404.1 2,472.3 2,543.1 2,613.7 2,686.3 2,761.1 2,838.0 2,917.3 2,998.9 3,082.9 3,169.3 3,258.3 3,350.0

Passengers (Thousand) 91.4 100.6 110.7 121.8 133.9 147.3 162.0 178.2 196.1 215.7 237.2 261.0 287.1 315.8 347.4

Passenger-km (Million) 12.0 13.2 14.5 16.0 17.6 19.3 21.2 23.4 25.8 28.3 31.1 34.2 37.7 41.4 45.6

34 Appendix 9

ECONOMIC RE-EVALUATION

A. Introduction

1. At appraisal, the economic evaluation considered all project components including those under ADB financing as well as by the government. These include track machinery and fixtures, signaling, power supply, telecommunications, as well as environmental mitigation and monitoring, implementation supervision, and capacity building. In addition, the cost for the associated facility, in this case the 288.2 km section of the North-South Railway including embankment, track, stations, and rolling stock, has been factored into the analysis. Annual operating costs for the associated facilities have also been included.

2. Alternative Analysis. As part of the economic analysis, possible alternative interventions that would have met the projected transport demand for transit and generated traffic were also evaluated. This analysis reviewed transport modes, alignments, and technical designs for various options. While enhancing the existing road capacity may be an option that would partly meet the increasing demand, it would not satisfy the various kinds of traffic, particularly bulk cargo such as coal over long distances to meet the needs of a growing economy. Aside from the higher initial cost, increased land requirements, high air pollution impact, fuel consumption, and user costs make the road alternative less viable. The selected railway alignment and its alternatives were subsequently evaluated for line sections on the basis of geologic and topographic conditions, terrain considerations, land acquisition, cost estimates, relative impact on the environment, and integration with the regional, national, and local transport network. The technical design that was selected after consideration of the national railway network, consistency in the standards of contiguous sections at each end of the project railway, and forecast traffic, has been evaluated as the most appropriate. B. Costs

3. The economic evaluation at appraisal was based on a comparison of with- and without-project scenarios, using constant 2010 economic prices. Under the with-project scenario it was assumed that the diverted traffic estimated under the with-project scenario would not continue moving by road and by existing railway lines. Furthermore, the generated traffic estimated under the with-project scenario would not materialize under the without-project scenario. The project benefits and cost were revalued in economic prices by separating the cost items into tradable materials and equipment, non-tradable materials, labor, and land. The prices were expressed in $ using the foreign price numeraire with a shadow exchange rate factor (SERF) of 1.01 for foreign exchange effects. A shadow wage rate factor of 0.80 was used to put an economic value on the wages paid to unskilled labor but not on wages for skilled labor, since there is no clear surplus of skilled workers. C. Benefits

4. Economic benefits included (i) user cost savings for freight and passenger traffic; (ii) time savings for diverted passenger and freight traffic from buses, trucks, and other rail lines; (iii) passenger and freight transport benefits generated; (iv) tourism benefits; (v) shipper savings due to increased railway competition, (vi) road accidents avoided; (vii) reduced pollution; (viii) energy savings; and (ix) national productivity benefits.

5. Benefits to passengers. For passenger traffic diverted from road, the user cost saving is the difference in the passenger economic fare between road and rail transport. For generated

Appendix 9 35

passenger traffic the estimated passenger-km was multiplied by one-half of the average economic cost saving. Passenger traffic time saving was computed only for diverted traffic, and its impact was minimal since this is primarily a freight railway. As well, tariffs are amongst the lowest in the world and total benefits to passengers including time and cost savings amounted to only $140,000 in 2015 out of total benefits of $54.79 million.

6. Benefits to freight. For freight traffic diverted from roads, the economic benefit is the difference in shipper economic costs between road and rail transport ($0.0463 per ton-km). For traffic diverted from other railway routes, the benefit is the rail-diverted ton-km multiplied by the economic tariff of rail transport. For generated freight traffic benefits an adjusted economic value-added ranging from $24.64 per ton for coal to $1,126.98 per ton for containerized cargo was computed on the basis of financial value, nontax elements, SERF, percentage value added, percentage net taxes, depreciation, and operating surplus for each commodity. The adjusted economic values per ton represent the net economic value, i.e., the value of output at economic prices less the costs of production (sum of all intermediate input costs, wages, and annualized investment costs). Since generated traffic benefits represent producer’s surplus, one-half of the economic value for each commodity is multiplied by estimated generated freight tons. Similar to passenger traffic, freight traffic time saving was computed only for diverted traffic.

7. Other benefits. Energy and pollution benefits were also estimated for the project. With the diversion of freight and passengers from road to rail, there will be benefits from reduced pollution from trucks, buses, and cars as well as less energy used by the transport sector. On the basis of research conducted by the International Energy Agency, the number of tons of carbon dioxide (CO2) per traffic unit for road and rail were computed. These savings for rail compared with road were found to be 25.4 tons of CO2 per million passenger-km and 24 tons of CO2 per million ton-km. In addition, the saving in reduced total fuel consumption as a result of diverting traffic from both road and rail to the North-South Railway was computed and included in the benefit stream. Unit operating costs for both road and rail transport were adjusted to exclude fuel costs in order to eliminate double counting of this benefit.

8. The North-South Railway avoids some costs that would not be possible in the absence of its development. The economic analysis estimated four such cases of cost avoidance; (i) highway investment costs avoided; (ii) highway routine and periodic maintenance costs avoided; (iii) truck shipping charges to freight shippers avoided through increased competition by the project railway; and (iv) road accident costs avoided.

D. Appraisal Results

9. At appraisal, the economic internal rate of return (EIRR) for the project was 16.65% (Table A9.1). Benefits from freight traffic, including generated benefits, were the major economic benefit, with passenger benefits contributing minimally, and other benefits making up the balance. Sensitivity analysis tested 10 scenarios to assess the robustness of the results of the economic analysis (Table A9.2). The total cost would have to be more than 37% higher than estimated for the EIRR to fall below the assumed discount threshold of 12%. Considering the experience of ADB-financed projects in the railway sector, and that there was a 13% contingency included for the major cost components (power supply, signaling, telecommunications), this switching value was considered to be unlikely to occur. A 1-year delay in completion would reduce NPV by 26% but would not bring it down to zero. A delay in implementation was considered unlikely, as MRT has demonstrated the capacity to implement and complete projects on schedule. Combinations of adverse effects of benefits and costs were also tested. The results showed that the project would maintain its economic viability under plausible scenarios of variability in key parameters.

36 Appendix 9

Table A9.1: Economic Internal Rate of Return at Appraisal (2010 economic prices, domestic price numeraire, US$ million)

Year

Costs Benefits Net

Benefits

Capital Additional Investment

Change in Working Capital

Total Capital

Operation and Maintenance

Total Cost

Passenger Benefits

Freight Benefits

Other Benefits

Total Benefits

2011 77 165 0 (243) (1) (244) 0 0 0 0 (244)

2012 44 0 0 (44) (8) (51) 0 2 7 10 (41) 2013 1 0 0 (1) (18) (18) 0 8 30 38 19 2014 0 0 0 0 (19) (19) 0 35 9 45 25 2015 0 0 0 0 (21) (21) 0 45 10 55 33 2016 0 0 0 0 (24) (24) 0 56 11 66 43 2017 0 0 0 0 (25) (25) 0 59 11 70 46 2018 0 0 0 0 (26) (26) 0 63 12 75 49 2019 0 0 0 0 (27) (27) 0 67 12 80 53 2020 0 0 0 0 (28) (28) 0 72 13 85 57 2021 0 0 0 0 (30) (30) 0 77 14 91 61 2022 0 0 0 0 (31) (31) 0 83 15 98 67 2023 0 0 0 0 (33) (33) 0 90 15 106 73 2024 0 0 0 0 (34) (34) 0 99 16 116 81 2025 0 0 0 0 (36) (36) 0 109 17 127 91 2026 0 0 0 0 (38) (38) 0 123 18 141 103 2027 0 0 0 0 (40) (40) 0 130 19 149 109 2028 0 0 0 0 (43) (43) 0 138 20 158 116 2029 0 0 0 0 (45) (45) 1 146 21 168 123 2030 0 0 0 0 (46) (46) 1 154 23 178 131 2031 0 0 0 0 (47) (47) 1 164 24 188 141 2032 0 0 0 0 (49) (49) 1 172 25 198 149 2033 0 0 0 0 (50) (50) 1 181 26 208 158 2034 0 0 0 0 (51) (51) 1 191 27 219 168 2035 0 0 0 0 (52) (52) 1 201 29 231 178 2036 0 0 0 0 (54) (54) 1 212 30 243 190 2037 0 0 0 0 (55) (55) 1 224 31 257 202 2038 0 0 0 0 (56) (56) 1 237 33 271 215 2039 0 0 0 0 (58) (58) 1 251 35 287 230 2040 0 0 0 0 (59) (59) 1 267 36 305 245 2041 0 0 0 0 (61) (61) 2 283 38 323 262

NPV @ 12% 168.81 EIRR % 16.65

EIRR = economic internal rate of return, NPV = net present value Source: ADB. 2011. Report and Recommendation of the President to the Board of Directors: Proposed Loan to Turkmenistan for the North–South Railway Project. Manila.

Appendix 9 37

Table A9.2: Sensitivity Indicators and Switching Values at Appraisal

10. EIRR was recalculated at completion of the project’s implementation. Basically, the same approach and parameter estimates as used during project appraisal were used with the exception of using updated traffic projections, project costs, and timing of commencement of project operations in 2016, four years later than initially assumed. Also, the end-year is extended from 2041 to 2045 in order to keep the 30-year evaluation period consistent. Tables A9.3 and A9.4 provide the recalculated values for EIRR and sensitivity indicators, respectively. 11. The recalculated EIRR for the project is 9.62%, considerably lower than the appraised value and below the minimum required EIRR of 12% at the time of the project appraisal. However, it is slightly higher than the revised minimum EIRR of 9%. The principal reasons for the lower reevaluated EIRR are lower traffic than initially estimated, and the longer period of implementation. The lower initial investment incurred (the actual cost at $132.70 million is 26% lower than the appraisal cost of $166.70 million) did not offset the effects of lower traffic and 3.3-year delay in implementation. Although the delay in project implementation did not adversely affect the actual project cost (TCP-1 and TCP-2 contracts were fixed price and the actual cost of the PMC contract was $0.7 million lower than $2.70 million estimated at appraisal), the sensitivity analysis conducted at appraisal showed that a one-year delay reduced the NPV by 26.3%. The actual delay of 3.3 years caused the most reduction in re-evaluated EIRR. Sensitivity indicators show that the project is sensitive to any plausible change in parameter values.

Parameter Change By Revised

EIRR Sensitivity Indicator

Switching Value (%)

NPV @ 12% (US$ million)

Track Equipment Costs 100% 16.27% 0.06 1,702.93% 158.89

Project Works Costs 10% 16.32% 0.50 199.12% 160.33

Annual Costs 20% 15.60% 1.15 86.73% 129.88

Total Costs 10% 15.21% 2.64 37.83% 124.18

Generated Freight Benefits (80)% 13.81% 0.70 (142.90)% 74.31

Total Freight Benefits (10)% 15.34% 3.06 (32.67)% 117.14

Passenger Transport Benefits (50)% 16.63% 0.01 (8,830.95)% 167.85 Delay Implementation by 1 Year N/A 15.46% N/A 26.31% 124.39 Reduce Benefits by 10%; Increase Costs by 10%

(10)%; +10%

13.68% 3.14 (31.81)% 62.67

Reduce SERF by 20% (20)% 15.65% 1.48 (67.62)% 118.88

EIRR = economic internal rate of return, NPV = net present value at 12%, SERF = shadow exchange rate factor. Source: ADB. 2011. Report and Recommendation of the President to the Board of Directors: Proposed Loan to Turkmenistan for the North–South Railway Project. Manila.

38 Appendix 9

Table A9.3: Recalculated Economic Internal Rate of Return (2010 economic prices, domestic price numeraire, $ million)

Year

Costs Benefits Net

Benefits

Capital Additional Investment

Change in Working Capital

Total Capital

Operation and

Maintenance Total Cost

Passenger Benefits

Freight Benefits

Other Benefits

Total Benefits

2011 0.00 (152.89) 0.00 (152.89) 0.00 (152.89) 0.00 0.00 0.00 0.00 (152.89) 2012 (29.32) 0.00 0.00 (29.32) 0.00 (29.32) 0.00 0.00 0.00 0.00 (29.32) 2013 (40.19) 0.00 0.00 (40.19) 0.00 (40.19) 0.00 0.00 0.00 0.00 (40.19) 2014 (14.11) 0.00 0.00 (14.11) 0.00 (14.11) 0.00 0.00 0.00 0.00 (14.11) 2015 (4.94) 0.00 0.00 (4.94) 0.00 (4.94) 0.00 0.00 0.00 0.00 (4.94) 2016 (18.33) 0.00 0.00 (18.33) (8.77) (27.10) 0.02 3.74 2.25 6.01 (21.09) 2017 (0.10) 0.00 0.00 (0.10) (13.21) (13.31) 0.02 8.98 4.94 13.94 0.63 2018 0.00 0.00 0.00 0.00 (15.48) (15.48) 0.02 11.94 6.35 18.31 2.82 2019 0.00 0.00 0.00 0.00 (18.07) (18.07) 0.03 15.44 7.95 23.42 5.35 2020 0.00 0.00 0.00 0.00 (20.69) (20.69) 0.04 19.23 9.55 28.83 8.13 2021 0.00 0.00 0.00 0.00 (22.08) (22.08) 0.05 22.50 10.36 32.91 10.84 2022 0.00 0.00 0.00 0.00 (23.59) (23.59) 0.06 26.57 11.23 37.86 14.27 2023 0.00 0.00 0.00 0.00 (25.15) (25.15) 0.07 30.79 12.11 42.97 17.81 2024 0.00 0.00 0.00 0.00 (26.84) (26.84) 0.08 36.18 13.03 49.29 22.45 2025 0.00 0.00 0.00 0.00 (28.67) (28.67) 0.09 43.05 14.02 57.15 28.48 2026 0.00 (12.88) 0.00 (12.88) (30.65) (43.53) 0.09 52.12 15.06 67.27 23.74 2027 0.00 0.00 0.00 0.00 (32.84) (32.84) 0.11 58.40 16.23 74.74 41.90 2028 0.00 0.00 0.00 0.00 (35.21) (35.21) 0.12 65.56 17.48 83.16 47.95 2029 0.00 0.00 0.00 0.00 (37.80) (37.80) 0.13 73.66 18.82 92.61 54.82 2030 0.00 0.00 0.00 0.00 (39.09) (39.09) 0.14 81.85 19.91 101.90 62.82 2031 0.00 0.00 0.00 0.00 (40.22) (40.22) 0.15 88.02 20.92 109.09 68.87 2032 0.00 0.00 0.00 0.00 (41.40) (41.40) 0.16 94.23 22.02 116.42 75.01 2033 0.00 0.00 0.00 0.00 (42.63) (42.63) 0.17 101.00 23.18 124.35 81.72 2034 0.00 0.00 0.00 0.00 (43.90) (43.90) 0.18 108.36 24.40 132.95 89.05 2035 0.00 (7.64) 0.00 (7.64) (45.21) (52.86) 0.19 116.40 25.69 142.28 89.43 2036 0.00 5.23 0.00 5.23 (46.57) (41.34) 0.20 125.19 27.04 152.44 111.10 2037 0.00 0.00 0.00 0.00 (47.98) (47.98) 0.21 134.82 28.48 163.51 115.53 2038 0.00 0.00 0.00 0.00 (49.44) (49.44) 0.22 145.37 29.99 175.58 126.15 2039 0.00 0.00 0.00 0.00 (50.95) (50.95) 0.23 156.97 31.58 188.79 137.84 2040 0.00 0.00 0.00 0.00 (52.51) (52.51) 0.24 169.73 33.27 203.24 150.73 2041 0.00 0.00 0.00 0.00 (54.13) (54.13) 0.25 183.80 35.05 219.10 164.97 2042 0.00 0.00 0.00 0.00 (55.80) (55.80) 0.30 196.15 36.74 233.20 177.40 2043 0.00 0.00 0.00 0.00 (57.53) (57.53) 0.30 209.39 38.50 248.19 190.65 2044 0.00 0.00 0.00 0.00 (59.32) (59.32) 0.30 223.56 40.35 264.21 204.88 2045 0.00 (22.43) 0.00 (22.43) (61.18) (83.61) 0.30 238.73 42.29 281.33 197.72

NPV @ 9% 28.99 EIRR % 9.62

Appendix 9 39

Table A9.4: Recalculated Sensitivity Indicators and Switching Values

Parameter Reference Value Change By Revised

EIRR Sensitivity Indicator

Switching Value (%)

NPV @ 9% (US$ million)

EIRR 9.62% 28.99

Track Maintenance Equipment Costs 100% 8.48% 1.72 58.20% (20.82)

Project Works Costs 25% 8.21% 8.45 11.83% (32.25)

Annual Costs 20% 7.74% 13.31 7.52% (48.16)

Total Costs 10% 7.69% 28.48 3.51% (53.56)

Generated Freight Benefits (10)% 8.06% 22.32 (4.48)% (35.70)

Total Freight Benefits (10)% 7.83% 25.04 (3.99)% (43.61) Passenger Transport Benefits (50)% 8.64% 2.98 (33.52)% (14.26) Reduce Benefits by 10%; Increase Costs by 10%

(10)%; +10% 6.61% 20.82 (4.80)% (91.73)

Reduce SERF by 20% (20)% 7.51% 13.45 (7.43)% (48.99)

EIRR = economic internal rate of return, NPV = net present value at 12%, SERF = shadow exchange rate factor. Source: Asian Development Bank Consultants.

40 Appendix 10

FINANCIAL RE-EVALUATION

A. Introduction

1. The financial evaluation during appraisal covered the 2-year implementation period from beginning-2011 to end-2012, including 6-month defects liability period, and 30 years of operations from 2013 to 2042. The Financial Internal Rate of Return (FIRR) of the project was estimated based on constant 2010 financial costs, which included all capital costs, operating expenses (fixed and variable expenses) and business and other financial metrics related to the components of the project.

B. Revenue Forecast

2. At appraisal, the revenue for the Akyol–Hazar (Buzkhun) section of the North-South Railway was based on traffic projections and freight and passenger tariffs. The traffic forecast is described in Appendix 8. The freight and passenger revenue were estimated by applying the existing MRT tariffs with an annual escalation of 1% adjusted every five years. This increase reflects tariff adjustment in real terms and does not represent inflationary adjustment. The transit freight tariff in 2013 was $0.038 per ton-km projected to increase to $0.049/ton-km in 2041 and the tariff for national freight including import and export traffic was $0.028 per ton-km estimated to reach $0.036/ton-km in 2041. The passenger tariff in 2013 was $0.015 per passenger-km increasing to $0.02/passenger-km in 2041.

3. Not all the revenue could be attributed to the project’s components. The project components include power supply, signaling, telecom systems and track machinery for a new railway line, which was already constructed and paid for by the Government. As such, the project components are an integral part of a railway infrastructure and the revenue for project components is not a discernible part of the passenger and freight transport tariff used by MRT. A part of the tariff-based transport revenue was assumed to be attributable to signaling, telecom, and power supply items supporting the railway’s operations. For allocation of a portion of the freight and passenger transport revenue to project components the proportion of initial project investment was used. The initial investment for power supply, signaling, and telecom including physical contingency was $115.82 million and for the track, stations, and rolling stock already paid for by the MRT $186.43 million. Therefore, the portion of initial investment for the project is 38% of the total investment. This portion is applied to the total revenue to estimate the revenue attributed to the project’s components.

C. Capital Investment and Working Expenses

4. Capital investment for the project included initial and periodic nominal cost and physical contingency, excluding price contingency, taxes, and financing charges. Periodic capital investment included overhaul and partial replacement cost of project assets, an amount estimated at 20% of the initial cost every 10 years.

5. The working expenses at appraisal included fixed and variable annual costs to maintain and operate the project components. Fixed costs included the minimum maintenance materials and labor costs which do not vary with the level of traffic. This cost is a function of time and represents the cost for activities, which are necessary to keep the project assets in good working condition. The incremental minimum maintenance materials were assumed at 1% of capital expenditure with periodic maintenance to be conducted every 10 years. As for incremental labor cost, it was assumed that for the first 5 years, the operation of project assets will be absorbed by

Appendix 10 41

the existing workforce without new hire and that in every 5th year thereafter, 10% of incremental revenue will be expensed as labor, fixed for the following 5 years. This represents less than 5.4% of the annual revenue for the Akyol–Hazar section. With respect to initial project investment, fixed costs in 2013 was assumed at 1%, gradually increasing to 4.6% by 2041 as the age of assets increases.

6. Variable costs represent annual expenditures to support projected traffic. Variable costs include labor, materials, parts, fuel, electricity, and other costs to operate, repair, and maintain the power supply, signaling, and telecom equipment. All project components are critical for safe and efficient operation of trains along the Akyol–Hazar section. Fixed costs are necessary to keep the facilities ready for operations, and variable costs are necessary to assure that uninterrupted operations can proceed. At appraisal, variable costs were estimated at 25% of the revenue attributable to project components. This represented 9.5% of the annual revenue for the Akyol–Hazar section. Variable costs in 2013 was estimated at appraisal as 1.8% of initial project investment, gradually increasing to 11% by 2041 as traffic increases.

7. In 2013, the combined fixed and variable costs added up to 39% of the revenue attributable to the project components. At appraisal, this resulted in a working ratio of 64.2% in 2013 with the last-year ratio of 55.3%. Operating ratio ranged from 87.5% in 2013 to 77.8% in 2041. Both ratios are within the reasonable range of comparable values of profitable railways.

D. Weighted Average Cost of Capital

8. The weighted average cost of capital (WACC) calculated at appraisal shown in Table A10.1 is based on 2010 data with following assumptions: (i) ADB debt carrying a LIBOR-based interest at 1.63%; (ii) Cost of equity at 11% is based on local interest of 7% plus risk premium of equity over debt of 4%; (iii) The nominal cost of foreign exchange denominated debt was assumed to include a risk factor of 3%. With these assumptions the appraisal WACC was 4.41%.

Table A10.1: Weighted Average Cost of Capital (WACC) at Appraisal

Item ADB Loan Equity Total

Amount ($ Million) 125.00 41.81 166.81 Weight 74.94% 25.06% 100.00%

Nominal cost 4.63% 11.00% Tax rate 0.00% 0.00% Tax adjusted nom cost 4.63% 11.00%

Inflation rate 0.00% 7.00% Real cost 4.63% 3.74% Weighted component 3.47% 0.949%

WACC 4.41% Source: ADB. 2011. Report and Recommendation of the President to the Board of Directors: Proposed Loan to Turkmenistan for the North–South Railway Project. Manila.

9. The re-calculated WACC shown in Table A10.2 is lower than the appraisal WACC because of two reasons: (i) higher nominal cost for equity, which is composed of domestic bank loan at 6.5%, risk premium of equity over debt at 4%, and foreign exchange risk of foreign debt at 3%; (ii) the reduced weight of equity in WACC due to lower level of contribution by the government to the actual project cost.

42 Appendix 10

Table A10.2: Re-calculated Weighted Average Cost of Capital

Item ADB Loan Other Loan Equity Total

Amount ($ Million) 116.27 0.00 16.42 132.70

Weight 87.62% 0.00% 12.38% 100.00%

Nominal cost 4.66% 6.50% 13.50% Tax rate 0.00% 0.00% 0.00% Tax adj nom cost 4.66% 6.50% 13.50% Inflation rate 1.40% 7.00% 9.00% Real cost 3.22% -0.47% 4.13% Weighted component 2.82% 0.00% 0.51%

WACC 3.33%

Source: Asian Development Bank Consultants. E. Financial Internal Rate of Return (FIRR) Calculation 10. FIRR has been estimated at appraisal for net cash flows for the 2011–2042 evaluation period. Table A10.3 details the estimation of FIRR. Since MRT is a government agency, it is not subject to income and business taxes. Therefore, the net cash flow for before and after tax income is same. The residual value of fixed assets included in the last year of evaluation period ($19.7 million) is equal to one-half of the net book value of project components, which have an average economic life of 40 years for power supply, signaling, and telecom and 25 years for track machinery, all with a scrap value of 10%. 11. The FIRR for the project at 7.71% is higher than the WACC of 4.41% The Net Present Value (NPV) over the 2011–2042 time period at the discount rate equal to WACC of 4.41% is $101.6 million for both net flows before or after income tax. At appraisal the project was considered financially viable.

Table A10.3: Estimation of FIRR at Appraisal

($ million)

Year Capital

Cost

Change in Working Capital

Working Expenses

Operating Revenue

Income, Business & Other Taxes

Residual Value of

Fixed Assets

Net Cash Flow Before and After

Income Tax

2011 (94.81) 0.00 0.00 0.00 0.00 0.00 (94.81)

2012 (60.34) 0.00 0.00 0.00 0.00 0.00 (60.34)

2013 0.00 (0.68) 4.11 10.15 0.00 0.00 5.36

2014 0.00 (0.74) 4.41 11.37 0.00 0.00 6.22

2015 0.00 (0.80) 4.80 12.93 0.00 0.00 7.33

2016 0.00 (0.87) 5.24 14.66 0.00 0.00 8.55

2017 0.00 (0.91) 5.46 15.54 0.00 0.00 9.18

2018 0.00 2.28 7.64 17.34 0.00 0.00 11.98

2019 0.00 0.04 7.91 18.42 0.00 0.00 10.55

2020 0.00 0.05 8.20 19.57 0.00 0.00 11.42

2021 0.00 0.05 8.51 20.82 0.00 0.00 12.36

2022 (23.60) 2.02 8.84 22.16 0.00 0.00 (8.27)

2023 0.00 (1.73) 10.25 24.81 0.00 0.00 12.82

2024 0.00 0.07 10.67 26.46 0.00 0.00 15.86

2025 0.00 0.07 11.11 28.24 0.00 0.00 17.20

2026 0.00 0.08 11.59 30.17 0.00 0.00 18.65

Appendix 10 43

Year Capital

Cost

Change in Working Capital

Working Expenses

Operating Revenue

Income, Business & Other Taxes

Residual Value of

Fixed Assets

Net Cash Flow Before and After

Income Tax

2027 0.00 0.08 12.09 32.16 0.00 0.00 20.15

2028 0.00 0.35 14.19 36.07 0.00 0.00 22.22

2029 0.00 0.10 14.80 38.50 0.00 0.00 23.80

2030 0.00 0.05 15.08 39.61 0.00 0.00 24.58

2031 0.00 0.05 15.37 40.77 0.00 0.00 25.45

2032 (23.60) 2.02 15.66 41.93 0.00 0.00 4.68

2033 0.00 (1.67) 17.44 45.33 0.00 0.00 26.22

2034 0.00 0.05 17.76 46.63 0.00 0.00 28.92

2035 0.00 0.06 18.09 47.96 0.00 0.00 29.92

2036 0.00 0.06 18.44 49.34 0.00 0.00 30.96

2037 0.00 0.06 18.79 50.76 0.00 0.00 32.02

2038 0.00 0.18 19.85 52.22 0.00 0.00 32.55

2039 0.00 0.18 20.91 56.47 0.00 0.00 35.74

2040 0.00 0.07 21.32 58.11 0.00 0.00 36.85

2041 0.00 0.07 21.74 59.79 0.00 0.00 38.12

2042 0.00 0.12 22.49 62.78 0.00 19.70 60.12

FIRR 7.71%

NPV @ WACC 101.61

WACC 4.41% Source: ADB. 2011. Report and Recommendation of the President to the Board of Directors: Proposed Loan to Turkmenistan for the North–South Railway Project. Manila. 12. A sensitivity analysis was performed to test the effects of possible unfavorable scenarios with respect to changes in the key parameters that affect costs and revenues. The results of this analysis are summarized in Table A10.4. The FIRR is more sensitive to changes in freight traffic than to changes in other parameters considered. For other parameters, the financial viability does not change as a result of plausible changes in parameter estimates. In summary, the project is considered financially viable and sustainable at WACC of 4.41%.

Table A10.4: Sensitivity Analysis at Appraisal

Scenario

Sensitivity of FIRR Switching Values for FIRR

Before Income Tax

After Income Tax

Before Income Tax

After Income Tax

Base Case WACC 4.41% 7.71% 7.71% N/A N/A

pkm decrease by 50% 7.19% 7.19% 318.69% 318.69%

tkm decrease by 10% 5.83% 5.83% 17.61% 17.61%

Working Expenses Increase by 20% 6.16% 6.16% 42.48% 42.48%

Variable Costs Increase by 30% 6.19% 6.19% 65.25% 65.25%

Fixed Costs Increase by 50% 6.28% 6.28% 115.25% 115.25%

Delay implementation by 1 year 6.96% 6.96% NPV reduced by 25% FIRR = Financial Internal Rate of Return; N/A = Not Applicable; NPV = Net Present Value; pkm = Passenger kilometers; tkm = Ton kilometers; WACC= Weighted Average Cost of Capital. Source: ADB. 2011. Report and Recommendation of the President to the Board of Directors: Proposed Loan to Turkmenistan for the North–South Railway Project. Manila.

13. Table A10.5 shows the re-calculation of FIRR at project completion with results of sensitivity analysis in Table A10.6. The evaluation period is extended to 2045 in order to maintain

44 Appendix 10

a 30-year time perspective as in appraisal. The results at completion are more robust than at appraisal mainly due to extending the evaluation period by 3 years from 2042 to 2045 and lower initial project cost ($155.16 million at appraisal vs $116.11 million actual). If reducing the initial project cost and extending the evaluation period were ignored, the reevaluated FIRR would have been 3.86%, still higher than the re-estimated WACC. As in the case of sensitivity at appraisal, the tests at completion show that results are more sensitive to variation of freight revenue than other parameters.

Table A10.5: Recalculated FIRR for Project ($ million)

Year Capital

Cost

Change in Working Capital

Working Expenses

Operating Revenue

Tax Residual Value of

Fixed Assets

Net Cash Flow

Net Business & Other

Income Tax

Before Income

Tax

After Income

Tax

2012 (31.90) 0.00 0.00 0.00 0.00 0.00 0.00 (31.90) (31.90) 2013 (43.55) 0.00 0.00 0.00 0.00 0.00 0.00 (43.55) (43.55) 2014 (15.33) 0.00 0.00 0.00 0.00 0.00 0.00 (15.33) (15.33) 2015 (5.37) 0.00 0.00 0.00 0.00 0.00 0.00 (5.37) (5.37) 2016 (19.96) (0.54) 3.27 2.62 0.00 0.00 0.00 (21.15) (21.15) 2017 0.00 (0.69) 4.15 6.15 0.00 0.00 0.00 1.31 1.31 2018 0.00 (0.77) 4.60 7.97 0.00 0.00 0.00 2.60 2.60 2019 0.00 (0.85) 5.12 10.04 0.00 0.00 0.00 4.07 4.07 2020 0.00 (0.94) 5.65 12.15 0.00 0.00 0.00 5.56 5.56 2021 0.00 1.22 6.10 13.94 0.00 0.00 0.00 9.07 9.07 2022 0.00 0.05 6.42 15.23 0.00 0.00 0.00 8.87 8.87 2023 0.00 0.06 6.75 16.56 0.00 0.00 0.00 9.86 9.86 2024 0.00 0.06 7.11 18.00 0.00 0.00 0.00 10.95 10.95 2025 0.00 0.06 7.50 19.56 0.00 0.00 0.00 12.12 12.12 2026 (5.71) 0.59 8.19 22.33 0.00 0.00 0.00 9.01 9.01 2027 0.00 (0.39) 8.68 24.29 0.00 0.00 0.00 15.21 15.21 2028 0.00 0.09 9.22 26.43 0.00 0.00 0.00 17.30 17.30 2029 0.00 0.10 9.80 28.74 0.00 0.00 0.00 19.04 19.04 2030 0.00 0.05 10.09 29.90 0.00 0.00 0.00 19.86 19.86 2031 0.00 0.11 10.73 32.49 0.00 0.00 0.00 21.86 21.86 2032 0.00 0.05 11.01 33.60 0.00 0.00 0.00 22.63 22.63 2033 0.00 0.05 11.30 34.75 0.00 0.00 0.00 23.50 23.50 2034 0.00 0.05 11.60 35.95 0.00 0.00 0.00 24.40 24.40

2035 0.00 0.05 11.91 37.18 0.00 0.00 0.00 25.33 25.33 2036 (5.71) 0.61 12.72 40.42 0.00 0.00 0.00 22.61 22.61 2037 0.00 (0.42) 13.07 41.82 0.00 0.00 0.00 28.33 28.33 2038 0.00 0.06 13.43 43.26 0.00 0.00 0.00 29.89 29.89 2039 0.00 0.06 13.80 44.75 0.00 0.00 0.00 31.01 31.01 2040 0.00 0.06 14.19 46.30 0.00 0.00 0.00 32.17 32.17 2041 0.00 0.17 15.20 50.34 0.00 0.00 0.00 35.31 35.31 2042 0.00 0.07 15.62 52.03 0.00 0.00 0.00 36.48 36.48 2043 0.00 0.07 16.06 53.77 0.00 0.00 0.00 37.79 37.79 2044 0.00 0.08 16.51 55.57 0.00 0.00 0.00 39.14 39.14 2045 0.00 0.08 16.97 57.44 0.00 0.00 48.77 89.32 89.32

FIRR 8.61% 8.61%

NPV @ WACC 180.71 180.71

WACC 3.33%

Source: Asian Development Bank Consultants estimate.

Appendix 10 45

Table A10.6: Sensitivity Analysis at Completion

Scenario

Sensitivity of FIRR Switching Values for FIRR

Before Income Tax

After Income Tax

Before Income Tax

After Income Tax

Base Case WACC 3.33% 8.61% 8.61% N/A N/A

Passenger km decrease by 50% 8.60% 8.60% More than 100%

Ton km decrease by 10% 7.60% 7.60% 52.48% 52.48%

Working Expenses Increase by 20% 7.86% 7.86% 141.76% 141.76%

Variable Costs Increase by 30% 7.86% 7.86% 212.49% 212.49%

Fixed Costs Increase by 50% 7.99% 7.99% 426.02% 426.02%

FIRR = Financial Internal Rate of Return; N/A = Not Applicable; NPV = Net Present Value; PKM = Passenger kilometers; TKM = Ton kilometers; WACC= Weighted Average Cost of Capital.

Source: Asian Development Bank Consultants estimate.

46 Appendix 11

CONTRIBUTION TO ADB RESULTS FRAMEWORK

1 Installation of power, signaling, and telecommunications systems for 288.2 kilometers of the already constructed

railway line between Akyol and Hazar of the North-South Railway.

Results Framework Indicator(s) Targets Methods / Comments

Railway Upgraded1 288.2 Kilometers

MRT records

Appendix 12 47

MRT TRACK MAINTENANCE RESULTS FOR THE WHOLE RAILWAY NETWORK IN TURKMENISTAN

Source: Ministry of Railway Transport.

Type of Maintenance Unit of

measure

2012 2013 2014 2015 2016

Plan Actual Plan Actual Plan Actual Plan Actual Plan Actual

Track capital repairs (overhaul) replacement of rail, sleeper, fastener, ballast, etc.

km 60.00 20.10 60.00 60.00 10.00 18.80 80.00 94.00 23.00 28.80

Medium maintenance (repair) replacement of ballast, also selected rail and sleepers which are damaged.

km 60.00 42.90 60.00 76.40 60.00 65.20 60.00 82.20 60.00 146.10

Lifting maintenance ballast (replacement up to 100/200m3

per km).

km 65.00 58.20 65.00 67.60 60.00 57.80 65.00 93.70 60.00 93.70

Replacement of switches. set 50.00 85.00 50.00 62.00 50.00 54.00 62.00 118.00 60.00 127.00 Replacement of wooden sleepers.

set 50.00 15.00 50.00 28.20 46.00 12.00 60.00 38.50 30.00 14.30

Replacement of rails km 32.50 13.59 27.00 27.70 30.00 25.20 32.00 51.50 25.00 40.70 Capital repairs of crossings crossing 33.00 27.00 30.00 31.00 31.00 31.00 25.00 32.00 25.00 34.00