Terms of Reference

Financial and Operational Improvement Plan and

Corporate Development Plan

1 Background

The City of Kyiv (the “City” or “Kyiv”) with the population of 2.8 million people is the capital of Ukraine and is a financial, commercial, political, scientific and cultural centre. The City is currently receiving financing from the European Bank for Reconstruction and Development (“EBRD” or the “Bank”) for the Kyiv City Public Transport project (the “Project”). The Project includes loans to three municipal public transport companies in aggregate amount of EUR 115 million, secured by the guarantee from the City: (i) EUR 60 million loan to KyivPastrans to procure new buses and trolleybuses; (ii) EUR 40 million loan to KyivMetro to procure new metro wagons and (iii) EUR 15 million loan to KyivDorservice to finance traffic management solutions in the City. KyivMetro project is completed while KyivPastrans and KyivDorservice are in implementation stage.

Circa 1 078 million passengers per annum are carried by the public transport systems in the City. Metro services are the backbone of the public transport system carrying about 47 per cent of all public transport demand. Trams and trolleybuses carry 390 million passengers, while buses carry 179 million passengers. The public transportation network was planned with the objective of finding a balance between available budgets for essential mobility needs, and ensuring high capacity service on the core corridors. The system includes 3 metro lines, 20 tram routes, 38 trolleybus routes, and 140 bus and minibus routes. Most of the minibus routes are operated by private operators. There is currently no functional integrated electronic ticketing system in place.

The City coordinates transport service supply through licensing and tariff setting and monitors the provision of services through a Central Dispatching Service. Urban transportation services are the responsibility of the City’s Transport Department for Public Services.

The Metro as well as tram and trolleybus services will remain an essential service for inhabitants with lower income and those eligible for concessionary fares. Kyiv Metro and Kyiv Pastrans are expected to retain their market share and the role as the backbone of the transport system, providing frequent and relatively higher capacity services at more affordable prices.

Kyiv Metropolitan, a public transport company wholly-owned by the City of Kyiv, responsible for the provision of underground services. The underground infrastructure includes 3 lines (67.6 km long) with 52 stations, 122 escalators, three depots and 824 metro wagons. The Company employs around 7,645 people;

The Kyiv City Council sets tariffs for public transport services (until last year with approval at the Ministry of Infrastructure level, a practice that has now been discontinued). The tariffs were increased 2 times per cent starting from February 2015. A single flat-rate metro ticket costs UAH 4 (EUR 0.16) significantly below prices of either Warsaw (EUR 1.05) or Sofia (EUR 0.51). A single flat-rate tariff for public on the ground transportation has also been increased 2 times to UAH 3 (EUR 0.13) which is also significantly below the European levels. The privileged/concessionary passenger fares are funded from the State budget (with delays and insufficiently) apart from students and pupils who are co-funded by the municipal budget covering 50 per cent of the full price.

The Company is currently developing a reorganisation plan focused on key service delivery indictors and efficiencies. The Bank’s financing is focusing on renewal of the rolling stock but is conditioned upon the reorganisation plan being timely implemented and as part of the project, the Company will have to improve its corporate governance, maintain financial ratios and other covenants of the legal agreements. The Company wishes to engage a Consultant (the “Consultant”) to help develop and implement the Reorganisation aimed at improving efficiency and financial sustainability of its operations.

2 Assignment Objectives

The Consultant shall assist the Company in improving its commercial standing, service and environmental performance by helping to identify and implement the necessary corporate, financial and operational improvements required to meet the related covenants included in the EBRD finance documents and to implement the Reorganisation. This will be achieved via the development and implementation of the FOPIP and of a detailed strategy to roll out the Reorganisation. The Consultant shall also assist the Company in implementing the Reorganisation and to develop short and medium-term focused corporate development plans and to improve their corporate planning capacity to assist their ongoing transition towards becoming self-sustaining entities and commercial operations.

The main objectives of the assignment are to:

  • assist the Company in identifying and implementing the necessary corporate, financial and operational improvements, including the Reorganisation, to meet the related covenants included in the EBRD finance documents. This will be achieved via the development and implementation of a Financial and Operational Performance Improvement Programme (“FOPIP”);
  • assist the Company in developing and implementing a short to medium term focused Corporate Development Plan (“CDP”) and corporate planning process, so it may continue its transition towards an entirely commercial operation;
  • propose amendments to the existing Public Service Contract (“PSC”) and assist the Company with negotiations and signing of the amended PSC with the City.

3 Scope of Work

3.1 Development of the FOPIP

The Consultant will initially prepare a FOPIP for the Company, which will focus on ensuring that it meets the covenants set forth in the financing documentation with EBRD. These include:

  • Maintaining satisfactory accounting, cost control and management information systems and books of account in accordance with International Accounting Standards starting from a date to be agreed with the Bank (this may require support in restating existing financial reports in an IAS type format);
  • Providing the Bank with annual financial statements restated to IFRS on a semi-annual basis along with the financial covenants compliance statement;
  • Maintaining financial covenants, including a Current Ratio of not less than 1.0 to 1; a Debt Service Coverage Ratio of not less than 1.2 to 1; Financial Debt in the amount not exceeding Euro 54 million; the Lien over the assets the aggregate value of which does not exceed EUR 15 million.
  • Providing the Bank with financial and environmental reports as required under the project agreements; and
  • Reporting on the implementation of the FOPIP and the relevant efficiency indicators.

To this end, it is expected that the FOPIP will include both corporate development actions as well as financial and operational improvements.

To this end, the Consultant will, inter alia undertake the following tasks:

3.1.1. Corporate development

i) Control over assets and service agreement

  • Review the legal basis for the Company’s control over the fixed assets and the provision of services and agree on obligations and responsibilities relating to use, including maintenance and replacement of assets, service quality and operational performance targets; and
  • Classify non-current assets of the Company based on technological and functional purpose. Analyze technical and operating characteristics of non-current assets and existing databases, as well as provide recommendation on their optimization;
  • Provide recommendation on the most effective use of non-operational real estate; develop strategy on non-core assets management and/or disposal incl. guidance to determine market value or leasing terms. Develop system for monitoring market value of non-core assets;
  • Prepare recommendations and amendments to the existing PSC in line with the Ukrainian legislation, which will define: the basis for the right of the Company to use the physical infrastructure; their obligations and responsibilities relating to its use, including maintenance and replacement of the assets; service quality and operational performance targets; and related performance based remuneration (including financial and other incentives to achieve targets). The PSC will focus on the key commercial terms required for the Company to effectively meet the covenants set forth in the financing documentation with the EBRD.

ii) Organisation

  • Review and identify development needs related to the Company’s current corporate status, management structure, internal and external reporting lines, decision making bodies, and staff employed including with a view to implement the Reorganisation.
  • Recommend an institutional set-up that ensures that the Company is incorporated as an autonomous and financially accountable legal entity;
  • Recommend an efficient organisational structure including an organisation chart with job-description and staff qualifications attached toe ach position or group of positions, which clearly divides tasks and responsibilities between staff and departments with labour efficiency targets;.
  • Propose transparent decision making procedures, bodies, specifying compositions and powers, including a system of delegation of responsibilities and effective internal and external control mechanisms.
  • Recommend a personnel development plan, including programmes for recruitment, training, advancement and remuneration.

iii) Management Information System

  • Review and analyse the Company’s existing management information system (MIS) and procedures, including the extent of automation and computerisation, identifying any immediate shortcomings and development needs.
  • Recommend a computer-based MIS that would register, monitor and provide key management information across all areas of the Company’s activities, considering, in particular that the system can produce such financial and other information which is required for reporting to third parties (in particular reporting to the EBRD as are defined in the financing agreements), public authorities and the general public.
  • Recommend an information technology strategy which should include hardware and software specifications.

3.1.2. Financial performance improvement

i) Tariff Policy

  • Analyze the costs of metro services and their structure;
  • Analyze the current tariffs for metro services;
  • Develop recommendations for a tariff policy for public transport services, satisfactory to the Company (and to EBRD). For the purpose of this task the Consultant shall carry out a tariff study including social analysis to determine the affordability of charges and willingness to pay. Follow up work may need to be conducted by the Consultant with representatives of general public, consumers, media etc. Particular consideration should be given to the poorest households.
  • Under the proposed tariff policy revision, the Consultant shall provide (i) an affordability analysis (in line with the EBRD methodology), (ii) review of the existing subsidy scheme, and (iii) propose possible mitigation measures in case of breach of affordability thresholds (i.e. propose amendments to the PSC on subsidies from the city to the company).

ii) Accounting, budgeting and cash management

  • Analyze the structure of current assets and solvency of the Company;
  • Analyze efficiency of working capital management providing recommendations to optimize it;
  • Review and analyse the Company’s current accounting system and budgeting and financial management practices, and the legal basis relating thereto, identifying any immediate shortcomings and development needs;
  • Review and provide recommendations on optimizing the Company’s internal processes related to organization of sales and procurement, including fixed assets and inventories;
  • Review and provide recommendations on optimizing the Company’s payroll, accounting of personnel and their working time, motivation and encouragement of staff;
  • Recommend an accounting system, which is in compliance with international (IAS) and local accounting practices and is integrated in the MIS;
  • Assist the Company in restating current financial statements into IAS;
  • Recommend a system for budgeting, with an integrated budget control system (this shall allow to keep the accounts and budget for the forthcoming Project separate from the Company’s operating accounts); and
  • Recommend adequate administrative (authorisation and controls) procedures for cash-management and payments.

iii) Revenue Collection and Payments Procedures

  • Review the existing ticketing collection procedures identifying any immediate shortcomings and development needs;
  • Develop tariff collection procedures, including enforcement measures against illegal riders that ensure that the Company receive full and timely payments for public transport usage. The Consultant shall give special attention to measures that increase the farebox recovery ratio, and present a plan to gradually increase this ratio over time.
  • Review existing procedure on accepting invoices for payment, recognizing liabilities and ensuring payments, identify all the shortcomings and provide recommendations on improvement;
  • Develop control procedures for the Company’s and budget expenditures, payables repayment and/or restructuring.

3.1.3. Operational performance improvement

i) Operational efficiency

  • Review the Company’s current operating practices with a view to identify immediate shortcomings and development needs;
  • Recommend an action-plan necessary for improving the quality and reliability of services and increasing the operational efficiency. The Consultant shall give special attention to measures that increase the fleet availability as well as to ensuring that assets are regularly maintained and renewed. Outsourcing of non-core activities shall be considered;
  • Establish a fleet management programme to increase operational efficiency ratio;

ii) Environmental management

  • Review the environmental management system currently in place, and recommend short and medium term improvements to bring the system in line with the principles of ISO 14000 standards, and compliance with local and European Union environmental standards;
  • Assist the Company in implementing the Environmental Action Plan agreed with the Bank; and
  • Identify no-/low-cost improvement measures, including good housekeeping as well as enhanced service, maintenance and operation of the facilities.

iii) Public and customer relations

  • Recommend a public participation and consultation campaign to be carried out in the course of the preparation and implementation of the Project. The programme shall disseminate information about the Project, its aims, progress and activities and how it will impact on the public. This will be developed in close co-operation with the City authorities, and making efficient use of various media;
  • Recommend a public participation and consultation campaign related to tariff increases. This will be developed in close co-operation with the City authorities, and making efficient use of various media;
  • Recommend a customer relations improvement plan, including mechanisms for dealing with complaints, and on-going information dissemination.

3.2 Implementation of the FOPIP

Following approval by the Company, the City and the EBRD, the Consultant will actively assist the Company to implement the FOPIP. Links with other public transport companies which have either acted as a twinning partner for a FOPIP or have implemented a FOPIP of their own would be a useful way to improve institutional capacity.

The Consultant shall undertake the following tasks:

Financial Performance Improvement

  • Work closely with the Company to provide support in implementing the measures identified to improve financial performance, including the Reorganisation. Specifically, the Consultant will assist the Company in ensuring that tariff increases are implemented as agreed in the tariff policy as well as ensuring that fare collection procedures are implemented.; and
  • Assist the Company to ensure the recommendations identified and agreed to improve accounting, budgeting and cash management are being implemented. As part of this, the Consultant may need to provide ongoing support to assist the Company in preparing financial statements in accordance with IAS and in implementing any new budget procedures.

Operational Performance Improvement

  • Assist the Company in implementing the action plan to improve operational efficiency, including the asset management programme and the Reorganisation.

Capital investment planning

  • Assist the Company in development of systematic routines for short- medium and long-term planning of prioritised capital investments for improvements of the services and the environmental performance of the Company. A first version of such a 3-year rolling investment program should be prepared and presented.

Environmental management

  • Assist the Company in implementing the Environmental Action Plan.

Public and customer relations

  • Assist the Company in implementing the customer relations’ programme and the public consultation programme for the project.

3.3 Corporate development plan

Building on the FOPIP and other project documentation, the Consultant will assist the Company to develop its first CDP focusing on medium and long term corporate, financial and operational improvements. The CDP will define the aims and institutional objectives of the Company, which will govern further development and transformation of the enterprise to a viable commercial entity. The CDP will cover all aspects of public transport management and operations. This will include, but not be limited to, the areas covered by the FOPIP. In the medium term, the CDP should pay particular attention to the development of a more substantial Public Service Agreement. In the longer term, the CDP should focus on the potential for private sector participation.

The first CDP is intended to be the start of an annual rolling plan that will evolve with time to reflect changing circumstances, improved information and progress made. To this end, the Consultant will assist the Company to develop procedures and systems to build a corporate planning process into the existing budget and business planning processes. The Consultant will also identify other areas of management, finance and operations that should be considered in future corporate development plans, depending upon the progress made by the Company.

3.3.1. Capacity building programme

Capacity building of the Company’s staff will be a key part of the Consultant’s work. Throughout the Assignment, the Consultant will improve the capacity of the Company’s staff through on-the-job assistance and close collaboration.