Document of
The World Bank
Report No: 40984-UA
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED LOAN
IN THE AMOUNT OF US$ 400 MILLION
TO
UKRAINE
FOR A
ROADS AND SAFETY IMPROVEMENT PROJECT
March 12, 2009
Sustainable Development Department
Ukraine, Belarus and Moldova Country Unit
Europe and Central Asia Region
CURRENCY AND EQUIVALENT UNITS
(As of January 01, 2009)
Currency Unit = HRYVNIA (UAH)
UAH 7.7 = US$1.00
FISCAL YEAR
January 1 – December 31
ABBREVIATIONS AND ACRONYMS
AC
APL
CAS
CBA
CIS
CPAR
CPS
CQ
DPL
EBRD
EIA
EIB
EMP
ERR
EU
FMS
GDP
GPN
IC
ICB
IEG
IFIs
ILO
IMF
KRU
LARP
Accounting Chamber
Adaptable Program Lending
Country Assistance Strategy
Cost Benefit Analysis
Commonwealth of Independent States
Country Procurement Assessment
Report
Country Partnership Strategy
Consultant Qualification
Development Program Lending
European Bank for Reconstruction and
Development
Environmental Impact Assessment
European Investment Bank
Environmental Management Plan
Economic Rate of Return
European Union
Financial Management System
Gross Domestic Product
General Procurement Notice
Individual Consultants
International Competitive Bidding
Internal Evaluation Group (World
Bank)
International Financial Institutions
International Labor Organization
International Monetary Fund
State Control and Revision Office
Land Acquisition and Resettlement Plan
Vice President:
Country Director:
Sector Director/Sector Manager:
Task Team Leader:
Co-Task Team Leaders:
LARF
LCS
MOF
NBU
NCB
OPRC
PDO
PIU
PMCP
POM
QCBS
RPF
RPM
RSIP
SBA
SBD
SDR
SIL
SOE
STU
UAD
UDI
VOC
WTO
Land Acquisition and Resettlement
Framework
Least Cost Selection
Ministry of Finance
National Bank of Ukraine
National Competitive Bidding
Operational Procurement Review
Committee
Project Development Objective
Project Implementation Unit
Ukravtodor Database on roads physical
conditions
Project Operational Manual
Quality and Cost-based Selection
Resettlement Policy Framework
Regional Procurement Manager
Roads and Safety Improvement Project
Standby Arrangement (of the IMF)
Standard Bidding Document
Special Drawing Rights
Specific Investment Loan
Statement Of Expenditure
State Treasury of Ukraine
Ukravtodor (State Road Administration
of Ukraine)
Ukrdorinvest (State Enterprise –
Ukrainian Road Investment)
Vehicle Operating Costs
World Trade Organization
Shigeo Katsu
Martin Raiser
Peter D. Thomson/Wael Zakout (Acting)
Henry G. R. Kerali
Cordula Rastogi/Dmytro Kryshchenko
UKRAINE
ROADS & SAFETY IMPROVEMENT PROJECT
CONTENTS
Page
I.
STRATEGIC CONTEXT AND RATIONALE ................................................................. 1
A.
Country and sector issues.................................................................................................... 1
B.
Rationale for Bank involvement ......................................................................................... 3
C.
Higher-level objectives to which the project contributes ................................................... 3
II.
PROJECT DESCRIPTION ............................................................................................. 4
A.
Lending instrument ............................................................................................................. 4
B.
Project development objective and key indicators.............................................................. 5
C.
Project components ............................................................................................................. 5
D.
Lessons learned and reflected in the project design ............................................................ 6
E.
Alternatives considered and reasons for rejection .............................................................. 7
III.
IMPLEMENTATION ...................................................................................................... 7
A.
Partnership arrangements .................................................................................................... 7
B.
Institutional and implementation arrangements .................................................................. 7
C.
Monitoring and evaluation of outcomes/results .................................................................. 8
D.
Sustainability....................................................................................................................... 8
E.
Critical risks and possible controversial aspects ................................................................. 9
F.
Loan/credit conditions and covenants ............................................................................... 10
IV.
APPRAISAL SUMMARY ............................................................................................. 13
A.
Economic and financial analyses ...................................................................................... 13
B.
Technical ........................................................................................................................... 13
C.
Fiduciary ........................................................................................................................... 14
D.
Social................................................................................................................................. 17
E.
Environment ...................................................................................................................... 18
F.
Safeguard policies ............................................................................................................. 20
G.
Policy Exceptions and Readiness...................................................................................... 20
Annex 1: Country and Sector or Program Background ......................................................... 21
Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ................. 26
Annex 3: Results Framework and Monitoring ........................................................................ 30
Annex 4: Detailed Project Description ...................................................................................... 32
Annex 5: Project Costs ............................................................................................................... 35
Annex 6: Implementation Arrangements ................................................................................. 36
Annex 7: Financial Management and Disbursement Arrangements ..................................... 38
Annex 8: Procurement Arrangements ...................................................................................... 46
Annex 9: Economic and Financial Analysis ............................................................................. 55
Annex 10: Safeguard Policy Issues ............................................................................................ 58
Annex 11: Governance and Anti-Corruption Action Plan ..................................................... 62
Annex 12: Project Preparation and Supervision ..................................................................... 66
Annex 13: Documents in the Project File ................................................................................. 67
Annex 14: Statement of Loans and Credits .............................................................................. 68
Annex 15: Country at a Glance ................................................................................................. 70
Annex 16: Maps........................................................................................................................... 72
UKRAINE
ROADS AND SAFETY IMPROVEMENT PROJECT
PROJECT APPRAISAL DOCUMENT
EUROPE AND CENTRAL ASIA
ECSSD
Date: March 12, 2009
Country Director:
Martin Raiser
Sector Director:
Peter D. Thomson
Sector Manager:
Wael Zakout (Acting)
Project ID: P100580
Team Leader: Henry G. R. Kerali
Sectors: Roads and highways (100%)
Themes: Regional integration (P);Export
development and competitiveness (S)
Environmental screening category: Partial
Assessment
Lending Instrument: Specific Investment Loan
Project Financing Data
[X] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other:
For Loans/Credits/Others:
Total Bank financing (US$ million): 400.00
Proposed terms: US Dollar denominated IBRD flexible loan, variable spread, level repayment
with 5 years grace and 30 years to maturity
Financing Plan (US$ m)
Source
Local
Foreign
Total
Borrower
100.00
0.00
100.00
International Bank for Reconstruction and
159.15
240.85
400.00
Development
Total:
259.15
240.85
500.00
Borrower:
Ministry of Finance
Kyiv
Ukraine
Responsible Agency:
Ukravtodor (State Road Administration of Ukraine)
9 Phizkultury St.
Ukraine
Tel: (380-44) 287- 2449
Fax: (380-44) 287-2449
forec@ukravtodor.gov.ua
i
Estimated disbursements (Bank FY/US$m)
FY
2010
2011
2012
2013
Annual
67.0
173.0
150.0
10.0
Cumulative
67.0 240.0
390.0 400.0
Project implementation period: Start July 15, 2009 End: December 31, 2012
Expected effectiveness date: July 15, 2009
Expected closing date: December 31, 2012
Does the project depart from the CAS in content or other significant respects?
[ ]Yes [X] No
Ref. PAD I.C.
Does the project require any exceptions from Bank policies?
[ ]Yes [X] No
Ref. PAD IV.G.
Have these been approved by Bank management?
[ ]Yes [ ] No
Is approval for any policy exception sought from the Board?
[ ]Yes [X] No
Does the project include any critical risks rated “substantial” or “high”?
[ ]Yes [X] No
Ref. PAD III.E.
Does the project meet the Regional criteria for readiness for implementation?
[X]Yes [ ] No
Ref. PAD IV.G.
Project development objective Ref. PAD II.C., Technical Annex 3
To improve the condition and quality of sections along the M-03 road, and increase traffic safety
on roads.
Project description [one-sentence summary of each component] Ref. PAD II.D., Technical
Annex 4
Component 1 Road Rehabilitation (estimated cost US$298.5 million): Rehabilitation of about
120 kilometers of the Kyiv-Kharkhiv-Dovzhansky road, including civil works for the
rehabilitation/strengthening of the existing road.
Component 2 Road Safety Improvement (estimated cost US$99.0 million): Carrying out a
program of safety measures at traffic accident black spots on roads (about 110 black spots will
be targeted) including supply and installation of safety improvement measures.
Component 3 Capacity Building (estimated US$1.5 million): Provision of advisory services,
training and equipment to enhance road management according to international practice,
including: (a) improvement of Ukrainian norms, rules and standards in the design, construction,
repair and maintenance of roads; (b) modernization of road management and operations,
including implementing performance based contracts and introducing systems for planning and
programming road works, and (c) introduction of international ‘best practice’ contracting in the
road sector.
Which safeguard policies are triggered, if any? Ref. PAD IV.F., Technical Annex 10
OP 4.01 Environmental Assessment
OP 4.12 Involuntary Resettlement
ii
Significant, non-standard conditions, if any, for:
Ref. PAD III.F.
Board presentation:
Yes.
Additional Conditions of Effectiveness
a. The Subsidiary Agreement has been executed by both parties thereto.
b. The Project Operations Manual has been approved and adopted by the Project Implementing
Entity.
c. The Project Implementing Entity has provided evidence satisfactory to the Bank of its
adoption of the GAC Action Plan.
Dated Covenants
a. The Borrower shall ensure that the Project Implementing Entity prepares on or about March
31, in each year of the Project, commencing March 31, 2010, a consolidated report (Project
Report), an annual forecast plan containing financial projections and revised and updated
Project monitoring and evaluation indicators for the activities to be undertaken in the
upcoming year, in a format acceptable to the Bank and shall promptly submit such reports
and plans to the Bank for its review and comment.
b. In the first year of Project implementation, the Borrower shall (i) engage an independent
external audit firm acceptable to the Bank to carry out a baseline operational audit of the
Project, such audit to include operational systems and procedures review including an
internal framework assessment; (ii) prepare an operational audit report on the conclusion of
the audit carried out above; and (iii) provide a copy of the operational audit report to the
Bank within thirty days of its completion.
c. Following the baseline operational audit and report in the first year of the Project, in each
subsequent year, the Borrower and the Bank shall discuss the need for any subsequent
operational audit.
d. Not later than June 30, 2011 the Borrower, through the Ministry of Economy and the Project
Implementing Entity, shall carry out together with the Bank, a midterm review of the
progress made in carrying out the Project (hereinafter referred to as the Midterm Review).
The Midterm Review shall cover, amongst other things: (i) progress made in meeting the
Project’s objectives; and (ii) overall Project performance against Project performance
indicators.
e. The Borrower shall ensure that the Project Implementing Entity prepares, and at least three
(3) month prior to the Midterm Review, furnishes to the Bank, a separate report describing
the status of implementation of each component of the Project and a summary report of
Project implementation generally (the “Mid-term Report”).
f. The Borrower shall ensure that the Project Implementing Entity monitors and evaluates the
progress of the Project and prepares Project Reports on the basis of indicators agreed with the
Bank. Each Project Report shall cover the period of one quarter of one calendar year, and
shall be furnished to the Bank not later than one month after the end of the period covered by
such report.
iii
Project Legal Covenants
a. The Borrower shall ensure that the Project Implementing Entity carries out Project
implementation and management with due diligence and efficiency.
b. The Borrower shall ensure that the Project Implementing Entity carries out the Project in
accordance with the policies and procedures set forth in the Project Operations Manual and
shall not alter, amend, vary or waive any provision of the Project Operations Manual without
consultation with, and the prior consent of, the Bank.
c. To facilitate the Project Implementing Entity’s implementation of the Project, the Borrower
shall make the Loan proceeds available to the Project Implementing Entity under a subsidiary
agreement, under terms and conditions approved by the Bank which shall include provisions
setting forth that the Project Implementing Entity shall be responsible for the overall day-today implementation and management of the Project (“Subsidiary Agreement”) and shall
carry out the Project in accordance with the Project Operations Manual and the AntiCorruption Guidelines.
d. The Borrower shall ensure that all measures necessary for the carrying out of the
Environmental Management Plan shall be taken in a timely manner and that all legal and
administrative planning and environmental permits and authorizations necessary to carry out
the Project are secured in a timely manner and with due diligence.
e. The Borrower shall ensure that the Project Implementing Entity takes all measures necessary
and identified under the Environmental Management Plan at all times in a timely manner,
ensuring that adequate information on the implementation of said measures is suitably
included in the Project progress reports.
f. In the event that land acquisition or resettlement is required for the purposes of carrying out
activities under Part 1 or Part 2 of the Project, the Borrower shall: (i) notify the Bank or
ensure that the Project Implementing Entity notifies the Bank, of any intended acquisition of
land and/or resettlement, in whole or in part, and of each Land Acquisition and Resettlement
Plan (if any) prepared in accordance with the Land Acquisition and Resettlement
Framework; , of any of the following: residences, agricultural holdings, commercial
structures and businesses; and/or land used by people without claim to legal title; and/or
persons affected by Project activities; (ii) disclose, or ensure that the Project Implementing
Entity discloses, the Land Acquisition and Resettlement Framework and each Land
Acquisition and Resettlement Plan (if any) prepared under the Project and all relevant
information relating thereto in a manner satisfactory to the Bank no less than sixty (60) days
prior to carrying out any land acquisition and/or resettlement ; and (iii) ensure that the Project
Implementing Entity causes all land acquisition and resettlement under the Project to be
undertaken in accordance with the provisions and procedures contained in the Land
Acquisition and Resettlement Framework and the respective Land Acquisition and
Resettlement Plan, and that all relevant information is adequately provided to all affected
persons, and potentially affected persons, in a timely and adequate manner.
g. The Borrower shall ensure that the Project is carried out in accordance with the provisions of
the Anti-Corruption Guidelines.
iv
Financial Covenants
a. The Borrower shall ensure that the Project Implementing Entity maintains a financial
management system in accordance with the provisions of Section 5.09 of the General
Conditions.
b. The Borrower shall ensure that the Project Implementing Entity prepares and furnishes to the
Bank after the end of each calendar quarter (within forty-five days), interim unaudited
financial reports for the Project covering the quarter, in form and substance satisfactory to the
Bank.
c. The Borrower shall ensure that the Project Implementing Entity has its Financial Statements
audited in accordance with the provisions of Section 5.09 (b) of the General Conditions.
Each audit of the Financial Statements shall cover the period of one fiscal year of the
Borrower, commencing with the year in which the first withdrawal is made, or the first
complete year of implementation of the Project. The audited Financial Statements for each
such period shall be furnished to the Bank not later than six months after the end of such
period.
Withdrawal Condition
a. No withdrawals shall be made in respect of (i) payments made for expenditures prior to the
date of this Agreement, and (ii) payments made for expenditures under Category (2) or
Category (3) (as the case may be) which relate to activities to be carried out on or in relation
to any land which is the subject of a Land Acquisition and Resettlement Plan until the
Borrower has provided evidence, satisfactory to the Bank, that the Land Acquisition and
Resettlement Plan has been satisfactorily carried out.
v
vi
I.
STRATEGIC CONTEXT AND RATIONALE
A. Country and sector issues
Country Issues
1.
While Ukraine experienced a solid recovery during 2000-2007, by late 2007, the
economy was showing increased signs of overheating, with pressures intensifying in the
first half of 2008. Since 2005, growth has been driven increasingly by domestic demand, and
as a result the current account balance deteriorated from a surplus of 10.6 percent of GDP in
2004 to a deficit of 3.7 percent in 2007, despite the substantial terms of trade improvements.
The widening current account deficit was financed by large inflows of foreign borrowings and
foreign direct investment (FDI). In 2008, price pressures mounted driven by higher food and
energy prices, but also by inconsistent macroeconomic, fiscal and monetary policies. Real
wage growth continued to outstrip productivity improvements and inflation rates rose to about
30 percent during the first half of 2008. The Government tried to contain fiscal and monetary
pressures by restraining non-discretionary spending, over-executing revenues, tightening
provisioning on external borrowings, and allowing the appreciation of the local currency
(UAH) by 10 percent relative to the US dollar in May 2008.
2.
In the fall of 2008, the global financial crisis exposed Ukraine’s inherent
macroeconomic vulnerabilities and led to an economic crisis and a sharp deterioration
in the economy. Real GDP growth decelerated to an annual rate of 2.1 percent in 2008,
implying a 12 percent decline in the fourth quarter. Industrial production sharply contracted,
dragged down by the export oriented and commodity based sectors such as steel, chemicals,
and oil refined products. The construction sector has also been declining since the first half of
2008, and fiscal revenues dropped significantly in the fourth quarter of 2008. The exchange
rate sharply depreciated (over 40% to the US$ between August 2008-January 2009) while the
National Bank of Ukraine (NBU) lost around US$12 billion of foreign exchange reserves.
3.
Although in the short-term, the authorities are focused on measures to mitigate
the impact of the crisis, over the medium-term they recognize the importance of
increasing Ukraine’s external competitiveness and rebalancing economic growth to be
based more on productivity improvements than on capital inflows and the growth in domestic
demand. The geographic location of Ukraine remains a key asset in this regard, providing
access to both Europe’s and Russia’s large markets and thus a stimulus for upgrading
technology. Following rapid increases in income, and declining unemployment and poverty
rates, the crisis is likely to temporarily reverse some of these positive trends. This highlights
the potential role of public infrastructure investments in stimulating domestic demand and
creating jobs.
Transport Sector Issues
4.
The transport sector is important in Ukraine’s economy and hence efficiency
improvements are particularly important in raising competitiveness. The country
generates far more transport movements relative to its GDP than any other country in Europe
due to its reliance on agriculture and on heavy industries. This implies that transport costs
make up a proportionally larger part of the final price of many goods. Consequently, the
transport system has substantial potential to improve aggregate productivity and regional
1
competitiveness. The Government is pursuing public interventions to improve transport
system efficiency.
5.
As Ukraine moves to gain market share in Europe and other developed markets,
its economy’s transport intensity will gradually shift towards road transport. At present,
the modal split of freight transport remains typical of a Soviet era economy—road transport
contributes relatively little. Official statistics show that only five percent of freight turnover
(in ton kilometers)1 is by road transport, while rail and pipelines account almost equally for
most freight volume. However, road transport dominates short-distance movement of goods,
accounting for close to 60 percent of the gross freight tonnage, and this trend is growing.
6.
Existing road infrastructure has been relatively adequate during the 10-year
transition period,2 but now on certain sections of roads, the available quality and
capacity hinder efficient movement of goods and people. The 1998 financial crisis
exacerbated the shortage of funds for maintaining and renewing transport infrastructure in
Ukraine. Some economically strategic sections of the network are not only in poor condition
but are also functioning at peak capacity due to steadily increasing commercial traffic;
passenger traffic grew at an average rate of 11 percent per annum between 2005 – 2008.
Furthermore, substantial portions of the core network still need to be upgraded to European
technical and safety standards. The road sections targeted for improvements under the
proposed project are a good example of this.
7.
The Government is implementing a program to upgrade the main roads from
Ukraine’s western border linking EU countries to Kyiv through three EBRD loans
(provided between 2000 and 2006). Inadequate technical and safety standards are not the only
reason for the high rates of road traffic crashes in Ukraine—a rate that compares poorly with
other countries in the region and in Europe. The number of road traffic crashes in absolute
terms has almost doubled over the past six years, and the cost of these is estimated to be
between 1.5 and 3.5 percent of GDP3, most of which is due to steadily increasing vehicle
ownership and poor driver behavior. Deaths per 10,000 registered vehicles were 8.0 in 2005,4
similar to many Eastern European countries such as the Russian Federation, but much higher
than the average for EU countries (between 3 and 4 times higher in 2006).
Table 1: Ukraine’s State Roads Network and its Condition (2005)
State Roads
% Good
% Fair
% Poor
% Very poor
Magistral
63.8
24.9
8.3
3.0
Regional
57.6
27.4
10.2
4.7
Total
61.2
26.0
9.1
3.7
Source: Ukravtodor. The table includes only state roads, which account for 16,244 km. There are also 148,528
km of local roads. Condition ratings: Good = IRI<4.0m/km, Fair = 4.0<IRI<4.9m/km, Poor =
5.0<IRI<5.9m/km, Very poor = IRI>=6.0m/km.
1
ECORYS Transport, 2005, Transport Sector Review: Ukraine, p.51.
Recent surveys show that most of the state road network is still in reasonable condition: the International
Roughness Index (IRI) is usually less than about 5.00. See Table 1.
3
Using two different methods of calculation, Concept of Improvement of Road Traffic Safety in Ukraine,
Ministry of Transport and Communications, 2006.
4
WSP, 2006, Road Financing Report, State Road Services of Ukraine – Ukravtodor.
2
2
8.
Under the Government state program on development of motor roads of common
usage for 2007-2011,5 technical and safety improvements represent the largest share of
investments. The Government strategy aims to achieve the following: (a) provide highquality transport network and services that satisfy the country’s economic growth and reduce
the price of goods; (b) ensure citizens have access to quality transport services; (c) raise
domestic transport system competitiveness standards, allowing Ukraine to integrate with
Europe and participate in the World Trade Organization (WTO); and (d) improve safety levels
and stabilize transport system development. Implementing this strategy has triggered a slate of
reforms in Ukraine—many transport enterprises have been privatized, and new regulatory
agencies have been established.
B. Rationale for Bank involvement
9.
The proposed project, the Bank’s first in the transport sector in Ukraine,
resulted from a policy dialogue between the Government of Ukraine and the Bank,
ongoing since 2005. The project builds on recommendations from analytical works carried
out during 2005 and 2006. This includes a comprehensive Transport Sector Policy Note,
prepared by the Bank in 2006 at the Government’s request and based on a detailed review of
the transport sector carried out by Ecorys in 2005 under a grant from the Netherlands (see
Annex 1). Key recommendations in this policy note include the following: (a) establish a
sustainable financing strategy for the road sector; (b) reduce the maintenance backlog; (c)
improve road safety by eradicating “black spots”; and (d) re-organizing the system of
operational management of public roads, including the introduction of performance-based
contracting in road network maintenance.
10.
The proposed project complements ongoing and planned roads projects in
Ukraine, but primarily emphasizes improving road safety standards in selected
locations. The Bank’s international experience in improving road safety offers substantial
value added through the proposed project, in particular by reducing the high accident rate.
The Bank’s project team will draw on its past decade of experience improving road safety in
Poland, and other Commonwealth of Independent States (CIS)6 such as the Russian
Federation7 (which has similar reasons for high road traffic accident rates). Finally, the project
provides a stepping stone for further cooperation in the transport sector.
C. Higher-level objectives to which the project contributes
11.
The proposed project is fully consistent with the Country Partnership Strategy
(CPS) for Ukraine for FY08-11.8 The CPS emphasizes sustainable growth and improved
competitiveness (Pillar 1) with a focus on infrastructure (energy and transport). These
priorities remain central in the second and third Development Policy Loan approved by the
5
Cabinet of Ministers of Ukraine regulation No. 217 of February 14, 2007, On Introducing Amendments of
Cabinet of Ministers Regulation No.710 of September 3, 2005’.
6
CIS, created in December 1991, comprises: Azerbaijan, Armenia, Belarus, Georgia, Kazakhstan, Kyrgyzstan,
Moldova, Russia, Tajikistan, Turkmenistan, Uzbekistan, and Ukraine.
7
ECMT/WB/WHO joint report “Road Safety Performance – National Peer Review: Russian Federation” (2006)
8
World Bank, Report No. 40716-UA (December 6, 2007)
3
Board in December 2007 and December 2008, respectively. Efforts to improve the investment
climate in Ukraine are facing serious challenges, in particular upgrading Ukraine’s trade
facilitation, transport, and logistics systems to standards required for competing
internationally.
12.
The primary CPS objectives specific to the transport sector are to integrate
Ukraine’s transport network with that of the EU, to promote Ukraine’s transit potential,
and to maximize the use of Ukraine’s existing transport assets. The authorities intend to
support the ambitious proposed investment program with significant public resources, and to
pursue private investment by developing a Law on Public Private Partnerships, among other
measures. Also, the authorities aim to increase transport safety in both road and air transport,
for example European flight safety standards are being introduced. To participate successfully
in the global economy, including WTO membership, Ukraine’s large export-oriented trade
sector requires improved transport infrastructure. In addition, investments in the inter-city
road network will contribute to allowing Ukraine to successfully host the 2012 European
Football Championships, together with Poland. The proposed project will contribute to
achieving these higher-level objectives.
13.
The economic and financial crisis adds additional importance to this project and
to public investments in infrastructure in general. First, public infrastructure spending is
generally thought to have higher multiplier effects than public consumption spending, in
particular un-targeted transfers. Second, by channeling public resources into areas that
alleviate constraints on long-term growth, the authorities can stimulate domestic demand and
create jobs without causing economic distortions. Third, the project will safeguard critical
investments at a time of reduced financing from commercial sources.
II.
PROJECT DESCRIPTION
A. Lending instrument
14.
Lending Instrument. The lending instrument proposed for this project is a Specific
Investment Loan (SIL) to Ukraine in the amount of US$400 million. The loan type is US
Dollar denominated IBRD Flexible loan, variable spread, level repayment with 5 years grace
and 30 years to maturity.
15.
The SIL instrument enables the Bank to provide support selectively for priority
investments that have strong Government ownership, high potential economic returns, and a
clear implementing agency commitment to technical and governance excellence. Roads and
road safety improvements are the primary focus but other transport modes such as railways,
airports and ports could also undergo significant infrastructure and operational improvements.
16.
A series of SILs is well-suited to support phased implementation of a long-term
investment program in the transport sector as identified in the Transport Sector Policy
Note shared with the Government in November 2006. The FY08-FY11 Country Partnership
Strategy endorsed by the Board on December 6, 2007 proposes one major infrastructure
investment, including in transport, in each year covered by the CPS.
4
B. Project development objective and key indicators
17.
The project development objective (PDO) is to improve the condition and quality
of sections of the M-03 road, and increase traffic safety on roads. Ukraine is an important
transit country given its location between Russia and other CIS states, and the EU market. The
proposed project will leverage returns on major shared infrastructure investments, such as
EU-funded improvements to European priority corridors, because this focuses on
rehabilitating crucial domestic and regional corridors that complement the European ones.
These domestic and regional corridors include a section between Boryspil and Lubny; a
section of the M-03 road (Kiyv-Kharkiv-Dovzhansky) linking eastern Ukraine industrial areas
to the EU main road network.
18.
In Ukraine, fatal traffic crash rates are among the region’s highest—three to four
times EU average rates. The Government, well aware of this pervasive issue, has
collaborated with the EU to develop a road safety program. The proposed Bank-supported
project aims to contribute to reducing road traffic crashes, injuries, and fatalities. In part, this
will involve eliminating some 110 identified “black spots,” which are road sections or
locations that have significantly higher-than-average numbers of road traffic crashes.
19.
The proposed key development indicators are: (a) Improvements in the riding
quality along the section between Boryspil and Lubny of the M-03 road (reduction of
roughness from IRI>5 to IRI<2); (b) Increase in road safety towards EU level (reduction of
fatalities per 10,000 vehicles from 8 to 6); (c) elimination of black spot areas identified by the
State Road Administration (Ukravtodor) along the national road network (about 110 black
spot areas); (d) Reduction of the annual number of crashes between Boryspil and Lubny by
around 50 percent, (e) number of staff trained in road management and operations of
international best practice over the life of the Project, and (f) launching of a pilot
performance-based road contract.
C. Project components
20.
The proposed project cost is estimated at US$500 million of which the Bank loan
will finance US$400 million (including the Front-End Fee). The Table 2 below summarizes
the project cost estimates, implemented over four years starting in 2009. The design has been
kept as simple as possible, as it will be the first Bank-financed transport project in Ukraine.
The proposed project comprises the three components described below.
21.
Component 1: Road Rehabilitation of about 120 kilometer section (BoryspilLubny) of the Kyiv-Kharkiv-Dovzhansky road (M-03) (estimated cost US$298.5
million). This component comprises civil works for the rehabilitation/ strengthening of the
existing 2x2 lanes of the M-03 road (about 120 km section), including safety measures for the
vehicles (signaling, lighting in critical sections, crash barriers, etc.,) and for local inhabitants
(pedestrian crossings, parking, and special facilities). The M-03 road is strategic for Ukraine’s
integration with the EU road network and as a potential domestic and international transit
corridor.
22.
Component 2: Road safety improvement (estimated cost US$99.0 million). The
proposed project will carry out a program of safety measures for vehicles and local
inhabitants at traffic accident black spots on public roads (about 110 black spots will be
5
targeted). The component will fund the supply and installation of road safety improvements
such as vertical and horizontal signaling, reflectors (cats’ eyes), rumble strips, and modern
crash barriers on the most critical points on public roads.
23.
Component 3: Capacity Building (estimated cost US$1.5 million). Provision of
advisory services, training and equipment to enhance road management according to
international practice, including: (a) improvement of Ukrainian norms, rules and standards in
the design, construction, repair and maintenance of roads; (b) modernization of road
management and operations, including implementing performance based contracts and
introducing systems for planning and programming road works, and (c) introduction of
international ‘best practice’ contracting in the road sector. .
Table 2: Project Baseline Costs and Contingencies
Project Component Cost
Summary
Hryvnia (UAH) Million
US$ Million
Local
Foreign
Total
Local Foreign
1. Road Rehabilitation
518.49 1,209.82 1,728.32
89.55
208.95
2. Road Safety Improvement
401.25
171.96
573.21
69.30
29.70
3. Capacity Building
1.74
6.95
8.69
0.30
1.20
Total Baseline Costs (*)
921.48 1,388.73 2,310.21
159.15
239.85
Front-end-Fee
0.00
5.79
5.79
0.00
1.00
Loan amount
921.48 1,394.52 2,316.00
159.15
240.85
Government co-financing (incl. VAT)
0.00
579.00
0.00
579.00
100.00
Total Project Cost
1,500.48 1,394.52 2,895.00
259.15
240.85
(*) Physical contingencies (10%) and price contingencies (20%) are included in the above amounts.
Total
298.50
99.00
1.50
399.00
1.00
400.00
100.00
500.00
D. Lessons learned and reflected in the project design
24.
The recent IEG evaluation of the Bank’s assistance to Ukraine in other sectors,
especially the energy sector, yields some useful lessons.9 For example, IEG commended
the choice of policy dialogue, AAA, and linkage of the energy program to cross-sectoral
adjustment lending (DPL program) as the main instruments to support energy sector reform.
No transport project has yet been implemented in Ukraine. The clear long-term objective and
the programmatic design of Bank support would mitigate the risk of policy reversal by
agreeing up-front with the Government on the development policy lending (DPL program),
and sequencing Bank financial support to the transport sector through a series of SILs with the
aim not to overload investment lending with policy conditionality.
25.
The State Road Administration of Ukraine (Ukravtodor) has already
demonstrated good technical skills, strong project ownership, and commitment to
results. The three consecutive EBRD-financed projects have been and are being
implemented satisfactorily within an evolving reform environment since the year 2000. The
details of the EBRD projects are provided in Annex 2.
9
The IEG’s Country Assistance Evaluation (CAE) covers Bank assistance to Ukraine during FY99-06.
6
E. Alternatives considered and reasons for rejection
26.
During project identification, a Transport Sector project that included various
modes of transport was discussed internally within the Bank. However, both Ukravtodor
and the Ministry of Transport lacked experience in implementing Bank financed projects; and
consequently, a Specific Investment Loan (SIL) was selected, to be implemented by one
implementation agency under a simplified design. An Adaptable Program Lending (APL)
instrument was also considered and rejected by Ukravtodor, as it is inadvisable to commit to a
long-term partnership without previous experience in implementing projects. Finally, a Sector
Wide Approach (SWAp) was considered (the Bank had recent success with SWAps in
Poland) but this was also rejected on the grounds of weaknesses currently observed in
national budget management and public procurement laws.
III.
IMPLEMENTATION
A. Partnership arrangements
27.
The Ministry of Finance in Ukraine in conjunction with Ukravtodor has overall
responsibility for coordination of funds for road transport. This includes funds from
International Financial Institutions (IFIs), the EU, bilateral agencies, and any private sector
partners. The road safety and capacity-building component proposed in this project will serve
the entire road sector and benefit projects regardless of their funding source, including
projects financed by the EU and other IFIs such as EBRD and EIB. The Bank project team
will maintain regular contact with all entities to coordinate and cooperate on lending and
technical assistance.
B. Institutional and implementation arrangements
28.
Ukravtodor, as the Project Implementing Entity will have sole responsibility for
overall project implementation. Within Ukravtodor, the Deputy Head has been appointed to
be responsible for project implementation. The Head of Ukravtodor financial department has
been appointed to coordinate fiduciary aspects of project implementation. Ukravtodor will
also be responsible for overall financial management, i.e., authorizing withdrawal applications
and budget reporting. The implementation of project components will be supported by the
PIU that has been supporting EBRD-financed projects.
29.
Project Implementation Unit (PIU) will be in charge of day-to-day project
operation and technical support. This PIU was established in 2002 as the management unit
for the first EBRD-funded project, and in 2007 its original statutes were amended to include
responsibilities for managing the proposed Bank financed project. Additional staff and
resources will be made available at the PIU level to implement the project (for PIU structure,
see Annex 6).
30.
A draft Project Operational Manual (POM) was submitted to the Bank in midJanuary 2008 and was found to be satisfactory. A final version of the POM will be
submitted for approval by the Bank before project effectiveness. The Manual describes
procedures for project implementation, including, inter alia: (a) procedures governing
administrative, procurement, accounting, financial management, safeguards, and monitoring
7
and evaluation arrangements; (b) targets to be achieved under the project; and (c) a sample
format for Project Progress Reports.
31.
In general, weak governance and corruption pose a development challenge for
Ukraine and increased spending in the road sector has potential to increase
opportunities to use public funds for different purposes other than originally intended.
However, an internal Bank review of the vulnerability of the Bank portfolio to Ukraine’s
fiduciary risks found that project risks could be mitigated to acceptable levels. To mitigate
fiduciary risks in Bank operations, the Country Partnership Strategy (CPS) for Ukraine for the
Period FY08-1110 envisions strengthening existing fiduciary standards (such as enforcing the
Bank’s procurement rules, requiring competitive bidding) and adequate supervision and
attention to capacity building among project counterparts. A framework and project action
plan11 including specific anticorruption measures to be implemented under the project
are detailed in Annex 11.
C. Monitoring and evaluation of outcomes/results
32.
Ukravtodor will assume responsibility for project monitoring and reporting to
the Bank. This will entail close supervision of the civil works, road safety improvements, and
capacity building activities, auditing financial statements, and monitoring project performance
indicators for the duration of the project as per agreed indicators in Annex 3. Indicators are
critical to ensure project effectiveness, timely completion, and to flag any delays. The selected
indicators should pose no problem for data collection or capacity. Ukravtodor will prepare
quarterly Project Progress Reports and submit these to the Bank for review and comment.
These reports will focus on results as well as output and process-related information.
D. Sustainability
33.
Based on the Bank’s international experience with the transport sector, including
in Central and Eastern Europe, detailed designs and construction implementation will be
closely supervised to ensure that physical assets are constructed to high quality standards and
completed on schedule. Long-term sustainability, particularly of road assets, will depend on
effective and timely maintenance. Support provided under the project will improve data
collection on road asset condition and mechanisms to incorporate this data into Ukravtodor’s
management systems, which will enhance the knowledge base necessary to improve road
maintenance planning decisions. The intention is that this effort will support optimum use of
the maintenance resources and increase the sustainability of the road investments.
34.
In response to increasing demands to maintain the national road network, road
maintenance budgets in Ukravtodor increased from UAH 466 million in 2004 to 1.9
billion in 2007. According to an assessment by the Bank, the total budget figures appear
reasonable (albeit short of covering all necessary maintenance demands), whilst the needs are
likely to increase due to ageing of the network. As of today, Ukravtodor’s budget proposals
are based on the periodic assessment of the road network physical condition done on an
10
World Bank, Report No. 40716-UA (December 6, 2007)
The design was based on the review of recently completed Project Appraisal Documents of similar road
rehabilitation projects in Paraguay, Indonesia, and the Philippines.
11
8
annual basis. The corresponding data are recorded in a database system for managing the
condition of road pavements (PMCP12).
35.
The database system computes the amount and type of repair needed to maintain
the road assets in good condition, and its results are used as a basis for budgeting
purposes. Currently the level of financing to maintain the road network does not make full
use of the capabilities of PMCP. With the support of the proposed project, Ukravtodor would
modernize the existing system for managing the road network, which would ensure optimal
use of the resources for real demands of the network maintenance.
E. Critical risks and possible controversial aspects
36.
At the country level, the main risks are of a deepening economic and financial
crisis and a reversal of the Government’s commitment to improved competitiveness.
Macroeconomic risks are discussed in significant detail in the Program Document for the third
Development Policy Loan (December 2008). The main mitigating factors include the
presence of an IMF Standby Arrangement (SBA) and the parallel macroeconomic and
structural policy dialogue by Bank staff. The IMF SBA was approved in November 2008 and
currently the IMF is undertaking the first review. The economic environment has deteriorated
considerably since the SBA was approved, with GDP and associated fiscal revenues both
anticipated to experience larger declines. At the same time, the authorities are actively
mobilizing additional sources of financing to help cushion the size of the required
macroeconomic adjustment. In parallel, the Bank is working on additional budget support
operations that would assist the implementation of structural reforms to mitigate the social
impact of the crisis and lay the foundations for a return to economic growth in the future.
37.
Overall, the investment lending portfolio in Ukraine has had an uneven track
record characterized by slow implementation and low disbursement rates. This can be
explained by the interplay of: (i) difficult political environment and uneven reform path that
does not generate strong and continuous broad-based ownership for investment lending in
technical assistance or high-reform content sectoral loans; and (ii) slow and bureaucratic
procedures associated with the implementation of Bank projects. The CPS, taking into
account the lessons from the 2005 Ukraine Investment Lending Review and CAS Completion
Report for FY04-FY07, articulated a selectivity framework to reduce the risk of slow
implementation and potential problem projects by focusing lending on budget support
operations and infrastructure, where there is a clear consensus for Bank lending within
Government, low-moderate reform content, and a better implementation record. In addition,
the Bank continues to work with the Ukrainian authorities to simplify the processing of
lending operations and to use the country’s institutional capacity where possible.
38.
The overall risk rating of the proposed project is assessed as Moderate because
Ukravtodor has been successfully implementing several IFI-funded projects for the last
eight years. The main risk is institutional due to potential conflict between Ukravtodor and
the Ministry of Transport over the management of the road development program. All critical
risks have been identified during project preparation and mitigation measures are in place that
12
During the period of 2001-2002 the platform for managing the condition of the highway paving was analyzed
by the experts of the University of Birmingham (under the TACIS programme) and was recommended for
application in the NIS countries.
9
can help to overcome the identified risks. The proposed project focuses on road rehabilitation
and road safety improvements, and the environmental and social impacts are overwhelmingly
positive. Table 3 summarizes the most critical risks that the project will face.
Table 3: Critical project-related risks
Risks
To PDO
Country macroeconomic risks
Before
Mitigation
H
Reversal of Government commitment for
improving investment climate in Ukraine
and potential conflict between Ministry of
Transport and Ukravtodor over program
To project component results
Changes in Ukravtodor’s management
slow down project implementation and
raise possible controversies about sector
priorities
Delayed project implementation due to
lack of experience dealing with World
Bank procurement guidelines and FMS
requirements.
Delayed payment processing by the State
Treasury negatively affecting
implementation due to inexperience of
State Treasury in effecting World Bank
payments under a new funds flow
arrangement.
Misuse of funds due to poor corporate
governance and/or lack of procurement
capacity.
M
Insufficient funds for road maintenance of
rehabilitated road network
M
Risk Mitigation Measures
After
Mitigation
IMF SBA and parallel policy dialogue
through the World Bank DPL program
Continuous policy dialogue with
Government of Ukraine during project
implementation to reinforce benefits of
improved road network and safety level
H
M
H
Ukravtodor to select project activities on
a strict priority basis using results of
donor-funded studies.
S
S
PIU to hire and maintain adequately
staffed PIU; train staff in procurement
and FM.
M
S
MOF, which approves payment
documents before disbursement by the
State Treasury, is experienced in
processing and managing Bank-financed
projects. State Treasury is
administratively under the MOF.
Regular Bank project supervision and
“on-demand” support by field-based
procurement and FMS staff. Project level
GAC Action Plan.
More funds from IFIs would free some
budget funds for maintenance. Increased
use of planning tools developed under
EBRD-financed project to optimize
allocated budget and predict future needs.
Project level support to enhance road
management under component 3.
M
Overall Risk Rating
S
Note: Risk Ratings: H=High Risk, S=Substantial Risk, M=Modest Risk, N=Negligible or Low Risk.
M
S
M
N
F. Loan/credit conditions and covenants
39.
Additional Conditions of Loan Effectiveness
a. The Subsidiary Agreement has been executed by both parties thereto.
b. The Project Operations Manual has been approved and adopted by the Project
Implementing Entity.
c. The Project Implementing Entity has provided evidence satisfactory to the Bank of
its adoption of the GAC Action Plan.
10
40.
Dated Covenants
a. The Borrower shall ensure that the Project Implementing Entity prepares on or
about March 31, in each year of the Project, commencing March 31, 2010, a
consolidated report (Project Report), an annual forecast plan containing financial
projections and revised and updated Project monitoring and evaluation indicators
for the activities to be undertaken in the upcoming year, in a format acceptable to
the Bank and shall promptly submit such reports and plans to the Bank for its
review and comment.
b. In the first year of Project implementation, the Borrower shall (i) engage an
independent external audit firm acceptable to the Bank to carry out a baseline
operational audit of the Project, such audit to include operational systems and
procedures review including an internal framework assessment; (ii) prepare an
operational audit report on the conclusion of the audit carried out above; and (iii)
provide a copy of the operational audit report to the Bank within thirty days of its
completion.
c. Following the baseline operational audit and report in the first year of the Project,
in each subsequent year, the Borrower and the Bank shall discuss the need for any
subsequent operational audit.
d. Not later than June 30, 2011 the Borrower, through the Ministry of Economy and
the Project Implementing Entity, shall carry out together with the Bank, a midterm
review of the progress made in carrying out the Project (hereinafter referred to as
the Midterm Review). The Midterm Review shall cover, amongst other things: (i)
progress made in meeting the Project’s objectives; and (ii) overall Project
performance against Project performance indicators.
e. The Borrower shall ensure that the Project Implementing Entity prepares, and at
least three (3) month prior to the Midterm Review, furnishes to the Bank, a
separate report describing the status of implementation of each component of the
Project and a summary report of Project implementation generally (the “Mid-term
Report”).
f. The Borrower shall ensure that the Project Implementing Entity monitors and
evaluates the progress of the Project and prepares Project Reports on the basis of
indicators agreed with the Bank. Each Project Report shall cover the period of one
quarter of one calendar year, and shall be furnished to the Bank not later than one
month after the end of the period covered by such report.
41.
Project Legal Covenants
a. The Borrower shall ensure that the Project Implementing Entity carries out Project
implementation and management with due diligence and efficiency.
b. The Borrower shall ensure that the Project Implementing Entity carries out the
Project in accordance with the policies and procedures set forth in the Project
Operations Manual and shall not alter, amend, vary or waive any provision of the
Project Operations Manual without consultation with, and the prior consent of, the
Bank.
11
c. To facilitate the Project Implementing Entity’s implementation of the Project, the
Borrower shall make the Loan proceeds available to the Project Implementing
Entity under a subsidiary agreement, under terms and conditions approved by the
Bank which shall include provisions setting forth that the Project Implementing
Entity shall be responsible for the overall day-to-day implementation and
management of the Project (“Subsidiary Agreement”) and shall carry out the
Project in accordance with the Project Operations Manual and the Anti-Corruption
Guidelines.
d. The Borrower shall ensure that all measures necessary for the carrying out of the
Environmental Management Plan shall be taken in a timely manner and that all
legal and administrative planning and environmental permits and authorizations
necessary to carry out the Project are secured in a timely manner and with due
diligence.
e. The Borrower shall ensure that the Project Implementing Entity takes all measures
necessary and identified under the Environmental Management Plan at all times in
a timely manner, ensuring that adequate information on the implementation of said
measures is suitably included in the Project progress reports.
f. In the event that land acquisition or resettlement is required for the purposes of
carrying out activities under Part 1 or Part 2 of the Project, the Borrower shall: (i)
notify the Bank or ensure that the Project Implementing Entity notifies the Bank,
of any intended acquisition of land and/or resettlement, in whole or in part, and of
each Land Acquisition and Resettlement Plan (if any) prepared in accordance with
the Land Acquisition and Resettlement Framework; , of any of the following:
residences, agricultural holdings, commercial structures and businesses; and/or
land used by people without claim to legal title; and/or persons affected by Project
activities; (ii) disclose, or ensure that the Project Implementing Entity discloses,
the Land Acquisition and Resettlement Framework and each Land Acquisition and
Resettlement Plan (if any) prepared under the Project and all relevant information
relating thereto in a manner satisfactory to the Bank no less than sixty (60) days
prior to carrying out any land acquisition and/or resettlement ; and (iii) ensure that
the Project Implementing Entity causes all land acquisition and resettlement under
the Project to be undertaken in accordance with the provisions and procedures
contained in the Land Acquisition and Resettlement Framework and the respective
Land Acquisition and Resettlement Plan, and that all relevant information is
adequately provided to all affected persons, and potentially affected persons, in a
timely and adequate manner.
g. The Borrower shall ensure that the Project is carried out in accordance with the
provisions of the Anti-Corruption Guidelines.
42.
Financial Covenants
a. The Borrower shall ensure that the Project Implementing Entity maintains a
financial management system in accordance with the provisions of Section 5.09 of
the General Conditions.
12
b. Without limitation on the provisions of Part A of this Section, the Borrower shall
ensure that the Project Implementing Entity prepares and furnishes to the Bank
after the end of each calendar quarter (within forty-five days), interim unaudited
financial reports for the Project covering the quarter, in form and substance
satisfactory to the Bank.
c. The Borrower shall ensure that the Project Implementing Entity has its Financial
Statements audited in accordance with the provisions of Section 5.09 (b) of the
General Conditions. Each audit of the Financial Statements shall cover the period
of one fiscal year of the Borrower, commencing with the year in which the first
withdrawal is made, or the first complete year of implementation of the Project.
The audited Financial Statements for each such period shall be furnished to the
Bank not later than six months after the end of such period.
43.
Withdrawal Condition
a. No withdrawals shall be made in respect of (i) payments made for expenditures
prior to the date of this Agreement, and (ii) payments made for expenditures under
Category (2) or Category (3) (as the case may be) which relate to activities to be
carried out on or in relation to any land which is the subject of a Land Acquisition
and Resettlement Plan until the Borrower has provided evidence, satisfactory to
the Bank, that the Land Acquisition and Resettlement Plan has been satisfactorily
carried out.
IV.
APPRAISAL SUMMARY
A. Economic and financial analyses
44.
A cost-benefit analysis (CBA) was conducted for the rehabilitation works on the
proposed project road section. The project covers the rehabilitation of 120 kilometers of an
existing four-lane road. The results of this CBA show an ERR of 22 percent and a Net Present
Value (NPV) of US$1,050 million at a discount rate of 12 percent for the road section to be
rehabilitated under the project . The analysis shows that the savings in vehicle operating costs
are expected to contribute to about 50 percent of total benefits and those from the reduction of
crashes another 50 percent. Details of the economic analysis are included in Annex 9.
B. Technical
45.
The design of the project is based on sound technical criteria and in line with
current Ukrainian standards for projects financed by other IFIs, such as the EBRD. The
maintenance and rehabilitation strategies are selected with due consideration to the main
factors that affect pavement performance: surface condition, structural strength, traffic
characteristics, and climatic conditions.
46.
Road sections that exhibit a weak structural capacity associated with medium to
severe surface distress and relatively high roughness values (IRI between 3.4 to 4.0
m/km), will receive asphalt concrete overlays in thickness ranging from 10 cm to 20 cm. The
overlays are designed to substantially enhance pavement structural strength and provide good
riding quality over the next 10 to 15 years. The project will also incorporate safety features
13
including improved pedestrian crossings, guardrails, road signs, pavement markings, and
lighting at critical intersections.
47.
A few road sections will receive routine maintenance only. These sections are
expected to maintain their current condition of good riding quality, few surface defects, and
sufficient structural capacity for the next five to seven years.
48.
Survey findings on the bridge conditions on the Boryspil to Lubny section
indicated no need for major structural rehabilitation in the next 10 to 15 years. The
project will include maintenance and minor rehabilitation works on bridges (repair of cracked
concrete structural elements and exposed reinforcement steel). The design of the bridge
rehabilitation works will be based on proven road engineering practice and experience.
49.
Key design features of the project include:
a. Alignment: The topographic and geological conditions along the route are
relatively homogenous. Technical standards adopted for rehabilitating the road are:
the design speed is 120km/h and sub-grade widths of 28.5 m for the four-lane
sections. The existing horizontal alignment is satisfactory, but consideration is
being given to improving the vertical alignment at a railway crossing, to increase
the vertical radius of curvature from 1,500 m to 15,000 m.
b. Structures: No major bridge works are anticipated.
c. Facilities: Three service area accesses will need minor improvements.
d. Pavement: Special attention will be given to repair pavement areas with plastic
deformation and severe cracking before placing the asphalt concrete overlays.
Concrete pavement will be used at selected bus stops. Further optimization on the
pavement rehabilitation and maintenance design will be conducted as part of the
detailed design. Necessary drainage and protection works will be provided to
prevent premature road deterioration.
50.
The Road Safety Improvement Component involves the elimination of about 110
traffic accident “black spots” (out of some 300 identified by Ukravtodor) all over the
territory of Ukraine. This will include measures to eliminate or reduce safety hazards at low
standard intersections, guardrail installation, signs and pavement markings, lighting at critical
spots (e.g., bus stops, intersections), traffic channelization, and improved horizontal alignment
at critically sharp curves. The selected 110 accident black spots will be ranked and
implemented in order of priority.
C. Fiduciary
51.
Financial Management: An assessment to determine whether the financial
management arrangements in Ukravtodor (UAD) and the PIU are acceptable was completed
in December 2008. The assessment concluded that the Project FM capacity has sufficiently
developed and the project currently satisfies the Bank’s minimum financial requirements.
Assessment details are provided in relevant sections below as well as in Annex 7.
52.
Financial Risk Analysis: The overall residual FM risk is acceptable after mitigation.
The table summarizing financial risks is provided in Annex 7.
53.
Risk Mitigation Measures: The following measures are incorporated in the internal
control framework for this project to minimize the risk of misuse of Bank funds:
14
-
-
-
-
-
-
-
Acceptance of services – The technical department of UAD, or of the relevant division of
UAD responsible for road works completed under each contract, will verify the
construction and invoices as will the technical engineering consultant hired for technical
supervision of the works. The documents will be reviewed by the PIU and authorized by
the head of UAD, after which, the PIU will prepare payment documents.
Technical supervision - Quality of construction will be checked by: (i) technical staff of
the UAD; and (ii) the independent technical consultant, hired under the Project to carry
out technical supervision of the construction works.
Direct payments to contractors – Most Project payments will be direct payments that will
be made only after a full set of supporting documents is provided to the Bank.
Withdrawal applications will be prepared by the PIU, and then authorized by UAD and
MOF.
Control over Designated Account and transit account – The designated account and
transit account will be opened in an acceptable Ukrainian commercial bank,
Ukreximbank and all payments from them will undergo multiple verification and
authorization.
Building capacity at PIU and UAD –The PIU and UAD financial staff will receive
further training on Bank disbursement and financial management procedures through
participation in Bank courses and on-the-job training during project implementation.
Project Financial Statements – Project financial statements will be audited by an
independent auditor acceptable to the Bank, based on TORs agreed with the Bank.
Operational audits. Operational audits of the Project shall be carried out by an
independent external audit firm acceptable to the Bank.
Entity Audit. The results of reviews of Ukravtodor activities done by state accounting
entities during project implementation shall be provided to the Bank for review within
one month after receipt of such reviews by Ukravtodor.
Control over procurement – The PIU has an experienced procurement specialist who will
supervise request for proposal preparation and bid evaluation.
54.
Disbursement: Disbursements from the IBRD Loan Account will follow the
transaction-based method, i.e., traditional Bank procedures: Advances, Direct Payments,
Special Commitments and Reimbursement (with full documentation and against Statements
of Expenditures (SOEs)). For certain payments, above the Minimum Application Size, as
specified in the Disbursement Letter, the Borrower will submit withdrawal applications to the
Bank for payments to suppliers and consultants directly from the Loan Account. The
withdrawal applications will be prepared by the PIU, authorized by the UAD, and then
submitted to MOF for final review and authorization. All disbursements will be made on the
basis of full documentation for (a) contracts for goods costing more than the equivalent of
US$200,000 each; (b) contracts for works costing more than the equivalent of US$2,000,000
each; and (c) services under contracts of more than the equivalent of US$200,000 for each
consulting firms and more than the equivalent of US$100,000 each for individual consultants.
Disbursements below these thresholds will be made according to certified Statement of
Expenditure (SOEs). This documentation will be retained by the implementing agency for at
least one year after receipt by the IBRD of the audit report for the year in which the last
disbursement was made or for a longer period if required by local legislation.
15
55.
Operational Audits: The project shall require a baseline operational audit by an
independent external audit firm in the first year of implementation. Thereafter, operational
audits may be requested by the Bank if deemed necessary. The government will appoint an
independent external audit firm to carry out the operational audits of the project covering
operational systems and procedures, including an assessment of the internal control
framework. The TORs will require auditors to assess controls in both UAD and the PIU.
56.
Procurement: The organization of procurement work for the proposed project will be
carried out by the PIU, which has also been involved in the implementation of three
consecutive EBRD roads projects since the year 2000. The project requires procurement of
works, goods and consulting services. An assessment to determine whether the procurement
management arrangements within Ukravtodor and PIU are acceptable was undertaken in
September – October 2007. The procurement assessment resulted in a High risk rating
due to the inherent nature of the sectoral risks in the roads sector and the fact that there
is not, to date, an acceptable procurement Law governing public procurement in
Ukraine. The PIU prepared a procurement plan, approved by Ukravtodor which was
discussed, modified and agreed upon during appraisal and is attached in Annex 8. During the
implementation of the project, the procurement plan will be updated by PIU and Ukravtodor
in agreement with the Bank, at least annually or as required reflecting the actual project
implementation needs and improvement in procurement capacity. The terms of reference for
the update of the procurement plan are included in the Project Operational Manual. Further
details related to procurement arrangements are outlined in Annex 8.
57.
Governance and Anti Corruption (GAC) Action Plan. To mitigate fiduciary risks
in Bank operations, the Country Partnership Strategy (CPS) for Ukraine for FY08-11
envisions strengthening existing fiduciary standards such as enforcing Bank procurement
rules, competitive bidding and adequate supervision and attention to capacity building among
project counterparts. The Governance Annex (Annex 1) of the CPS explains how the Bank
intends to go beyond standard fiduciary controls in addressing governance risks. In the
context of this Project, specific anticorruption measures will focus on improving government
capacity to effectively use its own resources and Bank resource transfers, thereby ensuring
compliance with Bank fiduciary requirements. Given Ukravtodor experience in implementing
IFI-funded projects, fiduciary standards are expected to be above average. In-depth
assessments of procurement capacity and financial management capacity (carried out by the
team as part of project preparation) have rated risks high with expected acceptable residual
risk, once risk-mitigation measures have been implemented.
58.
In order to draw on Bank good practice in the GAC agenda, the approaches used
in road sector projects in Paraguay, Indonesia, and the Philippines have been assessed
by the Project team with a view to adapt them to the specificity of Ukraine. As a result, the
following actions were identified as the most appropriate to ensure full compliance with
World Bank fiduciary policy: (i) make increased use of Ukravtodor’s existing website to
make procurement-related information available to the public; (ii) establish a database to
monitor unit prices based on awarded contracts; (iii) reassess the procurement evaluation
process to ensure full confidentiality, especially the risk of leakage of procurement-related
confidential information; (iv) establish a modern and robust complaint-handling system; (v)
continue to provide training to Ukravtodor staff during project implementation as deemed
necessary; and (vi) strengthen supervision to ensure full compliance with World Bank
16
fiduciary requirements through the use of output-/result-based indicators to assess the
reasonableness of expenditures. Details of the GAC Action Plan for the Project are presented
in Annex 11.
D. Social
59.
The project development objective is to improve the condition and quality of
sections along the M-03 road, and increase traffic safety on roads. For road users, the
project would lead to better riding quality, and improved road safety. From a social point of
view, therefore, this project is important for focusing on improving the condition and safety of
a portion of M-03 road, which is in dire need of rehabilitation as well as improving road
safety. Inadequate road safety signs, especially at the major traffic accident black spots, are
the key contributors to the road traffic accidents around the country.
60.
During project preparation, a full Environmental Impact Assessment (EIA) was
prepared by Ukravtodor, which also covered a number of social issues. The EIA included
a survey conducted among those living in cities, towns and villages along the M-03 road in
the project area and adjacent territories. According to the EIA, these communities have a
positive view towards the rehabilitation of the M-03 road, believing that it will improve the
traffic safety, and the quality of the road, causing less accidents and better access. These
improvements in turn will increase demand for services and will improve private business
opportunities for people living in the area. At the same time, they are concerned about
inconveniences that could occur during the construction as well as increased traffic. The
construction work, inevitably, will cause some inconveniences for the residents and the users
of the road.
61.
To address these concerns, the project will inform people in advance about the
construction, consult the affected people on the location of structures for elimination of
the black spots, and take measures to have the least negative impact on the people
during construction. For instance, during the EIA consultation, people living along the
section at Km 189+500 were concerned about access to the ramp leading to the pasture during
construction. They were promised by UAD that the project would take all the necessary steps
to keep the ramp open during construction. Another concern was the possible limitation
which could be imposed during construction for crossing of the roads, affecting both people
and the livestock. People were reassured that proper pedestrian and animal crossing will be
built and at no point their access to the other side of the road will be blocked (as recorded in
the minutes of the Environmental Management Plan consultation).
62.
As part of regular monitoring of the project, a beneficiary assessment will be
conducted during project implementation to: (a) follow up on the above issues; (b) assess
the views of the road users as well as those living and working along the M-03 and near the
black spots on the issues they face during project implementation; (c) collect needed
information to improve the existing mitigation measures in case there would be some negative
impacts which could not be foreseen during the project design, and (d) collect data for
updating M&E indicators.
63.
Another social issue is that the increased traffic in M-03, where trucks comprise a
large portion of the traffic, could have a negative impact on the spread of HIV/AIDS which is
already high in Ukraine. Even though the project will not directly address this issue, as part of
17
its dialogue with the government, the Bank will emphasize on the need for an extensive
information campaign by the government on the traffic and safety issues.
OP 4.12 - Involuntary Resettlement
64.
The first component of the project - Rehabilitation and upgrading of about 120
kilometer of M-03 road, will follow the existing right of way and consequently, there will
be no land acquisition or resettlement. In addition, based on the existing information, there
will be no land needed for traffic diversions during construction since the M-03 is a 4 lane
road and the construction will take place within the existing right of way. However, the road
design at the time of the preparation of the PAD was not final therefore the full extent of the
impact was not fully known. Even if after the final design it becomes clear that there is no
need for land acquisition under component 1, the situation under component 2 might be
different. The second component of the project, which deals with traffic accident black spots
throughout Ukraine, could require some land, thus triggering OP/BP 4.12, Involuntary
Resettlement.
65.
The proposed project will eliminate about 110 black spots out of some 300
identified by Ukravtodor some of which will only need traffic signals and some may
require structures such a pedestrian bridges. Both cases may involve land acquisition.
However, the extent to which land will be needed, its location, the number of people affected
and the type of impact are not known at this point. As a result, a draft Land Acquisition and
Resettlement Framework (LARF) was prepared by Ukravtodor and is acceptable to the Bank.
This was disclosed to the public at the time of project appraisal. This policy framework also
covers works under component 1 in the unlikely case of land acquisition. Once the exact
locations of black spots and the amount of land needed under component 2 are determined, a
Land Acquisition and Resettlement Plan (LARP), acceptable to the Bank will be prepared
based on the draft LARF.
E. Environment
66.
In accordance with the World Bank’s safeguard policies and procedures, the
project has been classified as Category B for environmental assessment purposes. Under
Ukrainian legislation the project is not included in the “List of Activity Categories and
Installations which are environmentally unsafe or hazardous.” A corridor-specific
Environmental Assessment, documenting baseline conditions and environmental risks was
prepared and proposed/considered as professional “good practice.” Two EIAs were developed
based on Ukrainian legislation covering two regions in Ukraine (Kyiv and Poltava Regions)
and later summarized in one EIA; an English-language version was delivered and a
Ukrainian-language version was disclosed during December 2006-February 2007 in three
regions at local administrations and with environmental authorities (the two detailed EIAs had
already been disclosed in Ukraine).
67.
Most road rehabilitation projects have positive environmental impacts,
particularly when the existing alignments are retained. While the roadway passes through
or nearby some designated protected areas (including forested land), land areas that would be
directly affected by the works are not natural habitats and safeguards are not triggered. No
physical cultural resources would be affected, however, “chance finds” provisions will be
included in the standard bidding contracts.
18
68.
For the rehabilitation of the project-supported road sections between Boryspil to
Lubny, Ukravtodor disclosed English-language copies of the Bank generalized Environmental
Management Plan (EMP) in the Bank Infoshop on 19 November, 2007. The Ukrainian
language version of the EMP was disclosed on the Ukravtodor website13 and at the project
sites on 16 November, 2007. The EMP and public consultation documentation are included in
the project files. The generalized EMP for road rehabilitation and maintenance activities
identified the main issues for construction and operation. Measures to reduce risks to
pedestrians and vehicles at particularly dangerous road segments (“black spots”) were also
reviewed for relevance to safeguards and confirmed the absence of environmental risks.
69.
The EMP includes the following: mitigation plan, monitoring plan, institutional
strengthening needs, institutional arrangements for environmental management,
implementation schedule, and a record of public consultations. During project
implementation, EMP provisions will be applied to all activities undertaken by Ukravtodor,
including road works design. Appropriate mitigation measures specified in the EMP will be
incorporated as requirements in the works bidding document. The contracts will include
adequate provisions to ensure that contractors undertake EMP-specified measures.
70.
Minor temporary negative impacts will occur during construction. These will be
restricted to road works and related to road crew activities, including movement of workers
and materials (asphalt, dust, noise, etc.,) and waste disposal. After completion, the project will
have positive indirect impacts on human health and safety through reduced accidents and air
pollution that will result from more even travel speeds on rehabilitated road sections.
Materials (e.g., asphalt, stone, etc.) would be supplied only from sources with approved
licenses, permits, and/or approvals for environment and worker safety, and any equipment
used during construction would meet internationally recognized standards for environment
and worker health and safety.
71.
Stakeholders have been consulted during project preparation. Descriptions of
these consultations—who, when, where, and methodology—are described in the EMP. Public
hearings were held at three locations along the route where communities are located close to
road sections to be rehabilitated.14 Given that the works to be carried out are standard and
have no substantial potential to modify the communities’ environments, hearings will take
place during preparation of the individual works contracts.
72.
Under the Project Agreement Ukravtodor will commit to regular monitoring of
project impact on the environment. A detailed monitoring program to validate the
effectiveness of the mitigating measures is included in the EMP. The monitoring program will
be the responsibility of the Ukravtodor, in collaboration with the environmental authorities.
13
14
http://www.ukravtodor.gov.ua/
in Pyriatyn on 24th of October 2007, in Lubny on 25th of October and in Yahoyn on 30th of October 2007.
19
F. Safeguard policies
Safeguard Policies Triggered by the Project
Environmental Assessment (OP/BP 4.01)
Natural Habitats (OP/BP 4.04)
Pest Management (OP 4.09)
Physical Cultural Resources (OP/BP 4.11)
Involuntary Resettlement (OP/BP 4.12)
Indigenous Peoples (OP/BP 4.10)
Forests (OP/BP 4.36)
Safety of Dams (OP/BP 4.37)
Projects in Disputed Areas (OP/BP 7.60)*
Projects on International Waterways (OP/BP 7.50)
Yes
[x]
[]
[]
[]
[x]
[]
[]
[]
[]
[]
No
[]
[x]
[x]
[x]
[]
[x]
[x]
[x]
[x]
[x]
G. Policy Exceptions and Readiness
73.
There are no policy exceptions under the project, which is ready for implementation.
The project procurement plan has been approved and the procurement packages for the first
year of implementation have been finalized. The Project Implementation Unit is in place and
is fully operational.
*
By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on
the disputed areas.
20
Annex 1: Country and Sector or Program Background
UKRAINE: ROADS & SAFETY IMPROVEMENT PROJECT
Economic Context
1. Following a period of economic growth averaging above 7 percent between 2000 and
2007, the economy showed increased signs of overheating with pressures intensifying in the
first half of 2008. With rising consumption and imports the current account balance
deteriorated from a surplus of 10.6 percent of GDP in 2004 to a deficit of 3.7 percent in 2007,
despite the substantial terms of trade improvements (see table 2.1). Up to 2007, the widening
of the current account deficit was financed by large inflows of foreign borrowings and FDI. In
2008, price pressures mounted driven by higher food and energy prices, but also by an
inconsistent macroeconomic policy mix with loose fiscal and monetary policies. Real wage
growth continued to outstrip productivity improvements and inflation rates rose to about 30
percent during the first half of 2008. The Government tried to contain fiscal and monetary
pressures by restraining non-discretionary spending, over-executing revenues (helped by the
de facto inflation tax), tightening provisioning on external borrowings, and allowing the
appreciation of the UAH by 10 percent relative to the US dollar in May.15
2. In the fall of 2008, the global financial crisis exposed Ukraine’s inherent macroeconomic
vulnerabilities and led to an economic crisis. While sovereign and corporate spreads were
already increasing for Ukraine since the first half of 2008, the international financial crisis
brought to the fore pre-existing refinancing risks (of large private sector accumulated debts
over the recent years) and risks associated with the banking sector (see Section B). Moreover,
the prospects of slowing global demand led to a sharp fall in the price of steel, Ukraine’s main
export.
Table 1.1: Main Macroeconomic Indicators, 2001-2008
Real GDP (change in percent)
Real Industrial Production (change in percent)
CPI, a.o.p. (change in percent)
CPI, e.o.p. (change in percent)
Real Exchange Rate, a.o.p. (change
in percent, a decline means depreciation)
Current Account Balance (percent of GDP)
Foreign Exchange Reserves (USD billions)
Net FDI (USD billions)
Fiscal Balance (percent of GDP)
PPG Debt (percent of GDP)
Memo:
Nominal GDP (in billions of USD)
GNI per capita (USD, Atlas method)
Sources: SSC; NBU; IMF; WB staff calculations.
2001
2002
2003
2004
2005
2006
2007
2008
9.2
14.2
12.0
6.1
5.2
7.0
0.8
-0.6
9.6
15.8
5.2
8.2
12.1
12.5
9.0
12.3
2.7
3.1
13.5
10.3
7.3
6.2
9.1
11.6
7.9
10.2
12.8
16.6
2.1
-3.1
25.3
22.3
11.2
3.7
3.1
0.8
-1.6
38.6
-3.7
7.5
4.4
0.7
0.5
36.5
-8.2
5.8
6.9
1.4
-0.9
29.0
-2.1
10.6
9.5
1.7
-4.4
24.7
10.2
2.9
19.4
7.5
-2.3
17.7
4.8
-1.5
22.3
5.7
-1.4
14.8
1.4
-3.7
32.5
9.2
-2.0
12.4
12.2
-6.7
31.5
9.9
-3.2
20.1
38.0
720
42.4
780
50.1
970
64.9
1260
86.1
1520
107.8
1960
142.7
2560
178.8
3140
15
The previous de facto exchange rate peg to the dollar involved only small deviations (bands) from the parity of
5.05 UAH per dollar.
21
3. The Ukrainian economy has deteriorated sharply since the beginning of the crisis. The real
GDP decelerated to an annual 2008 growth of 2.1 percent, implying a 12 percent decline in
the fourth quarter. Industrial production contracted sharply, over 25 percent in the last two
months of 2008 and by 34 percent in January 2009, dragged by the export oriented and
commodity based sectors such as steel, chemicals, and oil refined products (see Figure 2.1).
As a consequence of the Russian demand slowdown, the machinery and equipment sector, in
double digits growth over the last years, underwent a sharp decline (-58 percent y/y in
January). Construction works also sunk by 58 percent in January 2009, although this sector
already showed a declining trend since the first half of 2008. Fiscal revenues dropped sharply
in the fourth quarter of 2008 due to a slump in the real economy and the government had to
funnel additional subsidies to Naftogaz to enable this SOE to make its payments to the
Russian gas monopoly Gasprom, leading to a higher than expected fiscal deficit. The
exchange rate depreciated sharply (over 40% to USD) to adjust to the terms of trade shock
and the foreign financing dry up.16 Over October-January, the NBU lost around USD12
billion of foreign exchange reserves trying to defend the currency and due to valuation effects
of the currencies in the reserves portfolio.
4. Ukraine has entered a recession in the face of the credit crunch, terms of trade
deterioration, and the slowdown in export demand. GDP is expected to drop by 7 percent in
2009, followed by a slow recovery to 1 percent in 2010, and then a medium-term average
between 4-5 percent starting in 2012. This is a less steep growth trajectory than the 3-year
period prior to the crisis, owing to an assumed protracted risk aversion in international capital
markets. Ukraine’s estimated medium-term growth rate is consistent with a rather moderate
pace of convergence towards European income levels. In order to help the recovery of its real
sector which is being hit hard by multiple external and domestic shocks, Ukraine must further
improve its business environment, competition policy, and the physical and institutional
infrastructure supporting private investment.
Transport Sector Performance
5. Relative to its GDP, Ukraine’s economy generates far more transport movements than EU
countries because it relies heavily on metals, basic industry, and agriculture—sectors that
move large volumes of low-value goods. This ratio also reflects Soviet era physical planning
that often located industries without regard for minimizing transport costs. This implies that
transport costs make up a proportionately large part of the final price of many goods.
6. Ukraine’s trade orientation is increasingly towards the EU; however, Russia is likely to
remain Ukraine’s major trading partner for at least the next few years. The economy is
shifting to greater reliance on semi-finished and finished products that have a higher value per
ton which is creating an increasing preference for road transport and its associated use of
containers and inter-modal services. The collapse of demand in the first five years after the
break-up of the Soviet Union left Ukraine with ample transport capacity but the financial
crisis of 1998 exacerbated the shortage of funds for maintaining and renewing assets.
Passenger travel, which halved in the decade up to 2000, as incomes went down and prices
went up, is now recovering, albeit at a slower pace than GDP growth.
16
The inter bank rate has been trading just above 8.4 UAH per dollar during the third week of February 2008.
But the NBU continues to intervene below market rates (below 8 UAH per dollar)
22
7. Initiated in 1998, a policy dialogue has been established between the Ministry of
Transport and Communications and the Bank. In 2005, under a Government of the
Netherlands grant, a detailed transport sector review was carried out by consultants (Transport
Sector Review; Ecorys, November 2005). Building on this study, the Bank issued a Transport
Sector Policy Note, which was submitted to Government in November 2006. Both the study
and the Policy Note supported the Government’s overall transport strategy, elaborated in early
2001.
8. The Government’s transport strategy as set out in 2001 is still valid today; it aims to
accomplish the following:
(a) Provide high-quality transport network and services that satisfy the needs of the
economy and reduce the price of goods;
(b) Secure the availability and quality of transport services for the population;
(c) Improve the competitiveness of the domestic transport system in preparation for
Ukraine’s entry to the World Trade Organization (WTO);
(d) Develop Ukraine’s transit capacity and integrate its domestic transport system into that
of Europe; and
(e) Improve safety levels and stabilize transport system development.
9. Implementing this Government strategy has initiated a program of reforms; including
privatizing many transport enterprises and establishing new regulatory agencies. However,
the full benefits of these changes will not be realized until some remaining funding and crosssectoral issues are addressed.
Balance of Future Demand: East or West?
10. The evolving demand for transport should be the first consideration in deciding how to
strike a balance of infrastructure investment among geographic regions and among competing
transport modes. It can be argued that active government promotion of the new trading
relations with the EU is the first priority, to create new jobs, new incomes, and new attitudes.
The importance of the old and mostly state-owned economy is unattractive to private
investment and will decline as better opportunities present themselves elsewhere.
11. A balancing consideration is that Russia relies on Ukraine as a transit country to reach
southern waters, due to Russia’s growing economy supported by exports of oil, gas and other
commodities. China’s surging demand for these raw materials is also expected to sustain
demand for the products of Ukraine’s eastern regions.
Road Transport
12. For the last four to five years, road transport has been growing substantially faster than
GDP; growth has been concentrated on major corridors, notably the road connecting Kyiv to
the Hungarian border. Elsewhere the density of Ukraine’s road network is generally
appropriate to the distribution of population and economic activity. Since most of the network
has enough capacity, spending priority should continue to go to maintenance and
rehabilitation.
13. The network’s main deficiencies are poor quality pavement and safety considerations.
Since 2002, total expenditures on roads (including maintenance) have increased. By 2004,
23
expenditures reached an estimated 0.9 percent of GDP, which is quite insufficient to meet
maintenance needs. To achieve a sustainable maintainable network, the detailed transport
sector review (Transport Sector Review; Ecorys, November 2005) recommends that a
minimum of 1.5 percent of annual GDP should be allocated for at least the next five years. A
more precise estimate can be prepared if a comprehensive network condition inventory is
undertaken.
14. Strong evidence from other countries demonstrates that out-sourcing road maintenance is
superior to retaining maintenance activities within the State Roads Department (Ukravtodor).
It is recommended that alternative approaches for out-sourcing most road maintenance
activities to private contractors be assessed to see which model would best suit Ukraine.
15. International experience also suggests that regional and local road maintenance is best
undertaken by regional and local governments, if they have the financial resources. It is
recommended that Ukravtodor focus on the main roads network, while responsibility and
funding for regional and local roads is devolved to the corresponding level of government.
16. The rate of fatal crashes on Ukraine’s roads is among the region’s highest, four times that
of the EU average. By analogy with a recent assessment made in Russia, the total socioeconomic cost of road crashes in Ukraine probably ranges from 1.5 to 5 percent of GDP. In
recognition of this grim situation, the Government has set up a multi-ministerial road safety
program. If Ukraine is to comply with EU traffic safety policy, it will need to halve the
number of fatalities by 2010. It is recommended that a start be made by focusing on
eliminating ‘black spots’ where most crashes occur. It is also recommended that
responsibility for traffic safety improvement be delegated to a National Road Safety
Committee.
17. Based on a study of optimal roads classification, Ukravtodor should focus on the main
roads network, while responsibility (and funding, based on a formula) for regional and local
roads should be gradually delegated to regional and local government agencies, if sufficient
capacity is developed and financial resources are transferred at both regional and local levels.
18. Ukravtodor should seek the maximum range of advice on how best to involve the private
sector in financing new road capacity, and conduct trial operations to test the viability of the
PPP approach for roads under Ukrainian conditions.
19. Finally, the Government should review alternative methods of charging for road use and
devise a new system compatible with EU requirements and acceptable to Ukrainian road
users.
Role of the Bank
20. The priorities of the Bank’s Country Partnership Strategy for Ukraine for FY08-11
emphasize the role of sustainable growth and improved competitiveness with a particular
focus on infrastructure (energy and transport). It also focuses on facilitating institutional
reforms that can lead to a business-friendly environment and a more inclusive and responsive
government. The CPS emphasizes the need to strengthen civil society and to increase the
accountability of public officials. The Bank will continue to support Ukraine’s European
choice, which has now moved to the center of the Government program.
21. The Bank is willing to consider supporting the development of every transport mode, at
national and sub-national level, in accordance with Government priorities. As regards
24
transport infrastructure, not only new construction is eligible for Bank financing but also
maintenance and rehabilitation, supported by technical assistance.
22. Wherever possible, Bank financing will complement that of other IFIs. While EBRD
gives priority to the private sector, the Bank will lend for infrastructure that will remain in the
public sector. Bank financing is available not only for corridors of international interest but
also for network sections with purely domestic interest.
23. For the immediate future, the nexus of Government priorities and Bank value-added
activities include road reconstruction and improved road safety, and perhaps advice on
options for private participation in road finance.
Major developments likely to influence demand for the project road
24. Between 2002 and 2006, the EBRD provided three loans for upgrading the main road
from Ukraine’s western border towards Kyiv. This financing is facilitating road transport
among Ukraine and its EU neighbors—Poland, Slovakia, Hungary, and Romania and through
them and other EU countries. The proposed project will finance similar rehabilitation of a
key portion of the extension of this central east-west road to the east of Kyiv towards Kharkiv,
Ukraine’s second largest city.
25. On 5 February 2008, the WTO General Council cleared the path for Ukraine’s
membership in the WTO by approving the package of agreements which spell out the terms of
Ukraine’s accession. Accession to WTO in May 2008 will likely be followed by negotiation
of a free trade agreement with the EU. This will further encourage imports and exports and
therefore attract more traffic to this central east-west road.
26. A new main road is planned to be built within the next five years linking Poltava (see map
in Annex 16) directly to Dnipropetrovsk. It will provide a shorter route for traffic between
Kyiv and Dnipropetrovsk and Donetsk, the center of the eastern coal and iron industries, than
the present M-4 route. This traffic re-routing is expected to add significantly to the already
heavy traffic on the Kyiv-Kharkiv road.
27. In 2012, the European football (soccer) championship finals, held every four years, will be
hosted jointly by Ukraine and Poland. Both governments intend to take the opportunity to
upgrade the transport infrastructure serving some of the cities where matches will be played:
in Ukraine—Kyiv, Kharkiv, Donetsk and Dnipropetrovsk. The proposed project investment
is amply justified by present traffic and the Kyiv- Dnipropetrovsk/ Donetsk traffic to be
diverted. However, the importance attached by the Ukrainian government to successful
hosting of the championship augurs well for commitment of funds and attention to ensure that
the works comply with the planned schedule and quality standards.
25
Annex 2: Major Related Projects Financed by the Bank and/or other Agencies
UKRAINE: ROADS & SAFETY IMPROVEMENT PROJECT
Sector issue / objectives
A. World Bank
The objectives of the Urban Infrastructure Project are to assist
participating utilities to improve service quality and reliability and
increase energy efficiency through a series of institutional
improvements and selective investments in rehabilitation and
replacement of deteriorated water supply, wastewater and solid waste
systems.
The Kyiv Public Buildings Energy Efficiency Project supports the
Government's Comprehensive State Energy Conservation Program,
which aims at achieving energy savings through targeted
investments.
The objectives of the Hydropower Rehabilitation and System Control
Project were to improve the efficiency, reliability, safety and
environmental performance of hydropower plants; increase
hydropower generation capacity; improve the quality of electricity
supply by upgrading load and frequency control; and reduce fuel
costs by facilitating the economic dispatch of generating units.
The objectives of the Lviv Water Supply and Sanitation Project are
to improve accessibility and quality of the water supply at an
affordable level in Lviv, improve the efficiency of LVK's technical,
commercial and financial operations.
Project
Urban Infrastructure Project
(under implementation)
Total Project Cost: US$140 million
World Bank Loan: US$140 million
Board Date: August 28, 2007
Kyiv Public Building Energy Efficiency Project (under
implementation)
Total Project Cost: US$ 30 million
World Bank Loan: US$ 18.29 million
Board date: January 27, 2000
Hydropower Rehabilitation and System Control
Project (completed).
Total Project Cost: US$190 million
World Bank Loan: US$114 million
Co-financing from the Swiss, Canadian and Norwegian
governments.
Board Date: April 11, 1995
Completed: June 30, 2002
Lviv Water Supply and Sanitation Project (under
implementation)
Total Project Cost: US$40 million
World Bank Loan: US$24 million
Danish and Japanese grants co-financing
Board date: June 5, 2002
26
OED and Latest supervision
ratings (Bank financed
projects only) Implementation
Progress (IP) Development
Objective (DO)
Not yet rated
IP: S
DO: S
OED: S
IP: S
DO: S
The objectives of the Kyiv District Heating Improvement Project are
to replace and increase heat production capacity to better meet
existing and expected future demand and to improve the reliability
and service levels in the Kyiv District Heating system.
Kyiv District Heating Improvement Project (closed)
Total Project Cost: US$250 million
World Bank Loan: US$200 million
Finnish and US Government provided project preparation
funding.
Board Date: May 21, 1998
The main objective of the Hydropower Rehabilitation Project is to
improve the operational stability and reliability of power supply by
increasing the regulatory capacity, efficiency and safety of
hydroelectric plants, thereby facilitating entrance to the electricity
market.
Hydropower Rehabilitation Project
Total Project Cost: US$ 374.5 million
World Bank Loan: US$ 106 million
Board date: June 21, 2005
B. The European Bank for Reconstruction and Development (EBRD)
The proposed project will provide further assistance in operational
Ukraine Railways: Fast Passenger Trains Project
modernization of Ukraine Railways (“Ukrzaliznytsia“ or “UZ”), and
Board Date: June 22, 2004.
enhance institutional strengthening of UZ through assistance to
Total project cost: US$ 289 million. (€ 289 million).
develop a new corporate structure. The Project objectives are to: (i)
replace old-style night sleeper services on medium distance inter-city
routes with fast day passenger services, which will improve service
to customers and provide a higher return to UZ; (ii) eliminate a
critical bottleneck on the pan-European corridor V with the
construction of the Beskyd Tunnel; (iii) continue the track
rehabilitation program that commenced with the proceeds of the first
loan.
The proposed project will enable the Port to carry out its
Illichivsk Sea Commercial Port Infrastructure
modernization program, including berth reconstruction, procurement
Development Project.
of the cargo handling equipment and dredging works to increase
Board Date: June 27, 2007
operational reliability and efficiency of the Port’s services. The
EBRD Finance: €26 million
Project includes a Port corporate development program that aims to
Total project cost : €38.6 million
transform it into a more commercial entity through introducing
business planning, IFRS audit, and strengthening Port in-house
capacity in strategic development and management of its
relationships with private operators.
27
IP: MU
DO: MU
Effective as of December, 2005
N/A
N/A
A loan to rehabilitate sections of the M06 highway west of Kyiv and
purchase of road maintenance equipment; technical assistance for
project preparation and implementation; and reform of road sector
finance. The proceeds of the Bank's loan will be used to rehabilitate
crucial sections of the M06 highway, one of the most important
roads in Ukraine. The project will also assist Ukravtodor with the
restructuring of road sector financing and administration.
Ukraine Rehabilitation of M06 Highway & Road Sector
Financing Reform
Board Date: 31 October 2000
EBRD Finance: €75 million
Total project cost: : €115 million
N/A
The proposed project will support the rehabilitation of the M06
Kyiv-Chop Highway to European standards and further reform road
sector administration and financing. The loan proceeds will continue
to rehabilitate crucial sections of the M06 highway, one of the most
important roads in Ukraine, which forms part of Pan-European
Corridor III and V and links Ukraine with the west. The loan
proceeds will finance consultancy assistance to supervise civil works
and road sector reform.
The proposed project will support the completion of the M06 KyivChop Highway rehabilitation to European standards, which began
with the first and second EBRD road projects in Ukraine. This third
project will finance rehabilitation of the remaining sections of the
M06 road, from Kyiv to the city of Brody, Lviv region (km 14 – km
441). M06 road forms part of Trans-European Corridor III (KyivLviv-Krakow-Berlin) and Corridor V (Lviv-Chop-Budapest) and
links Ukraine with Western Europe. The plan is to supplement the
EBRD loan by an additional estimated €200 million to be provided
by the European Investment Bank (EIB).
The proposed project will comprise two loans to the respective
Companies: one of €60 million would be extended to Kyiv PasTrans
a public transport company wholly-owned by the City of Kyiv and
responsible for the provision of bus, trolleybus and tram services.
The other loan of €40 million would be extended to Kyivsky
Metropoliten, which is responsible for Kyiv metro.
The proposed project will focus on financing new rolling stock
(buses, trolleybuses, and metro cars) and spare parts for municipal
companies. The project will constitute the first step of the
companies’ long-term capital investment program to improve their
efficiency and reduce their operation and maintenance costs. The
project will further contribute to the companies’ and the city’s
institutional strengthening in procurement, corporatization,
environmental standards and creditworthiness.
Ukraine Second Project "Kyiv-Chop Road
Rehabilitation.
Board Date: November 16, 2004
EBRD Finance: €100 million
Total project cost : €135 million
N/A
Ukraine Third Project "Kyiv-Chop M06 Road
Rehabilitation.
Board Date: November 21, 2006
EBRD Finance: €200 million
Total project cost : €486 million
N/A
Kyiv City Transport: Metro Loan.
Board Date: May 30, 2007.
EBRD Finance: €60 million to Kyiv PasTrans and €40
million to Kyiv Metropoliten
Total project cost : around €120 million.
N/A
28
C. EIB
This European road is the most important arterial route connecting
Ukraine with the European Union, and has a primary economic role.
The project is expected to reduce vehicle operating costs, increase
time savings and improve safety for road users while reducing
adverse environmental impacts due to congestion. Rehabilitation of
the final section of the M-06 highway between Kyiv and Brody, with
a length of 427 km, on Pan-European Corridors III and V.
European Roads Ukraine.
Signed: July 30, 2007.
Proposed EIB Finance: €200 million.
Total cost: €486 million
29
N/A
Annex 3: Results Framework and Monitoring
UKRAINE: ROADS & SAFETY IMPROVEMENT PROJECT
Results Framework
PDO
The PDO is to improve the condition
and quality of sections along the M03 road, and increase traffic safety
on roads.
Project Outcome Indicators
Improvements in the riding quality
along the section between Boryspil
and Lubny of the M-03 road
Use of Project Outcome
Information
Data from Ukravtodor and Ministry
of Transport input in quarterly
progress reports and supervision
mission aide-memoires
Increase in road safety towards EU
level
Intermediate Outcomes
Intermediate Outcome
Indicators
Use of Intermediate
Outcome Monitoring
Improvement in the riding quality
along the section between Boryspil
and Lubny of the M-03 road
Increase in road safety towards EU
level
Reduction of roughness from
IRI>5m/km to IRI<2m/km
Annual progress reports and
supervision mission aide-memoires
Reduction of fatalities per 10,000
vehicles from 8 to 6
Reduction of crashes along the
section between Boryspil and Lubny
of the M-03 road
Reduction of the number of crashes
between Boryspil and Lubny by a
factor of 2 (from current 248 to 126
per year)
The number of black spots areas
along the main network has been
reduced by at least 110
Annual road traffic accident
statistics from Ukravtodor and
Ministry of Transport
Annual road traffic accident
statistics by sections from
Ukravtodor and Ministry of
Transport
Annual road traffic accident
statistics by sections from
Ukravtodor and Ministry of
Transport
Quarterly progress reports and
supervision mission aide-memoires
Elimination of black spot areas
identified by Ukravtodor along the
national road network
Modernization of road management
and operations
A pilot performance based contract
has been launched
At least 100 staff have been trained
in road management and operations
of international best practice
30
Arrangements for results monitoring
Target Values
Project Outcome Indicators
IRI<3
IRI<2
8
7
6
Annual
Annual road traffic
accident statistics by
sections from Ukravtodor
and MOT
Ukravtodor through
the PIU
Reduction of the number of crashes
between Boryspil and Lubny
248
180
126
Annual
Ukravtodor through
the PIU
The number of black spots areas along
the main network has been reduced
110
80
0
Annual
Length of the M-03 road upgraded
0
0
20
40
80
120
Quarterly
Increase in the number of staff trained
in road management and operations
Launching of a pilot performance-based
road contract
0
20
40
70
90
100
Quarterly
0
0
0
1
1
1
Quarterly
Road traffic accident
statistics by sections from
Ukravtodor and Ministry of
Transport
Road traffic accident
statistics by sections from
Ukravtodor and Ministry of
Transport
Quarterly Progress Reports
to be sent to the Bank
Quarterly Progress Reports
to be sent to the Bank
Quarterly Progress Reports
to be sent to the Bank
Increase in road safety towards EU level
(fatalities per 10,000 vehicles)
YR1
YR2
YR3
YR4
Data Collection and Reporting
Frequency and
Reports
Annual
Improvement in the riding quality along
the section between Boryspil and Lubny
of the M-03 road
Baseline
(2007)
IRI>5
YR5
Data Collection
Instruments
Data from Ukravtodor
and MOT
Responsibility for
Data Collection
Ukravtodor through
the PIU
Intermediate Outcome Indicators
31
Ukravtodor through
the PIU
Ukravtodor through
the PIU
Ukravtodor through
the PIU
Ukravtodor through
the PIU
Annex 4: Detailed Project Description
UKRAINE: ROADS & SAFETY IMPROVEMENT PROJECT
1. The total project cost amounts to US$500, out of which the Bank loan proceeds will
finance US$400 million (including the front-end fee). The project includes three
components: (i) road rehabilitation of a 120 kilometer section (Boryspil-Lubny) of the
Kyiv-Kharkiv-Dovzhansky road (estimated loan amount of US$298.5 million); (ii) road
safety improvement (estimated loan amount of US$99.0 million); and (iii) provision of
advisory services, training and equipment to enhance road management according to
international practice (estimated loan amount of US$1.5 million).
2. Road Rehabilitation Component. This component comprises the rehabilitation of
about 120 kilometers of the existing four lane-road between Boryspil and Lubny, except
one section of 14 kilometers (starting after Velikaya Krucha in the direction of Lubny),
which is currently under reconstruction by Ukravtodor, and the recently built 6.5
kilometer Velikaya Krusha bypass. The Boryspil - Lubny section is part of the of the
Kyiv-Kharkiv-Dovzhansky road (M-03). The design features of the rehabilitation works
will be evaluated vis-à-vis the expected traffic volumes and composition.
3. Typical road composition is as follows: (i) the sub-base is crushed slag and gravel,
(ii) the base is crushed stones and gravel, and (iii) the top layers are asphalt concrete. The
usual source of crushed stone for road construction is about 350 km away from the
section, which will provide the contractor selected for rehabilitation with an incentive to
recycle as much of the existing pavement as possible to minimize haulage costs.
4. The road has been deteriorating for more than 20 years due to lack of periodic (major)
maintenance. Nevertheless, routine maintenance including pothole patching and
resurfacing of some sections have maintained the surface in a condition that has so far
prevented the imposition of speed restrictions. The IRI of the road section is likely to
increase above 7 m/km, indicating an appropriate time for rehabilitation (not
reconstruction). Rutting along the road reaches 2 to 3 cm, which could pose severe safety
hazards, particularly under icy conditions. As discussed with the State Roads Design
Institute (Ukrdiprodor), the rehabilitation is expected to include recycling and overlay
depending on the existing state of deterioration of each subsection.
5. The alignment stretches over two different oblasts, namely Kyiv and Poltava.
Regional offices of Ukravtodor are in charge of routine maintenance, which partially
explains why the road condition differs from one oblast to another. A good part of the
observed traffic is heavy vehicles, composed of articulated trucks. Most traffic is
domestic, but there is a significant international component.
6. Under new Ukrainian standards and norms, shoulders along main state roads must be
paved with asphalt concrete. A major achievement of the rehabilitation will be to upgrade
the existing unpaved shoulders of the road section to the new standard.
7. The road horizontal alignment will not be modified, as the minimum existing radius
of curvature is 1100 m, which is satisfactory. The road lacks a median in its initial
subsection starting at the junction with Boryspil bypass; building a median (essential for
road safety) will require a 2.0 m widening, which will be done within the existing right-
32
of-way. The road is elevated at two railway crossings, with vertical radius of curvature of
about 15,000 m; to increase visibility along the convex section; it will be desirable to
increase the radius to 25,000 m, if cost permits. This also can be done within the existing
right-of-way. Bare median strips will be planted with grass, similar to existing plantings.
Some existing cattle crossings pose safety hazards and this situation will be corrected by
building animal crossings at specific points, and installing protective fencing.
8. There are several bridges along the road, the largest of which is about 50 meters long.
Infrastructure improvements will include light bridge repair (e.g., filling joints, new
waterproof layers, and correction of minor defects in the existing concrete
superstructure); no bridge reconstruction or beam replacements are anticipated. The
bridge works, as well as cleaning and minor repair of culverts and other drainage
structures will be included in the rehabilitation works.
9. The table below provides the geographical location of some points of interest on the
Boryspil-Lubny road section:
Table 4.1: Geographical Locations on Boryspil-Lubny Road Section
Description
Beginning of the
section
Black spot
Location
PK44+200
Modernized crossing
PK90 – PereyaslavKhmelnitsky
PK126.7
Border between Kyiv
and Poltava oblasts
Bridge over stream
End of section
PK69 – Borfchiv
Orzhitsa River
PK198
GPS Coordinates
E31º01.474’
N50º19.259’
E31º21.900’
N50º17.932’
E31º37.952’
N50º13.268’
E32º07.139’
N50º13.701’
E32º12.828’
N50º12.804’
E32º31.808’
N50º12.804’
Elevation
117 m
98 m
108 m
97 m
110 m
127 m
10. Road Safety Improvement Component. This component includes eliminating 110
black spots (out of some 300 identified by Ukravtodor) all over the territory of Ukraine.
This will include measures to eliminate or reduce safety hazards at low standard
intersections, installing guardrails, signs and pavement markings, lighting at critical spots
(e.g., bus stops, intersections), traffic channelization, and improved horizontal alignment
at critically sharp curves.
11. Safety at black spot intersections will be improved by installing guardrails, crash
barriers, safer pedestrian crossings (e.g. adding pedestrian crossings and safety islands),
lighting, and clearer marking and signs. Ukravtodor has already improved some former
black spots, which has resulted in significant increases in traffic safety. Similar designs
will be applied under the project, which will include construction of elevated pedestrian
crossings at critical locations such as frequently used bus stops on divided roads. Traffic
management during construction will be carefully planned and implemented.
12. Capacity-Building Component. While the amount of project funds allocated to this
component is relatively modest, the Bank and Ukravtodor will seek other investment
33
partners to leverage the resources available during implementation. This component will
be financed by the loan proceeds and will include funding for advisory services, training
and equipment including:
a. Improvement of Ukrainian norms, rules and standards in the design, construction,
repair and maintenance of roads,
b. Modernization of road management and operations, including implementing
performance based contracts and introducing systems for planning and
programming road works, and
c. Introduction of international ‘best practice’ contracting in the road sector.
13. When the above technical assistance is completed, it is expected that Ukravtodor will
be better equipped to manage their road assets more efficiently, improving overall
effectiveness in the administration of the Ukrainian road infrastructure.
34
Annex 5: Project Costs
UKRAINE: ROADS & SAFETY IMPROVEMENT PROJECT
Table 2: Project Baseline Costs and Contingencies
Project Component Cost
Summary
Hryvnia (UAH) Million
US$ Million
Local
Foreign
Total
Local
Foreign
1. Road Rehabilitation
518.49 1,209.82
1,728.32
89.55
208.95
2. Road Safety Improvement
401.25
171.96
573.21
69.30
29.70
3. Capacity Building
1.74
6.95
8.69
0.30
1.20
Total Baseline Costs (*)
921.48 1,388.73
2,310.21 159.15
239.85
Front-end-Fee
0.00
5.79
5.79
0.00
1.00
Loan amount
921.48 1,394.52
2,316.00 159.15
240.85
Government co-financing (VAT)
579.00
0.00
579.00 100.00
0.00
Total Project Cost
1,500.48 1,394.52
2,895.00 259.15
240.85
(*) Physical contingencies (10%) and price contingencies (20%) are included in the above amounts.
35
Total
298.50
99.00
1.50
399.00
1.00
400.00
100.00
500.00
Annex 6: Implementation Arrangements
UKRAINE: ROADS & SAFETY IMPROVEMENT PROJECT
General arrangements
1. The prime responsibility for overall implementation of the project will be with
Ukravtodor, the State Road Administration of Ukraine. Within the Ukrainian legal system,
Ukravtodor is a central body of executive power, directed and coordinated by the Cabinet of
Ministers of Ukraine. Ukravtodor reports directly to the Minister of Transport. It was
established in 1995 by a decree issued by the Cabinet of Ministers and its main function is to
manage the road network in Ukraine, including the management of financing and funding.
Ukravtodor has experience in implementing IFI-funded projects and will be responsible to
the Bank for project reporting. Administration of the Designated Account, authorization of
withdrawal applications, and project accounting will be done by Ukravtodor who will
prepare the project accounts and report to the Bank.
Project management
2. Ukravtodor, as the Project Implementing Entity will have sole responsibility for overall
project implementation. Within Ukravtodor, the Deputy Head has been appointed to be
responsible for project implementation. The Head of Ukravtodor financial department has
been appointed to coordinate fiduciary aspects of project implementation. Ukravtodor will
also be responsible for overall FM management, i.e., authorizing withdrawal applications and
budget reports.
3. A Project Implementation Unit (PIU) will be in charge of day-to-day project operation
and technical support. This PIU is the same as that established in 2002 to manage the first
EBRD-funded project. In 2007 its original statutes were amended to include responsibilities
for managing the proposed Bank financed project. Additional staff and resources will be
made available at the PIU level to implement the project. The PIU structure is shown below.
Head of PIU
Chief Engineer
Technical Issues
Road Engineers
Bridge
Engineers
Deputy Head
Procurement
Deputy Head
Financial Issues
Procurement
Specialists
Financial
Spec.
Legal Experts
Economist
36
Administrative
Staff:
Office-manager
HR Specialist
Accountant
4. The PIU has well established sector specialists that perform specialized functions such as
planning, financial management, audits, etc. These staff has previous experience with IFIfinanced projects and therefore the present administrative arrangements and operational
procedures within the organization will be maintained while complying with financial,
procurement, and safeguard requirements of the Bank. There are three units reporting to the
Deputy Head of the PIU, each comprise one financial specialist, one highway expert and one
bridge expert. Two of the units will be exclusively working for EBRD-financed projects and
one for the Bank-financed Roads and Safety Improvement Project (RSIP). It is proposed that
one procurement expert, two legal advisors and one chief economist (directly reporting to the
Director of the PIU) will be shared between projects financed by EBRD, EIB, and Bank. This
will save resources and create additional synergies between projects.
5. Before negotiations, Ukravtodor prepared the draft Project Operational Manual (POM),
which was satisfactory to the Bank. The POM describes procedures for implementation of
the project and including, inter alia (i) procedures governing administrative, procurement,
accounting, financial management, safeguards and monitoring and evaluation arrangements,
(ii) targets to be achieved under the project, and (iii) a sample format for Quarterly Project
Reports. The final version of the POM, satisfactory to the Bank, shall be approved and
adopted by Ukravtodor prior to project effectiveness. The UAD remains responsible for
ensuring that the PIU discharges its duties consistent with agreements between UAD and the
Bank.
Bank supervision
6. The Bank will devote about 25 staff weeks per year and a total of about 100 Staff weeks
from FY09 to FY12 to support the Government in implementing the project and supervising
progress. Implementation support and supervision – with a minimum of two missions per
annum, as well as direct involvement of Kyiv Bank Country Office specialized staff, will in
particular focus on performance of Ukravtodor and the PIU in managing contracts,
safeguards, procurement and financial matters, as well as completing the agreed
implementation plans.
7. Project monitoring during the course of project implementation and after the project has
completed will be carried out by PIU staff after approval from Ukravtodor. This would entail
monitoring project performance indicators for the duration of the project. Project Reports
would be prepared by the PIU and approved by Ukravtodor on a quarterly basis and
submitted to the Bank for review. The Project Progress Reports (in a format acceptable to the
Bank) will focus on results rather than providing process-related information. On or about
March 31, the PIU will prepare an Annual Report which will consolidate the Project Progress
Reports (commencing March 31, 2010) as well as an annual forecast plan containing
financial projections and revised and updated Project monitoring and evaluation indicators
for the activities undertaken in the upcoming year, in a format acceptable to the Bank.
8. Ukravtodor and the PIU will carry out jointly with the Bank, a midterm review of the
progress made in carrying out the project no later than eighteen months after the Loan
Effectiveness Date. The midterm review will cover, amongst others: (i) progress made in
meeting the project’s objectives, and (ii) overall project performance against performance
indicators as set out in the project’s results framework.
37
Annex 7: Financial Management and Disbursement Arrangements
UKRAINE: ROADS & SAFETY IMPROVEMENT PROJECT
A - Country Financial Management Issues
1. Previous Bank diagnostic and other Economic and Sector Work (ESW) concluded
that significant improvement is required in the management of public expenditures,
especially strengthening of internal and external audits in the public sector. The Country
Financial Accountability Assessment (CFAA) also identified a lack of adequate
accountability arrangements for state owned enterprises. The 2002 Report on Observance of
Standards and Codes (ROSC) on accounting and auditing identified weak regulatory
arrangements for the audit profession, differences between National Accounting Standards
and IFRS, and weak capacity in the country to implement IFRS financial statements and ISA
audits. The draft ROSC report of 2007 noted that progress has been made since 2002. The
legislative framework governing accounting and audit in Ukraine has recently been
significantly updated; amendments to relevant legislative acts have been introduced and their
implementation has been supported by some limited institutional and capacity strengthening
measures. However, the laws governing financial reporting, and institutions regulating it,
need to continue this development.
2. Public Expenditure & Financial Accountability (PEFA) assessment report of 2006
indicated that the annual process of identifying priorities to be protected during budget
execution is working and that payments in arrears are low, and have been declining,
indicating no major issues. The Treasury system provides generally reliable, complete
information on most resources received by service delivery units. Reporting quality appears
generally high, but the Accounting Chamber did note some problems with appropriate
recording of spending. The Accounting Chamber is firmly established and well funded,
although the nature of the audit is more compliance-oriented, with limited performance
audits.
B - Existing FM arrangements in Ukravtodor
3. Budgeting. UAD prepares, approves, and submits budgets to MOF for inclusion to the
State Budget of Ukraine for each fiscal year, as required by legislation. The budget may be
revised several times during the year, as may be found necessary. The Project budget will
also be part of the Ukravtodor annual budgets, and will follow the regular procedure of
budget approval of Ukravtodor.
4. Accounting. Currently UAD head office does not use automated accounting software.
The head office of UAD accounts only for transactions of UAD head office, as is required by
the local accounting standards. The existing accounting program is not suitable for full
accounting of the Project, as described below in the section on accounting.
5. Bank accounts. Currently the UAD has accounts in the State Treasury, and in the
Ukreximbank. Use of State Treasury is envisaged for this project, as Ukravtodor is the
budget entity.
38
6. Reporting. The UAD regularly reports to MOF, MOE, State Treasury, and Accounting
Chamber. UAD reports on budget execution, and also submits separate regular reports on
implementation of EBRD-financed projects.
7. Entity Audits. The UAD is subject to reviews by state accounting entities. The most
recent full-scope audit review of UAD was completed in 2000. Several cross-reviews were
done subsequent to the full review. The recent reviews done by the Accounting Chamber
have been reviewed, and although some weaknesses have been noted, their potential impact
on project implementation is low, due to the controls and risk mitigation measures that are
agreed for this Project.
8. Staffing. (i) Department of accounting and reporting is staffed with seven persons. This
department does financial accounting and reporting as is envisaged by Ukrainian legislation.
Among other functions of this department is accounting for projects financed by international
organizations, as required by Ukrainian legislation, (ii) The financial division has a
department for financial policy and a department for budget financing. The department for
budget financing is staffed with five employees and functions of this department include
monitoring financial aspects of execution of projects of international financial institutions.
The head of the financial division was appointed to coordinate Project-related FM activities.
Plan for periodic monitoring visits
9. The minimum number of FM monitoring visits is to be at least three times per annum at
initial stages of project implementation, which may be decreased to two times per year
during later stages. During project implementation, the Bank will monitor the project
financial management arrangements as follows: (i) review interim unaudited financial reports
(IFRs), annual audited financial statements, and auditor’s management letters; (ii) review
financial management, disbursement arrangements, and control environment, to ensure
continuing compliance with Bank’s minimum financial management requirements; and (iii)
the Bank shall conduct joint fiduciary monitoring visits, as necessary.
C - Details of Financial Management Arrangements
Funds flow
10. The project will be financed from the loan proceeds and the Ukrainian co-financing. Loan
funds will be used to make: (i) direct payments to suppliers or issuance of a Special
Commitment. Minimum application threshold that may be submitted for direct payment
method or for special commitments are provided in the Disbursement Letter; and (ii)
advances to the Designated Account. Ukravtodor will be responsible for replenishment and
use of Designated account as well as for direct payments arrangements.
11. Direct payments. Large payments (above the specified threshold) will be executed
directly from the Loan account to the supplier or contractor account. The Borrower intends to
settle payments mainly via direct payment method given that the majority of contracts will be
of high value. Specifically, about eight contracts for a total of US$100 million and about four
contracts for US$300 million are anticipated.
12. Advances to Designated Account. For smaller-value payments as specified in the
Disbursement Letter, IBRD loan funds will be disbursed through the designated account that
will be opened by the State Treasury in Ukreximbank.
39
13. Treasury account of UAD in UAH. Based on the project needs, the Ukravtodor will
prepare payment documents for State Treasury to convert a part of the foreign currency funds
into local currency and to be transferred to a local currency account of Ukravtodor opened in
the State Treasury. Then UAH funds will be paid from the State Treasury account of
Ukravtodor to the final contractors in Ukraine.
14. USD account of UAD in commercial bank. Ukravtodor will also have another USD
account opened in Ukreximbank. Based on need to make USD payments to foreign suppliers,
Ukravtodor will prepare payment documents for State Treasury to transfer part of the funds
from the Designated Account to this USD account. Then funds will be paid from the USD
account to the final contractors and suppliers outside of Ukraine.
15. Co-financing. Co-financing will be paid from the treasury account of UAD. Accounting
department of UAD will prepare the payment orders and submit them to the State Treasury
for processing. The statements of payments received from the State Treasury will then be
provided to the financial department of UAD and the PIU for purposes of accounting for
these payments. Simultaneously, the accounting department of UAD will account for these
payments as required by Ukrainian legislation.
Staffing
16. The PIU hired an economist in September 2007, who will be specifically responsible for
the financial management of the Project. This economist has sufficient education and
experience in budgeting and financing; however, she was new to the financial management
procedures of Bank-financed operations. The economist has attended Bank courses on FM
and disbursement and she has further enhanced her skills during implementation of the
PHRD grant for project preparation during 2008-2009.
17. The head of the financial department of UAD, appointed to be responsible for
coordination of the fiduciary aspects of project implementation, has been involved in
financial management of EBRD-financed loans since 2002, and has the relevant practical
experience. Because IBRD and EBRD procedures differ, the head of this department has also
attended Bank-organized courses on FM and disbursement.
18. For payment of co-financing, the following will be performed by the accounting
department of UAD as part of their existing responsibilities: preparation of payment orders
for the State Treasury, accounting for payments, and reporting for co-financing.
Budgeting
19. The Project budget will be included as one line in the special fund of the State budget.
Only one budget program will be created for this loan, and UAD will be the budget holder.
Annual project consolidated budget will be prepared by the UAD with help from the PIU and
submitted to MOF for verification and approval.
20. As of the date of this PAD, the annual budget request for the project for FY2009 has been
submitted and it includes sufficient provision for this loan. Any subsequent changes to the
project budget shall follow the same authorization procedures.
Accounting Policies and Procedures
21. The PIU will be responsible for day-to-day financial management of the project,
including preparation of all financial documents. The PIU would maintain accounting records
40
for the project, using a segregated set of accounts. The accounting for the project will be
done on a cash basis with additional information provided for commitments on signed
contracts and acts of acceptance. The accounting records will be maintained in sufficient
detail to record expenditures in USD and local currency by project component and by source
of finance; to monitor contracts in terms of services provided, payments made, and balances
due; and to record balances and payments in designated, transit, and loan accounts. The PIU
will retain originals of all documentation.
22. Separate Excel accounting spreadsheets have been created specifically for accounting of
the IBRD loan based on accounting spreadsheets used earlier for EBRD loans. These
spreadsheets are sufficiently detailed to record expenditures in USD and local currency by
project component and by source of finance; to monitor contracts in terms of services
provided, payments made and balances due; and to record balances and movements in
designated, transit and loan accounts. The spreadsheets will be properly protected by
passwords and regular backups.
23. The financial department of UAD will be responsible for review and authorization of
documents, prepared or reviewed by PIU. The financial department will also maintain
analytical accounting for the Project, which will include a database of all contracts
concluded, services already accepted, payments made for each of the contracts, and funds
used by the project. The financial department of UAD will also keep the originals of all
accounting documents in an orderly manner.
24. Division of responsibilities: There is some degree of duplication in the envisaged
accounting system. Generally, accounting at the PIU will contain full details of each
transaction, payment, and all balances. The accounting at UAD will include the totals, and
also include repayment schedules and interests accrued on the loan. There would be at least a
monthly reconciliation procedure between the PIU and UAD, which will be documented. The
duplication will be minimized to the extent possible.
25. Procedures: The accounting policies and procedures of the PIU and UAD related to
financial management of the Project have been established, and prescribed in detail in the
draft POM. The accounting policies and procedures envisage internal controls including
review and authorization, segregation of duties, regular reconciliation, regular reporting.
Reporting
26. All financial and monitoring reports will be prepared by PIU, verified by UAD, and
submitted to the Bank. Reporting for the components under this project will follow the
standard Bank requirements for the IFRs preparation. The IFR forms will be based on the
format which is included in the POM. The PIU will prepare quarterly IFRs for all
components and send them to the Bank within 45 days of the end of each financial quarter
(each calendar quarter) beginning with the quarter in which the first project disbursements
occur. The Financial Reports include the forms on (i) sources and use of funds (ii) use of
funds by components – consolidated (iii) designated account statements.
Information system (accounting software)
27. Both the PIU and the financial department at UAD will use accounting spreadsheets in
Excel, properly protected by passwords and regular backups, due to the factors described
41
below: The accounting spreadsheets have been designed and will be used at initial stages of
project implementation.
28. No automated accounting system is available to the PIU now. During the initial stages of
project implementation, the PIU will start to undertake project accounting using either the
already available spreadsheets in Excel or any suitable automated accounting software, as
will be agreed with the Bank.
Internal controls
29. The PIU and UAD will maintain a financial management system acceptable to the Bank,
The POM describes internal controls including authorizations, segregation of duties,
accounting, regular reconciliation, and reporting.
30. The withdrawal applications will be prepared by PIU, authorized by the UAD, and then
submitted to MOF for final review and authorization.
31. Procurement process will be managed by a procurement specialist of PIU in cooperation
with the relevant technical divisions of UAD and the financial department of UAD. Contracts
will be signed by head of UAD.
32. The acts of acceptance and invoices will be verified by the technical department of UAD
or the final beneficiary, which is responsible for the works competed under each contract and
by the technical engineer consultant hired specifically for technical supervision of this
project. The documents would then be reviewed by the PIU (financial specialist and head),
and then authorized by the head of UAD. Payments will be processed by PIU and UAD after
the necessary authorizations.
33. Draft FM sections of the POM have been prepared. The POM details all financial
management procedures, including accounting, reporting, internal controls and procedures,
budgeting, auditing, accounting backups, staffing, and covers both PIU and UAD verification
and authorization mechanisms, and controls of MOF.
34. In case of payments in UAH, the Forex risk will be managed by PIU as follows: (i) funds
will be transferred from USD to UAH accounts only as necessary to make payments, (ii) low
balance in the UAH account will be maintained at all times.
External audit
35. Project audit: Audit of Project financial statements will be performed annually by
independent auditors acceptable to the Bank and based on TORs acceptable to the Bank.
Audit reports will include opinions on project financial statements (including statements of
expenditures - SOEs), the Designated Account and SOEs. Auditors’ management letter will
be required, based on the audit. The annual audited financial statements and audit report
thereon will be provided to the Bank within six months after the end of each fiscal year.
36. Operational audit: The project may additionally require an annual operational audit by
an independent external auditor. Such audit will be conducted upon request of the Bank. One
operational audit will however be required by the Bank at the beginning of the project. The
government will appoint an independent auditor acceptable to the Bank to carry out annual
operational audits of the project covering operational systems and procedures including an
internal control framework assessment. The TORs will require auditors to assess controls in
both UAD and PIU.
42
37. Entity audit: All reviews of UAD activities done by state accounting entities during
project implementation shall be provided to the Bank for review within one month after
receipt of such reviews by UAD.
38. TORs for project audits and operational audits shall be based on a sample. It is included
in the POM.
FM
Risk
Risk Mitigating Measures
Residual
Risk
INHERENT RISKS
Country level. Certain weaknesses of
PFM institutions, including
procurement, internal audit and internal
controls
Entity level. First time experience with
IBRD of UAD and PIU
H
Project level. First time experience of
PIU and UAD with IBRD FM
procedures.
S
Overall Inherent Risk
H
S
Concluding agency agreement with PIU,
experienced with EBRD, and by
assigning the same PIU with day-to-day
project management
The existing FM capacity of the PIU has
been strengthened by hiring an finance
specialist, establishing a system of
internal controls, and experience during
the implementation of the PHRD grant
for project preparation.
Dedicated finance specialist at PIU,
additional trainings on project financial
management and disbursement, project
supervisions,
S
M
M
S
CONTROL RISKS
Internal Controls and accounting– UAD
and PIU may not perform in
accordance with established procedures
H
Funds flow –delays in disbursements
due to the need to become familiar with
disbursement procedures of the Bank
H
Accounting system– low quality
accounting for use of loan funds.
S
Financial Reporting - reports may not
be prepared correctly or submitted with
delays.
S
The POM, which summarizes the FM
arrangements, will be approved by project
effectiveness, and updated during
implementation with Bank’s no objection.
Adherence to procedures will be regularly
monitored by the Bank. Adoption of the
POM is effectiveness condition.
Training of financial staff of UAD and
PIU, all payments will be reviewed and
authorized by UAD and authorized by
MOF; mainly use of direct payments;
only smaller payments will be made
through the Designated Account.
PIU prepared accounting spreadsheets in
Excel, specifically for the project for the
initial phase of the project. The PIU may
thereafter install and start using an
automated accounting software as will be
agreed with the Bank.
The accounting and reporting system has
been established The indicative format of
IFRs is included in the POM. Timeliness
and quality of IFRs will be reviewed by
the Bank on a regular basis.
43
S
S
M
M
Auditing – Project audits may not be
delivered on time and be acceptable
FM
Risk
S
Staffing – PIU staff is familiar with
IBRD procedures through
implementation of the PHRD grant for
project preparation, but not work
efficiently on a larger project
S
Budgeting - the budget may be
modified by the Borrower without due
authorization
Procurement – need for experience with
the IBRD procurement rules
S
H
Risk Mitigating Measures
Audit of project financial statements will
be performed on an annual basis, based
on TORs agreed with the Bank. The Bank
will monitor timeliness and quality of
audit reports.
Additional training will be provided to
UAD and PIU staff as necessary; more
experienced staff of PIU working on
other loans will provide advice and on-the
job training, regular supervision of the
Bank will be performed.
All changes to the project budget will be
agreed with the Bank and authorized by
MOF.
The procurement specialists at PIU are
familiar with EBRD procurement rules
and procedures, they are to become
familiar with the IBRD rules; training to
staff will be provided
Residual
Risk
M
M
M
S
OVERALL CONTROL RISK
S
M
OVERALL FM RISK
H
S
5. Disbursement Arrangements
Allocation of loan proceeds
Category
(1) Goods, training, and
consultants’ services
(2) Civil works under Part 1
(3) Civil works under Part 2
(4) Front-end-Fee
Total Amount
Amount of the Loan
Allocated
(expressed in USD)
8,500,000
Percentage of Expenditures to
be financed
exclusive of Taxes
100%
294,500,000
100%
96,000,000
100%
1,000,000 Amount payable pursuant to
Section 2.03 of this Agreement in
accordance with Section 2.07 (b)
of the General Conditions
400,000,000
Disbursement procedures
39. IBRD Loan Account disbursements will follow the transaction-based method, i.e.,
traditional Bank procedures: Advances, Direct Payments, Special Commitments and
Reimbursement (with full documentation and against Statements of Expenditures (SOEs)).
Certain payments above the Minimum Application Size, as specified in the Disbursement
Letter, will require the Borrower to submit withdrawal applications to the Bank for payments
to suppliers and consultants directly from the Loan Account. The withdrawal applications
will be prepared by PIU, authorized by the UAD, and then submitted to MOF for final review
and authorization. All disbursements will be based on full documentation for (a) contracts
44
for goods costing more than US$200,000 equivalent each; (b) contracts for works costing
more than US$2,000,000 equivalent; and (c) services under contracts that exceed
US$200,000 equivalent for each consulting firm and US$100,000 equivalent for individual
consultants. Disbursements below these thresholds will be made according to certified
Statement of Expenditure (SOEs). This documentation will be retained by the implementing
agency for at least one year after receipt by the IBRD of the audit report for the year in which
the last disbursement was made, or for such a period as required by local legislation.
Designated account
40. For the purposes of the Project, a Designated Account shall be opened and managed in
Ukreximbank including appropriate protection against set-off, seizure and attachment.
Replenishment for the Designated Account would follow IBRD procedures. The UAD
would submit replenishment applications, authorized by MOF, at monthly intervals. The
minimum application amount for applying for direct payment and for special commitments
will follow the limit as set out in the Disbursement Letter.
45
Annex 8: Procurement Arrangements
UKRAINE: ROADS & SAFETY IMPROVEMENT PROJECT
General
1. Procurement for the proposed project will be carried out in accordance with World Bank
"Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004, updated
October 2006; and "Guidelines: Selection and Employment of Consultants by World Bank
Borrowers" dated May 2004, updated October 2006, and the provisions stipulated in the
Legal Agreement. For each contract to be financed by the Loan, procurement methods,
consultant selection methods, prequalification requirements, and time frames are to be agreed
between the Borrower and the Bank project team. The Procurement Plan will be updated at
least annually or as required to reflect the actual project implementation needs and
improvements in institutional capacity.
Procurement of Goods and Technical Services
2. Procurement of Works: Works procured under this project will include: four ICB
contracts (Civil Works) (US$298.5 million) for the rehabilitation of a 120 kilometer section
(Boryspil-Lubny) of the Kyiv-Kharkiv-Dovzhansky road and up to 8 contracts for
rehabilitation of 110 ”black spots” (with a large number of recorded traffic accidents) in
different regions (US$99 million). Currently it is planned the latter would be procured in 2
procedures with 4 lots each. Procurement will be carried out using the Bank’s Standard
Bidding Documents (SBD) for all ICB and National SBD agreed with or satisfactory to the
Bank. It is considered expedient, prior to the ICB process, to carry out a formal
Prequalification of Bidders, which will be initiated soon after Negotiations, subsequent (and
final) packaging will be decided after the prequalification results are known and a divide and
split approach (among qualified contractors) may be used. The same approach may be used
for the ‘black spots’ packaging and procurement is depending on the number of prequalified
contractors.
3. Procurement of Goods: Goods procured under this project will include: accompanying
goods and raw material necessary for the civil works and some limited goods to support the
capacity building that will enable Ukravtodor to use the most modern techniques for road
design and management. Specifically this may include appropriate equipment to protect the
road network from overloaded trucks and equipment related to monitoring the condition of
the road network;
4. Procurement methods: The following procurement methods will be eligible under this
project;
-
International Competitive Bidding (ICB) procedures will be used for contracts
above US$200,000 equivalent in the case of goods and US$2,000,000 in the case of
works. In the comparison of bids for goods procured through ICB, a domestic
preference will apply in accordance with the provisions of the Procurement
Guidelines. Bid documentation for ICB will be prepared in accordance with the latest
applicable Bank Standard Bidding Document (SBD) for the Procurement of Works
46
(full document), or Procurement of Goods or Supply and Installation of Plant and
Equipment (S&I), single or two stage as appropriate. Prequalification shall be
undertaken where justified for large civil works contracts using the latest applicable
Bank Standard Prequalification document and procedures.
-
National Competitive Bidding (NCB). Contracts for the procurement of goods that
are estimated to cost less than US$200,000 equivalent per package may be procured
in accordance with NCB procedures subject to the prior agreement of the Bank. The
ECA regional Standard Bidding Documents (SBD) for NCB Goods will be used and
the conditions applicable for conducting NCB procurement as agreed with the Bank
will be followed. In the case of procurement of works the threshold will be
US$2,000,000 for use of NCB. At the time of negotiations there is no Public
Procurement Law in Ukraine and procurement is governed through a Cabinet of
Ministers resolution, therefore no NCB is planned, however, it is expected that during
the lifetime of the Loan an acceptable Law may be passed and NCB may become
applicable;
-
Shopping
procedure will be used for off-the-shelf goods estimated to cost less
than US$100,000 per contract. Shopping which requires the obtaining of three
quotations, maybe used as more competitive methods are not justified on the basis of
cost or efficiency. The ECA Regional sample format for shopping "Invitation to
quote" will be used. In the case of IT equipment the ECA IT Shopping site must be
used for establishing the initial shortlist.
-
Direct Contracting: will be used to finance the procurement of proprietary
equipment and software after prior consultation and agreement with IBRD.
Selection of Consulting Services and Training
5. Consulting services are required for project management, procurement and
auditing assignments and also for the institutional capacity component.
The
procurement will be carried out using the latest published version of Bank’s RFP for all
QCBS and for other procurement methods such procedures and documents as are agreed with
the Bank.
6. In addition, consulting services maybe used for assistance in improving safe road design
and developing new standards, to assess and improve the performance of the current road
asset management. Other assignment will include the design of pilot projects to outsource
road maintenance to private Ukrainian contractors through multi-year contracts and to assist
Ukravtodor in the implementation of their first transaction requiring a substantial amount of
international expertise.
7. Contracts shall be packaged for consulting and training services required from firms and
individuals. Short lists of consultants for services estimated to cost less than $100,000
equivalent per contract may be composed entirely of national consultants in accordance with
the provisions of paragraph 2.7 of the Consultant Guidelines. The following methods of
procurement will be followed:
47
-
Quality and Cost-based Selection (QCBS) procedures will be used for contracting
consultant services for contracts estimated to cost over US$200,000. As an
alternative, Fixed Budget Selection and Quality Based selection may also be used
where this is included in the Procurement Plan. It is expected that there would a total
of 5 such contracts (2 for supervision of construction, 2 related to the black spots and
1 for institutional capacity building)
-
Consultant Qualification (CQ) procedures will be used for contracting consulting
and training services with the most qualified firms from a shortlist of firms expressing
interests for contracts estimated under US$200,000.
-
Least Cost Selection (LCS) procedures may be used for contracting the financial
audit services. The shortlist shall consist of firms acceptable for Bank financed
projects.
-
Individual Consultants (IC) will be hired in accordance with Section V of the
Guidelines. Individual consultants will be hired for small assignments of short-term
duration for consulting services to meet the requirements of the proposed IBRD Loan.
-
Single Source (for firms)/sole source (for IC) procedures will be used for
contracting the consulting and training services following the procurement plan after
prior consultation and agreement with IBRD.
-
Expenses for the study tours and training related to the project will be disbursed based
on SOE. Training and seminars will be procured directly from the service provider
subject to the Bank’s agreement to the course content; list of participants and budget.
Notification of Business Opportunities
8. A General Procurement Notice (GPN) has been published in the UN "Development
Business" on-line (UNDBonline) and in the Development Gateway's dgMarket in April
2008. For ICB goods and civil works contracts and large-value consultants contracts (more
than US$200,000), Specific Procurement Notice will be advertised in the Development
Business on-line (UNDBonline) and in the Development Gateway's dgMarket and national
press, and in the case of NCB, in a major local newspaper (in the national language).
Review by the IBRD of Procurement Plan
9. The Borrower has developed a Procurement Plan for project implementation. The plan
provided by the Borrower is shown at the end of this section. Procurement of goods, works
and services for the project will be carried out in accordance with the agreed procurement
plan, which will be updated in agreement with the Project Team annually or as required to
reflect the actual project implementation needs and improvements in institutional capacity.
Prior Review
10. Contracts subject to the Bank’s prior review and no objection prior to signature are
indicated in the Procurement Plan and generally comply with the following scheme:
48
-
Goods: Prior review of bidding documents, including review of evaluation,
recommendation of award and contract will be conducted for all contracts over
US$100,000, all ICB and Direct Contracting and first NCB and first shopping
contracts, if used.
-
Consulting Services and training: Requests for Proposal (RFP), short lists, terms of
condition of contracts as well as evaluation reports and recommendation for award
will be prior reviewed by IBRD for contracts for individual consultants above
USD100,000 and for firms above USD200,000. All documents and recommendations
involving single source selection will be subject to IBRD prior review. Terms of
reference for consulting assignments and training may be reviewed and cleared by the
Task Team Leader.
11. After award of contracts should any material modifications or waiver of terms and
conditions of a contract resulting in an increase or decrease above 15 percent of the original
amount, IBRD will undertake a prior review of such modifications (including modifications
to contracts for consulting services).
Assessment of the agency’s capacity to implement procurement
12. The prime responsibility for overall implementation of the project will lie with
Ukravtodor (UAD) and the deputy head of UAD will be responsible for project
implementation. The Deputy Head of UAD will have overall responsibility for project
oversight. PIU will be in charge of the day-to-day operation and technical implementation of
the project. The PIU was created in 2002 to help Ukravtodor with the implementation of
international projects. The Agency has been involved in implementation of three projects so
far:



EBRD project worth EUR 75 million;
EBRD project worth EUR 100 million;
Joint EBRD and EIB project worth EUR 400 million (under implementation).
13. An assessment of the capacity of the Implementing Agency to implement procurement
actions for the project was carried out during 2008. The assessment reviewed the
organizational structure for implementing the project and the experience of UAD and PIU in
similar contracts. The PIU was initially established in 2002 to serve as the management unit
for the first EBRD funded project. The PIU’s original statutes were amended in 2007 to also
include responsibilities regarding the management of the proposed project. Additional staff
and resources will be made available at the PIU level in order to implement the project.
14. The PIU specialists have previous experience with IFI financed projects and therefore the
present administrative arrangements and operational procedures within the organization will
be maintained while complying with the procurement requirements of the World Bank.
Specifically the Agency has experience in EBRD procurement rules and bidding documents.
About 2 PIU staff members are involved in the implementation process involving 4 contracts
for consultant services (similar to QCBS procedure) and 5 contracts for civil works (Open
tender procedure, including pre-qualification process). The bidding documents have been
prepared with assistance of the consultants. Procurement decisions are taken by Ukravtodor
Tender committee consisting of 15 staff trained in accordance to Ukrainian legislation. The
49
contracts are signed by Ukravtodor. The implementation of the civil works contracts has been
supervised by an appointed engineer, in accordance with standard FIDIC contract conditions.
Therefore it is expected these practices will form the basis of work under the project.
15. The procurement specialist has 3 years experience as procurement specialist of the entity
ands has attended a number of training courses organized by the IFI’s including EBRD,
USAID and the Bank. The procurement specialist also has an assistant who will be involved
in the project implementation.
Country Issues and use of country systems
16. The Country Procurement Assessment Report (CPAR) completed in 2001 indicates that
projects should be rated "High" risk based on the assessment of the country’s national
procurement system. An update to the CPAR was finalized in 2006. This review focused on
an assessment of the changes in the Public Procurement Law (PPL), regulations, procedures
and practices with a view to eventual certification for use of country systems under Bank
financed projects. Unfortunately this update revealed that the situation in Public
procurement had not improved.
17. Among negative developments, amendments to the PPL in November 2004, June 2005,
and December 2005, seriously diluted and fragmented government procurement authority.
Important functions were transferred to non–governmental organizations despite the
reasonable progress toward international standards being made by the Authorizing Agency
within the Ministry of Economy. This reorganization not only cost the country many years of
expertise gained by the Authorizing Agency, it resulted in an abrupt departure from
acceptable standards. Moreover, the shift of oversight responsibility to the Department of
Audit and Review (KRU) and to the Accounting Chamber has created a conflict of
interests—because the same bodies that supervise the procuring entities are now also auditing
them. Although the most recent amendment (December 2006) appears to have, in part,
mitigated this conflict it has, in turn, introduced several more changes detrimental to the
integrity of the public procurement system.
18. The fully decentralized public procurement system distributes functional responsibility to
procuring entities at all levels of government. Each of these procuring entities currently
conducts procurement through a permanent five-member tender committee whose members
receive just two weeks of non-mandatory training. Procuring entities thus have little
opportunity to build permanent or specialized capacity internally. Logistics departments of
the large entities do little beyond assigning their member to the permanent tender committee,
with these staff members expected to perform their usual jobs in addition to their committee
responsibilities. There appears to be a general dissatisfaction with many procurement
practices, especially the ascendance of Tender Chamber (an NGO) as the de facto Authorized
Agency and its role in complaint resolution.
19. As a result the use of country systems is not recommended for Bank financed projects
due to the following fundamental issues:
-
flawed institutional structure in public procurement;
practices that are not in keeping with international standards mandated through the
PPL,
lack of in-country training capacity and therefore capacity of procurement staff
50
-
lack of standard bidding documents for any form of procurement
lack of recognition of consultancy services in the PPL
lack of clear written procedures for tendering, evaluation and contracting
lack of standard contract forms
overuse of restrictions, exemptions and exceptions in the PPL restricting openness of
tendering procedure
unrestricted use of merit points with no pre-defined allocation leads to ineffective, untransparent and costly procurement
20. This is not expected to have an impact on this project due to the large value of the
proposed contracts and the fact that most of equipment covered by the Loan is in any case
imported. Based on assessment of the capacity for procurement administration of the
Project, the following Action Plan to strengthen the procurement administration capacity of
the UAD/PIU is recommended:
-
-
Initiating a Project Launch Workshop before the loan effectiveness, as part of the
project implementation/capacity building initiatives, especially in procurement. This to
be supplemented by further training for management and members of the Tender
Committee of the PIU in Bank procurement procedures.
PIU procurement staff will be given the opportunity to attend intensive procurement
training in Russian language, such as the one offered by ILO in Turin.
The project will be subject to supervision by the Bank and support from the Kyiv
Office. During each of the first two years of project implementation, there will be at
least two supervisions.
21. Overall Procurement Risk Assessment: High.
Procurement Plan
22. Prior Review Threshold: Procurement decisions shall be subject to Prior Review by the
Bank as stated in Appendix 1 to the Guidelines for Procurement for the following:
1.
2.
3.
4.
5.
6.
Table 8.1. Procurement Thresholds for Goods and Works
Procurement Method
Prior Review
Comments
Threshold
ICB and LIB (Goods)
> $200,000
All subject to Prior Review
NCB (Goods)
< $200,000
All subject to prior review
Shopping (Goods)
< $100,000
First Goods contracts subject to prior review
Direct Contracting*
All subject to Prior Review
ICB (Works)
> $2,000,000
All subject to Prior Review
NCB (Works)
< $2,000,000
First two contract subject to prior Review
* all Contracts subject to justification
23. Pre-qualification. Bidders shall be pre-qualified in accordance with the provisions of
paragraphs 2.9 and 2.10 of the Guidelines (No pre-qualification is envisaged)
24. Selection of Consultants: Selection of Consultants shall be subject to Prior Review by the
Bank as stated in Appendix 1 to the Guidelines Selection and Employment of Consultants for
the following:
51
Table 8.2. Procurement Thresholds for Selection of Consultants
Selection Method
1.
2.
3.
4.
5.
6.
Competitive Methods (Firms) QCBS
Competitive Methods (Firms) LCS
Competitive Methods (Firms) CQ
Individual Consultants (IC)
Single Source (Firms and Individuals)*
ToRs for Consulting Contracts
Prior Review
Threshold
> $200,000
Any amount
> $200,000
> $100,000
All
methods/values
Comments
All subject to prior review
First contract subject to prior review
First contract subject to prior review
First 2 contracts subject to prior review
All subject to prior review
All subject to prior review
* all Contracts subject to justification
25. Short list comprising entirely of national consultants: Short list of consultants for
services, estimated to cost less than $100,000 equivalent per contract, may comprise entirely
of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant
Guidelines.
26. Ex-Post Review: All contracts below Bank’s prior review threshold and/or those
indicated in the Procurement Plan are subject to Bank’s selective ex-post review. Periodic
ex-post review by Bank staff will be undertaken during regular supervision missions.
Procurement documents, such as bidding documents, bids, bid evaluation reports and
correspondence related to bids and contracts will be kept readily available for Bank’s ex-post
review during supervision missions or at any other points in time. Bank missions will review
at least 2 out of every 5 contracts which are subject to ex-post review.
27. Record Keeping: The Borrower will maintain complete procurement files which will be
reviewed by Bank supervision missions. All procurement related documentation that requires
Bank prior review will be cleared by Procurement Accredited Staff (PAS) and relevant
technical staff. Procurement information will be recorded by the Borrower and submitted to
Bank as part of the quarterly (FMRs) and annual progress reports.
28. Prior Review: There are expected to be up to six (6) packages above mandatory review
thresholds by RPA. Five (5) of these will also require review by OPCPR as each is expected
to be over US$30 million in value.
52
Table 8.3. Procurement arrangement involving International competitive bidding
Table 8.3 a Details of the Procurement Arrangements involving International Competition (Goods and Works)
1.1
ICB 1
ICB 2
2.1
ICB 3
ICB 4
Components/Description of Activites
Road Rehabilitation under Component 1
Civil works
km 44+500 – km 90+00 (ICB1 – Lot 1)
km 90+00 – km 126+700 (ICB 1 – Lot 2)
km 126+700 – km 191+400 (ICB 2 – Lot 1)
km 164+500 – km 170+500 (ICB 2 – Lot 2)
Road Safety Improvement under Component 2
Lots 1-4. ICB 3
Lots 5-8. ICB 4
Type
Works
Works
Works
Works
Works
Works
Works
Works
No. of
contracts
4
1
1
1
1
8
4
4
Procurement
Method
ICB
ICB
ICB
ICB
ICB
ICB
ICB
ICB
Prequalification
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Source: Ukravtodor17
17
All packages will be subject to prequalification and Prior Review by the Bank with clearance being given at the appropriate level.
53
Review by
Bank
(Prior/Post)
Prior
Prior
Prior
Prior
Prior
Prior
Prior
Prior
8.3 b Details of the Procurement Arrangements involving International Competition (Consulting Services, Training)
Components/Description of Activities
Type
No. of
Selection
contracts
Method
1.1 Construction Supervision and monitoring
RFP 1
km 44+500 - km 126+700 (RFP 1)
RFP 2
km 126+700 - 157+883 (RFP 2)
2.1 Road Safety Improvement under Component 2
RFP 3
Contracts 1-4. (RFP 3)
RFP 4
Contracts 5-8. (RFP 4)
3.1 Capacity Building under Component 3 (tbd)
Consulting Services
Consulting Services
Consulting Services
Consulting Services
Consulting Services
Consulting Services
Consulting Services
2
1
1
2
1
1
1
Review by Bank
(Prior/Post)
QCBS
QCBS
QCBS
QCBS
QCBS
QCBS
QCBS
Prior
Prior
Prior
Prior
Prior
Prior
Prior
8.3 c Details of Procurement Implementation Timetable (Works, Goods, Consulting Services, Training)
ICB1
ICB2
ICB 3
ICB4
RFP 1
RFP 2
RFP 3
RFP 4
CS
Reconstruction km 44+500 - km 90+00 (Lot 1)
Reconstruction km 90+00 - km 126+700 (Lot 2)
Reconstruction km 126+700 - km 191+400 (Lot 1)
Reconstruction km 164+500 – km 170+500(Lot 2)
Road Safety Improvement Lots 1-4. ICB 3
Road Safety Improvement Lots 5-8. ICB 4
Supervision of km 44+500 - km 126+700
Supervision of km 126+700 - 157+883
Road Safety Supervision Contracts 1-4.
Road Safety Supervision Contracts 5-8. (RFP 4)
Capacity Building
Issue of REoI /
Prequalification
Issue of Bids /
RFPs
Submission of Bids
/ Tenders
Contract Signing
Contract
completion
October 2008
October 2008
October2008
March 2009
March 2009
March 2009
October 2008
October 2008
March 2009
March 2009
June 2009 December 2009
March 2009
March 2009
March 2009
June 2009
April 2009
April 2009
March 2009
March 2009
May 2009
May 2009
September 2009 –
March 2010
May 2009
May 2009
May 2009
August 2009
July 2009
July 2009
May 2009
May 2009
June 2009
June 2009
November 2009 –
June 2010
September 2009
September 2009
September 2009
October 2009
September 2009
September 2009
July 2009
July 2009
August 2009
August 2009
January 2010 –
July 2010
October 2011
October 2011
October 2011
February 2011
December 2011
December 2011
November 2011
November 2011
December 2011
December 2011
June 2011
54
Annex 9: Economic and Financial Analysis
UKRAINE: ROADS & SAFETY IMPROVEMENT PROJECT
Road Rehabilitation Component (Boryspil-Lubny)
1. The main purpose of the project road is to link Kyiv, the national capital, with Kharkiv,
Ukraine’s second largest city. This in turn is part of the main east-west route from Lviv and
the EU heartland in the west, linking Ukraine’s heavy industry heartland and southwestern
Russia to the east. Traffic volumes in 2006 averaged about 8,200 vehicles per day; trucks
comprised 35 percent of the total (see Table below). Many of these are tractor-trailer
combinations on long hauls, some of them engaged in Ukrainian import-export traffic and a
few are in transit between southern Russia and Western Europe.
Table 9.1: Average Daily Traffic in 2006
Vehicle Type
Boryspil-Pyriatyn
(113 km)
AADT
Passenger cars
Pyriatyn-Lubny (35 km),
(only 15km in project)
% of total
AADT
% of total
5,130
62%
4,080
59%
250
3%
280
4%
Trucks
2,900
35%
2,560
37%
Total
8,280
100%
6,920
100%
Buses
Growth rate
per yr
5%
2. Nature of investment benefits: As noted, the project objective is to rehabilitate the
existing road within the existing right of way (without changing the alignment), and to
improve its safety. This will reduce those elements of vehicle operating costs (VOC) that are
affected by poor riding surfaces, especially vehicle maintenance and tire wear. Whether fuel
efficiency will be affected depends on the speed response of vehicles: smooth pavements
allow vehicles to maintain more stable speeds (positive) but also higher speeds (negative).
Increased speeds will yield savings in driving time, and in the aggregate, allow vehicles to
increase their annual travel distances, increasing fleet transport potential and lowering the
fixed costs of ownership (depreciation, interest, and insurance) per km traveled. Rutted
pavements are especially problematic during winter, since ice in the ruts increases the risk of
skidding, forcing drivers to lower their speed and to vary their speed more, increasing vehicle
operating costs and accident rates.
3. The average cost per vehicle in the ‘without project (before)’ and ‘with project’ (after)
cases is shown in Table 9.2 below. These were estimated using the VOC relationships
derived from the HDM-III model.
55
Table 9.2: Average Operating Cost per km for various vehicle types
Vehicle Type
Without
project
With project
% reduction
US cents per vehicle-km
Passenger cars
18.9
18.6
1.8%
Buses
46.5
41.9
9.8%
Trucks
69.1
65.0
6.0%
Average
37.3
35.5
4.8%
4. If pavement conditions were left to deteriorate further, patching would be required each
year, estimated to be needed on about one fifth of the pavement each year. This however
would not suffice to halt gradual deterioration of the pavement’s roughness, which would
deteriorate from an IRI of about 4.5 m/km to about 8 m/km by the end of the twenty-year
period of analysis.
5. A second category of benefits will be avoiding crashes, compared to extrapolated current
worsening crash rates without the project. Today on about two-thirds of the road length the
eastbound lanes are separated from the westbound lanes by an adequate grassy median. The
crash rate today is high by European standards: about 50 accidents per 100 million vehiclekilometers of traffic which is 5 to 10 times higher than the average in Western Europe. A
high proportion of crashes (about 1 in 5) cause deaths, half of the victims being pedestrians.
Under the project, the remaining road sections will be rebuilt to include a median strip
throughout. This will avoid head-on crashes between vehicles and afford pedestrians safer
opportunities for crossing. Intersections will remain at grade but some busier intersections
will be remodeled with left-turn bays and other measures to make them safer. These
improvements will yield savings to the economy from avoiding material damage, plus the
cost of associated medical expenditures and lost productivity, which is estimated at
US$50,000 per non-fatal accident. It is projected that the improvements will reduce the crash
rate by about 25 percent. The value assigned to a human life is a matter of debate but this
evaluation used an average of US$1 million per life saved.
6. Project alternatives evaluated: The existing road geometry is good and will not be
changed except for introducing a median where absent today, and remodeling some
intersections. The main alternatives considered were thicker or thinner pavement structures to
deal with effects of traffic and frost. These would have only minor effects on vehicle
operating conditions and safety; with lighter reconstruction now, the pavement would
deteriorate more rapidly in the outer years, but in present value terms the extra VOCs would
be moderate.
7. Consideration has been given to introducing tolls along this road. But Ukrainian law
permits tolls only if an acceptable non-tolled road is available for traffic unable or unwilling
to pay. Except on short sections of the project road, no alternative roads are available and
therefore the toll option is not being pursued.
8. Results and sensitivity analysis: The preferred solution is expected to yield an economic
rate of return (ERR), over its 20-year life, of 22 percent. The NPV at 12 percent discount rate
56
would be about US$1,050 million and the benefits would be about 1.9 times the capital costs
(that is a benefit/cost ratio of 1.9). The savings in vehicle operating costs are expected to
contribute about 50 percent of total benefits, and those from the avoidance of crashes another
40 percent. The saving in road reconstruction costs compared to other engineering solutions
would account for the remaining 10%.
9. The factors subject to the greatest uncertainty – and therefore likely to cause the
greatest variation in ERR – are the reconstruction costs, the rate of traffic growth, the average
unit savings in vehicle operating cost, and the reduction in the crash rate. With reasonable
alternative estimates of a slower growth pattern, smaller unit VOC savings and lesser
reduction in the crash rate, and a 20 % cost over-run, the ERR would still be an acceptable
14%. A break-even ERR of 12% would still be achieved with these lower benefit rates and
lower traffic growth as well as a reconstruction cost over-run of 30%. Given the current
macroeconomic situation in Ukraine, a decrease in traffic growth is inevitably expected. A
scenario with constant traffic (0% increase thru 2015) and constant unit savings per vehicle is
estimated to yield an ERR of 14%. This suggests that the project is expecting satisfactory
economic results even when taking into account potential impacts of the current
macroeconomic crisis.
1
2
3
4
5
6
7
8
Table 9.3: Expected Economic Rate of Return and Sensitivity Analysis
NPV
ERR
Scenario
($ million at 12%
(%)
discount)
Base case
22
1,050
Crash rate reduced less (20% instead of 25%)
20
860
Slower traffic growth (5% thru 2015)
20
830
Reduced unit savings per vehicle by 20%
20
825
Higher construction cost by 20%
18
780
Combination of (2), (3) and (4)
17
460
Combination of (2), (3), (4) and (5)
14
180
Constant traffic (0% increase to 2015) and
14
204
constant unit savings per vehicle (0%)
Road Safety Component
10. The benefits from improvement to black spots will be similar in nature to those resulting
from safety measures on the Boryspil-Lubny road: crashes avoided, valued according to the
typical costs of material damage and the medical costs and lost working time of road users
and pedestrians who would be injured in the absence of the project, as well as the value
placed on lives saved.
11. Some 110 black spots have been identified, but a final selection could not be made before
the Bank completed its appraisal, for lack of a reliable basis by which to predict the reduction
of crash risk to be expected from the various interventions. A ranking of each black spot
proposal based on the capital cost per accident avoided has been done by international
consultants engaged by Ukravtodor. Prioritization of implementation of the black spots will
be consistent with these rankings. Recent experience from a similar program in Poland
suggests that the black spot operations will yield a high benefit/cost ratio.
57
Annex 10: Safeguard Policy Issues
UKRAINE: ROADS & SAFETY IMPROVEMENT PROJECT
OP 4.01 Environmental Assessment (EA)
1. The proposed project is in full compliance with all environmental requirements of the
Government of Ukraine and the Bank. In accordance with the Bank Environmental
Assessment (EA) safeguard policy and procedures (OP/BP/GP 4.01) the project has been
assigned Category B and an Environmental Management Plan (EMP) is required.
2. The State Road Administration of Ukraine (Ukravtodor) with assistance of Ukrdiprodor
(State Road Design Institute) and ‘Ukrainian Institute of Geochemistry and Environment’
prepared: (i) a corridor-specific Environmental Assessment; and (ii) a generalized EMP for
road rehabilitation and maintenance activities. The complete EMP documents and the
corridor specific EA were reviewed and accepted by the Bank, and they are included in the
project file. The EMP contains summaries of the mitigation plan and the monitoring plan for
implementation.
3. For the rehabilitation of the project-supported road sections between Boryspil to Lubny,
Ukravtodor disclosed English-language copies of the World Bank generalized EMP in the
World Bank Infoshop on 19 November, 2007. The Ukrainian language versions of these
EMPs were disclosed on the Ukravtodor website18 and at the project sites on 16 November,
2007. The EMPs and public consultation documentation (which were carried out between 22
and 30 October 2007 in 3 cities along the proposed Boryspil-Lubny road), are included in the
project files. The generalized EMP for road rehabilitation and maintenance activities
identified the main issues for construction and operation. Measures to reduce risks to
pedestrians and vehicles at particularly dangerous road segments (“black spots”) were also
reviewed for relevance to safeguards and to confirm the absence of environmental risks.
4. While the 120 km section proposed to be financed under the project (component 1)
passes nearby some designated protected areas (including forest land), land areas that would
be affected by the works are not natural habitats. Each EIA reviewed all possible impact on
designated protected areas including direct or indirect effects following which we concluded
that the road rehabilitation will not have direct or indirect impacts on these nearby protected
areas. Therefore, corresponding safeguards are not triggered. No physical cultural resources
would be affected. However, 'chance finds' provisions will be included in the standard
bidding contracts.
5. All safeguard related risks were identified during preparation of the corridor specific
Environmental Assessment. The environmental impact of the project will be reduced noise
and air pollution from dust and aerosol emissions from internal-combustion engines. No
direct or indirect negative impacts are anticipated that would result from project activities.
Minor temporary negative impacts will occur during construction. These will be restricted to
road works and related to road crew activities, incuding movement of workers and materials
(asphalt, dust, noise, etc.) and waste disposal. After completion, the project will have positive
indirect impacts on human health and safety through reduced accidents and air pollution that
will result from more even travel speeds on rehabilitated sections. Materials (e.g. asphalt,
18
http://www.ukravtodor.gov.ua/
58
stone) would be supplied only from sources with approved licenses, permits, and/or
approvals for environment and worker safety, and any equipment used during construction
would meet internationally recognized standards for environment and worker health and
safety.
6. The Environmental mitigation measures, which are incorporated into the EMP (Section
B), will include: (a) prevention of landslide and ablation effects (strengthening of surface
water drainage systems to prevent washouts and groundwater seepage, installation of a
drainage system, and other measures to prevent landslip on safe sections with high water
table); (b) reduction of atmospheric emissions (proper control of compliance with work
technique and leveling of horizontal alignment in order to ensure steady traffic); (c) noise
reduction measures (installation of noise screens and prohibition of pile-driving at night); (d)
protection of soil (removal and stockpiling of vegetation soil on specially assigned grounds
with its further use for improvement of fertility); (e) reduction of impact on flora and fauna
(prohibition to cut trees beyond the borders of zone allotted for rehabilitation of the road and
road structures, prohibition to cover with earth the root collars and the trunks of the trees
growing near the rehabilitation site, and provision for migration of animals in the places of
passages, bridges, overhead roads, culverts, etc.); (f) waste management (regular
transportation of building materials in the course of rehabilitation without stockpiling the
large lots at the construction sites, temporary stockpiling of building refuse at the
construction site in specially assigned places, availability of transportable containers for
metal rejects, oiled rags, petrochemicals, etc. at the construction sites, and obligatory removal
of building refuse from the construction site with its further utilization); and (g) prevention of
negative changes in the hydrologic environment (prevention of pollutant ingress into the
aquatic environment due to pollution of ground, installation of minimum number of footings
in water courses during rehabilitation of bridges, etc.). Special measures are also planned,
including treatment facilities at the sections of active water courses and noise screens on the
road near inhabited localities. In the places of animal migration, special bio-passages shall
be installed in a form of artificial structures: droves, bridges, tunnels, and corrugated-metal
pipes.
7. The mitigation plans which outline how to avoid, minimize and mitigate potential
adverse impacts were prepared in accordance with the provisions of the respective
Environmental Legislation and in line with requirements set in World Bank safeguard
policies.
8. Each of the proposed mitigation measures will be monitored during construction and
operation of the road. Mechanisms for monitoring and implementation of the agreed EMP are
provided in Part C of the EMP (Monitoring Plan).
9. Separate arrangements, including staffing and resources for supervision of the
implementation of the agreed EMP is also presented in Part D of the EMP (Description of
Institutional Measures). Data collection and monitoring of environmental conditions will be
done by the Contractor reporting to the Chief Engineer of UkrAvtodor. Analysis, preparation
of reports and dissemination will be done by Ukravtodor Development Department and the
PIU.
59
Social
10. The project comprises three components: (i) road rehabilitation of about 120 kilometer
section (Boryspil-Lubny) of the Kyiv-Kharkiv-Dovzhanskyi road (M-03); (ii) carrying out a
program of safety measures for vehicles and local inhabitants at black spots on public roads
(about 110 black spots will be targeted); and (iii) provision of technical advisory services and
equipment. The rehabilitation and upgrading of the above section of the M-03 road will help
the country increase its competitiveness against alternative transit routes and support the
region’s economic growth. For road users, the project would lead to better riding quality, and
improved road safety. From a social point of view, therefore, this project is an important one
by focusing on improving the condition and safety of a portion of M-03 road which is in dire
need of rehabilitation as well as improving the roads signs. Inadequate safety signs,
especially in about 110 major black spots, are the key contributors to the road accidents
around the black spots around the country.
11. During project preparation, a full Environmental Impact Assessment (EIA) was prepared
by the counterpart, which also covered a number of social issues. The EIA conducted a
survey among those living in cities, towns and villages along the M-03 road in the project
area and adjacent territories. According to the EIA, these communities have a positive view
towards the rehabilitation of the M-03 road, believing that it will improve the safety, and the
quality of the road, causing less accidents and better access. These improvements in turn will
increase demand for services and will improve private business opportunities for people
living in the area. At the same time, they are concerned about inconveniences that could
occur during the construction as well as increased traffic. The construction work, inevitably,
will cause some inconveniences for the residents and the users of the road.
12. However, the project will inform people in advance about the construction, consult the
affected people with the location of the structures for elimination of the black spots, and take
measures to have the least negative impact on the people during construction. For instance,
during the EIA consultation, people living along the section at Km 189+500 were concerned
about the access to the ramp leading to the pasture during construction. They were promised
by the implementing agency that the project would take all the necessary steps to keep the
ramp open during construction. Some other concerns included the crossing of the roads, for
both people and the livestock during construction. People were ensured that proper
pedestrian and animal crossing will be built and at no point, their access to the other side of
the road will be blocked (as recorded in the minutes of the Environmental Management Plan
consultation).
13. As part of regular monitoring of the project, a beneficiary assessment will be conducted
during project implementation to: a) follow up on the above issues; b) assess of road users as
well as those living and working along the M-03 and near the black spots regarding the issues
they face during project implementation; and c) collect needed information to improve the
existing mitigation measures in case there would be some negative impacts which could not
be foreseen during the project design, and d) collect data for updating M&E indicators.
14. Another social issue is that the increased traffic in M-03, where trucks comprise a large
portion of the traffic, could have a negative impact on the spread of HIV/AIDS which is
already high in Ukraine. Even though the project will not directly address this issue, as part
60
of its dialogue with the government it will emphasize on the need for an extensive
information campaign by the government on the traffic and safety issues.
OP 4.12, Involuntary Resettlement
15. The first component of the project - Rehabilitation of about 120 kilometer of the KyivKharkhiv-Dovzhansky road will follow the existing right of way, and consequently there
well be no land acquisition or resettlement. In addition, based on the existing information,
there will be no land needed for detours during construction since the M-03 is a 4 lane road
and the construction will take place within the existing right of way. However, the situation
under component 2 might be different. The second component of the project, which deals
with black spots throughout Ukraine, could require some land, thus triggering OP/BP 4.12,
Involuntary Resettlement.
16. The proposed project will eliminate 110 “black spots” out of some 300 identified by
Ukravtodor, some of which will only need traffic lights and some may require structures such
a pedestrian bridges. Both cases may involve land acquisition. However, the extent to which
land will be needed, its location, the number of people affected and the type of impact are not
known at this point. As a result a Draft Land Acquisition and Resettlement Framework
(LARF) was prepared by Ukravtodor and is acceptable to the Bank. This was disclosed to the
public at the time of project appraisal. The draft LARF also covers component 1 in the
unlikely case of land acquisition under that component. Once the exact locations of black
spots and the amount of land needed under component two are determined, Land Acquisition
and Resettlement Plans (LARPs) will be prepared based on the draft LARF.
61
Annex 11: Governance and Anti-Corruption Action Plan
UKRAINE: ROADS & SAFETY IMPROVEMENT PROJECT
Ukraine Country Context19
1. Extensive analytical work done in Ukraine by the Bank and other development agencies
conclude that weak governance and widespread corruption pose a serious developmental
challenge. According to the 2007 Transparency International Corruption Perceptions Index,
Ukraine ranks 118 out of 179. Compared with other countries in Europe and Central Asia,
risks to the appropriate use of Bank resource transfers are among the highest. A comparison
across dimensions of governance reveals that Ukraine lags in particular in control of
corruption, rule of law, and political stability, according to the CPS. Nevertheless, a Bank
internal review on the degree of vulnerability of the Bank portfolio to the country’s fiduciary
risks has found that these risks can be mitigated to acceptable project levels.
Assessment of Country’s Fiduciary Risks
2. Despite overall institutional weaknesses, Ukraine’s public sector boasts some notable
strengths. In particular, Ukrainian public financial management institutions compare
favorably with those of regional and lower middle-income peers.20 The budget is
comprehensive and credibly executed; it is adequately discussed and reviewed by parliament;
cash management is strong and fiscal risks are on the whole managed well. Weaknesses
relate to the control of implicit fiscal risks in the non-budgetary public sector, including
SOEs, the management of payroll, the auditing of revenues, and crucially, the management
of public procurement. In addition, the government’s capacity for medium-term budget
planning, including prioritization of public investments, and the integration of the budget into
a medium-term macroeconomic framework are underdeveloped. The coordination and
management of donor assistance is poor.
3. Centralized internal financial control is adequately functioning in the present public
administration; however, it does not yet meet EU standards. At present, two central
institutions are involved in internal financial control: the State Treasury of Ukraine (STU)
and the State Control and Revision Office (KRU). The STU carries out ex-ante control and
ongoing controls on cash payments. These controls often do not guarantee sufficient
financial discipline and many breaches of laws and regulations still occur. The system does
not stimulate managerial responsibility and annually the KRU can cover only one-third of
state budget entities.
4. External audit in Ukraine generally meets the requirements of international standards, in
particular with regard to independence and audit remit. For ten years since it was
established, the Accounting Chamber of Ukraine (ACU) has achieved substantial progress in
all aspects of its activity, in spite of the difficult operational environment. However, further
reform will require transforming ACU’s role from control to financial management. This
will require strong political support at senior government levels in a manner that will also
assure its continued independence from the executive.
Sections on ‘Ukraine Country Context’ and ‘Assessment of Country’s Fiduciary Risks’ as described in
Country Partnership Strategy.
20
See Public Financial Management Performance (PEFA) report, 2006.
19
62
5. A particular concern in the government’s fiduciary framework is the procurement system.
As described in detail in the Bank’s recent CPAR (2006), following legal amendments in
2004, 2005, and 2006, the public procurement system is fragmented, beset by conflicts of
interest, and lacking oversight by the central government. New legal amendments have been
drafted to address the concerns raised collectively by the donor community, but these have
not yet been adopted by the parliament.
Project Governance and Anti-Corruption (GAC) Action Plan
6. To mitigate fiduciary risks in Bank operations, the Country Partnership Strategy (CPS)
for Ukraine for FY08-1121 envisions strengthening existing fiduciary standards such as
enforcing Bank procurement rules, competitive bidding and adequate supervision and
attention to capacity building among project counterparts. The Governance Annex (Annex 1)
of the CPS explains how the Bank intends to go beyond standard fiduciary controls in
addressing governance risks. A framework and project action plan, including specific
anticorruption measures to be implemented under the project, is detailed below.
7. In the context of the Ukraine Roads and Safety Improvement Project, specific
anticorruption measures will focus on improving government capacity to effectively use its
own resources and Bank resource transfers, thereby ensuring compliance with Bank fiduciary
requirements. Given Ukravtodor experience in implementing IFI-funded projects, fiduciary
standards are expected to be above average. In-depth assessments of procurement capacity
and financial management capacity (carried out by the team as part of project preparation)
have rated risks high with expected acceptable residual risk, once risk-mitigation measures
have been implemented.
8. In order to draw on Bank good practice in this relatively new area, the approaches used in
road sector projects in Paraguay, Indonesia, and the Philippines have been assessed by the
project team with a view to adapt them to the specificity of Ukraine. As a result, the
following actions were identified as the most appropriate to ensure full compliance with
World Bank fiduciary policy:
(i)
make increased use of Ukravtodor’s existing website to make procurement-related
information available to the public;
(ii)
establish a database to monitor unit prices based on awarded contracts;
(iii) reassess the procurement evaluation process to ensure full confidentiality, especially
the risk of leakage of procurement-related confidential information;
(iv) establish/ a modern and robust complaint-handling system;
(v)
continue to provide training to Ukravtodor staff during project implementation as
deemed necessary; and
(vi) strengthen supervision to ensure full compliance with World Bank fiduciary
requirements through the use of output-/result-based indicators to assess the
reasonableness of expenditures.
21
World Bank, Report No. 40716-UA (Draft Final Report September 2007).
63
9. Ukravtodor’s existing website. Ukravtodor has created a website (in Ukrainian at
http://www.ukravtodor.gov.ua/) which includes a module dedicated to procurement of works
and consulting services. In order to secure transparency, all procurement processes related to
the Bank-financed project will be systematically published on the Ukravtodor public website,
starting with the project PID, PAD, EMP, and RPF. Key documentation related to the project
procurement will be made available to the public, including, but not limited to: (i) call for
expression of interest; (ii) request for proposals; (iii) minutes of bid-opening meetings; (iv)
decision of contract award; and decisions taken post award, e.g., time extension, price
revision, etc. The public will be invited to provide comments to Ukravtodor through the
website, as well as to the Bank using a dedicated internet link.
10. Database to monitor unit prices based on awarded contracts. Under the project, a
database that will include all relevant information pertaining to all past awarded contracts
(either financed through EBRD, the Bank or Ukravtodor) will be established. The key data
will include for each contract the following: (i) work description; (ii) date of publication; (iii)
number of expressions of interest received; (iv) number of bidders; (iv) name of the winner;
and (v) detailed list of key unit costs. The database will be evaluated during each supervision
mission and its data analyzed to identify any anomalies that could result from collusion or
corruption.
11. Procurement evaluation process. World Bank procurement guidelines will be used with
no exception. As a result of the preparation of the project, Ukravtodor staff has been fully
briefed on procurement evaluation processes that need to be performed transparently with
strict respect for process confidentiality. Based on the information provided by the above
database, procurement processes will be reviewed in detail during project supervision and
will be the subject of detailed reporting that will be shared with Ukravtodor and the National
Audit Chamber. The report will include clear recommendations, including potential
investigations, to Ukrainian authorities.
12. Modern complaint handling system. A complaint-handling mechanism, which will
include a project complaint log and filing, will be put in place to allow the monitoring of the
follow up given to each complaint received. All complaints received shall be responded to by
the Ukravtodor PIU within seven days of receipt, with copy to the Bank. Relevant
information will be made public in the website and updated monthly. Strict procedures to
ensure anonymity of informants will be enforced. Tracking of the status of investigations and
measures taken will be reported monthly to the management of Ukravtodor and the Bank.
13. Training to Ukravtodor staff. As the Roads and Safety Improvement project is the first
project financed by the Bank in the transport sector, several working sessions have been held
with Ukravtodor to familiarize its procurement and financial management staff with World
Bank guidelines and procedures. The training initiated during project preparation will be
continued during its implementation with permanent assistance from the Bank procurement
staff based in Kyiv. Clearly the project is benefiting from the implementation of three
consecutive EBRD-financed road projects during the past five years, which familiarized
Ukravtodor staff with International Competitive Bidding procedures.
14. Strengthened supervision. During project supervision, the Bank team will include
Financial Management experts from Washington to review country-level work and identify
any possible risks of fraud or corruption at an early stage, and to alert Bank and Government
64
institutions for further processing if necessary. The size of the procurement packages
foreseen will require additional internal Bank review (RPM review and most probably OPRC
review if a Lot approach is made this is seen as a safeguard that will ensure adequate
additional procurement supervision. Supervision will include sub-project physical site
checks on both a periodic and trouble-shooting basis as an additional control on the
"Supervising Engineer" function, since it is acknowledged that the main risk occurs during
implementation when 'deals' between the contractor and supervising engineer can be made
and hidden shortcuts instituted. Particular attention will be given to shortcomings in quality
of work during implementation that would trigger procurement and FMS detailed review on
an ex-post basis. The role of the Bank staff based in Kyiv will be critical to ensure an
adequate quality control procedure that may be implemented during and between regular
supervision missions.
65
Annex 12: Project Preparation and Supervision
UKRAINE: ROADS & SAFETY IMPROVEMENT PROJECT
PCN review
Initial PID to PIC
Initial ISDS to PIC
Appraisal
Negotiations
Board/RVP approval
Planned date of effectiveness
Planned date of mid-term review
Planned closing date
Planned
Actual
12/14/2006
01/31/2007
01/31/2007
01/04/2008
02/02/2009
04/07/2009
04/15/2009
06/30/2011
12/31/2012
12/14/2006
03/08/2007
08/30/2007
01/21/2008
02/27/2009
Key institutions responsible for preparation of the project:
Ministry of Finance, Ukraine
Ukravtodor
Bank staff and consultants who worked on the project included:
Name
Henry G. Kerali
Michel Audigé
Dmytro Kryshchenko
Cordula Rastogi
Vickram Cuttaree
Sara Gonzalez –Flavell
Hannah M. Koilpillai
Irina Babich
Anna L. Wielogorska
Helen Z. Shahriari
Cesar Queiroz
Graham Smith
Dmytro Glazkov
Juderica Dias
Oksana V. Khmel
Olena Tranina
Title
Lead Transport Specialist, TTL (from September 2008)
Lead Transport Specialist, TTL (to August 2008)
Projects Officer, co-TTL (Kyiv)
Transport Economist, co-TTL (Washington DC)
Infrastructure Economist
Sr. Counsel
Senior Finance Officer
Financial Management Specialist
Sr. Procurement Specialist
Sr. Social Scientist (Social Safeguards)
Consultant
Consultant
Operations Analyst (Environmental Safeguards)
Program Assistant
Program Assistant
Program Assistant
Bank funds expended to date on project preparation:
1. Bank resources:
570,000.00
2. PHRD Grant:
613,202.75
3. Total:
1,183,202.75
Estimated Approval and Supervision costs:
1. Remaining costs to approval:
US$ 5,000.00
2. Estimated annual supervision cost: US$ 80,000.00
66
Unit
ECSSD
ECSSD
ECSSD
ECSSD
ECSSD
LEGEM
LOAFC
ECSPS
ECSPS
ECSSD
ECSSD
ECSSD
ECSSD
ECSSD
ECCUA
ECCUA
Annex 13: Documents in the Project File
UKRAINE: ROADS & SAFETY IMPROVEMENT PROJECT
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
Ecorys review of the transport sector (November 2005)
Identification mission – Aide-memoire (September 2006)
Transport Sector Strategy Note (November 2006)
Documentation from Ukravtodor
Identification Stage Safeguards Meeting Minutes (November 2006)
Project Concept Note Review Meeting Minutes (December 2006)
Preparation mission – Aide-memoire (December 2006)
ISDS prepared/ updated (August 2007)
Pre-Appraisal mission – Aide–memoire (September 2007)
Minutes of QER (October 2007)
EBRD Sector Reform Documents (October 2007)
PID (Appraisal Stage) (November 2007)
ISDS (Appraisal Stage) (November 2007)
Minutes of Decision Package Review Meeting (December 2007)
EMP (November 2007)
Land Aquisition and Resettlement Framework (November 2007)
Safeguards Clearances for EMP and RPF (November 2007)
Audit Requirements for PHRD grant (November 2007)
EMP/ RFP – Processed by Infoshop (November 2007)
Appraisal Mission/Technical Discussions – Aide-memoire (February 2008)
Negotiation Package (February 2009)
Signed Minutes of Negotiations (March 2009)
67
Annex 14: Statement of Loans and Credits
UKRAINE: ROADS & SAFETY IMPROVEMENT PROJECT
Difference between
expected and actual
disbursements
Original Amount in US$ Millions
FY
Purpose
IBRD
Cancel.
Undisb.
P096207
2008
POWER TRANSMISSION PROJECT
200.00
0.00
0.00
0.00
0.00
200.00
9.67
0.00
P095337
2008
URBAN INFRASTRUCTURE
140.00
0.00
0.00
0.00
0.00
139.65
26.39
0.00
P090389
2008
PFMP
50.00
0.00
0.00
0.00
0.00
49.74
3.19
0.00
P095203
2007
EXPORT DEVT 2
154.50
0.00
0.00
0.00
0.00
82.92
41.17
0.00
P075231
2006
SOC ASST SYS MOD
99.40
0.00
0.00
0.00
0.00
85.87
85.87
40.20
P076553
2006
ACC TO FIN SERVS (APL 1)
150.00
0.00
0.00
0.00
0.00
129.38
107.38
33.29
P083702
2005
HYDROPOWER REHAB
106.00
0.00
0.00
0.00
0.00
88.98
38.85
0.00
P077738
2005
QUAL EDUC EQUAL ACCESS (APL #1)
86.59
0.00
0.00
0.00
0.00
77.53
75.27
0.00
P076338
2004
DEVSTAT
32.00
0.00
0.00
0.00
0.00
14.97
14.82
11.54
P069857
2003
TB/AIDS CNTRL
60.00
0.00
0.00
0.00
16.65
1.74
18.39
18.39
P057815
2003
ST TAX SERV MOD PROG (APL #1)
40.00
0.00
0.00
0.00
0.00
24.21
24.21
20.79
P035777
2003
RURAL LAND TITLING & CADASTRE
195.13
0.00
0.00
0.00
93.60
81.20
90.67
14.37
1,313.62
0.00
0.00
0.00
110.25
976.19
535.88
138.58
Total:
IDA
68
SF
GEF
Orig.
Frm. Rev’d
Project ID
Statement of IFC’s
Held and Disbursed Portfolio
In Millions of US Dollars
Committed
Disbursed
IFC
FY Approval
IFC
Company
Loan
Equity
Quasi
Partic.
2004
First Lease
1.14
0.00
0.00
0.00
2005
AES RivneEnergo
14.89
0.00
0.00
0.00
2005
AESKyivoblenergo
29.50
0.00
0.00
2006
Asnova
0.00
0.00
8.00
2005
AvalBank
11.25
0.00
2006
Biocon Group
3.50
2006
CJSC Rise
10.00
2006
CJSC Sofia Kiev
2006
2005
Equity
Quasi
Partic.
1.14
0.00
0.00
0.00
3.89
0.00
0.00
0.00
0.00
8.50
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
70.00
0.00
11.25
0.00
70.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
10.00
0.00
0.00
0.00
14.50
0.00
2.00
13.00
6.80
0.00
2.00
7.60
Delta-Wilmar CIS
17.50
0.00
0.00
0.00
0.00
0.00
0.00
0.00
EVU II
0.00
7.50
0.00
0.00
0.00
0.22
0.00
0.00
2006
Galnaftogas
21.00
0.00
4.00
0.00
9.00
0.00
4.00
0.00
2003
HVB Bank Ukraine
2.04
0.00
0.00
0.00
2.04
0.00
0.00
0.00
2006
Industrial Un...
100.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
2006
Kviza
45.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
MHP S.A.
0.00
20.00
0.00
0.00
0.00
20.00
0.00
0.00
2004
Mironovsky
17.50
0.00
10.00
0.00
17.50
0.00
10.00
0.00
2005
Mironovsky
60.00
0.00
0.00
0.00
60.00
0.00
0.00
0.00
2004
Nova Liniya
0.00
0.00
4.65
0.00
0.00
0.00
4.65
0.00
2006
Nova Liniya
10.00
0.00
0.00
0.00
2.20
0.00
0.00
0.00
2000
ProCredit UKR
1.50
0.00
0.00
0.00
1.50
0.00
0.00
0.00
2004
ProCredit UKR
6.38
0.00
0.00
0.00
6.38
0.00
0.00
0.00
2004
RZB Ukraine
28.57
0.00
0.00
0.00
28.57
0.00
0.00
0.00
2004
Sandora
19.00
0.00
0.00
0.00
19.00
0.00
0.00
0.00
2006
Zeus
9.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
27.50
98.65
13.00
187.77
20.22
90.65
7.60
Total portfolio:
422.27
Loan
Approvals Pending Commitment
FY Approval
Company
2006
IMB
2006
ISD
2005
2006
2005
Loan
Equity
Quasi
Partic.
0.01
0.00
0.00
0.00
0.00
0.00
0.00
0.25
AES RivneEnergo
0.00
0.00
0.00
0.00
Velyka Kyshenya
0.00
0.00
0.00
0.06
AESKyivOblenegro
0.00
0.00
0.00
0.00
0.00
0.00
0.31
Total pending commitment:
0.01
69
Annex 15: Country at a Glance
UKRAINE: ROADS & SAFETY IMPROVEMENT PROJECT
70
71
Annex 16: Maps
UKRAINE: ROADS & SAFETY IMPROVEMENT PROJECT
72
Map 35779 – Cleared March 5, 2009
73