Project number:


Business sector:


Notice type:


Environmental category:


Approval date:

14 Sep 2010



PSD disclosed:

06 Oct 2010

Translated version of this PSD: Russian

Project Description

EBRD subscription to the US$ 700 million Eurobond issue of Kazakhstan Temir Zholy, Kazakhstan’s National Railways Company (KTZ). KTZ placed Eurobond via its Netherlands based subsidiary Kazakhstan Temir Zholy Finance B.V.

The proceeds from the Bank’s subscription to the Eurobond will be used to finance acquisition of freight wagons for KTZ’s subsidiary JSC Kaztemirtrans (KTT).

The purchase of new modern wagons would also allow the Company to provide better service quality and capitalise on the productivity improvements from the new cars in terms of lower maintenance unit costs.

Transition Impact

Transition impact is expected to be derived from further promoting the reform process in the railway sector in line with the Memorandum of Understanding signed between KTZ and EBRD on 12 June 2009. The ultimate objective of the reform process is supporting Kazakhstan’s sustainable growth, economic diversification and competitiveness. Specific transition milestones linked with the transaction are expected to be as follows:

(1) Greater competition in the railway sector: separation of infrastructure

The Project will support the first stage towards open access to the infrastructure through the merger of assets and operations in a separate infrastructure company and development of a medium-term business plan for its operations.

(2) Demonstration impact of alternatives financing instruments

Access to international capital markets is an important transition challenge for Kazakh entities, but due to the financial crisis there have been few Eurobond issues by Kazakh public entities since 2006. The proposed Eurobond issue would be one of the first post-crisis, and if successful, the demonstration effect for other public entities in Kazakhstan would be significant.

(3) Elimination of cross-subsidisation of loss-making passenger services and private participation in the provision of passenger services.

Under the existing structure, 30 per cent of passenger service losses are financed by Government subsidies, with the remainder cross-subsidized by KTZ from profitable freight operations. Under this arrangement KTZ’s freight operations would be at a disadvantage to other market participants once open access is implemented. This project therefore focuses on elimination of the cross-subsidisation of the loss-making passenger services and the initiation of changes to the legal framework to facilitate outsourcing on a competitive basis of selected passenger routes, to the private sector, where feasible.

The Client

KTZ and its wholly-owned subsidiary KTT, holder of the entire freight wagon fleet. KTT leases its fleet to KTZ and provides freight forwarding services on a commercial basis via its subsidiaries.

EBRD Finance

EBRD participation in the KTZ Eurobond issue alongside other investors.

Project Cost

US$ 700 million.

Environmental Impact

Categorised B in accordance with the EBRD’s Environmental and Social Policy 2008. Environmental and social due diligence by an Independent Environmental and Social Consultant has identified that while the Company has Environmental and Occupational Health and Safety Management Systems, they only cover the administrative premises of the Company and do not apply to operational facilities; although the Company has made, and continues to make, efforts in this regard.

The due diligence also identified that emissions from the coal-fired boilers at certain of the KTZ depots visited do not meet certain aspects of EU standards. However, there are no residential areas in the vicinity of depots and, air quality measurements on the border of the sanitary-protection zone identified that there are no violations of the Kazakh maximum allowable concentrations of pollutants.

KTZ has an adequate risk assessment procedure document. The Company also informed the Bank that employees are provided with the occupational health and safety induction and regular training courses. However, site visits to the selected depots identified that a number of health and safety improvements are required.

The Company is planning retrenchment of personnel to be implemented from 2010 to 2020. The Company will be required to prepare a retrenchment plan which will be reviewed by the Bank.

A Project-specific Environmental and Social Action Plan (“ESAP”) has been developed and agreed with the Client to address the issues discussed above and other issues identified during the due diligence

Technical Cooperation


Business opportunities

For business opportunities or procurement, contact the client company.

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Email: procurement@ebrd.com

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