Additional Financing of Decentralized Rural Infrastructure and Livelihood Project (RRP NEP 38426)

Project Number: 38426 September 2011

Nepal: Decentralized Rural Infrastructure and Livelihood Project – Additional Financing

Project Administration Manual

Additional Financing of Decentralized Rural Infrastructure and Livelihood Project (RRP NEP 38426)

Contents I. PROJECT DESCRIPTION 1

A. Rural livelihood improved 1 B. Capacity decentralized governance enhanced 2 C. Rural transport infrastructure extended and enhanced 2 D. Project Management Improved 3

II. IMPLEMENTATION PLAN 3 A. Project Readiness Activities 3 B. Overall Project Implementation Plan 3

III. OVERALL PROJECT IMPLEMENTATION SCHEDULE 4 IV. PROJECT MANAGEMENT ARRANGEMENTS 5

A. Project Implementation Organizations – Roles and Responsibilities 5 B. Key Persons Involved in Implementation 8 C. Project Organization Structure 9

V. COSTS AND FINANCING 10 A. Detailed Cost Estimates by Expenditure Category 12 B. Allocation and Withdrawal of Loan Proceeds 14 C. Allocation and Withdrawal of Grant Proceeds 14 D. Allocation and Withdrawal of OFID Loan Proceeds 15 E. Detailed Cost Estimates by Financier 16 F. Detailed Cost Estimates by Outputs/Components 18 G. Detailed Cost Estimates by Year 20 H. Contract and Disbursement S-curve 21 I. Funds Flow 22

VI. FINANCIAL MANAGEMENT 23 A. Financial Management Assessment 23 B. Disbursement 24 C. Accounting 25 D. Auditing 25

VII. PROCUREMENT AND CONSULTING SERVICES 26 A. Advance Contracting and Retroactive Financing 26 B. Procurement of Goods, Works and Consulting Services 26 C. Procurement Plan 27 D. Consultant's TOR 31

VIII. SAFEGUARDS 32 IX. GENDER AND SOCIAL DIMENSIONS 32

A. Gender equality and Social Inclusion (GESI) Action Plan 34 X. PERFORMANCE MONITORING, EVALUATION, REPORTING AND COMMUNICATION 37

A. Project Design and Monitoring Framework 37 B. Monitoring 42 C. Reporting 42 D. Stakeholder Communication Strategy 43

XI. ANTICORRUPTION POLICY 43 XII. ACCOUNTABILITY MECHANISM 44 XIII. RECORD OF PAM CHANGES 44

APPENDICES INDICATIVE LIST OF DRILP (Additional Financing) ROAD SUBPROJECTS 45 SELECTION OF ROAD SUBPROJECTS IN DRILP – ADDITIONAL FINANCING 46 CRITERIA FOR FUNDING COMMUNITY INFRASTRUCTURE SUBPROJECTS 47 ROAD MAINTENANCE INITIATIVE IN DRILP – ADDITIONAL FINANCING 48 TERMS OF REFERENCE FOR CONSULTING SERVICES 52 TERMS OF REFERENCE FOR NATIONAL NGO 65 MICROFINANCE ACCESS 71

Project Administration Manual Purpose and Process

The project administration manual (PAM) describes the essential administrative and management

requirements to implement the project on time, within budget, and in accordance with Government and Asian Development Bank (ADB) policies and procedures. The PAM should include references to all available templates and instructions either through linkages to relevant URLs or directly incorporated in the PAM.

The Department of Local Infrastructure Development and Agricultural Roads (DOLIDAR) is wholly responsible for the implementation of ADB financed projects, as agreed jointly between the borrower and ADB, and in accordance with Government and ADB’s policies and procedures. ADB staff is responsible to support implementation including compliance by DOLIDAR of their obligations and responsibilities for project implementation in accordance with ADB’s policies and procedures.

At Loan Negotiations the borrower and ADB shall agree to the PAM and ensure consistency with the Financing agreement. Such agreement shall be reflected in the minutes of the Loan Negotiations. In the event of any discrepancy or contradiction between the PAM and the Financing Agreement, the provisions of the Financing Agreement shall prevail.

After ADB Board approval of the project's report and recommendations of the President (RRP) changes in implementation arrangements are subject to agreement and approval pursuant to relevant Government and ADB administrative procedures (including the Project Administration Instructions) and upon such approval they will be subsequently incorporated in the PAM.

CURRENCY EQUIVALENTS 1 July 2011

Currency Unit – Nepalese Rupee (NRs) NRs 1.00 = $0.01406 US$ 1.00 = NRs 71.09

ABBREVIATIONS ADB Asian Development Bank BG building group CISC central implementation support consultant CP community procurement DDC district development committee DISC district implementation support consultant DMO district maintenance officer DOLIDAR Department of Local Infrastructure Development and Agricultural Roads DPO district project office / officer DRCC district road coordination committee DRILP Decentralized Rural Infrastructure and Livelihoods Project DRRMC District Rural Road Maintenance Committee DTCO District Treasury Comptroller DTO district technical office / officer EA executing agency EARF environmental assessment and review framework EMP environmental management plan GESI gender equality and social inclusion IA implementing agency IEE initial environmental examination IPPF indigenous people planning framework LBES labor based equipment supported (Road Building Approach) LDO Local Development Officer MLD Ministry of Local Development MOF Ministry of Finance MTR Midterm review NCB national competitive bidding NGO nongovernment organization NNGO national nongovernment organization NRB Nepal Rastra Bank OFID OPEC Fund for International Development PAM project administration manual PCU project coordination unit PPMS project performance management system PPTA project preparatory technical assistance PSC project steering committee RF resettlement framework RP resettlement plan RMUC Road Maintenance User Committees SDC Swiss Agency for Development and Cooperation SCC savings and credit cooperatives SOE statement of expenditure

SPS Safeguard Policy Statement SWAp Sector Wide Approach TOR Terms of Reference TSA Treasury Single Account VDC village development committee VWRCC Village Works Road Construction Committee

Additional Financing of Decentralized Rural Infrastructure and Livelihood Project (RRP NEP 38426)

I. PROJECT DESCRIPTION

1. The Decentralized Rural Infrastructure and Livelihoods Project (DRILP) – Additional Financing (the Project) will reduce rural poverty in 18 districts in very poor and remote hill and mountain regions of Nepal1 by widening access to social services and economic opportunities. The focus of the project is on: (i) rural incomes uplifting through increased employment, skills training, and improved access to credit for the rural poor; (ii) capacity building and decentralized governance, including addressing corruption concerns; and (iii) fostering rural transport connectivity and complementary community infrastructure investments. The underpinning thrust will be on labor based equipment supported (LBES)2

construction techniques to promote greater involvement of building groups (BGs) in construction activities which will boost local jobs. A comprehensive maintenance initiative will be introduced in all 18 project districts, which is broadly in line with the current pilot program being developed in some other districts of Nepal by development partners for a national Sector-Wide approach (SWAp) for road maintenance for rural roads throughout the country.

2. Impact and Outcome. The impact of the Project will be reduced rural poverty in 18 very poor and remote hill and mountain districts of Nepal. The outcome of the Project will be widened access to social services and economic opportunities. 3. The project outcome will be achieved through the following outputs:(i) rural livelihood improved; (ii) capacity and decentralized local governance enhanced; (iii) rural transport infrastructure extended and maintained; and (iv) project management improved. 3

A. Rural livelihood improved 4. The scaled up project scope will improve community infrastructure in the 18 districts. This will include 90 school buildings and health posts, 36 foot/mule/link trails, 54 water supply and irrigation schemes, 10 micro-hydropower, 8 rural market places, 10 ropeways, and other community infrastructure. These investments are capped at $120,000, or 20% of the cost of the road subproject, whichever is lower. Community infrastructure will be based on the demand and identified priorities in the impact zones of the road subprojects. Village Development Committees (VDCs) and local communities will identify their priority subprojects through comprehensive demand surveys. The District Implementation Support Consultant (DISC) teams will prepare the priority ranking of the community infrastructure based on agreed criteria that include clear access benefit related to the road subproject, and at least 50% of target beneficiaries being women and members of disadvantaged groups. The DISC will prepare the detailed design and due diligence studies of the selected community infrastructure. The community infrastructure subprojects will be typically implemented by local BGs. The VDC and community beneficiaries will contribute to the cost of the supplementary investments, mostly in the form of in-kind contributions of local building materials, or provision of land. Appendix 3 outlines the criteria for funding the supplementary investment schemes under DRILP.

1 The 18 project districts are Baglung, Baitadi, Bajhang, Bajura, Darchula, Dolpa, Gorkha, Humla, Jajarkot, Jumla,

Kalikot, Lamjung, Mugu, Myagdi, Okhaldunga, Ramechhap, Solukhumbu, and. Taplejung. 2 Labor based equipment supported (LBES) approach to road construction and maintenance means applying

equipment support to construction tasks where the labor intensive approach has shown to be ineffective (e.g., rock excavation, transport of construction materials). The LBES will improve the quality of construction and result in more sustainable transport benefits. DRILP has, to a small degree, embraced equipment supported construction by purchasing rock drilling and rock splitters on some subprojects.

3 The outputs to be supported by the additional financing of DRLIP.

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5. It will support BGs to implement a savings scheme among its members to improve their living conditions or to invest in productive assets. An income uplifting micro-plan for each subproject will be prepared to mobilize savings from the employment for the use of new sets of skills acquired from skills training and the enhanced capacity of beneficiaries. It will organize training that can contribute to a Level 1 certification by the Nepal Skills Testing Board. Training needs assessment will be conducted to identify potential trainees with application of established eligibility criteria. The project will provide livelihood related skills training to 3,000 beneficiaries from the project impact zones, of which at least 40% are women and 60%, are from poor and excluded groups. The social awareness raising training will be provided to 9,000 persons, of whom 80% are women, poor and from excluded groups. The focus of awareness training will be on HIV/AIDS prevention, good nutrition, health and sanitation, and general health and safety concerns in poor rural populations. The target of awareness-raising programs will be mostly women and poor disadvantaged groups. In nine pilot districts, the project will work with existing savings and credit groups, and assist BGs willing to form themselves into formal Savings and Credit Cooperatives (SCCs) and facilitate their access to credit from existing institutional suppliers. B. Capacity decentralized governance enhanced 6. The scaled up project scope will further improve district and national capacity building to promote improved decentralized governance. The thrust will be on establishing the capacity for sustainable management of rural road networks, strengthening the decentralized management of rural infrastructure, and raising central capacity to support local government bodies. It will provide a variety of trainings to strengthen local rural road planning, construction, and maintenance management capacity, and a movement to sustainable financing. At the national level the project will reinforce the technical and management capacities of Department of Local Infrastructure Development and Agricultural Roads (DOLIDAR) by providing transport, training, and resources to draw upon specialized services from the consultants and nongovernment organizations (NGOs). Regional study tours will be designed and undertaken to further enhance the learning experiences.

C. Rural transport infrastructure extended and enhanced 7. The scaled up project scope will improve 260 kilometers (km) of rural roads in the 18 districts (200 km new and 60 km upgrading). The design phase of sub-projects will consider the impact of climate change which includes avoiding unstable slopes, high risk soil erosion prone areas and landslide areas, and water logged areas near streams; strictly implementing slope stability measures and robust road drainage systems; graveling the road in high risk areas; using more and better maintenance approaches; and encouraging community plantations. Rural roads of 1,200 km will be fully maintained in the 18 districts and 6,500 meters (m) of trail bridges will be constructed. The implementation of the road sub-projects will employ LBES methods, and works performed by BGs will be promoted over construction by contractors. Only those civil works that cannot be executed by the communities may be awarded on the basis of national competitive bidding to contractors.

8. It will provide direct support to road maintenance programs at the district levels in accordance with the pilot program being supported by development partners toward a SWAp for maintenance of rural roads throughout the country. To qualify for the maintenance grant under the project, districts will have to clearly allocate the road maintenance function to a suitable person as District Maintenance Officer (DMO) in the District Technical Officer’s (DTO) office, prepare an inventory of all district roads, conduct annual road condition surveys and prepare annual road maintenance plans. The project will provide technical support to the districts to

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enable them to qualify for the annual maintenance grants. The maintenance support from the project will focus on providing routine and periodic maintenance on district roads (largely earthen and gravel) that are of maintainable standard. Routine maintenance will be delivered by length-persons who will be sourced from the impact zone of the road being maintained and employed directly by the districts, further promoting employment generation in the districts. A system of toll collection will be piloted in 9 districts to augment road maintenance funds. D. Project Management Improved 9. Technical support to project implementation will be provided through a Central Implementation Support Consultant (CISC) and DISC in each of the 18 project districts. Suitable vehicles will be provided to each District Project Office (DPO) to improve implementation performance. A common financial management system will be developed for the Ministry of Local Development (MLD), the District Development Committees (DDCs) and DOLIDAR for improved reporting of project financial accounts.

II. IMPLEMENTATION PLAN

A. Project Readiness Activities

Indicative Activities Sept. 2011

Oct. 2011

Nov. 2011

Dec. 2011

Jan. 2012

Feb. 2012

Who responsible

Advance contracting actions DOLIDAR

Retroactive financing actions DOLIDAR

Re-establish project implementation arrangements DOLIDAR

ADB Board approval ADB

Loan signing ADB

Loan effectiveness ADB ADB = Asian Development Bank; DOLIDAR = Department of Local Infrastructure Development and Agricultural Roads B. Overall Project Implementation Plan 10. The project will be implemented over 5 years. Implementation will begin in January 2012. Initial activities will include filling any vacant Project Coordination Unit (PCU) positions, recruiting consultants, selecting a national and local NGOs, beginning social mobilization in the districts, establishing a project performance monitoring system at DOLIDAR, and continuing to finalize the project preparation of road subprojects to be implemented from January 2012, completing any required baseline surveys, and procuring essential equipment. The loan-use period will terminate on 31 December 2016. The Government will not begin any Asian Development Bank (ADB) financed civil works construction until after the implementation consultants have been appointed; land and rights to land, free of encumbrances, are available for construction; and initial environmental examination (IEE), indigenous people planning framework (IPPF) and resettlement plan (RP) approved. Further required compensation payments should have been completed for all resident land owners. For absentee land owners, honest efforts to contact them should be documented, and where payments cannot be made to a designated alternate (such as a relative) with the land owner’s consent, such payments may be held in trust by a local bank.

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III. OVERALL PROJECT IMPLEMENTATION SCHEDULE

Activities 0 Year 1 Year 2 Year 3 Year 4 Year 5 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

Project start-up PCU term extended; Project Coordinator re-appointed Subprojects and supplementary investments, and road maintenance Planning and design of rural roads subprojects Planning and design of trail bridges subprojects Environmental and social safeguards planning for all road subprojects Implementation of road subprojects and monitoring of safeguards plans Support to road condition surveys & maintenance planning in the districts Support to maintenance of rural roads in 18 project districts Planning and design of community infrastructure Implementation and monitoring of community infrastructure subprojects Income generation capacity Recruitment of a national training provider (livelihoods training) Recruitment of local NGOs in the districts Skills training to improve income-generating capacity Awareness raising training (on general concerns) Support to 9 districts for microfinance access Capacity building at Central and District levels Recruitment of CISC and DISCs; support to project implementation Recruitment of ADB individual national consultants Procurement of vehicles and equipment; contracting of surveys & studies Recruitment of a national NGO to support project implementation Study tours for central and district staff Implementation of the GESI Action Plan

ADB = Asian Development Bank; CISC = Central Implementation Support Consultant; DISC = District Implementation Support Consultant; NGO = nongovernment organization; PCU = Project Coordination Committee

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IV. PROJECT MANAGEMENT ARRANGEMENTS

A. Project Implementation Organizations – Roles and Responsibilities 1. National Level

a. Executing Agency (EA)

11. DOLIDAR will be the project EA, responsible for overall project coordination, management, and implementation. Its function is to provide national direction in the rural infrastructure sub-sector. 12. The technical and project management skills of DOLIDAR have developed substantially since its formation, through support from ADB and other development partners, and through its experience of managing a number of rural infrastructure projects.

b. Project Steering Committee & Implementation Coordination Committee

13. MLD has reconstituted existing steering committees to form a joint project steering committee (PSC) for all development partners’ rural transport infrastructure projects, in an integrated SWAp. The PSC shall meet whenever necessary, but not less than once a year to (i) review progress under the Project; (ii) resolve policy issues; (iii) coordinate sector activities; and (iv) guide DOLIDAR. 14. The PSC will be chaired by the Secretary of MLD, and will include the following as members: Director General, DOLIDAR; Deputy Director General, DOLIDAR; Project Coordinator, PCU, DOLIDAR; Representative, Ministry of Finance (MOF); Representative, DDCs; and Representatives of donors agencies. A Project Implementation Coordination Committee (PICC) shall be established within DOLIDAR chaired by the Director General DOLIDAR. The Project Coordinator and the representatives of DDCs and DTOs shall be included in PICC. The team leaders of CISC and National NGO (NNGO) shall be permanent invitees and other relevant stakeholders may be invited. It shall be responsible for addressing and resolving implementation issues, advising on technical matters, and advising PSC.

c. Project Coordination Unit

15. The PCU, established within DOLIDAR for the current DRILP, will continue to be the PCU for DRILP- Additional Financing and shall be responsible for (i) detailed planning of project implementation; (ii) guiding and monitoring DDCs that participate in the project; (iii) allocating and disbursing project funds in accordance with mechanisms and processes established in the Borrower’s Financial and Procurement Acts and Regulations, 2064 (2008); (iv) liaising with other donor-funded projects in the rural infrastructure sector on day-to-day implementation matters; (v) preparing consolidated annual work plans; (vi) ensuring satisfactory implementation of the gender equality and social inclusion (GESI) action plan, environmental assessment review framework (EARF), the resettlement framework (RF), and IPPF; and (vii) preparing necessary progress reports as well as the project completion report. The existing CISC team which has been engaged on DRILP will provide technical services and advice to the PCU. An NNGO will be engaged to support and advice PCU in social development and gender and social inclusion related issues.

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2. District Level 16. At the district level, project implementation will be the responsibility of DPOs within the DTO of each DDC. The DPO will prepare annual work programs based on agreed subprojects, and ensure that land acquisition and environmental procedures are completed on time before construction. Road subprojects will be planned and overseen by the district road coordination committee (DRCC), which is effectively a DDC subcommittee. The DPO will arrange the procurement of appropriate services and community-level training, and will supervise and monitor works implementation. 17. The DDC will form the District Rural Road Maintenance Committee (DRRMC) to manage rural road maintenance. The DRRMC will mobilize local resources into the rural road maintenance fund and prioritize maintenance works on roads in accordance with the Annual Road Maintenance Plan. The DRRMC will monitor and review maintenance activities and report findings to the DDC. The chair of the DRRMC will be a representative of the DDC. The committee will comprise representatives from industry and commerce, road users and the DTO. The DRRMC will establish at least one Road Maintenance Users’ Committee (RMUC) for each road to be maintained. The RMUC will implement road maintenance activities. The committee will consist of 9 to 11 members with representation from road users, minorities and women from the vicinity of the road. 18. A DISC team will be provided in each district to assist the DPO/DTO, who in turn report to the Local Development Officer (LDO)/DDC. The DISC will promote participation by local communities and raise awareness of the opportunities available to local communities from the project activities. The DISC will seek to optimize the social development benefits and assist in the engineering design, construction supervision and quality control of subprojects. The DISC teams will report to the CISC, especially in regard to project performance and financial reporting, technical guidance, and for additional specialist back up resources. The Swiss Agency for Development and Coordination (SDC) will fund a total of eight DISC teams and ADB will fund 10 DISC teams. The CISC will provide overall technical guidance and back-up technical expertise to all the DISC teams in the 18 project districts. 19. Village works and road construction committees (VWRCCs) will form the BGs in each VDC area, and monitor implementation. The DPO will also coordinate (i) application for, and selection of, possible supplementary investments in the VDC areas in subproject areas; and (ii) implementation through local NGOs of livelihood-enhancement activities using intensive social mobilization. The DISC, which consists of technical and social personnel to cover technical issues and to undertake social mobilization and assist BGs will be engaged by, and support, the DPO. DOLIDAR shall ensure that at all times during project implementation, the DPO established within the DTO of each DDC, shall comprise a full-time engineer, sufficient overseers, and an accountant.

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Project implementation organizations Management Roles and Responsibilities

1. Executing agency DOLIDAR • Responsible for overall project coordination,

management, and implementation • Provide national direction in the rural infrastructure sub-

sector 2. Implementing agencies • DDCs

• DTOs • DPOs

• Responsible for subproject planning, design and implementation

• Monitoring of EMPs, RPs, IPPs and GESI action plan 3. Project specific management body

PCU • Detailed planning of project implementation; • Guiding and monitoring the DDCs that participate in the

project; • Allocating and disbursing project funds in accordance

with mechanisms and processes established in the - Financial Acts and Regulations, 2064 (2008);

• Liaising with other donor-funded projects in the rural infrastructure sector on day-to-day implementation matters;

• Preparing consolidated annual work plans; • Ensuring satisfactory implementation of the gender

action plan and the RFs and plans; and • Preparing necessary progress reports as well as the

project completion report 4 Project Implementation

Coordination Committee • Review district-wise Project implementation progress • Resolve specific implementation issues • Guide Districts

5. Project Steering Committee

• Review project progress • Resolve policy issues • Coordinate sector activities • Guide DOLIDAR

6. Others (incl. external agencies)

• ADB Financing and project supervision • OFID Co-financing • SDC Parallel co-financing

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B. Key Persons Involved in Implementation Executing Agency DOLIDAR Mr. Bhupendra Bahadur Basnet

Director General, DOLIDAR Jawalakhel, Lalitpur Tel: +977 1 5000 107 Email: dbtamang@dolidar.gov.np

Mr. Pawan Kumar Shrestha Project Coordinator, DRILP, DOLIDAR Jawalakhel, Lalitpur Tel: +977 1 5000 102 Email: pkshres@wlink.com.np

ADB Division Director Mr. Takashi Matsuo

Director, SAER South Asia Department Asian Development Bank 6 ADB Avenue Mandaluyong City, 1550, Metro Manila, Philippines Tel: +632 632-5579 Email: tmatsuo@adb.org

Mission Leader Mr. Rezaul K Khan

Natural Resources and Agriculture Economist South Asia Department Asian Development Bank 6 ADB Avenue Mandaluyong City, 1550, Metro Manila, Philippines Tel: +632 632 4846 Email: rkkhan@adb.org

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C. Project Organization Structure

V.

Village Development Committees (VDCs)

Village Works & Road Construction

Committees (VWRCCs)

Building Groups (BGs) / Contractors

NPC, MOF, NRB, FCGO

Ministry of Local Development (MLD)

ADB, SDC, OFID

Project Steering

Committee (PSC)

Department of Local infrastructure Development and Agricultural Roads

(DOLIDAR) Director General

Project Coordination Unit (PCU) Project Coordinator, DOLIDAR

Central Implementation

Support Consultant (CISC)

District Implementation Support Consultants

(DISCs)

District Development Committees (DDCs) District Technical Offices (DTOs)

District Project Office (DPOs)

Road Maintenance Users Committees

(RMUCs)

District Road Coordination

Committees (DRCCs)

District Rural Road Maintenance

Committees (DRRMCs)

National Non Governmental Organization

(NNGO)

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V. COSTS AND FINANCING

20. The project is estimated to cost $134.75 million with additional financing of $66.45 million that includes taxes and duties of $4.56 million. The investment plan is summarized in Table 1.

Current Project

Additional Financing a Total

A.1. Rural livelihood improved 14.60 14.44 29.042. Capacity building and decentralized local governance enhanced 1.30 1.73 3.033. Rural transport infrastructure extended and maintained 32.00 36.64 68.644. Project management improved 10.70 7.18 17.88

Subtotal (A) 58.60 59.99 118.59B. 8.50 4.88 13.38C. 1.20 1.58 2.78

68.30 66.45 134.75a

b

c

d

Source: Asian Development Bank estimates.

Interest during construction for the Asian Development Bank loan has been computed at the interest rate of 1% and for the OPEC Fund for International Development loan at 2.25% (inclusive of 1% service charge).

Financing Charges During Implementationd

Total (A+B+C)

Includes taxes and duties of $4.56 to be financed from the government resources.

In mid-2011 prices (additional financing).For additional financing, physical contingencies computed at 10% for civil works; 10% for field research and development, training, surveys, and studies, and 20% for resettlement. Price contingencies computed at 0% for 2012 and 2013, and 0.5% thereafter on foreign exchange costs and 7% for 2012, 6% for 2013, and 5.5% thereafter on local currency costs; includes provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate.

Base Costb

Contingenciesc

Table 1: Project Investment Plan($ million)

Item

21. The Government has requested for a loan of $18 million and a grant of $7 million from ADB’s Special Funds Resources to help finance the project. The loan will have a 32-year term, including a grace period of 8 years, an annual interest rate of 1.0% during the grace period and 1.5% thereafter, and such other terms and conditions set forth in the draft financing agreements. OFID will provide a loan of $20 million to help finance the project. Administered by ADB on a partial administration basis, the OFID loan will have a 20-year term, including a grace period of 5 years, and an annual interest rate of 2.25% (inclusive of a 1.0% service charge). The Government of Switzerland will provide a parallel grant cofinancing through the SDC for financial cooperation of $7.06 million equivalent, to support implementation at the part of central consulting team as well as part of district consulting support. Because of the financial constraints of the Government, ADB will finance interest during construction of ADB and OFID loans, and livelihood restoration part of the resettlement costs. ADB may finance the transportation and insurance cost of the project. The financing plan is in Table 2.

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Asian Development Bank Loan 40.00 18.00 58.00 43.04Asian Development Bank Grant … 7.00 7.00 5.20OPEC Fund for International Development … 20.00 20.00 14.84Swiss Agency for Development and Cooperation 7.90 7.06 14.96 11.10German development cooperation through GIZ a 0.70 … 0.70 0.52Government 14.70 13.29 27.99 20.77Local Government 4.20 … 4.20 3.12Beneficiaries 0.80 1.10 1.90 1.41

Total 68.30 66.45 134.75 100.00... = not available a The envisaged GIZ financing had not materialized.Source: Asian Development Bank estimates.

Table 2: Financing PlanAdditional Financing ($ million)

Current Project

($ million)Source

Total($ million)

Share of Total (%)

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A. Detailed Cost Estimates by Expenditure Category

% of Total Base Costs

Item (NRs Million) ($ Million)

Foreign Local Total Foreign Local Total A. Investment Costs 1. Civil Works a. Road Infrastructure 154.6 2,188.2 2,342.9 2.21 31.26 33.47 56 b. Supplementary Investments 18.5 261.5 280.0 0.26 3.74 4.00 7 c. Road Maintenance - 105.0 105.0 - 1.50 1.50 3 Subtotal (1) 173.1 2,554.7 2,727.9 2.47 36.50 38.97 65 2. Equipment and Vehicles a. ADB financed Equipment - 70.0 70.0 - 1.00 1.00 2 Vehicles 30.2 70.6 100.8 0.43 1.01 1.44 2 Subtotal (a) 30.2 140.6 170.8 0.43 2.01 2.44 4 b. SDC financed Equipment - 0.6 0.6 - 0.01 0.01 - Vehicles 9.3 21.7 31.0 0.13 0.31 0.44 1 Subtotal (b) 9.3 22.2 31.5 0.13 0.32 0.45 1 Subtotal (2) 39.5 162.8 202.3 0.56 2.33 2.89 5 3. Training and Study Tours a. Beneficiary Training - 180.0 180.0 - 2.57 2.57 4 b. Study Tours - 20.0 20.0 - 0.29 0.29 - Subtotal (3) - 200.0 200.0 - 2.86 2.86 5 4. Consulting Services a. SDC Financed International Consultants - 93.8 93.8 - 1.34 1.34 2 National Consultants - 80.9 80.9 - 1.16 1.16 2 Subtotal (a) - 174.7 174.7 - 2.50 2.50 4 b. ADB Financed National Consultants - 14.5 14.5 - 0.21 0.21 - c. Local Travel - 18.4 18.4 - 0.26 0.26 - Subtotal (4) - 207.5 207.5 - 2.96 2.96 5 5. Technical Services a. SDC Supported District Consultant Services 21.5 193.5 215.0 0.31 2.76 3.07 5 b. ADB Supported District Consultant Services 26.9 241.9 268.7 0.38 3.46 3.84 6 c. ADB Supported NGOs 4.7 42.2 46.9 0.07 0.60 0.67 1 Subtotal (5) 53.1 477.6 530.6 0.76 6.82 7.58 13

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% of Total Base Costs

Item (NRs Million) ($ Million)

Foreign Local Total Foreign Local Total 6. Land Acquisition/Resettlement - 96.2 96.2 - 1.37 1.37 2 7. Surveys and Studies a. ADB financed - 21.0 21.0 - 0.30 0.30 1 b. SDC financed - 14.0 14.0 - 0.20 0.20 - Subtotal (7) - 35.0 35.0 - 0.50 0.50 1 8. Support Staff - 45.5 45.5 - 0.65 0.65 1 9. SDC Administration - 14.0 14.0 - 0.20 0.20 - Subtotal (A) 265.7 3,793.3 4,059.0 3.80 54.19 57.99 97 B. Recurrent Costs 1. Supervision and Implementation costs including O&M 105.0 35.0 140.0 0.50 1.50 2.00 3 Subtotal (B) 105.0 35.0 140.0 0.50 1.50 2.00 3 Total Base Costs 300.7 3,898.3 4,199.0 4.30 55.69 59.99 100 C. Contingencies 1. Physical 20.3 310.9 331.2 0.29 4.44 4.73 8 2. Price 29.3 464.9 494.2 0.01 0.14 0.15 - Subtotal (C) 49.6 775.8 825.4 0.30 4.58 4.88 8 D. Financing Charges During Implementation 1. Interest During Implementation 122.4 - 122.4 1.58 - 1.58 3 Subtotal (D) 122.4 - 122.4 1.58 - 1.58 3 Total Project Costs (A+B+C+D) 472.7 4,673.9 5,146.7 6.18 60.27 66.45 111

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B. Allocation and Withdrawal of Loan Proceeds Category ADB Financing

Number Item

Amount Allocated ($)

Percentage and Basis for Withdrawal from the Loan

Account Category Subcategory 1 Civil Works 12,270,000

1a. Road Infrastructure 8,610,000 25.7% of total expenditure

1b. Supplementary Investments 2,160,000 72% of total expenditure

1c. Road maintenance 1,500,000 100% of total expenditure*

2 Training 1,175,000 45.5% of total expenditure

3 Technical Services: NGO support 670,000 100% of total expenditure*

4 Resettlement** 485,000 100% of eligible expenditure*

5 Surveys and Studies 300,000 100% of total expenditure* 6 Financial charges during

implementation 1,580,000 100% of total amounts due

7 Unallocated 1,520,000

Total 18,000,000 * Excluding local taxes and duties ** Includes rehabilitation support, income generation and life skills, and community support costs C. Allocation and Withdrawal of Grant Proceeds

Category ADB Financing

Number Item

Amount Allocated ($)

Percentage and Basis for Withdrawal from the Grant

Account Category Subcategory 1 Equipment and Vehicles 1,430,000

1a. Equipment 850,000 100% of total expenditure*

1b. Vehicles 580,000 100% of total expenditure*

2 Training and Study Tours 1,250,000

2a. Training 960,000 37.7% of total expenditure

2b. Study Tours 290,000 100% of total expenditure*

3 National Consultants 210,000 100% of total expenditure*

4 Technical Services: District Implementation Support 3,840,000 100% of total expenditure*

15

Category ADB Financing

Number Item

Amount Allocated ($)

Percentage and Basis for Withdrawal from the Grant

Account Category Subcategory

5 Unallocated 270,000

Total 7,000,000 * Excluding local taxes and duties D. Allocation and Withdrawal of OFID Loan Proceeds

Category ADB Financing

Number Item

Amount Allocated ($)

Percentage and Basis for Withdrawal from the Loan

Account Category Subcategory 1

Civil Works - Road Infrastructure 18,120,000 54.2% of total expenditure

2 Unallocated 1,880,000

Total 20,000,000

16

E. Detailed Cost Estimates by Financier

Item Total

Amount% of Cost Category Amount

% of Cost Category Amount

% of Cost Category Amount

% of Cost Category Amount

% of Cost Category Amount

% of Cost Category Amount

A. Investment Costs 1. Civil Works

a. Road Infrastructure 8.61 25.7 - - 18.12 54.2 - - - - 6.73 20.1 33.47b. Supplementary Investments 2.16 54.0 - - - - - - 1.00 25.0 0.84 21.0 4.00c. Road Maintenance 1.50 100.0 - - - - - - - - - - 1.50Subtotal (1) 12.27 31.5 - - 18.12 46.5 - - 1.00 2.6 7.57 19.4 38.97

2. Equipment and Vehicles a. ADB financed

Equipment - - 0.85 85.0 - - - - - - 0.15 15.0 1.00Vehicles - - 0.58 40.0 - - - - - - 0.86 60.0 1.44Subtotal (a) - - 1.43 58.4 - - - - - - 1.01 41.6 2.44

b. SDC financed Equipment - - - - - - 0.01 100.0 - - - - 0.01Vehicles - - - - - - 0.18 40.0 - - 0.27 60.0 0.44Subtotal (b) - - - - - - 0.19 41.1 - - 0.27 58.9 0.45

Subtotal (2) - - 1.43 49.3 - - 0.19 6.4 - - 1.28 44.3 2.893. Training and Study Tours

a. Training 1.17 45.5 0.97 37.7 - - - - - - 0.43 16.8 2.57b. Study Tours - - 0.29 100.0 - - - - - - - - 0.29Subtotal (3) 1.17 41.0 1.25 43.9 - - - - - - 0.43 15.1 2.86

4. Consulting Services a. SDC Financed

International Consultants - - - - - - 1.34 100.0 - - - - 1.34National Consultants - - - - - - 1.16 100.0 - - - - 1.16Subtotal (a) - - - - - - 2.50 100.0 - - - - 2.50

b. ADB Financed National Consultants - - 0.21 100.0 - - - - - - - - 0.21

c. Local Travel - - - - - - 0.26 100.0 - - - - 0.26Subtotal (4) - - 0.21 7.0 - - 2.76 93.0 - - - - 2.96

5. Technical Services a. SDC Supported District Consultant Services - - - - - - 3.07 100.0 - - - - 3.07b. ADB Supported District Consultant Services - - 3.84 100.0 - - - - - - - - 3.84c. ADB Supported NGOs 0.67 100.0 - - - - - - - - - - 0.67Subtotal (5) 0.67 8.8 3.84 50.6 - - 3.07 40.5 - - - - 7.58

6. Land Acquisition/Resettlement 0.48 35.0 - - - - - - - - 0.89 65.0 1.37

VDCs andOPEC Fund for Swiss Agency for

Asian Development International Development andBank ADB ADF Grant Development Cooperation Beneficiaries The Government

a b

c

17

Item Total

Amount% of Cost Category Amount

% of Cost Category Amount

% of Cost Category Amount

% of Cost Category Amount

% of Cost Category Amount

% of Cost Category Amount

7. Surveys and Studies a. ADB financed 0.30 100.0 - - - - - - - - - - 0.30b. SDC financed - - - - - - 0.20 100.0 - - - - 0.20Subtotal (7) 0.30 60.0 - - - - 0.20 40.0 - - - - 0.50

8. Support Staff - - - - - - 0.65 100.0 - - - - 0.659. SDC Administration - - - - - - 0.20 100.0 - - - - 0.20Subtotal (A) 14.89 25.7 6.73 11.6 18.12 31.3 7.06 12.2 1.00 1.7 10.18 17.6 57.99

B. Recurrent Costs 1. Supervision and Implementation Costs including O&M - - - - - - - - - - 2.00 100.0 2.00Subtotal (B) - - - - - - - - - - 2.00 100.0 2.00Total Base Costs (A+B) 14.89 24.8 6.73 11.2 18.12 30.2 7.06 11.8 1.00 1.7 12.18 20.3 59.99

C. Contingencies 1.52 31.1 0.27 5.6 1.88 38.5 - - 0.10 2.1 1.11 22.7 4.88D. Financing Charges During Implementation 1.58 100.0 - - - - - - - - - - 1.58

Total Project Cost (A+B+C+D) 18.00 27.1 7.00 10.5 20.00 30.1 7.06 10.6 1.10 1.7 13.29 20.0 66.45% Total Project Cost 100%27.08% 10.53% 30.10% 10.63% 1.66% 20.00%

Bank ADB ADF Grant Development Cooperation Beneficiaries The Government

OPEC Fund for Swiss Agency forAsian Development International Development and VDCs and

a To be provided in-kind b Includes taxes and duties of $4.56 million. c ADB financing will cover only rehabilitation support, income generation and life skills, and community support costs, and will be disbursed at 100% (net of tax) for such costs. d Interest during construction for the ADB loan has been computed at the interest rate of 1% and for the OPEC Fund for International Development loan at 2.25%

(inclusive of 1% service charge). Note. The cofinanciers of the original approved project were SDC and GIZ as shown in table 2 (GIZ cofinancing had not materialized). Under additional financing, the cofinanciers are OFID and SDC.

a b

d

18

F. Detailed Cost Estimates by Outputs/Components

Item

Total Cost

Rural Transport Infrastructure Network

Extended and Maintained

Supplementary Community

Infrastructure Provided

Income Generating Capacity of Rural

Households Enhanced

Central and District Project Management Capacity Enhanced

Amount % of Cost Category Amount

% of Cost Category Amount

% of Cost Category Amount

% of Cost Category

A. Investment Costsa 1. Civil Works a. Road Infrastructure 33.47 33.47 100.00 - - - - - - b. Supplementary Investments 4.00 - - 4.00 100.00 - - - - c. Road Maintenance 1.50 1.50 100.00 - - - - - - Subtotal (1) 38.97 34.97 89.74 4.00 10.26 - - - - 2. Equipment and Vehicles a. ADB financed Equipment 1.00 - - - - - - 1.00 100.00 Vehicles 1.44 - - - - - - 1.44 100.00 Subtotal (a) 2.44 - - - - - - 2.44 100.00 b. SDC financed Equipment 0.01 - - - - - - 0.01 100.00 Vehicles 0.44 - - - - - - 0.44 100.00 Subtotal (b) 0.45 - - - - - - 0.45 100.00 Subtotal (2) 2.89 - - - - - - 2.89 100.00 3. Training and Study Tours a. Training 2.57 - - - - 2.57 100.00 - - b. Study Tours 0.29 - - - - - - 0.29 100.00 Subtotal (3) 2.86 - - - - 2.57 90.02 0.29 9.98 4. Consulting Services a. SDC Financed International Consultants 1.34 - - - - - - 1.34 100.00 National Consultants 1.16 - - - - - - 1.16 100.00 Subtotal (a) 2.50 - - - - - - 2.50 100.00 b. ADB Financed National Consultants 0.21 - - - - - - 0.21 100.00 c. Local Travel 0.26 - - - - - - 0.26 100.00 Subtotal (4) 2.96 - - - - - - 2.96 100.00 5. Technical Services a. SDC Supported District Consultant Services 3.07 - - - - - - 3.07 100.00

19

Item

Total Cost

Rural Transport Infrastructure Network

Extended and Maintained

Supplementary Community

Infrastructure Provided

Income Generating Capacity of Rural

Households Enhanced

Central and District Project Management Capacity Enhanced

Amount % of Cost Category Amount

% of Cost Category Amount

% of Cost Category Amount

% of Cost Category

b. ADB Supported District Consultant Services 3.84 - - - - - - 3.84 100.00 c. ADB Supported NGOs 0.67 - - - - 0.27 40.30 0.40 59.70 Subtotal (5) 7.58 - - - - 0.27 3.56 7.31 96.44 6. Land Acquisition/Resettlement 1.37 1.37 100.00 - - - - - - 7. Surveys and Studies a. ADB financed 0.30 0.30 100.00 - - - - - - b. SDC financed 0.20 - - - - - - 0.20 100.00 Subtotal (7) 0.50 0.30 60.00 - - - - 0.20 40.00 8. Support Staff 0.65 - - - - - - 0.65 100.00 9. SDC Administration 0.20 - - - - - - 0.20 100.00 Subtotal (A) 57.99 36.64 63.19 4.00 6.90 2.84 4.90 14.50 25.01 B. Recurrent Costs 1. Operation and maintenance 2.00 - - - - - - 2.00 100.00 Subtotal (B) 2.00 - - - - - - 2.00 100.00 Total Base Costs (A+B) 59.99 36.64 61.09 4.00 6.67 2.84 4.74 16.50 27.51 C. Contingencies 1. Physicalb 4.73 3.80 80.35 0.40 8.45 0.26 5.43 0.27 5.76 2. Pricec 0.15 0.13 84.75 0.01 7.19 0.01 7.86 0.00 0.20 Subtotal (C) 4.88 3.93 80.49 0.41 8.41 0.27 5.51 0.27 5.59 D. Financing Charges During Implementation 1. Interest During Implementationd 1.58 1.47 92.84 0.07 4.19 0.04 2.26 0.01 0.70 Subtotal (D) 1.58 1.47 92.84 0.07 4.19 0.04 2.26 0.01 0.70 66.45 42.04 63.27 4.48 6.74 3.15 4.73 16.78 25.26

a In mid-2011 prices. b Computed at 10% for civil works; 10% for field research and development, training, surveys and studies; and 20% for land acquisition and resettlement. c Computed at 0% for 2012 and 2013, and 0.5% thereafter on foreign exchange costs and 7% for 2012, 6% for 2013, and 5.5% thereafter on local currency costs; includes provision

for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate. d Interest during construction has been computed at 1% per annum for the ADB loan and 2.25% per annum for the OFID loan.

20

G. Detailed Cost Estimates by Year Total

($million) Cost by Year ($million)

2012 2013 2014 2015 2016 A. Investment Costs 1. Civil Works a. Road Infrastructure 33.47 6.01 9.31 8.33 6.56 3.26 b. Supplementary Investments 4.00 1.00 1.00 1.00 1.00 - c. Road Maintenance 1.50 0.30 0.30 0.30 0.30 0.30 Subtotal (1) 38.97 7.31 10.61 9.63 7.86 3.56 2. Equipment and Vehicles a. ADB financed Equipment 1.00 0.50 0.50 - - - Vehicles 1.44 1.44 - - - - Subtotal (a) 2.44 1.94 0.50 - - - b. SDC financed Equipment 0.01 0.01 - - - - Vehicles 0.44 0.44 - - - - Subtotal (b) 0.45 0.45 - - - - Subtotal (2) 2.89 2.39 0.50 - - - 3. Training and Study Tours a. Training 2.57 0.26 0.51 0.77 0.77 0.26 b. Study Tours 0.29 0.06 0.11 0.11 - - Subtotal (3) 2.86 0.31 0.63 0.89 0.77 0.26 4. Consulting Services a. SDC Financed International Consultants 1.34 0.26 0.32 0.38 0.38 - National Consultants 1.16 0.44 0.24 0.24 0.24 - Subtotal (a) 2.50 0.70 0.56 0.62 0.62 - b. ADB Financed National Consultants 0.21 0.05 0.05 0.05 0.05 - c. Local Travel 0.26 0.07 0.07 0.07 0.07 - Subtotal (4) 2.96 0.82 0.68 0.73 0.73 - 5. Technical Services a. SDC Supported District Consultant Services 3.07 0.77 0.77 0.77 0.77 - b. ADB Supported District Consultant Services 3.84 0.96 0.96 0.96 0.96 - c. ADB Supported NGOs 0.67 0.15 0.21 0.17 0.15 - Subtotal (5) 7.58 1.87 1.94 1.90 1.87 - 6. Land Acquisition/Resettlement 1.37 1.37 - - - - 7. Surveys and Studies a. ADB financed 0.30 0.10 0.10 0.10 - - b. SDC financed 0.20 0.20 - - - - Subtotal (7) 0.50 0.30 0.10 0.10 - - 8. Support Staff 0.65 0.15 0.15 0.17 0.17 - 9. SDC Administration 0.20 0.04 0.05 0.05 0.05 - Subtotal (A) 57.99 14.58 14.67 13.46 11.46 3.82 B. Recurrent Costs 1. Supervision and Implementation Costs including O&M 2.00 0.40 0.40 0.40 0.40 0.40 Subtotal (B) 2.00 0.40 0.40 0.40 0.40 0.40 Total Base Costs (A+B) 59.99 14.98 15.07 13.86 11.86 4.22 C. Contingencies 1. Physical 4.73 1.24 1.18 1.06 0.86 0.38 2. Price 0.15 0.00 0.00 0.03 0.07 0.05 Subtotal (C) 4.88 1.24 1.18 1.09 0.93 0.43 D. Financing Charges During Implementation 1.58 0.03 0.16 0.33 0.48 0.59 Total Project Costs (A+B+C+D) 66.45 16.25 16.41 15.28 13.27 5.24 % of Total Project Costs 100% 24% 25% 23% 20% 8%

21

H. Contract and Disbursement S-curve 1. ADB Loan Financing

2. ADB Grant Financing

22

I. Funds Flow

Figure 1: Project Funds Flow Diagram (without TSA)

23

Figure 2: Project Funds Flow Diagram (with TSA)

CISC

VILLAGE LEVEL DISTRICT LEVEL CENTRAL LEVEL

ADB

Nepal Rastra Bank

MoF (FCGO) MLD DoLIDAR

PCU

DTCO

Contractor

DDC (LDO)

DTO

DPO

DISC

VWRCC

BG

Measurement / Reporting Authorization / Approval Fund Flow

GoN Account

District Bank

Imprest Account

GoN Account

ADB = Asian Development Bank; BG = building group; DDC = district development committee; DISC = District Implementation Support Consultant; DOLIDAR = Department of Local Infrastructure Development and Agricultural Roads; DPO = District Project Office; DTCO = District Treasury Comptroller; DTO = District Technical Office; FCGO = Financial Comptroller General; LDO = Local Development Officer, MLD = Ministry of Local Development; MOF = Ministry of Finance; PCU = Project Coordination Unit; VWRCC = Village Works Road Construction Committee.

VI. FINANCIAL MANAGEMENT

A. Financial Management Assessment 22. The financial management system of MLD which oversees DOLIDAR, is assessed as generally satisfactory. Being a government ministry, its financial reporting system is based on the ministry budget and the manner in which it is expended. The cash basis of accounting is used. MLD, with the assistance of an IT consultant has developed its own accounting system, which is also used by the DDC. The system has been in place for about 5 years and produces a cash book, budget sheet (by budget head to compare actual expenditure) and vouchers. The

24

DTCO which is an office of the Financial Comptroller General in each district is the internal auditor of MLD. An external audit of MLD is carried out annually by the Office of Auditor General of Nepal. The external auditor relies on the work of the DTCO who has done the internal audit. 23. DOLIDAR’s financial management is likewise generally satisfactory. Its financial reporting system is aligned to the government system. The financial reporting system is based on Microsoft Excel for the cash book, budget sheet and vouchers. These formats have been agreed with the Office of Auditor General. 24. The MLD accounting system which is in operation in DDCs has not been shared with DOLIDAR. The current accounting staff are comfortable operating the spreadsheets, however a change of staff as a result of transfer would pose a problem in operation of the system. Also, since DOLIDAR is a department under MLD there should be standardization in accounting software used and all accounting officers should be trained in the use of such software. 25. The capacity of the districts (DTO/DTCO) in managing funds was assessed and was found to be satisfactory. B. Disbursement 26. Planning The loan and grant proceeds including ADB administered cofinancier funds will be disbursed in accordance with ADB’s Loan Disbursement Handbook (2007, as amended from time to time), and detailed arrangements agreed upon between the Government and ADB. 27. Pursuant to ADB's Safeguard Policy Statement (2009) (SPS), ADB funds may not be applied to the activities described on the ADB Prohibited Investment Activities List set forth at Appendix 5 of the SPS. All financial institutions will ensure that their investments are in compliance with applicable national laws and regulations and will apply the prohibited investment activities list to subprojects financed by ADB. 28. The Government will, immediately after loan effectiveness, establish three imprest accounts, one each for (i) ADB loan, (ii) ADB grant and (ii) OFID loan, administered by DOLIDAR/PCU. The aggregate maximum ceiling of each imprest account will not at any time exceed the ADB financed expenditures or ADB administered co-financier financed expenditures to be paid from the imprest account over the next 6 months or 10% of the respective loan and grant amounts, whichever will be lower. The imprest accounts will be denominated in US dollars and will be opened at NRB. Funds from the imprest accounts along with the funds from Government for the project will flow to a Government Revenue Account at NRB, and maintained by funding source. The funds for project expenditures in the districts will be transferred, based on the approved budget allocation, from the Government Revenue Account at NRB to a Government Account at designated District Bank and from it will be transferred to the District Development Fund Account of DDC (DDF) and from it to the DTO’s account in the District Bank. The DTO will keep separate ledger accounts by funding source and make payments from its account for approved project expenditures. 29. The Treasury Single Account System (TSA) is currently being piloted in some districts. Under the TSA, which is being introduced in phases in all districts, at the central level fund flow will remain unchanged. At the district level, the funds from the Government Revenue Account at NRB will be transferred to a Government Account at the designated District Bank, based on the approved budget allocation. The DTCO operates this account on behalf of all district level Government Offices including DDC. Separate ledger for DRILP, by funding source, will be kept

25

by DTCO, and in accordance with approved budget allocation and payment order authorized by DDC/DTO payments are made by DTCO. 30. The request for initial advance to the imprest accounts should be accompanied by an Estimate of Expenditure Sheet setting out the estimated expenditures for the first 6 months of project implementation and submission of evidence satisfactory to the ADB that the imprest account has been duly opened. For every liquidation and replenishment request of the imprest accounts, the borrower will furnish to the ADB: (a) Statement of Account (Bank Statement) where the imprest accounts are maintained; and (b) Imprest Account Reconciliation Statements reconciling the above bank statement against DOLIDAR’s records. The bank charges may be financed from ADB loan and grant. The SOE procedure will be used to reimburse/liquidate eligible expenditures not exceeding $50,000 equivalent per individual payment. Payments in excess of the SOE ceiling should be supported by full documentation. The SOE records should be maintained and made readily available for review by ADB’s disbursement and review mission or upon ADB’s request for submission of supporting documents on a sampling basis, and for independent audit. For liquidation of the District (DTO/DTCO) accounts, full supporting documents should be submitted to DOLIDAR/PCU. 31. Before the submission of the first withdrawal application, DOLIDAR should submit to ADB sufficient evidence of the authority of the person(s) who will sign the withdrawal applications on behalf of the borrower, together with the authenticated specimen signatures of each authorized person. The minimum value per withdrawal application is US$100,000, unless otherwise approved by ADB. DOLIDAR is to consolidate claims to meet this limit for reimbursement and imprest account claims. Withdrawal applications and supporting documents will demonstrate, among other things that the goods, and/or services were produced in or from ADB members, and are eligible for ADB financing. For ADB partially administered OFID loan, DOLIDAR will simultaneously send two withdrawal applications, the original to ADB and a copy to OFID. ADB will review the withdrawal application and advise OFID to make the disbursement. C. Accounting 32. The DOLIDAR, DTO, and DTCO will maintain separate project accounts and records by funding source for all expenditures incurred on the Project. Project accounts will follow international accounting principles and practices (or those prescribed by the Government's accounting laws and regulations.) D. Auditing 33. The DOLIDAR will cause the detailed consolidated project accounts to be audited in accordance with International Standards on Auditing by an auditor acceptable to ADB (the audit by Auditor General’s of Nepal as in case of DRILP shall be applicable). The audited accounts will be submitted in the English language to ADB within 9 months of the end of the fiscal year by the executing agency. The annual audit report will include a separate audit opinion on the use of the imprest accounts, the District Accounts (DTO/DTCO) and the SOE procedures. The Government and DOLIDAR have been made aware of ADB’s policy on delayed submission, and the requirements for satisfactory and acceptable quality of the audited accounts. ADB reserves the right to verify the project's financial accounts to confirm that the share of ADB’s financing is used in accordance with ADB’s policies and procedures.

26

VII. PROCUREMENT AND CONSULTING SERVICES

A. Advance Contracting and Retroactive Financing 34. All advance contracting and retroactive financing will be undertaken in conformity with ADB’s Procurement Guidelines (2010, as amended from time to time)4 and ADB’s Guidelines on the Use of Consultants (2010, as amended from time to time).5 The issuance of invitations to bid under advance contracting and retroactive financing will be subject to ADB approval. The borrower, MLD and DOLIDAR have been advised that approval of advance contracting and retroactive financing does not commit ADB to finance the Project. Retroactive financing will be available only up to 20% of the ADB loan and grant. Any approval of advance contracting will not constitute a commitment by ADB to finance the project6

.

35. In order to expedite the project implementation, it is recommended that advance contracting be undertaken for selection of the CISC and DISC teams. The steps to be concluded in advance are: (i) preparation of bidding documents, already prepared under DRILP by the PCU which can be used; (ii) bidding; and (iii) bid evaluation. B. Procurement of Goods, Works and Consulting Services 36. All procurement of goods and works will be undertaken in accordance with ADB’s Procurement Guidelines (2010, as amended from time to time). The Government may opt for the e-bidding if it is appropriate and subject to ADB approval. The procurement capacity of DOLIDAR and the districts was assessed and was found to be satisfactory. The DRILP PCU has developed guidelines for procurement which are in accordance with the Public Procurement Act (PPA) 2063 and which are also generally in accordance with the ADB Guidelines. DOLIDAR has agreed to further improve the procurement efficiency under DRILP – Additional Financing focusing on early recruitment of project implementation consultants; designation of DTO as the authorized signatory for project activities; strictly following bid evaluation timeframe; and streamlining contract packaging process. 37. International Competitive Bidding (ICB), National Competitive Bidding (NCB), Community Participation (CP) and Shopping will be used for goods and works. NCB will be used for the procurement of works. CP will be used for the hire of BGs for basic civil works, as under current project (DRILP). All small and widely dispersed civil works amounting up to $30,000 will be undertaken by the community following ADB's guidelines on community participation in procurement as under DRILP. Before the start of any procurement, ADB and the Government will review the public procurement laws to ensure compliance with both local laws and ADB’s Procurement Guidelines (2010, as amended from time to time). All consultants and NGOs will be recruited according to ADB’s Guidelines on the Use of Consultants (2010, as amended from time to time).7

National consultants will be recruited to support project implementation at the district level. International expertise in not required in the implementation and supervision of the project at the district level. The national consultants are working and performing well in current DRILP; they have shown competence and can carry out design and supervision works. The terms of reference (TOR) for all consulting services are detailed in Section D.

4 Available at: http://www.adb.org/Documents/Guidelines/Procurement/Guidelines-Procurement.pdf 5 Available at: http://www.adb.org/Documents/Guidelines/Consulting/Guidelines-Consultants.pdf 6 Advance contracting and retroactive financing will be applicable only for eligible expenditures not covered by OFID

financing. 7 Checklists for actions required to contract consultants by method available in e-Handbook on Project

Implementation at: http://www.adb.org/documents/handbooks/project-implementation/

27

C. Procurement Plan

Basic Data

Project Name: Decentralized Rural Infrastructure and Livelihoods Project – Additional Financing Country: Government of Nepal Executing Agency: Depart of Local Infrastructure

Development and Agricultural Roads Loan Amount: $ 18 million Grant Amount : $ 7.0 million

Loan Number: (To be determined) Grant Number : (To be determined)

Date of First Procurement Plan: June 2011 Date of this Procurement Plan: 15 September 2011

A. Process Thresholds, Review and 18-Month Procurement Plan

1. Project Procurement Thresholds

38. Except as the Asian Development Bank (ADB) may otherwise agree, the following process thresholds shall apply to procurement of goods and works.

Procurement of Goods and Works Method Threshold International Competitive Bidding (ICB) for Works Between $1,000,000 and $10,000,000 International Competitive Bidding for Goods Between $500,000 and $1,000,000 National Competitive Bidding (NCB) for Works Beneath that stated for ICB, Works National Competitive Bidding for Goods Beneath that stated for ICB, Goods Shopping for Works Below $100,000 Shopping for Goods Below $100,000 Community Participation Below $30,000

2. ADB Prior or Post Review

39. Except as ADB may otherwise agree, the following prior or post review requirements apply to the various procurement and consultant recruitment methods used for the project. Procurement Method Prior or Post Comments Procurement of Goods and Works ICB Works Prior ICB Goods Prior NCB Works Prior 1st NCB document NCB Goods Prior 1st NCB document Shopping for Works Post Shopping for Goods Post Community Participation Post Recruitment of Consulting Firms Quality- and Cost-Based Selection (QCBS) Prior Recruitment of Individual Consultants Individual Consultants Prior

28

3. Consulting Services Contracts Estimated to Cost More Than $100,000

40. The following table lists consulting services contracts for which procurement activity is either ongoing or expected to commence within the next 18 months.

General Description

Contract Value

($ million)

Recruitment Method

Advertisement Date

(quarter/year)

International or National Assignment

Comments

District implementation consultants (10 districts)

3.84

QCBS (80:20) Full

technical proposal

3rd Quarter 2011

National consultants

National consultants (CISC) 0.21 Individual

recruitment 3rd Quarter

2011 National

National NGO 0.40

QCBS (80:20)

Simplified technical proposal

1st Quarter 2012 National

Local NGOs for microfinance access facilitation

0.27

QCBS (80:20)

Simplified technical proposal

2nd Quarter 2012 National NGOs

Livelihoods training 2.14

QCBS (80:20)

Simplified technical proposal

1st Quarter 2012

National training

providers

Studies and surveys 0.30

QCBS (80:20)

Simplified technical proposal

1st Quarter 2012 National

ADB = Asian Development Bank; CISC = Central Implementation Support Consultant; NGO = nongovernment organization; QCBS = Quality and cost based selection; SDC = Swill Agency for Development and Cooperation

4. Goods and Works Contracts Estimated to Cost Less than $1 Million

41. The following table groups smaller-value goods, and works for which procurement activity is either ongoing or expected to commence within the next 18 months.

29

General Description Value of

Contracts (cumulative)

Number of Contracts

Procurement / Recruitment

Method Comments

[CIVIL WORKS] 1 Road Infrastructure 2 Supplementary Investments 3 Road Maintenance [EQUIPMENT AND VEHICLES] 4 Equipment 5 Vehicles (4WD & motorbikes)

($ million)

15.0 2.0 0.7

0.50 0.58

600 250 100

5 2

NCB / CP/shopping

NCB / CP/shopping

NCB / CP/shopping

NCB/Shopping

ICB/NCB / Shopping

Incl. OFID

CP= Community Participation; NCB = National Competitive Bidding; OFID = OPEC Fund for International Development; WD = wheel drive

B. Indicative List of Packages Required Under the Project

42. The following table provides an indicative list of all procurement (goods, works and consulting services) over the life of the project. Contracts financed by the Borrower and others should also be indicated, with an appropriate notation in the comments section.

General Description

Estimated Value

(cumulative) $million

Estimated Number of Contracts

Procurement Method

Domestic Preference Applicable Comments

Includes contract

financed by borrower

and others Road Infrastructure 33.47 1200 NCB /

CP/shopping

Yes

Supplementary Investment 4.0 500 NCB / CP/shopping

Yes

Road Maintenance 1.5 200 NCB / CP/shopping

Yes

Equipment Vehicles

1.0 1.9

10 2

NCB/Shopping ICB/NCB / Shopping

Yes Yes

Includes contract

financed by borrower

and others Consulting and Technical Services

13.8 90 QCBS

CP= Community Participation; NCB = National Competitive Bidding; OFID = OPEC Fund for International Development; WD = wheel drive

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C. National Competitive Bidding (NCB Annex)

43. National competitive bidding (NCB) shall be in accordance with that described as "by inviting bids and a national level" as set forth in "The Public Procurement Act, 2007" (PPA) and "The Public Procurement Regulations, 2007" (PPR) and subject to the following: 44. The first NCB document for both goods and works procurement shall be reviewed and approved by ADB prior to issue. These will be used for all NCB procurement under the project. The document shall include qualification and evaluation criteria and ADB's right to audit and inspect in accordance with para 1.14 of ADB's Procurement Guidelines. No other criteria other than that described in the bidding document may be used to determine the lowest evaluated responsive bidder and no form of domestic preference may be employed. A positive assessment of a bidder's qualifications to perform a contract will be a pre-requisite to an award.

45. All qualified ADB member bidders and ADB member produced goods, services and works shall be eligible. Registration and licensing shall be permitted only as a condition of contract award and not participation in bidding. No award may be withdrawn for failure to obtain tax registration; license or fulfill any similar requirement without ADB's prior concurrence. No bidder will be held ineligible based on provision 63 of the PPA without ADB prior concurrence.

46. Invitations to bid shall be advertised in at least one widely circulated national daily newspaper or freely accessible, nationally-known website allowing a minimum of twenty-eight (28) days for the preparation and submission of bids. Invitations for bids for contracts estimated at $500,000 or more for goods and $1,000,000 or more for civil works shall be advertised on ADB’s website. No restriction will be placed on the sale of bidding documents.

47. The approved Standing List of a Procuring Entity prepared in accordance with the law shall only be accepted to supplement an advertised open pre-qualification exercise for the specific contract provided that those on the standing list meet the qualification criteria.

48. Bids shall be opened at a single location immediately after the deadline for submission. Multiple locations for submission and opening are not acceptable.

49. Government-owned enterprises in Nepal shall be eligible to participate only if they meet the conditions of para 1.8 (c) of the Procurement Guidelines.

50. Extension of bid validity of more than 4 weeks beyond the original validity shall not be allowed without the prior concurrence of ADB.

51. Cancellation of bidding and re-bidding shall not be carried out without the prior concurrence of ADB.

52. Percentage variations from rates fixed by a district rate fixation committee shall not be used for the purpose of evaluating bids.

53. In the event of a conflict between these provisions and the law, these provisions shall prevail.

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D. Consultant's TOR

54. The DRILP arrangement of two teams of consultants (CISC, DISC) and NNGO supporting the central (PCU, DOLIDAR) and the district level (DDCs through the DPO/DTO) project organizations will continue in the next phase of the Project. 55. The CISC will be responsible for (i) efficient execution and management of the project to deliver its outputs and achieve its objectives; (ii) meeting the requirements of the Government of Nepal (GON) and ADB and ensuring that quantitative and qualitative standards and targets are met; (iii) provision of guidance and support to the IAs at district level; and (iv) developing institutional capacity in the public, private and nongovernment sectors at central and district level. 56. The DISC teams will be responsible for: (i) provision of social and technical inputs for awareness raising, participation, the mobilization of beneficiaries and social development; and (ii) for planning engineering design, construction supervision, measurement, certification and quality and quantity control of procured materials such as gabion, tools, cement, fabricated steel parts and other construction materials for subprojects and supplementary investments. 57. An NNGO will be responsible providing guidance and support the IAs in the implementation of social development related activities and outcome monitoring under the Project.

1. Contracting Arrangements

58. For SDC funded parallel cofinancing, contracting arrangements will be in accordance with SDC requirements and norms. This applies to the CISC team, as well as for the DISC teams to be funded by SDC. 59. For funding of those DISC teams not supported by SDC, it is proposed that this be done through a single contract let through quality cost based selection (QCBS). Such a contract provides more flexibility in the provision of the DISC teams, and should lead to a better working relationship between the CISC, and any DISC teams not funded by SDC. 60. The NNGO will be engaged by the PCU through the QCBS method.

2. CISC and DISC

61. The key project management support functions for the implementation of DRILP – Additional Financing will be undertaken by a CISC based in Kathmandu, and DISC teams based in each district. The CISC reports to the DRILP PCU based in DOLIDAR. The CISC also guides and assists with back-up technical expertise to the DISC teams as required. The CISC is funded by SDC, and will also include two senior staff funded by ADB. SDC will fund 8 DISC teams and ADB will fund the remaining 10 DISC teams. 62. It is important to note at the outset that the need for, and provision of, DISC teams will vary from district to district and also over the project duration. While contracting DISC provisions shall be made for this. 63. As noted above, the CISC team is already in place with SDC funding. Assuming DRILP – Additional Financing proceeds, then SDC is expected to renew current contractual arrangements with the CISC team to implement the Project, subject of course to the contracting

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requirements and norms of SDC. Appendix 5 presents the TOR for the individual members of the CISC. 64. A DISC team will be engaged for each of the 18 project districts with responsibility for the road subproject, and community infrastructure work. SDC will fund 8 DISC teams while ADB will fund 10 DISC teams. Appendix 5 presents the TOR for the individual members of the DISC teams.

3. NNGO

65. The outline TOR for the NNGO is in Appendix 6.

VIII. SAFEGUARDS

66. Environment. The project is category B in accordance with the ADB SPS (2009). The EA and IAs prepared IEEs, including environmental management plans (EMPs), for the sample subprojects during the subproject preparation work. The environmental assessment and review framework (EARF) was revised in accordance with ADB Safeguard Policy Statement. The framework sets out the requirements for project screening and classification, subproject selection, information disclosure to, and consultation with, the affected people, environmental assessment, EMP development and implementation, and monitoring and reporting. The IEEs found the planned subprojects to have only small and localized adverse impacts on the environment, which can be managed by the mitigation measures proposed in the EMPs. The EMPs will be implemented by the subproject BGs and/or contractors, and the implementation will be monitored by the DISC in each district (which reports to the DPO/DTO/LDO/DDC), and the CISC (which reports to the PCU, DOLIDAR). 67. Resettlement. The project is category B for involuntary resettlement in accordance with the ADB SPS (2009). Most subprojects involve land acquisition and involuntary resettlement, but the involuntary resettlement impact is not considered significant.8

Draft RPs will be prepared for these subprojects. The RF has been revised and updated in compliance with the ADB Safeguard Policy Statement.

68. Indigenous People. The project is category B for indigenous peoples in accordance with the ADB SPS (2009). The IPPF has been revised in compliance with the ADB Safeguard Policy Statement, with special assistance measures for indigenous people and other vulnerable groups. However, considering the nature and scale of the subprojects, the impact on indigenous peoples is expected to be limited to a few involuntary resettlement and land acquisition cases. In addition, a GESI plan contains specific actions favorable to indigenous people.

IX. GENDER AND SOCIAL DIMENSIONS

69. A GESI action plan has been prepared for the project to address gender inequality and social exclusion issues. The GESI plan contains specific targets for participation of and ensuring project benefits reach rural poor women and disadvantaged groups in the subproject areas of DRILP. The GESI plan ensures representation and participation of poor, socially excluded and women in road BGs, VWRCC, and Compensation Determination Committee, and Users Group in project orientation, implementation, and monitoring. A data collection system disaggregated

8 Involuntary resettlement impact is considered significant when 200 or more people experience major impact.

“Major impact” involves (i) physically displacing people from housing; or (ii) causing people to lose 10% or more of their productive, income-generating assets.

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by sex, caste, and ethnicity will be developed in PCU/DOLIDAR to monitor the achievement of the gender and pro-poor targets. The plan also includes provisions for increase in recruitment of women’s staff and deputation in the PCU and DDCs.

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A. Gender equality and Social Inclusion (GESI) Action Plan

Activities Performance Indicators and Targets Responsibility Year Output 1: Rural Livelihood Improved

1.1 Conduct a baseline socio-economic survey through collection of sex, caste, ethnicity and minority groups disaggregated data of the project districts. Conduct poverty mapping of subproject areas (ZOI) to identify poor, excluded and most vulnerable households. Based on the poverty mapping carry out GESI assessment of the subproject area to identify specific constraints, barriers and opportunities to their participation in project activities.

• The updated baseline data disaggregated by sex, caste, ethnicity and excluded groups collected.

• Poverty mapping carried out in sampled (20%) subproject areas and criteria include indicators on income, heath/nutrition, education, occupation, social capital, existing infrastructure facilities, female heads of household (FHHs).1

NNGO/CISC and DISC/PCU

Gender and social inclusion assessment carried out and GESI Action plan/social action plan prepared for all sub projects.

Year 1-2

1.2 Ensure representation of women and excluded groups in BGs, DRCC, RMC, CDC, GRC, and VWRCC in project districts.

• BG: 40% women and proportionate representation from excluded groups2

• BG leadership: 33% women from all caste, ethnic and minority groups.

.

• DRCC, CDC, RMC, GRC, and VWRCC: 33% women with at least one key position in operation, management, maintenance, monitoring committeesand proportionate representation from excluded groups.

DPO/DISC /CISC and NNGO

Year 1-5

1.3 Ensure participation of women and excluded in consultations, orientation programs on project approach, health and sanitation, local governance, safety measures, core labor standards, and implementation of GESI action plan.

• 40% women of the total participants and 60% from poor and excluded

DPO/DISC /CISC and NNGO

Year 1-5

1.4Provide supplementary community infrastructure operation and maintenance training

• Women are at least 40% of those trained DPO/DISC Year 2-5

1 Female-headed household (FHH) refers to households without adult males, widows, separated, divorces, unmarried and ‘de facto’ women heads whose

husbands have migrated for work for long period of time. 2 Refer to those who have experienced exclusion historically and have not been mainstreamed in the nations development: women, Dalis, Adivasis

,Janajatis, Madhesis, Muslims and people living with disabilities, and people of geographically remote areas.

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Activities Performance Indicators and Targets Responsibility Year 1.5Identify and conduct special livelihood enhancement training programs as per the interest, demand and scope for marketing.

• At least 70% of the BG members are targeted for the skills training of which at least 40% are women and 60% poor and excluded as per the TIP.

• Priority given to women, poorest households and individuals from excluded group.

NNGO/CISC/ training providers/DPO/DISC

Year 1-4

1.6Group mobilization of SHGs through social mobilization including saving and credit, record keeping, institutional capacity building by federating into SFCLs/SCCs and access to micro finance in 9 pilot districts.

• Relevant social mobilization strategy, guideline and relevant capacity building training manuals, tools developed.

• 40% women and 60% poor and excluded receiving the micro-finance and saving and credit schemes.

NNGO/CISC/DPO/DISC

Year 1-4

1.7Provide enabling work environment for women and excluded groups by providing childcare facilities, separate toilets for women and men, health and safety, and insurance at the work place.

• At least one childcare center is operating in each project district during the working season.

DPO/DISC Year 3-5

1.8Apply the policy of employing local people in BGs with preference to affected families, dalits, IPs, and excluded and the policy of equal pay for work of equal value in employment for rural roads.

• Women and men BG members are provided equal opportunity as supervisors and laborers

• Receive equal payment for work of equal value and core labor standards enforced in all contracts.

• Women provide 40 % of the employment generated.

DPO/DISC /CISC and NNGO

Year 1-5

Output 2. Capacity Building and Decentralized Local Governance Enhanced 2.1 Identification and selection of subprojects (including supplementary infrastructure) are carried out in a participatory manner based on community demand.

• Out of the total consulted 50% are women and proportionate number of excluded groups.

DISC/DPO Year 2-4

2.2 Ensure participation of women and excluded from the central and district level (DDC,DTO) in regional study tours.

• Of the total participants for study tour 20% are women and proportionate number from excluded groups.

DDC/DTO/PCU Year 4-5

Output 3. Rural Transport Infrastructure Extended and Maintained 3.1 Ensure involvement of BG members in the construction and rehabilitation of roads.

• Women provide 40% and poor and excluded provide 60% of the employment generated.

DPO/DISC /CISC and NNGO

Year 2-5

3.2 Ensure rural roads are fully maintained through length-persons engaged from the local communities

• Women provide 40% and poor and excluded provide 60% of the employment generated.

DPO/DISC /CISC and NNGO

Year 3-5

3.3 Provide capacity development program for women and excluded on road maintenance.

• 40% of BG members receive training on routine maintenance, nursery preparation and bio-engineering etc.

DPO/DISC /CISC and NNGO

Year 3-5

Output 4. Project Management Improved

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Activities Performance Indicators and Targets Responsibility Year 4.1 Adopt GESI plan and formulate output based annual plan for implementation at center and district level.

• Annual output based central and district plans are developed, implemented and reported.

PCU, CISC/NNGO,DISC,DPO

Year 1-5

4.2 Provide GESI orientation to PCU/DDC/DTO/DPO/ DRCC on GESI Action Plan including mainstreaming tools.

• DOLIDAR/PCU/DDC/DTO/DPO/DRCC are capacitated and equipped to effectively mainstream GESI and implementing district specific GESI plans, monitoring and reporting.

PCU, CISC,NNGO DPO, DISC

Year 1

4.3 Ensure that all project related activities (training, exposure visit, periodic meetings, review meetings) integrate GESI related issues and targets women staff and staff from excluded groups.

• At least 33% women participation in the events and proportionate representation from excluded groups

PCU, DOLIDAR/NNGO

Year 2-5

4.4 Establish a monitoring system with sex, caste, ethnicity and minority group disaggregated data including poverty data. Establish quarterly review, monitoring and reporting system against indicators of GESI action plan including resettlement, compensation, women’s participation and benefits.

• Progress update of GESI plan included in project progress reports.

• Achievement on GESI disaggregated by sex, caste, ethnicity, and minority groups are available

• Monitoring team consists of at least one gender and social development expert.

CISC, NNGO, PCU, DPO, DISC

Year 2-3

4.5 Integrate GESI measures and monitoring indicators in project operating guidelines, sub sector strategies, institutional mechanisms, and program budget.

• Project design and monitoring framework, guidelines and strategies incorporate GESI indicators as per the GESI Action Plan. Provisions as per the MLD’s GESI policy and GESI policy of the rural transport sector are considered.

CISC, NNGO, PCU, DPO, DISC

Year 1-4

4.6 Establish a Gender Desk in DOLIDAR and designate Social development officers each in the PCU and DDC/DTO.

Hire consultants at the Central Implementation Support unit and District implementation support unit.

Hire SM locally.

• At least 33% women officers (technical/non technical) in PCU/DTO/ DPO. At least 40% of eligible women and excluded caste/ethnic groups in other project related positions including junior technicians and road supervisors at center and districts.

• At least 50% of SM are women and proportionate number from excluded groups

DOLIDAR, PCU, DPO, DDC

Year 1

BG = building group; CDC = Compensation Determination Committee; CISC = Central Implementation Support Consultants;;DDC = district development committee; DISC = District Implementation Support Consultants; DOLIDAR = Department of Rural Infrastructure and Agricultural Roads; DPO = district project office; DRCC = District Road Coordination Committee; DTO = district technical office; FHH = female household; GESI =Gender and Social Inclusion; GRC = Grievances Redress Committee; IP = indigenous people; MLD = Ministry of Local Development; NNGO = national nongovernment organization; PCU = project coordination unit; RMC = road maintenance committee;SCC = Saving and Credit Cooperative; SCI = Supplementary Community Infrastructure;SFCL = Small Farmers Cooperative Limited; SM = Social Mobilization; TIP = Training Implementation Plan;VWRCC = Village Works Road Construction Committee; ZOI = zone of influence.

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X. PERFORMANCE MONITORING, EVALUATION, REPORTING AND COMMUNICATION

A. Project Design and Monitoring Framework

REVISED DESIGN AND MONITORING FRAMEWORK

Design Summary (Current Project)a

Design Summary (Overall Project)b

Performance Targets and Indicators with Baselines

(Current Project)a

Performance Targets and Indicators with Baselines

(Overall Project)b

Data Sources and Reporting

Mechanisms (Overall Project)b

Assumptions and

Risks (Overall Project)b

Impact Reduced rural poverty in 18 very poor remote hill and mountain districts

Reduced rural poverty in 18 very poor and remote hill and mountain districts

Poverty level of 60% in 18 project districts reduced to 45% by 28 February 2015

By the end of 2020 Poverty levels in 18 project districts reduced to 20% from 41% in 2004c

Central Bureau of Statistics Nepal Human Development Report

Assumption Political and social stability maintained

Outcome Widened access to social services and economic opportunities

Sustainable increased access to economic and social services

Increased levels (at least 25%), and more diverse sources of income for 200,000 households in the ZOI of project infrastructure by 28 February 2015 100% increase in existing freight volume and 275% increase in per capita personal trips by 28 February 2015 Proportion of women and excluded ethnic groups and castes in building groups increased by at least 40% from the project’s start by 29 February 2012

By the end of 2016 600,000 persons have better access to social services from a baseline of 200,000 persons in 2010 Average annual income per household in subprojects ZOIs increased by 10% per year from NRs69,500 in 2007 Transport costs for people and goods reduced by 55% and 87% from NRs18/km and NRs491/t-km respectively in 2010 Freight volume increased by 20% per year from 0.116 tons/capita/year in 2007 Anticompetitive activities in rural transport services curtailed

Project surveys (baseline, monitoring, end-of-project) for representative sample of households in subproject ZOIs

Assumptions Volume of marketed goods increases because of project interventions Poverty-focused programs continued Women willing to participate in all activities Rate of inflation is contained Risk Lower economic growth reduces economic opportunities for rural areas

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Design Summary (Current Project)a

Design Summary (Overall Project)b

Performance Targets and Indicators with Baselines

(Current Project)a

Performance Targets and Indicators with Baselines

(Overall Project)b

Data Sources and Reporting

Mechanisms (Overall Project)b

Assumptions and

Risks (Overall Project)b

11.2 million person-days (4.7 million person-days under additional financing) of work are provided. Women and excluded groups represent at least 50% of building groups membership, from 40% in 2010

Outputs 1. Community development and rural livelihood restoration

1. Rural livelihood improved

Awareness-raising activities, meetings, and training conducted Building groups, with 40% women members, and consisting entirely of local people formed in all subprojects 35 supplementary investments in community infrastructure reflect community priorities, including those of the poor, and are selected and agreed

By the end of 2016 600 community infrastructure (250 under additional financing) constructed, involving building groups in 50% of the contracts Equal wage for equal value of work 6,000 beneficiaries trained in livelihood-related skills, of which at least 40% are women and 60% are the poor and excluded Access to microfinance by building groups and savings and credit schemes in piloted nine districts improved—40% of beneficiaries are women and 60% are the poor and excluded

Project performance management system within DOLIDAR Proposals submitted for community infrastructure investments Building groups’/contractors’ reports

Assumption Appropriate and affordable community infrastructure investments identified Risk Community support for proposed investments not forthcoming

2. Capacity building and decentralized local governance

2. Capacity building and decentralized local governance enhanced

All participating DDCs prioritize and propose the subprojects DDCs demonstrate progressively improved capacity to implement transport infrastructure

15 central and 72 district officers, of which at least 20% are women, participate in and learn from regional study tours

Project performance management system within DOLIDAR

Risk Frequent transfer of key government staff

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Design Summary (Current Project)a

Design Summary (Overall Project)b

Performance Targets and Indicators with Baselines

(Current Project)a

Performance Targets and Indicators with Baselines

(Overall Project)b

Data Sources and Reporting

Mechanisms (Overall Project)b

Assumptions and

Risks (Overall Project)b

subprojects, and to deliver development services DDC and district technical officer capacity in all aspects of development project planning, management, and implementation Improved

3. Rural transport infrastructure

3. Rural transport infrastructure extended and maintained

515 km of rural roads built and 130 km of rural roads rehabilitated 90 km of village roads built and 70 km of village roads rehabilitated 8,755 m of trail bridges built

715 km of rural roads built and 190 km of rural roads rehabilitated (200 km of rural roads built and 60 km of rural roads rehabilitated under additional financing) involving building groups in 50% of the new road construction contracts 20,500 m of trail bridges built (6,500 m under additional financing) 1,200 km of rural roads fully maintained through length-personsd engaged from the local communities, of which 40% will be provided by women Toll collection system piloted in nine districts to augment the district road maintenance funds

Project performance management system within DOLIDAR Building groups’ and/or contractors’ reports indicating male and female workers employed Annual road condition surveys per district Annual road maintenance plans per district

Risks Political and bureaucratic intervention and patronage

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Design Summary (Current Project)a

Design Summary (Overall Project)b

Performance Targets and Indicators with Baselines

(Current Project)a

Performance Targets and Indicators with Baselines

(Overall Project)b

Data Sources and Reporting

Mechanisms (Overall Project)b

Assumptions and

Risks (Overall Project)b

4. Project management services

4. Project management improved

DOLIDAR’s retention of an acceptable project coordinator and agreed-upon number of staff, appointment of agreed number of district technical office staff, and required number of consultant and NGO staff join district project offices Vehicles and equipment procured according to time and cost schedules

Agreed-upon number of staff, number of district technical office staff, and required number of consultants and NGO staff engaged according to schedule Vehicles and equipment procured according to time and cost schedules A common financial management system developed for MLD, DDCs, and DOLIDAR Gender desk established in DOLIDAR

Project performance management system within DOLIDAR

Risk Contractors unwilling to operate in more remote areas, and high contract prices

Activities with Milestones (Additional Financing) Inputs (Additional Financing)

1. Rural livelihood improved 1.1 Identify all community infrastructure needs and priorities, and prepare plans and

detailed designs, along with road subprojects by the end of 2014 1.2 Construct community infrastructure along with road subprojects initiated in mid-2012,

and fully completed by the end of 2016 1.3 Award initial income-generating capacity training contracts by mid-2012 1.4 Complete income-generating capacity training by the end of 2015 1.5 Award contracts to NGOs and other service providers for microfinance access in

six districts by mid-2013

2. Capacity building and decentralized local governance enhanced 2.1 Design and implement training on decentralized management of rural infrastructure,

local rural road planning, construction, and maintenance management by end of 2014 2.2 Regional study tours for central and district officers undertaken by the end of 2015

3. Rural transport infrastructure extended and maintained 3.1 Complete remaining subproject preparation studies, detailed design, and due diligence

reports by the end of 2014 3.2 Construct road subprojects 3.3 Environmental management and monitoring in parallel with construction activities

Loan ADB: $18 million Item

Amount ($ million)

Civil works Beneficiary training Technical services (NGOs) Land acquisition/resettlement Surveys and studies Others

12.28 1.17 0.67 0.48 0.30 3.10

Cofinancier OFID: $20 million Item

Amount ($ million)

Civil works (including contingencies) 20.00

Government: $13.29 million

Beneficiaries: $1.10 million Grant

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Activities with Milestones (Additional Financing) Inputs (Additional Financing) 3.4 Initiate annual district road condition surveys by the end of 2012 and prepare annual

road maintenance plans by mid-2013 3.5 Annual road maintenance activities in 18 districts from mid-2013, including toll

collection in nine districts

4. Project management improved 4.1 Central implementation support consultant, and 18 district implementation support

consultant teams engaged and operational by loan effectiveness 4.2 Procure vehicles for district project offices by the end of 2012 4.3 Procure other equipment (survey equipment, rock splitters, and laboratory equipment)

by the end of 2014 4.4 Contract consulting services for required surveys, and detailed designs 4.5 Provide financial management system software and training at DDCs and DOLIDAR

by the end of 2012

ADB: $7 million Item

Amount ($ million)

Equipment Vehicles Beneficiary training Study tours National consultants District implementation support consultant technical services Others

0.85 0.58 0.97 0.29 0.21

3.84 0.26

Cofinancier Swiss Agency for Development and Cooperation: $7.06 million Item

Amount ($ million)

Central implementation support consultant District implementation support consultant technical services Surveys and studies Support staff Administration Others

2.50

3.07 0.20 0.65 0.20 0.44

ADB = Asian Development Bank, DDC = district development committee, DOLIDAR = Department of Rural Infrastructure and Agricultural Roads, km = kilometer, m = meter, MLD = Ministry of Local Development, NGO = nongovernment organization, t = ton, ZOI = zone of influence. a Current project refers to the original project. b Overall project refers to the original project and additional financing. c The benchmark is based on the Government of Nepal, Central Bureau of Statistics, World Food Programme and World Bank. 2006. Small Area Estimation of

Poverty and Caloric Intake and Malnutrition in Nepal. Kathmandu. The target for 2020 has been estimated considering 1.3 percentage points a year decline in poverty in project districts as observed over recent years.

d The length-persons comprise the poor people with limited income-earning capacities who carry out routine maintenance of rural roads. Source: Asian Development Bank.

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B. Monitoring 1. Project performance monitoring

70. A project performance management system (PPMS) will be established and operated under DRILP – Additional Financing. The PPMS will be based on the system in place for DRILP. The main focus will be to ensure that deviations between the project plan and achieved results (outputs, outcomes, and impacts) are recognized by project management in a timely manner, thereby allowing effective corrective actions and decisions. The PCU will, within 6 months of loan effectiveness, conduct baseline socioeconomic surveys in the subprojects proposed for funding under DRILP – Additional Financing, and will submit to ADB, OFID and SDC, for their review and approval, a detailed PPMS implementation plan. Throughout project implementation, the PCU will submit annual monitoring reports to ADB and the cofinanciers. PCU will also conduct an end- of- project survey. 71. Regular reviews conducted by the Government, ADB, and the cofinanciers will cover physical implementation, financial performance, the implementation of action plans, and the identification of problems that may require early attention. The Government, ADB, OFID and SDC will jointly conduct a comprehensive midterm review (MTR) in the third year of project implementation. The MTR will evaluate (i) project design, (ii) stakeholder participation, (iii) the quality of works, (iv) social and environmental impacts, (v) capacity building, (vi) compliance with loan covenants, (vii) the improvement of local governance, (viii) the effectiveness of implementation arrangements and project management structures, and (ix) future implementation plans for the remaining works. The results of the MTR will guide modifications to the scope and design of the Project and, if needed, the reallocation of funds among the loan categories.

2. Compliance monitoring 72. The status of compliance, including actions taken to comply, with the loan covenants will be monitored and updated in the ADB's project performance reporting system. The monitoring mechanism will include (i) regular review and verification by the ADB project officer; (ii) field level monitoring and evaluation; (iii) monitoring and review of relevant indicators in the PPMS; (iv) review of annual audited financial statements; (v) project website access; (vi) project review missions and the mid-term review; and (vii) receipt and/or approval by ADB of required documents. The envisaged activities and targets under the GESI Action Plan will be monitored by the PCU and added to quarterly and annual progress reports. Updated covenants should be appended to the quarterly and annual progress reports that will be submitted by the PCU. C. Reporting 73. DOLIDAR will provide ADB with (i) quarterly progress reports in a format consistent with ADB's project performance reporting system; (ii) consolidated annual reports including, (a) progress achieved by output as measured through the indicator's performance targets, (b) key implementation issues and solutions, (c) updated procurement plan, and (d) updated implementation plan for next 12 months; and (iii) a project completion report within 6 months of physical completion of the Project. To ensure projects continue to be both viable and sustainable, project accounts and the EA audited financial statements, together with the associated auditor's report, should be adequately reviewed.

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D. Stakeholder Communication Strategy 74. The project stakeholders are (i) the direct beneficiaries, which include women and men of isolated rural communities who will be involved in the planning of, and benefit from the infrastructure, employment and other accompanying measures. This includes disadvantaged ethnic groups and castes; (ii) the district authorities and elected bodies that will be involved in the project planning, execution and monitoring; (iii) private contractors that may benefit from some of the road works contracts; and (iv) DOLIDAR and MLD who will be in charge of the project's overall supervision at central level. 75. The project will build on the intensive consultation and community participation undertaken under DRILP with support from consultants and NGOs and based on the project consultation and participation (C&P) plan. These include both community participation and mobilization for subproject planning, implementation and maintenance. The C&P activities carried out by the project preparatory technical assistance (PPTA) included an inception workshop on 16 February 2011, a final workshop on 16 June 2011 and PPTA team visits to 16 of the 18 DRILP Districts (89%), which involved consultations and meetings with beneficiaries, BG members, NGOs, key district officials, and other stakeholders. 76. The Project will promote participatory approaches through the decentralized government process. Subprojects will be identified through existing VDC participation in finalizing district transport master plans. The Project aims to increase the participation of the socially excluded and poor in VDC decision making through a community social mobilization program, which will target vulnerable and excluded groups (women and disadvantaged castes generally). Workshops run by social mobilizers will help poor people develop the confidence to speak at meetings and participate in collective decision making. Communities will be trained by the social mobilizers to acquire skills to run community consultations that include all sections of the community. Within BGs, the capacity of men and women to voice their concerns will be strengthened through training they will receive from the social mobilization and capacity-building activities. The social mobilization activities are designed to be implemented to the maximum extent possible through program sharing with partner organizations already active in the districts, and can readily be adapted to close collaboration and parallel cofinancing.

XI. ANTICORRUPTION POLICY

77. ADB reserves the right to investigate, directly or through its agents, any violations of the Anticorruption Policy relating to the Project.11 All contracts financed by ADB shall include provisions specifying the right of ADB to audit and examine the records and accounts of the EA and all Project contractors, suppliers, consultants and other service providers. Individuals/entities on ADB’s anticorruption debarment list are ineligible to participate in ADB-financed activity and may not be awarded any contracts under the Project.12

1. 78. To support these efforts, relevant provisions are included in the financing agreements and the bidding documents for the Project. Risks associated with project management, including procurement and disbursement, will be mitigated by (i) providing consulting inputs to advise and assist in the procurement of goods and services; (ii) requiring that civil work contracts include a condition that contractors adhere to ADB’s Anticorruption Policy (1998, amended, from time to time); (iii) the PCU periodically inspecting the contractor’s fund withdrawals and settlements; and (iv) reporting on project activities and implementation on the website to foster transparency and timely awarding of contracts. Specifially, DOLIDAR will 11 Available at: http://www.adb.org/Documents/Policies/Anticorruption-Integrity/Policies-Strategies.pdf 12 ADB's Integrity Office web site is available at: http://www.adb.org/integrity/unit.asp

44

maintain a Project website and update it regularly to include (a) bidding procedures, bidders, and contract awards; (b) use of the funds disbursed under the Project; and (c) the physical progress of the Project.

XII. ACCOUNTABILITY MECHANISM

79. People who are, or may in the future be, adversely affected by the project may address complaints to ADB, or request the review of ADB's compliance under the Accountability Mechanism.13

XIII. RECORD OF PAM CHANGES

80. All revisions/updates during course of implementation should be retained in this Section to provide a chronological history of changes to implemented arrangements recorded in the PAM.

13 For further information see: http://compliance.adb.org/.

Appendix 1 45

INDICATIVE LIST OF DRILP (ADDITIONAL FINANCING) ROAD SUBPROJECTS

Simikot-Hilsa

Barahbise-AatichaurMartadi-Thamlek

Dethala-Khalanga

Sundarbazar-Kunchha-DuipipleSalmebhanjyang-Gamrang

Baglung-Kusmisera

Beni-Pakhapani

Indicative Road Subprojects

Gupha-Dhungesangu-Dobhan

Dunai-Lesicape-Dho

Salena-MelauliSribhavar-Hat

Rupatola-Telkot

Taplejung

Solukhumbu

Okhaldhunga

Ramechhap

Cheda-Dhungel-Batule

Gorkha

Pakarbas-Galpa

Gorkha-Arughat

Garma-Nele-Budhidanda

Rumjatar-Kartekhola

Bajhang

Bhartadi-LainfuRengil-Bhartadi

Humla

Dolpa

Lamjung

Baglung

Kalakanda-Khamale-Kawa

Myagdi

Jajarkot

Bajura

Darchula

Baitadi

Kalikot

Gamgadhi-Talcha-Rara

District

Thinke-UrthuchautaraKudari-Tamti-Topla

Jumla

Mugu

46 Appendix 2

SELECTION OF ROAD SUBPROJECTS IN DRILP – ADDITIONAL FINANCING

A. Introduction

1. Decentralized Rural Infrastructure and Livelihoods Project (DRILP) has been operating since October 2005, and is due for completion in October 2011. Under DRILP, Department of Local Infrastructure Development and Agricultural Roads (DOLIDAR) and the District Development Committees (DDCs) have developed a substantial pipeline of road subprojects in the 18 districts to be covered by the Project. A number of these pipeline road subprojects are in an advanced stage of subproject preparation, while some others are less prepared. All however have been covered by preliminary project preparation activities, and have been approved by the respective DDCs. B. Selection of Road Subprojects for DRILP – Additional Financing

2. During DRILP, the 18 project districts were requested to formulate potential road subprojects for implementation. This was done by each district, typically involving a walk-over survey by experienced road engineers to validate the technical feasibility of the indicative road alignments, and to prepare preliminary cost estimates of each road subproject. Typically the road subprojects in each district had previously been indicated in the District Transport Master Plan. These were then reviewed by the Project Coordination Unit (PCU), DOLIDAR with the assistance of the Central Implementation Support Consultant (CISC). Potential subprojects were then ranked according to:

(i) the number of beneficiaries, (ii) the potential for generating employment, and (iii) technical feasibility and cost (in the context of the overall project budget).

3. In-principle agreements were then made on which subprojects will be included in DRILP. The DDCs took a leading role in this process of establishing district priorities for new road subproject implementation. 4. In regard to implementation of DRILP road subprojects, this was done using an informal performance based system. Those districts which responded quickly to prepare and implement their top priority road subprojects were then able to move forward to commence work on subsequent road subprojects. However, the DRILP budget was insufficient to undertake all the envisaged works, such that DRILP – Additional Financing now has a pipeline of pre-approved road subprojects arising from DRILP. The emphasis in DRILP going forward therefore will be to complete all the road subprojects identified. Many of these are in an advanced state of project preparation, and hence the Project will be able to quickly move into field implementation of these road subprojects. Once the preparation work has been completed the final decision on funding will be made PCU, DOLIDAR considering (i) the number of beneficiaries, (ii) the potential for generating employment, (iii) technical feasibility, (iv) cost, and (v) economic analysis, if needed.

Appendix 3 47

CRITERIA FOR FUNDING COMMUNITY INFRASTRUCTURE SUBPROJECTS

1. The Project will support complementary investments for community infrastructure in the zone of influence (ZOI) of the road subprojects. These can be of many types of community infrastructure, including:

(i) School buildings and facilities; (ii) Health posts; (iii) Small irrigation schemes; (iv) Community water supply schemes; (v) Micro-hydropower schemes; (vi) Village roads and trails; (vii) Rural market places; (viii) Ropeways (gravity or mechanized); and (ix) Miscellaneous other community infrastructure facilities.

2. The Project will support complementary investments for community infrastructure in accordance with the expressed needs of the rural communities in the ZOIs of the road subprojects. The cost of the community infrastructure investments will be around 20% of the cost of the main subproject, or USD120, 000 whichever is lower. 3. The complementary investments must show a clear access benefit related to the main subproject. Selected community infrastructure subprojects will have beneficiaries over 50% of whom are below the poverty line as assessed through household surveys. Once a road subproject is confirmed for implementation, the District Implementation Support Consultant (DISC) team in the relevant district will carry out a demand survey for potential community infrastructure subprojects in the ZOIs of the road subprojects. 4. It is important that these are identified in a thorough community participation process. In addition, the relevant Village Development Committees (VDCs)/beneficiaries of the community infrastructure are expected to contribute an amount of 15% towards the cost of construction of the complementary investments. These contributions are typically in kind, such as by donation of land for the community infrastructure, and/or provision of locally sourced building materials (such as rock, sand, and timber). However, employment required to build the complementary subprojects will usually be paid for, in line with the livelihoods improvement objective of Decentralized Rural Infrastructure and Livelihoods Project – Additional Financing. 5. The Project will enhance rural livelihoods in a number of ways, including direct wage payments to the poorest households, amounting to about 40% of subproject construction costs. Any paid inputs provided by the VDCs/beneficiaries shall be reviewed to ensure the arrangements provide value for money. Wherever possible VDC/beneficiaries paid inputs shall be on a lump sum basis where the quantity and value of inputs are agreed prior to the input being provided. Clearly, there are budget limitations on the extent of complementary subprojects that will be implemented, and this limitation is within the purview of the PCU, Department of Local Infrastructure Development and Agricultural Roads to manage the available budget on an equitable basis between the road subprojects being implemented.

48 Appendix 4

ROAD MAINTENANCE INITIATIVE IN DRILP – ADDITIONAL FINANCING

A. Background 1. Based on the District Development Statistics for 2010/2011, the total length of rural roads planned in the 18 project districts is 2,159 kilometers (km). These data also indicate the total length of rural roads completed in the 18 project districts as 896 km, all earthen except for 22 km of gravel. However, according to the DDS 2010/2011, the total length of motorable roads is 575 km for all 18 project districts. Nine districts are reported to have no motorable roads at all, and another five districts each have on average only 7 km of motorable road. The remaining 4 districts have a total of 540 km of motorable road – these are Ramechhap (225 km), Lamjung (147 km), Gorkha (121 km), and Baglung (47 km). 2. It is estimated that with an additional 321 km which have been constructed (mainly under various earlier and ongoing rural roads projects) but not currently motorable, the current target for road maintenance in the 18 project districts will total a minimum of 896 km. The project preparatory technical assistance (PPTA) consultant estimates that these 2010/2011 data are actually about two years old, and do not include rural roads built recently by ongoing projects. The real picture of total requirements for rural roads maintenance in the 18 project districts will only emerge once up-to-date road inventories and condition surveys are done in the first year of the Project. For current programming purposes, the total maintenance target has been set at 1,200 km in total for the 18 districts in 2012. B. Scope of the Rural Roads Maintenance Initiative 3. The project will provide direct support to rural road maintenance programs at the district level in accordance with the national Maintenance Sector-Wide Approach (SWAp). The Project will contribute to the annual maintenance budgets for all rural roads in each of the 18 project districts, through a system of pre-qualification. To qualify for the maintenance grant under the project, districts will need to clearly allocate the road maintenance function to a suitable person in the District Technical Officer’s (DTO) office (which might include the DTO himself/herself); prepare an inventory of all rural roads in the district; conduct annual rural road condition surveys; and prepare annual rural road maintenance plans. The Project will provide technical support to the districts to enable them to qualify for the annual maintenance grants. Road maintenance planning will be performed in accordance with the maintenance SWAp approach by developing an annual maintenance plan for rural roads based on a post monsoon inspection of all rural roads in the districts. A system of toll collection will be piloted in nine districts to augment rural road maintenance budgets. The maintenance support from the Project will focus on providing routine and periodic maintenance on district roads (largely earthen and gravel) that are currently of maintainable standard. Routine maintenance will be delivered by length-persons who will be sourced from the zone of influence (ZOI) of the rural roads being maintained and employed directly by the districts, further promoting employment generation in the districts. C. Proposed Arrangements 4. A program of comprehensive maintenance will be performed, potentially covering all 18 project districts. Districts complying with pre-qualifying criteria will receive grant funding to supplement existing rural road maintenance funding from internal sources, the Roads Board of Nepal, the Ministry of Local Development (MLD), and others. In addition to funding, the Project will provide technical assistance in maintenance planning and implementation. The maximum

Appendix 4 49

level of funding provided to each district will depend primarily on the length of the rural roads network in each district, and the current condition of the network in each district.

1. Qualification Criteria

5. To qualify for funding, districts will need to comply with the following criteria:

(i) District Maintenance Officer (DMO). The District should clearly allocate the road maintenance function to a suitable person in the DTO’s office, to be responsible to plan for maintenance of the rural road network. The DMO shall have responsibility for developing and implementing a comprehensive program of rural road maintenance;

(ii) Road inventory. Districts should develop an inventory of all rural roads in the district;

(iii) Annual condition surveys. Districts should perform annually a condition survey of the rural road network in the district;

(iv) Annual road maintenance plan. Districts should prepare a road maintenance plan comprising routine, periodic, and emergency maintenance. To preserve the rural roads asset and to ensure maximum accessibility, routine maintenance should be prioritized. The periodic maintenance works should be prioritized considering the socio-economic importance of the link, the preservation of the asset, and budget constraints. The maintenance plan should seek to maximize accessibility across the district rural road network; and

(v) Implementation of the maintenance plan. Districts should implement the maintenance plan in an efficient, effective, and timely manner.

2. Scope of the Program

6. The program will support road maintenance across the district rural road network and have the objective of maximizing accessibility and asset preservation.

3. Types of Maintenance

7. The maintenance component will focus on providing routine and periodic maintenance on all roads in a maintainable standard in the district. It is expected that district roads will be either earthen or gravel roads. It is essential however that all roads to be maintained will currently be in a maintainable condition.

4. Maintenance Planning

8. Maintenance planning will be performed in accordance with the proposed Maintenance SWAp approach by developing an annual maintenance work plan for district rural roads based on a post monsoon inspection of all district rural roads.

5. Institutional Arrangements

9. The responsibility for road maintenance should be established within the DTO in the District. A DMO should be designated who will be responsible for performing annual condition surveys on district roads and managing the routine maintenance activities. The DMO will also package and prepare periodic and emergency maintenance contracts for funding by the districts.

50 Appendix 4

10. The DMO, or designated responsible officer in the DTO for road maintenance, will be mentored and supported by the Maintenance Management Engineer Advisor in the Central Implementation Support Consultant.

a. District Rural Road Maintenance Committee (DRRMC)

11. District Development Committee (DDC) should form a District Rural Road Maintenance Committee (DRRMC) at district level for the management of rural road maintenance work according to following outline:

(i) DDC chairperson, or DDC member assigned by him/her - Chairperson (ii) Coordinator Physical Infrastructure Development Committee – Member (iii) Representative of District Industry and Commerce - Member (iv) Technical Representative of related Division Road Office - Member (v) From the rural road maintenance users committees within the district, one male

and one female, nominated by Chairperson - Member (vi) Representative of district level Transport Entrepreneurs – Member (vii) DDC Secretary (LDO) – Member (viii) Head of DTO - Member Secretary

12. The DRRMC will perform the following works:

(i) Identification and mobilization of local resources for rural road maintenance fund; (ii) After identification of rural roads to be maintained, prioritize and recommend

according to specified standards; (iii) Support implementation of approved projects for maintenance; (iv) Perform regular monitoring of roads for maintenance needs; and (v) Maintenance related running activities and operating rural roads, perform work

assessments, by at least holding a meeting once in a trimester and produce the assessment report to DDC.

b. Road Maintenance Users Committee (RMUC)

13. In addition to DRRMC, there will be a provision for a minimum one RMUC to support maintenance activities, and identify needs and priorities in sustainable manner, in each rural road. This committee will work under the instruction of DRRMC. 14. The formation of RMUCs according to the provisions of the Local Agency Financial Administration Regulation, 2064 will need to be formed through meetings of road users, as well as beneficiaries of improved rural road accessibility. This committee needs to be represented from the connected areas/ Village Development Committees, with female members not less than 33% of total members, and with appropriate representation of castes, indigenous people, and ethnic groups. This committee will need to list, register, and renew legally, members from the concerned local agencies:

(i) Chairperson - 1 person (ii) Vice Chairperson - 1 person (iii) Secretary - 1 person (iv) Treasurer -1 person (v) Members - 5 to 7 persons

Appendix 4 51

(vi) Total - 9 to 11 persons 15. The road maintenance users committee should clarify themselves and operate according to existing rules and regulations in acceptance of local agencies making appropriate constitution, own committee formation process, implementation limitations, and working processes.

6. Annual Grants to the Districts for Road Maintenance

16. The annual grants to the districts for road maintenance will be conditional upon the districts satisfactorily meeting the pre-qualification criteria. The annual grant to the districts will take into account the length of motorable roads, as well as the needs for rehabilitation of existing rural roads currently not motorable. Districts will need to agree to the terms of fund provision (pre-qualification criteria), and commit to use the road maintenance funds in strict accordance with the agreed guidelines. If the districts comply with the terms of fund provision in year 2, they will be eligible to receive the next year’s annual grant from the Project. 17. The Project will contribute funds mainly for routine maintenance from year 2 of the Project, as well as providing a modest contribution towards rehabilitation works in the districts. The DDCs will fund periodic maintenance and emergency works using current funding arrangements, from MLD, the Roads Board of Nepal, and other sources. 18. Routine maintenance will be performed by length-persons who will be employed directly by the districts. The length-persons will be supervised and managed by overseers who will report to the DMO. It is anticipated that length-persons will be sourced from the ZOIs of the rural roads being maintained.

52 Appendix 5

TERMS OF REFERENCE FOR CONSULTING SERVICES

A. Introduction 1. The key project management support functions for the implementation of Decentralized Rural Infrastructure and Livelihoods Project (DRILP) – Additional Financing will be undertaken by a Central Implementation Support Consultant (CISC) based in Kathmandu, and District Implementation Support Consultant (DISC) teams based in each district. The CISC reports to the Project Coordination Unit (PCU) based in Department of Local Infrastructure Development and Agricultural Roads (DOLIDAR). The CISC will be funded by the Swiss Agency for Development and Cooperation (SDC), and will include two senior consulting positions to be funded by the Asian Development Bank (ADB). SDC will fund 8 DISC teams and ADB will fund 10 DISC teams. The CISC will provide overall technical guidance and back-up technical expertise to all the DISC teams in the 18 project districts. 2. The need for, and provision of, DISC teams will vary from district to district. For those districts where there are major ongoing road subproject preparation and implementation activities, a full complement of DISC team staff will be required. In other districts where only limited work will be undertaken in the next phase of DRILP, there will only be a limited need for DISC team inputs. B. Central Implementation Support Consultant (CISC) 3. The CISC will comprise the following consulting positions and staff: No. p-m International Consultant: Team Leader Expatriate Resident ( 75% for the first 18 months and 100% then on) 1 42 Short Term International Consultant: on demand 4 Total - International Consultants 46 National Consultants and Staff: Deputy Team Leader/Policy Advisor 1 48 Road Quality Engineer Technical Advisor (ADB) 1 48 Maintenance Management Engineer Advisor (ADB) 1 48 Contract Management Advisor 1 48 Social Safeguard (Resettlement) Advisor 1 48 Resettlement Officer 1 48 Environmental Assessment Advisor 1 48 Environmental Assessment Officer 1 48 GESI Advisor (Community Development Advisor) 1 48 Project Economist 1 48 Planning, Monitoring and Evaluation Advisor 1 48 Senior Computer and Mapping Officer 1 48 Bio-engineering (Climate change) Officer 1 48 Total - National Consultants and Staff 624

Appendix 5 53

4. Outline terms of reference (TOR) for the individual members of the CISC are presented below.

1. Team Leader (42 p-m, international)

5. The Team Leader will be a qualified Engineer with at least 15 years experience of practical on-site labour-based construction and maintenance of rural infrastructure, including experience in the South Asia region, preferably in Nepal. 6. The Team Leader will have overall responsibility for the organization, conduct and delivery of the services to meet the requirements of the project. The Team Leader will work directly, and manage relations, with the DoLlDAR PCU and be responsible for the preparation of all consultant reports, including monthly, trimester and annual reports to the PCU. The Team Leader will take the lead role in completing the following main tasks or overseeing their completion by the consultant team.

(i) Establish a comprehensive project management support system for DOLlDAR through the consultant team. This team will be responsible for assisting DOLlDAR to undertake a range of project management tasks defined by the PCU.

(ii) Assist DOLlDAR in all aspects of the recruitment of national-level nongovernment organization (NGO) social development services.

(iii) Draft, circulate for comment, revise and finalize with the PCU, a Project Procedures Manual defining the specifications, standards, methodologies, procedures. Guidelines and documentation for all key aspects of implementation of the project. This should draw extensively on practices developed on other projects and for the most part should not consist of new material.

(iv) Based on the process set out in the Project Procedures Manual, coordinate with the PCU the provision of training to the districts in the selection of subprojects in accordance with the project criteria, and the issuing of invitations for submission of approved subprojects from the District Development Committees (DDCs).

(v) Through the PCU, co-ordinate the provision of assistance to the DDCs in the conduct of technical, environmental, social and economic feasibility studies of prioritized subprojects.

(vi) Assist and advise the PCU in checking the compliance with DRILP criteria and requirements of subprojects and supplementary investments approved by the DDCs and forwarded to DOLIDAR.

(vii) Liaise with the PCU, the DDCs, the national NGO (NNGO) and other projects for training and pre-qualification, with justifications, of domestic consulting firms and local NGOs for DISC teams.

(viii) Work with DOLlDAR to modify, for project use, the relevant contract documentation from the Public Works Directives to be used by the DTOs to contract with their respective DISC teams. Provide advisory support, as required, to each DTO in selecting its DISC team.

(ix) Coordinate with the PCU the provision of orientation and training to each of the DISC teams, as they are formed. Following on from this, ensure the continuing provision of advisory support and direction to DISC teams throughout the

54 Appendix 5

preparation and implementation of the main subprojects and the Complementary Community Investments.

(x) Provide assistance to DOLlDAR and the DDCs, subject to district specific partnership agreements that may be agreed with other donor-funded rural infrastructure projects, to delegate certain tasks to these projects and oversee their conduct.

(xi) Assist the DDCs in devising and establishing regular planned maintenance arrangements, including a funding system, for their rural road networks, according to DOLlDAR guidelines.

(xii) Assist the PCU in all aspects of implementing the Project Performance Management System, including establishing the computerized data-processing system, conduct of field reviews and supervision of key project activities, and preparation of trimester, annual, mid-term, and final reports. Also advise the PCU as required on financial management aspects of project implementation.

(xiii) Undertake periodic checks to review the quality and cost-effectiveness of site works, and test the accuracy of measurements by the District lmplementation Teams and the fair payment of workers. Conduct special monitoring of other critical aspects of project processes and implementation, and assist DOLlDAR in the performance monitoring of the participating DDCs. Based on the findings, recommend remedial actions to the PCU as required.

(xiv) Coordinate the provision of consultant services for all aspects of environmental screening and examination, definition of mitigation measures, and environmental monitoring, as required by national legislation and ADB procedures. This is to be done in close collaboration with the Ministry of Local Development (MLD), DOLlDAR and the DISCs, who shall be responsible for approving or seeking approval of the outputs. The services will include support to the planning and reporting of independent environmental monitoring at project and subproject levels.

(xv) On the basis of monitoring outputs, propose any changes - in operational and management procedures that would enhance the effect of project interventions, for review with DOLIDAR.

(xvi) Prepare recommendations for the PCU on how planning processes at district level can be improved for better integration of rural infrastructure development with other rural development activities, and oversee the provision of advisory support to the DDCs.

(xvii) Assist DOLlDAR in the recruitment of other project consultant services as required.

(xviii) Generally establish effective and productive working relationships with the PCU, DOLlDAR and other projects managed by the department, in order to respond effectively to project management needs and contribute to institutional strengthening.

2. Deputy Team Leader (DTL)/Policy Advisor (48 p-m, national)

7. The DTL has a key role to provide day-to-day support to the Team Leader in all aspects of the implementation of the Project, as detailed above for the Team Leader, and in particular advising the Team Leader of key policy issues arising in the Nepalese context which may deleteriously impact on the performance of the Project. The DTL will have a masters degree in

Appendix 5 55

engineering with a minimum of 20 years professional experience, and prior direct field experience throughout Nepal on engineering matters, and particularly in the 18 project districts. It is mandatory that the proposed DTL be registered with the Nepal Engineering Council in accordance with the Nepal Engineering Council Act, 2055. 8. In the absence from time to time of the Team Leader, the DTL shall lead the overall CISC team, and be responsible for the overall implementation, coordination, administration, and management of the whole team. In addition, the DTL will play a leading role to ensure the fullest possible coordination, and cooperation, with other project implementation units, including the PCU and the NNGO at the central level, and the DISCs, District Project Office (DPOs), and District Technical Officers (DTOs) at the district level.

3. Road Quality Engineer Technical Advisor (48 p-m, national)

9. The consultant will formulate a comprehensive project monitoring and evaluation framework and a related schedule of activities for the Project. The Advisor will have the following qualifications: a tertiary degree in civil engineering from an approved university; at least 15 years experience in road design and construction supervision; knowledge of Government’s policies, administrative systems, and procedures, in district road development; excellent written and oral communication skills in English and Nepali; strong interpersonal skills and ability to work in a multidisciplinary team; and ability to work independently and undertake extensive travel in the rural areas. The person shall be registered with the Nepal Engineering Council in accordance with the Nepal Engineering Council Act, 2055. 10. The consultant will be responsible to the Head of CISC and work closely with investigation and design consultants and DISC teams. The specific tasks include:

(i) Review TOR of road and bridge investigation and design consultants.

(ii) Promote good investigation and design practice by participating in initial and final field checks of design.

(iii) Review the output investigation and design consultants to ensure compliance with their TOR. Ensure construction cost estimates are consistent with the construction drawings.

(iv) Raise awareness in district administrations, Building Groups (BGs), community and DISC teams of the need for adequate supervision of construction activities.

(v) Perform field audits of construction to ascertain compliance with specifications and construction drawings.

(vi) Promote the use of BGs in construction through the employment of construction activity specialists and appropriate technology.

(vii) Increase the capacity of district administrations to implement infrastructure development activities efficiently and effectively by employing appropriate project management methods.

(viii) Provide an annual plan to the Head of CISC on activities to be performed and monthly reports on progress, problems and responses to problems.

56 Appendix 5

4. Maintenance Management Engineer Advisor (48 p-m, national)

11. The consultant will promote improved road maintenance in all districts and develop and monitor the Road Maintenance Programs in the 18 project districts. The Advisor will have the following qualifications: a tertiary degree in civil engineering from an approved university; at least 15 years experience in road maintenance and construction; experience in planning and implementing road maintenance in a developing country; knowledge of Government’s policies, administrative systems, and procedures, in district road development; excellent written and oral communication skills in English and Nepali; strong interpersonal skills and ability to work in a multidisciplinary team; and ability to work independently and undertake extensive travel in the rural areas. The person shall be registered with the Nepal Engineering Council in accordance with the Nepal Engineering Council Act, 2055. 12. The consultant will be responsible to the Head of CISC and work closely district administrations, communities, District Road Maintenance Committees (DRMC), Road Maintenance Users’ Committee (RMUC) and District Maintenance Officers in the 18 project districts. It is expected that the consultant will travel extensively to project districts in the performance of his/her duties. Specific tasks include:

(i) Promote awareness on the need for and importance of continuous and adequate road maintenance and the use of Labor Based Equipment Supported approach to maintenance amongst the community, road user groups and decision makers.

(ii) Promote improved road maintenance planning and implementation through workshops and direct support to district administrations.

(iii) Develop a workmanship and material specification for routine and periodic maintenance on district roads. Promote the use of this specification by district administrations.

(iv) Assist district administrations to participate in the DRILP road maintenance program by complying with government road maintenance policies

(v) Assist in the formation and development of capacity in DRMC and RMUC.

(vi) Assist districts to develop and use a system to perform annual road condition surveys and prepare annual road maintenance plans.

(vii) Review the current system of toll collection in place in some districts and prepare a proposal to implement toll collection in 9 pilot districts.

(viii) Assist the districts to develop and establish an approach to funding and performing Emergency Maintenance.

(ix) Assist in the development of small contractors to perform periodic maintenance by contract on district roads.

(x) Provide mentoring and support to District Road Maintenance Officers in performing their duties.

13. The consultant will provide an annual plan to the Head of CISC on activities to be performed and monthly reports on progress, problems and responses to problems.

5. Contract Management Advisor (48 p-m, national)

14. The Contract Management Advisor should have a minimum qualification of a tertiary Degree in Engineering, and a minimum 10 years of relevant professional experience in contract

Appendix 5 57

management of infrastructure works, of which a minimum of 5 years should be in roads construction and related activities (such as road bridges, and bio-engineering works for roads), and preferably for roads in hilly and mountainous terrain. The Advisor will be responsible for the responsible tasks: The person shall be registered with the Nepal Engineering Council in accordance with the Nepal Engineering Council Act, 2055.

(i) Review existing templates for contracting out road works, and upgrade these as required;

(ii) Train, mentor, and coach technical staff at the district level in contract management matters, including design of suitable contract formats for specific works, negotiating contract items and documents with bidders, and monitoring the implementation of contracts in the field, including the contract implications of design amendments during construction; preparation and recommendation of interim payment certificates; and preparation and recommendation of final payment certificates;

(iii) Undertake due diligence of all contract documents prepared by the CISC and the DISCs, prior to approval of funding of the proposed contract activities;

(iv) Should such proposed contract documents be found to be inadequate in any respect, prepare a list of requirements to remedy such identified inadequacies, and ensure these are carried out before the proposed contract activities are tendered out;

(v) For project works undertaken by BGs, review the proposed arrangements for payments to BG members; where such payments are related to work norms (such as payment per cu. m. of specific types of material excavated), rather than simply on labor input time, undertake appropriate analyses to ensure that the work norms are realistic in the context of the labor time required with the specific types of equipment available to the BGs;

(vi) Where existing work norms are found to be inadequate in conjunction with CISC Road Quality Engineer Technical Advisor and Maintenance Management Engineer, prepare revised work norms for consideration by DOLIDAR and the DDCs;

(vii) In conjunction with the CISC Maintenance Management Engineer, review the proposed contractual arrangements for payment of the Length-Persons for routine maintenance works undertaken on the rural road network in each district. The intention should be to design a payment system based on reasonable payment norms for the lengths of rural road to be maintained by each length-person, including the frequency of required routine maintenance cycles by the length-persons, in both the dry and wet seasons; and

(viii) Undertake additional tasks, as required by the Team Leader.

6. Social Safeguards (Resettlement) Advisor (48 p-m, national)

15. The Specialist will have relevant professional qualifications, combined with at least 10 experience of the resettlement of vulnerable groups in connection with rural infrastructure investments. The specialist will be responsible, under the supervision of the Team Leader, for the following main tasks:

(i) Review the RF prepared during project preparation. In particular, review the policy, and screening and planning procedures that will apply to the subprojects.

58 Appendix 5

(ii) Contribute to the Project Procedures Manual in respect of resettlement procedures for rural transport infrastructure subprojects and supplementary investments.

(iii) Advise the DDCs on the requirements of the RF and provide support and training as required. Ensure that DDC staff understand the position of resettlement activities in the critical path of project planning, and that they make timely provision for its implementation.

(iv) Work with the DDCs and NGOs engaged for social development works during the identification and design of the subprojects to ensure that the requirement for resettlement and compensation is minimized.

(v) Provide advice and support in the preparation and approval of RPs where these are necessary for specific subprojects.

(vi) Support and assist the DDCs during the consultation process required to reach agreements on specific entitlements with each Project Affected Person (PAP).

(vii) Monitor the implementation of RPs by the respective DDCs to help ensure fair and just treatment for the persons displaced. Verify that the requirements of ADB's Safeguards Policy Statement (2009) and the PAPs’ constitutional and legal rights have been met before construction works are started by DDCs. Confirm that land titles have been transferred to the DDC and compensation paid in full.

(viii) Work with the Social Mobilizers of DISCs engaged for social development works to see that additional counselling and support is provided to resettled persons and that they are given opportunities for work in subproject BGs.

(ix) Conduct periodic follow-up monitoring to ensure that the livelihoods of PAPs have been significantly reduced, and to verify that those eligible for income restoration measures have received their due entitlement of support.

(x) Undertake additional tasks, as required by the Team-Leader.

7. Environmental Assessment Advisor (48 p-m, national)

16. The Consultant will be a professionally qualified environmental specialist with extensive, practical experience of the rural infrastructure sector in hill and mountain area of Nepal. The consultant must be fully familiar with and practice in the application of the Nepali environmental regulations. Familiarity with ADB environmental requirements will be an advantage. The consultant will work under the supervision of the Team Leader to undertake the following tasks:

(i) Liaise closely with the EMS of MLD, DOLlDAR and the DDCs, who have the responsibility for approving or seeking approval of the environmental screening and initial environmental examinations (IEE) based on the Environmental Assessment Review Framework (EARF). Provide simple guidelines on the tasks and responsibilities involved and ensure that the staff of these agencies understand their responsibilities.

(ii) Contribute to the preparation of the Project Procedures Manual in respect of environmental aspects. Prepare guidelines and procedures for environmental tasks: screening, drafting of TOR for IEEs, review and approval of IEEs, public consultation, and managing environmental consulting services; and support and facilitate their adoption and practice.

(iii) Prepare, with appropriate consultations, District Environmental Briefs for each of the

Appendix 5 59

participating districts, using the model developed by the Rural Access Program and endorsed by DOLIDAR.

(iv) Support the DDCs and DTOs in undertaking environmental appraisal of subprojects as required by national legislation and ADB procedures. This will comprise: (a) environmental screening of all subprojects; (b) IEEs where necessary; and (c) the processing and completion of all approvals by the appropriate authorities.

(v) Facilitate and support the DDCs, DTOs and DISC teams to undertake and report on regular environmental monitoring of ongoing subprojects to check compliance with project guidelines and implementation of mitigation, measures defined in the IEEs.

(vi) Where appropriate, highlight to DOLIDAR: (a) situations of significant deviation from project environmental requirements; (b) proposed remedial actions; and (c) proposed modifications to existing procedures or to project standards, for consideration by the PCU.

(vii) Support the EMS of MLD in managing independent environmental monitoring at project level.

(viii) Prepare and organize environmental awareness-raising and training activities, particularly for stakeholders in the districts.

(ix) Liaise with other programs and agencies to explore the potential for collaboration in strengthening the environmental capacities of the DDCs, DOLlDAR and the EMS.

(x) Undertake additional tasks, as required by the Team Leader.

8. Gender and Social Inclusion (GESI) / Community Development Advisor (48

p-m, national)

17. The consultant will assist in the implementation of social development and gender mainstreaming activities according to the GESI Action Plan. S/he will work under the direction of the Team Leader of the CISC. The Specialist will have the following qualifications: an advanced post-graduate degree in social science, gender and development or related fields; sound knowledge of social inclusion issues in the sector; at least 5-7 years experience in women’s advancement, gender equality and participatory development; knowledge on contemporary gender and development programs and issues in Nepal and the region; knowledge of Government’s policies, administrative systems, and procedures, in the area of rural development and poverty reduction; experience of working with NGOs and international agencies; excellent written and oral communication skills in English and Nepali; strong interpersonal skills and ability to work in a multidisciplinary team; and ability to work independently and undertake extensive travel in the rural areas. 18. The Gender and Social Development Specialist will:

(i) Provide guidance in developing policy, programs, and procedures of the project to implement the GESI Action Plan and enhance contribution to social development;

(ii) Assist the Resettlement Specialist to plan, design training and orientation, prepare a curriculum, deliver, monitor, and evaluate training/orientation on gender and social analysis and support incorporating gender aspects in, participatory governance/management, leadership development and other social development related training for the project staff;

(iii) Provide social and gender inputs for all training programs, both at institution and

60 Appendix 5

community levels;

(iv) Develop effective mechanisms to ensure participation of, and regular consultation with, the DDC, by Women’s Organizations, NGOs and concerned stakeholders, in the selection process of SIS and other infrastructure activities;

(v) Ensure that gender, poverty and social development issues are incorporated and implemented in all project components, including infrastructure and other services, capacity building, and development programs;

(vi) In collaboration with the Resettlement Specialist, design activities for Village works and road construction committees (VWRCCs), Road BGs, infrastructure maintenance groups, and women ward members, to ensure efficient targeting of the rural poor including women; and

(vii) Ensure implementation and monitoring of the GESI Plan.

9. Project Economist (48 p-m, national)

19. The Project Economist will have at least a Bachelor’s degree in Economics and 10 years professional experience with prior experience on the financial and economic analysis of road projects.

(i) Where new road subprojects may require assessment of economic justification, or where there have been substantial changes in identified costs for proposed road subprojects, s/he will undertake appropriate economic justification analyses to assess the economic feasibility of these proposals.

(ii) Such economic analyses may be undertaken on the basis of cost-effectiveness for new earthen rural roads with low traffic volumes (less than 60 vehicles per day). For road subprojects involving significant upgrading of existing rural roads (such as to gravel surface or bitumen seal surface), and with significant traffic volumes (more than 60 vehicles per day), economic justification will typically be done using a conventional cost benefit approach over a minimum 20 year period, and identified Economic Internal Rate of Return with appropriate sensitivity tests.

10. Planning, Monitoring and Evaluation Advisor (48 p-m, national)

20. The Advisor will have relevant professional qualifications, combined with at least 10 years experience of the decentralized planning, monitoring and evaluation of rural road and other rural infrastructure investments. The Advisor will be responsible, under the supervision of the Team Leader, for the following main tasks:

(i) Review the rural infrastructure planning process and procedures, and the District Transport Master Plans of participating districts, and assist the DDCs to improve these as necessary.

(ii) Contribute to the Project Procedures Manual in respect of the definition of the planning and selection procedures for rural transport infrastructure subprojects and supplementary community infrastructure investments.

Appendix 5 61

(iii) Oversee the preparation of a training program for the DDCs, DTOs and VDCs in the planning and selection procedures for rural transport infrastructure subprojects and supplementary investments.

(iv) Oversee the arrangements for provision of guidance to the DDCs in the identification and prioritization of subprojects, and the conduct of feasibility studies.

(v) Support the DDCs, VDCs, DTOs and DISC teams in village level consultations and planning for supplementary investments.

(vi) Provide advice and assistance to participating DDCs in improving their planning processes for better integration and co-ordination of rural infrastructure development with other rural development activities.

(vii) Assist DOLlDAR in implementing the monitoring activities required under the Project Performance Management System. This will include an overview of project activities in the districts, and the review of all regular progress reports submitted to the PCU.

(viii) Support other members of the team in undertaking periodic checks to test the accuracy of measurements by the DISC teams.

(ix) During the working seasons, make frequent visits to the work sites to conduct monitoring of critical aspects of construction works. This is to ensure that construction activities comply with the agreed specifications, standards and norms, are cost-effective and are meeting defined quality requirements, and that laborers are being paid fairly.

(x) Produce regular reports on the findings from the monitoring of critical aspects. These should: (a) highlight areas of deviation from project specifications and quality standards, with reasons where identified; and (b) propose practical modifications either to the existing working procedures or the project standards, for consideration by DOLIDAR.

(xi) Assist the PCU in the preparation of monitoring reports.

(xii) Assist and support DOLlDAR in implementing the impact evaluation aspects of the Project Performance Management System.

(xiii) Supervise the collection of baseline and follow-up surveys of socio-economic conditions and characteristics in the subproject areas, and the conduct of other surveys, required for impact evaluation.

(xiv) Using DOLIDAR's existing facilities store and maintain computerized database records of the survey information. Provide database outputs to assist the work of the department as well as of the project.

(xv) Assist in the analysis of the survey results and the production of analytical reports on: (a) the pre-project situation in the target areas; and (b) changes detected by the follow-up surveys, in terms of the contribution of project interventions to achieving the purpose defined in the Design and Monitoring Framework.

62 Appendix 5

(xvi) Assist in the conduct of monitoring and evaluation of land acquisition and compensation under the project.

(xvii) Assist the PCU in preparing annual monitoring and evaluation reports. Assist in the preparation of a final report presenting the full findings on the impact of the project.

11. Senior Computer and Mapping Officer (48 p-m, national)

21. The Senior Computer and Mapping Officer will be a university graduate in computer science, and will have a minimum of 7 years of professional experience in computerized civil engineering and mapping applications for planning, design, and construction works, and preferably 3 years prior experience on rural roads planning, design, and construction works. The Officer will maintain all computer applications used on a day-to-day by the CISC staff on an up-to-date basis; carry out “trouble-shooting” activities in the event that computer applications are found to be defective; and be available as might be required to train, mentor, and coach, computer operators at both the centre and the district level, in order to carry out the project works in an efficient, effective, and timely manner.

12. Bio-engineering Officer (Climate Change Officer) (48 p-m, national)

22. The position calls for a minimum of 10 years relevant professional experience in bio-engineering works, including survey, design, and specification of materials, for bio-engineering works; establishment and management of nurseries; and monitoring and supervision of bio-engineering works. The Bio-Engineering Officer shall have a university level qualification in engineering, science, or arts.

(i) Review all proposed road subprojects to ensure appropriate bio-engineering works are included, so as to “climate proof” the proposed rural roads.

(ii) Where the bio-engineering designs are found to be inadequate, s/he will prepare a detailed listing of the additional bio-engineering works required to bring the proposed road subproject to the required standard.

(iii) As required, conduct training of DISC staff in bio-engineering techniques.

(iv) Monitor the implementation of bio-engineering works across all the districts in the Project, and initiate corrective action to improve implementation procedures where found appropriate.

C. District Implementation Support Consultant (DISC) 23. An indicative composition of a DISC team will comprise any or all of following consulting positions. The final composition and level of inputs required will however vary from district to district. For those districts where there are major ongoing road subproject preparation and implementation activities, a full complement of DISC team staff will be required. In other districts where only limited work will be undertaken in the next phase of DRILP, there will only be a limited need for DISC team inputs.

Appendix 5 63

National Consultants: No. p-m Team Leader / Engineer 1 48 Sub-engineers 3 144 Supervisors 5 240 Social Mobilization Coordinator 1 48 Social Mobilizers 2 96 Total 576

24. A generic TOR for individual members of the DISC is provided below:

1. Team Leader / Engineer

25. The DISC Team Leader will have as a minimum qualification a Bachelor’s degree in civil engineering and a minimum of 7 years relevant professional experience. The Team Leader is required to be registered with the Nepal Engineering Council in accordance with the Nepal Engineering Council Act, 2055. 26. The Team Leader will:

(i) Lead both the technical and social teams in the DISC, and be responsible at all times for the overall implementation, coordination, administration and management of the whole DISC team; and

(ii) Work closely with the DPO and the DTO at the district level, and the PCU, the CISC, and the NNGO, at the central level, to ensure the efficient, effective, and timely implementation of the subproject/s, including for all activities such as planning, surveys, design, construction, supervision, monitoring, and reporting, as may be required.

2. Sub-Engineer

27. The Sub-Engineer will have as a minimum qualification a Bachelor’s degree in civil engineering and a minimum of 3 years relevant professional experience. The consultant is required to be registered with the Nepal Engineering Council in accordance with the Nepal Engineering Council Act, 205. 28. The Sub-Engineer will assist the Team Leader to undertake the technical aspects of the subproject roads and community investments, including (but not limited to):

(i) Planning, identification, selection and prioritization of road subprojects and community investments;

(ii) Review relevant earlier works and studies, and collect required data (including rural road inventories and condition surveys for road maintenance planning);

(iii) Conduct studies, field surveys, and investigations;

(iv) Prepare designs, drawings, cost estimates, and action plans;

(v) Carry out construction supervision (in conjunction with the DISC supervisors);

(vi) Prepare and recommend interim payment certificates;

64 Appendix 5

(vii) Plan and execute commissioning activities; and

(viii) Prepare and recommend final payment and completion certificates.

3. Construction Supervisor

29. The Construction Supervisor will have a minimum qualification of sub-overseer, with a minimum 3 years of construction supervision experience for hill roads using labor based equipment supported construction techniques.

4. Social Mobilization (SM) Team

30. The Social Mobilization Coordinator will have a minimum of 5 years relevant professional experience. The Social Mobilizers will have a minimum of 3 years relevant professional experience. They will be hired from the consulting firm providing the DISC services. The SM should be local and preference will be given to women and those from excluded groups. They should have the strong social background with knowledge of local gender and social issues, local resources, and services and good interpersonal skills to establish linkages with various other line agencies in the district to access resources and services. 31. The key functions areas for the SM team are:

(i) Social mobilization for group formation, strengthening, and linking with microfinance institutions/cooperatives;

(ii) Resettlement and compensation related issues; and

(iii) Implementation of focused skills enhancement training including preparation of eligible list of participants for the training, facilitation of community consultations, and support/facilitation to training provider in the conduct of the training.

Appendix 6 65

TERMS OF REFERENCE FOR NATIONAL NGO

A. Background 1. A National Nongovernment Organization (NNGO) will be engaged under the Project to supervise and monitor the community mobilization and other social development activities in the districts and to carry out several social surveys in all project participating districts. The NNGO will work closely with the Social Mobilizers in the District Implementation Support Consultant (DISC) teams to implement social development services including livelihood enhancement activities and intensive social mobilization in all subprojects. The NNGO will undertake a baseline survey within 6 months of the start of the Project and subsequent outcome monitoring surveys. The NNGO will report to the Project Coordination Unit (PCU) in Department of Local Infrastructure Development and Agricultural Roads (DOLIDAR) and will coordinate activities and work closely with the Central Implementation Support Consultant (CISC) and DISCs. 2. The NNGO should have an established track record of working on social issues and have a strong social and gender team. B. Scope of NNGO Services 3. The NNGO will assist the PCU, in close coordination with CISC, DISCs and other stakeholders, in implementing the Project. The NNGO will provide the following services to the Project:

(i) Assist PCU in social development aspects during sub-project planning, designing and implementation period;

(ii) Design, develop indicators and conduct social studies (baseline survey, outcome surveys, impact studies in coordination with DISC;

(iii) Develop/produce appropriate social mobilization guidelines, community development guidelines, training and other relevant guidelines pertaining to the project with coordination with CISC;

(iv) Assist PCU for Microfinance access facilitation under the project;

(v) Assist PCU to enhance district capacity especially on social aspect;

(vi) Assist PCU in selecting Vocational training providers and Microfinance providers;

(vii) Provide social inputs in all aspects at district and central level;

(viii) Ensure gender, poverty and inclusion are incorporated in all activities;

(ix) Ensure women and disadvantaged groups’ involvement and participation in all activities of sub-project implementation;

(x) Supervise, monitor and evaluate the social development activities conducted by the district social mobilization team and report to PCU;

(xi) Support DISC team to plan and implement social safeguard instruments and mitigation measures to minimize the adverse impact of project;

(xii) Support DISC team for planning and conducting sub project level capacity enhancement activities including livelihood related skills trainings;

(xiii) Support DISC team to ensure fair working condition;

66 Appendix 6

(xiv) Support and provide skill to the district social mobilization team on transparency and accountability in all activities of the sub projects through community based monitoring system, public hearings and public audit;

(xv) Facilitate assessment, selection and conduction of Life Skills Trainings with monitoring of such training activities and its outcome in entrepreneurship development;

(xvi) Coordinate and Liaise with the PCU, CISC and DISC;

(xvii) Support district team to conduct annual outcome monitoring survey and compilation, interpretation and preparation of the report;

(xviii) Facilitate DISC for implementation of Indigenous People Plan Framework; and

(xix) Participation in trainings, workshops and meetings regarding on the project matter at central and district level as needed.

C. Indicative Staffing 4. The Team Leader of the NNGO should have academic background in the social sciences with previous experience as a social development expert. The NNGO’s indicative staffing is shown below

NNGO Composition No. P-m Team Leader 1 48 Social Development Advisor 1 48 Social safeguard( Social inclusion) Advisor 1 48 Capacity development/Vocational Training Advisor 1 48 Micro Finance Advisor 1 48 Gender and Social Inclusion officer 1 48 Social development /Socio economic Officer 2 48 Support Staffs

5. The social development/ safeguard advisor could be teamed up (i.e., twinning arrangement) with a DOLIDAR staff for institutional capacity building. 6. The TOR and required Qualification and experience of Key personnel are as follows:

No. Qualification Experience Roles and Responsibilities Team Leader

1 Masters Degree in Social Science / Management

• 10 years of relevant professional working experiences;

• completed at least two donor funded projects;

• effective communication and group dynamics and ability to undertake extensive travel in remote area of project districts

The Team Leader shall be responsible for overall assignment, implementation and deliverables of services as per scope of project. S/He will be maintaining liaison and coordination with all stakeholders and prepare reports. TL is to assist and facilitate PCU in need assessment and selection of local NGOs and microfinance institutions.

Assist and advice PCU in all aspects of social activities. Prepare and supervise GESI mainstreaming progress. Develop a modality of Monitor and evaluate of district activities.

Finalize guidelines and formats, comprehensive social support system for

Appendix 6 67

No. Qualification Experience Roles and Responsibilities DRILP. Together with other team members, prepare and implement a consultation and participation plan of significant issues related to participation, gender, indigenous or vulnerable people, poverty, labor, affordability or other social risks, including the need to prepare any action or mitigation plans or other measures.

Social Dev’t. Advisor

1 Masters Degree in Social Science/Rural Development or Management

• 7 years working experiences in social development field;

• preferably experience of conducting social mobilization in experience in participatory rural infrastructure projects, having knowledge and skills on community facilitation,participatory appraisal, process approach, practice on welfare schemes, trainings, skills of report preparation and presentation regarding on the project measures;

• effective communication and group dynamics and ability to undertake extensive travel in remote area of project districts.

SDA shall perform the activities under the direct supervision of team leader and act as deputy team leader in absence of team leader. S/he should manage to support district social mobilization team at district level. It includes supporting district teams to minimize the adverse impact of project. The role of SDA varies to provide trainings to social mobilization team at districts to carry out feasibility study, social screening and social assessment, well being ranking system, baseline survey and outcome monitoring survey. S/he shall also responsible for supporting to social mobilization team at districts for sub project level activities such as DRCC formation, VWRCC formation, BGs formation and prepare to community participation and mobilization.

Social safeguard (Social inclusion) Advisor

1 Masters Degree in Social Science/ Management

• 7 years work experiences in social development field;

• preferably experience of conducting social mobilization, Safeguard experience in participatory rural infrastructure projects, having knowledge of ADB social Safeguard approach and modality especially social inclusion practice on welfare schemes, effective communication and group dynamics and ability to undertake

SSA shall perform the activities under the direct supervision of the team leader. Her/his major responsibility is to develop screening of sub project, social impact assessment, and preparation of sub-project specific IP plans/activities for sub projects. S/he should ensure to involvement of social team at districts and their role of IP in the community participation i.e. Supervision, monitoring and evaluating the social safeguard mitigation measure. Furthermore S/he should arrange awareness program, collection of HH level information, conduction FGD through DIT. The task of social safeguard advisor is varies from develop manual of social safeguard, dissemination of Key positive and negative project impacts on IPs, positive and negative project impacts on IPPS, possible IPP Mitigation Measures, designing of survey

68 Appendix 6

No. Qualification Experience Roles and Responsibilities extensive travel in remote area of project districts.

questionnaire, process and methodology for safeguard measurement. S/he also responsible to support and capacitated to social mobilization team of Districts and reporting to PCU about Social Safeguard issues.

Capacity dev’t/ Vocational Training Advisor

1 Masters Degree in Social Science/ Management

• 7 years working experiences in the capacity development and community empowerment field and at least 3 years experience of need assessment, designing, curriculum development and training evaluation and conducting livelihood/ vocational skills development trainings, sound knowledge and skills on facilitation, communication and reporting of trainings, workshops, seminar and public hearings, audits etc.;

• willing to frequently field visit in remote area of project districts

Capacity Development Advisor shall perform the activities under the direct supervision of team leader.

S/he should design, plan manage and coordinate all capacity building activities to the district level social mobilization teams on community development, social mobilization, participatory approach, gender and development and on other subject matter as required.

S/he will undertake preparatory steps , needs assessment, of vocational training institutions and activities in district

S/he should support to conduct and organize trainings and workshops at district and community level on conflict management, institutional development and entrepreneurship development.

The role of CDA also includes conducing trainings to district team on contemporary issues of district and community like health and hygiene, reproductive health, nutrition, HIV AIDS, water and sanitation, child right and child protection, empowerment, savings and credit, good governance and project management.

Developing training manuals well as guidelines

The CDA also shall work with PCU to Conduct, organize and facilitate annual review meetings annually at centre on behalf of project.

Moreover, CDA shall assist and facilitate PCU to conduct and organize ICC (Implementation Coordination Committee) meeting at central level.

Micro Finance Advisor

1 Masters Degree in Social Science/ Management

• 7 years working experiences in the rural micro finance and entrepreneurship development in rural infrastructural projects;

• 3 years experience of conducting savings

Micro Finance Advisor shall perform the activities under the direct supervision of team leader and close coordination with Subject Matter Specialists. Her/his major responsibility will be support district for micro finance activities at district. Initiate series of field reviews in the 9 districts to make assessment of facilitation assistance to

Appendix 6 69

No. Qualification Experience Roles and Responsibilities and credit activities, cooperatives and enterprise development field, experience of trainings, curriculum development and monitoring and evaluation of income generation, skill enhancement or employment creation schemes;

• preferably, experience in participatory rural infrastructure projects, willing to frequently field visit in remote area of project districts.

support the microfinance access initiative in each district related to specific sub project ZOIs. S/he shall responsible for supporting districts to income generation and micro credit facilities and develop linkages with Financial Intermediaries. Assist to formation of groups through saving and credit groups aim at encouraging the rural poor/BGs members. Support BGs members to implement a saving scheme among its members. Develop a plan to mobilize savings. Conduct TNA related to MF and organizes training in nine of the project district. Access to existing MF sources for viable economic activities in SP areas.

Gender and Social Inclusion officer

1 Bachelor's Degree in Social Science/ Management

• Bachelor’s Degree in development field (Sociology/

• Anthropology or Rural Development)/ Economics/ Management with at least 5 years working experiences in gender and social inclusion in development projects;

• at least 3 years experience of conducting social surveys, preferably in participatory rural infrastructure projects knowledge and skills on socio economic analysis, poverty analysis and outcome assessment in capacity enhancement, income generation and livelihood restoration sector;

• willing to frequently field visit in remote area of project districts.

GESI Officer shall perform the activities under the direct supervision of team leader and with close coordination of GESI Advisor of CISC. Her/his major responsibility is to support district for gender and social inclusion activities, preparation of SAP/ GAP/ GSIAP at central and district level. S/he also shall responsible for ensuring participation and benefit sharing to women, dalit, ethnic people and indigenous people in the project district. S/he should assess the project's potential impacts on women; assess special needs of poor and vulnerable women and their preferences for road access to markets/services, employment and income generation opportunities. S/he should also responsible to prepare a gender strategy, including concrete targets and indicators to maximize project benefits to women and mitigate any adverse impacts to them.

Social dev’t/ Socio

2 Bachelor's Degree in Social Science/Manage

• Bachelor’s Degree in development field (Sociology/

SDO shall perform the activities under the direct supervision of team leader. S/he should manage to support district social

70 Appendix 6

No. Qualification Experience Roles and Responsibilities economic Officer

ment Anthropology or Rural Development) / Economics/ Management 5 years working experiences in community mobilization;

• preferably, experience in participatory rural infrastructure projects having knowledge and skills on socio economic analysis, poverty analysis and outcome assessment in capacity enhancement, income generation and livelihood restoration sector; willing to frequently field visit in remote area of project districts.

mobilization team to minimize the adverse impact of project. The role of SDO will be to provide trainings to social mobilization team at districts to carry out feasibility study, social screening and social assessment, well being ranking system, baseline survey and outcome monitoring survey. S/he shall also responsible for supporting to social mobilization team at districts for sub project level activities such as DRCC formation, VWRCC formation, BGs formation and prepare to community participation and mobilization. S/he should spend at least 50% of time in project areas to support local stakeholders.

Appendix 7 71

MICROFINANCE ACCESS

A. Background 1. Despite the small size of the country, Nepal has a reasonably diversified finance sector, which has grown at a substantial rate since the beginning of sector reform in the 1980’s. The Nepal Rastra Bank (NRB), the Central Bank regulates and licenses financial institutions. The number of financial institutions grew from just 7 in 1990 to 98 in 2000, and further to 254 in January 2010. Rural finance institutions are a subset of the broader financial sector covering financial intermediaries (both formal and semiformal) that provide services in the rural areas1

and are typically categorized as either formal, semiformal, or informal institutions. Formal institutions comprise those that are licensed and supervised by NRB, including commercial banks, development banks, micro-credit development banks, savings and credit cooperatives, and microfinance nongovernment organizations (NGOs). Semiformal institutions are registered under nonfinancial legislation such as the Cooperative Act (1992) and the Societies Registration Act (1977) and comprise (unlicensed) microfinance NGOs and cooperatives. Informal sources are relatives, friends, money lenders, and traders. Formal institutions represent only a small number of rural financial institutions but a large part of rural credit. However, their coverage is largely limited to the terai with very small, if any, presence in the hills and mountains. Included in the semiformal sector are an estimated 2,300 cooperatives and 15,000 microfinance NGOs that provide financial services to poor and low-income, including women, and commonly take deposits without license.

2. Of the formal rural finance providers, public rural finance institutions dominate the sector and three institutions – the Agricultural Development Bank Limited (ADBL), Small Farmers Development Bank, and the regional development banks (Grameen Bikash Banks) – account for more than 60% of the rural finance outreach from the formal and semiformal institutions. The government has also endeavored to improve access to rural finance by a range of interventions including: (i) directing public and private banks to allocate 3% of their total loan portfolio to low-income households and small businesses (the deprived lending scheme); (ii) creating the Rural Self Reliance Fund (RSRF) within the NRB in 1990 to provide wholesale funds to organizations offering financial services in rural areas, such as savings and credit cooperatives and microfinance NGOs; and (iii) supporting the creation of the Rural Microfinance Development Centre (RMDC), which is jointly owned by private commercial banks and the government, including NRB, as a private microfinance apex organization,2 and (iv) restructuring of the Small Farmers Development Bank (SFDB) to facilitate access by Small Farmer Cooperatives Limited (SFCLs) who are required to become shareholders in SFDB in order to qualify for Borrowing.3

1 These include commercial banks whose head offices are in urban areas but who offer services in rural areas.

Directing banks to allocate funds has not been successful due to a combination of its distortionary impact and the option for the banks to adopt the less-complex and often lower-cost option of paying any government imposed fines. RSRF has traditionally faced a major problem of the relative isolation of most of its wholesale borrowers, who incurred significant transaction costs in obtaining funds for onlending to their poor members. The establishment of RMDC was aimed at addressing these constraints and making rural credit readily available to potential

2 RMDC was established under the ADB-funded Rural Microfinance Project (ADB. 1998. Report and Recommendation of the President to the Board of Directors: Proposed Loan for the Rural Microfinance Project in Nepal. Manila.)

3 SFDB is being restructured under the ADB-funded Rural Finance Sector Development Custer Program (ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Loan, Grant, and Technical Assistance Grant for the Rural Finance Sector Development Cluster Program in Nepal [Subprogram 2]. Manila).

72 Appendix 7

borrowers, particularly in the terai but also to a more limited extent in the hill mountain districts. Similarly, the formation of SFCL as aggregations of small farmer groups that could obtain easier access to rural finance provides a means to facilitate the access of isolated hill and mountain communities to rural finance. B. Availability of Rural Finance 3. A rapid review of the main parts of the rural finance wholesaling system in Nepal during the project preparatory technical assistance (PPTA) suggests that there are sufficient funds available for lending to small farmers and women in the Decentralized Rural Infrastructure and Livelihoods Project (DRILP) project areas and that there is no need for additional credit to be made available from the extremely limited project funds. 4. The three major wholesale sources of funds include RSRF, RMDC and the Small Farmers Development Bank.

(i) Rural Self Reliance Fund (RSRF). Created by the Government in 1992 to provide financial assistance to deprived sections of rural communities for carrying out income-generating activities through Savings and Credit Cooperative (SCCs) or NGOs. RSRF has provided limited wholesaling facilities to ADB projects such as the Microcredit Project for Women.4

(ii) Rural Microfinance Development Centre (RMDC). Established under the ADB-funded Rural Microfinance Project as an organization responsible for the delivery of wholesale microfinance funds, provided predominantly by ADB, to the Grameen Banks, Grameen Bank Replicators, NGOs and cooperatives. By project completion, the project had actually reached about 400,000 through 58 implementing agencies, which extended about 1.2 million sub-loans to microenterprises and over 364,378 sub-borrowers participated in different capacity-building programs (trainings, workshops, and exposure visits) through the financial and technical support of the Project. Sub-borrowers were organized into groups that collectively mobilized over $21 million. The project was concluded to be successful in its promotion of microfinance and credit provision is understood to be continuing in a successful manner.

Experience reported elsewhere indicates that access to RSRF is complicated by its remoteness from the prospective borrower groups, which imposes a large transaction cost on them in terms of travel cost and time. This is particularly critical in the remoter hill and mountain districts, and limits the extent that the institution can provide the required services.

(iii) Small Farmers Development Bank (SFDB). A key component of ADB’s

Cluster Program for the rural finance sector5

4 ADB. 1993. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical

Assistance to the Kingdom of Nepal for the Microcredit Project for Women. Manila.

is the institutional restructuring and reforms of the SFDB, which was previously separated from ADBL. SFDB is proposed to become an apex bank for small farmer cooperatives with a strong grassroots orientation that will deepen rural finance outreach and make financial services more inclusive, especially to women. The restructuring plan proposed to

5 ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Loan, Grant, and Technical Assistance Grant Nepal: Rural Finance Sector Development Cluster Program (Subprogram 2). Manila.

Appendix 7 73

expand microfinance services in the hill and mountain districts particularly by assisting cooperatives, self-help groups and microfinance NGOs. SFDB currently has 219 partner Small Farmer Cooperative Limited (SFCLs) for onlending, of which 50 SFCLs are operating in the hills and mountains. As a pioneer institution for wholesale lending to cooperatives, SFDB envisages expanding financial service outreach in the hills and mountains by further strengthening its partner SFCLs as well as extending support other microfinance NGOs and self-help groups in those areas.

C. Scope of DRILP – Additional Financing Support 5. Based on this rapid review of recent activities in the rural (micro)-finance subsectors it appears evident that the main constraint to access finance is related to the capacity of various forms of rural groups to access available credit rather than the level of credit available. There has been major emphasis for many years on group formation through savings and credit groups and similar organizations aimed at encouraging the rural poor to make limited savings for self-financed credit as well as to access various sources of rural credit. 6

6. Under DRILP, direct employment on the rural transport and community infrastructure subprojects will provide cash incomes to members of Building Groups (BGs). The project will support BGs to implement a savings scheme among its members. Achieving regular savings will help the poor learn how to save and to manage these savings to improve their living conditions or to invest in productive assets. For each subproject, an income uplifting micro-plan will be prepared to mobilize savings from the employment for the use of new sets of skills acquired from the livelihood focused training that the Project will also provide. The plan will examine long-term local employment opportunities and options for external resources, if required. Suitable mechanisms will be identified for a business expansion plan to link with available or expected financial institutions in the local area. 7. These savings and credit schemes currently perform a vital role in poor rural communities – they manage and administer the groups’ savings while encouraging a culture of savings amongst members, and they provide an accessible facility especially to poor members, to meet their immediate and short-term finance requirements. If they meet the criteria for operating as an SCC, these savings and credit schemes can access available credit from existing institutional suppliers, most of which do not require the traditional collateral, to support viable economic activities of its members. At present, the accumulated savings within the groups are lent out to members for critical emergency loans (e.g., medical emergencies) at more advantageous terms compared to that of informal credit markets. 8. In nine of the 18 project districts, the Project will facilitate strengthening the capacity of groups of BGs and savings and credit groups (SCGs) to access microfinance. Working with existing SCGs, or assisting BGs wishing to form themselves into formal SCCs, the Project will strengthen existing groups, including BGs that are effectively operating as SCCs, and assist them to form into groups to pool and manage their resources and to strengthen their capacity to access existing credit channels. Local NGOs based in the pilot districts will be engaged to work closely with BGs to form savings and credit cooperatives, assess the local situation in terms of

6 UNCDF estimates that around 15,000 savings an credit groups have been formed under programs promoted by the

government, UNDP, and nongovernment organizations but most of them lack access to formal financial institutions. An ongoing program (Enhancing Access to Financial Services Project) is aimed at addressing this problem.

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microfinance demand and supply, support the organizational development of the groups and facilitate access to existing microfinance sources for viable economic activities.

1. Implementation Arrangements 9. The National NGO will undertake preparatory steps to lay the groundwork for microfinance access facilitation under the Project. The NNGO will:

(i) Undertake a quick study of the local situation in the 18 project districts in terms of current capacity and demand to access available credit from one of the existing wholesalers amongst existing savings and credit groups and/or cooperatives, SFCLs, building groups or other similar groups. The study will recommend the selection of nine target (pilot) districts that will be the coverage of microfinance access facilitation support from the Project.

(ii) Initiate a series of field reviews in the 9 districts to make a first assessment of the best form of facilitation assistance to support the microfinance access initiative in each district related to the specific subproject zone of influence. Based on similar initiatives, the considered approach will be by engaging local NGOs working in rural finance sector to provide this facilitation. National organizations working in the rural finance sector, and others (such as MEDEP, EAFSP, etc) may present an alternative approach.

10. The NNGO will have an ongoing role of monitoring the activities of the local NGOs, including collection and presentation of overall data, and in guiding, training, and assisting the local NGOs if necessary. 11. The NNGO in consultation with the Project Coordination Unit, will prepare TORs to engage suitably qualified local NGOs. The District Development Committee engages the local NGOs using project funds.

2. Indicative TORs for Local NGOs Facilitating Microfinance Access 12. The local NGOs will:

(i) Undertake formation of SCCs/SFCLs among BGs depending on local preference and the level of individual Villages Development Committee (VDC) in each of the subproject areas.

(ii) Identify the existing potential groups in the subproject areas or in the VDC, and propose a program for their strengthening together with formation of new groups where none exist, or propose a new program of group formation.

(iii) Assess the local situation in terms of microfinance demand and supply, and work closely with the groups to identify priority areas for microfinance support that are in line with the new sets of skills acquired from the Project-sponsored livelihood focused training and any planned economic activities.

(iv) Support the organizational development of the groups in line with building their capacity to access available credit, manage the credit funded activities and service the borrowed funds.