BAKAD Road Concession

Location:

Kazakhstan

Project number:

47085

Business sector:

Transport

Notice type:

Private

Environmental category:

A

Target board date:

14 Oct 2019

Status:

Board Approved

PSD disclosed:

27 Mar 2019

Translated versions of this PSD: KazakhRussian

Project Description

The provision of investment involves providing debt financing for the construction and operation of a 66-km ring road around Almaty in Kazakhstan (the "Project"), to be undertaken by BAKAD Investment and Operation LLP (the "Project Company"), a limited liability partnership established in Kazakhstan. The Project is being developed under a 20-year concession agreement signed on February 8, 2018.

Project Objectives

The Project is expected to: (i) divert transit traffic away from Almaty, and thus contribute to the reduction of the city's pollution; (ii) reduce traffic congestion and commuting time to and within Almaty; (iii) reduce road accidents, improve the capacity and competitiveness of the trans-Kazakhstan transit routes; (iv) enable increased regional and international trade as the Project forms part of the Western Europe - Western China transcontinental highway; (v) encourage the use of the PPP/concession framework in other sectors and projects in Kazakhstan, as the Project is the first Public Private Partnership (PPP) project in the country and the first large infrastructure project to be completed with private capital outside the commodities sector.

Transition Impact

The proposed Project would be the first road concession to be awarded in Kazakhstan and the first PPP structured with quality international advisors and through an open, international competitive process. The Project is expected to be a precursor of several road concession projects in Kazakhstan in the foreseeable future.

Transition impact rationale 1: Demonstration effects of new ways of financing road sector in Kazakhstan The Project is a milestone in the PPP market in Kazakhstan, as the first road concession project to appeal to international investors. The Project will demonstrate the possibility of attracting private funding as well as know-how at a significant scale by promoting the use of open, transparent and competitive tender procedures, as well as an innovative contractual structure in the Kazakh road sector, consistent with best international practices.

This demonstration effect is particularly important given the potential pipeline of road PPP projects in Kazakhstan that can be realised by the National or regional authorities in the coming years.

To develop such a market will require the establishment of a number of precedents in order to attract the necessary number of market participants. Therefore the success of the Project, supported by the Bank's participation, will be key in putting Kazakhstan on the global PPP map.

Transition impact rationale 2: Private operation of a key road infrastructure in Kazakhstan with probable participation of a strategic foreign sponsor The Project envisages construction and operation of a significant road asset in Kazakhstan under private sector management. It may set up a new benchmark for road construction and road management to confront conventional state procurement methods.

Participation of a foreign strategic sponsor is expected to facilitate the integration of international best practices in the life-cycle of the Project (construction and operation). In the medium term such practices will have significant replication potential, improving the overall performance of the sector.

Client Information

BAKAD INVESTMENT AND OPERATION LLP

Bakad Investment and Operations LLP (the "Project Company") is owned by Alsim Alarko Sanayi Tesisleri ve Ticaret A.S. (33.3%), Makyol Insaat Sanayi Turizm ve Ticaret A.S. (33.3%), SK Engineering and Construction (33.3%), and Korea Expressway Corporation (0.10%) (jointly the "Sponsors").

EBRD Finance Summary

USD 225,000,000.00

EBRD is considering providing a senior loan of up to USD 225 million. The balance of the senior debt financing is expected to be provided by other International Financial Institutions.

Total Project Cost

USD 750,000,000.00

The Total Project Cost is estimated at approximately USD 750 million.

Environmental and Social Summary

The Project is categorised A under EBRD's Environmental and Social Policy (2014). The Environmental and Social Impact Assessment (ESIA) disclosure package including the ESIA, Non-Technical Summary, the Stakeholder Engagement Plan (SEP), Land Acquisition and Resettlement Principles (LARP) and Environmental and Social Action Plan (ESAP) was disclosed on the EBRD website on 12th April 2019. The revised ESIA disclosure package reflecting the results of these studies and the Environmental and Social Management Plans (ESMPs) were disclosed on 20 August 2019.

The construction of the road will allow the redirection of a significant proportion of the transit traffic passing through Almaty which will in turn not only assist in the reduction of traffic congestion, but will also contribute to the reduction of air pollution and noise in the city. Despite such benefits, the BAKAD will also be associated with a number of potentially significant environmental and social (E&S) impacts and risks.

During the Project’s design, several alternatives were analysed, including the ‘No-project’ alternative. Three alternative routes were analysed in more detail in the feasibility study developed in 2007 by the Government of Kazakhstan with the main goal to minimise the resettlement. After the Project award, the Sponsors’ EPC team continued work on the improvement and enhancement of design solutions, including the consideration of preliminary results of the ESIA.  This included consideration of additional passes for cattle and agricultural vehicles, review of the design of the river crossing which initially envisaged river diversion, and review of the designed locations of noise barriers.

The Government of Kazakhstan acquired 690.6 ha of land as per national legislation between 2007 and 2018, affecting an estimated 790 households, in anticipation of the future development, prior to the formal involvement of the EBRD. The assessment of this acquisition of land identified that there are gaps with the EBRD PR5 in relation to: compensation for informal land users and unregistered houses/businesses/structures; below market value compensation payments; and meaningful support to the vulnerable and disproportionately affected people. The results of the assessment suggest that the Project cannot be structured to comply with the EBRD PR5. Whilst an ESAP and E&S Mitigation Measures Plan have been prepared and agreed with the Concessionaire and Grantor respectively to provide certain mitigation measures to affected people through material and in-kind support; these measures will not be sufficient for the Project to comply fully with PR5.

However, in the case of possible additional future land needs, the land acquisition and resettlement will be carried out in line with the EBRD PR5. To this end, the LARP, requiring a RAP to be prepared for each section, was developed, accepted by the Grantor and disclosed together with the ESIA package.

The air quality assessment indicates an already degraded air quality along the BAKAD. While contributing to the improvement of the overall air quality in heavily polluted Almaty city, the project is predicted to negatively impact the air quality along the road corridor. The air quality model estimates exceedance of the target Kazakh air quality for SO2, NO2 and CO along the road. EU standards for NO2 will also be exceeded as the baseline NO2 levels are already at the limit. The model results will be validated through additional air quality baseline data to be collected from September 2019 to February 2020. As a mitigation measure, speed regulation will be implemented if the ambient air quality monitoring when the road becomes operational indicates exceedance of Kazakhstan and EU standards. Additionally, in 2020 the Concessionaire will carry out a Health Impact Assessment and targeted mitigation measures will be implemented for vulnerable receptors.

The archaeological assessment completed for the Project identified 36 historical and cultural heritage objects, 9 cemeteries, and a sacred spring within or near the right of way, some of which has local significance and are protected under the legislation. With the proposed mitigation measures that includes the preparation of the Cultural Heritage Management Framework and engagement of a cultural heritage expert, the Project will align with PR8 and is not expected to cause significant impacts to the cultural heritage sites and objects. 

The EBRD PR2 labour requirements are cascaded down across all contracting chains and an external labour audit is to be carried our each year. During the construction phase the Sponsors are expected to employ up to 1,700 workers. Two construction camps that are being built will accommodate 650 workers. Any additional accommodation facilities required to house the workforce will follow EBRD guidelines for workers' accommodation (2009).

The local Environmental Impact Assessments (EIAs) have been approved by the competent authority for the first two sections (4 and 8a) where the construction works will commence first. The EIAs for the other sections of the project will sequentially be prepared, and submitted for approval and associated permits acquired before construction.

The BAKAD road will partly run across a densely populated area. However, about 90 per cent of the impacted area is occupied by agricultural lands and pastures. With the identified mitigation measures, the Project is not expected to result in any significant impacts on biodiversity.

The ESIA estimates construction GHG emissions at 22,000 tons of CO2 equivalent (tCO2eq) per year over the planned 50-month construction period. The project’s GHG emissions during operations will be limited.

A Stage 1 Road Safety Audit (RSA) has been conducted for the Project. The recommendations from the RSA includes the review the design for skid resistance, speed limits, merge/diverge lengths, horizontal alignment of slip roads, potential traffic queues, safety barriers, drainage and flood risk, winter maintenance and rest areas. The Concessionaire will integrate all required road safety improvements in the final road design, which will be verified subject to local authorities’ approval by the stage 2 of RSA as per the ESAP.

The Sponsors have Corporate Environmental and Social Management Systems to manage the E&S risks and impacts of their activities, however the Sponsors shall assign additional E&S staff with adequate decision making authority to manage the EPC Contractor and subcontractors. The Concessionaire will develop and implement a project specific ESMS in line with the Framework ESMP developed under the ESIA. The EPC Contractor will adopt the ESMPs and further develop Construction Environmental and Social Management Plans covering: construction management; sediment and erosion control; surface water and groundwater management; waste management; traffic management; emergency response; quarry EHS management; subcontractor and supply chain management; community H&S management; labour and working conditions management; health and safety management; cultural heritage management; and E&S monitoring. Prior to operations of the toll road, the O&M Contractor will develop an Operations ESMP.

The ESAP requires a detailed hydrogeological survey of parts of the valleys of the rivers Bolshaya Almatinka, Malaya Almatinka and Karabulak, where river bed straightening (permanent or temporary) is planned, in order to assess the significance of channel migration impacts on the mode of groundwater discharge and risk of flooding. Final design for those sections will include the measures required to address these risks and any potential impacts on benthic habitats and fish.

Construction in any section will be allowed to start only when all prerequisite actions required for that sections under the ESAP are completed.

The lenders' technical advisor and E&S consultant will undertake quarterly audits of the project to assess EHSS performance during construction in accordance with the Banks PRs and will report to the Lenders.

Some early public consultations were carried out during the development of the Project ESIA including the public hearings held in 2013 in all 3 districts (Karasay, Iliy, Talgar) and Focus Groups Discussions (FGD) with local communities representatives and local institutions during the Feasibility Study. The ESIA disclosure meetings were carried out on 3-5 September 2019 in all affected districts and near two quarry sites. Overall, 6 general meetings and 11 FGD were held covering a total of 339 people including farmers, gardeners, businesses, women, vulnerable people, people affected by the past land acquisition, CSOs, and media. Key questions raised during the meetings focused on potential future land acquisition, connectivity and access, road safety, noise, toll charges for local residents and employment opportunities. Further engagement activities will be carried out prior to start of construction activities at each section in line with the SEP.

There is an Environmental and Social impact Assessment available for this project.

Technical Cooperation

None.

Company Contact Information

Ms. Ayman Zhanuzakova
ayman.zhanuzakova@alarko.kz
+77273358342
http://www.bakad.com.kz
Office 403, 55/1, Zhangozin Str., Kaskelen City, Almaty Region, 040900, Republic of Kazakhstan

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