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Tbilisi Railway Bypass Project Progress Report

September 2010

Tbilisi Railway Bypass Project

Progress Report

September 2010

Project Implementation Unit (PIU)


Georgian Railway LLC

Reporting Period: March 2010 - September 2010

Georgian Railway LLC


15 Tamar Mepe Ave.
0112 Tbilisi, Georgia
Tel: +995 32 19 88 00
Fax: +995 32 19 91 51
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Table of Contents

Executive Summary .......................................................................................................................... 4


Abbreviations .................................................................................................................................... 7
1. Introduction ............................................................................................................................... 8
1.1. General Project Description .............................................................................................. 8
2. Procurement ............................................................................................................................ 12
3. Project Implementation Progress .............................................................................................. 22
3.1. Handover of Construction Sites ....................................................................................... 22
3.2. Construction Works ........................................................................................................ 22
3.3. Work Plan ...................................................................................................................... 23
3.4. Advance Payment Guarantee .......................................................................................... 23
3.5. Insurance Policies ........................................................................................................... 23
3.6. Land Acquisition and Resettlement ................................................................................. 23
3.7. ESAP Implementation .................................................................................................... 24
3.8. Tbilisi Railway Bypass Project LLC ............................................................................... 31
3.9. Reconstruction/Development of East (Navtlughi) and West (Didube) Stations ................ 32
4. Three Months Look Ahead ...................................................................................................... 34
4.1. Immovable Mortgage over the Existing Railway Land .................................................... 34
4.2. Future Railway Land ...................................................................................................... 35
4.3. Master Plan..................................................................................................................... 37
4.4. Land Contamination Study.............................................................................................. 38
4.5. Construction Works ........................................................................................................ 38
5. Actual or Expected Difficulties/Delays in Project Implementation............................................ 39
6. Expected Changes with respect to the Project Completion Date................................................ 39
7. Key Personnel Changes in the Staff of the PIU, the Consultants or the Contractors................... 40
8. Matters Affecting the Cost of the Project.................................................................................. 41
9. Any Development/Activity Likely to Affect the Economic Viability of Any Part of the Project 41
10. Project Implementation Progress Bar Chart ......................................................................... 42
11. Project Financial Statements/Expenditure Details ................................................................ 42
12. Information on Compliance with Loan Covenants and Undertakings ................................... 42
13. Appendices ......................................................................................................................... 44
Appendix A: Land Plots Under the Ownership of GR (Former State Owned Land Plots) ............ 44
Appendix B: Private Land Plots Purchased by the GR ................................................................ 54
Appendix C: Financial Assumptions of the Capital Property LLC ............................................... 58
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Appendix D: Three Months Look Ahead of the Construction Contractor..................................... 60


Appendix E: Progress Bar Chart ................................................................................................. 61
Appendix F: Project Expenditure Details/Financial Statements ................................................... 62

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Executive Summary

In 2010 Georgian Railway LLC (GR) launched Tbilisi Railway Bypass Project (the Project)
for developing a new railway route bypassing the central area of the capital Tbilisi. The main
goal of the Project is to improve the efficiency and the safety of railway operations as well as
free up over 80 hectares of land in the central area of Tbilisi, which will be available for
various urban development projects. The Project comprises the construction of a 28km long
double track electrified new railway bypassing Tbilisi. The existing railway infrastructure
between stations Didube and Navtlugi will be dismantled, thus, in total, 86ha area will be
freed up and used for urban development. The financing of the Project is secured through: (i)
the loan extended by the European Bank of Reconstruction and Development through the
Loan Agreement; (ii) the proceeds of the Euro Bonds issued by the GR; (ii) the cash-flows
generated by the GR internally.

With the aim, to identify feasibility of the project and ensure its successful implementation,
the GR has entered into number of contracts for procurement of services. These include:
procurement of the initial designs of the Project from KievGiproTrans, legal service related to
the Loan Agreement rendered by the Professional Legal Services BLC, supervision service
contract with ILF Beratende Ingenieure ZT GmbH (ILF) and Grauff Rail Engineering GmbH
& Co. KG (GRE), as well as service related to the resettlement process with Geographic
LLC.

On June 14, 2010, the GR has concluded a contract with the Joint Venture of Khidmsheni
JSC and China Railway 23rd Bureau Group CO. LTD (the Construction Contractor) under the
Standard form of contract of the FIDIC Yellow Book for the construction of the Tbilisi
Railway Bypass Project. Under the Contract, the Joint Venture is to construct the railway
bypass that includes:
Construction of the bypass railway line of the 38,612 km length from Zahesi Station
to Tbilisi-Marshalling Station;
Construction of the necessary engineering facilities;
Construction of new infrastructure complexes to replace the existing ones;
Construction of signalling and interlocking systems;
Construction of power supply facilities and catenary poles;
Installation of fibre-optic cables.

The works under the contract should be completed within 36 months. The contract price to be
received by the Joint Venture amounts to CHF 303 986 800.

During the reporting period, the progress in actual construction works has been related
mainly to the preparatory activities needed for the start of construction works. This included
the arrangement of proper legal and financial framework for the activities of the Construction
Contractor, finalization of design works, handing over of construction sites,
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assessment/approval of the work plan of the Construction Contractor, land acquisition and
resettlement process. Two out of four construction sites have already been handed over to the
Construction Contractor. On September 29, 2010, pursuant to restricted approval for the
beginning of preparatory works, the Construction Contractor commenced the works for the
construction of access roads to the construction site and relocation of existing electric poles.
The Construction Contractor has presented the Work Plan to the Supervisor. However, The
Work Plan was considered as incomplete and the Construction Contractor is to resubmit it by
October 25, 2010. Upon its approval by the Engineer, it will be submitted to the GR. GR has
received Advance Payment Guarantee under the Construction Contract on September 27,
2010 and respective payment will be made by the beginning of November, 2010. The
Construction Contractor has presented the Insurance policies issued by the Georgian
insurance company GPI Holding, elaborated in accordance with the requirements under the
Loan Agreement. Insurance policies are under the examination of the Supervisor.

As regards the resettlement and land acquisition process, 341 out of 358 state and
municipality owned land plots have already been registered in the National Agency of Public
Registry as the property of the GR. The remaining land plots will be transferred to the GR by
October 15, 2010. As for privately owned lands, the GR has purchased 66 private land plots
through Geographic LLC. The process is underway, and is planned to be finalized by the end
of December 2010.

The activities related to the construction works and resettlement are carried out in compliance
with the Environmental and Social Action Plan (ESAP).

The GR has set up a Project Implementation Unit, staffed by the key GR personnel, to ensure
effective and timely implementation of the Project.

In three months perspective, the GR plans, inter alia, to carry out the following activities with
respect to the implementation of the Project: conclusion of agreement between the GR and
the EBRD based on which, the latter will be granted with a first ranking mortgage over the
Existing Railway Land; finalization of the process of purchase and registration of Future
Railway Land; commencement of procurement procedure for Master Plan, and Land
Contamination Study. As regards the actual construction works, the Construction Contractor
is expected to complete the following works:
Finalization of detail design for renovation of the 10 km section of the Kakheti
existing line including the second railway track, all supporting infrastructure;
Mobilisation of equipment, machinery and manpower needed for the early stages of
construction by end of November, 2010;
Carrying out of detail geological survey for Lilo 1 Kvirike, and Kvirike - Avchala
sections of the alignment. In particular, for tunnels, land sliding and other sensitive
areas;

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Finalization of detail construction design for the section stretching from Lilo to
Kvirike;
Commencement of works on the detail design for the whole alignment by November,
2010;
Commencement of the design for sub-grade of the whole New Line by the end of
October 2010, to be finalized by the end 2010;
Commencement of the detail design for five tunnels by end of October 2010 to be
finalized by the end of 2010;
Commencement of the detail design for bridges, culverts and retaining walls by the
end of October 2010 to be finalized by the end of 2010.

On this early stage of implementation of the Project, the GR has not identified any serious
difficulties capable of causing delays as to the completion date of the Project. With respect to
the original costs of the Project, there are no factors that may seriously affect the estimated
amounts. The only changes may arise in the circumstances where the owners of the private
land appeal the expropriation orders, as the case may be, and the courts satisfy their claims of
increased compensations.

To the best of the GRs knowledge, no developments or activities have occurred that may
reasonably affect the economic viability of the Project.

As to the date of reporting, the GR is in full compliance with the covenants and undertakings
of the Loan Agreement.

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Abbreviations

EBRD European Bank for Reconstruction and Development


EIB European Investment Bank
EoI Expression of Interest
EMU Electric Multiple Unit
ESAP Environmental and Social Action Plan
ESIA Environmental and Social Impact Assessment
FIDIC International Federation of Consulting Engineers
GR Georgian Railway LLC
IFRS International Financial Reporting Standards
NAPR National Agency of Public Registry
NIF Neighbourhood Investment Facility
NPV Net Present Value
PIU Project Implementation Unit
RAP Resettlement Action Plan
RFP Request for Proposal
SBU Strategic Business Unit

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1. Introduction

The present Progress Report (the Report) is prepared pursuant to the Loan Agreement
between Georgian Railway and the European Bank for Reconstruction and Development and
covers the progress activities carried out in the course of implementation of the Tbilisi
Railway Bypass Project. The activities include, but are not limited to, the studies on the
economical viability of the project, securing necessary financing, procurement of necessary
services, execution of construction agreement, setting up legal and institutional framework
for effective implementation of the project, initiation of resettlement/compensation process
for the lands affected by the project, and commencement of physical works. The Report also
touches upon the actual or expected difficulties or delays in the implementation of the Project
and their effect on the completion date of the project as well as the costs of the Project. With
the three months look ahead, the Report outlines the activities that are expected to be carried
out for the furtherance of the implementation process. The financial statements and
expenditure details of the Project are also provided.

The report covers the period of April 2010 September 2010.

1.1.General Project Description


In 2010 Georgian Railway LLC (GR) launched Tbilisi Railway Bypass Project (the
Project) for developing a new railway route bypassing the central area of the capital Tbilisi.
The main goal of the Project is to improve the efficiency and the safety of railway operations
as well as free up over 80 hectares of land in the central area of Tbilisi, which will be
available for various urban development projects.

The current railway section running through the capital is the main route for freight on the
east west transport corridor through Georgia. The cargo mostly comprises of crude and
refined oil derivatives in transit from Azerbaijan, Kazakhstan and Turkmenistan to Black Sea
ports. Urban development surrounds a number of the rail terminals, siding and yards, many of
which are now either obsolete or derelict. The existing railway has few crossing points, and
also acts as a barrier to city development on the northern bank of the Mtkvari River and
depresses land value in its vicinity.

Against this background, the Project will not only improve the efficiency and safety of rail
operations through the relocation of the existing rail facilities outside the urban area but also
result in urban development in the freed-up territories, in line with the citys new General
Plan for Prospective Development.

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Map 1: Tbilisi

Freed up Territory

The Project comprises the construction of a 28km long double track electrified new railway
bypassing Tbilisi. It will branch off the present main line at Zahesi Station, pass through the
territories of Avchala, Gladni, and the uplands north of Tbilisi Sea and connect to the existing
Kakheti railway line near Lilo Station. From the junction point at Lilo towards Tbilisi to
Tbilisi Marshalling Station, the existing Kakheti line will be upgraded to double track on a
length of 10 km by refurbishment of the existing single track and adding a second new track.
Tbilisi Central Station will be closed and stations Didube and Navtlughi will be constructed.
Navtlughi station will serve passengers to the east direction and Didube station to the west
direction.

The existing railway infrastructure between stations Didube and Navtlugi will be dismantled.
Thus, in total, 86ha area will be freed up and be used for urban development. The latter will
be redeveloped for the following two purposes: (i) planning for redevelopment of the section
between Central and Didube Station (some 73.2ha); (ii) the section between Central Station
and Navtlughi (circa 6km long) will be used for a new urban traffic corridor. See below the
map of the Project.

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Map 2: Tbilisi Railway Bypass Project

The Government of Georgia and Tbilisi City Hall are fully supportive of the Project due to its
location, size and potential development impact on the capital city as well as on the railway
operations. It should be noted that together with the Loan Agreement (see below) to secure
financing of the project the EBRD entered into Direct Agreements with the Government of
Georgia, and Tbilisi Municipality. Those agreements underline the high importance of the
Project and reiterate full support on the part of the Government and Tbilisi Municipality. GR
is also planning to conclude a separate agreement with the Tbilisi Municipality providing for
the responsibility on the part of the latter to construct and maintain auto roads, street lights,
drainage systems, recreation parks, playgrounds and sport fields, public transport and other
infrastructure after completion of Tbilisi Railway Bypass project.

In order to secure financial resources for the realization of the Project, the GR approached the
EBRD in November 2008. Following the due diligence carried out by the Bank, a Loan
Agreement between the EBRD and the GR was signed on March 17, 2010. Pursuant to the
Agreement, the EBRD extended CHF 146,220,000 loan to be used for part-financing the
Project.

Co-financing of the Project was intended to be carried out by the European Investment Bank
(EIB). However, on July 22, 2010 GR has issued Eurobond notes. The Eurobond notes were

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issued for the principal amount of USD 250.000.000, with the maturity date July 22, 2015
that will accrue interest at the rate of 9.875% per annum from and including July 22, 2010
and will be payable semi-annually in arrears on January 22 and July 22 in each year,
commencing on January 22, 2011. For the abovementioned transaction the GR has engaged
Bank of America Merrill Lynch and J.P.Morgan as the Joint Lead Managers.

The GR was also consideringreceivingadditional finances in the amount of EUR 8.5 million
throughNeighbourhood Investment Facility(NIF).1 However,the initial funding was decreased
and currently amounts to EUR 2.5 million. These funds will be used for financing the
detailed investigation survey (land contamination study), and master plan (see below).

Against this background, the general financing scheme of the Project is as follows: the EBRD
is financing approximately 35% of the Project. The rest of finances will be provided by (i)
Euro Bond proceeds; (ii) cash-flows generated by GR internally; (iii) NIF funding.

The entire value of the Project is currently estimated at EUR 277.3 million, covering
following components of the Project:

Scope EUR million


Design and Construction 211
Land and Resettlement 11.7
Consultancy services, of which: 7.0
Supervision contract 6.2
PIU assistance 0.3
Lenders monitoring consultant 0.2
Technical consultant 0.3
NIF technical assistance, of which: 2.5
Detailed investigation survey 1.0
Master plan 1.5
Due diligence 4.8
VAT and other taxes 40
Total Financing 277.3

Note: Design and Construction contract price is 303mln CHF, which is equivalent to 211mln Euros according to
the exchange rate at the date of receiving financial proposals.

1
The Neighbourhood Investment Facility (NIF) is an innovative financial mechanism launched by the European
Union aimed at mobilizing additional funding to cover the investment needs of the Neighbouring region for
infrastructures in sectors such as Transport, Energy, the Environment and Social issues.

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2. Procurement
With the aim to assess the feasibility of the Project and ensure its successful and timely
implementation, the GR has entered into number of contracts for procurement of services, as
well as construction contract.

2.1. Contract with the Ukrainian Company KievGiproTrans on Initial Design and
Feasibility Study of the Tbilisi Railway Bypass Project

On February 9, 2009, the GR has engaged KievGiproTrans (KGT) to prepare the initial
design and feasibility study for the railway bypass. The scope of services under the
contractincluded:
Elaboration of main design decisions;
Accumulation of initial data;
Engineer-geological, topographic research;
Elaboration of the design decisions on highways options, tunnels, depots, relocation
of the stations;
Agreement of the main design decisions with the GR and the Tbilisi Municipality;
Elaboration of the Environmental and Social Action Plan (ESAP), and Resettlement
Action Plan (RAP) based on the EBRDs Environmental and Social Policy 2008.

Provision of the above-mentioned services has already been finalised, although with
considerable delays (see below). Based on the works carried out by the KievGipro Trans, the
general parameters of the Project are as follows:

The new railway line bypassing the centre of the city (New Line) starts from Tbilisi
Marshalling Station (0.948 km), utilizes existing Kakheti Line (9.022 km) up to station Lilo
(and from that point goes north above the Tbilisi reservoir and connects back to the existing
line at Zahesi Station (28.648 km). In addition to the track with supporting infrastructure,
passenger rolling stock depot and other minor facilities (signalling department administrative
building; warehouse; freight yard; diesel loco depot) will be relocated. The passenger rolling
stock depot will replace 3 existing depots (Passenger Locomotive, Passenger Wagon, and
Electric Multiple Units (EMU)).

Land plot between Didube and Navtlugi Stations will be freed up. The plot covers 86 ha of
land of which 2 ha are sidings and 10 ha is a narrow line. It is the rest of the land
(approximately 73ha) that is intended for urban re-development. Zahesi - Didube and Tbilisi
Marshalling - Navtlughi railway sections will be used for passenger operations only. There
will be no passenger operations on the bypass, except for seasonal (summer) Yerevan-Batumi
route.

The constructed New Line will be double track. Maximal slope/gradient will be 18.
Traction type will be electrical DC. Automatic block system will be installed.
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Following artificial structures are going to be constructed:

Structures New line Kakheti Line

Bridges 10 / 996.54 m 4 / 62.1 m

Tunnels 5 / 3520m -

Overhead crossings 2 / 103.65 m 3 / 115.07 m

Pipe-overhead crossings 6 / 318 m 1 / 4.18 m

Culverts 28 / 1720.01 m 2 /37.7 m

Retaining walls 3 / 640 m -

KievGiproTrans has fully provided the GR with services under the contract but with serious
delays. As a consequence, on July 28, 2009 the parties introduced an amendment to the
contract which envisaged the obligation on the part of the KievGiproTrans to submit the
Resettlement Action Plan (RAP) to the GR no later than October 20, 2009.

KievGiprotransfailed to fulfil this obligation by the deadline and provided RAP on April 29,
2010 only. As a result, the company has to pay a penalty in the amount of 0.1% of the
estimated total price of the contract for every day of delay in fulfilling the obligation pursuant
to Article 9.1 of the contract.

GR is ready to execute Letter of Acceptance (which serves as the bases for payment) for the
services duly fulfilled by KievGiproTrans, provided that this document covers the obligation
regarding payment of the abovementioned penalty. However, due to misunderstandings
between the parties Letter of Acceptance has not been executed yet.

2.2. Consultants Services Contract with DB International GmbH

On October 14, 2009, the GR concluded a contract with DB International GmbH to procure
certain consultancy services. The scope of work under the contract provided by the DB
international covered the following:
Management and Coordination of Design:
o reviewing progress achieved by each of the design consultants against the
agreed programmes, and bring any delays to the attention of GR;
o agreeing any necessary measures to be taken by the design consultants to
recover any delays;
o reviewing draft design submissions to ensure compliance with the required
design standards, suitability for construction purposes and suitability for
procurement following Open tendering procedures as prescribed in Section 3
of the Banks Procurement Polices and Rules (May 2009);

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o ensuring, to the extent practicable and reasonable, that the technical


specifications reflect details of every aspect of the Works to be constructed,
provide a specification of the material to be used and the standard of
workmanship to be achieved;
o verifying that the Designer has completed the design in accordance with the
Employers design brief;
o reviewing construction cost estimates provided by the design consultants and
recommending any design changes that could be made to reduce project
expenditures and to eliminate any unnecessary increases in construction cost.
Development of a Procurement and Contracting Strategy for the Project and Project
Procurement Plan:
o development of an appropriate procurement and contracting strategy with the
overall aim of minimising overall project implementation risks and ensuring
the successful implementation of the project in an economic and efficient
manner and in accordance with current best practice;
o Preparation of an overall project specific Procurement Plan detailing the
required sequencing of events and the critical path for the project.
Procurement and Award of Contracts for Civil Works and Construction Supervision:
o ensuring that the procurement and award of all contracts for the civil works,
goods (if applicable) and construction supervision contracts is carried out in
strict compliance with the Banks PP&Rs;
o preparing pre-qualification documents (based on the Banks standard
prequalification document) for civil works contractors that comply with the
requirements of the Banks PP&Rs and Prequalification Guidance Note;
o evaluating pre-qualification submissions made by prospective contractors and
the preparation of a comprehensive pre-qualification evaluation report;
o preparing tender documents (based on the Banks standard tender document
for works) incorporating internationally accepted contract conditions (e.g
FIDIC or similar) for the civil works and goods (if appropriate) ensuring that
the tender documents are suitable for issue and fully comply with
requirements of the Banks PP&Rs;
o arranging and holding site visits and pre-tender meetings for bidders;
o reviewing queries raised by bidders and preparing draft responses to be
distributed to all bidders. Where necessary, assist GR in preparing draft tender
addendum notices;
o evaluating of tenders submitted for the civil works and goods (if appropriate)
and preparation of draft Tender Evaluation Reports in accordance with the
Banks standard tender evaluation format;
o ensuring that the civil works contract is awarded within the period of tender
validity to the bidder(s) whose tender has been determined as being
substantially responsive and, in terms of the specific evaluation criteria set
forth in the tender documentation, is determined as the lowest evaluated and
who has been determined to be fully capable of undertaking the contract;
o preparing any necessary post-tender correspondence with bidders and holding
any subsequent pre-contract clarification meetings;
o preparing letters of acceptance and contract documents for all civil works
contracts;

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o reviewing and evaluating expressions of interest (EOI) submitted by


consultants wishing to tender for the construction supervision and preparing a
draft EOI evaluation report;
o preparing a draft terms of reference and request for proposal document for the
construction supervision assignment;
o reviewing queries raised by consultants tendering for the construction
supervision assignment and preparing draft responses to be distributed to all
bidders. Where necessary, assist GR in preparing draft tender addendum
notices;
o evaluating of proposals submitted for the construction supervision assignment
and preparing technical and financial evaluation reports;
o attending any pre-contract negotiation meeting for the construction
supervision assignment and preparing the contract document.
Expertise of the design according to the Decree of Ministry of Economic
Development of Georgia N 1-1/8232 and Decree of Government of Georgia N 573.

All the works under the abovementioned contract has been successfully finalised by the DB
International GmbH.

2.3. Contract with Professional Legal Services - BLC on Provision of Legal Services
regarding the Loan Agreement

On March 9, 2010 GR engaged Professional Legal Services (BLC) for provision of the legal
services covering:
Review of the draft of the Loan Agreement with the EBRD;
Explanation of all obligations undertaken by the GR under the Loan agreement;
Advices regarding variations and amendments to the draft contract for the benefit of
the GR;
Participation in the negotiations between GR and EBRD;
Preparation of the legal opinion needed for the disbursement of the loan proceeds.
All the services under the contract have been provided in due course.

2.4. Contract with the Dewey & LeBoeuf on Provision of the Legal Services

The GR has also engaged Dewey & Leboeuf for provision of legal advices regarding the
Loan Agreement by assisting the representatives of the GR during the negotiations held with
EBRD in London, UK.

2.5. Construction Contract with Chinese-Georgian Joint Venture of Khidmsheni JSC


and China Railway 23rd Bureau Group CO. LTD

2
Decree of the Ministry of Economic Development of Georgian N1-1/823 on Approval of the Temporary Rules
for Compulsory Expertise of the Construction Design of the Objects of High Importance (August 24, 2006).
3
Decree of the Government of Georgian N57 on the Rules of Issuance of Construction Permits and Terms of
Permissions (March 24, 2009).
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Contract Summary Terms

Employer Georgian Railway LLC


Contractor Joint Venture of China Railway 23rd Bureau Group Co. Ltd and JSC
Khidmsheni
Contract Value (in CHF)

Item Works VAT Total


Preliminaries 27,836,420 5,010,556 32,846,975
Nominated Subcontractor 67,237,429 12,102,737 79,340,166
Demolition works 12,467,218 2,244,099 14,711,317
Subgrade works 22,702,429 4,086,437 26,788,866
Bridge and culvert works 40,479,544 7,286,318 47,765,862
Tunnel works 36,195,977 6,515,276 42,711,253
Railway track bed structure 36,066,760 6,492,017 42,558,777
Water supply, sewerage, heat and
1,519,468 273,504 1,792,972
gas supply
Production and service buildings
12,714,943 2,288,690 15,003,633
and structures
Stations 4,094,643 737,036 4,831,679
Signalling, centralization and
11,670,392 2,100,671 13,771,062
blocking
Power & electric traction supply 31,001,579 5,580,284 36,581,863

Total 303,986,800 54,717,624 358,704,424

Date of Award of Contract 14 June 2010


Contract Commencement Date 8 July 2010
Contract Duration 36 months Construction Period
plus 18 months Defects Liability Period
Construction Completion Date 8 July 2013
Contract Currency CHF
Payment Currencies Works - GEL
VAT - GEL
Price Adjustment N/A
Funding Works- 47% from EBRD loan, 32% from Escrow account
(proceeds of recently issued notes) and 21% GR internally Generated
cash flows
VAT - 100% from GR internally generated cash-flows
Physical Completion: 1% complete (as of 19 October 2010)
Financial Completion: 0% complete (as of 19 October 2010)
Total Disbursement from EBRD loan 0

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On June 14, 2010, the GR has concluded a contract with the Joint Venture of Khidmsheni
JSC and China Railway 23rd Bureau Group CO. LTD (the Construction Contractor/Joint
Venture) under the standard form of contract of the FIDIC Yellow Book for the purposes of
construction of the Tbilisi Railway Bypass Project.

Under the Contract, the Joint Venture is obliged to construct the railway bypass which
includes:
Construction of the bypass railway line of the length of 38,612 km from Zahesi
Station to Tbilisi-Marshalling Station which consists of two sections:
1. New line alignment from Zahesi Station to Lilo Station with arrangement of
intermediate stations Kvirike, and Lilo-1 (New Line);
2. Reconstructed single-track line in Kakheti direction from Lilo station to
Tbilisi-Marshalling station with the newly installed second railway track
(Kakheti Line).
Construction of the following engineering facilities:
Engineering Facilities New Line Kakheti line

Bridges 10 / 996.54 m 4 / 62.1 m


Tunnels 5 / 3520 m -

Overhead crossings 2 / 103.65 m 3 / 115.07 m

Pipe-overhead crossings 6 / 318 m 1 / 4.18- m

Culverts 28 / 1720.01 m 2 /37.7 m


Retaining walls 3 / 640 m -

Relocation of infrastructure complexes, that are to be constructed under the Project to


replace the existing complexes, in accordance with the following scheme:
o Tbilsi Signalling and Interlocking Department, and Fire Emergency Train will
be relocated to Tbilisi-Junction Station;
o Locomotive Shed Complex for 3 (CHME3) Diesel Locomotives Repair,
Mainteance Support Complex, and Freight Yard Complex will be relocated to
Tbilisi Marshalling Station;
o Electric Locomotives Repair Complex, Electric Multiple Unit Train and
Passenger Cars, Coach Yard, and Track Maintenance Division will be
relocated to Avchala Station;
Construction of signalling and interlocking systems for both lines (New Line and
Kakheti Line);
Construction of power supply facilities and catenary poles;
Installation of fibre-optic cables.

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The works under the contract should be completed within 36 months. The contract price to be
received by the Joint Venture amounts to CHF 303 986 800 excluding VAT. Advance
payment amounts 20 % of the contract price; 10% of the contract price shall be transferred by
beginning of October, 2010. Two instalments in the amount of 5 % of the contract price shall
be paid respectively upon substantial design completion of the tunnels, and substantial design
completion of the bridges. The rest of the payment shall be made based on interim payments
(minimum amount CHF 700 000) in accordance with the works completed.

2.6. Contract for Consultants Services with ILF Beratende Ingenieure ZT GmbH
(ILF) and Grauff Rail Engineering GmbH & Co. KG (GRE)

Contract Summary Terms

Employer Georgian Railway LLC


Contractor ILF Beratende Ingenieure ZT GmbH (ILF) and Gauff Rail
Engineering GmbH & Co. KG (GRE)
Contract Value Services - 6 207 917,10 EURO
VAT- (18%)1,117,425.08 EURO
Total-7,325,342.18 EURO
Date of Award of Contract 01 June 2010
Contract Commencement Date July 2010
Contract Duration 54 months
Contract Completion Date January 2015
Contract Currency EUR
Payment Currencies EUR
Price Adjustment N/A
Funding From proceeds of recently issued notes and GR internally Generated
cash flows
Physical Completion: ~8% complete (as of 19 October 2010)
Financial Completion: 0% complete (as of 19 October 2010)
Total Disbursement from EBRD loan 0

On July 1, 2006, the GR concluded a contract with ILF Beratende Ingenieure ZT GmbH
(ILF) and Grauff Rail Engineering GmbH & Co. KG (GRE). Scope of the ILFs work under
the Contract includes but is not limited to the following:
Supervision of works, which includes:
o Carry out the duties of the Engineer4 as required by the relevant clauses of
FIDIC Conditions of Contract for Plant and Design-Build and the Particular
Conditions as agreed under the Main Works contract;

4
The terms Engineer and Supervisor are used interchangeably in this report.
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o Regularly visit works in progress to observe the Construction Contractors


work in progress for conformity with quality standards, safety construction
manner and good installation practices;
o Inspect and accurately record the progress of the works Co-ordinate and
monitor the work progress and cash flow forecasts in relation to the planned
schedules;
o Determine the value of approved and accepted work and materials for interim
and final payment in accordance with the method described in the works
contracts;
o Maintain an up-to-date financial record of all payments and projected costs
and include in monthly, quarterly and final reports and in other appropriate
reports;
o Furnish timely assistance and direction to the Construction Contractor in all
matters regarding interpretation of the contract documents, ground survey
control, quality control, testing and other matters related to contractual
compliance;
o Inform the Employer via the Engineer of any problems or potential problems
which may arise in connection with the construction contract and providing
recommendations on possible solutions;
o Witness and approve regular tests of materials and of completed works, and
order additional tests if required;
o Order the removal of improper or substandard work with prior the Employer
agreement;
o Assist in preparation of completion and handing over certificates, defects
liability certificate and acceptance certificates in accordance with the
conditions of contract;
o Arrange for and participate in regular site meetings;
o Check that performance of the works comply with the environmental
protection requirements;
o Ensure that the Construction Contractors insurance and Performance
Securities remain adequate to cover the liabilities at all stages for the
completion of the Project and inform the Employer via the Engineer
accordingly;
o Ensuring that quality management procedures are undertaken effectively;
o Daily recording of work site events in a work site logbook;
o During testing and commissioning review the Construction Contractors test
procedures and interpret the results for acceptability or otherwise;
o Inspect the works during the defects notification period when requested by the
Employer;
Approval of Construction Contractor's Documents;
Submission of the Engineer's Work Programme Report;
Submission of Monthly Progress and Final Reports.

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2.7. Contract with Geographic LLC on Land Acquisition and Resettlement Services

Contract Summary Terms

Employer Georgian Railway LLC


Contractor Geographic LLC
Contract Value Services 377 638 CHF
VAT (18%)67 974.84 CHF
Total 445612.84 CHF
Date of Award of Contract June 23, 2010
Contract Commencement Date June 2010
Contract Duration 6 months
Contract Completion Date 1 December 2010
Contract Currency CHF
Payment Currencies GEL
Price Adjustment N/A
Funding 100% From Railway Funds
Physical Completion: 7.3%.
Financial Completion: 65.0%
Total Disbursement from EBRD loan 0

On June 23, 2010, the GR has engaged Geographic LLC to provide services that includes,
but is not limited to:
Examination of the legal basis of the ownership of the land plots affected by project;
Ensure purchase of private land plots affected by the Project (see above the Future
Railway Land);
Preparation of purchase contracts and registration of the respective land plots in
NAPR under the name of GR;
Ensure proper administration of expropriation procedures in full accordance with the
applicable laws and regulations;
Cooperation with the NAPR for the correction of geometric data of the affected land
plots and proper registration;
Submission of weekly and monthly reports.
Geographic LLC has been fully discharging its obligations under the contract.

2.8. Contract with Begiashvili & co. limited

EBRD has engaged Georgian Law Office Begiashvili & co. Limited for carrying out due
diligence of the GR. Price of the contract is to be covered by the GR.

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2.9. Contract with Booz & Co.

Within its due diligence process, the EBRD has engaged world leading consulting company
Booz & Co to assist the GR in project preparation. The price of the contract was covered by
the GR. The scope of work covered four main tasks:
1. Traffic Forecast;
2. Assessment of benefits and disadvantages from the investment (Project);
3. Prepare a Financial Model of the GR;
4. Asses Restructuring progress and potential for further improvements.

The works under contract have been fully completed.

2.10. Locum Consulting & Colliers CRE

Locum Consulting & Colliers CRE has been contracted by the EBRD to assist the bank in
carrying out due diligence of the GR. The component parts of this study were defined as
follows:
Market research and analysis;
Land valuation;
Financial appraisal, including a flexible model that can test different scenarios and
sensitivity to key variables;
International best practice for similar type of land developments;
Vision and development strategy;
Delivery and Procurement (project brief)

Locum Consulting & Colliers CRE has fully completed the works under the contract.

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3. Project Implementation Progress

During the reporting period, the progress in actual implementation of the Project has been
related mainly to the arrangement of proper legal and financial framework for the activities of
the Construction Contractor, finalization of design works, handing over of construction sites,
assessment/approval of the work plan of the Construction Contractor, land acquisition and
resettlement process, reconstruction/development of Didube and Navtlughi stations.

3.1.Handover of Construction Sites


The construction site of the project is divided into four sections. Handover of the respective
parts to the Construction Contractor is to be carried in four phases in accordance with the
following plan:

Handover phases Section of the site

1st phase Kakheti railroad, including Tbilisi Marshalling Station and Tbilisi
Junction area;
2nd phase Existing Lilo Railway Station to tunnel #3 (included), 129+35 141+35,
and from projected Lilo I Railway Station to projected Kvirike Railway
Station;
3rd phase Tunnel #3 to Zahesi Railway Station (included), on Tunnels #1 and #2,
Avchala Railway Station and on other sites (except Didube station);

4th phase
Didube Passenger Station building ;

The GR handed over the first section of the site to the Construction Contractor on August 5,
2010 under the Handover Protocol-Phase 1. The second section of the site was handed over
on August 30, 2010. Handover of the third section of the site will take place after 6 months
from the date of the conclusion of Construction Contract. The whole process will be
concluded after two years from the date of the conclusion of Construction Contract by
handover of the fourth section of the site.

3.2. Construction Works


On September 22, 2010, the Construction Contractor submitted detail design for section
PK54-PK67 (1.3 km) of the existing Kakheti line. The Engineer has not approved the detail
design due to its non-compliance with respective standards. However, the Engineer issued
restricted approval for the beginning of preparatory works. Accordingly, on September 29,
2010, the Construction Contractor started the works on the construction of access roads to the
construction site and relocation of existing electric poles.

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3.3. Work Plan


The Construction Contractor has presented construction Work Plan to the Supervisor. After
an examination, the document was considered to be incomplete due to the absence of bar-
chart and estimated cash-flows and other components required by the Contract. As a result,
the Supervisor has returned it to the Construction Contractor together with necessary
guidelines and instructions for its completion. According to the Construction Contractor, the
new version of the Work Plan is to be submitted to the Supervisor by October 25, 2010. Upon
its approval by the Supervisor it will be submitted to the GR.

3.4. Advance Payment Guarantee


GR has received Advance Payment Guarantee under the Construction Contract issued by the
HSBC Bank (China) Company Limited, Chengdu Branch. The Guarantee has been reviewed
together with the Supervisor and after several comments and amendments the GR received
the final version of the document on September 27, 2010. The respective payment will be
made by the beginning of November 2010.

3.5. Insurance Policies


The Construction Contractor has presented the Insurance Policies issued by the Georgian
insurance company GPI Holding, elaborated in accordance with the requirements under the
Loan Agreement. The Policies are under examination of the Supervisor and will be submitted
to the EBRD by November 12, 2010.

3.6. Land Acquisition and Resettlement


The future railway land comprised of 358 non-private land plots and 886 private land plots.
Out of 358 non-private land plots, 341 were state-owned land plots and 17 land plots were the
property the Tbilisi Municipality.

To date of this report, all 341 state owned land plots have already been registered in the
National Agency of Public Registry (NAPR) as the property of the GR.As a result of active
support from governmental agencies (Ministry of Economy and Sustainable Development;
Ministry of Environment and Natural Resources; Ministry of Justice) status of 17 state owned
land plots has been changed from agricultural to non-Agricultural. The change was carried
out due to applicable Georgian legislation, which prohibits construction works on the land
plots with agricultural status. The change of the status was made free of charge and as a result
of this assistance, the GR spared approximately GEL 60 000 of additional expenditures. Find
the list of all the state owned land plots in the Appendix A that are already under the
ownership of the GR.

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As for the land plots owned by the Tbilisi Municipality, the latter has already waived its
property rights on the mentioned 17 land plots. Accordingly, the registration of 17 land plots
on the name of the GR is to be completed by November 15, 2010.

As regards the private land plots, the GR has already purchased 66 out of 886 land plots
through Geographic LLC. See the details of the purchase agreements executed by the GR in
the Appendix B.In the course of the coming months (October, November, December), the GR
plans to conduct intense negotiations with the remaining private land plot owners through
Geographic LLC and finalize land purchase agreements with them by the end of 2010.

3.7. ESAP Implementation


Pursuant to Section 5.03 of the Loan agreement the GR has to implement and adhere to the
Environmental and Social Action Plan (ESAP) in order to ensure environmental and social
compliance in accordance with the respective requirements of the EBRD and Georgian
legislation. The ESAP was elaborated in response to the conclusions of the Environmental
and Social Impact Assessment (ESIA) and provides for mitigation and performance
improvement measures and actions that address the identified social and environmental issues
and impacts. The findings and requirements of ESIA and ESAP were incorporated into
requirements for design, construction, operation and maintenance of the railway bypass. As a
result the Initial Design and Resettlement Action Plan (RAP) were prepared by the
KievGiproTrans based on the above requirements. During the tender proceedings for
resettlement services and construction works, ESIA and ESAP were included in the tender
documents. As a result, the documents represent integral parts of the contracts respectively
with the Geographic LLC and the Joint Venture (Construction Contractor). Accordingly, both
contractors have to carry out their activities in full compliance with the mentioned
documents.

At this early stage of project implementation, the activities carried out under ESAP relate
mainly to preconstruction phase. These include the issues of staffing; obtaining of relevant
permits; elaboration of water protection; resettlement and compensation process; stakeholder
engagement.

Staffing: The GR has established the Project Implementation Unit (PIU) in order to ensure
timely and effective implementation of the Project. Currently, the PIU is working actively to
establish a management system responsible for environmental, social, health and safety
issues. The system should cover the components of ESAP implementation, training/informing
of the GR personnel, managing of contractors, monitoring and review of performance, and
reporting. In this regard, the GR is considering to procure the above-mentioned services as
part of the PIU assistance.

Permitting and Regulatory Compliance: On September 24, 2009, the GR has applied to the
Ministry of Economic Development of Georgia and provided the main information on the
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Project (including main design solutions, routs of the rail tracks, plans regarding allocation of
the existing railway infrastructure) as well as stated its high importance and complexity. The
main objective of this letter was to request assistance from the Government of Georgia in the
process of obtaining all necessary permits for the construction works of the Project. The
Government responded positively to the request and has been fully supportive throughout the
process. As a part of this assistance, an amendment was introduced the Decree No.57 of the
Government of Georgia on the Rule for the Issuance of Construction Permit and Terms of
Permits (March 24, 2009) on December15, 2009. The goal of the amendment was to
accelerate the process of issuance of construction permit and it provided for issuance of
specific permits without prior submission of property documentation. 5

On April 22, 2010, the Ministry of Environmental Protection and Natural Resources issued a
Report on Ecological Expertise of the Project based on applicable Georgian laws and
regulation. The abovementioned Ecological Expertise was issued considering following
preconditions:
1. According to the strategy described in the ESIA report, Georgian Railway LLC shall
ensure elaboration of additional engineering solutions for the surface (Gldani Great
lake, Upper Samgori magistral channel) and soil waters (Gldani Great lake territory,
Ex-Varketili agricultural territory, soil waters of not deep circulation), on the basis of
which the railway bypass shall be constructed and the abovementioned waters
protected from the possible pollution during the exploitation phase. For the Territories
of Gldani Lake, the water surface indicator shall be taken into account. The protective
measures shall additionally be referred for approval to the National Environmental
agency at the Ministry of Environment Protection and Natural Resources of Georgia.
2. Georgian Railway LLC shall not permit the polluted waters to stream east from the
Tbilisi Sea (to the river Ghrmaghevi).
3. Georgian Railway LLC shall submit the design solutions for the areas between
existing railway line and projected railway line (PK 0+06-PK 36+60) and Gldanula
district (PK 50+69) to the National Environmental agency at the Ministry of
Environment Protection and Natural Resources of Georgia.
4. Georgian Railway LLC shall protect population from the noise and vibration in
accordance to the applicable normative act (SN 2.2.4/2.1.8.000-00 on defining
qualitative norms of environment) and softening measures defined under the ESIA
report (chapter 6.1.8 - softening measures during the exploitation period)

5
The amendment introduced 53.41 to the Decree:
Object of class 5 representing the buildings and complexes of high state and social importance financed by
international financial and other investment companies, according to the decision of the Ministry of Economic
Development may be provided with the construction permit on land plots without submitting documents
evidencing property rights or rights of use of the land plots to the authority entitled to issue construction permit.
In this case, the terms of construction permit shall define the deadline for submission of the abovementioned
documents, which is the precondition for the start of construction works.

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5. In order to maintain the national safety and ecological equilibrium in the country and
minimize the risks of spread the infectious diseases harmful both for human beings
and cattle as a result of anthropological effect on the natural-territorial complexes in
collaboration with the LEPL Agrarian Radiology and Ecology Institute at the
Ministry of Education and Science of Georgia the management of Georgian Railway
LLC shall ensure carrying out of the landscape-epizootological-ecological monitoring
before the start of construction on Railway line and in case of need, take relevant
preventative measures. If the railway line runs through cattle graves the management
of the Georgian Railway LLC shall ensure variation of line direction and undertake
relevant procedures defined by the legislation;
6. Georgian Railway LLC shall ensure elaboration of optimal plans for the waste
management in the frame of the Railway Bypass project construction and refer it for
approval to the Ministry of Environment Protection and Natural Resources. The
abovementioned plans shall consider safe management of waste created during the
railway construction works, exploitation, as well as dismantling of the existing
railway infrastructure;
7. Before the start of the bypass project construction works, the amount and species of
the plants on the affected territory, especially on the crossings of the railway line and
construction sites on the territory of the Tbilisi National park shall be defined. The
populations and species of bats on the territory of the Tbilisi National Park as well as
place and number of the shelters to be arranged for them shall be defined. The amount
of effected soil shall be determined in order to assess the negative effect on the Tbilisi
National Park. Considering all the above mentioned specific compensation events
shall be elaborated and submitted for approval to the LEPL Agency of Protected
Territories.
8. It is necessary to define the species and number of trees for the greening noise
protection line to be created on the territory of the Tbilisi National Park and area of
the greening line; also the compensation events for the impairments to the Tbilisi
National Park shall be defined precisely.
9. In order to protect the territories from oil and oil product pollution, the concrete
culvert and reservoirs of appropriate size shall be installed.
10. Ensure separation of the areas from the wood-agricultural fund, subordination to the
Wood Department (including providing certain categorization to the plants, or
removing them from the fund), and cutting wood in full accordance with the
legislation.
11. Before the start of Tbilisi bypass construction works, in order to maintain
biodiversity, the species of the flora listed in the Red Book and the quantity of the
species to be cut down, as well as species of fauna listed in the red book, the types and
scales of effect on them shall be defined, and on the basis of the research data precise
softening and preventative activities shall be elaborated. In case of need compensation
events shall be defined.

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12. Detail designs of the projected railway lines that will cross 31 gorges and rivers as
well as crossing types and relevant coast protecting works and the activities on
preventing activation of dangerous geological processes defined by the detail design
shall be submitted for approval to the National Environmental Agency at the Ministry
of Environment Protection and Natural Resources. It shall also cover the issue of
pollution of the surface water objects, in terms of possible effect on the biodiversity of
water, and the actions shall include plating mountain channels on the upper side of the
railway line with concrete in order to prevent avalanche.
13. Temporary construction camps shall be constructed in accordance with environmental
requirements. After finishing construction works and liquidation of camps the camp
territories should be brought back to their previous conditions.
14. During the exploitation of the Tbilisi Railway Bypass the stationary objects of air
pollution associated with its functioning (locomotive depot, technical stations of
passenger wagon, etc.) shall be provided with air protection documentation defined by
the legislation.
15. Before the start of construction works on the railway line, the design documentation
on artificial passages to be arranged for domestic and wild animals (considering their
migration paths) should be processed and agreed with the Ministry of Environmental
Protection and Natural Resources.
16. Prior to start of the construction works the management of the Georgian Railway LLC
shall process and submit an environmental protection management plan for additional
consideration to the ministry. The plan shall integrate ground removal, transportation
and keeping plans according to ESIA, plans for prevention of erosion and ground
restoration over the whole construction site and separately for Tbilisi National Park,
different plans for issues regarding flora and fauna. The risks reports (the plan on
how to react on dangerous situations) shall be processed and agreed with the ministry
of Environmental Protection and Natural Resources where, among other questions,
the effects on biodiversity, especially water biodiversity shall be considered, together
with other scenarios considering different incidents and other dangerous situations.
17. On the rivers and gorges, the 1% provision of water cost shall be strictly
maintained on the areas which are crossed by the railway line.
18. The construction work around Tbilisi should be implemented under the
supervision of the representative of the Georgian Water and Power Company.
Georgian Railway LLC and Georgian Water and Power Company shall carry out
constant monitoring on the water quality of Tbilisi reservoir. At the end of each
year the results of the monitoring shall be submitted to the Environmental
Protection Inspection of the Ministry of Environmental Protection and Natural
Resources.
19. The activities needed for the arrangement of the infrastructure necessary for the
operation of the railway line that are governed by the article 4 of the Georgian

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Law on Permits on the Environmental Effect requires permit on the


environmental effect.

Based on the above-mentioned Report, the Ministry of Economic Development of Georgian


issued a conditional construction permit for the Project. The construction permit was issued
with the following terms:
Construction shall be carried out subject to obtaining property rights on the
construction site by the Georgian Railway LLC;
Cadastre plan and the extract from the National Agency of Public Registry shall be
submitted to the Ministry of Economic and Sustainable development;
Detail design for the relevant construction areas shall be submitted to the Ministry of
the Economic and Sustainable Development prior to the start of construction works on
the relevant construction area.

Throughout the reporting period, the GR and the Construction Contractor have been working
actively in order to ensure compliance with all the terms and requirements of the construction
permit in due course.

Water Protection: A significant section of the Tbilisi Bypass Railway line runs round the
Tbilisi Reservoir (Tbilisi Sea) from the north-east.6 According to the ESIA, the Tbilisi Sea
section is the most sensitive section for the Tbilisi Railway Bypass, since this section of the
railway bypass is located within the Tbilisi Sea water catchment area and oil spilled on its
slopes will definitely reach the water reservoir. The most sensitive in this respect is the
Kvirikobiskhvi river, where in case of spill (even in case of maximal water discharge
occurring once in 10 years) the oil will reach the water reservoir in 40 minutes, and the
chemical substances will be diluted in water in 50 minutes. In light of the above-mentioned,
the ESAP protection measures in this regard, are incorporated into requirements for design,
construction, operation and maintenance of the railway bypass.

Against this background, the following initial design solutions have been developed:

The railway line on this section will run through the tunnel (section pk129 pk141, L=1200
m), it will cross the Kvirikobiskhevi, and from there, the major part of the section will be
located in the trench (pk143-pk180). Location of line in the trench will make the movement
of trains invisible from the side of the Tbilisi Sea and thus protect the reservoir from pollution
and noise. In addition, trees will be planted along both sides of the trench. In order to prevent
leakage of oils or other harmful substances spilled on the surface of the Tbilisi Sea, the trench

6
At this section the planned railway bypass passes through the II zone of sanitary protection of the Tbilisi
Water Reservoir the boundaries of which are defined by the Decree of the Minster of Labour, Health and Social
Affairs (Decree No. 297/N dated August 16, 2001 of the Minster of Labour, Health and Social Affairs on
Approval of Standards of Environmental Quality).

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will be equipped with oil collecting concrete culvert. The location of the railway line ensures
that in case of oil spills, the oil will flow through the culvert in the direction of River
Khevdzmara gorge and River Lochini gorge that do not reach the Tbilisi Sea. The reservoirs
collecting oil will be installed on both sides of the trench.

The most sensitive area of the section, that is, Kvirikobiskhevi will be protected by the
special engineering facility. It has been decided to let the flow of the river Kvirikobiskhevi
through a tunnel built under the railway bridge to prevent penetration of accidentally spilled
oil products into the Tbilisi Sea. The carrying capacity of the tunnel as well as the structure of
the railway tunnel has been determined considering the maximal flow (86.0 m3/sec of
Kvirikobiskhevi of 0.333% occurrence (once in 300 years). The same protective facilities will
be used in case of all small rivers flowing into the Tbilisi Sea.

All the above-mentioned measures are subject to further specification during the detail design
phase.

The GR is working on the development of Emergency Response Plan.

Noise Protection: In certain areas Tbilisi Railway Bypass line runs through the settlement
where the permitted noise level according to the initial calculations may exceed allowable
levels of noise. On the basis of initial data it has been defined that noise level will exceed the
allowable standard in the Avchala and Zahesi sections. The initial design defined the noise
barrier as well as greenery line as the noise absorption facilities for the abovementioned
sections:
Noise barrier- PK12-14 (206m on the right side); PK20-27 (700m on both sides);
PK27-32 (428m on the right side); PK32-36 (43m on the left side); PK48+20 PK51
(175m+33m on both sides).
Greenery line - PK63-PK70; PK63-PK70;PPK79-PK87;PPK91-PK94;PPK96-
PK97;PPK102-PK104;PPK109-PK118;PPK122-PK124;PPK125-PK130;PPK143-
PK189; Pk190-Pk192; Pk193-Pk195; Pk197-Pk203; Pk205-Pk209; Pk213-Pk216;
Pk224-Pk228; Pk234-Pk238; Pk244-Pk247;

Resettlement and compensation: The GR has prepared the RAP ensuring compliance with
Georgian legislation and the requirements of EBRDs Environmental and Social Policy
(Performance Requirement 5). The resettlement and compensation process, which is managed
by the Geographic LLC, is being carried out in full accordance with the RAP. All land
acquisition agreements are being documented in the appropriate form.

Stakeholder engagement: The GR has implemented stakeholder consultation and


engagement process within the framework of the Project based on the requirements of the
EBRD and Georgian legislation in terms of disclosure of project related information and
public consultation.

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In this regard and as a part of the preparatory process, meetings and consultation were held
with the high-level stakeholders, NGO and scientific communities, relevant state agencies
and municipalities, Georgian patriarchate, companies connected to the railway system via the
rail sidings.

In terms of disclosure of information, the Project received wide media coverage through radio
and television. To ensure broad public outreach about the project, GR installed the hot line
and Comments & Suggestions boxes in concerned Municipalities and the Georgian Railway
Administrative office, prepared a leaflet of the Project for public information that were placed
next to the Comments & Suggestions boxes. GR also prepared a Public Social Advertisement
(PSA) about the Project. In addition, Georgian Railway maintains a hot line through which
stakeholders could raise their concerns. All incoming calls are registered and taped.

As regards the engagement with the affected population, at stage the Environment Impact
Assessment the consultants have had information meetings and consultations with the active
groups of the population. They have been provided with the information about the project
(about the availability of a Project Brochure, Comments & Suggestions Boxes) and the
opportunity to express their views/comments. Since the start of the land acquisition and
resettlement activities, the engagement process with the population is carried out by jointly
by the Geographic LLC and the GR. The specific data on the affected population has been
identified and analyzed and the activities are carried out accordingly. These include, the
meetings and consultations with the affected population, their representatives and the NGOs
protecting their interest. The GR has appointed one of its employees who is responsible for
answering the questions of the affected population, sharing of information about the project
and receiving claims/suggestion concerning the land acquisition and resettlement. The claims
are transferred to the PIU and it hold special meetings to react upon them.

As regards the Geographic LLC (Consultant) proper grievance mechanism has been
established in order to receive claims from the affected persons and provide reasonable
feedback in a timely manner through effective communication channels (hotline, grievance
post box in an affected community and GR office). The grievance mechanism shall be active
through the entire land acquisition and railway construction period. However, the Consultant
will be responsible for the administration of grievance mechanism only for the period of the
contract with the GR, (before December 1, 2010). After that date, the GR will take
responsibility for the overall management and administration of grievances.

The Consultant operates a hotline service for the collection of grievances and complaints
related to the Tbilisi Bypass Railway project issues. The hotline is free of charge for the
callers and operates from 10:00 hrs to 18:00. Hotline operator is hired to log grievances into
custom-made database software, which includes grievance categorization, progress status,
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Tbilisi Railway Bypass Project Progress Report

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description of case, contact details of a complainant and proposed action list. Grievances
logged through the hotline will be forwarded to the PIU, that will respond within 5 workdays
after receiving a complaint. The GR is obliged to provide substantiated written reply to the
grievances to the Consultant, within 10 workdays after the receipt. Once the reply is received
from the GR, the Consultant will contact the complainant and provide information about the
solution of the claim. The GR is responsible to close out the grievance and report to the
Consultant about specific action(s) taken to resolve the problem.

The Consultant has also installed grievance post boxes in the project affected community
municipalities in order to enable people to report project-related claims. Grievance boxes are
checked once a week to collect complaints, log them into the grievance database and submit
email notification to the PIU for further action within 5 workdays after receiving a complaint.
The Consultant will also use the project post box installed in the GR office for collection of
complaints and GR shall provide access to the contents of the box to retrieve grievances on
weekly basis. The GR will be responsible to provide substantiated reply to the grievances,
within 10 workdays after the receipt in a written form, to the Consultant. Once the reply is
received from the GR, the Consultant will contact the complainant and provide information
about the solution of the claim. The GR is responsible to close out the grievance and report to
the Consultant about specific action(s) taken to resolve the problem.

Project affected population are being notified about the grievance mechanism through brief
fliers distributed through project-affected municipalities, as well as special posters displayed
at the municipalities and the GR central office. Moreover, an announcement about the Tbilisi
Bypass Railway projects grievance mechanism will be placed in several central newspapers
to inform project-affected persons about the grievance procedures and raise overall awareness
of the public on available recourse mechanism.

All the above-mentioned ensures that there is a meaningful engagement process through
which the GR discloses appropriate information regarding the project, carries out
consultations with the affected population, and there is a procedure for making comments and
complaints.

3.8. Tbilisi Railway Bypass Project LLC


On August 25, 2010, the Joint Venture established a new legal entity Tbilisi Railway Bypass
Project LLC. The reason for the establishment of the new entity was the applicable Georgian
legislation Law of Georgia on Entrepreneurs - that defines six forms of incorporation of
legal persons. 7Georgian law does not envisage Joint Venture as a legal form. As a

7
Article 2.1. Law of Georgia on Entrepreneurs.
GR | 31
Tbilisi Railway Bypass Project Progress Report

September 2010

consequence, Georgian commercial banks were deprived of the possibility to open a bank
account under the name of the Joint Venture and carry out the respective financial
transactions, since this can only be done with respect to entities incorporated under Georgian
legislation. In order to solve the problem, the GR held intensive consultations with the
Supervisor, NAPR and the Ministry of Finance of Georgia. Based on these discussions, it was
decided to create a Tbilisi Railway Bypass Project LLC. The entity will be responsible solely
for receiving Project related financial amounts on behalf of the Joint Venture.

3.9. Reconstruction/Development of East (Navtlughi) and West (Didube) Stations


One of the components of the Tbilisi Bypass Project is to convert the present through-
passanger stations Didube and Navtlughi to terminal stations (Navtlughi Station will serve for
eastern and Didube Station for western directions). The works to be undertaken involve the
reconstruction/rehabilitation of the existing station buildings and redevelopment of the
adjacent area. Considering the abovementioned, GR made decision to develop these two
stations together with private sector and therefore approached Capital Property LLC to act as
a developer and operator of the project consisting of two sites:
East Navtlughi Station: the property is 10,245sqm land plot with rectangular shape.
Historically this property was Navtlughi railway station that was demolished several
years ago and was prepared for the development of the shopping centre.
West Didube Station: the property is 14.500sqm land plot with irregular shape. On the
property Didube railway station is still functioning.

On September 3, 2010 GR and Capital Property LLC has entered into 49 year lease
agreement envisaging obligations of the Capital Property to develop the abovementioned two
stations. Under the agreement, the Capital Property LLC is to reconstruct and develop two
passenger stations in accordance. Additionally, the Capital Property LCC will develop first
modern grocery markets with good parking ratio on both locations. Construction works
should be finalized within three years after the date of the agreement. The lease payment
under the contract amounts to USD 300 000 (with three year grace period).

Based on the assessment of the landscape and land plots in Didube West (land plot of 15.400
sqm) and Navtlughi East (land plot of 10245), the Capital Property plans to develop
passenger stations on both sites and with retail building only on Navtlughi station (first phase
of the project). After railway tracks are relocated from Didube West in three years, the retail
building will be developed on as a second phase. The cost of the first phase of the project
amounts to USD 6 mln and the costs of the second phase to circa USD 1.5 million.

In terms of financing of the project, the Capital Property LLC plans to fund the first phase of
the project (USD 6 million) with 50% equity and 50% debt. It is estimated that to develop
second phase of the project, additional USD 1.5 2.0 million equity will be needed. On the
equity side for the first phase of the project, two leading Georgian financial institutions, TBC
Bank JSC and IC Group LLC (Insurance Company) have already signed up for USD 770 000
GR | 32
Tbilisi Railway Bypass Project Progress Report

September 2010

both, leaving USD 2.23 million to be raised. See below equity investment Schedule:

Equity Investor Amount %shares


TBC Bank JSC $480 000 16%
IC Group JSC $290 000 10%
Already Subscribed Equity $770 000
Remaining for Subscription $2 230 000 74%
Total Equity $3 000 000 100%

Equity investment by the TBC Bank JSC and IC Group JSC shall be made according to the
following schedule:

TBC Bank JSC IC Group JSC


Amount date status amount date status
$40 000 September 18, 2010 Fulfilled $60 000 September 18, 2010 Fulfilled
$135 September 3, 2011 - $220 000 September 3, 2011 -
000
$115 September 3, 2012 - $199 493 September 3, 2012 -
562
Total $290 562 Total $479 493

As for the debt, the Capital Property LLC intends to approach IFIs to sign long term loan
agreement for the USD 3 million. The involvement of the EBRD in Tbilisi Bypass Project
and the experience of the Capital Property make it realistic to achieve raising funds from the
above-mentioned banks. Preliminary negotiations with the EBRD have already been
conducted and the Bank has shown strong interest to provide debt to the project. The Capital
Property LLC plans to approach other banks as well. See below the following anticipated
financial terms for the debts:

Amount: $3 000 000


LTV: 50%
Margin: 8.0% over 3month LIBOR
Maturity: 7 years
- Interest only 2-3 years
- Principal amortization 4-5 years

Fees:
- Arrangement 2% of loan amount
- Non Utilization 1% of not utilized loan amount
- Monitoring $5 000 per annum

Fundraising procedures are supposed to be finalized by March 2011.

Below is the schedule providing detailed information about uses of financial sources acquired
through equity as well as debts for the East/West stations development:
GR | 33
Tbilisi Railway Bypass Project Progress Report

September 2010

Uses Sources
Land $0 0% Equity:
Acquisition
Predevelopment $100 000 2% Existing 770,000 13%
Development $4 568 718 76% To be raised $2 230 000 37%
Opex $100 000 2% Total Equity $3 000 000 50%
Working $222 674 4%
Capital
Financing Costs $225 000 4% Total Debt $3 000 000 50%
VAT $783 608 13%
Total Uses $6 000 000 100% Total Sources $6 000 000 100%

Find the detailed financial assumptions of the Capital Property LLC, as well as Development
pro-forma in the Appendix C.

As for the second phase of the project, the terms of the subscription of the new equity will be
determined in 3-4 years, when first phase of the project will be completed with potentially
increased value of the company.

Based on the respective studies, the project shows strong economic viability. This is due to
attractive location of both sites; strong market fundamentals supporting grocery market
development coupled with Tbilisi Municipalitys recently implemented rule prohibiting street
grocery trading; medium-size project with multiple exit strategies; competitive rental rate;
and experienced team. Financial model of the project estimates levered IRR of circa 28% and
NPV of circa USD 2.35 million with discount rate of 18%.

As of the date of this report in the frame of the East/West Stations development project
following progress has been achieved:
On September 3, 2010 Lease agreement has been signed, notarized and registered in
the public registry;
Concept of the development and accordingly concept design drafts have been created
in order to facilitate gross and net area calculation for the financial model;
Development team has been identified and terms have been agreed.

4. Three Months Look Ahead

4.1. Immovable Mortgage over the Existing Railway Land


According to the Section 4.01 (a) (1) (iv) of the Loan Agreement the GR is obliged to grant
the EBRD with a first ranking mortgage over the Existing Railway Land (73ha). Below is the
GR | 34
Tbilisi Railway Bypass Project Progress Report

September 2010

detailed information regarding the Existing Railway Land according to the schedule of the
NAPR:

# Zone Sector Quartal Plot / Full Code Previous # Space Owner


# (m2)

1 01 12 12 011 023 01.12.12.011/023 11 3,606 GR

2 01 12 12 001 098 01.12.12.001/098 1 1,062 GR

3 01 12 12 011 021 01.12.12.011/021 11 22,893 GR

4 01 13 06 002 025 01.13.06.002/025 02.020;01.13.06.002.02 336,622 GR


0

5 01 16 01 005 063 01.16.01.005/063 01.16.01.005.061 208,811 GR

6 01 12 12 011 035 01.12.12.011/035 11.012;01.12.12.011. 104,506 GR


012

7 01 12 12 011 037 01.12.12.011/037 11 6,747 GR

8 01 12 12 011 019 01.12.12.011/019 11 23,526 GR

9 01 13 06 002 014 01.13.06.002/014 2/8;01.13.06.002.008 205 GR

1 01 12 12 011 022 01.12.12.011/022 11 8,747 GR


0

1 01 16 01 005 065 01.16.01.005/065 01.16.01.005.061 10,193 GR *


1

The GR and the EBRD have been working on drafting of the Immovable Mortgage
Agreement. The draft Agreement is to be finalised in the nearest future and upon its
conclusion, the GR shall lay mortgage over the above-listed land plots accordingly.

4.2. Future Railway Land8

Future Railway Land consists of 886 private land plots and 358 state owned land plots.
4.2.1. State owned land plots
GR works intensively in order to finalise registration of the state non-private plots under the
name of the GR (see above). The process is to be completed by November 15, 2010.
4.2.2. Private land plots

8
Future Railway Land as defined by the Loan Agreement means the land to be acquired by the GR for the
implementation of the Project.
GR | 35
Tbilisi Railway Bypass Project Progress Report

September 2010

In the course of the coming three months (October, November, December), the GR plans to
conduct intense negotiations with the remaining private land plot owners (see above Land
Acquisition and Resettlement) through Geographic LLC and finalize land purchase
agreements with them.

In accordance with Georgian legislation and based on the contract with Geographic LLC, the
GR has set up the following procedure for the acquisition and compensation of private land
plots:
Correction and update of the NAPR data on private land plots affected by the Project;
Valuation of the real estate and income loss;
Preparation and distribution of compensation offers that include the following
documents:
o Compensation offer letter;
o Compensation offer receipt-delivery act;
o Compensation acceptance act;
o Calculation of compensation act;
o Compensation offer refusal act (in case of negative outcome of negotiations).
Note: The landowners will have up to two weeks to make a decision on the acceptance or
refusal of the offer.
Negotiation meetings:
o Real estate acquisition through compensation payment:
After an affected owner/user of land agrees to the amount of compensation, a
specific document will be signed by both parties - the Consultant (Geographic
LLC) and the owner/user, to enable the Consultant to proceed with the land
acquisition. The Consultant has to ensure that the landowner signs a
compensation offer receipt-delivery act and an acceptance form, providing
detailed information on the compensation and affected property;
o Real estate Acquisition through alternative property:
In case the landowner wants to receive an alternative property, instead of
money compensation, the Consultant will have to make an offer of an
alternative property as agreed with the GR. If the Consultant is not able to find
a respective alternative property, it shall submit a letter from a subcontractor
broker or a brokerage company detailing the reasons of failure to find the
property. This written notification shall relieve the Consultant of the
responsibility of offering an alternative property to the interested owner. In
case the replacement property is found and the Consultant has a landowners
approval for the purchase of alternative property, the Consultant is responsible
to carry out the transaction with the approval and on behalf of the GR.
Expropriation of Land through Law on Eminent Domain:
If the affected owner of land does not agree on the compensation as well as the
replacement property offer, then the GR may resort to the applicable legislation of
Georgia for the exercise of the right to expropriation. The Consultant shall obtain a
signed written refusal from the landowner with detailed information about the real

GR | 36
Tbilisi Railway Bypass Project Progress Report

September 2010

estate and its owner. The Consultant shall also explain to the landowner consequences
of the refusal and procedures of expropriation. If the landowner refuses to sign the
compensation refusal form then the Consultant shall ensure that this fact is evidenced
by a GR representative on site, provided that the GR will have an available staff
member to visit the Consultants place of negotiation and approve the fact of refusal
in a written form within 5 workdays from Consultants notification;
Preparation of legal documents for property acquisition transaction;
Registration of GRs ownership title in the public registry;
Sending notifications to the owner requesting to free up the property.

Currently intensive works are carried out based on the above procedures and the GR has been
purchasing the private land plots. As regards the instances of expropriation, for the time
being, there are 42 cases identified where the GR has to resort to the procedure of
expropriation. GR uses its best endeavours to secure interests of the private land plot owners
and prevent increase of the cases when compulsory expropriation is unavoidable.

According to the Georgian legislation the process of compulsory expropriation covers


following steps:
1. Refusal by the land plot owner to accept the compensation;
2. Approval of the compulsory expropriation by the order of the President of Georgia;
3. Valuation of the land plots to be expropriated;
4. Public disclosure of the information regarding the project and the land plots that
might be expropriated;
5. Negotiations with the private land owners regarding the price of the land plot to be
expropriated;
6. Court decision on the approval of the expropriation of the private property;
7. Actual expropriation of the land plot and registration under the name of the GR.

Despite the number of compulsory expropriations all the proceedings regarding the issue are
supposed to be finalised not later than December 2010.

4.3. Master Plan


GR announced invitation for EoI for Master Plan (comprehensive strategy and action plan for
the redevelopment and sale of the Existing Railway Land) for Major Development Site in
Tbilisi on July 3, 2010. The deadline for submission of EoIs was July 26, 2010. Totally, 40
companies submitted EoIs. The evaluation committee has examined/evaluated submitted
proposals in accordance with the EBRD procurement rules and procedures and elaborated
short list consisting of following six companies:

GR | 37
Tbilisi Railway Bypass Project Progress Report

September 2010

Shortlisted Companies
Companies Sub-contractors Countries
/partners
MOTT McDONALD BROADWAY MALYAN, UK
COLLIERS INTERNATIONAL,
GRANT THORTON INTERNATIONAL
APUR SYSTRA SPECTRUM BURO HAPPOLD/UK France

Ateliers Jean Nouvel France


Gehry Partners, LLP USA
ZAHA HADID ARCHITECTS UK
Studio Fuksas Italy

On September 28, 2010, RFP packages were sent to the above-mentioned shortlisted
companies.

The assignment is expected to start in the fourth quarter of 2010 and last for eight months.
Maximum Budget available for the assignment is EUR 1.5 million, not including VAT.

4.4. Land Contamination Study


GR announced the invitation for EoI for Land Contamination Study on August 2, 2010.
Deadline for submission of EoIs was August 23, 201. Totally, 18 companies submitted EoIs.
In accordance with the EBRD procurement rules and procedures, the evaluation committee
examined, evaluated and ranked the submissions received. The assignment is expected to
start in the fourth quarter of 2010 and last for 6 months. Maximum Budget available for the
assignment is EUR 1.0 million, not including VAT.

The both assignments (Master Plan and Contamination Study) worth of EUR 2.5 million will
be financed through technical assistance grant provided by the NIF.9

4.5. Construction Works


The following activities related to the construction of the bypass are planned to be carried out
during the following three months:
Finalization of detail design for renovation of the 10 km section of the Kakheti
existing line including the second railway track, all supporting infrastructure;
Mobilisation of equipment, machinery and manpower needed for the early stages of
construction by end of November, 2010;

9
The Neighbourhood Investment Facility (NIF) is an innovative financial mechanism launched by the European
Union aimed at mobilizing additional funding to cover the investment needs of the Neighbouring region for
infrastructures in sectors such as Transport, Energy, the Environment and Social issues.
GR | 38
Tbilisi Railway Bypass Project Progress Report

September 2010

Completion of installation of the site offices by the end of October, 2010;


Carrying out of detail geological survey for Lilo 1 Kvirike, and Kvirike - Avchala
sections of the alignment. In particular, for tunnels, land sliding and other sensitive
areas;
Finalization of detail construction design for the section stretching from Lilo to
Kvirike;
Commencement of works on the detail design for the whole alignment by November,
2010;
Commencement of the design for sub-grade of the whole New Line by the end of
October 2010, to be finalized by the end 2010.
Commencement of the detail design for five tunnels by end of October 2010 to be
finalized by the end of 2010.
Commencement of the detail design for bridges, culverts and retaining walls by the
end of October 2010 to be finalized by the end of 2010.

For the three months look ahead presented by the Construction Contractor see the Appendix
D.

5. Actual or Expected Difficulties/Delays in Project Implementation


There are two main difficulties that have been identified on this early stage of implementation
of the Project:
The Construction Contractor is still working on the final version of the Work Plan.
The GR expects to receive the document approved by the Engineer in not later than
October 25, 2010.
As mentioned already, the Supervisor had not approved detail design for section
PK54-PK67 (1.3km). It is expected that final and approved version of the detail
design shall be submitted to the GR no later than October 25, 2010.

The mentioned difficulties are not regarded to cause any substantial delays in Project
implementation. Apart from developments mentioned above and to the best knowledge of the
GR, there are no other actual or expected difficulties identified. Representatives of the GR,
the Supervisor, and the Construction Contractor are holding monthly progress meetings as
well as weekly work meetings with the aim to identify and/or prevent any kind of difficulties
that may arise during the Project implementation.

6. Expected Changes with respect to the Project Completion Date

GR | 39
Tbilisi Railway Bypass Project Progress Report

September 2010

As of the date of the reporting, and to the best of the knowledge of the GR, there are no
reasons/conditions that may cause changes in the Project Completion Date.

7. Key Personnel Changes in the Staff of the PIU, the Consultants or the
Contractors
On the bases of the Order of the Director General of the GR # 598/1 of June 3, 2010, the
Project Implementation Unit was established with the following composition:
1. Dimitri Kemoklidze Head of Strategic Projects and Development;
2. Nodar Balavadze Adviser to the Director General;
3. Zaza Jiqia Deputy Head of Infrastructure;
4. Temur Kopadze Deputy Head of Infrastructure;
5. Guram Modebadze Traffic Safety General Inspector;
6. Megi Mumladze Head of the Property Management Agency;
7. Giorgi Zazashvili Head of Construction and Repair Works Coordinating
Department;
8. Akaki Saghirashvili Head of the Legal Service;
9. Kakha Gudiashvili Head of the Dispatching Control Department;
10. Mamuka Talakhadze Head of the Economic Department.

On the basis of the Order of the Director General of the Georgian Railway LLC # 598/1 of
August 3, 2010, several changes were made in the composition of the PIU. Considering that
the Property Management Agency, as well the Strategic Development Department has been
abolished following members were removed from the PIU:
1. Head of the Property Management Agency Megi Mumladze
2. Head of the Strategic Projects and Development Dimitri Kemoklidze
3. General Inspector of the Traffic Safety Guram Modebadze
Following employees of the GR became the members of the PIU:
1. Head of Operations Management Alexandre Abashidze;
2. Head of Business Analytics George Tsimakuridze;
Considering that Operations Management Department became the assignor of the Strategic
Projects and Development Department, Head of the Operations Management Department
became the Chairman of the PIU.

With the aim to enhance efficiency of the PIU recently following changes have been made to
the composition of the PIU:
- Following members have been removed from the PIU:
Kakha Gudiashvili Head of the Dispatching Control Department,
Nodar Balavadze Advisor to the Director General.
- Following members have become members of the PIU:
Deputy Director of Passenger SBU Gia Labadze,
GR | 40
Tbilisi Railway Bypass Project Progress Report

September 2010

Deputy Director of Freight SBU David Gelashvili,


Deputy Head of Operations Management Archil Giorgadze (Deputy
Chairman of the PIU),
Deputy Head of Legal Department Nino Phkhakadze.

8. Matters Affecting the Cost of the Project


For the time being, no factors have been identified by the GR that may cause serious changes
in Project cost estimates. The only source of possible change is related to the process of
expropriation of private land plots.

The total price for the acquisition of private land plots amounts to GEL 27 million as
evaluated by LEPL Levan Samkharauli National Forensic Bureau. As mentioned above, there
have been identified 42 cases where the GR needs to use the right on compulsory
expropriation. After going through all necessary steps for expropriation required by law, the
GR is immediately granted with the ownership title over the property in question. However,
under of the Article 21.3 of the Constitution of Georgia, the former owners of the property
have a right to apply to the Civil Court demanding higher compensation than they have
received. If the court decides to satisfy their claims, the total costs of land acquisition may
increase, as the GR shall have to pay higher compensation price. It is up to the courts to
determine the exact amount of increased compensation and currently the GR is not in a
position to specify the potential increase. However, taking into consideration the genuine
evaluation process and expected low number of expropriation cases, the GR expects the
above-mentioned possible increase not to have any significant affect on original Project cost
estimates.

9. Any Development or Activity Likely to Affect the Economic Viability


of Any Part of the Project
To the best of the GRs knowledge, no developments or activities have occurred that may
significantly affect the economic viability of the Project. The only factor to be taken into
account in this regard is the dispute with KevGiproTrans over the payments under the
respective contract.

As mentioned above, KievGiproTrans has fully provided the GR with services under the
contract but with serious delays. On July 28, 2009 the parties introduced an amendment to the
contract, which envisaged the obligation on the part of the KievGiproTrans to submit the
Resettlement Action Plan (RAP) to the GR no later than October 20,
2009.KievGiprotransfailed to fulfil this obligation by the deadline and provided RAP on

GR | 41
Tbilisi Railway Bypass Project Progress Report

September 2010

April 29, 2010 only. As a result, the company has to pay a penalty in the amount of 0.1% of
the estimated total price of the contract for every day of delay in fulfilling the obligation
pursuant to Article 9.1 of the contract. The contract price was based on the special formula,
according to which the final price amounted EUR 2 658 859 (net). The GR has already paid
EUR1 440 000 (net) Euros thus the remaining price to be paid before the imposition of
penalties was EUR 1218859. Pursuant to Article 9.1 of the contract, the GR has calculated
the penalty (0,1 % for every day of delay) to be EUR 743 850. As a result the final amount
that has to be paid, including the penalty deductions, is EURO 475 009 (net). The GR is
ready to execute the Letter of Acceptance (which serves as the bases for payment) for the
services duly fulfilled by KievGiproTrans, provided that this document covers the obligation
regarding payment of the abovementioned penalty. However, due to misunderstandings
between the parties Letter of Acceptance has not been executed yet.

10. Project Implementation Progress Bar Chart


See Appendix E for the Project Implementation Progress Bar Chart.

11. Project Financial Statements/Expenditure Details


See Appendix F for the Project financial statements/expenditure details.

12. Information on Compliance with Loan Covenants and Undertakings

The GR is in full compliance with all covenants under the Loan Agreement. Accordingly GR
has complied with the following obligations:
GR has provided the EBRD with audited Financial Statement of the GR for the
Financial Year 2009 prepared in compliance with IFRS;
GR has provided the EBRD with the Resettlement Action Plan (RAP);
GR has opened Escrow Account in the Georgian commercial bank HSBC Bank
Georgia, in order to deposit part of the Euro Bond Proceeds (EUR 80 000 000) that is
supposed to cover project implementation expenditures. The Escrow Account has
been opened in full compliance with the requirements of the EBRD Consent to the
Issue of a Eurobond, dated June 18, 2010;
GR has provided EBRD with the Direct Agreement with the Ministry of Economic
Development and LEPL Enterprise Management Agency, and Direct Agreement with
the Municipality of Tbilisi;

GR | 42
Tbilisi Railway Bypass Project Progress Report

September 2010

GR has established Project Implementation Unit (PIU) which is composed of the key
employees of the GR;
GR has already provided EBRD with the Certificate of Incumbency and Authority in
accordance with the form provided in the Exhibit B of the Loan Agreement;
GR has made relevant arrangement for appointment of the Service of Process Agent
for the purposes of the Loan Agreement and shall provide EBRD with acceptance of
such appointment by the agent in the nearest future.
GR is finalizing elaboration of the unaudited semi-annual IFRS consolidated
Financial Statement as well as financial performance report separately for each SBU
and shall furnish the documents to EBRD, together with a management discussion
and analysis of results for such six months period, statement of all transactions
between the GR and each of its Affiliates and the Shareholder for such six months and
a statement on the compliance with all financial covenants and ratios in the nearest
future.

Below is the list of forthcoming obligations of the GR that are to be discharged in


accordance with the respective timeline under the Loan Agreement:
Execution of the Immovable Mortgage Agreement on the land plots listed in the
Schedule 6 of the Loan Agreement (Existing Railway Land) no later than March
31, 2010 defined as the ultimate date for the first disbursement;
Execution of the Agreement with the Tbilisi City Municipality no later than
March 31, 2010 defined as the ultimate date for the first disbursement;
Opening of Debt Service Reserve Account in one of the Georgian commercial
banks and submission to the EBRD of the original letter from the relevant bank
certifying that such account has been opened no later than March 31, 2010 defined
as the ultimate date for the first disbursement;
Granting of first ranking security over the Debt Service Reserve Account to the
EBRD as soon as the Debt Service Reserve Account is opened;
Submission to the EBRD certified copies and certified English translations of the
purchase agreements of the Future Railway Land and other documents evidencing
ownership title no later than March 31, 2010 defined as the ultimate date for the
first disbursement;
Submission of a copy of the letter to Auditors in the form provided in the Exhibit
C of the Loan Agreement no later than March 31, 2010 defined as the ultimate
date for the first disbursement;
Elaboration of Project Implementation Plan and its submission to the EBRD no
later than March 31, 2010 defined as the ultimate date for the first disbursement;
Submission to the EBRD of Corporate Plan and Business Plan, elaborated
separately for each strategic business units, Asset Management Plan, and
Divestment Program no later than December 31, 2010.

GR | 43
Tbilisi Railway Bypass Project Progress Report

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13. Appendices

Appendix A: Land Plots Under the Ownership of GR (Former State Owned Land Plots)

# zone sector quartal plot# full code space (m2) owner

1 01 19 21 002/013 01.19.21.002.113 12.84 GR


2 01 19 21 003/058 01.19.21.003.058 5125.24 GR
3 01 19 21 001/120 01.19.21.001.120 179.25 GR
4 01 19 21 002/114 01.19.21.002.114 0.54 GR
5 01 19 21 002/112 01.19.21.002.112 18.22 GR
6 01 19 21 003/059 01.19.21.003.059 243.99 GR
7 81 08 03 548 81.08.03.548 1627.99 GR
8 01 19 13 001/030 01.19.13.001.030 1216.08 GR
9 01 19 15 007/010 01.19.15.007.010 377.51 GR
10 01 19 24 008/005 01.19.24.008.025 1588.95 GR
11 01 19 25 001/166 01.19.25.001.166 1027.03 GR
12 01 19 25 001/165 01.19.25.001.165 8.68 GR
13 01 19 25 001/168 01.19.25.001.168 19.57 GR
14 01 19 25 001/167 01.19.25.001.167 2.73 GR
15 01 19 15 005/047 01.19.15.005.047 1863.79 GR
16 01 19 15 007/011 01.19.15.007.011 144.79 GR
17 81 08 20 252 81.08.20.252 44555.52 GR
18 81 08 20 344 81.08.20.344 258.69 GR
19 81 08 18 339 81.08.20.339 705.50 GR
20 81 08 18 294 81.08.182.94 391.42 GR
21 81 08 18 291 81.08.182.91 349.39 GR
22 81 08 17 308 81.08.17.308 208.58 GR
23 81 08 16 853 81.08.16.543 421.82 GR
24 81 08 16 539 81.08.16.539 193.39 GR
25 81 08 16 538 81.08.16.538 275.27 GR
26 81 08 16 537 81.08.16.537 39.19 GR
27 81 08 16 536 81.08.16.536 1607.93 GR
28 81 08 13 336 81.08.13.336 389.44 GR
29 81 08 16 534 81.08.16.534 1028.28 GR
30 81 08 16 545 81.08.16.545 703.39 GR
31 81 08 20 350 81.08.20.350 487.75 GR
32 81 08 03 534 81.08.03.534 21.34 GR

GR | 44
Tbilisi Railway Bypass Project Progress Report

September 2010

# zone sector quartal plot# full code space (m2) owner


33 81 08 23 303 81.08.23.303 138.71 GR
34 81 08 23 300 81.08.23.300 305.79 GR
35 81 08 16 540 81.08.16.540 110.95 GR
36 81 08 23 295 81.08.23.295 164.91 GR
37 81 08 16 547 81.08.16.547 835.08 GR
38 81 08 21 494 81.08.21.494 524.77 GR
39 81 08 13 342 81.08.13.342 1191.64 GR
40 81 08 13 340 81.08.13.340 1105.19 GR
41 81 08 16 549 81.08.16.549 612.03 GR
42 81 08 17 307 81.08.17.307 1993.62 GR
43 81 08 18 300 81.08.18.300 995.04 GR
44 81 08 18 297 81.08.18.297 66.47 GR
45 81 08 20 347 81.08.20.347 108.82 GR
46 81 08 20 359 81.08.20.359 684.29 GR
47 81 08 16 558 81.08.16.558 4279.14 GR
48 01 11 02 009/019 01.11.02.009.019 51.87 GR
49 01 11 02 010/025 01.11.02.010.025 246.95 GR
50 01 11 02 006/006 01.11.02.006.006 425.89 GR
51 01 11 01 005/010 01.11.01.005.010 414.47 GR
52 01 11 03 004/013 01.11.03.004.013 3551.34 GR
53 72 13 37 374 72.13.37.374 835.28 GR
54 72 13 06 243 72.13.06.243 1089.91 GR
55 72 13 33 495 72.13.33.495 640.66 GR
56 01 11 02 009/018 01.11.02.009.018 75.44 GR
57 01 11 01 012/027 01.11.01.012.027 337.69 GR
58 72 13 27 499 72.13.27.499 340.51 GR
59 72 13 18 417 72.13.18.417 951.19 GR
60 01 11 01 06/030 01.11.01.006.030 733.51 GR
61 01 11 01 008/006 01.11.01.008.006 496.95 GR
62 01 11 01 005/002 01.11.02.005.002 72.56 GR
63 01 11 01 007/008 01.11.01.007.008 3899.19 GR
64 01 11 01 012/025 01.11.01.012.025 155.38 GR
65 01 11 02 011/025 01.11.02.011.025 477.84 GR
66 01 11 04 001/023 01.11.04.001.023 220.44 GR
67 01 11 02 006/005 01.11.02.006.005 1108.40 GR
68 01 11 02 010/026 01.11.02.010.026 186.63 GR
69 72 13 28 382 72.13.28.382 310.96 GR
70 72 13 33 492 72.13.33.492 82.71 GR

GR | 45
Tbilisi Railway Bypass Project Progress Report

September 2010

# zone sector quartal plot# full code space (m2) owner


71 72 13 37 367 72.13.37.367 321.24 GR
72 72 13 32 419 72.13.32.419 265.98 GR
73 72 13 33 497 72.13.33.497 857.40 GR
74 72 13 02 262 72.13.02.262 461.64 GR
75 72 13 02 264 72.13.02.264 11.09 GR
76 72 12 03 378 72.12.03.378 182.46 GR
77 72 12 03 379 72.12.033.79 1.75 GR
78 72 13 38 488 72.13.38.488 189.55 GR
79 72 13 37 371 72.13.37.371 91.25 GR
80 72 12 03 376 72.12.03.376 486.90 GR
81 72 13 28 836 72.13.28.386 119.19 GR
82 72 13 28 377 72.13.28.377 663.32 GR
83 72 13 38 489 72.13.38.489 52994.66 GR
84 81 08 24 448 81.08.24.448 49628.81 GR
85 01 11 01 005/014 01.11.01.005.014 321.04 GR
86 01 11 01 005/015 01.11.01.005.015 574.52 GR
87 01 11 01 006/032 01.11.01.006.032 3123.24 GR
88 01 11 01 012/033 01.11.01.012.033 496.31 GR
89 01 11 01 012/034 01.11.01.012.034 349.25 GR
90 01 11 01 014/012 01.11.01.014.012 90.85 GR
91 01 11 01 014/013 01.11.01.014.013 497.95 GR
92 01 11 04 001/025 01.11.04.001.025 292.58 GR
93 01 11 04 001/026 01.11.04.001.026 289.89 GR
94 01 11 04 001/027 01.11.04.001.027 161.91 GR
95 01 11 04 001/028 01.11.04.001.028 697.55 GR
96 01 11 04 012/024 01.11.04.012.024 19348.95 GR
97 01 11 04 017/016 01.11.04.017.016 1007.37 GR
98 01 11 04 017/017 01.11.04.017.017 125.99 GR
99 01 11 04 017/018 01.11.04.017.018 48.42 GR
100 01 11 04 018/007 01.11.04.018.007 4.12 GR
101 01 11 04 018/008 01.11.04.018.008 47.75 GR
102 01 11 04 018/009 01.11.04.018.009 2.23 GR
103 01 11 05 001/016 01.11.05.001.016 997.22 GR
104 01 11 05 001/017 01.11.05.001.017 779.70 GR
105 01 11 05 001/018 01.11.05.001.018 1413.73 GR
106 01 11 05 002/100 01.11.05.002.100 10835.90 GR
107 01 19 15 002/001 01.19.15.002.021 39.64 GR
108 01 19 15 008/037 01.19.15.008.037 3307.35 GR

GR | 46
Tbilisi Railway Bypass Project Progress Report

September 2010

# zone sector quartal plot# full code space (m2) owner


109 01 19 21 001/138 01.19.21.001.138 1257.26 GR
110 01 19 21 001/139 01.19.21.001.139 4229.74 GR
111 01 19 21 001/140 01.19.21.001.140 277.44 GR
112 01 19 23 008/036 01.19.23.008.036 131.10 GR
113 01 19 24 007/056 01.19.24.007.056 11543.53 GR
114 01 19 24 008/028 01.19.24.008.028 3833.91 GR
115 01 19 25 001/178 01.19.25.001.178 6.16 GR
116 01 19 25 001/179 01.19.25.001.179 554.24 GR
117 01 19 25 001/180 01.19.25.001.180 49.58 GR
118 01 19 25 002/026 01.19.25.002.026 1580.28 GR
119 01 19 33 012/016 01.19.33.012.016 219.41 GR
120 01 19 33 012/017 01.19.33.012.017 901.36 GR
121 72 13 02 267 72.13.02.267 2605.51 GR
122 72 13 02 268 72.13.02.268 13251.72 GR
123 72 13 18 427 72.13.18.427 111.37 GR
124 72 13 27 532 72.13.27.532 1307.48 GR
125 72 13 28 393 72.13.28.393 183.35 GR
126 72 13 28 394 72.13.28.394 1648.95 GR
127 72 13 32 429 72.13.32.429 624.72 GR
128 72 13 32 430 72.13.32.430 325.95 GR
129 72 13 32 431 72.13.32.431 514.51 GR
130 72 13 32 432 72.13.32.432 3762.15 GR
131 72 13 32 433 72.13.32.433 1839.80 GR
132 72 13 33 506 72.13.33.506 247.88 GR
133 72 13 36 378 72.13.36.378 830.32 GR
134 72 13 36 379 72.13.36.379 211.94 GR
135 72 13 37 377 72.13.37.377 148.19 GR
136 81 08 01 493 81.08.01.493 2305.88 GR
137 81 08 01 494 81.08.01.494 492.95 GR
138 81 08 02 392 81.08.02.392 2272.75 GR
139 81 08 02 393 81.08.02.393 33.87 GR
140 81 08 02 394 81.08.02.394 127.36 GR
141 81 08 02 395 81.08.02.395 4992.97 GR
142 81 08 03 551 81.08.03.551 352.85 GR
143 81 08 03 352 81.08.03.552 357.08 GR
144 81 08 03 553 81.08.03.553 112.73 GR
145 81 08 03 554 81.08.03.554 13592.80 GR
146 81 08 03 555 81.08.03.555 2841.91 GR

GR | 47
Tbilisi Railway Bypass Project Progress Report

September 2010

# zone sector quartal plot# full code space (m2) owner


147 81 08 03 556 81.08.03.556 428.11 GR
148 81 08 03 557 81.08.03.557 7691.07 GR
149 81 08 13 350 81.08.13.350 281.11 GR
150 81 08 13 351 81.08.13.351 641.46 GR
151 81 08 13 352 81.08.13.352 501.73 GR
152 81 08 13 353 81.08.13.353 952.57 GR
153 81 08 16 559 81.08.16.559 1562.36 GR
154 81 08 16 561 81.08.16.561 1793.38 GR
155 81 08 16 562 81.08.16.562 1482.67 GR
156 81 08 17 314 81.08.17.314 1136.67 GR
157 81 08 17 315 81.08.17.315 1745.18 GR
158 81 08 18 302 81.08.18.302 754.89 GR
159 81 08 18 303 81.08.18.303 2503.72 GR
160 81 08 18 304 81.08.18.304 635.41 GR
161 81 08 19 310 81.08.19.310 1438.36 GR
162 81 08 19 311 81.08.19.311 2344.58 GR
163 81 08 24 457 81.08.24.457 180.83 GR
164 81 08 24 458 81.08.24.458 1559.89 GR
165 81 08 30 419 81.08.30.419 313.81 GR
166 81 08 30 420 81.08.30.420 1395.57 GR
167 81 08 30 430 81.08.30.421 83.62 GR
168 81 08 30 422 81.08.30.422 7097.37 GR
169 81 08 31 370 81.08.31.370 45.87 GR
170 81 08 31 371 81.08.31.371 318.94 GR
171 81 08 31 372 81.08.31.372 24.12 GR
172 81 08 31 374 81.08.31.374 5305.09 GR
173 81 08 31 375 81.08.31.375 13253.16 GR
174 81 08 31 376 81.08.31.376 87.50 GR
175 81 08 31 377 81.08.31.377 3592.53 GR
176 01 11 05 002/090 01.11.05.002.090 938.43 GR
177 01 11 03 005/015 01.11.03.005.015 533.76 GR
178 01 11 01 014/011 01.11.01.014.011 121.80 GR
179 01 11 01 004/001 01.11.01.004.001 3290.61 GR
180 01 11 01 012/026 01.11.01.012.026 7.27 GR
181 01 11 01 008/008 01.11.01.008.008 33.78 GR
182 01 11 01 004/002 01.11.01.004.002 40.63 GR
183 01 11 05 002/089 01.11.05.002.089 441.19 GR
184 01 11 01 008/010 01.11.01.008.010 1178.43 GR

GR | 48
Tbilisi Railway Bypass Project Progress Report

September 2010

# zone sector quartal plot# full code space (m2) owner


185 01 11 01 007/009 01.11.01.007.009 2405.06 GR
186 01 11 01 008/011 01.11.01.008.011 193.06 GR
187 01 11 04 001/024 01.11.04.001.024 223.15 GR
188 01 11 01 008/009 01.11.01.008.009 567.97 GR
189 01 11 01 011/005 01.11.01.011.005 150.58 GR
190 01 19 13 001/029 01.19.13.001.029 6467.85 GR
191 01 11 02 011/026 01.11.02.011.026 202.63 GR
192 01 11 05 002/091 01.11.05.002.091 39.72 GR
193 81 08 23 307 81.08.23.307 3334.98 GR
194 81 08 02 380 81.08.02.380 201.26 GR
195 81 08 03 525 81.08.03.525 11.12 GR
196 81 08 30 404 81.08.30.404 27400.33 GR
197 81 08 31 358 81.08.31.358 1085.65 GR
198 81 08 16 541 81.08.16.541 2152.01 GR
199 81 08 31 359 81.08.31.359 22595.38 GR
200 81 08 02 381 81.08.02.381 68.60 GR
201 81 08 03 529 81.08.03.529 137.60 GR
202 81 08 03 532 81.08.03.532 50.39 GR
203 81 08 24 446 81.08.24.446 172.81 GR
204 81 08 21 489 81.08.21.489 1464.29 GR
205 81 08 02 385 81.08.02.385 667.39 GR
206 81 08 21 490 81.08.21.490 7360.14 GR
207 81 08 31 354 81.08.31.354 86.20 GR
208 81 08 21 491 81.08.21.491 6762.93 GR
209 81 08 24 447 81.08.24.447 2107.24 GR
210 81 08 02 386 81.08.02.386 314.88 GR
211 81 08 23 308 81.08.23.308 1566.25 GR
212 81 08 16 535 81.08.16.535 241.37 GR
213 81 08 13 338 81.08.13.338 1985.38 GR
214 81 08 31 363 81.08.31.363 248.73 GR
215 81 08 20 336 81.08.20.336 366.84 GR
216 81 08 20 337 81.08.20.337 225.48 GR
217 81 08 19 305 81.08.19.305 1137.21 GR
218 81 08 18 292 81.08.18.292 18185.52 GR
219 81 08 18 293 81.08.18.293 4181.29 GR
220 81 08 20 338 81.08.20.338 169.85 GR
221 81 08 20 340 81.08.20.340 1748.49 GR
222 81 08 20 341 81.08.20.341 8874.27 GR

GR | 49
Tbilisi Railway Bypass Project Progress Report

September 2010

# zone sector quartal plot# full code space (m2) owner


223 81 08 20 342 81.08.20.342 1627.76 GR
224 81 08 20 343 81.08.20.343 635.40 GR
225 81 08 20 345 81.08.20.345 909.58 GR
226 81 08 20 346 81.08.20.346 500.27 GR
227 81 08 18 296 81.08.18.296 834.28 GR
228 81 08 18 295 81.08.18.295 1015.33 GR
229 81 08 18 299 81.08.18.299 1074.76 GR
230 81 08 17 316 81.08.17.316 230.98 GR
231 81 08 16 548 81.08.16.548 2458.43 GR
232 81 08 16 550 81.08.16.550 327.78 GR
233 81 08 13 341 81.08.13.341 431.57 GR
234 81 08 21 492 81.08.21.492 76.18 GR
235 81 08 21 493 81.08.21.493 939.57 GR
236 81 08 31 360 81.08.31.360 6071.10 GR
237 81 08 31 361 81.08.31.361 10278.12 GR
238 81 08 31 362 81.08.31.362 180.22 GR
239 81 08 30 400 81.08.30.400 560.00 GR
240 81 08 23 297 81.08.23.297 110.45 GR
241 81 08 03 533 81.08.03.533 603.42 GR
242 81 08 03 524 81.08.03.524 1098.22 GR
243 81 08 03 526 81.08.03.526 17145.78 GR
244 81 08 03 530 81.08.03.530 4767.68 GR
245 81 08 23 298 81.08.23.298 5746.88 GR
246 81 08 23 302 81.08.23.302 243.81 GR
247 81 08 23 304 81.08.23.304 4257.88 GR
248 81 08 23 306 81.08.23.306 6215.85 GR
249 81 08 23 301 81.08.23.301 7148.83 GR
250 81 08 31 357 81.08.31.357 33.87 GR
251 81 08 02 384 81.08.02.384 280.34 GR
252 81 08 03 527 81.08.03.527 10796.89 GR
253 81 08 02 383 81.08.02.383 1421.13 GR
254 81 08 23 318 81.08.23.318 385.68 GR
255 81 08 16 542 81.08.16.542 1402.29 GR
256 72 13 18 418 72.13.18.418 3157.46 GR
257 72 13 38 487 72.13.38.487 15646.53 GR
258 72 13 14 355 72.13.14.355 259653.85 GR
259 72 13 06 246 72.13.06.246 19120.63 GR
260 72 13 18 415 72.13.18.415 507.51 GR

GR | 50
Tbilisi Railway Bypass Project Progress Report

September 2010

# zone sector quartal plot# full code space (m2) owner


261 72 13 18 416 72.13.18.416 101.24 GR
262 72 13 02 258 72.13.02.258 206.40 GR
263 72 13 02 259 72.13.02.259 1880.28 GR
264 72 13 36 377 72.13.36.377 125.89 GR
265 72 13 32 421 72.13.32.421 289.44 GR
266 72 13 37 372 72.13.37.372 143.30 GR
267 72 13 02 260 72.13.02.260 2583.13 GR
268 72 13 37 370 72.13.37.370 38.63 GR
269 72 13 18 420 72.13.18.420 597.55 GR
270 72 13 08 299 72.12.08.299 1669.17 GR
271 72 13 27 500 72.13.27.500 50.08 GR
272 72 13 06 244 72.13.06.244 63968.25 GR
273 72 13 37 368 72.13.37.368 150.53 GR
274 72 13 06 245 72.13.06.245 1601.18 GR
275 72 13 18 419 72.13.18.419 16.20 GR
276 72 13 33 496 72.13.33.496 25711.51 GR
277 72 13 33 494 72.13.33.494 81.73 GR
278 72 13 06 247 72.13.06.247 5515.14 GR
279 72 13 32 420 72.13.32.420 31.48 GR
280 72 13 36 376 72.13.36.376 55.66 GR
281 72 12 03 377 72.12.03.377 633.42 GR
282 72 12 02 263 72.13.02.263 4587.19 GR
283 72 13 28 380 72.13.28.380 155.12 GR
284 72 13 28 375 72.13.28.375 279.09 GR
285 72 13 28 385 72.13.28.385 41.17 GR
286 72 13 37 369 72.13.37.369 809.87 GR
287 72 13 28 376 72.13.28.376 2146.93 GR
288 72 13 33 491 72.13.33.491 196.89 GR
289 72 13 28 378 72.13.28.378 1763.53 GR
290 72 13 28 381 72.13.28.381 83.87 GR
291 72 13 28 379 72.13.28.379 226.02 GR
292 72 13 28 383 72.13.28.383 1843.96 GR
293 72 13 28 384 72.13.28.384 40.21 GR
294 72 13 37 373 72.13.37.373 11235.20 GR
295 72 13 32 418 72.13.32.418 52.00 GR
296 72 13 16 345 72.13.16.345 274.20 GR
297 72 12 08 301 72.12.08.301 155.02 GR
298 81 08 20 348 81.08.20.348 3186.59 GR

GR | 51
Tbilisi Railway Bypass Project Progress Report

September 2010

# zone sector quartal plot# full code space (m2) owner


299 81 08 20 349 81.08.20.349 5109.80 GR
300 81 08 20 351 81.08.20.351 3711.10 GR
301 81 08 20 353 81.08.20.353 842.49 GR
302 81 08 20 352 81.08.20.352 21446.27 GR
303 81 08 23 294 81.08.23.294 1054.29 GR
304 81 08 23 299 81.08.23.299 581.13 GR
305 81 08 31 351 81.08.31.351 65.25 GR
306 81 08 31 352 81.08.31.352 502.70 GR
307 81 08 16 544 81.08.16.544 385.57 GR
308 81 08 16 546 81.08.16.546 4025.63 GR
309 81 08 30 403 81.08.30.403 741.75 GR
310 81 08 24 449 81.08.24.449 154.94 GR
311 81 08 23 296 81.08.23.296 3413.43 GR
312 81 08 23 305 81.08.23.305 588.29 GR
313 81 08 31 379 81.08.31.379 1747.04 GR
314 72 13 06 252 72.13.06.252 1416.46 GR
315 01 11 01 008/012 01.11.01.008.012 134.92 GR
316 81 08 30 423 81.08.30.423 3392.10 GR
317 81 08 20 362 81.08.20.362 3450.47 GR
318 81 08 20 366 81.08.20.366 2385.84 GR
319 81 08 20 365 81.08.20.365 1478.18 GR
320 81 08 20 360 81.08.20.360 5200.08 GR
321 72 13 37 378 72.13.37.378 71.38 GR
322 72 13 37 379 72.13.37.379 16.65 GR
323 01 11 01 006/033 01.11.01.006.033 302 State
324 01 11 02 006/007 01.11.02.006.007 33262 State
325 01 11 04 012/027 01.11.04.012.027 124066 State
326 01 19 33 012/018 01.19.33.012.018 201.41 State
327 01 11 03 005/034 01.11. 03.005.034 48.07 State
328 72 13 28 395 72.13.28.395 38.08 State
329 72 13 28 396 72.13.28.396 52.88 State
330 72 13 33 493 72.13.33.493 40937.52 State
331 81 08 31 355 81.08.31.355 85.22 State
332 81 08 30 431 81.08.30.431 1240.75 State
333 81 08 16 567 81.08.16.567 592,78 State
334 72 13 27 501 72.13.27.501 102.23 State
335 72 13 02 371 72.13.02.371 229.73 State
336 72 13 18 429 72.13.18.429 196.06 State
337 72 13 02 261 72.13.02.261 12643,57 State

GR | 52
Tbilisi Railway Bypass Project Progress Report

September 2010

# zone sector quartal plot# full code space (m2) owner


338 81 08 31 387 81.08.31.387 37609,80 State
339 72 13 02 372 72.13.02.372 105,83 State
340 81 08 18 298 81.08.18.298 965 State
341 81 08 16 560 81.08.16.560 3080 State

GR | 53
Tbilisi Railway Bypass Project Progress Report

September 2010

Appendix B: Private Land Plots Purchased by the GR

Owners name & ID Type of property area Contract price Date of contract

1 Revazishvili Land plot 599,99 31335,5 17.09.2010


Ketevan

ID - 01021011802

2 Tekadze Giorgi Land plot 899,99 16199,82 17.09.2010

ID - 31001047868

3 Alievi Janpolad Land plot 750,29 15756,09 17.09.2010

ID - 1027007411

4 Tcholikashvili Land plot 1500,26 30225,2 17.09.2010


Khvtiso

ID - 12001063097

5 Gamezardashvili Land plot 1500,01 9000,06 17.09.2010


Rolandi

ID - 101904188

6 Bakradze Roza Land plot 1299,98 7799,88 17.09.2010

ID - 1017002453

7 Feikrishvili Liana Land plot 1300 7800 17.09.2010

ID 1011013725

8 Bakradze Nino Land plot 1300 7800 17.09.2010

ID - 1017003095

9 Medzmariashvili Land plot 1500 9000 17.09.2010


Tamar

ID - 1008010716

10 Kaladze Nanuli Land plot 1300,02 7800,12 17.09.2010

ID - 1024017362

11 Gamezardashvili Land plot 1500,01 9000,06 17.09.2010


Emzari

ID - 1030007271

12 Miminoshvili Zurab Land plot 1300 7800 17.09.2010

ID - 1026000394

GR | 54
Tbilisi Railway Bypass Project Progress Report

September 2010

13 Lashkarashvili Zaur Land plot 1300 7800 24.09.2010


ID - 01009013627
14 Gogiashvili Nino Land plot 1500.01 9000.06 24.09.2010
ID - 01005003474
15 Tsamalashvili Land plot 1500.58 30231.6 24.09.2010
Demuri
ID - 01028003786
16 Bantsadze Jemal Land plot 1500 32818 24.09.2010
ID - 01024023034
17 Gabelaia Shota Land plot 1500.01 9000.06 24.09.2010
ID - 01008028673
18 Davlianidze Tamazi Land plot 1499.99 8999.94 24.09.2010
ID - 01017006916
19 Akhvlediani Land plot 1500 9000 24.09.2010
Galaktioni
ID - 01008000033
20 Kotorashvili Zurab Land plot 500.01 24692.4 24.09.2010
ID - 31001021609
21 Bokuchava Irakli Land plot 1500 9000 24.09.2010
ID - 01008000821
22 Chikovani Grigol Land plot 1500 9000 24.09.2010
ID - 01008025607
23 Nozadze Shota Land plot 152.91 3058.2 01.10.2010
ID - 01019005379
24 Chinchaladze Land plot 983.45 17702.1 01.10.2010
Tariel
ID 01001029378
25 Kiknadze Nugzar Land plot 862.8 5176.8 01.10.2010
ID 01016001891
26 Chafidze Anzori Land plot 568.39 3410.34 01.10.2010
ID 01024012026
27 Bakradze Guram Land plot 1500 9000 01.10.2010
ID 01008004060
28 Kadagishvili Irakli Land plot 1500 9000 01.10.2010
ID 01017008972
29 Tevdorashvili Land plot 1230.9 8615.95 01.10.2010
Zurabi
ID 01032002802
30 Mirotadze Nino Land plot 713.28 15886.88 01.10.2010
ID 01020013896
31 Shota Eliava Land plot 723.19 14573.8 01.10.2010
ID 01013010712
32 Gamkhuashvili Land plot 1400.4 61046.4 01.10.2010
Roini
ID 31001024541
33 Gelkhauri Lili Land plot and 490.14 39701.3 01.10.2010
ID 01004011715 house
34 Kodalashvili Zurab Land plot 300 22702 01.10.2010
ID 01019029010
35 Rostiashvili Land plot 1000 46894 01.10.2010
Nugzar
ID 31001025157

GR | 55
Tbilisi Railway Bypass Project Progress Report

September 2010

36 Babu LLC Enterprise 977.21 70528.55 01.10.2010


ID 209437153
37 Zamtaradze- Land plot 1500 27000.18 01.10.2010
Lobjamidze
ID 01011023489
38 Jvarsheishvili Land plot 1500 9000 08.10.10
Marine
ID-01019023112
39 Meladze Nodari Land plot 1499.99 8999.94 08.10.10
ID-01025000579
40 Magradze Shorena Land plot 1300 7800 08.10.10
ID-01027018773

41 Bakradze Ketevan Land plot 352.17 2113.02 08.10.10


ID-01008007991
42 Gogidze Dali Land plot 1557.22 58657.1 08.10.10
ID-01001064160
43 Narimanidze Daviti Land plot 797.95 27202.5 08.10.10
ID-31001004751
44 Natobidze Naili Land plot and 1 258.52 17961.4 08.10.10
ID-01004012076 auxiliary
structure
45 Failodze Tea Land plot and 2 145.95 9635.75 08.10.10
ID-01001054413 auxiliary
structures
46 Asatiani Tamar Land plot 367.29 2571.03 08.10.10
ID-01008011920
47 Kifiani Otari Land plot 300.66 1803.96 08.10.10
ID-01018003159
48 Jolidze Khatuna Land plot 1500 9000 08.10.10
ID-01008023668
49 Otkhmezuri Land plot 1500.01 9000.06 08.10.10
Tamara
ID-01005002849
50 Nikvashvili Ia Land plot 1500 9000 08.10.10
ID-01003005730
51 Chitishvili Giorgi Land plot 600.01 28606.45 08.10.10
ID-31001010142
52 Machavariani Land plot 1500 9000 08.10.10
Vanda
ID-1023003100
53 Gordeziani Marta Land plot 1499.99 8999.94 15.10.10
ID-010224024828
54 Dolidze Teimurazi Land plot 834 37530 15.10.10
ID-01008001285
55 Chanturia Tamazi Land plot 1499.99 8999.94 15.10.10
ID-01008006788
56 Chakseliani Zeinab Land plot 1300.01 7800.06 15.10.10
ID-01026012385

GR | 56
Tbilisi Railway Bypass Project Progress Report

September 2010

57 Kvirikashvili Land plot 1500 9000 15.10.10


Izolda
ID-01030045655
58 Gvinianidze Jujuna Land plot 1000.36 18006.48 15.10.10
ID-31001021983
59 Lomidze Nino Land plot 426.6 2559.6 15.10.10
ID-01030032714
60 Shengelia Maia Land plot 426.6 2559.6 15.10.10
ID-01020009695
61 Munjirishvili Roin Land plot 2300 20700 15.10.10
ID- 01013019050
62 Narozauli Natela Land plot 1000 51132 15.10.10
ID-01004001633
63 Gogidze Tamaz Land plot 999.98 46205.2 15.10.10
ID-01002028359
64 Kavrelashvili Land plot and 1 57.37 3833.65 15.10.10
Nugzar auxiliary
ID-01004008333 structure
65 Gigauri Darejan Land plot 349.61 6992.2 15.10.10
ID-01022014107
66 Kotorashvili Zurab Land plot and 2 718.78 34233.4 15.10.10
ID-31001021609 auxiliary
structures

Total 71,758.46 m2 1,141,634.77GE


L

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Appendix C: Financial Assumptions of the Capital Property LLC

Construction Costs (excluding VAT)


- Station and attached Retail $500 per sqm
- Grocery market $350 per sqm
- Platforms and parking $75 per sqm
- Landscaping $50 per sqm
- Project management and site 5% of the construction costs
supervision
- contingencies 10% of the development costs
- Developers Fee (range $400K- 10% of the development costs
$500K)
Operating costs during development (excluding
VAT)
- Insurance and audit expenses $100 000
- Working capital $222 674
- Financing costs $225 000
Lease costs (with first 3 year holiday) $300 000 per year
Financing Plan
- In-kind equity $0
- Cash equity 50% of the project costs
- debt 50% of the project costs
- pre leases 0% of the project costs
Rent:
- station retail
net to gross ration 80%
stabilized price (triple net) $360 per sqm per year
- grocery market
Net to gross ratio 50%
Stabilized price (triple net) $500 per sqm per year
- price indexation (after 3rd year 5%
of operation)
- promotional rent discounts:
First year 50%

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Development Pro-forma

DEVELOPMENT BUDGET SQM PER SQM USES

Land 25,645
Pre Development Costs 100,000
Total Property Costs 7,400 14 100,000

Station Construction 1,000 500 500,000


Station Retail Construction 400 500 200,000
Station Platform Construction 3,000 75 225,000
Market Construction 6,000 350 2,100,000
Parking Construction 3,000 75 225,000
Front Plaza Landscaping 1,000 50 50,000
Marketing 7,400 10 74,000
Design and Permits 7,400 30 222,000
PM & SS 5% 179,800
Contingences 10% 377,580
Developers Fee 10% 415,338
Total Development Costs 7,400 617 4,568,718

Opex 100,000
Working capital 222,674
Financing Expenses 225.000
Total Operational Expenses 58 547,674

VAT 783,608
Total Budget $6.000.000

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Appendix D: Three Months Look Ahead of the Construction Contractor

Description of works Milestone


1 Existing line Subgrade drawing for section 2010.10.15
design PK54PK67
2 Subgrade drawing for section 2010.10.15
PK82PK95
3 Subgrade drawing for section 2010.10.15
PK67PK82
4 Subgrade drawing for section 2010.10.15
PK95PK117.20
5 Bridge and culvert drawing for 2010.10.15
section PK50PK117.21
6 Bridge drawing of section PK116+ 2010.10.15
7
8 New railway drawing of tunnel 1# 2010.10.20
9 Working progress line design Drawing of tunnel 4# and 5# 2010.11.10
10 of design Bridge drawing of section PK50+69 2010.10.15
11 Entire bridge drawing shall be 2010.11.15
finalised
12 Subgrade and culvert drawing for 2010.10.20
section PK50PK10
13 Bridge drawing for section 2010.11.30
PK120+24.565
14 Start construction for existing 2010.09.30
culvert based on the approved
design drawing
15 Start construction for bridge on 2010.11.1
section PK50+69

Existing line
16 Start construction for the portal of 2010.11.1
tunnel 1#
17 Start construction for partial 2010.11.1
culverts on section PK0-PK100
18 Second line Start erection for concrete mixing 2010.11.15
Construction plan station
19 Start erection for laboratory 2010.11.15

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Appendix E: Progress Bar Chart

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Appendix F: Project Expenditure Details/Financial Statements

Original cost estimates of the project:

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Revised cost estimates of the project:


The costs have been revised due to finalization of tenders for construction and supervision, as well as after valuation of the resettlement cost.
Scope EUR
million
Design and Construction 211
Land and Resettlement 11.7
Consultancy services, of which: 7.0
Supervision contract 6.2
PIU assistance 0.3
Lenders monitoring consultant 0.2
Technical consultant 0.3
NIF technical assistance, of which: 2.5
Detailed investigation survey 1.0
Master plan 1.5
Due diligence 4.8
VAT and other taxes 40
Total Financing 277.3

Note: Design and Construction contract price is 303mln CHF, which is equivalent to 211mln Euros according to the exchange rate at the date of
receiving financial proposals.

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Original estimated expenditures and actual expenditures as of October 22, 2010:

Item Original cost Current cost Paid to date* Source of Funds


Estimate Estimate

EBRD Escrow Eurobonds under mgt GR internally NIF


Account contracts generated cash

1. Works 303,986,800 CHF 303,986,800 CHF -


2. Supervision 6,207,917.10EUR 6,207,917.10EUR -
3. Contract on 377 638 CHF 377 638 CHF 245464.7CHF 245464.7CHF
resettlement
services
4. Resettlement 13.90mln Euro 27 000 000GEL 1,167,874.77GEL 1,167,874.77GEL
costs
5. Land - - 21.265 GEL 21.265 GEL
registration/corre
ction costs
5. Master Plan ~1.500.000 EUR - -
6. Contamination ~1.000.000 EUR - -
Study
Subtotal 1,167,874.77 GEL 266729.7CHF

VAT (18%)

* Cumulative payments as of the end of reporting period

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Project's Quarterly Cash Flow Forecast

Total Disbursement Source of Funds


GR Eurobond mgt
Forecast EBRD loan funds Escrow account contracts GR Cash Flow NIF

1 Works contract
CHF CHF CHF CHF CHF
4Q2010 86,274,002.50 81,433,375.00 - 4,840,627.50 -
CHF CHF CHF CHF CHF
1Q2011 20,999,901.27 17,359,916.50 - 3,639,984.77 -
CHF CHF CHF CHF CHF
2Q2011 20,999,901.27 17,359,916.50 - 3,639,984.77 -
CHF CHF CHF CHF CHF
3Q2011 41,120,551.80 25,848,377.00 - 15,272,174.80 -
CHF CHF CHF CHF CHF
4Q2011 41,337,387.72 25,848,377.00 - 15,489,010.72 -
CHF CHF CHF CHF CHF
1Q2012 36,348,701.56 21,931,363.00 - 14,417,338.56 -
CHF CHF CHF CHF CHF
2Q2012 36,348,701.56 21,931,363.00 - 14,417,338.56 -
CHF CHF CHF CHF CHF
3Q2012 22,804,249.76 9,790,291.76 - 13,013,958.00 -
CHF CHF CHF
4Q2012 CHF 22,804,249.76 (4,413,725.76) CHF - 27,217,975.52 -
CHF CHF CHF
1Q2013 CHF 5,409,797.60 4,362,740.00 CHF - 1,047,057.60 -

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CHF CHF CHF


2Q2013 CHF 5,409,797.60 4,362,740.00 CHF - 1,047,057.60 -
CHF CHF CHF
1Q2015 CHF 18,847,181.60 15,199,340.00 CHF - 3,647,841.60 -

2 Supervision

4Q2010 920,841 827,722 93,119

1Q2011 300,049 206,931 93,119

2Q2011 610,445 517,326 93,119

3Q2011 610,445 517,326 93,119

4Q2011 610,445 517,326 93,119

1Q2012 610,445 375,751 141,575 93,119

2Q2012 610,445 517,326 93,119

3Q2012 610,445 517,326 93,119

4Q2012 610,445 517,326 93,119

1Q2013 610,445 517,326 93,119

2Q2013 610,445 517,326 93,119

1Q2015 610,445 517,326 93,119
Resettlement
Services
3 Contract

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GEL GEL
4Q2010 132 173.3 132 173.3
Resettlement
4 Costs
GEL GEL
4Q2010 25 832 125. 23 25 832 125. 23
MasterPlan
Preparation
5 Costs
EUR 1500000 1500000 Euro
Land
Contamination
6 Study Cost
EUR 1000000 1000000 Euro

Remarks: MasterPlan Preparation and Land Contamination Study payments are in accordance with the Request for Proposal documents

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