second interim report volume 1 (revised) · 2014-09-29 · asean - association of south east asian...

Project Number: TA-7775 (REG)

Preparing CAREC Transport and Trade Facilitation Project:

Border Crossing Point Improvement and Single Window

Development

Second Interim Report – Volume 1 (revised)

Technical Assistance Consultant’s Report

In association with

January 15, 2012

Preparing CAREC Transport and Trade Facilitation Project: Border Crossing Point Improvement and Single Window Development Revised Second Interim Report

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ABBREVIATIONS AND ACRONYMS

ADB - Asian Development Bank

AH - Asian Highway

APEC - Asia-Pacific Economic Cooperation

ASEAN - Association of South East Asian Nations

ASYCUDA - Automated Systems for Customs Data

BCP - Border Crossing Point

BCZ - Border Crossing Zone

BOMCA - Border Management Program in Central Asia

BPA - Business Process Analysis

BPR - Business Process Re-engineering

CA - Central Asia

CAR - Central Asian Republic

CAREC - Central Asia Regional Economic Cooperation

CBTA - Cross Border Transport Agreement

CIS - Commonwealth of Independent States

CIQS - Customs, Immigration, Quarantine, Security

CPMM - CAREC Corridor Performance Measurement and Monitoring

DCS - Design and Supervision Consultants

EA - Executing Agency

EIRR - Economic Internal Rate of Return

FIRR - Financial Internal Rate of Return

IA - Implementing Agency

ICD - Inland Clearance Depot

ICT - Information and Communications Technology

IFI - International Financial Institutions

IRR - Internal Rate of Return

IT - Information Technology

NJC - National Joint Transport and Trade Facilitation Committee

NPV - Net Present Value

NSW - National Single Window

OSCE - Organization for Security and Cooperation in Europe


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PIU - Project Implementation Unit

PMU/O - Project Management Unit/Office

PPP - Public Private Partnership

PRC - People’s Republic of China

QA - Quality Assurance

QCBS - Quality and Cost Based Selection

R-PPTA - Regional Project Preparatory Technical Assistance

RIBS - Regional Improvement of Border Services

RJC - Regional Transport and Trade Facilitation Committee

SAC - State Architecture Company

SCC - State Customs Committee

SEW - Single Electronic Window

SRF - State Road Fund

SW - Single Window

TA - Technical Assistance

TAR - Trans Asian Railway

TCD - Time Cost Distance

TIR - Transports Internationaux Routiers

TOR - Terms of Reference

TRS - Time Release Study

TTFS - CAREC Transport and Trade Facilitation Strategy

UAIS - Unified Automated Information System

UN - United Nations

UNCTAD - UN Conference on Trade and Development

UNECE - UN Economic Commission for Europe

UNESCAP - UN Economic and Social Commission for Asia and the Pacific

UN/CEFACT - UN Centre for Trade Facilitation and Electronic Business

WCO - World Customs Organization

WTO - World Trade Organization


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CA

RE

C C

OR

RD

OR

S


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CONTENTS ABBREVIATIONS AND ACRONYMS ................................................................................... i MAPS .................................................................................................................................. iii

I. INTRODUCTION ......................................................................................................... 1

II. MAIN ISSUES ............................................................................................................. 2

A. General ............................................................................................................... 2

B. Border Crossing Points Component .................................................................... 2

C. Single Window Component ................................................................................. 4

III. RATIONALE, SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES ..... 9

A. Performance Indicators and Analysis .................................................................. 9

B. Analysis of Key Problems and Opportunities .................................................... 10

C. Traffic ............................................................................................................... 15

IV. THE PROPOSED PROJECT .................................................................................... 23

A. Impact and Outcome ........................................................................................ 23

B. Outputs ............................................................................................................. 23

C. Special Features ............................................................................................... 36

D. Project Investment Plan .................................................................................... 39

E. Financing Plan .................................................................................................. 40

F. Implementation Arrangements .......................................................................... 40

V. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS ............................ 43

A. BCP Project Component Benefits, Impacts, Assumptions and Risks ................ 43

B. Single Window Project Benefits, Impacts, Assumptions and Risks ................... 44

Volume 2a – Technical Due Diligence Report (Border Crossing Points) Volume 2b – Technical Due Diligence Report (Single Window) Volume 3 – Technical Due-Diligence Report (Safeguard and Governance) Volume 4a – Appendixes Volume 4b – Appendix: Kazakhstan BCPs


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Figures Figure III.1 – Development of GDP and Trade Transaction Costs ......................................... 9 Figure III.2 – Problem Tree Analysis ................................................................................... 12 Figure III.3 – Asia’s Performance in Trade Logistics in Comparison with the OECD

Average ............................................................................................................. 14

Figure IV.1 – Project Organization Chart ............................................................................. 41

Tables Table III.1 – CAREC Transport Corridors ............................................................................ 10 Table III.2 – Kazakhstan Trade – Tenge 1,000.................................................................... 17 Table III.3 – Value and Volume of Trade at BCPs ............................................................... 18 Table IV.1 – Matching BCPs ............................................................................................... 24 Table IV.2 – Unmatched BCPs ........................................................................................... 25 Table IV.3 – Kyrgyz Republic BCP Outputs ........................................................................ 26 Table IV.4 – Mongolia BCP Outputs .................................................................................... 26 Table IV.5 – PRC BCP Outputs .......................................................................................... 27 Table IV.6 – Tajikistan BCP Outputs ................................................................................... 27 Table IV.7 – Uzbekistan BCP Outputs ................................................................................ 28 Table IV.8 – Kyrgyz Republic NSW Implementation Progress ............................................. 29 Table IV.9 – Kyrgyz Republic SW Outputs .......................................................................... 30 Table IV.10 – Mongolia’s Single Window Implementation Progress .................................... 32 Table IV.11 – Mongolia SW Outputs ................................................................................... 33 Table IV.12 – Republic of Tajikistan’s Single Window Implementation Progress ................. 34 Table IV.13 – Tajikistan SW Outputs ................................................................................... 35 Table IV.14 – List of Eligible BCPs ...................................................................................... 38 Table IV.15 – Cost Estimates for an Unconstrained BCP and SW Program ........................ 39 Table IV.16 – Cost Estimates for a Constrained BCP and SW Program ............................. 40 Table IV.17 – Review of the Design and Build Option ......................................................... 42


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I. INTRODUCTION

1. Good connectivity, provided by multimodal transport systems, logistics facilities, and procedures and policies, is known to spur trade and economic development. The rise of Asia as a dynamic trading region has been contingent on adequate transport infrastructure and other favorable conditions. The Asian Development Bank (ADB) has been active in promoting connectivity in the Asia-Pacific Region emphasizing transport and cross-border infrastructure coupled with arrangements to ensure a smooth flow of passengers and freight through interfaces between modes of transport, border crossings, and sea ports. 2. ADB’s Regional Cooperation and Integration (RCI) Strategy (2006) considers physical connectivity an essential prerequisite for cooperation in other areas. ADB’s efforts are being continued under this Regional Project Preparatory Technical Assistance (R-PPTA). More specifically, the R-PPTA aims to (i) identify infrastructure bottlenecks at Border Crossing Points (BCPs) and (ii) improve the processes at BCPs through National Single Window (NSW) development in selected CAREC member countries. The outputs expected to ensue from the R-PPTA will include individual investments in priority BCPs and operational NSWs. 3. This Report presents the findings and results of R-PPTA. The format of the report largely follows that of ADB’s main project document, the Report and Recommendations to the President (RRP). However, some sections were included to suit the format of a loan fact-finding Memorandum of Understanding (MOU). 4. Chapter II is based on the MOU template provided by ADB to the Consultants. The Chapter discusses issues and concerns which the Consultants have encountered and which have implications for the proposed ADB loan project. Chapter III provides the sector context and, based on this, the rationale for a proposed regional investment project covering both physical infrastructure at BCPs and investments into the creation of NSWs. Chapter IV summarizes the design features of the proposed project, including impacts and outcomes, the key outputs, cost estimates, and implementation arrangements. Chapter V. discusses benefits, impacts and the risks associated with the Project. The results of due diligence work carried out with regard to technical, economic, financial, governance, and environmental aspects of the project are in Volume 2a (BCP assessment), Volume 2b (Single Window assessment), and Volume 3 safeguard and governance assessments.


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II. MAIN ISSUES

A. General

5. Donor Coordination. The trade facilitation theme has over time attracted many donor agencies, which are assisting the CAREC countries in both, the development of physical border infrastructure and in SW development. There are indications that the donor activities are not well coordinated. Some BCPs proposed for ADB financial assistance have already received prior support from other agencies which has often been piece-meal and unsystematic. There are examples where donors have financed scattered pieces of infrastructure leaving the development of the rest of the BCP to the devices of the border authorities. The result has been unfinished construction sites, where ADB is now being expected to fill the gaps. The lack of coordination is more pervasive in the SW area, where various donors have provided technical assistance for capacity building and financial support for the purchase of hardware. Most of these activities have not been well sequenced. As a result, ADB is expected to cover missing gaps, which exist in the entire cycle from planning and designing to post-completion maintenance. It would be desirable if the respective governments appointed a lead coordinating agency. B. Border Crossing Points Component

6. Matching BCPs – The objective of the R-PPTA is to identify a series of investment proposals along CAREC corridors carried out and coordinated by the countries sharing a BCP. Consistent with this objective, one of the criteria for selecting BCPs is that a BCP to be improved under ADB financial assistance should be matched by a similar endeavor on the other side of the respective border (matching-BCP principle). This principle meant that the Consultants were required to make an assessment and convey a clear sense of the situation that exists on both sides of the border. 7. Given that national borders constitute the interface of the respective sovereignty of two neighboring countries, implementing the corridor concept and the matching-BCP principle would have required a prior effort of coordination and of aligning the respective national planning procedures for border crossings. That this process was completed before the R-PPTA consultants were fielded had been an assumption which turned out to be invalid. The task of identifying and assessing matching BCPs has therefore been difficult. The Consultants had to rely on BCP proposals accorded priority by the individual countries. As the process of prioritization was not coordinated, the event of finding a pair of matching priorities was largely accidental. Nonetheless, matching BCPs could be found. In some cases, a BCP on one side of the border had already been improved relatively recently. In such case, the proposed improvement on the other side was considered meeting the eligibility criterion. Overall, however, a greater effort should have been exerted to align the national BCP developments. 8. Prioritizing BCPs – There were –at least theoretically- two possible approaches to prioritizing the BCPs that would be covered by ADB financial assistance: The Consultants could have visited and assessed all BCPs in a country, or the respective governments limited the assessment of the Consultants by providing them with a list of BCPs to which they accorded priority. Both options were discussed. It became however clear that a full screening study -to which the first option would have amounted- would have been beyond the scope of the R-PPTA. Moreover, this option was not supported by the governments. 9. The Consultants had thus to rely on a pre-screened list of BCPs provided by the governments. Obtaining a confirmed list of priority BCPs has, however, proven to be cumbersome and difficult. This has affected scheduling of the visits to the BCPs and limited the time available to the Consultants for undertaking the required assessment. Moreover, in


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some cases, the governments did not have a clear understanding of the R-PPTA and had not decided whether they would eventually participate in the ensuing loan project. Thus, the BCPs projects that the Consultants have assessed in most cases still need to be vetted by higher authorities in the respective governments adding another element of uncertainty. It would therefore seem advisable that ADB seeks a confirmation of the results presented in this Report before it proceeds with the next steps of project processing. 10. Project implementation – Given the early stage of project preparation, the implementation of the proposed Project will have to be preceded by a design phase. This phase should focus on the design of functional BCP layouts based on which preliminary and final designs can be prepared. This approach would be particularly meaningful in the Kyrgyz Republic and Tajikistan. The Consultants have discussed the scope for adopting standard BCP designs in the CAREC region. While these may be desirable, reaching agreements on standard designs would require changes in national legislation, which would likely be time-consuming. Moreover, standard designs may not be feasible in many cases as designs have to conform to availability of land, and the features of terrain and topography. The Consultants have therefore focused the discussions on function BCP layouts for which a variety of concepts are available. 11. The preparedness of the authorities with respect to proceeding with project implementation was limited. Background documents were not provided until late in the mission, after the mission, or not at all. As a result, the scope to discuss and develop proposals was very limited. In order to advance projects to the preliminary design stage, more extensive consultations should have taken place and a more advanced stage of project design would have been required prior to the start of the R-PPTA and the fielding of consultants. 12. Implementing Agencies – The TOR suggests that National Joint Committees (NJC) should serve as implementing agencies for the proposed projects. With a few exceptions, the NJCs have been elusive and so have been the Co-Implementing Agencies also envisaged to play a role in implementation. It is clear that in almost all countries the customs committees are the dominant players. Other BCP agencies must, however, also become involved in the process. This applies in particular to border security authorities, which in many cases are the land owner, and, similarly to the railway organizations who own the right –of-way and buildings at rail BCPs. 13. BCP infrastructure improvements and trade facilitation – The focus of the RIBS project is on infrastructure improvements, the underlying premise being that such improvements will reduce trade transaction cost and enhance trade competitiveness. It is important to put this rationale into proper respective with respect to (i) the proposed improvement measures, and (ii) other constraints to trade facilitation. 14. A related issue is that the nature of projects proposed by governments in many cases did not fit the bill of a trade facilitation project. It appeared that most authorities on the ground seemed to be unfamiliar with the rationale of the R-PPTA. As a consequence, many proposals do not combine to form a coherent regional trade facilitation project as was envisaged by ADB’s TA document. 15. The infrastructure improvements proposed for inclusion in the Project cover a broad range and include components of enabling infrastructure (e.g. water supply), items that may be considered to be remotely ancillary to BCP operations (e.g. infrastructure for townships in the vicinity of BCPs), various equipment items, and comprehensive overhauls of existing BCPs. It is clear that the impact on trade as implied in the Project’s rationale is variable depending on the nature of the component. This aspect needs to be taken into account when conducting economic evaluation for the Project.


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16. Regardless of the nature of the proposed improvements, infrastructure was in many cases found to be a second-order constraint in the entire chain of obstacles to trade facilitation. As a consequence, the proposed improvements may not necessarily alleviate prevailing efficiency problems at BCPs. For example, transit vehicles often cannot use quarantine certificates issued by the country of origin and are required to obtain an additional local certificate increasing the number of documents and possibly creating further delays. This example is to stress that procedures at BCP are often more severe impediments to trade than BCP infrastructure. It may also be more cost-effective to first consider procedural improvements before looking at investments. C. Single Window Component

17. Inadequate Legal Framework. The legally prerequisites for the operation of a NSWs are established to various degrees in the different countries. A legal framework is required for, among other things, the data exchange process and alignment of the necessary business processes at the SW certification agencies. Mongolia is carrying out its own legal analysis and for the Kyrgyz Republic and Tajikistan a detailed legal framework review will be carried out, supported by international and national legal technical assistance before the project investments in software and hardware. This technical assistance will draft proposed amendments and support the government in introducing these into legislation. However, this activity must be aligned with the overall SW implementation, rather than drift along at a slower pace and with less momentum. Assurances must be obtained to ensure the more critical legislative measures1 are addressed as a priority and changes adopted before “hard” investment is made. Specific examples are covered under each country below. 18. Sustainability. Sustainability will be dependent upon an assured allocation of financial resources for the operation and maintenance of the SW system. The resources could be provided by the governments or by paying users of the SW. The first option, the financing of O&M from budget resources, is -as experience in Central Asia and elsewhere indicates- no assurance for sustainability. The Consultants therefore propose that a user-pays system be adopted. The risks involved in this concept include inappropriate pricing, weak service promotion, poor service delivery or system process failure due to break points as a result of weak O&M financial support. The executing agency should ensure a sustainable model is enshrined at the SW Management Agency and initial government financial support is made available to ensure sufficient promotional activities are carried out to support the customer demand requirements. Specifically, each SW Management Agency should prepare a detailed financial plan influenced by risk management considerations, such as potential demand and model the sensitivities of this financial plan. 19. Timeframe. There is a tendency to set unrealistically short implementation schedules while neglecting the diligent analysis of the enabling environment (e.g. legislation) or of the fundamental pre-requisites of a SW implementation such as business process analysis and data harmonization. Where the SW program has already advanced through implementation or procurement of system software, the governments should recognize that the benefits of the SW will not be fully realized without re-visiting the legal preparedness, business analysis and data harmonization components. The government must give its assurances to support the investment in these areas by implementing the concrete recommendations made, such as drafted amendments to electronic document legislation. 20. Weak Institutional Capacity at the Management Agency. The SW Management Agency in each case is a new institution set up to provide a service that will have not been

1 Examples are electronic documents, non-discrimination between electronic and paper documents, a

mandatory SW, electronic payments, service level agreements with the SW agencies, data ownership, and international data exchange


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provided by the government hitherto. The SW service needs to be customer-focused. It represents a significant institutional shift and the management and staff cannot be expected to possess relevant experience. Further, the operational and technical maintenance of the service and its financial and operational sustainability require specific skills, which are generally not readily available. Significant human resource and institutional capacity building is an imperative for the sustainability of the SW. 21. Private Sector Engagement. One of the key objectives of the SW is to facilitate trade, the private sector being a direct beneficiary. Input from the private sector is imperative to the successful development and sustainability of the SW investment. In the Kyrgyz Republic and Tajikistan, private sector engagement has so far been weak, while in Mongolia the Government has sent an unequivocal message that is will engage the private sector through its appointment of the Mongolian Chamber of Commerce and Industry as a partner of the lead agency. The governments in each country must decide the appropriate forum through which inputs from the private sector will be channeled in the design, development and delivery of SW service. Poor private sector involvement throughout the SW development is a threat to the acceptance and the sustainability of the investment. The stakeholder engagement plan and activities proposed for each country aim to address this issue in the short term. 22. Resistance to Change at Single Window Agencies. Strong resistance and lack of cooperation from certification agencies that are essential to the project’s success can hold up implementation. However, this is a typical problem in SW programs with existing internal regulations within agencies used to provide a legal obstacle for cooperation. Business process analysis and a legal framework review together with the stakeholder engagement activities should counteract the inertia of the agencies and assist their understanding of the benefits of improved trade facilitation. 23. Assurances should be sought from the governments that internal regulations at participating agencies should be updated. This will involve the re-issuing of the relevant agency regulations that govern each of the permit/certificate issuance and that all of these regulations should articulate the documents required, the time taken, the cost and the governing legislation. Where such regulation is not currently in existence at a particular agency, they should be created. One notable requirement for each regulation would be the provision of non-discrimination between electronic and paper documents. As an essential component of a SW, the governments should make all these regulations accessible through a trade information website. 24. Single Window Tariff. The sustainability of the SW operation hinges on appropriate pricing, which will ensure that, at a minimum, O&M costs are covered. The SW Management Agency should prepare a detailed five-year financial plan which will require market demand analysis, tariff consideration and will involve focused stakeholder discussion to get the feedback from the demand side of the market. Detailed analysis and proposals are made in the Financial Analysis section, which should guide the exercise of agreeing tariffs. Importantly, this exercise must be done well in advance of the operation of the SW to allow time for stakeholder consultations, financial modeling and the legislative steps to formalize the tariff for the SW service. The initial tariff may have to be adjusted after a year or so of its introduction and stakeholders should be made aware that there will be an element of “learning by doing”. 25. Trade Information Portal. One weakness in the Central Asia region is the lack of access to relevant trade-related information. The first stage in any new international trade activity is for the trader to be able to obtain clear and definitive information about the regulations and procedures relating to import and export. One of the purposes of the SW is


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to hold and maintain such information in one place and make it accessible. Assurances should be made by the government to complete this process prior to new hard investments in the SW. However, this would be addressed under stakeholder engagement activities.

1. Kyrgyz Republic

26. Ownership and Lead Agency. The development of the SW program has suffered from the lack of a visible owner or champion for its development. The current Director General of the State Enterprise “Single Window Center” (SW SE) has been driving developments, including the system software implementation overseen by the Steering Committee for the implementation which is chaired by the Deputy Minister at the Ministry of Economic Regulation (MER). The MER may be in control of the ADB funds for the Single Window development, but they are not proactive in supporting the development of the SW and the SW SE. The duties performed are the minimum required by the ADB ICIP implementation arrangements and the terms of the System Support Grant only. Moreover, MER is less able to influence the other SW agencies to reform their processes and support the requirements of the SW project and the SW SE is performing this role on its own. 27. For a complex project that involves twelve SW agencies, the issue of leadership and ownership by an agency that is powerful enough to make changes happen across the Government hierarchy is an imperative. There is on-going dialogue between the State Customs Service (SCS) and MER, with SCS proposing the transfer of operations of the SW SE following its implementation to SCS. A review of the situation during the RIBS mission identified SCS as the strongest candidate for the SW SE ownership. SCS have the resources and ICT expertise and will be able to maintain the momentum of broader SW development. There are a number of potential benefits of such a proposal as follows: There would be a significant reduction in overhead duplication of activities and O&M

costs. The benefits to the Government could be significant if the SW operation was fully integrated with the UAIS, also funded by ADB, operated and maintained under the same agency. Lack of support for the current structure may lead to the original investments of the Government and ADB being wasted. Future support by the SCS would ensure the initial investments were built upon further.

28. The institutional capacity, good physical infrastructure including a training facility, high ICT penetration levels, strong political influence and engagement with international trade facilitation organisations lends SCS well to this role. The majority of SW projects are managed or co-managed by the national Customs body. However, should this transfer take place, it is essential that the SW operation continues to operate in accordance with the spirit of its original creation following UN/CEFACT Recommendation No. 33. This ownership issue is fundamental to the success of the SW. Clarification should be sought before further funding is committed. This should be discussed and confirmed at the ADB fact-finding mission. 29. Single Window Tariff. The importance of setting an appropriate tariff was discussed earlier, but the Kyrgyz Republic’s SW is due to commence operation at the end of January 2012. It is understood that there have been discussions among the management of the State Enterprise “Single Window Center” on the tariff, but there has been no detailed financial analysis carried out. Steps should be taken, forthwith, to carry out this financial analysis and stakeholder consultation in order that the tariff basis is adopted by Government to ensure an agreed and transparent tariff is in place in time before the service commences.


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2. Mongolia

30. Management Agency staff. There is still uncertainty as to the number of dedicated staff for the Management Agency who will operate the Single Window and the proposed staffing plan. A figure of nine staff has been proposed for the purposes of implementation - the same staff as were previously involved with the implementation of the Customs automation system (CAIS). The staffing needs to be clarified during the fact finding mission. 31. Electronic Documents. There is no digital electronic signature law or electronic documents law. The Mongolian SW system proposed under the Implementation Master Plan provides two options of processing requests – one with, and one without, digital signatures. The Legal and International Liaison Working Group under the National Implementing Committee, should make concrete proposals for additions and amendments to the legislation to allow recognition of “electronic documents” which may be authenticated using electronic signatures which are not restricted to merely digital electronic signatures, which requires public-key cryptography and expensive associated infrastructure. There is a great opportunity to support the use of electronic documents for the Single Window system and at participating agencies well in advance of the system implementation and thereby ensure the projected economic benefits of the Single Window are realized. 32. Current EU funded project. The current EU project for the development of the SW system is underway and the contract for system development is expected around the end of Q1, 2012. The proposed support set out in this document would overlap with the implementation of the current project in areas such as technical assistance to the State Unitary Enterprise “Single Window Centre” (SUE) and refurbishment work at the initial regional offices where the SW will operate – as specifically requested by the management of the SUE.2 It is not clear how acceptable this will be to EU, but if the executing agency and the SUE is in need and in favor then this should be the driver. 33. Sustainability. The need to address the issues of sustainability and tariff is discussed in the general section above. However, the SUE is a state enterprise directly under the control of the Customs Service, who is currently supporting the operating costs. It is not clear from the fieldwork (i) the quantum of this support, (ii) for how long this funding will continue and what will trigger its end, and (iii) to what degree the Customs Service will support the SUE financially should they generate insufficient revenues to cover O&M costs. Clarification of this by the ADB fact-finding mission would be helpful to understand the sustainability consideration variables. 34. Inputs to current project design. There is a serious concern that the budget of €2 million from EU for the SW system (software, hardware, training, promotion, M&E) will be insufficient for what is currently expected from this project. The hardware and software pricing was based on a schedule created for the purposes of the SW implementation program approved by the Government in May 2010 and provided to EU.3 This schedule has been reviewed by the RIBS consultants and it appears that there are important omissions and the budget proposed will be insufficient for what is proposed. Further, there has been no technical assistance engaged by the EU to rigorously validate technical data and requirements for the system and the project design has relied upon the inputs from the other development partners and the work of short term technical consultant engaged by GIZ. There is a risk that the current planned implementation will be forced to scale back on data analysis, business analysis, system functionality and equipment, potentially. This could compromise the solution delivered.

2 The EU funded system will be installed at the central office in Dushanbe and at four regional centers.

3 “Single Window System Implementation Program on Export, Import and Transit Procedures within the

Republic of Tajikistan”. Resolution No. 222 (3 May 2010).


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35. Customs Automation System Integration. The Customs automated information system (UAIS) is completed pending final acceptance from Customs and ADB, the funding party. There should be the specific requirement for the contractor delivering the SW system software to ensure that there is a seamless integration with the UAIS and that Customs can, through the UAIS, access SW information and accept electronic documents. The RIBS consultants have been assured that the UAIS will accept and can process electronic documents and should be able to receive them from the SW system. Notwithstanding this functionality, it is understood that the Customs Service will still require all hard copies of certificates from agencies and the original Customs declaration at clearance. Assurance should be sought that with the UAIS and the SW operational that there will no longer be the requirement for hard copy originals, especially the Customs declaration, to be presented for Customs clearance. Otherwise, the projected economic benefits of the ADB investment in the UAIS and the planned and proposed investments in the SW system will not be realized.


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III. RATIONALE, SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES

A. Performance Indicators and Analysis

36. Asia’s trade has expanded rapidly in those regions where infrastructure connections are good; however, where such conditions do not exist, trade has remained relatively low.4 Through its support of trade, transport and trade logistics nurture economic growth. This relationship is illustrated by Figure III.1, which shows the development of per capita GDP of a sample of countries in relation to the costs involved in transacting trade. While the figure does not necessarily indicate a causal relationship, it does give support to the hypothesis that improvements in transport and trade logistics with a consequent reduction in trade transaction costs5 and growth in trade and GDP are closely related.

Figure III.1 – Development of GDP and Trade Transaction Costs ($ of transaction cost per one $ of trade)

Source: ADB Key Statistical Indicators 2009 and ADB. 2011. TA-7557: Promoting Regional Infrastructure Development. Second Interim Report. Manila Notes: GDP expressed as log per capita GDP, trade transaction costs include port clearance charges, cost of storage and delays, and inland transport costs. The costs are expressed in terms of $ per one $ of trade value.

37. Trade performance is determined by a variety of factors, including geographical conditions, efficiency of transport and trade logistics, and the policy and regulatory environment. While these factors may be considered as key determinants of trade performance, attribution of the impact on trade to one or more of the determinants is difficult.

4 Asian Development Bank and Asian Development Bank Institute. 2009. Infrastructure for a Seamless Asia.

Manila, Tokyo. 5 Transaction costs are defined as the sum of transport costs –both inland and shipping-preparation of cargo

documentation, customs clearance, and cargo handling in ports. The costs do not include hidden costs incurred in the form of the cost of capital tied up in transit freight. ADB. 2011. TA-7557: Promoting Regional Infrastructure Development. Second Interim Report. Manila.


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38. In this context, the CAREC Corridor Performance Measurement and Monitoring (CPMM)6 study has revealed that Border Crossing Points (BCPs) are among the major choke points for trade in the CAREC region as they tend to reduce the speed of negotiating the corridors by more than half in most corridors. For the CAREC road corridors, the most time-consuming activities are escort/convoy arrangements, waiting time, and loading/unloading. The most costly activities are trans-shipment, loading/unloading and customs clearance. The underlying causes include poor physical infrastructure and/or inefficient use of infrastructure capacity, low utilization of modern inspection technology and procedures, and inadequate logistics facilities at the BCPs. To eliminate some of the bottlenecks, improvements of the BCP infrastructure will be needed, and national single windows (NSW) have to be implemented, which will make cross-border procedures more efficient. 39. The rationale of the Project is therefore to minimize trade transaction cost and enhance trade competitiveness by improving vital cross-border infrastructure and procedures. This would be achieved by the (i) provision of infrastructure that facilitates cross-border traffic, and (ii) implementation of a NSW system allowing traders a one-time electronic submission of service requests to all government agencies for permits, licenses, and clearances thereby reducing the time and cost involved in trading. B. Analysis of Key Problems and Opportunities

40. The benefits of improved trade logistics occur in the form of more efficient logistics processes and production and supply chains, which, over time, lead to spatial changes in production and distribution, as well as new production chains. Conversely, constraints in transport logistics impede such processes, leading to higher costs and suboptimal allocations in terms of resources and geography. Such constraints take different forms – inadequate infrastructure capacities and qualities; suboptimal network configuration affecting modal choices; or regulatory and governance barriers that impede competition and transparency, together contributing to high transaction costs of trade. It is difficult to quantify the impact of the above factors without detailed country surveys and thorough diagnostics of the individual corridors. The CAREC Transport and Trade Facilitation Strategy (TTFS) and its Action Plan 7 , which focus on the development of six (6) priority CAREC transport corridors (Table III.1), close the methodological gap of detailed efficiency measurement

Table III.1 – CAREC Transport Corridors Corridor Route CAREC 1 Europe–East Asia (KAZ, KGZ, and XUAR) CAREC 2: Mediterranean–East Asia (AZE, KAZ, KGZ, TAJ, UZB, and XUAR) CAREC 3: Russian Federation–Middle East and South Asia (AFG, KAZ, KGZ, TAJ, and UZB) CAREC 4: Russian Federation–East Asia (MON, IMAR, and XUAR) CAREC 5 East Asia–Middle East and South Asia- (AFG, KGZ, TAJ, and XUAR) CAREC 6: Europe–Middle East and South Asia (AFG, KAZ, TAJ, and UZB)

AFG-Afghanistan; AZE-Azerbaijan; KAZ-Kazakhstan; KGZ-Kyrgyz Republic; MON-Mongolia; TAJ-Tajikistan; UZB-Uzbekistan; IMAR-Inner Mongolia Autonomous Region of the People’s Republic of China (PRC); XUAR-Xinjiang Uygur Autonomous Region of the PRC.

6 The CAREC Corridor Performance Measurement and Monitoring (CPMM) exercise initiated under the

CAREC Transport and Trade Facilitation Strategy (TTFS) regularly gathers time and cost data associated with transit transport processes. It thus establishes the status along the links and nodes of each CAREC corridor. Using the indicators of a refined Time/Cost Distance (TCD) methodology, CPMM identifies procedural and other bottlenecks, which help determine remedial action. CAREC Institute. 2011. CAREC Corridors Performance Measurement and Monitoring: Annual Report Manila

7 The Joint Transport and Trade Facilitation Strategy (TTFS) was endorsed by the CAREC Ministerial

Conference (MC), in November 2007 in Dushanbe, Tajikistan and the corresponding Action Plan endorsed by the MC in 2008.


11

41. The CAREC Corridor Performance Measurement and Monitoring (CPMM) exercise initiated by TTFS regularly gathers time and cost data associated with transit transport processes. It thus establishes the status along the links and nodes of each CAREC corridor. Using the indicators of a refined Time/Cost Distance (TCD) methodology, CPMM identifies procedural and other bottlenecks, which help determine remedial action. CPMM began in 2009 and has since revealed that border crossing activities tend to reduce speed by more than half in most corridors.8 For road transport, the three most time-consuming activities are escort/convoy, waiting time and loading/unloading. The three most costly activities are trans-shipment, loading/unloading and customs clearance. The underlying causes include poor physical infrastructure, low utilization of modern inspection technology, and inadequate logistics facilities at the BCPs. To eliminate some of the bottlenecks, improvements of the BCP infrastructure will be needed, trade logistics support services must be developed in the vicinity of BCPs, and national single windows (NSW) have to be designed, which enable trade and

transport-related information and documents to be submitted 42. The expected growth in trade will place an increasing burden on transport and logistics infrastructure, which, in turn, will limit the potential for further growth. The relationship between transport and trade is thus a circular one. Improved trade logistics will open the opportunity of more efficient logistics processes and production and supply chains, which, over time, lead to spatial changes in production and distribution, as well as new production chains. Conversely, constraints in transport logistics will preclude such opportunity, leading to higher costs and suboptimal resource allocations in terms of industries and geography. Figure III.2 provides a problem-tree analysis.

8 CAREC Institute. 2011. CAREC Corridors Performance Measurement and Monitoring: Annual Report Manila.

Pre

pa

ring

CA

RE

C T

ransp

ort a

nd

Tra

de

Facilita

tion P

roje

ct:

Bo

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r Cro

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oin

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rove

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nd

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Secon

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Figure III.2 – Problem Tree Analysis

EFFECTS CORE PROBLEMS CAUSES ROOT CAUSES

Low External Trade and Welfare Loss

High cost of trade transaction Reduced trade competitiveness

Technology gap Red tape due to security concerns

Ineffective border procedures

Focus on import controls

Poor maintenance planning concepts

Mounting maintenance backlog

Poor road designs and conditions

Ineffective funding sources

Skills gap No risk management system

Slow progress in regional integration

Trade policy focused on import substitution

Preponderance of government control Limited delegation of authority and private sector involvement

Slow transition process towards market economy and regional integration


13

43. The current logistics situation is illustrated in Figure III.3. The indicators used are adopted from the World Bank’s Doing Business Index9, which measures the time and cost associated with exporting and importing by ocean and inland transport, and the procedural and documentary requirements on the borders. To illustrate the performance of the Asian countries in this regard, the indicators were benchmarked on the OECD average with the deviation from the OECD mean reflecting the relative logistics performance of the various Asian sub-regions, including the CAREC region.10 44. Figure III.3 shows that Central Asia as a sub-region exceeds the OECD benchmark by the highest margin across all sub-indicators, which means that the prevailing logistics conditions are the least favorable to trade:

Documentary requirements generally appear to be more cumbersome than in all other Asian countries and the OECD at large. This applies to both export and import documents. Exporting and importing takes longer than anywhere else. The relatively long shipping times are to a large extent a function of distances from markets. It is in this area where the most significant deviations from the OECD occur.

CAREC countries face high costs of surface transport and cumbersome

documentation requirements to reach ports. The natural barriers of distance and isolation notwithstanding, there is substantial scope for reducing the transit times.

While all other Asian sub-regions perform relatively well with regard to the direct cost of ocean and inland transport (related to both imports and exports), Central Asia is again a notable exception.

9 The World Bank’s Doing Business Index, is a gauge for the relative ease of doing business in the WB’s

member countries. Among the various composite indicators is one that addresses the issue of where in those countries trading across borders is easy and where not. This composite indicator rests on two sets of sub-indicators, one each for exports and imports, respectively. The World Bank and the International Finance Corporation. 2010. Doing Business 2011 – Making a difference for entrepreneurs. Washington, DC.

10 This follows the methodology used by ADB. 2011. TA-7557: Promoting Regional Infrastructure Development.

Second Interim Report. Manila. As the Organization for Economic Co-operation and Development (OECD) has 34 member countries worldwide, using their median as a benchmark appears reasonable.


14

Figure III.3 – Asia’s Performance in Trade Logistics in Comparison with the OECD Average

Source: Figure based on World Bank and the International Finance Corporation. 2010. Doing Business 2011 – Making a difference for entrepreneurs. Washington, DC.

45. A recent ADB TA has computed the gains in trade that would accrue to the CAREC countries, if they gradually improved their trade logistics and thereby cut trade transaction costs.11 The study showed that a reduction in transaction cost by about 20% would result in gains in trade of about 24%.12 If spread over a 3-year period, the gain would translate to an annual trade growth of about 6.3%. This finding is in line with an earlier study, which suggested that a 10% rise in transport costs would reduce Asia’s trade by 3–4%.13 Overall, CAREC countries – while being disadvantaged by geography- have substantial potential to improve their performance. Current red tape on borders and shipping times far exceed what could be expected under more efficient logistics conditions.

11

ADB. 2011. TA-7557: Promoting Regional Infrastructure Development. Second Interim Report. Manila. 12

Currently, trade transaction cost of CAREC countries account for about 14.5% of the trade value. The equivalent indicator for Singapore is only 4%. The assumed reduction of transaction cost by 20% would lead to a share in the trade value of about 12% which is still high on an international scale.

13 Douglas H. Brooks. 2009. Infrastructure's role in lowering Asia's trade costs. Tokyo, Manila

-400%

-350%

-300%

-250%

-200%

-150%

-100%

-50%

0%

50%

Number of

export

documents

Time to export

(days)

Cost per

export

container ($)

Number of

import

documents

Time to

import (days)

Cost per

import

container ($)

ENTIRE ASIA -56% -165% -31% -52% -164% -29%

SOUTHEAST ASIA -51% -88% 28% -43% -85% 25%

SOUTH ASIA -78% -149% -20% -80% -141% -42%

CENTRAL ASIA -79% -367% -141% -81% -374% -170%

EAST ASIA -17% -57% 10% -5% -55% 10%

DE

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REGIONAL LOGISTICS INDICATORS


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C. Traffic

1. Background

46. The objective of this chapter is to review the traffic situation in the Central Asia countries including The People’s Republic of China (PRC), Kazakhstan, the Kyrgyz Republic, Mongolia, Tajikistan and Uzbekistan. Border Crossing Points (BCPs) in these countries were selected by the respective government authorities and visited by the Consultants in order to determine a list of potential infrastructure investments. Identified BCP projects needed to be prioritized and one of the criteria in this regard was the level of traffic, existing and future. 47. Traffic data at BCPs were to be collected in all of the above countries. However the information obtained varied considerably among countries in terms of reliability, coverage, and completeness. Some customs departments do not record electronically traffic levels at BCPs and statistics are often not available at the respective headquarters. In addition, being unsure whether they would participate in the R-PPTA, some countries were reluctant to provide information on traffic (Kazakhstan and to a lesser degree Tajikistan and the PRC). Nonetheless, the data provided in this Report -while not being uniform- was sufficient to support the prioritization and ranking of the investment projects. 48. The quality of traffic data varies from country to country as indicated below:

Uzbekistan has provided detailed information on freight traffic (imports, exports and transit for road and rail) and passengers for visited BCPs and a few other important BCPs; statistics for freight in tonnage and vehicles; Mongolia has provided detailed info on freight and passenger traffic for BCPs visited by the Consultant; statistics on inbound and outbound traffic in tonnage, vehicles and value; The PRC (XUAR and IMAR) has shared with the Consultants road traffic data (inbound, outbound expressed in tonnage, vehicles and value) limited to BCPs visited by Consultants; The Kyrgyz Republic has only recently and for only a few BCPs started to electronically record number of vehicles, tonnage and value of goods. In addition the Ministry of Transport maintains statistics on trucks entering the country. Overall, numeric data related to BCPs is limited. Kazakhstan has provided information only through interviews. The figures were rough estimates that tended to be on the high side. No information on tonnage and values was provided. Tajikistan has likewise only provided limited information through interviews. No data have been collected for Afghanistan and Turkmenistan.

49. Only land-based traffic is being considered here. Most of the international trade and transit trade in Central Asia are carried by railways. Railway BCPs for most cases are unlikely to require infrastructure investments to improve trade flows. One of the reasons is that much of the railway traffic is accounted for by bulk primary products and raw material. The importance of oil and gas and mining products in the CA economies means that most of the volume and value of the exports will be transported by pipelines and railways14. This is also the case for many imports as far as fuel products and coals are concerned. And it is only for finished products and agricultural products that exports and imports are likely to be transported by roads. Therefore the emphasis in this chapter has been on road traffic at BCPs.

14

The exception is Mongolia where, for the new coal exploitations, products are being exported to China by trucks.


16

2. Trade Patterns

50. Central Asia with a population of approximately 80 million accounts for just over 1% of the total world population. Being land-locked, Central Asia has a relatively low share of the world trade (0.4%). Generally speaking, the world over trade between neighbouring countries dominates trade of those countries. Central Asia is a notable exception.15 Before the disintegration of the Former Soviet Union (FSU) the economies of Central Asia were more integrated with trade flows directed towards Russia. Things started to change after 1991 and now intra-regional trade in Central Asia countries is only 6% of their total trade. Central Asia has a relatively high world share of energy raw products, oil, gas and coal (5% of world trade) and these are the main commodities, which now dominate exports. Exports of agricultural products (cotton, cereals and fruits) are still important commodities being traded, but their relative importance has declined. Trade flows to Russia and other CIS countries still represent a large share of the trade of Central Asian countries but the PRC in the last decade has emerged as a major trading partner. 51. Among the CIS countries free trade agreements prevail (FTA) though countries have been known to impose many restrictions and non-tariff barriers are common. Only Kyrgyzstan among the CA countries is member of the World Trade organization (WTO). But it is the recent establishment of the Custom Union (CU) which is going to affect the trade pattern in Central Asia. The Custom Union was signed in January 2010 between Belarus, Russia and Kazakhstan.16 52. The accession of Kazakhstan and Belarus to the CU went through a few years of negotiations and has required numerous adjustments in the management of their respective economies. Kazakhstan had to amend 17 laws and modernized all road BCPs that have become the new entry points to the CU with Uzbekistan, the Kyrgyz Republic and the PRC located beyond the outer border of the CU. Kyrgyzstan has officially agreed to join the CU provided that the conditions are acceptable and Tajikistan also considering joining. 53. The traffic patterns at the respective CA BCPs are presented below. As noted, the coverage is unfortunately not uniform as information from a few countries has been missing or very incomplete. Specific country information on trade and its prospect, when available, have been used in the estimates of future traffic volumes.

3. Kazakhstan

54. In 2009, 2.1 billion tons of cargo was transported in Kazakhstan. More than 80% of this cargo volume was carried by road, followed by railway (12%) and pipeline (8%). The cargo carried by water and air accounted for less than 1%. In terms of value, however, the railway carried about 50% of the trade volume, pipelines 42%, and the road sector only 2%. 55. The large majority of road cargo is transported within the country. In 2010, the total cargo moved by all modes of transportation stood at 2.2 billion tons, of which only 16.2

15

“In Asia only 1-5% of trade by value is among countries with a shared land border” Infrastructure for a Seamless Asia, ADB 2009 p.58, and by comparison ¼ of world trade is between countries having a common border.

16 The CU envisages elimination of customs, veterinary, phyto-sanitary and transport inspections and the

imposition of a common external import duty tariff (CET) through a common Custom Code. The objective of the CU is to eventually create a common economic space which will mean free movement of capital and labour. Such move to a “common economic space” is now expected to take force in 2012. The sharing of custom revenues in the CU will be 88% for Russia, 7% for Kazakhstan and 5% for Belarus. Decisions on CU matters are taken by the Customs Union Commission located in Moscow where Russia detains 57% of the votes and Belarus and Kazakhstan respectively 21.5% each. A Dispute Court is in process of being established in Minsk. Implementing the CU has faced difficulties but is progressing with BCP functions and structures being changed accordingly.


17

million tons were transit freight. International trade movements account for only 10% of the total movements. Details of international trade movements by mode for the year 2009 are presented below in Table III.2.

Table III.2 – Kazakhstan Trade – Tenge 1,000 (2009)

Railways Roads Sea Rivers Air Pipelines Other TOTAL Export 71,522 791 11,231 22.0 3.0 67,852 76 151,497 Import 14,922 2,503 151 1.7 30.2 15,070 552 33,230

Transit 14,141 212 0.04 0.1 0.8 - 78 14,432 TOTAL 100,586 3,506 11,382 23.8 34.0 82,922 706 199,160

Source: Customs Control Committee under the Ministry of Finance of Kazakhstan. Courtesy of Mr Murat Bekmagambetov (TRACECA-Kazakhstan).

56. Kazakhstan is a major transit route for Central Asian countries and a critical transit bridge for NATO humanitarian shipments to Afghanistan using two routes. The first route, starts in Europe and goes through Turkey and Georgia (Poti), then passes through Azerbaijan and the Caspian Sea before entering Kazakhstan (Corridor 2a). The second route starts in Riga, Latvia, where NATO and other international cargo arrive by sea. The containers are then shipped by rail via Russia to Kazakhstan, and further down to the Uzbekistan-Afghanistan border (Corridor 6a). It takes about 20 days for a single container and 15 days for a block container train from Riga to arrive at the Uzbek-Afghan border (Termez–Hairaton). In 2010, transit cargo to Afghanistan via Kazakhstan exceeded 1 million tons. 57. Kazakhstan also serves as a major transit route for Uzbekistan. The latter exports its cotton via Kazakhstan to Russia, the Baltic Sea port of Riga, and the Port of Ilyichevsk in Ukraine. In 2010, transit goods coming from Uzbekistan via Kazakhstan totaled 1.9 million tons while transit going to Uzbekistan exceeded 4.3 million tons. In 2010, Uzbekistan’s cotton exports stood at around 700,000–750,000 tons. The majority of this cotton (about 300,000 tons) was sold through the Iranian Port of Bandar Abbas and around 200,000-250,000 tons were sold to the PRC. 58. Most of the transit traffic in Kazakhstan originates from Russia (41%) with the PRC and Uzbekistan contributing both 13%. In terms of transit destinations, Uzbekistan comes first (27%) followed by Tajikistan (14%), Kyrgyzstan (12%) then Russia (10%) and Afghanistan (7%). 59. In 2009, the cargo exchange by rail at the Dostyk–Alashankou border crossing was about 15 million tons, including 10 million tons (67%) of Kazakh exports, 2 million tons of imports from China (13%), and 3 million tons of transit goods (20%). Container traffic represents only 1% of the total traffic, but container shipments have grown by 38% since 2004, with an average annual growth of about 8%. In 2004, the total number of containers was 187,829 units, reaching 309,817 units in 2008 and then dropping to 261,262 units (or 338,072 TEUs) in 2009. The container exchange with the PRC contributed significantly to this growth. The volume of containers exchanged at Dostyk alone has increased from 44,592 TEUs in 2004 to 182,750 TEUs in 2009, accounting for 55% of the total container traffic on this BCP. 60. Trade with the PRC will continue to expand and transit traffic is likely to remain remain strong. For rail traffic (exports, imports and traffic), Saryagash connecting with Uzbekistan and Dostyk connecting with the PRC (XUAR) are going to be essential. For road traffic, developments at BCPs connected with Uzbekistan and Kazakhstan need to be closely monitored.


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4. Kyrgyzstan

61. From 2005 to 2010, the Kyrgyz Republic’s GDP has been growing at 3.5%. The economy was particularly strong in 2007 and 2008 when GDP was growing at 8.5% p.a. And early 2010, the Kyrgyz Republic was on a recovery path from the global economic crisis with GDP growth projected at 4.5%. Political disturbances in 2010 then caused a significant shock to the economy, leading to a 5.4% decrease in real GDP, due to lower investor confidence and the disruption to agriculture, trade, and other services. The recent presidential elections have brought back stability and future GDP growth is expected to be between 6% and 7% p.a. 62. In current prices, exports grew from $674 million to $1,818 million from 2005 to 2010 (22% average annual growth) led by gold exports accounting for about 33% of the total. During the same period, imports grew from $1,189 million to $3,100 million (21% average annual growth). The trade balance has continued to be negative and does not show signs of improvements. The deficit is financed by workers remittances, foreign aid and FDI. Most of the growth in import and export values is due to changes in prices. In real terms the export growth in the short term will be around 3%, while imports are projected to be limited to an annual growth of 1% to 2%, but based on past experience is likely to be higher. 63. Beside gold, garments and agricultural products are the two most important export goods. There is a great variety of import products with the dominant one being fuel and coal (27% of all imports in terms of value). Other imported goods are “machinery and equipment” (22%) including vehicles, “food products” (17%), “chemical products” (13%) including fertilizer, pharmaceutical products and plastic, “textile products” (8%). Exports to Russia and Kazakhstan were mainly garments, fruit and vegetables, dairy products and bulbs, and to China – raw materials (waste and scrap metals, hides and wool). CIS countries represented 45% of the export (2/3 if gold is excluded) and 53% of the import. The three major trading partners are Russia, Kazakhstan and China. 64. The table below summarizes the overall trade situation for the last five years comparing data from National Account and detailed trade figures at border crossing points from Customs Department. The table also shows the volume of exports and imports at BCPs expressed in tons.

Table III.3 – Value and Volume of Trade at BCPs Year Imports Exports Imports

(cst) Import Export

Value (M $) Natl Account

Value (M $) BCP

Volume (thousand T)

Value (M $) Natl Account

Value (M $) BCP

Volume (thousand T)

Value (M $) BCP 2006

$/T $/T

2006 1,931 1708 5956 891 777 3135 1708 287 248 2007 2,788 2387 7016 1321 1158 3415 2166 340 339 2008 4,072 3296 7915 1856 1559 2908 2447 416 536 2009 2,814 2709 5515 1700 1448 1936 1913 491 748 2010 3,100 2943 5121 1818 1494 1591 1967 575 939

Note: Import and export values given according to National Accounts and BCPs in million $; Volume are in thousand tonnes; Source: Ministry of Economy and Regulations and Customs Department

65. At current price, imports in 2010 were still lower than in 2008 and lower than 2007 when expressed in constant terms. It is only in 2013 that imports will be back to the 2007 level with exports expecting to fare better. When measured in volume, the fall in imports and exports is more noticeable: from 5.9 million tons in 2006 to 5.1 million tons in 2010 for imports and from 3.1 million tons to 1.6 million tons for exports. The reduction in the volume of trade is even more apparent when considering traffic at road BCPs only. Then, imports fell from 3.3 million tons in 2006 to 1.9 million tons in 2010 and from 2.8 million tons in 2006


19

to 1.2 million tons in 2010 for exports. The average value per ton of import goods was in 2010 $ 575 ($ 759/ton for road BCPs). 66. The years of 2009 and 2010 have been marked by a combination of world economic downturn and national political instability. Therefore they do not constitute a proper basis for trade and traffic forecasts. It is suggested to consider the 2007-2008 period as the reference base for the forecasts. 67. But besides the question of national political stability (especially in the South) and downturns in the world economy, it is the question of the new Customs Union which is of concern as it has already affected trade and traffic at the BCPs. In Kazakhstan, in the last year during the period of adjustment to CU a few BCPs were closed and this created reduction of border trade in Kyrgyzstan. Apparently all closed BCPs will be re-opened shortly but barbed wires have been installed along the border to curtail smuggling. 68. Since the 1st of July 2011, Kyrgyzstan trade with Kazakhstan is now subjected to different rules and procedures. In the past Kyrgyzstan trade with Kazakhstan was governed by “simplified custom procedures” but now the arrangement is gone. The previous allowance of 2 tons limit for small trading has been replaced by a 50 kg personal allowance. Above that limit, Kyrgyz citizens need to pay 4 Euro per kilo. However the measure applies to foreign goods only as there are no duties among CIS countries. In the past, at Ak Jol, large volumes of goods of Chinese origin, sometimes re-labeled as Kyrgyz products at the Bishkek Dordoi market, were exported daily to Kazakhstan. Now traders need to unload their shipments of Chinese goods with the load being carried by individual passengers across the border. This has led, at the BCP, to increases in private car traffic as well as in the number of pedestrians. Border crossing now takes more time and increased congestion has been observed.

5. Mongolia

69. After contracting for the first three quarters of 2009, the economy started to recover in 2010 as global commodity prices picked up and the Government adopted an extensive policy reform program. The economy did return to solid growth in 2010. Growth for 2011 is estimated to have reached 15%, up from 6.4 % in 2010, and is being spurred by the development of large copper, coal and gold mining projects. High GDP forecasts are based on (i) continued strong flows of foreign direct investment, which has more than doubled between 2010 and 2011; (ii) continued rapid expansion of the mining sector, especially coal; (iii) public investment being raised by a factor three; and (iv) strong consumer demand due to the final disbursements of cash to the citizens ahead of the 2012 elections. 70. The trade deficit has climbed to record levels in recent months as imports have surged. Exports are growing strongly too, up 176% compared to the previous year supported almost entirely by large coal shipments to China from coal mines in Southern Mongolia. Constituting 44 % of the value of total exports, coal exports increased by 178 % over the previous year. The coal sector has become the fastest growing sector, surpassing copper exports in becoming the top export earner for the country. The PRC, the largest thermal coal consumer in the world, remains the only destination for coal from Mongolia. It is expected to grow even faster in the near future when large coal mining projects start production. 71. Coal deposits are scattered all over the country and coal in the past was mostly used in thermal power facilities before becoming a major export commodity. However, it is in the south that the major developments are taking place. The Government-controlled Tavan Tolgoi mine is situated in South Gobi desert 98 km east of Dalandzadgad. It has been in operation since 1967 and has estimated reserves of 1.9 billion tons of coking coal from a

http://en.wikipedia.org/wiki/Gobi_deserthttp://en.wikipedia.org/wiki/Dalandzadgad


20

total of 4.5 billion tons of reserves and could produce as much as 20 million tons per year. The mine is situated 400 km from the nearest railway, which poses a logistical problem. Plans for the development of a new rail link, either directly south or eastwards to connect with the existing trans-Mongolian line, have yet to be firmed up. 72. Approximately 100 km south of Tavan Tolgoi are the Tsagan Tolgoi mines and about 200 km to the east are the Narit Sukhait coal deposit and the Ovoot Tolgoi coal development. The Ovoot Tolgoi coal development has estimated surface coal reserves of 114 million tons. The project is situated next to the existing MAK/Qinhua coal mine, approximately 45 km north of the Mongolian/Chinese border and the Chinese town of Ceke. A major coal basin runs 120 km east and west of Narit Sukhait and many other coal mines in the basin have significant reserves that would eventually be exploited. 73. The development of the coal export traffic is both changing the role of three of the four key border crossings being assessed for the RIBS project and is placing additional pressure on the border authorities to change their operational procedures and practices in order to cope with the anticipated traffic growth.

6. Tajikistan

74. GDP climbed to 6.5% in 2010 from 3.4% in 2009. Industry grew by about 10%, as favorable weather allowed higher hydropower production (which accounts for most of the electricity generated), in turn allowing small and medium-sized enterprises to maintain continuous operations in winter. Thus industrial growth mainly came from these enterprises, particularly in light manufacturing and food processing, unlike previous years. 75. Public spending on key infrastructure projects, such as roads, tunnels, and transmission lines, grew, underpinning growth in construction. Growth in agriculture slowed to a still strong 6.8% after an unusually high 10.5% gain in 2009 (due to a reallocation of land to non-cotton agriculture). Slowing activity in retail trade, as disruption in rail transit restricted imports, held services growth to about 5%.

76. Tajikistan exports are dominated by aluminum products and cotton. Aluminum exports come from the TALCO aluminum smelter in Tursunzode just west of Dushanbe which is by far the largest industrial complex. In 2010, aluminum production however suffered due to limited imports of alumina, caused by intermittent disruptions to rail transit through Uzbekistan. These were largely resolved in the second half of the year. Tajikistan maintains a large deficit in its merchandise trade balance ($1.4 billion) compensated by large inflow of money transfers from Tajik working abroad. Economic recovery in the Russian Federation lifted remittances by 29% to $2.4 billion in 2010, the equivalent of 40% of GDP. They remained a key factor in economic and social stability in Tajikistan, supporting domestic demand and private consumption.

77. Growth is projected to edge up to 6.8% in 2011 and 7.0% in 2012, fuelled by continued remittance inflows and by increases in aluminum and cotton prices in 2011, both of which fall off but stay high in 2012.17 Remittances are forecast to grow by about 7% each year supporting private consumption expenditure, boosting imports and so buoying budget revenue. Rising remittance-fuelled consumption spending and expanding public investment are projected to generate much stronger import growth in 2011 and 2012 of about 28% and 10%, assuming normal regional trade and cargo transit arrangements. Exports are set to rise, by around 25% largely reflecting global price movements.

17

Asian Development Outlook 2011


21

78. In Tajikistan most of the trade in volume and value will continue to travel by rail. The most active road BCP is with Uzbekistan at Bratstvo on CAREC Corridor 3 connecting Uzbekistan with Dushanbe. Currently 12,000 vehicles per year approximately cross the border accounting for 22% of the trade traffic by road. There are many other border crossings in Tajikistan with relatively low traffic. There are many factors limiting the expansion of freight movements across the borders. Tajikistan is a very mountainous country with only 7% of land being arable. Population is low and scattered and the road network is still underdeveloped. And finally relationships with Uzbekistan have not shown significant signs of progress.

7. Uzbekistan

79. The economy continued to perform well in 2010, supported by the effects of a fiscal stimulus, the government’s medium-term investment program and the global economic recovery. Growth was driven mainly by industry (including construction) and services. Uzbekistan with its financial sector relatively isolated has not been affected by the slowdown of the world economy. GDP in 2011 is expected to grow at 8.5%. Growth has been strong in the last few years and is expected to maintain its pace helped by strong prices in Uzbekistan export commodities, hydrocarbon (natural gas) and cotton. At the official exchange rate, GDP in 2009 was $38 billion giving an estimated GDP per capita of $3,100. 80. Uzbekistan is maintaining a positive merchandise trade balance with exports being $13 billion and imports $9.5 billion in 2010. Exports are dominated by natural gas, cotton and gold. Exports are centered on CIS countries (Ukraine 30%, Russia 14%), followed by Turkey (7.5%), Kazakhstan (7%), Bangladesh (7%), the PRC (6%), and South Korea (4%). Import goods include machinery and equipment, foodstuffs, chemicals, ferrous and non-ferrous metals, originating from Russia (24%), the PRC (20%), South Korea (13%), Germany (6%), Ukraine (5.5%), and Kazakhstan (5%). 81. There are a few other points to make which have a direct impact border crossing activities. Uzbekistan is pursuing an “import substitution” economic strategy which implies a far lower trade volume than what is observed among open economies. Uzbekistan is a “double land-locked” country and has a strategic geographic position in Central Asia. This means that transit traffic is very significant.

82. It is likely that most of the trade in volume and value, because of its nature, would continue to be through the railway system. Secondly, a high level of transit traffic by road and rail is to be expected. Thirdly, because of relatively tense relationships with Kyrgyzstan and Tajikistan, trade (especially by road) with these countries will be limited. Fourthly, because of the perceived security risk it could be expected that severe measures would be taken at border crossing to mitigate that risk. Finally, Uzbekistan has so far not indicated that it may join the Customs Union (CU) and this implies maintaining stricter border crossing procedures with countries having joined the CU.

8. People’s Republic of China

83. As far as border crossing activities are concerned, only trade prospects for Xinjiang Uyghur Autonomous Region (XUAR) and Inner Mongolia Autonomous Region (IMAR) with their adjacent CAREC countries are relevant to the R-PPTA and much of the subject has already been discussed in the context of Kazakhstan, Kyrgyzstan and Mongolia. 84. Trade between China and Mongolia will continue to be dominated by Mongolian exports of primary resources mostly coal, with also significant volume of copper and gold. Mongolia imports from China will continue to be in finished products, food products, petroleum products, and machinery and equipment. With the current expansion in the


22

mining sector in Mongolia, trade with China is expected to be strong, growing at a two digits rate, at least for the medium term. 85. Exports of Kazakhstan to China will continue to be dominated by primary mining commodities (coal, diversity of other mining products and petroleum) while Chinese exports to Kazakhstan and to other Central Asia countries and Europe through Kazakhstan, they will as in the past, consist primarily of finished products carried by containers. Most of the trade between China and Kazakhstan will be carried by rail. 86. The trade between the XUAR of the PRC and the Kyrgyz Republic is slightly different. The high volume of exports is likely to be sustained regardless of whether Kyrgyzstan joins the Customs Union. But the goods entering Kyrgyzstan from XUAR are also finished products with many of them of relatively low value entering the country with zero or low tariff. Part of these goods is consumed in Kyrgyz, but the majority, in the past, was re-exported to Kazakhstan or Uzbekistan sometimes with a Kyrgyz label. This labelling of Chinese goods at the Dordoi market in Bishkek will likely disappear. However Kara Suu and Dordoi markets may still continue to serve as “large Chinese goods entrepots” geared for exports to the rest of Central Asia.


23

IV. THE PROPOSED PROJECT

A. Impact and Outcome

1. Impact

87. The expected impact of the proposed Project will be an increase in trade. The impact of the SW component is likely to be relatively stronger than the BCP infrastructure component as the SW will significantly raise the efficiency of the entire system of trade documentation, which is currently a major constraint (Figure III.3). 88. The impact of the infrastructure component cannot be easily determined as that component consists largely of enabling social and other infrastructure not directly related to cross-border operations. This is not to suggest that these components will have no impact. The proposed enabling infrastructure will improve the working conditions of BCP staff and along with that also the quality of BCP services. The scope of the impact will depend to a large extent on the implementation of measures to also improve processes and procedures on the borders. This potential is discussed in Section V covering Technical Due Diligence.

2. Outcome

89. The immediate outcome of the proposed Project will likely be

Streamlined trade documentation processes as a result of the introduction of the SW, Reduced transaction and transport times resulting from more functional BCP layouts

and improved infrastructure,

Better working conditions at BCPs to be created by the provision of social infrastructure, and

More secure, accurate, and expeditious controls due to the provision of IT equipment B. Outputs

90. The outputs were listed for those countries, which the Consultants have visited and which have indicated that they would likely participate in the proposed Project. This meant that Afghanistan BCPs are not included in the list of outputs because the country situation precluded any visits and because the assessment is based on a review of secondary sources. Kazakhstan BCPs were not included because the authorities indicated that Kazakhstan might not participate in the Project and accordingly provided only limited inputs into the TA. Technical due diligence work was, however, carried out for all countries leaving the option of including Afghanistan and Kazakhstan at a later stage. The technical due diligence is presented in Volumes 2a and Volume 2b of this study. These Volumes help to better understand the situation prevailing on either side of the border for all those BCP locations that the Consultants were permitted to visit. Based on this, a total of 15 matching BCPs are described in Volume 2a. A summary of the matching BCPs is shown in Table IV.1 below:


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Table IV.1 – Matching BCPs

Source: Consultants

91. It should be noted that Table IV.1 above is presented here to show pairs of BCPs as discussed with the governments or –in case of Afghanistan- as inferred from secondary sources. The table does not imply that all BCPs fit the rationale of the proposed Project. The detailed screening exercise as discussed in Volume 2a and summarized in the following paragraphs has led to a grouping of BCPs more consistent with the rationale of the Project. 92. Similarly, Table IV.2 below contains BCPs supported by the rationale and some that

are not. All of them, however, do not combine to pairs. The table is useful because it may

provide a basis for ADB to discuss a similar future project with the CAREC member

countries.

ROUTE CORRIDOR ROAD/RAIL

NO. COUNTRY NAME COUNTRY BCP NAME

AFG - UZB 3b, 6a, 6b Bo