Tbilisi Railway Bypass Project. Progress Report

Transcription

1 Tbilisi Railway Bypass Project Progress Report Project Implementation Unit (PIU) Georgian Railway LLC Reporting Period: March Georgian Railway LLC 15 Tamar Mepe Ave Tbilisi, Georgia Tel: Fax: GR 1

2 Table of Contents Executive Summary... 4 Abbreviations Introduction General Project Description Procurement Project Implementation Progress Handover of Construction Sites Construction Works Work Plan Advance Payment Guarantee Insurance Policies Land Acquisition and Resettlement ESAP Implementation Tbilisi Railway Bypass Project LLC Reconstruction/Development of East (Navtlughi) and West (Didube) Stations Three Months Look Ahead Immovable Mortgage over the Existing Railway Land Future Railway Land Master Plan Land Contamination Study Construction Works Actual or Expected Difficulties/Delays in Project Implementation Expected Changes with respect to the Project Completion Date Key Personnel Changes in the Staff of the PIU, the Consultants or the Contractors Matters Affecting the Cost of the Project Any Development/Activity Likely to Affect the Economic Viability of Any Part of the Project Project Implementation Progress Bar Chart Project Financial Statements/Expenditure Details Information on Compliance with Loan Covenants and Undertakings Appendices Appendix A: Land Plots Under the Ownership of GR (Former State Owned Land Plots) Appendix B: Private Land Plots Purchased by the GR Appendix C: Financial Assumptions of the Capital Property LLC GR 2

3 Appendix D: Three Months Look Ahead of the Construction Contractor Appendix E: Progress Bar Chart Appendix F: Project Expenditure Details/Financial Statements GR 3

4 Executive Summary In 2010 Georgian Railway LLC (GR) launched Tbilisi Railway Bypass Project (the Project) for developing a new railway route bypassing the central area of the capital Tbilisi. The main goal of the Project is to improve the efficiency and the safety of railway operations as well as free up over 80 hectares of land in the central area of Tbilisi, which will be available for various urban development projects. The Project comprises the construction of a 28km long double track electrified new railway bypassing Tbilisi. The existing railway infrastructure between stations Didube and Navtlugi will be dismantled, thus, in total, 86ha area will be freed up and used for urban development. The financing of the Project is secured through: (i) the loan extended by the European Bank of Reconstruction and Development through the Loan Agreement; (ii) the proceeds of the Euro Bonds issued by the GR; (ii) the cash-flows generated by the GR internally. With the aim, to identify feasibility of the project and ensure its successful implementation, the GR has entered into number of contracts for procurement of services. These include: procurement of the initial designs of the Project from KievGiproTrans, legal service related to the Loan Agreement rendered by the Professional Legal Services BLC, supervision service contract with ILF Beratende Ingenieure ZT GmbH (ILF) and Grauff Rail Engineering GmbH & Co. KG (GRE), as well as service related to the resettlement process with Geographic LLC. On June 14, 2010, the GR has concluded a contract with the Joint Venture of Khidmsheni JSC and China Railway 23 rd Bureau Group CO. LTD (the Construction Contractor) under the Standard form of contract of the FIDIC Yellow Book for the construction of the Tbilisi Railway Bypass Project. Under the Contract, the Joint Venture is to construct the railway bypass that includes: Construction of the bypass railway line of the 38,612 km length from Zahesi Station to Tbilisi-Marshalling Station; Construction of the necessary engineering facilities; Construction of new infrastructure complexes to replace the existing ones; Construction of signalling and interlocking systems; Construction of power supply facilities and catenary poles; Installation of fibre-optic cables. The works under the contract should be completed within 36 months. The contract price to be received by the Joint Venture amounts to During the reporting period, the progress in actual construction works has been related mainly to the preparatory activities needed for the start of construction works. This included the arrangement of proper legal and financial framework for the activities of the Construction Contractor, finalization of design works, handing over of construction sites, GR 4

5 assessment/approval of the work plan of the Construction Contractor, land acquisition and resettlement process. Two out of four construction sites have already been handed over to the Construction Contractor. On September 29, 2010, pursuant to restricted approval for the beginning of preparatory works, the Construction Contractor commenced the works for the construction of access roads to the construction site and relocation of existing electric poles. The Construction Contractor has presented the Work Plan to the Supervisor. However, The Work Plan was considered as incomplete and the Construction Contractor is to resubmit it by October 25, Upon its approval by the Engineer, it will be submitted to the GR. GR has received Advance Payment Guarantee under the Construction Contract on September 27, 2010 and respective payment will be made by the beginning of November, The Construction Contractor has presented the Insurance policies issued by the Georgian insurance company GPI Holding, elaborated in accordance with the requirements under the Loan Agreement. Insurance policies are under the examination of the Supervisor. As regards the resettlement and land acquisition process, 341 out of 358 state and municipality owned land plots have already been registered in the National Agency of Public Registry as the property of the GR. The remaining land plots will be transferred to the GR by October 15, As for privately owned lands, the GR has purchased 66 private land plots through Geographic LLC. The process is underway, and is planned to be finalized by the end of December The activities related to the construction works and resettlement are carried out in compliance with the Environmental and Social Action Plan (ESAP). The GR has set up a Project Implementation Unit, staffed by the key GR personnel, to ensure effective and timely implementation of the Project. In three months perspective, the GR plans, inter alia, to carry out the following activities with respect to the implementation of the Project: conclusion of agreement between the GR and the EBRD based on which, the latter will be granted with a first ranking mortgage over the Existing Railway Land; finalization of the process of purchase and registration of Future Railway Land; commencement of procurement procedure for Master Plan, and Land Contamination Study. As regards the actual construction works, the Construction Contractor is expected to complete the following works: Finalization of detail design for renovation of the 10 km section of the Kakheti existing line including the second railway track, all supporting infrastructure; Mobilisation of equipment, machinery and manpower needed for the early stages of construction by end of November, 2010; Carrying out of detail geological survey for Lilo 1 Kvirike, and Kvirike - Avchala sections of the alignment. In particular, for tunnels, land sliding and other sensitive areas; GR 5

6 Finalization of detail construction design for the section stretching from Lilo to Kvirike; Commencement of works on the detail design for the whole alignment by November, 2010; Commencement of the design for sub-grade of the whole New Line by the end of October 2010, to be finalized by the end 2010; Commencement of the detail design for five tunnels by end of October 2010 to be finalized by the end of 2010; Commencement of the detail design for bridges, culverts and retaining walls by the end of October 2010 to be finalized by the end of On this early stage of implementation of the Project, the GR has not identified any serious difficulties capable of causing delays as to the completion date of the Project. With respect to the original costs of the Project, there are no factors that may seriously affect the estimated amounts. The only changes may arise in the circumstances where the owners of the private land appeal the expropriation orders, as the case may be, and the courts satisfy their claims of increased compensations. To the best of the GR s knowledge, no developments or activities have occurred that may reasonably affect the economic viability of the Project. As to the date of reporting, the GR is in full compliance with the covenants and undertakings of the Loan Agreement. GR 6

7 Abbreviations EBRD EIB EoI EMU ESAP ESIA FIDIC GR IFRS NAPR NIF NPV PIU RAP RFP SBU European Bank for Reconstruction and Development European Investment Bank Expression of Interest Electric Multiple Unit Environmental and Social Action Plan Environmental and Social Impact Assessment International Federation of Consulting Engineers Georgian Railway LLC International Financial Reporting Standards National Agency of Public Registry Neighbourhood Investment Facility Net Present Value Project Implementation Unit Resettlement Action Plan Request for Proposal Strategic Business Unit GR 7

8 1. Introduction The present Progress Report (the Report) is prepared pursuant to the Loan Agreement between Georgian Railway and the European Bank for Reconstruction and Development and covers the progress activities carried out in the course of implementation of the Tbilisi Railway Bypass Project. The activities include, but are not limited to, the studies on the economical viability of the project, securing necessary financing, procurement of necessary services, execution of construction agreement, setting up legal and institutional framework for effective implementation of the project, initiation of resettlement/compensation process for the lands affected by the project, and commencement of physical works. The Report also touches upon the actual or expected difficulties or delays in the implementation of the Project and their effect on the completion date of the project as well as the costs of the Project. With the three months look ahead, the Report outlines the activities that are expected to be carried out for the furtherance of the implementation process. The financial statements and expenditure details of the Project are also provided. The report covers the period of April General Project Description In 2010 Georgian Railway LLC (GR) launched Tbilisi Railway Bypass Project (the Project) for developing a new railway route bypassing the central area of the capital Tbilisi. The main goal of the Project is to improve the efficiency and the safety of railway operations as well as free up over 80 hectares of land in the central area of Tbilisi, which will be available for various urban development projects. The current railway section running through the capital is the main route for freight on the east west transport corridor through Georgia. The cargo mostly comprises of crude and refined oil derivatives in transit from Azerbaijan, Kazakhstan and Turkmenistan to Black Sea ports. Urban development surrounds a number of the rail terminals, siding and yards, many of which are now either obsolete or derelict. The existing railway has few crossing points, and also acts as a barrier to city development on the northern bank of the Mtkvari River and depresses land value in its vicinity. Against this background, the Project will not only improve the efficiency and safety of rail operations through the relocation of the existing rail facilities outside the urban area but also result in urban development in the freed-up territories, in line with the city s new General Plan for Prospective Development. GR 8

9 Map 1: Tbilisi Freed up Territory The Project comprises the construction of a 28km long double track electrified new railway bypassing Tbilisi. It will branch off the present main line at Zahesi Station, pass through the territories of Avchala, Gladni, and the uplands north of Tbilisi Sea and connect to the existing Kakheti railway line near Lilo Station. From the junction point at Lilo towards Tbilisi to Tbilisi Marshalling Station, the existing Kakheti line will be upgraded to double track on a length of 10 km by refurbishment of the existing single track and adding a second new track. Tbilisi Central Station will be closed and stations Didube and Navtlughi will be constructed. Navtlughi station will serve passengers to the east direction and Didube station to the west direction. The existing railway infrastructure between stations Didube and Navtlugi will be dismantled. Thus, in total, 86ha area will be freed up and be used for urban development. The latter will be redeveloped for the following two purposes: (i) planning for redevelopment of the section between Central and Didube Station (some 73.2ha); (ii) the section between Central Station and Navtlughi (circa 6km long) will be used for a new urban traffic corridor. See below the map of the Project. GR 9

10 Map 2: Tbilisi Railway Bypass Project The Government of Georgia and Tbilisi City Hall are fully supportive of the Project due to its location, size and potential development impact on the capital city as well as on the railway operations. It should be noted that together with the Loan Agreement (see below) to secure financing of the project the EBRD entered into Direct Agreements with the Government of Georgia, and Tbilisi Municipality. Those agreements underline the high importance of the Project and reiterate full support on the part of the Government and Tbilisi Municipality. GR is also planning to conclude a separate agreement with the Tbilisi Municipality providing for the responsibility on the part of the latter to construct and maintain auto roads, street lights, drainage systems, recreation parks, playgrounds and sport fields, public transport and other infrastructure after completion of Tbilisi Railway Bypass project. In order to secure financial resources for the realization of the Project, the GR approached the EBRD in November Following the due diligence carried out by the Bank, a Loan Agreement between the EBRD and the GR was signed on March 17, Pursuant to the Agreement, the EBRD extended 146,220,000 loan to be used for part-financing the Project. Co-financing of the Project was intended to be carried out by the European Investment Bank (EIB). However, on July 22, 2010 GR has issued Eurobond notes. The Eurobond notes were GR 10

11 issued for the principal amount of USD , with the maturity date July 22, 2015 that will accrue interest at the rate of 9.875% per annum from and including July 22, 2010 and will be payable semi-annually in arrears on January 22 and July 22 in each year, commencing on January 22, For the abovementioned transaction the GR has engaged Bank of America Merrill Lynch and J.P.Morgan as the Joint Lead Managers. The GR was also consideringreceivingadditional finances in the amount of EUR 8.5 million throughneighbourhood Investment Facility(NIF). 1 However,the initial funding was decreased and currently amounts to EUR 2.5 million. These funds will be used for financing the detailed investigation survey (land contamination study), and master plan (see below). Against this background, the general financing scheme of the Project is as follows: the EBRD is financing approximately 35% of the Project. The rest of finances will be provided by (i) Euro Bond proceeds; (ii) cash-flows generated by GR internally; (iii) NIF funding. The entire value of the Project is currently estimated at EUR million, covering following components of the Project: Scope EUR million Design and Construction 211 Land and Resettlement 11.7 Consultancy services, of which: 7.0 Supervision contract 6.2 PIU assistance 0.3 Lenders monitoring consultant 0.2 Technical consultant 0.3 NIF technical assistance, of which: 2.5 Detailed investigation survey 1.0 Master plan 1.5 Due diligence 4.8 VAT and other taxes 40 Total Financing Note: Design and Construction contract price is 303mln, which is equivalent to 211mln Euros according to the exchange rate at the date of receiving financial proposals. 1 The Neighbourhood Investment Facility (NIF) is an innovative financial mechanism launched by the European Union aimed at mobilizing additional funding to cover the investment needs of the Neighbouring region for infrastructures in sectors such as Transport, Energy, the Environment and Social issues. GR 11

12 2. Procurement With the aim to assess the feasibility of the Project and ensure its successful and timely implementation, the GR has entered into number of contracts for procurement of services, as well as construction contract Contract with the Ukrainian Company KievGiproTrans on Initial Design and Feasibility Study of the Tbilisi Railway Bypass Project On February 9, 2009, the GR has engaged KievGiproTrans (KGT) to prepare the initial design and feasibility study for the railway bypass. The scope of services under the contractincluded: Elaboration of main design decisions; Accumulation of initial data; Engineer-geological, topographic research; Elaboration of the design decisions on highways options, tunnels, depots, relocation of the stations; Agreement of the main design decisions with the GR and the Tbilisi Municipality; Elaboration of the Environmental and Social Action Plan (ESAP), and Resettlement Action Plan (RAP) based on the EBRD s Environmental and Social Policy Provision of the above-mentioned services has already been finalised, although with considerable delays (see below). Based on the works carried out by the KievGipro Trans, the general parameters of the Project are as follows: The new railway line bypassing the centre of the city (New Line) starts from Tbilisi Marshalling Station (0.948 km), utilizes existing Kakheti Line (9.022 km) up to station Lilo (and from that point goes north above the Tbilisi reservoir and connects back to the existing line at Zahesi Station ( km). In addition to the track with supporting infrastructure, passenger rolling stock depot and other minor facilities (signalling department administrative building; warehouse; freight yard; diesel loco depot) will be relocated. The passenger rolling stock depot will replace 3 existing depots (Passenger Locomotive, Passenger Wagon, and Electric Multiple Units (EMU)). Land plot between Didube and Navtlugi Stations will be freed up. The plot covers 86 ha of land of which 2 ha are sidings and 10 ha is a narrow line. It is the rest of the land (approximately 73ha) that is intended for urban re-development. Zahesi - Didube and Tbilisi Marshalling - Navtlughi railway sections will be used for passenger operations only. There will be no passenger operations on the bypass, except for seasonal (summer) Yerevan-Batumi route. The constructed New Line will be double track. Maximal slope/gradient will be 18. Traction type will be electrical DC. Automatic block system will be installed. GR 12

13 Following artificial structures are going to be constructed: Structures New line Kakheti Line Bridges 10 / m 4 / 62.1 m Tunnels 5 / 3520m - Overhead crossings 2 / m 3 / m Pipe-overhead crossings 6 / 318 m 1 / 4.18 m Culverts 28 / m 2 /37.7 m Retaining walls 3 / 640 m - KievGiproTrans has fully provided the GR with services under the contract but with serious delays. As a consequence, on July 28, 2009 the parties introduced an amendment to the contract which envisaged the obligation on the part of the KievGiproTrans to submit the Resettlement Action Plan (RAP) to the GR no later than October 20, KievGiprotransfailed to fulfil this obligation by the deadline and provided RAP on April 29, 2010 only. As a result, the company has to pay a penalty in the amount of 0.1% of the estimated total price of the contract for every day of delay in fulfilling the obligation pursuant to Article 9.1 of the contract. GR is ready to execute Letter of Acceptance (which serves as the bases for payment) for the services duly fulfilled by KievGiproTrans, provided that this document covers the obligation regarding payment of the abovementioned penalty. However, due to misunderstandings between the parties Letter of Acceptance has not been executed yet Consultant s Services Contract with DB International GmbH On October 14, 2009, the GR concluded a contract with DB International GmbH to procure certain consultancy services. The scope of work under the contract provided by the DB international covered the following: Management and Coordination of Design: o reviewing progress achieved by each of the design consultants against the agreed programmes, and bring any delays to the attention of GR; o agreeing any necessary measures to be taken by the design consultants to recover any delays; o reviewing draft design submissions to ensure compliance with the required design standards, suitability for construction purposes and suitability for procurement following Open tendering procedures as prescribed in Section 3 of the Bank s Procurement Polices and Rules (May 2009); GR 13

14 o ensuring, to the extent practicable and reasonable, that the technical specifications reflect details of every aspect of the Works to be constructed, provide a specification of the material to be used and the standard of workmanship to be achieved; o verifying that the Designer has completed the design in accordance with the Employer s design brief; o reviewing construction cost estimates provided by the design consultants and recommending any design changes that could be made to reduce project expenditures and to eliminate any unnecessary increases in construction cost. Development of a Procurement and Contracting Strategy for the Project and Project Procurement Plan: o development of an appropriate procurement and contracting strategy with the overall aim of minimising overall project implementation risks and ensuring the successful implementation of the project in an economic and efficient manner and in accordance with current best practice; o Preparation of an overall project specific Procurement Plan detailing the required sequencing of events and the critical path for the project. Procurement and Award of Contracts for Civil Works and Construction Supervision: o ensuring that the procurement and award of all contracts for the civil works, goods (if applicable) and construction supervision contracts is carried out in strict compliance with the Bank s PP&Rs; o preparing pre-qualification documents (based on the Bank s standard prequalification document) for civil works contractors that comply with the requirements of the Bank s PP&Rs and Prequalification Guidance Note; o evaluating pre-qualification submissions made by prospective contractors and the preparation of a comprehensive pre-qualification evaluation report; o preparing tender documents (based on the Bank s standard tender document for works) incorporating internationally accepted contract conditions (e.g FIDIC or similar) for the civil works and goods (if appropriate) ensuring that the tender documents are suitable for issue and fully comply with requirements of the Bank s PP&Rs; o arranging and holding site visits and pre-tender meetings for bidders; o reviewing queries raised by bidders and preparing draft responses to be distributed to all bidders. Where necessary, assist GR in preparing draft tender addendum notices; o evaluating of tenders submitted for the civil works and goods (if appropriate) and preparation of draft Tender Evaluation Reports in accordance with the Bank s standard tender evaluation format; o ensuring that the civil works contract is awarded within the period of tender validity to the bidder(s) whose tender has been determined as being substantially responsive and, in terms of the specific evaluation criteria set forth in the tender documentation, is determined as the lowest evaluated and who has been determined to be fully capable of undertaking the contract; o preparing any necessary post-tender correspondence with bidders and holding any subsequent pre-contract clarification meetings; o preparing letters of acceptance and contract documents for all civil works contracts; GR 14

15 o reviewing and evaluating expressions of interest (EOI) submitted by consultants wishing to tender for the construction supervision and preparing a draft EOI evaluation report; o preparing a draft terms of reference and request for proposal document for the construction supervision assignment; o reviewing queries raised by consultants tendering for the construction supervision assignment and preparing draft responses to be distributed to all bidders. Where necessary, assist GR in preparing draft tender addendum notices; o evaluating of proposals submitted for the construction supervision assignment and preparing technical and financial evaluation reports; o attending any pre-contract negotiation meeting for the construction supervision assignment and preparing the contract document. Expertise of the design according to the Decree of Ministry of Economic Development of Georgia N 1-1/823 2 and Decree of Government of Georgia N All the works under the abovementioned contract has been successfully finalised by the DB International GmbH Contract with Professional Legal Services - BLC on Provision of Legal Services regarding the Loan Agreement On March 9, 2010 GR engaged Professional Legal Services (BLC) for provision of the legal services covering: Review of the draft of the Loan Agreement with the EBRD; Explanation of all obligations undertaken by the GR under the Loan agreement; Advices regarding variations and amendments to the draft contract for the benefit of the GR; Participation in the negotiations between GR and EBRD; Preparation of the legal opinion needed for the disbursement of the loan proceeds. All the services under the contract have been provided in due course Contract with the Dewey & LeBoeuf on Provision of the Legal Services The GR has also engaged Dewey & Leboeuf for provision of legal advices regarding the Loan Agreement by assisting the representatives of the GR during the negotiations held with EBRD in London, UK Construction Contract with Chinese-Georgian Joint Venture of Khidmsheni JSC and China Railway 23 rd Bureau Group CO. LTD 2 Decree of the Ministry of Economic Development of Georgian N1-1/823 on Approval of the Temporary Rules for Compulsory Expertise of the Construction Design of the Objects of High Importance (August 24, 2006). 3 Decree of the Government of Georgian N57 on the Rules of Issuance of Construction Permits and Terms of Permissions (March 24, 2009). GR 15

16 Contract Summary Terms Employer Contractor Contract Value Georgian Railway LLC Joint Venture of China Railway 23rd Bureau Group Co. Ltd and JSC Khidmsheni (in ) Item Works VAT Total Preliminaries 27,836,420 5,010,556 32,846,975 Nominated Subcontractor 67,237,429 12,102,737 79,340,166 Demolition works 12,467,218 2,244,099 14,711,317 Subgrade works 22,702,429 4,086,437 26,788,866 Bridge and culvert works 40,479,544 7,286,318 47,765,862 Tunnel works 36,195,977 6,515,276 42,711,253 Railway track bed structure 36,066,760 6,492,017 42,558,777 Water supply, sewerage, heat and gas supply 1,519, ,504 1,792,972 Production and service buildings and structures 12,714,943 2,288,690 15,003,633 Stations 4,094, ,036 4,831,679 Signalling, centralization and blocking 11,670,392 2,100,671 13,771,062 Power & electric traction supply 31,001,579 5,580,284 36,581,863 Total 303,986,800 54,717, ,704,424 Date of Award of Contract 14 June 2010 Contract Commencement Date 8 July 2010 Contract Duration Construction Completion Date 8 July 2013 Contract Currency 36 months Construction Period plus 18 months Defects Liability Period Payment Currencies Works - GEL Price Adjustment Funding VAT N/A - GEL Works- 47% from EBRD loan, 32% from Escrow account (proceeds of recently issued notes) and 21% GR internally Generated cash flows VAT - 100% from GR internally generated cash-flows Physical Completion: 1% complete (as of 19 October 2010) Financial Completion: 0% complete (as of 19 October 2010) Total Disbursement from EBRD loan 0 GR 16

17 On June 14, 2010, the GR has concluded a contract with the Joint Venture of Khidmsheni JSC and China Railway 23 rd Bureau Group CO. LTD (the Construction Contractor/Joint Venture) under the standard form of contract of the FIDIC Yellow Book for the purposes of construction of the Tbilisi Railway Bypass Project. Under the Contract, the Joint Venture is obliged to construct the railway bypass which includes: Construction of the bypass railway line of the length of 38,612 km from Zahesi Station to Tbilisi-Marshalling Station which consists of two sections: 1. New line alignment from Zahesi Station to Lilo Station with arrangement of intermediate stations Kvirike, and Lilo-1 (New Line); 2. Reconstructed single-track line in Kakheti direction from Lilo station to Tbilisi-Marshalling station with the newly installed second railway track (Kakheti Line). Construction of the following engineering facilities: Engineering Facilities New Line Kakheti line Bridges 10 / m 4 / 62.1 m Tunnels 5 / 3520 m - Overhead crossings 2 / m 3 / m Pipe-overhead crossings 6 / 318 m 1 / m Culverts 28 / m 2 /37.7 m Retaining walls 3 / 640 m - Relocation of infrastructure complexes, that are to be constructed under the Project to replace the existing complexes, in accordance with the following scheme: o Tbilsi Signalling and Interlocking Department, and Fire Emergency Train will be relocated to Tbilisi-Junction Station; o Locomotive Shed Complex for ЧМЭ3 (CHME3) Diesel Locomotives Repair, Mainteance Support Complex, and Freight Yard Complex will be relocated to Tbilisi Marshalling Station; o Electric Locomotives Repair Complex, Electric Multiple Unit Train and Passenger Cars, Coach Yard, and Track Maintenance Division will be relocated to Avchala Station; Construction of signalling and interlocking systems for both lines (New Line and Kakheti Line); Construction of power supply facilities and catenary poles; Installation of fibre-optic cables. GR 17

18 The works under the contract should be completed within 36 months. The contract price to be received by the Joint Venture amounts to excluding VAT. Advance payment amounts 20 % of the contract price; 10% of the contract price shall be transferred by beginning of October, Two instalments in the amount of 5 % of the contract price shall be paid respectively upon substantial design completion of the tunnels, and substantial design completion of the bridges. The rest of the payment shall be made based on interim payments (minimum amount ) in accordance with the works completed Contract for Consultants Services with ILF Beratende Ingenieure ZT GmbH (ILF) and Grauff Rail Engineering GmbH & Co. KG (GRE) Contract Summary Terms Employer Georgian Railway LLC Contractor ILF Beratende Ingenieure ZT GmbH (ILF) and Gauff Rail Engineering GmbH & Co. KG (GRE) Contract Value Services ,10 EURO VAT- (18%)1,117, EURO Total -7,325, EURO Date of Award of Contract 01 June 2010 Contract Commencement Date July 2010 Contract Duration 54 months Contract Completion Date January 2015 Contract Currency EUR Payment Currencies EUR Price Adjustment N/A Funding From proceeds of recently issued notes and GR internally Generated cash flows Physical Completion: ~8% complete (as of 19 October 2010) Financial Completion: 0% complete (as of 19 October 2010) Total Disbursement from EBRD loan 0 On July 1, 2006, the GR concluded a contract with ILF Beratende Ingenieure ZT GmbH (ILF) and Grauff Rail Engineering GmbH & Co. KG (GRE). Scope of the ILF s work under the Contract includes but is not limited to the following: Supervision of works, which includes: o Carry out the duties of the Engineer 4 as required by the relevant clauses of FIDIC Conditions of Contract for Plant and Design-Build and the Particular Conditions as agreed under the Main Works contract; 4 The terms Engineer and Supervisor are used interchangeably in this report. GR 18

19 o Regularly visit works in progress to observe the Construction Contractor s work in progress for conformity with quality standards, safety construction manner and good installation practices; o Inspect and accurately record the progress of the works Co-ordinate and monitor the work progress and cash flow forecasts in relation to the planned schedules; o Determine the value of approved and accepted work and materials for interim and final payment in accordance with the method described in the works contracts; o Maintain an up-to-date financial record of all payments and projected costs and include in monthly, quarterly and final reports and in other appropriate reports; o Furnish timely assistance and direction to the Construction Contractor in all matters regarding interpretation of the contract documents, ground survey control, quality control, testing and other matters related to contractual compliance; o Inform the Employer via the Engineer of any problems or potential problems which may arise in connection with the construction contract and providing recommendations on possible solutions; o Witness and approve regular tests of materials and of completed works, and order additional tests if required; o Order the removal of improper or substandard work with prior the Employer agreement; o Assist in preparation of completion and handing over certificates, defects liability certificate and acceptance certificates in accordance with the conditions of contract; o Arrange for and participate in regular site meetings; o Check that performance of the works comply with the environmental protection requirements; o Ensure that the Construction Contractor s insurance and Performance Securities remain adequate to cover the liabilities at all stages for the completion of the Project and inform the Employer via the Engineer accordingly; o Ensuring that quality management procedures are undertaken effectively; o Daily recording of work site events in a work site logbook; o During testing and commissioning review the Construction Contractor s test procedures and interpret the results for acceptability or otherwise; o Inspect the works during the defects notification period when requested by the Employer; Approval of Construction Contractor's Documents; Submission of the Engineer's Work Programme Report; Submission of Monthly Progress and Final Reports. GR 19

20 2.7. Contract with Geographic LLC on Land Acquisition and Resettlement Services Contract Summary Terms Employer Georgian Railway LLC Contractor Geographic LLC Contract Value Services VAT (18%) Total Date of Award of Contract June 23, 2010 Contract Commencement Date June 2010 Contract Duration 6 months Contract Completion Date 1 December 2010 Contract Currency Payment Currencies GEL Price Adjustment N/A Funding 100% From Railway Funds Physical Completion: 7.3%. Financial Completion: 65.0% Total Disbursement from EBRD loan 0 On June 23, 2010, the GR has engaged Geographic LLC to provide services that includes, but is not limited to: Examination of the legal basis of the ownership of the land plots affected by project; Ensure purchase of private land plots affected by the Project (see above the Future Railway Land); Preparation of purchase contracts and registration of the respective land plots in NAPR under the name of GR; Ensure proper administration of expropriation procedures in full accordance with the applicable laws and regulations; Cooperation with the NAPR for the correction of geometric data of the affected land plots and proper registration; Submission of weekly and monthly reports. Geographic LLC has been fully discharging its obligations under the contract Contract with Begiashvili & co. limited EBRD has engaged Georgian Law Office Begiashvili & co. Limited for carrying out due diligence of the GR. Price of the contract is to be covered by the GR. GR 20

21 2.9. Contract with Booz & Co. Within its due diligence process, the EBRD has engaged world leading consulting company Booz & Co to assist the GR in project preparation. The price of the contract was covered by the GR. The scope of work covered four main tasks: 1. Traffic Forecast; 2. Assessment of benefits and disadvantages from the investment (Project); 3. Prepare a Financial Model of the GR; 4. Asses Restructuring progress and potential for further improvements. The works under contract have been fully completed Locum Consulting & Colliers CRE Locum Consulting & Colliers CRE has been contracted by the EBRD to assist the bank in carrying out due diligence of the GR. The component parts of this study were defined as follows: Market research and analysis; Land valuation; Financial appraisal, including a flexible model that can test different scenarios and sensitivity to key variables; International best practice for similar type of land developments; Vision and development strategy; Delivery and Procurement (project brief) Locum Consulting & Colliers CRE has fully completed the works under the contract. GR 21

22 3. Project Implementation Progress During the reporting period, the progress in actual implementation of the Project has been related mainly to the arrangement of proper legal and financial framework for the activities of the Construction Contractor, finalization of design works, handing over of construction sites, assessment/approval of the work plan of the Construction Contractor, land acquisition and resettlement process, reconstruction/development of Didube and Navtlughi stations. 3.1.Handover of Construction Sites The construction site of the project is divided into four sections. Handover of the respective parts to the Construction Contractor is to be carried in four phases in accordance with the following plan: Handover phases Section of the site 1 st phase Kakheti railroad, including Tbilisi Marshalling Station and Tbilisi Junction area; 2 nd phase Existing Lilo Railway Station to tunnel #3 (included), , and from projected Lilo I Railway Station to projected Kvirike Railway Station; 3 rd phase Tunnel #3 to Zahesi Railway Station (included), on Tunnels #1 and #2, Avchala Railway Station and on other sites (except Didube station); 4 th phase Didube Passenger Station building ; The GR handed over the first section of the site to the Construction Contractor on August 5, 2010 under the Handover Protocol-Phase 1. The second section of the site was handed over on August 30, Handover of the third section of the site will take place after 6 months from the date of the conclusion of Construction Contract. The whole process will be concluded after two years from the date of the conclusion of Construction Contract by handover of the fourth section of the site Construction Works On September 22, 2010, the Construction Contractor submitted detail design for section PK54-PK67 (1.3 km) of the existing Kakheti line. The Engineer has not approved the detail design due to its non-compliance with respective standards. However, the Engineer issued restricted approval for the beginning of preparatory works. Accordingly, on September 29, 2010, the Construction Contractor started the works on the construction of access roads to the construction site and relocation of existing electric poles. GR 22

23 3.3. Work Plan The Construction Contractor has presented construction Work Plan to the Supervisor. After an examination, the document was considered to be incomplete due to the absence of barchart and estimated cash-flows and other components required by the Contract. As a result, the Supervisor has returned it to the Construction Contractor together with necessary guidelines and instructions for its completion. According to the Construction Contractor, the new version of the Work Plan is to be submitted to the Supervisor by October 25, Upon its approval by the Supervisor it will be submitted to the GR Advance Payment Guarantee GR has received Advance Payment Guarantee under the Construction Contract issued by the HSBC Bank (China) Company Limited, Chengdu Branch. The Guarantee has been reviewed together with the Supervisor and after several comments and amendments the GR received the final version of the document on September 27, The respective payment will be made by the beginning of November Insurance Policies The Construction Contractor has presented the Insurance Policies issued by the Georgian insurance company GPI Holding, elaborated in accordance with the requirements under the Loan Agreement. The Policies are under examination of the Supervisor and will be submitted to the EBRD by November 12, Land Acquisition and Resettlement The future railway land comprised of 358 non-private land plots and 886 private land plots. Out of 358 non-private land plots, 341 were state-owned land plots and 17 land plots were the property the Tbilisi Municipality. To date of this report, all 341 state owned land plots have already been registered in the National Agency of Public Registry (NAPR) as the property of the GR.As a result of active support from governmental agencies (Ministry of Economy and Sustainable Development; Ministry of Environment and Natural Resources; Ministry of Justice) status of 17 state owned land plots has been changed from agricultural to non-agricultural. The change was carried out due to applicable Georgian legislation, which prohibits construction works on the land plots with agricultural status. The change of the status was made free of charge and as a result of this assistance, the GR spared approximately GEL of additional expenditures. Find the list of all the state owned land plots in the Appendix A that are already under the ownership of the GR. GR 23

24 As for the land plots owned by the Tbilisi Municipality, the latter has already waived its property rights on the mentioned 17 land plots. Accordingly, the registration of 17 land plots on the name of the GR is to be completed by November 15, As regards the private land plots, the GR has already purchased 66 out of 886 land plots through Geographic LLC. See the details of the purchase agreements executed by the GR in the Appendix B.In the course of the coming months (October, November, December), the GR plans to conduct intense negotiations with the remaining private land plot owners through Geographic LLC and finalize land purchase agreements with them by the end of ESAP Implementation Pursuant to Section 5.03 of the Loan agreement the GR has to implement and adhere to the Environmental and Social Action Plan (ESAP) in order to ensure environmental and social compliance in accordance with the respective requirements of the EBRD and Georgian legislation. The ESAP was elaborated in response to the conclusions of the Environmental and Social Impact Assessment (ESIA) and provides for mitigation and performance improvement measures and actions that address the identified social and environmental issues and impacts. The findings and requirements of ESIA and ESAP were incorporated into requirements for design, construction, operation and maintenance of the railway bypass. As a result the Initial Design and Resettlement Action Plan (RAP) were prepared by the KievGiproTrans based on the above requirements. During the tender proceedings for resettlement services and construction works, ESIA and ESAP were included in the tender documents. As a result, the documents represent integral parts of the contracts respectively with the Geographic LLC and the Joint Venture (Construction Contractor). Accordingly, both contractors have to carry out their activities in full compliance with the mentioned documents. At this early stage of project implementation, the activities carried out under ESAP relate mainly to preconstruction phase. These include the issues of staffing; obtaining of relevant permits; elaboration of water protection; resettlement and compensation process; stakeholder engagement. Staffing: The GR has established the Project Implementation Unit (PIU) in order to ensure timely and effective implementation of the Project. Currently, the PIU is working actively to establish a management system responsible for environmental, social, health and safety issues. The system should cover the components of ESAP implementation, training/informing of the GR personnel, managing of contractors, monitoring and review of performance, and reporting. In this regard, the GR is considering to procure the above-mentioned services as part of the PIU assistance. Permitting and Regulatory Compliance: On September 24, 2009, the GR has applied to the Ministry of Economic Development of Georgia and provided the main information on the GR 24

25 Project (including main design solutions, routs of the rail tracks, plans regarding allocation of the existing railway infrastructure) as well as stated its high importance and complexity. The main objective of this letter was to request assistance from the Government of Georgia in the process of obtaining all necessary permits for the construction works of the Project. The Government responded positively to the request and has been fully supportive throughout the process. As a part of this assistance, an amendment was introduced the Decree No.57 of the Government of Georgia on the Rule for the Issuance of Construction Permit and Terms of Permits (March 24, 2009) on December15, The goal of the amendment was to accelerate the process of issuance of construction permit and it provided for issuance of specific permits without prior submission of property documentation. 5 On April 22, 2010, the Ministry of Environmental Protection and Natural Resources issued a Report on Ecological Expertise of the Project based on applicable Georgian laws and regulation. The abovementioned Ecological Expertise was issued considering following preconditions: 1. According to the strategy described in the ESIA report, Georgian Railway LLC shall ensure elaboration of additional engineering solutions for the surface (Gldani Great lake, Upper Samgori magistral channel) and soil waters (Gldani Great lake territory, Ex-Varketili agricultural territory, soil waters of not deep circulation), on the basis of which the railway bypass shall be constructed and the abovementioned waters protected from the possible pollution during the exploitation phase. For the Territories of Gldani Lake, the water surface indicator shall be taken into account. The protective measures shall additionally be referred for approval to the National Environmental agency at the Ministry of Environment Protection and Natural Resources of Georgia. 2. Georgian Railway LLC shall not permit the polluted waters to stream east from the Tbilisi Sea (to the river Ghrmaghevi). 3. Georgian Railway LLC shall submit the design solutions for the areas between existing railway line and projected railway line (PK 0+06-PK 36+60) and Gldanula district (PK 50+69) to the National Environmental agency at the Ministry of Environment Protection and Natural Resources of Georgia. 4. Georgian Railway LLC shall protect population from the noise and vibration in accordance to the applicable normative act (SN 2.2.4/ on defining qualitative norms of environment ) and softening measures defined under the ESIA report (chapter softening measures during the exploitation period) 5 The amendment introduced to the Decree: Object of class 5 representing the buildings and complexes of high state and social importance financed by international financial and other investment companies, according to the decision of the Ministry of Economic Development may be provided with the construction permit on land plots without submitting documents evidencing property rights or rights of use of the land plots to the authority entitled to issue construction permit. In this case, the terms of construction permit shall define the deadline for submission of the abovementioned documents, which is the precondition for the start of construction works. GR 25

26 5. In order to maintain the national safety and ecological equilibrium in the country and minimize the risks of spread the infectious diseases harmful both for human beings and cattle as a result of anthropological effect on the natural-territorial complexes in collaboration with the LEPL Agrarian Radiology and Ecology Institute at the Ministry of Education and Science of Georgia the management of Georgian Railway LLC shall ensure carrying out of the landscape-epizootological-ecological monitoring before the start of construction on Railway line and in case of need, take relevant preventative measures. If the railway line runs through cattle graves the management of the Georgian Railway LLC shall ensure variation of line direction and undertake relevant procedures defined by the legislation; 6. Georgian Railway LLC shall ensure elaboration of optimal plans for the waste management in the frame of the Railway Bypass project construction and refer it for approval to the Ministry of Environment Protection and Natural Resources. The abovementioned plans shall consider safe management of waste created during the railway construction works, exploitation, as well as dismantling of the existing railway infrastructure; 7. Before the start of the bypass project construction works, the amount and species of the plants on the affected territory, especially on the crossings of the railway line and construction sites on the territory of the Tbilisi National park shall be defined. The populations and species of bats on the territory of the Tbilisi National Park as well as place and number of the shelters to be arranged for them shall be defined. The amount of effected soil shall be determined in order to assess the negative effect on the Tbilisi National Park. Considering all the above mentioned specific compensation events shall be elaborated and submitted for approval to the LEPL Agency of Protected Territories. 8. It is necessary to define the species and number of trees for the greening noise protection line to be created on the territory of the Tbilisi National Park and area of the greening line; also the compensation events for the impairments to the Tbilisi National Park shall be defined precisely. 9. In order to protect the territories from oil and oil product pollution, the concrete culvert and reservoirs of appropriate size shall be installed. 10. Ensure separation of the areas from the wood-agricultural fund, subordination to the Wood Department (including providing certain categorization to the plants, or removing them from the fund), and cutting wood in full accordance with the legislation. 11. Before the start of Tbilisi bypass construction works, in order to maintain biodiversity, the species of the flora listed in the Red Book and the quantity of the species to be cut down, as well as species of fauna listed in the red book, the types and scales of effect on them shall be defined, and on the basis of the research data precise softening and preventative activities shall be elaborated. In case of need compensation events shall be defined. GR 26