Central Asia Regional Economic Cooperation: 

Comprehensive Action Plan

The Benefits of Regional Cooperation 

—and the Costs of Non-cooperation 

Increased cooperation will produce big gains for the people of Central Asia and neighboring countries.  Bringing down trade barriers, more efficient development and use of water and energy resources, and other forms of regional cooperation could result in doubling of per capita incomes over the next decade. 

The price of non-cooperation could also be large. Lost economic opportunities and difficult access to markets would mean poor employment prospects, and slow progress in reducing poverty. A heavy toll would also be extracted from the spread of disease, lack of joint preparedness against natural disasters and environmental destruction, as well as conflict and insecurity. 

Central Asia and neighboring countries are strategically located, rich in natural resources and at the cross-roads of commerce between some of the most dynamic of the world’s economies.  New avenues for trade and access to world markets and knowledge are opening up, reenergizing the enterprise of Silk Road legend.  Regional organizations have been created and are gaining in strength, reflecting the shared conviction that borders that divide are borders lacking a human face.  

Paraphrased from United Nations Development Programme, Central Asia Human Development Report:Bringing Down Barriers: Regional Cooperation for Human Development and Human Security, 2005 

Increased regional cooperation in transport and customs transit would help the Central Asian Republics reduce transport costs and make transport times shorter and more predictable for international shipments. This would help the CARs expand trade, especially with distant countries; take more active part in global production networks and related trade in manufactured products; and diversify trade in terms of geographical distribution and commodity composition. 

Paraphrased from Asian Development Bank, Central Asia: Increasing Gains from Trade Through Regional Cooperation in Trade Policy, Transport, and Customs Transit, 2006. 

CAREC Comprehensive Action Plan 

Components 

                                                                                                                                                    Page

 The Strategic Framework...... ........... ...........................................................................................1

Appendixes 

Appendix 4:  Summary of In-Country Workshops.......................................................120 

Note: The Strategic Framework outlines the main elements of the Comprehensive Action Plan (CAP), including the four pillars of activity as medium-term guidelines for the CAREC Program, a two-tier system for broadening and deepening the Program, and measures for ensuring strategic direction and management. Other elements of the CAP are appended.  

Appendix 1 outlines sector strategies, which are a work in progress. Work plans are being expanded to full-fledged strategies, as illustrated by the Transport Sector Coordinating Committee which will undertake a comprehensive strategy study in early 2007. Sector strategies will also be developed for trade expansion and energy development.   In this and other ways, the CAP will continue to deepen and improve.  

Appendix 2 provides details about the pipeline of loan projects, grants and technical assistance of CAREC’s multilateral institutions scheduled in support of regional cooperation for the period 2006-2008.  The information is in two formats: the CAREC Results Framework provides details about the objectives, expected outputs and outcomes, and performance indicators for each of the projects or activities; the Development Matrix provides additional information concerning financing, implementation schedule, and contact points. Appendix 3 of the CAP provides outlines of proposed “second tier” activities, broadening the CAREC Program to include new sectors but in a manner that will not compromise focus on the core priorities of transport, trade and energy.  Appendix 4 provides a summary of the main concerns and interests expressed during in-country workshops held to discuss formulation of the CAP.   

STRATEGIC FRAMEWORK 

CONTENTS 

A.  The Mandate                                                                                                                           1 

B.  Mission Statement                                                                                                                  1 

C.  Guiding Principles                                                                                                                   1 

D.  Main Features of the Strategic Framework:                                                                           2 

E.  Development for Management Results                                                                                  9 

F.  Mainstreaming Regional Development                                                                                 12 

G.  Strategic Management/Direction of the CAREC Program                                                   13 

H.  Geographic Scope of the CAREC Program                                                                         14 

I.  Coordination with Other Regional Cooperation Initiatives                                                     14 

STRATEGIC FRAMEWORK 

A.         The Mandate 

“Ministers agreed that the way forward for Central Asia is ‘development through cooperation’… Ministers called for sweeping measures to overcome trade and other impediments to development, and for the creation of transport corridors and the interconnection of energy markets. Ministers expressed interest in cooperative initiatives in a wide range of areas, including the environment, agriculture, tourism, human resource development, telecommunications, disaster management and avian flu preparedness… Ministers agreed that a strategic framework for regional cooperation is essential for charting the course ahead.”   

Joint Ministerial Statement, November 2005 

B.         Mission Statement  

1. The Central Asia Regional Economic Cooperation (CAREC) Program’s mission is development through cooperation.  By promoting and facilitating regional cooperation in transport, trade, energy and other key areas of mutual interest, the CAREC Program helps Central Asian and neighboring countries realize their immense potential in an increasingly integrated Eurasia.  By partnership with multilateral and other international agencies, the CAREC Program is a proactive facilitator of practical, results-based regional projects and policy initiatives critical to trade expansion, sustainable development and meeting new challenges.  

Participating Countries 

                        Afghanistan                             Azerbaijan                                           

                        Kazakhstan                            Kyrgyz Republic 

                        Mongolia                                Peoples Republic of China 

                        Tajikistan                               Uzbekistan

Supporting Multilateral International (MI) Agencies 

                        Asian Development Bank                    

European Bank for Reconstruction and Development 

                        International Monetary Fund               

Islamic Development Bank 

United Nations Development Programme 

                        World Bank                                          

C.         Guiding Principles 

2. The guiding principles for the CAREC Program reflect operations to date, notably the emphasis on pragmatism and results.  With these principles now well established, the Strategic Framework for the Comprehensive Action Plan seeks to strengthen other principles of the CAREC Program, including ownership by the CAREC countries and partnership with the business community and regional organizations (such as the Shanghai Cooperation Organization and Eurasian Economic Community).  

• Pragmatic, results-based program designed to facilitate trade and business development 
• County ownership, consensus-based and mutually-beneficial cooperation 
• Two plus principle (regional projects entail two or more countries) 
• Partnership with the business sector and regional organizations   

D.         Main Features of the Strategic Framework 

            Clarity and Simplicity of Goals/Objectives 

3. CAREC’s overarching goal is development through cooperation, leading to accelerated economic growth and poverty reduction. 

CAREC’s Long-term Vision: “Good Neighbors, Good Partners, and Good Prospects.” 

4. As summed up in the three G’s, it is not enough to be good neighbors in order to secure good prospects.  Good neighbors must also be good partners in responding to common challenges and shared development opportunities.   

Key Themes 

5. The Strategic Framework incorporates the following themes: 

• Strategic direction and ownership, by the participating countries 
• Mainstreaming of regional cooperation, by CAREC countries and MI partners 
• Connectivity, enabling business enterprises to access regional and global markets 
• Knowledge and capacity-building, facilitating consensus and deal-making 
• New approaches to development through cooperation, to include greater emphasis on policy initiatives, new sectors, and new concepts (e.g., economic corridors)  

6. As part of the emphasis on strategic direction, over the next year each of CAREC’s transport, trade (facilitation and policy) and energy coordinating committees will develop medium-term sector strategies.  Further, regional cooperation will be mainstreamed into country national development plans and MI programming. Knowledge and capacity-building activities will be intensified in support of strategic direction, ownership and mainstreaming. 

7. Connectivity reflects the need of CAREC countries to turn their landlocked status into a land link for Eurasia, and to enable business enterprises to more readily access regional and global markets.  CAREC must succeed in helping to overcome barriers and impediments to trade in the region.   

8. New approaches to development through cooperation will contribute to momentum and gaining a wider appreciation of the benefits of regional cooperation.   

            Four “Action” Pillars 

9. Development through cooperation will be based on four “action” pillars:    

10. The knowledge/capacity building pillar will combine the research/analysis strengths of the region and the six MIs, greatly increasing the capacity for designing and implementing mutually beneficial regional initiatives. Further, training for middle and senior level officials will be initiated, to form a cadre of officials skilled in regional cooperation processes.  Outreach activities and business forums will broaden the inclusiveness of the CAREC Program.  To coordinate these research, training and dialogue activities, steps will be taken towards formation of an independent CAREC Institute, with advisory supervision by eminent persons from the region and internationally.  In point form, Pillar 1 activities will include:  

• Research networks combining expertise in the region and the six MIs 
• Initiatives toward formation of the CAREC Institute 
• Regional dialogue, outreach activities, and in-country workshops 
• Policy research briefs, CAREC newsletter, and web site 
• Business development forums and new business concepts (global value chains) 
• Capacity building, advisory positions, training, and “best practices” workshops 
• Third-party, honest broker role of MIs, eminent persons 

11. The regional infrastructure networks pillarwill mainstream country and MI support for transport corridors, energy markets, and trade-related infrastructure projects integrating the region.  Connectivity is a unifying theme of the CAP, reflecting the desire to reinforce the region’s strategic location as a land link for Eurasia. The focus will increasingly shift to regionally-based programming and public/private sector partnerships, complementing countrybased programming.  In point form, Pillar 2 activities will include:

• Logistics systems building on transport, trade and energy networks 
• Transport infrastructure networks 

-       transport sector strategy 

-       multi-modal east-west and north-south corridors 

-       harmonization of transport regulations/cross-border transport agreement  

• Trade infrastructure networks 

-       trade sector strategy 

-       border crossing infrastructure facilities 

-       infrastructure in support of border area free trade zones 

• Energy networks 

-       energy sector strategy 

-       energy generation infrastructure 

-       energy transmission/distribution infrastructure 

-       energy efficiency measures (policy/regulatory/institutional)  

12. The trade, investment and business development pillarwill provide a more integrated framework for improving the investment climate in Central Asia, and access of business enterprises to markets.  The needs of the business community will be more clearly defined, including logistical requirements so as to enable participation in global value chains and other trade opportunities.   In point form, Pillar 3 activities will include 

• Trade, investment and business development strategy 
• Trade facilitation 

-       customs modernization/harmonization/streamlining 

-       information platform 

-       knowledge forums 

• Trade policy 

-       transit and border trade measures 

-       trade taxes 

-       WTO accession 

• Investment and business development 

-       investment forums 

-       business logistics services 

-       global value chains; economic corridors 

13. The regional public goodspillar will expand the CAREC Program on project-specific basis to address trans-boundary issues, such as protection of the environment and management of natural resources. In point form, Pillar 4 activities will include: 

• special projects to address priority regional public goods (environmental information systems, measures against desertification)  
• special projects to address priority regional public “bads” (the avian flu threat, disaster management, corruption)

Broadening and Deepening of the CAREC Program 

14. The Strategic Framework provides for broadening and deepening the Program, while continuing to focus on regional initiatives in support of transport, trade and energy linkages.  A two-tiered approach to CAREC activities will be followed.   

15. The first tier of activities will be those on a sector-wide basis related to transport, trade and energy.  The second tier of activities will be in new sectors, such as human development, agriculture, environment, and tourism, but limited to highly focused projects, such as training for government officials involved in regional cooperation. Projects (including regional public goods) in the second tier will not require CAREC coordinating committees, as sector-wide issues are not involved (e.g., HIV/AIDS versus the health sector as a whole).  Second-tier special projects will be managed as provided for in the project-preparation/implementation provisions agreed on with participating countries.  The CAREC Secretariat will monitor and report on activities under this second tier.  Projects in this second tier may include those supported by international assistance agencies additional to the current “MI six”.  Information and coordination advantages will accrue from this approach. 

16. Deepening the Program will include greater attention to the policy dimension, complementing regional investment projects.  Also, new approaches will be undertaken, including economic corridors and integrated transport/trade/transit initiatives.    

         The Overall Institutional Framework 

17. These features of the Strategic Framework are reflected in the revised Overall Institutional Framework for the Program, shown in Figure 1.  A subsequent section of the Strategic Framework more fully details the institutional mechanisms designed to strengthen strategic direction of the Program.  A new Strategic Management and Priorities Subcommittee of the SOM is shown in broken lines, denoting that it will be employed on an “as needed” basis. Appendix 3 provides brief outlines of illustrative second-tier activities.   

Figure 1: CAREC: Strategic Direction and Overall  Institutional Framework 

Sharply Increasing Financial Support for Regional Cooperation 

18. Another feature of the Strategic Framework is sharply increasing financial support for regional cooperation.  In addition to bilateral support by the People’s Republic of China, Russian Federation and other countries, the CAREC Program will sharply increase its level of support for regional cooperation projects:   

• for the three-year period 2006-2008, the six MI partners of the CAREC Program plan to  provide approximately 42 loans in support of regional investments in transport, energy and trade-related infrastructure (Table 1); the 42 loans total more than $2.3 billion, including $191 million in co-financing; the costs of some loan projects remain to be determined;   

• 26 of the loans are for transport infrastructure, for a total of about $1.4 billion; of these loans, 4 are for upgrading of railways and rolling stock ($159 million) and one is for upgrading an air fleet upgrade ($4.9 million); the balance of about $1.2 billion is for road construction and upgrading;  

• 13 of the loans are for the energy sector, for a total exceeding $860 million (the costs of several are yet to be determined); of these loans, 1 is for a gas transmission line ($300 million) and the balance for power interconnections, transmission lines and a small hydropower project; possible involvement in the financing of the Sangtuda 1 Hydropower project and other similar projects would considerably increase MI resource mobilization for the energy sector ;

• 3 of the loans are for trade facilitation, for a total of $38 million; 

• more loans for each sector are expected as planning of the MIs and CAREC countries for the 2006-08 period becomes firmer;

• over the three-year period 2006-2008, the six MI partners to the CAREC Program plan to provide approximately 23 grants/TAs for a total of about $15 million in support of regional transport, energy and trade initiatives; this excludes Project Preparatory TAs and the umbrella Regional TA’s of ADB in support of the CAREC Secretariat and CAREC Program generally (e.g., Ministerial Conferences, SOMs, and sector workshops) (Table 2)  

Table 1: Synthesis of CAREC Investments 2006-2008 

                  Transport                                               Energy

ADB Loan Activities: 2006-2008 

2006  

1. North-South Corridor (AFG) ($140M) 

2007  

1. Ring Road and road Network (AFG) ($110M) 
2. Southern Road Corridor Improvement 

(Masally-Astara) (AZE) ($100M) 

1. Maintenance of Regional Road Transport Corridors Project (KGZ) ($20M) 
2. Western Regional Road Development (MON) ($32M) 
3. Xinjiang Regional Road Development (PRC) ($150M) 
4. Dushanbe–Kyrgyz Border Road Rehabilitation Project, Phase III (TAJ) ($25M)  
5. Regional Infrastructure (Roads) (UZB ($20M) 

2008  

1. Regional Transport (MON) ($32M) 
2. Regional Railway (UZB) ($20M) 
3. Road Network 1 (AFG) ($50M) 
4. Bishkek-Torughart Road Rehabilitation (KGZ) ($20M) 
5. Secondary Roads Improvement (AZE) ($75M) 

EBRD Loan Activities: 2006 

1. TSA Air Fleet Upgrade (TAJ) ($4.9M) - approved
2. Locomotive and Track Renewal (AZE) ($30M) 

IsDB Loan Activities: 2006-08 

2006 

1. Osh-Irkeshtam Road Rehabilitation, Phase I (KGZ) ($10.5M) 
2. Shagon-Zigar Road Phase III (TAJ) ($10M) 
3. Rehabilitation of Railway Network (TermezGalaba Bridge) (UZB) ($9M) 

2007 

1. Reconstruction of the Taraz-Talas-Suusamyr Road, Phase II (KGZ) ($10M) 

2008 

1. Issyk-Kul Ring Road Reconstruction (KGZ) 

($10M) 

World Bank Loan Activities: 2006-08 

2006

1. Highway II (Alat-Masally; Baki-Shamakhi) 

(AZE) ($200M) – approved

2007

1. Osh-Batken-Isfana (KGZ) ($20M) 
2. Highway III (AZE)  ($150M) 
3. Rail Trade and Transport Facilitation (AZE) ($100M) 
4. Urban Infrastructure in Ulaanbaatar (MON) ($15M) 
5. Western Trade Corridor Road Rehabilitation 

(KAZ) ($TBD)

ADB Loan Activities: 2006-2008 

2006 Loans 

1. Regional Power Interconnection 

(AFG/TAJ) ($56.5M) 

2008 Loans 

1. Central-South Asia Transmission 

(TAJ/AFG/PAK) ($100M) 

1. Power Transmission Reinforcement and 

Interconnection Project in West 

Kazakhstan (KAZ) ($100M) 

1. Rehabilitation of the Central Asia-Central Europe Gas Pipeline (KAZ) ($300M) 
2. 500kV North-South Power Interconnection Project (KAZ) ($100M) 
3. Reinforcement of Power Interconnection Between AZE and Iran (AZE) ($50M) 

EBRD Loan Activities: 2006-08 

1. Non-sovereign loans for the second and third phases of the North-South Transmission Line Project in Kazakhstan 

($87.8 M) 

1. Possible financing for the Sangtuda 1 Hydropower Project, TAJ. 

IsDB Loan Activities:2006-08 

2006 

1. Construction 110-kV Transmission Line Project (KGZ) ($10M)

2007 

1. Derbend-Yashma Transmission Line 

(AZE) ($30M)

1. 400kV Balkanabat-Iranian border Transmission Line (TKM) ($25M) 
2. Mingerchaur Hydropower (AZE)  
3. 500KV South-North Transmission Line 

(TAJ) 

2008 

1. 500 KV Sogdiana-Talimarjan Transmission Line (UZB) 

World Bank Loan Activities: 2006-08 

1. Continued country-based loans for energy developments 
2. Pamir 2 project in Gorrno Badakhshan Tajikistan,  
3. Public/private financing option; promotion of Sangtuda Project 

AFG = Afghanistan, CARs = Central Asia Regions, KAZ = Kazakhstan, KGZ = Kyrgyz, MON = Mongolia, PRC = People’s Republic of China, TAJ = Tajikistan, TKM = Turkmenistan, UZB = Uzbekistan

 Table 2: Synthesis of CAREC Grants/TA 2006-2008* 

Transport 

ADB Grant Activities: 2006-08 

Continued lead support role for the Transport 

Sector Coordinating Committee 

2006  

1. Maintenance of Regional Road Transport Corridors (KGZ) ($0.5M) 
2. CAREC Transport Sector Strategy Development Study ($0.95M) 
3. Regional Road Funding and Management in CAREC Countries ($0.6M) 
4. Logistics Development and Capacity Building in Xinjiang (PRC) ($0.7M) 
5. Transport Master Plan (TAJ) ($0.5M) 

2007  

1. CAREC Regional Railway Development, Phase I (REG) ($0.85M) 
2. Capacity Building for the Ministry of Public Works (AFG) ($1M) 
3. Transport Sector Reform and Efficiency (TAJ) 

($0.4M) 

2008 

1. Capacity Building for the Ministry of Transport 

(AFG) ($1M) 

1. Furthering Policy Reform in Railway Sector 

(PRC) ($0.4M) 

1. CAREC Policy Reforms in the Transport Sector (REG) ($0.6M) 

IsDB Grant Activities: 2006 

1. Feasibility Study of Issyk-Kul Ring Road Reconstruction (KGZ) ($0.35M) 
2. Feasibility Study on Kafanigan-Yavan Railway Line (TAJ) ($0.25M) 

World Bank Grant Activities: 2006-2008 

1. Railway Trade and Transport Facilitation Project (AZE) ($0.9M) 
2. Infrastructure Strategy (with Transport element) (MON) ($0.195M)  
3. Tajikistan Air Transport Study (TAJ) ($0.125M)  
4. Central Asia Transit Performance Measurement (REG) ($0.1M)  * Note: Excludes ADB project preparatory TAs.

                    Energy

ADB Grant Activities: 2006-08

Strengthening of regulatory capacity  

2006

1. Feasibility Study for the Central and  South Asia Power Transmission Project 

(REG) ($1.0M)   

1. Mitigation of Trans-Boundary Air  Pollution from Coal-Fired Power Plants in 

Northeast Asia ($0.9M)   

2007

1. Strengthening Power Supply (TAJ/AFG)  ($0.5M) 

World Bank Grant Activities: 2006-2008  

1. Continued lead support role for the  Energy Sector Coordinating Committee  
2. Proposed increase in scope of Committee to include oil/gas sector  
3. Organization of a region forum in 2006 on high oil prices and the options for the  movement of primary energy  

commodities (oil, gas, coal, hydro-

   electricity)           

1. Continued support for establishment of  International Water Energy Consortium 
2. Continued support for the Sangtuda  Hydropower Project 

Trade

ADB Grant Activities: 2006-08

Continued lead support role for the Trade 

Facilitation/Customs Coordinating 

Committee 

2006 TAs 

1. Integrated Regional Trade Facilitation 

Strategy for Individual Countries ($1.6M) 

2007 TAs 

1. Logistic Development to Support 

Regional Trade Facilitation ($0.8M) 

2008 TAs 

1. Integrated Regional Trade Facilitation 

Strategy for Individual Countries, Phase 

II ($0.8M)  

EBRD Grant Activities: 2006-2008 

1. Advisory services to banks on trade finance.   

IsDB Grant Activities: 2006-2008 

1. Trade/Counter-Trade Promotion Forum 

IMF Support Activities: 2006-2008 

1. Continued lead support role for the Trade Policy Coordinating Committee. 
2. Regional workshops on trade policy and regulatory reforms  

UNDP Grant Activities: 2006-2008 

1. Dialogue between private and public sectors re policy/legal framework for trade. 
2. Silk Road Investment Forum 2007 
3. Support for trade facilitation program in border communities (BMPCA) 

World Bank Grant Activities: 2006-2008 

1. Continued country and regional support for trade policy and trade facilitation reforms. 

      E.        Development for Management Results

19. The Strategic Framework includes a development for management results format, setting out a more detailed description of the goals, objectives, and expected outputs and outcomes of the CAREC Program, together with performance indicators for monitoring progress.    

20. Shown below are the main components and steps: 

Goals/objectives → Expected outputs/outcomes → Priority investments/policy, institutional and 

business related capacity building initiatives → Performance indicators 

↨↨ 

Identification of gaps → Resource mobilization/prioritization process 

↨↨ 

CAREC medium-term project pipeline + Country-based public investment programs + Bilateral and multilateral initiatives/agreements 

21. The format has been streamlined so as to highlight the most salient features.   

               CAREC Goals/Objectives 

22. Goals of an economic union or free trade area, as championed by the Shanghai Cooperation Organization and the Eurasia Economic Cooperation, provide political direction for region cooperation in Central Asia.  CAREC’s goals and objectives, however, must reflect what is achievable under the Program and the emphasis participating countries place on practicality. 

23. As stated earlier, CAREC’s primary mission and goal is development through cooperation, leading to accelerated economic growth and poverty reduction.  Regional cooperation is vital to facilitating trade and helping business enterprises to access markets and to respond to new development opportunities.  Other goals include improved development, management and sharing of the region’s natural resources, and strengthened commitment to regional cooperation by all stakeholders.  In terms of objectives, the most important are reduced trade barriers, efficient multi-modal transport systems networking the region, energy security, and cooperation in addressing regional public goods (e.g., protection of the environment).  Promotion of the region for investment, tourism and international recognition is another objective. 

Goals 

• Development through cooperation, leading to accelerated economic growth and poverty reduction 
• Improved trade and development opportunities 
• Improved development, management and sharing of the region’s natural resources 
• Strengthened commitment by participating countries to regional cooperation/ integration 

Objectives 

• Trade barriers and impediments greatly reduced 
• Efficient multi-modal transport systems networking the region 
• Integrated electricity markets, securing reliable low cost services throughout the region 
• Cooperation in addressing regional public goods 
• Promotion of CAREC region  

CAREC Outputs/Outcomes 

24. Expected outcomes for the CAREC Program include poverty reduction and increased economic growth, reflecting CAREC’s growing effectiveness in promoting and facilitating regional cooperation and integration.    

25. Other expected outcomes include trade expansion and new development options for the region.  Also, CAREC will help strengthen the commitment to regional cooperation and the capacity to identify and undertake priority projects and initiatives for integrating the region.   

26. Related to these outcomes, CAREC outputs are expected to include improved competitiveness of CAREC enterprises, improved natural resource management, and greater cooperation in addressing regional public goods and in coordinating with regional organizations such as the SCO and EurAsEC.   

Outcomes 

• Poverty reduction and increased economic growth 
• Increase and diversified trade  
• Capacity for regional cooperation/integration strengthened 

Outputs 

• Improved competitiveness of CAREC enterprises and better access to markets 
• Customs harmonization and other trade facilitating measures 
• Reduction of tariff and non-tariff barriers to trade 
• More effective and efficient development and use of natural resources  
• Efficient energy trading arrangements 
• Cooperation in addressing regional public goods (or bads such as avian flu) 
• Greater coordination with other regional initiatives 
• Improved recognition of CAREC region 

Priority Investments/Initiatives re Regional Cooperation 

27. Given the preceding goals, objectives, and expected outputs and outcomes, CAREC countries and supporting MIs must determine the priority investments and initiatives needed to achieve these results.  The MI pipeline of regional projects for 2006-2008 summarized earlier, and detailed in Appendix 2 of the Comprehensive Action Plan, reflects priorities identified to date. The Strategic Framework provides for ongoing attention to the identification and prioritization of regional investments and initiatives.     

28. By the end of 2007, medium- to long-term strategies will have been prepared for each of the core sectors of the CAREC Program: transport, trade and energy. These will incorporate the priorities identified by CAREC countries, based on region-wide needs for integration.  

29. More generally, the following areas will receive priority attention:  

• Sector strategies for strategic investment decisions  
• Transport corridors 
• Trade infrastructure/policy reforms 
• Business networking initiatives 
• Energy development and efficiency initiatives   
• Business development forums/economic corridors/trade logistics 
• Third-party solutions to regional issues (water/energy nexus) 
• Knowledge/capacity-building initiatives  

30. Particular attention will be given to transport corridors, trade infrastructure and policy reforms, and energy efficiency measures – including country clusters to form electricity markets.  CAREC, with the support of the MIs, will play a more proactive role in deal making, so as to facilitate win-win solutions to regional issues.  CAREC will also ensure integrated approaches to transport, transit and trade in support of business development.  New approaches will be undertaken to strengthen competitiveness, including the development of economic corridors and improved trade logistics. Further, CAREC will intensify its research and analysis activities, so as to strengthen the knowledge basis for regional cooperation.  Capacity building in the form of training and other measures will strengthen the ability to engage regional cooperation effectively.   

CAREC Performance Indicators (illustrative) 

31. Performance indicators for the CAREC Program will help monitor progress and provide targets for achievement.  The performance indicators will be simple, limited in number, and operational.  They will be developed by the sector coordinating committees and endorsed during the Sixth Ministerial Conference.  

32. Possible indicators for consideration include: 

• Time and cost of shipping goods between major centers 
• Rate of trade expansion and quality of trade (share of manufactured goods) 
• Industry index: participation of CAREC business enterprises in international product markets 
• Proportion of households in rural areas with secure electricity services 

33. Indicators relating to the time and cost of shipping goods between major centers and the rate of trade expansion and the quality of that trade are expected to receive priority attention.  Other indicators relate to the percentage of households in the region with secure electricity services and the degree to which CAREC business enterprises participate in international product markets.  Milestones, such as accession to the WTO and formulation of a cross-border transport agreement, will be another form of performance indicator.   

34. The CAREC Program will establish the baseline data and follow-up surveys necessary for making performance indicators operational.   

      F.        Mainstreaming Regional Development

35. CAREC countries and MI partners will cooperate extensively to ensure mainstreaming of regional cooperation.     

36. The development plans and public investment programs of CAREC countries will be reviewed, drawing out for comparison those sections and elements relevant to regional cooperation in areas included under the CAREC Program.  Where the references are limited, the sector coordinating committees will work with country counterparts to determine priority projects contributing importantly to CAREC’s goals and objectives.  Comparisons of the development plans and public investment programs will provide the basis for determining complementarities and possible disconnects among CAREC countries, and gaps in programming.   

37. MI programming will also be reviewed on a regular basis.  The MIs strongly endorse the importance of regionally-based programming and initiatives.  In concert with CAREC countries, they will gradually strengthen regionally-based programming and initiatives, ensuring that projects included in the CAREC pipeline are truly regional in intent. 

38. Mainstreaming of regional cooperation will include the following measures: 

• the knowledge, capacity-building pillar, contributing to strengthening understanding of what is at stake in regional cooperation and the benefits from more effective transport, trade and energy systems; further, the institutional capacity for identifying, designing and implementing regional initiatives will be strengthened, and country and MI resources coordinated in support of these initiatives; 
• special project initiativesthat address emerging interests or concerns of CAREC countries and that contribute to broadening and deepening regional cooperation; in addition to building confidence in regional cooperation, successful implementation of special projects will lead to gradual expansion of regional activity in new sectors;  
• sector strategies to guide regional transport, trade and energy initiatives; sectorspecific Ministerial Conferences will be held following completion of these strategies, contributing to mobilizing the necessary technical and financial resources for their implementation;  
• business developmentby assisting CAREC business enterprises to participate in international product markets; a more integrated approach to regional cooperation will be followed, involving training, transport, trade, logistical support systems and other initiatives; 
• a strategic management process by Ministers and Senior Officials, possibly requiring modifications to the Overall Institutional Framework for the CAREC Program. 

39. A strategic management process for the CAREC Program is pivotal, as outlined below.    

      G.       Strategic Management/Direction of the CAREC Program 

40. The Comprehensive Action Plan provides strategic direction for the CAREC Program for the medium to long term, setting out the goals, objectives, and expected outputs and outcomes in a results-based format. To operationalize the CAP will require strategic management by Ministers and Senior Officials, in consultation with the MIs.  The CAP must be flexible, updated annually to reflect developments in the region, and new interests and changing priorities.   Strategic management in this context may require some modification and strengthening of the Overall Institutional Framework (OIF) for the CAREC Program.   

41. While the OIF has been effective in identifying regional projects and initiatives, the preparation of transport, trade and energy sector strategies will elevate the overall regional perspective of the Program.  Further, the CAP broadens and deepens the Program, calling for a more integrated approach regarding the core sectors and for the ability to address new challenges and opportunities beyond the core sectors.   

42. The SOM must be prepared to play a key role in helping to prioritize and sequence regional projects and initiatives, and in ensuring that country development plans and public investment programs complement these projects and initiatives.  In turn, Ministers must be prepared to consider, on behalf of their respective governments, options for regional development and resource use.   

43. Accordingly, a Strategic Management and Priorities Subcommitteeof the SOM is recommended, to be convened on an “as needed” basis:   

(i)    Scope of Work: Responsibilities of the proposed Strategic Management and Priorities Subcommittee will include:  

• Identification of key regional needs/opportunities and potential gaps in the CAREC Program 
• Initiation and structuring of processes for addressing cross-cutting issues (economic corridors, global value chains) 
• Review of MI pipeline, country development plans in order ensure consistency  
• Notional budget resource envelopes/resource prioritization, including requirements for additional resource mobilization 
• Options for Ministerial consideration 

(ii)   Role Within OIF: The Subcommittee will work under the guidance of and report to the SOM on the above responsibilities.  It will also report to the MC on particular issues as directed by the SOM.  The Subcommittee will interact with the sector committees as required to conduct its scope of work.  Sector committees will continue to report directly to the SOM.    

(iii)  Composition of the Subcommittee: The National Focal Points will comprise the permanent and core members of the Subcommittee.  They will be joined by senior planning officials and other experts as required.  CAREC’s sector committees will provide technical and advisory support, as will the MIs.    

(iv)  Procedures: The Subcommittee will consult (including through video conferencing) periodically during the year, so as to fulfill the responsibilities outlined. The first order of business will be to review the development plans and public investment programs of CAREC countries, to determine the regional complementarity of the transport, trade and energy initiatives.  The Subcommittee will receive support under the CAREC Program. The sector steering committees, the domestic and international advisors to the CAREC Program, the regional coordination specialists, and the CAREC Institute will provide further support.  

      H.       Geographic Scope of the CAREC Program 

44. The geographic focus is Central Asia and neighboring countries, reflecting the key goal of the CAREC Program – development through cooperation.  More specifically, the Program contributes to improved trade and new development opportunities, helping landlocked countries/areas to better access markets so as to facilitate economic growth and poverty reduction.     Given the vast geographic scope of the CAREC Program, regional cooperation initiatives will include bilateral arrangements and clusters of CAREC countries.    

45. Regional transport initiatives will be of three varieties: strengthening linkages between two neighboring countries (e.g., the Almaty-Bishkek highway improvement project); strengthening regional linkages (e.g., the proposed Xinjiang UAR –Kyrgyz Republic-TajikistanUzbekistan railway); and strengthening linkages to external markets (e.g., the Kyrgyz RepublicTajikistan-Afghanistan-Pakistan transmission line).  These projects involve two or more CAREC countries, but not all eight. Software initiatives (e.g., harmonization of cross-border transport regulations) could also be on a bilateral or two plus principle.  A cross-border transport agreement will ideally involve all CAREC countries.      

46. Trade facilitation and regional energy initiatives will include country-based projects, for some dimensions are fundamental building blocks or prior conditions for regional cooperation (e.g., customs modernization; commercially-based electricity tariffs and institutional reforms).  Beyond the basics, trade facilitation and regional energy initiatives will include bilateral arrangements and clusters of countries.  Ideally, these initiatives will be guided by common standards or objectives (e.g., the WTO framework; development of energy markets).  Trade policy will be addressed primarily on a CAREC-wide basis.  

47. Central Asia is viewed as a land link for Eurasia and South Asia.  The primary focus of the CAREC Program will be the Eurasia link, while recognizing and developing the opportunities provided by links to South Asia through Afghanistan.   

48. The CAREC Program is open to participation by additional countries and international development partners, on endorsement by the present participants.  An invitation to the Russian Federation remains open, and its participation will be welcomed. 

      I.         Coordination with Other Regional Cooperation Initiatives 

“Ministers agreed that duplication and overlap in regional cooperation should be minimized.  Ministers directed Senior Officials to review the interrelationship of the CAREC Program with other regional initiatives, including SCO, EurAsEC, and ECO.” 

                                                                                           Joint Ministerial Statement, November 2005 

49. CAREC projects and initiatives must complement those of the Shanghai Cooperation Organization, the Eurasian Economic Community, the Economic Cooperation Organization and other organizations (like the Eurasia Development Bank) dedicated to regional cooperation and integration.  So as to help explore the possibilities for working together, and the steps needed to ensure practical results, CAREC representatives will meet with representative of these organizations.  As an introductory step, these organizations will be invited to comment on CAREC’s Comprehensive Action Plan.  Visits and other exchanges with these organizations will be encouraged so as to develop effective partnerships.   

50. Pending further clarification, the CAREC Program will interact with these organizations on a project-specific basis (e.g., CAREC support to SCO for preparation of a cross-border transport agreement). Further, CAREC’s technical expertise will assist in ensuring effective use of resources for regional cooperation (including those provided by governments in the region).   

Appendix 1: Sector Strategies 

1. Interim sector strategies/programs are outlined in this section, beginning with an overview of a results-based framework for the transport, trade and energy sectors.  The overview draws from the sector coordinating committee reports but also adds dimensions subject to discussion, modification and endorsement. 

                                            I.          Overview of Results-Based Framework 

      A.        Transport Connectivity 

2. A Regional Transport Sector Roadmap, adopted by the Transport Sector Coordinating Committee (TSCC) and endorsed by the Ministerial Conference in 2005, and updated in 2006, serves as the interim work program.  A CAREC strategy study for the transport sector will be undertaken in 2007.      

      B.        Trade Expansion 

3. A draft strategy paper for trade facilitation is under preparation.  The mid-term work plans for trade facilitation and trade policy are outlined in this section. The trade facilitation strategy paper when completed will need to be submitted to the Ministerial Conference for endorsement. The Customs Coordination Committee (CCC) will meet in October in Astana, while the Trade Policy Coordinating Committee (TPCC) met in Tashkent in September.  

      C.        Energy Development 

4. An advisory energy sector strategy is under preparation, a draft of which is expected to be completed in August.  It will need to be fully reviewed by the Energy Sector Coordinating Committee (ESCC) and submitted to the Ministerial Conference in 2006 for endorsement.  The ESCC will meet in October in Urumqi.     

             II.         Overview of Possible Sector Strategies (Reflecting In-Country Workshops) 

      A.        Trade Expansion 

Expected Outputs/Outcomes 

• Convergence of trade regimes of CAREC countries to WTO and WCO framework/provisions
• Increased trade volumes
• Improved quality of trade (diversification from commodity-based trade)
• Significant decrease in customs’ clearance times and costs
• Improved security and customs modernization, and a unified information system
• Regulation of cross-border and transit trade fully transparent and barriers minimized
• Significant reduction in corruption in customs procedures 
• Substantive involvement of private sector in trade facilitation/policy reform 

Trade Facilitation Priority Actions/Investments/Bold Strokes 

• Strategic framework for trade facilitation and logistics development, including customs modernization, joint-customs control and information sharing; also related performance indicators  
• Development of border posts and facilities (e.g., large-scale scanners) 
• A coordinated regional program for simplification/harmonization of customs procedures/ documentation re revised Kyoto Convention; also risk management and post-audit principles, so as to enable focus on high risk cargoes 
• Integrated customs, transit and transport regimes for selected transport corridors, with single-stop customs inspection 
• A regional program for strengthening trade logistics framework/services (TIR Convention, multi-modal transport hubs/container assembly points)  
• A regional program for establishment of a “Customs Information Platform”, providing a unified automated information system re customs laws/regulations/procedures/forms 
• Capacity building; ICT master plan for improving customs and tax administration 
• Market analysis and information services, so as to assist SMEs in breaking into new export opportunities  
• Improved coordination with transport and trade policy committees

Trade Policy Priority Actions/Bold Strokes - to be updated to reflect the meeting of the TPCC in Tashkent 

• Implementation of endorsed trade policy measures to reduce barriers to transit trade and application of related performance indicators 
• WTO membership for all CAREC countries 
• Strategic trade policy thrusts (e.g., WTO product standards, reduction of trade taxes) 
• Rationalization of regional trade agreements (the spaghetti bowl) 
• Simplification/harmonization of tax/regulatory frameworks concerning cross-border trade 
• A time frame for removing quantitative restrictions on trade 
• Understanding of trade realities, including global value chains and cross-border production networks 
• Improved coordination with trade facilitation committee 

Trade Facilitation Performance Indicators 

• change in trade volumes among CAREC countries; 
• WCO framework diagnosis; comparison of provisions in CAREC countries to WCO standards; 
• time-release survey; time involved in customs clearance; 
• availability of customs information; trade data compliance to WTO standards 

Trade Policy Performance Indicators 

• WTO adherence scoring system 
• level of tariffs, including fees and charges on trade 
• number of prohibited exports/imports 
• number of trade registration requirements 
• progress in eliminating main impediments to transit trade 
• milestone: WTO accession 

      B.        Transport Connectivity 

Expected Outputs/Outcomes 

• Significant progress towards creating a highly efficient multimodal transport system integrating the region and connecting to global markets   
• Sharp drop in transport costs/travel times /impediments to trade 
• Designation/strengthening of transport corridors north-south and east-west (PRC envisages three east-west corridors from Urumqi, and one north-south corridor from the Western Corridor in Mongolia through Urumqi to Arabian sea ports) 
• Eurasia as primary focus (incorporation of Central and South Asia Transport and Trade Forum into CAREC Program in balanced manner)   
• Significant progress towards a regional cross-border transport agreement facilitating the movement of produce and trade  
• Improvements in transport services (e.g., logistics center in Andijan, Uzbekistan) and legal/regulatory framework (e.g., TIR system, unified transit fees) 
• Mainstreaming of regional transport cooperation into country development plans/public investment programs, as well as MI programming 

Priority Actions/Investments/Bold Strokes 

• A strategic plan of action for creating a highly efficient multimodal transport system   
• Agreement on key transport corridors (road and rail) and scheduling for completing the corridors  
• Agreement on process and scheduling for securing a comprehensive cross-border land transport agreement, including simplification/harmonization of cross-border transport procedures, documentation and regulations 
• Harmonization of transit fees  
• Integrated transport/trade/transit measures, including elimination of provincial check points/unofficial payments 
• Targeted cuts in time and cost of land transport on key routes   
• Bilateral and multilateral air services agreements (more open skies), leading to improved air access to and within the region 
• Comparisons of development plans, public investment programs, MI programming, so as to rationalize resource prioritization for the transport sector 

Performance Indicators 

• economic distance or the cost of moving a consignment to market along key road and rail transport corridors  
• volumes of regional road/rail/air freight traffic 
• volume of regional road/rail/air passenger traffic 
• milestones

-   adoption of a strategic plan of action for transport connectivity 

-   regional cross-border transport agreement (including formal protocols/ annexes and implementation phases) 

      C.        Energy Development 

Expected Outputs/Outcomes 

• Energy security; significant improvement in universal access to electricity 
• Series of integrated energy markets among CAREC country clusters 
• Consolidation of role of CAREC Members Electricity Regulators Forum (CMERF) 
• Significant improvement in energy savings/efficiency (including through application of the Clean Development Mechanism, Kyoto Protocol) 
• Energy development opportunities facilitated on a cooperative basis 
• Investment mobilization, private sector participation 
• Continued technical reports on energy options  
• Continued reform and capacity building of energy sector 

Energy Priority Actions/Investments/Bold Strokes  

• Strategic framework for energy cooperation in the region, for enhancing the energy security of CAREC countries and development of the region’s energy potential 
• Ministerial-level energy forum in 2007 (including challenges/opportunities resulting from continued high oil prices)  
• Promotion and facilitation of integrated electricity markets within the region 
• Focus on energy savings and efficiency improvements through cooperative action (CMERF), application of the Clean Development Mechanism of the Kyoto Protocol, and domestic reforms (pricing policies/improved energy consumption records) 
• Private sector investment mobilization for energy development/privatization opportunities   
• Facilitation of access to new energy markets  (exports of electricity of Pakistan)  
• Greater third-party participation by MIs to help broker win-win energy initiatives  
• Regional program for country-based capacity building, to put energy sector on a more commercial basis 
• Knowledge/information “bank” for the sector (including tracking of bilateral and multilateral agreements of CAREC countries) 

Performance Indicators 

• % of households in rural areas with access to reliable electricity  
• % reduction in system losses 
• commercial principles (tariffs relative to marginal cost) 
• energy efficiency:  energy use per unit of GDP  
• milestones

-strategic framework for regional cooperation in energy sector -universal energy security and electricity supply  

                                                          III.        Possible Other Sectors 

      A.        Tourism 

Expected Outputs/Outcomes:major expansion of tourism in Central Asia, both in terms of numbers of visitors and expenditures (length and quality of stay) 

Priority Actions/Investments/Bold Strokes:visas made easier (on arrival, multiple entry) to facilitate entry; more cross-border points upgraded to international status; new air routes and schedules to improve access; regional services (marketing, information)

      B.        Human Development 

Expected Outputs/Outcomes: 

• Skills development:  a well-trained cadre of government officials skilled in effective regional cooperation; continued integration of labor markets   
• Health Services: regional preparedness/action to combat communicable diseases (avian flu, HIV/AIDS)     

Priority Actions/Investments/Bold Strokes: 

• Establishment of a CAREC Institute: to promote and facilitate regional research networks, dialogue and training 
• Skills development: replication of the GMS Phnom Penh Plan for CAREC countries 
• Special projects to combat communicable diseases: avian flu, HIV/ AIDS     

      C.        Agriculture  

Expected Outputs/Outcomes: better income prospects for farmers through facilitation of cross-border and transit trade in agricultural products/livestock; also,  better water use practices

Priority Actions/Investments/Bold Strokes:regional MOU concerning animal disease 

control  

      D.        Environment  

Expected Outputs/Outcomes: improved natural resource management and disaster preparedness; also improved environmental provisions re CAREC infrastructure  

Priority Actions/Investments/Bold Strokes: hosting of a Ministerial Conference on the environment for CAREC countries; bilateral and multilateral water management initiatives 

Transport Connectivity: Interim Strategy/ Program 

Regional Transport Sector Roadmap 

        A.        Program for Regional Cooperation in Transport 

1. The goal of regional cooperation in transport is to develop an integrated and efficient transport system among the CAREC member countries to help achieve sustainable economic growth and poverty reduction. The new transport system should be based on an integrated multimodal transport infrastructure network, and will provide links within the CAREC member countries, enhance their access to outside large markets, reduce transport costs, improve transport services, and facilitate cross-border and transit traffic in the region.   

1. In achieving this goal, regional cooperation in transport among the CAREC member countries has six strategic priorities: 

(i)             Harmonization and simplification of cross-border transport procedures and documentation among the CAREC member countries to facilitate the movement of passengers and freight across borders.  

(ii)           Harmonization of transport regulations among the CAREC member countries to create a level playing field for transport operators and promote efficiency and better services. 

(iii)          Development and improvement of regional and international transport corridors to link production centers and markets within the CAREC member countries, and to enhance CAREC member countries’ access to neighboring regions and markets. 

(iv)          Restructuring and modernization of railways to provide quality and efficient services through private sector participation and improved corporate governance.  

(v)           Improvement of sector funding and management to ensure that the regional transport network is developed, operated, and maintained properly.  

(vi)          Incremental approach to liberalization of the civil aviation subsector, focusing on the adoption of bilateral agreements using common legislative clauses, with a view to expanding sub-regional agreements among neighboring countries, and potentially more widely in the long term.  Enhancement of external inputs from all stakeholders, especially business and tourism, in aviation policy making. 

        B.        MI’s Assistance Program for Regional Cooperation in Transport (2006–2008) 

3. Multilateral institutions (MIs)^[1]will continue providing financial and advisory assistance to the CAREC member countries in support of its strategy for regional cooperation in transport. The MI’s assistance program for 2006−2008 comprises 28 lending projects amounting to $1324 million and 29 nonlending projects amounting to about $26.4 million. A consolidated assistance program of multilateral institutions for lending and non-lending products in 2006−2008 is shown in Tables 1 and 2, respectively, of Appendix 3. The major lending projects likely to be supported in the road subsector are the north-south road corridor in Afghanistan, southern road corridor in Azerbaijan, regional transport corridor in Xinjiang, PRC, western road corridor in Mongolia linking it to PRC and the Russian Federation, and the Dushanbe-Kyrgyz corridor in Tajikistan. The lending pipeline for the railway subsector includes a regional railways rehabilitation project to strengthen the access to Afghanistan via Uzbekistan  and the locomotive and track renewal, and rail trade and transport facilitation in Azerbaijan.  In addition, maintenance of regional road transport corridors is proposed. Nonlending projects will be provided during the same period to support regional transport studies and institutional strengthening and capacity building of transport agencies. MIs will continue working closely with other development partners to cofinance lending and nonlending projects for regional cooperation in transport in the CAREC member countries. 

4. The consolidated assistance program of CAREC’s MI partners for 2006-2008 is shown in Tables 1 and 2, respectively.  Appendix 2 provides detailed information about these loan and non-loan projects, in two formats: 

• A results framework; 
• A development matrix. 

5. Major regional transport investments since the Fourth Ministerial Conference include: 

(i)            Afghanistan: ADB approved a $55 million loan for improving the Qaisar─Bala Murghab road and is preparing a $140 million loan for improving the north-south corridor, to be finalized in 2006;  

(ii)           Azerbaijan: ADB approved a $52 million loan for improving the east–west highway (Yevlah–Ganja and Qazakh–Georgian border sections) in December 2005 and the World Bank approved a $200 million loan for improving part of the southern road between Alat and the Iranian border in January 2006;  

(iii)          Kyrgyz Republic: the Islamic Development Bank (IsDB) approved a $9.2 million loan for improving the Taraz–Talas–Suusamyr road (Phase I);  

(iv)          Mongolia: ADB is preparing an investment project for developing the western regional road to link the PRC and the Russian Federation; (v) PRC: ADB is preparing an investment project to upgrade the Korla─Kuqa road in Xinjiang; and  

(v)           Tajikistan: ADB approved a $29.5 million loan for rehabilitating the Dushanbe─Kyrgyz border road (Phase II).  

6. At the fifth TSCC Meeting, the delegation of the Kyrgyz Republic requested MIs to consider financing the investment project to develop the railway line linking the PRC and Uzbekistan via the Kyrgyz Republic.  The subject was reconsidered at the sixth TSCC Meeting in August 2006. It should be noted that in June 2006, PRC and Kyrgyz Republic signed an MOU concerning their sections of the railway, whereby a feasibility study will be undertaken and financing sought.    

7. Major non-lending assistance since the Fourth Ministerial Conference include: 

(i)             Azerbaijan: ADB is helping the Government develop a transport sector development strategy;  

(ii)           Kazakhstan: WB is providing technical assistance (TA) to prepare a transport sector strategy; 

(iii)          Mongolia: the ADB-funded pre-feasibility study of the western regional road development was completed; ADB is helping the Government prepare a transport development strategy and the World Bank is preparing an infrastructure strategy; and 

(iv)          Uzbekistan: ADB is helping the Government formulate a transport sector strategy.  

(v)           Regional: ADB is in the process of consultant recruitment under the TA for Facilitation of Transport Cooperation among CAREC countries (Phase I) and has initiated preparation of the TA for improving regional road transport funding and management. 

(vi)          Regional: the World Bank is financing a study to pilot transport corridor performance measurement in Central Asia.  

Table 1: Approved and Planned Program for Infrastructure Investments, 2006−2008 

Table 2: Approved and Planned Program for Technical Assistance, 2006−2008 

ADB=Asian Development Bank; AFG=Islamic Republic of Afghanistan; AZE=Azerbaijan; EBRD=European Bank for Reconstruction and Development; IsDB=Islamic Development Bank; JFPR=Japan Fund for Poverty Reduction; KAZ=Kazakhstan; KGZ=Kyrgyz Republic; MON=Mongolia; PRC=People’s Republic of China; TAJ=Tajikistan; UZB=Uzbekistan; WB=World Bank 

        C.        Criteria for Regional Classification of Investment Projects and Studies  

8. The transport sector comprises the following sub-sectors:  roads, rail, civil aviation, water, pipelines, and urban transport. The investment projects and studies classified as regional cooperation involve at least one of the following: 

(i)             The development or enhancement of policies, regulations, and agreements related to facilitating efficient movement of freight and passengers between more than one CAREC member countries. 

(ii)           The preparation of feasibility studies or designs of transport corridors linking more than one CAREC member countries. 

(iii)          The construction or improvement of transport infrastructure on the transport corridors linking more than one CAREC member countries. 

(iv)          Projects aimed at facilitation of transport logistics centers and information systems for monitoring transit freights with regional implications. 

(v)           National interventions in CAREC member countries (e.g. feeder roads to primary delineated transport corridors, sustainable road maintenance, human resources development) with regional implications. 

(vi)          Projects aimed at construction or rehabilitation (upgrade of technical capacities) of mechanical engineering facilities (enterprises for manufacturing and repair of rolling stocks) with regional implications. 

9. The investment projects and studies are classified as regional cooperation if at least 30% of the following components address regional issues: the total cost of investment projects; or the total consulting inputs for studies. 

10. The investment projects and studies under the CAREC program cover the following countries: Islamic Republic of Afghanistan, Azerbaijan, Kazakhstan, Kyrgyz Republic, Mongolia, People’s Republic of China (Xinjiang Uygur Autonomous Region), Tajikistan, and Uzbekistan.   

        D.        Key Sector Issues 

11. The medium-term outlook for the transport sector in the CAREC member countries is promising. Given projected continued economic growth in the region and positive prospects for major developed markets, railway freight traffic is projected to grow at 2−3% annually over the medium term and road traffic by 4−7% annually.  Bottlenecks are expected to occur over the short term at certain border stations on the railway network in the CAREC member countries, such as at Druzhba of Kazakhstan and Serakhs of Uzbekistan, where traffic is already growing at over 20% per year. The Caspian Sea ports are also expected to experience increased transit transport.  

12. The transport sector in the CAREC member countries faces the following key issues on regional transport: 

(i)             Inefficient cross-border and transit movement of people and goods due to excessive bureaucratic procedures and poorly equipped border posts. The crossborder procedures, formalities, and documentation (e.g., customs, immigration, and quarantines) at borders are not entirely based on international conventions or best practice, and are time-consuming, complicated, and expensive. The dislocations caused by the breakup of the railways into national units in Central Asia have also created numerous cross-border obstacles, such as a lack of track-sharing agreements, frequent changes in locomotives and time-consuming train re-marshaling at borders, and inter-railway payment delays. 

(ii)           Lack of unified transport regulations among CAREC member countries. This includes lack of compatible standards based on international best practices (e.g. technical aspects, road clearance, axle load control, vehicle emission control, tariff, and traffic safety); road permit quotas for foreign vehicles that restrict competition; skewed rules for transport services; road user charges not related to costs of road use; discretionary tariff setting for railways; discriminatory transit fees; and limited private sector participation.  

(iii)          Inadequate regional transport network. The transport links in Central Asia and Mongolia need to meet the requirements of reoriented economic and trade ties with all countries in the region. There is a lack of the adoption of an integrated and regionally oriented multimodal transport approach in the planning and operation for transport infrastructure development. Roads connecting some production centers, markets, and ports are lacking. A large proportion of the existing transport infrastructure (roads, railway track, and rolling stock) is poor and deteriorating due to insufficient funding for proper maintenance. 

(iv)          Lack of competition in railways due to the monolithic and monopolistic nature of the organizations. This has resulted in inefficient railway service, lack of commercial management of operations and investment, obsolete track and rolling stock, outdated internal telecommunications technology, excessive tariffs for international traffic, tariffs that do not separate movement and terminal costs, and lack of convenient billing systems and consignment information for shippers. 

(v)           Limited institutional and human resource capacities in the transport sector. This is reflected by weak planning for public investment, inadequate design standards for transport investment projects, weak financial and project implementation management, and lack of effective monitoring and evaluation. 

(vi)          Lack of regional approach in civil aviation subsector and lack of commonality in aviation policy and liberalization prospects across the region. There is no uniform industry structure and ownership model in the region, and bilateral agreements are the predominant mode to regulate international air service. Intra-regional air service levels are low.  There is also a fear that in a liberalized environment strong foreign airlines would undermine local industry participants.

        E.         Role of Regional Cooperation 

13. Regional cooperation in transport among the CAREC member countries plays an important role in promoting sustainable economic growth, which is crucial to poverty reduction. Three factors account for this. First, there exists a regionally integrated transport system inherited from the past in Central Asia, which requires a regional approach to rehabilitation and development of the system in contrast to the national solutions and self-sufficiency. Second, regional cooperation can help develop a regional transport network to minimize location disadvantages and improve access to large neighboring and major developed markets. Third, regional cooperation can help reduce barriers to intraregional and transit traffic, lower transport costs, and improve transport services to overcome disadvantages of small national markets, thereby making the region more attractive for foreign and domestic investors as well as in support of new trade opportunities. Thus, regional cooperation in transport among the CAREC member countries is a necessity, not an option. 

       F.         Performance Monitoring 

        14.     Benchmarks to monitor transport sector performance are shown in the following tables. 

Central Asia Regional Transport Sector Roadmap 

a  

Excluding the PRC and Uzbekistan due to the unavailability of the data.   

ADB = Asian Development Bank, EBRD = European Bank for Reconstruction and Development, IsDB = Islamic Development Bank, km = kilometer, WB = World Bank.

                                                                                                          32                                                                                                          

Key Transport Sector Indicators in the CAREC Member Countries (2003) 

^a  2002 figures for XUAR in the PRC.  ^b  2002 figures for the PRC due to the non-availability of the 2003 figures. 

CAREC = Central Asia Regional Economic Cooperation, GDP = gross domestic product, km = kilometer, PRC = People’s Republic of China, XUAR = Xinjiang Uygur Autonomous Region in the PRC. 

Sources: Governments of CAREC member countries; 2005 World Development Indicators, World Bank. 

Trade Expansion: Interim Strategy/Program 

Trade Expansion 

1. A trade expansion regional cooperation strategy paper for the CAREC Program will be prepared in 2007 and submitted to the Sixth Ministerial Conference for endorsement.  The midterm work plans for trade facilitation and trade policy are outlined following. 

Trade Facilitation and Customs Cooperation Program Status Report and Medium-term Work Program: October 2006  

A.         Introduction 

2. The Trade Facilitation Program (the Program) was launched in 2002. Its short- to medium-term objectives are to promote concerted customs reforms and modernization, and serve as a regional forum to address issues of common interest such as regional transit development. Its long-term objective is to support an integrated trade facilitation approach through interagency cooperation and partnership with the private sector. Please refer to Attachment 1 for the Program’s framework, which includes its objectives, priority areas, performance indicators, and results framework.  

3. The Customs Cooperation Committee (CCC), consisting of the heads of customs administrations of the participating countries, has been coordinating the Program toward meeting its objectives.  The CCC’s guidance reflects the country-driven process of the Program. In its first meeting in Urumqi, People’s Republic of China (PRC), the CCC endorsed a Common Action Plan and created two working groups for the plan’s implementation. One working group is chaired by PRC and the other by Uzbekistan. 

4. The Program has been implemented with a pragmatic and result-oriented approach focusing on (i) promotion of bilateral initiatives, e.g., bilateral agreements and pilot-testing, and (ii) country-specific customs modernization efforts. This approach differs from other subregional cooperation programs where participating countries have better comparative capacity and whose focus has been on forging multilateral trade and transport agreements, followed by pilottesting. Training and knowledge sharing through regional events have been another priority area, which has helped strengthen capacity, trust, and confidence among the participating countries.  

5. Inter-agency cooperation and partnership with the private sector are key features of Program activities. The International Road Transport Union (IRU) as well as private transport operators have joined the Program to support the transit development initiative. Tax administration officials have also become actively involved in the Program to promote integrated e-governance services.  

B.        Progress and Proposed Activities  

6. The Program’s activities since the last Ministerial Conference continued to focus on the areas endorsed by the CCC in its First Meeting in Urumqi, PRC in August 2002. Several regional and in-country capacity building activities were organized to address priority issues, including (i) a seminar in Daejeon and Seoul, Republic of Korea on trade facilitation and egovernance in December 2005, and (ii) a forum in Singapore in January 2006 focusing on issues related to customs automation and IT platform for trade and logistics, (iii) an in-country workshop in Ulaanbaatar on trade logistics and customs modernization, on 8-9 February 2006, (iv) an in-country workshop in Urumqi on Xinjiang's trade logistics development, on 9 April 2006, (v) a seminar in Tokyo, Japan on 17-19 April 2006 on trade facilitation and customs modernization, and (vi) a seminar in Urumqi, PRC on 12-14 July 2006 on the World Customs Organization’s (WCO’s) framework of standards and customs data model. The PRC Customs General Administration sponsored training programs in Shanghai Customs Academy, for Kazakhstan customs officials in May 2006 and for Mongolia customs officials in September 2006. The 5th CCC Meeting was held on 11-13 October 2006 in Astana, Kazakhstan. Several in-country capacity-building seminars are also planned in Mongolia, Kyrgyz Republic, and Tajikistan during the fourth quarter of 2006.  

7. Two studies were conducted that support the broadening of the Trade Facilitation Program: (i) the Trade Logistics Strategy for PRC’s Xinjiang Uygur Autonomous Region, and (ii) an Integrated Trade Facilitation Strategy based on interagency cooperation and partnership with the business community. A trade logistics development study was launched in Mongolia in February 2006. A similar study was launched in August 2006 for the Inner Mongolia Autonomous Region of the PRC. As part of the continuing efforts to promote an integrated, multi-agency approach to trade facilitation, senior officials from tax administrations and border guard agencies were invited to attend the regional forums in Singapore and Korea.  

8. To widely disseminate knowledge products, the Program has produced several publications and contributed several articles in the CAREC Newsletter. The Trade Facilitation Program website2 is regularly updated as depository of all reports and publications produced under the Program, and continuously serves as a gateway for accessing the websites of the participating countries’ customs administrations.  

9. Highlights of the activities and major initiatives under each priority area are as follows. 

            Customs Automation 

10. The master plans for customs automation being developed respectively by the Kyrgyz Republic and Tajikistan will present detailed discussions on technology issues related to the unified automated information system (UAIS) under the Regional Customs Modernization and Infrastructure Project. Workshops will be organized by Kyrgyz and Tajikistan Customs in the fourth quarter of 2006 to seek suggestions and comments on the master plans from the participating countries. Customs officials from Tajikistan will conduct a study tour in Kazakhstan in October 2006 under the ADB technical assistance project.   

11. The needs assessment for customs modernization in Mongolia has been completed and it is expected that ADB will approve within 2006 an investment project to modernize Mongolia’s customs administration. A similar exercise in Uzbekistan will be launched by ADB in 2007. In Kazakhstan, the development of E-Customs Master plan is supported by the Government of Korea, which is likewise supporting the e-Customs Feasibility Study for Azerbaijan.   

12. The December Seoul Forum aimed to (i) share Republic of Korea’s e-governance solutions and best practices, and (ii) promote cooperation between customs and tax administration agencies through ICT. To promote cooperation and interoperability between the systems of revenue administrations, senior officials from customs and tax administrations were invited to attend the forum.  

²http://www.adb.org/Projects/TradeFacilitation (link is external)

            Risk Management and Post-Entry Audit 

13. The Program continues to support the participating countries’ efforts to implement and enhance their risk management systems. The following elements are stressed as essential pillars for risk management:  

(i)            change in corporate culture of customs administrations from “controlorientation” to “compliance facilitation” or “informed-compliance” where customs tries its best to serve the business community for economic development; 

(ii)           introduction of a structured approach to data review, taking into account the evolving and country-specific nature of risks; and 

(iii)          importance of data exchanges among neighboring countries, thus the bilateral Agreement on Mutual Administrative Assistance and Cooperation providing the legal basis for such exchanges.  

14. For countries at the early stage of introducing risk management systems, the emphasis was on identifying a “baseline of compliance” in relation to traders and companies to be inspected. This enables customs to determine a level of non-compliance which is the target of a risk management system. Incentives should be provided to traders with good compliance records such as fast-track clearance.  

15. Japan’s application of risk management in customs reform and modernization was discussed in greater detail during the April Tokyo Forum. During the July Urumqi Seminar, the PRC shared key recommendations of the WCO diagnostic mission including the need to introduce a more comprehensive risk management system which also addresses security issues, instead of merely focusing on fraud and smuggling activities. The Program produced a publication entitled “Risk Management: Catalyst of Customs Reforms and Modernization” highlighting experiences and initiatives of CAREC participating countries. 

Joint Customs Control and One-Stop Services 

16. The Program remains supportive of the participating countries’ efforts to provide onestop and single electronic window services for the business community in the long term, including the joint customs control initiative by Kazakhstan and the Kyrgyz Republic. The “time release study” by Kazakhstan Customs on the joint control at the Akzhol-Kordai shows significant reduction in clearance time.^[2]Encouraged by the positive outcome, Kyrgyz and Kazakhstan Customs will soon initiate joint control at the Aktilek-Karasuu crossing point, and Mongolia Customs is discussing with PRC Customs for a pilot-test at a crossing point to be agreed by the two countries’ customs administrations. A meeting for this purpose was held on 27-28 April 2006 in the PRC. The next meeting is planned to be held in the fourth quarter of 2006 in Mongolia. Mongolia Customs is currently preparing a strategic framework for single electronic window practices.  

Regional Transit Development

17. Promotion of bilateral transit arrangements and PRC’s accession to the TIR Convention^[3]are two priorities of the Program. It is hoped that the experience with the implementation of transit agreements that have been signed between the Kyrgyz Republic and Tajikistan, and the Kyrgyz Republic and Kazakhstan, will provide inputs for developing a regional transit agreement in the future. ADB has also published a paper on TIR Customs Transit System highlighting the experiences and initiatives of CAREC participating countries.  

18. The establishment of SafeTIR System for Kyrgyz Republic will be jointly supported by ADB and IRU. With ADB support, training seminars on TIR Transit System will be conducted in October by IRU in Ulaanbaatar for Mongolia customs officials and transport operators, and in Geneva for Kyrgyz customs officials. IRU likewise sponsored a Regional TIR Workshop in Astana in June 2006 for transport operators in Central Asia and neighboring countries.  

             Bilateral Initiatives for Harmonization of Customs Procedures 

19. Simplification and harmonization of customs procedures are being achieved through a host of efforts, including the revision of customs codes, introduction of risk management practices, joint customs control, and business process reengineering in relation to customs automation. Concrete proposals in relation to harmonization of customs procedures have been presented by PRC Customs. These are (i) harmonization of cargo manifest, and (ii) mutual recognition of customs inspections and seals/stamps. Efforts to harmonize data requirements for cargo manifests will facilitate data exchanges between exporters and importers for the preparation of customs declaration and thus reduce customs clearance time and improve the quality of trade statistics. Mutual recognition of customs inspection and customs seals and stamps provide an essential pillar for regional transit arrangement. Several countries responded positively to the proposals. PRC and Kazakhstan Customs will pilot-test the initiative under the two countries’ existing cooperation framework and have requested ADB support to facilitate bilateral consultation and working group meetings.  

20. The Program has supported revision and dissemination of Customs Codes in the Kyrgyz Republic, Mongolia, and Tajikistan. Similar support will be provided for other CAREC’s participating countries for revision of their Customs Code in line with the Revised Kyoto Convention and New Framework of Standards. 

Bilateral Initiatives for Data Exchanges 

21. Data exchanges between customs administrations and between importers and exporters are essential for fast clearance and effective risk management. The Uzbekistan Customs had proposed to establish an electronic platform for data exchange among the participating countries, and the drafting of an agreement to provide the legal basis for the initiative. While the technical proposal was broadly endorsed by the member countries, suggestions were made to clearly define the trade facilitation objective of the proposal and the scope of data-exchange requirements for facilitating trade clearance. Kyrgyz and Uzbekistan Customs proposed to pilottest the initiative.  

22. The July Urumqi Seminar included a detailed presentation of the WCO Customs Data Model and Unique Consignment Reference (UCR). The Customs Data Model aims to standardize, harmonize andreduce customs data requirement by defining a maximum set of data for the accomplishment of export and import formalities. The UCR is a numbering system to be used by all parties involved in the entire supply chain. The CAREC members were encouraged to take into account WCO tools in developing systems for data exchanges.  

CAREC Trade Facilitation Program Framework 

Trade Policy Coordinating Committee: 

Status Report and Medium-term Work Program: October 2006 

A.         Introduction 

1. At the request of the 2^ndMinisterial Conference (MC), the April 2004 Senior Officials Meeting (SOM) discussed the possible objectives, mandate, terms of reference and work plan for the new CAREC Trade Policy Coordinating Committee (TPCC). It was agreed that the TPCC should help all CAREC member countries adopt more open trade regimes, so as to facilitate both intra- and inter-regional trade.  
2. More specifically, it was agreed that the TPCC would address trade liberalization in the context of the WTO and the desire of non-members to become members of WTO. Priority should be given to assisting countries to accede to the WTO, including by providing them with information on the benefits of WTO membership. The Committee should also address bilateral and multilateral trade agreements in the region, with a view to minimizing trade distorting effects. Finally, it was agreed that the Committee should start with an assessment of current trade policies and trade policy initiatives.  
3. While on the side of the Multilateral Institutions (MIs) the IMF agreed to take the lead in organizing the work of the TPCC, it was noted that the IMF has limited capacity to undertake the activities required to make this committee effective. The TPCC was the first CAREC committee established whose focus would be exclusively on policies, not projects. 

B.        Previous TPCC Meetings  

First TPCC Meeting and Subsequent SOM 

1. The first meeting of the TPCC was held immediately in advance of the September 2004 SOM. The purpose of this first TPCC meeting was to prepare a draft agenda of work for the committee, which could be presented to the SOM for approval. To facilitate the discussions in the committee, the IMF prepared a background paper, Trade Policy Issues in the Central Asian Republics.This paper provided a summary of bilateral trade relations, regional and other trade agreements, the issue of establishing a central Asian customs area or free trade zone, individual CAREC country progress toward WTO accession, and the issue of sequencing WTO accession and further deepening of regional trade relations. 
2. Based in part on this paper, the members of the TPCC extensively discussed issues related to WTO accession, as well as regional and bilateral trade issues. Drawing upon this discussion, the TPCC produced a list of seven possible topics to work on, and submitted that list to the SOM, asking the SOM to choose 2-3 topics that they would like the TPCC to focus on first.  
3. The SOM identified three topics as the highest priority for work by the TPCC: 

(i)    An analysis of barriers to trade in Central Asia and possible measures to facilitate trade; 

(ii)   A study of Central Asia’s actual or potential comparative advantage in global trade; 

(iii)  And a review of existing regional trade agreements, including an analysis of any potential conflicts between these agreements and WTO accession, as well as a review of lessons that can be learned from regional trade agreements elsewhere.

1. The SOM also tentatively identified other areas for future work by the TPCC: a regional analysis of the impact of WTO accession; agricultural policy and WTO accession; a regional educational/informational program about WTO accession; and possible regional measures to address the special trade-related problems of land-locked countries. This work program was subsequently endorsed by the 3^rdMC. 
2. The second meeting of the TPCC was held in advance of the April 2005 SOM in Manila. In preparation for this meeting, three papers were prepared, one on each of the three identified priority issues for the TPCC. 
3. ADB took the lead in preparing a paper, Trade Barriers in Central Asia. This paper focused on barriers in trade policy (quantitative restrictions, registration requirements for exports or imports, tariffs, and other trade taxes), barriers related to transport and transit, barriers related to border crossing and customs clearance, and other trade barriers.  
4. The World Bank took the lead in preparing a paper, Comparative Advantage in International Trade for Central Asia. The paper notes the difficulties in unambiguously identifying areas of comparative advantage in a dynamic world economy, and thus argues against any attempts to directly subsidize industries that are deemed to have comparative advantage. However, it argues that having some indication of where a country’s comparative advantage may lie can help governments prioritize infrastructure investments and other marketfriendly policies.  
5. Finally, the IMF staff circulated two papers:Regional Trade Integration: Considerations for the CAREC Countries, and Regional Trade Integration and WTO Accessions: Which is the Right Sequencing? An Application to the CIS. The first paper summarizes best practices in designing regional trade agreements, and touches briefly on the issues of WTO accession and regional trade integration. The second paper, which was an IMF Working Paper, analyzes the appropriate sequencing between WTO accession and implementation of the Eurasian Economic Community (EAEC) customs union. It concludes that welfare will be greater if WTO accession precedes the EAEC Customs Union. 
6. The meeting was devoted to a discussion of these papers, including their policy implications. In the end, the TPCC reached agreement on two recommendations, which were later endorsed by the SOM. First, it was agreed that there is a need to reduce delays in and financial costs of entrance and transit. The TPCC was instructed to prepare an analysis of these delays and costs, as well as recommendations for measures to reduce them. Second, and similarly, the TPCC agreed to review barriers to border trade and to present recommendations for possible improvements in these policies and procedures to the next SOM. Third TPCC Meeting and Associated SOM 
7. The ADB produced a paper entitled Barriers to Transit Trade in Central Asia. This paper assessed barriers related to customs transit, transport and governance problems. Based on this analysis, the paper made a number of concrete recommendations for policy actions which CAREC member countries could take to ease or eliminate these barriers. 
8. Following extensive discussions, the committee agreed to recommend for consideration of the Senior Officials Meeting the following measures aimed at reducing the existing barriers to transit trade in Central Asia: 

Second TPCC Meeting and Associated SOM 

(i)    Ensuring the control of customs officers and other agencies regarding full compliance with the TIR Convention; China will take steps to accelerate TIR accession and promote the TIR Customs Transit System in the region;  

(ii)   Reduction in the rate of charges for customs convoy under the national transit systems in appropriate countries with simultaneous reductions in the list of goods subject to such convoys; concrete proposals to these ends will be developed by the time of the next Trade Policy Coordinating Committee meeting; 

(iii)  Reduction in the cost of non-reciprocal road transport permits to levels that will cover related costs without discouraging transit trade; 

(iv)  Abolition of all other charges and fees on entry (transit) of foreign carriers; 

(v)   Reduction of the cost of entry visas for foreign road carriers and foreseeing the issuance of visas to foreign road carriers at international pass points in a simple way;  

(vi)  Unification of transport, customs, and border documentation in order to harmonize procedures of control and to minimize time to pass at the border; and 

(vii)Taking measures to prevent and eradicate cases of unofficial payments from road carriers in transit.  

1. Preliminary discussions were also held on the issue of barriers to border trade. While committee members agreed that this was an important issue, it was felt that substantial work was needed in this area. This work should first seek to clearly define the concept of border trade, and should then look at the legal framework for border trade, tax and infrastructure issues, and other related aspects.  
2. The TPCC agreed that its agenda going forward should focus on three aspects of barriers to trade: (i) the work noted above on barriers to border trade; (ii) work on quantitative restrictions to trade in CAREC countries; and (iii) work on trade taxes in CAREC countries. 
3. In addition, it was agreed that the country delegates to the TPCC should take responsibility for monitoring the implementation of the recommendations related to barriers to transit trade. Thus, each country delegation will report to the TPCC on the status of implementation of the recommendations in its country, and the TPCC will in turn produce a consolidated report on the implementation of these recommendations for consideration by the next SOM. 
4. Finally, it was agreed that there is a need to increase the awareness of the analytical work that has been done in and by the TPCC among key decision makers in all CARECmember countries. Thus, the TPCC agreed to ask the International Monetary Fund and Asian Development Bank to arrange seminars in each CAREC-member country, designed to summarize the work done for the TPCC to date and the implications of this work for the various countries in CAREC. 

Fourth TPCC Meeting and Associated SOM 

41. The Fourth Meeting of the TPCC was held in Urumqi, China on April 8, 2006. During the meeting, delegates reviewed the progress made in implementation of the instructions from the 4^thMinisterial Conference of November 2005 and gave guidance on priorities and future direction to the TPCC’s work program. Broadly, the delegates emphasized the importance of producing concrete policy reforms in CAREC countries in parallel with continuing analytical work and discussions on trade policy issues. 

Review of progress 

1. In line with the communiqué of the 4^thMinisterial Conference, country delegates to the TPCC reported on the implementation of the recommendations to reduce barriers to transit trade. In the discussion, the participants noted, with satisfaction, the measures that are being put in place to reduce barriers to transit trade, although the extent of measure varied significantly depending on the circumstances of each country. They also noted that: (i) it will take time to fully implement all the necessary measures; (ii) reciprocity between countries will become an issue as countries move forward with measures; and (iii) some of the issues have to be addressed in coordination with neighboring countries to achieve effective outcomes. Among the measures that are being considered, the TPCC welcomed in particular the intention to introduce “one stop service” for processing of customs and other procedures.   
2. The International Monetary Fund and the Asian Development Bank have initiated outreach seminars in each country designed to summarize the analytical work done for the TPCC to date and the implications of this work for the various countries in CAREC. Such seminars were held in Astana and Bishkek in February 2006.  
3. The EBRD took the lead in preparing a paper, Beyond Borders: Reconsidering regional trade in Central Asia.The paper notes that the impact of borders on price variations across different locations in Central Asia is much smaller than conventionally thought. In contrast, it argues that market integration inside countries in Central Asia remains limited.  
4. The delegates noted several factors that could explain the relatively small price variations across borders in Central Asia, including the biased sample of goods covered in the study, the price indices used for the analysis, and the use of black market exchange rates that are no longer in existence in most countries. In their view, the findings confirm the existence of smuggling for consumer goods and the consequent small variations in prices across borders despite cross border barriers, and the importance of transportation costs in explaining price differentials which in some cases amounted to 40-45 percent of the cost of a good.  
5. There was also some discussion on barriers to border trade led by the Kazakh and Uzbek delegations, which highlighted the complexities of the issues involved. Subsequently, TPCC decided that further work would be needed before it could formulate recommendations to reduce barriers to border trade for consideration of the SOM (see below). 

Papers presented at the Fourth TPCC meeting 

Future Work Plan 

47. The TPCC agreed that its agenda going forward should include: (i) continued monitoring of the implementation of the recommendations related to barriers to transit trade endorsed by the 4^thMinisterial Conference; (ii) continuing the outreach seminars to increase the awareness of the analytical work that has been done by the TPCC among key decision makers; (iii) undertaking further work on barriers to border trade; and (iv) preparing papers, as agreed in the previous meeting, on quantitative restrictions to trade in CAREC countries and on trade taxes in CAREC countries.  

Recommendations for consideration for the SOM  

48. Based on the discussions, the TPCC reached agreement on three recommendations, which were later endorsed by the SOM. First, there should be greater predictability and more transparency in trade policies of CARs, including through more information on existing restrictions as well as closer monitoring of changes in policies. Second, given the overlapping nature of issues addressed by the Trade Policy Committee and the Trade Facilitation Committee, there should be more interaction between these two committees. Similarly, a closer cooperation among officials dealing with these two issues in each member country is also essential. Third, given the role of the private sector in trade, there should be more involvement and participation of the private sector in CAREC activities. To this end, it was proposed to organize a business forum in Urumqi prior to the next Ministerial Conference. 

            Fifth TPCC Meeting  

49. The fifth TPCC meeting was held in Tashkent on September 25, 2006. The meeting was largely devoted to discussion of trade taxes in CAREC countries and of recommendations to reform the trade tax system. Delegates also reviewed the progress made in implementation of the instructions from the 4^thMinisterial Conference and gave guidance on priorities to the TPCC’s work program.  

Review of Progress 

1. In line with the communiqué of the 4^thMinisterial Conference, the TPCC continued monitoring of the implementation of the recommendations to reduce barriers to transit trade based on reports by country delegates to the TPCC. In the discussion, it was noted that: (i) Azerbaijan, Kazahkstan, Krygyz Republic, Mongolia, Tajikistan, and Uzbekistan are members of the TIR Convention and are in full compliance with its requirements, AFG has initiated steps to reactivate its membership, and PRC has initiated the accession work; (ii) no customs convoys are formed for transportation of transit goods through AFG and PRC, and the customs fees charged for customs escorts have been reduced in KAZ; (iii) no fees or charges other than transit fees are applied in KAZ and transit goods are exempted from other fees and charges in AFG, PRC, TAJ, and UZB if there are reciprocity arrangements with the countries of goods’ origin; (iv) issuance of visas and reductions in the cost of visas for drivers are being implemented on a reciprocity principle in AFG, PRC, and TAJ, an agreement has been signed between KAZ and UZB which provides for eliminating the system of entry permits, and KAZ reduced the costs of issuing visas significantly; (v) KAZ and KGZ implemented a pilot project of joint border control through an expedited “one stop service” processing of customs and other procedures, and a similar arrangement is being considered by KAZ and UZB; and (vi) to prevent unofficial payments from road carriers, KAZ, KGZ, MON, and TAJ are automating customs procedures, while AFG had developed a code of conduct to encourage reporting of illegal payments and is closing illegal check points.
2. Based on submissions by country delegates, a more detailed report on the implementation of the recommendations aimed at reducing the existing barriers to transit trade in Central Asia is provided in the full status report of the TPCC.  
3. The International Monetary Fund and the Asian Development Bank continued outreach seminars in member countries designed to summarize the analytical work done for the TPCC to date and the implications of this work for the various countries in CAREC. Such seminars were held in Beijing in April 2006, Dushanbe, Kabul, and Tashkent in September 2006, and Ulaanbaatar in October, 2006.  
4. In line with the work program agreed in the previous TPCC meeting, the International Monetary  Fund presented a paper on Trade Taxes in CAREC Countries. The paper analyzed the taxes levied on international trade in CAREC countries and assessed to what extent they could be a barrier to trade. The paper concluded that the overall level of import tariffs, as measured by simple and weighted average tariff rates, is relatively low. However, the trade tax regimes are complex and subject to frequent changes. Based on this analysis, the paper  recommended that reform of trade taxes in CAREC countries should aim at a simple, transparent regime, with low and relatively uniform rates, in line with international best practices.  
5. Following a lively exchange of views on the paper, the committee agreed to recommend for consideration of the Senior Officials’ Meeting the following measures aimed at reforming the trade tax regimes in Central Asia: 

Papers Presented at the Fifth TPCC Meeting

(i)    reducing tariffs and other trade taxes in countries where the cumulative average rate is high, with the aim of bringing the simple average tariff below 10 percent; 

(ii)   reducing the maximum and high tariff rates, with the maximum rate limited to 20 percent;

(iii)  cutting the number of non-zero tariff bands to around 3; 

(iv)  eliminating specific and combined tariffs by shifting to an ad valorem methodology for simpler calculation and enforcement; 

(v)   removing exemptions and abstaining from granting them in the future; 

(vi)  applying taxes (VAT and excise) uniformly to imported and domestically produced goods; and 

(vii)consolidating other import taxes, fees, and charges into a single rate. 

1. In addition, it was agreed that the country delegates to the TPCC should take responsibility for monitoring the implementation of the recommendations related to reform of trade taxes, assuming they are endorsed by the SOM and eventually by the Ministerial Conference. Thus, each country delegation will report to the TPCC on the status of implementation of the recommendations in its country, and the TPCC will in turn produce a consolidated report on the implementation of these recommendations for the SOM. 
2. The Committee also continued discussions on barriers to border trade led by the Kazakh delegation, focusing mainly on defining the concept of border trade. The delegates once again decided that further work would be needed before it could formulate recommendations to reduce barriers to border trade. Thus, the TPCC asked the World Bank to finalize a paper on barriers to border trade by mid-2007, building on the work that has already been done by the Kazakh delegation. Progress report on this paper will be presented at the next meeting of the TPCC. 
3. The GTZ (German Technical Cooperation) made a presentation of their project  “Support to Regional Economic Cooperation in Central Asia”. The project aims to  reduce the administrative burden of import and export procedures for traders. Under this project KGZ and TAJ will reduce the amount of documents and the time needed to export and import. The Kazakh and Uzbek governments were invited to restart the project in their countries and the PRC was invited to consider joining the project for its western border regions.  

Future Work Plan

58.       The TPCC agreed that its agenda going forward should include: 

(i)    continued monitoring of the implementation of the recommendations related to barriers to transit trade endorsed by the 4^thMinisterial Conference; 

(ii)   monitoring implementation of the recommendations related to reform of the trade tax systems—assuming they are endorsed by the SOM and eventually by the Ministerial Conference; 

(iii)  undertaking further work led by the World Bank on barriers to border trade and formulating recommendations to address these issues; 

(iv)  preparing the paper on quantitative restrictions to trade in CAREC countries, led by the Asian Development Bank as agreed in the previous meeting;  

(v)   contributing to capacity building and information sharing on WTO related issues to facilitate member countries’ accession to the WTO; and 

(vi)  continuing the outreach seminars to increase the awareness of key trade policy issues and the analytical work that has been done by the TPCC among decision makers. 

Recommendations for consideration for the SOM

59. Based on the discussions, the TPCC reached agreement on the following recommendations to be submitted to the SOM in October 2006: (i)  the seven measures aimed at reforming the trade tax regimes in Central Asia that are listed in Section D. 2 above; (ii) the implementation of  “one stop service” processing of customs and other procedures in all CAREC countries to facilitate transit trade; and (iii) the use of reciprocity principle in encouraging reductions in existing barriers to transit trade in Central Asia. 

Energy Development: Interim Strategy/Program

Energy Development 

1. An advisory energy sector strategy for CAREC countries is under preparation.  The medium-term work program for the Energy Sector Coordinating Committee (ESCC) is outlined below, together with the tentative framework for energy sector development through regional cooperation. 

Energy Sector Coordinating Committee:

Status Report and Medium-term Work Program October 2006 

1. The Energy Sector Coordinating Committee (ESCC), which held its first formal meeting in October 2005, received endorsement during the Fourth Ministerial Conference to address a wide range of interests.  In addition to power sector development, it was agreed that the ESCC will address oil and gas exports, energy efficiency and opportunities afforded by the Clean Development Mechanism of the Kyoto Protocol.  It was further agreed that the ESCC will need to complement and support the activities of other regional energy coordinating bodies, and to develop a regional monitoring framework against which overall performance of the energy sector can be assessed.   

1. At its April 2006 meeting in Urumqi, the ESCC agreed on a timetable to develop an Energy Sector Strategic Action Plan, identifying investment needs, capacity building needs, expected outputs and outcomes, and performance Indicators for the energy sectors of each of the CAREC countries. It is understood that this Plan, together with the individual country plans, will be completed in 2007. To date, national energy sector action plans have been received from Afghanistan, Azerbaijan, Kyrgyz Republic, Tajikistan, and Mongolia.  The World Bank has prepared a Discussion Note on these action plans.   

1. The ESCC also endorsed conducting a study to assess the available options for “Movement of Primary Energy Commodities from Central Asia”. The PRC recommended that the study should be at a ‘pre-feasibility’ level, identifying the strategic options and policy choices and requirements.  Project proposals resulting from this study would then be developed on a bilateral/trilateral basis with the relevant countries. Consultations are currently being held to determine the willingness of CAREC countries to participate in the study. 

1. The ESCC further agreed that, in view of the complexity of the Clean Development Mechanism (CDM) and the many sectors that provide opportunities for CDM projects, the MIs should, in the context of their operational visits, make additional presentation to all relevant officials in each of the CAREC members. In this regard, it was agreed that CAREC members could benefit from the experience of PRC, who have the most CDM projects among CAREC members.  ADB and the World Bank have developed a number of CDM programs and projects, as summarized below: 

• The ADB Carbon Market Initiative (CMI) is currently receiving expressions of interest from potential participants. ADB’s management has approved the CMI concept to be submitted for the Board consideration upon reaching approximately US$80 million in commitments. An Asia Pacific Carbon Fund (APCF) is under preparation.    

• The ADB Energy Efficiency Initiative (EEI) includes the preparation of country-level investment and action plans on energy efficiency, development of the project pipeline for 

2008-2010, design and establishment of the Asia-Pacific Fund for Energy Efficiency (APFEE), and identification of immediate energy efficiency investment opportunities. 

• The World Bank has recently endorsed an assistance program for countries of Central Asia which have ratified the Kyoto Protocol and have a portfolio with the World Bank.  At present, Uzbekistan and the Kyrgyz Republic are the most likely participants.  The assistance program will focus on raising awareness about the CDM opportunities and developing a potential pipeline of CDM projects. Related support is already being extended to Uzbekistan and Azerbaijan.   

1. During the Fourth Ministerial Conference, Ministers signed the Memorandum of Understanding for the formal establishment of the CAREC Members Electricity Regulators Forum (CMERF).  The Second Annual Meeting of the CAREC Members Electricity Regulators Forum (CMERF) was successfully held in Almaty, Kazakhstan on 11-13 September 2006. It was co hosted by ADB and the Agency for Regulation of Natural Monopolies (ARNM) of Kazakhstan. The three-day event sponsored by ADB and the Public-Private Infrastructure Advisory Facility (PPIAF) brought together a total of 60 participants: (i) regulators from Afghanistan, Azerbaijan, People’s Republic of China, Kazakhstan, Kyrgyz Republic, Mongolia, Tajikistan and Uzbekistan; (ii) international power regulation experts, and (iii) representatives of multilateral institutions.  

1. The Meeting covered the following main topics: (i) tariff design and social safety net; (ii) privatization of distribution company management; (iii) power utility costs; (iv) pricing of ancillary services; and (v) risk sharing in power purchase agreements. The ADB presented and discussed the interim findings of the ongoing studies on these topics. Prominent power regulation experts delivered presentations and led discussions on aligning government and investor expectations, regulatory issues faced by private companies and regulators, and shared the lessons learned from electricity restructuring in transition countries. The country delegations stressed the importance of the role that CMERF plays in supporting the region’s power regulators and ongoing sector reforms. They indicated that training should be provided on specific regulatory topics.   

Strategic Framework for the Energy Sector  in CAREC Countries^[4]

1. CAREC ministerial level meeting held in November 2005 concluded that development through cooperation is the way forward and greater momentum in regional cooperation is vital. In this context the ministers agreed that formulating a strategic framework is essential for enhancing regional cooperation and also enlarged the scope of the Energy Sector Coordination Committee’s (ESCC) work to cover not only electricity but also oil and gas, energy efficiency and opportunities available under Clean Development Mechanism (CDM). 

1. The Senior Officials Meeting held in April 2006 noted that the advisory strategic framework for the energy sector would be an input to the CAREC Comprehensive Action Plan as well as for the CAREC Business Development Forum.  

1. The ESCC in its meeting held in April 2006 finalized and adopted its terms of reference, of which the fifth item was: “To advise on (a) the formulation of a comprehensive strategic framework for energy sector development including investments and policy measures; (b) the prioritization and sequencing of investments and policy initiatives for the short to medium term; (c) articulating associated performance indicators with a focus on key expected outputs and outcomes; (d) mainstreaming the strategic framework into the country based development plans and public investment programs, and financing options.”  

1. In pursuit of this, member countries were invited to provide their national energy sector action plans. Such plans have been received from Afghanistan, Azerbaijan, Kyrgyz Republic, Tajikistan, and Mongolia and are awaited from the remaining members. Meanwhile available information with the World Bank and information collected by CAREC secretariat in their country workshops have been used to formulate the possible strategic framework. 

1. The participants in the workshops conducted by CAREC secretariat in member countries in June-July 2006 brought out the following as the key elements (expected outputs/outcomes) of regional cooperation in the energy sector: 

• Energy security and improvement in universal access 
• Series of integrated energy markets among CAREC member country clusters (and their neighbors) 
• Significant improvements in energy efficiency and conservation (including through CDM and Kyoto Protocol and domestic pricing reforms) 
• Energy development opportunities facilitated on a cooperative basis 
• Investment mobilization and private sector participation 
• Facilitation of access to new energy markets 
• Country based capacity building programs to enable the operation of the energy sector on commercial basis 

1. The purpose of this note is to: (i) present in a uniform manner the individual energy action plans of the CAREC countries; (ii) outline a tentative framework for energy sector development through regional cooperation, mainstreamed into the countries’ energy action plans; and (iii) indicate the lines along which  they could be further refined and updated.  

1. The region covered by the CAREC countries has enormous energy resources unevenly distributed among the countries. Kyrgyz Republic and Tajikistan have a large hydro potential, but have little hydrocarbon resources. Azerbaijan, Kazakhstan and Uzbekistan have considerable hydrocarbon resources for export. Mongolia has enormous coal reserves. China has considerable energy resources of all types, but its rapidly growing demand far outstrips supply necessitating energy imports. Afghanistan does not have the financial resources to develop even its modest energy resources and depends significantly on energy imports in the short to medium term. The five countries in the west—Azerbaijan, Kazakhstan, Kyrgyz Republic, Tajikistan and Uzbekistan – have electricity systems in which nearly 100% of the population has access to electricity, and demand growth in the medium term in these countries is expected to be modest (in the range of 2% to 3% per year or even less). Access to electricity in Afghanistan is believed to be limited to about 16% of the population only. About 70% of the population in Mongolia has access to electricity and China is yet to achieve electricity access to 100% of its population, but has significantly high demand growth expectations based on the objective of doubling the GDP during 2000-2020. Such diversity and complementarily in resource endowments and the state of development of the sector and the economy provide considerable scope for regional cooperation while pursuing national development goals. Regional cooperation would thus be a logical, and often a key component of the national energy strategies. 

1. The overarching objective of the energy sector is perhaps best articulated as ensuring that adequate volumes of commercial energy supplies are made accessible to everyone in a reliable, financially sustainable and environmentally sound manner. 

1. To achieve this objective the strategic framework would have the foundation of sound policy measures / initiatives on which would rest the investment initiatives relating to (a) the domestic energy sector recovery and security; and (b) regional energy cooperation and trade to enable exports, imports and for balancing demand and supply in the energy sector (Figure 1) 

A.        Strategic Policy Measures:  

17. Achieving the overall sector objective would depend on the adoption of sound policy measures in a wide range of areas. Of these the following may be considered as strategically important from the regional context. 

• Improving the financial viability of the supply entities and ensuring sustainability of services.This would involve operational improvements to minimize the cost of supply and tariff improvements to cover the full cost of supply (including the cost of capital). Key elements of operational improvements would be: (a) better and transparent accounting of energy flows throughout the system through appropriate system metering, (b) adoption of better and more efficient methods of meter reading, billing and collection and prevention of theft, and (c) the adoption of improved governance and internal controls to discourage corruption. Tariff improvements have to sub-serve the interests of ensuring financial viability of energy supply entity, managing demand or promote energy use efficiency and energy conservation, and enabling rational inter-fuel substitution (Possible performance indicators (PI) for this would be percentage of total system losses, generation (including net imports) to billing ratio, billing to collection ratio, ratio of average tariff/kWh to cost of supply and similar ratios for gas and heat). 
• Social Protection measuresto enable the poorer sections of the population to consume reasonable minimum quantities at prices they can afford, especially in the context of rising prices. (PI: Coverage Ratio or the ratio of people actually supported to those who should be supported and the Target Ratio or the ratio of the benefit actually reaching the poor to the total benefits provided by the scheme) 
• Sector Restructuring and Commercialization to enable (a) private sector participation and investment, (b) greater transparency and efficiency, (c) competition, and (d) regional trade (PI could simply be the status of restructuring itself or the share of private investment in the total energy sector investment or imports and exports of energy). 
• Promotion of Private sector participationespecially in investments and management of the supply entities and operations (PI: volumes of investment, or the number of entities privatized or given on concession or management contracts) 
• Sector Regulatory arrangementswhich (a) protect the consumers and the investors alike, (b) ensure quality of supply, (c) promote sector operational efficiency, and (d) enable third party access to transmission/transport lines and transparent transmission tariffs necessary to promote trade and competition. (PI: simple yes or no to each item) 
• Promotion of Energy u\Use Efficiency and Energy Conservation(PI: per capita energy consumption, energy intensity of GDP growth) 
• Environmental Protection (PI: Reduction in the pollution indicators)  
• Promotion of the use ofalternative and renewable energy sources. (PI: the percentage of energy supply from such sources to total energy supply)
• Littoral Agreements for the use of sea bed resources in common seas such as the Caspian Sea(PI: investments in the exploitation of such seabed resources)

Figure 1: CAREC Countries: Strategic Framework for the Energy Sector 

B.         Strategic Domestic Investment Measures:            

18. To achieve the sector objective, a wide range of investment measures are needed to augment supplies, expand access to the population, improve reliability and quality of supply. The strategic priorities could be: 

• Commercial and technical loss reductionin transmission and distribution systems including consumer metering and system metering improvements (PI: Systems Loss ratio, Generation to Billing ratio, Billing to Collection ratio, number of meters installed, percentage of consumers remaining unmetered). 
• Rehabilitation of generation/production assetsto improve production capacity and reduce cost of production (PI: Capacity restored or added, the extent of extension of useful life of these assets, or the percentage of production efficiency improvement) 
• Rehabilitation of transmission and distribution networks(PI: transmission and distribution capacity restored or the extent of extension of useful life of these assets) 
• Expansion ofGeneration/Production, transmission and distribution facilities,in a balanced and least cost fashion and in an environmentally sound manner, to meet forecast demand, and to increase access to the population. (PI: MW, Km of lines, MVA of substations added, percentage of population with access to energy) 
• Survey, Identification, Exploration and Development of Domestic Energy Resources(PI: volume of additions to national resource inventory) 
• Investments in Decentralized Heating Optionsespecially in rural areas (PI: area actually covered by such options to the total area to be covered)
• Retrofits to existing facilities to mitigate environmental degradation(PI: data on extent of pollution before and after)
• Investments in promoting Alternative and Renewable Energy Sources(PI: volume of new capacities created under each such resource)
• Capacity buildingfor the commercial operation of the sector, sector regulation, public private partnership arrangements and demand side management and policy making (PI: No. of people and organizations covered, No. of training programs organized) 

C.         Strategic Investment Measures for Regional Cooperation and Trade: 

1. Energy security consists essentially of diversifying energy resources and the sources of supply of such diversified energy resources. Often imports constitute an important component of the cost effective supply mix and thus enhances energy security. Energy trade enlarges energy markets and resulting economies of scale make it possible to exploit economically certain energy resources (a large hydroelectric project for example), which may not make economic sense in the context of meeting only the small domestic energy demand. In the case of small economies, endowment of large energy resources may make it possible to achieve energy export-led growth. Energy trade and integration and enlargement of energy markets are thus significant aspects of regional cooperation. CDM provides yet another opportunity for the development of clean energy resource potential (hydro, wind, solar) for effective trading and environment protection.  

1. Strategic priorities in such regional cooperation oriented investments would include: 

• Construction oftrade related transmission /transport facilitiesincluding facilities for energy transit with metering arrangements  (PI: Volume of the incremental exports/trade facilitated) 
• Investment in export production facilitiesIdentification, development and construction of such facilities preferably using Public Private Partnerships to secure investment and commercial management and involving MIs to provide mediation and risk mitigation (PI: quantum of such export production) 
• Development of large energy resources on a cooperative basisthrough Joint ventures involving two or more countries. (PI: Number of such projects undertaken and successfully completed) 
• Investments in the integration of energy markets of two or more countries(PI: No. of such market agreements implemented) 
• Investment in Clean Development Mechanismrelated projects (PI: No. of such projects completed) 
• Capacity buildingfor energy trade and  performance and settlements under contracts for supply and purchase, arbitration systems, harmonization of system operations and codes (PI: Number of people and organizations covered, Number of training programs organized) 
• Investment abroad to access energy resources there (volume of energy resources so accessed) 

1. Both policy measures and two types of investment measures have to be divided into short term (2006-07) measures and medium term (2007-10) measures. For each activity the outcome and or outputs and performance indicators (wherever possible) need to be indicated. Possible PIs for most items have been suggested above. 

1. Based on the very limited information received from the member states and the information readily available in the World Bank, Appendix 1 indicates (for each country) a National Energy Action Plan in which the above considerations have been mainstreamed at least partially. Its inadequacies (in terms of lack of coverage in some cases, excessive coverage of details in some cases, lack of performance indicators in most cases) highlight the need for the ESCC to obtain from member countries more complete information on their nationally important policy and investment measures (avoiding at the same time too much of local details) in a common format. It is hoped that in subsequent events the member states would be able to provide a more complete set of information under the strategic headings along with outcome, outputs, time frame, funding status and details, and that the country appendices could be updated refined and improved at least once a year.  

1. Among other things the above approach could help us identify opportunities for regional cooperation in the energy sector among the CAREC countries based on common interests and shared experiences.. Such areas of common interest include a range of topics such as energy conservation, energy use efficiency improvement, promotion of alternative and renewable energy sources, retrofits for environmental mitigation. For example, in addition to these areas, China may have a great deal of useful experience in the extensive use of prepaid metering 

1. The above approach may also lead to the identification of major potential regional projects which may deserve special attention from ESCC to pursue the possibility of promoting them, and monitoring their progress. Examples of such bold stroke projects could include the items shown in Table 1.  

Table 1: Examples of Some of the Key Projects for Regional Cooperation 

1. Interdependence among countries is increasing globally. Within the CAREC region interdependencies are created by differential resource endowments and the differences in the status and growth rates of development. A matrix as given in Appendix 2 could help to focus on the type of interdependencies and to isolate the areas for further study, analysis, and cooperative measures. 

1. The members of the Energy Sector Coordinating Committee are invited to comment on the proposed strategic framework and national energy action plans with a particular focus on further identifying the interdependencies and areas of regional cooperation with relevant initiatives (“bold strokes”), the national energy strategy would call for. Such tentative activities are presented in Table 1 on Key projects for regional cooperation above and in Apendix 2 on Energy Interdependencies in the Region.  

1. The members of the Energy Sector Coordinating Committee are also invited to share their views on: (i) whether the Terms of Reference of the Committee may need amendments; and (ii) whether future work under the proposed strategic framework will include discussions on progress in implementing the national energy action plans in terms of sharing knowledge and experience, or would focus mainly on regional cooperation activities. 

Appendix 1 

Tajikistan Energy Sector Action Plan 

A. Policy Measures 

B. Investment Measures (Domestic) 

C. Investment Measures (Exports) 

Note:The above table had been prepared from the contents of the Policy note and action plan submitted by the Government to WB in respect of a recent loan operation and other information available with the WB. 

Kyrgyz Republic: Energy Sector Action Plan 

A. Policy Measures 

Note: Policy measures may give priority to creating legal basis for the grant of concessions in respect of power, gas and heat facilities. 

B. Investment Measures (Domestic) 

Note: It may be worth the while to consider according priority to carry out studies (a) greater use of coal in the system, and (b) Decentralized heating options to minimize the use of electricity for space heating.  

C. Investment Measures (Exports) 

Mongolia: Energy Sector Action Plan 

A. Policy Measures 

B. Investment Measures (domestic) 

C. Investment Measures (Export/import/transit) 

Azerbaijan: Energy Sector Action Plan 

A. Policy Measures 

Priorities indicated in other sources: Gas sector: Rehabilitate gas storage, Avoid gas flaring, increase capacity for gas treatment at (Garadag or tolling arrangement at Sangachal) , Rehabilitate gas transmission and distribution network, Control system losses, adjust tariffs to cover costs and 

7

 Source: Suggestion by participants in the CAREC secretariat workshop in June-July 2006. 

investment needs, improve collection, reduce debt, eliminate non-payment, establish regulatory regimes, improve coordination between SOCOR and Azerigaz. Improve norms for billing unmetered customers (WB note on Gas Sector Challenges Jan 2006). 

Power Sector: Collection improvement plan to reach 100% by 2010 by the management contractors of the distribution companies needs to be monitored. Restructuring for separation of generation and transmission to precede private sector involvement in generation, transmission and dispatch rehab needs priority. Tariff adjustment / Social protection. Regulatory arrangements / competition/ market structure/private sector participation (WB Issues and options in Energy sector  March 2005) 

B. Investment Measures (Domestic) 

C. Investment Measures (Electricity Trade) 

Note: Key point to discuss. (1) Most of newly discovered and produced gas is destined for export. Gas demand in Azerbaijan is forecast to increase and it is expected the country will continue to import gas from Russia (present price $110/KCM) at a price higher that what it will get from gas exports to Turkey. This raises the priority for eliminating gas flaring, loss reduction in gas transport and distribution, economic pricing, and demand side management in respect of gas. All new power plants based on gas need to adopt combined cycle technology. Gas use in the standard steam turbines units should be avoided. (2)  Oil production is expected to peak and decline from 2012 creating spare capacity in the BTC oil pipeline. The need for allowing Kazakh and Turkmeni oil (possibly Uzbek oil too) to flow through this route may improve the economy of this line and will provide oil from these countries outlets to a seaport (Ceyhan). (3) Similarly the economics of BTE line might improve if some Turkmeni and Kazakh gas also flows through it. These aspects may need study. (4) The information from the country does not give targets or indicators. 

Afghanistan: Energy Sector Action Plan 

A. Policy Measures 

B. Investment Measures (Domestic) 

C. Investment Measures (exports, imports, transit) 

Note: Information on oil, gas and coal based on the Afghan government letter provided to ESCC. Information on power sector is from presentations made by Afghan officials in March 2005 and March 2006 in Kabul in connection with other events and also based on readily available info from WB and ADB documents. The power sector road map contained in an ADB appraisal report (March 2005) envisages that in the medium term access to electricity would rise from 6% to 40%, system losses would be reduced by half, 75% of all districts would be receiving electricity, 200 MW of new generation capacity would be added and the backbone national transmission system would be in place.

Uzbekistan: Energy Sector Action Plan 

A. Policy Measures 

 B. Investment Measures (domestic) 

C. Investment Measures (for exports/trade/regional cooperation) 

Note:above was compiled based on the presentations made by Uzbek officials and the information available with readily available documents of WB and ADB. Clearly this would need substantial revisions by the Uzbek authorities. 

Kazakhstan: Energy Sector Action Plan 

A. Policy Measures 

B. Investment Measures (domestic) 

C. Investment Measures (Export/Trade/Regional cooperation) 

Note: The above table has been developed based on data available with WB. May need extensive changes based on receipt of future information from the government. 

Other items of interest may be: (1)A study the possibility of Kazakhstan joining the Trans Afghan Pipeline project to supply gas to Pakistan and India, (2) A study of the possible gas exports to Xinjiang province of China since China has constructed the West to East pipeline from that province, (3) a study of the possibility of Kazakhstan joining the Central Asia Oil Pipeline project to transport oil from Turkmenistan and Uzbekistan to the Gwadar deep sea port in Pakistan., (4) a study of the possibility of Kazakh oil and gas being exported through the BTC and BTE pipelines to reach Mediterranean coast. 

China (Xinjiang province) Energy Action Plan 

A. Policy Measures 

B. Investments Measures (Domestic) 

C. Investment measures (Trade and Regional) 

Note: .The above table has been developed based on data available with WB  Also, it remains to be clarified whether we would deal with the whole of China or with the Xinjiang province which is located in between Mongolia in the East and Central Asia in the west with common borders on either side. This province will play a key transit role in the energy trade between Central Asia and China and therefore it is necessary to have a clear understanding of the current status of the power, oil and gas infrastructure and entities there, including its own demand-supply status and forecasts and plans development in that province. We have very little information on these aspects. 

                                                                                             Appendix 2 

Energy Interdependencies in the Region 

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Appendix 2: MI Pipeline Loan Projects/Grants/TAs 2006-2008 

1. The MI pipeline of regional cooperation loan projects/grants/TAs for 2006-2008 is presented in two sets of tables: 

• Interim CAREC Results Framework, which describes, for each project, the strategic goals and objectives, the key constraints for achieving these goals and objectives, the interventions of the MIs and CAREC countries in support of the goals and objectives, the expected outputs and outcomes of the interventions, and the milestones and performance indicators for tracking progress; each project is coded, so as to facilitate reference to the second set of tables, the Development Matrix; 

• Development Matrix,  which provides additional information about each of the projects, including the full name of the project, a project description, the CAREC countries involved in the project, the amount and form of financing, the project status, the implementation schedule and contact information. 

CAREC Results Framework 

84

                                                                                                                                            Interim CAREC Results Framework                                                                                                                        

              Strategic Goals/                          Key Constraints to Achievement           Code           Interventions of MIs and             Expected Outputs / Outcomes of                  Milestones/Performance Indicators 

          Objectives for CAREC                            of the Goals/Objectives                                            CAREC Countries in                           CAREC Interventions                  for Tracking CAREC Progress 

Support of Goals 

                                                                                                                                            Interim CAREC Results Framework                                                                                                                        

              Strategic Goals/                          Key Constraints to Achievement           Code           Interventions of MIs and             Expected Outputs / Outcomes of                  Milestones/Performance Indicators 

          Objectives for CAREC                            of the Goals/Objectives                                            CAREC Countries in                           CAREC Interventions                  for Tracking CAREC Progress 

Support of Goals 

SEW services through development of electronic platform by Mongolia by 2008;   

                                                                                                                                            Interim CAREC Results Framework                                                                                                                        

Objective 1: (i) Inefficient cross-border and Tr-01 Study on CAREC: Action Plan for Harmonizing Regional Draft Action Plan discussed at 4^thand 5^thTo harmonize and simplify cross- transit movement of people and Harmonization and Transport Regulations and Cross-border TSCC meetings in October 2005 and border transport procedures and goods due to excessive Simplification of Transport Agreements among CAREC Countries March 2006 

documentation        among       CAREC            bureaucratic procedures and                                      Agreements, Cross Border                                                                                      

markets.                                                       (iii) A large proportion of existing 

transport infrastructure is poor and deteriorating due to 

insufficient funding for maintenance 

(iv)   Limited government funds for construction and improvement of transport infrastructure 

(v)    Resource constraints of multilateral institutions. 

(vi)   Limited interest from private sector to finance transport projects due to large funding requirements and low rate of return on investment 

                                                                                                    Tr-21            Planned RETA for Regional (i) Current status and future needs of               To be determined 

                                                                                                                Road         Funding          and          funding and maintenance for regional 

                                                                                                                Management     in     Central          road corridors in CAREC countries 

                                                                                                                  Asia Regional Economic              assessed  

                                                                                                                Cooperation Countries              (ii) Three year road funding and 

                                                                                                                (2006)                                                 management plan for regional roads 

in CAREC countries developed 

(iii) Transport Ministries familiarized with results based approaches to road 

network management 

Objective 6:                                                  (i)     Lack of regional approach in civil                             To be determined                        To be determined                                               To be determined 

Incremental               approach             to           aviation sector and lack of 

liberalization of the civil aviation commonality in aviation policy sector, focusing on the adoption of and liberalization prospects bilateral agreements using common across the region legislative clauses, enhancement of (ii) Fear that in a liberalized external inputs from all stakeholders, environment strong foreign 

especially business and tourism, in airlines would undermine local aviation policy making. industry participants 

(i)      Improve transport efficiency by The Project has been designed to Tr-24 Osh-Sarytash-Irkeshtam (i) Improve 42.7 km of road from Gulcha (i) Civil works contracts to be awarded reducing transport costs to reduce potential risks, including Road Rehabilitation Project to Sopukorgon by January 2007 and completed by international and domestic road delays in implementation due to Kyrgyzstan (IsDB) (ii) Establish and achieve operational June 2009 users, and by improving access inadequate implementation capacity status of corridor management (ii) Consultants will be recruited by to markets and social services for of MOTC, failure to provide department December 2006 and services people in the project area. counterpart financing in a timely (iii) Improve financing of road completed by July 2009 

(ii)     Promote sustainable economic manner, lower than projected traffic, maintenance (iii) Reduced roughness of roads, growth in the region and project and inadequate road maintenance. (iv) Improve financing of road safety repair of bridges, slope protection, 

area, thereby reducing poverty,        and erosion control works by increasing regional trade and cooperation. 

(i)   Increase trade in the region and The Project is designed to reduce Tr-25 Reconstruction of the (i) Improve of priority sections of road to The Project will include civil works, economic growth in the potential risks, including delays in Taraz-Talas-Suusamyr be identified by the FS construction supervision, project immediate project area. implementation due to inadequate Road (phase II) (ii) Improve financing of road management which will be procured 

(ii)  Improve regional and national implementation capacity of MOTC, Kyrgyzstan (IsDB) maintenance. under IDB procedures limited to member road network. failure to provide counterpart (iii) Improve financing of road safety countries. The Project is supposed to be 

financing in a timely manner, lower       implemented within 30 months. than projected traffic, and inadequate road maintenance. 

(i)     Provide reliable and direct access for east-west traffic traveling between the western part of Tajikistan including the capital Dushanbe, and the eastern region of Gorno-Badakhshan, thus enhancing territorial integrity of the country 

(ii)    link Tajikistan to the strategic Karakorum highway in China through Kulma pass, providing access to the deep-sea ports of Karachi, Pakistan, thus promoting trade and passenger and freight flow with neighboring countries The Project has been designed to reduce potential risks, including delays in implementation due to inadequate implementation capacity of EA, failure to provide counterpart financing in a timely manner, lower than projected traffic, and inadequate financing of road maintenance. 

Tr-26         Shagon-Zigar                      Road (i) Improve of priority sections of road to 

            Rehabilitation (phase III)                 be identified 

Tajikistan (IsDB)                               (ii) Improve financing of road maintenance 

(iii)   Improve financing of road safety 

This project is in pipeline for 2006. Could be started in 2007 and completed in 3-4 years 

                                                                                                                    Interim CAREC Results Framework      

This transmission line will connect the northern and southern part of the country. The construction of the transmission line will support economic development in the northern part of Tajikistan. 

The sustainability of the Project  Technical assistance for Feasibility Study and preliminary design could be at risk in case of: (i)  Feasibility Study and for: 

inadequate implementation capacity En-01 preliminary design for (i) Construction of 500 kV South-North of EA; (ii) failure to provide  Construction of 500 kV Transmission Line counterpart financing in a timely South-North Transmission (ii) Connection of 500 kV Transmission 

manner;      and       (iii)     inadequate                            Line Tajikistan (IsDB)                       Line to existing 500 kV Regar 

financing of maintenance of facilities.                                                                                         substation in the South 

(iii) Connection of 500 kV Transmission Line to existing 220 kV Khodzhent substation in the North 

This TA started by the end of 2005 and to be completed within 12 months. The Construction of 500 kV South-North Transmission Line is scheduled to be started in 2007 

                                                                                                                                  Interim CAREC Results Framework                                                                                                                        

    Strategic Goals/                         Key Constraints to Achievement           Code           Interventions of MIs and            Expected Outputs / Outcomes of            Milestones/Performance Indicators 

Objectives for CAREC                             of the Goals/Objectives                                             CAREC Countries in                           CAREC Interventions                             for Tracking CAREC Progress 

Support of Goals 

The project is ready to be approved within 2006 and completed in about 3 years. 

(i)      Civil works contracts to be awarded in 1 year after approval and completed in 12 months 

(ii)     Consultants will be recruited in 7 months after approval and services completed in 33 months 

(iii)    Procurement of equipment will be started simultaneously with civil works and installation will be 

completed in 22 months  

ADB loan for 220kV double-circuit transmission interconnection project for Afghanistan         and          Tajikistan                   to               be approved in December 2006. 

CMERF established in November 2005 

CMERF Annual Meeting September 2006 

ADB RETA for CMERF Studies started May 2006 

5 studies to be completed by January 2007 

(i)      Transmission capacity increase by about 200 MW and incremental transmitted volume by about 3.7 TWh. 

(ii)     Reductions of KEGOC’s technical losses to 4.5% and annual unplanned outages to 8 on the entire new North South transmission line. 

(iii)    Support introduction of zonal transmission pricing. 

                                                                                                                                  Interim CAREC Results Framework                                                                                                                        

    Strategic Goals/                         Key Constraints to Achievement           Code           Interventions of MIs and            Expected Outputs / Outcomes of            Milestones/Performance Indicators 

Objectives for CAREC                             of the Goals/Objectives                                             CAREC Countries in                           CAREC Interventions                             for Tracking CAREC Progress 

Support of Goals 

(i)     positioning Xinjiang’s logistics (i) Lack of investment and upgrade Ot-01 Logistics Development and (i) industry development in a broader makes Xinjiang’s railway system Capacity Building in prospective as the link in the unable to meet transportation Xinjiang Autonomous Euro-Asia continental bridge, the demand in the short or even Region 

center for regional cooperation          medium term.            (ii) with central Asia, and the key               (ii) Poor management, low level of enhanced efficiency and   containerization, and lack of 

transparency in customs services     investment in logistics hubs make and administration; and      the efficiency of road 

(ii)    developing a strategy for logistics     transportation system low.  

industry development in Xinjiang,      (iii) Institutionally, Xinjiang’s logistics        (iii) covering issues such as such              industry demonstrates following 

     policy reforms, infrastructure                      weaknesses

development, provision of public financial resources and participation of private sector, and institutional capacity building Identification of policy, institutional and financial issues regarding logistics industry development in Xinjiang and  Development public infrastructure and logistics platform, including single window for customs clearance, and over-the-counter dealing system for logistics providers; and Public investment in logistics industry as well as public private sector partnership projects for logistics industry development 

(i)       Recommendations to address 

institutional and financing issues; 

(ii)       A master plan for logistics industry development with particularly attention to public infrastructure and logistics platform, including single window for customs clearance, and over-the-counter dealing system for logistics providers; and  

(iii)      Compilation of a preliminary list of public investment projects as well as public private sector partnership projects 

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95

CAREC Development Matrix

95

                                                                                                                          96                                                                                                              

Development Matrix 

Sector/ Loan        Code       Name                                       Project Description                                                                       Participating      Financing             Project Status         Implementation   Contact 

& TA No.                                                                                                                                                                                               Countries                                                                               Schedule       Information