The Republic of Mariy El is one of 83 Regions in Russia with autonomous executive and legislative branches and budget. It is located in the European part of Russia. It is one of the smaller and less developed Regions in Russia with an area of 23,400 sq.km and a population of about 700,000. The Republic is classified by IFC as one of the frontier regions in RF.

Maryi El’s industry remains rather underdeveloped and economy is dominated by traditional low-value-added sectors. While processing industry, including oil refining and food processing contribute about 20% of the Republic’s GRP, agriculture and forestry is the second largest sector (about 18% of GRP). Prior to the crisis the Republic’s GRP grew at an average rate of 13% during 2006-2008 (versus 8% growth in RF’s GDP) and the Republic was one of the leading Regions in the Privolzhsky Federal District (consisting of 14 Regions) in terms of growth in direct investment, SME output, retail sector and average salary. This trend continued until late 2008, when industrial output grew 16% during the first nine months of the year relative to the same period in 2007 (6th highest growth rate among all Russian Regions).

However, since October 2008, the Republic’s economy and revenues have been negatively affected by the on-going crisis and its GRP is estimated to have contracted 2% in real terms in 2009.

The budgetary performance of the Republic has been sound and was continuously improving until the on-set of the global economic crisis. The Republic’s total revenues in 2009 decreased in real terms, but increased in nominal terms relative to 2008 by 9% mostly due to an increase in federal transfers.

The total project cost is estimated at RUR1.515 billion (US$50 million). The first tranch of the proposed IFC investment is a senior local currency A loan of up to RUR600 million (approximately US$19.8 million) with up to 5 years maturity and 2 years grace period.

50.51 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	50.51
Equity

* These investment figures are indicative

The Republic of Mariy El is located in the European part of Russia, in Volga region West of Moscow and bordering Chuvash Republic in the South West. Roads to be rehabilitated under the Project are located throughout the Republic and mainly cover rural roads forming part of the core Republican road network.

The proposed Project would conserve valuable road network assets and minimize the increase in vehicle operating costs (VOC), while the planned privatization of Republic owned road enterprises and greater competition in procurement is expected to increase the value for money from road investments in the Republic in the medium term. The proposed investment will help prevent further deterioration of the 800 km core network, producing savings estimated at about RUR2.5 billion (US$83 million) in NPV terms over the base case (avg. road conservation expenditure of about RUR100 million p.a.). The Project is also expected to improve the term structure of the Republic''s debt to better match the expected benefit stream from its investments.

IFC''s continuing engagement will help support the Republic''s reform efforts in the road sector and provide long term funding to increase urgently needed investments in road network preservation.

The Project is a category B investment according to IFC’s Environmental and Social (E&S) Review Procedure. As the Project is aimed at conserving the Republic’s existing road network, minimal or no adverse impacts on environment or community health and safety are expected. The E&S risks of the Project are mainly associated with the exposure of Project workers to physical hazards, including operating machinery and moving vehicles. A number of measures to improve management practices in this area were agreed under the first IFC loan in the Environmental and Social Action Plan (ESAP). Road authorities achieved good progress in implementing the ESAP and will further improve the environmental, health and safety aspects of roads operation under the proposed Project. The road authorities will also strengthen the internal capacity to assess and manage broader environmental and social risks of the road construction and operation through training facilitated by IFC of the employees, road designers and selected contractors in environmental, health and safety management at the end of March 2010.

A summary of IFC’s environmental and social review findings for the Project including the rationale for the B categorization is publicly available in the Environmental and Social Review Summary (ESRS) disclosed through IFC’s external website (http://www.ifc.org/projects).