E 4 4 3

E 4 4 3 `

ASIAN DEVELOPMENT BANK RRP:IND 37139

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

TO THE

BOARD OF DIRECTORS

ON A

PROPOSED LOAN

TO

INDIA

FOR THE

CHHATTISGARH STATE ROADS DEVELOPMENT SECTOR PROJECT

November 2003

CURRENCY EQUIVALENTS (as of 30 October 2003)

Currency Unit – Indian rupee/s (Re/Rs)

Re1.00 = $0.021 $1.00 = Rs45.5

ABBREVIATIONS ADB – Asian Development Bank ARD – Agency for Road Development BOT – Build-operate-transfer CACS – Chhattisgarh AIDS Control Society FDGOC – Finance Department Government of Chhattisgarh PWDGOC – Public Works Department Government of Chhattisgarh TDGOC – Transport Department Government of Chhattisgarh CIDC – Chhattigarh Infrastructure Development Corporation DRA – dedicated road authority EIRR – economic internal rate of return EMMP – environmental Monitoring and Management Plan ESU environment and social unit GOC – Government of Chhattisgarh GOI – Government of India HDM – Highway Development and Maintenance Tool HIV/AIDS – human immunodeficiency virus/ acquired immunedeficiency

syndrome ICB – international competitive bidding IEE – initial environmental examination IRC – Indian Roads Congress IRI – international roughness index ISA – initial social assessment JBIC – Japan Bank for International Cooperation LIBOR – London inter-bank offered rate

NOTES

(i) The fiscal year (FY) of the Government ends on 31 March.

(ii) In this report, "$" refers to US dollars.

MORTH – Ministry of Road Transport and Highways MOT – Maintenance-operate-transfer MPRSD – Master Plan for Road Sector Development NGO – Non-government organization PIA – poverty impact assessment PIR – poverty impact ratio PIU – project implementation unit PMGSY – Pradhan Mantri Gram Sadak Yojana PPTA – project participatory technical assistance PWD – Public Works Department PWDM – Public Works Department Manual RMC – Road Management Committee VOC – vehicle operating cost

This report was prepared by a team consisting of: S. Wu ( team leader/sr. project specialist), S. Widowati, D. Utami, H. Yamaguchi, R. Sabirova, A. Motwani, and G. Atay .

CONTENTS Page

LOAN AND PROJECT SUMMARY iii

MAP ix I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1

A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 3

III. THE PROPOSED PROJECT 7

A. Objectives 7 B. Components and Outputs 8 C. Special Features 10 D. Cost Estimates 11 E. Financing Plan 11 F. Implementation Arrangements 11

IV. PROJECT BENEFITS, IMPACTS, AND RISKS 15

A. Policy and Institutional Benefits 15 B. Economic Benefits 15 C. Poverty Reduction 16 D. Social and Environmental Impacts 17 E. Project Risks and Safeguards 20

VI. ASSURANCES 21 VII. RECOMMENDATION 23

APPENDIXES 1. Supplementary Sector Analysis 24 2. External Assistance 31 3. Project Framework 33 4. Time-bound Policy Action Plan for Institutional Reform 39 5. Indicative Contract Packages 45 6. Project Cost Estimates and Financing Plan 46 7. Implementation Schedule 48 8. Summary Economic Analysis and Distribution Analysis 49 9. Summary of Poverty Reduction and Social Development Strategy 54

SUPPLEMENTARY APPENDIXES (available on request) A. Development Coordination Matrix B. Summary of Reengineering Plan C. Framework for Indigenous Peoples Development D. Summary Resettlement Plan E. Environmental Assessment F. Subproject Selection Criteria G. Outline Terms of Reference for Consulting Services on Institutional Strengthening and

Capacity Building for Chhattisgarh’s Road Sector H. Outline Terms of Reference for Construction Supervision Services I. Project Performance Monitoring System (PPMS) J. Economic Analysis and Distribution Analysis K. Project Risk Analysis L. Summary of Poverty Impact Assessment M. Resettlement Policy Framework N. Preliminary Indigenous People Development Program

LOAN AND PROJECT SUMMARY Borrower India Classification Poverty: Poverty Intervention

Thematic: Economic Growth and Good Governance Environment Assessment

Category B. An initial environmental examination (IEE) was undertaken for sample subprojects. The summary IEE is in Supplementary Appendix E.

Project Description The Project will improve the connectivity of the state road network

in Chhattisgarh. It will provide a more effective institutional and policy framework; and the capacity to ensure that investments in roads are implemented successfully, and that project-generated impacts in road development are sustained through improved governance and accountability.

Rationale The Public Works Department, Government of Chhattisgarh

(PWDGOC), with its existing institutional and technical capability and capacity, is reaching its limit in effective sector management and efficient management of investments in state roads. This, and the inherited 10 years of neglect of investment in road improvement and maintenance, has caused serious deterioration of most state roads. The riding quality of most roads ranges from poor to very poor. Poor road quality has undermined the long-term growth potential of Chhattisgarh economy. Bad roads have increased transport capacity bottlenecks, and meant poorer transport services for the entire economy, especially the rural poor and tribal populations.

Better management of the road sector is crucial to support the policy initiative of the Government of Chhattisgarh (GOC) to improve this situation. Better road management will improve the institutional and policy framework. It will help ensure that investments in road sector development are successfully implemented and the road improvements generated by the Project can be sustained through better governance and accountability. The road sector investment is expected to help GOC significantly improve the connectivity of Chhattisgarh’s road network, to directly support the state’s economic growth. Meanwhile, the investment will also provide a vehicle through which Chhattisgarh can establish a transparent and conducive environment for more competition and increased private sector participation in the road sector. That in turn, will ensure better infrastructure and decreased recurrent costs for road maintenance over the medium and long terms. That will allow higher expenditures for priority social sectors, and for poverty reduction.

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Objectives and Scope The main objective of the Project is to support economic growth

and reduce poverty by providing improved connectivity and access to development opportunities and social services, including health and education. The Project will also support GOC’s initiative to improve state management of the road sector by improving effectiveness and efficiency. Thus, the Project will provide the capacity required to ensure the efficiency and sustainability of road investments and development to support social and economic development. The objective will be achieved through (i) improving priority state roads between economic growth centers and rural areas, (ii) instituting measures to improve governance and accountability for road sector management, (iii) improving sector capability and building capacity for more efficient resource and asset management, and (iv) initiating steps to increase private sector participation in road development and maintenance projects. The Project, through sector lending modality, will finance improvement of about 1,700 km of state roads in Chhattisgarh. It will improve the connectivity of the road network, and of priority road links among national highways, state highways, and rural roads to improve access of rural and underdeveloped populations to the mainstream economy and development opportunities. The Project will defer huge reconstruction costs that will result if improvement and rehabilitation are not undertaken immediately. It will also complement the Rural Roads Sector I Project of the Asian Development Bank (ADB). Consulting services will be provided to help PWDGOC prepare and implement the road improvement subprojects, construction supervision, capacity building and training in project management and quality control. Consulting services will also be provided to help GOC improve the institutional and policy frameworks of the state road institutions for good governance and better accountability of sector management, (ii) establishing sustainable systems of asset management, and (iii) capacity building and training in modern sector management and operation.

Cost Estimates The total Project cost in 2003 prices is estimated at $285.7 million

equivalent, of which the foreign exchange cost is estimated at $199.52 million, or 70%. The local currency cost, including taxes and duties, is estimated at $86.18 million equivalent, or 30% of the total. The cost estimate includes contingencies; a front-end fee of 0.5% of the total loan amount of the Project; and interest charge during construction (IDC); and the commitment charge.

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Financing Plan It is proposed that ADB provide a loan of $180 million from its ordinary capital resources, which will be 63% of the total project cost. The loan will finance: (i) the Project’s entire foreign exchange cost, excluding front-end fee, the commitment charge, and interest during construction; and (ii) part of the local currency costs for domestic consulting services to prepare the subprojects to be selected during project implementation, and to help GOC implement the institutional reform.

GOC will provide the remaining local currency cost of about $85.7

million equivalent. Appendix 6 summarizes the proposed Project financing plan. GOC has assured that it will secure the counterpart financing as committed.

Loan Amount and Terms A loan of $180,000,000 from ADB’s ordinary capital resources will

be provided under ADB’s LIBOR-based lending facility. The loan will have a 25-year term, including a 5-year grace period; an interest rate determined in accordance with ADB’s LIBOR-based lending facility; a commitment charge of 0.75% per annum; a front-end fee of 0.5%; and other terms and conditions set forth in the draft Loan and Project Agreements.

Period of Utilization July 2009 Estimated Project Completion Date

January 2009

Executing Agency PWDGOC will be the Executing Agency (EA) for the Project. Implementation Arrangements

Within PWDGOC, the Agency for Road Development (ARD) will be established to be responsible for the overall project execution and supervision. The Project Implementation Unit (PIU), established in September 2003, will be responsible for day-to-day implementation. The PIU field offices will be established at key locations to help implement and manage the improvement works. The Road Management Committee (RMC) to be formed in March 2004, will oversee and provide policy support and coordination for timely implementation of institutional reform and capacity building, and help monitor project implementation.

Procurement ADB has approved advance procurement action for the sample

subproject civil works. All procurement to be financed under the Project will be carried out in accordance with ADB’s Guidelines for Procurement.

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Consulting Services Consulting services to be financed under the Project will be recruited using quality- and cost-based selection in accordance with ADB’s Guidelines on the Use of Consultants and other procedures satisfactory to ADB for the recruitment of domestic consultants.

Project Benefits and Beneficiaries

Social and poverty assessments show that the main project beneficiaries will be people living in areas that are predominantly agricultural, rural, and economically backward. The Project is expected to benefit 1.7 million people in a 30-km zone of influence around the state roads to be improved. Of these, an estimated 0.77 million people, or 45%, will be direct beneficiaries. The main quantifiable benefits of the Project are (i) savings in vehicle operating costs, which will be passed on to the rural poor through service providers; and (ii) savings in travel time. Non-quantifiable benefits will be realized through improved access to markets and social services for the agricultural population and rural poor, which reflects higher profits for poor farmers; and lower transport costs and better access to schools, medical clinics, and employment centers. The Project will help reduce poverty by lowering transport costs for poor farmers, and lower costs and more timely access to schools, medical clinics and employment centers. The lower transport costs will also increase mobility among the poor, especially poor women going to social centers. That will allow them to become more politically active, thus increasing their empowerment.

The institutional improvement will enhance the institutional and

policy framework of sector management and provide the capacity to ensure efficiency of investment and sustain the Project’s development impacts. Its proposed support for asset management and road maintenance will ensure that roads built or improved under the Project will be adequately maintained.

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Risks and Safeguards The risk that the economic evaluation will not prove the Project feasible has been examined in detail. The economic analysis has been subjected to a comprehensive risk analysis to examine the effects of the following key variables: (i) base yearly traffic volumes, (ii) traffic growth rates, (iii) capital costs, (iv) maintenance costs, and (v) generated traffic. The risk analysis was undertaken using @Risk computer program. Results of the analysis indicated that the probability of the economic internal rate of return (EIRR) of Option 1 falling below 12% is only 4.8%, and the probability of the EIRR of Option 2 falling below 12% is only 11.5%. These low probabilities indicate that the economic evaluation is robust to a variety of variations in the main parameters used to determine economic viability. The methodology and assumptions used in the risk analysis are described fully in Supplementary Appendix K, Project Risk Analysis. Risks to institutional improvement relate to GOC’s commitment, ownership of the Project, and ability to change policies. As one of the ADB’s focal states, GOC is reform-oriented, and has envisaged good governance and good infrastructure as primary development goal for Chhattisgarh. GOC has initiated institutional reform to establish the Dedicated Road Authority (DRA) and to improve its business procedures and management of state roads. GOC has also requested ADB assistance in designing and implementing the sector reform. GOC has confirmed and reassured its commitment to, and ownership of the reform throughout project processing, and through intensive policy dialogue and that the sector reform is the top priority of Chhattisgarh’s road development program. To further mitigate the risks, a time-bound policy action plan has been prepared, which highlights the major milestones of policy measures and policy changes that GOC is to make within the time frame agreed with ADB. A condition for loan negotiations is that GOC will approve and submit the action plan to ADB before negotiations begin. All other policy measures will be covenanted in the Loan and Project Agreements.

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Risks for investment are limited to quality control because of CGPWD’s capacity constraints in contract management and supervision of works, and limited experience in working with international contractors and applying conditions of the International Federation of Consulting Engineers for construction supervision. But this can be mitigated by the use of consulting services for construction supervision, and capacity building programs for CGPWD in contract management and quality control. Contracts are in relatively large packages to attract international and large domestic contractors, and to ensure good performance and high quality of construction. Lessons learned from similar projects include that concerns will arise about quality control and consultant performance during project implementation. These will be addresses by identifying potential problems before implementation starts so that the CGPWD is able to handle them should they occur. Meanwhile, ADB will strengthen it prior review and approval of scope of works, technical specifications, and tender documents. The GOC has agreed with ADB to have intensive reviews of implementation progress and issues, and performance of consultants and contractors. Intensive preparatory work and studies were carried out on the risks of social and environmental impacts in the sample subproject, which represents the main technical specifications, type of improvement works, and social and environmental features of the main road network in Chhattisgarh. GOC has prepared and approved a resettlement plan, an initial environmental examination (IEE), an indigenous people’s development program, and a resettlement policy framework, and an indigenous people’s development framework. ADB reviewed and found those safeguard documents acceptable. Furthermore, specific requirements are reflected in the subproject selection criteria to ensure full compliance with the ADB’s safeguard policy requirements and guidelines.

I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed loan to India for the Chhattisgarh State Roads Development Sector Project.

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES A. Sector Performance Indicators and Analysis

1. Introduction 2. Chhattisgarh was established on 1 November 2000 through bifurcation from Madhya Pradesh state. It is one of India’s poorest states1. About 38% of Chhattisgarh’s population of 21 million lives below the national poverty line2. About 44% of Chhattisgarh’s population is tribal and scheduled caste3. Chhattisgarh has an area of 135,237 square km, and is known as a tribal and forest state. Forests cover about 44% of Chhattisgarh’s land area. 3. The Chhattisgarh railway network4 does not give adequate coverage. The railway serves cross-country traffic more than it serves the needs of Chhattisgarh. Railway services are available to only a few major districts. Civil aviation is limited. Thus, roads are the main mode of transportation. National highways (NH6, NH16 and NH78) provide good east-west connections with neighboring states, and NH43 and NH200 provide improved north-south connection between Raipur, Bilaspur and Jagdalpur. But, Chhattisgarh lacks a network of high-standard roads to provide the required mobility between areas with natural resources and industrial centers and economic development zones, and to provide better access to social amenities to large tribal and scheduled caste populations.

2. Road Administration and Responsibilities

4. The Public Works Department Government of Chhattisgarh (PWDGOC) is responsible for road sector management and road development. Its institutional setup and division of responsibilities follow the standard Public Works Department (PWD) manual covering zones of classified works for national highways, state highways, and major district roads, as well as other public infrastructure facilities, mainly buildings. 5. PWDGOC oversees the planning, design, construction, and maintenance of all state roads, major bridges, and government and public service buildings. Jointly with local district governments, PWDGOC is responsible for other district roads, some rural roads, small bridges and other public buildings. Under the authority and responsibility delegated by the Ministry of 1 The per-capital gross domestic product (GDP) in 2000, at 1994 constant prices, was Rs6,692 ($152)— about 2%

higher than the GDP in 1994, according to the Chhattisgarh Directorate of Economics and Statistics in 2001. 2 A poverty impact assessment (PIA) study is being finalized. Preliminary findings and recommendations of the PIA

were presented to, and discussed with, ADB’s transport and poverty groups at a presentation organized by the Economics and Research Department and Regional and Sustainable Development Department. Comments will be incorporated into the final PIA report and will be reflected in the draft report and recommendation of the President (RRP) for the management review meeting.

3 Census 2001. 4 The 1,038-km railway connecting the eastern and western regions of India passes through Chhattisgarh via Raipur

and Bilaspur.

2

Road Transport and Highways (MORTH), PWDGOC is also responsible for maintenance of Chhattisgarh’s national highways. Responsibility for construction and maintenance of rural roads rests with the Chhattisgarh Rural Engineering Services (CGRES).

3. Performance Indicators and Analysis

6. Road Network. Chhattisgarh inherited the road network from Madhya Pradesh of about 35,000 km under PWDGOC jurisdiction, and 15,000 km of rural roads and tracks under the jurisdiction of other government departments or local governments. The core road network comprises two north-south corridors and four east-west corridors. The remaining roads, except for the six main corridors, are mostly in poor or very poor condition, and not passable in the monsoon season. This is especially true for roads in southern and northern Chhattisgarh, where most of the tribal people live in forest areas. 7. Road Density. Chhattisgarh has 14,535 habitations that are not connected to the road network; 1,168 of the habitations have populations of more than 1,000 and 3,730, of 500 to 1,000 persons. Many districts, particularly those in the north and the south, have very poor road coverage. The average density of blacktop and water-bound-macadam road is 16 km/100 km2.

India’s average is 42 km/100 km2. This may be partly explained by extensive forests in Chhattisgarh. Nevertheless, there are still many non-forested areas without roads, and more than 15,000 villages have no connection to the main road network5. Excluding tracks, there is about 1 km of road for every 570 persons. 8. Road Capacity and Traffic Volumes. Apart from NH6 and NH43, the remaining national highways and most state roads are of single lane (3.75m carriageway width). Some state highways (e.g., SH9) have been widened to intermediate lane (5.5-m width). National highways are programmed for widening to two and four lane over time. Traffic counts on several state highways show that traffic levels are generally low (<2000 PCUs per day), and hence within the Indian Roads Congress (IRC) capacity definition of a single lane road (2,500 PCUs/day). But some state highways carry traffic volumes that exceed single-lane capacity and, therefore, require immediate widening. 9. Road Conditions. PWDGOC does not have a computerized database with information on the condition of state highways and district roads. The only quantitative measurements of road condition are surveys carried out in recent feasibility studies of 1,300 km of state highways. Those surveys showed that these roads have poor riding quality with International Roughness Index (IRI) values in the range of 6 to greater than 12. PWDGOC has a program to build about 500 bridges in the next 15 years. Many existing bridges are in poor or unsafe condition. 10. Road Safety. Road safety has become a serious concern in Chhattisgarh,even though its death rate per 100,000 vehicles is about 60% of the national average. About 1,240 deaths from road accidents were reported in the 12 months ending in March 2002.6 The highest death rate was from accidents involving trucks, tankers and other heavy vehicles. Chhattisgrh’s death rates are comparable to those of other Indian jurisdictions but significantly higher than those of developed countries, especially if one considers vehicle ownership and volume of road traffic (Table 1).

5 ADB is preparing a sector loan of $400 million to India to finance rural road development, including improvement of

5,000 km of rural road each in Chhattisgarh and Madhya Pradesh. Loan approval is expected in 2003. 6 Statistics for 2003 are not yet available.

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Table 1. Road Death Rates

Location Deaths per

100,000 vehicles Chhattisgarh, India Madhya Pradesh, India India (all) Thailand Malaysia Japan United Kingdom

144a

142a

250 110 55 17 14

a Includes two-wheelers Source: PPTA and India Road Safety Statistics

11. The number of road deaths involving two-wheelers skews the death rate significantly. The death rate for two-wheeler passengers is lower than for other motorized vehicles: 39 per 100,000 vehicles. If two-wheelers are ignored, the death rate for motorized vehicles increases to 560 deaths per 100,000 vehicles. 12. Sector Regulations. The Transport Department Government of Chhattisgarh (TDGOC) is responsible for the licensing, registration, and regulation of motor vehicles, drivers, and passenger and freight transport. As a result of GOC’s effort to encourage private sector participation, private sector operators provide all passenger and freight transport services, at market rates. TDGOC is also responsible for enforcing axle load regulations. Traffic police are responsible for enforcing traffic and road safety regulations. B. Analysis of Key Problems and Opportunities

1. Sector Management

13. Road management in Chhattisgarh today is based on a general development strategy on performance. PWDGOC’s current performance is mainly evaluated by the spending of GOC budget allocations. That means that incentives are limited for both PWDGOC management and staff to adopt modern managerial systems and skills, or to improve quality of management or efficiency of operations. The system has also resulted in a lack of transparency and competition necessary to encourage domestic contractors to develop their capacities and competitiveness. Meanwhile, the deficiencies in investment and maintenance of state roads have been aggravated by a lack of updated capacity and capability in master planning and project programming, sector management, quality control in construction and maintenance, and management of financial resources. 14. Procedural delays in administrative processes have reduced the efficiency of use of funds. Most bookkeeping for financial accounting and management is done manually. Records are kept in a loose archive system. The system does not generate analysis of information for PWDGOC management to use for resource and asset management, and to support planning and decision-making. Road planning focuses on composing budget requirements by following itemized budget entries. There is no clearly specified process for identifying needs and planning responses based on the application of economic criteria and a development strategy. The planning process also suffers from a serious lack of reliable and updated data on the inventory and condition of the road network and its assets. Appendix 1 gives a supplementary sector analysis.

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2. Challenges

15. In 2002, GOC formulated a road policy to embark on a medium-term program (2003–2012) for road sector development. The road policy envisaged that good governance is key for successful development of all social and economic sectors, and that improved roads and transport services are crucial support for Chhattisgarh’s socioeconomic development. 16. To improve governance, GOC has taken a holistic approach to address development needs through efforts to (i) establish an integrated road development and management system by creating a dedicated road authority, (ii) create an enabling environment to provide administrative support and encourage private sector participation in all financially viable road projects, (iii) establish a dedicated state road fund for road maintenance, and (iv) build institutional capacity for management of the state roads. 17. Funding of road maintenance in Chhattisgarh is not currently a major concern because of the better-off fiscal status of GOC. Analysis of the FY2001–2002 and FY2002–2003 budget allocations and actual expenditures showed that Non-Planned Budget and workloads implemented took about 63% of the total budget, which demonstrated a reasonable emphasis on road maintenance, although the quality management needs substantial improvement. 18. For long-term funding of road maintenance, the GOC has identified ways to establish a state road fund through (i) earmarking revenue sources, (ii) creating legislation to establish the legal status of the fund, and (iii) defining funding criteria. Fuel taxes are the main source of collection for the Central Road Fund, so collection of any additional fuel taxes has become politically sensitive to both the Government of India (GOI) and state governments.7 Toll roads are accepted in India, but Chhattisgarh has only a few toll roads and bridges because of the moderately low traffic on most roads. Tolling will mainly be an alternative for the future, because today’s road users cannot afford to pay much, and traffic forecasts for the near- and medium- terms indicate that more time is needed for the economy to develop and greater traffic to be generated. Thus, state budget allocations will be the main source of road maintenance in the near term of 5 to 8 years.

3. State Roads Development Program 19. To improve state roads, PWDGOC, in 2002–2003, prepared a 10-Year Master Plan for Road Sector Development (MPRSD) for the years 2003 to 2012. MPRSD is based on social and economic development needs, development priorities for the road sector, and alternative investment strategies to support social and economic development priorities. It aims to (i) promote development of six main road corridors, (ii) remove capacity bottlenecks from the network to better connect rural areas, and (iii) support socio-economic development by improving road access and connectivity among growth centers. For road maintenance, a computer-based pavement management system such as Highway Development and Maintenance Tool 4 (HDM-4) will be adopted. That will enable PWDGOC to evaluate the economic effects of road maintenance alternatives and optimize road maintenance strategies. 20. Based on MPRSD, GOC prepared and approved a priority investment program to improve about 5,000 km of state roads at an estimated cost of about Rs105 billion ($2.3 billion).

7 More in-depth analysis of potential sources of collection is now being conducted by the GOC, and will be continually

assisted by the Project.

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The MPRSD identified 3,760 km of priority state roads sections for ADB financing. Most of these roads are single-lane, with worn crusts and pavements. The roads need to be reconstructed within the existing alignments, with limited expansion of capacity and changes in lane configurations. 21. The total budget available for road improvement projects for the next 10 years is projected at about Rs61 billion ($1.3 billion), based on recent analysis, assuming that the budget allocation to PWDGOC remains at the current level of 8% of the total state expenditure, and that Chhattisgarh’s economic performance keeps up with the national average. This analysis does not include construction of new roads or projects for major capacity expansion (e.g., from two lanes to four lanes), which will probably happen in the next 10 years. A more detailed needs assessment will be made in late 2003 and 2004 when the MPRSD is updated to reflect achievements of GOC’s recent investments in road improvements. GOC has also recognized that needs for investment in roads may increase substantially to support Chhattisgarh’s long-term social and economic development. Therefore, ADB’s assistance in financing the Project is important to support GOC in achieving its road development objectives.

4. Road Sector Expenditures and Revenues 22. The budgeted expenditure in Chhattisgarh’s road sector for FY2002–2003 was Rs4.22 billion ($87 million), equal to 8% of the total state budgeted expenditure (Appendix 1). The road expenditures include amounts provided by MORTH for improvement and maintenance of national highways. The Non-Planned Budget8 includes maintenance of roads, PWDGOC’s administration (salary for regular and non-regular employees,9 and office operating costs), part of the funds are spent on state building and guesthouse maintenance, and operations that cannot be separated from roads. Appendix 1 includes a summary of PWDGOC’s planned and Non-Planned Budgets and actual expenditures, and the annual expenditure by the end of March 2003.

5. Public-Private Partnership (PPP) and Build-Operate-Transfer (BOT) 23. GOC has established the Chhattisgarh Infrastructure Development Corporation (CIDC) to interface with the private sector, to commission feasibility studies and to invite proposals for specific private sector participation and public-private partnership road projects. About 690 km of high-priority roads have been identified for built-operate-transfer (BOT), with pre-qualification completed and financial proposals prepared for submission to CIDC. PWDGOC has also signed agreements with developers to improve and operate about 297 km of state highways. 24. It has been noted that there will be difficulties and uncertainties for BOT projects on state roads due to low traffic volumes. Except for limited number of road sections with high traffic volumes, the majority of road network will unlikely be attractive to private sector, or will require a high government subsidy10 to make them attractive to the private sector. This has become a major challenge for GOC in the near- and medium- terms, until its economy develops and traffic increases on most state roads.

8 The non-planned budget is for recurrent expenditures. 9 “Nonregular employees” includes timekeepers, work charge employees, and gang laborers. 10 The GOC has set a ceiling of its subsidy for the private sector operators of no more than 30% of the total project

costs.

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6. ADB Sector Strategy

25. Roads in India consists of (i) key national highway links under the jurisdiction of the National Highway Authority of India, (ii) other national highway links under the Ministry of Road Transport and Roads, (iii) state and district roads under state PWDs, and (iv) rural roads. Given the potential scale of lending, ADB has developed a programmatic approach to the development of projects in a sequential and progressive manner to fulfill long-term policy objectives of fostering an enabling environment for efficient and sustainable development of roads to meet public needs for increased mobility and efficient freight movement. Another major feature of road sector lending is to firmly link a sector reform with a succession of investment to improve the total connectivity of road networks. This overall lending strategy is implemented through coordinated lending to roads at the levels specified above. 26. A state road sector reform plan has been prepared and agreed upon with the GOI to guide ADB’s lending operation in the sector for the next 10 years to achieve the following policy objectives:

(i) separation of the government’s policy and regulatory functions in the state road

sector from project implementation, and operation and management of project facilities, by establishing an interim road development agency within PWDs to integrate all responsibilities and functions of sector management and project implementation;

(ii) institutional strengthening and capacity building to improve business processes and accountability, and to enhance effectiveness and efficiency of sector management;

(iii) full transition of sector management from the outdated PWD system, through the interim road development agency, to the proposed Dedicated Road Authority (DRA) with improved governance and accountability;

(iv) Initiation of an enabling environment through outsourcing and other modalities to bring about better private sector participation in road development and maintenance; and

(v) establishment of a mechanism for road asset management and sustainable funding for road maintenance.

27. The sector reform plan will be implemented programmatically, starting with separation of the Government’s policy and regulatory functions from project implementation and operation and management of project facilities, and by integrating all road functions and responsibilities into a self-contained road development agency in the current PWD. That agency will later be transformed into a dedicated road authority to take over development and management of the entire sector. Along with the progress of institutional reform, it will introduce and institutionalize improved business processes and procedures, install modern sector management and operational capability and tools, and training and skills upgrade to make DRA fully functional for further improvement until further review and improvement of the sector reform plan and strategy at the end of the 10-year period. 28. ADB operations in India and coordination with other major donors are discussed in Appendix 2 and Supplementary Appendix A. The proposed project is the second state-level

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ADB intervention in the state road sector following the Madhya Pradesh State Road Sector Development Program approved in 200211. 7. Lessons Learned 29. Operational and institutional shortcomings have delayed past ADB-financed road projects in India, both for national highways and state roads. A lesson learned is that ADB’s close supervision and consulting services in project preparation and implementation are critically important to the transfer of modern technology and skills to PWD staff, and to the building of capacity for project implementing agencies. Meanwhile, continued policy dialogue with the state government and PWD management is equally important to ensure institutional support and allocation of adequate resources for implementation of projects. The lessons learned and experiences gained were taken into consideration in the Project’s formulation and design, and in its implementation.

8. Rationale

30. PWDGOC, with its institutional and technical capability and capacity, is reaching a limit to perform more effective sector management and more efficient management of investments in state roads. This, and a 10-year neglect of investment in road improvements and maintenance, has caused serious deterioration of most state roads. Riding quality is mostly from poor to very poor. This has undermined the long-term growth potential of the state’s economy and resulted in increasing transport capacity bottlenecks and poorer transport services for the economy, rural poor and tribal populations. 31. Improvement of road sector management is crucial to support GOC’s policy initiatives. Better governance and accountability will improve the institutional and policy framework, and provide the capacity to ensure that investments in sector development are implemented successfully, and that impacts of road development can be sustained. The road sector investment is expected to help GOC improve connectivity of Chhattisgarh’s road network significantly, thus directly supporting the state’s economic growth. Meanwhile, road sector investment will also provide a vehicle for Chhattisgarh to establish a transparent and conducive environment for more competition and increased private sector participation. That in turn will ensure better infrastructure facilities and decreased recurrent costs for road maintenance over the medium and long term to allow higher capital and expenditure for priority social sectors and poverty reduction.

III. THE PROPOSED PROJECT A. Objectives 32. The main objective of the Project is to support economic growth and reduce poverty by improving connectivity and access to development opportunities and social services, including health and education. The Project will also support GOC’s initiative to improve the effectiveness and efficiency of state road sector management, and provide the sector with the capacity to ensure efficiency of road investments and sustainable road development impacts to support

11 ADB, 2002. Report and Recommendation of the President to the Board of Directors on the Proposed Loan to India

on Madhya Pradesh State Roads Sector Development Program . Manila.

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Chhattisgrah’s social and economic development. The objective will be achieved through (i) instituting measures for good governance in the administration and management of the sector, (ii) improving sector capability and building capacity for more efficient resource and asset management, (iii) initiating steps to increase private sector participation in road development and maintenance, (iv) improving road safety, (v) enhancing social awareness for prevention of HIV/AIDS,12 and (vi) improving priority state roads to provide better connectivity between economic growth centers and rural areas, and to complement ADB’s Rural Roads Sector IProject. Appendix 3 gives the project framework. B. Components and Outputs

33. The Project will finance improvement of about 1,700 km of state roads in Chhattisgarh. Consulting services will be provided to assist PWDGOC in preparing and implementing the road improvement subprojects, construction supervision, capacity building and training in project management and quality control. Consultants will also assist GOC in detailing and implementing the institutional reforms, and building the required policy and institutional capacity for state road management. Consulting services will support the adoption and implementation of the community road safety program, development of road safety plans and a road accident database, and the conduct of road safety audit for all subprojects. 1. Institutional Reform and Capacity Building 34. Project implementation will follow the sector reform plan (para. 25-27) to achieve policy objectives (i), (ii) and (iii); to improve governance and accountability of road sector management, to identify alternative asset management systems; and to build capacity, through training, in modern sector management and operations. Policy objectives (iv) and (v) will be fulfilled through a follow-up operation to be financed either by the GOC or through external assistance, for full implementation of private sector participation in road development and maintenance projects, and through the establishment of a sustainable road asset management system, including a funding mechanism for road maintenance. The institutional reform was designed by the project participatory technical assistance (PPTA),13 and accepted by GOC and ADB. The design involved significant policy dialogue with GOC and participation of the state departments and staff concerned through daily interaction, seminars, and workshops, as well as dissemination of information and project preparation experiences of a similar PWD institutional reform through a 2002 ADB loan for Madhya Pradesh. These important policy activities helped the GOC and its staff better understand the envisaged development goals and objectives for the sector, and benefits of the institutional reform. Intensive policy dialogue and consultation among ADB, GOC, and the consultants served as fora for discussions of every detail of policy objectives and measures, implementation arrangements, and risks and benefits of the institutional reform. The reform will improve the current institutional and policy framework, and provide the capacity to ensure successful implementation of the investment under the sector approach, and that project-generated impacts of road development are sustained through better governance and accountability. The Time-bound Policy Action Plan14 in Appendix 4 reflects GOC’s commitment and milestone policy measures to be implemented under the Project. Improvement in governance and institutional strengthening in planning and resource management for sector development will be key interventions to ensure more accountable budget allocation and use, and more sustainable development and maintenance of state roads. 12 Human immunodeficiency virus / acquired immunodeficiency syndrome 13 ADB.2002. Technical Assistance to India for the Chhattisgarh State Roads Development. Manila. (TA 3995-IND,

approved in November 2002 for $800,000). 14 The Time-Bound Action Plan has been discussed and agreed upon, with GOC.

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35. Supplementary Appendix B summarizes the reengineering and transition plans, and implementation arrangements. More detailed implementation plans and guides are in the PPTA consultant’s final report, which was discussed in depth and agreed upon with GOC. Based on this, reform consultants financed under the Project, jointly with GOC, will prepare a detailed work program and specific implementation arrangements for reform in three main clusters: (i) establishing an interim agency for state road management— the Agency for Road Development (ARD) and transform it to the DRA; (ii) instituting new business processes and procedures and installing modern capability and tools for sector management and operation; and (iii) institutional strengthening through recruitment of new engineers, training, and acquisition of equipment essential for road management. 36. By the end of 2006, ARD will be transformed to DRA, which will be tested through daily operations from 2007 onward. Areas that need further improvement will be identified through the pilot operation of the new sector management system, improved business procedures, and management tools and systems installed for DRA. Needs for assistance to further improve management and operation of the sector will also be identified, to ensure achievement of policy objectives under the sector reform plan until it is reviewed and further improved. Implementation progress of the reform will be monitored using the key milestone events and deliverables described in the Time-Bound Policy Action Plan. 2. Road Improvements 37. The Project will finance improvements15 of about 1,700 km of state roads, which are part of the MPRSD, of parts of the two north-south and four east-west corridors, or connectivity roads linking with development centers and improved rural roads under the Prime Minister’s Rural Road Development Program - Pradham Mantri Gram Sadak Yojana (PMGSY). 38. ADB’s sector lending procedures were followed. A detailed feasibility study and engineering design of a sample subproject were conducted. ADB reviewed and evaluated them to ensure they complied with ADB’s policies, guidelines, and procedures for project preparation, including the technical, operational, economic, environmental, social and resettlement aspects. The sample subproject consists of road sections between Konta and Jagdapur in southern Chhattisgarh connecting with Andhra Pradesh. The subproject represents the common features of project improvement works, including pavement reconstruction for the entire length, and the widening of roads from single lane to intermediate lanes, and from intermediate lanes to two lanes. The subproject roads pass through a reserve forest, and by a tribal community. Supplementary Appendix C describes the Indigenous People’s Development Program for the sample subproject; Supplementary Appendix D describes the resettlement plan; and Supplementary Appendix E describes environmental assessment. The sample subproject preparation will be a model for GOC in the preparation of remaining subprojects during project implementation. 39. The remaining subprojects will be selected, prepared, and approved during project implementation in accordance with selection criteria and approval procedures agreed by GOC and ADB (Appendix 5 and Supplementary Appendix F). All subprojects must meet evaluation requirements, including that: (i) technical specifications and design criteria are met in

15 Road improvement works under the Project include mainly reconstruction of pavement, repair and strengthening of

major bridges and culverts, improvement of cross drainage systems, and reconfiguration of pavement (if traffic volumes and existing right-of-ways justify it).

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accordance with the IRC standard for state highways and major district roads, as well as IRC design codes, (ii) a road safety audit is conducted on all subprojects to identify areas of major concern, and review recommendations to be incorporated into the detailed engineering designs; (iii) compliance with ADB’s safeguard policies on environmental and social impacts of project, including policies on involuntary resettlement, indigenous people, gender, and HIV/AIDS, and (iv) an economic internal rate of return (EIRR) greater than 12%. ADB will review and approve the selection of all subprojects until ADB has full confidence in PWDGOC’s capacity to independently select and evaluate subprojects. ADB may in the future, decide to revise the subproject review and approval process for delegation of the approval of subprojects to PWDGOC. 40. The Project will implement a road safety program, including a community road safety program developed under the Rural Roads Sector I Project through close coordination and cooperation with CGRES. Road safety measures will include (i) to conduct road safety audits for all subprojects to identify problem areas and recommend improvements of engineering designs; (ii) to develop road safety plans that involve education, enforcement, driver training, standards of vehicle mechanical fitness, seatbelt and safety helmet requirements, and other measures to reduce damage from road accidents, and (iii) to develop a road accident database and conduct road safety audit on all major roads. C. Special Features

41. Chhattisgarh needs road improvements immediately. As the government of a new state, GOC has taken advantage of a dynamic momentum of development, and a better-off fiscal position since its founding, to initiate an ambitious program to improve the riding quality of arterial road corridors and priority roads. This has resulted in changes in road inventories and road conditions. Therefore, the MPRSD, which GOC approved earlier needs to be updated to provide an up-to-date base map to select the remaining subprojects (selection of the sample subproject and first group of subprojects was based on GOC’s priority investment program under the MPRSD). The sector lending modality provides the Project the flexibility to support this dynamic process of project preparation, and improve its readiness and implementation. 42. Construction quality and lack of maintenance after improvement are often concerns on the sustainability of development impacts of road projects in India. To address this, the Project will include, on a pilot basis, provisions in civil works contracts to require contractors to continue maintaining the same scope of works for a variable period of time from 6 to 8 years to include the first periodic maintenance. 43. The reform will enable GOC to more effectively manage state roads and ensure more reliable road transport to support Chhattisgarh’s social and economic development through two main channels. The first channel includes improving governance in public administration and accountability in public resource and asset management for state roads. Improving the sector capability and capacity will create a transparent and conducive environment for increased efficiency and competition. This, in turn, will promote higher-quality construction and road maintenance and more sustainable road infrastructure, and decrease recurrent costs of road maintenance over the medium and long terms. The second channel includes identifying sources of road sector revenue to support the establishment of a sustainable funding mechanism for road maintenance. The institutional improvement will provide better transparency and higher levels of competition to encourage private sector participation in road projects. That will offset GOC’s financial burden, and enable more funding of priority social sectors such as health and education to support poverty reduction.

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D. Cost Estimates

44. The total cost of the Project, in 2003 prices, is estimated at $285.7 million equivalent, of which the foreign exchange cost is estimated at $199.52 million, or 70% of the total cost of the Project. The local currency cost is estimated at $86.18 million equivalent, or 30% of the total cost of the Project. The cost estimate includes local taxes and duties, contingencies, a front-end fee of 0.5 % of the total loan amount, interest during construction (IDC), and a commitment charge. Appendix 6 summarizes the project cost estimates. E. Financing Plan 45. It is proposed that ADB provide a loan of $180,000,000, from its ordinary capital resources. That will cover 63% of the total Project cost. The loan will finance the entire foreign exchange cost of the Project, excluding the front-end fee, commitment fee and IDC16, as well as part of the local currency costs of domestic consulting services for subproject selection and preparation, and assistance to GOC in implementing the institutional reforms. GOC will provide the remaining local currency cost of $85.7 million equivalent. Appendix 6 includes a summary of a proposed financing plan. GOC has assured that it will secure the counterpart financing as committed. India will be the Borrower. 46. The loan will have (i) a 25-year term, including a 5-year grace period; an interest rate determined in accordance with ADB’s LIBOR-based lending facility; a commitment charge of 0.75% per annum; a front-end fee of 0.5%; conversion options that may be exercised in accordance with the terms of the Loan Agreement, the loan regulations, and ADB’s conversion guidelines; and other terms and conditions set forth in the draft Loan and Project Agreements. The Government of India has provided ADB with (i) the reasons for its decision to borrow under ADB’s LIBOR-based lending facility on the basis of these terms and conditions, and (ii) an undertaking that these choices were independent decisions and not made in reliance on any communication or advice from ADB. F. Implementation Arrangements

1. Project Management

47. PWDGOC will be the Executing Agency (EA) for the Project. Within PWDGOC, ARD will be responsible for overall project execution and supervision. A project implementation unit (PIU), with field offices at key locations, will be responsible for day-to-day project implementation and management. The Road Management Committee (RMC), to be formed in March 2004, will oversee and provide policy support and coordination for timely implementation of institutional reform and capacity building, and help monitor project implementation. 48. PWDGOC established the PIU, with four full-time staff, in September 2003 as the first step in creating ARD. PWDGOC will transfer more full-time staff to PIU in January 2004 for project management functions in accounting, planning, engineering, procurement, environmental planning and management, social analysis and management, resettlement planning and implementation, road maintenance, and road safety. These staff will form the core of ARD, and will be transferred to the ARD functional units as they are established.

16 The Borrower will pay separately the front-end fee, commitment charge and interest during construction.

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49. The RMC will, be chaired by the chief secretary, or his designate, with representatives from FDGOC, PWDGOC, CIDC, the Chhattisgarh Home (Police) Department, CGRES, the Chhattisgarh Planning Department, and selected external road stakeholders. RMC will meet at the state level monthly to monitor project performance and, use of funds from both the ADB loan and counterpart funds, and to ensure coordination among the key agencies. When needed, other agencies such as Department of Forestry and Environment, agencies for resettlement, and consultants may be invited to RMC meetings.

2. Implementation Arrangements and Schedule

50. Appendix 7 summarizes the implementation schedule. Besides the sample subproject, another 670 km of priority roads have been identified as candidate subprojects for further evaluation in accordance with the subproject selection criteria. The remaining 970 km of subproject roads will be identified from the updated MPRSD, using the selection procedures and criteria agreed upon by ADB and GOC. To ensure satisfactory project readiness for implementation and timely preparation of the remaining subprojects, PWDGOC has assured its full support to updating of MPRSD and providing all required inputs and analyses to the implementation consultants. 51. PWDGOC will prepare bidding documents and draft contracts for ADB’s review and approval for civil works and consulting services for institutional reform and construction supervision. Pre-construction activities, including the tendering of civil works contracts for the sample subproject, began in the third quarter of 2003, and will be completed by the second quarter of 2004. Project implementation is expected to take 5 years, from January 2004 to January 2009. The loan account will be financially closed in July 2009, 6 months after physical completion of the Project. 52. Considering that Chhattisgarh is a forest state and sensitive to environmental impacts of construction works, ADB’s safeguard policy requirements must be complied with strictly. To ensure that compliance, ADB will review and approve the selection of subprojects, especially assessments of social and environmental impact, mitigation measures, and implementation plans.

3. Procurement

53. ADB has approved advance procurement of civil works for the sample subproject. GOC has been advised that ADB’s approval of advance procurement actions does not commit ADB to approve the loan. All procurement to be financed under the loan will be in accordance with ADB’s Guidelines for Procurement. The road improvement works will be packaged into a number of contracts according to the nature of works, technical requirements, geographical location, and size of contracts. Appendix 8 has indicative contract packages, which will be finalized for ADB’s prior approval, and will be used during project implementation. Civil works contracts will be procured using international competitive bidding (ICB) for contracts of $1.0 million equivalent or more. Civil works contracts estimated to cost the equivalent of less than $1,000,000 will be procured through local competitive bidding (LCB). Civil works for the sample subproject will be tendered through ICB in one contract package. Packaging of the remaining works will be finalized during project implementation, with ADB’s concurrence before bidding. To expedite procurement, and considering that the nature of most civil works of most of the subprojects may be similar, pre-qualification (PQ) of contractors will be based on different thresholds of contract size—$10 million, $20 million, and $30 million— so PQ can start immediately. The PQ will remain valid for 18 months after the conclusion of PQ evaluation.

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54. Procurement of equipment to strengthen PWDGOC’s road management capacity includes that for (i) traffic counting and road condition survey; (ii) laboratory and material testing equipment; (iii) pavement management; and (iv) equipment for operation of the proposed ARD/DRA, including the financial accounting system, management information system, and environmental monitoring. Equipment financed under the Project will be procured using ICB procedures if the estimated contract amount is equal to or above $500,000, and international shopping if the estimated contract amount is less than $500,000. Contract packaging for equipment will be based on required technical features and timing of procurement. Detailed specifications will be finalized during project implementation.

4. Consulting Services

55. Under the Project, consulting services will be required to help PWDGOC implement institutional reforms and supervise construction. Separate teams of international consultants will be contracted in association with domestic consultants. Supplementary Appendix G has terms of reference for the institutional reform and Supplementary Appendix H has terms of reference for construction supervision. 56. Institutional reform will required about 60 person-months of international and 20 person-months of domestic consultants. The consultants will provide expertise in governance and sector policy, transport economics, road engineering, road safety, financial analysis, project financing, financial accounting and management, and social and environmental management. The consultants will provide training in these areas to help GOC build capacity for better sector management. The consultants will also provide training through seminars and workshops on dissemination of findings and recommendations on the institutional reform and its impacts on state roads management. 57. About 198 person-months of international consulting services will be required for (i) subproject selection and preparation (30 person-months); (ii) construction supervision and project implementation (160 person-months); (iii) monitoring and evaluation, using criteria of the project performance management system (PPMS) (3 person-months); and (iv) an environmental specialist (5 person-months) for environmental management and monitoring. Under each service, the consultants will provide on-the-job training to counterpart staff and domestic consultants. Domestic consulting services will be provided for construction supervision (1,080 person-months), and contract management and technical advisory assistance (20 person-months). Fifteen person-months of domestic consulting will be required to help the international consultants monitor projects on social and poverty reduction. 58. Training will be organized for staff of the ARD in construction supervision for bridge maintenance, pavement management, quality control, maintenance planning, and social and environmental monitoring and management. The supervision consultants will design training programs and select suitable training institutions for those subjects. GOC will submit a list of proposed candidates, together with the training programs, to ADB for prior review and concurrence. 59. International consultants financed under the Project will be recruited through quality and cost-based selection, in accordance with ADB’s Guidelines on the Use of Consultants. PWDGOC has agreed to incorporate the provisions of ADB’s anti-corruption policy in all invitation documents and contracts for consultants. Domestic consultants will be recruited in accordance with procedures satisfactory to the ADB.

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5. Disbursement Arrangements

60. Loan disbursements will be in accordance with ADB’s Loan Disbursment Handbook, January 2001, and Interim Guidelines for Disbursement Operations, LIBOR-Based Loan Product, July 2002. Loan funds for civil works, procurement of equipment, and consulting contracts will be disbursed using direct payment and reimbursement procedures, in accordance with ADB’s Loan Disbursement Handbook.

6. Accounting, Auditing, and Reporting

61. PWDGOC will make arrangements that are satisfactory to ADB for reporting progress of project implementation. PWDGOC will submit to ADB quarterly progress reports on project implementation in such form and detail as ADB may reasonably require. The results of monitoring of the social and environmental impacts of the Project should be incorporated in the quarterly reports. PWDGOC will prepare and submit to ADB, within 3 months of project completion, the project completion report with detailed assessment of the design; implementation; costs; performance of PWDGOC and ADB consultants, and contractors; attainment of benefits; economic reevaluation; socioeconomic and environmental impacts; and other information that ADB requests. 62. PWDGOC will maintain for the Project separate records on goods and services financed from the loan, financial resources received, expenditures, and use of local funds. The accounts will be set up in accordance with sound accounting principles. Independent auditors, acceptable to ADB, will audit the accounts. PWDGOC will submit the audited project accounts to ADB within 9 months from the end of the previous fiscal year. GOC and PWDGOC have been advised of ADB’s requirements for improving compliance with timely submission of audited project accounts, and the possibility of suspending disbursements if submission is delayed.

7. Project Performance Monitoring and Evaluation (PPMS)

63. Supplementary Appendix I gives a set of indicators and target values for monitoring project performance and estimating attainment of the envisaged project goals, purposes, outputs, and conditions. PWDGOC will input baseline indicators when the Project begins. Consultants for construction supervision will provide expertise in the PPMS design, implementation, maintenance, monitoring, and performance evaluation. Assistance and training will be provided in establishment of the PPMS database, data identification and collection, data screening and entry, data processing and analysis, PPMS system management and maintenance, project performance monitoring and evaluation, and reporting. Subsequently, indicator values will be observed during project implementation, at project completion, 1 year after project completion, and 5 years after project completion.

8. Project Review

64. GOC and ADB will carry out a midterm review by the end of 2006, in addition to ADB’s regular and special reviews of project implementation. At the midterm review, GOC and ADB will review in detail the project design and implementation progress to identify areas for strengthening, and improvements to ensure smooth implementation and achievement of the project objectives. The review will focus on specific measures agreed with PWDGOC on making policy changes and institutional improvements, assessing funding requirements and budget allocations for road maintenance, updating the MPRSD, and improving quality management.

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The measures include ADB’s monitoring and supervision of institutional improvement; prior review and approval of subproject selection; implementation of action plans for mitigation of adverse project impacts on environmental and social aspects, and of involuntary resettlement; bidding documents; bid evaluations; and contract execution. The project review will also include review of project progress reports, to be prepared by PWDGOC and implementation consultants, and review of the performance of supervision consultants and contractors.

IV. PROJECT BENEFITS, IMPACTS, AND RISKS 65. The project benefits and impacts, and potential risks, were assessed. The integrated benefits and impacts will outweigh the costs, and the Project will bring net benefits. A. Policy and Institutional Improvements

66. Improving management of the state road sector will enable GOC to more efficiently manage state roads and ensure more reliable road transport services to support Chhattisgarh’s social and economic development. Development will be through improving governance in public administration and accountability in sector resource and road asset management, and improving sector capability and capacity to create a transparent environment that is conducive to increased efficiency and competition. This, in turn, will ensure higher quality of construction and maintenance and more sustainable road infrastructure. Road improvement will also decrease recurrent costs of road maintenance over the medium and long terms, and enable more funding of priority social sectors such as health and education to support poverty reduction. 67. Institutional reform will result in more reliable institutional and policy frameworks. Reform will also provide the capacity to ensure that the investments under the sector approach will be implemented successfully, and that project-generated development can be sustained through improved governance and accountability. Support proposed for asset management and improvement of sector management will ensure that roads improved under the Project are adequately maintained. B. Economic Benefits

68. The EIRR was calculated by comparing the with-Project and without-Project situations for the sample subproject. Without the Project, traffic volume would exceed the capacity of the roads, which would then become congested, leading to increase in travel time and vehicle operating costs (VOCs). With the Project, higher speeds will reduce travel time and faster and smoother rides) on the improved project roads will reduce VOCs. 69. Economic analysis was carried out using HDM-4. The model evaluates the project investment, considering capital and recurrent costs as well as benefits derived from savings in road user costs for the “with” and “without” project cases. In the economic analysis the project life was assumed to be 20 years. The economic costs of the Project include the resource costs for construction, operation, and maintenance; and the social costs of compensation for land acquisition and resettlement. The economic benefits were quantified in terms of VOC savings for existing traffic.

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70. The economic analysis subdivided the project road into three homogeneous sections, which were defined based on traffic volumes derived from the traffic analysis, roughness observed during the surveys, and altitude and gradient of the roads. The analysis investigated two project road improvement options. Option 1 was to improve the existing road to an intermediate lane standard of 5.5 m. Option 2 was to improve to the project road to a two-lane standard of 7.0 m. The estimated EIRR for the Option 1 road is 18.3%; and for Option 2, 17.5%. that indicates that the Project is economically viable under either option. The Project recommends Option 2 for improvement of the sample subproject. Appendix 8 summarizes the economic analysis. Supplementary Appendix J gives further details. 71. Sensitivity of the Project road for each option was analyzed with respect to changes in the benefit and cost streams. Seven sensitivity test cases were examined: (i)a 20% increase in construction costs, (ii) a 20% reduction in benefits,(iii) a 50% decrease in traffic growth rates, (iv) no generated traffic benefits, (v) a 2-year project implementation delay, (vi) less than optimal road maintenance, and (vii) a combination of a 20% increase in capital costs and a 20% reduction of benefits. Results show that the quantified economic benefits are quite robust to the various sensitivity tests, and the Project remains economically viable. The only test in which the EIRR falls below 12% is for Option 2, if the traffic growth rates decreased by 50%. Switching values were determined for capital costs and economic benefits. The capital cost would have to increase by 75% in Option 1, and by 66% in Option 2, to reduce the EIRR to 12%. The benefit level would have to decrease by 42% in Option 1, and by 38% in Option 2, to achieve the same effect on the EIRR. A risk analysis using the @Risk computer program was undertaken to determine the risk of the EIRR falling below 12% for the two options. The probability of the EIRR of Option 1 falling below 12% is 4.8%; but the probability of the Option 2 EIRR falling below 12% is only 11.5%. Supplementary Appendix K, Project Risk Analysis fully describes the methodology and assumptions used in the risk analysis. C. Poverty Reduction

1. Poverty and Socioeconomic Impacts 72. Chhattisgarh is one of India’s poorest states. About 45% of Chhattisgarh’s population lives below the official poverty line compared to 35% for India as a whole.17 The Project is classified as “poverty intervention” and will contribute directly to poverty reduction by lowering transport costs. The benefits will become evident in higher profit margins for agricultural products for poor farmers, and cheaper and faster access to schools, medical clinics, and employment centers. Lower transport costs will increase mobility among the poor, especially poor women, who will be able to reach social centers easier, and become more politically active, thus increasing the empowerment of the poor. 73. Improving the 100-km sample subproject in Dantewada district will have a large effect on reducing poverty, it will directly benefit 236,000 people in a 30-km zone of influence. About 116,000 poor people will be direct beneficiaries, or about 50% of the total direct beneficiaries.18 Estimates of beneficiaries include only those who will benefit in the long run from the lower transport costs and induced economic and social development. This head-count approach gives a higher estimate of poor beneficiaries in the Project’s influence area than the incidence of poverty in Chhattisgarh.

17 The poverty line used to define the “poor” is India’s nationally recognized estimate of income of Rs400/person per

month. 18 Final Report on Poverty Impact Assessment for the Government of Chhattisgarh under ADB TA 3995-IND.

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74. Analysis of the level of benefits going to the poor has been examined by varying the competition levels and changes in freight rates and passenger fees. The analysis indicated that project benefits, as envisaged, are expected to be passed on to the poor. Supplementary Appendix K gives details.

2. Poverty Impact Ratio 75. Based on field work results, and many survey responses, distribution analyses and calculation of a poverty impact ratios (PIRs) were conducted for Options 1 and 2. The PIR for Option 1 is 1.07 and for Option 2, 1.17. The PIRs indicate that the total net economic benefits reaching the poor will exceed the Project’s net economic benefits.19 This ratio is higher than India’s incidence of poverty, and income share of the poor. These findings strongly indicate that the Project is highly pro-poor. Appendix 8 and Supplementary Appendix J describes the analyses. The PIRs calculated were also subjected to a risk analysis, which is further described in Supplementary Appendix K, Project Risk Analysis. 76. The estimates do not include the expected benefits to the poor of improving tertiary roads for rural connectivity, a project component. Additional benefits will probably be substantial, because the tertiary roads link poor farmers and their villages with state roads that are now impassable during the monsoon season. Selection of the rural connector roads to be included in the Project will be based mainly on criteria for poverty reduction. D. Social and Environment Impacts

1. Social Impacts

77. An initial social assessment (ISA) was conducted for the entire scope of the proposed project. ADB reviewed and confirmed the ISA findings and recommendations through community consultations and further social assessment, which indicated unanimous support for road improvements. Key reasons for public support of the road network include poor road conditions and, resulting traffic accidents, and road congestion, particularly in urban areas. Also, small roadside businesses offer the poor a valuable source of income. Improvement of the sample subproject from Konta to Jagdalpur, a seriously deteriorated link to NH43, which connects Chhattisgarh and Andra Pradesh, is expected to facilitate through traffic for intra- and inter- state freight and passenger traffic, and reduce travel time substantially. 78. Detailed engineering design, based on community consultations and social assessments for selected state highways, will improve road shoulders to enable safe access for pedestrians and slow traffic, bus stops with seating, wayside amenities, and truck stops that cause minimal road congestion. Such amenities will be included as long as they do not entail land acquisition and resettlement. The design will include information signs, and speed breaks near schools, hospitals, and congested areas. Assessment of the social and poverty impacts provides the basis for integrating social concerns, and is part of the criteria for selecting subprojects (Appendix 5 and Supplementary Appendix L).

19 The poor will receive most of the gross economic benefits, but will contribute only a small share of gross

investment costs.

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2. Resettlement

79. The subproject selection criteria and technical design have recommended road improvements that will not entail land acquisition and involuntary resettlement. PWDGOC has prepared a resettlement plan for the sample subproject and a resettlement framework for the sample subproject. ADB’s policy requirements were followed for involuntary resettlement under sector lending, and for the mitigation of adverse effects on affected people. GOC will prepare a resettlement plan for each subproject, and submit them to ADB for approval before awarding of civil works contracts. 80. An institutional assessment showed that PWDGOC’s capacity to undertake resettlement responsibilities should be strengthened. The Project will contribute, through consulting services for institutional improvement, to strengthening of the capacity to manage resettlement by conducting workshops and seminars to create social awareness and strengthen coordination among government and civil societies that address resettlement problems, particularly those that concern road improvements. 81. To support the initiative for road sector development, a project environment and social unit (ESU) will be established within ARD, then within DRA. Through its responsibilities for social impacts and safeguards, ESU will be responsible for assessments of social impact, including (i) monitoring the implementation of resettlement plans and social mitigating measures for projects, (ii) implementing measures to mitigate social and resettlement impacts, (iii) implementing resettlement plans that GOC has approved, and are acceptable to ADB, and, (iv) capacity building for ARD and DRA in undertaking those responsibilities. Supplementary Appendix D gives the resettlement framework and Supplementary Appendix M, the summary resettlement action plan for the sample subproject.

3. Indigenous People 82. About 44% of Chhattisgarh’s population is tribal and scheduled castes.20 The Project is confined to existing road alignment, so it will not affect such groups within its area of influence. The improved road network will improve access to services and economic opportunities for tribal people and scheduled caste groups, as well as all segments of the state’s population. Because of the high percentage of tribal and scheduled caste populations in the areas of project influence, a detailed analysis of the status of, and a review of GOC’s current policies for, the development of indigenous people was conducted under the PPTA (Supplementary Appendix N). That was to enhance distribution of project benefits and to recommend practical measures to promote the development of indigenous people. A framework Indigenous People Development Plan (IPDP) was also prepared (Supplementary Appendix C).

4. Environmental Aspects

83. The Project is categorized as a “B” project in accordance with ADB’s Environmental Assessment Guidelines 2003. The Project, which mostly involves improving existing roads within the right-of-way, is not subject to the 1994 India Environmental Assessment Notification. 20 A “scheduled tribe” is among the weaker sectors of India’s population. Article 342 of India Fundamental Rights,

which are enshrined in the Constitution, defines “scheduled tribes” as specific tribes or tribal communities, or parts of or groups within tribes or tribal communities. "Scheduled caste” is defined as the lowest caste in the Hindu caste system.

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The initial environmental examination (IEE), which included an environmental management plan for the sample subproject, was prepared in accordance with ADB’s Environmental Assessment Guidelines 2003. 84. The IEE shows that the sample subproject may generate minor environmental impacts during construction. But with construction activities limited to improvement of the existing road sections, environmental impacts will be limited to effects associated with earthwork, and the movement and storage of construction materials. Most environmental impacts during operation will be related to vehicle emission and, in some road sections, to embankment erosion. Mitigation measures related to construction, specified in the environmental management plan, will be incorporated into civil works contracts. Implementation of mitigation concerning construction will be the contractors’ responsibility. But PWDGOC will be responsible for implementing the environmental management plan. 85. For the remaining subprojects, the environmental assessment and review procedures will follow the model of the sample subproject, including that (i) PWDGOC will prepare the IEE including the environmental management plan for each remaining subproject, and submit the IEE reports to ADB; (ii) PWDGOC will hire an environmental consultant to prepare IEE reports for the remaining subprojects; (iii) PWDGOC will review, then submit the IEE reports to ADB; (iv) PWDGOC will supervise and monitor implementation of the environmental management plans, including environmental mitigation measures described in the IEE reports; and (v) PWDGOC will submit to ADB progress reports on the implementation of the environmental management plans. The Project will finance no subprojects that pass through national parks or sanctuaries, or that widen road sections within reserve forests. 86. To address environmental concerns related to the Project, and future road projects, PWDGOC will establish the ESU. During the first year of project implementation, the embryo of ESU will be part of the PIU, with staff assisted and, trained by domestic consultants. The ESU is expected to operate fully in the second year of project implementation. 5. HIV/AIDS and Human Trafficking 87. Appendix 9 gives a detailed analysis of HIV/AIDS. Given the status of HIV/AIDS in Chhattisgarh and ongoing activities of the Chhattisgarh AIDS Control Society (CACS), the Project will use existing resources in the best manner possible to support HIV/AIDS preventive measures in connection with CACS’s established activities. Project support will include (i) conducting awareness campaigns among targeted risk groups and the general public, and (ii) linking and coordinating with CACS and its ongoing HIV/AIDS programs. Non-government organizations that have worked through ongoing projects of CACS are conducting awareness campaigns for high-risk groups. The Project will address HIV/AIDS concerns during construction. The contractors will conduct awareness training on HIV/AIDS for construction workers. The training programs and materials should be designed and conducted by staff of CACS or qualified non-government organizations (NGOs) in accordance with ongoing CACS campaigns and awareness programs. This requirement will be stipulated in all civil works contracts. Consultants for construction supervision will be responsible for monitoring the contractors’ implementation of programs. Findings and recommendations of the monitoring should be reflected in project progress reports and submitted to ADB for review. 88. There is no official evidence of human trafficking in Chhattisgarh. No donors have sponsored studies to confirm official data on human trafficking. The human trafficking issue remains to be studied through continued policy dialogue with GOC, field surveys and social

20

works, surveillance and monitoring by state agencies, and NGOs to identify problem areas and measure their implications for future projects. E. Project Risks and Safeguards

89. Projected risks that the economic evaluation will not prove the Project feasible have been examined in detail. The Project’s economic analysis has been subjected to a comprehensive risk analysis to examine the effects of several key variables, namely (i) traffic volumes in the base year, (ii) traffic growth rates, (iii) capital costs, (iv) maintenance costs, and (v) generated traffic. The @Risk computer program was used for risk analysis. Results indicated that the probability that the EIRR of Option 1 will fall to less than 12% is only 4.8%, and the probability of the EIRR of Option 2 falling below 12% is only 11.5%. These low probabilities indicate that the economic evaluation is "robust" to variations in main parameters used to determine economic viability. The methodology and assumptions used in the risk analysis are described fully in Supplementary Appendix K Project Risk Analysis. 90. Risks to institutional reform relate to GOC’s commitment to, and ownership of, the Project, and GOC’s abilities in make policy changes. As an ADB focal state, GOC is reform-oriented. Good governance and good infrastructure are primary development goals. GOC has initiated institutional reforms to establish the DRA and improve its business process and management of state roads, and has requested ADB’s assistance in designing and implementing the reform. During the entire Project processing, and through intensive policy dialogue, GOC has confirmed that reform is Chhattisgarh’s priority for road development. To further mitigate the risks, the Time-bound Policy Action Plan was prepared, and agreed upon by ADB and GOC (Appendix 4). The plan highlights milestones of policy measures and policy changes that GOC will make within the timeframe. It will be covenanted in the Loan and Project Agreements for the Project. 91. Risks for investment are limited to quality control because of PWDGOC’s current capacity constraints on contract management and work construction supervision, and limited work experiences with international contractors. This can be mitigated by consulting services for construction supervision and capacity building for PWDGOC on contract management and quality control. Contracts have been divided into relatively large packages to attract both international and large, qualified domestic contractors, to ensure good performance and high-quality construction. GOC and ADB have agreed to have intensive reviews of implementation progress and issues, and of performance of consultants and contractors. 92. Intensive preparatory works and studies were carried out on the impacts of the sample subproject, which represents the main technical, social, and environmental features of the majority Chhattisgarh road network. GOC has prepared and approved a resettlement plan, an IEE, an indigenous people’s development program, a resettlement policy framework, and an indigenous people’s development framework. ADB reviewed and found those safeguard documents acceptable. Furthermore, specific requirements were incorporated in the subproject selection criteria and covenanted in the Loan and Project Agreements, to ensure full compliance with ADB’s safeguard policy requirements and guidelines.

21

V. ASSURANCES A. Specific Assurances

93. In addition to the standard assurances, GOI and the GOC have provided the following assurances which have been incorporated into the legal documents:

(i) General. The Borrower will ensure that GOC implements measures included in the Time-Bound Policy Action Plan (Appendix 4) in a timely manner.

(ii) Institutional Reform:

(a) The Borrower will ensure or cause GOC to ensure that the responsibility

and authority for state road management are effectively integrated and vested, within the time frame described in the Time-Bound Policy Action Plan, into ARD to later be transferred to DRA, which GOC will establish by 31 December 2006.

(b) GOC will ensue or cause PWDGOC to ensure that the capacity building and training programs for PWDGOC staff, and evaluation of the programs, are carried out diligently, to GOC and ADB’s satisfaction, and that necessary measures are adopted to endeavour that trainees remain in service for at least 2 years after completion of training.

(iii) Environment:

(a) The Borrower will ensure or cause GOC to ensure that the Project is carried out and all project facilities are designed, constructed, operated, maintained, and monitored in compliance with the existing environmental laws and regulations of the Borrower, the State, and ADB’s Environmental Assessment Guidelines (2003), as may be amended from time to time.

(b) The Subprojects do not include road segments passing through national parks or sanctuaries, and the clearances required by the Borrower’s Forest Act (1991) and Environment Protection Act (1986) with respect to segments passing through reserve forests are obtained in a timely manner prior to commencement of construction at such segment.

(c) The Borrower will ensure or cause GOC to ensure that all mitigation measures identified in the IEEs, and environmental monitoring and management plans (EMMPs) prepared for the subprojects, are incorporated in the subprojects’ designs, and are carried out during their construction, operation, and maintenance in consultation with stakeholders.

(d) GOC will prepare or cause PWDGOC to prepare an IEE report, including an EMMP, with adequate public consultation for each remaining subproject. The IEE report will be submitted to ADB for approval.

(e) GOC will ensure or cause PWDGOC to ensure that no construction is undertaken on any subprojects before required statutory clearances are obtained.

(f) GOC will establish or cause PWDGOC to establish an ESU within ARD, and consequently in DRA, to be responsible for preparation of IEEs and

22

EMMPs for the subprojects; environmental management, including environmental monitoring; implementation of the EMMPs, including mitigation measures regarding adverse environmental impacts; preparation of the social impact assessments and, if required, resettlement and indigenous people’s development plans for the subprojects, and, monitoring of the implementation of such resettlement plans, and health and safety programs.

(g) GOC will design or cause PWDGOC to design and conduct appropriate training programs for ESU staff on topics related to their areas of responsibility as stated in (e) above.

(iv) Social measures. GOC will ensure or cause PWDGOC to ensure that technical

design for road works under the Project does not require land acquisition or widening of the existing rights of way. Selection of subprojects will be limited to only those of significance categories B and C. Further specific assurances are given below.

(a) The checklists for involuntary resettlement, indigenous people’s

development, and initial poverty and social assessments will be prepared and submitted to ADB, together with other required subproject selection procedures, for review and approval before finalization of subproject selection.

(b) GOC will ensure or cause PWDGOC to ensure that resettlement plans, initial poverty and social assessments and indigenous people’s development plans, if required, will be prepared in accordance with ADB’s Handbook on Resettlement – A Guide to Good Practice, ADB’s Handbook on Incorporating Social Dimensions, and Draft Handbook on Poverty and Social Analysis , Guideline for Indigenous People Development. The plans and assessments will be submitted to ADB for approval.

(c) GOC will ensure or cause PWDGOC to ensure that all compensation payments and resettlement assistance be provided to the affected people before displacement.

(d) GOC will ensure or cause PWDGOC to ensure that resettlement plans are updated and modified to incorporate any changes necessitated by the detailed engineering designs prepared for the subprojects in accordance with requirements in the above assurances.

(v) Others:

(a) Health risks. GOC will ensure or cause PWDGOC to ensure that

provisions are stipulated in all civil works contracts to require contractors employed under the Project to undertake awareness campaigns and education programs on prevention of HIV/AIDS prevention for construction workers as part of the health and safety programs at campsites during construction.

(b) Road maintenance. GOC will allocate or cause PWDGOC to allocate adequate budgets for maintenance of all state roads. PWDGOC and ADB will jointly review the needs assessments and budget proposals for road maintenance in February of each year to ensure updating of the funding requirements, and their inclusion in PWDGOC’s submission for cabinet

23

budget discussion and determination of budget allocations for the next fiscal year.

(c) Road safety. GOC will adopt or cause PWDGOC to adopt the community road safety program developed under the ADB’s Rural Roads Sector I Project for state roads, especially for accident-prone zones near urban areas and large settlements.

(d) Labor Laws. GOC will ensure or cause PWDGOC to ensure that contractors comply with all applicable labor laws, do not employ child labor for construction and maintenance, and provide child-care facilities at construction campsites. GOC will set employment targets for women for road construction activities, and require contractors not to differentiate wages between men and women for work of equal value. Bidding documents will include a specific clause regarding this. Compliance will be monitored strictly during project implementation.

V. RECOMMENDATION 94. I am satisfied that the proposed loan would comply with the Articles of Agreement of ADB and recommend that the Board approve the loan of $180,000,000 to India for the Chhattisgarh State Roads Development Sector Project from ADB’s ordinary capital resources, with interest to be determined in accordance with ADB’s LIBOR-based lending facility; a term of 25 years, including a grace period of 5 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft Loan and Project Agreements presented to the Board.

Tadao Chino President

24 November 2003

24 Appendix 1

SUPPLEMENTARY SECTOR ANALYSIS 1. The sector analysis in this appendix supplements the analysis in the main text, and focuses on the current road maintenance system. Chhattisgarh’s road network has deteriorated seriously because of a 10-year neglect of investment in road development and maintenance. Of 35,000 km of state roads, about 25% are in very poor condition and only 10% are in fair condition. The other 65% of the state roads are in poor condition. This situation was caused mainly by three factors:

(i) Lack of quality control and supervision of road maintenance works, which is outsourced to private contractors, is poor.

(ii) Lack of capability and capacity in modern road maintenance. Equipment for routine road maintenance is inadequate and obsolete; and

(iii) PWDGOC’s capacity and qualified expertise for road maintenance management needs immediate improvement and modernization.

2. Since the founding of Chhattisgarh state, the Government of Chhattisgarh (GOC) has allocated necessary budget to improve the riding quality (IRQ) of state roads through major repairs and periodic maintenance. The IRQ program will be continued for all state roads. Analysis of the actual budget allocation for road maintenance over the past 3 years shows that GOC has given a reasonable emphasis on road maintenance as a whole. Also, analysis of labor use and employee assignment showed that all casual labors and 50% of work charges were assigned for road maintenance. The main problems with road maintenance are quality control and the planning and management of maintenance. A. Existing Road Maintenance Activities

3. Chhattisgarh’s road maintenance system is based on the standard Public Works Department Manual (PWDM), which was published almost a century ago and has been modified periodically. The PWDM includes guidelines on duties and, working and administrative procedures, but lacks instructions for financial authority and indicators of performance monitoring and evaluation. The PWDM specifies (i) establishment of the Public Works Department, (ii) works it will carry out, (iii) special rules for irrigation and navigation, and (iv) work accounts. The PWDM categorizes PWDGOC operations as (i) original works, new works, alterations, and additions; and (ii) repairs and maintenance. B. Organizational Arrangement for Road Maintenance

4. The following positions form a management tree with key responsibilities for road development and maintenance. They cover decisions on planning, budget preparation and allocation, assignment of tasks, implementation arrangements, monitoring, and performance evaluation. The positions comprise (i) secretary, (ii) engineer-in-chief, (iv) chief engineers for zones, (iv) superintendent engineers, (v) executive engineers, (vi) sub-divisional engineers, and (vii) sub-engineers, or technical assistants. 5. Detailed responsibilities of the positions, with its specific road maintenance activities, are in the following sections.

Appendix 1 25

C. Working Procedures

6. Three steps are required before PWDGOC can begin any work, other than repair, with its own funds:

(i) administrative approval (concurrence from the responsible and competent authority),

(ii) technical sanction (based on detailed estimates by the responsible authority), and

(iii) appropriation and re-appropriation of funds (allotment or rejection of funding requirements).

7. The two types of maintenance activities are:

(i) routine maintenance, performed by casual labor with minimal technical guidance and little supervision, and with no clear budget allocation except salary for labor and materials; and

(ii) periodic maintenance, carried out either on schedule or in response to needs. D. Routine Maintenance Activities

8. Laborers have traditionally carried out routine road maintenance. The labor crews have not been provided with appropriate tools and equipment because of scarcity of funds, or because the tools provided are obsolete. 9. The distance that the crews cover is more than they can handle with the equipment provided. The crews usually walk or bicycle to their work. All routine maintenance work is through direct engagement of local contractors who, in turn, hire the labor. PWDGOC provides materials for routine maintenance, or PWDGOC procures the materials locally through its local branch offices. 10. Routine maintenance normally includes patching; sealing of cracks; cleaning of ditches; dressing of slopes; trimming of tree branches; and white washing of safety posts, parapets, and hill cut slopes. E. Periodic Maintenance

11. For periodic maintenance, officers in charge of each section prepare proposals based on inspections, which are mostly visual and with no appropriate testing. The officers then prepare assessment reports and itemized estimates of materials needed. Most drawings for supplementary reference to the detailed estimates are done manually. 12. The estimates are prepared mostly for periodic maintenance, scheduled over 6–8 years. In most cases, the type of treatment is predetermined, with no substantiating investigations of actual road conditions or performance indicators. 13. PWDGOC has trucks, bitumen boilers, static rollers, and drum mix plants for periodic maintenance activities generally known as renewals. But the equipment has not been fully used or maintained, and has become obsolete, because of ineffective recovery of costs of capital, maintenance, and operations. Because GOC decided to outsource road maintenance and other

26 Appendix 1

road works to the private sector, no further budget allocations have been made to operate or refurbish the equipment. 14. The PWDGOC publishes it normal rates for manual and mechanized works. The rates are estimated based on approved sources of material and established average lead distances to the nearest sources. F. Business Process for Periodic Maintenance

15. The business process for periodic maintenance is initiated at the section level by collecting data on road conditions and updating the maintenance activity chart, based on the last periodic maintenance. The estimates are then forwarded for scrutiny and verification, then to the sub-divisional officers, then to the divisional officers or executive engineers. The executive engineers compile data, with details of the previous year’s allocations to concerned sections. 16. The chief engineers further compile zonal-level details from each division. The chief engineers prepare summary estimates detailing the number of kilometers to be maintained, and structures to be repaired or replaced. These details are forwarded to the engineer-in-chief who compiles the data, assisted by chief engineer (planning), and issues job orders for periodic maintenance. PWDGOC maintains no database on road sections for either long-term or short- term planning. 17. The PWDM specifies the following data collection frequencies for preparing cost estimates for periodic maintenance, and to rationalize the maintenance program: (i) traffic count: twice yearly, (ii) road condition: once yearly, and (iii) surface condition: once yearly. But these data collections are not being implemented because funding and expertise are lacking. G. Budget Approval

18. The estimates, prepared by the engineer-in-chief, are proposed to the Secretary, along with other requirements for budget approval. Based on the approved budget, the engineer-in-chief consults with the zonal chief engineers and chief engineer (planning) about distributing the funds. The main PWDGOC criteria for distributing funds are:

(i) review of bar charts for the past 5 years on periodic renewal, (ii) condition of the road and severity of the problems, and their effects on delaying

planned activities. (iii) intervention criteria based on road condition and available funds, (iv) implementation arrangements, and (v) identification of eligible contractors.

19. Contractors are registered according to financial capability and equipment capacity. The registrations are renewed or cancelled, based on contractors’ performance. The registration and classification of contractors have been revised following the provisions in the PWDM. The revised thresholds for registration of contractors by class and person delegated authority to register these contractors are given in Table A1.1.

Appendix 1 27

TABLE A1.1: Registration Thresholds

Class Financial Capability

Authorized Contact Person for Contractor’s Registration

A-I Rs1 million Chief engineer A-II Rs5 million Chief engineer A-III Rs10 million Engineer-in-chief A-IV Rs40 million Engineer-in-chief Unlimited Engineer-in-chief Rs= Indian rupee(s) Source: project participatory technical assistance (PPTA) final report and loan processing missions. 20. As part of the registration requirements, contractors must supply the certificates certified by the executive engineers. H. Tendering

21. Periodic maintenance works are tendered to short-listed contractors based on sealed tenders that have been invited in an open and public manner by advertising in local or national newspapers. The criteria for advertising are (i) as much as Rs500,000 for publication in regional or local newspapers in regional languages; (ii) Rs500,000 to Rs2,000,000 for publication at the district level in two newspapers and at the state level in the regional language; and (iii) higher than Rs2,000,000 for publication in English-language newspapers, and in two regional newspapers. I. Bid Evaluation

22. Bids are evaluated based on guidelines in the PWDM. The guidelines were recently updated for implementation. For bid evaluation, a committee is formed including PWDGOC and FDGOC. 23. Bids are invited from qualified and registered contractors. Based on the financial proposals and bid evaluation guidelines specified in the PWDM, PWDGOC is considering the adoption of bid evaluation procedures and applications for national highways projects. J. Quality Control

24. Combined teams of representatives of PWDGOC and the contractor’s normally carry out quality control. This mechanism is not practical for small works. In most cases, the mechanism is not implemented, so there is a lack of supervision or quality control. K. Monitoring System for Contractor’s Performance

25. Contractors that perform poorly are not allowed to bid for future contracts. New guidelines with special conditions to address non-performing contractors, or irregularities in their execution of contracts, have not yet been implemented. Payments are monthly, but are usually late because of funding constraints. Contractors can neither claim extra payment for the delays,

28 Appendix 1

nor choose the mode of compensation. The superintending engineers and chief engineers arbitrate claims for the PWDGOC. L. Recording and Measurement

26. Sub-engineers record measurements to be agreed upon by contractors. Sub-divisional engineers check the measurements. The agreed-upon and verified measurements are entered into a measurement book. The divisional accountants verify the bills of payment before the bills are forwarded to the executive engineers (payment officers) for final check and payment. The executive engineers check 10% of the total payments made. 27. The current road maintenance system needs major reform and restructuring. Current guidelines should be revised and updated substantially, following international norms and other more effective models in India, such as that implemented by the National Highway Authority of India. M. PWDGOC Budget for State Roads and Bridges As of March 2003 28. In addition to the sector budget and expenditure analysis in the main text, further information is provided in the tables below for annual expenditures by the end of March 2003. The information excludes plan and non-plan works on national highways funded by the Ministry of Road Transport and Highways, but National Highways Zone employees and office costs are included in PWDGOC administration.

Table A1.2: Budget for State Roads and Bridges, PWD as of 29 March 2003 (Rs millions)

2001–2002 2002–2003

Budget Head Description Allotment

Actual Expenditure Allotment

Actual Expenditure Apr-Feb 03

0101 A. General State Plan Minimum Requirement Program 18.7 17.9 450.4 559.5

1833 Land Acquisition 0.0 0.0 0.0 0.0 3775 Railway Safety Fund Works 15.0 15.8 10.0 7.8 4151 Major Bridge Construction: Bridge Corp. 7.2 2.3 12.2 6.7 6589 Major Bridge Construction: NABARD 61.8 58.5 164.4 85.1 6590 Rural Roads Works – NABARD 61.8 28.5 235.0 148.1 8716 Central Road Fund Works 311.8 326.4 232.1 275.5

Total General State Plan 476.2 449.4 1104.1 1082.6

Appendix 1 29

2001–2002 2002–2003

Budget Head Description Allotment

Actual Expenditure Allotment

Actual Expenditure Apr-Feb 03

0102 B. Tribal Area Sub-plan

Minimum Requirement Program 0.0 0.0 0.0 0.0

3115 Land Acquisition 0.5 0.0 0.5 0.1 4149 Major Bridge Construction: Bridge Corp. 15.2 6.8 16.8 24.9 4861 Special Works Under Subsection 275

(1) 208.7 3.3 200.0 57.6

5225 Major Bridge Construction: NABARD 64.9 50.7 246.6 107.7 6590 Rural Roads (New Work): NABARD 0.0 0.0 0.0 0.0 7654 Road Construction in Tribal Areas 80.6 68.7 1087.1 389.2 8727 Rural Roads (Continuing Works):

NABARD 68.6 51.1 210.7 108.0

Total Tribal Area Sub-plan 438.5 180.6 1761.7 687.5

0103 C. Special Component for Scheduled Castes

15.5 5.9 41.3 17.6

5054 (5226)

Rural Roads (Continuing Works): NABARD

9.1 8.1 11.1 7.5

6590 Rural Roads (New Works): NABARD 0.0 0.0 0.0 0.0 Total Special Component for

Scheduled Castes 24.6 14.0 52.4 25.0

5054 Total Plan 939.4 644.0 2918.2 1795.2

3054 Maintenance of Roads and Bridges

(Non-plan)

2141(1) Ordinary Maintenance 580.0 536.4 545.4 685.3 2141(2) Periodic Renewal 205.0 214.9 434.6 345.6 2141(3) Asphalting 62.5 59.3 115.5 110.3 2141(4) Special Repairs 55.0 46.7 76.0 94.1 2141(5) Strengthening 46.0 26.7 54.5 21.4 2141(6) Widening 52.0 23.1 64.0 73.4

Additional Non-plan Budget 4.6 2.8 9.9 3.2 Total Non-plan 1005.1 909.9 1299.9 1333.3 Total Plan and Nonplan 1944.4 1553.9 4218.1 3128.5

NABARD= National Bank for Agriculture and rural Development, Plan Expenditure=capital investment, Nonplan Expenditure= recurrent expenditure, mainly for road maintenance. Source: Public Works Department Budget Section (updated).

30 Appendix 1

Table A1.3: Summary of State Roads Allotments and Expenditures by the Chhattisgarh Public Works Department

(Rs miliion)

2001–2002 2002–2003

Budget Head Description Allotment

Actual Expenditure Allotment

Actual Expenditure

Apr-Feb 5064 Plan 233.3 17.3 2918.2 1795.23054 Non-plan 0.0 0.0 1299.9 1333.3

Total 233.3 17.3 4218.1 3128.5PWD Administration (until end of Sep) NA NA 344.5 310.0Plan Expenditure=capital investment, Non-plan Expenditure= recurrent expenditure, mainly for road maintenance, PWD= Public Works Department. Source: Public Works Department Budget Section (updated).

29. Table A1.4 provides similar summaries of expenditures and revenue and of PWD budget allotment and actual expenditures.

Table A1.4: Summary of Expenditures and Revenue

(Rs millions)

Item Total State Road Sector 2001–02 2002–02 2002–03 % Total Plan Expenditure 19,298 23,765 3,518 15% Non-Plan Expenditure 39,017 44,821 1,897 4% Total Expenditure 58,315 68,585 5,415 8% Total Revenue 57,269 66,057 39,000 59%

Plan Expenditure = capital investment; Non-plan Expenditure = recurrent expenditure, mainly for road maintenance Source: Finance Department and Chhattisgarh Public Works Department Revised Budget, 2002–2003

Table A1.5: Summary of Budget Allotment and Actual Expenditures

of the Public Works Department (Rs millions)

2001–2002 2002–2003 Budget Head

Description Allotment Actual Expenditure

Allotment Expenditure Apr–Nov

Estimated Annual

Expenditure 5064 Plan 1106.7 633.0 2918.2 493.5 750.0 3053 Non-plan 1001.9 989.2 1299.9 1043.6 1570.0 Total 2108.5 1622.2 4218.1 1537.1 2320.0 PWD Administration (until the end of Sep)

NA NA 344.5 154.0 310.0

Plan Expenditure=capital investment, Non-plan Expenditure= recurrent expenditure, mainly for road maintenance, PWD= Public Works Department. Source: Public Works Department Revised Budget, 2002–2003 and Budget Section, PWDGOC.

Appendix 2 31

EXTERNAL ASSISTANCE TO THE ROAD SECTOR

A. Asian Development Bank

TA No. Technical Assistance Project Name Type Amount Date Approved

0955 Road Improvement PP 75,000 24 Feb 1988 1058 Pavement Management A & O 490,000 3 Jan 1989 1059 Expressway System Planning A & O 260,000 3 Jan 1989 1164 Second Road PP 100,000 9 Jun 1999 1325 Vadodara-Bombay Expressway PP 600,000 15 Jun 1990 1402 Pavement Management for National Highways A & O 760,000 30 Oct 1990 1403 Private Sector Participation in Expressway

Financing, Construction, and Operation A & O 500,000 30 Oct 1990 1404 Road Construction Industry A & O 340,000 30 Oct 1990 1325 Vadodara-Bombay Expressway (Supplementary) PP 250,000 19 Mar 1991 1678 Third Road PP 250,000 26 Mar 1992 1942 Faridabad-Noida-Ghaziabad Expressway PP 550,000 27 Aug 1993 1951 Bombay-Vadodara Expressway TA Project

Environmental Impact Assessment PP 90,000 10 Sep 1993 2001 Road Safety A & O 210,000 29 Nov1993 2002 Environmental Management of Road Projects A & O 240,000 29 Nov1993 2003 Technical Standards of Highway Concrete Structures A & O 350,000 29 Nov1993 2986 Western Transport Corridor-Facilitating Private Participation PP 1,000.000 9 Feb 1998 3142 North-South Corridor Development in West Bengal PP 1,000,000 23 Dec 1998 3538 Preliminary Engineering for the West Bengal Corridor

Development PP 150,000 13 Nov 2000

3539 Resettlement and Environmental Assessment for the West Bengal

Corridor Development PP 150,000 13 Nov 2000 3361 Capacity Building for Contract Supervision and

Management in the National Highways A & O 600,000 22 Dec 1999 3365 Capacity Building for Social Development A & O 800,000 23 Dec 1999 3540 Economic and Poverty Analysis for the West Bengal corridor

Development PP 150,000 13 Nov 2000 3751 Madhya Pradesh State Roads PP 250,000 29 Oct 2001 3752 National Highway Corridor & Public-Private

Partnership PP 250,000 29 Oct 2001 3845 Madhya Pradesh State Roads Engineering Design PP 1,000.000 14 Mar 2002 3914 Economic Studies for the Rural Roads Sector Development PP 150,000 3 Sep 2002 3915 Engineering Studies for the Rural Roads Sector Development PP 150,000 3 Sep 2002 3916 Environmental Analysis for the Rural Roads Sector Development PP 100,000 3 Sep 2002 3917 Institutional and policy Development Studies for the Rural Roads

Sector Development PP 150,000 3 Sep 2002

3918 Social Analysis for the Rural Roads Sector Development PP 150,000 3 Sep 2002 3995 Chhattisgarh State Roads Sector Development PP 800,000 21 Nov. 2002 4013 Institutional Strengthening and Capacity Building for Madhya

Pradesh State Road Sector A&O 1,5000,00 5 Dec 2002

4036 National Highway Corridor (Sector) PP 500,000 16 Dec 2002

32 Appendix 2

Loan Ordinary Capital Resources Project Amount Date No. Approved

0918 Road Improvement 198.00 10 Nov 1988 1041 Second Road 250.00 30 Oct 1990 1274 National Highways 245.00 29 Nov 1993 1747 Surat-Manor Tollway Project 180.00 27 Jul 2000 1839 Western Transport Corridor 200.00 20 Sep 2001 1944 East–West Corridor 320.00 26 Nov 2002 1958 Madhya Pradesh State Roads Sector Development Program 30.00 5 Dec 2002 1959 Madhya Pradesh State Roads Sector Development Project 150.00 5 Dec 2002

Total 1,673.00

B. Other Funding Sources

Project Loan $ million Region/ Length Amount Equivalent State Name (km) (¥ million)

1. Japan Bank for International Cooperation

51 4,855 43.3 5 10,037 89.6 83 11,360 101.4 33 5,836 52.1

Uttar Pradesh (Mathura-Agra (four-laning) Uttar Pradesh (Allahabad-Naini Bridge(over Jamuna Bridge) Andhra Pradesh Chilakaluripet-Vijayawada (four-laning) Orissa (NH5) Jagatput-Chandikhol (four-laning) Uttar Pradesh (Ghaziabad-Hapur (four-laning and Hapur bypass) 33 4,827 43.0 Total 329.4 Amount ($ million) Date Approved IBRD IDA 2. The World Bank Group

72.11 1 Jun 1961 35.00 1 Nov 1980

200.00 1 May 1985 119.60 1 Feb 1987 80.00 1 Oct 1988

170.00 1 Oct 1988 153.00 1 May 1992

153.00 1 May 1992 51.50 1 Dec 1996

350.00 1 Jun 1997 516.00 12 May 2000

Countrywide Roads Bihar Bihar Rural Roads Countrywide National Highway Gujarat Gujarat Rural Roads Countrywide State Roads Countrywide State Roads Countrywide Second National Highways Countrywide Second National Highways Countrywide State Road Infrastructure Development Technical Assistance Andhra Prades State Highways Countrywide Third National Highways Countrywide Gujarat State Highways 381.00 15 Sep 2000 Karnataka Karnataka State highways Improvement 360.00 24 May 2001 Countrywide Grand Trunk Road Development 589.00 21 Jun 2001 Kerala Kerala State Transport 255.00 14 Mar 2002 Mizoram Mizoram State Roads 60.00 14 Mar 2002 Total= 3,545.21 2974.00 571.21 A & O = advisory and operational, IBRD = International Bank for Reconstruction and Development, IDA = International Development Association, PP = project preparatory

Appendix 3 33

PROJECT FRAMEWORK

Design Summary Performance Targets Monitoring Mechanism Assumptions and Risks

Goal • To promote economic and social

development and reduce poverty and isolation of disadvantaged groups in Chhattisgarh

• Increased per-capita income of

the state • Reduced poverty and

unemployment in rural areas • Improved access of

disadvantaged groups to health, education and other essential social services

• Annual government social and

economic indicators • Social and household surveys

Purposes 1. To reduce transport costs and

travel times on state roads.

• Increased traffic from the current

low levels to the projected traffic levels, at 6% growth/year

• Reduced vehicle operating costs

(VOCs) • Reduced travel times between all

locations in the state • Lower freight and passenger

transport charges (in real terms) • Increased volume of marketed

agricultural products • Increased motor vehicle

ownership in tribal and economically deprived areas

• Traffic counts and origin-

destination (OD) surveys during and after project completion

• VOCs re-calculated from vehicle

data and road conditions after project completion

• Transport Department and

survey of road transport operators

• Annual government agriculture

sector indicators and market survey

• Vehicle registrations and traffic

counts in the rural tribal and economically deprived areas

• Timely completion of the Project

within the estimated costs • Continued reforms to improve

governance and government accountability in public sector administration

• Continued favorable policy for the

development of economically disadvantaged groups and areas in Chhattisgarh

• Government of Chhattisgarh’s

(GOC) continued efforts in sector reform and improvement of governance and sector regulation on use of roads, and provision of transport services

Appendix 3

33

34 Appendix 3

Design Summary Performance Targets Monitoring Mechanism Assumptions and Risks

2. To improve access of the rural

poor to social services, markets and other economic activities.

• Increased public transport services in rural areas

• Increased population or number

of habitations accessed by all-weather, year-round roads

• Reduced travel times to health,

education, and other essential services

• Social and household surveys. • Transport Department

information on road transport operator license and activities.

• Road inventory of the Public

Works Department (PWD) and other government social indicators

• GOC’s continued efforts in poverty reduction

• GOC’s complementary

investment in social development

3. To reduce road accidents, injuries, and deaths.

• Reduced accidents, death and injury rates.

• Police Department road accident statistics.

4. To provide effective and efficient management of state and major district roads

• Establishment of a road management committee to be responsible for road sector management and coordination of road sector agencies and external stakeholders

• Establishment of a separate unit

— the Agency for Road Development (ARD) — in PWD, that is responsible for the management of state and major district roads.

• Introduction of modern

management procedures for road planning, project implementation, operations, and maintenance

• Transfer of staff, offices, and

equipment to ARD. Separate budget heads established for ARD

• Progress reports and project

completion report of the institutional reform consultant

34 A

ppendix 3

Appendix 3 35

Design Summary Performance Targets Monitoring Mechanism Assumptions and Risks

• ARD is adequately equipped with

a computerized management information system, financial accounting systems, and operational systems, including transport and technical facilities

• ARD staffed with qualified and

trained personnel • Sustained adequate funding for

road operation and maintenance

• PWD annual budgets and financial reports

• Project review missions and mid-

term review

Outputs 1. Improvement of state roads.

• Improvement of 700 km of priority

state roads, to be completed by December 2006

• Improvement of the remaining

1,000 km of subprojects roads, to be completed by December 2008

• Progress reports and project

completion report of the construction supervision consultant.

• Project review missions and mid-

term review

• The Asian Development Bank

(ADB) approves a loan of $200 million in December 2003.

• Timely provision of adequate

counterpart funds. • Timely pre-construction

preparation and procurement by the Chhattisgarh Public Works Department (PWDGOC)

1. Improvement of road maintenance

funding and management • Introduction of the road

management manual prepared for Madhya Pradesh Public Works Department (MPPWD) with necessary modifications for use in Chhattisgarh by December 2005

• Jointly review in February each

year the needs assessment for road maintenance and budget proposal for Cabinet budget discussion and consideration.

• Progress reports and project completion report of the construction supervision consultant

• Project review missions and mid-

term review

• Timely provision of adequate counterpart funds

• Timely pre-construction

preparation and procurement by PWDGOC.

Appendix 3

35

36 Appendix 3

Design Summary Performance Targets Monitoring Mechanism Assumptions and Risks

2. Establishment of a Road

Management Committee.

• Permanent road management committee, comprising concerned heads of GOC departments and representatives of external stakeholders, formed by March 2004

• Committee chaired by the Chief

Secretary. • Committee programs to support

implementation of Road Policy and other road sector initiatives by June 2004

• Administrative agreement among participating agencies

• Minutes of committee meetings,

proposed programs and progress reports.

• Project review missions and mid-

term review

3. Establishment of ARD with integrated responsibility for state roads management.

• ARD management positions fully established by June 2004

• ARD expanded to full capacity

with transfer from PWD of personnel, offices, and equipment by June 2006.

• Decision and action to transform

ARD into the Dedicated Road Authority (DRA) by December 2006

• Transfer of staff, offices and equipment to ARD. Separate budget heads es tablished for ARD

• Progress reports and project

completion report of the institutional reform consultants

• PWDGOC annual budgets and

financial reports • Project review missions and mid-

term review

• GOC’s continued commitment to policy reform and support in making the changes in PWDGOC.

4. Effective management systems in place for road planning, procurement, construction, operations and maintenance

• Procedures and computer systems are established by June 2005 for: - road and bridge inventory - planning and programming - environ/social assessment - project preparation - procurement

• Progress reports and project completion report of the institutional reform consultant.

• Project review missions and mid-

term review.

36 A

ppendix 3

Appendix 3 37

Design Summary Performance Targets Monitoring Mechanism Assumptions and Risks

- contract administration

- project management - operations and maintenance - financial accounting.

5. Staff training and capacity building

in all essential road management functions.

• Training needs assessment and plan completed by June 2004

• Training provided to ARD staff by

December 2004 • Permanent training program

completed by December 2005

• Progress reports and project completion report of the institutional reform consultant

• PWD annual budgets and

financial reports • Project review missions and mid-

term review

6. Increased private sector participation in road planning, construction and maintenance.

• Established outsourcing of road maintenance to contractors and community groups, and of engineering services to consulting firms

• Progress reports and project completion report of the institutional reform consultant

• Project review missions and mid-

term review

7. Road safety program with coordinated engineering, enforcement and education components in place.

• Adoption of the community road safety program for implementation on all state roads by December 2004

• Road safety audit on all state

roads stated immediately. • Develop an initial road safety plan

by June 2005 • Road accident database and

initial road safety audit completed by June 2005

• Road safety engineering program

established in ARD by July 2005

• Progress reports and project completion report of the institutional reform consultant

• PWDGOC annual budgets and

financial reports • Project review missions and mid-

term review

Appendix 3

37

38 Appendix 3

Design Summary Performance Targets Monitoring Mechanism Assumptions and Risks

8. Sustained funding for road

operations and maintenance established and in place.

• Budget allocation for FY2004–2005 road maintenance will not fall below the increase given in FY2003–2004

• Baseline requirements for

adequate routine and periodic maintenance identified by December 2004, and included in FY2005–2006 and subsequent years’ budgets

• Funding options reviewed by

December 2004, and GOC’s decision on assured funding mechanism by June 2005

•

• Progress reports and project completion report of the institutional reform consultant

• PWDGOC annual budgets and

financial reports • Project review missions and mid-

term review

Inputs • Civil works • Equipment and software • Construction supervision • Institutional reform technical

assistance • Project management

• Civil works $221million

• Equipment and software $5million

• Supervision consultant $5million

• Institutional reform consultant $2million

• PWDGOC project management costs $3million

• Total $236million

• Progress reports and project

completion reports of the construction supervision and institutional reform consultants.

• Project accounts. • Project review missions and mid-

term review.

• GOC’s continued commitment to

policy reform and support in making the changes in PWDGOC.

• Qualified counterpart staff and

cooperation of the GOC and the PWDGOC.

38 A

ppendix 3

39

TIME-BOUND POLICY ACTION PLAN FOR INSTITUTIONAL REFORM

Objectives Reform Actions Time Required Performance Indicators/Targets

1. Implement the Road Policy of the Government of Chhattisgarh (’GOC), and improve coordination among GOC’s agencies involved in road sector management.

• Establish a Road Management Committee (RMC) comprising heads of Chhattisgarh Public Works Department (PWDGOC, Finance, the Chhattisgarh Infrastructure Development Corporation, and departments for transport, police, rural engineering services and planning, plus selected external road stakeholders. The chairperson will be the Chief Secretary.

• Committee formed by March 2004

• GOC issues order to form the RMC.

• Develop a program for implementing the Road Policy, and overseeing its implementation

• Program developed and adopted by June 2004

• Oversee implementation of the Project’s institutional reform component

• Review of implementation progress at regular 3-month intervals

• Regular RMC meetings are held and minutes circulated.

• Implementation of GOC’s Road Policy components.

• Implementation of road safety and other road sector programs that require inter-departmental coordination

2. Establish an Agency for Road Development (ARD) as a dedicated unit responsible for all state roads.

• Establish the project implementation unit (PIU) comprising the project director and key positions for project management, accounting, planning, procurement, environment, social analysis and road safety

• PIU established by September 2003, and fully staffed by June 2004

• ARD posts are sanctioned by GOC and filled by transfer of GOC staff or contracts with specialists

•

Appendix 4

39

40 Appendix 4

Objectives Reform Actions Time Required Performance Indicators/Targets

• Establish ARD in stages

beginning with headquarters management units

• Headquarter management units established by June 2004

• PIU is expanded to include units for planning, procurement, road engineering, and administration

• Establish other ARD technical units and field offices

• Completed by June 2005 • ARD offices are established and the required dedicated equipment is acquired and operational

• Take over responsibility for all state roads in stages as field offices are established

• Completed by June 2006 • ARD has separate plan and non-plan budgets and work program within PWDGOC’s budget

• Decision and action to transform ARD into a Dedicated Road Authority (DRA)

• Completed by December 2006 • New DRA is formed

3. Introduce effective road

monitoring, planning, programming procedures in ARD

• Develop road and bridge inventory, condition, and traffic databases

• Development of procedures and systems completed by January 2004

• Database is operational and provides regular road performance reports

• Prepare an updated road development plan to serve GOC’s social and economic objectives and plans

• Completed by June 2004 • Plan will enable PWDGOC to identify and prioritize remaining project roads to be included in the Project

• Introduce Highway Development and Maintenance Tool -4 (HDM-4) for planning and programming road development and periodic maintenance, calibrated for Chhattisgarh conditions.

• Completed by January 2004 • Pavement management system is operational and provides a periodic maintenance program

• HDM-4 is used in road feasibility studies

40 A

ppendix 4

41

Objectives Reform Actions Time Required Performance Indicators/Targets

• Develop a routine maintenance management system (RMMS) for assessing needs, budgeting, and reporting of routine maintenance

• Pilot testing and finalization will be completed by June 2004

• Training and operationalization in all ARD offices will be completed by December 2005

• RMMS is operational in all ARD offices

4. Introduce procurement

procedures needed for ICB in ARD

• Introduce Asian Development Bank (ADB) procurement procedures and standard documents for works, goods and consultants

• Carry out procurement for the remaining subprojects

• Introduction for sample Project road by October 2003 –March 2004

• New procedures and documents will be operational for procurement of remaining project roads beginning October 2004

• ADB procurement procedures are operational for remaining project roads

5. Improve quality management of construction and maintenance in ARD

• Develop a quality management (QM) system for construction and maintenance works, including a QM manual, and procedures and a reporting system

• Development and testing will be completed for the sample Project road to be awarded before July 2004. Construction of core project road will be July 2004–December 2005.

• New procedures will be operational for remaining project roads by July 2004

• QM manual, procedures and reporting system are operational for all ARD projects

• Provide ARD with testing equipment and facilities

• Completed by December 2004 • New testing equipment and facilities are operational

6. Increase ARD’s capacity and

efficiency through outsourcing • Develop a contracting system

for maintenance of state roads under various modalities including corridor management, community based, and performance based systems

• Development of initial schemes by December 2004

• Routine and periodic maintenance of all State highways is contracted through various methods.

• • •

Appendix 4

41

42 Appendix 4

Objectives Reform Actions Time Required Performance Indicators/Targets

• Pilot test alternative schemes and introduce successful schemes sector-wide. Continue to improve schemes

• Pilot test during 2005 and begin sector-wide contracts by December 2005

• Progress reports on the pilot test and experiences/lessons learned to further improve such schemes

• Develop employment opportunities for disadvantaged groups in road construction and maintenance

• Pilot test as part of maintenance contracting during 2005

• Implementation of programs that give employment to disadvantaged groups

• Develop an outsourcing system for field investigations, design, construction supervision and other technical services.

• Joint review of the road maintenance needs and budget proposal in February each year for Cabinet consideration.

• Develop procedures and begin outsourcing by January 2005. Monitor progress and modify as needed by December 2005

• Joint review of PWDGOC’s annual budget utilization and proposal

• Registration of consultants and other technical services, fee schedules, standard terms of reference, and contract documents

• Contracting of technical services is operational

7. Establish environmental assessment, social analysis and resettlement planning capabilities in ARD

• Introduce procedures for environmental assessment, social analysis and resettlement planning and management in all stages of the project cycle

• Completed by June 2005 • Permanent environmental and social management cell in ARD with permanent staff and/ or seconded staff or contract arrangements

• Established policies and procedures for environmental management, social analysis, resettlement planning, and implementation

• Application of environmental, social, and resettlement policies and procedures for both ADB and non-ADB projects

42 A

ppendix 4

43

Objectives Reform Actions Time Required Performance Indicators/Targets

8. Establish computerized project monitoring and financial accounting systems in ARD

• Develop a project monitoring and reporting system to provide information on work completed and expenditure against program and budget

• Completed by October 2004 • Project monitoring and reporting system is operational and provides regular reports

• Develop a financial accounting

system for budgeting, recording expenditures, preparing financial reports and analyzing costs

• Financial accounting system is operational and provides regular reports

9. Implement a human resource development program to increase ARD’s technical capacity

• Develop a staffing plan for ARD and PWDGOC (GOC has set a 30% ratio for women professionals)

• Completed by March 2004 • Staffing plan, qualifications for all posts and schedule for filling the ARD posts

• Fill ARD posts with qualified staff or contract specialists

• Completed by June 2005 • ARD posts filled with technically qualified permanent and seconded staff, or contract staff, including a significant number of women in technical or professional posts.

• Assess training needs and develop a training plan

• Implement a permanent training program

• Assessment completed by July 2004. Start training program by March 2004

• Report on training needs, training plan and initial program

10. Provide ARD with equipment required for effective road management.

• Introduce computers, software, and equipment required for road management functions

• Provide budget for operation and maintenance of ARD equipment

• Introduce October 2004–March 2005.

• Budget required for the

purpose be incorporated in the budget for FY2004–2005.

• Progress reports on training program implementation

• Computers and equipment operational in all ARD offices

• Equipment remains serviceable and fully utilized

Appendix 4

43

44 Appendix 4

Objectives Reform Actions Time Required Performance Indicators/Targets

11. Implement a road safety program

• Develop a road safety plan involving education, enforcement, driver training, vehicle mechanical fitness standards, seatbelt and safety helmet requirements and other measures to reduce road accidents and injuries.

• Adopt the community road safety program for implementation on all state roads

• Committee formed by December 2004. Initial GOC’s road safety plan developed by June 2005 with implementation beginning July 2005.

• Program adopted for

implementation by December 2004

• Administrative agreement among participating agencies

• GOC’s road safety plan and

first short-term rolling program • Monitor road accidents,

injuries and deaths

• Develop road accident database and conduct a road safety audi.

• Develop road safety engineering measures and implement a road safety program in ARD.

• Accident database and initial audit completed by June 2005. Implement safety engineering measures beginning July 2005

• Operational database and initial black spot locations

• Road safety audit report and recommendations

• ARD road safety program 12. Ensure adequate funding

of future road maintenance • Assess road maintenance policies

and costs and estimate future non-plan funding requirements

• Assess alternative fund sources, including fuel taxes and tolls

• Assess alternative funding mechanisms, including a dedicated Road Maintenance Fund

• Nonplan funding estimates completed by September 2004. Assessment of alternatives by December 2004

• New road funding mechanisms introduced during 2005 and 2006. Sustainable funding for DRA by December 2006

• Road funding system in place to meet PWDGOC maintenance program requirements

13. Improve levels of service of road transport services

• Assist Transport Department in reviewing and modifying passenger and goods regulations to minimize passenger fares and freight rates and increase frequency of service

• On-going January–December 2005

• Changes in transport regulations

• Increase in transport services,

especially on improved roads

44 A

ppendix 4

Appendix 5 45

INDICATIVE CONTRACT PACKAGES

Table A5: Indicative Contract Packages

ICB = international competitive bidding, IS = international shopping, LCB = Local Competitive bidding QCBS = quality- and cost- based selection. Source: Project Feasibility Study, Asian Development Bank Loan Appraisal Mission

Contract and Description Contracts (no.)

Estimated Contract

Value ($ million)

Procurement Method

A. Civil Works

1. Road sections between Konta and Jadgalpur

(about 148 km)

2. Remaining Project Roads of about 1,552 km

1

A number of

contracts

16

205

ICB

LCB (<$1 m) ICB ($1 m and above)

B. Equipment

• Pavement Management System • Bridge Management System • Falling Weight Deflect Meter • Car-Mounted Bump Integrator • Management and Operation

1 1 1 1 1

5.0

2.5 0.5 0.4 0.2 1.4

ICB ICB IS IS

ICB

C. Consulting Services

1. For Construction Supervision, Training, and Project Performance Management System for Benefit Monitoring and Evaluation

2. Implementation of Reform

1

1

5.0

2.0

ICB (QCBS)

ICB (QCBS)

46 Appendix 6

PROJECT COST ESTIMATES AND FINANCING PLAN

Table A6.1: Cost Estimates

($ million)

Item

Foreign Exchange

Local Currency

Total Cost

A. Base Costs 1. Right-of-Way 0.00 0.00 0.00

2. Civil Works 148.07 72.93 221.00 a. Civil works for Core Project

Roads (Konta – Jadgalpur) 10.72

5.28

16.00

b. Civil works for Remaining Project Roads (about 1,600 km)

137.35 67.65 205.00

3. Equipment 5.00 0.00 5.00 a. Pavement Management System 2.50 0.00 2.50 b. Bridge Management System 0.50 0.00 0.50 c. Falling Weight Deflect Meter 0.40 0.00 0.40 d. Car Mounted Bump Integrator 0.20 0.00 0.20 e. Management and Operation 1.00 0.00 1.00 f. Road Safety 0.40 0.00 0.40 4. Construction Supervision Consultants

5. Reform Consultants 4.00 1.60

1.0 0.10

5.00 1.70

6. Project Management & Road Safety 0.00 3.00 3.00 7. Road Safety Consultants 0.30 0.00 0.30 Subtotal (A) 158.97 77.03 236.00 B. Physical Contingencies 11.00 4.00 15.00 C. Price Contingency 9.55 5.15 14.70 D. Front-End Fee 1.00 0.00 1.00

E. Interest During Construction and Commitment Charge

19.00 0.00 19.00

Total Percent

199.52 70

86.18 30

285.70 100

Notes: (i) Base cost is at 2003 prices and includes local taxes and duties. (ii) Physical contingency is at 5% of base costs. (iii) Price escalation is at 2.5% per annum for foreign exchange cost until 2009. The projected inflation

in India for the project implementation period is 4% for 2003, 6% for 2004, and 8% for each project year thereafter.

(iv) The GOC has agreed to meet all additional costs if contingencies exceed the above estimates. Source: Program Feasibility Study, Asian Development Bank Loan Fact-finding Mission.

Appendix 6 47

Table A6.2: Financing Plan

($ million)

Source

Foreign Exchange

Local Currency

Total Cost

Percentage of Project Cost

Asian Development Bank

179.52

0.48

180.0

63

Government of Chhattisgarh 20.0 85.7 85.7 37 Total

199.52

86.18

285.7

100

Source: Asian Development Bank Loan Fact-Finding Mission

Table A6.3: Management and Operation Equipment for the Agency for Road Development

ARD Unit Equipment No. Cost

(Rs ‘000s) Planning Unit Automatic traffic counters

Portable weigh scales Portable radar sets Bump integrator sets GPS and data loggers Traffic analysis software Transport planning software HDM-4

24 4 4 4 4 1 1 1

6,000 1,000

200 1,000

120 100 250 250

Road Engineering Unit

Materials laboratory sets Portable pavement and soils test equipment Road design software license AutoCAD license Project management software license

2 4 1 1 1

5,000 2,000

250 250 100

Bridge Unit Bridge inspection vehicle Structures test equipment

1 4

5,000 400

Operations & Maint Unit

Maintenance planning software license Tool and measurement kits

1 40

100 200

Admin Unit Accounting software license 1 250 All ARD Computers and ancillaries

Network and hub Utility vehicles (pickup trucks) Mobile communications

60 1

48 48

6,000 500

36,000 1,000

Total Rs 000s US$ M

65,970 1.32

ARD = Agency for Road Development, HDM-4 = Highway Development and Maintenance Tool-4. Source: Asian Development Bank Loan Fact-Finding Mission

48 Appendix 7

Item 2003 2004 2005 2006 2007 2008 2009 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 A. Advance Procurement Actions

1. Design Updates and Preparation of Bids

2. Documents for Phase I 3. Prequalification of Contractors 4. Bidding for Sample Subproject 5. Solicitation and Evaluation of

Supervision Consultants Proposals

B. Consulting Services

1. Appointment and Mobilization 2. Construction Supervision of

Phase I

3. Selection and Design of Other Schemes

4. Construction Supervision of Other Schemes

5. Appointment of Consultants for Institutional Improvements

6. Institutional Improvements Implementation

C. Civil Works Implementation

1. Tender Evaluation and Award of Phase I

2. Construction of Phase I 3. Bid Evaluation and Award of

Other Schemes

4. Construction of Other Schemes 5. Update Master Plan and Identify

Remaining Project Roads

6. Preparation and Procurement of Remaining Project Roads

7. Construction of Remaining Project Roads

IMPLEMENTATION SCHEDULE 48 A

ppendix 7

Appendix 8 49

SUMMARY ECONOMIC ANALYSIS AND DISTRIBUTION ANALYSIS

A. Introduction

1. The Project involves improvement of about 1,700 km of priority sections of the existing state roads. The subprojects will be selected during implementation according to the selection criteria agreed by the Government of Chhattisgarh (GOC) and the Asian Development Bank (ADB). Using the sector approach for the investment, a sample subproject was selected as representative of the remaining state roads. The sample subproject runs from Chhindgarh to Konta, a distance of 100.3 km. 2. Economic evaluation of the sample subproject was carried out by using the Highway and Design Maintenance Model (HDM-4). The benefits to road users were estimated by comparing the differences between the costs in the “without-project” case with those in the “with-project” case. The improved road will reduce operating costs, which will stimulate economic growth. The model compared the annual streams of economic capital and operating costs and benefits and computes the net present values (NPV) and the economic internal rates of return (EIRR). All costs and benefits were expressed in 2003 constant prices. The analysis period is for the construction period, followed by 20 years of operation. B. Road Condition and Traffic

1. Road Condition

3. The existing road condition has been investigated through topographic, pavement condition, and roughness surveys. After a review of the traffic flows and condition of the existing pavement, the project road was divided into three homogeneous sections. Table A8.1 shows surface roughness levels in accordance with the international roughness index (IRI) for each section of the existing road. The rate of road deterioration used in the economic analysis is based on the levels of surface roughness before project implementation (i.e., the “without project” case, which are compared with roughness values in the “with project” case, and savings in vehicle operating costs because of road improvement are calculated.

Table A8.1 Road Condition Data

Road Section Description Distance (km) Roughness (IRI) m/km

Section 1 Chhindgarh to Sukma 20.3 8.6 Section 2 Sukma to MDR 37 36.3 9.2 Section 3 MDR 37 to Konta 43.7 9.3

IRI = International Roughness Index MDR = Major District Road

2. Traffic Volume

4. Classified traffic volumes on the Project road were determined from 2003 traffic surveys. Six 3-day counts were conducted; three included 1-day origin-destination surveys. These survey results were normalized by applying seasonal factors to obtain

50 Appendix 8

annual average daily traffic for the base year. The traffic counts were split into motorized traffic (cars and utility vehicles, buses, trucks, tractors, motorized rickshaws, and motor-cycles) and non-motorized traffic (bicycles). Traffic volumes on the project road sections ranged from 1,600 2,340 vehicles per day. The average traffic composition was about 72% motorized and 28% non-motorized vehicles.

3. Assumptions for Growth of Traffic Rates

5. Traffic growth rates were based on an analyses of various parameters. Current and future growth in net state domestic product (NSDP) were estimated. The income elasticity of transport demand was used to determine the future traffic growth rate for each vehicle category. Traffic growth rates varied from 3 to 12% per annum, depending on vehicle type and year. Based on the average vehicle composition for the project road, the overall growth rate is projected at about 7% for 2003 to 2009, 6.6% for 2010 to 2014, and 6.5% beyond 2015. C. Costs

6. The Project’s economic costs were derived from the financial costs, and include construction, maintenance, and social costs from land acquisition and resettlement compensation. Economic costs exclude price contingencies, taxes, duties, and interest during construction. A standard conversion factor of 0.90 was applied to financial costs of nontraded inputs to calculate economic prices. The average economic life of the project road is projected as 20 years. 7. Two investment options were tested for the project road.option 1 was to widen the existing road to an intermediate-lane standard of 5.5 m over the three identified sections; Option 2 was to widen the existing one-lane road to two lanes of 7.0 m. D. Benefits

8. The Project’s main economic benefits were quantified in terms of savings in vehicle operating costs (VOCs), because better road surface can improve VOCs. Savings in VOCs accrue to “normal” traffic, or traffic that would continue on the road even with no improvements; and to generated traffic, or traffic that was not there previously, but road improvements will make possible. The benefits due to generated traffic are considered to be 50% of the savings in normal traffic. Time savings were not evaluated in the analysis. The reasoning is that, in economic theory, the savings in time would have to be put to another productive use in order to be included in the evaluation. It can be argued, for example, that farmers in the project area could put some of the time saved to a productive use through more intensive cropping. But this economic evaluation has estimated benefits conservatively, by concentrating only on VOC cost savings to normal and generated traffic. 9. The benefits to road users were estimated by calculating the differences between the costs in the “without project” case and the “with project” case. The HDM-4 model was used to estimate the benefits over time. The model predicts pavement deterioration and estimates yearly VOCss over the life of the investment for various improvement strategies. In both the “with” and “without” project cases, the road roughness level varies from year to year depending on traffic and maintenance. The roughness level, expressed as IRI, has a direct impact on VOCs and thus, on benefits. The model then

Appendix 8 51

compares life cycle costs for the “with” project and “without” project situations, and computes the NPV and estimates the EIRR. E. Economic Internal Rate of Return

10. The economic evaluation discounts the stream of costs and benefits over the period 2004 to 2025, and values them at present 2003 levels. The EIRR was calculated for each project road options. TheEIRR for Option 1 (intermediate land, 5.5 m) was 18.3; the EIRR for Option 2 (twolands, 7m) was 17.5. Supplementary Appendix J gives details on the individual economic evaluations for each project road option.

F. Sensitivity Analysis and Risk Analysis

11. The sensitivity of the project road EIRR for each option was analyzed with respect to changes in the benefit and cost streams. Seven sensitivity test cases were examined: (i) a 20% increase in construction costs, (ii) a 20% reduction in benefits, (iii) a 50% decrease in traffic growth rates, (iv) no generated traffic benefits, (v) a 2-year project implementation delay, (vi) less than optimal road maintenance,1, and (vii) a combination of a 20% increase in capital costs and a 20% reduction of benefits. Results show that the quantified economic benefits are quite robust to various sensitivity tests, and the project remains economically viable (Table A9.2). The only test in which the EIRR falls below 12% is if the traffic growth rates decreases by 50%. The probability of this occurring is relatively small, as the risk analysis will show.

Table A8.2 Results of Sensitivity Tests

Section

Option 1 Intermediate

Lanes EIRR (%)

Option 2 Two

Lanes EIRR (%)

Base Case 18.3 17.5 Capital Costs increase by 20% 16.1 15.4 Benefits Reduced by 20% 15.6 14.9 Decrease in Traffic Growth Rates by 50% 9.9 8.2 No Generated Traffic Benefits 18.0 17.2

Two-year Implementation Delay 15.9 15.3

Less than Optimal Maintenance 13.8 14.9 Capital Costs Increase 20% & Benefits Decrease – 20%

13.6 12.9

EIRR = economic international rate of return Source: PPTA and ADB Loan Fact-Finding Mission

12. A risk analysis was also undertaken for both options, using the @Risk computer software program. The risk analysis enables an analysis based on the uncertainty in 1 In the “base” situation the maintenance in the “with” project situation allowed for an overlay when the IRI

was greater than or equal to 6.0 m/km. For the sensitivity test for less than optimal maintenance the occurrence of an overlay has been removed from the analysis i.e. no overlay will occur on the project road. Although this is an extreme case it indicates the worst effect on the EIRR of the project under this sensitivity test.

52 Appendix 8

estimates of input parameters. The risk analysis was based on triangular probability distributions for the main input parameters. The risk analysis runs a simulation, in which possible values of the variables were randomly sampled 5,000 times using a Monte Carlo non-stratified technique. Risk analysis then uses this information to analyze every possible outcome, executing hundreds of “what-if” scenarios. In each scenario, random inputs following the defined input probability distribution are generated, and the resulting frequency distributions are presented graphically. Results from the analyses indicated that the probability of the EIRR for Option 1 falling below 12% is 4.8% and the probability of the EIRR for Option 2 falling below 12% is 11.5%. The @Risk model calculated the new mean EIRR for Option 1 as 14.3%. The minimum and maximum value of the EIRR for Option 1 was calculated as 10.5% and 17.8% respectively. The mean value of the EIRR for Option 2 was calculated as 13.6%. The minimum and maximum value of the EIRR for Option 2 was calculated as 9.8% and 17.0% respectively. A description of the methodology used in the risk analysis is described in Supplementary Appendix K, Project Risk Analysis, describes the methodology used in the risk analysis. G. Distribution Analysis and Poverty Impact Ratio

13. The economic benefits of the two options for the project road are road-user benefits: voc savings for normal and for generated traffic. The distribution analysis disaggregates those economic benefits to passenger and freight users, vehicle owners/operators, labor,2, and the GOC. 14. It was necessary to estimate (i) how much of the benefits for each vehicle category in the analysis will be passed on to vehicle users, and (ii) ownership of each vehicle category. To do this, field surveys of passengers, drivers, and farmers were conducted in the project road area. From survey results, assumptions were made of what benefits will be passed on to the service users. (Supplementary Appendix J). 15. Distribution analysis of the project road was used to estimate a poverty impact ratio (PIR) by determining how much of the benefits to each user class passed on to the poor. Supplementary Appendix J describes, in detail the assumptions made from the field surveys. 16. The estimated direct benefits of the two options to the economy in present value terms, and the PIR calculations, are in Supplementary Appendix J, Table SAJ.13 for Option 1 and in Table SAJ.14 for Option 2. A discount rate of 12% is used in both options. The estimated direct benefits of Option 1 are Rs702.87 million, in present value terms. These figures simply represent the sum of the present value of benefits to passengers, freight users, vehicle owners, and GOC. The net benefit to the economy as a whole is Rs 300.18 million. For Option 2, the estimated direct benefits are Rs759.12 million and the net benefit to the economy is Rs292.46 million. The PIR for Option 1 is 1.07 and for Option 2, is 1.17. These are conservative estimates, because only direct project benefits have been considered. Based on the somewhat-uncertain assumptions in the PIR calculation, a sensitivity analysis of some key assumptions was conducted. The sensitivity tests were (i) a 50% increase in competition, and (ii) a 50% decrease in

2 As some of the projects capital expenditure and maintenance costs will be spent on local labor, unskilled

laborers will gain net benefits to the extent that their paid wages are higher than their opportunity cost of labor (reflected in the SWRF).

Appendix 8 53

competition. Table SAJ.15 shows that an increase in competition leads to an increase in the PIR. 17. Results of a risk analysis on the PIR show that the expected PIR, based on the weighted average of all simulated combinations, is 1.24 for Option 1 and 1.01 for Option 2. PIR’s range from a minimum of 0.56 to a maximum of 2.26 for Option 1 and from a minimum of 0.58 to a maximum of 1.52 for Option 2. The risk analysis undertaken is described in Supplementary Appendix K. 18. Further details of the assumptions and calculations used for the economic analysis and distribution analysis for both Option 1 and Option 2 are given in Supplementary Appendix J gives more details of the assumptions and calculations used for the economic analyses and distribution analyses for Options 1 and 2.

54 Appendix 9

SUMMARY OF POVERTY REDUCTION AND SOCIAL DEVELOPMENT STRATEGY A. Contribution of the Project to Reduce Poverty

1. Chhattisgarh is one India’s poorest state. Studies show that about 45% of the state’s population of 21 million is poor, living below the official poverty line, compared with about 35% of India’s population as a whole. 2. The Project involves improvement of about 1,700 km of priority state roads. The subprojects will be selected during implementation according to criteria agreed between the Government of Chhattisgarh (GOC) and the Asian Development Bank (ADB). Because of the sector approach taken for the Project, a sample subproject was selected as representative of the remaining subprojects. The sample subproject runs from Chhindgarh to Konta, a distance of 100.3 km. 3. The Project is classified as poverty intervention, and will directly reduce poverty by lowering transport costs for the poor traveling to labor markets, farmers’ markets, and health and education centers. 4. Rehabilitating the representative sample subproject in Dantewada district will have a large effect on reducing poverty, directly benefiting 237,000 people in a 30-km zone of influence. Of these, an estimated 117,000 poor people will be direct beneficiaries, or about 50% of the total direct beneficiaries. These estimates of beneficiaries include only those who will benefit in the long run from the lowered transport costs and induced economic and social development. This headcount approach gives an estimate of poor beneficiaries that is higher than the poverty incidence in Chhattisgarh. The poverty line used to define the “poor” is the nationally recognized maximum estimated expenditure of Rs.311/ person per month. 5. Benefits to the poor from lower transport costs will become evident through higher profit margins for agricultural product profit margins for poor farmers, as well as lower costs and more timely access to schools, medical clinics and employment centers. Furthermore, the lower transport costs will increase mobility among the poor, especially poor women, to reach social centers and become more politically active, thus increasing the social and political activities of the poor. 6. To obtain information on use of the Project road, passengers, drivers, freight shippers, and local residents in its zone of influence were surveyed. The surveys, completed in May 200,3 showed that 95% of the population in the zone of influence use the project road. The surveys also showed that and that half the passengers and households within the impact zone are poor, and a fourth very poor, based on the official national poverty line. 7. Survey results for the remaining project roads were based on direct field observations of a carefully selected representative sample of 10 road links in the state road system that the Project may improve. The road samples selected for the survey represent about 30% of the 1,700 km of state roads that the Project should improve. 8. The survey of passengers showed that the poor are heavy users of the roads. Average per-capita passenger income is estimated at Rs384 per month; the nation’s

Appendix 9 55

official poverty level is Rs311 per month. Classifying those whose per-capita incomes is less than or equal to Rs311 per month as very poor, 35 to 40% of Chhattisgarh’s state roads are very poor. Using Rs400 per month as the line to define poor, about 55 to 60% of the passengers are poor. 9. The surveys showed that farmers comprise 90%—and subsistence farmers, 78%—of those in the zone of influence for the sample subproject. The survey also show that of the remaining 22% of farmers who sell agricultural produce, high transport costs force all poor and very poor to sell their products only in markets that are nearby; they cannot access more distant markets where prices are higher. The surveys also showed that non-poor farmers use these roads to ship their products to more distant markets, despite bad road conditions. Better road conditions will improve access for the poor to these more distant and larger markets. The improved roads will also reduce spoilage of agricultural produce benefiting both poor and non-poor farmers. The surveys and focus groups showed that the degree of competition in the transport services market, including passenger and freight services, varies depending on the road condition. Competition is greater on roads in better condition, but traffic is low and competition is weak on roads in very worn condition, traffic is low and competition is weak on roads in very worn condition. That competition will become much stronger as the roads are improved through the Project. With the poor being such heavy road users, and competition hindered by poor roads, the Project will catalyze competition and service frequency, thus reducing freight rates. That will cause even more intense use of the Project roads by the poor. This finding substantiates estimates of the Project’s effects on the poor. 10. A poverty impact ratio (PIR) was calculated for the sample subproject for both of the improvement options: Option 1 which improves the project road to an intermediate standard of 5.5 m, and Option 2, which improves the project road to a two-lane standard of 7.0 m. The PIR calculated for Option 1 is 1.07 for Option 2, 1.17. These results assume the prevailing level of competition in the passenger and freight transport markets. Descriptions of the distribution analysis and the resulting PIR calculation are in Appendix 8 and Supplementary Appendix J. Because of the level of uncertainty in changes to key variables in the PIR computation, (e.g., the level of competition in the transport market etc.), both a sensitivity analysis and a risk analysis were also undertaken. The sensitivity analysis is described in Appendix 8 and Supplementary Appendix J. The risk analysis is described in more detail in Supplementary Appendix K, Project Risk Analysis. B. Participatory Process

11. Community consultations and the social assessment showed unanimous support for improving state highways, major district roads and rural roads. According to the residents, poor road conditions increase the costs of access by the poor to health clinics, schools, labor markets, and farmers’ markets. By improving the Project roads, the poor residents see that costs will decline and they will have easier access to key institutions that determine their quality of life. In the focus groups, improved access ranked among the top three critical needs that participants identified. Other top needs included improving the water management system, increasing the electricity supply, and lowering the costs of education. The consultations also showed that the poor, especially poor women, are concerned about road safety, and the lack of bus stops in villages and hamlets. Residents are aware that bad road conditions and lack of access increases the

56 Appendix 9

costs of farm inputs and delivery of farm products to markets and the resulting high transport costs cuts their farm incomes. 12. Improved access ranked among the top three critical needs that participants identified. Other top needs include improving the water management system, increasing the supply of electricity, and lowering the cost of education. The consultations also showed that the poor, especially poor women are concerned about road safety, and the lack of bus stops in the villages and hamlets. Residents are aware that the low-quality road conditions and lack of access increases the cost of retrieving farm inputs, delivering farm products to market, and that these high transport costs cut their farm incomes. 13. Based on findings and recommendations from the community consultations, the Project design will incorporate improvements to shoulders to improve safety for pedestrians and non-motorized traffic; covered bus stops with seating; wayside amenities; and truck stops, to reduce road congestion where necessary. The improvements will be made if they do not entail land acquisition or resettlement. To address concerns about road safety, the design will include information signs and speed breaks near schools, hospitals, and areas with heavy pedestrians traffic, such as towns and markets. Also, the Project will adopt a community road safety program designed for rural roads in Chhattisgarh for implementation on state roads, especially on accident- prone zones near urban and large settlement areas. C. Gender Issues

14. Research elsewhere in Madhya Pradesh and in South Asia has shown that when access is difficult, men participate more actively in society than women. When access improves, as it will through the Project, women become more mobile and more socially active; they are better able to reach centers of political activity, and gain political empowerment. Thus, the Project will thus increase women’s empowerment. 15. The public consultations showed that men receive substantially higher wage than women who provide the same labor. The Project will encourage employment targets for women to participate in road construction, and require contractors to pay the same wages to men and women for work of equal value. Targeting and providing a quota for women in road rehabilitation will provide employment where such opportunities are scarce, and allow women to increase family incomes. During the rehabilitation phase the contractors will be required to provide service stations that will improve working conditions for women who take on road works jobs. A gender strategy is not required as a project component. D. Resettlement

16. The subproject selection criteria and technical design include recommendations for road improvements that will not entail land acquisition. Involuntary resettlement will be limited to the dismantling of a small number of encroachments3 at a few spots. Following ADB’s policy requirements for involuntary resettlement under sector lending, and to mitigate adverse impacts on affected people, The Chhattisgarh Public Works Department (PWDGOC) prepared a resettlement plan and a resettlement policy

3 Less than 200 persons affected with insignificant impacts for all subprojects including the core Project

road.

Appendix 9 57

framework for implementation in the sample subproject. GOC will prepare and submit resettlement plans for each subproject to ADB for approval civil works contracts are awarded. 17. An institutional assessment on PWDGOC’s capacity to undertake resettlement responsibilities showed that a need to strengthen such capacity. The Project will contribute, through consulting services for institutional improvement, to strengthen the capacity to manage the resettlement by conducting workshops and seminars to create social awareness and strengthen coordination among the government and civil societies concerned in addressing resettlement problems, particularly those related to road improvements. 18. To support the sector development initiative, a social and environment management unit will be established within the Agency for Road Development’s (ARD) PIU for the Project, following the example of the National Highway Authority of India. The unit will be responsible for social impact assessment, including (i) monitoring of the implementation of resettlement plans and social mitigating measures for projects, (ii) implementation of measures to mitigate social and resettlement impacts, (iii) implementation of resettlement plans approved by ADB, and (iv) capacity building for ARD and the Dedicated Road Authority (DRA) for undertaking those responsibilities. Supplementary Appendix D provides the Resettlement Policy Framework and Supplementary Appendix M provides the Summary Resettlement Action Plan for the sample subproject. E. Indigenous People

19. About 44% of Chhattisgarh’s population is tribal and scheduled castes.4 The Project is confined to existing road alignment, so such groups with its influence area will not be affected. The improved road network will improve their access to services and economic opportunities for tribal and scheduled castes, and for all segments of the population. But because the high percentage of tribal and scheduled caste population in the Project influence areas, a detailed analysis of the status of indigenous people, and a review of GOC’s current policies for their development were conducted under the Project preparatory technical assistance (Supplementary Appendix C). The purpose is to enhance distribution of project benefits and recommend practical measures to promote indigenous people development. A Framework Indigenous People Development Plan (IPDP) was also prepared (Supplementary Appendix N). F. HIV/AIDS and Human Trafficking 20. According to the statistics of the National AIDS Control Organization (NACO), more than 4.5 million people in India were infected by HIV/AIDS5 by late 2002. That is a 15% increase over 2001. Only 55 cases of HIV/AIDS were reported in Chhattisgarh in 2002, in a population of about 21 million. The low incident rates could be partly related to Chhattisgarh’s isolation, but it might also partly be explained by the absence, until

4 “Scheduled Tribe” is one of the weaker sections of Indian population. Article 342 of India Fundamental

Rights, which are enshrined in the Constitution that Scheduled Tribe is defined as specific tribes or tribal communities or parts of or groups within tribes or tribal communities. "Scheduled Caste” is defined as the lowest caste in the Hindu caste system.

5 human immunodeficiency virus/ acquired immunedeficiency syndrome

58 Appendix 9

recently, of HIV/AIDS testing and surveillance facilities in Chhattisgarh. In July 2003, the Chhattisgarh State AIDS Control Society (CACS) established nine centers for HIV/AIDS testing and counseling through GOC’s programs on HIV/AIDS prevention. After the centers’ first full year of operation, more accurate data on HIV/AIDS is expected. Meanwhile, CACS, in an interim report, identified 428 sites at risk of HIV/AIDS, including location frequented by truck drivers, brothels and floating facilities for commercial sex workers. Given the current status of HIV/AIDS in Chhattisgarh, and CACS’ established and ongoing activities, the Project will make best use of the existing resources to support HIV/AIDS prevention. Project activities will include (i) conducting awareness campaign among targeted risk groups and the general public, and (ii) linking and coordinating with CACS and its ongoing HIV/AIDS programs. 21. Some non-government agencies (NGOs) are working through CACS projects to conduct awareness campaigns for high-risk groups, so the Project will focus on the HIV/AIDS issue during the construction period. The contractors will be required to provide awareness training on HIV/AIDS for construction workers. The training materials and programs should be designed and conducted in accordance with the CACS campaigns and awareness programs. This requirement will be stipulated in all civil works contracts. Consultants for construction supervision will be responsible for the monitoring the contractors’ implementation of the programs. Findings and recommendations of the monitoring should be reflected in the project progress reports prepared by the construction supervision consultants and submitted to the ADB for review. 22. At the PWDGOC level, the consultants or CACS or NGO staff will train staff of the social and environmental unit in HIV/AIDs prevention by for implementation of the institutional improvement, and to coordinate with CACS and other concerned state agencies. 23. Regarding human trafficking, there is no official evidence of human trafficking cases in Chhattisgarh as of today. Neither there is any study undertaken by donors to confirm official data on human trafficking. The issue of human trafficking will remain to be studied through continuing policy dialogue with the GOC, field surveys and social works, surveillance and monitoring by various state agencies and NGOs concerned to identify areas of problems and measure the magnitude of impacts for development of mitigating measures in future projects. G. Labor Issues

24. The Project will ensure that the civil works contractors comply with all applicable labor laws and will not employ children for construction or maintenance jobs. Contractors will be required to provide appropriate facilities for child dependants in construction campsites. H. Other Social Risks and Vulnerabilities

25. The primary risks to project implementation are: (i) executing agencies and other stakeholders may lack the capacity to address social and poverty issues; (ii) the absorptive capacity of PWDGOC may be lower than initially assessed and thus, require institutional strengthening beyond that proposed for the Project; (iii) a lack of competition in the bus transport services market may arrests the flow of benefits to the poor; and (iv)

Appendix 9 59

additional regulation of the freight services market may set freight rates so high that benefits are not passed to the poor. 26. The project design incorporates countermeasures to mitigate these risks. To mitigate the remaining risks, the Project will:

(i) design and implement a strong project monitoring system to provide

feedback for timely remedies, (ii) provide institutional support to PWDGOC during implementation, (iii) provide a long-term institutional specialist to help implement the

restructuring of PWDGOC; (iv) provide consulting services for institutional strengthening to the

Chhattisgarh Transport Department to assist in deregulation, and (v) involve ADB in close project supervision to correct flaws in design or

implementation. 27. A specific risk is that the poor may not be enabled to realize the expected benefits. To ensure that the poor are able to share these benefits, the design consultant will develop a program based on strong public participation in a number of workshops that will educate:

(i) poor farmers on to how to use commercial inputs, (ii) poor farmers on how to best market their surplus products, (iii) poor passengers on how to negotiate lower fares to reflect the cost savings

going to the bus and taxi drivers, (iv) poor shippers of products on how to negotiate lower freight charges

reflecting the improved road conditions, and (v) poor women on increasing their political and social involvement in the

community. 28. The design consultant, together with the Executing Agency and ADB, will develop and implement the project performance management system. The system will provide feedback on a number of indicators to show that the benefits are being passed to the road users, particularly poor users, as well as residents in the zone of influence. Some illustrative indicators that show the benefits being passed to the poor will include

(i) use of improved construction materials by residents, and poor residents, for dwellings in the zone of influence;

(ii) increased commercial sales of specific farm products, including rice, wheat, gram, and sorghum from the zone of influence;

(iii) lower passenger fares on improved roads; and (iv) lower freight rates on improved roads.