Completion Report

Project Number: 42533 Grant Number: 0161 June 2013

Afghanistan: Hairatan to Mazar-e-Sharif Railway

Project

CURRENCY EQUIVALENTS

Currency Unit – afghani/s (AF)

At Appraisal At Project Completion (14 September 2009) (5 April 2013)

AF1.00 = $0.02 $0.02 $1.00 = AF50.00 AF54.15

ABBREVIATIONS ADB – Asian Development Bank ANDS – Afghanistan National Development Strategy ARA – Afghanistan Railway Authority CAREC – Central Asia Regional Economic Cooperation EIRR – economic internal rate of return EMP – environmental management plan EPC – engineering, procurement, and construction FIRR – financial internal rate of return IEE – initial environmental examination ISAF – International Security Assistance Force MOF – Ministry of Finance MOIA – Ministry of Interior Affairs MOM – Ministry of Mines MPW – Ministry of Public Works NPV – net present value O&M – operation and maintenance PCR – project completion review PIU – project implementation unit UTY – Uzbekistan Temir Yullari WACC – weighted average cost of capital

NOTES

(i) The fiscal year (FY) of the Government of Afghanistan ends on 20 December. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2012 ends on 20 December 2012. Prior to FY2012, the FY ended on 20 March.

(ii) In this report, "$" refers to US dollars.

Vice-President X. Zhao, Operations 1 Director General K. Gerhaeusser, Central and West Asia Department (CWRD) Director X. Yang, Transport and Communications Division, CWRD Team leader B. Reddy Bathula, Senior Transport Specialist, CWRD Team members N. Bustamante, Senior Operations Assistant, CWRD N. Sahibzada, Associate Project Analyst, CWRD

M. Thiruchelvam, Transport Specialist, CWRD A. Villaseñor, Senior Operations Assistant, 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

I. PROJECT DESCRIPTION 1

II. EVALUATION OF DESIGN AND IMPLEMENTATION 2

A. Relevance of Design and Formulation 2 B. Project Outputs 2 C. Project Costs 4 D. Disbursements 5 E. Project Schedule 5 F. Implementation Arrangements 6 G. Conditions and Covenants 6 H. Consultant Recruitment and Procurement 7 I. Performance of Consultants and Contractor 7 J. Performance of the Recipient and the Executing Agency 8 K. Performance of the Asian Development Bank 8

III. EVALUATION OF PERFORMANCE 9

A. Relevance 9 B. Effectiveness in Achieving Outcome 10 C. Efficiency in Achieving Outcome and Outputs 10 D. Preliminary Assessment of Sustainability 11 E. Impact 11

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 13

A. Overall Assessment 13 B. Lessons 13 C. Recommendations 14

APPENDIXES

1. Project Framework 16 2. Details of Outputs and Standards 19 3. Project Cost and Financing Plan 20 4. Disbursement of Grant Proceeds 21 5. Appraisal and Actual Implementation Schedules 22 6. Chronology of Major Events 23 7. Organizational Structure of Project Implementation 25 8. Status of Compliance with Major Covenants 26 9. Summary of Contract Packages 33 10. Economic Reevaluation 34 11. Financial Reevaluation 38 12. Risk Management 41 13. Project Overall Assessment 43

BASIC DATA

A. Grant Identification

1. Country 2. Grant Number 3. Project Title 4. Recipient 5. Executing Agency 6. Amount of Grant 7. Project Completion Report Number

Afghanistan 0161-AFG(SF) Hairatan to Mazar-e-Sharif Railway Project The Islamic Republic of Afghanistan Ministry of Public Works $165 million 1388

B. Grant Data

1. Appraisal – Date Started – Date Completed 2. Grant Negotiations – Date Started – Date Completed 3. Date of Board Approval 4. Date of Grant Agreement 5. Date of Grant Effectiveness – In Grant Agreement – Actual – Number of Extensions 6. Closing Date – In Grant Agreement – Actual – Number of Extensions

9 August 2009 17 August 2009 10 September 2009 10 September 2009 30 September 2009

a

30 September 2009 30 days after the date of grant agreement 3 November 2009 1 (interim extension) 31 December 2011 31 December 2012 Financial closure on 5 April 2013 1

7. Disbursements a. Dates

Initial Disbursement

22 January 2010

Final Disbursement

5 April 2013

Time Interval

38 months

Effective Date

3 November 2009

Original Closing Date

31 December 2011

Time Interval

26 months

a Shorter circulation was due to unexpected delays in grant negotiations and receipt of responses from potential

suppliers on the cost of rail track components, as notified during circulation of the report and recommendation of the President.

ii

ADB = Asian Development Bank.

2. Cost Breakdown by Project Component ($ million)

Component Appraisal Estimate Actual

A. Base Cost 1. Railway Construction

a. Civil and Railway Works (Including Land Acquisition and Resettlement)

b. Design Review and Supervision 2. Institutional Development 3. Taxes and Duties

130.5

4.0 0.7 4.5

145.9

6.4 0.4 3.0

B. Recurring Costs 1. Project Management 0.5 2.9

C. Contingencies 29.8 0.0 Total 170.0 158.6

3. Project Schedule

Item Appraisal Estimate Actual

Turnkey Contract Procurement Q3 2009–Q4 2009 Q3 2009–Q4 2009 Completion of Work Q4 2009–Q4 2010 Q1 2010–Q4 2010 Consultancy Services for Design Review and Construction Supervision

Procurement Q3 2009–Q4 2009 Q3 2009–Q4 2009 Implementation Q4 2009–Q2 2011 Q1 2010–Q4 2012

a

Start of Operation and Maintenance Activities Procurement Q4 2010–Q1 2011 Q1 2010–Q3 2011

a Under the original scope, the consultancy contract covered a period of 18 months for design and construction

supervision. The scope of the consultancy contract was enhanced to include services during railway operation and maintenance until 31 December 2012.

b. Amount ($)

Category Original

Allocation Last Revised

Allocation

Amount Increased/ Canceled

Amount Disbursed

Undisbursed Balance

a

1. Turnkey Contract 130,000,000 154,193,746 24,193,746 145,866,057 8,327,689 2. Consulting Services 4,700,000 6,700,000 2,000,000 6,395,612 304,388 3. Operation &

Maintenance Support 100,000 100,000 0 100,000

4. Project Management Support

500,000 4,000,000 3,500,000 3,272,877 727,123

5. Unallocated 29,800,000 6,254 (29,793,746) 0 6,254

Total 165,000,000 165,000,000 0 155,534,546 9,465,454

() = negative number. a Cancelled at financial closing of grant on 5 April 2013.

Source: Asian Development Bank.

C. Project Data

1. Financing Plan ($ million)

Cost Appraisal Estimate Actual

Implementation Costs Recipient Financed 5 3 ADB Financed 165 156 Other External Financing 0 0

Total 170 159

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4. Project Performance Report Ratings

Implementation Period

Ratings

Development Objectives

Implementation Progress

30 September 2009–31 December 2010 Satisfactory Highly Satisfactory 1 January 2011–31 December 2012 On track

a

a From 1 January 2011 the project performance rating system was replaced with eOps.

D. Data on Asian Development Bank Missions

Name of Mission

Date

No. of Persons

No. of Person-Days

Specialization of Members

Fact-finding 9–18 Aug 2009 4 36 a, b, c, g Inception 15–25 Feb 2010 4 40 a, b, f Review 1 21–28 Apr 2010 5 35 a, b, c, d, f Review 2 20–25 Jun 2010 3 15 a, d, g Midterm review 24–30 Sep 2010 4 24 a, b, f, g Review 3 5–10 Feb 2011 3 15 a, d, g Review 4 15–22 Feb 2012 3 21 a, f Review 5 19–25 Nov 2012 3 18 a, d, f Project completion review 1–10 Apr 2013 4 36 a, f, e

a = transport specialist, b = program/portfolio specialist, c = economist, d = project officer, e = consultant, f = analyst, g = administrative/operations assistant.

I. PROJECT DESCRIPTION

1. Afghanistan is a landlocked country; more than half of its external trade takes place at the northern border with Uzbekistan. However, the Hairatan border post with Uzbekistan, which serves as the gateway for its imports, lacked the required transport infrastructure. The entire transport network was in poor condition following decades of civil war, which acted as an impediment to the country’s overall growth. Afghanistan’s reconstruction and development depended heavily on the construction of an efficient and reliable transport network that could support the necessary volumes of trade and humanitarian relief. In April 2008, the government adopted the Afghanistan National Development Strategy (ANDS),1 the country’s main strategic platform for development over 2008–2020, aiming at promoting growth, generating wealth, and cutting poverty and vulnerability. ANDS provided for the development of transport corridors between Central Asia and South Asia. Apart from developing a reliable, efficient, safe, and sustainable road network, it was also considered imperative to develop an adequate railway network as a supplementary transport mode, especially for bulk goods and humanitarian assistance. 2. In line with ANDS, the government requested the Asian Development Bank (ADB) to provide funding for construction of the railway line between Hairatan and Mazar-e-Sharif, as an extension of the existing line from Termez in Uzbekistan to Hairatan at the Afghanistan border. At the time of this request, Afghanistan faced an immediate need to improve the flow of goods into the country. Bottlenecks at Hairatan and security concerns in southern and eastern areas were choking off international trade and the delivery of much needed material and humanitarian aid. ADB approved a grant of $165 million in September 2009 from its Special Funds resources.2 This was in line with the Central Asia Regional Economic Cooperation (CAREC) Transport and Trade Facilitation Strategy,3 ADB’s country partnership strategy for 2009–20134 and the railway development study funded by ADB.5 Under Phase 1 of the railway development study (footnote 5), the technical assistance (TA) consultants carried out surveys and investigations to prepare, among others, the feasibility design, bill of quantities, and cost estimates for the Hairatan to Mazar-e-Sharif link. These outputs were considered in preparing the project. The project was intended to complement the ring road in northern Afghanistan in transporting bulk and nonperishable cargo such as cotton, cement, bitumen for road construction, agricultural and off-highway construction equipment, oil and fuel, processed foods, and consumer products. By strengthening Afghanistan’s rail links with Uzbekistan, the project aimed at promoting regional cooperation and trade. The new railway line will complement CAREC corridors 3 and 6, which connect Central Asia to South Asia, the Caucasus, and the Middle East. 3. At appraisal, the project had two components: (i) railway design and construction; and (ii) project management, construction supervision, and institutional development. The Ministry of Public Works (MPW) was the executing agency. The project was scheduled to be completed by 31 December 2011, and was aimed at attracting high-value traffic on to the railways; promoting intermodal traffic; and encouraging private sector shippers and freight forwarders to trade cargo to Afghanistan, Central Asia, South Asia, the Middle East, and Europe. The project was also

1 Islamic Republic of Afghanistan. 2008. Afghanistan National Development Strategy. Kabul.

2 ADB. 2009. Report and Recommendation of the President to the Board of Directors: Proposed Asian Development

Fund Grant to the Islamic Republic of Afghanistan for the Hairatan to Mazar-e-Sharif Railway Project. Manila. 3 ADB. 2007. CAREC Transport and Trade Facilitation Strategy. Manila.

4 ADB. 2008. Country Partnership Strategy: Afghanistan, 2009–2013. Manila.

5 ADB. 2009. Technical Assistance to the Islamic Republic of Afghanistan for the Railway Development Study.

Manila. (TA 7259-AFG, for $1 million approved 27 March).

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expected to benefit local companies, local communities, and women and other vulnerable groups since it would generate demand for local labor and stimulate economic activity, including small business opportunities.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

4. At the time of design and formulation, Afghanistan’s incomplete and inadequate transport network posed a serious impediment to overall socioeconomic development in the country. International trade had been growing but remained seriously constrained by limited transport infrastructure and facilities. The official road network as of 2009 is about 38,500 kilometers (km), comprising 3,300 km of regional roads, 4,700 km of national roads, 9,700 km of provincial roads, 17,000 km of rural roads, and 3,800 km of urban roads. However, the country had only 25 km of railways, comprising a 10 km cross-border extension from Turkmenistan to a transshipment yard in Thorghundi and a 15 km extension from Uzbekistan to a transshipment yard in Hairatan. Before 2001, investment in transport infrastructure was negligible. With the support of various bilateral and multilateral development partners, the road network has been much improved, particularly the ring road connecting Kabul–Mazar-e-Sharif–Herat–Kandahar–Kabul and links to neighboring countries. However, no investment had previously been made in the development of Afghanistan’s rail infrastructure. The CAREC Transport and Trade Facilitation Strategy (footnote 3) sets out a priority rail network in three main sections: (i) Hairatan to Mazar-e-Sharif, (ii) Mazar-e-Sharif to Herat, and (iii) Mazar-e-Sharif to Tajikistan. In 2008, the government’s first priority was to construct the railway line between Hairatan and Mazar-e-Sharif. 5. The project was found to be highly relevant (at appraisal and at completion) to the government’s objectives and policies for developing the transport sector, as set out in ANDS (footnote 1), and ADB’s country partnership strategy (footnote 4). At completion, a 75 km railway line, an upgraded marshaling yard and railway station at Hairatan, and transshipment facilities and a railway station at Mazar-e-Sharif had been built, along with associated support infrastructure and facilities. This significantly improved connectivity with Uzbekistan, increasing trade opportunities with Central Asia, South Asia, the Middle East, and Europe. The railway line provides reasonable and efficient transportation of bulk and nonperishable cargo and humanitarian assistance to conflict areas. The project has also had a positive socioeconomic impact, during and after implementation. The project framework in Appendix 1 reflects the achievement of the intended outcomes. B. Project Outputs

6. At appraisal the project envisaged two outputs: (i) railway design and construction; and (ii) project management, construction supervision, and institutional development. During implementation, at the request of the government, ADB approved a change in project scope to include operation and maintenance (O&M) of the railway facilities and ancillary infrastructure for the first year.6 In view of this, O&M of the railway facility was included as a third component under the project’s outputs. The project was designed adequately, and implemented as

6 The government requested ADB to allocate funds for additional civil and track works (including equipment to

improve O&M of the railway line) and for any O&M revenue gap during the first year of operation. The change in project scope was approved on 16 June 2011 to include (i) O&M of the project’s railway and ancillary infrastructure during the first year of operation, (ii) reallocation of grant proceeds, and (iii) extension of the grant closing date for 1 year until 31 December 2012.

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envisaged. The institutional development aspect also contributed significantly to developing the government’s capacity for railway sector planning, and improved project management capabilities for implementation of future railway projects. The O&M component assisted the government in commercially operating the railway facilities through a performance-based contract.

1. Railway Design and Construction

7. The following are the completed outputs under this component as anticipated at appraisal:

(i) A new 75 km single railway line between Hairatan and Mazar-e-Sharif. The total track length is about 106.5 km including the crossing loops and sidings. This line established an integrated transport system connecting the ring road and airport.

(ii) An upgraded marshaling yard and railway station at Hairatan. (iii) A railway station and transshipment facilities at Naibabad, and a railway station

at Mazar-e-Sharif airport. (iv) Signaling and telecommunication systems. (v) Safety and security infrastructure features incorporated in the above.

The characteristic details of these outputs and standards are in Appendix 2.

8. The project is benefited by the modernized customs facilities (advanced scanners, updated tracking systems and other equipment) at Hairatan funded by the European Commission. Additional capacity is being planned through the expansion of yards, loop lines, custom facilities, and goods handling equipment to facilitate smooth and efficient operations. Under Tranche 1 of the multitranche financing facility for the Transport Network Development Investment Program7 approved in October 2011, ADB has provided additional financing of $33 million to meet expenditure on additional works and O&M support.

2. Project Management, Construction Supervision, and Institutional Development

9. This component was successfully implemented. Design review and supervision was provided by an association of international and regional consultants, and the development of a legal and regulatory framework for the railway sector was conducted by individual international experts. As anticipated at appraisal, this component contributed to developing the government’s capacity for project management and railway sector planning and development. About 32 staff from the MPW were trained in the management of railway projects, including O&M of the railway infrastructure. 10. As envisaged by ADB, the government approved the establishment of the Afghanistan Railway Authority (ARA) in November 2012, initially under the supervision of the MPW. Subsequently, the executive director of ARA was appointed in February 2013. ARA is currently being strengthened with the required staff and expertise. ARA is intended to, among other tasks, (i) increase the government’s capacity for planning, development, regulation, and management of the railway sector; (ii) manage rail assets and ensure their financial

7 ADB. 2011. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche

Financing Facility to the Islamic Republic of Afghanistan for the Transport Network Development Investment Program. Manila. (Grants 0261-AFG and 0262-AFG, approved on 12 October 2011).

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sustainability, including development of the private sector; and (iii) facilitate development and implementation of a unified policy and regulations for commercial operation of the railways in Afghanistan. ARA will work independently for 3 years and establish specialized divisions, among others, to handle legal and regulatory issues, planning and development, O&M, and private sector development. 11. Based on the recommendations of the railway development study (footnote 5), the government has prepared a draft long-term railway development plan (2013–2025) covering 4,425 km.8 The government is in discussion with various bilateral and multilateral development partners seeking funding for a feasibility study and construction of various railway lines to provide a boost to international and regional trade. The draft legal and regulatory framework for the railway sector, prepared by the legal consultant, is currently being finalized by the government.

3. Operation and Maintenance

12. As requested by the government, the performance-based O&M contract was developed with independent railway and legal experts, supported by ADB. ADB also facilitated the contract negotiations. The operational requirements, standards and maintenance of the railway facility are detailed in this O&M contract. The government procured additional civil and track works required to support the O&M of the railway line. Subsequently, the government outsourced O&M of the railway facility through a performance-based contract signed on 27 July 2011.9 The O&M commenced on 5 December 2011. The consultancy contract for design review and construction supervision was amended to provide services during the O&M of the railway facilities until 31 December 2012. Operation of maximum 2 trains in each direction per day has been planned. Presently, 1 train runs per day depending on the goods to be transported and operates in such a way that the freight from any origin (outside Afghanistan) is transported to Afghanistan with in a pre announced time limit (maximum of one month). About 4 million tons10 of goods were transported during the first year of O&M, as compared to 3.2 million tons planned for the first year. It is likely that the project will garner sufficient revenues in future years with the shift in freight transportation from the roads to the railways and an overall increase in freight transportation. C. Project Costs

13. At appraisal, the cost of the project, including the contingencies, was estimated at $170 million. The actual project cost at completion was about $159 million. The project had a provision of $29.8 million for physical and price contingencies, which was reallocated for civil and railway works, consulting services, project management, and O&M. Appendix 3 compares the details of the project costs at appraisal and at completion.

8 The government’s top priority is to develop the railway network by constructing the following lines: (i) Shirkhan

Bandar to Kunduz and Naibabad, joining Mazar-e-Sharif; (ii) Mazar-e-Sharif to Herat via Shiberghan; (iii) Shiberghan–Andkhoy–Aquina; (iv) Herat to Thorghundi; (v) Kunduz to Bamyan (Hajigak iron mines) via Baghlan; (vi) Bamyan to Kabul; (vii) Kabul to Jalalabad; (viii) Jalalabad to Torkham; (ix) Herat–Delaram–Kandahar; (x) Kandahar–Logar–Kabul; (xi) Chaman to Spin Boldak and Kandahar; and (xii) Delaram to Zarang. ADB has been supporting the government in terms of preparation of feasibility studies for some of the above railway routes.

9 The performance-based operation and maintenance contract was signed between the MPW and Uzbekistan

railway operator SE Sogdiana Trans. 10

This includes about 33,000 tons of humanitarian goods transported during 2011–2012.

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14. Under the financing plan envisaged at appraisal, the project was to be financed by an ADB grant of $165 million (97% of the project cost), and a government contribution of $5 million (3%). At completion, ADB had financed $156 million (98% of the revised project cost), and the government had contributed $3 million (2% of the revised project cost). The undisbursed grant was cancelled at financial closing on 5 April 2013. A detailed comparison of the financing plan at appraisal and at completion is in Appendix 3. D. Disbursements

15. The grant was signed on 30 September 2009, and became effective on 3 November 2009. The first disbursement was made on 22 January 2010. The project generally met annual disbursement targets during implementation, with the help of close monitoring. About 94% of the grant funds were utilized by the grant closing date. Appendix 4 shows the projected annual disbursement of grant proceeds compared with the actual disbursement. Grant proceeds were disbursed in accordance with ADB’s Loan Disbursement Handbook (2007, as amended from time to time). The engineering, procurement, and construction (EPC) turnkey contract involved import of railway tracks, sleepers, and other equipment from Uzbekistan. To facilitate cash flows for implementation of the project, payments to the contractor were facilitated through letters of credit established by the government, in addition to the direct payments for civil and track works to the EPC contractor. This proved to be more efficient and less time-consuming, and helped expedite project implementation. Direct payments were made to consultants, and payments for project management support were made through an imprest account. The imprest account turnover ratio was 1. The project accounts were maintained according to the government system and subjected to external11 and internal12 audit. According to the annual audit reports submitted to ADB, no systemic deficiencies or risks in financial management occurred. The internal controls, funds management, and financial accounting procedures for the project were generally satisfactory. The project complied with ADB’s disbursement procedures. E. Project Schedule

16. At appraisal, the project was envisaged to be completed by December 2011. ADB approved advance action. To expedite procurement, the government requested ADB to undertake procurement activities on its behalf until the contract negotiation stage. ADB also assisted the government during the negotiations. The EPC turnkey contract was signed on 27 November 2009 and the consultancy contract for design review and construction supervision was signed on 30 November 2009. The site was handed over in January 2010 and subsequently the EPC contractor began mobilization and the detailed design activities. The consultants were mobilized on 3 February 2010. The works were planned to be implemented over a 12-month period. In addition, a provision of a maximum of 6 months was kept for testing, commissioning, and trial operation. The EPC contractor established a laboratory for material testing, which was used by the consultants for independent verification of the tests for quality assurance. The civil and railway works were substantially completed by 4 November 2010, about 4 months ahead of the scheduled completion date of 12 March 2011. Testing, commissioning, and trial operation was completed by February 2011. The railway track was tested by the contractor using a track recording car, and the operation test and joint inspection were conducted by the consultant and the contractor. The consultants issued the operational acceptance certificate on 1 March 2011. At the request of the government, ADB approved a

11

The external auditor engaged by the MPW was Alliott Gulf Chartered Accountants, Kabul, Afghanistan. 12

The internal audit wing of the Ministry of Finance (MOF) carries out the audit in the line ministries. Preaudit is conducted at the MOF before any transaction is authorized.

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change in scope to include O&M of the project’s railway during the first year, until 31 December 2012 (footnote 6). The consultants engaged for design review and construction supervision also monitored the O&M activities until 31 December 2012. A comparison of the actual implementation schedule with the schedule envisaged at appraisal is in Appendix 5, and a chronology of the main events is in Appendix 6. F. Implementation Arrangements

17. The MPW was the executing agency for the project. Since coordination of various government agencies was essential for fast decision making during implementation, an executive committee was constituted, as agreed at appraisal. The committee was chaired by a minister-level official, with representatives from the Ministry of Commerce and Industry (MOCI), Ministry of Finance (MOF), Ministry of Interior Affairs (MOIA), Ministry of Mines (MOM), and MPW. The committee provided overall guidance, facilitated approvals from various agencies, and ensured security arrangements on site. A project implementation unit (PIU) was established at Mazar-e-Sharif to handle day-to-day project implementation issues and disbursements, and reported to the executive committee and ADB. The PIU was headed by a project director and assisted by a team of qualified staff. The PIU managed the project activities, including planning, progress monitoring, and reporting. Separate financial accounts for the project were established by the MPW at the PIU. The financial accounts were audited by an auditor (footnote 10) acceptable to ADB, and the annual audit reports were submitted to ADB as required by the grant agreement. The audit reports provided quantitative and qualitative assessment of the financial management adopted for the project, which was generally found to be satisfactory. An international railway project implementation consultant was mobilized by ADB on site to provide close coordination and implementation assistance. ADB also provided enhanced project supervision. Overall, well-coordinated teamwork among the executive committee, MOIA, MOF, MPW, PIU, and ADB resulted in timely completion of project. Through the capacity building programs under the project, MPW staff gained substantial knowledge, awareness, and experience in many aspects of railway project management and rail subsector development. The organizational structure for project implementation is in Appendix 7. G. Conditions and Covenants

18. The project complied with all the major covenants required by the grant agreement.13 The government established, adequately staffed, and equipped the PIU. The government ensured: (i) provision of adequate security in all work sites for smooth and uninterrupted project implementation; (ii) provision of counterpart funds; (iii) implementation of mitigation measures presented in the initial environmental examination (IEE) and environmental management plan (EMP); (iv) that the EPC contractor complied with safety measures during construction and operation; and (v) that the civil works contract included specific implementation milestones and targets with appropriate reward and penalty provisions to provide reasonable economic stimuli for timely and qualitative project completion. The MPW maintained separate accounts and records for the project, which were subjected to annual audit by an independent auditor engaged with the agreement of ADB. The annual audit reports were submitted to ADB as required by the grant agreement. The quality of the completed railway facility met the standards specified in the project documentation. The status of compliance with major grant covenants is in Appendix 8.

13

ADB and the Government of Afghanistan. 2009. Grant Agreement between Islamic Republic of Afghanistan and the Asian Development Bank (Grant 0161-AFG, dated 30 September 2009). Kabul.

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H. Consultant Recruitment and Procurement

19. Consultant recruitment was undertaken as envisaged at appraisal and conformed to ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time). An international consulting firm was recruited for design review and construction supervision, following quality- and cost-based selection procedures. The contract was signed on 30 November 2009. 14 According to the terms of reference formulated at appraisal, the consultants were responsible for design review and construction supervision of the project, with an estimated input of 91 person-months of international consultants, 47 person-months of regional consultants, and 48 person-months of national consultants. In view of the project requirements, a few variations in the person-month inputs and the contract were made. Under the institutional development component, individual consultants were recruited in accordance with the individual consultant selection method, to develop (i) a long-term railway sector development plan, and (ii) a railway sector legal and institutional framework. 20. The EPC turnkey contract—with fixed price, fixed-delivery period, appropriate penalties for non-performance, and a bonus for timely completion—was procured in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time). At the request of the government, ADB agreed to advance procurement of works and consulting services. Uzbekistan Temir Yullari (UTY)15 was invited to bid for the EPC turnkey contract, following the provisions on direct contracting in ADB’s standard bidding documents for procurement of plant-design, supply, and installation. Direct contracting was justified16 on grounds that (i) the railway line is an extension of the current Uzbekistan network into Mazar-e-Sharif and will be based on the Uzbekistan gauge system; (ii) there are no comparable operators in the region or beyond it, with the same level of experience as UTY for designing, building, and operating a railway line based on the Uzbekistan system; (iii) UTY already has proprietary preliminary designs for the project; (iv) UTY will also operate and maintain the railway line through a separate O&M agreement; and (v) ADB's experience in Afghanistan suggests that mostly one company bids for a construction contract in open bidding. The UTY bid was verified independently and negotiated with the help of an independent railway consultant. The contract was signed on 27 November 2009. The summary of contract packages executed is in Appendix 9. I. Performance of Consultants and Contractor

21. The overall performance of the consultants was satisfactory. The consultants for the design review and construction supervision carried out all activities required by the terms of reference. During implementation, the consultants discharged their duties as the project manager under the terms of the EPC turnkey contract, working in close coordination with the PIU. The consultants understood the needs of the project well and cooperated with the EPC contractor, MPW, and ADB to accomplish the project within the budget and in good time. The consultants managed to retain their experts throughout the project, except the team leader who had to be replaced twice due to site specific situations. The consultants assisted the MPW in taking immediate decisions on technical and contractual issues to speed up implementation. They helped the PIU prepare various progress and monitoring reports, monitored the works

14

The contract was signed between the MPW and SMEC International in association with Islohotkonsaltservis. 15

Uzbekistan Temir Yullari (UTY) is a joint-stock government company and is the sole operator of the Uzbekistan rail network.

16 ADB. 2009. Report and Recommendation of the President to the Board of Directors: Proposed Asian Development Fund Grant to the Islamic Republic of Afghanistan for the Hairatan to Mazar-e-Sharif Railway Project. para. 43. Manila.

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contract, and held on-the-job training for the PIU staff. They also provided inspection services during the first year of O&M of the railway line, until 31 December 2012. 22. The overall performance of the EPC contractor was satisfactory. Soon after signing of the contract, the contractor began mobilization and simultaneously carried out the detailed design activities. Considering the urgency of the project, ADB facilitated a number of coordination meetings between the contractor, consultants, MPW, and PIU. This helped in timely resolution of various implementation issues, including security arrangements on site, which paved the way for the timely start of various activities under the EPC contract. The contractor’s planning and management of construction, resource mobilization, and site management—together with enhanced ADB project supervision—resulted in early completion of the works. In accordance with the contractual provisions, the EPC contractor was paid a bonus for early completion. The quality of the civil works conformed to the technical specifications and designs, and was recognized by the government. During the testing, commissioning, trial operations, and defects liability period, no significant issues in the construction quality were recorded. However, there was scope for improved reporting and coordination with stakeholders, including local administration. J. Performance of the Recipient and the Executing Agency

23. The overall performance of the recipient and the executing agency is rated satisfactory. The recipient was the Government of Afghanistan and the executing agency was the MPW. Other government agencies, including the MOCI, MOF, MOIA, and MOM, participated in the coordination and monitoring of project implementation through the executive committee. An organizational framework was established for efficient and timely project management. Under the overall guidance of the executive committee, the MPW exercised close coordination and regular monitoring of construction progress, as well as quality control of physical works. The PIU, with assistance from the consultants, monitored project implementation on site, and prepared all the required progress reports. However, due to lack of capacity to manage a project of this magnitude within the government institutions, the project demanded ADB’s frequent involvement in resolving project implementation issues. The capacity of the MPW and ARA has improved through the project management component. The MPW and MOF facilitated effectively and fully supported ADB’s review missions during implementation and at completion. However, the draft project completion report received from the MPW lacked information on the results of performance indicators. Information on the performance indicators was collected during the project completion review (PCR) mission with the help of MPW staff, who are trained to independently update the performance indicators in future. K. Performance of the Asian Development Bank

24. The overall performance of ADB is rated highly satisfactory. Despite the highly challenging circumstances of implementing a project in Afghanistan, which include security and other implementation and capacity problems, the project was completed within budget and without any time overrun, in contrast to several projects in the country which have experienced significant delays and cost overruns. The project processing and procurement was done in record time; civil and track works were implemented ahead of schedule. ADB provided enhanced project supervision and was closely involved in identifying and resolving issues expeditiously. ADB granted required approvals at both the processing and implementation stages and released payments in good time. The project administration was undertaken by ADB headquarters with assistance from the Afghanistan Resident Mission. The Uzbekistan Resident Mission also assisted in coordinating with the EPC contractor and operator. From development

9

of the project concept until its completion, all the activities were handled by one ADB project officer, which facilitated the efficient and effective handling of all matters concerning project processing and implementation. To further ensure sound coordination and to provide implementation assistance, ADB mobilized a full-time railway implementation specialist in the field. ADB conducted six review missions, including the midterm review. Based on a government request, ADB extended the grant closing date for 1 year to facilitate O&M activities. ADB also coordinated with other development partners in Afghanistan, including International Security Assistance Force (ISAF) for security. The government recognized the role of ADB in providing timely advice on technical and contract administration matters. Overall, ADB’s effective and efficient project management and supervision of this project sets an example for implementation of other projects.

III. EVALUATION OF PERFORMANCE

A. Relevance

25. The project is rated highly relevant, at both appraisal and completion, to the government’s objectives and policies (footnote 1), as well as ADB’s Country Partnership Strategy 2009–2013 (footnote 4). The country’s development programs have identified the creation of an adequate, efficient, and reliable transport network as a precondition for sustained economic growth and poverty reduction. The railway line to Mazar-e-Sharif is a link to new markets and opportunities and for improved regional cooperation. It connects to Uzbekistan's rail network, which leads to markets in Europe and Asia. The immediate project benefits will go to freight operators, traders, businesses, and local communities—in terms of better access to markets, job opportunities, and social services—thereby facilitating socioeconomic development. By spurring economic growth and regional trade and cooperation, it will benefit all the people of Afghanistan. The project cuts transport costs within the country and in the region. It also points to Afghanistan’s great potential as a key transit link and a more active and integrated participant in the global economy. It will also make it easier to deliver humanitarian relief to conflict-afflicted Afghans. 26. ADB's Country Partnership Strategy 2009–2013 was designed to support the government's efforts to promote sustainable growth, generate wealth, and cut poverty and vulnerability. In harmony with key development actions on transport and trade facilitation,17 the project (i) unclogged a transport artery crucial to Afghanistan’s reconstruction and the fundamental needs of its poorest people; (ii) created a reliable, efficient, safe, and sustainable railway link to promote regional cooperation; (iii) improved access to markets while making available direct job opportunities, especially for women and vulnerable people; (iv) enabled the government to formulate a draft long-term plan (2013–2025) for development of the railway sector in Afghanistan; and (v) assisted in the creation of ARA to implement and regulate the railway sector in Afghanistan and provided institutional development assistance and technical training to transport sector staff to improve their capacity to implement railway project development and O&M contracts.

17

Key development actions for transport and trade facilitation include: (i) investment in transport and trade infrastructure; (ii) strengthening trade-related institutions and improving efficiency at ports and customs; (iii) harmonizing transport, trade, and tariff policies, standards, and regulatory frameworks; and (iv) fostering private sector involvement.

10

B. Effectiveness in Achieving Outcome

27. The project is rated highly effective in achieving its outcomes. Upon completion, the operation of 75 km of railway line will foster the trade thus, economic growth in the region and the country. The freight transported by trains increased from about 4,500 tons per day in 2008 to about 6,500 tons per day in 2012 and is likely to grow by nearly 11–12%, as envisaged at appraisal. Trade between Uzbekistan and Afghanistan has increased significantly, from $170 million in 2008 to $732 million in 2011–2012. Afghanistan’s total trade increased from $3.5 billion in 2008 to $6.77 billion in 2011–2012. The cost of freight transportation has decreased by about $0.08 per ton/km, which translates to lower prices of goods and commodities. The freight transportation time by rail between Hairatan and Mazar-e-Sharif has decreased to about 1 hour in 2012, compared to 2 hours by road in 2008. The composition of heavy vehicle traffic is less than 35% (at 2008 volumes of traffic) compared to 50% in 2008 with the result that the CO2 emissions reduced to less than 1.7 million tons per year from 2.3 million tons per year in 2008. Job opportunities doubled and have shown an overall growth of 10–11% per year. About 1,200 local people have been employed in logistics and unloading operations in Hairatan and Naibabad. About 7 million people are overall beneficiaries of the project. The ADB PCR mission observed that the railway line constructed was of good quality with sufficient safety and environmental protection arrangements. Even after more than 1 year of operation, the facility is in good condition and has been maintained effectively by the government. The improved rail connectivity will continue to promote regional cooperation, trade, and economic development, and improve socioeconomic standards in general. The capacity building programs under the project effectively enhanced staff capacity in project management and implementation. C. Efficiency in Achieving Outcome and Outputs

28. In view of the significant growth rate in freight transportation and the results of economic and financial reevaluations, the project is rated highly efficient. Despite the highly challenging and insecure environment, the works were completed on record time. Two potential risks identified at appraisal were managed effectively and efficiently. The advance procurement activities were completed on time which led to early start of implementation of works contract. ADB facilitated number of coordination meetings to resolve various implementation issues expeditiously. The efficient planning and management of construction, together with enhanced ADB project supervision, expeditious approvals and release of payments resulted in the completion of project ahead of schedule. A project of this magnitude normally takes 3 years to implement. However, it was implemented in the record time of less than 1 year due to creative planning and efficient processes. Thus, the project outputs and outcomes were achieved earlier than anticipated. This sets an example of how to better deliver projects effectively in a fragile state. The new railway line has facilitated increased transportation of bulk and nonperishable cargo and the movement of humanitarian assistance by integrating the transportation system, and connecting to the ring road and airport at Mazar-e-Sharif. The freight transported by rail increased by about 45% from 2008 to 2012. The ADB PCR mission carried out the economic and financial reevaluation of the project using the same methodology adopted at appraisal, with updated data. The economic benefits were calculated by comparing ―with-project‖ and ―without-project‖ scenarios. The economic internal rate of return (EIRR) was recalculated at 15.89%, with an economic net present value (NPV) of $70.79 million for the project. The recalculated EIRR is higher than the appraisal estimate of 14.5%. Several additional benefits such as reduced accidents and greenhouse gas emissions, and savings in travel time, have not been quantified in the economic assessment. Taking into account such unquantified benefits, the EIRR would work out to be more than 18%. The financial internal rate of return (FIRR) was calculated at 8.05%, which is higher than the appraisal estimate of 4.5%. The recalculated FIRR is higher

11

than the weighted average cost of capital (WACC) for the project (1.9%). Therefore, the project is reassessed as viable with robust economic and financial benefits. Details of the economic and financial reevaluations are in Appendixes 10 and 11.

D. Preliminary Assessment of Sustainability

29. The project is rated likely sustainable. As envisaged at appraisal, the government outsourced the O&M of the railway facility through a performance-based O&M contract. The concessionaire is responsible for collection of freight charges on behalf of the government, and O&M of the entire railway line and other associated facilities. Goods transported and revenues generated during the first year of the O&M exceeded the forecast. During the first year of operation, about 4 million tons of goods were moved, compared with the 3.2 million tons forecast. With the growing volume of freight transportation, it is likely that the project will garner sufficient revenues in future years to sustain O&M costs.18 The project has a significantly higher FIRR than projected. The government has plans to support the development of local logistic services and introduce policies and interventions that will accelerate socioeconomic development, widen the reach of the project’s benefits, and eventually transform this transport corridor into an economic corridor. The following initiatives by the government will further enhance the sustainability of the project. 30. Sustained transport network development. At the appraisal stage, it was envisaged that the project would be a link to new markets and opportunities through Afghanistan’s potential as a transit link between Central Asia, South Asia, and the rest of the world. The government has prepared a draft long-term railway development plan (2013–2025) covering 4,425 km of railway line. The government has been in discussion with various development partners to tie up funds for feasibility studies and construction of these railway lines. Completion of these lines would complement the project and increase its long-term sustainability. 31. Institutional development. To improve implementation of its transport development plan and program, the government has taken steps to deepen corporatization and privatization in the road and rail subsectors, and improve sector performance in O&M, safety, and project management. The government has already established ARA, which is currently being strengthened with the required staff. This will increase the government’s capacity for planning, development, and management of the railway sector. 32. Security. The government is establishing an independent and dedicated security force to safeguard infrastructure projects, including road and rail assets. This will provide major support to railway sector development projects and facilitate smooth operation of the railway, avoiding disruption. E. Impact

1. Environmental Safeguards

33. The project was classified environment category B at appraisal. Mitigation measures were implemented to minimize impacts and maximum safety during construction and operation.

18

Under the present O&M contract, the government is required to pay the operator $32 million per operating year toward fixed costs and management fees. In addition, performance-based incremental payments are to be made, subject to a maximum incremental payment of $8 million per operating year. These include: (i) a $1.5 million lump sum upon reaching freight transportation of 2.2 million tons within an operating year, and (ii) $275,000 per 100,000 tons of freight transported beyond 2.2 million tons in an operating year.

12

The short-term adverse environmental impacts were considered insignificant and temporary, and no long-term impacts were identified in the initial environmental examination (IEE) report prepared according to ADB’s Environmental Policy (2002) and Environmental Assessment Guidelines (2003). Mitigation measures for temporary impacts were implemented as set out in the environmental management plan (EMP). The government ensured that all activities are performed in compliance with principles and objectives of ecologically sustainable development. The environmental expert of the design review and construction supervision consultants monitored the implementation of the EMP. The consultant’s monitoring report indicates that the project did not cause any significant adverse environmental impacts.

2. Social Safeguards

34. As envisaged at appraisal, the project involved minor land acquisition and resettlement since the railway line passes mostly through uninhabited and unused government land. The project was classified category B. As estimated at appraisal, two households were affected, and a short land acquisition and resettlement plan (SLARP) was prepared in accordance with ADB’s Involuntary Resettlement Policy (1995). However, during implementation, the alignment of the railway line was changed to avoid any acquisition of private land and resettlement. Accordingly, no household was affected due to the project. None of the affected people were classified as indigenous under ADB’s Policy on Indigenous Peoples (1998). The project was classified category C for indigenous peoples.

3. Socioeconomic Impacts

35. The project’s overall impact is positive. The new railway line will have positive socioeconomic impacts, providing a boost to regional trade; better access to markets, economic centres, and social services; and improving the movement of humanitarian assistance. The project will provide opportunities for further economic, industrial, and commercial development, leading to increased employment. Key socioeconomic impacts are summarized in paras 36–38. 36. Economic development. The new railway line is significantly promoting economic growth in Afghanistan and has improved regional cooperation and trade. The facility has attracted high-value traffic on to railways and has provided considerable business opportunities for private sector shippers and freight forwarders to trade cargo to Afghanistan. The ADB PCR mission interacted with the freight forwarding associations, traders’ associations, and other stakeholders. All of them had a positive business outlook. Local communities have expressed their satisfaction with the increased opportunities, indicating good prospects for improved livelihoods. Afghanistan’s total trade increased to $6.77 billion in 2011–2012 from $3.5 billion in 2008. This has had a positive impact on Afghanistan’s gross domestic product (GDP). 37. Poverty reduction. Poverty in the project area was reduced through (i) increased access to business opportunities for local communities, local companies, shippers, and freight forwarders; (ii) improved access to markets; and (iii) lower prices of goods due to lower transport costs. According to the traders’ association and the economic directorate of Balkh Province, local businesses registered a growth of about 15–65% during 2009–2012 (depending upon the nature and size of business). This is also corroborated by an increase in revenue collections in Balkh of over 35% during the same period. About 1,200 local people have been employed in logistics and unloading operations in Hairatan and Naibabad. More employment opportunities are expected to be generated in logistics services at stations, including those for women. During implementation, the project was able to provide local employment to about

13

128 people, including 3 women for skilled and semiskilled jobs, through the EPC contractor, subcontractor, and consultants. 38. Health and safety. During the implementation of the project, the EPC contractor conducted awareness programs on HIV for the project management staff, contractors, and subcontractors. Manuals and booklets were distributed to workers and residents in the project area to intensify use of HIV prophylaxis, promote a healthy lifestyle, and increase awareness of HIV. Long-haul truck drivers are a primary vector for the geographical spread of HIV. About 29 suspected cases of HIV have been reported in the whole of Balkh Province, of which none relates to the project area. The government also undertook measures in accordance with national laws and regulations to prevent the trafficking of illegal substances, wildlife, endangered species, and people at the border.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

39. The project’s overall performance is rated highly successful. The project is considered highly relevant to the government’s overall development objectives and ADB’s country partnership strategy. The completed railway link between Hairatan and Mazar-e-Sharif has improved connectivity in the project area, facilitated the transportation of bulk and nonperishable goods, and significantly supported the socioeconomic development of the region and the country as a whole. Despite the highly challenging circumstances under which the works were executed, the civil and track works were completed ahead of schedule and significant benefits have accrued from the project. Two potential risks identified at appraisal were managed effectively as detailed in Appendix 12. The results of the economic and financial reevaluation indicate the strong viability of the project. The outsourcing of the railway O&M has maintained the service quality and reduced the cost of freight transportation. Good coordination and teamwork among all the stakeholders—the MOF, MOIA, MOM, MPW, PIU, executive committee, provincial government, EPC contractor, consultants, local community, and ADB—was a major factor in the project’s overall success. The project was highly effective and highly efficient in achieving its impact and outcomes. The government’s efforts in implementation of the railway network development program, operationalization of the independent ARA, and promotion of socioeconomic development in the project area will add to the project’s sustainability. Lessons learned from project development and implementation should be well incorporated in future projects, including those financed by ADB. B. Lessons

40. This was the first railway project implemented in Afghanistan and it showed some exemplary performance. The main lessons, which may need to be incorporated into ongoing and future ADB projects in Afghanistan, are as follows:

(i) Project readiness. Experience on several ongoing and completed projects in Afghanistan has shown that project implementation is delayed due to two main factors: start-up delays and adverse security issues. Taking advance actions before grant or loan effectiveness can easily address these problems, as demonstrated on this project. Timely actions were taken to speed up implementation readiness, such as advance procurement of works and consulting services, award of contracts, site handover, and timely establishment of a fully staffed PIU. These actions successfully avoided start-up delays.

14

Furthermore, the provision of comprehensive security arrangements, with advance administrative approvals, resulted in an uninterrupted project implementation. Based on a careful assessment of the security arrangements, about 463 police personnel were deployed along the railway line and at about 62 check posts.

(ii) Procurement method. For implementing large-scale and complex projects with a strict timeframe, the preferred form of contract can be EPC turnkey. For this project, works were awarded under the EPC turnkey contract using a fixed-price and fixed-delivery schedule with penalties for nonperformance and a bonus for early completion. This provided reasonable economic stimuli for timely project completion.

(iii) Contract packaging. Combining the EPC and O&M into one package may yield more efficient and cost-effective outputs. On this project, this would have given all the parties a clear understanding of the requirements from the beginning, and risk-mitigation measures could have been built into the contract appropriately. The contractor would also have been particularly vigilant in ensuring the best quality of works during construction. In addition, the bidder would have had an opportunity to come up with more innovative ways of implementation and might have offered a more cost-effective bid. This combination could also minimize any additional due diligence required during the O&M contracting and would result in time savings. However, the concentration and performance risks would need to be mitigated through performance standards and deterrent contractual provisions.

(iv) Coordination of multiple government agencies. For projects where several agencies are involved in decision making, it is important to establish an executive committee made up of representatives of the concerned agencies, chaired by a high-level government official and/or champion. Such a committee can facilitate the provision of overall guidance, ensuring expeditious approvals from various agencies, and in places where security is a major concern, could ensure that the project is implemented uninterrupted with sustained security arrangements.

(v) Intensive donor involvement. Implementing a project of this magnitude and in a strict timeframe was quite challenging. However, this can be achieved through exceptional involvement of donors. ADB provided enhanced supervision both from headquarters and the resident mission. Staffs were closely involved in identifying and promptly resolving issues. Any matter requiring ADB’s internal approval was expedited and funds were released with fast-track processing. Furthermore, a fulltime implementation consultant was mobilized by ADB on site to provide coordination, implementation assistance, and independent reporting. All these factors contributed to timely resolution of implementation issues and completion of the project.

C. Recommendations

1. Project Related

41. Afghanistan Railway Authority. The government should ensure that ARA is strengthened immediately with the required staff and expertise in all functional areas. The staff being trained under the O&M contract should be transferred to the authority. ARA should also handle all aspects of railway sector development including, but not limited to, planning, development, management, and private sector involvement to pave the way for commercial operation of railways in Afghanistan.

15

42. Policy initiatives. The government should make policy changes to make the railway sector more efficient from a commercial point of view, which will help in achieving the full benefits. Some of the recommended initiatives include: (i) regulation of freight transportation by road to encourage transportation of bulk and nonperishable commodities by rail; (ii) exploring various O&M arrangements to maximize benefits, including owning rolling stock and renting it to the private operator; and (iii) linking the adjustment of railway freight charges to inflation. 43. Future monitoring. The project has resulted in positive socioeconomic impacts in the project area and is likely to have larger impacts in the next few years. A benefit monitoring and evaluation study should be undertaken, after the development benefits have been realized, to document the overall socioeconomic impact. 44. Further action or follow-up. Measures to maintain project sustainability should be strengthened. The government needs to provide additional infrastructure at Naibabad station and Mazar-e-Sharif airport station—such as customs, goods handling, and storage facilities—commensurate with freight volume, to maximize the benefits of the project, so that it remains sustainable. 45. Additional assistance. Freight transportation has grown by over 45% since 2008, and trade between Afghanistan and Uzbekistan has increased from $170 million in 2008 to $732 million in 2012. The project is a part of Afghanistan’s railway development plan (footnote 8). By completing other railway lines, the government will derive significant benefits in terms of transit freight transportation to other CAREC countries and to Europe. As such, ADB may continue to support development of Afghanistan’s railway network. 46. Timing of the project performance evaluation report. The project performance evaluation report should be prepared in 2016 or later. By then, the facility will have been operated and maintained for 5 years. At that time, the impacts on poverty can be better assessed.

2. General

47. Coordination. The road network in Afghanistan has been developed in recent years. Further development of the railway network is being considered to complement the road corridors and, in many instances, feed into port and airport networks. Effective coordination is needed within the government ministries and among the development partners so that the resources and implementation capacity of various institutions are properly utilized, without any duplication of efforts or unplanned activities, and potential delays are avoided. 48. Bilateral agreements. The government should finalize and execute the bilateral trade agreements with neighboring countries—Tajikistan, Turkmenistan, and Uzbekistan—to further streamline border control procedures and accelerate trade growth. 49. Project administration. It is recommended that ADB have one project officer to handle all activities, from processing to the completion of a project. This will facilitate efficient and effective planning and handling of project matters to ensure timely completion of similar projects.

16 Appendix 1

PROJECT FRAMEWORK

Design Summary

Performance Targets Data

Sources/Monitoring Mechanisms

Assumptions and Risks

Appraisal Actual Appraisal

Impact

Greater economic development and increased trade between Afghanistan and the region

By 2015:

Increase in trade between Afghanistan and Uzbekistan to $300 million from $170 million in 2008 Increase in Afghanistan's total trade to $5 billion from $3.5 billion in 2008

Achieved

Value of trade between Afghanistan and Uzbekistan was $732 million in 2011–2012 Achieved

Value of Afghanistan’s total trade was $6.77 billion in 2011–2012

Afghanistan government statistics

Assumption

Government sustains policies conducive to economic growth and remains committed to enhanced regional integration

Outcome

An efficient, safe, reliable railway transport network developed and operated in north Afghanistan

By 2012:

Freight transported by trains reaches 6,000 tons per day from 4,500 tons per day in 2008

Composition of heavy vehicle traffic on Hairatan–Mazar-e-Sharif road reduced to 35% from 50% in 2008 Travel time for freight traffic between Hairatan and Mazar-e-Sharif reduced to 1 hour from 2 hours in 2008 CO2 emissions reduced from 2.3 million tons per year (2008) to 1.7 million tons Increased job opportunities for women in the rail service and local businesses, including logistics services at all stations and at Mazar-e-Sharif airport

Achieved

Freight transported by trains reached about 6,500 tons per day in 2012 Achieved

The composition of heavy vehicle traffic is about 40%, at current volumes of freight traffic. At 2008 volumes of traffic, the composition is less than 35% Achieved

The travel time for freight transportation by rail between Hairatan and Mazar-e-Sharif has been reduced to about 1 hour Achieved

CO2 emissions are about 1.9 million tons per year at current volumes of freight traffic. At 2008 volumes of traffic, emissions have been reduced to less than 1.7 million tons Achieved

Employment in the project area has shown an overall growth of 10–11% per year. About 1,200 local people have been employed in logistics and unloading operations in Hairatan

Statistics from Ministry of Commerce Project completion report Employment statistics in Balkh Province Traffic surveys by railway agency

Assumption

Timely establishment of a dedicated railway agency to run the railway operation Risk

Financial sustainability and operational risks

Appendix 1 17

Design Summary

Performance Targets Data

Sources/Monitoring Mechanisms

Assumptions and Risks

Appraisal Actual Appraisal

Reduced incidence of HIV and other sexually transmitted infections in the project area Around 5 million people will benefit from the project and railway operations

and Naibabad. However, due to cultural restrictions, the number of women employed is insignificant. More employment opportunities will arise, including for women, with the expansion of facilities and businesses at Naibabad. Achieved

About 29 suspected cases of HIV and other sexually transmitted infections have been reported in Balkh Province, of which none relate to the Hairatan–Mazar-e-Sharif project area Achieved

It is estimated that over 7 million people are beneficiaries of the project

Outputs

About 75 km of a new railway line and stations between Hairatan and Mazar-e-Sharif constructed and operated Railway sector plan endorsed by the government, railway institution established, and capacity building conducted

By 2011:

Railway line meeting the specifications of gauge (1,520 mm)

Marshaling yard at Hairatan station upgraded to handle 20,000 tons per day from 5,000 tons per day (2008)

Railway signaling and telecommunication system installed Long-term railway development plan written and reviewed by the government

Railway legal framework and regulations drafted and reviewed by the government

Achieved

A new 75 km single railway line (1,520 mm gauge) constructed

Achieved

Marshaling yard upgraded and a railway station constructed Achieved

Signaling and telecommunication systems installed Achieved

The government has prepared a draft long-term railway development plan (2013–2025) covering 4,425 km Achieved

The draft legal and regulatory framework prepared by the consultant in 2012 has

Project progress reports

ADB review missions’ back to office reports

Project completion report

Assumption

Maximum coordinated effort by the interministerial agencies of central government Risks

Lack of coordination between central and local governments

Deterioration of security situation

18 Appendix 1

Design Summary

Performance Targets Data

Sources/Monitoring Mechanisms

Assumptions and Risks

Appraisal Actual Appraisal

O&M agreement signed between UTY and the government

30 staff trained in railway operation and maintenance

been reviewed by the government. The government is currently finalizing this

Achieved

A performance-based O&M contract was signed between the government and the O&M operator on 27 July 2011

Achieved

About 32 government staff of have been trained. In addition, training is planned for about 100 staff (in batches of 10) over the next 2 years under the ongoing O&M contract

Activities with Milestones

1. Before construction activity starts on site, produce EMP as an update

to Table 2 in IEE, based on detailed design, and submit to PIU for approval and ADB for no-objection

2. Land acquisition and resettlement completed by November 2009 3. EPC contract awarded by November 2009 and completed by June

2010 4. Supervision consultants recruited by November 2009 and services

completed by December 2010 5. Advisory services started in January 2010 and completed by

December 2010 6. Training program completed by 2011

Inputs at Appraisal

ADB: $165 million (ADF grant) Government: $5 million Total: $170 million

Actual Input

ADB: $156 million (ADF grant) Government:$3 million Total: $159 million

ADB = Asian Development Bank; ADF = Asian Development Fund; C02 = carbon dioxide; EMP = environmental management plan; EPC = engineering, procurement, and construction; IEE = initial environmental examination; km = kilometer; mm = millimeter; O&M = operation and maintenance; PIU = project implementation unit; UTY = Uzbekistan Temir Yullari.

Appendix 2 19

DETAILS OF OUTPUTS AND STANDARDS

No. Item Description Details and Standards

1 Alignment The alignment of the railway commences from the existing railway line from the Friendship Bridge over the Amudaria River and follows a general south bound direction to Naibabad. Then the line crosses the Kabul–Mazar-e-Sharif ring road and travels westward direction, terminating after the Mazar-e-Sharif station, close to airport.

2 Track The track consists of long welded rails with reinforced concrete sleepers, and fast clip flexible fasteners of Pandrol type. Total length of track is 106.5 km over 75 km railway line.

3 Track gauge 1,520 mm Uzbek/CIS standards

4 Axle load 25 tons, 4 axles

5 Rail R-65 steel grade M76 rails

6 Sleepers Prestressed concrete tie (BF-70) Spacing:1,840/km for straight and 2,000/km for curve

7 Ballast (type and thickness) 350 mm ballast cushion over 200 mm sub-ballast.

8 Design speed 80–100 km per hour

9 Gradient 0.5–0.8%

10 Station Platform: Low lateral platform 250 m long at five stations

11 Container platform 250 m each at Naibabad and at the end (airport)

12 Loading and unloading platform 250 m at Naibabad

13 High platform for machinery loading and unloading

54 m long at Naibabad

14 Length of wagons 17 m

15 Length of loop track at passing station 1.7 km

16 Type of signaling (i) voice and light signaling; and (ii) interlocking system

17 Telecommunications (i) landline station to station; and (ii) train to dispatcher radio

18 Number of bridges/culverts 29 culverts (17 crossings and 12 drainage culverts)

19 Number of level crossings 11+3 (with automatic gates)

20 Stations and access Five (Hairatan–two intermediate stations–Naibabad–Mazar-e-Sharif). Transshipment yard is at Naibabad station and updated yard at Hairatan. All these stations and terminal point at airport are connected to the highway with access roads, which connects to the ring road.

CIS = Commonwealth of Independent States, km = kilometer, m = meter, mm = millimeter. Sources: Asian Development Bank, Ministry of Public Works, Afghanistan.

20 Appendix 3

PROJECT COST AND FINANCING PLAN

Table A3.1: Project Costs ($ million)

Item

Appraisal Actual

Total Cost

ADB Financing

Total Cost

ADB Financing

A. Base Cost 1. Railway construction a. Civil and railway works (including land acquisition and resettlement)

130.5 130.0

145.9 145.9

b. Design review and supervision 4.0 4.0 6.4 6.4 2. Institutional development 0.7 0.7 0.4 0.4 3. Taxes and duties 4.5 3.0

Subtotal (A) 139.7 134.7 155.7 152.7 B. Recurring Costs 1. Project management 0.5 0.5 2.9 2.9

Subtotal (B) 0.5 0.5 2.9 2.9 Total (A+B) 140.2 135.2 158.6 155.6

C. Contingencies 29.8 29.8 Total Project Costs (A+B+C) 170.0 165.0 158.6 155.6

ADB = Asian Development Bank. Sources: Report and recommendation of the President; ADB loan and grant financial information services; Ministry of Public Works, Afghanistan.

Table A3.2: Financing Plan ($ million)

Source

Appraisal Actual

Amount % Amount %

Asian Development Bank Asian Development Fund Grant 165 97 156 98

Government of Afghanistan 5 3 3 2 Total 170 100 159 100

Sources: Report and recommendation of the President; ADB loan and grant financial information services; Ministry of Public Works, Afghanistan.

Appendix 4 21

DISBURSEMENT OF GRANT PROCEEDS

Table A4: Annual and Cumulative Disbursement of Grant Proceeds ($ million)

Annual Disbursement Cumulative Disbursement Amount ($ million) Amount

Year Projected Actual % of Total ($ million) % of Total

2010 121.0 130.8 84.1 130.8 84.1 2011 27.8 15.8 10.2 146.6 94.2 2012 6.0 8.0 5.1 154.6 99.3 2013 1.0 1.0 0.6 155.6 100.0

Source: Asian Development Bank.

Figure A4.1: Projected and Actual Disbursement of Grant Proceeds ($ million)

Source: Asian Development Bank.

Figure A4.2: Annual and Cumulative Disbursement of Grant Proceeds ($ million)

Source: Asian Development Bank.

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

2009 2010 2011 2012 2013

Projected Actual

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

2009 2010 2011 2012 2013

Annual Disbursement Cumulative Disbursement

22

Ap

pe

ndix

5

APPRAISAL AND ACTUAL IMPLEMENTATION SCHEDULES

At Appraisal

Actual

EPC = engineering, procurement, and construction, O&M = operation and maintenance, Q = quarter. Source: Asian Development Bank.

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

Procurement

EPC contract

Design and construction supervision consultant

Railway Line Construction

Mobilization and detailed design

Civil works and track laying

Trial operations: testing and commissioning

Railway Sector and Institutional Development Support

O&M of the Railway Facility

Finalization of O&M contract

Implementation of O&M contract (continue up to 4

Dec 2014)

20122009Activity

2010 2011

Appendix 6 23

CHRONOLOGY OF MAJOR EVENTS

Date Event

2009 9–7 August Asian Development Bank (ADB) fact-finding mission held 25 August Management Review Meeting held 4 September Staff Review Committee Meeting held 10 September Grant negotiations held 10 September Request for proposal issued to Uzbekistan Temir Yullari (UTY) for

design, procurement, construction, and commission of Hairatan–Mazar-e-Sharif railway line for submission by 30 September

14 September Proposal circulated to the Board 25 September UTY submitted technical and financial bids for engineering,

procurement , and construction (EPC) contract 30 September Project approved by the Board 30 September Grant agreement signed between the Islamic Republic of Afghanistan

and ADB 28–30 October Contract negotiations held between the government and UTY at ADB

headquarters, Manila 3 November Grant became effective 27 November Ministry of Public Works (MPW) signed the EPC contract with UTY 30 November MPW signed the consultancy contract for design review and

construction supervision 2010 22 January First disbursement under the grant made to UTY (EPC contractor)

towards advance payment 3 February Design and supervision consultant (project manager) mobilized at site

10 February An international advisor (PIU director) joins the PIU at Mazar-e-Sharif

15–25 February ADB review mission held 10 March Letter of credit established for the project 12 March Effective date of EPC contract with UTY 9 April ADB approved variation order 1 to the consultancy contract, to include

the services of an international project security officer and purchase of armored vehicles

21–28 April ADB review mission held 20–25 June ADB review mission held 15 July New PIU director engaged 14 August Individual international consultant engaged to assist the government in

development of railway sector in Afghanistan and for institutional strengthening

24–30 September ADB midterm review mission held 25 October ADB approved variation order 1 under the EPC turnkey contract, due to

change in the extent of track works and other ancillary works 3 November ADB approved reallocation from unallocated to turnkey contracts 4 November Civil and railway works substantially completed by the EPC contractor 16 December First draft of operation and maintenance (O&M) contract finalized in

ADB 20 December Draft O&M contract sent to MPW to fill in the schedules and finalize 2011 25–26 January O&M contract negotiation held at ADB headquarters, Manila 5–10 February ADB review mission held 8–9 February Railway track tested by UTY track recording car 10 February Operation test and inspection jointly conducted by UTY and consultants

24 Appendix 6

Date Event

23–24 February Meeting held in Tashkent, between Uzbekistan authorities and ADB regarding O&M contract

1 March Date of operational acceptance of the Hairatan–Mazar-e-Sharif railway line

4–7 April O&M contract negotiation held at Tashkent, Uzbekistan 27–29 April O&M contract negotiation held at ADB headquarters, Manila 13 May ADB approved variation order 2 under the EPC turnkey contract for

payment of bonus 16 June ADB approved change in scope: (i) to include railway O&M and

ancillary infrastructure, (ii) resulting reallocation of grant proceeds, and (iii) extension of the closing date of the grant for 1 year until 31 December 2012

27 July Contract signed between MPW and Sogdiana Trans Uzbekistan for O&M of the Hairatan–Mazar-e-Sharif railway line

18 August ADB approved extension of consultancy contract up to 31 December 2011 (variation order 4)

5 December Start of O&M of Hairatan–Mazar-e-Sharif railway line 19 December ADB approved variation order 3 under the EPC turnkey contract for

additional security installations for O&M of the railway facility 2012 15–22 February ADB review mission held 13 April ADB approved variation to the consultancy contract to include

additional inputs and extension of services until 31 July 2012 to cover the O&M period (variation order 5)

4 May ADB approved reallocation of grant proceeds 19 May Individual international legal specialist engaged by MPW to assist in

developing legal framework and regulations for the railway sector in Afghanistan

13 August ADB approved extension of consultancy contract up to 31 October to cover the O&M period (variation order 6)

31 October ADB approved extension of consultancy contract up to 31 December to cover the O&M period (variation order 7)

19–25 November ADB review mission held 31 December Grant closing 2013 1–10 April ADB project completion review mission held 5 April Grant account closing

Source: Asian Development Bank.

Appendix 7 25

ORGANIZATIONAL STRUCTURE OF PROJECT IMPLEMENTATION

Project Organization Structure

Project Implementation Unit – Organization Chart

Executive Committee

Project Implementation Unit

Project Director

Financial and Management Information

System

Engineering, procurement, and construction contractor and rail services

operator

Design review and supervision consultant

and operation and maintenance inspector

Environmental and social

Administration and support

Engineering, quality control

Asian Development

Bank Ministry of Public Works

Executive Committee

(Ministry of Commerce and Industry, Ministry of Finance, Ministry of Interior

Affairs, Ministry of Mines, and Ministry of Public Works)

Institutional Development

Ministry of Public Works

(Project Implementation Unit in Mazar-e-Sharif)

Construction

Ministry of Public Works and Ministry of Commerce

and Industry

Operation and Maintenance

Ministry of Interior Affairs

Security

26 Appendix 8

STATUS OF COMPLIANCE WITH MAJOR COVENANTS

Covenant Reference in

Grant Agreement Status

Implementation Arrangements

1. The Ministry of Public Works (MPW) shall be the Project Executing Agency and shall be responsible for overall execution and coordination of the Project.

2. An Executive Committee, chaired by a Minister-level public official and comprising representatives from the MOF, MPW, Ministry of Interior, Ministry of Commerce and Industry, and other relevant government ministries and agencies, shall be formed not later than Grant effectiveness to provide policy guidance on the implementation of the Project activities, to monitor its impacts, and to ensure close interministerial coordination.

Schedule 4 Para 1 (a) Schedule 4 Para 1 (b)

Complied with.

The MPW (as the executing agency) and the executive committee provided overall guidance for successful implementation of the project.

3. To facilitate Project implementation, the Project Implementation Unit (PIU) shall be established within the MPW to undertake day-to-day Project management and implementation functions including: (i) monitoring the progress of Project implementation, including policy and monitoring activities; (ii) preparing Grant withdrawal applications and Project progress reports to MPW and ADB; (iii) maintaining Project accounts and completing Grant financing records for auditing the Project; (iv) carrying out the due diligence and procurement of consulting services, training, and equipment for the Project activities; and (v) developing the Project Performance Management System and Gender Action Plan and monitoring their implementation.

Schedule 4 Para 2

Complied with.

A PIU was established at Mazar-e-Sharif in early 2010 to undertake the day-to-day project management and implementation functions. The PIU was headed by a director and supported by a team of consultants and local staff to monitor implementation of the project. The PIU was adequately staffed throughout the implementation of the project. Since the project site had little scope for the employment of women, no gender action plan was required.

4. The Recipient shall ensure that at all times throughout Project implementation PIU is adequately staffed with professional and clerical personnel with the necessary experience and expertise in finance, accounting, treasury, information technology (IT) systems, procurement and contract administration.

Schedule 4 Para 3

Funding and O&M

5. The Recipient shall ensure that: (a) additional

funding will be provided for successful Project completion; and (b) in each fiscal year adequate funds are allocated and/or generated for operation and maintenance (O&M) of the Project facilities in accordance with international best engineering and O&M practices.

Schedule 4 Para 4

Complied with.

The government has outsourced O&M of the facility under a performance-based O&M contract for 3 years. With the growing volume of freight transportation, the project will generate sufficient revenues to sustain the O&M activities.

Construction quality

6. The Recipient shall ensure or cause MPW to

ensure that (i) the Project railway is rehabilitated or constructed in accordance with the design and technical specifications; and (ii) construction

Schedule 4 Para 5

Complied with.

The quality of the completed railway facility met the technical specifications and design standards stated in the project documentation.

Appendix 8 27

Covenant Reference in

Grant Agreement Status

supervision, quality control and contract management are performed in accordance with applicable standards and best international practices.

Performance Targets

7. The Recipient shall ensure that the Works contract

incorporates specific implementation milestones and targets with appropriate reward and penalty provisions to provide reasonable economic stimuli for timely and qualitative Project completion.

Schedule 4 Para 6

Compli