Country Operations Business Plan December 2014 Kazakhstan 2015 2017 This document is being disclosed to the public in accordance with ADB's Public Communications Policy 2011.
CURRENCY EQUIVALENTS (as of 26 November 2014) Currency unit tenge (T) T1.00 = $0.0055 $1.00 = T180.88 ABBREVIATIONS ADB COBP CPS GDP MFF OCR SMEs TA Asian Development Bank country operations business plan country partnership strategy gross domestic product multitranche financing facility ordinary capital resources small and medium-sized enterprises technical assistance NOTE In this report, $ refers to US dollars. Vice-President W. Zhang, Operations 1 Director General K. Gerhaeusser, Central and West Asia Department (CWRD) Director J. Yang, Country Director, Kazakhstan Resident Mission, CWRD Team leader A. Chyngysheva, Portfolio Management Specialist, CWRD Team members A. Chakenova, Associate Project Officer (Infrastructure), CWRD C. Espina, Senior Economics Officer, CWRD A. Galiev, Senior Public Private Specialist, CWRD B. Goalou, Urban Development Specialist, CWRD I. Martinez, Private Sector Development Specialist, CWRD M. Nurseitova, Economics Officer, CWRD L. Omarova, Senior Operations Assistant, CWRD K. Rosbach, Economist, CWRD C. Tiangco, Energy Specialist, CWRD M. Westfall, Advisor, CWRD Z. Wu, Transport Specialist, CWRD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.
CONTENTS Page I. CONSISTENCY OF THE BUSINESS PLAN WITH THE COUNTRY PARTNERSHIP STRATEGY 1 II. INDICATIVE RESOURCE PARAMETERS 1 III. SUMMARY OF CHANGES TO LENDING AND NONLENDING PROGRAMS 2 APPENDIXES 1. Updated Country Partnership Strategy Results Framework 3 2. Indicative Assistance Pipeline 6 3. Assistance Program for Current Year 9
I. CONSISTENCY OF THE BUSINESS PLAN WITH THE COUNTRY PARTNERSHIP STRATEGY 1. The proposed country operations business plan (COBP) to guide Asian Development Bank (ADB) operations in Kazakhstan during 2015 2017 is consistent with ADB s country partnership strategy (CPS), 2012 2016 for Kazakhstan. 1 The COBP supports the CPS s strategic directions of (i) economic development and diversification through infrastructure modernization, and (ii) finance sector development, including improved access to finance for small and mediumsized enterprises (SMEs). The main cross-cutting CPS strategic priorities of regional cooperation, private sector development, knowledge solutions, environmental sustainability, governance, and institutional strengthening are also promoted under this COBP. Planned investments are aimed to improve transport infrastructure, energy efficiency, results orientation, and access to finance and financial services. A highlight of the COBP, with significant implications for inclusive growth, is the addition of a multitranche financing facility (MFF) that will support financial market development, contribute to stronger macroeconomic performance, mitigate macro-financial vulnerabilities, and accelerate information and knowledge sharing for growth. The inclusion of technical assistance (TA) for the knowledge and experience exchange program reflects ADB s emphasis on promoting knowledge solutions and global best practices. 2. The CPS has adopted a flexible approach to resource planning, premised on the government wanting ADB to be ready to provide assistance on demand. Since one project has been postponed to 2015, the demand for resources in subsequent years will be much higher than the country ceilings. The Government of Kazakhstan and ADB signed a partnership framework arrangement during the 47 th ADB Annual Meeting of the Board of Governors in Astana in May 2014 to support the government s development strategies for accelerating the diversification of the economy and increasing its competitiveness to achieve and sustain inclusive growth. Through this arrangement, ADB will assist the government in implementing its development program by providing effective stewardship of resources drawn from the country s sovereign wealth fund. This is reflected in the increased government s funding share in this COBP. II. INDICATIVE RESOURCE PARAMETERS 3. Kazakhstan is only eligible for financing from ADB s ordinary capital resources (OCR). The indicative resources available during 2015 2017 for sovereign operations amount to $940 million, while the proposed firm lending program amounts to $1.5 billion. 2 Several projects have been included in the indicative pipeline as standby projects, although they can be reclassified as firm if additional funding becomes available. The pipeline also includes nine TA projects for $7.1 million. The COBP will help mobilize public private partnerships and promote partnerships with other development partners. The COBP will also mobilize nonsovereign financing to support private sector projects. 4. The lending program of the COBP focuses on modernizing transport infrastructure, improving energy efficiency, improving access to finance for SMEs, deepening the finance sector, and enhancing information and communication technology. The lending program is contingent on the government s continued commitment to borrow and on the availability of OCR funds. The program has been agreed with the government, which consents to annual reviews of the lending program to remain consistent with emerging government priorities. 1 ADB. 2012. Country Partnership Strategy: Kazakhstan, 2012 2016. Manila. 2 The actual pipeline can deviate from the indicative resource allocation due to possible reallocation of OCR within ADB s Central and West Asia Department. Also, cofinancing will be actively explored, in consultation with the government, to fill the financing gap, if any.
2 5. The lending program is complemented by a nonlending products and services program that includes project preparation support, capacity development, and a joint government ADB knowledge and experience exchange program. 3 The nonlending products and services program will be supported through TA, knowledge products, policy dialogue, and transaction advisory services for public private partnerships to promote economic diversification and private sector development. The indicative funding pipeline for TA during 2015 2017 averages about $2.4 million per year. 6. In addition to public sector assistance, ADB s private sector operations will focus on trade finance, transport, energy, and agribusiness, and will explore new investments into selected financings to banks, investment funds, and value-added manufacturing. III. SUMMARY OF CHANGES TO LENDING AND NONLENDING PROGRAMS 7. The COBP, 2015 2017 retains the focus on the core areas and cross-cutting strategic priorities of the CPS (para. 1). The changes in the pipeline indicated below are within the strategic priorities of the CPS and have resulted from a focus on project readiness and responsiveness to inclusive growth needs. 8. Energy. The Energy Efficiency Project (Karaganda District Heating Network Rehabilitation Project), originally programmed for 2014, was moved to 2015 to allow adaptation of the feasibility study to national requirements. Its second phase is planned as firm in 2017. 9. Transport. The MFF Central Asia Regional Economic Cooperation Corridor 2 (Mangystau) (tranche 3) scheduled for 2015 was dropped at the request of the government. Two new road projects Road Rehabilitation Project (Aktobe Atyrau Astrakhan) and Performance- Based Road Maintenance Project were added for 2016, and a new MFF Center West Transport Corridor (Astana Beineu) Investment Program was added for 2017. The Astana Sustainable Urban Transport Project (Astana Bus Rapid Transport) was rescheduled from 2015 to standby in 2017. 10. Finance. The budget for the MFF Small and Medium Enterprise Investment Program (tranche 3) increased from $200 million to $225 million as a result of the variations in exchange rate. To expand SMEs access to medium-term credit on a sustainable basis, a new MFF Micro, Small, and Medium Enterprise Investment Program was included with two consecutive tranches in 2016 and 2017. Also, a new MFF Financial Sector and Information and Communication Technology Enhancement Program was included with three tranches to be processed in 2015, 2016, and 2017. 11. Water and other urban infrastructure and services. The Urban Services Development Project was removed from the lending program. 12. Nonlending program. The nonlending program is aligned with the lending program and focuses on supporting project preparation and providing advisory support to implement related reforms. The nonlending program also includes increased knowledge support under the joint ADB Government Knowledge and Experience Exchange Program. 3 The TA will be processed under the reimbursable modality, through which ADB will finance the whole TA amount and the government will reimburse 50% of the total cost to ADB.
Appendix 1 3 Country Development Goals UPDATED COUNTRY PARTNERSHIP STRATEGY RESULTS FRAMEWORK (Board endorsement of the CPS: 2012; COBP December 2014) 1. Steady and balanced growth of the economy through diversification and increased competitive ability. GDP in 2015 will have increased by 50% in nominal terms and 15% in real terms over 2008 levels (from T16 trillion to T23 trillion in nominal terms). 2. Productivity of the labor force will increase 1.5 times by 2015 over the 2008 level of $22,600 per person on a purchasing power parity basis. 3. Share of the manufacturing industry in GDP rises to 12.5% by 2015 from 11.3% in 2010. Sectors Selected by ADB a Government Sector Objectives Sector Outcomes that ADB Contributes to and Indicators 1. Transport (Core Area 1: Infrastructure, Core Area 3: Regional integration) Develop an efficient transport and logistics system that is integrated and on par with the international system Outcome: Increased and more efficient movement of people and goods to domestic and international markets Indicator 1: Transport cost in the final cost of goods reduced Baseline: 10% (2011) Target: 5% (2016) Current value: 9% (2014) Indicator 2: Traffic volume increased on Mangystau Oblast section of Central Asian Regional Economic Cooperation Corridor 2 Baseline: 1,000 vehicles per day (2009) Target: 3,500 vehicles per day (2016) Current value: 2,287 vehicles per day (2014) Indicator 3: Travel time between Aktau and Beineu reduced ADB Areas of Intervention National roads and improvement of crossborder infrastructure Logistics improvement Sector-wide institutional and governance reforms Public private partnerships Knowledge support, capacity development, and policy dialogue Public transport ADB Indicative Resource Allocation in the Next Pipeline and Strategic Priorities $703 million for 2015 2017 (year 2017 is outside current CPS period), 33% of total CPS envelope, b of which: ESG 21% RCI 100% $497 million approved from 2012-2014, 23% of total CPS envelope, of which: IEG 100% RCI 100% Changes from CPS or Last COBP None Changes from CPS or Last COBP Key sector outcomes have been added with urban transport. The indicators have been reviewed and updated. The last indicator was an outcome related to urban transport, which was included in the previous COBP results framework as multisector. Baseline: 12 hours (2009) Target: 4 hours (2016) Current value: 7 hours (2014) Indicator 4: An increased percentage of Astana s population is served by the new rapid transit system Baseline: 0% (2014) Target: 25% (2020)
4 Appendix 1 Sectors Selected by ADB a Government Sector Objectives Sector Outcomes that ADB Contributes to and Indicators ADB Areas of Intervention ADB Indicative Resource Allocation in the Next Pipeline and Strategic Priorities Changes from CPS or Last COBP 2. Energy (Core Area 1: Infrastructure, Core Area 2: Environment) Modernize energy infrastructure and systems, and develop renewable energy to achieve higher energy efficiency, reduced energy intensity, and lower greenhouse gas emissions Outcome: Efficient use of energy and reduced energy intensity Indicator 1: Energy intensity of GDP decreased Baseline: 0.56 terawatt-hours per $1 billion GDP on a purchasing power parity basis (2008) Target: 0.50 terawatt-hours per $1 billion GDP on a purchasing power parity basis (2016) Indicator 2: Average thermal power generation efficiency improved Baseline: 31% (2009) Target: 34% (2016) Energy efficiency Electrical power transmission Emissions reduction Private sector operations and public private partnerships Knowledge support, capacity development, and policy dialogue $192 million for 2015 2017, 9% of total CPS envelope, and additional $50 million cofinancing, of which: ESG 100% $1.6 million approved from 2012-2014 in technical assistance. Key sector outcomes have not changed significantly. The indicators have been reviewed and updated. Indicator 3: Carbon intensity of GDP reduced Baseline: 5.41 kgco 2e/$ (2008) c Target: 10% decrease (2016) 3. Finance (Core Area 4: Finance sector development) Strengthen access to finance for SMEs, trade, and investment in infrastructure Outcome: Greater access of SMEs to financial services, and increased infrastructure investments by private sector Indicator 1: Share of bank loans to SMEs increases as share of GDP Baseline: 15% (2011) Target: 20% (2017) Current value: 13% (2014) Indicator 2: Proportion of loans going to women entrepreneurs under DAMU programs increases Access to finance for SMEs Capital markets development Local currency finance $631 million for 2015 2017, 29% of total CPS envelope, of which: GEM 70% PSD 100% $126 million approved from 2012-2014, 6% of total CPS envelope, of which: IEG 100% GEM 100% Key sector outcomes have not changed significantly. The indicators have been reviewed and updated. Baseline: 16% (2009) Target: 24% (2017) Current value: 23% (2014)
Appendix 1 5 Sectors Selected by ADB a Government Sector Objectives Sector Outcomes that ADB Contributes to and Indicators Indicator 3: Overall bank loans increase as share of GDP Baseline: 32% (2011) Target: 40% (2017) Current value: 33% (2013) Indicator 4: Number of SMEs receiving medium-term financing under DAMU programs on a cumulative basis increases Baseline: 8,766 (2009) Target: 25,000 (2017) Current value: 18,400 (2013) ADB Areas of Intervention ADB Indicative Resource Allocation in the Next Pipeline and Strategic Priorities Changes from CPS or Last COBP ADB = Asian Development Bank, COBP = country operations business plan, CPS = country partnership strategy, DAMU = DAMU Entrepreneurship Development Fund, ENV = environmental sustainability, ESG = environmentally sustainable growth, GDP = gross domestic product, GEM = gender equity and mainstreaming, IEG = inclusive economic growth, kgco 2e = kilograms of carbon dioxide equivalent, PSD = private sector development, RCI = regional cooperation and integration, SMEs = small and medium-sized enterprises. a The urban projects have been reorganized with the urban transport project now under the transport sector. This has left just one technical assistance project in the water sector; therefore, the water sector has been taken out as a stand-alone sector from the results framework. b Amounts are inclusive of technical assistance projects. c Carbon intensity is defined as kilograms of carbon dioxide equivalent emission per unit of GDP in 2000 prices. Source: Asian Development Bank estimates.
6 Appendix 2 Project/Program Name 2015 Firm Energy Efficiency Project (Karaganda District Heating Network Rehabilitation Project) MFF Small and Medium Enterprise Investment Program (tranche 3) MFF Inclusive Economic Growth through Financial Sector and Information and Communication Technology Enhancement Program (tranche 1) a Sector Poverty Targeting INDICATIVE ASSISTANCE PIPELINE Table A2.1: Lending Products, 2015 2017 Strategic Agendas and Drivers of Change ENE GI IEG, ESG, GCD FIN GI IEG, EGM, GCD, PSD FIN GI IEG, PSD, GCD, SGE, KNS, PAR Division Year of PPTA/ PDA Total OCR Cost ($ million) ADB ADF Loans Grants Total Gov t Cofinance CWEN 2012 200.0 110.0 0.0 0.0 110.0 40.0 50.0 (CTF) CWPF 2013 225.0 225.0 0.0 0.0 225.0 0.0 0.0 CWPF 2015 100.0 50.0 0.0 0.0 50.0 50.0 0.0 Total 525.0 385.0 0.0 0.0 385.0 90.0 50.0 2015 Standby Performance-Based Road Maintenance Project 2016 Firm Performance-Based Road Maintenance Project Western Kazakhstan Transport Corridor (Aktobe Atyrau Astrakhan) TRA GI IEG, RCI, TRA GI IEG, RCI, TRA GI IEG, RCI, MFF Micro, Small, and Medium Enterprise FIN GI IEG, EGM, Investment Program (tranche 1) b GSD, PSD MFF Inclusive Economic Growth through Financial Sector and Information and Communication Technology Enhancement Program (tranche 2) FIN GI IEG, PSD, GCD, SGE, KNS, PAR CWTC 2015 180.0 150.0 0.0 0.0 150.0 30.0 0.0 CWTC 2015 180.0 150.0 0.0 0.0 150.0 30.0 0.0 CWTC 2015 415.0 350.0 0.0 0.0 350.0 65.0 0.0 CWPF 2015 200.0 100.0 0.0 0.0 100.0 100.0 0.0 CWPF 2015 155.0 77.5 0.0 0.0 77.5 77.5 0.0 Total 950.0 677.5 0.0 0.0 677.5 272.5 0.0
Appendix 2 7 Project/Program Name 2016 Standby MFF Center West Transport Corridor (Astana Beuneu) Investment Program (tranche 1) c Sector Poverty Targeting Strategic Agendas and Drivers of Change TRA GI IEG, RCI, Energy Efficiency Project (phase 2) ENE GI IEG, ESG, Division Year of PPTA/ PDA Total OCR Cost ($ million) ADB ADF Loans Grants Total Gov t Cofinance CWTC 2016 235.0 200.0 0.0 0.0 200.0 35.0 0.0 CWEN 2015 90.0 80.0 0.0 0.0 80.0 10.0 0.0 2017 Firm MFF Center West Transport Corridor (Astana-Beuneu) Investment Program (tranche 1) TRA GI IEG, RCI, Energy Efficiency Project (phase 2) ENE GI IEG, ESG, MFF Micro, Small, and Medium Enterprise Investment Program (tranche 2) MFF Inclusive Economic Growth through Financial Sector and Information and Communication Technology Enhancement Program (tranche 3) FIN GI IEG, EGM, GCD, PSD FIN GI IEG, PSD, GCD, SGE, KNS, PAR CWTC 2016 235.0 200.0 0.0 0.0 200.0 35.0 0.0 CWEN 2015 90.0 80.0 0.0 0.0 80.0 10.0 0.0 CWPF 2015 200.0 100.0 0.0 0.0 100.0 100.0 0.0 CWPF 2015 155.0 77.5 0.0 0.0 77.5 77.5 0.0 Total 680.0 457.5 0.0 0.0 457.5 225.0 0.0 2017 Standby Power Rehabilitation and Transmission Project Astana Sustainable Urban Transport Project (Astana Bus Rapid Transport) ENE GI IEG, ESG, GCD TRA GI IEG, ESG, EGM, PSD, GCD, KNS, PAR CWEN 2017 100.0 100.0 0.0 0.0 100.0 0.0 0.0 CWUW 2016 300.0 200.0 0.0 0.0 200.0 50.0 50.0 (EBRD/ AFD) ADB = Asian Development Bank; ADF = Asian Development Fund; CTF = Clean Technology Fund; CWEN = Energy Division; CWPF = Public Management, Financial Sector and Trade Division; CWTC = Transport Division; CWUW = Urban Development and Water Division; EGM = effective gender mainstreaming; ENE = energy; ESG = environmentally sustainable growth; FIN = finance; GCD = governance and capacity development; GI = general intervention; Gov t = government; IEG = inclusive economic growth; KNS = knowledge solutions; MFF = multitranche financing facility; OCR = ordinary capital resources; PAR = partnerships; PDA = project design advance; PPTA = project preparatory technical assistance; PSD = private sector development; RCI = regional cooperation and integration; SGE = some gender elements; TRA = transport. a MFF of $205 million is programmed for MFF Inclusive Economic Growth through Financial Sector and Information and Communication Technology Enhancement Program. b MFF of $200 million is programmed for MFF Micro, Small, and Medium Enterprise Investment Program. c MFF of $800 million is programmed for MFF Center West Transport Corridor (Astana-Beuneu) Investment Program. Source: Asian Development Bank estimates.
8 Appendix 2 Assistance Name 2015 Firm Table A2.2: Nonlending Products and Services, 2015 2017 Sector Division Assistance Type Sources of Funding ADB Others Amount Source ($'000) Source Amount ($'000) Kazakhstan Road Connectivity Project TRA CWTC PPTA TASF 1,500 GOK 100 1,600 Preparation a Joint Government of Kazakhstan ADB Knowledge and Experience Exchange Program (cluster, phase 1) Economic Growth though Financial Sector and Information and Communication Technology Enhancement Micro, Small, and Medium-Sized Enterprise Development Total ($'000) PSM KARM C-PATA TASF 500 GOK 500 1,000 FIN CWPF PPTA TASF 760 GOK 1,240 2,000 FIN CWPF PPTA TASF 240 GOK 760 1,000 Energy Efficiency Project (phase 2) ENE CWEN PPTA CEFPF 1,000 0 1,000 2016 Firm Total 4,000 2,600 6,600 Astana Sustainable Urban Transport Project (Astana Bus Rapid Transport) TRA CWUW PPTA TASF 800 GOK 200 1,000 Center West Transport Corridor (Astana- TRA CWTC PPTA TASF 800 GOK 150 950 Beuneu) Total 1,600 350 1,950 2017 Firm Joint Government of Kazakhstan ADB Knowledge and Experience Exchange Program (cluster, phase 2) PSM KARM C-PATA TASF 500 GOK 500 1,000 Power Rehabilitation or Transmission Project ENE CWEN PPTA TASF 1,000 0 1,000 Total 1,500 500 2,000 ADB = Asian Development Bank; CDTA = capacity development technical assistance; CEFPF = clean energy financing partnership facility; C-PATA = cluster policy and advisory technical assistance; CWEN = Energy Division; CWPF = Public Management, Financial Sector and Trade Division; CWTC = Transport and Communications Division; CWUW = Urban Development and Water Division; ENE = energy; FIN = finance; GOK = Government of Kazakhstan; KARM = Kazakhstan Resident Mission; PATA = policy and advisory technical assistance; PPTA = project preparatory technical assistance; PSM = public sector management; TASF = Technical Assistance Special Fund; TRA = transport. a The PPTA will cover the preparation of the Western Kazakhstan Transport Corridor (Aktobe Atyrau Astrakhan) and Performance-Based Road Maintenance projects. Source: Asian Development Bank estimates.
Appendix 3 9 ASSISTANCE PROGRAM FOR CURRENT YEAR Table A3.1: Lending Products, 2014 Project/Program Name Sector Poverty Targeting Strategic Agendas and Drivers of Change Division Year of PPTA/ PDA Total OCR Cost ($ million) ADB ADF Loans Grants Total Gov t Cofinance None ADB = Asian Development Bank, ADF = Asian Development Fund, Gov t = government, OCR = ordinary capital resources, PDA = project design advance, PPTA = project preparatory technical assistance. Source: Asian Development Bank.
10 Appendix 3 Table A3.2: Nonlending Products and Services, 2014 Assistance Name 2014 Firm Sector Division Assistance Type Sources of Funding ADB Others Amount Source ($'000) Source Amount ($'000) Total ($'000) Karaganda District Heating (additional financing) Managing for Development Results in the Transport Sector ENE CWEN PPTA TASF 600 GOK 50 650 TRA CWPF S-CDTA TASF 225 GOK 75 300 Enhancing Insurance Market Efficiency and FIN CWPF PATA TASF 800 GOK 150 950 Outreach and Disaster Risk Management Total 1,625 275 1,900 ADB = Asian Development Bank; CDTA = capacity development technical assistance; CWEN = Energy Division; CWPF = Public Management, Financial Sector and Trade Division; ENE = energy; FIN = finance; PATA = policy and advisory technical assistance; PPTA = project preparatory technical assistance; TASF = Technical Assistance Special Fund; TRA = transport. Source: Asian Development Bank estimates.