worldbank feasibility report india

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No.: 59089 - IN

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

IN THE AMOUNT OF US$350 MILLION

TO THE

REPUBLIC OF INDIA

FOR THE

SECOND KARNATAKA STATE HIGHWAY IMPROVEMENT PROJECT

February 24, 2011

Transport Unit

Sustainable Development Unit

South Asia Region

This document has a restricted distribution and may be used by recipients only in the

performance of their official duties. Its contents may not otherwise be disclosed without World

Bank authorization.

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INDIA: SECOND KARNATAKA STATE HIGHWAY IMPROVEMENT PROJECT

CURRENCY EQUIVALENTS

(Exchange Rate Effective – February 1, 2011)

Currency Unit = Indian Rupees (Rs.)

US$1 = 45 Rs.

1 lakh = 100,000

1 Crore (Cr.) = 10,000,000

FISCAL YEAR

April 1 – March 31

ABBREVIATIONS AND ACRONYMS AADT Annual Average Daily Traffic MCA Model Concession Agreement

AG Auditor General MDR Major District Roads

CAA&A Controller of Aid Accounts and Audit. M&E Monitoring and Evaluation

CAG Comptroller and Auditor General of India NCB National Competitive Bidding

CRN Core Road Network NHDP National Highways Development

Program

DBFOMT Design Build Finance Operate Maintain

Transfer

NPV Net Present Value

DEA Department of Economic Affairs ODR Other District Roads

DPR Detailed Project Report O&M Operation and Maintenance

EA Environmental Assessment ORAF Operational Risk Assessment

Framework

EIA Environmental Impact Assessment PAD Project Appraisal Document

EIRR Economic Internal Rate of Return PIO Public Information Officer

EMP Environmental Management Plan PIU Project Implementation Unit

EOI Expression of Interest PMGSY Pradhan Mantri Gram Sadak Yojana

EPC Engineering and Procurement Contract PPIAF Public Private Infrastructure Advisory

Facility

ERR Economic Rate of Return PPP Public Private Partnership

E&SM Environmental and Social Management PQ Pre-Qualification

GAAP Governance and Accountability Action Plan PWD Public Works Department

GOI Government of India RAP Resettlement Action Plan

GOK Government of Karnataka RFQ Request for Qualification

ICB International Competitive Bidding RFP Request for Proposal

ICR Implementation Completion Report RIS Road Information System

IDSAP Institutional Development Strengthening

Action Plan

R&R Resettlement and Rehabilitation

IRI International Roughness Index RTIA Right to Information Act

IUFR Interim Unaudited Financial Report SBD Standard Bidding Document

JCA Joint Controller of Accounts SH State Highways

KSHIP Karnataka State Highways Improvement

Project

SNTA Sub-National Technical Assistance

KSHTTA Karnataka State Highway Transport and Tariff

Authority

TNA Training Needs Assessment

KRDCL Karnataka Road Development Corporation

Limited

TOR Terms of Reference

VGF Viability Gap Fund

Regional Vice President: Isabel Guerrero

Country Director: Roberto Zagha

Sector Director:

Sector Manager:

John H. Stein

Michel Audigé

Task Team Leader: Binyam Reja


Table of Contents

I. Strategic Context ...............................................................................................................1

A. Country Context .........................................................................................................1

B. Sectoral and Institutional Context ................................................................................1

C. Rationale for Bank Assistance .....................................................................................7

II. Project Development Objectives ........................................................................................7

III. Project Description ............................................................................................................8

A. Project Components ....................................................................................................8

B. Lessons Learned and Reflected in the Project Design................................................. 10

IV. Implementation ............................................................................................................... 10

A. Institutional and Implementation Arrangements ........................................................ 10

B. Sustainability ............................................................................................................ 11

C. Key Risks ................................................................................................................. 12

D. Appraisal Summary .................................................................................................. 13

E. Financial Management .............................................................................................. 14

F. Procurement ............................................................................................................. 15

G. Social ....................................................................................................................... 16

H. Environment ............................................................................................................. 17

Annex 1: Results Framework and Monitoring .......................................................................... 18

Annex 2: Detailed Project Description .................................................................................... 21

Annex 3: Implementation Arrangements ................................................................................. 28

Annex 4: Operational Risk Assessment Framework (ORAF).................................................... 55

Annex 5: Implementation Support Plan ................................................................................... 58

Annex 6: Team Composition ................................................................................................... 62

Annex 7: Economic and Financial Analysis ............................................................................. 63

Annex 8: Institutional Development and Strengthening Action Plan 2010-2016 ........................ 73

Annex 9: Governance and Accountability Action Plan ............................................................. 78

iv

PAD DATA SHEET

INDIA: SECOND KARNATAKA STATE HIGHWAY IMPROVEMENT

PROJECT APPRAISAL DOCUMENT

South Asia Region

SASDT

Date: February 24, 2011

Country Director: Roberto Zagha

Sector Director: John Stein

Sector Manager: Michel Audigé

Team Leader(s): Binyam Reja

Project ID: P107649

Lending Instrument: Specific Investment Loan

Sector(s): Roads and highways (100%)

Themes: Infrastructure services for private sector

development (67%); Other public sector governance

(33%)

EA Category: A

Project Financing Data:

[X] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other:

For Loans/Credits/Others:

Total Bank financing (US$m.): 350.00

Proposed terms: 6-month LIBOR plus a variable spread; 18 years repayment including 5 years grace

period; Level repayment of principal.

Financing Plan (US$m)

Source Local Foreign Total

Borrower 155 0 155

Private Sector Developer 500 0 500

International Bank for Reconstruction and

Development 230 120 350

Total: 885 120 1,005

Borrower:

Government of India

Department of Economic Affairs, Ministry of Finance

North Block, New Delhi 110 001

Fax: +91 11 2309 4075

Responsible Agency:

Government of Karnataka

Public Works Department

3rd Floor, Vikasa Soudha

Dr. Ambedkar Road

Bangalore, India

Tel: (91-80) 225-1449; Fax: (91-80) 2235-3988

E-mail: [email protected]

mailto:[email protected]

v

AND

Karnataka Road Development Corporation Limited

The Managing Director

No. 16/J, Miller Tank Bed Area, Thimmaiah Cross Road

Bangalore - 560 052

Ph: 080 - 22382630, 22382362, 22380140 / Fax: 080 -22380143

email. [email protected], [email protected]

Estimated Disbursements (Bank FY/US$ m)

FY 2011 2012 2013 2014 2015 2016 2017

Annual 10.0 35.0 52.0 70.0 84.0 70.0 29.0

Cumulative 10.0 45.0 97.0 167.0 251.0 321.0 350.0

Project Implementation Period: June 1, 2011 – December 31, 2016

Expected effectiveness date: June 1, 2011

Expected closing date: December 31, 2016

Does the project depart from the CAS in content or other

significant respects?

○ Yes X No

If yes, please explain:

Does the project require any exceptions from Bank policies?

Have these been approved/endorsed (as appropriate by Bank

management?

Is approval for any policy exception sought from the Board?

○ Yes X No

○ Yes ○ No

○ Yes ○ No

If yes, please explain:

Does the project meet the Regional criteria for readiness for

implementation?

X Yes ○ No

If no, please explain:

Project Development objective: To accelerate the development of the Core Road Network through

leveraging public sector outlays with private sector financing and improving the institutional effectiveness

of the road sector agencies to deliver effective and safe roads to users.

vi

Project description

Component 1: Road Improvement Works (Total Cost: US$603 million; IBRD: US$260 million;

GOK: US$94 million; Developer: US$249 million). This component will support capital improvement

and maintenance works of selected priority Core Road Network through a combination of traditional

contracts and PPP concessions.

Component 2: Highway Financing Modernization (Total Cost: US$374 million; IBRD: US$67

million; GOK: US$56 million; Developers/Financial Institutions: US$251 million). This component

will assist KRDCL in implementing the concept of co-financing with private financial institutions through

technical assistance and pilot transactions.

Component 3: Road Safety Improvement (Total Cost: US$14 million; IBRD: US$11 million; GOK:

US$3 million). This component will assist the GOK to respond to the growing road safety problems in

Karnataka with comprehensive strategic and institutional measures, consistent with the main thrusts of the

2007 Sundar Committee report and the findings of the road safety management capacity review.

Component 4: Road Sector Policy and Institutional Development (Total Cost: US$11.8 million;

IBRD: US$9.44 million; GOK: US$2.36 million).This component will support implementation of a new

medium-term Institutional Development and Strengthening Action Plan (IDSAP) for the period 2010-2016.

Safeguard policies triggered.

Environmental Assessment (OP/BP 4.01)

Natural Habitats (OP/BP 4.04)

Forests (OP/BP 4.36)

Pest Management (OP 4.09)

Physical Cultural Resources (OP/BP 4.11)

Indigenous Peoples (OP/BP 4.10)

Involuntary Resettlement (OP/BP 4.12)

Safety of Dams (OP/BP 4.37)

Projects on International Waters (OP/BP 7.50)

Projects in Disputed Areas (OP/BP 7.60)

X Yes ○ No

○ Yes X No

X Yes ○ No

○ Yes X No

X Yes ○ No

○ Yes X No

X Yes ○ No

○ Yes X No

○ Yes X No

○ Yes X No

Conditions and Legal Covenants:

Financing Agreement

Reference

Description of

Condition/Covenant

Date Due

vii

Project Agreement, Schedule,

Section I, PARA 7

For the DBFOMT Annuity

Concessions, the GOK shall

meet all annuity payments due

under the Concession

Agreements in a timely manner

in accordance with the terms of

Concession Agreements.

Six months after the Commercial

Operation Day of the road concession,

and thereafter every six months until the

end of the 10-year concession period.


Section I, PARA 8

Undertake a comprehensive road

safety interventions in the

identified safe corridor

demonstration program

April 1, 2011


Section I, PARA 9

Operationalize road asset

management system to prioritize

road investment and

management program.

Dec 1, 2014


Section I, PARA 10

KRDCL to develop a

consolidated investment and

borrowing plan to improve

selected corridors under the Core

Road Network

Dec 31, 2013, and annually there after

1

I. Strategic Context

A. Country Context

1. Karnataka, located in the southwest of India, is the eighth largest state in the country with a

population of about 57 million, of which 34 percent lives in urban area, making Karnataka the

fifth most urbanized state in India. Considered a middle-income state in India, it has one of the

fastest growing and more vibrant economies in the country. It has been growing at or above the

all-India economic rate of growth. As a result of the worldwide economic crisis, the real annual

GSDP growth rate in 2008-09 has been estimated at 4.5 percent (constant 1999-2000 prices) as

against 12.6 percent in 2007-08 percent (at constant 1999-2000 prices). Major contributors to

economic growth are manufacturing and service sectors, accounting for 26 percent and 55

percent respectively during the year 2006/07. Karnataka is one of the knowledge and technology

hubs of India, and many domestic and international software and IT firms have located in

Bengaluru, the capital city. Karnataka‟s mining and quarrying sector has also enjoyed a boom in

recent years due to the increased global demand for raw materials.

2. Karnataka has maintained a good fiscal balance since the early 2000s. The State

Government passed the Karnataka Fiscal Responsibility Act in 2002, requiring the government

to achieve a zero revenue budget deficit, and contain the fiscal deficit within three percent of the

estimated Gross State Domestic Product (GSDP), and the total debt stock not to exceed 25

percent of the GSDP. Karnataka has also adopted a number of reforms to improve the quality of

governance and service delivery, most notably in the areas of public transport provision, energy

distribution, solid waste management, and parking management. Several public sector units have

also been privatized or restructured. Other reforms include simplification of procedures and e-

governance, productivity, integrity and accountability in administration and decentralized and

participatory governance.

3. Despite the recent economic progress, Karnataka, as in other states in India, has wide

regional development disparities, posing risks for sustaining further growth and making it more

inclusive. Currently economic activities are concentrated in a few cities with Bengaluru and

Mysore accounting for 37 percent of the GSDP. Only six out of the 29 districts in Karnataka

have GSDP per capita higher than the state‟s average. The regional disparities are exacerbated in

part because most of the growth-generating manufacturing and service industries are located in

cities with good infrastructure, urbanization and agglomeration of economic activities, leaving

behind districts that do not have these characteristics. Improving infrastructure, including road

transport, is a key component of GOK‟s development strategy to sustain growth and bridge the

regional disparities.

B. Sectoral and Institutional Context

India Road Sector Context

4. India‟s road network, estimated at 3.3 million kilometers, carries 65 percent of the freight

and 80 percent of passenger traffic in the country. It includes a primary network consisting of

National Highways (NH), a secondary network comprising of State Highways (SH) and Major

2

District Roads (MDR) and a tertiary network of Rural Roads. In broad terms, the central

government is responsible for the construction and maintenance of National Highways, while the

state and local governments are responsible for the secondary and tertiary networks within their

jurisdictions.

5. Recent Road Sector Development in India. Until the mid-nineties, the central and state

governments relied on public sector agencies and budgetary allocations to develop and maintain

roads. Under this regime, in part due to lack of incentives for pursuing efficiency and inadequate

resources, capacity expansion lagged behind transport demand and maintenance was given low

priority. Critical road user services such as safety and traffic management received little

attention. This situation started to improve, especially for the primary and tertiary networks after

the Government of India (GOI) introduced two important programs, namely, the National

Highway Development Program (NHDP) and the Prime Minister‟s Rural Roads Program

(PMGSY). These programs, which are partly funded through the Central Road Fund, have

substantially increased the resources allocated for the improvement of the National Highway and

Rural Roads networks. In contrast, the secondary network (State Highways and MDRs) suffers

from consistent under funding and weak capacity of the state road agencies.

6. Public Private Partnership (PPP) in India’s Highway Sector. A key development in

India‟s highway sector in the last decade is the expansion of PPP arrangements in the

development and maintenance of National Highways. As of December 2009, 39 National

Highway PPP projects, with an estimated cost of US$3 billion, completed the construction of the

selected highways, and are currently in operations phase. Another 64 projects with an estimated

cost of US$9.3 billion are under construction, and further 81 projects with an estimated cost of

US$17 billion are at various stages of project development1. The large PPP program was

possible because GOI undertook a series of policy measures to make PPP an attractive business

proposition to the private sector. The measures include: (a) establishing a credible cost recovery

policy through tolls and/or annuity payments; (b) setting up a Viability Gap Fund (VGF) to

provide subsidy to qualified PPP projects that are economically viable, but not financially viable

without a government grant; (c) allowing 100 percent foreign equity participation in road

construction and maintenance projects; (d) providing 100 percent tax exemption in any 10

consecutive years within a 20-year period after the completion of the project construction; and

(e) agreements with a large number of countries to avoid double taxation. In addition, to

facilitate uniform and rapid structuring and bidding of projects, the GOI issued Model Bidding

Documents and Concession Agreement with explicit allocation of key risks between the public

and private sector entities.

7. Some state governments, encouraged by the successes achieved by the Central

Governments in attracting private sector financing, have been pursuing PPP approaches to

develop their respective State Highways. In this regard, Gujarat, Maharashtra and Madhya

Pradesh are at the forefront, accounting for nearly two-thirds of the completed state highway PPP

projects in terms of road length (and more than 90 percent in terms of the cost). Other states in

active pursuit of PPP options include Andhra Pradesh, Karnataka, Haryana, Orissa, Rajasthan,

Tamil Nadu and Uttar Pradesh. Yet, it is important to recognize that PPP transactions for state

1 Source: PPP Projects in Infrastructure (Compendium), Secretariat for Infrastructure, planning Commission,

Government of India, March 2010.

3

highways has been largely limited to a few relatively high traffic stretches with adequate traffic

to recover costs through toll revenues and viability gap support. A key challenge faced by many

states is how to utilize PPP concessions for roads that are economically viable, but may not be

good candidates to be developed as BOT-Toll concessions due to low traffic and the political

difficulties associated with widespread tolling. There appears to be significant potential for

attracting private investment and harnessing private sector operational efficiencies in developing

and operating state highways provided state governments are willing to consider alternative PPP

options like annuity-based (availability payment) BOT concessions that do not rely on tolls to

recover costs for capital and maintenance expenditure.

Karnataka Road Sector Context

8. Karnataka road network is relatively extensive, but, as in need of significant resources

for improving its quality and standards. The total length of 208,262 km is classified into

National Highway (3,958 km), State Highway (22,078 km), Major District Roads (50,037 km)

and Rural Roads (147, 212 km). The Department of Public Works, Ports, and Inland Water

Transport (PWD in short) is responsible for managing the State Highway and Major District

Roads. The Panchayat Raj Department is responsible for managing the Rural Road network.

About 79 percent of State Highways and Major District Roads are single-lane standard and 13

percent are intermediate, and only eight percent have two-lane or higher standard. According to

the latest road condition survey2, while 70 percent of the National Highway network is in good

condition3, only 35 percent of State Highway and 25 percent of Major District Roads are in good

condition. At the same time, the number of registered vehicles has been growing rapidly at the

rate of 10 to 15 percent per year in the last decade. The foregoing shows that road development

in Karnataka is lagging behind the state‟s economic growth and does not adequately meet the

current and projected transport demand.

9. Karnataka has a worsening road safety situation . According to the National Crime

Record Bureau, 46,252 accidents were registered by the police in Karnataka in 2009, which

account for 10 percent of the total road accident cases in India, and resulting in 8,7144 deaths

accounting for seven percent of the fatalities in the country. The number of fatalities has

increased by 55 percent since 2000 to reach a rate of 140 per 100,000 vehicles in 2009 compared

with rates like nine in the UK, 15 in USA and 70 in Brazil and China. The high fatality rate in

Karnataka is attributed to lack of effective road safety management and enforcement system , and

the growing motorization and mixed traffic of the State. Pedestrians, non-motorized and slow

moving vehicles comprise a large portion of these fatalities (60-70 percent) followed by users of

motorcycles and small cars. Bus and truck driving at nighttime with poor visibility, fat igue and

alcohol is also a major cause of accidents on state highways. A traffic study5done in Bangalore

finds that in 44 percent of crashes, two-wheeler drivers seeking medical attention were under the

influence of alcohol.

2 Source: PWD Road Condition Survey, 2008.

3 Defined as IRI < 4m/km

4 This number is likely to be a gross under-estimate of actual deaths, given that a road death is defined as occurring within 24

hours in Karnataka (the international definition is 30 days). 5 Dinesh Mohan, The Road Ahead, Traffic Injuries and fatalities in India, TRIPP Transport Research and Injury Prevention

Programme, WHO Collaboration Center.

4

10. The GOK recognizes that improving the effectiveness and safety of the state‟s road

network is essential to maintain the state‟s competitiveness and reduce regional disparities. In

2000, it launched a road improvement program and secured the first World Bank loan, the

Karnataka State Highway Improvement Project (KSHIP). KSHIP was implemented from 2001 to

2007, and successfully improved and maintained about 2,385 km of State Highways and Major

District Roads, which now constitute some of the most important arterial highways in the state

providing interconnectivity between districts and major cities within the state. The first KSHIP

also put in place a strategic plan for investment and carried out some institutional reforms. The

Implementation Completion Report (ICR) rated the Outcome of the first KSHIP as Satisfactory.

The ICR also rated the Risk to Development Outcome as Moderate, Bank and Borrower

Performances as Satisfactory.

11. As part of the overall road sector reform, GOK established the Karnataka Road

Development Corporation (KRDCL) in 1999 to develop State Highways under PPP

arrangements. In 2001, the GOK established the Karnataka State Highway Transport and Traffic

Authority (KSHTTA) as a statutory body with an eight member Board to advise on the planned

development, coordination of policy and planning of highways (including road safety aspects) in

the State of Karnataka. GOK articulated a PPP policy through the Infrastructure Policy of

Karnataka 2007 to enable KRDCL to undertake road projects under PPP. More recently, in July

2010, it passed a tolling policy to allow KRDCL and private concessionaires to toll State

Highways and MDRs.

12. The main reason behind the slow improvement of Karnataka’s road network is the

financing framework within which state-owned roads are developed. The improvement of state

roads is funded through pay-as-you-go expenditure program financed out of current state

government taxes and revenues, and central government transfers. The GOK Consolidated Fund

includes about US$1.4 billion revenues collected by the Transport and Commercial Departments,

including what could be termed as “road user charges”. These are taxes authorized under the

central and state government Motor Vehicle Act and petrol, diesel, motor vehicle, and motor and

lubricant sales taxes. Table 1 shows that only 53 percent of the Road User Charge collections are

returned for the development and maintenance of the road sector (This is an increasing trend, up

from 34 percent in 2004-05). The remainder road user charges cross subsidizes other sectors.

This cross-subsidy makes up 7 percent of the total GOK operating budget. In FY 2008-09 the

total GOK operating budget was Rs. 418.5 billion (US$9.3 billion).

Table 1 GOK FY 2008-09: Total Operating Budget, Revenue from Road User Charges and Expenditures

Item US$ (million)

Total Government Operating Budget Expenditure 9,300

Total Road User Charges Collected 1,400

Road Sector Budget 742

(%) of Road User Charges spent in the Road Sector 53%

Amount of Road User Charges spent in non-road sectors 658

(%) of Road User Charges spent in non-road sectors 47%

Road User Charges spent in non-road sectors as a percentage of

GOK Total Operating Budget Expenditure 7%

Sources: GOK Medium Term Fiscal Plan, 2010-2014; Price Waterhouse Coopers (2009)

“Karnataka Draft Road Fund Report”

5

Highway Financing Innovations in Karnataka: An Agenda for Reform

13. Early during project preparation, the GOK secured a grant from the Public Private

Infrastructure Advisory Facility-Sub-National Technical Assistance (PPIAF-SNTA) program to

engage a Financial Advisor to help it develop a financing strategy to leverage the IBRD loan.

The PPIAF-SNTA study has now been completed, and recommends the following strategy: (a)

attracting private sector investment where possible to develop high-traffic roads, (b) developing

different PPP structures (such as annuity payment concessions) that are more suited for low -

traffic state highways, (c) introducing market borrowing from domestic financial institutions and

capital markets, and (d) introducing additional road user charges, and securitize these revenues

for servicing domestic debt and supporting PPP concessions. The PPIAF-SNTA study also

recommends channeling some of the transport charges, fuel taxes, infrastructure cess, and tolls

into a dedicated road fund. In the proposed approach, the road fund would be used for providing

a dedicated revenue stream to service annuity payments and debt repayments for capacity

expansion, as well as fund some pay-as-you-go expenditure for maintenance. A dedicated non-

lapsable, ring-fenced road fund with legally assigned streams of cash flow provides clear market

signal to potential concessionaires and financiers.

14. Following the PPIAF-SNTA study and various rounds of internal consultations, the

GOK now intends to prioritize its road development program and develop a diversified

financing strategy beyond relying on government budget and international sovereign

borrowing. GOK has prioritized its State Highways and Major District Roads network and

identified about 25,000 km of the most important traffic corridors and designated them as the

state‟s Core Road Network (CRN). GOK‟s plan is to develop the Core Road Network as a

priority into double-lane standard at an estimated cost of US$10 billion. However, the GOK has

not secured a financing plan to develop the CRN, beyond the proposed World Bank loan for

US$350 million and the recently approved ADB loan for US$315 million, The current pay-as-

you-go expenditure program that relies on the Consolidated Fund is not suited for major highway

expansion program and could not be relied up on to accelerate the government‟s new priority to

develop the CRN. This is because annual budgetary allocations have uncertainties, and hence not

suited for long-term strategic planning and financing commitments of a large program.

15. Accelerating CRN development, therefore, will require a shift in the financing framework

within which roads are developed and maintained. It requires a transition from traditional “pay -

as-you-go” financing from Consolidated Fund to ring-fencing of road user charges that can be

used for long-term road development through PPP and borrowing from financial institutions. The

ring-fenced revenues could be committed in advance to future contractual commitments (such as

annuity payments in a road concession) or securitized to mobilize debt, which, in turn, could be

used to pay for item rate contracts or cash/viability support under PPP transactions. Such road

user charges could include tolls on existing highway or motor vehicle license fees, sales taxes on

petrol, diesel, motor parts and lubricants, and other road related charges. Most of these road user

charges are currently collected by the Transport and Commercial Tax Departments and deposited

into the Consolidated Fund for general government purposes.

16. The GOK is planning to make this transition from “pay-as-you-go” to “ring-fencing” of

specified revenue streams in a phased manner. Towards this end, the GOK has approved the

6

tolling of about 1500 km of recently improved highways and channelizing of the revenues into a

ring-fenced, dedicated account. These roads, which are in relatively good condition, would

generate substantial net revenue. KRDCL will collect the tolls (through PPP arrangement) and

transfer the net revenues into a dedicated account, which would then be used to meet the future

annuity commitments or for raising debt that could be used for either PPP transactions (e.g., for

providing cash or viability gap support during the construction phase) or for traditional item -rate

contracts. For the subsequent phase, the GOK is considering establishing a road fund and

channeling, amongst others, some road user charges into it.

Leveraging IBRD Loan with PPP and Domestic Borrowing

17. The GOK‟s original request for World Bank financing was for a loan of US$1.6 billion to

develop about 3,411 km of roads. However, given the competing priorities in the Bank‟s Country

Program for India, the GOI‟s Department of Economic Affairs (DEA) endorsed and the Bank

agreed for an IBRD loan of US$350 million for KSHIP II. This leaves a large gap in GOK‟s

requirement for the 3,411 km (a subset of the 25,000 km Core Road Network). Therefore, the

GOK intends to use the majority of the IBRD loan for leveraging private sector financing

through PPP transactions and attracting co-financing from domestic financial institutions. The

project will finance GOK‟s contribution to PPP transactions and co-financing with domestic

financial institutions.

Road Safety Situation in Karnataka

18. Currently the engineering design for roads developed in Karnataka does not provide

adequate safety measures. The consultants and PWD engineers do not adequately follow safety

standards during design and construction of roads, in part due to inadequate budgetary allocation

for safety measures, such as providing paved shoulders, separation of fast and slow moving

traffic, control of accesses to and intersection on fast-moving roads, reducing encroachment,

catering for pedestrians and speed management in built up areas and villages. Road safety

engineering to date has focused mainly on improving “black spots” in isolation from other

factors, such as enforcement.

19. Road safety rules and regulations are not adequately enforced. In 1991, the GOK created a

post within Karnataka Police of Commissioner for Traffic and Road Safety to monitor road

safety measures, prevent accidents and to ensure road safety. The police collect and maintain a

limited crash dataset, which feeds into the State Crime Records Bureau. As part of a broader

national initiative, a national Highway Patrol has been introduced on selected NH corridors in

Karnataka. This patrol mainly targets emergency rescue and law and order issues, and some

enforcement of safety rules. There is no equivalent patrol for the state highway network, which

contributes to 50 percent of road crashes in Karnataka.

20. In recent years, the GOK has committed itself to improving road safety in the state through

new strategic and comprehensive measures, broadly aligned with the findings and

recommendations of the 2007 Sundar Committee report on Road Safety and Traffic Management

in India. The National Road Safety and Traffic Management Act 2007 (which follows the

Sundar Committee Report on Road Safety and Traffic Management) enables States to set up an

7

advisory Road Safety and Traffic Management Board to aid and advise the State Government on

matters relating to road safety and traffic management in the State. The GOK plans to revamp

KSHTTA and to make a multi-sector coordinating body for road safety, as well as advise on all

road safety matters, in compliance with the Sundar Committee recommendations. More recently,

the GOK has nominated the Transport Department to be the lead agency for road safety, and the

KSHTTA to be the apex coordinating body for road safety.

C. Rationale for Bank Assistance

21. Through this project, the World Bank aims to support the GOK in two primary areas of

highway development: (a) achieving more diversified sector financing for increased road

infrastructure development, and (b) improving road safety design, management and enforcement

to reduce road fatalities and major injuries. These issues are critical priorities for GOK and are

consistent with the Bank‟s Country Strategy for India (FY2009-12), which supports

infrastructure development, emphasizes providing cutting-edge knowledge and lending solutions

that match the needs of a middle-income country/state and supports strategic action on road

safety.

22. The Bank is well positioned to promote best practices in the design of innovative highway

financing and road safety improvements. The Bank‟s support through PPIAF-SNTA has already

supported GOK to develop a coherent reform strategy. During implementation, the Bank would

further tap into PPIAF, IFC and other World Bank Group institutions to provide advisory support

and financing to help GOK access private sector financing for its road network development

program.

23. With respect to Road Safety, the Bank carried out a road-safety management capacity

review to inform the design of the Road Safety component of the project, following international

practices developed by the World Health Organization (WHO) and the Bank. The review helped

in starting Bank-GOK dialogue on safety intervention. The Global Road Safety Facility (a multi-

donor funded trust fund by the Bank) is providing support to the PWD to carry out safety audits

on two selected highway corridors through the International Road Assessment Program (iRAP),

which will help determine the engineering and other measures required to improve safety on

KSHIP II roads.

II. Project Development Objectives

24. The proposed KSHIP II is designed to improve the impact of the Bank‟s support for India‟s

highway sector through: (a) leveraging IBRD resources with private sector financing to extend

the government‟s ability to access necessary investment capital for the sector, (b) scaling up

support for road safety to reduce serious accidents during road construction and operation, (c)

supporting “government-owned” sector governance and institutional reforms, including those

related to transparency and accountability, and (d) ensuring effective and professional project

implementation, including streamlined land acquisition and environmental clearances, and well -

managed procurement and financial management process.

8

25. Within this strategic context, the Project Development Objective (PDO) is to accelerate

the development of the Core Road Network through leveraging public sector outlays with private

sector financing, and improving the institutional effectiveness of the road sector agencies to

deliver effective and safe roads to users.

26. The Project‟s direct beneficiaries are road users and roadside communities who will benefit

from the reduction in transportation costs, improved riding quality, safer roads, and better

transport services. The secondary beneficiaries are business and government. The acceleration of

the road development program and attention to road safety will result in realizing social and

economic development benefits sooner, thereby spurring more business investment and

commerce, as well as increasing government tax revenues from the additional economic

activities.

27. The achievement of the PDO will be monitored by the following PDO Level Indicators.

Annex 1 provides the detailed Outcome and Intermediate Indicators, including the baseline data

and target values.

Achievement by GOK in generating at least US$500 million in new private sector

capital for CRN improvement and management by end-of-project (EOP).

Share of Core Road Network in good condition (IRI < 4) increases from 50 percent to

65 percent by EOP.

15 percent reduction in Vehicle Operating Costs and 25 percent reduction in Travel

Time Cost on project corridors by EOP.

30 percent reduction in road-accident related fatalities on safe corridor pilots by EOP.

III. Project Description

A. Project Components

28. Component 1: Road Improvement Works (Total Cost: US$603 million; IBRD: US$260

million; GOK: US$94 million; Developer: US$249 million). This component will support

capital improvement and maintenance works of selected priority Core Road Network through a

combination of traditional contracts and PPP concessions (Details in Annex 2).

29. Component 2: Highway Financing Modernization (Total Cost: US$374 million;

IBRD: US$67 million; GOK: US$56 million; Developers/Financial Institutions: US$251

million). This component will assist KRDCL in implementing the concept of co-financing with

private financial institutions through technical assistance and pilot co-financing transactions to

develop selected priority highways from the Core Road Network (Details in Annex 2).

30. Component 3: Road Safety Improvement (Total Cost: US$14 million; IBRD: US$11

million; GOK: US$3 million). This component will assist the GOK to respond to the growing

road safety problems in Karnataka with comprehensive strategic and institutional measures,

9

consistent with the main thrusts of the 2007 Sundar Committee report and the findings of the

road safety management capacity review6(Details in Annex 2).

31. Component 4: Road Sector Policy and Institutional Development (Total Cost: US$11.8

million; IBRD: US$9.4 million; GOK: US$2.4 million).This component will support

implementation of a new medium-term Institutional Development and Strengthening Action Plan

(IDSAP) for the period 2010-2016. The IDSAP builds on the institutional and capacity

improvements achieved during the first KSHIP. It covers the PWD and the KRDCL, and has

been established by the GOK in consultation with both the World Bank and the ADB as a basis

for the harmonization of external assistance in this sector (Details in Annex 2).

32. Project Financing. Table 2 provides the cost and financing arrangement for the project.

The total project cost is estimated at US$1,005 million. The IBRD loan of US$350 million will

be leveraged with addition US$500 million from the private sector as part of the annuity

concessions and borrowing by KRDCL. The GOK counterpart fund is US$155 million, which

would be used mostly for land acquisition, R&R support, utility shifting, and to cover counter-

part financing for conventional item-rate contracts, The GOK will also have repayment

obligations for the annuity concessions and domestic borrowing. These repayments will be met

primarily through GOK budgetary allocations and supplemented by road user charges. A fiscal

impact analysis carried out for the project shows that GOK has adequate fiscal space to assume

the IBRD debt and the private sector repayment obligations (Annex 7).

Table 2

Project Cost and Financing (US$ million)

Component

Costs

Including

Contingency

Bank

Financing

GOK

Financing

Developer/

Private

Sector

Banks

1 - Road Improvement Works 603.0 260.0 93.9 249.1

a) Item Rate Contracting 166.0 119.6 46.4 0.0

b) DBFOMT Annuity Concession 436.7 140.1 47.4 249.2

2 - Highway Financing Modernization 373.7 67.1 55.7 250.9

a) TA Services for KRDCL 5.0 4.0 1.0 0.0

b) Civil Works under Co-financing pilot 368.9 63.3 54.7 250.9

3 - Road Safety Improvement 13.6 11.0 2.6 0.0

4 - Policy and Institutional Development 11.8 9.4 2.4 0.0

5 - Incremental Operating Costs 2.0 1.6 0.4 0.0

Total Project Cost 1004.1 349.1 155.0 500.0

Front-end Fee 0.88 0.88 0 0

Total Financing Required 1005.0 350.0 155.0 500.0

33. Lending Instrument. A Specific Investment Loan (SIL) has been chosen as the lending

instrument to finance the identified project works and technical assistances services. The Loan

6 Assessment of Road Safety Management Capacity in the State of Karnataka, World Bank 2008.

10

terms are 6-month LIBOR plus a variable spread; 18 years repayment including 5 years grace

period; Level repayment of principal.

B. Lessons Learned and Reflected in the Project Design

34. The following lessons drawn from the implementation of KSHIP I and other highway

projects in India and elsewhere have been reflected in the project design.

35. Institutional and policy reforms are likely to be more successful when (i) they are

implemented in a phased, incremental manner, (ii) integrated with the wider operations in the

target agency, and (iii) supported by wider consensus on sector reforms among key government

departments and their leadership.

36. The road safety component should be implemented by an agency that is closer to road

users. Agencies focused on road construction often do not have relevant capacity as the staff are

not trained in transport and safety regulation. For a road safety component involving vehicles

and drivers to achieve effective outcomes, a suitably empowered lead agency such as a transport

department should be responsible for its implementation.

37. Procurement process may be more competitive with post-qualification approaches, rather

than pre-qualification. A procurement process review carried out for KSHIP I shows that

compared with pre-qualification contracts, post-qualification contracts received more

competitive price against the client‟s estimate, and had lower cost overruns during contract

execution.

38. Inter-agency communication and cooperation is crucial for timely project implementation,

especially coordination during execution between the implementing agency and departments

dealing with environment and social safeguards. Land acquisition processes are more efficient

when delegated to the project authority together with administrative and financial powers to

speed up the process. Integration of environmental management plans with construction

contracts improves the compliance and attention to environmental requirements of the project.

IV. Implementation

A. Institutional and Implementation Arrangements

39. Overall implementation arrangement. The Government of Karnataka will be

implementing the proposed project through its Public Works Department (PWD) and the

Karnataka Road Development Corporation Limited (KRDCL), an autonomous corporation

owned by the state government. The Public Works Department has established a Project

Implementation Unit (PIU) to implement three of the four project components, namely

Components 1, 3 and 4. The KRDCL using its main organizational setup will be responsible for

implementing Component 2, which focuses on the highway modernization and co-financing.

Both the PIU and KRDCL will report to the Principal Secretary, PWD, who will be ultimately

responsible for the project results on behalf of GOK. In addition, the GOK has established the

following apex bodies to ensure coordination and accountability for the project: (a) Project

11

Governing Board, chaired by the Chief Secretary, to meet quarterly, to address inter-

departmental issues affecting project implementation; and (b) Project Steering Committee,

chaired by the Principal Secretary (PWD), to coordinate and monitor the project implementation,

with a focus on ensuring effective project implementation performance and achievement of

results.

40. The PIU has successfully implemented KSHIP I from 2001 to 2007, and many of the PIU

staff from KSHIP I will continue to work in the PIU, thus providing continuity in capacity of the

PIU. GOK also has assigned new staff from other departments, with experience in implementing

similar externally-funded projects. Similarly, KRDCL has experience in PPP transactions,

having done at least four transactions in the last few years. It has plans to scale up its road

development program through PPP, and the transactions envisaged under KSHIP II will further

enhance KRDCL capacity in managing a large-scale PPP program.

41. Results Monitoring and Evaluation. The monitoring and evaluation of the achievement of

the PDO and the outcome indicators will be conducted during the project using the results

framework (Annex 1). The baseline data have been collected and the intermediate and final

outcome targets have been established. In addition, three rounds of road user satisfaction surveys

will be carried out during the project start, mid-term, and completion to assess the perception of

road users on quality of road infrastructure and services provided by the PWD. The physical and

financial progress for all project components will be carried out as part of regular quarterly

progress reporting and project financial management system.

B. Sustainability

42. Overall Sustainability. The Highway Finance Modernization will provide GOK the

required financial instruments not only to accelerate road development in the state, but to put in

place a sustainable arrangement to ensure the maintenance of the road network. The GOK is

committed to the sustainable financing of the road network through mobilizing additional

resources and increasing allocations for the road sector.

43. Physical sustainability of assets. The physical sustainability of the assets created under the

project will depend on the initial design and construction quality, and subsequently timely and

adequate maintenance. A significant portion of the assets will be developed through DBFOMT

concessions or other forms of PPP., and thus the Developer will bear the design and performance

risk (ensuring quality construction), and will have the responsibility for maintenance during the

operation phase. The annuity payments will be made after an Independent Engineer certifies the

achievement of the agreed performance criteria and service levels. With regard to the traditional

contracts, road works will be carried out by qualified contractors and supervised by a

Construction Supervision Consultants to ensure quality works. The maintenance will be ensured

as part of the overall financing reforms being undertaken by GOK.

44. Institutional Sustainability. The primary institutions involved in the road sector, namely the

PWD, KRDCL, Transport Department and KSHTTA, have evolved further since KSHIP I. They

are now well poised for their planned involvements in the KSHIP II project and take forward

GOK‟s initiatives to enhance institutional and governance capabilities in the sector. The

12

technical assistance and advisory services provided under the project are being harmonized

between the World Bank and the ADB to ensure overall efficiency and results. The Road Safety

measures supported by KSHIP II will include a specific focus on (a) the sustainability of road

safety management capacity within GOK between the lead agency and the other concerned

departments / entities, and (b) the sustainability of overall road safety outcomes through the

implementation by the GOK of viable results-based and comprehensive road safety management

strategy and action plans developed under the project.

C. Key Risks

45. Market Response for PPP Transactions. The proposed DBFOMT Annuity concession

structure is a new concept in Karnataka, although there are some examples already in India.

Accordingly, it entails some uncertainty regarding how the potential developers and financiers

will respond to this opportunity in terms of achieving adequate competition and prices that

deliver better value for money for the government. The GOK has extensively discussed the

proposed model with representatives of several potential developer companies, banks and

financial institutions, including through two road shows, and ascertained that the proposed

structure, per se, is commercially attractive and bankable. Nevertheless, if the market response

turns out to be poor or the bids received do not provide value-for-money to GOK, the roads will

be repackaged as conventional item rate contracts in agreement with the Bank.

46. Reform Implementation Risk. The risks to implementation of reforms arise primarily in

relation to road financing reforms. The GOK has already taken several positive measures,

including establishing a road sector policy emphasizing PPPs, passing tolling policy, and

empowering KRDCL to lead the participation of private sector capital and capacity in road

network investment. Further reform challenges are identified with the implementation of a large-

scale PPP program, including wider acceptability of tolling, and improved resource mobilization,

including via a possible road fund. The GOK is considering to establish a road fund, after

extensive consultation with key stakeholders, including on the need to mobilize additional

resources via tolling and user charges. In addition, the proposed project will provide technical

assistance to support KRDCL in its revamped role and responsibilities.

47. The social and environmental risks associated with project include delays in timely

acquisition of land, implementation of resettlement and rehabilitation activities, and obtaining

environmental regulatory clearances. The GOK has improved significantly the institutional

capacity of the PIU to handle social and environmental risks and have already taken several

measures to avoid delays, including advanced land acquisition and linking contract award to

completion of social and environmental safeguard requirements.

48. Implementation of road safety agenda. The proposed project has allocated substantial

resources to support the improvement of road safety in the state. Yet, the project‟s support is

starting from a very low base of ownership and capacity in the state for improving road safety,

apart from road engineering measures. The project is addressing these risks with an integrated

measures and highly-targeted expert inputs aimed at establishing a sustainable lead agency role

and effective multi-sectoral capabilities to be built up from the pilot Safe Corridor

Demonstration Program.

13

D. Appraisal Summary

49. Economic Analysis. The road improvement works component will upgrade about 831 km,

into two-lane with paved shoulder standard. The economic evaluation of this component was

carried out using the Highway Development and Management Model (HDM -4), a globally

accepted key analytical tool for economic analysis for highways with investment alternatives,

which simulates life cycle conditions and costs and provides economic decision criteria for

multiple road design and maintenance alternatives. The main project economic benefits are

savings in vehicle operating costs, travel time costs, and maintenance costs resulting from the

road improvements. The cost-benefit analysis of the project indicates that the project economic

benefits are satisfactory. The Net Present Value (NPV) of the road improvement component is

estimated at US$835 million, at a 12 percent discount rate over a twenty-year evaluation period.

The overall project-level Economic Internal Rate of Return (EIRR) is estimated at 30 percent.

All corridors are also economically viable individually.

50. Financial Analysis. A spreadsheet model was used to conduct a financial analysis of the

four roads to be developed under PPP (DBFOMT Annuity Concession) mode. The primary

output of the financial modeling exercise is to determine the estimated annuity payments from

the GOK to the selected concessionaire for each of the concession packages in order to yield an

expected Project IRR of 11 percent and Equity IRR of 15 percent, the minimum threshold returns

at which the Indian market would consider the PPP packages to be bankable and attract adequate

private sector financing. Considering that the inputs and assumptions used in the model are

broadly representative of the current market conditions for similar road sector projects with

private equity participation in India, the estimated level of annuity payments and the overall

project financial indicators of the PPP projects are within an acceptable range of expectations of

potential investors. In addition, the government will undertake a “value-for-money” analysis of

the annuity bids received to determine if they meet the VfM benchmark for the government.

51. Fiscal Impact. The project‟s fiscal impact was assessed both at the macro-level and

project-level. The macro-level assessment reviewed GOK‟s fiscal space to support the IBRD

debt and annuity payment obligations, while the project-level analysis assessed the expenditures

and revenues generated from the project. The GOK has adequate fiscal space to meet the

projected annuity payments, as well as to service the IBRD loan associated with the project.

Considering the annuity payment as a capital expenditure, the percent of the total annuity

payment for all the four proposed DBFOMT projects relative to the projected FY2012-13 and

FY 2013-14 MTFP capital formation expenditure is small: 2.03 percent and 1.65 percent

respectively. At the project level, the analysis shows that the project will generate adequate

revenues (in the form of additional user charges and taxes) that would cover the capital and

maintenance expenditure revenue. On the annuity packages, the revenues would not be adequate

to cover the expenses, and thus GOK has to support some of the annuity payments from other

general tax revenues, or would need to toll them to generate additional revenue to pay the

expenses.

52. Technical Analysis. All roads included under the road improvement component are

proposed to be widened to two-lane carriageway (7.0 m wide) with 1.5 m paved shoulder and 1.0

m earthen shoulder or with 2.5 m earthen shoulder on either side, providing a total formation

14

width of 12.0 m. These roads are very standard and have low risk from design and

implementation. The PIU, with help from consultants, has prepared Detailed Engineering Design

Reports for both the BoQ contracts and Annuity Concessions. The designs meet all the

engineering and safety standards as prescribed in the Indian guidelines for road construction,

including the Indian Road Congress (IRC) standards.

53. Extensive road safety design review was carried out for all roads included in the project.

This exercise was supplemented with road safety audit on the already operational Karnataka

State Highway project corridors, particularly to understand the types of road crashes and identify

the safety vulnerabilities. Based on the safety design review and audit, safety vulnerabilities were

identified in the at grade intersections, pedestrian at grade crossings and urban/semi-urban limits

where the traffic mix is highly heterogeneous. Specific road safety engineering counter measures

were adequately integrated in the main engineering designs to reduce the safety risks in these

vulnerable locations and also to provide a safer road environment. Besides providing adequate

signage, marking and safety devices (e.g. delineators, crash barriers etc.), special effort has been

made towards introducing (a) dedicated slow traffic lanes delineated by raised pavement

markers, and (b) dedicated at grade or grade separated pedestrian crossings, in the built up-

sections, and (c) providing channelization and installing safety devices e.g. blinkers at the

intersections, to further improve road safety during operation of the road. To avoid highly

congested town stretches, three bypasses and major realignment have been proposed. Two at

grade rail-road crossings will be upgraded to provide fully grade-separated crossings to improve

safety at these locations.

E. Financial Management

54. There are two implementing agencies responsible for the proposed project, namely: PIU

and KRDCL. For the activities of the PIU, all major payments and accounting would be

centralized in the PIU office in Bangalore, while payments for utility shifting and other small

payments would be made in the division offices of the PIU. For the component managed by

KRDCL, all payments and accounting will be done by KRDCL. The PIU was responsible for

implementing the first Bank-financed KSHIP, and its staff are familiar with the Bank‟s financial

management procedures and policies. There are adequate systems and processes in place in the

PIU to carry out the accounting and financial management requirements of the proposed project.

KRDCL is a government-owned corporation, which has been working for more than a decade

and has adequate systems and processes in place. Overall, the financial management

arrangements at the PIU and KRDCL are considered to be adequate to support the use of funds

under the proposed Loan.

55. The audit of the project funds managed by the PIU will be carried out by the Comptroller

and Auditor General (CAG) of India as per the agreed terms of reference. For project funds

managed by the KRDCL, the audit will be carried out by a Chartered Accountant (CA) appointed

as per the agreed terms of reference and selection process agreed with the Bank. Internal audit s

would be an integral part of the project design. A CA firm (who is empanelled with the CAG and

is eligible to carry out major audits) would carry out the internal audit. The TOR for the internal

audit would cover review of aspects covering contract management, physical verification,

internal controls etc.

15

56. A Designated Account (DA) will be maintained with the Reserve Bank of India (RBI) for

the project and would be operated by the Controller of Aid Accounts and Audit (CAAA) in

accordance with the Bank‟s operational policies. There will be a one-time fixed advance of

US$10 million, which will be maintained throughout the project life and adjusted towards the

end of the project. Both the PIU and KRDCL will submit withdrawal applications supported by

Interim Unaudited Financial Report (IUFR) to CAA&A for onward submission to Bank for

replenishment of the DA or reimbursement. The Bank will replenish the DA with equivalent

amount claimed on eligible expenditure by the implementing entities and as reported in the

IUFRs.

57. Disbursements will be made based on quarterly IUFR, which will be submitted by the PIU

and KRDCL for their respective activities to the Bank within 45 days from the end of the quarter.

These IUFRs would reflect the actual expenditure for the loan components. Any advances given

by the project would be separately shown in the IUFRs. All expenditures reported in the IUFRs

will be subject to confirmation/certification by the annual audit reports. Any difference between

the expenditure reported in the IUFRs and those reported in the annual audit reports will be

analyzed and those expenditures, which are confirmed by the Bank as being not eligible for

funding would be adjusted in the subsequent disbursements. The IUFR formats will be agreed by

negotiations.

58. Budgeting and Fund Flow. The proposed Loan funds will flow through a new budget head

5054-03-337-0-84-172 Development of State Highway (WBA Roads) which has been created

for the PIU portion of the loan funds. The GOK is in the process of creating a similar budget

head for KRDCL, and KRDCL will be authorized to withdraw the funds from the treasury for its

component. The PIU would use the treasury system for payments for the components they

manage. The KRDCL would draw the money from the Treasury and maintain a separate bank

account for setting all project-related payments.

59. Based on the experience of the PIU in handling the first KSHIP and the current financial

management setup in both the PIU and KRDCL, the FM rating for the Project is rated as

“Moderate”. The details of the FM assessment are provided in Annex III.

F. Procurement

60. General: Procurement for the proposed project will be carried out in accordance with the

World Bank‟s "Guidelines: Procurement of Goods, Works and Non-Consulting Services under

IBRD Loans and IDA Credits and Grants by World Bank Borrowers" dated January 2011

(Procurement Guidelines); and "Guidelines: Selection and Employment of Consultants under

IBRD Loans and IDA Credits and Grants by World Bank Borrowers" dated January 2011

(Consultant Guidelines) and the provisions stipulated in the Legal Agreement. However, some

contracts for which advanced procurement has taken place will follow Procurement and

Consultant Guidelines May 2004, Revised Oct 2006 and May 2010.

61. Procurement Risk Assessment and Mitigation: The proposed project will be implemented

by the PIU and KRDCL. The PIU was established in PWD for implementation of KSHIP I, and

16

the same PIU will continue during the implementation of KSHIP II. Many of the PIU

procurement staff have experience in handling procurement functions in accordance to Bank

policies and procedures, having successfully handled procurement activities for KSHIP I.

However, the PIU has not handled in the past PPP transactions, and as such the procurement staff

do not have adequate experience to procure the DBFOMT Annuity Concessions to be financed

under the proposed project. Furthermore, the Bank does not have a standard bidding documents

through which PPP transactions financed under Bank loans could be procured. The GOK, with

the help of consultants, is preparing a set of bidding documents and concession agreement, which

would be acceptable to the Bank procurement principles, and will be used to procure the

DBFOMT concessions financed under the proposed project. The PIU has completed the

preparation of Request for Qualification (RFQ), Request for Proposal (RFP) and Concession

Agreement for the proposed DFOMT concessions. The Bank has provided the “no-objection” to

GOK to issue the RFQ to interested applicants. The review of the RFP and CA is ongoing, and is

likely to be completed before the GOK is ready to issue them to the pre-qualified bidders for the

concession.

62. KRDCL will be responsible for implementation of Component 2, which includes services

and civil work improvement with co-financing from domestic financial institutions. Although,

KRDCL has not handled Bank procurement in the past, the present staff in KRDCL had earlier

handled Bank procurement for KSHIP I, and most of them are conversant with Bank

procurement procedures. In addition, the KRDCL will continue to provide training to its staff on

Bank Procurement Guidelines, as well as get support from the PIU staff on procurement matters

as needed until its staff are fully trained. The current procurement decision-making process in

KRDCL is time consuming. In order to expedite the decision-making, KRDCL will submit the

contract award recommendations to the current established KSHIP Project Steering Committee

as an interim measure. As a long-term measure, the KRDCL will form a Board sub-committee

with full powers to award all contracts.

63. Procurement Plan: The draft procurement plan for procurement to be taken up during the

first 18 months of project implementation has been prepared and is enclosed as Appendix- 1 to

Annex-3. The procurement plan will be updated at least annually or as required to reflect the

actual project implementation needs and improvements in institutional capacity. It will also be

posted in the KSHIP website and on the Bank‟s external website.

G. Social

64. A social impact assessment was carried out by the borrower along the project roads to

identify the potential social impacts and propose appropriate mitigation measures. The land

acquisition and resettlement impacts in this project are moderate. The land acquisition required

for all the Component 1 of the project roads (831 km) is estimated to be about 225 hectares

including 10 hectares of government land. The number of families to be affected is estimated to

be about 5,300 households and more than half of them are to be minor impacts. The PIU, with

assistance from its consultants, has prepared a Resettlement Action Plan (RAP) for the project,

outlining the land acquisition and resettlement impacts and proposed mitigation measures. The

compensation and assistance/ support proposed for the affected people are in line with National

Resettlement and Rehabilitation (R&R) policy provisions and the Bank's Operational Policy

17

guidelines. The RAP has been locally disclosed by the borrower as a draft and final versions and

discussed with the affected people and other stakeholders during consultations held at six

important places in the project area. The Bank has also disclosed the draft RAP and final

versions in the Bank‟s Info Shop. The RAP has been endorsed by the Bank and approved by the

Government. The implementation of RAP has been initiated and land acquisition for item-rate

contracts is in an advanced stage. At the time of appraisal, 40 percent of 78 hectares of land

required for these contracts has been acquired. The balance land acquisition will be completed

and handed over in accordance with the schedules specified in the bid documents. For

resettlement assistance, all preparatory actions such as joint verification of assets on Right of

Way, issuance of identity cards to eligible people, identification of alternative plots, obtaining

options for economic rehabilitation, etc. are in progress. The NGO services and M&E

consultant‟s services are already in place to provide implementation support to the borrower. The

KRDCL roads will be carried out in Phase 2, and the social screening and impact assessment and

management through preparation and implementation of Resettlement Action Plan will be

followed in the same manner as the PIU-managed roads. The KRDCL roads will be identified

during project implementation, and the nature and magnitude of land acquisition and

resettlement impacts will be assessed then following similar procedures as done for the first

phase of the project. In order to increase its social impact management capacity, KRDCL will (a)

adopt the land acquisition and R&R policy provisions followed for KSHIP II roads; and (b)

engage qualified staff having experience in dealing with land acquisition and resettlement

matters.

H. Environment

65. The PWD has completed the EA process for the project using the Project Preparation

consultants‟ environmental experts. A screening exercise for selecting roads to be improved from

the 3,411 km of core road network ensured that key environmental issues were dully

incorporated in the project design. The Environmental Assessment of the selected roads has

culminated with an Environmental Impact Assessment for the project and corridor specific

Environmental Management Plans have been prepared. Since the project does not include road

works through environmentally sensitive areas, the potential adverse impacts are manageable.

During the EA process, several alternatives for realignment and material use were analyzed to

ensure that the project design balances environmental, social, and technical considerations in

selecting the intervention for each road improvement. The EA for the project has been

adequately prepared and the PIU has put in place an institutional structure that will be able to

address environmental impact management and related issues that are likely to arise during

project implementation. The EA documents have been published locally and in the Bank‟s

InfoShop. Since this is a Category A project, an Independent Review has been conducted by

independent consultants, who have confirmed that the EA process was conducted following

established Bank and Government environmental policies and guidelines. For KRDCL roads, a

similar environmental screening will be undertaken to ensure that no roads pass through

protected areas. Also, environmental impact assessment, and preparation of environmental

management plan will be undertaken during Phase 2 of the project implementation along the

lines of Phase 1, to manage the potential environmental impacts. A corresponding institutional

structure with sufficient capacity will be put in place at KRDCL.

18

INDIA: SECOND KARNATAKA STATE HIGHWAY IMPROVEMENT PROJECT Annex 1: Results Framework and Monitoring

Project Development Objective (PDO): To accelerate the development of the Core Road Network through leveraging public sector outlays with private sector financing, and improving the institutional effectiveness of the road sector agencies to deliver effective and safe roads to users.

PDO Level Results Indicators* C

ore

Unit of Measure

Baseline Cumulative Target Values**

Frequency Data Source/ Methodology

Responsibility for Data

Collection

Description (indicator definition

etc.) YR 1 YR 2 YR3 YR 4 YR5

Achievement by GOK in generating at least US$500 million in new private sector capital (debt and equity) for CRN improvement and management by end-of-project (EOP).

US$ million

200.00 (Currently raised by KRDCL)

200.00 (KRDCL+KSHIP II)

500 (KRDCL + KSHIP II)

Every two years

PWD Annual Report, KRDCL Annual Report

PWD, KRDCL The indicator will measure private sector debt and equity raised as part of the DBFOMT concession and by KRDCL as part of the co-financing, and by KRDCL on its own through parallel transactions.

Share of Core Road Network in good condition (IRI < 4) increases from 50 percent to 65 percent by EOP.

Km (%) 50% 50% 65% Every two years

Asset Management Unit

PWD Will measure expansion of road quality and expansion in the state. The baseline date includes National Highway, which are part of the CRN

15 percent reduction in Vehicle Operating Costs and 25 percent reduction in Travel Time Cost on project corridors by EOP

US$ per vehicle-Kms

VOC: US$0.26 TT: US$0.074

VOC: US$0.20 TT: US$0.06

When the road construction is completed

Asset Management Unit

PWD Will measure the impact of the project on road users

30 percent reduction in road-accident related fatalities on safe corridor pilots by EOP.

Number of fatalities per year

30 (on Belgaum to Hungund corridor)1

30 27 21 Every two years

M&E Report on safe corridors pilot

PWD Will measure ability of the project to show measureable results on road safety

INTERMEDIATE RESULTS

Intermediate Result (Component One): Road Improvement Component

Completion of upgrading and widening of about 269 km. through item–rate contracts

Km / Procurement milestones.

Contracts awarded

100 kms road constructio

269 km road construc

Every Year Project Progress Report

PWD

19

n substantial

ly completed

tion complet

ed

Completion of upgrading, widening of about 562 km. through DBFOMT (Annuity) Concessions

Km./ Procurement milestones

RFQ issued

Developers hired

562 Km Construction Completed

O&M phase started


PWD

Land acquisition and resettlement Implementation (a) Land acquisition

completed (Phase I) (b) Key R&R assistance

provided (alternative housing and livelihood support)- Phase I

(c) Improve the living

standards (measured percent PAFs with increased/restored income/assets): Phase I

Percentage Percentage Percentage

0% 0% 0%

40% 20%

70% 40% 25%

100% 70%

100% 80%

Every Year Every Year Twice in the project period

Project Progress Report Project Progress Report Project Progress Report R&R Impact Assessment Report

Environmental Management

Implementation of EMP as agreed.

(b) ISO 14001 certification obtained for operational units

No.

0 0

As awarded

PIU(HQ) certified

1 field division certified


PWD

Intermediate Result (Component Two): Highway Financing Modernization Component

KRDCL generates additional road user revenues and commits them for mobilizing debt financing (via securitization) and/or making payments for PPP transactions

Policy and Institutional Action

Passing of Tolling Policy

Tolling started on selected roads

KRDCL issues debt or develops PPP transaction backed by toll revenues


KRDCL

Completion of upgrading, widening and O & M of

Km / Procurement

Screening commenc

Co-financing

DPR completed

Construction Completed


KRDCL

20

about 400 km through co-financing arrangements

milestones ed arrangement established; Transaction Adviser engaged

Intermediate Result (Component Three): Road Safety Improvement Component

Effective implementation of Safe Corridor Pilot

Policy and Institutional Actions

Lead Agency Established: pilot corridor identified

Consultant services procured

Multi-sector intervention implementation started

Multi-sector intervention completed

Minimum 3 star rating achieved through iRAP investigation

Every Year M&E Report on Safe Corridors Pilot Annual Report of Road safety Cell

PWD / Road Safety Cell

Intermediate Result (Component Four): Road Sector Policy and Institutional Development Component

Satisfactory implementation of agreed Action Plan for institutional development and governance improvement

Policy and Institutional Actions

IDSAP and GAAP Endorsed

Key consultant services procured

Studies Completed

Recommended actions taken

Assessment of IDSAP and GAAP results made

*Please indicate whether the indicator is a Core Sector Indicator (see further http://coreindicators) **Target values should be entered for the years data will be available, not necessarily annually. 1. Baseline data for Bangalore-Mysore corridor will be collected during early implementation

http://coreindicators/

21


Annex 2: Detailed Project Description

1. The proposed project will have four components: (i) Road Improvement Works, (ii)

Highway Modernization, (iii) Road Safety, and (iv) Road Sector Policy and Institutional

Development.

2. Component 1: Road Improvement Works (Total Cost: US$603 million – IBRD:

US$260 million; GOK: US$94 million; Private Sector: US$249 million). This component will

support capital improvement and maintenance works of selected priority Core Road Network

through a combination of conventional item-rate contracts and DBFOMT annuity concessions.

3. Civil works under conventional item-rate contracts. The project will finance improvement

of about 269 km roads following conventional item-rate contracting. These are Bill-of-Quantity

(BOQ) type contracts. The roads to be improved under this contracting approach are provided in

the table below. This component will also finance the design, construction supervision and

associated environmental management plans, and land acquisition, utility shifting and R&R

expenses7.

4. Design-Build-Finance-Operate-Maintain-Transfer (DBFOMT) Annuity Concessions.

The project will finance improvement of four corridors with a total length of 562 km under

DBFOMT (annuity) concessions. The GOK will select a concessionaire through a competitive

bidding process. The project will finance 50 percent of the estimated construction cost, which

would be paid to the selected concessionaire by GOK during the construction period. The

concessionaire would raise the required financing to carry out construction works and other

expenditure including the O&M expenses, through a combination of equity and debt. The

concessionaire will recover the investments through two types of payment by GOK: (a) lump-

sum payment (50 percent of the estimated construction cost) during construction on

achievements of agreed milestones. The lump-sum payments will be financed entirely by the

proposed IBRD loan; (b) a semi-annual payments (annuities) during the operating period of the

concession. The amount of the annuity payment will be determined through a competitive

process during the bidding stage, and will be entirely financed by GOK during the O&M phase.

The concession will span for a period of 10 years with a construction period of two to three

years, and O&M phase of seven to eight years. The selected concessionaire will fully bear the

design and performance responsibility and risks. A firm will be engaged as an „Independent

Engineer‟ to monitor the progress and quality of works during the construction period , as well as

to enforce maintenance and safety management on the corridors during the O&M phase of the

concession period. The list of project roads to be developed under this scheme is provided below,

along with the financing arrangement. This component will also finance the preliminary design,

transaction advisory services, associated land acquisition and R&R activities and the fees of

independent engineer.

7 All land acquisition, utility shifting, and the major of R&R costs are financed entirely by GOK.

22

Table 3

Component 1: Road Improvement Works: List of Roads and Financing Arrangement

(US$ million)

Activity Description

Costs

Including

Contingency

Bank

Financing

GOK

Financing Developer

(a) Civil Works under Item Rate

Contracts 166.00 119.57 46.43 0.00

(i) Base Construction Cost Estimate 137.59 110.07 27.52 0.00

Hoskote H Cross - Chintamani Bypass 25.54 20.43 5.11 0.00

Hangal-Tadas-Haveri 35.79 28.63 7.16 0.00

Dharwad - Saudatti 19.63 15.70 3.93 0.00

Tinthni-Devadurga-Kalmala 40.14 32.11 8.03 0.00

Chowdapur- Gulbarga 16.49 13.19 3.30 0.00

(ii) Land Acquisition 2.71 0.00 2.71 0.00

(iii) Utility Shifting 8.19 0.00 8.19 0.00

(iv) Resettlement &Rehabilitation 7.63 1.59 6.04 0.00

(v) Environmental Management Plan 1.48 1.19 0.30 0.00

(vi) Project Coordination and Supervision

Consultancy Services 8.40 6.72 1.68 0.00

(b) Civil Works under DBFOMT

Annuity Concession 436.65 140.08 47.39 249.18


Malavalli-Tumkur-Pavagada 97.67 48.83 0.00 48.83

Muvol-Kabbur-Nippani 58.10 29.05 0.00 29.05

Shimoga - Anandapuram (NH-206) 69.82 34.91 0.00 34.91

Managuli-Talikota-Devapura 48.48 24.24 0.00 24.24



(iv) Resettlement &Rehabilitation 16.06 1.60 14.46 0.00

(v) Environmental Management Plan 3.47 0.00 0.00 3.47

(vi) Transaction Advisor Costs 0.23 0.18 0.05 0.00

(vii) Independent Engineer 3.14 1.26 0.31 1.57

(viii) Operation and Maintenance 39.24 0.00 0.00 39.24

(ix) Project Development, Financing and

other Charges 67.86 0.00 0.00 67.86

Total 602.65 259.65 93.82 249.18

5. Component 2: Highway Financing Modernization (Total Cost: US$374 million – IBRD:

US$67 million; GOK: US$56 million; Private Sector: US$251 million).This component will

assist KRDCL in implementing the concept of co-financing with private financial institutions

through technical assistance and pilot transactions.

23

6. Technical assistance and Advisory Services. This component will finance a range of

technical assistance and advisory services designed to assist KRDCL to expand private sector

participation in highway development and to undertake fiscally prudent market borrowing for the

development of the Core Road Network. As part of GOK‟s strategy to transition the road

financing arrangements from “annual budgetary allocations” to “non-lapsable, ring-fencing of

specified stream of revenues from road user fees”, it has allowed KRDCL to toll recently

improved highways and channelize the consequent revenues into a dedicated account. KRDCL

will be utilizing these revenues flows to support development of roads including through PPP

transactions, either directly or through mobilizing additional debt financing via securitization. To

begin with, KRDCL will levy tolls on about 1500 km of highways, which were recently

improved by it and under KSHIP I. These roads, which are in relatively good condition, would

generate substantial net revenue. In this context, the project will finance the costs of a Financial

Planner and other experts to assist KRDCL and GOK in the following critical areas: (a)

developing a tolling strategy, including the optimal means for effective collection and

monitoring of toll revenues; (b) preparing a medium-term financial plan, covering various

sources and uses of the revenues generated by KRDCL; (c) formulation of debt policies that

would enable KRDCL to achieve appropriate investment-grade credit rating for its bonds; and

(d) government‟s contingent liability, if any, on account of the KRDCL borrowing . The advisory

support to GOK and KRDCL would ensure that borrowing by KRDCL would be prudent,

sustainable, and within its revenue projections.

Table 4

Component 2: Highway Financing Modernization: Co-financing Arrangement

(US$ million)


Costs

Including

Contingency

Bank

Financing

GOK

Financing

Developer/

Private

Banks

(a) Consultancy and Transaction

Advisory Services for KRDCL 5.00 4.00 1.00 0.00

(i) Financial Planning Advisor 2.50 2.00 0.50 0.00

(ii) PPP Advisor 2.50 2.00 0.50 0.00

(b) Civil Works under Co-financing

with Commercial Banks 368.85 63.26 54.69 250.90




(iv) Resettlement & Rehabilitation 14.48 0.00 14.48 0.00

(v) Supervision Consultancy Services 3.15 1.26 0.31 1.57

(vi) Financing Costs 2.75 0.00 0.00 2.75

Total 373.85 67.26 55.69 250.90

7. Co-financing pilot transactions. The project will provide US$62 million financing to

KRDCL for co-financing with commercial financial institutions to develop about 400 km of

highways under either item-rate contracts or PPP concessions. This component will also finance

the preliminary design, transaction advisory services, associated land acquisition and R&R

activities and the fees of independent engineer. Several domestic financial institutions have

24

shown interest to provide co-financing with IBRD for KRDCL program. The co-financing is

expected to generate additional US$250 million from financial institutions and developers,

allowing IBRD financing to reach further. The IBRD co-financing would also help KRDCL to

attract commercial financing at relatively attractive terms by lowering the risk perception of the

loans. The co-financing sub-component, which is planned for Phase 2 of the project, will be

implemented following the safeguard and fiduciary policies agreed for KSHIP II, and will be

acceptable to the World Bank.

8. Component 3: Road Safety Improvement (Total Cost: US$14 million; IBRD: US$11

million / GOK: US$3 million). Against the backdrop both of rapidly increasing motorization

and a continuing sharp rise in road-related deaths over the last decade in Karnataka, the GOK has

committed itself to improving road safety in the state through new strategic and comprehensive

measures. These measures are broadly aligned with the findings and recommendations of the

2007 Sundar Committee report on Road Safety and Traffic Management in India, and include the

assignment of Lead Agency role for road safety management to the Transport Department and

the recent establishment of a Traffic and Road Safety Cell under the Transport Department.

9. The activities and interventions to be supported under this KSHIP II Component will build

on the road safety management capacity review undertaken by the GOK in 2008 with Bank

assistance, which “inter-alia” recommended the initiation of a multi-sector / multi-agency Safe

Corridor Demonstration Program. The participation of Karnataka via the PWD in a joint World

Bank / Government of India multi-state program of road safety assessment, being undertaken by

the International Road Assessment Program (iRAP) and funded by the World Bank Global Road

Safety Facility as part of the Bloomberg Road Safety in 10 Countries projects, will produce

engineering countermeasures to be implemented under this component. The KSHIP II assistance

will also build on results being achieved in various discrete ADB-funded Road Safety technical

and capacity development activities and build on previous initiatives being undertaken in

Karnataka to build a crash data management system.

10. This component of the Project will primarily support the development, implementation and

evaluation of a multi-sector Safe Corridor Demonstration Program, and will provide assistance to

the GOK to build the capacity to deliver various lead agency functions in the Transport

Department under the Traffic and Road Safety Cell. The Safe Corridor Demonstration Program

outputs and outcomes are expected to inform progressive state-wide GOK action.

11. Implementation of a Safe Corridor Demonstration Program . The selected road safety

corridors are Maddur to Mysore (53 km) and Belgaum to Hungund (186 km). Under this

Program, the following activities will be funded:

(a) Improving the engineering conditions of the two safety corridors based on the iRAP

recommendations to achieve a minimum of three-star rating along the corridors.

(b) Strengthening the enforcement along the corridors by providing necessary consulting

services and equipments to traffic police units responsible for the Corridors. The RoadPol

initiative of the World Bank Global Road Safety Facility will start the dialogue with

senior level police officers in Karnataka to initiate a general deterrence enforcement

25

model on the two safety corridors, which may include the establishment and training of a

dedicated Highway Patrol unit to pilot enforcement activities on the two safety corridors.

(c) Enhancing road safety education, awareness for the population using and residing along

the Corridors; this will include targeted awareness campaigns for specific risk factors to

be launched by local NGOs who are active in this field.

(d) Improving the emergency medical response time and making these resources available

along the corridors by providing necessary technical assistance and equipments for

response teams along the corridors.

Table 5

Road Safety Components (US$ million)


Costs

Including

Contingency

Bank

Financing

GOK

Financing

(a) Safe Corridor Program (Works) 7.49 5.99 1.50

(b) Safe Corridor Program (Goods) 1.84 1.48 0.37

(i) Police Enforcement Equipment 0.81 0.65 0.16

(ii) Post-Impact Care 0.35 0.28 0.07

(iii) Monitoring and Evaluation Software and Hardware 0.69 0.55 0.14

(c)Safe Corridor Program (Services) 1.40 1.12 0.28

(i) Capacity Building for Police Enforcement 0.60 0.48 0.12

(ii) Development of Safety Campaigns 0.20 0.16 0.04

(iii) Capacity Building for Post-Impact Care 0.20 0.16 0.04

(iv) Consulting Services for Monitoring and Evaluation 0.40 0.32 0.08

(d) Capacity Building for PWD/Lead Agency 1.70 1.36 0.34

(e) Road Safety Centre of Excellence Study and

Establishment 1.20 0.96 0.24

Total 13.64 10.91 2.73

12. Lead Agency Capacity Building. This includes the following activities:

(a) Capacity building of the Transport Department and its Traffic and Road Safety Cell to

assume the lead agency institutional management functions as defined earlier;

(b) Facilitation / support for the necessary framework(s) of horizontal and vertical

coordination mechanisms and for multi-disciplinary technical working groups to deliver

the intervention on the corridors;

(c) Implementing the Karnataka Road Accident Form (KRAF) that was developed in 2006 in

the districts along the two safety corridors. This includes providing technical assistance,

training and equipments to police stations in charge of the two safety corridors. The

collected data will be used to monitor and evaluate the safe corridor demonstration

program through a technical assistance.

13. Capacity Building for PWD Staff. This includes the implementation of new PWD policies

and processes for “mainstream” integration of road safety engineering and construction zone

safety factors in PWD and KRDCL roads planning and design, supported by specific training

programs and equipment procurement.

26

14. Establishment of the GOK Center of Excellence for Road Safety Training, Education and

Research through the following activities:

(a) Feasibility and scoping study to inform on the institutional arrangements, functions,

design, funding and implementation of the Center.

(b) Assistance to GOK (alongside similar ADB assistance) towards the costs of establishing

the Center.

15. Component 4: Road Sector Policy and Institutional Development Component (Total

Cost: US$11.8 million– IBRD: US$9.44 million / GOK: US$2.36 million). This component

will support selected key elements of a new medium-term Institutional Development and

Strengthening Action Plan (IDSAP) for the period 2010-2016. The IDSAP, which is shown in

Annex 8, covers the PWD, the KRDCL and the Transport Department. The GOK, in consultation

with the World Bank and the ADB, has established this Plan as the basis for harmonized sectoral

support by both the development partners. In order to achieve the IDSAP, the project will

financing the following technical assistance, advisory services and studies (Table 6):

16. Table 6

17. IDSAP Component – TA Services, Training, and Goods (US$ million)

18.


Costs

Including

Contingency

US$

Bank

Financing

US$

GOK

Financing

US$

(a) Road Financing Study 2.50 2.00 0.50

(b) Road Asset Management system - data population and

operation 2.50 2.00 0.50

(c) PWD-wide QM / ISO Certification program (Phase II) 0.50 0.40 0.10

(d) QM / Quality Control capacity enhancements in PWD 2.00 1.60 0.40

(e) IT-ICT-MIS Strategy and Action Plan preparation and

implementation 0.60 0.48 0.12

(f) PWD implementation of Project Management

framework/processes 0.45 0.36 0.09

(g) Implementation of new PWD Financial Management

System 0.30 0.24 0.06

(h) HRD and Training enhancements and program delivery in

PWD 1.65 1.32 0.33

(i) Strategic Studies for GOK Planning 0.65 0.52 0.13

(j) Other IDSAP and GAAP target implementation support 0.65 0.52 0.13

Total 11.80 9.44 2.36

(a) Out-sourcing of network-wide road condition data collection and management services to

fully „populate‟ and commission the PWD Road Asset Management system, to support

Maintenance Budget planning and management.

(b) Facilitation of the new Road Fund’s operationalization following its enactment by

GOK, including the preparation of Fund operating policies and Rules, financial and

27

administrative management processes, an appropriate governance and reporting

framework, Fund-specific organizational and business plans, and building the capacity of

the secretariat resources of the Fund in all aspects of its revenue, budget, financing and

borrowing functions and activities.

(c) Completion of the PWD-wide ISO Certification program, also covering KRDCL. In the

first phase under KSHIP I, 21 PWD units completed the program and 46 units are to be

covered in the second phase under KSHIP II.

(d) Implementation of an integrated PWD package of Quality Management / Quality

Control skill development measures, systems and equipment.

(e) Development and implementation of medium-term PWD-centered IT-ICT-MIS

Strategy and Action Plan(s) to frame PWD action on IT-related investments,

integration, operations management and security.

(f) Enhancement of PWD processes and capacity for Human Resources Development and

Training, including planning, training needs assessment, program development,

establishment of a sustainable dedicated Training / HRD budget , support for PWD /

KRDCL participation in specialist international training programs and high-priority study

tours, and implementation of new PWD-specific performance management tools.

(g) Implementation of the Project Management model / framework of functions, processes

and capacities as demonstrated by the PIU since KSHIP I, in all major PWD units the

planning, preparation and delivery of GOK-funded projects

(h) Implementation/roll-out of new PWD-wide computerized Financial Management

System, including training support and E-systems integration services.

(i) General implementation support for other IDSAP and GAAP elements over the KSHIP

II period, including facilitation of Project-based „third party quality monitoring‟

resources, implementation of „on-line‟ Complaints Handling process and Project-

centered public information and communications functions and capacity, a KRDCL

corporate governance assessment and preparation of a medium-term „core systems

Sustainability Plan‟.

(j) Policy and/or strategic studies (to be determined progressively) to advise GOK on CRN

„asset protection‟ options, on multi-modal integrated transport planning, future sector

institutional options and/or governance issues .

28


Annex 3: Implementation Arrangements

A. Implementation Arrangement

1. Overall implementation arrangement and Coordination. The Government of Karnataka

will be implementing the proposed project through its Public Works Department (PWD) and the

Karnataka Road Development Corporation Limited (KRDCL), an autonomous corporation

owned by the state government. The Public Works Department has established a Project

Implementation Unit (PIU) to implement three of the four project components, namely

Components 1, 3 and 4. The KRDCL using its main organizational setup will be responsible for

implementing Component 2, which focuses on highway financing modernization and co-

financing with private banks. Both the PIU and KRDCL will report to the Principal Secretary,

PWD, who will be ultimately responsible for the project results on behalf of GOK. In addition,

the GOK has established the following apex bodies to ensure coordination and accountability for

the project.

(i) Project Governing Board, chaired by the Chief Secretary, to meet quarterly to address

inter-departmental issues affecting project implementation and take stock of progress in

the reform program; and

(ii) Project Steering Committee, chaired by the Principal Secretary (PWD), to coordinate and

monitor the project implementation, with a focus on ensuring effective project

implementation performance and achievement of results.

2. Implementation Capacity. An implementation capacity assessment was carried out on both

the PIU and KRDCL, and both agencies are found to have adequate capacity to implement the

project, with additional implementation support and transaction advisory services. Many of the

staff in the PIU have experience in implementing the first bank-financed KSHIP I. The PIU is

currently fully staffed and have the following key officers:

(i) A Chief Project Officer as head of the PIU;

(ii) A Chief Engineer, PWD, as the full time Project Director,

(iii) Three Superintending Engineers and Three Executive Engineers to manage

procurement, Environment and implementation of all project components,

(iv) Two Karnataka Administrative Service officers, two assistant commissioners and three

Tehsildars to manage land acquisition and R&R issues,

(v) A Deputy Secretary Finance, a Joint Controller of Accounts, assisted by Audit Officer

and two Accounts Superintendents, to oversee financial management issues,

(vi) Two experienced Environmental and Social Management specialists, to manage social

and environmental safeguards management issues,

(vii) A Financial Management expert, recruited from the market, to manage project financial

management aspects, and

(viii) Several mid/junior level engineers, social and environmental staff, accountants and

other support staff.

29

3. The KRDCL is an autonomous corporation within PWD, managed by an independent

Board, with its executive powers vested in a Managing Director appointed by Karnataka

Government. The Managing Director will be overseeing the day-to-day implementation of the

project, and would closely interact with the PIU. KRDCL is also in the process of strengthening

its procurement management capability by mobilizing additional procurement staff. KRDCL has

implemented a few annuity concessions, and is actively preparing several PPP transactions to

take into the market. The project will provide technical assistance services to KRDCL to increase

its capacity to manage PPP programs following national and international practices.

Road Improvement Works (Component 1)

4. The road improvement works are proposed to be implemented in two parts. The first part,

representing about 35 percent of the total value of works under Component 1, will be

implemented through traditional Bill-of-Quantity based contracts. The second part, representing

the balance 65 percent of the works under Component 1, will be implemented through Design-

Build-Finance-Operate-Maintain-Transfer (DBFOMT) Annuity Concessions.

5. Component 1(a) – Item-rate (BoQ) Contracts: These works will be implemented by

qualified international and/or national contractors, and supervised by an internationally recruited

supervision consultant firm who will act independently as the „Engineer‟ for the project. The

PWD staff will monitor the works in the capacity of „Employer‟s representative.

6. Component 1(b): DBFOMT Concessions: These concessions, spanning a period of 10

years with a construction period of two to two-and-half years, will be implemented by qualified

international and/or national developers, fully bearing the design and performance responsibility

and risks. For each of these concessions, a firm will be engaged as an „Independent Engineer‟ to

monitor the progress and quality of works during the construction period on a continuous basis

and thereafter the maintenance and safety management issues on an intermittent (monthly) basis

during the remaining concession period.

7. Construction Zone Safety: In recent highway construction programs in India, there have

been several construction accidents resulting in major injuries and death of workers and

travelers. Although KSHIP I did not have such experience, it is nevertheless important to

strengthen project implementation framework to comply with construction zone safety standards

and regulations. In order to ensure that the contractors follow good safety standards, the bidding

documents have been enhanced to include (a) detailed checklist on work-zone safety measures,

(b) additional contract clauses to improve the contractual enforcement of the work-zone safety

regulations, and (c) pay items in the bill of quantities to ensure compliance with construction

safety regulations. The contract documents will also specifically include strong deterrents

including heavy penalties (or deductions from the annuity payments) and temporary stoppage of

affected works in the event of lapses in construction safety and until remedial measures are

undertaken. In addition, the terms of reference of the supervision consultants have been

enhanced to include (a) a full-time construction safety expert/specialist in the team; (b)

construction safety aspects as part of their explicit duties, responsibilities and reporting

requirements; and (c) hands-on construction safety training of the work site personnel of the

contractors and consultants. Finally, on the government (client) side, the implementation and

30

management framework on work-zone safety for both BoQ contracts and DBFOMT concessions

will be strengthened with (a) introduction of an independent safety audit , carried out as „surprise

checks‟ by designated construction safety personnel drawn from regulatory / labor welfare

departments or academia; and (b) establishing closer cooperation with few labor welfare and

safety initiatives/ organizations already set up in Karnataka.

Highway Financing Modernization (Component 2)

8. This component will be implemented by KRDCL. KRDCL has experience in managing

various types of road construction works and it has also recently awarded two BOT concessions.

Yet, considering that KRDCL will be responsible for modernizing the GOK‟s highway financing

strategy based on ring-fencing of toll revenues - through mobilizing co-financing and

implementing pilot transactions -- with support from the project, they will procure expert

assistance in critical areas, including development of tolling strategy, preparation of medium-

term fiscal plan for the sources and uses of revenue generated by KRDCL, formulation of debt

policies and preparation and structuring of PPP transactions. Concomitantly, KRDCL will be

establishing a dedicated wing to implement the highway financing modernization component,

with adequate internal and outsourced staff with expertise in technical, financial, safety,

environmental and social management aspects.

Road Safety (Component 3)

9. The project-supported Technical Assistance and other action to build effective „lead

agency‟ capacity in the Transport Department will be procured by the KSHIP II PIU, although

the day-day-management of this TA will be the responsibility of Transport Department via its

Traffic and Road Safety Cell. Overall oversight of progress in this action and on the Safe

Corridor Demonstration Program (SCDP) will be the responsibility of the Transport Department.

However, the road infrastructure part of the SCDP would be implemented by the KSHIP II PIU.

The KSHIP II funding for this component will include financing of works, consultancy services,

goods and technical support to the Transport Department and other participating entities for all

aspects of the SCDP.

Road Sector Policy and Institutional Development (Component 4)

10. The implementation of this will be primarily managed by the Public Works Department

(PWD) via the Institutional Development and Strengthening (IDS) Cell, which has “inter-alia”

has been given the responsibility for supporting the Principal Secretary (PWD) and the PWD

senior management on the institutional development agenda for the sector. KSHIP II funding

under Component 4 will finance some consulting services and technical assistance inputs for

follow-on (post-ADB-CDTA) capacity building measures in the Planning and Road Asset

Management Center (PRAMC) for its responsibility for PWD-centered organizational

development and modernization, and the responsibility for such procurement will rest with the

PIU. Reporting on implementation progress in the IDSAP program will be provided by the

PWD, via joint PRAMC and PIU action, and reviewed periodically by the KSHIP II Project

Steering Committee.

31

B. Monitoring and Evaluation

11. Results Monitoring and Evaluation. The monitoring and evaluation of the achievement of

the PDO and the outcome indicators will be conducted through a continuous process during the

project life essentially using the Results Framework shown in Annex 1. Most of the progressive

status data on the indicators including traffic volume, speeds and road condition will be collected

through the asset management / road information system already developed under the first

KSHIP. This data collection effort will be supplemented by relevant / real time outputs from

various engineering / institutional strengthening studies to be funded by the project. Moreover,

the impact of institutional development, improved governance and safety management will be

measured through periodic objective assessments, stakeholder meetings and user satisfaction

surveys. Karnataka PWD is one of the few road agencies that publishes annual reports and also

disseminates key operational and performance statistics through its official website. This

information will also be helpful in the monitoring and evaluation exercise.

12. Third Party Monitoring. As an innovative measure to enhance quality of works, the PIU

will introduce principle third-party monitoring of project works through an Independent Panel of

Experts drawn from reputed engineering institutions and retired Senior Engineers. This will be a

nice complement to the task force constituted by GOK with outside experts drawn from the

profession and academia for ensuring quality in all civil works that reports directly to the Chief

Minister.

13. Road User Satisfaction Survey. Three rounds of road user satisfaction surveys will be

carried out, the first one coinciding with the start of the project, the second at the mid-term and

the third just before the project closure, to broadly assess the perception of road users on quality

of road infrastructure and services in the state. These surveys would also endeavor to capture the

project-specific impacts. Baseline, mid-term and end-term impact evaluation on social,

environmental and other operational issues directly related to the project will be also carried out

by independent professional agencies. The feedback from the third party monitoring exercise

will be also suitably integrated in the overall monitoring and evaluation exercise.

14. Quarterly Progress Report. The physical and financial progress for various project

components will be carried out as part of regular quarterly progress reporting and project

financial management system. It is also envisaged that a full-fledged computerized MIS system

will be developed for the project within the first eighteen months of project implementation and

the results of progress monitoring will be fully integrated with the project progress reporting

system.

C. Environmental and Social Impact Management

15. The PIU will be responsible for ensuring that the social and environmental safeguards are

fully implemented in the project. The GOK has deployed a Special Deputy Commissioner and

two Assistant Commissioners (Land Acquisition) to be based in two separate field Offices with

delegated administrative powers to execute land acquisition. In addition, the Chief Project

Officer will have all delegated administrative powers to approve resettlement actions. He will be

assisted by a senior level Karnataka Administrative Services Officer to manage the R&R related

32

impacts. Two local NGOs are also engaged to provide support to PIU in the implementation of

RAP. Based on the experience of implementing the first project and provisions of National R&R

policy, 2007, the PWD has developed project specific R&R policy to describe the compensation

and assistance for the project affected people, which is consistent with the provisions of the

Bank‟s Operational Policy on Involuntary Resettlement.

16. The Environment Management Plan will be included in the contract documents and will be

carried out by the contractor and developers alike. The Supervision Consultant and Independent

Engineer will supervise the implementation of the EMPs. The PIU has its own environmental

engineer and staff from Forest Department for co-ordination and overall supervision of measures

as per the EMP. Environmental regulatory clearance will be the responsibility of the PWD while

contractors will be responsible for obtaining regulatory permissions for their plants and

equipment in line with Indian regulations. The Phase-II project roads are yet to be finalized. The

approach for the environmental management for these roads will be similar to that used in Phase

I. The capacity of the KRDCL to mange environmental aspects will be developed during Phase-I

using, interaila, opportunities available in implementation of Phase I roads.

Social safeguards

17. A social impact assessment was carried out by the PIU along the project roads to identify

the potential social impacts and propose appropriate mitigation measures. The land acquisition

and resettlement impacts in this project are moderate. The land acquisition required for all

Component 1 project roads (831 km.) is estimated to be about 225 hectares including 10 hectares

of government land. The PIU has prepared the Resettlement Action Plan (RAP) with assistance

of the consultants outlining the land acquisition and resettlement impacts and proposed

appropriate mitigation measures. Social assessment for works to be implemented by KRDCL

under Component 2 will be carried out during project implementation following the same

procedures as done for Component 1.

18. The compensation and assistance/ support proposed for the affected people are in line with

National R&R policy provisions and the Bank's operational policy guidelines. The key policy

provisions include: compensation through negotiations with minimum compensation has been

defined as 1.5 times of the guidance value for districts closer to Bangalore metropolitan region

and two times for other districts, plus other top-up amounts such as amount towards taxes and

registration, additional compensation for loss of narrow stretch of lands, additional 25 percent for

those severance lands, rehabilitation grants and transitional allowances to those becoming land

less and marginal. The assistance for loss of residential and commercial properties also includes

compensation and alternative plots, shifting and subsistence allowances. The non title holders

will be provided with support and assistance to re-establish their shelter and livelihood. The

entitlements also include measures for income restoration assistance and support for vulnerable

groups. A committee including some of the independent members has been constituted for

negotiations with the landowners on compensation amount.

19. A large number of consultations have been held in about 25 places involving about 1800

people from more than 150 villages. The outcomes of these consultations are incorporated in the

designs and R&R entitlements as appropriate and relevant. Socio-economic surveys were carried

33

out among the potentially affected families. The key socio-economic characteristics are as

follows:

the average annual income of the affected families is INR 36,145 (US$800) and about 57

percent are living below poverty line with below INR 26,000/ year. a large proportion of

them, i.e. 40 percent are engaged in cultivation and about 30 percent in commerce and

trade.

only 4 percent reported that they are under debt.

nearly half (49 percent) live in Kutcha houses (temporary housing) and the average area

of the house is about 35 sq. mt.

only 30 percent of the houses are electrified and only seven percent have piped water

supply

only a small proportion of the families (less than 8 percent) own household assets such as

Television, refrigerator, cooking gas, two-wheeler and a phone. These living standards

will become basis for measuring the impact of compensation and resettlement assistance

in the post resettlement period.

20. The RAP has been locally disclosed by the borrower as a draft in March, 2010 and

discussed with the affected people and other stakeholders during consultations held at six

important places in the project area. The final RAP endorsed by the Bank and approved by the

GOK was also disclosed in the PWD‟s website in August 2010. The Bank has also disclosed

both draft and final RAPs in the Bank‟s InfoShop.

21. The implementation of the RAP has been initiated and land acquisition is underway. A

separate Social Development and Resettlement Cell, created during the implementation of the

first project, continue to function within PIU. All key staff consisting of Chief Administrative

Officer, Special Deputy Collector, Assistant Commissioners and Assistant Director and

Resettlement Officer are already in place. The two local NGOs are providing implementation

support and the concurrent third party monitoring is commissioned. Impact evaluation is

proposed to be undertaken at the mid -term and ICR stage to verify how far the objectives are

realized in improving the living standards of the affected people. Further, the borrower is

preparing the contract package wise implementation plans to describe the details about land

owners, coordinated time table in line with the construction schedules etc. The RAP also

describes the coordination with civil works and lists the activities that need to be completed prior

to issue of bids and prior to award of works. An independent grievance redressal committee at

the district levels is proposed to be in place prior to start of the implementation in the respective

districts. The land acquisition process has been initiated in the item-rate contract stretches and

first notification for all 75 hectares of private land is completed. So far compensation has been

offered to about 40 percent of the affected land-owners in the item-rate contract stretches and

substantial progress in relocation of affected community assets such as worship places, drinking

water sources, bus shelters, etc. were noticed.

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22. The RAP has been adequately prepared to address the social safeguard issues that are likely

to be encountered in the project and the policy provisions proposed for payment of compensation

and ass istance are in line with the Bank's operational policy on Involuntary Resettlement.

23. OP 4.10 Indigenous Peoples: The project affects few tribal people, who are not affected as

groups and are scattered throughout the project roads. The borrower has undertaken focused

assessment of project impacts on these people and confirmed that none of the project roads

passes through the designated tribal areas. This was also confirmed by the Tribal Welfare

Department of Karnataka. The consultations with tribal people reveal that they are mainstreamed

with other people and that they do not exhibit the characteristics that are outlined in the Bank's

OP 4.10. Therefore, it was concluded that these tribals would be given support in line with other

people and there is no need for a separate IPDP for Component 1. For Component 2, the roads

are likely to be selected from the 3,411 km sub-set of the Core Road Network, for which social

and environmental screening has been completed. The screening has shown that these roads do

not have tribal people living in the corridors who meet the characteristics of indigenous people as

defined in OP 4.10. Therefore, the IP policy will also not be triggered for Component 2.

Environment Impact Management

24. The Environmental Assessment (EA) process was carried out in parallel with the

preparation of engineering designs for the improvement of project roads. Several alternatives for

realignment and material use were analyzed to ensure that the adopted engineering design

balances the considerations for environmental and social aspects, with technical engineering

solutions. The EA has identified key environmental impacts from the proposed road

improvement works, and these include: a) the acquisition of short patches of forest land; b)

removal of roadside trees; c) potential for localized changes to natural drainage system close to

the road; and d) increased levels of noise and air pollution, especially affecting sensitive

receptors, such as schools/hospitals located adjacent to the roads. The EA has also identified

construction stage impacts such as pollution from the contractors‟ camp and equipment,

temporary dust and related pollution in stretches under construction, potential degradation in

water quality in case of untreated discharges, and indiscriminate disposal of debris of

construction. The corridor-specific EMPs provide payments for compensatory afforestation, and

forest land acquired, and provide measures for additional avenue plantation along improved

roads, noise barriers in cases in selected areas, and contract conditions that require the

contractors to reduce the pollution from their plants and establishment as well as include features

such as water recharge pits in the design of the road. In addition, the PIU will carry out

additional enhancement of selected roadside ponds using small contractors. The State

Environmental Impact Assessment Authority has provided clearance for the roads under the

Component 1 of the project following its own review requirements and procedures.

25. Consultations with the community were carried out at various times during the EA

preparation. The project design has incorporated some of the concerns raised by the local

communities, including those related to safety, dust control, conservation of water resources.

During the Independent Review of the EA, additional consultations were conducted. The

Independent Review has established that EA preparation conforms to World Bank requirements

set out in OP4.01 and other environmental safeguards policies triggered.

35

26. The PIU has begun implementing some activities identified in the EMP, such as provision

of noise barriers for sensitive receptors close to the roads. It has also put in place an

Environmental Management Unit, headed by an Executive Engineer, and deputed Forest

Department officials. In the field offices, environmental engineers‟ positions have been

established and being filled up. For monitoring the implementation of the EMP measures by the

Contractor, the Construction Supervision Consultant‟s teams will include specialists to monitor

and verify the completion of the EMPs for each road corridor. Similar expertise will also be

included in the Independent Engineer‟s teams overseeing the Annuity contracts. Towards its

institutional development, the PIU will use the project to get itself, and one of the PWD‟s field

divisions to be certified to ISO 14001 during the project implementation. The EA for the project

has been adequately prepared and the PIU is putting in place an institutional structure that should

be able to address environmental safeguards management related issues that are likely to be

encountered during project implementation. A similar arrangement is being established for

KRDCL.

D. Procurement Management

27. Procurement for the proposed project will be carried out in accordance with the World

Bank‟s "Guidelines: Procurement of Goods, Works and Non-Consulting Services under IBRD

Loans and IDA Credits and Grants by World Bank Borrowers" dated January 2011 (Procurement

Guidelines); and "Guidelines: Selection and Employment of Consultants under IBRD Loans and

IDA Credits and Grants by World Bank Borrowers" dated January 2011 (Consultant Guidelines)

and the provisions stipulated in the Legal Agreement. However, some contracts for which

advanced procurement has taken place will follow Procurement and Consultant Guidelines May

2004, Revised Oct 2006 and May 2010. The details are in the attached procurement plan at

Annex 3 (Appendix 1).

28. The following major procurements are envisaged in KSHIP II:

Procurement of Works:

29. Conventional Item Rate Contracts: The works relating to upgrading and widening of 269

km of roads will be implemented in five contract packages. The total estimated value is US$140

million. The bids for these contracts were invited on International Competitive basis following

Bank‟s Standard Bidding Document for Works (March 2007) on slice and package basis. The

contract award is expected by end-February 2011.

30. DBFOMT (Annuity) Concessions: The upgrading and widening of 562 Km of roads will be

implemented in four concession packages following DBFOMT (Annuity) Concessions. The

estimated project cost of these four packages is US$328 million (varying between US$53 to

US$120 million). The concessionaire will be selected through open competitive procedures and

the process will include pre-qualification and issue of bidding documents to the pre-qualified

bidders. The Request for Qualification (RFQ), Request for Proposal (RFP) and Concession

Agreement will be prepared by the PIU and agreed with the Bank. The Bank has already cleared

36

the RFQ. The review of the RFP and CA is ongoing, and will be completed before the GOK

issues them to pre-qualified bidders for the concession.

Procurement of Goods:

31. Procurement of Goods for the proposed project will include purchase of Road safety

equipment and medical response equipment, IEC Material, survey equipments, computers,

software, Lab equipment, Furniture, etc. While some software being proprietary in nature will

be procured by direct contracting, other goods and software will be procured by ICB, NCB,

shopping and or using DGS&D rate contract within shopping threshold. The Standard Bidding

documents of the Bank as agreed with GoI task force (as amended from time to time) for all

procurement under NCB will be used. For ICB contracts, the Bank‟s latest Standard Bidding

Documents (SBDs) will be used.

Selection of Consultants:

32. The project includes the following consultancy services: (i) Construction Supervision for

conventional item rate contracts; (ii) Independent Engineer (IE) for Monitoring Annuity

Contracts (50 percent of the IE cost is financed by the Concessionaire subject to maximum of

one percent estimated construction cost and balance by the project); (iii) Road Asset

Management System – Data Population and Operationalization; (iv) PWD-wide QM/ISO

Certification program (second phase); (v) QM / Quality Control capacity enhancements in PWD;

(vi) IDSAP and GAAP target implementation support; (vii) Strategic studies for GOK planning;

(viii) Consultancy services and training for Traffic Police; (ix) Consultancy services to build

Road Safety lead agency capacity in Transport Department; (x) Road safety Consultant for

DBFOMT (Annuity) Contracts; and (xii) Consultancy Services for Capacity Building of PWD

Staff in Road Safety. The process of selection of consultants for Construction Supervision for

conventional item rate contracts is in advanced stage. The draft contract negotiations completed

and the contract will be signed by end of February 2011. As regards selection of Independent

Engineers, the TOR is ready and the selection process will be initiated to hire four IEs to match

with construction schedule of DBFOMT (Annuity) contracts. The Bank's Standard Request for

Proposal Document will be used as a base for all procurement of consultancy services to be

procured under the Project.

Procurement capacity and Risk Assessment of implementing agencies

33. Procurement capacity of PWD: Procurement capacity Assessment of PWD was carried out

as part of project preparation. The engineers of Karnataka State belong to a common cadre

undertaking works in Irrigation, Highway, Public Health and Building Departments and have

implemented/or implementing several Bank financed projects including KSHIP I. Procurement

Function in PWD is carried out by the respective Executive Engineer of the PWD Divisions and

there is no centralized procurement organization. The PWD division offices have technical

Junior and Assistant Engineers headed by Executive Engineer. Executive Engineer is the tender

inviting authority in PWD. After processing the tenders received by EE, depending upon the

delegation of powers the tenders are accepted by the Executive Engineer/Superintending

Engineer/Chief Engineer/Government as the case may be. In order to ensure effective

37

implementation of KSHIP I, a separate Project Implementation Unit (PIU) in PWD was created

with field divisions and with support from consultants. The tenders for the KSHIP I were invited

and evaluated in PIU. Many of the staff in PIU for implementation of KSHIP II is the same as

the one that had handled the procurement functions in KSHIP I and is conversant with the Bank

Procurement procedures. For KSHIP, the following committees of GOK are in place to ensure

governance and oversight during implementation.

a) Project Governing Board: The Project Governing Board would be the highest decision

making body in KSHIP II for formulation of all policy matters and taking decision

relating to implementation. This board is headed by the Chief Secretary to the

Government of Karnataka.

b) Steering Committee: Steering Committee under the Chairmanship of the Principal

Secretary to Government, Public Works Department with members from Finance

Department, Planning Department, KSHIP and Karnataka Road Development

Corporation Ltd would make all tender decisions relating to the project and recommends

on important policy matters to the Project Governing Board.

c) Review Committee: The Review Committee would review the outputs submitted by the

consultants and give its comments/suggestions and approve the reports and other outputs

of the consultants. The committee is headed by the Secretary (PWD), GOK and members

comprising of Chief Project Officer, PIU, KSHIP, Project Director, PIU, KSHIP MD,

KRDCL, Chief Engineer, C&B North and South.

d) Technical Evaluation Committee: Within the PIU a technical evaluation team would be

undertaking all tender evaluations for the approval of the Project Steering Committee.

e) Technical Committee: Technical Committee comprises of PD, CE (National Highways),

Project Coordinating Consultant, Construction Supervision Consultant and CE (C&B

(South)) reviews and recommends design changes and the variation orders.

34. Karnataka Transparency in Public Procurement Act: Under the GOK's reform program,

the GOK has promulgated a Karnataka Transparency in Public Procurement (KTPP) Act to

improve the transparency and competitiveness of its procurement process. The State Government

makes it mandatory for all the procurement agencies under the government to follow the

tendering process in public procurement.

35. Record Keeping: All records pertaining to award of tenders, including bid notification,

register pertaining to sale and receipt of bids, bid opening minutes, Bid Evaluation Reports and

all correspondence pertaining to bid evaluation, communication sent to/ with the World Bank in

the process, bid securities, approval of invitation/evaluation of bids by the Empowered

Committees – are maintained in PIU in electronic and physical files. Further PIU maintains

records relating to variation orders, monthly progress reports prepared by KSHIP,

monthly/quarterly/annual progress reports furnished by consultants covering

physical,/financial/contractual issues progress tracking in MS Project, S-curves, etc., Inspection

reports of the KSHIP Officers, correspondence of claims, final award on claims, etc. will be

separately documented. For each contract, a separate file will be maintained.

38

36. In KSHIP I, large variations were observed in the initial packages, which were mainly due

to large time gap between the initial investigation for preparing DPR and actual commencement

of work. During this time delay, the field situations changed due to poor maintenance of existing

roads by the concerned PWD divisions. Based on the existing condition of road, the pavement

designs had to be modified, which resulted in large variations. However, validation of designs

was done on subsequent packages tendered and BoQs revised based on validation survey before

tendering, which resulted in decrease in variations during the execution. The same process would

be applicable to the BoQ package in KSHIP II as well.

37. The claims of contractor are reviewed and accepted by PIU if these are as per the

conditions of contract. In case of dispute in KSHIP I, the provisions of adjudication/Dispute

Resolution Board (DRB) were invoked. Some disputes in KSHIP I were also referred for

arbitration for settlement. Out of five cases referred for arbitration in KSHIP I, the award was in

favor of employer in one case and four cases were decided in favor of contractors. PIU also paid

the amount to the contractors after the arbitration award. There were few cases of contract

termination and forfeiture of performance security due to non-performance by contractors in

KSHIP I.

38. e-Procurement: As per KTPP Act e-Procurement has been introduced and mandated for

the works costing more than INR 5 million. The Bank carried out e-GP assessment of GOK‟s

system. The Bank is still discussing certain issues on the system with the GOK before it can be

adopted for the project.

39. Procurement capacity of KRDCL: KRDCL will be responsible for implementation of the

Highway Financing Modernization (Component 2) which will mainly include hiring of

consultancies and civil works; and Co-financing with private domestic financial institutions for

civil works following traditional or DBFOMT (Annuity) contracts. Procurement capacity

Assessment of KRDCL was carried out as part of project preparation. KRDCL is Government of

Karnataka Undertaking. KRDCL has not handled procurement following Bank Procurement

Guidelines in the past. However, during discussions held with KRDCL it emerged that the

present staff members in KRDCL had earlier handled Bank procurement for KSHIP I and are

conversant with Bank Procurement Procedures. KRDCL is also following PWD Codes and

manuals for its procurement. The MD, KRDCL has limited delegation of powers in respect of

hiring consultants [INR 50 million] and PPP contracts can be awarded only after clearance from

the Government. The consultancy contracts are expected to be within INR 50 million.

40. The overall procurement capacity assessment of KRDCL reveals that their procurement

capacity needs to be strengthened in order to carry out procurement activities following Bank

Procurement Guidelines and to improve the decision making process to mitigate risk of time

consuming procurement process within KRDCL.

41. Procurement Risk Assessment and Mitigation Measures: Though PIU has adequate

procurement capacity for implementation of conventional BoQ contracts for KSHIP II, major

portion of civil works under the project will be on PPP basis following the new DBFOMT

(Annuity) approach. There is limited experience in PWD in handling similar procurement in past

and this new approach also entails market uncertainty. Further, the Bank does not have a

39

standard bidding document to procure PPP concessions, and thus a new set of bidding

documents (RFQ and RFP) and Concessionaire Agreement(CA) has to be developed that would

be acceptable to the Bank. Therefore, overall procurement risk in the project is assessed as

“High”. To address the capacity issue for the DBFOMT (Annuity) contracts, the PIU has

engaged consultants for preparation and finalization of RFQ, RFP and MCA and the draft

documents have been reviewed and commented upon by the Bank. The PIU has also initiated the

process for selection of Transaction Advisor to assist it in completion of pre-qualification

evaluation, bid invitation, evaluation and selection of concessionaire for DBFOMT (Annuity)

contracts. The documents used for these contracts will be reviewed by the Bank at each stage to

ensure compliance of fairness, transparency, efficiency and economy.

42. The KRDCL will carry out evaluation of technical proposals in case of consultancies and

bid evaluation report [RFQ and RFP evaluation] in case of DBFOMT (Annuity) contracts by

technical evaluation committee nominated by MD and submit recommendations to KSHIP

Steering Committee as an interim measure. This will mitigate the risk time-consuming decision-

making process within KRDCL. As a long-term measure, the KRDCL will form a Board sub-

committee with full powers to award all contracts.

Procurement Plan

43. For contracts to be financed by the Bank, the different procurement methods or consultant

selection methods, the need for prequalification, estimated costs, prior review requirements, and

time-frame are agreed between the Borrower and the Bank in the procurement plan. The

procurement plan for procurement to be taken up by PIU, KSHIP and KRDCL during the first 18

months of project implementation have been prepared is enclosed as Appendix- 1 to this Annex-

3. The procurement plan will be updated at least annually or as required to reflect the actual

project implementation needs and improvements in institutional capacity. It will also be

available in the KSHIP website and on the Bank‟s external website.

44. GOK in December 2009 introduced a system of Monthly Program Implementation

Calendar (MPIC) for review and reporting of various activities by each department, which

includes the tendering and award progress and the physical progress with respect to the targets.

In PIU, KSHIP, Project director reviews the progress on monthly basis and submits the report to

GOK and the same will be shared with the Bank.

45. Disclosure of Procurement Information: The following documents shall be disclosed in

the KSHIP website: (i) procurement plan and updates, (ii) invitation for bids for goods and works

for all ICB and NCB contracts, (iii) request for expression of interest for selection/hiring of

consulting services, (iv) contract awards of goods and works procured following ICB/NCB

procedures, (v) list of contracts/purchase orders placed following shopping procedure on

quarterly basis, (vi) short list of consultants, (vii) contract award of all consultancy services,

(viii) list of contracts following DC or CQS or SSS on a quarterly basis, (xi) monthly financial

and physical progress report of all contracts and (xii) action taken report on the complaints

received on a quarterly basis.

40

46. The following details shall be sent to the Bank for publishing in the DgMarket and UNDB:

(a) invitation for bids for procurement of goods and works using ICB procedures, (b) request for

expression of interest for consulting services with estimated cost more than $200,000, (c)

contract award details of all procurement of goods and works using ICB procedure, (d) contract

award details of all consultancy services with estimated cost more than $200,000, and (e) list of

contracts/purchase orders placed following SSS or CQS or DC procedures on a quarterly basis.

47. Further the KSHIP will also publish in their websites, any information required under the

provisions of “suo moto” disclosure as specified by the Right to Information Act.

48. Post Review: All contracts not covered under prior review by the Bank will be subject to

post review during Implementation Support Missions and/or special post review missions

including missions by consultant hired by the Bank.

49. Frequency of Procurement Supervision: Two missions in a year each at an interval of six

months are envisaged for procurement supervision of the proposed project.

E. Financial Management

50. Implementing Entities: The PIU which works under the PWD of GOK would be

implementing agencies for the project and execute components 1, 3 and 4. This entity

successfully carried out and completed the first KSHIP project with the Bank. KRDCL, a

government company registered under the Companies Act, will be the other implementing

agency for Component 2.

51. Implementation Arrangements -- PIU: The Project Director will be assisted by Deputy

Secretary (DS)-Finance and the Joint Controller of Accounts (JCA) of the PIU. The PD, DS-

Finance and JCA will be responsible for all matters relating to financial management of the

project i.e., maintenance of accounts and records, transactional and financial control, submission

of periodic IUFRs to the Bank and the Project Financial Statements comprising Source and Uses

of Funds to audit and onward transmission of the audit report to the Bank. In case of KRDCL,

the MD, the Chief Engineer and Manager Finance will be responsible for all matters relating to

financial management of the project i.e., maintenance of accounts and records, transactional and

financial control, submission of periodic IUFRs to the Bank and the Project Financial Statements

comprising Source and Uses of Funds to audit and onward transmission of the audit report to the

Bank.

52. Budgeting: The proposed Loan funds will flow through a new budget head 5054-03-337-0-

84-172 Development of State Highway (WBA Roads) which has been created for the PIU

portion of the loan funds. The GOK is in the process of creating a similar budget head for

KRDCL, and KRDCL will be authorized to withdraw the funds from the treasury for its

component.

53. Fund flow: The PIU will use the treasury system for all payments while KRDCL would

draw the money from the Treasury and deposit the same in a separate project bank account.

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(a) PIU: All the payments would be made through Treasury. The budget allocation would be

done for the KSHIP project by FD/PWD and the sub allocation for the divisions would be

done by the PIU. All major payments for contractors would be accounted and made by

the head office. The divisions (Tumkur, Shimoga, Belgaum, and Raichur) would be

making payments for utility shifting and land acquisition, which would be recorded in

their books.

(b) KRDCL would draw the funds from the Treasury and maintain the same in a separate

project bank account. The limit of such drawl for this purpose would be as per FD

approval. This bank account would be operated under the joint signatures of Chief

Engineer and Manager Finance. In this case the payments would be made by KRDCL

directly to the vendors based on the bills and internal controls as per the existing KRDCL

system and would be recorded in the books.

54. FM Staffing and Capacity building: The PIU has appointed one FM Manager (CA) and

one FM support (B.Com) staff already. The PIU is expected to appoint one more commerce

graduate within three months of effectiveness at the PIU level. The FM manager would be

supported by the accounts officer of the department so that the knowledge transfer takes place

gradually within the project staff and department staff. The detailed staffing structure is outlined

in the FM Manual. It is envisaged that incremental accounting staff at division level would be

assessed based on the outputs, provided in the first three months of effectiveness. A s of now

extra staff is not envisaged, however in future if required, based on mutual discussions with the

project, one commerce graduate with exposure to the accounting software would be appointed

for each division.

55. In case of KRDCL, the accounting staff would require augmentation. It has been agreed

that the project would hire one commerce graduate with exposure to Tally accounting within 120

days from effectiveness by the project. This person would be dedicated personnel to maintain the

project accounts.

Accounting

56. Accounting System: The project funds will be accounted for separately both by PIU and

KRDCL. Separate cashbook and ledger books of account will be maintained by the PIU for the

loan funded activity to record utilization of funds. The accounts for the project would be

maintained in a manual cashbook as well as in computerized forms (until the AG accepts

computerized accounts for the project). All major payments for contractors would be made by

the head office and accounted at the head office. The divisions (Tumkur, Shimoga, Belgaum, and

Raichur) would be making payments for utility shifting and land acquisition which would be

recorded in their books. All the accounting locations would be having separate cashbook to track

down the project expenditure. In case of KRDCL also the project funds will be accounted

separately by using a separate cash book and set of ledger accounts. The accounting would be

carried out using a common chart of accounts.

57. Accounting software: The PIU has already implemented TALLY for project accounting at

the HO and the Project Divisions. All the accounting entities has been computerized and linked

to the HO for accounting. KRDCL already has implemented TALLY for its entity accounting,

42

and would use the same to the project with the chart of accounts and reporting requirements as

per the FM Manual. The required monthly reports and the cashbook would be generated through

the software. It is expected that the IUFR and accounting reports would be prepared based on

TALLY records.

58. FM Manual: A draft FM manual for the project has been prepared and submitted to the

Bank. The Bank has provided the comments and the final manual has been submitted. The FM

consultant is also training and helping the project to implement TALLY.

59. Report based disbursement: Report (IUFR) based disbursement would be followed for the

project. PIU and KRDCL would submit IUFRs to the bank for their respective components

separately. The Interim Unaudited Financial Report in the agreed format will also be used for

reporting and financial monitoring and shall be submitted to the Bank on a quarterly basis within

45 days from the end of the quarter. The IUFRs will disclose receipt and utilization of project

funds (both Bank share and counterpart contribution) during the quarter, year to date and project

to date compared with forecasts. The IUFRs will be based on project accounts and will be

reconciled with the project accounts prior to submission. In addition, the IUFRs will provide

contract wise payments and project progress in physical and financial terms. The IUFR format

would be agreed and finalized during negotiations. In terms of disbursement , KSHIP/KRDCL

would first spend from the budget and then claim reimbursement from the Bank. All

expenditures reported in the IUFRs will be subject to annual project audit.

60. Item rate contracts payments: For the item rate contracts the payments would be made on

the basis of the running bills/Interim Payment Certificate (IPC) submitted by the contractor. The

project is required to send along with IUFR the list of contract, any variations and the current

payments made.

61. DBFOMT Concession payments: The GOK will pay 50 percent of the estimated

construction cost as a lump sum payment in two installments during the Construction Period

upon certification from the Independent Engineer:

(a) First installment will be paid to the Concessionaire upon i) the completion of 50 percent

of the project road length as per the Road cross sections indicated in schedule B in

minimum continuous stretches of 10 Kms, as certified by the Independent Engineer; and

ii) 50 percent draw down on equity required for project implementation, as certified by

the Statutory Auditors of the Concessionaire.

(b) Second installment of the Lump sum Payment will be given on Commercial Operation

Day.

62. The exact amount of the lump-sum payments will be specified in the Concession

Agreement, and the Bank will reimburse the entire amount paid by GOK as lump sum payment

to the concessionaire. The eligible expenditures to be financed by IBRD loan are the road

construction costs (goods, works and services) under Concession Agreement paid by GOK.

IBRD will disburse the funds based on the actual payments made by the GOK and the

achievement of milestones. Payment of IBRD loan will be made as per the milestones given

above, specified in the Concession Agreement, and based on: (a) pre-determined construction

43

costs for the package, and (b) verification of completed milestone. This operation would be

similar to Output-Based Disbursement (OBD), and the key factor for disbursements is the pre-

determined construction costs. This cost would be used as the basis for calculating the

disbursement amounts. The annuity payments over the concession period would be the liability

of the state government and payable by the state government. Supporting documents for the

above IBRD payments would include the Concession Agreement, road construction physical

progress and financial report, Interim Payment Certificate, and verification report. These

documents need to be maintained by the PIU subject to audit and the bank supervision.

63. Co-financing based payments for Component 2: The contractual methods for the co-

financing could be either item-rate contracts or DBFOMT Annuity concession, for which the

Bank and GOK have agreed on procurement and financing procedures, as in Component 1. For

other PPP concessions, especially for BOT-Toll concessions, for which VGF grant is required,

Bank financing will be considered only after the procurement and disbursement procedures has

been agreed amongst GOI/GOK and the Bank.

64. Contract management and variations: Based on the experience in KSHIP I project, the

controls in the area of contract management and variations management needs strengthening. It

was agreed that under the new project clear procedures and internal controls would be

established and documentation requirement enhanced, in case of variations. A matrix defining

the variation slabs along with the appropriate authority /delegation of powers to approve

variation, needs to be worked out and would require vetting by the PIU officials and Steering

Committee. These procedures are clearly documented in the FM manual. There are already clear

guidelines of DOP for EOT and Variation orders, which are documented and will be followed up

during supervision.

65. External Audit: There would be two audit reports for the project one for PIU from the AG

and one for KRDCL from CA firm.

66. PIU: The annual audit of the Project Financial Statements (PFS) would be carried out by

The Comptroller and Auditor General of India (CAG). The PFS in an agreed format will be

subject to audit by the CAG under terms of reference already agreed between the Bank and The

CAG for Bank funded projects. All supporting records and documents under the project would

be subject to this audit. The PFS will summarize all receipts and expenditures reported in the

IUFRs. The annual audit report would consist of (i) annual audited project financial statements

(ii) audit opinion and (iii) management letter highlighting weaknesses, if any, and identifying

areas for improvement. The annual project audit report and accounts will be submitted to the

Bank by September 30 each year. Any difference between the expenditure reported in the IUFRs

and those reported in the annual project audit reports will be analyzed and those expenditures

which are confirmed by the Bank as being not eligible for funding would be adjusted in the

subsequent disbursements.

67. KRDCL: The auditing in this case for the KRDCL project funds would be carried out by

CA firm appointed as per the Terms of Reference acceptable to the Bank. The annual audit of the

Project Financial Statements (PFS) would be carried out by CA firm, which would be selected

and appointed as per the agreed procedures with the Bank. The auditor would be appointed

44

within four months from effectiveness. All supporting records and documents under the project

would be subject to this audit. The PFS will summarize all receipts and expenditures reported in

the IUFRs. The annual audit report would consist of (i) annual audited project financial

statements (ii) audit opinion and (iii) management letter highlighting weaknesses, if any, and

identifying areas for improvement. The annual project audit report and accounts will be

submitted to the Bank by September 30 each year. Any difference between the expenditure

reported in the IUFRs and those reported in the annual project audit reports will be analyzed and

those expenditures which are confirmed by the Bank as being not eligible for funding would be

adjusted in the subsequent disbursements.

68. The following audit reports will be monitored in the Audit Reports Compliance System

(ARCS):

Implementing

Agency

Audit Auditors Due Date for Audit Submission

PIU Project Financial

Statement

CAG 30th September (6 months after the end

of each fiscal year)

KRDCL Project Financial

Statement

CA 30th September (6 months after the end


DEA/GOI Designated account CAG 30th September (6 months after the end


69. Internal Audit: Internal audit would be an integral part of the project design. The internal

audit of both PIU and KRDCL would be carried out by a CA firm (who is empanelled with CAG

and is eligible to carry out major audits). The ToR for the internal audit would cover review of

aspects covering contract management, physical verification, internal controls and technical

audit. The auditors will be appointed based on selection criteria agreed with the Bank, which will

be finalized by negotiations. The auditor would be appointed within four months from

effectiveness. The quarterly audit reports along with the compliance would be shared with the

bank. Also, the project would constitute an audit committee at the HO level which would review

all the audit reports and follow up on the action taken.

70. Internal Control: All financial controls applicable to routine GOK/ KSHIP expenditures

will also apply to the expenditures under the project. The DSF/JCA shall process

withdrawals/payments and PD shall forward to Treasury for payments. All payments will be

approved/ vetted in accordance with the schedule of powers in place for KSHIP. All project

related receipts and payments/ withdrawals will be reconciled with periodic Treasury Statements.

In case of KRDCL the entire internal control framework followed by the company would be

used for the project funds also.

71. Disclosure of information: KSHIP/KRDCL would be required to disclose the following:

IUFR for every quarter, Annual Project Financial Statements, Annual Project Audit report,

Contract details (including contract amount , payments made package wise)

72. Disbursement Arrangements: A Designated Account (DA) would be maintained in the

RBI for the project and would be operated by the CAAA in accordance with the Bank‟s

45

operational policies. There will be a one-time fixed advance of US$10 million, which will be

maintained throughout the project life and adjusted towards the end of the project. The project

will submit withdrawal applications supported by IUFRs to CAAA in DEA for onward

submission to Bank for replenishment of the DA or reimbursement. The Bank will replenish

Designated Account equivalent to the amount claimed on eligible expenditure by the project and

as reported in the IUFRs.

73. Disbursements will be made based on quarterly Interim unaudited financial reports8 (IUFR)

submitted by the project. These IUFRs would reflect the actual expenditure for the loan

components. Any advances given by the project would be separately shown in the IUFRs.

KSHIP and KRDCL would submit IUFRs for their respective components separately.

74. All expenditures reported in the IUFRs will be subject to confirmation/certification by the

annual audit reports. Any difference between the expenditure reported in the IUFRs and those

reported in the annual audit reports will be analyzed and those expenditures which are confirmed

by the Bank as being not eligible for funding (refundable to IBRD), would be adjusted in the

subsequent disbursements. The IUFR formats would be agreed by negotiations.

75. Action plan for FM: The following action plan has been agreed with the client:

Financial Management Arrangement

FM Manual PIU By Negotiations Draft submitted

Budget head for KRDCL KRDCL By Negotiations

Support accounting staff deployed at PIU and

accounting staff at divisions (Legal Covenant)

PIU 4 months from

effective date

Appointment of internal auditor for the project

(Legal Covenant)

PIU 4 months from

effective date

Appointment of statutory auditor for KRDCL

(Legal Covenant)

KRDCL 4 months from

effective date

76. Adequacy of FM Arrangements: Overall, the financial management arrangements at KSHIP

and KRDCL after taking the above-indicated steps may be considered adequate to support the

use of funds under the loan. The FM risk rating for the loan is currently rated as “Moderate”.

77. Supervision: The supervision will be limited to half-yearly supervision as the risk level is

Moderate and the transactions in the project would be limited due to high value contracts with

staggered high value payments. This would require more of desk review rather than on field

supervision. In the initial year, frequent visits would be made to ensure that the accounting

system is setup and the required output is being derived from the system. Once the system is

established, then more desk reviews with half-yearly missions should be sufficient. Further if any

future requirements arise in the field to strengthen the FM/reporting arrangements, then field

visits would be carried out based on the facts and issues. In the first year, two to three weeks of

FM involvement is expected. There may be a requirement to carry out post-project closure

supervision for annuity payments based on the funding mechanism agreed.

8 To be submitted within 45 days from end of quarter.

46

Appendix 1 of Annex 3

Procurement Plan

I. General

1. Bank’s approval Date of the procurement Plan: February 14, 2011

2. Date of General Procurement Notice: UNDB Issue No: 720 Dated Feb 16, 2008

3. Period covered by this procurement plan: First 18 months

4. Implementing Agency : PIU, KSHIP in PWD, GOK and KRDCL

II Goods and Works and non-consulting services

1 a) Procurement Methods and Thresholds:

Method of Procurement Threshold (US$

Equivalent) for

Goods

Threshold (US$

Equivalent) for Works

International Competitive Bidding > 500,000 > 10 million

National Competitive Bidding (NCB) >30,000 and up to

500,000 >30,000 and up to 10

million

Shopping Up to 30,000 Up to 30,000

Direct Contracting (DC) As per paragraph 3.7 of

Guidelines As per paragraph 3.7 of

Guidelines

1. Prior Review Threshold: Procurement Decisions subject to Prior Review by the Bank as

stated in Appendix 1 of Procurement Guidelines will be:

Goods: First NCB by PIU, KSHIP and KRDCL and subsequently any contracts more than

US$500,000 or equivalent. All contracts following Direct Contracting irrespective of value.

Works: First NCB by PIU, KSHIP and KRDCL and subsequently any contracts more than

US$5 million or equivalent. All contracts following Direct Contracting irrespective of value.

In the case of contracts subject to prior review, before agreeing to (a) a material extension of

the stipulated time for performance of a contract; or (b) any substantial modification of the

scope of services or other significant changes to the terms and conditions of the contract; or (c)

any variation order or amendment (except in cases of extreme urgency) which, singly or

combined with all variation orders or amendments previously issued, increase the original

contract amount by more than 15 percent; or (d) the proposed termination of the contract, the

Borrower shall seek the Bank‟s no objection. For post review contracts the amendments for

increasing the cost beyond 15 percent of original contract value or extension of time shall be

informed to the Bank promptly.

47

All other contracts shall be post reviewed.

2. Prequalification. Bidders for PPP concessions and Annuity Packages shall be

prequalified in accordance with the provisions of paragraphs 2.9 and 2.10 of the

Guidelines.

3. Any Other Special Procurement Arrangements:

a) The bid evaluation will be carried out as per agreed timeline in the Procurement

Activity Schedule.

b) Works estimated to cost less than US$10,000,000; and Goods estimated to cost less

than $500,000 equivalent per contract may be procured under contracts awarded on

the basis of National Competitive Bidding procedures as per paragraph 3.3 and 3.4

of the Procurement Guidelines and the following additional provisions:

Only the model bidding documents for NCB agreed with the Government of India

Task Force (and as amended from time to time) shall be used for bidding.

Invitations to bid shall be advertised in at least one widely circulated national

daily newspaper, at least 30 days prior to the deadline for the submission of bids.

No special preference will be accorded to any bidder either for price or for other

terms and conditions when competing with foreign bidders.

Except with prior concurrence of the Bank, there shall be no negotiation of price

with the bidders, even with the lowest evaluated bidder.

Extension of bid validity shall not be allowed without the prior concurrence of the

Bank (i) for the first request for extension if it is longer than four weeks; and (ii)

for all subsequent requests for the extension irrespective of the period (such

concurrence will be considered by the Bank only in cases of Force Majeure and

circumstances beyond the control of implementing agency).

Re-bidding shall not be carried out without the prior concurrence of the Bank.

The system of rejecting bids outside a pre-determined margin or “bracket” of

prices shall not be used in the Project.

Rate contracts entered into by Director General of Supplies & Disposals

(DGS&D) will not be acceptable as a substitute for NCB procedures. Such

contracts will be acceptable for any procurement under shopping procedures.

Two or three envelope system shall not be used.

c) DBFOMT (Annuity) Contracts: There is no standard bidding documents for

DBFOMT (Annuity) Contracts following PPP procedures. The KSHIP will prepare

the RFQ, RFP and CA with the technical assistance hired under the project and the

same will be reviewed and agreed with the Bank.

d) Advance procurement and retroactive financing : The IFB for procurement of civil

works of conventional item rate contracts was issued during January 2010. During

2010 the IT Equipment, Office Equipment and Furniture was procured. These

48

bidding documents were based on Procurement Guidelines May 2004, Revised

October 2006. These contracts will be financed by the project.

e) The RFQ, RFP and CA for DBFOMT contracts have been prepared and under

discussion. The review of RFQ has been completed and likely to be cleared by Feb

15, 2011. These documents and subsequent procurements initiated after December

31, 2010 will follow Procurement Guidelines Dated January 2011.

f) Domestic Preference: The provisions of paragraphs 2.55 and 2.56 of the

Procurement Guidelines, providing for domestic preference in the evaluation of

bids is not applicable as requested by the GOK.

4. Summary of the Procurement Packages planned during the first 18 months after project

effectiveness (including those that are subject to retroactive financing and advance

procurement):

A: Works: 1 2 3 4 5 6 7 8 9 10

Ref. No. Contract

Description

Estimated

cost in

INR

(Millions)

Estimated

Cost

(US$

million)

Procur

ement

Metho

d

Pre-

Quali

ficati

on

Domestic

Preference

(yes/no)

Review

by Bank

(Prior /

Post)

Expected

Bid

Opening

Date

Comments

Conventional BOQ Contracts

WEP-1 Upgradation of the

Road from Hoskote

(Km.0+000) to

Chintamani

Bypass(Km 52+400)

of SH-82

1,214 27 ICB No No. Prior June 1,

2010

Award

expected by

end Feb

2011


Road from Haveri

(NH-4) (Km 0+000)

to Tadasa (Km

75+260) of SH-1,

SH-2.


2010

Award

expected by

end Feb

2011


Road from Dharwad

(Km 0+000) to

Saundatti (Km

38+500) of SH-34


2010

Award

expected by

end Feb

2011


Road from Tinthni

(Km 0+000) to

Kalmala (Km

73+800) of SH-61

& SH-15


2010

Award

expected by

end Feb

2011


Road from

Chowdapur (Km

0+000) to Gulbarga

(Km 28+630) of SH-

22

769 17 ICB No No. Prior June 1,

2010

Award

expected by

end Feb

2011

SCDP.01

Construction for

Road safety

improvement from

Maddur to Mysore

135 3 NCB No No Prior Aug 10,

2011

49

1 2 3 4 5 6 7 8 9 10

Ref. No. Contract

Description

Estimated

cost in

INR

(Millions)

Estimated

Cost

(US$

million)

Procur

ement

Metho

d

Pre-

Quali

ficati

on

Domestic

Preference

(yes/no)

Review

by Bank

(Prior /

Post)

Expected

Bid

Opening

Date

Comments

SCDP.02

Construction for

Road safety

improvement from

Belgaum to Hungund

158 3.5 NCB No No Post Sep 10,

2011

DBFOMT (Annuity) Contracts -

WAP-1 Design, Build,

Finance, Operate,

Maintain and

Transfer the existing

State Highway

(SH33&SH3) from

Malavalli to

Pavagada on

DBFOMT (Annuity)

Basis in the State of

Karnataka.

5,605 125 ICB Yes No. Prior July , 2011 Bank will

finance

INR 2,197

million


Finance, Operate,

Maintain and


State Highway

(SH18) from Mudhol

to Maharashtra

Border on DBFOMT

(Annuity) Basis in

the State of

Karnataka


finance

INR 1,307

million


Finance, Operate,

Maintain and


State Highway (SH1

& SH57) from

Shikaripura to

Anandapuram (NH-

206) and Shimoga to

Hangal on DBFOMT

(Annuity) Basis in

the State of

Karnataka


finance

INR 1,571

million


Finance, Operate,

Maintain and


State Highway

(SH61) from

Managuli to Devapur

on DBFOMT

(Annuity) Basis in

the State of

Karnataka


finance

INR 1,091

million

50

B: Goods:

1 2 3 4 5 6 7 8 9 10

Ref.

No.

Contract

Description

Estimated

cost in

INR

(Millions)

Estimat

ed

Cost

(US$

million)

Procur

ement

Metho

d

Pre-

Qulificati

on

Domesti

c

Preferen

ce

(yes/no)

Review

by Bank

(Prior /

Post)

Expected

Bid

Opening

Date

Comments

1 Supply of IT

Equipment and

Office Equipment

[Seven packages]

3.9 0.09 Shoppi

ng

No No Post During

2010

Retroactive

financing

2 Supply of Almirah 0.06 0.001 Shoppi

ng

No No Post Jul 2010 Retroactive

financing

3 IT Equipment for

MIS

16 0.35 NCB No No Prior Dec 15,

2011

4 IT Equipment for

implementation of

project management

framework

9 0.2 NCB No No Post Jul 15,

2012

5 QA/QS equipment 67.5 1.5 ICB No No Prior Dec 15,

2011

6 Procurement of

Police Enforcement

Equipment

32 0.7 ICB No No Prior Jan 15,

2012

7 Procurement of IT

Equipment for

Accident Data

System

27 0.6 ICB No No Prior Jan 15,

2012

III Selection of Consultants:

1 a) Selection Methods and Thresholds

Method of Procurement Threshold (US$ Equivalent)

(a) Quality and Cost Based Selection No threshold

(a) Quality Based Selection No threshold (b) Selection Made Under a Fixed Budget No threshold

(c) Least Cost Selection No threshold (d) Selection Based on Consultant‟s Qualifications < 200,000

(e) Single Source Selection As per Consultant Guidelines Para 3.9 (f) Selection of Individual Consultants No threshold

51

1 b) Prior Review Threshold

Consultancy Services: First consultancy contract by PIU, KSHIP and KRDCL and

subsequently any contract value more than US$200,000

equivalent for firms; and

> US$100,000 equivalent for individuals

All Single Source Selections and hiring procurement consultants,

inspection agents and legal advisors are subject to prior review,

irrespective of the contract value.

In case of contract to individuals, the qualifications, experience,

terms of reference and terms of employment shall be subject to

prior review.

For prior review contracts, the amendments before agreeing to: (a) an extension of the

stipulated time for performance of a contract; (b) any substantial modification of the scope of

services, substitutions of key experts, or other significant changes to the terms and conditions

of the contract; or (c) the proposed termination of the contract shall also be subject to Bank‟s

prior review.

All other contracts will be post reviewed.

2. Short list comprising entirely of national consultants: Short list of consultants for

services, estimated to cost less than US$500,000 equivalent per contract, may comprise

entirely of national consultants in accordance with the provisions of paragraph 2.7 of

the Consultant Guidelines.

3. Any Other Special Selection Arrangements: The finalization of consulting services

shall follow the timeline agreed in the Procurement Activity Schedule.

Advance procurement and retroactive financing: The procurement for Construction

supervision consultant for item rate contracts and Transaction advisory consultants has

been initiated and three small resettlement action plan consulting services, preparation

FM manual and Implementation Support Consultant hired during KSHIP I which were

awarded following Consultant Guidelines May 2004 revised October 2006. These

contracts will be financed by the project. Any procurement after December 31, 2010 will

be procured following Consultant Guidelines January 2011.

4. Consultancy Assignments with Selection Methods and Time Schedule 1 2 3 4 5 6 7 8

Ref.

No.

Description of

Assignment

Estimated

Cost in INR

Millions

Estimated

Cost

US$ in

Millions

Method

of

Selection

Review

by Bank

(Prior /

Post)

Estimated

Proposal

Opening

Date

Comments

1 Construction Supervision

Consultants for the

Supervision of

Construction and

Contract Administration

of the Karnataka State

Highway Improvement

250 6 QCBS Prior July 9,

2010

Contract

negotiations

completed and

contract will be

signed by Feb

28

52

1 2 3 4 5 6 7 8

Ref.

No.

Description of

Assignment

Estimated

Cost in INR

Millions

Estimated

Cost

US$ in

Millions

Method

of

Selection

Review

by Bank

(Prior /

Post)

Estimated

Proposal

Opening

Date

Comments

for 5 EPC Contract

Packages

2 Transaction Advisory

services for procurement

of Four Annuity Contract

Packages under

Karnataka State Highway

Improvement Project

9 0.20 QCBS Prior Mar 1,

2011

3 Independent Consultant

(IE) for the Monitoring

of 4 Annuity Contract

Packages [Four

consultancy contract

packages]

305 6.78 QCBS Prior Jan 15,

2012

4 Consultancy Service for

Transaction Advisory

Services for BOT-Toll O

& M packages under

KRDCL.

115 2.50 QCBS Prior Sep 15,

2011

5 Financial Planning and

Advisory Services for

KRDCL


2011

6 Road fund Consultancy

service for BOT-Toll O

& M Packages under

KRDCL and PWD


2011

7 Road Asset Management

System – Data

Population and

Operationalization

113 2.5 QCBS Prior July 30,

2011

8 PWD-wide QM / ISO

Certification program

(second phase)

23 0.5 QCBS Prior Oct 30,

2011

9 QM / Quality Control

capacity enhancements in

PWD

23 0.5 QCBS Prior Nov 30,

2011

10 IDSAP and GAAP target

implementation support

29 0.65 QCBS Prior Dec 30,

2011

11 Strategic studies for

GOK planning


2012

12 Consultancy services and

training for Traffic

Police


2012

13 Consultancy services to

build Capacity in the

Road safety centre of

Excellence (Operational

Assistance)


2011


build Road Safety lead

agency capacity in

Transport Department


2011

53

1 2 3 4 5 6 7 8

Ref.

No.

Description of

Assignment

Estimated

Cost in INR

Millions

Estimated

Cost

US$ in

Millions

Method

of

Selection

Review

by Bank

(Prior /

Post)

Estimated

Proposal

Opening

Date

Comments

15 Road safety Consultant

for DBFOMT (Annuity)

Contracts


2012

16 Consultancy Services for

Capacity Building of

PWD Staff in Road

Safety


2012

17 Monitoring Consultants

for BOT-Toll O & M

packages under KRDCL.

5 0.10 QCBS Post Sep 15,

2011


Statutory Audit of

KRDCL

5 0.10 QCBS Post Sep 15,

2011

19 Environment Monitoring

of EPC & Annuity Roads

2.4 0.05 LCS Post May 5,

2011

20 NGO Services for

Implementation of

Resettlement Action Plan

for North Karnataka

Packages

3.50 0.08 QCBS Post NA Contract

awarded on

Nov 9, 2009

21 NGO Services for

Implementation of


for South Karnataka

Packages

5 0.11 QCBS Post NA Contract

awarded on

Nov 9, 2009

22 M & E Consultants for

Implementation of


for both Packages

3 0.06 QCBS Post NA Contract

awarded on

Nov 9, 2009


preparation of Financial

Management Manual

1.5 0.03 SSS Prior NA Contract

awarded on

June 2, 2010


Internal Audit of KSHIP

II

2.4 0.05 QCBS Post Mar 15,

2011


deliver feasibility and

scoping study for the

Center of Excellence

9 0.20 QCBS Post Dec 25,

2011

26 IT-ICT-MIS Strategy &

Action Plan preparation

and implementation

11 0.25 QCBS Prior Dec 15,

2011

27 HRD & Training

enhancements and

program delivery in

PWD

7 1.15 QCBS Post Oct 15,

2011

28 PWD implementation of

Project Management

framework/processes

11 0.25 QCBS Prior July 30,

2011

29 Project coordinating

consulting services for

implementation support

[Phase II] – Hired as part

of KSHIP I (WBR # 82)

59 1.31 QCBS Prior Procured

during Jan

2007 as

part of

KSHIP I

Contract for

Phase II for

implementation

support was

entered during

Jan 2010. This

contract will be

54

1 2 3 4 5 6 7 8

Ref.

No.

Description of

Assignment

Estimated

Cost in INR

Millions

Estimated

Cost

US$ in

Millions

Method

of

Selection

Review

by Bank

(Prior /

Post)

Estimated

Proposal

Opening

Date

Comments

again reviewed

by the Bank to

determine

eligibility

under this

project

30 Consulting services for

data management [Land

acquisition and RR]

2.00 0.044 SSS Prior NA Procured

during Nov

2009

55

INDIA: SECOND KARNATAKA STATE HIGHWAY IMPROVEMENT PROJECT Annex 4: Operational Risk Assessment Framework (ORAF)

Project Development Objective(s) PDO: to accelerate the development of the Core Road Network through leveraging public sector outlays with private sector financing, and improving the institutional effectiveness of the road sector agencies to deliver effective and safe roads to users.

PDO Level Results Indicators:

Achievement by GOK in generating at least US$500 million in new private sector capital for CRN improvement and management by end-of-project (EOP). Share of Core Road Network in good condition (IRI < 4) increases from 50 percent to 65 percent by EOP.

15 percent reduction in Vehicle Operating Costs and 25 percent reduction in Travel Time Cost on project corridors by EOP 30 percent reduction in road-accident related fatalities on safe corridor pilots by EOP.

Risk Category

Risk

Rating

Risk Description Proposed Mitigation Measures

Project Stakeholder Risks

ML Unwillingness of road users to pay new user charges and tolls Inadequate private sector participation on PPP transactions and domestic borrowing.

Create awareness of the benefits from improved roads through publications, project website and public consultations, which would reduce the resistance to paying fees and tolls. The project will establish framework to improve the “investment climate" to increase private sector participation in highway development, including: (a) mobilize additional resources through Increase road user charges, and securitize these revenues for servicing domestic debt and support PPP concessions

56

Risk Category

Risk Rating


(b) Conduct PPP workshops and road shows on DBFOMT (Annuity) concept to investors.

Implementing Agency Risks

H Lack of familiarity with PPP contracts that may cause delays in awarding contracts and disbursement Risk of fraud and corruption due to lack of transparency

Technical assistance support for engaging suitably qualified transaction advisory consultants and ensuring establishment of dedicated counterpart teams with suitable skills in the implementing agencies The proposed contracts will be suitably publicized to facilitate greater competition and the bidding process will provide for suitable steps for seeking clarifications and register complaints, if any, by utilizing the Complaint Handling System provided in the GAAP

Project Risks

Design

MI The design is not flexible enough to make changes if some of the innovative components (such as the annuity concession) are not implemented as planned. Key elements of project design, such as co-financing with domestic financial institutions

If the annuity concessions do not materialize, the government will carry out the project as a traditional contract. To facilitate the proposed co-financing arrangement, the government will be required to identify a dedicated stream of cash flows and ring-fence them into a dedicated, non-lapsable account. Also, suitable technical assistance will be made available to help GOK and KRDCL to manage the debt raising through co-financing, in an effective and sustainable manner.

Social and Environmental

MI Delays in the implementation of LA and RAP.

Advanced actions for LA and R&R following a streamlined procedures have already been taken. For the remaining, mandatory completion of the

57

Risk Category

Risk Rating


agreed LA and R&R activities prior to contract award.

Program and Donor

MI Risk of other GOK road development programs not taking off, especially those being developed by KRDCL for the Core Road Network, as well as slow progress on the reform program

The Project provides financial and transaction advisory services to assist KRDCL to implement its PPP programs and borrowing from the market. Also, GOK has taken a cabinet decision to allow KRDCL to toll state highways, thereby paving way for KRDCL to mobilize additional resources through tolling of about 1500 km of recently improved highways.

Delivery Quality

L Quality of construction suffers due to poor quality design.

The PIU and their consultants have checked the designs on site before construction begins. In addition, the design risk for the DBFOMT concessions will be transferred to the concessionaire, and who would be penalized if construction quality is not followed.

L - Low Impact Low Likelihood ML - Medium – L (Low Impact High Likelihood) MI - Medium – I (High Impact Low Likelihood) H - High Impact High Likelihood

Overall Risk Rating at Preparation

Overall Risk Rating During Implementation

Comments

ML MI

58


Annex 5: Implementation Support Plan

Strategy and Approach:

1. The strategy for the implementation support has been developed based on the nature of

activities involved in the project and their commensurate risk profile in accordance with the

ORAF. The Implementation Support Plan (ISP), as described below, will be a live document and

will be reviewed regularly and revised as and when required during the implementation, at least

on a half yearly basis.

2. Technical Support. The Bank will provide required technical support through sector

specialist and institutional, project finance, road safety and governance specialists to GOK in

finalizing technical aspects of the engineering and bidding documents and formulating medium

and long term strategy related to improved planning, financing, asset management, safety and

governance aspects. The implementation support will be provided through at least two

implementation support missions in a year and through continuous exchange of correspondence

and regular communication. Frequent use of telecommunication including video conferencing,

preferably once every two months, will be resorted to maintain a close coordination among the

Bank team and the project staff.

3. Procurement. Implementation support will include: (a) reviewing procurement

documents and providing timely no objection; (b) providing detailed guidance on the Bank‟s

Procurement Guidelines to the PIU/KRDCL staff; (c) monitoring procurement progress against

the detailed Procurement Plan; and (d) identifying the capacity building/training need for PIU/

KRDCL staff on procurement processing and providing training if required. The support will be

provided through regular interactions, regular half-yearly implementation support missions and

thematic implementation support missions, if required.

4. Financial management. Implementation Support will review the project‟s financial

management system, including but not limited to, accounting, reporting and internal controls.

The broader integrity risks as regards to the financial management aspects will be also addressed

as part of the GAAP implementation. The support will be provided through regular interactions,

regular half-yearly implementation support missions and thematic implementation support

missions, if required.

5. Environmental and Social Safeguards. The Bank safeguards specialists in the team will

supervise various activities to ensure full compliance with the Bank‟s operational

policies/procedures and the agreed framework related to environment and social safeguards

aspects. The implementation support will be provided through regular interactions, regular half-

yearly implementation support missions and thematic review missions, if required and in full

cooperation with the technical members in the Bank team.

59

Implementation Support Plan:

6. Most of the Bank team members will be based in the India country office, which would

facilitate timely, efficient and effective implementation support to the client. International

expertise will be drawn from the Task Team Leader based in Washington DC and as and when

required in various activities including project finance, institutional and road and work-zone

safety aspects. Formal Implementation Support Missions and field visits will be carried out semi-

annually. In addition, the implementation progress of the project will also be reviewed through

thematic implementation support missions and during the joint portfolio review meetings by the

Government of India and the Bank. Detailed inputs from the Bank team are outlined below:

(a) Technical Support. Input from Transport Sector Specialist and PPP/project Finance

Specialist will be provided to finalize the technical, financial structuring and risk

allocation, and other commercial aspects of the bidding documents for DBFOMT

(Annuity) contracts and achieve the financial closure for the annuity concessions during

the first year. The technical specialist will also provide specific implementation support

to facilitate smooth implementation of the item-rate contracts and DBFOMT (Annuity)

concessions throughout the project life. The technical specialist will also collaborate with

the safety expert in providing implementation support for the road safety component

(particularly engineering aspects) as well as work-zone safety aspects during

construction.

(b) Institutional Strengthening Inputs. The institutional specialist along with the Project

Finance/PPP specialist will provide implementation support in finalizing the institutional

strengthening and infrastructure finance sub-components, assist GOK in completing the

procurement process for these components and then review along with the GOK project

staff the quality of various studies/outputs prepared by the consultants. Starting from

second year of the project implementation, they would also provide specific

implementation support in ensuring the adoption/rolling out of various institutional

reforms and TA study recommendations.

(c) Road safety inputs. The road safety specialist in collaboration with the institutional

specialist and the technical/sector specialist would provide implementation support to

GOK in developing a comprehensive road safety strategy/action plan for the state and its

subsequent implementation. Specific implementation support will be also provided for

developing road safety corridor and close monitoring of its operation expected to

commence from third year of project preparation.

(d) Fiduciary Compliance and Management. The Bank‟s financial management and

procurement specialist will help GOK identify capacity building needs to strengthen its

procurement and financial management capacity and to improve procurement

management efficiency including identification of red flags (for fraud and corruption).

Both the specialists will be also provided timely support in procurement processing and

compliance with financial management requirement including timely submission of audit

statements and financial reports. Besides regular supervision, thematic supervisions will

be carried out by the specialist if, and when required.

(e) Safeguards Compliance and Management. The Bank‟s social and environmental

specialists will provide implementation support in preparation of various safeguards

60

documentation and ensuring compliance with the Bank‟s operational policies and

procedures on social and environmental safeguards. Besides regular supervision, thematic

supervisions will be also carried out by the specialist if, and when required.

(f) Governance. In order to support GOK in the effective implementation and good

governance under the project, the task team will undertake enhanced supervision in the

areas of - implementation of GAAP and institutional strengthening activities and closely

monitor the procurement process and contract management under the project. This

support will be primarily provided by the Governance specialist with adequate assistance

from FM specialist, Procurement Specialist and other team members.

7. The main focus of implementation support is summarized below.

Time Focus Resource Estimate Partner Role

First twelve

months

Implementation of Item-

rate Contract Component

Procurement of DBFOMT

(Annuity) Concessions

Structuring of Highway

Financing Modernization

Component

Finalizing Institutional

Strengthening and Road

Safety Components

Technical Specialist – 6 SW

PPP / Project Finance Specialist – 6

SW

Road Sector

Specialist(s)/Institutional

Development Specialist(s) - 6 SW

Procurement specialist(s) – 4 SW

Environment Specialist(s) – 2 SW

Social Development Specialist – 2

SW

FM Specialist(s) – 2 SW

Road Safety Specialist(s) – 3 SW

Governance Specialist – 4 SW

NA

Team leadership Task Team Leader - 8 SW

12-60 months

Implementation of Item-

rate Contracts and

DBFOMT (Annuity)

Concessions

Implementation of

Institutional Strengthening

and Road safety

Components

Technical Specialist – 6 SW/ year

PPP / Project Finance Specialist – 5

SW / year

Road Sector

Specialist(s)/Institutional

Development Specialist(s) - 5 SW /

year

Procurement specialist(s) – 2 SW /

year

Environment Specialist(s) – 2 SW/

year

Social Development Specialist – 2

SW / year

FM Specialist(s) – 2 SW / year

Road Safety Specialist(s) – 3 SW /

year

Governance Specialist – 3 SW / year

NA

Financial management

disbursement and reporting FM specialist(s) - 1 SW / Year

Task leadership TTL - 7 SW / Year

Note: SW – Staff-Week

61

8. Staff skill mix required is summarized below.

Skills Needed Number of Staff Weeks Number

of Trips

Comments

Technical

Specialist(s)

6 SWs first year, then 2 SWs annually in

the following years

3 Country office based/ HQ

Based

PPP / Project

Finance Specialist

6 SWs fisrt year, 5 SWs annually in the

following years

3 Country office based/ HQ

Based

Institutional

Development

Specialist

6 SWs first year, then 5 SWs annually in

the following years

3 International Specialist

Procurement

Specialist(s)

4 SWs first year, then 2 SW annually. 1 Country office based

Social/Environment

specialist(s)

2 SWs every year 2 Country office based

FM Specialist 3 SWs annually . 1 Country office based

Safety Specialist 3 SW annually 2 HQ based

Governance

Specialist

4 SW first year, 3 SWs annually in the

following years

2 Country office based

Task team leader 8 SW first year, 7 SWs annually in the

following years

4 HQ based

62


Annex 6: Team Composition

World Bank staff and consultants who worked on the project:

Binyam Reja Sr. Transport Economist/TTL SASDT

Arnab Bandyopadhyay Senior Transport Engineer/Co-TTL SASDT

Mei Wang Senior Counsel LEGES

Sri Kumar Tadimalla Senior Public Private Partnerships Specialist SASDT

Junxue Chu Senior Finance Officer CTRFC

Said Dahdah Road safety Specialist TWITR

Juan Carlos Alvarez Senior Counsel LEGES

Yash Gupta Procurement Specialist SARPS

Duthaluri Nagaraju Senior Procurement Specialist SARPS

S. Krishnamurthy Financial Management Specialist SARFM

I. U. B. Reddy Senior Social Development Specialist SASDI

Gaurav D. Joshi Environmental Specialist SASDI

Rodrigo Archondo-Callao Senior Highway Engineer ETWTR

Radia Benamghar Operation Analyst SASDT

Gizella Diaz Program Assistant (Washington) SASDO

N.S. Srinivas Program Assistant (Delhi) SASDO

Fredrick Kranz Consultant (Procurement/PPP Transactions) SARPS

A.K. Swaminathan Consultant (Engineering) SASDT

Krishnan Srinivasan Consultant (Governance) SASDT

Ernst Huning Institutional Development (consultant) SASDT

Benjamin Darche Consultant (PPP/Financing Specialist) SASDT

Andres Pizzaro Senior Transport Specialist (Peer Reviewer) LCSTR

Zhi Liu Lead Infrastructure Specialist (Peer Reviewer) EASTS

Michel Bellier Lead Transport Specialist (Peer Reviewer) MNSTR

Eric R. Lancelot Senior Transport Specialist (Peer Reviewer) LCSTR

Joel Jean-Philippe Hamann Intern / Economist SASDT

63


Annex 7: Economic and Financial Analysis

I. Economic Analysis

A. Summary of Benefits and Costs

1. The road improvement works component will upgrade twenty-five road links, totaling 831

km, into two-lane with paved shoulder standard. The economic evaluation of this component was

carried out using the Highway Development and Management Model (HDM -4), a globally

accepted key analytical tool for economic analysis for highways with investment alternatives,

which simulates life cycle conditions and costs and provides economic decision criteria for

multiple road design and maintenance alternatives. The main project economic benefits are

savings in vehicle operating costs, travel time costs, and maintenance costs resulting from the

road improvements.

2. The cost-benefit analysis of the project indicates that the project economic benefits are

satisfactory. The Net Present Value (NPV) of the road improvement component is estimated at

US$835 million, at a 12 percent discount rate over a twenty-year evaluation period. The

Economic Internal Rate of Return (EIRR) is estimated at 30 percent. The following table

presents the economic analysis summary.

Table 7: Economic Analysis Summary

Benefits 1201

(US$million)

Costs 366

(US$million)

Net Benefits 835

(US$million)

Economic Rate of Return 30%

(%)

3. An inventory of the corridors has been carried out that included visual observations

supplemented with sample measurements. Kilometer wise features like surfacing type, width,

shoulder type and width, drainage condition, shoulder condition, distresses like edge break,

cracking, potholes, rut depth and ravelling, height of embankment, sub-grade, local soil type,

intersectional details, were recorded. The riding quality survey was carried out using a properly

calibrated vehicle mounted bump integrator to measure the roughness of the roads. The

evaluation of structural strength of existing flexible pavement was carried out using a Benkelman

Beam at every 10 km along the corridors.

4. Twenty-five links belonging to various corridors of total length 831 km were evaluated

with HDM-4. All links have flexible pavements with varying pavement width, condition,

strength and traffic characteristics. The table below presents the length, traffic, road width and

roughness of the twenty-five links. The average total motorized traffic is 3,673 AADT and the

average roughness is 5.7 IRI, m/km.

64

Table 12: Basic Road Characteristics

Motorized Average

Link

Length Width Traffic Roughness

Package No, Link Name (km) (m) (AADT) (IRI)

WEP1 67A Hoskote - H Cross 23.5 7.00 5,896 3.9

67B H Cross - Chintamani Bypass 29.0 5.50 4,247 4.0

WEP2 T8 Haveri (NH-4) - Hangal 31.8 5.50 2,936 6.3

M7D Hangal – Tadasa 43.5 3.75 2,134 7.4

WEP3 21B Dharwad – Soundatti 38.5 7.00 3,056 5.9

WEP4 13A

Tinthini Chinchodi-Jalhalli-Karegud-

Devadurga 32.5 3.75 4,530 5.7

13B

Devadurga - Masarkal - Gabbur –

Kalmala 41.4 3.75 2,338 5.4

WEP5 6C Chowdapur - Gulbarga 28.7 5.50 3,885 7.2

WAP1 63A Malavalli – Maddur 22.8 7.00 7,039 3.9

63B Maddur - Huliyurdurga 27.5 5.50 3,043 4.0

63C Huliyurdurga - Kunigal 21.1 5.50 3,127 3.0

63D Kunigal – Tumkur 35.2 7.00 6,030 4.2

63E Tumkur – Kortagere 27.9 5.50 6,010 4.1

64F Koratagere - Madhugiri 20.0 5.50 4,540 4.9

64G Madhugiri - Pavagada 35.8 5.50 2,552 4.1

WAP2 19A Mudhol - Mahalingapura 19.2 5.50 3,030 5.4

19B Mahalingapura - Kabbur 42.4 3.75 4,780 7.9

19C Kabbur – Chikodi 18.4 3.75 3,864 6.0

19D Chikodi - (NH-4 cross) Nippani 28.1 5.50 3,367 5.9

WAP3 T21 Anandapura (on NH-206)-Shikaripura 32.2 3.75 3,505 5.5

M7B Shikaripura - Anavatti 45.4 3.75 4,276 8.1

M7C Anvatti – Hangal 26.2 3.75 555 8.1

M7A Shimoga - Shikaripura 49.8 5.50 3,457 7.1

WAP4 10A Managili-Talikota 61.3 3.75 1,543 6.8

10B Talikota-Devapura 48.7 3.75 2,088 8.1

Total

830.8

91,828

5. The improvement proposals for all candidate road links include upgrading to a two lane

7.0m carriageway flexible pavement with geometric improvements and paved shoulders. The

construction duration is either two or three years and the construction cash flow for the first year

is considered as 30 percent and the balance 70 percent is considered for the second year or as 20

percent for the first year and 40 percent for each of the remaining two years. The following table

shows the estimated road works financial costs. The total cost of the program is US$480.8

million that represents an average improvement cost of US$579,666 per kilometer.

Table 13: Proposed Road Work Cost

Link

Shoulder Cost Cost

Package No, Link Name Type (US$ M) (US$/km)

WEP1 67A Hoskote - H Cross Paved 11.9 504,827

67B H Cross - Chintamani Bypass Paved 15.6 538,797

WEP2 T8 Haveri (NH-4) - Hangal Paved 18.5 580,540

M7D Hangal – Tadasa Paved 21.5 493,222

WEP3 21B Dharwad - Soundatti Paved 20.2 523,989

WEP4 13A


Devadurga Paved 19.9 612,673

13B


Kalmala Paved 22.9 553,473

65

Link

Shoulder Cost Cost

Package No, Link Name Type (US$ M) (US$/km)

WEP5 6C Chowdapur - Gulbarga Paved 16.0 558,449

WAP1 63A Malavalli - Maddur Paved 21.1 924,060

63B Maddur - Huliyurdurga Paved 16.0 580,018

63C Huliyurdurga - Kunigal Paved 10.9 515,905

63D Kunigal - Tumkur Paved 21.0 595,421

63E Tumkur - Kortagere Paved 18.4 659,593

64F Koratagere - Madhugiri Paved 12.1 606,560

64G Madhugiri - Pavagada Paved 21.1 589,019

WAP2 19A Mudhol - Mahalingapura Paved 13.7 715,407

19B Mahalingapura - Kabbur Paved 24.9 587,009

19C Kabbur - Chikodi Paved 11.2 609,925

19D Chikodi - (NH-4 cross) Nippani Paved 19.4 689,144

WAP3 T21 Anandapura (on NH-206)-Shikaripura Paved 21.1 654,594

M7B Shikaripura - Anavatti Paved 27.5 604,729

M7C Anvatti – Hangal Paved 24.7 941,675

M7A Shimoga - Shikaripura Paved 14.3 288,001

WAP4 10A Managili-Talikota Paved 30.1 491,177

10B Talikota-Devapura Paved 27.0 554,066

Total 480.8 578,666

6. The road works standards considered for the analysis include: (i) without project

alternative, routine maintenance and periodic maintenance of 20 mm Premix Carpet every four

years and overlay of 25 mm Semi Dense Bituminous Macadam applied at whenever the

roughness reaches 8 IRI; and (ii) with project alternative, upgrading the existing carriageway to a

two lane flexible pavement of designed thickness to be followed by routine maintenance and

periodic maintenance of 20 mm Premix Carpet every five years and overlay of 25 mm Semi

Dense Bituminous Macadam every 10 years or applied at whenever the roughness reaches 4.5

IRI, m/km.

7. The following table shows the economic evaluation results. The Net Present Value (NPV)

of the road improvement component is estimated to be US$835 million, at a 12 percent discount

rate over a twenty-year evaluation period. The overall Economic Internal Rate of Return (EIRR)

is estimated to be 30 percent and all links yield an EIRR higher than 12 percent. Therefore, the

economic evaluation of the program is satisfactory.

Table 14: Economic Evaluation Results

NPV/

Link

NPV Cost EIRR

Package No, Link Name (US$ M) (#) (%)

WEP1 67A Hoskote - H Cross 10.7 1.1 23.1

67B H Cross - Chintamani Bypass 23.8 1.8 27.6

WEP2 T8 Haveri (NH-4) - Hangal 3.0 0.2 14.6

M7D Hangal - Tadasa 60.4 3.2 33.6

WEP3 21B Dharwad - Soundatti 12.7 0.8 21.2

WEP4 13A


Devadurga 91.2 5.9 47.6

13B


Kalmala 47.3 2.7 30.1

WEP5 6C Chowdapur - Gulbarga 40.6 3.0 40.5

WAP1 63A Malavalli - Maddur 6.8 0.4 16.8

66

NPV/

Link

NPV Cost EIRR

Package No, Link Name (US$ M) (#) (%)

63B Maddur - Huliyurdurga 0.1 0.0 12.1

63C Huliyurdurga - Kunigal 9.5 1.1 23.0

63D Kunigal - Tumkur 17.3 1.1 23.2

63E Tumkur - Kortagere 20.9 1.5 24.4

64F Koratagere - Madhugiri 15.7 1.6 27.0

64G Madhugiri - Pavagada 8.7 0.5 18.0

WAP2 19A Mudhol - Mahalingapura 8.3 0.7 20.5

19B Mahalingapura - Kabbur 23.2 1.1 24.3

19C Kabbur - Chikodi 12.9 1.4 26.7

19D Chikodi - (NH-4 cross) Nippani 1.6 0.1 13.2

WAP3 T21 Anandapura (on NH-206)-Shikaripura 27.6 1.7 28.7

M7B Shikaripura - Anavatti 180.7 5.5 49.0

M7C Anvatti - Hangal 11.0 1.8 28.9

M7A Shimoga - Shikaripura 85.4 3.7 39.3

WAP4 10A Managili-Talikota 34.4 1.4 24.7

10B Talikota-Devapura 81.4 3.7 37.0

Total 835.2 2.1 30.0

8. The economic evaluation was subjected to a sensitivity analysis carried out by increasing

costs by 20 percent, decreasing benefits by 20 percent and increasing costs by 20 percent plus

decreasing benefits by 20 percent. Under a worst-case scenario of increasing costs by 20 percent

plus decreasing benefits by 20 percent, the project EIRR is 22.7 percent. The table below shows

the results of the sensitivity analysis.

Table 15: Economic Evaluation Sensitivity

Base EIRR Sensitivity Analysis

Link

EIRR A:Cost+20%

B:Ben.-

20%

A

& B

Package No, Link Name (%) (%) (%) (%)

WEP1 67A Hoskote - H Cross 23.1 20.1 19.5 16.8

67B H Cross - Chintamani Bypass 27.6 24.3 23.7 20.8

WEP2 T8 Haveri (NH-4) - Hangal 14.6 12.2 11.7 9.5

M7D Hangal – Tadasa 33.6 30.0 29.3 26.2

WEP3 21B Dharwad - Soundatti 21.2 18.1 17.4 14.7

WEP4 13A


Devadurga 47.6 42.6 41.6 37.2

13B


Kalmala 30.1 27.0 26.3 23.5

WEP5 6C Chowdapur - Gulbarga 40.5 35.3 34.2 29.8

WAP1 63A Malavalli - Maddur 16.8 14.3 13.8 11.5

63B Maddur - Huliyurdurga 12.1 10.0 9.6 7.6

63C Huliyurdurga - Kunigal 23.0 20.1 19.5 16.9

63D Kunigal - Tumkur 23.2 20.1 19.5 16.8

63E Tumkur - Kortagere 24.4 21.5 21.0 18.5

64F Koratagere - Madhugiri 27.0 23.7 23.1 20.1

64G Madhugiri - Pavagada 18.0 15.4 14.9 12.5

WAP2 19A Mudhol - Mahalingapura 20.5 17.5 17.0 14.4

19B Mahalingapura - Kabbur 24.3 21.0 20.4 17.5

19C Kabbur - Chikodi 26.7 23.1 22.5 19.4

19D Chikodi - (NH-4 cross) Nippani 13.2 11.1 10.6 8.6

67

Base EIRR Sensitivity Analysis

Link

EIRR A:Cost+20%

B:Ben.-

20%

A

& B

Package No, Link Name (%) (%) (%) (%)

WAP3 T21 Anandapura (on NH-206)-Shikaripura 28.7 25.0 24.3 21.1

M7B Shikaripura - Anavatti 49.0 43.9 42.9 38.3

M7C Anvatti – Hangal 28.9 25.5 24.9 21.8

M7A Shimoga - Shikaripura 39.3 34.9 34.0 30.1

WAP4 10A Managili-Talikota 24.7 21.7 21.0 18.3

10B Talikota-Devapura 37.0 32.8 32.0 28.5

Total 30.0 26.5 25.8 22.7

9. The switching values analysis shows that in order to obtain a zero NPV, investment costs

need to be multiplied by 3.3 or benefits need to be multiplied by 0.31. It is estimated that 63

percent of the program benefits are resulting from a reduction on motorized traffic vehicle

operating costs, while the reduction of motorized traffic passenger time costs account for 36

percent and the reduction on non-motorized road user costs account for the remainder 1 percent.

II. Financial Analysis

10. The GOK‟s Project Preparation Consultants used a spreadsheet-based model to undertake a

financial analysis of the road projects to be developed under PPP following the DBFOMT

Annuity Concession approach. The financial model has the following basic structure:

The Concession duration is for 10 years, including an estimated 24 to 30 months for

construction and 7.5 to 8 years for Operation and Maintenance (O&M).

GOK will be responsible for land acquisition, resettlement and utility relocation, whereas

the selected concessionaire will be responsible for the construction and O&M of the

roads as prescribed in the Concession Agreement;

The selected concessionaire is expected to recover its capital and O&M expenditures

through two distinct payment steams from GOK. First stream of payments will be made

during the construction phase, using the proposed IBRD loan to pay a pre-specified

amount (50 percent of the estimated construction costs), in two installments against

achievement of specified thresholds of progress of construction and equity contribution,

as detailed in the Concession Agreement. The second stream payments will be made

during the O&M phase (i.e., after completion of construction and the road is operational).

In that phase, GOK will pay the competitively determined semi-annual payments until

the end of the concession period, subject to fulfillment of performance levels stipulated in

the Concession Agreement;

The concessionaire shall be responsible for mobilizing the financing through a

combination of debt and equity; and

Tolls on the highways will not be levied by the concessionaire. However, the GOK may

subsequently toll the project roads, and the revenues would accrue solely to the GOK

11. A package-wise listing of the proposed concessions, along with their respective estimated

costs and the amount payable by GOK during the construction phase, is provided below.

68

Table 8: Concession-wise Details

Sl.

No.

DBFOMT Annuity

Concession

Length

(Km)

Estimated Total Project Cost (TPC,

US$ mn)

Payment by GOK

(US$mn )

Estimated

Constructio

n Cost [a]

Overhead,

contingenci

es and

Other costs

[b] Total

During

Construction

Amou

nt

% of Base

Constn.

Cost

1)

WAP 1: Malavalli-

Pavagada 190 98 27 125 49 50

2) WAP 2: Mudhol-Nippani 108 58 14 72 29 50

3)

WAP 3: Shimoga-

Anandpuram 154 70 19 89 35 50

4)

WAP 4: Managuli-

Devpura 110 49 11 60 24 49

Total (US$ mn) 562 275 71 346 137 50

Notes [a] comprises of expenditure towards site clearance, earthworks, pavement construction, structures,

drainage and protective works, sign marking and other traffic control/safety devices, environment

management plan and sundries.

[b] comprises of overhead construction cost and insurance cost, contingencies during construction,

supervision costs, physical contingencies, financing charges and interest during construction

[c] 1 US$ = Rs.45/-

Source: Financial Analysis by DPR Consultants, M/s Scott Wilson, dated December 2010

12. The primary output of the consultants‟ financial modeling exercise is an estimated annuity

amount for each project in order to yield the market-prevailing returns and minimum threshold at

which the Indian PPP market would consider the projects to be bankable and attractive for

private sector financing. The financial modeling is examined for (a) the reasonableness of the

critical inputs and assumptions underpinning the model and (b) the impact of variations in those

assumptions on the estimated annuity amounts. In addition, the total estimated annuity payments

were examined against certain key fiscal parameters of the Government of Karnataka, to arrive at

an indicative assessment of its ability to meet those payment obligations. The assumptions

related to financing, the long-term loan rates and equity return expectations in particular, are also

broadly representative of current market conditions for road sector projects with private equity

and debt participation in India. Also, a sensitivity analysis was carried out on the four DBFOMT

Annuity Concession models to test the impacts of increase and decrease in the two critical

variables that reflect changes in prices and contingency, viz., construction cost and interest rates.

Based on these analyses, at the estimated levels of annuity payments, the projects are expected to

be attractive for the potential private developers and also bankable.

13. In parallel, a quick review of GOK‟s MTFP projected expenditures on Major O&M and

Capital Formation suggests that the government has adequate capacity to pay the total yearly

annuity payments for all the four projects in the base case scenario or in the more restrictive

scenario where the construction costs and interest rate increase, respectively, by five percent and

one percent. In view of this, the GOK annuity payment risk is considered to be relatively low.

The GOK is very creditworthy9 and has substantial debt capacity to accommodate increases in

9 Fitch‟s rating for Karnataka State Financial Corporation bonds implies a GOK AA- rating. See Fitch Ratings (28

January, 2010 ), “Karnataka State Financial Corporation”

69

the annuity payments, as well as the IBRD annual debt service payments, as discussed in the

Fiscal Impact Analysis section below.

III. Fiscal Impact Analysis

14. The primary fiscal impact of the IBRD loan is on the state‟s debt burden and future

expenditure obligations of the project. A fiscal analysis was carried out at a macro- and project-

level to determine the implied impact of the project on the state‟s fiscal situation. The macro -

level looks at the state‟s ability to support the IBRD debt and annuity commitments, while the

project-level review the expenditures incurred and the revenues generated (road user charges and

direct and indirect tax revenues) as a result of doing this project.

State-Wide Macro Fiscal Impacts

15. The fiscal impact analysis uses two debt burden ratios: Total Consolidated Debt Stock to

GSDP and Debt Service to Own State Revenues. The primary contributors to the changes in the

state‟s fiscal condition are the capital expenditures required to upgrade the four DBFOMT

annuity concessions and item-rate contracts. In addition, any KRDCL borrowing, while it is off-

budget, may have contingent liability. Debt burden is the primary indicator used by credit rating

agencies to measure a state‟s ability to make interest and principal payments for existing and

future debt. It also gives an indication of the state‟s ability to fund future capital expenditures

and the impact of debt service payments on the delivery of services and payment of social

obligations such as pension and social security.

16. The consolidated debt to GSDP ratio provides a picture of the extent to which the state may

incur addition debt to support its capital budget. The debt service to own source revenue ratio

assess the impact of the additional KSHIP debt service payments on GOK operations.

17. The source of GOK debt service payments is primarily own source revenues. The GOK

receives tax transfers from the GOI, but these are mostly passed through to specific spending

programs. Increasing GOK debt service payments constrains its capacity to use its own source

revenues for essential or non-discretionary operating expenditures such as salaries, pensions,

maintenance of assets, and subsidies. These expenditures, including interest, consumed 70

percent of the state‟s own source tax and non-tax revenue in 2009-1010

.

18. Table 9 presents current debt burden ratios (without KSHIP II) derived from the 2010-2014

MTFP. The table shows that debt service payments are projected to rise over 50 percent between

FY10-11 and FY12-13. However, a 46 percent increase in own source revenues in the same

period limits the 1.87 percent increase in the debt service to own source revenue ratio This

shows a stable relationship between current and capital spending to maintain services while

continuing to invest in its capital program while retaining the GOK‟s conservative fiscal and

revenue deficit targets. The projection is based on the MTFP‟s 4.5 percent WPI inflation and 8

percent real GSDP growth assumptions that drive the revenue and expenditure forecasts.

10

2010-14 MTFP, page 26.

70

19. The decline in the estimated/projected consolidated debt to GSDP ratio from 27.89 percent

to 26.98 percent between FY10-11 and FY13-14 provides additional fiscal space for increased

capital expenditures. A decrease in this ratio may reflect a faster pace of debt retirement than

debt accumulation; an increase in “pay-as-you” go spending for capital investment; or reduced

capital spending to accommodate increases in current revenue support for salaries, pensions,

subsidies, grants in aid, maintenance of assets and social security payments (inflexible

expenditures). These inflexible expenditures, plus interest, consume 70 percent of the State‟s

own source revenues.

20. Regardless of the cause of a lower debt service to own source revenue ratio, as Table 9:

Key 2010-2014 Medium Term Fiscal Plan Indicators (without KSHIP II Debt) demonstrates, there

appears to be sufficient fiscal space to support borrowing for KSHIP II and/or other capital

investments

Table 9: Key 2010-2014 Medium Term Fiscal Plan Indicators (without KSHIP II Debt)

MTFP Indicator FY10-11

BE

FY11-12

Projected

FY12-13

Projected

FY13-14

Projected

Debt Service 1.95 2.39 2.76 3.06

State Own Tax Revenue 8.05 9.14 10.37 11.77

Debt Service/State Own Source

Revenue

24.13% 26.14% 26.62% 26%

GSDP (at current prices) 72.96 82.34 92.93 104.88

Consolidated Debt Stock 20.35 22.66 25.31 28.3

Consolidated Debt Stock/GSDP 27.89% 27.52% 27.23% 26.98%

Source: GOK MTFP 2010-14; Scott Wilson Detailed Project Reports, Nov. 2010, and IBRD

KSHIP II Impact on the GOK’s Debt Burden.

21. Table 10 shows the impacts on the debt burden ratios for the GOK‟s additional outstanding

debt and debt service payment obligations required for the KSHIP II program. These obligations

include:

US$172.15 million IBRD loan for the 50 percent grants to the four DBOMT (Annuity)

concessionaires;

US$127.85 million IBRD loans for the item-rate contracts;

US$145 million commercial bank loans to the four DBFOMT concessionaires to fund the

remaining capital expenditure for the projects.

22. The outstanding debt increases by 460 million between FY2010-11 through FY2012-13,

but reduced to 439 million in FY2013-14 due to a commercial loan amortization payment. The

IBRD loan has a 5-year grace and does not have any principal payments during this period. The

small increments of outstanding debt and debt service payments relative to the size of the GOK‟s

GSDP and own source revenues results in a minimal increase in the debt burden ratios. This

demonstrates that the State has substantial debt capacity to meet KSHIP II debt service payments

and retains sufficient additional capacity to fund its MTFP capital program.

71

Table 10: KSHIP II Impact on MTFP Indicators (US$ billions)

FY10-11 BE FY11-12

Projected

FY12-13

Projected

FY13-14

Projected

KSHIP II Debt Service

(IBRD, Annuity

Payment)

.009 .023 .036 .067

Increase in Debt

Service/State Own Tax

Revenue with KSHIP II

Borrowing

24.34%

(+0.21%)

26.40%

(+0.26%)

26.96%

(+0.34%)

26.57% (0.57%)

KSHIP II Debt Stock

(IBRD, Annuity

Component)

.460 .460 .460 0.439

Increase in Consolidated

Debt Stock/GSDP with

KSHIP II Debt Stock

28.93%

(+1.04%)

28.44%

(+0.92%)

28.05%

(+0.82%)

27.69%

(+0.71%)

Source: GOK MTFP 2010-14; Scott Wilson Detailed Project Reports, Nov. 2010, and IBRD.

Project Level Fiscal Impact

23. A fiscal impact analysis has been done at the project level, comparing net revenues for

GOK in with the project, and without the project scenarios. The analysis was conducted over 20

years, starting from 2011, and in 2011 constant prices. Cash flows were calculated for each of

these years, taking into account the total expenditure on the project links on the one side and the

total direct and indirect revenues generated by the roads on the other side.

24. Total Expenditure. In both scenarios, maintenance expenditure is estimated as provided in

the HDM-4 economic analysis input data. Maintenance is the only source of expenditure in the

without project scenario during the 20-year period. In the with-project scenario, total

construction cost is taken into account for the first two or three years of the project according to

the link considered. Only 50 percent of the construction costs are borne by the government in the

annuity concessions, whereas 100 percent of the construction costs are funded by the government

in the item-rate packages. For annuity packages, an annuity payment has to be paid every six

months from year three or four to year ten after the beginning of the project. Finally, the World

Bank‟s loan repayments and interests‟ payments occur after a five-year long grace period and re-

paid in 18 years.

25. Total Revenues. Revenues sources are mostly Karnataka State taxes. Direct taxes revenues

have been taken into consideration for the following sources: taxes on construction expenditure,

taxes on maintenance expenditure, fuel taxes, taxes on lubricants, tires and vehicle parts‟

consumption, VAT on new vehicle sales and quarterly and lifetime taxes on vehicles. Central

Government tax revenues were neglected in this analysis11

. Indirect tax revenues will be

generated by the activity created by construction and maintenance activities thanks to a

multiplier effect. This additional revenue has been estimated to four times 12 percent of total

11

Central Government has the authority to levy taxes on income, customs duties, central excise and service tax. The

states‟ share in union government‟s tax revenue was 28 percent for the period 2000-2005. Among this share,

revenues are split between all the states with the poorest states receiving more than the richest ones. Only 4.6

percent of the states‟ share goes to GOK.

72

spending on construction and maintenance. After improvement of the links, road user costs will

decrease and thus consumption of other goods than fuel and vehicle parts is likely to increase,

which will generate extra VAT revenues and further activity that will also generate VAT

revenues. This effect has also been taken into account in the analysis.

26. Net Fiscal Impact. The following table shows the results of the analysis. The present value

of the fiscal impact (calculated with a 12 percent discount rate) is positive for Item-rate contracts,

which indicates that the fiscal revenues generated by the project will more than compensate the

expenditure. Whereas total expenditure on these roads will increase by US$199.5 million as

compared to the without project scenario, total revenue will increase by US$204.3 million,

resulting in a positive fiscal impact of US$4.9 million (in present value terms). On the other

hand, the present value of the fiscal impact for Annuity concessions is negative. For these roads,

expenditure will increase by US$481.5 million and revenue will increase by US$424.5 million,

resulting in a loss for GOK of US$57.0 million. The overall fiscal impact present value for the

project is therefore US$-52.1 million.

Table 11: Fiscal Impact at the Project Level

Project Category

PV Expenditure PV Revenue NPV Fiscal

Impact (Net

Revenue-Net

Expenditure)

Without

project

With

project

Net

Expenditure

Without

project

with

project

Net

revenue

Item-rate Contracts 10.7 210.1 199.5 205.1 409.4 204.3 4.9

Annuity

Concessions 27.6 509.1 481.5 387.0 811.6 424.5 -57.0

Total 38.2 719.2 681.0 592.1 1,221.0 628.8 -52.1

27. These results indicate that the item-rate contracts will pay for themselves since they will

generate more revenue than what they will cost. The higher expenditure for annuity concessions

is related to the annuity payments, which reflect the financing costs, as well as the improved

services due to the secured maintenance provided by the concessionaire. In addition, unlike the

item-rate contracts, the annuity concessions do not have additional costs from contingencies. The

service level provided by the annuity concessions are higher since there is a guaranteed

maintenance and user would continue to gain reduction in transportation costs, which would in

turn feed into the economy and government revenue. Yet, to compensate for the loss of fiscal

revenue due to higher annuity payment, a strategy would be to introduce a toll system capturing

a fraction of the road users‟ benefits due to the roads‟ improvement.

73


Annex 8: Institutional Development and Strengthening Action Plan 2010-2016

Major Objectives and Key Result Areas

1. The Government of Karnataka (GOK) has given its endorsement to an Institutional

Development and Strengthening Action Plan (IDSAP) that will be implemented with Project

support over the period 2010 – 2016. The endorsed Action Plan involves various early

milestones for catalytic actions on sector policy, road funding reforms, governance, road

maintenance planning and operational enhancements in the Public Works Department (PWD), as

well as medium-term strategic targets in (e.g.) asset management, network master planning,

quality management, human resources development and new road safety programs. Wherever

appropriate and synergistic, the IDSAP elements are linked with and/or give support to action on

matters being addressed in the Project-facilitated Governance and Accountability Action Plan

(GAAP), to strengthen the interventions that in various ways aim to deal with the operational

risks and governance challenges in the Project environment.

2. The major IDSAP objectives and the related „key results area(s)‟ are summarized in a

matrix format presented at pages 79 through 82 of this Annex.

3. The GOK has confirmed that the IDSAP is being embraced by both the World Bank and

the Asian Development Bank (ADB) as the basis for a harmonized and efficient „inter-donor‟

approach to providing support for the GOK plans for ongoing institutional reforms and enhanced

service delivery in the state‟s roads sector. The IDSAP will be jointly treated as a “living

document”, with the major areas to be updated at major intervals during its timeframe between

the responsible GOK agencies, the World Bank and the ADB. This will ensure the IDSAP is

responsive to any significant changes in the IDSAP implementation environment and/or in

aspects of the overall Project strategy, which may affect the IDSAP.

4. When duly expanded by the GOK and its PWD into a more detailed action program, the

IDSAP will be implemented with a carefully targeted range of external assistance financed both

under this Project and via current and planned ADB roads investment and technical assistance

operations focused on Karnataka. The more detailed „working level‟ IDSAP will provide

specific details of individual targets and sub-targets, the range of required outputs, the actions to

be taken, the assigned milestones and the respective accountabilities across the GOK and the

concerned Karnataka agencies. The more comprehensive „working level‟ IDSAP sha ll be

established by Project launch and will be made publicly accessible during the Project period via

the dedicated website being established for this Project.

5. Within the GOK, the IDSAP implementation process will be supported by the KSHIP

Project Implementation Unit (PIU), specifically by the Institutional Development and

Strengthening (IDS) cell being established there. In this way, the PWD will take lead

responsibility for facilitating the IDSAP implementation process across the various PWD areas

and other involved GOK entities, such as the Transport Department and the KSHTTA. The

planned IDS Cell will also be responsible for IDSAP implementation progress monitoring and

reporting, for both GOK and Bank purposes and requirements. Overall progress and results in

IDSAP implementation will also be monitored periodically by the high-level empowered Project

Steering Committee for the KSHIP II, who will have responsibility on behalf of the GOK for

resolving any critical issues that may jeopardize achievement of the intended outcomes of the

IDSAP.

74


Institutional Development and Action Plan [IDSAP] 2010 – 2016

Summary Matrix

S.

No. Objective Key Result Area and Timing

Lead

Partner

Roads Sector Strategy and Sustainability

1 Effective sector

policy,

responsibilities

and

empowerment

Revised PWD code (“D-Code”) authorized by GOK (June 2011) N/A

Transport Dept. confirmed by GOK as lead („nodal‟) agency for state-

wide Road Safety strategy, action planning and coordination (October

2010)

N/A

G.O. updating Karnataka Road Sector Policy (2009) on new Planning

and Asset Management Centre role / functions (November 2010)

ADB

G.O. on revised Karnataka State Highways Transport and Traffic

Authority (KSHTTA) role and functioning as „sector apex body‟

(November 2010)

N/A

Establish KSH Act-based GOK „tolling powers‟ for both public and

PPP-based roads via new Regulations (September 2010)

N/A

Finalize D-Code Safety During Construction section (June 2011). ADB

New Road Asset Management Policy (RAMP) in place (December

2011).

ADB

Updated road classification and responsibility framework (December

2011).

ABD&W

B

Karnataka Road Sector Policy of 2009 reviewed / updated (June 2013). WB

2 Establish and

manage

prioritized Core

Road Network

(CRN)

Confirmation of the Core Road Network (CRN) and of assigned CRN

management responsibility at CE level in PWD (June 2011)

N/A

CRN asset management guidelines and plan(s) established (March

2012)

ADB

Capacity-building in PWD for CRN management completed (June

2012)

ADB&W

B

3 Adequate CRN

funding

GOK to formulate financing strategy and institutional measures for

CRN development and management (December 2011)

N/A

GOK considers establishment of Road Fund (August 2011). WB

4 Increased

private sector

participation

(PSP)

Capacity building in PPP project management skills in PWD (including

for KRDCL, KSHIP-PIU and NH units) completed (March 2012).

ADB&W

B

Initial 3 PPP-based CRN improvement projects underway (June 2012). WB

Piloting of PPP-based CRN O&M contracts/concessions underway

(June 2013).

WB

5 Effective

Transport sector

infrastructure

master planning

Implement new Planning functions and capacity in PWD (November

2011).

ADB

Finalize and roll-out new state-level Roads Master Plan (August 2011). ADB

Implement Planning Road Asset Management System (PRAMS) in

PWD to support CRN investment planning (December 2011).

ADB

Draft GOK policy on multi-modal / inter-modal transport development

strategy and investment planning, developed (June 2013).

ADB&W

B

Asset Management

6 Computerized

road network

Asset

Software for Road Asset Maintenance and Management System

(RAMMS), integrated with (also-updated) RIS and GIS databases,

ready for PWD „pilot‟ operation and evaluation ( September 2011).

ADB

75

S.


Lead

Partner

Management

system,

procedures and

capacity

Dedicated RAMMS responsibility assigned in HQ of PWD (December

2011).

ADB

Establish and implement RAMMS manual and PWD training ( March

2012).

ADB

RAMP-based Action Plan implemented by PWD (June 2012). ADB

RAMMS fully operational in dedicated PWD unit and is providing

outputs directly for use in GOK road maintenance budget decision-

making and allocation processes for IFY 2013-2014 and onwards

(October 2012).

ADB&W

B

New PWD „asset protection‟ policy and guidelines for CRN-centered

administration of vehicle axle-load limits, developed (December 2012).

WB

Project Preparation, Implementation and Management

7 Comprehensive

PWD „project

management‟

procedures,

systems and

practices

PWD piloting of IT-based Project Management tools (with progress /

performance monitoring and reporting) underway for works of Rs. 50

Crores and over (March 2012).

WB

PWD-wide training-supported implementation of Project Management

system (with integrated progress/performance monitoring and

reporting) completed for PWD projects of Rs. 10 Crores and over (June

2014).

WB

8 Effective

Environment

and Social

Management

(„safeguards‟)

capacity

G.O. issued on application of Environment and Social Management

(E&SM) provisions in D-Code to projects of Rs. 50 Crores and over

(August 2011).

N/A

E&SM codes, functions, staffing and logistics in place and effectively

involved in pilot-batch of PWD North and South Zones projects (June

2012).

WB

Externally-certified PWD pilot of Streamlined Environmental

Management completed and evaluated (December 2013).

WB

Governance and Accountability

9 Satisfactory

sector public

information,

governance and

accountability

mechanisms

GOK-endorsed, RTI-compliant Governance and Accountability Action

Plan (GAAP) for KSHIP established (February 2011)

N/A

KSHTTA status and responsibilities updated (June 2012). ADB

KSHTTA-centered mechanisms for public and stakeholder

consultations on roads-related matters in place (December 2012).

ADB&W

B

Main GAAP-based actions and capacity building completed (December

2013)

WB

Periodic road user satisfaction surveys completed and results

publicized via KSHTTA (June 2011, April 2012 and April 2015).

WB

10 Effective PWD

framework,

functions and

capacity for

Quality

management

Second-round ISO-certification QMS program for remaining PWD

units, KSHIP (PIU) and KRDCL completed (June 2013).

WB

Strengthening of QC laboratory / testing skills, equipment and

resources in PWD field units completed (December 2013).

WB

Review undertaken by IR-RAASTA / effectiveness in PWD of full ISO

/ QMS program (March 2014).

WB

11 E-governance

systems and

capacity in

place in PWD

E-procurement facilities in place in PWD for major procurements,

extended to procurements of Rs. 5 Lakhs or more (April 2011).

ADB&W

B

Implement e-billing, e-contract management and other e-governance

facilities progressively in PWD (December 2013).

ADB

Road Safety

76

S.


Lead

Partner

12 Effective state-

level Road

Safety strategy,

capacity and

action

Finalize TOR for piloting of Traffic Incident Management System

(TIMS) on selected CRN corridors (March 2011).

ADB

Re-activate RAAS with RIS linkage and implement „pilot‟ jointly

between Transport Department and PWD (December 2011).

ADB

Capacity building for Transport Dept. and other GOK agencies for new

RS roles and responsibilities completed (December 2012).

WB

Implement new Centre of Excellence for RS training, education and

research involving GOK and major stakeholders (June 2013).

WB&AD

B

Pilot „safe corridors‟ action program completed (December 2014). WB

New comprehensive state-level RS strategy and capacities in place and

new RS Action Plan being implemented by GOK (June 2015).

WB

Multi-year black-spot mitigation program completed (June 2016). WB

Organizational Structure and Management Processes

13 Efficient

structures and

capacity for

evolving roads

responsibilities.

Establishment actions and essential staffing measures completed for

enhanced PWD functions/responsibilities (December 2012).

N/A

Effective „sustainability‟ measures being taken by PWD for new core,

critical and/or specialized functions and skills (June 2014).

ADB&W

B

14 Updated

framework for

PWD role and

outputs

Revised authorized D-Code published and fully implemented both

PWD-wide and in concerned sector areas (December 2011).

N/A

Cyclical review / updating of D-Code undertaken (June 2014). WB

15 Effective IT and

ICT resources

to support all

PWD

management

functions and

responsibilities

Medium-term prioritized IT-ICT-MIS Strategy and Action Plan

covering relevant technology, facilities, assets and capacities for PWD

„core‟ IT-ICT management and operational support functions, in place

(December 2012).

WB&AD

B

IT establishment and staffing in PWD strengthened sustainably in

essential skills / capacities (December 2012).

ADB&W

B

External resources / capacity needed for sustainability in IT-ICT

operations, user support and data/system security in PWD, in place

(December 2013).

WB

16 Effective IT-

supported PWD

accounting and

financial

management

Integration of localized FM tools in PWD into a comprehensive

agency-wide IT-based Financial Management Information System,

compatible with the GOK Treasury system, fully operational

(December 2012).

WB

Human Resources Development

17 Sound PWD

staffing profile,

skills mix and

competencies

for its evolving

functions and

responsibilities

Finalization and implementation of general Training strategy, Action

Plan and ongoing „training calendar‟ for PWD staff (August 2010 and

ongoing).

ADB

Creation of a Budget sub-item for Staff Training (April 2011). N/A

Working Group (WG) proposals on enhancement of „standard APR‟ for

PWD needs submitted to GOK (December 2011).

WB

Training-supported roll-out of „enhanced APR‟ PWD-wide completed

(December 2012).

WB

Enhanced PWD „core skills‟ training suite [inter alia covering

PPP/PSP, Asset Management, Road Safety, E&SM, Quality, Public

Communication and Information, Ethics and Governance] fully

implemented (December 2012 and ongoing).

ADB&W

B

77

S.


Lead

Partner

Review-based measures to strengthen the HR (HRM and HRD)

functions, staffing, MIS and other resources to support PWD, KRDCL

and KSHIP, implemented (June 2013).

WB

Review of evolving PWD functions, organization and staffing relative

to road sector challenges, and identification of future institutional

development strategy and options for GOK consideration, completed

(March 2014).

WB

78


Annex 9: Governance and Accountability Action Plan

Background:

Overall Governance and Accountability Arrangement in Karnataka

1. Karnataka is one of the most forward-looking states in India in promoting initiatives to

make its governance citizen friendly, transparent and responsive. The Government of Karnataka

(GOK) has undertaken a number of initiatives including: e-procurement, Khajane (computerized

transactions for the Treasury), Karnataka State Wide Area Network (KSWAN), Attendance

Monitoring System/Flexi-time, Bhoomi (digitization of land records), Nemmadi, Stamps and

Registration. The GOK has also introduced many other reforms such as citizen‟s charter, public

hearing and online complaints system to promote administrative accountability in the state. In

recent years, Karnataka has privatized or restructured several government-owned enterprises to

improve service quality, including public transport provision, energy distribution, solid waste

management, and parking management.

2. Karnataka has a well-established system for investigation of alleged cases of irregularities

in respect of duties discharged by public servants. Investigation of implementing agencies and

high-level government officials is conducted by an independent agency, the Lokayukta, which is

a similar institution of the state as the Central Vigilance Commission (CVC) at the Central level.

The Lokayukta, headed by retired judges, has jurisdictions over all implementing agencies and

government officials except for the Chief Minister and his Cabinet Ministers. It has offices in all

the districts of the state and has a website (http://lokayukta.kar.nic.in). Any member of the public

can contact the Lokayukta to complain about any aspect of the administration. In addition, the

Lokayukta also takes “suo moto” cognizance of media reports or newspaper articles to follow up

with investigations fraud and corruption cases.

Governance and Accountability Arrangement in Public Works Department

3. Within the overall context of the state governance structure, the PWD has undertaken

several measures to improve its governance and acceptability arrangement for its activities. The

most notable ones include:

Creation of departmental web portal (www.kpwd.gov.in)

Establishment of GIS based Road Information System (WEBRIS) through the web,

which would allow to track the condition of roads

Implementation of e-procurement for all tenders worth more than Rs. 20 Lakh12

Introduction of ISO 9001-2008 „Quality Management‟ certification at 21 PWD offices

Adoption of Standard Bidding Documents (SBD) based on international practices

Approved the Infrastructure Policy of Karnataka (2007) to enable taking up of road

projects on PPP basis

Payment of invoices through the treasury (Khajane)

12

Extension of e-procurement for all works under Rs. 5 lakh is already in process.

http://lokayukta.kar.nic.in/

http://www.kpwd.gov.in/

79

Adoption of the Institutional Strengthening Action Plan, with significant resources

allocated from the project to improve project management and organization capacity of

the PWD.

Governance and Accountability Arrangement in the Project Implementation Unit

4. The PIU has benefited from the state-wide and PWD-wide governance initiative. It has also

been involved in the implementation of the first Bank-financed KSHIP, as such has a good

capacity to implement a follow on project. As part of the project implementation KSHIP I and

the requirements for a follow on project, the PIU has undertaken several steps to improve its

governance structure and its ability to implement the project effectively and transparently.

Adoption of R&R policy and constitution of Grievance Redressal Cell to address

grievances of Project Affected Families,

Payment of invoices through the treasury (Khajane)

Conduction of Road User Satisfaction Survey on a periodic basis

Introduction of Public Private Partnerships in the state road sector

Financial management systems comprising budgeting, accounting, internal controls,

financial reporting and auditing were strengthened during the implementation of KSHIPI.

E-payment is proposed to be made operational for payment of invoices to Contractors /

Consultants.

5. Notwithstanding the improvements the PIU has made, there are a number of areas where

governance could improve, especially in the areas of disclosure, complaint handling system and

third-party monitoring. Accordingly, a Governance and Accountability Action Plan (GAAP) has

been prepared to improve these aspects of the governance in the PIU. The GAAP has been

prepared taking into consideration the key risks in project implementation and lessons learnt

from the first KSHIP and the measures that are already or would be in place to mitigate the

impact of the risks related to implementation and governance risks on the achievement of the

Project Development Objective. The GAAP also builds on the Right to Information Act (RTIA,

2005), the Karnataka Lokayukta Act (1984), the Prevention of Corruption Act (1988) and several

initiatives the GOK has undertaken to improve governance in Karnataka. Based on the existing

legal framework and GOK policy directives, the GAAP is designed to improve the PIU‟s

procedures and capacity for better governance and create a forum for public participation during

the implementation of the project.

The GAAP

6. Based on a review of current practices in Karnataka and India and lessons learned from

similar projects elsewhere, a number of actions have been identified to improve governance in

the PIU related to the above three areas. The actions include project-level support to implement

the provisions of the RTI Act in the PIU, and revamp the complaint handling system (taking into

account the role of the Lokayukta and PWD‟s own investigation unit), and third party

monitoring. In addition, the GAAP has close linkages with the IDSAP, which is directed at

improving systems and procedures in PWD and the PIU.

Actions to improve information disclosure

80

7. The Right to Information Act, 2005 (RTI Act) mandates the disclosure of and universal

access to information wherever in the public interest. Compliance to the Act is required for all

public entities including the PIU. The implementation of the RTIA requires substantial resources

to put in place systems and procedures for both “on demand” and „suo moto” disclosures of

information. The proposed project will provide the required funding and technical assistance for

the PIU to improve its system and procedures so that information about KSHIP II is widely

available to the public.

8. To enable the KSHIP staff to respond to public requests for better information, training

programs will be arranged for all KSHIP officers for in-depth understanding of the RTI Act, in

suitable institutions such as ATI-Mysore, DTIs, KERS, DPAR, etc., and also, by inviting outside

experts to the PIU-KSHIP.

9. The PIU has formulated a comprehensive project disclosure policy, identifying which

documents from KSHIP are to be disclosed. This disclosure also complies with the new World

Bank Disclosure Policy. For effective and timely dissemination of information, the PIU has

established a dedicated website for KSHIP II (www.kship.org). The website is a good start, but it

requires improvements both, in content and style. The project will provide support for the

improvement of the website and other means of dissemination of information. All project

documents will be duly catalogued, indexed and computerized, as appropriate, to facilitate their

access and retrieval. In addition, as per the mandate of the Act, the PIU has appointed an

Appellate Authority, Public Information Officer and Assistant Public Information Officer for the

PIU, and the field units involved in the implementation of the project.

10. The project will also provide support for improved integration and enhancement of the IT -

ICT-MIS (hardware and software) assets and facilities in the PWD to put in place a

comprehensive IT-ICT platform and tools for PWD-wide functions in project planning and

implementation, contract management and financial management.

11. PWD has already gone ahead with e-procurement of works for more than two and a half

years (since January 1, 2008). To enhance transparency and efficiency of procurement in KSHIP,

the PIU and WB should expedite and ensure that the e-procurement process will be revised to

meet the requirements of the World Bank on robustness and user-friendliness and adopted for the

project13

as soon as possible. A database of information on all contracts, bid prices,

specifications, unit prices, contractor participation and performance, price variations, time and

cost overruns etc will be developed for KSHIP projects to create benchmarks for future

reference.

Actions to enhance complaint handling

12. The complaint handling system for the PIU will follow the established procedures in the

PWD and Lokayukta, with additional provisions for monitoring and tracking of response to

complaints.

13

After obtaining clearance from the World Bank

http://www.kship.org/

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13. The PIU will establish a Complaint Handling Cell, which will be headed by a Complaint

Management Officer (CMO) of the rank of Executive Engineer or Superintending Engineer to

handle and oversee all complaints regarding KSHIP II. The CMO will be supported by two

assistants from the Establishment and Engineering sections of the PIU, KSHIP.

14. For complaints relating to fraud and corruption, an officer from Administration Section of

the PIU, KSHIP will be designated as the Internal Vigilance Officer to handle and follow up on

all F&C cases and ensure proper investigation is done and followed up. Complaints deemed

serious infringements will be referred for further investigation by the Internal Vigilance Officer

to the Chief Project Officer of the PIU for further action and for reporting. Complaints of fraud

and corruption of higher-level officers in the PIU will be referred to the Principal Secretary

(PWD) for further action. Independently, these cases may also be referred to the Lokayukta for

investigation as well.

15. For complaints regarding quality of construction, resettlement and other project

implementation issues, the CMO of the PIU, KSHIP will be the nodal officer. The Contact

information (dedicated email address, phone numbers) of the complaint handling and vigilance

officials shall be widely publicized.

16. Monitoring of the complaints will be done as per the procedures laid out in the complaint

handling mechanism. Details of complaints received and their resolution will also be submitted

to the Bank quarterly. Tracking of the status of complaints, related investigations and measures

taken will be reported monthly by the CMO to the Chief Project Officer. All F& C complaints

and investigation will be included in quarterly reports to the Bank. For efficient decision-making

and file-tracking, a document management system with electronic movement of files will be

explored.14

Actions to Enhance Quality and Project Monitoring

17. The current quality monitoring system involves three levels of checks – by the contractor,

construction supervision consultant (CSC) and the PIU engineers (Client). In addition, the

Quality Assurance wing of the PWD has been mandated to conduct quality inspections. Further,

the Works Monitoring Cell of the PWD is also responsible for monitoring quality through

specific investigations, either on the advice of the PWD or based on complaints received from

the public or media.

18. In some cases, however, the current check-and-balance and monitoring system may miss

some aspects of quality, and more importantly does not create a space for wider stakeholder

participation. For this reason, it is proposed that the PIU pilot a third-party monitoring.

19. To enhance quality of works, the PIU has agreed in principle to pilot third-party monitoring

of project works through the use of empanelled retired engineers of high integrity and/or reputed

engineering colleges/technical institutions. This will be a nice complement to the task force

constituted by GOK with outside experts drawn from the profession and academia for ensuring

quality in all civil works, that reports directly to the Chief Minister.

14

Hard copies with signatures of all competent authorities shall be preserved only after a decision has been made.

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Actions to Enhance Institutions and Project Coordination

20. In 1999, the GOK incorporated KRDCL as a wholly owned government company (under

the Companies Act) for undertaking projects that are economically viable and strategically

important. It is also responsible for developing, maintaining and operating roads, highways,

bridges, and public facilities on a public–private partnership basis. KRDCL works are funded

from a number of sources, including budgetary provisions for specific projects and loans from

the Housing and Urban Development Corporation (with principal and interest payments

guaranteed by the government). KRDCL has been tasked with the responsibility of executing

projects including those based on PPP model for which TA services will be procured under

KSHIP II. To enable KRDCL to fulfill its mandate and develop its capacity to undertake more

such projects in the future, the WB is of the view that KRDCL needs to embrace best corporate

practices. As such, the project would facilitate this by initiating a corporate governance

assessment of KRDCL, followed by concrete measures to strengthen its structure and functional

capabilities.

Development of monitoring indicators for compliance and outcomes

21. The CMO has also been tasked with the implementation of the actions under the GAAP.

The PIU and the Bank team will review the implementation of the GAAP during the supervision

missions and a comprehensive review at mid-term. This will enable an evaluation of the GAAP‟s

effectiveness and opportunity for any mid-course corrections.

S.

No.

GAAP Element Performance Benchmark(s)

1. Information

disclosure

frequency and comprehensiveness of website updates,

comprehensiveness of information available on citizen information

boards at site(s),

2 Complaint

handling

periodic review of statistics based on records on the KSHIP website;

field level checks to ensure that problems are being reported and

acted upon; and

review of quarterly reports on complaint handling submitted to the

Bank

3 Quality Control/

project

coordination

harnessing of third parties in review of project design and monitoring,

periodicity of reports of the impact assessment and

user satisfaction surveys.

Timeliness in completion of tasks by KRDCL

4 Institutional

improvements

progress in implementation of online complaints handling system,

procurement and project management database and the project MIS.

5 Capacity Percentage of staff and officers sent for training including on RTIA

Indicative Costs

22. The cost of the GAAP implementation is part of the technical assistance component of the

project comprising of: (a) cost to develop MIS; (b) costs to develop online complaint handling

mechanism; (c) costs to commission third-party monitors/quality assurance consultants; (d) costs

to commission the annual impact assessment and user satisfaction surveys; (e) cost of training

staff.

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Table 1: Governance and Accountability Action Plan

1. Policy actions to enhance transparency

Risk Area Action(s) to be taken to mitigate risk Timeline/Status Implement

ing

Officials

Lack of

transparency

and

accountability

that may

adversely

affect project

outcomes.

Project-level

Formulate a proactive public disclosure

policy and disclose all project information to

the public through the KSHIP website.

Policy formulated

and agreed upon.

PIO, APIO,

All PIU staff

Appoint Appellate authority, PIO, APIO at

PIU and in the field units

Appointed PIU

Enhance website for clarity of content and

style of project related information

Continuous PIU

Engagement with media during supervision

missions to highlight issues.

As needed. Bank, KSHIP

Entity-level

Widely publicise – both internally and externally

- the existing Civil Service Conduct Rules

governing sanctions for staff.

June 2011

KPWD,

Vigilance

Officials

2. Measures to enhance procedures

Corruption/

collusion in

procurement;

weak financial

management

and complaint

handling

procedures;

Project-level

Revise e-procurement process to conform to

World Bank requirements on robustness and

user-friendliness

By Negotiations PIU

Enable online contractor registration December 2012 PIU

Entity-level

Establish complaint-handling cell, appoint a

complaint management officer (CMO) and

internal vigilance officer (IVO) and establish

procedures to deal with different types of

complaints.

Completed PIU

Vigilance

Officials

Maintain an updated database on complaints

received and action taken for “suo moto” or on-

demand public disclosure.

From project start

PIO, APIO,

IVO

Notify details of the process for disqualification

of bidders who engage in misrepresentation/

fraudulent/ corrupt practices on KSHIP website.

June 2011 Vigilance

officials, PIU

Create workgroup to assess feasibility of online

contractor registration for all departmental

works

March 2011 KPWD

Initiate corporate governance assessment of

KRDCL; Implement key recommendations

September 2011;

December 2012

Upon

approval by

GOK

3. Measures to strengthen institutions

Weak

complaint

handling

Project-level

Develop a project MIS for effective project

monitoring and review and link it to the web

To be developed

during the 1st year

PIU

84

mechanisms,

project

management,

quality control

and asset

maintenance

for quick review and follow up action. of project

implementation

Commission impact assessment studies and

user satisfaction surveys to obtain user

feedback

Annual PIU

Empanel third-party mechanism to review

highway designs and quality of works.

By Negotiations. PIU

Start compiling database on number of bids,

bid prices, unit prices, specifications, contractor

performance for future reference.

June 2011 Procurement

officials of

KSHIP

Entity-level

Make Finance Management Manual fully

functional.

Ongoing PIU

Pilot an online system for registering, tracking

and monitoring of complaints under the project

for department wide rollout by end of project.

June 2011

Vigilance and

Complaint

Management

Officers

Maintain asset registers under the Road

Information System.

Annually by June

of every year

KPWD

4. Measures to enhance human resources (all at entity-level)

Weak

implementation

arrangements

that may

adversely affect

project

processes and

results

Identify G&A-related staff training needs,

finalize training plan and conduct appropriate

PWD-wide staff training.

Continuous KPWD

Conduct knowledge-sharing workshops for

KSHIP staff and contractors/developers on PPP

and new contracting methods.

Periodically. PIU, Bank

Conduct training on RTIA for all KSHIP

officers and staff

Continuous

PIO, APIO