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Completion Report

Project Number: 44281-013 Loan Number: 2718 Grant Numbers: 0470 and 0527 July 2018

Kiribati: Road Rehabilitation Project

This document is being disclosed to the public in accordance with ADB’s Public Communications Policy 2011

CURRENCY EQUIVALENTS

Currency unit – Australian dollars (A$)

At Appraisal At Project Completion (3 November 2010) (28 March 2018)

A$1.00 = $0.9995 $0.7699 $1.00 = A$1.000 A$1.299

ABBREVIATIONS

ADB – Asian Development Bank ADF

DMF ECD EIRR

– – – –

Asian Development Fund design and monitoring framework Environment and Conservation Division economic internal rate of return

KPS - Kiribati Police Force MFED - Ministry of Finance and Economic Development MISE

MPWU PRIF

– – –

Ministry of Infrastructure and Sustainable Energy Ministry of Public Works and Utilities (now MISE) Pacific Region Infrastructure Facility

RRP – report and recommendation of the President SDR

TA – –

special drawing right technical assistance

WEIGHTS AND MEASURES

km

kph m mm

– – – –

kilometer kilometers per hour meter millimeter

NOTE

In this report, “$” refers to United States dollars unless otherwise stated.

Vice-President Stephen P. Groff, Operations 2 Director General Ma. Carmela D. Locsin, Pacific Department (PARD) Regional Director

Masayuki Tachiiri, Pacific Subregional Office, PARD

Team leader Jude Kohlhase, Senior Infrastructure Specialist, PARD Team members Rommel Rabanal, Senior Economics Officer, PARD

Lavenia Uruvaru, Associate Project Analyst, PARD Belvina Puamau, Operations Assistant, PARD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS Page

BASIC DATA i

MAP ix

I. PROJECT DESCRIPTION 1

II. DESIGN AND IMPLEMENTATION 1

A. Project Design and Formulation 1 B. Project Outputs 2 C. Project Costs and Financing 3 D. Disbursements 4 E. Project Schedule 4 F. Implementation Arrangements 5 G. Technical Assistance 6 H. Consultant Recruitment and Procurement 6 I. Safeguards 7 J. Monitoring and Reporting 8

III. EVALUATION OF PERFORMANCE 8

A. Relevance 8 B. Effectiveness 9 C. Efficiency 11 D. Sustainability 11 E. Development Impact 12 F. Performance of the Borrower and the Executing Agency 12 G. Performance of the Consultant and Contractor 12 H. Performance of Cofinanciers 13 I. Performance of the Asian Development Bank 13 J. Overall Assessment 13

IV. ISSUES, LESSONS, AND RECOMMENDATIONS 14

A. Issues and Lessons 14 B. Recommendations 15

APPENDIXES 1. Design and Monitoring Framework 16 2. Project Cost at Appraisal and Actual 20 3. Project Cost by Financier 21 4. Disbursement of ADB Loan and Grant Proceeds 24 5. Contract Awards of ADB Loan and Grant Proceeds 25 6. Chronology of Main Events 26 7. Status of Compliance with Loan and Grant Covenants 28 8. Implementation Schedule 34 9. Economic and Financial Analysis 35 10. Photographs—Before and After 41

BASIC DATA

I. ORIGINAL LOAN APPROVED 2010 A. Loan Identification

1. Country Republic of Kiribati 2. Loan number and financing source 2718-KIR, Concessional OCR 3. Project title Road Rehabilitation Project 4. Borrower Government of Kiribati 5. Executing agency Ministry of Finance and Economic

Development 6. Amount of loan SDR7.621 million 7. Project completion report number 1679 8. Financing modality Project SDR Loan

B. Loan Data

1. Appraisal – Date started – Date completed

6 May 2010 11 May 2010

2. Loan negotiations – Date started – Date completed

10 November 2010 11 November 2010

3. Date of Board approval 10 December 2010 4. Date of loan agreement 17 March 2011 5. Date of loan effectiveness – In loan agreement – Actual – Number of extensions

15 June 2011 26 August 2011 1

6. Project completion date – Appraisal – Actual

30 April 2013 28 November 2016 (taking-over certificate issued)

7. Loan closing date – In loan agreement – Actual – Number of extensions

30 October 2013 28 February 2017 3

8. Financial closing date – Actual

31 May 2017

9. Terms of loan – Interest rate – Maturity – Grace period

1.0% per annum during grace period and 1.5% thereafter 32 years 8 years

10. Disbursements

a. Dates

Initial Disbursement 23 September 2011

Final Disbursement 12 April 2017

Time Interval 67.6 months

Effective Date 26 August 2011

Actual Closing Date 31 May 2017


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b. Amount SDR (million)

Category

Original Allocation

(1)

Increased during

Implementation (2)

Cancelled during

Implementation (3)

Last Revised

Allocation (4=1+2–3)

Amount Disbursed

(5)

Undisbursed Balance (6 = 4–5)

01 Works 5.06 (1.69) 0 3.37 3.36 0 01A Works 0 0.65 0 0.65 0.65 0 02 Consulting Services

1.42 2.10 0 3.52 3.39 0.13a

03 Interest 0.09 0 0 0.09 0.09 0 04 Unallocated

1.06 (1.06) 0 0 0 0

Total 7.62 0 0 7.62 7.49 0.13a

a An undisbursed loan amount of SDR128,887.45 (equivalent to $178,185.61) on 31 May 2017.

b. Amount ($ million)

Category

Original Allocation

(1)

Increased during

Implementation (2)

Cancelled during

Implementation (3)

Last Revised


Amount Disbursed

(5)


01 Works 7.75 (2.66) 0 5.09 5.09 0 01A Works 0 0.89 0 0.89 0.89 0 02 Consulting Services

2.17 2.98 0 5.15 4.97 0.18a

03 Interest 0.13 0 0 0.13 0.13 0 04 Unallocated

1.63 (1.63) 0 0 0 0

Total 11.68 (0.42) 0 11.26 11.08 0.18a

a An undisbursed loan amount of SDR128,887.45 (equivalent to $178,185.61) on 31 May 2017.

C. Project Data

1. Project cost ($ million)

Cost Appraisal Estimate Actual

Foreign exchange cost 33.66 75.14 Local currency cost Not applicable Not applicable Total 33.66 75.14

2. Financing plan ($ million)

Cost Appraisal Estimate Actual

Implementation cost Borrower financed 1.05 6.83 ADB financed 12.00 22.48 Other external financing 20.61 45.83 Total implementation cost 33.66 75.14

Interest during construction costs Borrower financed 0 0.25 ADB financed 0.13 0.13 Other external financing 0 0 Total interest during construction cost 0.13 0.38

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3. Cost breakdown by project component ($ million)

Component Appraisal Estimate Actual

A. Investment Costs 1. Civil Works

25.28

63.67

2. Consultants a. Design and Construction Supervision b. Capacity Development c. Project Management

3.79 2.23 0.98 0.58

8.84 4.97 0.51 3.36

3. Land acquisition and resettlement 0.05 0.13 4. Goods 0.16 0.16 B. Contingencies 4.12 1.96 C. Financing Charges During Implementation 0.26 0.38 Total 33.66 75.14

4. Project schedule

Item Appraisal Estimate Actual

Consulting services contract Date of award Q4 2010 1 December 2010 Completion of engineering designs Q1 2011 30 June 2011 Completion of construction supervision Q4 2011 28 November 2018

Civil works contract Date of award Q3 2011 12 February 2013 Completion of work Q2 2013 28 November 2018 Other milestones

1. Minor change in scope to include additional outputs approved on 31 January 2011.

2. Minor change in implementation arrangements to increase the retroactive financing ceiling approved on 30

September 2011.

3. Minor change in implementation arrangements to increase the retroactive financing ceiling approved on 30

September 2011.

4. First request to extend the loan closing date, from 30 October 2013 to 30 June 2015 approved on 24 April

2013.

5. Minor change approved on 24 April 2015 to: (i) amend the financing plan to reflect additional financing; (ii)

reallocate funds; and (iii) second extension of loan closing date from 30 June 2015 to 31 August 2016.

6. Third extension of loan closing date, from 31 August 2016 to 28 February 2017, approved on 26 July 2016.

5. Project performance report ratings

Implementation Period

Ratings

Development Objectives Implementation Progress

From 1 April 2011 to 30 June 2011 Actual Problem Actual Problem From 1 July 2011 to 30 September 2011 On Track On Track From 1 October 2011 to 31 December 2011 Actual Problem Actual Problem From 1 January 2012 to 31 March 2012 Actual Problem Actual Problem From 1 April 2012 to 30 June 2012 Actual Problem Actual Problem From 1 July 2012 to 30 September 2012 On Track On Track From 1 October 2012 to 31 December 2012 On Track On Track From 1 January 2013 to 31 March 2013 Actual Problem Actual Problem From 1 April 2013 to 30 June 2013 Potential Problem Potential Problem From 1 July 2013 to 30 September 2013 Potential Problem Potential Problem From 1 October 2013 to 31 December 2013 On Track On Track From 1 January 2014 to 31 December 2014 On Track On Track From 1 January 2015 to 31 December 2015 On Track On Track From 1 January 2016 to 31 December 2016 On Track On Track From 1 January 2017 to 31 March 2017 On Track On Track From 1 April 2017 to 30 June 2017 On Track On Track From 1 July 2017 to 30 September 2017 On Track On Track From 1 October 2017 to 31 December 2017 Potential Problem Potential Problem

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D. Data on Asian Development Bank Missions

Name of Mission Date No. of

Persons No. of

Person-Days Specialization of Members a

Fact Finding Mission 12–26 August 2010 4 15 a, b, c, d Inception Mission 15–22 March 2011 4 8 a, b, e, f Review Mission 9–14 June 2011 2 6 a, b Special Project Review Mission 10–12 September 2012 3 3 a, Review Mission 25–27 March 2013 2 3 a, b Special Administration Mission 21–25 July 2013 2 5 b, h Review Mission 4–8 November 2013 3 5 a, b, h Review Mission 13–20 March 2014 2 8 a, b Review Mission 16–20 June 2014 2 5 a, g Review Mission 2–9 October 2014 5 8 a, b, g Review Mission 19–26 February 2015 1 8 a Review Mission 4–11 June 2015 1 8 a Review Mission 15–22 October 2015 1 8 a Review Mission 29 January–4 February 2016 2 7 a, g Review Mission 2–8 June 2016 3 7 a, j, k Review Mission 17–24 November 2016 2 8 a, j Review Mission 25–29 May 2017 4 5 a, b, j, l Review Mission 20–23 November 2017 2 4 a, j Project Completion Review 16–22 March 2018 2 7 a, m Review Mission c 21–24 May 2018 - 4 -

a a = infrastructure specialist, b = associate project analyst, c = resettlement specialist consultant, d = climate change specialist consultant, e = senior finance and administration control officer, f = senior project implementation officer, g = safeguards officer, h = project administration unit consultant, I = development specialist, j = program manager, k = urban development specialist, l = ADB/World Bank liaison officer, m = staff consultant/economist.

b World Bank fielded a joint-review mission, ADB project officer provided remote support to the mission.

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II. 2015 ADDITIONAL FINANCE—ASIAN DEVELOPMENT FUND GRANT A. Grant Identification

1. Country Republic of Kiribati 2. Grant number and financing source 0470-KIR, ADF 3. Project title Road Rehabilitation Project (Additional

Financing 1) 4. Recipient Government of Kiribati 5. Executing agency Ministry of Finance and Economic

Development 6. Amount of grant $2.400 million 7. Project completion report number 1679 8. Financing modality Project Grant

B. Grant Data


2. Grant negotiations – Date started – Date completed

20 October 2015 20 October 2015

3. Date of Board approval 11 December 2015 4. Date of grant agreement 16 February 2016 5. Date of grant effectiveness – In grant agreement – Actual – Number of extensions

16 May 2016 1 March 2016 0


31 August 2016 28 November 2016 (taking-over certificate issued)

7. Grant closing date – In grant agreement – Actual – Number of extensions

28 February 2017 28 February 2017 0


31 May 2017

9. Disbursements

a. Dates

Initial Disbursement 6 May 2016

Final Disbursement 16 August 2016


Effective Date 1 March 2016

Actual Closing Date 31 May 2017


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Category

Original Allocation

(1)

Increased during

Implementation (2)

Cancelled during

Implementation (3)

Last Revised


Amount Disbursed

(5)


Works 2.400 0 0 2.400 2.399 0.000a Total

a An undisbursed grant amount of $82.76 on 31 May 2017.

C. Project Data (see Project Data section for Original Loan)

D. Data on Asian Development Bank Missions (see Mission Data section for Original Loan)

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III – 2016 ADDITIONAL FINANCE—ASIAN DEVELOPMENT FUND GRANT A. Grant Identification

1. Country Republic of Kiribati 2. Grant number and financing source 0527-KIR, ADF 3. Project title Road Rehabilitation Project

(Additional Financing 2) 4. Recipient Government of Kiribati 5. Executing agency Ministry of Finance and Economic

Development 6. Amount of grant $9.000 million 7. Project completion report number 1679 8. Financing modality Project Grant B. Grant Data


2. Grant negotiations – Date started – Date completed

4 November 2016 4 November 2016

3. Date of Board approval 12 December 2016 4. Date of grant agreement 12 December 2016 5. Date of grant effectiveness – In grant agreement – Actual – Number of extensions

12 March 2017 25 January 2017 0


31 July 2017 28 November 2018 (end of defects notification period)

7. Grant closing date – In grant agreement – Actual – Number of extensions

31 December 2017 11 June 2018 0


11 June 2018

9. Disbursements

a. Dates

Initial Disbursement 11 April 2017

Final Disbursement 6 June 2018


Effective Date

25 January 2017 Actual Closing Date

11 June 2018 Time Interval 16.7 months

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Category

Original Allocation

(1)

Increased during

Implementation (2)

Cancelled during

Implementation (3)

Last Revised


Amount Disbursed

(5)


Works 9.00 0 0 9.00 9.00 0 Total

C. Project Data (see Project Data section for Original Loan)

D. Data on Asian Development Bank Missions (see Mission Data section for Original Loan)

I. PROJECT DESCRIPTION 1. The Asian Development Bank (ADB) approved a loan from the Asian Development Fund (ADF) on 10 December 2010 in the amount of SDR7,621,000 ($12 million) for the Road Rehabilitation Project.1 In 2015, ADB provided additional financing in the form of an ADF grant in the amount of $2.4 million,2 and in 2016 ADB approved an additional ADF grant of $9 million.3 The project is cofinanced with the World Bank and the Government of Australia, with some financing from the Government of Kiribati; total project financing is $76 million (para. 9).4 2. The project (original project plus additional financing) sought to rehabilitate South Tarawa’s main road, which runs the length of an extremely narrow and densely populated atoll that is home to more than two-fifths of Kiribati’s people.5 It connects the airport in the east to the seaport of Betio in the west, running through the administrative capital of Bairiki. There are no alternative routes: this is the only road and provides access to all essential services, including government services, education, health services, and markets. A lack of routine maintenance had allowed formerly paved sections of this road to be reduced to a pitted gravel surface. The road was more than 20 years old and was overdue for rehabilitation. The expected project outputs were (i) a rehabilitated and upgraded road network in South Tarawa, (ii) community-based enterprises having the capacity to maintain the road network, and (iii) efficient implementation support from the Government. The expected project outcome was a safer, more efficient transportation system to encourage economic growth and improve the quality of life.

II. DESIGN AND IMPLEMENTATION A. Project Design and Formulation 3. The project was jointly prepared by ADB and World Bank staff in coordination with concerned development partners.6 Project preparation was based on a comprehensive road safety audit of South Tarawa’s roads commissioned by the World Bank, which also formed the basis for the detailed engineering designs.7 The road runs near the edge of the lagoon for most of its length, and rising sea levels and coastal erosion present threats to its sustainability; design was coordinated with a World Bank-financed climate change adaptation program.8 The need for

1 ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the Republic

of Kiribati for the Road Rehabilitation Project. Manila. 2 ADB. 2015. Report and Recommendation of the President to the Board of Directors: Proposed Grant for Additional

Financing to the Republic of Kiribati for the Road Rehabilitation Project. Manila. 3 ADB. 2016. Report and Recommendation of the President to the Board of Directors: Proposed Grant for Additional

Financing to the Republic of Kiribati for the Road Rehabilitation Project. Manila. 4 This was the first project jointly financed by ADB and the World Bank. On 31 January 2011, the World Bank increased

its financing from $16 million (as listed in ADB’s 2010 RRP) to $20 million, and the Government of Australia, through its Pacific Region Infrastructure Facility, increased its financing from $4.61 million to $5.79 million. These amounts were further increased in February 2015, as shown in section II C below, with World Bank assistance increasing to $26.97 million and Australia’s contribution increasing to $18.86 million.

5 Tarawa, the capital of Kiribati, has a population of 56,300 (55% of the total population) and an average population density of 4,000 persons per square kilometer (km). Communities are linked to each other by the road.

6 The New Zealand Aid Programme had ongoing infrastructure development and capacity building projects in South Tarawa; AusAID was providing support to World Bank climate-change-adaptation projects and capacity building support through the PRIF.

7 World Bank. 2010. Report of the Road Safety Audit on Tarawa, Republic of Kiribati. Sydney. 8 Kiribati Adaptation Program Phase I, II, and III projects. KAP I and II piloted adaptation measures such as mangrove

planting, construction of sea walls and rain water harvesting. KAP III focuses on improving water use and management and maintaining resilient coastal infrastructure.

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adequate maintenance and finance, capacity building, and institutional reforms in the transport sector were seen as essential to ensure that the roads remained serviceable for at least 20 years. 4. Project design and implementation methodology were appropriate given capacity constraints in Kiribati, with a design and supervision consultant (the engineer) overseeing the project construction contractor on behalf of the government and financiers.9 It was envisaged that the civil works would be procured under a single civil works contract. It was recognized that contract costs would be high. Aggregates would have to be imported because of a scarcity of local material for road construction. Beach mining of local coral gravel was unacceptable because it could potentially lead to coastal erosion.

5. The contract bids were much higher than anticipated, largely because of mobilization and risk factors arising from Kiribati’s isolated location. The 2015 ADF grant was approved to help support this, and was tied in with additional support from development partners. The 2016 ADF grant helped finance rehabilitation of additional roads in urban areas of Betio and Bairiki that were not included in the original project but which had deteriorated. Project targets were adjusted as a result, as shown in the revised design and monitoring framework (DMF) (Appendix 1). 6. The project was in line with the development objectives set out in the Kiribati Development Plan, 2016–2019, which seeks to: (i) achieve economic growth and poverty reduction; and (ii) create a sustainable environment with improved governance and infrastructure.10 The project also supported the government’s draft Transport Sector Development Plan, 2016, which seeks to improve economic development by serving mobility and accessibility needs and providing reliable, safe, and economically efficient transport.11 The project is in line with ADB’s country operations business plan, 2016–2018,12 which supports road infrastructure development; ADB’s Pacific Approach, 2016–2020,13 a key strategy of which is to reduce costs through improved transport infrastructure; and ADB’s Midterm Review of Strategy 2020.14 B. Project Outputs 7. The project (as amended) has three outputs: (i) Output 1. Rehabilitation and upgrading of 37.5 km of paved roads and 8.5 km of unpaved

feeder roads. 2015 changes included deletion of the Betio (Nippon) causeway, which required major reconstruction following damage caused by high tides and waves (reconstruction is being financed by Japan); and improvements to rapidly deteriorating roads within the Betio and Bairiki urban areas.15 Targets were achieved and/or exceeded:

9 The consultant was recruited by ADB on behalf of the government during project preparation because the government

lacked capacity for this. 10 Government of Kiribati. 2016. Kiribati Development Plan, 2016–2019. Tarawa. Similarly, the project was consistent

with government priorities at the time of project approval in 2011, as outlined in the Kiribati Development Plan, 2008–2011; and 2012–2015. Those priorities included economic growth and poverty reduction, improved governance and infrastructure, and creating a sustainable environment.

11 Government of Kiribati. 2016. Draft Transport Sector Strategic Plan. Consultant’s report. Tarawa. Unpublished. 12 ADB. 2016. Country Operations Business Plan: Kiribati, 2016–2018. Manila. 13 ADB. 2016. Pacific Approach, 2016–2020. Manila. This serves as the country partnership strategy. 14 ADB. 2014. Midterm Review of Strategy 2020: Meeting the Challenges of a Transforming Asia and Pacific. Manila. 15 High tides caused significant damage to the causeway in early 2013 and 2014, with more extensive damage

occurring in March 2015 due to Tropical Storm Bavi. Reconstruction of the causeway is being financed under a Government of Japan grant through the Japan International Cooperation Agency ($35.8 million). The civil works contractor on the road project had completed pavement of a 0.4 km stretch along the western approach of the causeway and carried out repair works to keep the length of the causeway accessible prior to further work being deferred after the 2014 damage. Other changes in 2015 included (i) additional feeder road lengths including Buota

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(a) 38.4 km of paved roads improved and 9.2 km of unpaved roads paved; and (b) installment of street lighting, footpaths, and drainage equipment (Appendix 1).

(ii) Output 2. The original output establishing community-based enterprises with the capacity to maintain the road network was changed as it proved difficult to recruit group members from each community along the road. Instead, three subcontractors were employed and trained to perform routine maintenance services.16 The project trained staff of the Ministry of Public Works and Utilities—now the Ministry of Infrastructure and Sustainable Energy (MISE)—and local contractors in tendering and contract administration.

(iii) Output 3. Project Implementation support provided by the MISE was the third output. The Kiribati Fiduciary Services Unit (KFSU) of the Ministry of Finance and Economic Development (MFED) provided centralized project coordination, fiduciary, and procurement support.

8. The project also addressed Kiribati’s need for better institutional arrangements to manage its road assets, including cost management and road safety. A road safety action plan was prepared under the project, together with road safety legislation. The legislation was enacted into law by Parliament on 21 August 2017 and will enable the Kiribati Police Service (KPS) to better enforce laws that discourage dangerous driver behavior, including speeding and drunk driving. The Queensland Police Service trained and provided equipment to the police to assist with traffic safety enforcement. Road safety campaigns aimed at raising awareness are being conducted in communities and in schools. C. Project Costs and Financing 9. ADB provided an ADF loan of SDR7.621 million ($12 million equivalent), then provided an additional $11.4 million through two ADF grants. The World Bank provided collaborative cofinancing of $26.97 million. The Government of Australia provided $15.21 million through the Pacific Region Infrastructure Facility (PRIF), and $3.65 million through the Australia–Pacific Islands Partnership Trust Fund. The Government of Kiribati’s contribution increased from $1.05 million in 2010 to $6.83 million in 2016.17 Total project financing was $76.06 million—see Table 1 below and Appendix 3 – while actual cost was $74.97 million (para. 11 and Appendix 2).

Table 1: Financing Plan

($ million) ADB World Bank Government of Australia Government

of Kiribati Total

ADF Loan ADF Grants PRIF APIP $12.00 $11.40 $26.97 $15.21 $3.65 $6.83 $76.06 15.8% 15.0% 35.5% 20.0% 4.8% 8.9% 100.0%

10. ADB’s second ADF grant of $9.0 million covered retroactive financing. In June 2016, the government approved the rehabilitation of essential road sections in Betio and Bairiki that had been damaged by extreme spring tides and requested that ADB bring forward to 2016 $9.0 million

road; (ii) additions and realignment to the airport road; (iii) mobilization of additional resources to deal with underground utility services (power and water) and address site safety issues (para. 16); and (iv) additional coastal protection work along the Temaiku road, which had experienced significantly increased erosion.

16 One Stop (Betio) for the Betio to Teaoraereke road; King Holdings (Betio) for the Teaoraereke to Bikenibeu and Temaiku roads; and Kelani Lodge (Buota) for the Buota to Bikenibeu road. Each subcontractor has 12 to 13 workers; ccontracts run until the end of the main road contractor defects notification period in November 2018.

17 There could be an additional shortfall of A$2.3 million overall, which the government would have to meet depending upon resolution of a dispute between the government and contractor.

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of the ADF grant resources from 2017 and 2018. Before ADB was able to confirm financing, the government authorized the additional works using its own funds because it was concerned that in-country capacity was not sufficient to construct these links if the contractor demobilized. The government asked for 100% retroactive financing, which was approved by ADB. 11. The actual project completion cost was $74.97 million equivalent (Appendix 2),18 significantly higher than the original 2011 cost estimate of $33.36 million because of additional works and delays, but below the 2016 revised cost estimate of $76.06 million. Details of expenditures by category are provided in Appendix 3. 12. The cost of the single civil works contract was higher than anticipated at project approval.19 The request for the first injection of additional financing resulted from an initial underestimation of costs and delays, as well as inflation and exchange rate fluctuations.20 The cost estimate for civil works at appraisal was $25.3 million; in March 2012, the estimated cost was revised to $34.4 million, and before tendering the estimate was adjusted to $41.6 million. Four bidders responded with bid prices ranging from A$49.6 million (equivalent then to $51.9 million) to A$64.5 million (equivalent to $65.1 million), or 20%–56% more than the estimated cost. The bid evaluation showed that bids were inflated mainly because of added costs and risks associated with the remote location. For instance, aggregates would have to be imported from Fiji, some 2,000 km away. A contract of $48.2 million was signed in March 2013 with the lowest bidder. D. Disbursements 13. The loan and grants were disbursed in accordance with ADB’s Loan Disbursement Handbook (2007, as amended from time to time). The original loan disbursement projection was based on the contract being awarded in December 2011; however, the contract award was delayed by 13 months. The low loan disbursements resulted in a project performance rating of actual problem until the third quarter of 2012. Grant disbursement procedures for the second ADF grant included 100% retroactive financing (para. 10). In total, $11.083 million was disbursed from the loan, $2.399 million from the first grant and $9.0 million from the second grant. As discussed in para. 12, the civil works contract cost was higher than anticipated at project design, while additional works were included in 2016 (para. 10). Contract awards and disbursements are presented in appendixes 4 and 5. E. Project Schedule 14. ADB approved the loan of SDR7.621 million ($12.0 million equivalent) on 10 December 2010, and it became effective on 26 August 2011. The original loan closing date of 30 October 2013 was extended three times with an actual loan closing date of 28 February 2017. The first additional grant of $2.4 million (footnote 2) was approved on 11 December 2015 and closed on 31 May 2017. The second additional grant of $9.0 million (footnote 3) was approved on 12 December 2016, and closed on 11 June 2018. 15. The original date for completion of the physical infrastructure was April 2013 but this was shifted to March 2016 and then July 2017 as part of additional financing approvals. The project incurred initial delays attributed to capacity constraints within the executing and implementing

18 Contributions and expenditures were in different currencies and exchange rates have moved over the project period,

affecting this estimate in US dollars; government accounts are in Australian dollars. 19 The civil works package used international competitive bidding one stage, one envelope bidding procedure. Appraisal

estimates were prepared by ADB and World Bank staff based on Kiribati costs and experience in the region. 20 The Australian dollar was stronger than the United States (US) dollar at that time.

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agencies. Several measures were put in place to improve capacity, such as the establishment of the KFSU within the MFED and placement of a technical advisor within the MISE. The civil works contractor experienced various start-up difficulties, including insufficient supply of materials because the local dredging enterprise was late procuring its resources, and delays in mobilizing the asphalt plant. Initial project progress was also delayed because of concerns about coastal protection designs and deterioration of existing seawalls.21 The chronology of main events and implementation schedule are presented in appendixes 6 and 8.

16. Poor weather conditions associated with an El Nino weather event across the Pacific impeded road construction in 2015 and 2016. From February 2015 to April 2016, rainfall was double the historical average with 373 mm a month compared with 177 mm.22 Rainfall in early 2016 was particularly heavy, with monthly rainfall January-April 2016 of 573 mm compared with 204 mm historical average. The contract provided for automatic entitlements for additional time in the event of adverse weather, and over the duration of the works this amounted to 185 calendar days, without cost. During earthworks for the main roads, the contractor found undocumented underground installations (power, water, and telecommunications). Four major high-voltage cable strikes escalated the issue to a serious health and safety risk and resulted in temporary works suspension. An electrical resource team was recruited, and health and safety procedures strengthened to ensure a safe working environment. The extension of time awarded for relocation of services and additional works in Betio and Bairiki (excluding inclement weather), was 205 calendar days at cost. By June 2015 road work construction was only 40% complete against 82% time elapsed. By January 2017 works were 70% complete, against a target of 85% complete. All physical works were completed by end 2017. Joint review missions have reported in mission aide memoires that the quality of work is of a high standard.

F. Implementation Arrangements 17. Project implementation arrangements followed those set out in the report and recommendation of the President (RRP). The MFED was the executing agency and the MISE was the implementing agency. The National Infrastructure Development Steering Committee was the project steering committee.23 The Cabinet Development Coordination Committee became more involved and assumed the responsibilities of the National Infrastructure Development Steering Committee. The implementation arrangements were adequate; however, government capacity required sustained strengthening and support. The World Bank administered the jointly funded civil works contract, while ADB administered the design and supervision consultant, which was funded by ADB. Following closure of the ADB loan account on 28 February 2017, the MISE continued to fund the design and supervision consultant. 18. ADB and the World Bank drew up a memorandum of understanding at project commencement, setting out arrangements for cooperation and coordination of their efforts for cofinancing and implementation of the project in consultation with the government. This included joint monitoring missions with joint mission aide memoires. ADB and the World Bank applied their own safeguard, procurement, and financial management procedures to the project, ensuring that the requirements of each were met, and agreeing on recommendations. The KFSU within the MFED provided project coordination, fiduciary, and procurement support.

21 Being repaired by MISE and KAP III (footnote 8). 22The El Nino developed in February 2015 and dissipated by May 2016. 23The National Infrastructure Development Committee comprises representatives from: Office of the President (chair);

MISE; MFED; Ministry of Information, Communications, Transport and Tourism Development; MELAD; Ministry of Internal Affairs; Commissioner of Police; Kiribati Association of Non-Governmental Organizations.

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19. A public expenditure and financial accountability assessment conducted in Kiribati in 2010 concluded that public financial management was weak. Development partners, including ADB, assisted the government in designing and implementing the Kiribati Public Financial Management Plan, 2011–2014.24 The KFSU was established within the MFED in 2013 to assist with the management of all development-partner-financed projects.25 A consultant funded by PRIF worked with the KFSU to strengthen capacity, including developing an operations procedures manual. Capacity has remained weak, but no financial management issues are pending. The World Bank during its implementation missions has reviewed financial management arrangements in the MFED and the MISE, rating this satisfactory, however their final review in May 2018 rated this as moderately unsatisfactory as the commitments register had not been kept up to date.

G. Technical Assistance 20. The project was supported by a separate technical assistance (TA) project for Strengthening Safeguards Capacity in the Urban Sector in Kiribati.26 The TA provided assistance to the Environment and Conservation Division (ECD) within the Ministry of Environment, Lands and Agricultural Development (MELAD), which faced considerable difficulties in implementing and enforcing the regulatory framework and procedures for the environment safeguard system. The TA strengthened the capacity of the ECD to apply environmental safeguards, and was rated successful in the TA completion report. During the PCR mission, the ECD demonstrated its commitment to implementing strengthened systems and embedding new procedures. 21. The World Bank administered grant funds provided by various donors, including the PRIF Multi-donor Trust Fund, which provided consultancy support to help the government develop better institutional arrangements for managing Kiribati’s road assets, including maintenance costs and funding, making land transport more efficient, and using funds effectively. The consultancy reviewed existing arrangements in land transport and reviewed the design and implementation of a road map for restructuring. A second component supported a road safety action plan and the reinvigoration of the Road Safety Committee. An Office of Road Safety was to have been established in the Office of The President, but that has not occurred. The Queensland Police Force provided equipment and training to the KPS to improve legislation and enforcement. A third component supported the training of local road maintenance subcontractors, which replaced the community-based maintenance groups originally envisaged under output 2. H. Consultant Recruitment and Procurement 22. Consultants were recruited in accordance with ADB’s Guidelines on the Use of Consultants (2010, as amended from time to time). Advance contracting was used in selecting the firm of consultants for design and construction supervision, with ADB selecting the firm at the government’s request to expedite the process. The MISE engaged the selected firm on 2 December 2010, and the consultant team was mobilized to South Tarawa on 3 February 2011. The consulting package was procured as planned at appraisal. The World Bank recruited an advisor to assist the MISE as government had difficulties managing the consultant team.

24 Government of Kiribati. Kiribati Public Financial Management Plan, 2011–2014. Unpublished. 25 The KFSU recruited a full-time manager, two qualified project accountants, a procurement specialist, and three

advisors to handle project financial management activities. 26 ADB. 2015. Technical Assistance Completion Report. Strengthening Safeguards Capacity in the Urban Sector in

Kiribati. Manila. TASF grant of $220,000.

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23. Procurement for the single civil works package included prequalification that was not planned at appraisal. The civil works contract underwent prequalification in June 2011, with a closing date of 3 August 2011, but was cancelled on 2 April 2012 because of a lack of interest by qualified contractors; regular post-qualification was used instead. The prequalification process added a 9-month delay. Invitation for bids was issued on 5 June 2012, and ADB’s approval for contract award was granted on 14 December 2012. ADB and the World Bank independently assessed the government’s bid evaluation report, ensuring that the procurement and eligibility requirements of each were met, and agreed on the responsive bidders and the selected bid.

24. With ADB and cofinancier support, the KFSU provided procurement resources for the project. No procurement issues related to the project were highlighted in the regular joint monitoring reports of ADB and the World Bank, nor were any issues reported by the MFED or the MISE. This assessment was reconfirmed by the MFED and the MISE during the PCR mission.

I. Safeguards 25. Environment. The original project was classified category B. The environmental management plan adopted at design was updated during implementation to reflect ongoing impacts; from 2015, the project operated under revised version 6 of the environmental management plan. The additional financing grants were both classified category C; the first covered cost overruns did not involve a change in scope; the second had minimal anticipated impacts. Project impacts included disturbance from dust arising from loading, unloading, and transportation of construction materials, and noise.27 Detailed mitigation measures were incorporated in the project. 26. Involuntary resettlement and indigenous peoples. The project was classified category B for involuntary settlement: a resettlement plan was prepared at design and updated during implementation. Limited impacts were likely as no physical resettlement of persons or property were required; compensation paid related to affected property and crops. The additional financing grants were classified category C since no buildings were to be relocated and no economic crops were affected. The rehabilitated roads followed existing alignments. As of end-April 2018, compensation for loss of land and assets—mainly loss of fruit-bearing trees—has been paid by the government to 97% of affected persons (327 in total) totaling A$161,000. The government has established an escrow account in MFED for the compensation of the remaining 13 affected persons, pending resolution of court cases and tracing of affected persons. The project and additional financing are all classified category C for indigenous peoples. The people of South Tarawa are from a single ethnic group and no indigenous peoples, as defined under ADB’s Safeguard Policy Statement (2009), were affected by the project. 27. HIV prevention. The project conducted a HIV prevention information and education campaign for the project teams and communities near the project site. The Kiribati Family Health Association was contracted directly by the contractor to conduct awareness training in accordance with the contract HIV prevention clauses for health and safety. The association followed the World Bank’s guide “Road to Health” toolkit in delivering the programs and were paid per head trained, following schedules prepared by the contractor. Monitoring was done through construction supervision reports and indicate that training was effective.28

27 Other potential impacts identified included: (i) erosion and sedimentation from exposed surfaces during construction,

which threatened the lagoon environment; (ii) risks from the use and disposal of hazardous materials such as used fuel and lubricants; and iii) greater risk of accidents from increased vehicle movement.

28 Nationally, sexually transmitted infections (STIs) have reportedly declined by 47%, from 1,113 in 2015 to 586 in 2016, although this cannot be attributed to the project.

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28. Community liaison and grievance redress mechanism. Appointed community liaison officers advised local communities in advance of construction activities. A grievance redress mechanism was established under the project and remains operational within the MISE. Few complaints were received (111), and were generally minor; damaged domestic power cables and interrupted water supply were the main complaints. These were resolved through consultation and, if needed, action. The MISE reported that no grievances are outstanding.

J. Monitoring and Reporting 29. Project supervision included joint monitoring missions by ADB, the World Bank, and the Government of Australia.29 Sixteen joint review missions were conducted, with a detailed joint aide memoire prepared each time. Review missions monitored compliance with financial reporting and auditing requirements and followed up regularly with all concerned. The KFSU prepared performance assessment and progress reports every six months; these covered implementation progress, procurement, disbursements, and compliance with safeguards, based on MISE data. 30. Almost all loan covenants were complied with (Appendix 7), with only one covenant involving road sector reform being partly complied with because the Transport Sector Plan was approved in 2016, rather than in 2011 as it was required under the loan agreement. The delay was caused by the government’s request to include sea and air transport in the plan. The delay did not significantly impact the project. The Transport Sector Plan includes a road traffic act and other regulations that have been approved by Parliament, but implementation of some reforms (e.g., road transport management and asset maintenance mechanisms) has been delayed pending ongoing discussions within the National Infrastructure Development Steering Committee. Covenants related to audited financial statements have been complied with. No audited project financial statements are overdue, and no financial management issues are pending. All audit reports were issued with unqualified opinions.

III. EVALUATION OF PERFORMANCE A. Relevance 31. The project is rated relevant.30 The project sought to improve the very poor condition of South Tarawa’s most important road, connecting the airport in the east with the seaport of Betio in the west, running through the administrative capital of Bairiki. The project rationale was to rehabilitate the road, allowing the transportation system to become safer and more efficient, thereby encouraging economic growth and adding to the overall quality of life. It has achieved this, and the project has transformed land transportation in South Tarawa. Additions in scope, which addressed deteriorated road links in main urban areas, were economically justified. The DMF was updated in the RRPs of the two ADF grants to reflect additions and changes; a revised DMF is attached as Appendix 1. 32. The project is in line with the development objectives set out in the Kiribati Development Plan, 2016–2019. The project targeted economic growth and poverty reduction through provision of reliable, safe, and economically efficient transport. It is in line with ADB’s country operations business plan, 2016–2018 and ADB’s Pacific Approach, 2016–2020 (footnote 13), in which reducing costs through improved transport infrastructure is a key strategy.

29 Through the Australian High Commission in Tarawa. 30 ADB. 2016. Guidelines for Project Performance Evaluation. Manila.

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33. The project design and the implementation methodology were relevant and appropriate given capacity constraints in Kiribati, with a design and supervision consultant overseeing project construction on behalf of the government and financiers, and the KFSU (supported by financiers) providing project coordination, fiduciary, and procurement support. The project design addressed the increasing risks of extreme annual cycles of spring tides and increased erosion, through road geometry and surface treatment, collaborating closely with the KAP III.31 The risk that improved roads would lead to more accidents was recognized, and the project design included a traffic safety component.

34. Project costs were substantially underestimated compared with the contractor bids. This was largely due to the high cost and perceived higher risk of mobilizing in such a remote location. The lack of interest shown by contractors when the government and the financiers initiated the prequalification bidding process was not envisaged. The revised cost estimates, adopted in 2015 when supplementary financing was approved, proved realistic, with no cost overruns. Commencement delays and slow progress in the early stages of the project were largely a result of heavier-than-normal rainfall and higher tides during 2013–2015, which affected construction activities, complicated coastal protection, and led to deterioration of existing seawalls. The project design also underestimated the extent of unmapped underground power cables and other obstacles, which caused further delays.

35. The original design included remedial work on the Betio causeway, estimated at the time to cost just under $1 million (4.5% of costs). Following significant damage to the causeway from high tides in 2013 and 2014, work was stopped and further work deferred. The high tides and waves resulting from Tropical Storm Bavi in March 2015 caused significant damage, which in turn required major reconstruction work that was beyond the scope of the project (this was financed separately by the Government of Japan). The link roads in the Betio and Bairiki urban areas, where government and business activity are high, were added in 2015 because the condition of these roads had deteriorated significantly; they had high economic rates of return.32

B. Effectiveness 36. The project is rated effective. The road improvements have been dramatic (Appendix 10), including modern features new to Kiribati.33 The road runs the length of the atoll, linking communities where inhabitants live and work in small, dense village settlements on either side of the road. Several key government and business stakeholders informed the PCR mission team that the road has had a transformative effect on economic activity and on the way of life in these communities. The road has brought Kiribati into the modern world, creating a sense of hope that development and growth in the island nation can be achieved and can be inclusive rather than exclusive. 37. Impact. It is not yet possible to measure the impact of the road on poverty; the 2005 poverty indicator included in the DMF has not been updated, and no other data exists.34 The UN 31 As stated in para. 46 on sustainability, an asphaltic concrete pavement was constructed rather than the more common

double surface dressing, recognizing the risk of poor future maintenance. 32 The economic internal rate of return (EIRR) for these loop and link roads averaged 35%. Eight kilometers of the loop

and link roads were upgraded to asphalt, while 2.1 km were chip seal. 33 These improvements include smooth black sealed asphalt concrete surface; clear white painted road lanes and side

markings; directional signs and warning signs; pull-off bays for bus stands; pedestrian pathways separated from the road by curbs and colored a distinctive pinkish hue to distinguish them from the road pavement; and speed humps to regulate traffic speeds in built-up areas. Appendix 10 provides before-and-after photographs.

34 The UNDP funded a Household Income and Expenditure Survey in 2006 which was published in 2010; no new survey has been conducted since.

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Human Development Index shows a minimal change from 0.585 in 2010 to 0.588 in 2015. GDP growth averaged 2.9% annually from 2011 to 2015, although per capita GDP did not increase.35 During January–February 2011, the World Bank conducted a baseline social benefit survey of six villages along the road (and three control villages off the road). The World Bank plans to update this survey in the third quarter of 2018. Increased economic activity generated along the roadside is evident, with many small stores and eateries having been established, benefiting each community. Public transportation costs have remained stable; for example, the fare from Temaiku to Betio is A$1.60, the same as at project commencement.

38. Outcome. The road was well constructed, and as the only link along the atoll, it has improved local communities’ access to vital infrastructure, social services, and economic activities. The proposed target speed increase for the journey from Betio to the airport from 20 kilometers per hour (kph) to 40 kph has not been fully achieved, with average journey times in November 2017 measured at 31 kph. However, the 40 kph target is no longer applicable because many villages have imposed 40 kph speed limits to increase safety.

39. The maintenance expenditure target was achieved during project implementation, with A$0.5 million per year allocated for road maintenance (part being used to finance the road maintenance subcontracts). It is estimated that roads rehabilitated under the project will require A$415,000 of maintenance expenditure per year, and maintaining this level is a concern (paras. 45–46).

40. The government has put an increased emphasis on improved road safety, including enactment in 2017 of road safety legislation (para. 8). Data on road accidents is collected by the Kiribati Police Service and the Ministry of Health and Medical Services, but records are inconsistent.36 While the recorded number of road casualties is the normal indicator for road safety (included in DMF), in the case of Kiribati the numbers are too small and variable to indicate statistically relevant trends. The recorded total number of accidents involving injuries is much higher. As shown in Table 2, such accidents increased significantly after project construction began in 2015, then declined thereafter. This suggests that the introduction of the road safety campaigns had an impact, although other factors (such as drivers’ growing familiarity with the new road) could have influenced this.

Table 2: Road Accidents

Year Deaths Injuries 2013 1 20 2014 5 14 2015 4 199 2016 5 136 2017 7 118

Source: Ministry of Health and Medical Services.

41. Output 1: Road rehabilitation and upgrading. Targets have been achieved, with 38.4 km of main roads (including the Betio and Bairiki loops) upgraded and 9.2 km of feeder roads (including the Buota road) rehabilitated. Improved drainage and safety features such as street lights and speed humps—components prioritized by communities in the 2011 social benefits baseline survey conducted by the World Bank—were also completed. Details of achieved outputs are outlined in the “Achievements” column of the DMF (Appendix 1).

35 The GDP increase was largely due to increases in revenue from fisheries licensing. 36 Recorded fatalities differ by source; the Ministry of Health and Medical Services recorded 7 fatalities in 2017, while

the Kiribati Police Service recorded 12.

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42. Output 2: Maintenance. The maintenance approach changed from microenterprises to subcontracting, with three subcontractors engaged from August 2017 to November 2018 to ensure routine maintenance of the project roads. The government requested the change of approach because it was having difficulty establishing microenterprise teams in each community. The subcontractors are performing satisfactorily and are complying with international occupational health and safety standards and practices. 43. Output 3: Project support. Project support was satisfactory (paras. 17–19). C. Efficiency 44. The project is rated efficient. The economic internal rate of return (EIRR) of the amended project (including cost increases and increased scope) at appraisal is reestimated as 29.4%; the ex-post estimate at the time of the PCR is 18.6% (Appendix 9). Traffic growth in most of the project road sections is lower than projected in 2009 and has led to lower, but still robust, EIRRs. However, the 2009 traffic counts do not align with those cited in the 2011 design documents and appear to have been overestimated. Using the 2011 design as the starting point, November 2017 traffic counts indicate growth of 30%–45% in Bairiki and Eita, significantly higher than the annual 4% per-year forecast in 2009. Truck traffic has also grown faster than expected, particularly in Betio. That takes a heavy toll on road conditions and will accelerate the need for some resealing within 8–10 years. 45. Road maintenance is a concern, and if not carried out adequately the sustainability of the road will be affected. The economic analysis (Appendix 9) explored the project’s viability under two maintenance regimes. One was based on project recommendations for maintenance, while the other, adopted as the base case, assumed lower maintenance inputs (about half) as a more conservative estimate (in case the recommendations were not adopted). This base case has an EIRR of 17.4%; however, major resealing repairs costing an estimated A$78.5 million would be needed after year 20. The scenario with the recommended level of maintenance and repairs would cost A$19.7 million and would secure the design life of 20 years.37 That scenario has a similar EIRR of 17.5% because future values have been discounted. However, it has a higher economic net present value (using a 12% discount rate) of $20.1 million, compared with $17.1 million for the base case, and a much higher economic net present value of $66.2 million (using a 6% discount rate), compared with $54.1 million for the base case—a net economic gain of more than $12 million. This highlights the importance of providing adequate resources for maintenance to ensure the sustainability of the road and minimize capital requirements for future rehabilitation. D. Sustainability 46. The project is rated likely sustainable. Project roads do not earn revenue and are operated by the MISE, which receives annual allocations for operation and maintenance of infrastructure assets. Ongoing public financial management reforms focus on funding essential government functions and services, including infrastructure maintenance.38 A cabinet paper has been prepared by MISE proposing the establishment of a road maintenance fund to ensure that funding is available. The fund would draw on increases in user charges from direct beneficiaries of the road improvements, such as vehicle registration fees and fuel prices. If approved, this should facilitate allocations to the MISE for routine and periodic road maintenance. However, given that

37 A$0.42 million routine annual maintenance plus A$7.9 million in year 10 for chip-seal pavement renewal. 38 A detailed “Routine Road Maintenance Manual” and bidding documents for “Procurement of Routine Road

Maintenance on Tarawa” have been prepared under the project.

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doubts have been raised whether the government will adopt this, the economic analysis has adopted a lower level of maintenance funding (about half) as the base case, as discussed above, and this should be achievable and sustainable. Recognizing the risk of poor future maintenance, an asphaltic concrete pavement was constructed instead of the more common double surface dressing. 47. The road runs near the edge of the lagoon for most of its length. A rise in sea level, extreme annual cycles of spring tides, and increased erosion are the most significant threats to its sustainability. The project design took this into account by providing for concrete u-drains to handle the expected excess water flows and sea walls. Other coastal protection measures being implemented under KAP III will also help mitigate these risks. However, higher spring tides and a long-term rise in sea levels are inevitable. E. Development Impact 48. The development impact of the project is rated satisfactory. However, at least until the baseline survey is updated, this is anecdotal. 49. Social and Economic Impact. As the lone vehicular transport route along the atoll, the road provides access to vital infrastructure, social services, and economic opportunities. It sustains economic development, links communities, and is the main thoroughfare for pedestrians. Access to health and other services has improved, and increased economic activity generated along the roadside is evident, with many new small stores and eateries now established. This directly impacts each community by reducing poverty and increasing the quality of life. 50. Institutional impact. The institutional impact is rated satisfactory. MFED oversight and implementation capacity has been strengthened under the project through support to the KFSU. The project also supported institutional strengthening of the MISE, however it remains dependent on consultant support given its limited number of qualified staff. The road safety component has had a satisfactory impact on raising public awareness of road safety and other traffic-related concerns, and this has contributed to reducing the number of traffic accidents in 2016–2017. 51. Environmental impact. Negative environmental impacts related to the road have been minimal because of the environmental safeguard measures outlined in para. 25. F. Performance of the Borrower and the Executing Agency 52. The performance of the borrower, in particular the MFED and the MISE, is rated satisfactory, recognizing their limited capacity. The KFSU has drafted a business plan for its future structure and operations, which the MFED is reviewing. Almost all loan covenants were complied with (Appendix 7); the only significant delay related to the passage of road transport reforms (para. 30). Safeguard requirements were complied with (paras. 25–28). G. Performance of the Consultant and Contractor 53. Performance of the consultant (the engineer) and the contractor are rated satisfactory; however, the cofinanciers rate the performance of the engineer at design and early implementation less than satisfactory because the engineer did not pay enough attention to underground services and drainage at design and focused too late on asphalt distress and construction quality near speed bumps (para. 55). The engineer’s performance improved from 2012, with enhanced supervision and more staff on the ground to ensure quality control. The

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contractor’s quality assurance function appears to be satisfactory—the joint mission aide memoires noted that the quality of work was of a high standard. H. Performance of Cofinanciers 54. Performance of the cofinanciers is rated satisfactory. At the time of project appraisal, ADB and the World Bank conducted a joint project identification mission, and worked together during all joint missions, preparing joint aide memoires. ADB and the World Bank independently followed their own procurement and approval processes, and mutually agreed on recommendations. During the procurement process, the cofinanciers identified the funding shortfall and provided additional financing (paras. 9–10). The in-country joint ADB–World Bank Liaison Office, the Australian High Commission in Tarawa, and the close proximity of the ADB Suva (Fiji) office and the World Bank Sydney (Australia) office ensured that cofinanciers were able to provide implementation support when needed. I. Performance of the Asian Development Bank 55. ADB’s performance is rated satisfactory. ADB conducted 18 project administration missions jointly with the cofinanciers.39 During the construction period (2013 to 2016), the cofinanciers increased visit frequency and carried out three joint review missions annually to ensure adequate supervision and collaboration with the government and cofinanciers. All missions undertook extensive site visits; worked closely with government, consultants, and the contractor on key implementation issues; and helped mitigate emerging issues. ADB provided specific timely support by: (i) addressing project financing gaps on two occasions; on the second occasion, ADB ensured that the government received 100% retroactive financing to reimburse it for funds incurred; and (ii) promptly responding to MELAD’s request for safeguard assistance by fielding a staff specialist to conduct a safeguards training workshop and undertaking a TA project to strengthen the country’s safeguard system (footnote 27). J. Overall Assessment 56. The project is rated successful. The project is rated relevant because it rehabilitated and upgraded the country’s most important road, joining the airport in the east and the seaport in the west, the design addressing existing and increasing risks of extreme spring tides and increased coastal erosion. It is rated effective in achieving its output indicators and contributing to outcome indicators. It encouraged economic growth and added to the quality of life in Kiribati. It is rated efficient, with an economic rate of return of 17.4%, and likely sustainable based on either of the two maintenance scenarios considered—i.e., the recommended maintenance expenditures, or half of the recommended amount (which was taken as the base case in the economic analysis).

Table 3: Overall Ratings Criteria Rating Relevance Relevant Effectiveness Effective Efficiency Efficient Sustainability Likely sustainable Overall Assessment Successful Development impact Satisfactory Borrower and executing agency Satisfactory Performance of ADB Satisfactory

ADB = Asian Development Bank. Source: Asian Development Bank.

39 Except for two review missions comprising ADB staff only.

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IV. ISSUES, LESSONS, AND RECOMMENDATIONS

A. Issues and Lessons 57. Cost estimates. The difference between the cost estimate at appraisal and the actual contract price can be largely attributed to the absence of detailed designs. The engineer’s estimate was only available in August 2011 and did not fully factor in costs associated with mobilizing an international contractor to a remote project site. Subsequent exchange rate changes (weakening of the Australian dollar by more than 20% between 2011 and 2018) negatively impacted the international contractor (New Zealand-based) and hindered calculations of overall project costs. Government accounts are in Australian dollars, yet most funding was in US dollars. Project costs were substantially underestimated at appraisal, mainly because the engineer who prepared the estimates failed to take into the remoteness of the project site and did not have sufficient information on underground services. ADB should ensure that the consultant makes every effort to meet the scope of services, complying with the schedule and contractual obligations, while being responsive to the government and financiers. More detailed information was needed on costs prior to the project being ready for tendering. 58. Construction. As noted in para. 16, during earthworks for the main road the contractor found undocumented underground installations (power, water, and telecommunications lines), which raised safety concerns and resulted in a temporary works suspension of 49 calendar days. Such services have now been correctly mapped, something that is crucial for any future rehabilitation work. Asphalt distress issues arose during construction, especially on approaches to speed humps, which has caused some shoving.40 Defects are being remedied during defects notification period (although a dispute between the contractor and government on liability is still under resolution). In hindsight, these issues might have been addressed earlier, but there was seemingly no reason at the time to stop construction, especially given pressure from government and financiers to keep implementation progressing. 59. Maintenance. The capacity of the MISE to fund and carry out maintenance is a concern. Increased traffic—particularly heavy-vehicle traffic—is likely to accelerate deterioration of the road surface compared with expectations. As noted in Appendix 9, no definitive data exists on heavy vehicle traffic, but truck traffic is thought to be on the rise (para. 44). Operating the asphalt plant used for construction for maintenance would be impractical and expensive because of a lack of skills in the MISE, and limited demand for asphalt. Roads can be repaired using asphalt “cold-mix,” which is strong, durable, and easy to apply for crack and pothole repairs. MISE has drafted a paper on reforms in the transport sector, including asset management and maintenance funding, and plans to submit it to the cabinet immediately. 60. Road safety. While a road safety action plan has been developed, there is no real driver of road safety initiatives. An office of road safety was to have been set up in the Office of The President but has yet to be established. Collection of road accident data is inconsistent and needs improving. Traffic counts should have been incorporated into the project and carried out during project implementation. Traffic incident reporting by the KPS and the Ministry of Health and Medical Services was inconsistent and needs to be improved.

40 Shoving is a form of plastic deformation typified by an abrupt wave (shoving) across the pavement surface. The

distortion is perpendicular to the traffic direction. In this case it refers to the plastic movement of the asphalt surface near the speed humps.

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61. Project management. Capacity was overstretched in Kiribati from 2014 as the number of development-partner-financed projects had doubled since 2012. While possibly not evident in 2010 during the design phase, the government’s capacity to manage projects and consultants was stretched during the project period. The World Bank consultancy support (para. 21) financed a technical advisor for MISE during 2013–2018 to help manage the engineer. In a scenario when multiple development-partner-funded projects are likely to overstretch national capacity, additional project management services should be incorporated into the project design. B. Recommendations

a. Project Related 62. Road sustainability. The government should ensure that adequate allocations are made for routine and periodic road maintenance. It should implement institutional reforms to strengthen its capacity to manage, procure, and monitor road maintenance contracts. Development partners must remain committed to supporting road maintenance to ensure the sustainability of road service improvements. For future ADB and development partners budget support operations, consideration should be given to the inclusion of reform actions that ensure adequate budgetary allocations for the maintenance of major government owned assets, including the road. 63. Road safety awareness. ADB should continue dialogue with MISE and the government on the implementation of the Road Safety Action Plan. The plan should be reviewed and updated annually by the Ministry of Information, Communication, Transport and Tourism Development, in consultation with MISE and other transport sector stakeholders. 64. Covenants. No changes are needed in the covenants. ADB should continue to monitor the loan agreement schedule 5, para. 3 (c), which covers institutional reforms in the transport sector, including road maintenance. 65. Future monitoring and timing of the project performance evaluation report (PPER). As noted in para. 64, ADB should continue to monitor institutional reforms in the transport sector, including road maintenance, as this will have an impact on sustainability. PPERs are costly and greater value would be gained if it is part of a broader assessment of road maintenance in the Pacific.

b. General

66. Infrastructure coordination. Development partners should ensure that they do not overburden government capacity when programming. They should be ready to revisit priorities and reschedule timing of proposed development projects if necessary. 67. Project preparation. ADB is processing a new policy paper that will propose new financing instruments for project preparation and should be used for future projects to complete engineering designs and provide more reliable cost estimates for project approval.

16 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Summary

Performance Targets and Indicators

(with baselines)

Achievements

Impact The socioeconomic conditions of the population of South Tarawa have improved

The average incidence of basic needs poverty in South Tarawa reduced from 24.2% (2006) to 18% by 2016

Partly achieved. There are no updated figures available for South Tarawa; the UN 2016 HDI Report notes a very minor improvement in the HDI for the whole country from 0.585 in 2010 to 0.588 in 2015, which suggests no improvement nationally, although anecdotal evidence suggests an increase in economic activity in South Tarawa.

Stable public transportation costs, after accounting for fuel cost fluctuation (base cost $0.90 per stage in 2010, fuel cost A$1.09 per liter, 2010)

Achieved. Public transportation costs are reported to have remained stable, with no increase in bus fares: fare from Temaiku to Betio is A$1.60, same as commencement of construction.

Outcome The population has sustainable access to a safe, well-maintained road network in South Tarawa.

Increase in average travel speed to 40 km per hour by February 2017 (2010 baseline: 20 km per hour) (Changed from original RRP DMF because civil works rescheduled and would not be completed until 2017)

Partly achieved but no longer appropriate. Average speed increased to 31 kph by end November 2017. The 40 kph target is no longer achievable or appropriate as 40 kph speed limit extended in many villages, and installation of 116 speed humps and a narrowing of the road to reduce speeds, addressing road safety concerns. There has been an increased emphasis on improved road safety. A road safety action plan was prepared by the project together with road safety legislation. The legislation has been enacted into law by Parliament and will enable the Kiribati Police Service to better enforce dangerous driver behavior. Road safety campaigns aimed at raising awareness are being conducted in communities and schools.

Decrease in road casualties to 5 per year in 2017 (2007 baseline: 7) (Changed from original RRP DMF as changed project completion date)

Inappropriate indicator on its own in context of Kiribati. Road casualties were between 1 and 7 annually from 2013 to 2017 according to MHMS, although casualties were reported as 12 by the Police. These numbers are too small to show any trend. Accidents with injuries are a more useful indicator for Kiribati as the numbers are much greater and can show a trend – there was a significant increase in accidents from 20 to almost 200 in 2015 when project construction began, but this declined to 136 and 118 in 2016 and 2017, suggesting that the introduction of the road safety campaigns has had an impact.

Adequate financing for road maintenance, with a targeted $1,500 per km by 2017 (2010 baseline: $1,000 per km) (Changed from original RRP DMF as changed project completion date)

Achieved. Current road routine maintenance costs are being met under the project contractor but this commitment is only up to November 2018 when the defects notification period ends. The MISE have A$0.5 million being provided annually for maintenance. A draft concept note for a Cabinet paper has been prepared addressing South Tarawa road maintenance options for 2019 and beyond, citing the need for A$415,000 for annual road routine maintenance services.

Appendix 1 17

Outputs 1. The government rehabilitates and upgrades the road network on South Tarawa

2010 target: 27.5 km of paved road and 6 km of unpaved road rehabilitated or upgraded. To maintainable condition (average road roughness index no higher than 3) by 2013

2010 DMF listed rehabilitated or upgraded roads as:

(i) St. Anne to airport (21.5 km) and Temaiku spur (2.8 km)

(ii) Betio and Bikenibeu roads (repairs)

(iii) Betio Causeway (3.2 km) (iv) Feeder roads (6 km) Changes 2015/16 DMF: deletion of Betio causeway (2015); increases both years in paved roads (notably Temaiku spur, Betio, Bairiki) and feeder roads—2016 final DMF

Revised target: 37.5 km of paved road and 8.5 km of unpaved road rehabilitated or upgraded by 2016. Listed roads:

(i) St. Anne (Bairiki)—airport (21.5 km) and Temaiku spur (6.1 km)

(ii) Betio and Bikenibeu roads (repairs)

(iii) Betio loop and main road (7.0 km)

(iv) Betio causeway (0.4 km) (v) Feeder roads (8.5 km)

including Buota road (2.5 km)

Achieved. Road construction was completed on 28 November 2016.

Rehabilitated or upgraded roads: (i) Main Roads: St. Anne (Bairiki)—airport (19.2 km),

airport extension (2.6 km) both asphalt. Temaiku spur (6.1 km comprises: chip seal 4.6 km, asphalt 1.3 km, concrete 0.2 km)

(ii) Betio loop road (6.5 km asphalt) and Link Road (0.6 km chip seal)

(iii) Bairiki main road (1.5 km asphalt) and loop (1.9 km chip seal)

(iv) Feeder roads (7.3 km concrete comprises: Betio 3.6 km, Bairiki 0.5 km and Bikenibeu 3.2 km), and Buota road (1.9 km comprises: 0.2 km asphalt, 1.7 km gravel)

At appraisal, the project feeder roads covered was 6 km; at contract award the scope of works comprised 8 km inclusive of extra sections in Buota. However, during implementation, an approved variation reduced the total by 0.5 km. At completion, 9.2 km feeder roads upgraded inclusive of 1.9 km Buota road. Substantial improvements in road safety and service facilities include—installation of 11 km water transmission main, 2 rock-armor seawalls and 10 low-lying seawalls, 116 speed humps, 56.8 km of footpaths, 253 street lights, 181 stopping bays, 36 bus shelters, 595 road signs, 8.4 km of u-drains and 0.3 km of drainage pipes, and 32 km of fiber-optic ducting (paras. 7 (i) and 41).

2. Community-based enterprises have the capacity to maintain the road network.

By May 2013, 6 community-based enterprises contracted to undertake road maintenance covering 45 km of road network

Achieved. The government requested that the maintenance approach be changed to subcontracting because it was having difficulty establishing and recruiting enterprises in each community. Three subcontractors were engaged to cover 49 km of project roads during the 2-year defects notification period. Subcontractors are performing satisfactorily, and complying with road safety guidelines, standards and personal protective equipment practices.

3. The MPWU provides efficient implementation support.

Physical works completed by April 2013 within budget—completion date shifted to March 2016 and then July 2017 as part of additional financing approvals.

Achieved. Physical works completed within revised budget following additional financing and project changes in 2015 and 2016. The MPWU (now the MISE) provided efficient implementation support, although capacity dependent on consultant/advisor support.

18 Appendix 1

Activities with Milestones: Appraisal and (actual) 1. The road network in South Tarawa is rehabilitated and upgraded by the Ministry of Infrastructure and Sustainable Energy. 1.1 Design and supervision consultants will prepare detailed designs and bidding documents. Start 5 January 2011, completed by 30 April 2011 (Consultant prepared and completed design report in August 2011). 1.2 Bids will be invited for civil works. Start 1 May 2011, completed by 31 August 2011 (Invitation for prequalification started in June 2011 and cancelled in April 2012. Invitation for bids issued in June 2012 and completed in December 2012). 1.3 The MFED will award a contract for rehabilitating/upgrading project roads by 30 October 2011. (Contract awarded in February 2013). 1.4 The contractor will construct the project roads. Start 1 November 2011, completed by 30 April 2013. (The contractor commenced 1 July 2013, works completed 28 November 2016). 2 Community-based enterprises have the capacity to maintain the road network. 2.1. The main civil works contractor will identify groups and group leaders for community-based microenterprises in consultation with the MISE. Start 2 January 2012, completed by 30 June 2012. (Contractor identified subcontractor groups in August 2017, and expected to be completed late November 2018). 2.2 Groups will be trained by the main civil works contractor in delivery of basic road maintenance and by a consultant in small business management. Start by 1 July 2012, completed by 30 April 2013. (Contractor identified 3 local subcontractors who commenced engagement for routine road maintenance on 1 August 2017, with works planned to be completed on 28 November 2018). 2.3 Groups will be provided with basic road maintenance equipment by the main civil work contractor by 30 April 2013. (Contractor assists the 3 local subcontractors with equipment including personal protective equipment gear between 1 August 2017–28 November 2018) 2.4 Groups will be employed by the main civil works contractors as independent subcontractors for the duration of the defects notification period from 1 May 2013 to 30 April 2015. (Contractor has employed 3 local subcontractors between 1 August 2017–28 November 2018 during the defects notification period). 2.5 Groups will be employed as independent contractors by the MISE from 1 May 2015 under performance-based road maintenance contracts prepared by a consultant. The MISE expects to commence tendering by August 2018, 3-months prior to the end of the DNP period. TA consultant (World Bank funded) has scheduled training and guidance to support the MISE.) 3. The Ministry of Infrastructure and Sustainable Energy provides efficient implementation support. 3.1 The MFED will set up accounting and project management accounts by January 2011. (The MFED had set up the designated project account by December 2011. PMU established in August 2011, and in October 2012 the PMU became the KFSU). 3.2 ADB will select consultants for design and supervision services and the MISE will finalize a contract by November 2010. (Contract signed on 1 December 2011). 3.3 The MISE will provide counterpart facilities and personnel by January 2011. (Completed at the time of inception mission in March 2011).

Inputs: Appraisal and (actual) ADB: $12 million loan funded by ADF ($23.4 million includes $11.4 million grant funded by ADF).

Appendix 1 19

3.4 The design and supervision consultant will report progress during the design and contract procurement phases and monitor and report on progress of the civil works at quarterly intervals. (Completed). 3.5 The MISE, supported by the consultant, will manage the construction contract. (Completed). Assumptions for Partner Financing World Bank: $16 million (International Development Association) ($26.97 million). Government of Australia (PRIF) $4.61 million grant ($18.86 million funded by PRIF and Australia-Pacific Partnership Trust Fund). Government of Kiribati $1.05 million ($6.83 million).

ADB = Asian Development Bank; ADF = Asian Development Fund; DMF = design and monitoring framework; DNP = defects notification period; km = kilometer; HDI = Human Development Index; KFSU = Kiribati Fiduciary Services Unit; kph = kilometers per hour; MFED = Ministry of Finance and Economic Development; MHMS = Ministry of Health and Medical Services; MISE = Ministry of Infrastructure and Sustainable Energy; MPWU = Ministry of Public Works and Utilities; PMU = Project Management Unit; PRIF = Pacific Region Infrastructure Facility; RRP = report and recommendations of the President; TA = technical assistance; UN = United Nations. Sources: Asian Development Bank; Government of Kiribati; and World Bank.

20 Appendix 2

PROJECT COST AT APPRAISAL AND ACTUAL ($’000)

Original Appraisal Estimate

Additional Financing Revised Estimate 2016

Actual Cost

Local Currency A$ million

Foreign Currency $ million


Local Currency A$ million


A.

Investments Costs

1 Civil Works 25.28 25.28 63.38 76.78 64.50

2 Consultants

a. Design and Construction Supervision

2.23 2.23

6.78

6.18 5.195

b. Capacity Development 0.98 0.98

0

0.15 0.132

c. Project Management 0.58 0.58 3.36

2.85 2.39 d. Land acquisition and resettlement

0.05 0.05

0.13

0.16 0.13

e. Technical assistance 0 0

0.51

0.20 0.17

3 Goods 0.16 0.16 0.16

0.16 0.13

Subtotals (A) 29.28 29.28 74.32 86.47 72.63

B. Contingencies 4.12 4.12 1.61 2.33 1.96

C.

Financing Charges During Implementation

0.26 0.26

0.13

0.45 0.38

Total Project Costs (A+B+C) 33.66 33.66 76.06 89.25*

74.97

Source: Final Costs A$ (KFSU, MFED); others Asian Development Bank estimates. Note: * A$ and $ at parity 2011 estimates. Final cost in $ calculated from A$ figures using average conversion rate 2011—2017 of A$1 = $0.84. As noted in the PCR,

while part of this is due to cost increases, the project scope also increased with additional roads.

Appendix 3 21

PROJECT COST BY FINANCIER

Table A3.1: Project Cost at Appraisal by Financier

Category

ADB

World Bank

GOA through PRIF

GOK

Total

$ % $ % $ % $ % $

A.

Investment Costs

1 Civil Works 7.96 31% 12.57 50% 3.75 15% 1.00 4% 25.28

2 Consultants

a. ADB Design and Supervision

2.23 100%

2.23

b. Capacity

Development 0.12 12% 0.86 88%

0.98

c. Project

Management 0.58 100%

0%

0.58

3 Land Acquisition and Resettlement

0.05 100% 0.05

4 Goods 0.16 100%

0.16

Subtotal (A) 10.19 35% 13.43 46% 4.61 16% 1.05 4% 29.28

B.

Contingencies 1.67 41% 2.45 59%

4.12

C.


0.14 54% 0.12 46%

0.26

Total Project Costs (A+B+C)

12.00 36% 16.00 48% 4.61 14% 1.05 3.1% 33.66

ADB = Asian Development Bank; GOA = Government of Australia GOK = Government of Kiribati; PRIF = Pacific Region Infrastructure Facility.

22 Appendix 3

Table A3.2: Revised Project Cost by Financier

Category

ADB

World Bank

GOA through PRIF & APIP

GOK

Total

$ % $ % $ % $ % $

A.

Investment Costs

1 Infrastructure Improvements

17.40 28% 23.62 38% 17.21 27% 4.49 7% 62.72

a. Coastal protection 0.97 100%

0.97

2 Consultants

a. i) ADB Design and Supervision

5.87 100%

5.87

ii) WB consultants 0.14 100%

0.14 b. Technical

Assistance

0.51 100%

0.51

c. Project Support 2.24 70% 0.98 30%

3.22

3 4

Goods

0.16 100%

0.16

Land Acquisition and Resettlement

0.13 100% 0.13

Subtotal (A) 23.27 32% 26.97 37% 18.86 26% 4.62 6% 73.72

B.

Contingencies

2.21 100% 2.21

C.


0.13

100%

0.13

Total Project Costs (A+B+C)

23.40 31% 26.97 35% 18.86 25% 6.83 9% 76.06

ADB = Asian Development Bank; APIP = Australia–Pacific Islands Partnership; GOA = Government of Australia; GOK = Government of Kiribati; PRIF = Pacific Region Infrastructure Facility; WB = World Bank.

Appendix 3 23

Table A3.3: Project Cost at Completion by Financier

Category

ADB

World Bank GOA through PRIF &

APIP GOK Total1

$ % $ % $ % $ % $

A.

Investment Costs

1 Infrastructure Improvements 17.38 28% 23.62 38% 17.21 27% 4.49 7% 62.70

a. Coastal protection 0.97 100% 0.97

2 Consultants

a. i) ADB Design and Supervision

4.97 100% 4.97

ii) WB consultants 0.14 100% 0.14

b. Technical Assistance 0.51 100% 0.51

c. Project Support 2.24 70% 0.98 30% 3.22

3 Goods 0.16 100% 0.16

4 Land Acquisition and Resettlement

0.13 100% 0.13

Subtotal (A) 22.35 31% 26.97 37% 18.86 26% 4.62 6% 72.80

B.

Contingencies 1.96 100% 1.96

C.


0.13 34% 0.25 66% 0.13

22.48 30% 26.97 36% 18.86 25% 6.83 9% 75.14

ADB = Asian Development Bank; APIP = Australia–Pacific Islands Partnership; GOA = Government of Australia; GOK = Government of Kiribati; PRIF = Pacific Region Infrastructure Facility; WB = World Bank.

1 These figures are not directly identical to Appendix 2 as different exchange rates used by different users reflecting different reference dates.

24 Appendix 4

DISBURSEMENT OF ADB LOAN AND GRANT PROCEEDS

Table 4.1: Annual and Cumulative Disbursement of ADB Loan and Grant Proceeds ($ million)

Annual Disbursement Cumulative Disbursement

Year Amount

($ million) % of Total Amount

($ million) % of Total

2011 0.761 3.4 0.761 3.4 2012 0.146 0.7 0.907 4.1 2013 3.042 13.7 3.949 17.8 2014 3.791 17.1 7.740 35.0 2015 1.332 6.0 9.072 41.0 2016 4.317 19.5 13.389 60.0 2017 8.744 39.5 22.133 100.0 2018 0.349 1.6 22.482

ADB = Asian Development Bank. Source: Asian Development Bank.

Figure 4.1: Projection and Cumulative Disbursement of ADB Loan and Grant Proceeds

($ million)

Appendix 5 25

CONTRACT AWARDS OF ADB LOAN AND GRANT PROCEEDS

Table 5.1: Annual and Cumulative Contract Awards of ADB Loan Proceeds ($ million)

Annual Contract Awards Cumulative Contract Awards

Year Amount

($ million) % of Total Amount

($ million) % of Total

2010 0 0.0 0 0 2011 4.876 4.9 4.876 19.9 2012 0 0.0 4.876 19.9 2013 7.620 31.2 12.496 51.1 2014 0 0.0 12.496 51.1 2015 0 0.0 12.496 51.1 2016 3.293 13.5 15.789 65.0 2017 8.663 35.4 24.452 100.0

ADB = Asian Development Bank. Source: Asian Development Bank. Figure 5.1: Projection and Cumulative Contract Awards of ADB Loan and Grant Proceeds

($ million)

26 Appendix 6

CHRONOLOGY OF MAIN EVENTS

Date Event 2010 6–11 May

Project identification mission fielded.

15 July Advance contracting notice advertised. 12–26 August Fact-finding mission fielded. 2 December Contract for consultant services for design and construction supervision

signed between Ministry of Public Works and Utilities (now the Ministry of Infrastructure and Sustainable Energy (MISE)) and Roughton International.

10 December ADB Loan 2718 approved. 2011 31 January

Minor change in project scope to include additional outputs.

3 February Notice to commence consulting services issued by MISE to Roughton. Consultant’s mobilized.

8 February Contract for construction design and construction supervision became effective.

1 March World Bank and Pacific Region Infrastructure Facility (PRIF) grants approved.

17 March ADB loan agreement signed. 15–22 March Inception mission fielded. 5 May World Bank grant agreement signed. 30 May PRIF grant agreement signed. 15 June Invitation for prequalification for procuring works issued with a deadline of 3

August 2011. 22 June

Memo to extend loan effectiveness from 15 June 2011 to 13 September 2011 approved.

22 June Review mission fielded. 25 August World Bank and PRIF grant agreements declared effective 26 August ADB loan declared effective 30 September Minor change in implementation arrangements to increase retroactive

financing ceiling approved. 2012 2 April

ADB Procurement Committee approved cancellation of the prequalification process due to only low number of responsive applicants (i.e. 2 of 5 applicants) satisfying the prequalification criteria.

5 June Invitation for bids for procuring works advertised with a deadline of 31 August 2012.

10–12 September Special project review mission fielded. 14 December Memo accepting bid security of the lowest evaluated bidder, with a validity of

112 days instead of 147 days approved. 14 December

Contract award approved for McConnell Dowell Constructions (Australia) Pty Ltd.

2013 12 February

Notice of award issued to McConnell Dowell Constructions (Australia) Pty Ltd.

12 February

Works contract signed between MISE and McConnell Dowell Constructions (Australia) Pty Ltd.

25–27 March Review mission fielded. 24 April First extension of loan closing date to 30 June 2015 approved. 21–25 July Special administration mission fielded. 4–8 November Review mission fielded. 2014 13–20 March

Review mission fielded.

16–20 June Review mission fielded. 2–9 October Review mission fielded. 2015 19 -26 February


Appendix 6 27

31 March World Bank additional financing approved. 4–11 June Review mission fielded. 24 April

Minor change in financing plan, first reallocation and second extension of loan closing date to 31 August 2016 approved.

20 May World Bank additional financing grant declared effective. 21 May Change of consultant personnel—Team Leader/FIDIC Engineer. 15–22 October Review mission fielded. 11 December

First additional financing Grant 0470 approved.

2016 29 January–4 February


16 February First additional financing grant agreement signed. 1 March First additional financing declared effective. 2–8 June Review mission fielded. 25 July Third extension of loan closing date to 28 February 2017 approved. 13 October

Second reallocation and change in financing percentage for civil works category.

17–24 November Review mission fielded. 28 November Taking-over certificate issued and the 2-year defects notification period

commenced. 12 December Second additional financing Grant 0502 approved and the grant agreement

signed. 2017 25 January

Second additional financing declared effective.

25–29 May Review mission fielded. 31 May

Cancellation of undisbursed loan and Grant 0470 balance and closed accounts.

1 November 20–23 November

The implementing agency changed its name from the Ministry of Public Works and Utilities to MISE. Review mission fielded.

2018 15–22 March

Project completion mission fielded.

13 April Final withdrawal application under Grant 0527. 21–24 May Final review mission fielded. 11 June Closure of Grant 0527 account. Source: Asian Development Bank.

28 Appendix 7

STATUS OF COMPLIANCE WITH LOAN AND GRANT COVENANTS

Covenant

Reference in Loan/Grant Agreements

Status of Compliance Particular Covenants In the carrying out of the Project and operation of the Project facilities, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 5 to this Loan Agreement.

L2718, Article IV, Section

4.01

Complied with.

(a) The Borrower shall L2718, Article IV, Section

4.02

(i) maintain, or cause to be maintained, separate accounts for the Project;

Complied with.

(ii) have such accounts and related financial statements audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB;

Complied with.

(iii) furnish to ADB, as soon as available but in any event not later than 6 months after the end of each related fiscal year, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors’ opinion on the use of the Loan proceeds and compliance with the financial covenants of this Loan Agreement), all in the English language; and

Complied with.

(iv) furnish to ADB such other information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request.

Complied with.

(b) The Borrower shall enable ADB, upon ADB's request, to discuss the Borrower's financial statements for the Project and its financial affairs related to the Project from time to time with the auditors appointed by the Borrower pursuant to subparagraph (a) here above, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB, provided that any such discussion shall be conducted only in the presence of an authorized officer of the Borrower unless the Borrower shall otherwise agree.

Complied with.

The Borrower shall enable ADB's representatives to inspect the Project, the Goods and Works, and any relevant records and documents.

L2718, Article IV, Section

4.03

Complied with.

Implementation Arrangements The Borrower shall ensure that the Project is implemented in accordance with the detailed arrangements set forth in the PAM. Any subsequent change to the PAM shall become effective only after approval of such change by the Borrower and ADB. In the event of any discrepancy between the PAM and this Loan Agreement, the provisions of this Loan Agreement shall prevail.

L2718, Schedule 5,

para.1

Complied with.

The Borrower shall ensure that MPWU employs sufficient staff to manage Project implementation for the duration of the Project, with adequate and relevant expertise in the field of project management, financial management, engineering, procurement, environmental and social safeguards implementation. The Borrower shall provide staff assigned to the Project with the necessary office space, facilities, equipment, support staff and management information systems for the entire duration of the Project. The Borrower shall undertake best efforts to ensure that

L2718, Schedule 5,

para. 2

Complied with. MPWU recruited a Technical Auditor/Advisor to facilitate project implementation. In addition, the Ministry of Finance and Economic Development established the Kiribati Fiduciary Services Unit (KFSU) to provide a centralized fiduciary, procurement and coordination services.

Appendix 7 29

the same persons will continue to be assigned to the Project for the entire duration of the Project. Road Sector Reform The Borrower shall actively pursue reforms for sustainable road sector management and asset maintenance. To this end, the Borrower shall

L2718, Schedule 5,

para. 3

(a) engage in an active policy dialogue with ADB to identify the strengths and weaknesses of the Borrower's current management and maintenance of roads, including, without limitation, a review of MPWU's role and performance in managing the road sector and the current system of road user charges;

Complied with. Ongoing.

(b) adopt, no later than 31 December 2011, a road sector development plan, acceptable to ADB, that sets out specific, monitorable and time-bound policy, regulatory, and institutional reforms towards the creation of sustainable road sector management and asset maintenance mechanisms; and

Complied with. Although delayed, the Transport Sector Development Plan was approved in 2016. It includes the traffic act and traffic regulations.

(c) implement the road sector development plan in accordance with the time line and other modalities specified in the plan. At least 3 months prior to the adoption of the road development plan or of any legal, policy, regulatory or institutional reforms proposed under the road sector development plan, the Borrower shall (x) provide ADB with a copy of the plan and the proposed reforms, together with a reasonable amount of time to review and comment, and (y) give due consideration to ADB's views on the relevant reforms prior to their enactment.

Partly complied with. Ongoing and dependent on the ongoing discussions at the National Infrastructure Development Steering Committee and the Development Coordination Committee (members comprise heads of government).

Counterpart Support The Borrower shall make available all counterpart funds required for timely and effective implementation of the Project, including any funds required to make land available for the Project, to mitigate unforeseen environmental and social impacts, and to meet additional costs arising from design changes, price escalation in construction costs and/or unforeseen circumstances. The Borrower shall make the resources thus required available on an annual basis for each fiscal year. Without limiting the generality of the foregoing, the Borrower shall allocate all currently accrued earnings and any future net earnings from the Betio causeway toll road towards counterpart funding for the Project.

L2718, Schedule 5,

para. 4

Complied with.

Operation and Maintenance The Borrower shall L2718,

Schedule 5, para. 5

(i) ensure that the Project facilities are maintained in accordance with applicable standards and best international practices, and

Complied with.

(ii) allocate and make available, on a timely basis, the funds budgeted for the reconstruction and repair of the Project facilities.

Complied with.

Notwithstanding the foregoing, the Borrower

L2718, Schedule 5,

para. 6

(i) shall ensure that the Works contracts include an obligation on the part of contractors to provide periodic and or routine maintenance of the Project facilities according to applicable design standards for a period of at least 2 years, and

Complied with. The 2 year defects notification period ends in November 2018.

(ii) from fiscal year 2013, shall allocate annually at least $1,500 per kilometer for maintenance of sealed roads in South Tarawa and $500 per kilometer for maintenance of unsealed roads, and increase the allocation annually thereafter at the rate of inflation.

Complied with.

30 Appendix 7

Road Safety The Borrower shall

L2718, Schedule 5,

para. 7

(a) conduct road safety audits on the detailed designs of the Project Roads and of the Project roads when construction is substantially completed and implement jointly agreed recommendations arising from the audits;

Complied with.

(b) install appropriate road safety facilities during Project implementation, including pavement markings, traffic signs and signals, warning signs, and hazard barriers; and

Complied with.

(c) establish a national road safety task force and implement a road safety action plan to be developed with the PRIF Assistance.

Complied with. The national road safety taskforce has implemented several campaigns through the Kiribati Police Service and the Ministry of Health and Medical Services.

Environment The Borrower shall ensure that: L2718,

Schedule 5, para. 8

(i) the Project is undertaken and implemented, and the Project facilities are designed, constructed, operated, and maintained, in accordance with the Borrower's applicable laws and regulations and ADB's Safeguard Policy Statement (2009);

Complied with.

(ii) the IEE and the EMP are implemented in accordance with their terms;

Complied with.

(iii) in the event that any unanticipated adverse environmental impact occurs or a mitigation measure under the IEE or EMP does not have the desired effect, this is reported to ADB, and remedial actions are taken to mitigate the relevant impacts in consultation with the affected persons in ADB;

Complied with.

(iv) any changes to the location or land alignment on account of detailed designs of the Project facilities are mutually agreed between the Borrower and ADB;

Complied with.

(v) the IEE and EMP are updated, as necessary, during the course of Project implementation, and submitted to ADB for clearance;

Complied with.

(vi) the contractors engaged for the Project are contractually obliged to implement the IEE and EMP and report on their implementation on a regular basis, along with any deviation; and

Complied with.

(vii) reports on the implementation of the IEE and EMP are submitted to ADB on a semiannual basis.

Complied with.

Resettlement The Borrower shall ensure that all land and rights-of-way required for the Project are made available to the Works contractor(s) in accordance with the schedule agreed under the contract for the relevant Works, subject to compliance of all land acquisition and resettlement activities with:

L2718, Schedule 5,

para. 9

(i) the RF, the relevant RP, or any update thereof, Complied with. (ii) ADB's Safeguard Policy Statement, and Complied with. (iii) All applicable laws and regulations of the Borrower. Complied with.

The Borrower shall ensure that people affected by the Project are compensated in a timely manner based on replacement cost in accordance with the RF and the relevant RP, and that payments will be made in a timely manner, prior to dispossession from land and other assets. The Borrower shall submit progress and completion reports on land acquisition and resettlement on a semi-annual basis.

Schedule 5, para. 10

Complied with. 96.5% have been compensated (i.e. 327/339 of PAPs). The remaining 3.5% (i.e. 12 PAPs) are unclaimed / pending a decision by the Court system. An escrow account was set up by MFED to compensate the remaining 12 PAPs.

Appendix 7 31

The Borrower shall ensure that prior to land acquisition and any resettlement for the Project, the RF, the relevant RP or any update thereof, are disclosed to persons affected by the Project and confirm that they are uploaded onto the ADB website.

L2718, Schedule 5,

para. 11

Complied with.

The Borrower shall ensure that essential public infrastructure that may be affected by land acquisition and resettlement is replaced, as appropriate, in an expeditious manner.

L2718, Schedule 5,

para. 12

Complied with.

The Borrower shall ensure that construction contracts contain binding requirements for construction contractors to fully reinstate pathways and other local infrastructures to at least their pre-project condition upon construction completion. The Borrower shall adequately record the condition of roads and other infrastructure prior to transport of material and construction commencement.

L2718, Schedule 5,

para. 13

Complied with.

Labor Standards The Borrower shall include a specific provision in bidding documents to ensure that Works contractors (a) comply with applicable core labor standards, labor laws, and incorporate applicable workplace occupational safety norms; (b) do not differentiate payment between men and women for work of equal value; (c) do not employ child labor in the construction and maintenance activities; (d) eliminate forced or compulsory labor; (e) eliminate discrimination in respect of employment; (f) allow for freedom of association; and (g) to the extent possible, maximize employment of local poor and disadvantaged persons for project construction purposes, provided that the requirements for job and efficiency are adequately met. The Borrower shall ensure that appropriate entities - for example nongovernment organizations - disseminate information on the risks of sexually transmitted infections, including HIV/AIDS, to the employees of Works contractors engaged under the Project and to members of the local communities surrounding the Project roads, particularly females.

L2718, Schedule 5,

para. 14

Complied with.

Grievance Redress Committee The Borrower shall maintain a grievance redress committee or committee with representation from all stakeholders in the Project facilities for addressing any grievances from affected peoples concerning resettlement, environment and any other social issues in a timely manner.

L2718, Schedule 5,

para. 15

Complied with.

Governance and Corruption The Borrower shall L2718,

Schedule 5, para. 16

(i) comply with ADB's Anticorruption Policy (1998, as amended to date) and acknowledges that ADB reserves the right to investigate directly, or through its agents, any alleged corrupt, fraudulent, collusive or coercive practice relating to the Project; and

Complied with.

(ii) Cooperate with any such investigation and extend all necessary assistance for satisfactory completion of such investigation.

Complied with.

The Borrower shall ensure that anticorruption provisions acceptable to ADB are included in all bidding documents and contracts, including provisions specifying the right of ADB to audit and examine the records and accounts of the executing and implementing agencies and all contractors, suppliers, consultants, and other service providers as they relate to the Project.

L2718, Schedule 5,

para. 17

Complied with.

32 Appendix 7

The Borrower shall announce the Project and business opportunities associated with the Project on the website of the Ministry of Finance and Economic Development. The website shall publish the audited Project accounts, Project progress reports and at least disclose the following information in relation to Consulting Services, Goods and Works procured for the Project: (i) the list of participating bidders, (ii) the name of the winning bidder, (iii) the amount of the contracts awarded, and (iv) the works, goods and services procured.

L2718, Schedule 5,

para. 18

Complied with. The MFED that disclosure was made through local media.

Particular Covenants In the carrying out of the Project and operation of the Project facilities, the Recipient shall perform, or cause to be performed, all obligations set forth in Schedule 5 to the Special Operations Loan Agreement and Schedule 2 to this Grant Agreement.

G0470, Article IV, Section

4.01

Complied with.

(a) The Recipient shall


4.02

(i) maintain separate accounts and records for the Project;

Complied with.

(ii) prepare annual financial statements for the Project in accordance with accounting principles acceptable to ADB;

Complied with.

(iii) have such financial statements audited annually by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB, in accordance with international standards for auditing or the national equivalent acceptable to ADB;

Complied with.

(iv) as part of each such audit, have the auditors prepare a report (which includes the auditors’ opinion on the financial statements, use of the Grant proceeds and compliance with the financial covenants of this Grant Agreement and a management letter (which sets out the deficiencies in the internal control of the Project that were identified in the course of the audit, if any); and

Complied with.

(v) Furnish to ADB, no later than 6 months after the end of each related fiscal year, copies of such audited financial statements, audit report and management letter, all in the English language, and such other information concerning these documents and the audit thereof as ADB shall from time to time reasonably request.

Complied with.

(b) ADB shall disclose the annual audited financial statements for the Project and the opinion of the auditors on the financial statements with 30 days of the date of their receipt by posting them on ADB’s website.

Complied with.

(c) The Recipient shall enable ADB, upon ADB's request, to discuss the Recipient’s financial affairs where they relate to the Project with the auditors appointment pursuant to subsection (a)(iii) hereinabove, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB. This is provided that such discussion shall be conducted only in the presence of an authorized officer of the Recipient, unless the Recipient shall otherwise agree.

Complied with.

The Recipient shall enable ADB’s representatives to inspect the Project, the Goods and Works, and any relevant records and documents.


4.03

Complied with.

Appendix 7 33

Gender and Development The Recipient shall ensure that the principles of gender equity aimed at increasing Project benefits and impacts on women in the Project area consistent with ADB’s Policy on Gender and Development (1998) are followed during implementation of the Project, including (a) equal pay to men and women for work of equal value; (b) enabling working conditions for women workers; and (c) taking necessary actions to encourage women living in the Project area to participate in the design and implementation of Project Activities.

G0470, Schedule 2,

para. 1

Complied with.

Particular Covenants In the carrying out of the Project and operation of the Project facilities, the Recipient shall perform, or cause to be performed, all obligations set forth in Schedule 5 to the Special Operations Loan Agreement and Schedule 2 to the First Grant Agreement.


4.01

Complied with.

(a) The Recipient shall


4.02

(i) maintain separate accounts and records for the Project;

Complied with.

(ii) prepare annual financial statements for the Project in accordance with accounting principles acceptable to ADB;

Complied with.

(iii) have such financial statements audited annually by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB, in accordance with auditing standards acceptable to ADB;

Complied with. Ongoing. The financial statement for the period ending 31 December 2017 is currently being audited.

(iv) as part of each such audit, have the auditors prepare a report, which includes the auditors’ opinion(s) on the financial statements and the use of the Grant proceeds, and a management letter (which sets out the deficiencies in the internal control of the Project that were identified in the course of the audit, if any); and

Complied with. Ongoing. The EA has submitted the financial statement for auditing.

(v) furnish to ADB, no later than 6 months after the end of each related fiscal year, copies of such audited financial statements, audit report and management letter, all in the English language, and such other information concerning these documents and the audit thereof as ADB shall from time to time reasonably request.

Complied with. Ongoing. ADB is following up with the EA to submit the auditor’s report and management letter for this current period as soon as it becomes available.

(b) ADB shall disclose the annual audited financial statements for the Project and the opinion of the auditors on the financial statements within 14 days of the date of ADB’s confirmation of their acceptability by posting them on ADB’s website.

Complied with. Ongoing. Upon ADB’s receipt of the APFS, ADB will review and confirm their acceptability prior to disclosure.

(c) The Recipient shall enable ADB, upon ADB's request, to discuss the Recipient’s financial affairs where they relate to the Project with the auditors appointment pursuant to subsection (a)(iii) hereinabove, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB. This is provided that such discussion shall be conducted only in the presence of an authorized officer of the Recipient, unless the Recipient shall otherwise agree.

Complied with.

The Recipient shall enable ADB’s representatives to inspect the Project, the Goods and Works, and any relevant records and documents.


4.03

Complied with.

34 Appendix 8

IMPLEMENTATION SCHEDULE

Appendix 9 35

ECONOMIC AND FINANCIAL ANALYSIS 1. Project roads. The rehabilitated roads comprise sections of South Tarawa’s main road, the only road from the airport through the town of Bairiki to the sea port at Betio. This includes the St. Anne—Airport Intersection, Airport Road, Temaiku Road, and feeder roads. Although the project’s original plans included a section for rehabilitating the Betio Causeway road, the causeway and revetment were further damaged by extreme spring tides in January to March 2014 and by the impacts of Tropical Storm Bavi in March 2015. As the revetment exhibits significant deterioration and is considered past its design life, the Betio causeway pavement and asphalt resurfacing section of the project was deleted from the civil works contract. Toward completion, the project’s scope was expanded to support missing network links in highly trafficked areas in Betio and Bairiki. This includes rehabilitation of the Betio Loop Road, the Betio Link Road, and additional sections of the Bairiki main road and feeder roads. Road section lengths are summarized in Table 1.

Table 1: Actual Lengths of Road Sections Appraisal Actual

Section Length (km)

Length (km)

Ratio

St. Anne—Airport Intersection 19.20 19.20 1.00

Airport Road 2.20 2.60 1.18

Temaiku Road 6.10 6.10 1.00

Feeder Roads 6.90 7.30 1.06

Betio Loop Road 4.90 6.50 1.33

Betio Link Road 0.60 0.60 1.00

Total 39.90 42.30 1.06

Source: ADB and World Bank estimates. 2. Road geometry and condition. The terrain in South Tarawa is flat, with the road positioned about 3 meters above mean sea level. The existing road was well aligned through its length and realignment is not necessary. The condition of the existing pavement was generally poor. The average international roughness index (IRI) of each section was conservatively estimated, with derived values and corresponding to road conditions observed after a period of dry weather and repairs ranging from 5 to as high as 12.1 Periods of wet weather caused rapid deterioration of poorly drained sections, many of which have reverted to gravel pavement. In sealed sections, potholes proliferate during wet conditions and it is evident that the base roughness values will rise significantly unless the pavement is urgently rehabilitated. However, the coral limestone formed a good sub grade, and pavement failure in the form of rutting, heaving, or shoving was absent. 3. Economic modeling. The World Bank Highway Development and Management Model (HDM-4) model was used to compare projected ex-ante versus ex-post streams of annual economic capital and operating costs with economic benefits, to derive economic internal rates of return (EIRR). The analysis was conducted on a world price numeraire basis, with non-traded costs and benefits adjusted by a standard conversion factor of 0.89 (implying a shadow exchange rate factor of 1.12), with unskilled labor further adjusted by a shadow wage rate of 0.90. These conversion factors are consistent with those used during appraisal. All costs and benefits are expressed in constant prices and the period of analysis is 20 years.

1 At an IRI of 6, roads are generally still usable by 2-wheel drive vehicles, but only at low speeds; an IRI of 8 indicates

rough and slow road travel that is commonly damaging to 2-wheel drive vehicles.

36 Appendix 9

4. Base and project scenarios. Consistent with, and based on, the approach taken during project appraisal, it is assumed that road sections targeted for rehabilitation under the project would have deteriorated to an unmaintainable level by 2017. Thus, a “do nothing” base scenario was deemed unrealistic, and instead a base case involving deferment of rehabilitation works until 2017 was considered for the economic analysis. Road provider and road users’ costs were compared between the base and project scenarios. The with-project case involves reconstruction and strengthening of the existing pavement, double bitumen surface treated chip seal pavement, and improvements to the vertical profile to improve drainage. Periodic maintenance, comprising an overlay, is triggered by deterioration of the pavement to an international roughness index over 4m/km. In the case of feeder and access roads, the base scenario involves periodic grading and re-gravelling, while the with-project case involves construction of a double bitumen surface treated chip seal pavement. 5. Economic costs. Financial costs inclusive of construction, operation, and maintenance expenses were converted to economic costs using appropriate conversion factors. Economic costs of the project exclude price contingencies, taxes, duties, royalties, and subsidies. Project roads are projected to have an economic life of 20 years, assuming periodic maintenance and strengthening applied partway through the evaluation period. Bid prices and actual costs per road segment are summarized in Table 2.

Table 2: Actual Costs of Road Works Total Bid Actual Total Bid Actual Ratio

Section Cost ($ million)

Cost ($ million)

Cost per km ($ million/km)

Cost per km ($ million/km)

St. Anne - Airport Intersection 28.155 39.980 1.466 2.082 1.42 Airport Road 2.238 4.220 1.017 1.623 1.60 Temaiku Road 4.476 9.524 0.734 1.561 2.13 Feeder Roads 2.292 3.870 0.332 0.530 1.60 Betio Loop Road 4.311 7.580 0.880 1.166 1.33 Betio Link Road 0.269 0.537 0.448 0.895 2.00 Total 41.741 65.711 1.046 1.553 1.48

Source: ADB and World Bank estimates. 6. Economic benefits. The benefits to road users were estimated by comparing road user costs between the base and with-project scenarios. Quantified road user benefits include vehicle operating cost (VOC) and journey time savings,2 as well as reductions in traffic delay. Through HDM-4, VOC savings are derived from base case vs. with-project road segment IRIs, while journey time savings are calculated by comparing safe allowable average vehicle speeds before vs. after road rehabilitation and upgrading. Traffic disruptions from road works are also accounted for by assuming 50% higher VOCs and journey times during the construction phase. However, such disruptions did not have a major impact given that parts of the road at that time were impassable at times. 7. Road users’ costs. Unit cost data for vehicle replacement, tire replacement, fuel, and oil were collected from local suppliers. In the case of gasoline and diesel, the economic cost was

2 The evaluation for light trucks included carrying passengers in addition to the truck crew. The crew costs saving

is part of the vehicle operating costs, while the passengers time costs are part of the travel time costs, thus, avoiding double counting.

Appendix 9 37

assessed using current retail prices excluding duties and taxes. Fuel forms a significant component of road user costs. A summary of economic road user costs, including passenger time, is presented in Table 3. With- and without-project vehicle operating costs are then contrasted in Table 4.

Table 3: Economic Road Users’ Costs Item Passenger Passenger Light

car van truck

Vehicle cost ($) 29,500 41,250 83,250

Tire cost ($) 230 95 165

Fuel cost ($/liter) 1.02 1.02 1.24

Lubricant oil cost ($/liter) 4.50 4.50 4.50

Crew cost ($/hour) 1.83 1.83 1.83

Maintenance labor ($/hour) 13.76 13.76 13.76

Passenger time cost ($/hour) 0.46 0.46 $0.46

Annual utilization (km/year) 15,000 60,000 60,000

Number of passengers 3 8 4 Source: ADB and World Bank estimates.

Table 4: Vehicle Operating Costs—With and Without project Without project With project

Section Passenger Passenger Light Passenger Passenger Light

car Van truck car van truck St. Anne—Airport intersection 0.52 0.53 0.99 0.46 0.44 0.84

Airport Road 0.51 0.51 0.95 0.46 0.44 0.84

Temaiku Road 0.53 0.55 1.03 0.46 0.44 0.84

Feeder roads 0.77 0.86 1.65 0.44 0.42 0.85

Betio Loop Road 0.52 0.53 0.99 0.46 0.44 0.84

Betio Link Road 0.52 0.53 0.99 0.46 0.44 0.84 Source: ADB and World Bank estimates.

8. Traffic growth. The vehicle fleet using the project roads experienced rapid growth in years preceding rehabilitation. However, with population growth on South Tarawa slowing, traffic growth was likewise expected to moderate. This road corridor provides access to all essential services, including government, education, health, markets, churches, NGOs, business, and the international airport, the international port, and domestic wharves. There are no alternative routes: this is the only road connecting communities in South Tarawa and runs the length of the atoll; people live and work either side of the road in small dense village settlements. The analysis thus only considers projected continued growth in the vehicle fleet, with no expectations of any diverted traffic. Further, although some increase in vehicle numbers might be expected to result from significantly improved road conditions upon completion of the project, this is uncertain and has also not been included in the analysis.

9. In general, actual traffic growth fell short of forecasts made during appraisal, except for the Betio Link Road section (Table 5). The traffic forecasts included at time of appraisal in 2009 do not align with those cited in the 2011 design documents and appear to have been overestimated. The 2009 figures and forecasts provided data at several points on the road including a single figure for the St. Anne—Airport Intersection, but this 2009 figure is higher than the actual traffic count in 2011 for St. Anne and for Eita, which is halfway to the airport. Nevertheless, traffic counts in November 2017 indicate growth from 2011 of between 30% and

38 Appendix 9

45% in Bairiki and Eita, respectively, significantly higher over these years than the 26% forecast in 2009 (which assumed a 4% a year increase). The traffic count at Eita suggests increased traffic within the middle part of the atoll, probably representing increased local traffic within communities and adjacent communities, not increased number of journeys to Betio or the airport. There has also been faster growth in heavier truck traffic, particularly in Betio, which is taking a heavier toll on road conditions, which will accelerate the need for some re-sealing within 8–10 years.

Table 5: Actual Traffic Growth Section

2009 Daily Traffic

(vehicles per day)

2018 Daily Traffic

(vehicles per day)

Appraisal Traffic Growth 2009–

2018 (% per year)

Actual Traffic Growth 2009–

2018 (% per year)

Ratio

St. Anne - Airport Intersection 5,400 6,569 3.6% 2.2% 0.61 Airport Road 3,800 5,200 3.6% 3.5% 0.99 Temelku Road 2,200 2,900 3.6% 3.1% 0.87 Feeder Roads 220 290 3.6% 3.1% 0.87 Betio Loop Road 6,000 6,560 3.6% 1.0% 0.28 Betio Link Road 4,500 6,560 3.6% 4.3% 1.19

Source: ADB and World Bank estimates.

10. Economic viability. Lower-than-projected actual traffic growth in most of the project road sections compared to the 2009 forecasts has led to lower, but still robust EIRRs, indicating efficient use of resources on this project. Total EIRR at appraisal, including the additional funding and additional road sections, was estimated as 29.4%, while ex-post evaluation results in an EIRR of 17.4% (Table 6). The resulting robust EIRR even with substantial cost overruns and lower-than-expected traffic growth, stems from the unique conditions in South Tarawa, where the population density approaches that of London and Sapporo. However, whereas those advanced cities have land-based transportation options, in South Tarawa only the main road network connects people with places of employment, basic services, and markets; no alternate land-based links exist. Robust economic viability therefore reflects high demand and benefits from usage of this crucial road network. As elaborated further in paras. 12–16, the economic analysis explored the project’s viability under two maintenance regimes, one preferred and based on project recommendations for maintenance covered (main text para. 45) and another assuming lower maintenance inputs (about half) as a more conservative estimate. This lower maintenance scenario has been used as the base case with a return of 17.4%.

Table 6: Economic Viability per Road Section

Section Appraisal Ex-

Ante EIRR (%)

Actual Ex-Post EIRR

(%)

Ratio

St. Anne–Airport Intersection 29.4% 17.1% 0.58

Airport Road 23.4% 12.7% 0.54

Temaiku Road 28.5% 14.9% 0.52

Feeder Roads 24.1% 13.2% 0.55

Betio Loop Road 36.3% 27.3% 0.75

Betio Link Road 24.9% 13.0% 0.52

Total 29.4% 17.4% 0.59

Source: ADB and World Bank estimates.

11. As would be expected, the high-traffic segments of the Betio Loop Road and St. Anne—Airport Intersection generate the highest EIRRs by section. Each project road section also yields

Appendix 9 39

an EIRR that is above ADB’s recommended economic opportunity cost of capital (EOCC) for investment projects at the time of appraisal of 12%.3 This further highlights the project’s efficiency of resource use. Unquantified benefits, such as road safety improvements and potential decongestion largely through the Temaiku Road, which provides access to the only remaining uninhabited state land in densely-populated South Tarawa, further bolster the economic viability of the project. The project’s overall economic viability also remains robust even under adverse shock scenarios including: (i) a 20% capital cost overrun; (ii) 20% lower-than-expected VOC savings; and (iii) lower-than-anticipated traffic growth (Table 7).

Table 7: Sensitivity analyses results

Variables Change ENPV

($ million) EIRR (%)

Switching value

Base case 17.6 17.4%

Capital cost overrun 20% 9.3 14.5% 42.5%

Lower VOC savings –20% 7.3 14.3% –34.3%

Lower traffic growth –20% 13.7 16.1% –39.5%

EIRR = economic internal rate of return, ENPV = economic net present value, O&M = operations and maintenance, VOC =

vehicle operating costs.

12. Sustainability. Road maintenance is a concern and if not adequately carried out could affect the sustainability of the road. The road runs near the edge of the lagoon for most of its length. A rise in sea level, extreme annual cycles of spring tides, and increased erosion are the most significant threats to its sustainability. The project design took this into account as much as possible, including provision of concrete u-drains to cater for expected excess water flows, while sea walls installed under the project and other coastal protection measures being implemented under the Kiribati Adaptation Program Phase III will also help minimize some of these risks. However, higher spring tides and longer term rise in sea levels seem inevitable. 13. Project roads are nonrevenue-earning and operated by MISE, a government ministry that receives annual allocations for operation and maintenance of infrastructure assets. About A$415,000 ($332,000) will be needed annually for maintenance of the project roads, and this is currently being provided during the defects notification period. Recent and ongoing public sector management and public financial management reforms are refocusing scarce resources toward funding of essential government functions and services, including infrastructure operation and maintenance. The project has prepared a detailed Routine Road Maintenance Manual and Bidding Documents for “Procurement of Routine Road Maintenance on Tarawa”, which should also help develop the local construction industry. A Cabinet Paper is under consideration to establish a road maintenance fund to ensure funding availability. It proposes increases in user charges from direct beneficiaries of the road improvements, such as vehicle registration fees and fuel prices. If approved, this should facilitate consistently adequate allocations to MISE for routine and periodic road maintenance, but this requires sustained follow through with the government. 14. The economic analysis explored the project’s viability under two maintenance regimes. One scenario, and one at risk of happening if government does not adopt the maintenance

3 The economic analysis excludes the Buota road section as rehabilitation and upgrading was not envisaged at the

time of appraisal and thus the road characteristics were not included in the HDM-4 model and ex-ante appraisal analysis; however, returns are likely to be similar to feeder roads. The cost of the Buota section represents just over 1% of project costs and thus exclusion does not materially affect the overall project EIRR.

40 Appendix 9

measures proposed, assumes only minimal annual maintenance of about A$200,00 a year, half the current amount and equivalent to government continuing only one of the road current maintenance contracts, or reverting to maintenance by MISE. Under this scenario major resealing repairs will be needed after year 20. The subsequent full renewal of project roads is estimated to amount to A$78.5 million. As set out in para. 10 above, this scenario yields an EIRR of 17.4%, which is still robust; it has an economic net present value (ENPV) at a 12.0% discount rate of $17.6 million. 15. A preferred scenario assumes the government will allocate the recommended level of maintenance funding of A$420,000 per year, plus provisions for 5% annual increases for project roads to achieve their design life up to years 15–20. Capital expenditure of about A$7.91 million would also be required by year 10 for chip-seal pavement renewal.4 The total cost is estimated to be in the order of A$19.7 million; Under this scenario, it is expected that about two thirds of the road network will be in good/fair condition by year 15–20, while the balance would be motorable but in poor condition.

16. The additional allocations for full annual routine maintenance will be offset by savings from avoided costs of full renewal of roads, with roads effectively having a much higher residual value at year 20. Given these large avoided costs at the end of the project’s economic life, the full maintenance scenario yields an EIRR of 17.5% which is similar to the lower maintenance scenario due to discounting future values, but it has a much higher ENPV of $20.1 million using 12% as the discount factor. At lower discount rates, the gains from the full maintenance scenario are even larger as savings from avoided road renewal at year 20 are not so heavily discounted. For example, at a discount rate of 6%, the base scenario’s ENPV is $54.1 million, while the full maintenance scenario yields an ENPV of $66.2 million, a net economic gain of over $12 million. This highlights the importance of securing adequate resources for full annual maintenance to ensure the sustainability of road investments and minimize capital requirements for future rehabilitation.

4 Pavement resurfacing may/will be required for (a) double bitumen surface treatment by year 8–10; (b) asphalt

concrete surface by year 10–15; and (c) geocell concrete by year 20.

Appendix 10 41

PHOTOGRAPHS—BEFORE AND AFTER1

Buota (north of airport) to Betio

Buota Road

BEFORE AFTER

~Ch 0+100 (looking down chainage)

~Ch 0+700 (looking up chainage)

1 Source: MISE. 2018. Draft Construction Phase Completion Report prepared by Roughton International. Tarawa.

42 Appendix 10


Airport Road

BEFORE AFTER


Appendix 10 43


Extension; realignment at western end Bonriki airport runway (looking down chainage)

Temaiku Road

BEFORE AFTER


44 Appendix 10



Temaiku – Bairiki - Betio Road

BEFORE AFTER

Appendix 10 45




BEFORE AFTER

46 Appendix 10




BEFORE AFTER

Appendix 10 47




BEFORE AFTER

48 Appendix 10




BEFORE AFTER

Appendix 10 49




BEFORE AFTER

50 Appendix 10




Feeder Roads

Bairiki feeder road (after)

Appendix 10 51

Betio feeder road (after)

Betio feeder road (after)