Kazakhstan: CAREC Transport Corridor I (Zhambyl Oblast Section) [Western Europe-Western PRC International Transit Corridor] Investment Program - Project 1 | Lessons by Independent Evaluation, Asian Development Bank

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Lessons

Realistic cost estimates are needed to avoid loan cancellations.

About 33.8% of the $340 million loan approved by the Asian Development Bank (ADB) for this project had to be cancelled because of the surplus that accrued mainly from the overestimation of the costs of construction materials and consulting services. This was despite the increase in the total civil work contract amounts that resulted from various changes in scope and design to address the geological conditions and needs of the population that had not been considered at design stage. Cancellation of a significant portion of the approved loan amount highlights the need for robust due diligence to be undertaken at appraisal. Through detailed engineering studies and thorough market analysis, robust due diligence enables a more reliable estimate of the project base cost and subsequent contingencies, which in turn will minimize the risk of loan cancellation and attendant administrative and financial costs.

Project Cycle Stage:

Preparation

Due Diligence

Clear terms of reference (TORs) for all consultants should be established prior to loan processing.

This project incurred a 39.91% increase in the contract period for the project management consultant to allow for stronger oversight function by the consulting firm, particularly with respect to contract administration and safeguards monitoring. Unanticipated increases such as this one can be avoided in future projects by clarifying the expected role of the project management consultant and the tasks and deliverables of each expert, with the TOR for each consultant hammered out prior to project processing.

Project Cycle Stage:

Preparation

Background

In December 2008, the Asian Development Bank (ADB) approved a multitranche financing facility (MFF), not exceeding $700 million, for the Central Asia Regional Economic Cooperation (CAREC) Transport Corridor 1 (Zhambyl Oblast Section) (Western Europe–Western People’s Republic of China [PRC] International Transit Corridor) Investment Program. The investment program was expected to rehabilitate or upgrade about 480 kilometers (km) of the republican (national) road network connecting the PRC and the Russian Federation through Almaty and Shymkent, a priority under Kazakshtan’s Road Development Program for 2006–2012.

Along with the MFF, a $340 million loan was also approved to support project 1 of the investment program. Project 1, covered by this report, had two components at appraisal (i) road development, comprising the reconstruction of 79 km of a four-lane paved road between km 404 and km 483, and 46 km of a two-lane paved road between km 214 and km 260; and (ii) road operation and maintenance (O&M). Like the investment program, the project aimed to contribute to sustainable economic development, as impact; and provide an efficient transport system in the Zhambyl Oblast (region), as outcome.

At completion, the project was able to rehabilitate the targeted total road length of 125 km. The main works undertaken were (i) strengthening foundations, (ii) repaving road surfaces, (iii) rehabilitating and replacing existing culverts to adjust their design to the actual needs and ensure paths for local populations and their livestock, (iv) installing safety equipment and roadside facilities, and (v) executing ancillary works. The improved sections have since enabled smooth and comfortable driving, with routine maintenance likewise put in place.

Various recommendations for future road sector maintenance operations were also developed under the project. These recommendations included (i) conducting regular road condition surveys to help determine appropriate maintenance methods and timing, (ii) introducing an automated asset management system using geographic information system (GIS) software, and (iii) introducing performance-based maintenance contracts by using local construction firms.

Another subcomponent focusing on the development of intelligent transport systems (ITSs) produced: (i) a draft ITS plan showing the system’s architecture and installation locations along CAREC Corridor 1 in the Zhambyl Oblast; and (ii) a draft long-term plan for ITS implementation that considers the institutional setup, budgeting, and technical aspects of hardware to be installed on republican roads. These plans informed the preparation of the State Program for Development and Integration of Transport System Infrastructure up to 2020, adopted in 2013 as the framework for the country’s asset management system for republican road networks.

During implementation, $115.05 million of ADB’s approved loan was canceled because of savings that resulted from overestimation of the costs of construction materials and consulting services and the inclusion of excessive contingencies at appraisal. The project, the first intervention financed by ADB under an MFF, had the Ministry of Transport and Communications as executing agency and the Committee for Roads as implementing agency.

Project Information

Project Name:

CAREC Transport Corridor I (Zhambyl Oblast Section) [Western Europe-Western PRC International Transit Corridor] Investment Program - Project 1

Report Date:

June, 2014

Main Sector:

Transport

Country:

Kazakhstan

Project Number:

41121-023

Report Type: