Ministry of Public Works Government of the Islamic Republic of Afghanistan

Asian Development Bank

ADB TA 7259 - AFG RAILWAY DEVELOPMENT STUDY

HAIRATAN TO MAZAR-E-SHARIF RAILWAY PROJECT

PHASE I FINAL REPORT

VOLUME 1 TECHNICAL FEASIBILITY REPORT September, 2009

TABLE OF CONTENTS VOLUME 1: TECHNICAL FEASIBILITY REPORT

I. II.

PAGE

INTRODUCTION......................................................................................................... 1 BACKGROUND .......................................................................................................... 3 A. B. Background to Study ....................................................................................... 3 Analysis of Problems and Opportunities.......................................................... 4 1. Constraints........................................................................................... 4 a. Inadequate Infrastructure and Facilities................................... 4 b. Limited Government capacity .................................................. 5 c. Insecurity.................................................................................. 5 2. Opportunities ....................................................................................... 5 Government Policies, Plan and Strategy......................................................... 6 External Assistance to the Sub-sector............................................................. 7 1. ADB Support to improve Afghanistan Regional Rail Links .................. 8 2. Other Development Partners Activities to the Subsector.................... 8 3. ADB Strategy and Sub Sector Experiences ........................................ 9

C. D.

III.

THE PROPOSED PROJECT.................................................................................... 11 A. B. C. D. E. Description of Project .................................................................................... 11 Objectives...................................................................................................... 11 Components and Outputs ............................................................................. 11 Rationale for the Project ................................................................................ 13 Conduct of the Study ..................................................................................... 14 1. Methodology ...................................................................................... 14 2. Study Team ....................................................................................... 15 Executing Agency and Counterparts ............................................................. 15 Contents of the Report .................................................................................. 15

F. G. IV.

SECTOR PERFORMANCE AND SPECIAL FEATURES ......................................... 16 A. B. C. Sector Performance Indicators and Analysis................................................. 16 Lessons Learned........................................................................................... 17 Special Features ........................................................................................... 18 1. Regional Context ............................................................................... 18 2. Source of Materials............................................................................ 18 3. New Technology ................................................................................ 18 4. Capacity Building ............................................................................... 18 a. Investment in Human Resources........................................... 18 b. Investment in Spare Material ................................................. 19 c. Retention of Intellectual Property........................................... 19 5. Possibility of Private Sector Involvement........................................... 19

V.

DETAILED FEASIBILITY ANALYSIS ....................................................................... 21 A. Technical Feasibility Analysis........................................................................ 21 1. Traffic Demand Forecast ................................................................... 21 2. Technical Analysis ............................................................................. 21 Financial Feasibility Analysis......................................................................... 23 1. Cost Estimates................................................................................... 23

B.

ii

C.

D. E.

F.

2. Project Financial Viability................................................................... 24 3. Financing Plan ................................................................................... 25 Economic Feasibility Analysis ....................................................................... 25 1. Distance Savings Rate at Economic Prices....................................... 25 2. Project Economic viability .................................................................. 26 Institutional Benefits ...................................................................................... 26 Social Safeguard Analysis............................................................................. 27 1. Social and Poverty Impacts ............................................................... 27 a. Impact on Gender .................................................................. 27 b. Impact on Poverty .................................................................. 28 2. Environmental Impact Analysis.......................................................... 28 Direct and Indirect Benefits of the Project ..................................................... 29 1. Envisaged Direct Project Benefits ..................................................... 29 2. Envisaged Indirect Project Benefits ................................................... 30

VI.

IMPLEMENTATION ARRANGEMENTS................................................................... 31 A. B. C. D. E. F. G. H. Project Implementation.................................................................................. 31 Procurement.................................................................................................. 31 Consulting Services....................................................................................... 32 Advance Action ............................................................................................. 32 Reports, Accounts, and Audit ........................................................................ 32 Project Performance Management System................................................... 33 Anticorruption Measures ............................................................................... 33 The Executing Agency .................................................................................. 33 1. Management and Organization ......................................................... 33 2. Maintenance ...................................................................................... 34 3. Financial Performance....................................................................... 34 Assurances.................................................................................................... 35 1. Environment....................................................................................... 35 2. Project monitoring, review, and reporting .......................................... 36 3. Labor, gender, health, and social protection...................................... 36 4. Land acquisition and resettlement ..................................................... 36 5. Security.............................................................................................. 37 6. Project Management.......................................................................... 37

I.

VII.

STAKEHOLDER PARTICIPATION AND CONSULTATION...................................... 38 A. B. Stakeholders Consulted ................................................................................ 38 Participatory Approach .................................................................................. 38

VIII. IX.

KEY FACTORS IMPACTING PROJECT VIABILITY................................................ 40 RECOMMENDATIONS ............................................................................................. 41

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LIST OF FIGURES

Figure 1: Map of the Country and location map of the Project 11 Figure 2: Alignment of Hairatan to Mazar-e-Sharif Railway Project .. 24

LIST OF TABLES
Table 1: Summary of Project Cost ........................................................................................ 2 Table 2: Cost Estimate ......................................................................................................... 24 Table 3: Detailed Cost for Railway Development................................................................. 24 Table 4: Financing Plan ....................................................................................................... 25 Table 5: Distance Savings.................................................................................................... 26 Table 6: List of various stakeholders consulted ................................................................... 38 Table 7: List of persons consulted........................................................................................ 39

LIST OF APPENDICES

Appendix 1 Project Design and Monitoring Framework 1 Appendix 2 Cost Estimates and Implementation Schedule 3 Appendix 3 Project Performance Monitoring System .. 8 Appendix 4 Financial Projection .. 9 Appendix 5 Summary of Initial Environmental Examinations .16

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PAGE VOLUME 2: SUPPLEMENTARY REPORT

SUPPLEMENTARY REPORT 1 GENERAL CONTEXT OF THE TRANSPORT SECTOR .. 1-1 SUPPLEMENTARY REPORT 2 ECONOMIC PROFILE AND ECONOMIC DEVELOPMENT IN AFGHANISTAN .. 2-1 SUPPLEMENTARY REPORT 3 DETAILED TRAFFIC FORECASTS .. 3-1 SUPPLEMENTARY REPORT 4 DESIGN CRITERIA AND SPECIFICATIONS .. 4-1 SUPPLEMENTARY REPORT 5 DETAILED ECONOMIC ANALYSIS .. 5-1 SUPPLEMENTARY REPORT 6 DETAILED FINANCIAL ANALYSIS 6-1 SUPPLEMENTARY REPORT 7 FINANCIAL MANAGEMENT ASSESSMENT .. 7-1

PAGE VOLUME 3: INITIAL ENVIRONMENTAL EXAMINATION

I. INTRODUCTION......................................................................................................... 2 A. ENVIRONMENTAL CLEARANCE REQUIREMENTS .................................................. 2 1. Government Environmental Laws, Regulations and Guidelines ....... 25

B. TYPE OF PROJECT ................................................................................................... 4 C. NEED FOR THE PROJECT ........................................................................................ 26 D. LOCATION, SIZE AND COMPONENTS ......................................................................... 4 II. DESCRIPTION OF THE ENVIRONMENT ............................................................... 6 A. Introduction.......... 6 1. 2. 3. 4. 5. 6. 7. 9. 10. 11. 12. B. C. D. III. A. Location, Topography and Soils .......................................................... 6 Geology and Seismicity ....................................................................... 6 Climate and Air Quality ........................................................................ 6 Water Quality ....................................................................................... 7 Ecological Resources .......................................................................... 7 Economic Development....................................................................... 7 Industries ............................................................................................. 8 Infrastructure facilities.......................................................................... 8 Land use .............................................................................................. 8 Agricultural development, mineral development, and tourism facilities8 Social and Cultural Resources ............................................................ 9

Population and Communities .......................................................................... 9 Health Facilities ............................................................................................... 9 Education Facilities ....................................................................................... 10 Physical Environment .................................................................................... 11 1. 2. Soils and Materials ............................................................................ 11 Noise and Vibration ........................................................................... 12 Proper Construction Practices ........................................................... 13 Health, Safety and Hygiene ............................................................... 13 Hazardous Materials & Waste Management ..................................... 14 Institutional Framework for Environmental Management .................. 15

SCREENING ENVIRONMENTAL IMPACTS AND MITIGATION MEASURES ....... 11

B.

Socioeconomic Environment ......................................................................... 13 1. 2. 3. 4.

C. D. VI. VII. VIII.

Environmental Monitoring Program ............................................................... 15 Environmental and Social Management Training.......................................... 15

PUBLIC CONSULTATION AND INFORMATION DISCLOSURE......................... 18 FINDINGS AND RECOMMENDATIONS...19 CONCLUSIONS..................................................................................................... 19

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PAGE VOLUME 4: SOCIAL AND POVERTY ANALYSIS 1. INTRODUCTION 5

CHAPTER 1 : IMPACTS-AH/AP SENSUS ....................................................................... 6 CHAPTER 2 : LEGAL AND POLICY BACKGROUND...................................................... 8 CHAPTER 3 : CONSULTATION..................................................................................... 10 CHAPTER 4 : IMPLEMENTATION ARRANGEMENTS.................................................. 11 CHAPTER 5 : GRIEVANCE REDRESS PROCESS....................................................... 14 CHAPTER 6 : SLARP IMPLEMENTATION .................................................................... 15 CHAPTER 7 : COSTS..................................................................................................... 16 CHAPTER 8 : SUPERVISION AND MONITORING ....................................................... 16

LIST OF TABLE Table-1: Land Impacts ...................................................................................................... 6 Table-2: Household 1 Composition .................................................................................. 7 Table-3: Household 2 Composition .................................................................................. 7 Table-4: Entitlement Matrix ............................................................................................... 9 Table 5: Grievance Resolution Process ......................................................................... 13 Table -6: Estimates for SLARP implementation ............................................................. 15

LIST OF FIGURE

Figure 1: Organizational Chart for Project Implementation ............................................. 12 Figure-2: SLARP Preparations and Implementation Schedule ....................................... 14

APPENDIX Appendix 1: Summary Poverty Reduction and Social Strategy ...................................... 17 Appendix 2: Summary Resettlement Plan ...................................................................... 20

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CURRENCY EQUIVALENTS
(As of 14 September 2009) Currency Unit Afghani (AF) AF1.00 = $0.02 $1.00 = AF50.00

ABBREVIATIONS
ADB ARA ANDS CAREC EA EIRR EIA EMP EPC FIRR GOA IEE ISAF LARP MOCI MOF MOI MPW NPV O&M PIU ROW UTY WACC Asian Development Bank Afghanistan Railway Authority Afghanistan National Development Strategy Central Asia Regional Economic Cooperation Executing Agency Economic Internal Rate of Return Environmental Impact Assessment Environmental Management Plan Engineering, Procurement, and Construction Financial Internal Rate Of Return Government of Afghanistan Initial Environmental Examination International Security Assistance Force Land Acquisition And Resettlement Plan Ministry Of Commerce And Industry Ministry Of Finance Ministry Of Interior Ministry Of Public Works Net Present Value Operation And Maintenance Project Implementation Unit Right of Way Uzbekistan Temir Yullari Weighted Average Cost Of Capital

NOTES
(i) The Afghan fiscal year (FY) coincides with the Afghan solar year (SY). The current FY, SY1388, runs from 21 March 2009 until 20 March 2010. FY before a calendar year denotes the year in which the fiscal year starts, e.g., FY2009 starts on 21

March 2009. (ii) In this report, "$" refers to US dollars unless otherwise stated.

EXECUTIVE SUMMARY
In order to meet the demand for the fast growing intra-regional trade and improve connectivity, Afghanistan is in need to develop its transport infrastructure. The present road system of the country in terms of its capacity and network is inadequate and the Railway infrastructure almost non existent. So the movement of passengers and goods within the country and across the borders remains seriously constrained. In addition to that the Government of Islamic Republic of Afghanistan (GOA) has agreed with the strategy adopted by the Central Asia Regional Economic Cooperation (CAREC) program, which is aimed to develop six corridors across the region and all through Afghanistan. Once these Rail corridors are commissioned, the country can efficiently handle the growing transportation demand. As a part of this Rail corridor, the proposed 70 Km long route (best option) of Hairatan to Mazar-e-Sharif Railway Project (the Project) is the first step taken by the GOA and ADB (ADB TA # 7259-AFG) towards development of the countrys Railway infrastructure. It is envisaged that with the completion of the phase - I and phase - II Railway construction program, the economic growth (which is currently 10%) will pick up at faster rate. Trade with the CAREC region especially with Uzbekistan will tremendously increase. In regard to Track Standard of the Project the GOA is looking for a system which can handle Double Stacked Container Trains and Heavier Axle Loads, compatible with the intra-regional Railway system. But differential Railway track-gauges of the region is again a bottleneck for smooth movement of traffic across the borders. The feasibility study phase I reveals that although the difficult terrain condition and presence of some important oil installations have put some physical constraints (limiting factors leading to sharp curvature), the Project is technically feasible. The feasibility study Phase I also indicates that with the estimated Project cost of about US$170 million and economic internal rate of return (EIRR) of 15%, the Project is financially viable. Sensitivity tests demonstrate the Project to be robust across a broad range of key parameter variations. During the study period, the GDP grew on average by 11% per year. A full Environmental Impact assessment (EIA) has not been done, but the Initial Environment Examination (IEE) indicate that the negative impact is minimum (soil erosion and noise pollution), which can be mitigated during construction. Given the fact that minimum public land acquisition will be involved for the Project, the Social Impact Assessment (SIA) indicates that the adverse impact on human life is also insignificant. A comprehensive compensation package (as defined in ADB Guidelines on Involuntary Resettlement) will be offered to the affected families as their entitlement for the losses. It is worthwhile to mention that the outcome of the consultation process is encouraging since the survey team did not experience any resistance against the Project. The study team observed that Railway Projects (compare to Road) all over the world are typically environmentally friendly and the Project is no exception in that regard. Although the project seems to have two potential risks i) start-up and implementation delays, and ii) security hazards, the project is feasible in terms of technical, economical and financial viability. The GOA has planned strong measures to mitigate these risks including the operational risks. The GOA has entered into a two-fold contract with UTY (design construction and O&M) and the Project is scheduled to be completed by June 2011. The Executing Agency (EA) for the Project is the MPW of the GOA, while ADB will act as Project Coordination Agency through the PIU. It is worth mentioning here that subject to the approval of the GOA, the cost estimate may be revised to accommodate (i) proper grade separation arrangement at Naibabad road crossing and (ii) transshipment facilities at Naibabad.

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Figure 1: Map of the Country and Location Map of the Project

I.

INTRODUCTION

1. The geographical uniqueness of Afghanistan is that it is bordering six countries and also has river ports. Very few countries of the world have this kind of strategic opportunities. From this point of view, Afghanistan has tremendous potentiality to develop its economy. But economic development cannot be achieved without a sound transport infrastructure, in which regard Afghanistan has to go a long way. The country will have to develop new Road and Rail infrastructures and also strengthen the existing one. The ADB TA # 7259 AFG (the TA) is a step forward towards such initiative of the GOA. 2. On the other hand the bordering countries have business interest not only with Afghanistan but also among themselves. If the bordering countries want to establish ground connectivity among them, they have no way but to operate through Afghanistan. So development of transport infrastructure in Afghanistan is not only important for its own economy, but also for the neighboring countries as well. The Central Asia Regional Economic Cooperation (CAREC) has been formed by countries including Afghanistan, Azerbaijan, Peoples Republic of China, Kazakhstan, Kyrgyz Republic, Mongolia, Tajikistan, and Uzbekistan to develop ground connectivity through 6 corridors for the entire region. The Project is a part of Transport Strategy and Action Plan agreed under the CAREC program. This transcontinental corridor is expected to transport 20-30 million tons of cargo each year. 3. Afghanistan has potentiality to develop its tourism sector. But the internal situation does not favor in this regard. But once the Project along with other Railway Projects will be operational, firstly internal and eventually external tourism will develop in the country. Tourism will not only boost the economy of the country, but will also help normalization of other internal situation. 4. Trade is increasing between Afghanistan and its neighboring countries. Annual growth rates exceed 10%. Total trade valued at US$ 3.5 billion per year of which US$ 0.50 billion is export and US$ 3.0 billion is the import. The volume of trade 2 million tons and it is increasing steadily. 5. The GOA plans to formulate a comprehensive Railway Development Program not only to improve connectivity of its own important cities and commercial places but also with the neighboring countries. Initially the GOA has identified 2000 Km route (i) route 1A in the north from Hairatan to Hirat via Mazar-e-Sharif (of which the Project is a part) and (ii) route 1B from Mazar-e-Sharif to Kabul and on to Torkham, and (iii) 1C in the south from Spin Boldak/Chaman (Pakistan border) to Kandahar. Construction of the Project will further enhance the trade with Uzbekistan and will benefit both the countries, mainly for the reason that through this port of Hairatan, 50% of the commercial goods are transported. 6. The Project will be executed through two-fold EPC turn-key contract with UTY, (i) design and construction of the Project, and (ii) Operation and maintenance of the Project. Along with the GOA, ADB will provide required TA to oversee the execution of the Project. Once the EPC turn-key contract is constructed, tested and commissioned, the Rail service will be operated and maintained by UTY. 7. As part of the TA, a review of the (i) national economy, (ii) hinterland economy, (iii) assessment of transport sector in Afghanistan, (iv) information on new cold storage projects and (v) industrial developments was carried out in course of the forecasting exercise. In regard to growth in goods traffic, growth trends for both population and per capita income were calculated. The economic internal rate of return (EIRR) of the Project is 15%. 8. The TA study team conducted reconnaissance survey, identified probable alignments and finalized the preferred option after discussing with the client. Later on,

detailed topographical survey of the alignment was carried out and preliminary designs and drawings including longitudinal profiles and plan view of the entire alignment were prepared. A transshipment yard is proposed at Naibabad, near Mazar-e-Sharif. Existing railway infrastructures at Hairatan railway yard are of Broad Gauge Standard (Uzbekistan Standard). Therefore, the transshipment yard has also been designed according to Broad Gauge (Uzbekistan Standard). 9. In regard to Track Standard of the Project, the GOA is looking for a system which can handle Double Stacked Container Trains and heavier Axle Loads, compatible with the intra-regional Railway system. But differential Railway track-gauges of the region along with some other technical problems are considered as bottleneck for smooth movement of traffic across the borders. The Project will adopt 1520 mm track gauge similar to Uzbekistan Railway standard. The feasibility study phase I reveals that although the difficult terrain condition has put some physical constraints (limiting factors leading to sharp curvature), the Project is technically feasible. 10. The Total cost of the Project including provision for physical and price contingencies is US $ 170.0 million. An amount of US$134.50 million is set for Railway development which includes costs relating to civil and railway works, resettlement, environmental protection and construction supervision. GOA has requested a grant of $165.0 million from ADBs Special Fund resources to help finance the construction, consultant services, project management and security, and contingencies of the Project. GOA will provide $4.5 million to cover the costs of land acquisition and resettlement and taxes. Following table summarizes the cost of the Project: Table 1: Summary of Project Cost Item A. Amounts (in million US$) Base Cost I. Railway Development II. Institutional Development III. Taxes and Duties Project Management Contingencies Total (A + B + C) 134.50 0.70 4.50 0.50 29.80 170.00

B. C.

11. A detailed financial analysis has been conducted in accordance with ADBs Guidelines, the result of which shows that the Financial Internal Rate of Return (FIRR) is 3.18%, greater than the WACC of 1.37%. Therefore, the project is viable if fixed fee and/or revenue sharing scheme with a prospective rail operator is within the estimated range. 12. Environmental and Social Impact Assessment indicates that the adverse impact of the Project on environment and human life is insignificant. But as defined in ADB Guidelines the environmental and social issues has been made conditional with ADB loan, needless to mention that the process of stakeholder consultation was systematically done within the Project impact area. The outcome of the consultation process is encouraging for the fact that the survey team did not experience any resistance against the project. The study team observed that Railway Projects (compare to Road) all over the world are typically environmentally friendly and the Project is no exception in that regard. 13. The Executing Agency (EA) for the Project is the MPW of the GOA, while ADB will act as Project Coordination Agency through the PIU. HB Consultants Ltd., Bangladesh in association with ABCD Consultants and Hi-Tech Consultant Ltd. of Afghanistan has been assigned with the Consulting Services relating to the Railway Development Study. The study which has two phases (Phase I and Phase II) started in July 2009, the technical feasibility study for Phase I completed in September 2009.

II.
A. Background to Study

BACKGROUND

14. Afghanistan is on the cross-roads of Asia and yet is almost without railways. Afghanistan has few kilometers1 of railway lines near its borders alongside with Turkmenistan and Uzbekistan. Also 61.2 Km Railway is under construction near Iranian border at Herat province. At present the rail gauge in the country is undetermined, and presents several difficulties which are hindering the progress of transportation in the country. The nations, which will interconnect with Afghanistan not only have different track gauges, but also have different axle loading gauges, different clearing gauges, different couplers, and different traffic control technologies. 15. Location wise Afghanistan is situated in a highly strategic position. It is estimated that the transcontinental corridor through Afghanistan has the potential to transport 20 to 30 million tons of cargo each year. The Central Asia Regional Economic Cooperation (CAREC) transport corridors 3 and 6, identified in the CAREC Transport and Trade Facilitation Strategy, pass through the northern part of the country. The strategy highlights the great potential of Afghanistan to serve as a transit route for traffic and trade among Central Asia, South Asia, and the Middle East. Although Afghanistan's road network is being improved with external assistance, at present it is unable to meet the growing transport demands. 16. Afghanistans current transport network has roads, rails, airports, and inland waterways. The official road network is 38,500 kilometers, which include 330 km of regional roads, 4,700 km of national roads, 9,700 km of provincial roads, 17,000 km of rural roads, and 3,800 km of urban roads. The total length of railways is only 25 km, being a 10 km cross-border extension from Turkmenistan to a transshipment yard in Torghandi and a 15 km extension from Uzbekistan to a transshipment yard in Hairatan. Hairatan is a gateway for commercial goods entering and transiting Afghanistan. Hairatan accounts for about 50% of all imports. Hairatan is both a dry and river port. Import and transit items include oil and fuel, wheat and flour, fertilizer, agricultural and other equipment, construction materials and consumer products. Hairatan is also the main entry point for humanitarian relief goods. No other rail project is being sponsored by any multilateral agency in Afghanistan. 17. The Government of Afghanistan plans to formulate a comprehensive railway development program to link its potentially important cities and commercial centers within Afghanistan to neighboring countries. Three major routes have been identified with a total length of about 2,000 km: (i) Route 1A in the north, from Hairatan at the border with Uzbekistan to Herat in the west via Mazar-e-Sharif, and from Sherkhan Bandar at the border with Tajikistan to Kunduz and Naibabad joining Mazar-e-Sharif; (ii) Route 1B from Mazar-eSharif to Kabul and on to Torkham at the border alongside with Pakistan; and (iii) Route 1C in the south, from Spin Boldak/Chaman (Pakistan border) to Kandahar (to Chaman at the border alongside with Pakistan). 18. The study of ADB TA # 7259 AFG, which consists of the Route 1A is closely linked to ADB's Country Partnership Strategy: Afghanistan, 20092013, identifies the rehabilitation and construction of national roads and railways, including links to neighboring countries, as a priority for ADB assistance. 19. HB Consultants Ltd., Bangladesh in association with ABCD Consultants and Hi-Tech Consultant Ltd. of Afghanistan has been assigned for the Implementation Consulting
1

There is less than 25 Km. of railway track inside Afghanistan, all of which is built to 1,524 mm (5 ft) broad

gauge.

Services relating to the Railway Development Study. The services include Phase I Feasibility Study of Hairatan to Mazar-e-Sharif Railway line and Phase II Pre-feasibility study of Sherkhan Bandar to Herat through Mazar-e-Sharif. The TA team has completed its phase- I feasibility study of the selected routes in August 2009 and ADB has planned to provide financial assistance for the implementation of phase-I railway link. MPW is the EA for this study and will be the same for the construction of Hairatan-Mazar-e-Sharif Railway Project. The GOA is implementing the project with the assistance of the ADB. The main objective of the project is to help the economic growth of the country by improving the railway sector through improvement of the infrastructure, procurement of rolling stock, implementation of policy reforms and commercial orientation. 20. The construction of the Hairatan to Mazar-e-Sharif Railway Project is the first initiative taken by ADB as part of the railway development in Afghanistan and is expected to be completed by June 2011. This will increase trade between Afghanistan and Uzbekistan. It will also reduce transport costs, increase vehicle operation savings, and create job opportunities in the Project area. The Project will be constructed as a modern, efficient and sustainable railway connection between northern Afghanistan and southern Uzbekistan. 21. The Project will be executed through EPC contract. This will have arrangements for fixed price and fixed time delivery date, with appropriate clauses for penalties and premiums. An independent consultant will oversee the EPC contract, tests and commission the quality standards. Once the line is constructed, tested, and accepted, the Government will sign an operation and maintenance (O&M) contract with UTY. This contract will also be on performance based, and be subject to independent supervision and validation. ADB will provide the required technical assistance to oversee the execution of the Project, and subsequent to that, its management. Headquarters and ADB Afghanistan Resident Mission staff will assist with the project implementation. 22. It is proposed that Uzbekistan Temir Yullari (Uzbekistan's Railway Company or UTY) be awarded two contracts: (i) an EPC contract for design and construction, and (ii) an O&M contract. The Project will expand the transport network in Afghanistan and the region and generate immediate benefits to freight operators, traders, businesses, and local communities. The Project will raise the profile of Afghanistan as a transit route; make it easier to deliver humanitarian relief and complement other modes of transport, including two CAREC transport corridors and the airport at Mazar-e-Sharif, which will be expanded soon. The Project is financially sound and its Economic Internal Rate of Return (EIRR) is estimated at 15%. Sensitivity tests demonstrate the Project to be robust across a broad range of key parameter variations. B. Analysis of Problems and Opportunities

23. The transport sector performance in Afghanistan is affected by three main problems: inadequate infrastructure and facilities, limited government capacity, and insecurity. 1. Constraints a. Inadequate Infrastructure and Facilities

24. Before 2001, investment in road reconstruction and maintenance was negligible. Since than it has improved, although only 7% of the total road length is paved. About 70% of inter-provincial and inter-district roads are in a poor state of repair. In the medium term the estimate is about $1.7 billion for 3,000 km of national roads and $1 billion for 17,000 km of provincial and rural roads. The railway network is negligible. Capacity at the Hairatan marshalling yard is adequate but all cargo has to be unloaded and reloaded into trucks.

25. The road network is incomplete. Various parts of the country are poorly connected or not connected at all. Four provincial capitals remain unconnected to the regional network isolating them from domestic and regional markets. The coverage gap affects connectivity, which cuts trade and investment opportunities, increases the cost of doing business and reduces the countrys competitiveness and job creation capability. This increases costs, and generates losses. 26. Regional connectivity is underdeveloped primarily due to cross-border bottlenecks. Key constraints to the expansion of cross-border trade among Central and South Asian countries include inadequate customs facilities and a heavy reliance on cargo transshipment at borders, aggravated by the need for transit permits, and lack of vehicle standard and axle load controls, as well as visa regulations, unofficial charges, and the protection given to local trucking. Transit agreements are either nonexistent or poorly enforced. Link roads and facilities at border crossings are inadequate. The few existing cross-border railway links have not been developed. b. Limited Government capacity

27. The transport sector requires clear investment plans, stable and predictable financing flows. These investment plans need to distinguish better between capital and recurrent expenditures, especially for operation and maintenance (O&M). Seed capital is provided by donors. However, not all donors include infrastructure in their business strategies. The result is that financing will likely remain a binding constraint for the foreseeable future. c. Insecurity

28. Insecurity is a constant threat for the reconstruction effort and makes it difficult for the Government to extend basic public services, increases project costs, limits bidding interest from construction companies, makes recruiting international contractors and consultants (including expatriate Afghans) difficult, and erodes popular support for government staff and international personnel. 29. The international connections in southern and eastern Afghanistan are currently not sufficiently safe or reliable. Security hinders the transportation of goods and humanitarian aid. There is a need to expand all modes of transport and to open up more reliable and efficient routes for trade in and out from Afghanistan. A new rail line in the north will support economic development and poverty reduction in the country and the region. 2. Opportunities

30. The Project will expand the transport network in Afghanistan and the region and generate immediate benefits to freight operators, traders, businesses, and local communities. 31. Afghanistan has significant mineral, industrial, and agricultural potential, which require a reliable and cost-effective transport system. From neighboring countries like Uzbekistan, Tajikistan, Turkmenistan, Pakistan, etc. all imports and transit goods are brought to the borders by rail, and then transshipped onto the trucks for movement within Afghanistan or across the borders. Compared with roads, railways offer a cheaper and quicker mode of transport for bulk commodities such as fuel and minerals. Moreover, the extraction of natural resources from major mines in Afghanistan requires a sustainable and safe mode of transport.

32. The road network, which carries the majority of the country's freight and passenger traffic, is being improved, but the transport system remains inadequate, inefficient, and unsafe. Only half of the roads that connect 24 provinces of the country are serviceable throughout the year, greatly restricting job creation and economic growth. A railway network would complement Afghanistan's roads and form part of an integrated multimodal transport system to enable seamless connectivity from origin to destination for goods, and link this landlocked country to nearby seaports and trade centers. 33. The Project has some gender content. It can create job opportunities but also reduce health risks associated with current road truck operations (HIV/AIDS vectors). 34. The rail line will replace some road-based cargo. The Project will cut transport costs in the region and Afghanistan, and generate time savings by unlocking current logistics and transport bottlenecks at the Hairatan marshalling yard. This will increase truck productivity and transport capacity. By removing heavy trucks from the small road network, it would permit the continued development of intercity and commuter bus transportation. 35. The Project will raise the profile of Afghanistan as a transit route; will make it easier to deliver humanitarian relief and complement other modes of transport, including two CAREC transport corridors and the soon to be expanded airport at Mazar-e-Sharif. C. Government Policies, Plan and Strategy

36. The Afghanistan National Development Strategy (ANDS)2 adopted by the Government in April 2008, is the countrys main strategic platform for development over 20082020. The Governments overall vision, as articulated in the ANDS, is to consolidate peace and stability through just and democratic processes and institutions, and to reduce poverty and achieve prosperity through broad based and equitable economic growth. 37. The ANDS features three mutually supporting pillars: (i) security; (ii) governance, rule of law, and human rights; and (iii) economic and social development. The ANDS indicates that progress across all fronts is needed to reduce poverty and promote prosperity. The economic and social development pillar includes the following sectors: agriculture and rural development; education, culture, youth, and media; energy, water, and irrigation; health and nutrition; mining; private sector development; refugees, returnees, and internally displaced persons; social protection; transport; information and communications technology; and urban development. The ANDS also identifies anticorruption activities, capacity development, counter-narcotics, environment, gender equity, and regional cooperation as important crosscutting concerns. Rural development, and particularly the links between jobs, production, and markets, is also seen as crucial to reducing widespread poverty. It aims to promote growth, generate wealth, and cut poverty and vulnerability. The strategy includes transport and logistics. In this regard, it sets out quantitative and qualitative targets, both physical and nonphysical, and covers various systems, including roads and railways. 38. The main objective under the transport strategy is to develop corridors between Central Asia and South Asia. Two regional road corridors, North-South and East-West have been identified and are at various stages of development. The North-South Corridor runs from Central Asia through Afghanistan to the Pakistani ports of Karachi/Port Qasim and Gwadar. The East-West Corridor runs from Central Asia through Afghanistan to the Iranian ports of Bandar-e-Abbas and Chabahar. Key development actions are:
2

Investments in transport and trade infrastructure;

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

 D.

Strengthening trade-related institutions and improving the efficiency at ports and customs; Harmonizing transport, trade, and tariff policies, standards, and regulatory frameworks; and Fostering private sector involvement. External Assistance to the Sub-sector

39. ADB has financed the improvement of nearly 1,100 km of regional and national roads since 2004, mostly in the northern and northwestern parts of the country. ADBs investment amounts to over $600 million. The United States Agency for International Development and the World Bank are other large players in the road sector. The European Union is financing an experimental performance-based maintenance contract for a KabulJalalabad road. The Japan Bank for International Cooperation is helping MPW improve the management and use of road-maintenance equipment, a major action to improve institutional effectiveness and project implementation. 40. ADB has numerous initiatives for the development of Transport sector in Afghanistan and in this region. The road infrastructure component of the ADB-financed Emergency Infrastructure Rehabilitation and Reconstruction Project (EIRRP) undertook urgently needed repair and rehabilitation of the Pol-e KhomriMazar-e-SharifSheberghan section of the national ring road, including international links to Turkmenistan (SheberghanAndkhoy Aquina road) and Uzbekistan (Mazar-e-SharifNaibabadHairatan road) at an estimated total cost of $65 million. The Government of Japan also provided $20 million in JFPR funding to finance rehabilitation of the NaibabadHairatan (55 km) and Naibabad Balkh (57 km) sections of the northern road. 41. Rehabilitation of the Japan Fund for Poverty Reduction financed KandaharSpin Boldak road ($25.0 million) is largely complete as of end-July 2005. ADB also provided TA for a feasibility and design study for the HeratAndkhoy road ($1 million); leading to the $80 million Andkhoy-Qaisar Road Project (approved in December 2004) will rehabilitate 210 km of the Herat-Andkhoy road. A proposed $55 million grant-funded project in 2005 (the QaisarBala Murghab Road Project) will rehabilitate a further 90 km of the Herat-Andkhoy road. 42. In 2004, ADB provided TA for the preparation of a road master plan that will develop a road development program for the next 5-10 years, with focus on identifying major east west and northsouth corridors to cross-link with the national ring road network. The TA also will assess financing requirements for sustainable road maintenance and will propose desirable and sustainable financing mechanisms. The TA is expected to result in a $140 million NorthSouth Corridor Project planned for 2006, with a further road sector project planned for 2008. In 2005, ADB also will provide additional capacity building TA to the Ministry of Public Works. 43. ADB provided $1 million in TA to undertake feasibility and design studies for the rehabilitation of Afghanistans regional airports. The TA led to a US$30 million Regional Airports Rehabilitation Project to help repair seven regional airports: Bamyan, Chaghcharan, Faizabad, Farah, Maimana, Qalai-Naw, and Zaranj. The project will reconstruct runways and taxiways, build new passenger terminals or renovate existing ones, reconstruct road access and car parks, connect water supply and sewerage, provide airport maintenance equipment, and install security and boundary fences and gates. The project also will help to strengthen sector management and airport operations and maintenance. A $40 million Regional Airports Rehabilitation Project Phase II is planned for 2006 or 2007. ADB also is planning additional TA in 2005 and 2006 to support capacity strengthening of Afghanistans civil aviation sector.

1.

ADB Support to Improve Afghanistan Regional Rail Links

44. Afghanistans push to develop reliable, safer, sustainable transport systems that boost growth, and increase connectivity with neighboring countries are getting support from Asian Development Bank (ADB) grant. A part of this grant will be used to construct a 71 kilometer single line railway between Hairatan - a northern town at the border with Uzbekistan that is the gateway for almost half of Afghanistans imports and much of its humanitarian relief goods - and Mazar-e-Sharif, the second largest city in the country. The project will also upgrade Hairatan station yard, build a transshipment terminal and provide institutional support to develop a railway sector plan. 45. Afghanistan has the potential to play a key role as a transit route in Central Asia for goods going to ports in Pakistan and the Caspian, and onwards to South and East Asia, the Middle East and Europe. However, trade volumes are heavily constrained by weak transport systems. In the case of Hairatan, freight railed from inside Uzbekistan stops at the border and then has to be offloaded and reloaded into trucks, causing delays and raising costs. 46. This rail line will boost the freight volumes, lower the costs, raise the profile of Afghanistan as a transit route, and complement two major transport corridors being developed under the Central Asia Regional Cooperation Program (CAREC). The project is the first phase of a larger rail network planned for the country, including links to Herat, Tajikistan and Pakistan and is part of CARECs broad push to improve connectivity throughout the region, supporting growth and cutting poverty. 47. To overcome past problems linked to transport projects, such as cost overruns and delays, the Government will be entering into direct contracts with Uzbekistan Railways Company, both for the engineering, procurement and construction of the new facilities, and for their operation and maintenance. The decision to relax normal procurement procedures is justified by the fact that the new railway will be a de-facto extension of the companys current line from Termez in Uzbekistan to Hairatan; it does not require investments in new rolling stock; there are no comparable companies in the region capable of designing, building, operating and maintaining a line based on the Uzbekistan system; and the company has proprietary preliminary designs, which accelerates project readiness, saving considerable time and costs. 48. ADBs grant covers 97% of the total project cost of $170 million, with the Government contributing $5 million. The Ministry of Public Works will be the executing agency, with June 2011 the estimated completion date. 2. Other Development Partners Activities to the Subsector

49. Afghanistans national primary roads are being rehabilitated with financial and technical assistance from bilateral and multilateral funding agencies. Priority has been given to rehabilitating strategic road connections, including the ring road and border access roads to neighboring countries. 50. The World Bank has funded the repair of the 175 kilometer (km) KabulDoshi road ($60 million) as well as rehabilitation of the 2.7 km Salang tunnel ($5 million). The World Bank also funded the rehabilitation of the road from Pol-e Khomri to Sher Khan Bandar (land) port. The road to the north and northeast through Doshi is one of Afghanistans six international links to its neighboring countries. The World Bank has also provided $18.8 million plus an IDA credit of $20.4 million for rehabilitation of secondary and tertiary roads (2,000 km) and bridges (2,300 m)

51. The European Union awarded a 26 million contract to a Chinese engineering company, China Railway Shisiju Group Corporation, for a 75 km stretch (Sarobi-Jalalabad) of the vital 222 km Kabul JalalabadTorkham road. The European Union also will fund a follow-on project for a total of some 65 million. USAID has funded rehabilitation of the following sections of the national ring road: KabulKandahar Road section (km 43-432) totaling $182 million; KandaharHerat highway (km 356-456) for $71.6 million; and four bridges on KandaharHerat road for $5.4 million. 52. The Government of Japan provided $29.3 million for reconstruction of Kabul Kandahar road section G and will finance for reconstruction of the KandaharHerat road (km 0-116). The Government of Japan also provided $18.6 million for reconstruction of Kabuls road transport. The Government of Saudi Arabia has provided $30 million for the reconstruction of the ring road segment KandaharHerat (Gereshk- Delaram or km 116231). The Government of India will fund the rehabilitation of Zaranj Delaram road. The Government of Iran has already funded the following national roads: HeratIslam Qala ($45 million); MilakZaranj road (5 km) and a bridge; and HeratKoruk ($20 million-$30 million). The Government of Italy has committed funds for construction of a new Maidan Shar Bamian road (36 million). The Government of Pakistan is assisting in rehabilitation of the transit road (approximately 60 km) from Torkham to Jalalabad. 53. The North Atlantic Treaty Organization (NATO), as part of its International Security Assistance Force (ISAF) responsibilities, is coordinating assistance to Afghanistans aviation sector. The World Bank is funding the rehabilitation of Kabul International Airport ($24 million). The Government of Japan will provide $31 million for the construction of a new terminal building at Kabul International Airport, and will also provide $2.85 million in equipment for the airport. The Governments of the United States and India are providing TA for organization development, program management, aviation law, and regulatory oversight, etc. 3. ADB Strategy and Sub Sector Experiences

54. The Afghanistan Country Partnership Strategy (CPS) 20092013 is fully aligned with ANDS priorities and planned outcomes. ADBs ongoing and future investments will continue to support Afghanistans further economic growth, thus contributing to the countrys economic and social development and poverty reduction. At the Governments request, and in line with ADBs Strategy 2020, ADBs assistance to Afghanistan will continue to focus on a limited number of priority sectors and subsectors. The CPS results framework reflects higher level Afghanistan Compact and ANDS benchmarks, with ADB assistance contributing to the following development outcomes: 55. The ADB's Strategy for railway and road transport is to contribute to the development of regional transport corridors in coordination with regional initiatives by other international aid agencies. Regional transport improvements will meet infrastructure needs that support wider economic co-operation. An important aspect of the sectoral focus is the strengthening of institutional capacity and proactive support of sector reforms. Restructuring of existing institutions will be supported so that the Government's role is limited to transport policy formulation, programming and planning of projects, monitoring of performance, regulating and licensing, and developing mechanisms to introduce private sector participation in transport operations. 56. The ADB supported Regional Cooperation program The CAREC Transport Sector Road Map (20052010) aims to develop an integrated and efficient transport system in CAREC countries in support of sustainable economic growth and poverty reduction. The Road Map sets six strategic priorities: (i) Harmonization and simplification of cross-border transport procedures and documentation among CAREC countries to facilitate the

movement of passengers and freight across borders. (ii) Harmonization of transport regulations among CAREC countries to create a level playing field for transport operators and promote efficiency and better services. (iii) Development and improvement of regional and international transport corridors to link production centers and markets within CAREC countries and to enhance CAREC countries access to neighboring regions and markets. (iv) Restructuring and modernization of railways to provide quality and efficient services through private sector participation and improved corporate governance. (v) Improvement of sector funding and management to ensure that the regional transport network is developed, operated, and maintained properly. (vi) Incremental approach to liberalization of civil aviation, focusing on the adoption of bilateral agreements using common legislative clauses, with a view to expanding sub-regional agreements among neighboring countries, and potentially more widely in the long term. Enhancement of external inputs from all stakeholders, especially business and tourism, in aviation policy making. The Project will strongly support regional railway corridor development.

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III.
A. Description of Project

THE PROPOSED PROJECT

57. The feasibility study team identified and selected the final alignment between Hairatan at the border with Uzbekistan and Mazar-e-Sharif city from the three alternatives. The total length of the proposed link is around 70 km and the Project involves the construction of this Railway line. The proposed alignment is shown in figure 2. The Project represents a first phase of a larger rail network planned across the north and other parts of the country, including links to Herat, Tajikistan, and Pakistan. It will expand the existing transport network in Afghanistan and is expected to substantially improve internal and international connectivity. The Project is a part of the Transport Strategy and Action Plan agreed under the CAREC Program. It will add capacity to two transport corridors under CAREC and will open up alternative routes of supply for national and international trade, as well as for humanitarian relief to Afghanistan. 58. The Project has two components: (i) design and construction of 70 km single-line railway and associated infrastructure; and (ii) project management, independent supervision, and institutional support. B. Objectives

59. The objectives of the Project are to (i) promote economic development and regional cooperation by improving the strategic railway link to Northern Afghanistan, (ii) continue support for institutional and policy reforms, and (iii) enhance operational efficiency of railways by developing the capacity of Afghanistan Railway Authority to operate commercially in a competitive environment. 60. The specific objective of the Hairatan to Mazar-e-Sharif Railway Project is to establish a shorter and faster rail link between Hairatan port, the border of Uzbekistan and Mazar-e-Sharif the second largest city in the country. 61. The Project will lead to greater economic growth and increase trade between Afghanistan and Uzbekistan. This railway will be a more efficient, safe, and sustainable railway transport network, which will increase transport volumes and reduce transport costs. The Project will benefit from recently modernized custom facilities at Hairatan, which have been funded by the European Commission. C. Components and Outputs

62. The Project will facilitate building a railway line linking Hairatan and Mazar-e-Sharif. It will have two components: (i) railway construction, and (ii) institutional development. 63. The Project will be a 70 km railway line and associated support infrastructure and facilities. The outputs will be: Upgraded marshaling yard and railway station at Hairatan, Construction of a new single-line of 71 km, Railway station and transshipment facilities at Mazar-e-Sharif, Transportation of bulk material and humanitarian relief goods, Improve connectivity in the region, Signaling and telecommunication systems.

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Figure 2: Alignment of Hairatan to Mazar-e-Sharif Railway Project

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64. This component will cover project management, construction supervision, and institutional support. An advisor will be recruited and tasked with developing (i) a railway sector institutional plan, (ii) a railway legal and regulatory framework, (iii) an O&M agreement, and (iv) a training program. 65. The outputs of the project will include a new Railway line capable of handling the double stake operation of containers. It will also include a rehabilitation of the inoperative marshaling yard at Hairatan Port. The new transshipment facilities at Mazar-e-Sharif will enable efficient handling of the anticipated traffic. D. Rationale for the Project

66. The Project has strong rationale. It will develop a reliable, efficient, safe, and sustainable transport link within the country and between the country and its neighbors. Hairatan already doubles up as Afghanistan's most important dry and river port, acting as the gateway for almost half of Afghanistan's total imports. Key commodities and goods moving through this point include oil and fuel, wheat and flour, fertilizer, construction materials such as cement and bitumen, agricultural and off-highway equipment and consumer goods. Hairatan is also a largest port for the supply of humanitarian relief to Afghanistan. However, the existing transport infrastructure and facilities at Hairatan cannot cope with an expanding volume of trade and humanitarian relief. 67. An existing rail line between Termez in Uzbekistan and Hairatan does not have a rail link into Afghanistan. Freight destined for Afghanistan and beyond has to be off-loaded and reloaded into trucks at this border. Moreover, other established trade and supply routes servicing Afghanistan are disrupted because of security constraints. The TermezHairatan railway line helps but Afghanistan and other Central Asian countries would benefit if this were to be extended into Mazar-e-Sharif ending near the airport there, which is being expanded with German assistance, and connecting to the Ring Road being financed by the Asian Development Bank (ADB). This expanded rail line will remove major physical bottlenecks at the border. 68. Another important feature of the Project is its strong strategic and logistical content to countries in Central Asia. Afghanistan is the natural transit route to reach ports in Pakistan and the Caspian, for the onward sale of goods to South and East Asia, Middle East, and Europe. The railway line at Hairatan will raises the profile of Afghanistan as a transit route and complements the connectivity arising out of the two CAREC corridors (3 and 6), now under construction. 69. The Project fits well with the Government's development strategy and ADB's Country Partnership Strategy for 20092013. The latter flags transport as a priority area for assistance. The Project also fits well with the CAREC Transport and Trade Facilitation Strategy and the Action Plan. The Project will be implemented in line with ADB's approach to engaging with weakly performing countries. 70. A reliable, efficient, safe, and sustainable transport link between Afghanistan and its neighboring countries is essential to increase regional cooperation and trade. It is also a key to expanding job creation, investment, and ultimately poverty reduction in Afghanistan. A railway network adds to the transport modes, including the existing roads being built in the north and center of the country, and soon to the expanded airport at Mazar-e-Sharif, the country's second-largest commercial center. The extension of the railway line from Hairatan to Mazar-e-Sharif is a top priority of the Government and fits its development strategy. 71. Due to the ongoing conflicts in Afghanistan and Pakistan, the reliability of transport supply and trade routes into Afghanistan is impaired. The movement of goods by rail from

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the Uzbekistan border is relatively safe, and can become a cost effective transport mode. Hairatan is already Afghanistan's main dry and river port, accounting for close to 50% of its total imports. But the movement of cargo is constrained by its unloading and reloading into trucks at the border. This is costly, slow, and limits volume flows including humanitarian relief. Removing this bottleneck is an urgent task. 72. The new railway line between Hairatan and Mazar-e-Sharif connect Central Asia to South Asia, Caucasus, and the Middle East. The railway targets mainly the transport of bulk and nonperishable cargo such as cotton, cement, and bitumen for road construction, agricultural and off-highway construction equipment, oil and fuel, processed foods, and consumer products. The existing rail line from Termez to Hairatan in Uzbekistan terminates at the Afghanistan border. The extension of the Termez Hairatan link into Mazar-e-Sharif (close to the airport) can remove physical constraints at Hairatan and create an alternative and competitive transport made for trade between Afghanistan and its neighboring countries. Mazar-e-Sharif's location close to the Ring Road and the airport results in an integrated transport facility. So in terms of better connectivity, the project will increase efficiency of the transportation system of the country as well as of the region. E. Conduct of the Study 1. Methodology

73. The TA consists of railway engineering, economic and financial analysis, a review of the progress of institutional development within the railway subsector, a detailed initial environmental examination and a social and poverty analysis. The TA commenced with a pre-screening of three alternative railway alignment proposals from Hairatan port to Mazare-Sharif city. It was agreed that a pre-screening of the above alternatives would be included in the Inception Report for the TA. The final list of pre-screening criteria included GOA priority; Importance to Regional Integration and International Trade, Social Impact, Potential Capacity Improvement, Environmental Impact, Traffic Potential and Project Cost. 74. The economic analysis commenced with an overview assessment of the transport sector in Afghanistan. Traffic flows were then investigated as were the current detailed flows on the Hairatan-Mazar-e-Sharif road. A review of factors likely to influence future flows was carried out prior to the preparation of traffic forecasts. A review of the national economy and the hinterland economy was also carried out in the course of the forecasting exercise. Information was obtained on new cold storage projects and industrial development that would likely generate traffic on the Hairatan Mazar-e-Sharif. Regional factors likely to influence traffic levels such as the growth within the economy of Afghanistan and the growth in neighboring markets were studied. Commodity specific factors were also considered. As regards growth in goods traffic, growth trends were calculated for both population and per capita income. Traffic forecasts were prepared for the period 2009-2035. 75. Engineering study consisted of inspections of the Hairatan-Mazar-e-Sharif area with MPW staff, staff of the Balkh Governor Office and engineers of the Afghanistan Railway Authority (ARA). Topographic survey was conducted along the finally selected alignment. The alignment design and detailed engineering design were prepared and costed. The assessment on institutional development for the Railway Authority was conducted and discussed with concerned Ministries. The railway construction proposal was subjected to an Initial Environmental Examination - and the fact that the proposed railway works will take place entirely within the railway right of way, which entails that a full Environmental Impact Statement was not required. A social and poverty analysis was carried out with detailed discussions being held with stakeholders in the area of influence. Affected families were identified and the compensation mechanism was developed.

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76. The Project was subjected to technical, economic and financial appraisal. The key assumption of these analyses was that the implementation of the project will have minimum public land acquisition and maximum environmental benefits. Economic benefits include costs of road transport, fuel consumption and equipment utilization savings. Financial benefits were calculated as the revenue that otherwise would have been lost because of the loss of traffic to road transport; the savings in track maintenance; and savings in the utilization of equipment. Tariff analyses were carried out focusing on a comparative analysis with the traffic structure of the newly constructed Hairatan-Mazar-e-Sharif road. Projections of MPW's financial condition over the forecast period were carried out. 2. Study Team

77. The study Team includes both international and national experts and is being headed by a Railway Operation Engineer/Team Leader. The international expertise includes two International railway engineers, a financial specialist, an economic specialist, an environmental specialist, a social and poverty specialist and an institutional development specialist. The national expertise consists of four railway civil engineers, two railway engineers, a railway operational and maintenance expert, a transport economist, two social specialists, an environmental specialist, a private sector specialist and an institutional specialist. Besides, to support the core team, a number of support teams consisting of local survey experts, AutoCAD expert were actively involved in the study activities. F. Executing Agency and Counterparts

78. The Executing Agency for both the Study and the construction Project is the Ministry of Public Works, Afghanistan. The ADB Project Implementation Unit (PIU) is designated as the Study and Project Coordinating Agency. G. Contents of the Report

79. The report discussed in detail the feasibility study findings on phase- I. The report includes five volumes and the volume 1 contains the Technical Feasibility Report with eight sections. Section I consists the introduction and section II describes the background of the Study and the Project. The rationale of the Project is discussed in Section III of this report. Section IV describes the Detailed Feasibility Analysis and Section V presents the sector performance analysis. Section VI describes the implementation arrangement and section VII provides the description of the public consultation. Section VIII is the consultants recommendation to this project. Several appendices are attached with this to support the Report. 80. The Volume 2 contains detailed supplementary reports which also support this Report. Volume 3 contains the detailed report on Initial Environmental Examination and the Volume 4 contains the report on Land Acquisition and Resettlement Plan. 81. The engineering drawings have been presented in Volume 5 of this report. The drawings include the key plan view and profile of 70 km rail alignment. It also includes the detailed drawings of station building, transshipment yard, level crossing, etc.

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IV.
A.

SECTOR PERFORMANCE AND SPECIAL FEATURES

Sector Performance Indicators and Analysis

82. Intra-regional trade is growing but remains seriously constrained because of limited transport infrastructure and facilities. Trade is increasing between Afghanistan and Pakistan, Iran, and Central Asia. Annual growth rates exceeded 10%. Total trade is now valued at $3.5 billion per year, of which $500 million are exports and $3 billion imports. Volume imports exceed 2 million tons. Afghanistan is the crucial link for Central Asia to access South Asian markets. It is also a conduit to access warm-water ports in Pakistan and on the Caspian Sea for trade with Europe and the Middle East. Fostering regional connectivity will help countries increase investment, trade, and employment. 83. Most border roads connecting Afghanistan with Uzbekistan, Iran, Pakistan, Tajikistan, and Turkmenistan are in dreadful shape. The Central Asia Regional Economic Cooperation Program (CAREC)3 has a strategy and action plan for six transport corridors across the region and the development of railway networks in selected countries. These rail networks will complement the road corridors and, in many instances, feed into port and airport networks. A priority railway network under CAREC is in Afghanistan. This railway network will have three main sections: (i) (4)Hairatan to Mazar-e-Sharif, (ii) Mazar-e-Sharif to Herat, and (iii) Mazar-e-Sharif to Tajikistan. Later, other routes will include Chaman, border line between Pakistan and Afghanistan, to Kandahar. A railway line between Sangan in Iran and Herat is under construction with assistance of Iran. The first section of the northern network will be a new railway line from Afghanistan border town of Hairatan to Mazar-e-Sharif. This is a top priority Government and fits well with the CAREC Transport and Trade Facilitation Strategy and ADB's country partnership strategy for 2009 2013.5 The sections from Mazar-e-Sharif to Herat and from Mazar-e-Sharif to Tajikistan are also in the top priority lists, but these are more medium term propositions as they will cost more and involve significant resettlement. These routes will become more economic once the Ring Road financed by the Asian Development Bank (ADB) is completed. 84. Afghanistans current transport network has roads, rail, airports, and inland waterways. The official road network is 38,500 kilometers (km) long, 3,300 km of regional roads, 4,700 km of national roads, 9,700 km of provincial roads, 17,000 km of rural roads, and 3,800 km of urban roads. The total length of railways is only 25 km, being a 10 km cross-border extension from Turkmenistan to a transshipment yard in Torghandi and a 15 km extension from Uzbekistan to a transshipment yard in Hairatan. Hairatan is a gateway for commercial goods entering and transiting Afghanistan. Hairatan accounts for about 50% of all imports. Hairatan is both a dry and river port. Import and transit items include oil and fuel, wheat and flour, fertilizer, agricultural and other equipment, construction materials and consumer products. Hairatan is also the main entry point for humanitarian relief goods. No other rail project is being sponsored by a multilateral agency in Afghanistan. 85. Various ministries have regulatory and oversight functions over transit trade and transport, including the Ministry of Commerce and Industry (MOCI), Customs Department under Ministry of Finance (MOF), Ministry of Transport and Civil Aviation, Ministry of Public Works (MPW), and Ministry of Interior (MOI). Coordination among the ministries is not
3 4

ADB. 2007. CAREC Transport and Trade Facilitation Strategy. Manila. Technical assistance (TA) was provided to prepare the Project. ADB. 2009. Technical Assistance to the Islamic Republic of Afghanistan for the Railway Development Study. Manila (TA 7259-AFG, for $1 million approved on 27 March). 5 ADB. 2008. Country Partnership Strategy 20092013, Afghanistan. Manila.

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formalized. MPW plays a principal role in the construction and maintenance of road and rail infrastructure. However, its project management capacity is weak. 86. In 2007, the number of registered vehicles included 300,000 cars, 40,000 buses, 100,000 trucks, 100,000 motorcycles, and 5,000 rickshaws. Vehicle numbers have increased rapidly in recent years, with annual growth rates over the past 3 years close to 23% for cars, 15% for trucks, and 48% for motorcycles, but only 2% for buses and rickshaws. Virtually all vehicles are second-hand imports. 87. Freight is carried primarily by privately owned trucks. The truck population is based on heavy articulated trucks (20%), with the remaining 80% divided equally into heavy, medium, and light or pickup classes. There are no special transit charges and foreign trucks transporting freight through Afghanistan pay only a 5% commission. Hairatan at present is handling about 250 wagons a day, while at Torghandi the number is 50 wagons a day. Airport facilities are also limited and in a poor state of repair. Beside Kabul, Mazar-e-Sharif is the only main airport due for major reconstruction and expansion. A new 3,000 meter runway is being constructed. About 600 meters of the existing runway are being repaired, including new taxiways. This will increase capacity for the intermodal flow of commercial goods. B. Lessons Learned

88. Three key lessons can be drawn from ADB's experience: (i) project costs have been underestimated, (ii) the procurement of works and services has been slow and uncompetitive despite being tendered, and (iii) stakeholder consultation has been weak. Unstable Government co-financing and poor project management has been recurrent problems. 89. Most transport projects have suffered from underestimated capital and recurrent costs. This problem has been exacerbated by fast-rising prices for materials and security concerns. Under these conditions, MPW has been unable to finance overruns, creating long delays and, in some cases, actual contractual disputes. This problem has been aggravated by the approval of large stand-alone projects at a time. Financing has not always been well linked to the readiness of projects. The use of separate multitranche financing facilities by ADB for each priority sector under the Country Partnership Strategy provides an opportunity to allocate the annual funding envelope among projects (or sections of projects) more efficiently. Turnkey contracts can also speed up contract awards, disbursements, and results on the ground. 90. Procurement of works for design-build has been done mostly on the basis of quantities estimated from preliminary designs. This has led to many variations in scope and scale of works. The consulting firms recruited according to quality- and cost-based selection have been unable to replace key specialists, who often leave at short notice due to security risks. Another complication has been the lack of contractor interest. Quite often, only one contractor tends to bid for projects. Given that contractors know in advance the size of the financing package, bids have always been close to or even higher than the finance envelope. There is a need to consider increasing the number of operations structured around engineering, procurement, and construction (EPC) contracts supervised by independent and credible firms. Price verifications can precede these contracts and be carried out by independent advisors. 91. Stakeholder consultation, especially with local communities, has been difficult because of security concerns. The result is that some communities have not bought into the projects, or welcomed foreign contractors. This has become an issue affecting implementation and the ultimate success of projects. The establishment of community funds

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in road and energy MFFs will cover the cost of basic community infrastructure services and increase their "buy-in" in these projects. C. Special Features 1. Regional Context

92. The Project will promote regional cooperation and trade. The facility will attract highvalue traffic on to railways, promote inter-model traffic, and encourage private sector shippers and freight forwarders to trade cargo to Afghanistan, Central Asia, South Asia, the Middle East, and Europe. The Project will complement CAREC road corridors. 93. Railway all over the world is typically environmentally friendly. The Project will therefore improve environmental sustainability by using regenerative locomotives, and better technology for noise reduction and soil erosion prevention. It will use double-stack containers to increase fuel-efficiency and environmental benefits. 2. Source of Materials

94. The Project will adopt the Uzbekistan broad gauge standard for efficiency and economic reasons. The rail tracks are produced by countries adopting this gauge standard. A number of them are not ADB-member countries. ADB procurement eligibility restrictions would effectively preclude UTY from seeking the best business terms from suppliers in these countries, and thus from submitting a competitive proposal. The Government requests ADB to waive the eligibility rule to allow financing of the rail track components procured from nonmember countries of ADB. Due diligence work conducted by ADB indicates that, in this case, procurement of rail track components could be quicker and more competitive. Considering the flexibility allowed in the WPC paper, it is proposed that UTY be allowed to procure rail track components from countries that are not ADB members. 3. New Technology

95. The rail track will be constructed, and maintained by the Uzbekistan Temir Yullari (UTY). The UTY is a member of the CIS family of railroads, which is the large former Soviet network that reaches over most of Central Asia and into Eastern Europe. The CISs main characteristic is the use of a 1520 mm track gage largely built using standards developed by The All Russia Railway Institute, VNIIZHT. Russias RZhD is the largest member of the CIS. The result is a high degree of standardization and interoperability. 96. The UTY will construct the Project using specifications for material and designs for Rights-of-Way, except as noted below. Because the Project will be using, de-facto, VNIIZHT specifications and designs modified by the Uzbekistan Temir Yullari for local climatic conditions, the Project is assured of a nearby supply of components and track materials. This material can, therefore, often be purchased at commodity prices in as much as the CIS network has several suppliers of the same designs. This greatly reduces the lead-time and prices compared to material acquired from just one nation or even just one factory, possibly overseas. 4. Capacity Building a. Investment in Human Resources

97. The Project intends to utilize Ministry of Public Works engineers, who are already involved in the Pre-Feasibility Study Investment in Human Capital to Maintain a State-ofGood-Repair for Phase I and Phase II, to effect a transfer of both modern railroad design

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and railroad construction practices. Using UTY as the construction prime contractor and beginning maintenance manager will greatly facilitate the transfer of institutional knowledge of the State of Good Repair configuration of the Projects assets. The Uzbekistan Temir Yullari, as the interchange railroad, has a strong interest in insuring that the connecting infrastructure is capable of generating to revenue stream that Uzbekistan Temir Yullari depends upon. The Specifications for the construction will include field and classroom training to be conducted by the UTY. The training will be in conducting inspections, identifying areas for corrective action, scheduling, railroad safety practices and procedures, and material procurement and management. The training shall also include the ability to conduct the minor construction required to connect private and public terminals, industrial parks, and large industries to the Projects alignment without reducing the mainline capacity of the CAREC route network or Afghan national planning goals. b. Investment in Spare Material

98. The Specifications for construction will include spare material sufficient for (a) routine maintenance, (b) repairs required as a result of accidents, security incidents, and (c) minor extensions into private and public terminals, industrial parks, and large industries. Because the UTY is a constant participant into the marketplace for materials, and because the size of this Project permits economies of scale in purchasing, it is planned to acquire significant amounts of routine and specialty spare material, e.g. track switches. These procurements will reduce the initial maintenance costs during the start-up of the Project when traffic volumes may be expected to be low at the beginning. c. Retention of Intellectual Property

99. The Specifications for construction will include requirements for an orderly transfer of intellectual property to three locations. The first are to the maintenance and field civil engineering offices for the railroad at or near Mazar-e-Sharif. The second location will be the central offices of the Ministry in Kabul. The third will be to a technical University to be determined later. The intellectual property will include, but not limited to: As-built drawings and shop construction prints, surveys of land and topography, property ownership research files bills of quantity (BoQ), soil and other test results, calculations required for structures such as bridges, overpasses/underpass, and culverts, specifications for purchased material and recommended suppliers track circuit drawings for level crossing protection and other localized signaling final versions of manuals and parts list supplied by manufacturers track diagrams in either Dari translations recommended preventive maintenance schedules and repair procedures, in both Dari and Pashto translations

In addition, the Specifications will require a Configuration Control program that updates the above as construction is progressed or variations in contract requirements are processed. 5. Possibility of Private Sector Involvement

100. Attracting private sector participation is an effective approach to increase the efficiency and transparency of the administrative agency of the government for railway. By and large private participation involves allocation of risks and pattering of resources that private sector has access to including capital and technology. In Afghanistan large private

19

sector organizations exist who can bear with risks and have access to capital and technology. 101. However, as railway being a wider network and new to this country, the private sector organizations feel that they are not equipped with required technical knowledge to carry out the responsibility associated with the railway development. Nonetheless, in the initial stage they can be a party in such development process supplying necessary materials as they are doing now for different infrastructure development and rehabilitation. Currently in Afghanistan the private sector is investing in and operating the airways indicating that they are able to operate the railway as well but this may take some time to absorb the new technology. 102. Railway network incorporates the broad elements of infrastructure, regulation, operation, and services. Private sector participation in infrastructure, operation and services is possible to achieve by including service contract, leases, and concessions program. Build operate and transfer (BOT) is another option for infrastructure development. Successes of these programs require strong political leadership, established policies, legal framework, and effective institutions which in reality are absent particularly in railway sector. 103. Furthermore, the discussions with the business communitys Chamber in Mazar-eSharif and Kabul revealed that currently the risks that the private sector is facing in Afghanistan are: i. unwillingness of the government to pay the private sector entity ii. lack of access to finance by the local business persons/contractors and iii. Geopolitical risk i.e. country risk. Under this situation the overseas contractors who operate here do so as a result of the donor contribution which reduces the risks they would have otherwise faced. 104. A well defined policy for the railway sector conducive to the private sector needs to be in place. A major challenge in the transport sector of this country is the continuous biasness towards public sector ownership and operation. Bureaucratic corruption is another dominant factor that discourages private sector participation. Despite the government and the donors persuasion to promote greater participation by the private sectors, neither the government nor the private sectors are fully equipped and ready for the privatization process to start. There exists urgent need for policy, legal framework, and building of effective institution through required reform for upcoming railway sector to be developed and sustained. Policy regarding private sector capacity building should also be pursued. Appropriate presence of these measures will create confidence in the private sector organizations and encourage them to be a party in the railway sector development process.

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V.
A.

DETAILED FEASIBILITY ANALYSIS

Technical Feasibility Analysis 1. Traffic Demand Forecast

105. The traffic data were collected from the recently completed studies and surveys to assess the quantum of new traffic that can be generated in the region due to the Project. The quantum of additional traffic that can be carried by the railways via the proposed rail line route, etc. The various elements of the studies are transport surveys from various modes of transport operators, stakeholder consultations, consultations with the project affected people, and consultations with the people of the project region to assess the requirement and locations of Railway stations, transshipment yard and other passenger amenities and rail related matters, etc. 106. In the Performance Management System report of the project Rehabilitation of Roads from Pul-e-Khumri via Mazar-e-Sharif to Balkh and Naibabad to Hairatan submitted to ADB in February 2009 against their Loan No. 1997-AFG (SF) it has been mentioned that in 2004 the average annual daily traffic was 4006 vehicles. The total number of trucks per day as per manual counting is 1073 in 2004. The percentage of freight traffic including 486 two axle truck, 442 three axle truck and 145 multi axle trucks was 27%. The empty truck on Hairatan-Mazar-e-Sharif Road is almost 50%, that is, load bearing trucks were 537 in 2004. 107. It has further been reported by the international trade department of Ministry of Commerce and Industry that owing to porous border with Uzbekistan and poor trade facilitation process the official statistics usually reflect fifty percent of actual number of trucks engaged in cross border trade, which means the official statistics might have reported presence of less number of trucks in 2004. But, actually, there is 1073 number of trucks per day which were engaged in carrying freight and half of were empty. 108. The divert ability of truck transportation to rail mode has been considered on the basis of Logit Curve-based Equation mentioned in the report, Analysis for Assessment of Likely Traffic Diversion, submitted to ADB in 1991. The form of equation changes according to the level of cost ratio. The curve generally shows limited sensitivity to changes when the cost ratios are extremes. At cost ratio of 1.00, denoting equal costs for the alternative modes, somewhat more than half of the traffic is estimated to use the alternative mode. The rail freight cost is half of the road transportation cost in this project and the application of cost ratio (0.50) to the equation specified to this situation estimates a diversion to the tune of 97% of truck to the railway mode. 2. Technical Analysis

109. The fundamental technical aspects like preliminary soil condition, hydrological situation, geological consideration have been well taken care of during the study. Report of the study conducted under ADB assistance during 1976 has also been studied in depth. Other relevant documents have also been reviewed and the ongoing road projects been consulted. 110. The Consultants conducted a detailed examination of the physical condition of the soil along the alignment with due care. Neither any river nor any water body exists within the project area. Besides, from the proposed Hairatan Station up to Taja-omed area, sandy soil exists at ground level. Within one meter below of ground level, the soil is comparatively better and clay sand exists from Taja-omed to Mazar-e-Sharif. Therefore, the consultant understands that it is feasible to construct the railway track on the preferred alignment. It is

21

worth mentioning here that although no river or water body exists on the alignment, adequate numbers of box culverts have been proposed for smooth passing of rain water. 111. The volume of traffic at the beginning has been estimated to be on the lower side necessitating only crossing lines in between. However, at the request of MPW subsequently the stations of Jairatan and Taza-Omed, which were designed with one loop line was upgraded to two loop lines stations. Altogether 5 stations have been proposed including this two crossing stations in considering the volume of traffic. 112. Originally inter-modal transshipment facilities were provided at Naibabad with the idea of relieving burden on existing Hairatan port and the alignment drawings and the cost estimate have conducted accordingly. Subsequently recommendation received from MPW for considering railway transshipment from 1520 mm gauge to 1435 mm (standard gauge) at Naibabad and or designing dual gauge from Naibabad to Gur-e-Mar village. However, the decision could not be confirmed from MPW. The consultants understand that the purpose of such incorporation of rail transshipment was to have seamless standard gauge from Naibabad Mazar-e-Sharif-Hirat. The standard gauge could be incorporated from Naibabad to Gur-e-Mar if MPW would have come to a material decision on this. On the other hand using dual gauge has considerable number of drawbacks which were presented to the client. 113. In consultation with the Hairatan Port Authority and the Custom Authority a 8 km track rehabilitation at the existing marshalling yard of Hairatan and 2 km new track for connecting EU's new custom facilities have been proposed into the project. 114. Since the entire route of proposed railway shall run almost parallel to the existing road, a total of 33 numbers of Box Culverts has been proposed. These will facilitate unobstructed passing of water/precipitation of the adjoining road bridges. 115. Two levels rail-road crossing is proposed near Naibabad for crossing the existing Kabul-Mazar-e-Sharif road. This is due to avoid huge quantity of earthwork in embankment as well as level crossing, at the approaches of Kabul-Mazar high way, the consultants proposed a 6m span box culvert (to be served as road over bridge) having 7.50m high vertical clearance. The lineal length of box culvert will match with the width of the over head Kabul-Mazar road. The train will pass under the road and the road will run over it. 116. The track structures (R65 CIS rail, pre-stressed concrete sleeper having elastic fastening system of Pandrol UK brand) have been so proposed that it will match with the track structure of Uzbek Railway. 117. Considering the volume of road traffic over the existing road as well as the future prospect of road construction within the region the consultants have proposed to provide 36 level crossings. Of which 3 are special type and the rest 33 are un-manned ordinary type. Details of these specials type of level crossings are presented in the drawing section of this report. 118. In any typical railway route design, curve is generally discouraged unless it is compelled by physical constraints. It is worth mentioning here that from south end of the Friendship Bridge of Hairatan to the proposed Hairatan station, some important oil companies such as Gaznafar Group, National Fuel Company etc exist. So, to avoid shifting of these establishments, some curves of shorter radii is proposed. However, at this location only one curve of more than 800m might be required, if decision is taken to relocate the establishments. Further to be noted here that the proposed alignment crosses the MazarKabul Highway at Naibabad. To avoid the hilly area that starts after the road crossing at Naibabad, a curve of shorter radius is proposed. However, the proposed radii of all the curves are within the permissible limits for the Broad Gauge tracks.

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119. The detailed specifications of the rail track, turnouts, signaling, etc have been described in the Supplementary Report No. 4 of Volume 2 of this report. The detailed drawings of the proposed alignment, station buildings, earthwork, curve details, etc have been presented in Volume 5. B. Financial Feasibility Analysis

120. ADBs Financial Management and Analysis of Projects was used to evaluate the Project's and the ARA's financial viability. In both cases, the revenue generated from fixed fees and revenue-sharing arrangements lead to financial sustainability. 121. A detailed financial feasibility analysis was conducted as part of the study to investigate financial viability of the proposed Hairatan to Mazar-e-Sharif Railway project. Main objectives of this financial analysis are: estimate the railways financial internal rate of return (FIRR); calculate the weighted average cost of capital (WACC); and compare the expected FIRR with the weighted average cost of capital (WACC).

122. It is assumed that the Hairatan to Mazar-e-Sharif Railway is operated as an independent agency. It is also assumed that the railway agency will eventually be subject to corporate income tax, business tax and any surcharges; and undertake design, construction and operation of the railway, and bears associated risks.

123. The expected construction period for this project is 2 years (2009-2010) and the expected operation period is 25 years, from 2011 to 2035. All costs and revenues are expressed in 2009 constant prices in US dollars. The financial analysis is associated with the economic analysis, traffic forecast and other sections in this report. The financial analysis is conducted in accordance with ADBs Guidelines. 1. Cost Estimates

124. The Total cost of the Project including provision for physical and price contingencies is US $ 170.0 million. Interest during construction and other charges amount to a further US$ 4.5 million. An amount of US$0.7 million is set for the institutional development program. Given recent experience in project implementation, physical contingencies of 16 % have been included. Detailed Cost estimates are given in Supplementary Report 5 and a summary is provided in Table 2 and Table 3 below. 125. The basis for estimating the cost, the rates of CIS countries have been taken into consideration while preparing the Bill of Quantities. The earthwork quantities for construction of the formation have been calculated based on the ground profile obtained during topographical survey. 126. Unit cost rates have been developed for the proposed track structure based on the, escalated to allow for inflation, and using rates of similar executed track works in the region recently. 127. The areas of the buildings to be constructed is calculated based on the concept designs and rates for service buildings are based on the unit cost of the building floor area developed from prevailing market rates for similar structures in the area.

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128. The cost of Signalling and Telecommunication works has been taken from similar works executed in this region in recently. 129. The cost of ancillary works is based on partly on estimates developed by the Consultant and partly from similar works undertaken recently. Table 2: Cost Estimate (in US$ million)
Item A. Amounts a Base Cost I. Railway Development II. Institutional Development III. Taxes and Duties d Subtotal (A) Project Management Subtotal (B) Contingencies c Subtotal (C) Total (A + B + C)
b

134.0 0.70 4.5 139.7 0.5 0.5 29.8 29.8 170.0

B.

C.

a b c d

Includes taxes and duties. In mid-2009 prices. Physical and price contingencies are computed at 16% respectively for the basic construction costs. Exchange rate fluctuations are estimated using a purchasing power parity adjustment model. Includes interest and commitment charges.

Table 3: Detailed Cost for Railway Development (in million)

Sl No. A. 1 2 3 4 5 Civil Works Earthworks (Right of Way) and Culverts Railroad Track Work Station Buildings Safety Component Signalling and Telecommunication Total for Civil Works 2,319.17 2,272.88 163.25 797.75 554.15 6,107.20 46.38 45.46 3.27 15.96 11.08 122.14 Item Amount in AF Amount in USD

B. C. D. E.

Land Acquisition and Resettlement Environmental Management Cost Design review and supervision Temporary facilities & Transitional work

0.24 15.15 200.00 350.00

0.005 0.30 4.00 7.00

Total Railway Development Cost

6,672.59

133.45

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2.

Project Financial Viability

130. The Project's annual net cash flows were forecast over 26 years (20092035), including the construction period, under a with- and without-project scenarios. Constant mid2009 prices were used to calculate the financial internal rate of return (FIRR) and weighted average cost of capital (WACC). The incremental cash flow included all payments incurred to construct, operate, and maintain the facilities over their useful life. Taxes and physical contingencies were included, but price contingencies were excluded. FIRR is estimated at 4.5% and WACC at 1.9%. This is based on generating minimum revenue of 35% based on rail freight transport tariffs. The project financial analysis, including its sensitivity analysis, is presented in supplementary report 6. 3. Financing Plan

131. The Government requests ADB to provide $165 million from Special Fund resources in the form of a grant to finance the Project. The Government will provide $5 million to cover the costs of land acquisition, resettlement, and taxes. The financing plan is in Table 4. Table 4: Financing Plan
Source Asian Development Fund Grant Government of Afghanistan Total
Source: Asian Development Bank estimates.

Amount ($ million) 165 5 170

% 97 3 100

C.

Economic Feasibility Analysis

132. Economic analysis was carried out in accordance with ADB's Guidelines for the Economic Analysis of Projects. The methodology, key assumptions, and results are summarized in supplementary report 5. The main project benefits comprise freight-cost savings, commodity loss reductions, increased trade, and incremental truck productivity. Other benefits include avoided externality costs, reduction in road maintenance, and lower traffic. The potential Project beneficiaries will be shippers, freight forwarders, and local communities. Women will also benefit from the Project. The rail line also has high regional cooperation content. The Project's economic internal rate of return (EIRR) is estimated at 15%. 1. Distance Savings Rate at Economic Prices

133. The completion of the railway project will make available especially fuel/oil at the railway head near Mazar-e-Sharif city, which means the oil carrying trucks will no more be required to travel 56 km for loading/unloading point at Hairatan. On the contrary the trucks, especially more than two axle, will move to loading/unloading point near Mazar-e-Sharif city. This will cause a savings of distance of 37 km (56-19) in one direction. Actually, there will be a savings of 74 km (37x2) distance for a round journey from Naibabad to Mazar-e-Sharif and back for all categories of freight traffic presently destined to Hairatan for trucking purposes but coming from Kabul and eastern directions. 134. It has been ascertained from local enquiry at Hairatan and at Mazar that the per km freight rate for trucks between Mazar-e-Sharif and Hairatan is USD 0.140 and the rate for trucks between Hairatan and Kabul-wards is USD 0.098 at normal times. It is known that freight rates includes Vehicle Operating Costs and the transfers like profitability, taxes,

25

insurances and factor costs like wages of drivers, attendants etc. The VOC rates per km at economic prices are shown in table below: Table 5: Distance Savings

Place Mazar-e-Sharif and Hairatan Hairatan and Kabul-wards

Freight Rate Per km ($) 0.140 0.098

VOC at Economic Prices for Heavy Trucks ($) 0.12 0.08

VOC at Economic Prices for 2-axled ($) 0.10 0.05

2.

Project Economic viability

135. The project is like to leave effective impacts on the local economy visa-e-via Afghan economy. Because there will be lesser transportation cost, the exportable commodities will be cheaper and import commodities will also be cheaper. There may be consumer surplus as well as more exporting. The continuous railway connectivity may lead to better trade facilitation arrangement leading to more trade between Afghanistan and Uzbekistan. 136. The economic viability of the project has been examined on the basis of EIRR estimation based on the benefits accruing to the project on account of freight savings and savings for shortening of distance to collect goods available presently at Hairatan. The cutoff mark has been considered as 12%. It is found the project base case EIRR: EIRR Base case: 18.79% NPV (@12%) $ 116.19 millions

137. Sensitivity tests were carried out to assess the impact of different benefit and cost variables. Under a combined freight-cost saving reduced by 20% and construction costs increased by 10%, the EIRR is estimated at 12%. Assuming that there is no productivity gained by the trucks, the Project remains feasible with an EIRR of 13%. The reduction of freight diversion rate from 30% to 25% will reduce the EIRR to 13%. The sensitivity tests demonstrate that the Project is robust across a broad range of variations in key parameters. D. Institutional Benefits

138. The introduction of modern and signaling equipment along the Hairatan-Mazar-eSharif Line will bring MPW into line with hardware and software utilized by progressive railways around the world. ARA as an institution will also become more environmentally aware through the training to be delivered on environmental mitigation. MPW's understanding of the social impact of its operations will be enhanced through the design of the participatory monitoring framework. 139. After the Project is completed, there will be a need to establish a more stable institutional framework, not only to oversee the rail link from Hairatan to Mazar-e-Sharif, but also to develop the Government's capacity for railway sector planning. The Government therefore plans to create an Afghanistan Railway Authority (ARA), a semi-autonomous agency. ARA will be responsible for O&M of the railways in Afghanistan. The following targets are envisaged: (i) ARA established by December 2010, (ii) key management and staff appointed by 2010, (iii) terms of reference developed, (iv) asset valuation finished, and (v) staff trained. UTY will assist the ARA. An adviser will be recruited under the Project to

26

draft an institutional plan based on preliminary assessment prepared under ADB's TA. This will be completed by April 2010. 140. It will also open up opportunities for private sector participation in rail subsector operations. UTY will be more able to compete in a market economy and the regular reporting of traffic in a transparent fashion will allow UTY employees to better benchmark their efforts, becoming more efficient in the process. E. Social Safeguard Analysis 1. Social and Poverty Impacts

141. Social Impacts: Infrastructure projects, like the upcoming Railway project, will give rise to social impacts in and around the project impact area, ranging from loss of lands and homesteads, loss of income sources to displacement and resettlement in new areas. lf the social impacts of the Project is not identified and mitigated, there is great possibility of landlessness and higher poverty levels in the impact area. In that case the Projects will encounter delays and cost overruns due to issues related to land acquisition and resettlement, including severe constraints on the availability of replacement-land, distortions in the land market. The Project entails minor land acquisition and resettlement since most of the railway route passes through uninhabited and unused desert land. The impact of the railway route is only on 2 vacant plots. Based on this impact, the Project has been classified B for resettlement purposes. A detailed land acquisition and resettlement plan (LARP) report is presented in the Volume 4 of this report. 142. None of the people affected by the Project belongs to groups classified as indigenous peoples under ADB's Policy on Indigenous Peoples (1998). The Project has been categorized as C for impacts on indigenous peoples. A summary on social safeguards is in Appendix 1 of the volume 4 of this report. a. Impact on Gender

143. In Afghanistan women in the past were generally denied of their rights such as in the participation of the decision making in the households as well as in the community, acquiring education and having adequate food and nutrition. Most literature indicated that women in the country were traditionally given lower status than men despite the injunctions of Islam which does not differentiate the role and right of men and women. In practice, men exercise control over all aspects of womens lives in accordance to traditional value. Culturally, womens role is limited to home or homestead as mothers and housewives and help the family in their farming activities. Sometimes they go to bazaar to purchase household items. They collect drinking water from well or river. In some places the distance of the river from home is one or two kilometers away and some housewives also collect wood for fire, which prevents them from income opportunities. The Project is expected to have the following social impacts: a. Women and other vulnerable groups will benefit from the Project, as they will have greater accessibility in employment opportunity and wage earning scope created by the establishment and operation of the railway project. b. The scope of local and rural industries will be increased that will also be the scope for employment of the poor and vulnerable peoples. c. Although the country has no significant experience of vulnerability of HIV/AIDS, there will be need of awareness rising because the bigger transport infrastructure network may bear risk of spreading of HIV/AIDS.

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Local government institutions and NGOs may be assigned responsibilities for information campaigning activities. b. Impact on Poverty

144. A poverty and social analysis for the Project was conducted in August 2009. It involved key stakeholders including local communities (including women), pastoral nomads, MPW, and district government officials. 145. The Project is located in the Balkh Province. The main beneficiaries will be local companies, local communities, shippers, and freight forwarders. Women will also benefit from the Project. The Project will generate considerable economic and social benefits. Railways will likely attract additional economic activity into the area, thus generating job opportunities, including for women. 146. Women and other vulnerable groups will benefit from the Project because the railway will generate demand for local labor, increase economic activity, including small business opportunities. The expansion of secondary and tertiary industries, due to increased trade, will help generate additional employment opportunities for both men and women. 147. A summary poverty reduction and social analysis is provided in Appendix 1 of volume 4. The operation of the railway could have a beneficial impact on the incident of HIV/AIDS and sexual transmitted diseases. Evidence has shown that long-haul truck drivers are a primary vector for geographical spread of HIV/AIDS. The Project will reduce the amount of long-haul truck operations, especially trucking across international and provincial borders. Further, providing modern transport infrastructure reduces the migration of workers seeking employment elsewhere, again reducing sexually transmitted diseases transmission vectors. The Project will not require importing a large number of workers. 2. Environmental Impact Analysis

148. The IEE shows that no major negative environmental impacts are likely to occur due to the construction and operation of the Hairatan to Mazar-e-Sharif rail line. 149. The potential impacts that could arise from the project have been assessed allowing the impact assessment and the development of mitigation measures to focus on the significant issues. As the majority of the alignment passes through unoccupied areas of desert or semi-desert there are no sensitive receptors in these areas. Human activity is concentrated around the northern and southern ends of the alignment and it is in these areas that the construction and operation of the rail line has been assessed for its possible impacts. 150. The results of the screening process identified that there would be no impacts on surface water, ground water, ecological resources or physical and cultural heritage from the rail line. The key impacts identified were noise, vibration and air quality issues associated with both the construction and operation of the rail line. Issues associated with any construction camps were also identified as being potentially significant. Construction materials will be transported by truck, therefore vehicle movements may also result in significant impacts. 151. It is expected that the outcome of this project will enhance current understanding of how rail transport infrastructure and services contribute to poverty reduction, to fill gaps in empirical knowledge, and to identify lessons learned and good practices.

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152. The primary benefit of the project will be related to the movement of passengers, goods and services in a shorter time, as well as reduction in levels of stress and frustration experienced during traffic congestion by other modes of transportation. Health and safety are always an issue of environment and rail transport is more environmental friendly than many other transport modes. There will be significant diversion of road to rail travel and associated with that, reductions in emissions, most notably CO2, as well as large increase in fuel savings. 153. The Project will have some minor environmental impacts, which will be both positive and negative, including: (a) soil erosion, (b) temporary effect on noise and air quality due to construction activities; (c) increased growth in the economy of the region; (d) substantial income and employment opportunities; (e) better indoor air quality; (f) better life style and improved living conditions; (g) reduced health risk, (h) development of small to medium sized enterprises, (i) reduced poverty; and (j) advanced environmental skills and awareness level among the MPW officials. 154. Implementation of appropriate mitigation measures during the design, construction, and operation phases will minimize the negative impacts of the Project to acceptable levels. To ensure that these mitigation measures are implemented and negative impacts avoided, the measures will be included in the contract specification of the Project. Environmental monitoring of the Project will be undertaken regularly through the first three years of its operation to ensure that the measures are being implemented properly. F. Direct and Indirect Benefits of the Project

1.

Envisaged Direct Project Benefits i. ii. Women's training for business activities, will be started and implemented by various NGOs and Women's Associations; Education of rural people (especially mothers and children) in health, nutrition, and hygiene, will be conducted by NGOs through different programs, activities, and funds. Focus is also upon teacher training in these new compulsory subjects. As such, students and teachers will greatly benefit from the new line; lmpacts on the Health of the Rural Population: Under the framework of the new Health Reform, the training of all medical staff will become a priority, especially with the introduction of new technologies. Specialists will also have to join district hospitals; Currently, NGOs implement programs for women and child welfare in smaller village medical points, while access to free health care and drugs is restricted. As such, rural people will have better access to such care and medicine with the construction of the new line between Hairatan and Mazar-e-Sharif; Impacts on the Employment of the Poor: With affordable fares, those unemployed and living in the villages can become daily workers in the cities. This situation will benefit and improve family life, as idle men can go work and leave domestic responsibilities to the women; The development of Transshipment Yard near Naibabad will provide greater access to the poor for employment; and

iii.

iv.

v.

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vi.

lmpacts on Transport Costs: Depending on the ARA strategy for fare and tariff, including negotiation of remuneration for services earning less than direct variable costs, more low-income families members could profit from the train for better access to first necessity goods and services, and for more social life also.

2.

Envisaged Indirect Project Benefits i. Introduction and implementation of new technologies and provision of improved management of irrigation water to increase farm productivity, output, and income; and Employment in the private agricultural sector, through the development of all sub-sectors related to farm management, such as: (i) rehabilitation of irrigation and drainage systems (water losses are enormous); (ii) rural finance; (iii) credits for agro-service enterprises; (iv) input supply and repair for machinery; (v) introduction of new technologies; (vi) development of marketing facilities, in the country and for export; (vii) improvement of transport conditions and tariffs for perishable goods and provision of better access to production areas; and (viii) consolidation of legal rights on farms, usually the best incentive for farmers to invest in. Higher performance in the agricultural sector will give higher wages to the agricultural workers. Today, young adults are no longer inclined to work on farms (either shirkat or private ones), as wages are uncertain, of a temporary nature, and relatively low (if paid at all). They want to be paid in cash and not in kind (bartered). Development of international trade will be essential to stimulate the expansion of agriculture and competitive sectors with higher prices and returns to labor in all the sectors. As a consequence, liberalizing cross-border trade will be the most effective way to tackle growing poverty.

ii.

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VI.
A.

IMPLEMENTATION ARRANGEMENTS

Project Implementation

155. The Project will be executed through an EPC contract. This will have Arrangements for a fixed price and fixed time delivery date, with appropriate provision for penalties and premiums. All technical specifications have been determined upfront. These will guide the final design and construction. An independent consultant will oversee the EPC contract, tests and commissioning and quality standards. Payments will be staggered and based on performance. An appropriate amount of funding will be retained until after tests and commissioning. Once the line is constructed, tested, and accepted, the Government will sign an operation and maintenance (O&M) contract with the same EPC group. This contract will also be based on performance, and be subject to independent supervision and validation. Appropriate arrangements to solve disputes between the parties feature in the two contracts. ADB will provide the required technical assistance to oversee the execution of the Project, and subsequent to that, its management. Headquarters and ADB Afghanistan Resident Mission staff will assist with project implementation. A detailed project administration memorandum has been prepared. 156. The Government will establish an executive committee to oversee the work, with representatives from the ministries of finance, public works, commerce and industry, transport and civil aviation. The executive committee will be chaired by a minister-level official. B. Procurement

157. Procurement of civil works, goods, and services financed under the ADB grant will be carried out in accordance with ADB Procurement Guidelines. The EPC contract, and later the O&M mandate, will be awarded to a group from a member country of ADB. However, given that the railway gauge will be based on the Uzbekistan system, the tracks required for construction (and maintenance), will need to be procured from countries that are not ADB members. The Government therefore requests an ADB waiver to allow for the procurement of track components from nonmember countries. Due diligence conducted by ADB indicates that, in this case, these track components can be more quickly procured at more competitive prices from nonmember countries. 158. It is proposed that Uzbekistan Temir Yullari (Uzbekistan's Railway Company or UTY) be awarded two contracts: (i) an EPC contract for design and construction, and (ii) an O&M contract. 159. Direct contracting to UTY is justified on the following grounds. First, the railway line is a de facto extension of the current Uzbekistan railway network into Mazar-e-Sharif. This is based on the current Uzbekistan gauge system. Using the Uzbekistan system for this first phase of the rail network has considerable financial and operational logic. It does not require new rolling stock and the management of UTY is both experienced and proven. However, this approach also makes the project potentially less attractive to other contractors in the region since they would be unfamiliar with the system. 160. Second, UTY is the only company in the region with the track record to design, procure, and construct a railway line based on the Uzbekistan system. UTY is also the sole operator of the Uzbekistan rail network. UTY is familiar with conditions on the ground, first for construction and then for operations and maintenance. There are no comparable operators in the region or beyond it, with the same track record.

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161. Third, UTY has already preliminary designs for the line. These are based on past work commissioned directly by the Government of Afghanistan. This design work increases project readiness and saves considerable time and costs. It accelerates implementation, which in turn translates faster into fewer bottlenecks to trade. 162. Fourth, UTY has designed and executed ADB-assisted railway projects in the past, including the railway link between Tashkent and Samarkand. The proposed Project has been given top priority by the most senior authorities in Uzbekistan. It also fits with UTY's current project construction pipeline. The company has sufficient financial resources to implement an operation of this nature, and the right people and skills to manage it later. 163. Fifth, an extension of the Uzbekistan network into Mazar-e-Sharif means Afghanistan does not have to invest or lease new rolling stock or spare parts. This cut costs, but only if UTY is part of the package. The Uzbekistan government is unlikely to want to outsource to a third party the management of Uzbekistan trains running from Hairatan to Mazar-e-Sharif. Linking the EPC contract to the operation and maintenance of the service saves costs and ensures efficiency, yielding major financial and logistical benefits to all parties. C. Consulting Services

164. The Project will require 210 person-months (110 person-months international and 100 person-months national and regional) of consulting services. This comprises (i) about 200 person-months (100 person-months international and 100 person-months national and regional) of services from an international firm to oversee design and construction work; and (ii) 10 person-months of individual international advisory services for railway sector, project management, reporting and institutional development. Consultants will be selected and engaged according to ADBs Guidelines on the Use of Consultants and the procurement plan agreed with ADB. The consulting firm will be selected using ADBs Quality- and Costbased (QCBS) selection procedures and be subject to full technical proposals. D. Advance Action

165. To expedite project implementation, the Government requested advance contracting and retroactive financing of works and consulting services. Advance contracting allows the Government to commence procurement activities, at its own risk, prior to the signing of relevant legal agreements. The Government was informed that, in order for expenses incurred under advance contracting to be eligible for retroactive financing, such procedures (including advertising) must comply with ADBs Procurement Guidelines and Guidelines on the Use of Consultants. Once the grant becomes effective, up to 20% of the grant amount may be used to retroactively finance eligible expenditures incurred during the period not exceeding 12 months prior to signing of the grant agreement. Alternatively, the Government may opt for advance contracting without retroactive financing, in which case, the procurement procedures completed under advance contracting do not conclude with the award of contract until after the grant becomes effective. The Government acknowledges that any concurrence by ADB with the procedures, documentation, or proposal for award does not commit ADB to finance such expenses or the Project. E. Reports, Accounts, and Audit

166. MPW will maintain separate Project records and accounts identifying (i) goods, works, and services procured; (ii) funds received from ADB and MOF; and (iii) expenditures incurred. Auditors will be selected and engaged by the least-cost selection method for the consultant-qualifications selection method in accordance with the Guidelines on the Use of Consultants. The Office of the Auditor General of Afghanistan may also conduct annual audits of overall MPW operations and Project accounts. Within 6 months after the end of

32

each fiscal year, MPW will submit to ADB the audited Project accounts and the auditor's reports, including separate opinion on the use of the imprest accounts and the statement of expenditure procedures compliance with the financial covenants of the grant agreement, all in the English language. MPW will also update ADB regarding any other information concerning such accounts and financial statements and the audit thereof as ADB may request from time to time. Audited financial statements should be prepared in conformity with sound accounting standards acceptable to ADB. F. Project Performance Management System

167. MPW, assisted by the design review and construction supervision consultant, will develop a project performance monitoring system within 3 months from Project commencement, which will contain baseline values of indicators, targets, and milestones corresponding to the expected impacts, outcome, outputs, and activities identified in the design and monitoring framework, and other relevant measures agreed between ADB and MPW. 168. The design review and supervision consultants will help MPW compile periodic data on key indicators on physical components of the Project. Data will be analyzed and results of the analyses and corrective measures (if any) taken will be reported in MPW's quarterly progress report. The quarterly progress reports will also include physical progress, disbursements, problems (if any) encountered, actions taken, and activities planned for the following quarter. MPW will also perform a complete analysis of related primary and secondary data on impacts and outcomes within 1 month of completion of the Project. The results of that analysis will be contained in the Government's project completion report to ADB, which will be submitted within 3 months of completion of the Project. G. Anticorruption Measures

169. ADBs Anticorruption Policy (1998, as amended to date) was explained to and discussed with the Government and MPW. Consistent with its commitment to good governance, accountability, and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the Project. To support these efforts, relevant provisions of ADBs Anticorruption Policy are included in the grant regulations and the bidding documents for the Project. In particular, all contracts financed by ADB in connection with the Project shall include provisions specifying the right of ADB to audit and examine the records and accounts of the PIU, and all contractors, suppliers, consultants, and other service providers as they relate to the Project. H. The Executing Agency 1. Management and Organization

170. MPW will be the Executing Agency (EA). A project implementation unit (PIU) will be established in Mazar-e-Sharif to handle day-to-day project implementation work and will be responsible for procurement, fund withdrawals, and reporting to ADB. A PIU director with experience in project management and civil works will be recruited with ADB's assistance. The PIU director will coordinate the work of the EPC contractor and supervision consultant. MPW will ensure that throughout project implementation, the PIU is adequately staffed with experts in engineering, financial, controls procurement, environmental, and social safeguards, and equipped with the necessary office space, equipment, and facilities. 171. A management information system will be used by the PIU to manage the Project. The PIU will prepare progress reports and submit these to the EA and ADB every quarter. It

33

will also submit other required performance and monitoring reports twice a year. Overall progress and compliance with conditions of the Grant Agreement will be monitored regularly with periodic reports to ADB. Reports will include the evaluation of issues or problems and remedial actions. 172. Efforts are needed from the Government to accomplish the Project on time. This requires various activities within limited time and thus decisions on a fast-track basis. In order to administer the Project effectively, the Government will constitute an Executive Committee, with representatives from MOF, MPW, MOCI, and MOI. The committee will be chaired by a minister-level official. The committee will provide overall guidance, facilitate all approvals from various agencies, and finalize agreements with UTY. It will also firm up the O&M contract before project completion. 173. The committee will monitor and coordinate implementation with the PIU Director. It will handle all administrative matters to clear security and land/resettlement issues, and recruit advisors. ADB will provide technical assistance to oversee the execution of the Project, and subsequent to that, its management. ADB staff including in Afghanistan Resident Mission, will assist in project implementation. 2. Maintenance

174. The Government will outsource the operation and maintenance of the rail service between Hairatan and Mazar-e-Sharif to UTY. The Government and UTY already agreed in principle on the proposed railway O&M model. This will be signed before the Project is completed. An adviser will be recruited to draft the agreement as part of the institutional development component. The Government agreed that a draft agreement will be developed by July 2010. 3. Financial Performance

175. Financial management assessment was undertaken for MPW to evaluate its ability to fulfill ADBs fiduciary requirements. A financial management assessment report is in Supplementary Report 7. 176. MPW manages a number of ADB-funded road projects and is familiar with ADB requirements. The current organizational structure is adequate but financial and accounting services will need to be outsourced. The financial management assessment indicates that MPWs financial and accounting staff does not have the relevant expertise. Training will be provided to MPW staff. 177. MPW will ensure that it will establish and maintain a sound financial management system in accordance with ADBs Guidelines, including the establishment of separate bank accounts and the maintenance of minimum balances to ensure smooth cash flow and the timely settlement of potential project construction liabilities and future debt servicing. The financial management system shall comprise: (a) financial planning, budgeting and budgetary control; (b) accounting consistent with internationally applicable standards; (c) internal control; (d) data processing, and (e) financial reports. 178. MPW will ensure that the financial statements of the project accounts will be audited annually by Control Office and Audit (COA) in line with the international standards and ADB requirements. A separate auditors opinion on the use of the imprest account and statement of expenditure will be incorporated in the audit reports.

34

I.

Assurances

179. The Government has given the following assurances, in addition to the standard assurances, which have been included in the legal documents. 180. The Government plans to outsource the railway O&M between Hairatan and Mazare-Sharif to UTY for a specific period of time, the duration of which will be decided by July 2010. An O&M agreement will be executed between the Government and UTY by October 2010. 181. The Government, through MPW, will ensure that the Project is carried out in accordance with the applicable technical specifications and design, and that the construction supervision, quality control, and project management are performed in accordance with applicable standards and best international practices. 182. The Government, through MPW, will ensure that civil works contracts will include the contractors obligation to comply with safety measures during construction and operation. The Government shall cause ARA to monitor and report the accident rate after commencement of operation of the rail service. 183. The Government will ensure that the civil works contract incorporates specific implementation milestones and targets with appropriate reward and penalty provisions to provide reasonable economic stimuli for timely and qualitative Project completion. 1. Environment

184. The Government, through MPW, will ensure that potential adverse environmental impacts arising from the Project are minimized by implementing all the mitigation measures presented in the IEE and EMP. The Government will also ensure that the design, construction, and operation of the Project are in accordance with ADBs Environmental Policy and the Governments environmental laws and regulations. The Government will cause MPW to ensure that: The contractor has primary responsibility for implementing the mitigation measures and EMP measures. The PIU head will have access to sufficient resources to ensure that all environmental management provisions are included in the contract. The PIU will monitor and record the implementation of the EMP prepared for the Project, under the guidance of the State Committee for Environmental Protection-National Environment Protection Agency. The PIU, with the assistance of the project management and supervision consultant, prepares half yearly environmental reports and submits to ADB, within 3 months of the end of each half of the calendar year, from the start of project implementation and until completion of the Project. The report will include, among other things, a review of progress made on environmental measures detailed in the IEE and EMP, and problems encountered and remedial measures taken. Detailed engineering designs, civil works, and other contracts for the Project facilities incorporate applicable environmental measures identified in the IEE and EMP.

35

 2.

Civil works contractor is supervised to ensure compliance with the requirements of the IEE and EMP. Project monitoring, review, and reporting

185. The Government, through MPW, will carry out the monitoring and evaluation of the Project in accordance with the design and monitoring framework agreed between the Government and ADB. 3. Labor, gender, health, and social protection

186. The Government, through MPW, will include a specific provision in the EPC contract to ensure that civil works subcontractors (a) comply with applicable core labor standards and labor laws, and incorporate applicable workplace occupational safety norms; (b) do not differentiate payment between men and women for work of equal value; (c) do not employ child labor in construction and maintenance activities; (d) eliminate forced or compulsory labor; (e) eliminate discrimination in respect of employment; (f) allow freedom of association; and (g) to the extent possible, maximize employment of local poor and disadvantaged persons for project construction, provided that the requirements for job and efficiency are adequately met. The Government, through MPW, will ensure that appropriate entities-for example non-government organizations-disseminate information on the risks of sexually transmitted infections, including HIV/AIDS, to the employees of civil works contractors engaged under the Project and to members of the local communities surrounding the project railway, particularly females. 187. The Project is implemented (a) in compliance with ADB's Policy on Gender and Development (1998); (b) necessary steps are taken to encourage women living in the project area to participate in the Project related activities; (c) in consultation with local governments and communities, and non-government organizations, independent monitoring is carried out of the social impacts throughout implementation of the Project. 4. Land acquisition and resettlement

188. The Government will ensure that the Project will implement LARP and follow ADBs Involuntary Resettlement Policy (1995). MPW will ensure that, subsequent to awarding civil works contract under the Project, no notice to proceed is issued to contractors for respective sections or parts of the Project until the applicable provisions of the LARP (including in particular the timely delivery of compensation to affected families) and EMP have been complied with. LARP shall be prepared in consultation with, and disclosed to, the affected persons. All land within the rights of way required by the Project shall be acquired and made available in a timely manner. All compensation and resettlement assistance shall be provided to affected persons prior to their displacement and dispossession. Efficient Grievance Readdress mechanism shall be in place in accordance with the LARP to assist affected persons in resolving queries and complaints if any, in a timely manner. Adequate staff and resources shall be made available for supervising and monitoring implementation of the LARP. An independent monitor acceptable to ADB shall be engaged to carry out external monitoring and evaluation of

36

the LARP and report the outcomes to ADB half-yearly. Half-yearly reports shall be submitted to ADB within 3 months of the end of each period covered. The internal monitoring shall be carried out by MPW. If during implementation of the LARP, any changes to the location, railway alignment, or additional environmental and/or resettlement impacts are identified, the LARP shall be updated and prior approval by ADB and the relevant government agency shall be obtained before further implementation of the LARP.

189. Any changes to the location, land alignment of railway, or environmental impacts on account of detailed designs of related projects will be subject to prior approval by ADB and the relevant government agency. 5. Security

190. The Government will make its best efforts to provide adequate security and demining measures for the smooth and uninterrupted implementation of the Project. In addition, the Government will ensure that the civil works contracts have an action plan for adequate security and smooth and uninterrupted implementation of the Project and that the cost of implementing such a plan is included in its budget. 6. Project Management

191. The railway agency will develop a plan to establish its institutional structure with a goal to gradual and phased disassociation from the Government to attain financial and operational independence by Project completion. 192. Funding and O&M. The Government will ensure that (a) additional funding will be provided for successful Project implementation; and (b) in each fiscal year adequate funds are allocated and/or generated for O&M and that the Project facilities are operated and maintained according to sound engineering and business practices. 193. Financial management. MPW will ensure that it will establish and maintain a sound financial management system, including establishing separate bank accounts and maintaining minimum balances to ensure smooth cash flow and the timely settlement of potential project construction liabilities. The financial management system shall comprise (a) financial planning, budgeting and budgetary control; (b) accounting consistent with internationally applicable standards; (c) internal control; (d) data processing; and (e) financial reports. 194. Auditing. MPW will ensure that the financial statements of the Project accounts will be audited annually in line with the international standards and ADB requirements. A separate auditors opinion on the use of imprest account and statement of expenditure will be incorporated in the audit reports.

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VII.
A.

STAKEHOLDER PARTICIPATION AND CONSULTATION

Stakeholders Consulted

195. A wide range of stakeholders have been consulted to make as far as possible in the duration of the mission. An in-depth analysis was carried out for different groups of potential beneficiaries of the project, and to assess the project's benefits, impacts and risks. Stakeholders were involved at different levels of discussion and in different places. Consultation sessions were conducted at Taza-Omed, Gur-e-Mar, Qalinbafans Camp and Hairatan. Issues discussed in the consultation sessions are merits, demerits of railway alignment, land acquisition and resettlement issues, etc, the consultation sessions were open for all to share and exchange views, ideas and experiences. 196. In the course of the present TA, several public and private organizations and individuals in Balkh Province and within the immediate project hinterland were consulted as to the anticipated impact of the project. Further details of those contacted are provided in Land Acquisition and Resettlement Plan Report and in the Initial Environmental Examination, which accompanies this Report as a separate volume. Besides, several ministries were consulted for the development of Institutional set up. B. Participatory Approach

197. All these stakeholders have been consulted for social assessment, using different qualitative and quantitative approaches. Consultation sessions were conducted at Taza Omed, Gur-e-Mar, Qalinbafans Camp and Hairatan respectively. Issues discussed in the consultation sessions included merits, demerits of railway alignment, land acquisition and resettlement, etc. The consultation sessions were open for all to share and exchange views, ideas and experiences. Most of the information was obtained through direct interviews. It was not that easy to obtain and review secondary information; sometimes only parts of documents could be obtained and reviewed. Apparently, it acted as a constraint in obtaining homogeneous information and data. 198. Concerning the participatory approach itself, it was more a classical socioeconomic field survey. The true participatory approach is used when the beneficiaries are consulted at all stages of a project: first during the selection of the project, then at project design level and finally during implementation. Such involvement will make the beneficiaries feel responsible for the infrastructure (a road, a school, a health center, a borehole, etc.), if not owner. The expected beneficiaries of the project have been consulted for the selection of project and for its design. Table 6: List of various stakeholders consulted by Social Experts
Sl. No. 1 2 3 4 5 Name of the Place Taza Omed Hairatan Gur-e-Mar Jairatan Hairatan Port Meeting with Community people Local people and traders Agriculture community Agricultural community Hairatan Port Authority Audience Village peoples Local people and traders Village leaders Village elders Date 20 July 09 21 July 09 25 July 09 31 August 09

38

Table 7: List of Persons Consulted by Railway Engineers

Department Sectoral Services of Balkh Province Local MPW Customs Authority Mazar-e-Sharif Airport Authority German Army Troops Railway Maintenance Department Hairatan Harbor Hairatan Harbor Local MPW Local MPW Position Head Head Head Head Deligate Director Head Technical Adviser Head Head Eng. Gholam Mohammad "Olosi" Eng. Gholam Farooq Eng. Teimoori Qoddus Khan Name Zabihullah "Akhtari" Eng. Enayatulla "Zafar" Location Mazar -e- Sharif Mazar -e- Sharif Mazar -e- Sharif Mazar -e- Sharif Mazar -e- Sharif Hairatan Hairatan Hairatan Maimana Hirat

Table 7: List of Persons Consulted by Other Experts

Name Engineer Md. Bari Seddiqui Engineer Romal Baluchzada Muhammad Asif Faroozan Mohammad Shirin Afzali Engineer Ghulam Molosi Al - Haj Zabihullah Akhtary Designation Director Project Manager General Director President Adviser Head of Sectoral Service Organization Railway Department, MPW PMU, MPW, ADB Transit Department, MOTCA Hairatan Harbor, Ministry of Commerce & Industries (MOC&I) Hairatan Transitional Port, MOC&I Independent Sub-National Governance Administration, Balkh Province Roads Maintenance, MPW Reform Implementation & Management Unit (RIMU) MPW, Ministry of Transport and Civil Aviation (MOTCA) MOC&I Afghanistan Chamber of Commerce & Industries (ACCI) ACC&I, Balkh Province

Dr, Engineer. Ahmad Shah Wahid Mohammad Yamma Shams Yalda Natiq

General Director Coordinator President of Foreign Ministry of Transport and Relation Assistant, International Transit CEO Deputy Commercial

Shah Mohammad Sakhizada Mohammad Qurban Haqjo Abdul Karim Arifi

39

VIII.

KEY FACTORS IMPACTING PROJECT VIABILITY

199. The Project assumes maximum coordination efforts by government agencies in Afghanistan, and full commitment and support of the Balkh Provincial government, local communities, and security institutions. Moreover, it is assumed that the Government will formulate policies conducive to economic growth and remain committed to regional cooperation and integration. 200. The Project has two major potential risks: (i) start-up and implementation delays, and (ii) security hazards. The Government plans strong measures to mitigate these risks. Advance actions are being taken to speed up implementation readiness. The engagement of supervision consultants is already underway and discussions have taken place with UTY on the basic EPC contract terms and conditions, including quality standards, the fixed price concept, and the fixed time delivery schedule. A request for a proposal from UTY has also been advanced, a final commitment being subject to formal approvals of the financing, and other arrangements, by ADB and the Government of Afghanistan. ADB will act throughout as a facilitator, including at the negotiations between the Government and UTY, and will engage the services of an independent railway expert to verify the price proposals by UTY. Implementation delay risks can be mitigated by the EPC contract and the fact that UTY has already preliminary designs. This can reduce the risk of cost overruns and cut the probability of execution extensions. On security, the Project provides sufficient funds to mitigate possible security disruptions during implementation. Close coordination with MOI will be taken place. 201. Actions are also planned to mitigate operational risks. A railway agency will be set up during the implementation phase to manage the rail assets and ensure their financial sustainability. An advisor will be engaged under the Project to help prepare an O&M agreement between the Government and UTY, which will be signed before Project completion. ADB will assist the Government negotiate the contract, including defining its operational criteria and basic terms and conditions. The agreement will cover performance benchmarks, maintenance, risk sharing, and other arrangements between the two parties.

40

IX.

RECOMMENDATIONS

202. Afghanistan to become economically, financially, socially more viable and also to become a Transit Country, construction of these corridors, especially the corridor of the (Hairatan-Mazar-e-Sharif) Project is not only important but also very urgent. 203. The TA Consultant has completed technical, economic, financial, social and environmental assessments of the alternative options for Hairatan to Mazar-e-Sharif Railway and has selected a Preferred Option which, in accordance with the Terms of Reference, is technically feasible, economically viable, socially responsible and environmentally sound. In order to optimize the benefits of the proposed Hairatan to Mazar-e-Sharif rail line, the Consultant recommends the following: 204. The Hairatan to Mazar-e-Sharif corridor should be identified as a high capacity rail corridor. All new structures crossing this corridor should be planned and constructed with vertical clearances suitable for double stacking of containers and all the relevant road authorities should be informed of this policy so that they can incorporate these clearance requirements in planning new crossings of this high capacity rail corridor. 205. Transshipment arrangement at Naibabad Railway station should not be confined to transshipment from rail to road only but should also be extended for transshipment from broad gauge(1520 mm gauge ) to standard gauge(1435 mm gauge). 206. In future, a Common User Oil Terminal should be established at Hairatan with necessary sidings. This should serve the Oil Companies, and will enable the working of block trains to and from this Terminal. At present, 8 km track rehabilitation at the existing marshalling yard of Hairatan and 2 km new track for connecting EU's new custom facilities have been incorporated into the project. 207. For strategic, economic and technical reasons, from Naibabad onward up to Hirat, Kabul and rest of the country should follow the Standard Railway Gauge System. 208. Although the EPC - Turnkey contracts have been awarded to UTY, but for transfer of technology the local engineers and workers should be involved both during the construction and maintenance stage. For that the institutional arrangement and in-house capacity should be agreed (by GOA and ADB) and be in place as soon as possible. 209. A well designed Grade Separation arrangement (at the cost of the Project) should be constructed during Phase I construction near Naibabad road crossing of the Kabul-Mazar highway. The reasons for this recommendation are (i) there is a steep curvature in Railway track near Naibabad and the visibility will be poor at this point (iii) Road and Rail users in Afghanistan are not used to operate rail-road crossings, (iv) In future both Rail and Road traffic are likely to increase substantially, in consequence of which there will be risk of accident at this crossing. Subject to the approval of the GOA the cost estimate may be revised. 210. Color-Light signaling and safe interlocking system should be introduced in all Railway stations, level crossings etc., Provision of suitable signs and barriers at the approaches of level crossings prohibiting people from entering the railway operating corridor within the Right of Way. 211. The provisions for longer loop lines (1700 m) in the stations which were conceived on the assumption of following the vision of CIS railway may now be reviewed as the rest of Afghanistans future rail corridor will have Standard Gauge. The length of loop lines in stations may be reduced and fixed at 850 meter.

41

212. The Environmental Management Plan (EMP) has been prepared prior to implementation of the Project. The recommendations of the EMP and the environmental clauses should be obliged during the construction stage and should be legally obliged to maintaining the natural, ecological, social and pollution standards in accordance with legal requirements. 213. The Resettlement Plan for the Project, has been prepared in accordance with ADB Guidelines as part of this Study, should be updated in conjunction with detailed engineering for the Hairatan Mazar-e-Sharif Line Project, and approved by Afghanistan Railway Authority and other appropriate agencies, and should be implemented prior to the acquisition of land for the Project. 214. The planned investments in rail infrastructure should be accompanied by institutional strengthening and improvement in the management efficiency of ARA, through which ARA should be given greater autonomy in decision making, and should adopt a greater commercial focus, by adopting a business planning approach for the key businesses in which it operates. 215. ARA should involve the private sector in further areas of the railway operations, where these can result in improved financial performance for the railway. These could include further outsourcing of a range of maintenance activities, as well as possible joint ventures with the private sector in the operation of passenger, container and fuel train services.

42

APPENDICES

Appendix 1, Page 1 DESIGN AND MONITORING FRAMEWORK Design Summary

Impact Greater economic development and increased trade between Afghanistan and the region

Performance Targets/Indicators
By 2015: Trade between Afghanistan and Uzbekistan increased from $170 million to $ 300 million in 2008 Increase in trade between Afghanistan and Uzbekistan to $300 million from $170 million in 2008 Afghanistans total trade increased from $3.5 billion to $ 5 billion in 2008. Note: Please mention the currency Increase in Afghanistan's total trade to $5 billion from $3.5 billion in 2008

Data Sources/Reporting Mechanisms

According to the statics of the Islamic Republic of Afghanistan. Afghanistan Government statistics

Assumptions and Risks

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

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

By 2012: Transportation of freight by trains has increased from 4500 tons to 6000 tons per day in 2008. Freight transported by trains reached 6,000 ton per day from 4,500 ton per day in 2008. Composition of Heavy vehicle traffic at Hairatan- Mazar-eSharif road has reduced from 50% to 35% in 2008 Composition of heavy vehicle traffic on Hairatan Mazar-eSharif road reduced to 35% from 50% 2008 Travel time for freight traffic between Hairatan and Mazar-eSharif has reduced from two hours to one hour in 2008 Reduced travel time for freight traffic between Hairatan and Mazar-e-Sharif to 1 hour from 2 hours in 2008 CO2 emission reduction from 2.3 million ton (2008) to 1.7 million ton Increased job opportunities for women in the rail service and local businesses, including Statistics from the Ministry of Commerce (Islamic Republic of Afghanistan) ADB's Project Completion Report Employment statics of Balkh Province. Employment statistics in Balkh Province Traffic surveys by railway agency (upon Project completion)

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

Risk Financial sustainability and operational risks

Appendix 1, Page 2 Performance Targets/Indicators

logistics services at all stations and airport at Mazar-e-Sharif (baseline to be established during Project implementation) Reduced incidence of HIV/AIDS and sexually transmitted diseases in the Project area (baseline to be established during Project implementation) Around 5 million people will benefit from the Project and railway operations Outputs About 75 km of a new railway line and stations between Hairatan and Mazare-Sharif constructed and operated By 2011: Railway line meeting the specifications of gauge (1520 mm) Marshalling yard at Hairatan Station upgraded to handle 20,000 ton per day from 5,000 ton per day (2008) Railway signaling and telecommunication system installed Railway sector plan endorsed by the Government, railway institution established and capacity building Long term railway development plan developed and reviewed by the Government Railway legal framework and regulations drafted and reviewed by the Government O&M agreement signed between UTY and the Government 30 staff trained on railway operation and maintenance Project progress reports ADB review missions; back to office reports The EA's Project Report and ADB's Completion Assumption Maximum coordinated effort by the inter-ministerial agencies of central government Risks Lack of coordination between central and local governments

Design Summary

Data Sources/Reporting Mechanisms

Assumptions and Risks

Deterioration of security situation

Activities with Milestones

1. Before construction activity starts on site, produce EMP as an update to Table 2 in IEE, based on detail design, and submit to PIU for approval and ADB for no-objection 2. Land acquisition and resettlement completed by November 2009 3. EPC contract awarded by November 2009 and completed by June 2010 4. Supervision Consultants recruited by November 2009 and services completed by December 2010 5. Advisory services commenced from January 2010 and completed by December 2010 6. Training program completed by 2011

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

ADB = Asian Development Bank, ADF = Asian Development Fund, EMP = environmental management plan, IEE = initial environmental examination, km = kilometer, PIU = project implementation unit, UTY = Uzbekistan Temir Yullari. Source: Asian Development Bank

Appendix 2, Page 3 PROJECT COST ESTIMATES AND IMPLEMENTATION SCHEDULE A. Project Cost and Maintenance at Economic Prices

1. The project cost has been estimated US$ 162.6 million. The maintenance cost is assumed to be 1% of project cost per year and the major maintenance cost is 5% of the project cost to be undertaken on 5th year and 10th year. It was observed that the average ratio in the period from 2002/03 to 2008/09 at constant prices between GDP at factor cost and GDP at market prices is 0.98 in Afghanistan. The ratio of factor cost GDP and market price GDP, which includes tax component is considered as SCF for civil works in the absence of other consistent relevant data. The project cost and maintenance cost at economic prices are as follows: Table 1: Project Cost and maintenance Cost at Economic Prices ($ millions)
Costs Items Project 35% in 1st year (2009) 65% in next year (2010) Routine Maintenance Major Maintenance At Financial Prices 162.6 56.91 105.69 1.6 8.1 At Economic Prices 159.35 55.77 103.57 1.5 7.9

B.

Financial cost

2. Detailed project (capital) costs, including base costs, physical contingency, and price contingency, are illustrated in Table 1, 2, and 3 interms of Project cost summery by Component, by expenditure and by financiers respectively. The total project cost is $162.57 million (or 8128 million Afghani). Capital costs during the construction period for financial analysis include all incremental outlays related to the project, but exclude interest during construction and price contingency. 3. Annual capital cost outlay for civil works and others during construction period is assumed at 100% in year 2010. This percentage breakdown is based on the estimate made by the consultants. Rolling stock (locomotives and passenger coaches) is purchased at the end of the construction period with local loan or leased from other railway company.

Appendix 2, Page 4

Table 2: Project Cost Summary by Component

Total Costs US $ A. Base Cost a I Railway Development Railway Development Subtotal II Capacity Building Capacity Building Subtotal Total Base Cost B. Contingency I Physical Contingency b II Price Contingency c Subtotal C. Financing Charges Interest During Implementation d Commitment Charges Total Project Costs
a b

Total Costs Afg. million

Percent of Total Project Costs

132.17 132.17 4 4 136.17

6608.5 6608.5 200 200 6808.5

81.30%

2.46% 83.76%

13.2 13.2 26.4

660 660 1320

8.12% 8.12% 16.24%

162.57

8128.5

100.00%

In mid-2009 prices. Physical contingency is estimated at 10% of basic construction costs. c Price contingency is estimated at 10% of basic construction costs. d Interest during construction computed at the 5-year forward London inter bank offered rate as of mid-2009, plus a spread of 0.6%. Exchange rate used: Afghani 50 = $1. Note: The project costs and financing plan is only an approximate estimate from excel.

4. In the above table we can see that base cost accounts for 83% of total project costs. Among this the railway development costs 81% and capacity building costs 2.46% of the total costs. Contingency accounts for 16.24% among which physical and price contingency costs 8.12% equally.

Appendix 2, Page 5

Table 3: Project Cost Summary by Expenditure

Total Costs US $ million A. Base costs a Civil Works Right-of-Way and Culverts Railroad track work Buildings Temporary Facilities Equipment Electric Traction & Power Safety Component Signaling & Telecommunication Consulting Services Land Acquisition Environmental protection Subtotal B. Contingencies Physical contingency b Price contingency c Subtotal C. Financing charges during implementation d Interest during implementation Commitment charges Subtotal Total Project Costs
a b

Total Costs Afg. million

Percent of Total Project Costs 79.15

128.67 53.75 69.92 3.00 2.00 3.40 2.50 0.90 4.00 0.10 0.00 136.17 13.20 13.20 26.40

6433.60 2687.50 3496.10 150.00 100.00 170.00 0.00 125.00 45.00 200.00 5.00 0.00 6808.60 0.00 660.00 660.00 1320.00 0.00 0.00 0.00

2.09

2.46 0.06 0.00

16.24

0.00 0.00

162.57

8128.50

100.00

In mid-2009 prices. Physical contingency is estimated at 10% of basic construction costs.. c Price contingency is estimated at 10% of basic construction costs. d Interest during construction computed at the 5-year forward London inter bank offered rate as of mid-2009, plus a spread of 0.6%. Exchange rate used: Afghani 50 = $1. Note: The project costs and financing plan is only an approximate estimate from excel.

Appendix 2, Page 6

Table 3: Summary Costs (Component) by Financiers

Total Costs $ million A. Base Cost a I Railway Development Railway Development Subtotal II Capacity Building Capacity Building Subtotal Total Base Cost B. Contingency I Physical Contingency b II Price Contingency c Subtotal C. Financing Charges Interest During Implementation d Commitment Charges Total Project Costs
a

Total Costs Afg. million

ADB $ million

ADB %

132.17 132.17

6608.5 6608.5

132.17 132.17

100% 100%

4 4 136.17

200 200 6808.5

4 4 136.17

100% 100% 100%

13.2 13.2 26.4

660 660 1320

13.2 13.2 26.4

100% 100% 100%

162.57

8128.5

100.00%

In mid-2009 prices. b Physical contingency is estimated at 10% of basic construction costs.. c Price contingency is estimated at 10% of basic construction costs. d Interest during construction computed at the 5-year forward London inter bank offered rate as of mid-2009, plus a spread of 0.6%. Exchange rate used: Afghani 50 = $1.

It is visible that the base cost is highest among all the costs in all respects.

C.

Implementation Period

5. The Project will be implemented over a period of 18 months including testing, commissioning, and trial operations. The design and construction activities are expected to start in November 2009

Appendix 2, Page 7

Appendix 3, Page 8
PROJECT PERFORMANCE MONITORING SYSTEM 1. MPW, assisted by the design review and construction supervision consultant, will develop a project performance monitoring system within 3 months from Project commencement, which will contain baseline values of indicators, targets, and milestones corresponding to the expected impacts, outcome, outputs, and activities identified in the design and monitoring framework, and other relevant measures agreed between ADB and MPW. 2. The design review and supervision consultants will help MPW compile periodic data on key indicators on physical components of the Project. Data will be analyzed and results of the analyses and corrective measures (if any) taken will be reported in MPW's quarterly progress report. The quarterly progress reports will also include physical progress, disbursements, problems (if any) encountered, actions taken, and activities planned for the following quarter. MPW will also perform a complete analysis of related primary and secondary data on impacts and outcomes within one month of completion of the Project. The results of that analysis will be contained in the Government's project completion report to ADB, which will be submitted within 3 months of completion of the Project. 3. ADB will field an inception mission within 2 months of grant approval. Subsequently, the ADB mission will review project implementation, including procurement, civil works, and environmental and social safeguards based on quarterly progress reports. It will meet with the Executive Committee, MPW, and PIU to discuss implementation progressfocusing on engineering, environmental, and social safeguards of the Project; compliance with grant covenants; and review of the financial status of the PIU. Representatives of the Executive Committee and MPW will take part in the review. The review will allow for any necessary midcourse corrections to ensure successful implementation and the achievement of the Project objectives. ADB missions, together with the Executive Committee, MPW, and PIUwill perform on-site reviews of the Project 6 months after the project starts. This review will focus on identifying causes and agreeing on measures to correct negative deviations from targets for (i) the physical completion of works, (ii) disbursements, and (iii) financial and procurement audits.

Appendix 4, Page 9

FINANCIAL PROJECTIONS A. Introduction

1. The objective of this report is to conduct financial analysis and financial projections for the Hairatan to Mazar-e-Sharif Railway Development Project (the Project). It is assumed that the Hairatan to Mazar-e-Sharif Railway is operated as an independent firm. It is also assumed that the railway firm is subject to corporate income tax, business tax and any surcharges; and undertakes design, construction and operation of the railway, and bears the risk related 2. The expected construction period for this project is 1 year, or 2010 and the expected operation period is 25 years, from 2011 to 2035. FIRRs are estimated for the period from 2010 to 2035 and pro forma financial statements are prepared for the period from 2010 to 2035. All costs and revenues are expressed in 2009 constant prices in US dollars 3. The financial analysis and financial projections are undertaken also based on some other studies, such as detailed economic analysis, traffic forecast, and other Appendices. The financial analysis and projections are conducted in accordance with ADBs Guidelines B. Financial Projections 1. Assumptions a. General

4. The financial projections are prepared on a nominal basis based on assumptions above and in the following paragraphs. Domestic inflation rates have been assumed to be 6.0% from year 2010 while international inflation rates have been assumed to maintain 1.0% throughout the projection period. The government bears the foreign exchange risk. b. Depreciation

5. A straight-line depreciation method is adopted for railway assets in this study. An average annual depreciation rate of 4% is assumed for different categories of capitalized fixed assets. The residual value is assumed at zero at the end of the project period for the purposes for financial forecast. c. Tax Expense and Dividend Payments

6. The effective tax rates on railway firm are shown in Table 9-4. For the purpose of financial forecast it is assumed that business taxes are levied on revenue and corporate income tax is estimated at earnings after interest. 7. It is assumed that the railway firm will not pay dividends. In addition, grant from ADBs contribution is treated as equity. C. Pro Forma Financial Statements

8. Based on the above assumptions, the three pro forma financial statements are produced through financial forecast. This is done by using the same base data as above for 2 years of construction period and 25 years of operation (2011 to 2035) in the base case. The three pro forma statements (income statement, balance sheet and cash flow statement) are produced for the project and are shown and presented in Table A-1 through Table A-4. The projections presented in this supplementary appendix are in accordance with internationally accepted accounting principles.

Appendix 4, Page 10 D. Financial Performance

9. Through financial forecast, we can see the financial performance and financial sustainability of the railway entity during the construction and operation periods are ensured. For an independent revenue generating entity with capital structure comprising long term debt and equity, the important indicator of financial risk is the annual debt service ratio, which indicates the extent to which firms net cash inflows cover debt outflow. A further indicator is the potential return that could be earned on equity and assets. 10. There is no debt in this railway agency. In addition, the return on equity and return on assets are also positive after 5 years operation. Therefore, the railway firm is profitable and sustainable. E. Financial Analysis

11. The cash inflow of the proposed railway is determined by freight traffic forecast and tariff rate, and is generally from two sources: operating revenue and other revenues. A weighted average railway tariff of $0.14 per tonne kilometer is used in this project. It is assumed that this rate remain unchanged during the project period. The traffic forecast for the project period is discussed in details in table below. The total traffic forecast in tonne kilometer is derived by multiplying the traffic in Table 1 by the length of the railway and numbers of days in one year 12. Actually, the railway firm will receive additional revenue from loading and unloading, warehouse, storage, and parcel service in the train stations. Provided the similarity of the proposed railway to other railway in Asia, a conservative value of 0.005 percent of freight revenue is assumed in this study. 13. Detailed project (capital) costs include base costs, physical contingency, and price contingency. The total project cost is $162.57 million (or 8128 million Afghani). Capital costs during the construction period for financial analysis include all incremental outlays related to the project, but exclude interest during construction and price contingency 14. Annual capital cost outlay for civil works and others during construction period is assumed at 100% in year 2010. This percentage breakdown is based on the estimate made by the consultants. Rolling stock (locomotives and passenger coaches) is purchased at the end of the construction period with local loan or leased from other railway company. Capital costs also occur during the operation period for capacity enhancement. However, annual capital expenditures for civil works and for rolling stock are assumed zero at current stage. 15. Annual operating and maintenance costs for the proposed railway include the following components: fixed costs (mainly maintenance cost) and variable costs. Variable costs are calculated by multiplying the unit cost by appropriate quantities. Fixed (maintenance) costs for the railway project are assumed $1.6 million for routine maintenance and $8.1 million for major maintenance. 16. It is assumed that the income tax rate and business tax rate are 20% and 2% respectively on the firms across Afghanistan 17. In theory, the WACC is zero if ADB is the only contributor of the project as a grant. However, there is a opportunity for ADB loan since its interest has been computed at the 2030-year forward London interbank offered rate plus a spread of 0.2%. As of 14 August 2009, the Indicative Lending Rates for Loans under the LIBOR-Based Loan Facility is 4.28%1, the

Source: Treasury Department, ADB (http://www.adb.org/Documents/Brochures/Libor/indicative_rates.pdf)

Appendix 4, Page 11 effective rate for the ADB resource is estimated at 4.48%. The firm also needs to purchase rolling stock with loan from a bank or lease rolling stock from a railway company from central Asia in order to operate the railway. It is assumed that rolling stock accounts for 7.34%2 and the long term interest rate is 5.29%3 on August 16, 2009. As a result, the WACC is 2.60% for this project is estimated at 2.60%. 18. The FIRRs can be derived by taking into account the tariff, the traffic forecast, project costs, operating and maintenance costs, and taxes and are summarized in Table A1. The FIRRs before and after income tax are 8.99% and 8.01% respectively, greater than the WACC (2.60%) of the Project. Therefore, the project is viable. 19. The FIRRs for the project are tested for the following unfavorable scenarios: (i) increase in both project and O&M costs by 10%; (ii) decrease in traffic by 10 %; (iii) delay in operation by one year (2 years of construction period); and (iv) all above. As shown in Table A2, under any one of unfavorable scenarios, the FIRRs before and after income tax are greater than the WACC. The FIRRs before and after income tax under all unfavorable conditions at the same time are 4.19% and 3.47% respectively F. Financial Projections

20. If the railway firm is operating as an independent firm, it definitely needs a term loan or a lease to finance rolling stock. It is also assumed that the rolling stick is financed through a term loan with interest rate of 5.29 percent 21. A straight-line depreciation method is adopted for railway assets in this study. An average annual depreciation rate of 4% is assumed for different categories of capitalized fixed assets, including rolling stock. The residual value is assumed at zero at the end of the project period 22. For the purpose of financial forecast it is assumed that business taxes are levied on revenue and corporate income tax are estimated at earnings after interest 23. Based on the above assumptions, the three pro forma financial statements are produced through financial forecast. This is done by using the same base data as above for 1 year of construction period and 25 years of operation (2011 to 2035) in the base case 24. Through financial forecast, we can see the financial performance of the railway firm in the construction and operation periods. The debt service ratio for all debt is greater than 1 after 2017. This clearly indicates that the cash inflows from the operation are sufficient to meet all debt service charges after 7th operating period. In addition, the return on equity and return on assets are also positive after 2017. Therefore, the railway firm is profitable and sustainable

2 3

ADB financed Hefei-Xian Railway Project http://www.federalreserve.gov/releases/h15/update, August 16, 2009.

Appendix 4

Page 12

Table A-1: Financial Analysis in $ million at constant 2009 prices

Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Capital Investment 160.33 20.36 23.29 26.65 30.49 34.88 39.86 45.56 52.08 59.53 68.04 78.04 89.51 102.67 117.76 135.07 155.33 178.63 205.43 236.24 271.68 310.39 354.62 405.16 462.89 528.86 17.73 20.08 22.77 25.84 29.36 38.76 37.93 43.16 49.13 55.95 63.97 73.17 83.72 95.82 109.70 131.35 144.63 166.11 190.82 219.23 250.28 285.74 326.26 372.55 425.44 6.41 6.41 6.41 6.41 6.41 6.41 6.41 6.41 6.41 6.41 6.41 6.41 6.41 6.41 6.41 6.41 6.41 6.41 6.41 6.41 6.41 6.41 6.41 6.41 6.41 Gross revenue Other Cash outlay Depreciation Interest Expense 0.58 0.57 0.56 0.54 0.53 0.52 0.50 0.48 0.47 0.45 0.43 0.41 0.39 0.37 0.35 0.32 0.30 0.27 0.24 0.21 0.18 0.15 0.11 0.08 0.04 FIRR pre income tax Net Cash Net Cash Flow Income tax Flow after tax before tax -160.33 2.64 3.22 3.88 4.64 5.51 1.10 7.63 8.92 10.40 12.08 14.07 16.34 18.95 21.94 25.37 23.99 34.00 39.31 45.42 52.45 60.12 68.88 78.90 90.34 103.42 8.99% 0.14 0.40 0.70 1.04 1.44 1.90 2.43 3.03 3.72 3.45 5.46 6.53 7.75 9.16 10.70 12.46 14.47 16.77 19.39 FIRR post income tax -160.33 2.64 3.22 3.88 4.64 5.51 1.10 7.49 8.52 9.69 11.04 12.62 14.44 16.52 18.91 21.65 20.54 28.55 32.79 37.67 43.28 49.41 56.42 64.43 73.57 84.02 8.01%

Appendix 4

Page 13

Table A-3: Pro Forma Income Statements 2010-2035

2010 1. Revenue (million Yuan) Freight Other Subtotal revenue Less: Business Taxes Total Revenue 2. Operating Expenses Freight Other Depreciation Total operating expenses Earnings Before Interest and Taxes Interest Earnings after interest before Taxes Taxes Payable Earnings after interest and Taxes 15.92 1.40 6.41 23.73 -3.78 0.58 -4.36 -4.36 18.21 1.40 6.41 26.02 -3.20 0.57 -3.76 -3.76 20.83 1.40 6.41 28.65 -2.53 0.56 -3.09 -3.09 23.83 1.40 6.41 31.65 -1.77 0.54 -2.31 -2.31 27.27 1.40 6.41 35.08 -0.90 0.53 -1.43 -1.43 31.16 6.80 6.41 44.38 -5.31 0.52 -5.83 -5.83 35.62 1.40 6.41 43.43 1.22 0.50 0.72 0.14 0.57 40.72 1.40 6.41 48.53 2.51 0.48 2.02 0.40 1.62 46.54 1.40 6.41 54.35 3.98 0.47 3.52 0.70 2.81 53.19 1.40 6.41 61.01 5.67 0.45 5.22 1.04 4.18 61.01 1.40 6.41 68.82 7.65 0.43 7.22 1.44 5.78 69.98 1.40 6.41 77.79 9.93 0.41 9.52 1.90 7.61 80.27 1.40 6.41 88.08 12.54 0.39 12.14 2.43 9.72 92.07 1.40 6.41 99.88 15.53 0.37 15.16 3.03 12.13 105.60 1.40 6.41 113.41 18.96 0.35 18.61 3.72 14.89 121.44 6.80 6.41 134.65 17.57 0.32 17.25 3.45 13.80 139.66 1.40 6.41 147.47 27.59 0.30 27.29 5.46 21.83 160.61 1.40 6.41 168.42 32.90 0.27 32.63 6.53 26.10 184.70 1.40 6.41 192.51 39.01 0.24 38.77 7.75 31.01 212.40 1.40 6.41 220.21 46.03 0.21 45.82 9.16 36.66 242.67 1.40 6.41 250.48 53.71 0.18 53.52 10.70 42.82 277.25 1.40 6.41 285.06 62.47 0.15 62.32 12.46 49.86 316.76 1.40 6.41 324.57 72.49 0.11 72.37 14.47 57.90 361.89 1.40 6.41 369.71 83.93 0.08 83.85 16.77 67.08 413.46 1.40 6.41 421.28 97.00 0.04 96.96 19.39 77.57 20.26 0.10 20.36 0.41 19.95 23.18 0.12 23.29 0.47 22.83 26.52 0.13 26.65 0.53 26.12 30.33 0.15 30.49 0.61 29.88 34.70 0.17 34.88 0.70 34.18 39.66 0.20 39.86 0.80 39.07 45.34 0.23 45.56 0.91 44.65 51.82 0.26 52.08 1.04 51.04 59.23 0.30 59.53 1.19 58.34 67.70 0.34 68.04 1.36 66.68 77.65 0.39 78.04 1.56 76.48 89.07 0.45 89.51 1.79 87.72 102.16 0.51 102.67 2.05 100.62 117.18 0.59 117.76 2.36 115.41 134.40 0.67 135.07 2.70 132.37 154.56 0.77 155.33 3.11 152.23 177.74 0.89 178.63 3.57 175.06 204.41 1.02 205.43 4.11 201.32 235.07 1.18 236.24 4.72 231.52 270.33 1.35 271.68 5.43 266.25 308.85 1.54 310.39 6.21 304.19 352.86 1.76 354.62 7.09 347.53 403.14 2.02 405.16 8.10 397.06 460.59 2.30 462.89 9.26 453.64 526.23 2.63 528.86 10.58 518.28 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

Appendix 4

Page 14

Table A-3: Pro Forma Balance Sheet 2010-2035

2010 Current Assets Cash Accounts Receivable Total Current Assets Long-Term Assets Construction in progress Gorss Investment:civil works loco & other 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 10.96 10.96 10.96 10.96 10.96 10.96 10.96 10.96 10.96 10.96 10.96 10.96 10.96 10.96 10.96 10.96 10.96 10.96 10.96 10.96 10.96 10.96 10.96 10.96 10.96 10.96 0.00 0.00 0.00 1.83 0.00 1.83 4.25 0.00 4.25 7.33 11.17 15.88 16.18 22.87 30.59 39.48 49.72 61.54 75.18 90.90 109.01 129.85 149.59 177.33 209.32 246.19 288.67 337.28 392.90 456.53 529.30 612.52 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 7.33 11.17 15.88 16.18 22.87 30.59 39.48 49.72 61.54 75.18 90.90 109.01 129.85 149.59 177.33 209.32 246.19 288.67 337.28 392.90 456.53 529.30 612.52 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

Subtotal Gross Investment 10.96 160.33 160.33 160.33 160.33 160.33 160.33 160.33 160.33 160.33 160.33 160.33 160.33 160.33 160.33 160.33 160.33 160.33 160.33 160.33 160.33 160.33 160.33 160.33 160.33 160.33 Less: Accumulated Depreciation: civil 0.00 5.97 11.95 17.92 23.90 29.87 35.85 41.82 47.80 53.77 59.75 65.72 71.70 77.67 83.65 89.62 95.60 101.57 107.55 113.52 119.50 125.47 131.45 137.42 143.40 149.37 works loco & other 0.00 0.44 0.88 1.32 1.75 2.19 2.63 3.07 3.51 3.95 4.39 4.82 5.26 5.70 6.14 6.58 7.02 7.46 7.89 8.33 8.77 9.21 9.65 10.09 10.53 10.96 Net Investment:civil works loco & other Subtotal Net Investment Total Long-Term Assets Total Assets Current Liabilities Short-term loans Total Current Liabilities Long-term Liabilities Long-Term Debt ADB Total Long-Tern Liabilities Total liabilities Equity Shareholders' Equity Retained Earnings Total Equity Total Liabilities and Equity 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 149.37 0.00 -4.36 -8.12 -11.21 -13.52 -14.96 -20.78 -20.21 -18.59 -15.78 -11.60 -5.82 1.79 11.51 23.63 38.52 52.32 74.16 100.26 131.27 167.93 210.75 260.61 318.50 385.58 463.15 149.37 145.01 141.25 138.16 135.85 134.41 128.59 129.16 130.78 133.59 137.77 143.55 151.16 160.88 173.00 187.89 201.69 223.53 249.63 280.64 317.30 360.12 409.98 467.87 534.95 612.52 160.33 155.76 151.76 148.43 145.85 144.15 138.04 138.31 139.61 142.09 145.92 151.33 158.55 167.86 179.55 193.99 207.31 228.64 254.22 284.67 320.74 362.94 412.14 469.36 535.71 612.52 10.96 10.74 10.51 10.27 10.01 10.96 10.74 10.51 10.27 10.01 10.96 10.74 10.51 10.27 10.01 9.74 9.74 9.74 9.45 9.45 9.45 9.15 9.15 9.15 8.83 8.83 8.83 8.50 8.50 8.50 8.15 8.15 8.15 7.78 7.78 7.78 7.39 7.39 7.39 6.98 6.98 6.98 6.55 6.55 6.55 6.10 6.10 6.10 5.62 5.62 5.62 5.11 5.11 5.11 4.58 4.58 4.58 4.03 4.03 4.03 3.44 3.44 3.44 2.82 2.82 2.82 2.17 2.17 2.17 1.48 1.48 1.48 0.76 0.76 0.76 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 143.40 137.42 131.45 125.47 119.50 113.52 107.55 101.57 95.60 89.62 83.65 77.67 71.70 65.72 59.75 53.77 47.80 41.82 35.85 29.87 23.90 17.92 11.95 10.96 10.53 10.09 9.65 9.21 8.77 8.33 7.89 7.46 7.02 6.58 6.14 5.70 5.26 4.82 4.39 3.95 3.51 3.07 2.63 2.19 1.75 1.32 0.88 10.96 153.92 147.51 141.09 134.68 128.27 121.85 115.44 109.03 102.61 96.20 89.79 83.37 76.96 70.55 64.13 57.72 51.31 44.89 38.48 32.07 25.65 19.24 12.83 160.33 153.92 147.51 141.09 134.68 128.27 121.85 115.44 109.03 102.61 96.20 89.79 83.37 76.96 70.55 64.13 57.72 51.31 44.89 38.48 32.07 25.65 19.24 12.83 5.97 0.44 6.41 6.41 0.00 0.00 0.00 0.00

160.33 155.76 151.76 148.43 145.85 144.15 138.04 138.31 139.61 142.09 145.92 151.33 158.55 167.86 179.55 193.99 207.31 228.64 254.22 284.67 320.74 362.94 412.14 469.36 535.71 612.52

Appendix 4

Page 15

Table A-4: Pro Forma Cash Flow Statements 2010-2035

2010 Funds from Operations Earnings before interest and taxe Add-back depreciation Working Capital Tax paid Total funds from operations -3.78 6.41 2.64 -3.20 6.41 3.22 -2.53 6.41 3.88 -1.77 6.41 4.64 -0.90 6.41 5.51 -5.31 6.41 1.10 1.22 6.41 -0.14 7.49 2.51 6.41 -0.40 8.52 3.98 6.41 -0.70 9.69 5.67 6.41 -1.04 11.04 7.65 6.41 -1.44 12.62 9.93 6.41 -1.90 14.44 12.54 6.41 -2.43 16.52 15.53 6.41 -3.03 18.91 18.96 6.41 -3.72 21.65 17.57 6.41 -3.45 20.54 27.59 6.41 -5.46 28.55 32.90 6.41 -6.53 32.79 39.01 6.41 -7.75 37.67 46.03 6.41 -9.16 43.28 53.71 6.41 -10.70 49.41 62.47 6.41 -12.46 56.42 72.49 6.41 -14.47 64.43 83.93 6.41 -16.77 73.57 97.00 6.41 -19.39 84.02 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

Funds from Financing Infusion of Construction Funds Drawdown (ADB) Total funds from financing Total Sources of Funds 149.37 10.96 160.33 160.33 2.64 3.22 3.88 4.64 5.51 1.10 7.49 8.52 9.69 11.04 12.62 14.44 16.52 18.91 21.65 20.54 28.55 32.79 37.67 43.28 49.41 56.42 64.43 73.57 84.02

Capital Expenditures Civil Works Other Total capital expenitures 149.37 10.96 160.33 -

Debt Service Interest Expensed (ADB) Principal Repayment (ADB) Total debt service 0.58 0.22 0.80 0.57 0.23 0.80 0.56 0.24 0.80 0.54 0.26 0.80 0.53 0.27 0.80 0.52 0.29 0.80 0.50 0.30 0.80 0.48 0.32 0.80 0.47 0.33 0.80 0.45 0.35 0.80 0.43 0.37 0.80 0.41 0.39 0.80 0.39 0.41 0.80 0.37 0.43 0.80 0.35 0.45 0.80 0.32 0.48 0.80 0.30 0.50 0.80 0.27 0.53 0.80 0.24 0.56 0.80 0.21 0.59 0.80 0.18 0.62 0.80 0.15 0.65 0.80 0.11 0.69 0.80 0.08 0.72 0.80 0.04 0.76 0.80

Total Application of Funds

160.33

0.80

0.80

0.80

0.80

0.80

0.80

0.80

0.80

0.80

0.80

0.80

0.80

0.80

0.80

0.80

0.80

0.80

0.80

0.80

0.80

0.80

0.80

0.80

0.80

0.80

Net Cash Surplus (shortfall) Cash Balance at end of year

-149.37

1.83 1.83

2.42 4.25

3.08 7.33

3.84 11.17

4.71 15.88

0.30 16.18

6.69 22.87

7.72 30.59

8.89 39.48

10.24 49.72

11.82 61.54

13.64 75.18

15.72

18.11

20.85

19.74

27.74

31.99

36.87

42.48

48.61

55.62

63.63

72.77

83.22

90.90 109.01 129.85 149.59 177.33 209.32 246.19 288.67 337.28 392.90 456.53 529.30 612.52

Debt Service Ratio Return on Equity Return on Assets

-4.72 -0.03 -0.03

-3.99 -0.03 -0.02

-3.16 -0.02 -0.02

-2.21 -0.02 -0.02

-1.13 -0.01 -0.01

-6.64 -0.05 -0.04

1.52 0.00 0.00

3.13 0.01 0.01

4.98 0.02 0.02

7.08 0.03 0.03

9.56 0.04 0.04

12.40 0.05 0.05

15.66 0.06 0.06

19.39 0.07 0.07

23.68 0.08 0.08

21.95 0.07 0.07

34.46 0.10 0.10

41.09 0.10 0.10

48.72 0.11 0.11

57.49 0.12 0.11

67.08 0.12 0.12

78.02 0.12 0.12

90.53 104.82 121.15 0.12 0.12 0.13 0.13 0.13 0.13

Appendix 5, Page 16 SUMMARY INITIAL ENVIRONMENTAL EXAMINATION (SIEE) A. Introduction

1 The SIEE is a summary of the IEE and is prepared according to a strict ADB format. It defines the extent of the environmental effects, both direct and indirect, associated with the proposed project during key period of work, lists the extent, duration and severity of the impacts, and specifies the estimated cost of proposed mitigative actions. The Environmental Action Plan (Appendix I Table 1 of the IEE) is also summarized. The IEE concludes with a recommendation on the need for any further environmental analysis. 2 This IEE is a RoU document, and was completed using a combination of fieldwork, consultation with central and oblast-level officials as well as the local public and secondary information from existing documents. The IEE was prepared by the TA consultant on behalf of UTY. Lt identifies any significant direct and indirect environmental effects associated with the proposed project during key period of work, the extent, duration and severity of the impacts, the assessment of all significant impacts, and the preparation of a set of costed mitigative actions in the form of an. 3 The IEE also provides an examination of the institutional capacity of the UTY and other bodies likely involved in the implementation of the EMP's mitigative and monitoring measures. B. Description of the Project

4 The project will build a railway line linking Hairatan and Mazar-e-Sharif. The project will have two components: (i) railway construction and (ii) railway sector and institutions development. The Project will be enhanced by the improved and modernized custom facilities in Hairatan being funded by the European Commission. The first phase of this Euro 13 million project to handle import goods is completed. The second phase for export goods will follow. The Project will be synchronized with the newly built customs facilities to maximize the project benefits. 5 The existing Uzbek railway network stops at the border town of Hairatan. This is a gateway to Afghanistan, but it has reached its toll capacity (4,000 tons of cargo per month). The flow of goods from Central Asia to Afghanistan will increase from 25,000 tons to 40,000 tons per month over the next few years. To prevent bottlenecks at the border, the existing Uzbek railway at Hairatan needs to be extended into Afghanistan, to Mazar-e-Sharif. At a later stage, the railway network will be extended to Herat in the west and Tajikistan in the east. The railway line is expected to significantly save transport costs and time for strategic commodities such as fuel and general cargo. The new railway line will also divert the road transport to rail that reduces the transport costs by road, traffic accidents, pollution, and green house gases. The diversion of road to rail freight will also reduce the road maintenance costs. In the long run, the railway extension to Charbakhar Port would make it more attractive for cotton exports from Uzbekistan. 6 The rail line will run for a distance of 75 km, starting at the Friendship Bridge which crosses the border between Uzbekistan and Afghanistan, and finishing just south of the village of Gur-e-Mar some 18 km east of Mazar-e-Sharif. 7 The track gauge will be 1520 mm which will ensure standardization with the rail networks of the Commonwealth of Independent States (CIS). The loading gauge will also be the CIS standard. This has a wide clearance and so will permit cargo from other gauges to be trans-shipped on flat wagons. Passing stations will be constructed every 20 km. The

Appendix 5, Page 17 passing stations will be 1.7 km in length allowing for 100 wagon trains made up of 17 m wagons. Maximum speed will be 80 km/h. 8 The rail civil works will be constructed by the Uzbekistan Temir Yullari (UTY) or Uzbek National Railroad Corporation. UTY is also likely to be the operator of the trains and undertake the management and maintenance of the railway facilities. UTY is a member of the CIS family of railroads, which is the large former Soviet network that reaches over most of Central Asia and into Eastern Europe. The CISs main characteristic is the use of a 1520 mm track gage largely built using standards developed by All Russia Railway Institute. The result is a high degree of standardization and interoperability. 9 The project will be implemented over a period of 18 months. The design and construction activities will start in November 2009. Civil and track works will start early in January 2010. The construction is expected to be completed by November 2010. C. Description of the Environment 1. Physical and Ecological Resources

10 The alignment is located on the Northern Plain of Balkh Province. This area of the province is flat, and made up of areas of desert and semi-desert. The northern half of the alignment from Hairatan to the Naibabad junction is covered by wind blown sands. From Naibabad to Gur-e-Mar the alignment crosses arid loess soils. The topography around the project site forms part of an extensive sparsely covered plain which abuts the foothills of the Hindu Kush to the south and extends across the border into Turkmenistan and Uzbekistan to the north. Loess comprises fine soil particles that are transported during the summer by the prevailing northwest wind from the central Asian plains and deposited on the foot of the mountains where wind speed is frustrated by relief. The plain is gently rolling or flat with elevation 350-550 m. 11 The geology of the area comprises Neogene and Quaternary (Pleistocene) sediments comprising loess cover beds tens of meters thick, which overlie alternating layers of pebbles/gravels, sands, silts and clays. The sediments represent the products of erosion of the mountains. Modem alluvial deposits occur along the current river valleys. The quaternary sediments overlie Mesozoic limestones, conglomerates, sandstones, siltstones, and shales extending to several kilometers depth. The Mesozoic rocks are gently folded and faulted forming the reservoir strata and structures for the region's natural gas resources. The Mesozoic rocks are exposed to the south in the foothills of the Hindu Kush. 12 Mazar-e-Sharif climate is characterized with very hot summer with daily temperatures of over 350C in June, July, and August. Winter is cold with temperature below 00 C in December, January and February. Spring and autumn are pleasant with moderate temperatures. Mean monthly temperature varies from -2.10C to 38.9 0C; humidity ranges from 27% to 79%. Average monthly rainfall ranges from 0 to 43.8 mm with 190mm annual rainfall. Winds are primarily northwesterly and southeasterly. East winds are also common in winter and fall. Prevailing wind speeds are 2 to 3 m/s. Rare strong winds (up to 20 m/s) occur in late spring or summer and are usually accompanied by dust storms, reducing visibility to several meters. 13 The Amu Darya River at the start of the alignment is the only surface water feature within the study area. This flows in an east west direction away from the alignment of the railway. There are no other surface water features within 10 km of the alignment. At the Southern end of the alignment the Balkh River is some 20 km to the west.

Appendix 5, Page 18 14 On average 67% of households in the province have access to irrigated land, whereas 28% of rural households and 14% of urban households have access to rain-fed land. 15 There are no significant ecological resources in the study area with the majority of the alignment crossing barren arid desert or semi-desert areas. There is no natural vegetation in the desert. In the semi desert areas the ground cover is sparse consisting of drought-resistant grasses including needle grass, sheep fescue, blue grass, and sedge. The grass usually dies back by mid-summer and the terrain takes on a desert appearance. 16 The harsh desert conditions of the study area mean that there is only a small number of fauna species adapted to inhabit it. These include the Midday Gerbil Meriones meridianus, the Social Vole Microtus socialis and the Cape Hare Lepus capensis. Donkeys and horses graze the semi-desert areas and foxes area also found. The Patch-nosed desert snake Salvadora hexalepis hexalepis is sometimes found in the study area. 2. Human, Economic Development and Quality of Life

17 The majority of the study area is uninhabited and so there is little economic activity taking place. At the northern end of the alignment is the industrial area of Hairatan where there are a number of rail spurs, warehousing, and fuel farms that deal with goods imported from Uzbekistan. The rail alignment will follow the route of the existing Hairatan-Naiababad road to the south which is also the route of a 330 kV transmission line. The alignment will cross the A76 road at Naiababad before turning west. At the southern end of the alignment is the village of Gur-e-Mar. This section of the IEE therefore describes the economic development and the social and cultural resources of the wider region as there is little to describe within the study area. 18 There is one fertilizer factory operating in the province. The majority of commercial activity in Balkh is related to agriculture and small businesses. The sector of small industries is dominated by one commodity - karakul4 skin. The districts of Dawlat Abad, Balkh, Chimtal, and Sholgara together house close to three quarters of the villages engaged in this particular industry. In the area of handicrafts, rugs are the most prominent, engaging more than 408 villages of the 1,140 (36%). Carpets, jewelry, and shawls are also produced, albeit in substantially less number of villages: rugs concentrated particularly in Chahar Kint, Sholgara, and Dawlat Abad; carpets in Dawlat Abad, Dehdadi, Balkh, and Chahar Bolak; jewelry in Dehdadi and Chahar Kint; and shawls in Dawlat Abad, Chimtal, Chahar Kint, and Sholgara. 19 The provision of basic infrastructure such as water and sanitation, energy, transport and communications is one of the key elements necessary to provide the building blocks for private sector expansion, equitable economic growth, increased employment and accelerated agricultural productivity. In Balkh province, on average only 31% of households use safe drinking water. This rises to 67% in the urban area, and falls to 12% in rural areas. Four of five households (80%) have direct access to their main source of drinking water within their community, however almost one in five households (18%) has to travel for up to an hour to access drinking water, and for 1% travel to access drinking water can take up to 6 hours. On average only 12% of households have access to safe toilet facilities. The situation is better in the urban areas where 15% of households have safe toilets, but this is accurate for only 10% of rural households.

Karakul is the soft curly black wool from central Asian lambs used for fur coats.

Appendix 5, Page 19 20 In terms of meeting the basic requirements for energy, 49% of households in Balkh province have access to electricity with a majority of these (41%) relying on public electricity. In the urban areas 95% of households have access to electricity however this figure falls to just 26% in rural areas, and a little more than half of these (14%) have access to public electricity. 21 Agriculture is the major source of revenue for 42% of households in Balkh province, including 61% of rural households and 7% of households in the urban areas. Seventy percent of rural households and 6% of urban households own or manage agricultural land or garden plots in the province. However, more than half of households (58%) in the urban areas and more than one-fifth of households (21%) in rural areas derive income from trade and services. More than a third of households (35%) in urban and at least a quarter (25%) in rural areas earn some income through non-farm related labor. Livestock also accounts for income for 29% of rural households. 22 Around a quarter of the households in the province report having problems satisfying their food needs at least 36 times a year, and a further more than fifth of households face this problem up to three times a year. Nearly a third of the population in the province is estimated to receive less than the minimum daily caloric intake necessary to maintain good health. This figure is much less for the rural population (17%) but significantly high for people living in the urban areas (53%). In both rural and urban areas just about half the population has low dietary diversity and poor or very poor food consumption. 23 In 2005, 24% of the population of Balkh province received allocations of food aid, which reached a total of 265,402 beneficiaries. In addition, of the 25% of households who reported taking out loans, 58% said that the main use of their largest loan was to buy food. A further 10% used the money to cover expenses for health emergencies. In the same year about a third of the households in the province reported feeling that their economic situation had got worse compared to a year ago, and more than two-thirds felt that it had remained the same. 24 In 2005, more than a tenth of all households in the province reported having been negatively affected by some unexpected event in the last year, which was beyond their control. Rural households were slightly more vulnerable to such shocks, with 17% of households affected, as opposed to urban households (5%). People living in urban areas were most vulnerable to shocks related to natural disaster and drinking water, whereas those in rural areas were most at risk from agricultural shocks. Of those households affected, nearly three quarters reported that they had not recovered at all from shocks experienced in the last 12 months (73%), and a quarter said they had recovered only partially (25%). G. Forecasted Environmental Impacts and Proposed Mitigative Measures 3. Physical Environment b. Soils and Materials

25 Construction Period: The construction of the rail line will require earthmoving and compaction to provide a suitable base for the track. Environmental impacts that could occur during the preparation of the track base include contamination resulting from spills or disposal of oil, lubricants or other chemicals. The impacts of any spills are likely to be confined to very local contamination and therefore are unlikely to be significant. The lack of any sensitive receptors along most of the alignment further reduces the likely significance.

Appendix 5, Page 20 26 In order to minimize the likelihood of spills and to ensure proper clean up if a spill occurs the following measures will be included in the EMP. All hazardous wastes and hazardous materials, lubricating oil, solvents and fuels, will be stored within a bunded area that has the capacity of at least 110% of the largest container in the storage area. Oil spill clean-up materials (sorbent pads, loose sorbent material, etc.) will be made available. Any spill or leak shall be addressed immediately and the contaminated soil and material be disposed appropriately. 27 The sources of construction materials such as cement, ballast, sleepers and track have not yet been finalized. Unlicensed quarries and cement plants have the potential to create significant environmental impacts if not operated properly. Truck movements may disturb and disrupt villages and towns. Ballast and cement must be obtained from licensed facilities and the contractor must ensure vehicles use haulage routes that avoid villages and towns. 28 Operation Period: During the operation stage routine maintenance activities may also result in small scale spills of hazardous materials. Bunded hazardous materials storage facilities will be constructed which will have the capacity of at least 110% of the largest container in the storage area. Spill clean up kits will be available. Staff will be trained in safe handling of hazardous materials and spill clean up requirements. 29 Trains using the line will carry a variety of materials and may include wagons carrying bulk liquids. The unloading of bulk fuel carriers will present a risk of significant spills if not undertaken in a controlled manner. At present the freight handling facilities are still at the concept design stage; if bulk storage of fuel is included as part of the detailed design then the facilities must designed in accordance with a suitable international standard such as AS1940: The storage and handling of flammable and combustible liquids or ISO28300: Petroleum, petrochemical and natural gas industries - Venting of atmospheric and lowpressure storage tanks. c. Air Quality

30 Construction Period: The earthmoving and compaction requirements are likely to generate dust. The impacts associated with generated dust will only be significant where work is taking place close to residential or industrial areas. As the majority of the works will take place in areas of desert or semi desert many kilometers from the nearest inhabited areas dust generation will not be a significant issue. Air quality in the region is good and the prevailing winds are likely to disperse the dust to acceptable levels before it reaches any receptor. 31 Works taking place near Hairatan, Naibabad or Gur-e-Mar will need to monitor the levels of dust being generated by the works. In the event that dust from the construction activities is being deposited on the nearby houses and buildings the contractor will be required to implement dust control measures. These will include ensuring that diesel equipment is operated and maintained properly; reducing dust generation by reduced speed limits; and spraying water on work sites to suppress dust. 32 Operation Period: Once operational there will be no significant air quality impacts from the rail line. Diesel locomotives will be used to power the trains and so there will be some emissions from the engines. However the air quality of the region is good, there are no other sources of pollution close to the line and the prevailing winds will quickly disperse the emissions to acceptable levels. The number of trains using the line will be one or two a day and so there will not be an accumulation of emissions from multiple locomotives.

Appendix 5, Page 21 d. Noise and Vibration

33 Construction Period: The operation of plant and equipment during the construction of the rail line will generate noise and vibration. As the majority of the construction will be occurring many kilometers away from the nearest sensitive receptors any significant noise or vibration will be attenuated by the distance. Materials for the construction for the rail line will be bought to site by truck. This will include sleepers, rails and ballast. Truck movements have the potential to generate significant noise and vibration, particularly when passing through villages and towns. Local housing is often constructed from mud bricks, which is particularly sensitive to damage from vibration. In order to prevent any noise and vibration issues arising from truck movements the contractor will be required to develop haulage routes that ensure that any villages or towns are bypassed by trucks. 34 There are two locations where construction activities will be taking place close to villages; these are the construction of the rail crossing of the A76 road to the west of Naibabad and the development of the freight terminus south of Gur-e-Mar village. No noise monitoring has been undertaken as part of this IEE but existing noise levels at both sites are expected to be low, reflecting the rural nature of the area. Road noise from traffic on the A76 is the major noise source during the day which is significantly reduced at night. Both sites are a few kilometers away from the villages and so attenuation over distance will cause a significant reduction in noise levels. However the contractor will be required to liaise regularly with both communities and in the event that there are night time noise impacts the contractor will be required to limit construction to the hours of 7am to 7pm. 35 Operation Period: The noise and vibration impacts during operation are expected to be minimal, as there will only be one or two trains a day using the line. Any noise impacts from the locomotives will be short term and intermittent in nature and, as the line will be located away from villages and towns it is likely that noise levels will be attenuated by the distance. 36 The operation of the freight terminus may generate unwanted noise for nearby communities; however the location of the terminus has yet to be determined. When choosing the location the design should take account of any nearby residential areas. If the terminus is to be located close to housing then an earth bund should be constructed between the terminus and the houses to act as a noise barrier. 4. Socioeconomic Environment

37 The use of local labor during the construction will increase benefits to the local community by providing employment opportunities and economic benefits. Increased traffic during construction will be managed through coordination between the contractor, PIU and the local police. Contractors will communicate to the public through community consultation regarding the scope and schedule of construction, as well as certain activities causing disruptions or access restrictions. e. Proper Construction Practices

38 The contractors conformity with contract procedures and specifications during construction will be carefully monitored. Stakeholder consultations have shown that prime contractors tended to use sub contractors without ensuring that they conform to general construction guidelines (good engineering practice and good working practices). Such practices degrade the quality of construction as well as the benefits of the Project. Contractors will be made to follow standard construction practices, monitored and supervised by construction supervision consultants (CSC) employed under the Project.

Appendix 5, Page 22 f. Health, Safety and Hygiene

39 Contractors will ensure that no wastewater is discharged to local water bodies and that no site-specific landfills will be established at the construction camps. Each contractor will therefore be required to recruit an environmental, health and safety manager to address such concerns in the work sites and liaise/work with the laborers. Mitigation measures include: Provision of adequate healthcare facilities (first aid) within construction sites; Training of all construction workers in basic sanitation and healthcare issues, general health and safety matters, an on the specific hazards of their work; Personal protection equipment for workers, such as safety boots, helmets, gloves, protective clothing, goggles and ear protection; Clean drinking water to all workers; Adequate protection to the general public, including safety barriers and marking of hazardous areas; Safe access across the construction site; Adequate drainage throughout the camp to ensure that disease vectors such as stagnant water bodies and puddles do not form; and Septic tank and garbage box will be set up in construction site, which will be periodically cleared by the contractors to prevent outbreak of diseases. Where feasible the contractor will arrange the temporary integration of waste collection from work sites into existing waste collection systems and disposal facilities of nearby communities. Hazardous Materials & Waste Management

5.

40 The following hazardous materials and waste management measures will be implemented during construction: all areas designated for the storage of fuels, oils, chemicals or other hazardous liquids shall have a compacted base and be surrounded by a bund to contain any spillage. These areas shall be covered by a roof structure to minimize the potential for infiltration and contamination of rainwater. Alternatively ventilated containers and individual spill pallets could be used, dependent on the volume of hazardous materials; areas designed for the storage of hazardous materials are to be clearly designated and storage of such materials outside these areas strictly prohibited. an Emergency Spills Contingency Plan shall be prepared as part of the Contractors Environmental Management Plan. apply any waste minimization and management strategies as nominated; dispose of waste to nominated project disposal sites; ensure that the waste management measures are implemented on the project site; prepare and implement a hazardous waste management plan for the disposal of waste oil, batteries and other hazardous materials; ensure that topsoil is stockpiled for used in post construction landscaping; chip and mulch vegetation cleared and reuse it as an organic base for revegetation; ensure that materials, which may cause land/water contamination or create odor problems, are not disposed of on the site; keep work areas tidy; ensure that there is the adequate provision of correctly marked waste containers

Appendix 5, Page 23 made available at convenient locations for the disposal of wastes; ensure adequate toilet and ablution facilities are provided for the duration of the contract. Domestic sewage and sullage from these facilities shall be subject to suitable treatment prior to discharge in to environment. Under no circumstances untreated wastes shall be discharged into the environment.

H.

Institutional Requirements and Environmental Monitoring 6. Institutional Requirements

41 Institutions responsible for executing and monitoring the environmental aspects of this Project are: Ministry of Public Works (MPW) is responsible for planning, constructing, operating and maintaining rail infrastructure in Afghanistan. The Project Implementation Unit (PIU) will be in charge of project management to ensure that the contract provisions are properly maintained. Both the supervision consultants and the Environmental Specialist within the Environment & Social section of the PIU are responsible for environmental monitoring and management of project implementation. The rail civil works will be constructed by the Uzbekistan Temir Yullari (UTY), the Uzbek National Railroad Corporation. The MPW and its provincial authorities will also undertake routine and random monitoring of specific environmental plans addressed in this IEE. The Project will provide PIU with the assistance of a construction supervision consultant (CSC) to help ensure the implementation of environmental management practices at each stage of the construction and operation. NEPA shall be consulted if complicated issues arise during construction and operation stages.

42 Implementation and monitoring of mitigation measures as per the Environmental Monitoring and Management Plan during the construction stage shall be the responsibility of the UTY. The environmental specialists of CSC will supervise the monitoring of implementing mitigation measures during construction. The domestic environmental specialist shall coordinate with the international environmental specialist for resolving complicated issues that arise in the field and to provide continuously updated information in order to submit reports to PIU and ADB. 43 After project completion, it is likely that operation and maintenance of the line will also be undertaken by UTY, who shall develop and implement the monitoring plan for the operational phase. I. Mitigation 7. Preconstruction

44 During the pre-construction period there will be a number of important environmental costs, principally the, a) updating of EMP during detailed design phase and inclusion of environmental clauses in bid and contract documents, b) provision of training on environmental compliance monitoring and reporting.

Appendix 5, Page 24 8. Construction

45 Construction period mitigation costs will involve the environmental performance of contractors with regard to control measures pertaining to material storage, location of work camp, noise, waste disposal, traffic management, workers safety, etc. and the environmental inspection as part of the overall construction inspection program. Included in this cost is data assembly and reporting. 9. Operating Period

46 Much of the environmental costs during the operating period will be monitoring. O&M practices and environmental effects including materials handling, soil contamination, noise, vibration, and air quality. J. Monitoring

47 The Construction Supervision Consultant (CSC) in cooperation with PIU during project implementation shall develop an environmental auditing protocol for the construction period, formulate a detailed monitoring and management plan, supervise the environmental monitoring regularly, and submit quarterly reports based on the monitoring data. The PIU shall submit the following environmental reporting documentation to ADB: (i) Baseline Monitoring Report: The Baseline Monitoring Report shall be submitted to ADB prior to commencement of civil work and shall include a detailed environmental management and monitoring plan (including data collection locations, parameters and frequency), baseline environmental data, relevant standards and data collection responsibilities. (ii) Environmental Monitoring Reports: The environmental monitoring reports shall include environmental mitigation measures undertaken, environmental monitoring activities undertaken, details of monitoring data collected, analysis of monitoring results, recommended mitigation measures, environmental training conducted, and environmental regulatory violations. The environmental monitoring reports shall be submitted to ADB semi-annually during the construction period and for one year after completion of construction. K. Mitigation and Monitoring Costs

48 Since environmental impacts are minimal and mitigative actions deal mainly with contractors following acceptable and environmentally responsible work practices, estimated costs for mitigation and monitoring remained low, in relation to other projects of this size. Total mitigation, monitoring and training costs were estimated at US$ 303,000 as shown in Table 1 below.

Appendix 5, Page 25

Table 1: Environmental monitoring and mitigation cost

No. Unit Cost ($) Total

Environmental Costs - Civil Works (included in Contractors civil work package) Air Quality and Dust Monitoring (baseline) Air Quality and Dust Monitoring Noise and Vibration Monitoring (baseline) Noise and Vibration Monitoring Worker and Storage Compound Dust Suppression Measures Disposal of old machinery and equipment Provision of Environmental, Health & Safety Manager Site Site Site Site Site Day Site MM 3 6 3 6 2 180 1 18 2,000 3,000 1,000 2,000 1,000 50 10,000 3,000 Subtotal Environmental Costs - Project Implementation Unit (PIU) Budget I. Environmental Management and Monitoring (during design and construction) a. Remuneration and Per diems International Environmental Specialist (design) International Environmental Specialist (CS) Domestic Environmental Specialist (design) Domestic Environmental Specialist (CS) b. Travel International Travel Domestic Travel 6 12 Subtotal II. Environmental and Social Management Training a. Remuneration and Per diems International Environmental Specialist International Social/Resettlement Specialist Domestic Environmental/Curriculum Specialist Domestic Social/Resettlement Specialist b. International Travel c. Trainees Allowance d. Logistics and Others n 1 1 2 2 2 10 9 Subtotal Total (PIU) Total 21,000 21,000 3,500 3,500 2,500 200 500 21,000 21,000 7,000 7,000 5,000 2,000 4,500 67,500 121,500 303,000 2,500 500 15,000 6,000 121,500 1 3 3 6 18,000 18,000 3,500 3,000 18,000 54,000 10,500 18,000 6,000 18,000 3,000 12,000 2,000 9,000 10,000 54,000 114,000

Appendix 5, Page 26 L. Public Consultation

49 After some thirty years of war, Afghanistan is attempting to rebuild itself, but ongoing, sporadic conflict makes operating in the country difficult for security reasons. It is not possible to conduct effective wide spread community consultation under the current security situation. However it has been possible to meet with selected government officials and villagers from Gur-e-Mar village. No consultation was possible in Hairatan. As the majority of the study area is uninhabited the consultation which has been completed can be considered to have reached a good proportion of those people likely to be affected by the project. 50 The responses and issues raised were similar from both government officials and the villagers. Both sets welcomed the project and felt that it would contribute to the national and local economies in a number of ways. The villagers felt the railway offered good prospects for increasing trade in farm produce by allowing them to access markets further a field. Noise and dust issues were raised as possible impacts during the construction period but they also stated that these issues were not a significant concern. None of the participants was opposed to the project. M. Findings and Recommendations

51 The IEE shows that no major negative environmental impacts are likely to occur due to the construction and operation of the Hairatan - Mazar-e-Sharif rail line. 52 The Project will have some minor environmental impacts, which will be both positive and negative, including: (a) soil erosion, (b) temporary effect on noise and air quality due to construction activities; (c) increased growth in the economy of the region; (d) substantial income and employment opportunities; (e) better indoor air quality; (f) better life style and improved living conditions; (g) reduced health risk, (h) development of small to medium sized enterprises, (i) reduced poverty; and (j) advanced environmental skills and awareness level among the MPW officials. 53 Implementation of appropriate mitigation measures during the design, construction, and operation phases will minimize the negative impacts of the Project to acceptable levels. To ensure that these mitigation measures are implemented and negative impacts avoided, the measures will be included in the contract specification of the Project. Environmental monitoring of the Project will be undertaken regularly through the first three years of its operation to ensure that the measures are being implemented properly. N. Conclusions

54 The project will have significant environmental and social benefits and, if the prescribed mitigation and management measures are fully implemented, the project is unlikely to have major adverse environmental impacts. An environmental monitoring plan has been prepared and responsibilities for implementation assigned. A budget has been allocated for environmental management and monitoring. Based on the findings of the IEE, the classification of the subproject as Category B is confirmed, and no further special study or detailed EIA will be required to comply with ADBs Environment Policy (2002).