Kazakhstan: Reconstruction of M-32 Highway Aktobe-Karabutak-Ulgaisyn Section Project

approved

The Reconstruction of the M-32 Highway Aktobe-Karabutak-Ulgaisyn Section Project (the “Project”) involves the rehabilitation and upgrading of a 234-kilometer (km) road section from two to four lanes, starting from the city of Aktobe, passing through Karabutak, and ending at Ulgaisyn. The Project will also support associated supervision, implementation support, and capacity-building activities.  The road runs through Aktobe region in western Kazakhstan and forms a key segment of the Western Europe-Western China transport corridor. It is one of the busiest transportation routes traversing Kazakhstan, connecting the country's east with the west. The Project aims to improve road conditions and capacity to accommodate growing traffic demand, with enhancements of road safety, service levels, and climate-resilient standards. In addition, it will introduce the Design-Build-Maintain (DBM) contract model and a tolling system to ensure adequate funding for required maintenance.  This Project is among the pioneers in using an integrated DBM contract model based on the Yellow Book contract format of the International Federation of Consulting Engineers (FIDIC). This integrated approach leverages private sector expertise to develop the design and long-term maintenance program upfront, ensuring alignment with the specific project features and supporting a lifecycle approach to road infrastructure planning. It also aims to reduce the risk of cost overruns and implementation delays commonly associated with conventional contract models.  The Project will be supported through two financing tranches. The first tranche will cover around 34 percent of total Project cost across all contracts using a contract slicing approach. The first tranche of financing will focus on procuring DBM contractors and the supervision consultant, hiring the project implementation support consultant, advancing the road design, and updating the relevant environmental and social (ES) instruments. The second tranche of financing will support the remaining 66 percent of the Project cost, with a focus on construction, implementation, and institutional capacity building activities.  The Project will be jointly co-financed by AIIB and the European Bank for Reconstruction and Development (EBRD). The two banks will provide equal loan amounts through both the first tranche and the second tranche, in 2025 and 2026 respectively, in accordance with the sovereign guarantee arrangement of the Government of Kazakhstan (GoK). GoK will provide counterpart funding of up to 12 percent of the total Project cost, throughout the two financing tranches.