Performance India: National Highway Evaluation Report Corridor (Sector) I Project

Independent Evaluation

Raising development impact through evaluation Performance Evaluation Report October 2017

India: National Highway Corridor (Sector) I Project

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

Reference Number: PPE:IND 2017-12 Project Numbers: 34420-013 and 34420-023 Loan Numbers: 2029 and 2527 Independent Evaluation: PE-799

NOTES

(i) In this report, “$” refers to US dollars.

For an explanation of rating descriptions used in Asian Development Bank evaluation reports, see Asian Development Bank. 2016. Guidelines for the Evaluation of Public Sector Operations. Manila.

Director General M. Taylor-Dormond, Independent Evaluation Department (IED) Director N. Subramaniam, Sector and Project Division, IED

Team leader Y. Ono, Senior Evaluation Specialist, IED Team members C. Mongcopa, Associate Evaluation Officer, IED I. Garganta, Associate Evaluation Analyst, IED C. Regodon, Evaluation Assistant, IED

The guidelines formally adopted by Independent Evaluation Department on avoiding conflict of interest in its independent evaluations were observed in the preparation of this report. To the knowledge of the management of Independent Evaluation Department, there were no conflicts of interest of the persons preparing, reviewing, or approving this report.

In preparing any evaluation report, or by making any designation of or reference to a particular territory or geographic area in this document, the Independent Evaluation Department does not intend to make any judgments as to the legal or other status of any territory or area.

Abbreviations

ADB – Asian Development Bank BOT – build-operate-transfer EIRR – economic internal rate of return FIRR – financial internal rate of return GDP – gross domestic product HDM-4 – Highway Development Management-4 IEE – initial environmental examination IEM – independent evaluation mission IRI – international roughness index km – kilometer NGO – nongovernment organization NHDP – National Highways Development Program NHAI – National Highways Authority of India O&M – operation and maintenance OMT – operation-maintenance-transfer OMTT – operation-maintenance-toll collection-transfer PCR – project completion report PIU – project implementation unit PPER – project performance evaluation report PPP – public–private partnership PSP – private sector participation RRP – report and recommendation of the President TA – technical assistance WACC – weighted average cost of capital

Currency Equivalents

Currency Unit — Indian rupees (Re/Rs)

At Appraisal At Completion At Independent Evaluation (20 October 2003) (31 December 2011) (31 August 2016) Re1.00 = $0.022 $0.0188 $0.0149 $1.00 = Re45.340 Re53.1100 Rs67.1410

Contents Page Acknowledgments vii Basic Data ix Map xi Executive Summary xiii

Chapter 1: Introduction 1 A. Project Description and Objectives 1 B. Evaluation Purpose and Process 1

Chapter 2: Design and Implementation 2 A. Rationale 2 B. Impact, Outcomes, and Outputs 2 C. Costs and Financing 3 D. Project Schedule and Implementation Arrangements 4 E. Technical Assistance 6 F. Consultants and Procurement 6 G. Safeguards 6 H. Compliance of Loan Covenants 8

Chapter 3: Performance Evaluation 9 A. Relevance 9 B. Effectiveness 11 C. Efficiency 14 D. Sustainability 16 E. Overall Assessment 18

Chapter 4: Other Assessments 19 A. Impact 19 B. Performance of the Asian Development Bank 21 C. Performance of the Borrower and the Executing Agency 21

Chapter 5: Issues, Lessons, and Recommendations 22 A. Issues and Lessons 22 B. Recommendations 23

Appendixes 1. Revised Design and Monitoring Framework 26 2. Summary of Salient Features of the Project 30 3. Project Cost and Financing Plan 31 4. Chronology of Major Events 34 5. Organization Structure for Project Implementation 35 6. Economic and Financial Evaluation 36

Acknowledgments

This project performance evaluation report is a product of the Independent Evaluation Department of the Asian Development Bank. The evaluation team was led by Yuji Ono (Senior Evaluation Specialist), and supported by Caren Joy Mongcopa (Associate Evaluation Officer), Irene Garganta (Associate Evaluation Analyst), and Charina Regodon (Evaluation Assistant). Martin Kerridge and Suvendu Seth were the consultants. Internal commenters Toshiyuki Yokota (Senior Evaluation Specialist) and Srinivasan Palle Venkata (Evaluation Specialist), provided valuable comments to strengthen the report. The report benefited from the overall guidance of Nathan Subramaniam, Director, Sector and Project Division.

The team would like to thank the officials and representatives interviewed in Delhi and other states in India for their time and inputs. The team expresses its appreciation for the time and support provided by the Ministry of Road Transport and Highways, the National Highways Authority of India, the state governments, civil society organizations, and stakeholders that the team interviewed during the field visit. Finally, the team would like to acknowledge the staff from the India Resident Mission and the South Asia Department of the Asian Development Bank for facilitating the mission and engaging constructively in reviewing and commenting on the draft report.

Basic Data

National Highway Corridor (Sector) I Project (India) (Loans 2029 and 2527) Key Project Data ($ million) Approved Revised Actual Total project cost 760.2 1,099.0 1,137.3 Foreign exchange cost 454.4 706.1 715.5 Local currency cost 305.8 392.9 421.8

ADB loan 400.0 500.0 499.6 amount/utilization 68.6 103.3 106.1 Private sector financing 291.6 495.7 531.6 Government financing

Key Dates Expected Actual Fact-Finding Loan 2029 26 May–10 June 2003 Loan 2527 12–26 February 2009 Loan Negotiations Loan 2029 3–4 November 2003 Loan 2527 25 May 2009 Board Approval Loan 2029 4 December 2003 Loan 2527 30 June 2009 Loan Agreement Loan 2029 27 October 2004 Loan 2527 4 August 2009 Loan Effectiveness Loan 2029 90 days after loan 24 January 2005 agreement was signed Loan 2527 1 November 2009 15 September 2009 Loan Closing Loan 2029 31 December 2007 9 May 2012 Loan 2527 31 December 2011 9 May 2012 Months (effectivity to closing) Loan 2029 88 Loan 2527 32

Borrower Government of India Executing Agency National Highways Authority of India

x India: National Highway Corridor (Sector) I Project

Mission Data Type of Mission Number of Missions Number of Person-Days Fact-Finding Loan 2029 1 135 Loan 2527 1 30 Appraisal 1 70 Inception Loan 2029 1 36 Loan 2527 1 30 Loan Review 9 174 Project Completion 1 12 Source: Asian Development Bank.

Executive Summary

India’s economy suffers from chronic capacity shortages in the national highway system. At appraisal, of the network’s 58,112 kilometers (km), 39% were still single-lane roads and 59% were double lanes; four-lane highways—a standard for arterial national corridors—accounted for only 2%. In 1998, the Government of India launched the National Highways Development Program (NHDP) to upgrade key arterial corridors of the national highways network to relieve the network’s chronic capacity constraints. In 2003, the Asian Development Bank (ADB) approved the National Highway Corridor (Sector) I Project for $400 million as a sector loan to support the NHDP.

Scope of Evaluation and Methodology

The purpose of this project performance evaluation report (PPER) is to assess the performance of the project and identify lessons for future projects. The project was evaluated more than 4 years after project completion as this time frame provides adequate time to assess progress in achieving effectiveness, efficiency, sustainability, and the impact of the project. The independent evaluation mission (IEM) was fielded in August 2016 to prepare the PPER. This PPER was largely dependent on the project completion report (PCR) and project review documents for the analysis on safeguards. The findings were also used as an input to the country assistance program evaluation for India.

Project Design and Implementation

The project was to finance sections of the east–west corridor, which was one of the three key national highway corridors in India under the NHDP. ADB planned to finance five priority sections covering 662 km along the corridor in the states of Madhya Pradesh, Rajasthan, and Uttar Pradesh. Under this sector loan modality, the core subproject was designed before project approval and noncore subprojects were selected and designed after the approval, with the same outcome. The core subproject is selected as an exemplary subproject for appraisal of the rest of subprojects. Thus, five sections were tentatively shown at appraisal, but it was expected that the National Highways Authority of India (NHAI) would choose the subproject sections later and get approvals from ADB. The section from Jhansi to the border to Rajasthan was selected as the core subproject at appraisal. The goals of the project were to help (i) enhance the overall economic efficiency of the NHDP and (ii) reduce regional economic discrepancies.

In providing a series of loans to the NHDP, ADB has developed a programmatic approach to realizing medium- to long-term goals in a progressive and evolutionary manner. The project required broad-based policy reforms to achieve the intended outcomes of (i) strengthening the project development and implementation capacity of the NHAI; (ii) enhancing private sector participation (PSP) in highway development; (iii) boosting sources of funds for NHDP development; (iv) strengthening the operation and maintenance (O&M) functions of the NHAI; and (v) through these actions, enhancing the NHAI’s management capacity and financial viability. The intended outputs at the project level at appraisal were to (i) upgrade selected sections of the east-west corridor under the public financing, (ii) introduce PSP to develop and maintain the east-west corridor, (iii) prevent the spread of HIV/AIDS and increase awareness of the risk of trafficking in

xiv India: National Highway Corridor (Sector) I Project

women and children, and (iv) introduce road safety measures along a selected pilot section between Jhansi and Lucknow.

In 2009, ADB approved the supplementary loan for $100 million, because construction costs escalated during implementation and the project needed long-term loan funds. The programmatic approach at the sector level was included in the design and monitoring framework (DMF) at appraisal but was dropped at the supplementary loan approval. The outcomes were redefined as “improved road transport services and safety along the project corridor.” The outputs were updated with minor modifications, including a final defined scope of 657 km in five sections.

At appraisal, the project cost was estimated at $760 million equivalent, including both the public and the private sector portions. During implementation, the project experienced a substantial cost overrun in civil works. During the construction period, the prices of input items for labor and some construction materials increased significantly, such as those of iron and steel (34%), cement (37%), and bitumen (150%). The total project cost was revised to $1,099 million at the supplementary loan approval. Upon project completion, the total project cost was $1,137.3 million equivalent, which was about 49.6% higher than the original cost estimate and 3.5% higher than the revised cost estimate.

At appraisal, the project was envisaged to be implemented over 4 years, including procurement and preconstruction activities, and was expected to be completed by 30 June 2007. Although ADB approved advance action for prequalification of civil works contractors, prequalification was delayed, and the initiation of civil works for the core subproject was delayed by about 1 year. The public sector component included 12 civil works contracts. The physical progress for the nine civil works contracts in Madhya Pradesh and Rajasthan was satisfactory, with six contract packages substantially completed in 2008 and three before June 2009. The civil works in Uttar Pradesh were substantially completed by December 2011, which was about 54 months later than anticipated at appraisal. The civil works for the PSP component began in October 2006 and were completed by December 2011.

Performance Assessment

Relevance. The project was fully aligned with the government policies of the NHDP and with ADB's country partnership strategy (2009–2012) and updated country partnership strategy (2013–2017) for India. The project had innovative PSP features, and experience gained from the project was used in other projects in India. However, the appraisal design did not work well as the core subproject was delayed and the subsequent, noncore subprojects did not learn from the experience of the core subproject. The project adopted the programmatic approach, but it is not clear how this approach worked well to improve sector performance. In addition, the project also did not implement a sector- wide approach in integrating the series of projects to improve sector performance. Under the programmatic approach, ADB has systematically pursued goals by introducing the concept of a trigger point (project processing starts only upon satisfactory implementation of agreed-on milestones) and the trigger point for the project was to secure funds to complete the second phase of the NHDP. However, it is not clear how the trigger point was related to achievement of sector performance, and this programmatic approach was not focused during the implementation, giving more attention to implementing the physical investment program at the expense of pursuing institutional and policy reform. Subsequently, the sector targets were dropped at the supplementary loan approval. Executive Summary xv

The sector modality was not needed for the corridor road development, as flexibility in choosing the project sections was not a strong need as it is for rural roads in which there are various routes to many villages. For this project, since five sections were already clear to some extent at appraisal (traffic forecast for the five sections were already conducted at appraisal), the sector modality was useful only for facilitating simultaneous appraisal and approval of the subprojects. If the project had been approved with a project loan for five sections, the approval and the implementation would have been simpler. The project design had another weakness: delay in completion of a middle section, which was outside the project scope, affected traffic in the ADB-financed sections at both ends. The risk for the middle section was not well addressed at appraisal and during implementation. Although the project was fully aligned with government policies and ADB strategies, the design was weak, mainly in the finance modality. The project is thus rated less than relevant, whereas the PCR rated it relevant.

Effectiveness. At appraisal, sector-level outcome targets were designed, but at the supplementary loan approval, they were changed to project-level outcome targets to fit to the project loan modality. This PPER evaluated the achievements of the revised outcome targets: (i) reduction of travel time and (ii) reduction of fatalities by road accidents in the corridor. The revised outcome targets were fully achieved. Also, the following outputs were delivered: (i) road construction was nearly achieved (99.5% in terms of length of highways), (ii) the PSP component was introduced, (iii) O&M was entrusted to the private sector, and (iv) HIV/AIDS awareness campaigns were introduced. However, (i) in two short sections (2.7 km in total) construction was not completed because of difficulty in land acquisition (one is to cross a mosque and another is to acquire a military-controlled area), and (ii) a road safety zone was not introduced. Overall, the project is rated effective, the same as in the PCR.

Efficiency. The recalculated economic internal rate of return (EIRR) was 19.2%, which was much higher than the threshold of 12% for the economic viability. The actual 2016 traffic was 37% lower than the appraisal estimate and 4% lower than the PCR estimate for the whole project. At appraisal, the EIRR for the whole project was not calculated but the traffic forecast for the whole project was provided. At the supplementary loan approval, traffic volumes were provided for only two sections and a traffic forecast for the whole project was not provided. The IEM carried out a 24-hour traffic survey at three locations and used the results to modify traffic data received from toll plazas (this PPER is more reliable than the PCR because the PCR used only data from toll plazas). This PPER’s EIRR was higher than 15.2% at the supplementary loan approval and 14.4% at the PCR for the whole project, but lower than 22.9% at appraisal for the core subproject. Part of the reason for the inconsistency (that is, lower traffic than the PCR estimate, but a higher recalculated EIRR) was that the type of vehicles on the project highways shifted to larger trucks with higher unit benefits (compared with the PCR, the number of large, multi-axle trucks nearly doubled while that of small, two-axle trucks decreased by more than half). As details of former EIRR calculation methods were not explained, it is difficult to identify other reasons. The project experienced a 54-month delay, with a 49.6% cost overrun. Asa result of the significant cost overrun, the project needed the ADB supplementary loan. A cost estimate of $0.90 million per km was used for noncore subprojects at appraisal, but the actual cost was 50% higher, at $1.35 million per km. The analysis in the project document for the supplementary loan approval attributed 67% of the increase in civil works contracts to underestimation of the core subproject during processing and the rest to price escalation during construction. The delayed start-up of the core subproject meant a lost opportunity to learn the unit cost in the core subproject (the merit of the sector loan modality is the opportunity to learn unit cost in a core subproject and use the experience in subsequent subprojects). The price escalation was xvi India: National Highway Corridor (Sector) I Project

unforeseeable, but the lack of experience that would have been gained from a timely core subproject was a negative point. Overall, the project is rated efficient. The PCR rated the project less than efficient, but this PPER upgraded the rating as the recalculated EIRR was much higher than the threshold for economic viability.

Sustainability. The recalculated financial internal rate of return (FIRR), at 0.7%, is lower than the weighted average cost of capital (WACC), at 2.1%. Because the government has a clear policy—stipulated by law—that tolls are not set to cover returns on investments but to be affordable for users. Thus, the low FIRR is not counted as a negative point for financial sustainability. A more important point is whether the system for O&M concessionaires is sustainable. The government made long-term operation-maintenance- toll collection-transfer (OMTT) contracts with concessionaires. The concessionaries (i) collect tolls and pay a fixed amount of money to the government, which was decided by a bidding process and not related to toll revenues, and (ii) conduct proper road maintenance. The OMTT scheme is working well generally for three sections, but the concessionaire for the Kota-Baran section did not collect enough toll revenues to allow for O&M after the payment was made to the government and, as a result, the pavement has deteriorated. In the Orai-Barah section, in which a build-operate-transfer (BOT) scheme was adopted, the scheme generally works well but the road pavement on two lanes in one direction has deteriorated due to overloading. (The plan is to resurface the pavement with more durable asphalt.) These weaknesses are expected to be manageable because the institutional capacity of the NHAI is considered to be high and the Kota- Baran section is only one of the five sections. The project is rated likely sustainable, the same as in the PCR.

Impact. The project is likely to have significant socioeconomic development impacts, and no significant negative effects were reported. According to the one-day origin- destination survey during the IEM, about 7% of the 710 heavy goods vehicles (large trucks) surveyed traveled between Gujarat (west end area of the corridor) and northeast India (east end area of the corridor) using the project sections, and about 60% traveled across all five sections of the project highways. These survey results indicate that a significant share of trucks use the corridor for long-distance rather than local travel and that the project contributed to connecting the eastern and western sides of the country. The project also contributed to the creation of job opportunities and the reduction of poverty in the project area. For example, according to an interview with the chief of a village that is 3.5 km away from the highway, the number of low-income households (below the poverty line) in the village decreased significantly over the past decade. Although the project is considered to have high and significant impact, the impact indicator targets for annual growth rates in passenger and goods vehicles in the project corridor were achieved only for passenger vehicles. However, as trucks with three or more axles and higher carrying capacity were more commonly used, the indicator for the number of trucks used in the highway does not fairly represent freight transport volumes. The impact of the project is rated significant, the same as in the PCR.

Issues and Lessons

Consultation for land acquisition needs a special attention. In the project, two sections were not yet completed in 2016 owing to difficulty in acquiring land. The NHAI recently adopted a policy that construction procurements are initiated only when more than 80% of land acquisition is completed. However, even if this policy had been adopted in the project, the project still might not have resolved the issues it faced. Lack of consultation with land owners can lead to delays in the acquisition of land for roads. Moreover, the inclusion of religious sites in a land acquisition plan will require more time and thorough Executive Summary xvii planning and consultation as it will require a more conservative approach to resolve the issue.

Seamless transport across state boundaries was lacking. The east–west national highway corridor was improved significantly between Chittorgarh and Kanpur, and the improvements reduced travel time. For example, the travel time between Shivpuri and Jhansi (100 km) was reduced from 3.5 hours to 2.5 hours. However, truck carrying goods must spend 1.5 hours at checkpoints at state borders to secure tax and customs clearances. Hard infrastructure for logistics has been improving in India, but soft infrastructure for logistics still lags. In the same sense, long-distance bus services across state borders have not been well developed. The different operating permit requirements of each state are a hurdle for long-distance bus services. To use the road corridor infrastructure more effectively, measures such as harmonization of regulations and of taxes and charges across states as well as swift clearance at border checkpoints are needed. Given this situation, the government is on its way to introducing a nationwide goods and service tax in July 2017 by combining federal- and state-level taxes. The introduction of the new tax will significantly reduce the time spent at state border checkpoints.

Delays in sections outside the project scope in the same corridor can have a big impact on a project. The Kota bypass, which is in the middle of the Chittorgarh–Kota section and the Kota–Baran section, was not completed at the time of IEM fielding owing to the collapse of the bridge under construction. Although the bypass is not within the scope of the project, the delay of its completion affected the traffic of adjacent sections of the project. In corridor development, when sections outside the scope of an ADB project are not completed as planned, adjacent sections within the scope of an ADB project will be affected. This risk needs to be carefully considered at the planning stage, and the progress of adjacent sections in the same corridor needs to be followed, even if these sections are outside of the project scope.

Build–operate–transfer schemes have large risks but can be successful in high-traffic sections. BOT concessionaires take large risks as (i) expected traffic may not be achieved owing to external factors, such as unexpected openings of competitive roads and construction delays in adjacent sections, and (ii) delays in land acquisition. There is also a risk that competitive tendering may excessively lower bidding prices and that, as a result, the contractor may not perform O&M satisfactorily. The growing number of unsuccessful BOT projects in India has made financiers more prudent about financing such projects. To increase the number of bidders participating in road projects, the NHAI introduced an engineering procurement and construction scheme to reduce contractors’ risks. That said, the BOT concessionaire for the Orai–Barah section, which had higher traffic than expected, shows a successful case. The IEM noted that various public–private partnership (PPP) schemes have pros and cons and that the selection of PPP schemes is largely influenced by the potential profitability of road sections.

Recommendations

Careful road safety design is needed. The project has improved road safety significantly, with new investments in road safety facilities. On the basis of extensive discussions with project implementation units, road safety experts, civil society organizations, and road users, the IEM noted that the following road safety measures need to be taken into account in future highway projects: (i) service roads are an effective way to separate transit traffic from local community traffic, (ii) truck parking facilities should be improved to enable drivers to park trucks safely and rest, (iii) center-island cuts on roads should be xviii India: National Highway Corridor (Sector) I Project

carefully designed to avoid the growth of short-cut traffic in the opposite lanes, (iv) pedestrian bridges and underpasses are needed in villages so that pedestrians can safely cross national highways, (v) speed cameras may be effective for reducing speeding, and (vi) lighting intersections and crossings could reduce road accidents.

Suggestions by road safety auditors need to be incorporated in concessionaires’ agreements. It has become a common practice in India to introduce a road safety audit at every important stage, with experts providing suggestions for road safety. However, suggestions by road safety auditors and independent road safety experts are not always taken up by concessionaires, as these suggestions generally require additional investment and are not included in the concessionaires’ agreement. Thus, road safety audit should be conducted before the tendering process and their suggestions should be reflected in the tendering documents and the agreements.

The durability of pavement needs to be designed carefully. The feasibility study needs to forecast what types of goods are likely to be carried on roads, and the consequent technical design needs to be considered. As the experience with the Orai–Barah section shows, if heavy bricks are likely to be transported from Orai to Barah, the lanes from Orai to Barah should have more durable pavement. The technical design needs to have more flexibility to adapt to road usage. Some service roads in towns and large villages are heavily used. If heavy traffic is expected on service roads, pavement standards need to be equivalent to those of main roads.

To maximize the gains from public-private partnerships arrangements, an in-depth study of the pros and cons of contract schemes is needed. Under the OMTT scheme, concessionaires have to collect fees and pay a fixed amount to the government. The surplus is used for O&M and the rest is the concessionaires’ margins. The OMTT concessionaire for the Jhansi–Baran section rationalized the maintenance cost as maintenance works were provided under a long-term perspective, and the work keeps the road surface in a highly satisfactory condition. In contrast, the concessionaire for the Kota–Baran section collected fees that were less than the amount that should have been paid to the government, and thus no funds were available for O&M. Consequently, the road surface deteriorated owing to inadequate maintenance. The pros and cons of contract schemes should be analyzed in more detail, and lessons learned from this project should be incorporated into future projects. For example, the OMTT scheme may include an opportunity to reconsider the payment to the government if actual traffic fluctuates over more than certain specified ranges.

Overall Assessment

Ratings. The project is rated successful. It was implemented generally successfully despite the cost overrun. It had innovative features in terms of the introduction of PPP, and experience learned from this project has already been used for many other projects in India. It has achieved its major objectives of improved road transport services and safety along the project highway and has contributed to socioeconomic development along the project corridor. The recalculated EIRR of 19.2% was high. However, there was a weakness in the project design as the sector loan modality did not work well and was not suitable, and the project did not address sufficiently its contribution to the sector. The project is rated less than relevant, effective, efficient, likely sustainable, and with significant impact. Compared with the PCR, the PPER upgraded the rating from less than efficient to efficient but downgraded the rating from relevant to less than relevant.

Executive Summary xix

Overall Assessment of Project Performance Key Reasons for Disagreement Criteria PCR PPER and/or Comments Relevance Relevant Less than There was a weakness in the project relevant design as the sector loan modality did not work well. Also, the project did not sufficiently address its contribution to the sector. Effectiveness Effective Effective Efficiency Less than Efficient The recalculated EIRR was 19.2%, efficient much higher than the threshold of 12% for economic viability. Sustainability Likely Likely sustainable sustainable Overall Assessment Successful Successful Development impact Significant Significant Performance of ADB Satisfactory Satisfactory Performance of the Satisfactory Satisfactory borrower and executing agency ADB = Asian Development Bank, EIRR = economic internal rate of return, PCR = project completion report, PPER = project performance evaluation report. Source: Asian Development Bank Independent Evaluation Department.

CHAPTER 1 Introduction

A. Project Description and Objectives

1. The Government of India in 1999 launched the National Highways Development Program (NHDP) to upgrade key arterial corridors of the national highways network to relieve its chronic capacity constraints. In support of the NHDP, the Asian Development Bank (ADB) approved in December 2003 the National Highway Corridor (Sector) I Project for $400 million.

2. The project required broad-based policy reforms, ranging from institutional capacity building to financial management to creation of an enabling environment for private sector participation (PSP). The focus of the project was to (i) upgrade key national arterial corridors connecting the eastern and western ends of the country to help reduce regional disparities, (ii) facilitate PSP in highway development by providing necessary advisory services, (iii) help the government prevent the spread of HIV/AIDS and increase awareness of the risks of trafficking in women and children, and (iv) enhance road safety by introducing a “safety zone” concept for a pilot section in the east-west corridor.

3. The project was to finance sections of the east–west corridor under the sector loan modality. Of these sections, 662 kilometers (km) are priority highways in Madhya Pradesh, Rajasthan, and Uttar Pradesh. Priority highways are divided into five sections, and the section between the Rajasthan–Madhya Pradesh border and Jhansi (excluding the Jhansi Bypass) was selected as the core subproject.1

B. Evaluation Purpose and Process

4. The purpose of this project performance evaluation report (PPER) is to assess the performance of the project and identify lessons for future projects. The project was evaluated more than 4 years after completion as this time frame provides adequate time to assess progress in achieving effectiveness, efficiency, sustainability, and the impact of the project. The findings and lessons identified in the PPER will be useful for designing similar highway projects in India and other Asian countries. The findings were also used as an input to the country assistance program evaluation for India.

5. The independent evaluation mission (IEM) was fielded in August 2016 to prepare the PPER. The IEM had meetings with the executing agency, the National Highway Authority of India (NHAI), as well as with the central and state governments, universities, stakeholders, and nongovernment organizations (NGOs). This PPER was largely dependent on the project completion report (PCR) for the analysis of safeguards.2

1 Under a sector loan modality, the design of a core subproject should be presented at appraisal, but there is flexibility in choosing subsequent subprojects after appraisal and thus their project design is presented later. 2 ADB. 2015. Completion Report: National Highway Corridor (Sector) I Project in India. Manila (Loans 2029 and 2527). A project validation report for the project completion report was not published.

CHAPTER 2 Design and Implementation

A. Rationale

6. India’s economy has suffered for a long time from chronic capacity shortages on the national highway system. At appraisal, of the network’s 58,112 km, 39% were still single-lane roads and 59% were double lanes; four-lane highways, a desirable standard for arterial national corridors, accounted for only 2%. The government launched the NHDP in 1998 to upgrade three key arterial corridors of the national highways network during 1998–2007 to relieve the network’s chronic capacity constraints. The key corridors were (i) the Golden Quadrilateral (6,000 km), (ii) the North–South corridor (4,000 km), and (iii) the East–West corridor (3,300 km). The NHDP was expected to help contribute to the increased integration of the country by connecting its eastern and western, as well as the northern and southern, extremities. ADB supported the development of one of the key corridors through the project.

7. In providing a series of loans to the NHDP, ADB has developed a programmatic approach to realizing medium- to long-term goals in a progressive and evolutionary manner. The project primarily aimed to help the government strengthen the policy and institutional framework for efficient delivery of highway development and operation and maintenance (O&M) services through policy and institutional reforms to enhance transport efficiency without causing major environmental and social problems. Another rationale for the project was to reduce disparities between fast- and slow-growing states, linking the eastern and western ends of the country to major manufacturing and consumption centers to integrate isolated and backward economies into the mainstream economies. B. Impact, Outcomes, and Outputs

8. The anticipated impacts of the project at appraisal were to (i) help enhance overall economic efficiency through national highway development and (ii) help reduce economic regional discrepancies. At the supplementary loan approval, the impact was revised to be improved mobility of people and goods, to contribute to the economic growth of the states connected by the project corridor. The anticipated outcomes at appraisal were (i) increased capacity of NHDP networks, (ii) enhanced project development and implementation capacity in the NHAI, (iii) increased PSP in the NHDP, (iv) increased financial sources for highway development, (v) strengthened O&M of NHDP highways, and (vi) establishment of a more efficient and financially stronger NHAI. At the supplementary loan approval, the outcomes were revised to be improved road transport services and safety along the project corridor. The project design and monitoring framework (DMF) appears in Appendix 1.

9. The outputs were composed of four components at appraisal: (i) upgrades of selected sections of the east–west corridor under the public sector financing, (ii) introduction of PSP to develop and maintain the east–west corridor, (iii) prevention of the spread of HIV/AIDS and increased awareness of the risk of trafficking in women and children, and (iv) introduction of road safety measures along a selected pilot section

Design and Implementation 3 between Jhansi and Lucknow. At the supplementary loan approval, the outputs were updated to be (i) widened four-lane roads between Chittorgarh and Orai, (ii) 10% of the project corridor developed through a build–operate–transfer (BOT) concession, (iii) implementation of a road safety zone concept, and (iv) implementation of campaigns to help prevent the spread of HIV/AIDS and increase awareness of the risk of trafficking in women and children.

10. The project was to finance sections of the east–west corridor. Of these sections, 662 km are priority highways in Madhya Pradesh, Rajasthan, and Uttar Pradesh. Priority highways are divided into five sections (A–E); section C was selected as the core subproject as it represents a typical set of project development issues, including technical, environmental, and social ones. At appraisal, under the sector loan modality, the NHAI was given the flexibility to change the sections if other sections need to be developed more urgently. When the supplementary loan was approved, 657 km in five sections were already chosen as the ADB-financed projects. A summary of salient features of the project appears in Appendix 2.

C. Costs and Financing

11. At appraisal, the project cost was estimated at $760.2 million equivalent, including both the public and private sector portions. During implementation, the project experienced a substantial cost overrun in civil works. During processing of the original loan, a cost estimate of $0.90 million per km was used for noncore subprojects, but the actual cost was $1.35 million per km during the noncore subproject approval and contract award period. During the construction period, prices of input items for labor, cement, steel, plant, machinery and spares, fuel and lubricants, bitumen, and other local materials rose significantly. Comparing the 2008 average with the 2005 average, the consumer price index for industrial workers increased by 22%, and the cost of some construction material increased even more, such as iron and steel (34%), cement (37%), and bitumen (150%). In addition, the cost estimates in the original loan did not include contingencies under the sector loan modality.

12. When ADB approved noncore subprojects and contract awards in 2005, the NHAI opted to retain ADB financing for all the subprojects by lowering the ADB financing percentage, so that all subprojects could be implemented to the required standards set out in the loan agreement. At that time, ADB and the government agreed that counterpart funds would be used to finance the balance. However, as construction costs further escalated during implementation, the government asked ADB to finance the supplementary loan, amounting to $100 million, to secure long-term loan funds for the project.

13. The total project cost was revised to $1,099 million at the supplementary loan approval. Upon project completion, the total project cost was $1,137.3 million equivalent, which was about 49.6% higher than the original cost estimate and 3.5% higher than the revised cost estimate. Compared with the original cost estimate at appraisal, the cost for civil works at completion increased by 69.8% for the public sector portion and 46.8% for the PSP portion. Compared with the revised cost estimate, the cost for civil works at completion increased by 4.8% for the public sector portion and decreased by 2.6% for the PSP portion.

14. At appraisal, it was envisaged that the project would be financed by an ADB loan of $400.0 million (52.6% of the project cost), government funds of $291.6 million (38.4%), and private sector funds of $68.6 million (9.0%). Under the revised project cost 4 India: National Highway Corridor (Sector) I Project

and with the ADB supplementary loan, the amended financing plan was 45.5% of the cost from the ADB loans, 45.1% from the government, and 9.4% from the private sector. During implementation, the government financed the costs for some consulting services (financial adviser, HIV/AIDS prevention consultants, and road safety consultants). The related loan allocations were transferred to civil works. Upon completion, the final project financing was 43.9% from ADB, 46.7% from the government, and 9.3% from the private sector. A detailed comparison of the project cost and financing plan at appraisal and at completion appears in Appendix 3.

15. The cumulative disbursements under the original loan were 97.1% in 2008, with financing of 67% for the civil works contracts. A loan amount of $30.2 million was reallocated to civil works from other categories under the original loan. Under the supplementary loan, the disbursement percentage allocated to civil works was revised to 90%.3 At the time of the financial closure of the loan on 9 May 2012, $499.6 million had been disbursed, $399.6 million for the original loan and $100 million for the supplementary loan. The actual disbursements of the ADB loans appear in Appendix 3.

D. Project Schedule and Implementation Arrangements

16. The original ADB loan (Loan 2029) was approved on 4 December 2003 and became effective on 24 January 2005. At appraisal, the project was envisaged to be implemented over 4 years, including procurement and preconstruction activities, and completed by June 2007. To expedite procurement, ADB approved advance action for prequalification of civil works contractors in July 2003. However, the prequalification was delayed. The invitation for bidding among the prequalified contractors started in December 2004, and the bids were opened in February 2005. The contracts for most civil works packages were signed during June–September 2005, and the civil works began during August–November 2005. The initial delay of about 1 year in project implementation was mainly due to a longer procurement period caused by a delay in prequalification for civil works contractors, and a prolonged process for subproject approval. Major events for the project appear in Appendix 4.

17. The public sector component entailed 12 civil works contracts. The physical progress for the 9 contracts in Madhya Pradesh and Rajasthan was satisfactory, with 6 substantially completed in 2008, and 3 before June 2009. The progress on 3 civil works contract packages in Uttar Pradesh was slow because of (i) initial delays in site clearance, (ii) slow mobilization of contractors, and (iii) insufficient staffing for construction supervision. The NHAI undertook measures to resolve these issues, including organizing high-level coordination meetings with the state government to resolve the site clearance delays and conducting regular meetings with the management of the contractors to discuss and resolve related issues. To support completion of the project, ADB approved three extensions of the loan closing date for the original loan. The last extension was made effective on 30 June 2009 and was consistent with the closing date of 9 May 2012 for the supplementary loan. The civil works in Uttar Pradesh were substantially completed by December 2011, which was about 54 months later than anticipated at appraisal.

3 By the time the supplementary loan was approved and became effective, the government had financed most of the additional cost. Therefore, for ADB to fully finance $100 million under the constraint of the retroactive financing ceiling of 20%, the ADB financing percentage for civil works under the supplementary loan needed to be increased. Design and Implementation 5

18. With respect to the PSP component, the NHAI initially identified the 62.8-km Orai–Barah section for a BOT toll concession project.4 However, because of unsuccessful bidding, the NHAI converted the project into a BOT annuity concession project.5 After competitive bidding, the concession was awarded to a joint venture company in April 2006. The civil works for the PSP component began in October 2006 and were completed by December 2011. After the completion of the civil works, the concessionaire is responsible for (i) operating the toll plaza, (ii) maintaining the road at the required standard, and (iii) providing rescue services.

19. With respect to the public sector component, the completed project highways are being operated by five private concessionaires under operation-maintenance-transfer (OMT) contracts ranging from 1 to 9 years. Three OMT concessionaires for the Chittorgarh-Kota, Kota-Baran, and Baran-Jhansi sections are responsible for the O&M of their respective section as well as toll collection. These contracts are called operation- maintenance-toll collection-transfer (OMTT). Two OMT concessionaires for the Jhansi- Orai section are responsible for only O&M of the highway, and the NHAI had separate contracts for toll collections. In 2016, the NHAI planned to introduce the OMTT in the Jhansi-Orai section as in other sections.

20. For the HIV/AIDS and anti-trafficking component, NGOs engaged by the NHAI conducted HIV/AlDS and human trafficking awareness programs. Various activities were undertaken at the project sites and in the project-influenced areas during 2007–2009. The implementation of the road safety component was substantially delayed. The consultant was engaged on 11 March 2011 for the implementation of the road safety component by the NHAI using its own funds.

21. Four project implementation units (PIUs) were established at the NHAI in Baran, Chittorgarh, Jhansi, and Shivpuri.6 The NHAI was restructured in 2009, and chief general managers were deployed at regional offices in the states to coordinate better with state governments to expedite land acquisition, shifting of public utilities, forest clearances, and monitoring of construction works. Each of the PIUs was headed by a deputy general manager and/or manager and adequately staffed with experienced personnel. Sufficient administrative authority was delegated to the PIUs for effective and timely decision making on many aspects of project implementation. The PIUs were assisted by the construction supervision consultants, who were assigned the power of the supervision engineer, in accordance with the Fédération Internationale des Ingénieurs-Conseils conditions of the contract—barring a few exceptions for which prior approval had to be obtained from the NHAI. An HIV/AIDS prevention and anti-trafficking cell and a social development unit were established to implement the related component. The NHAI also engaged some NGOs to assist in land acquisition and resettlement, social safeguard issues, and implementation of the HIV/AIDS and anti-trafficking component. The institutional framework for the project implementation appears in Appendix 5.

4 In the BOT toll project, the concessionaire finances the construction cost by collecting toll fees. The concessionaire has an incentive to shorten the construction period but has a large risk in terms of recovering construction costs, and there is a time gap between construction and toll collection. 5 In the BOT annuity project, the concessionaire is responsible for the construction, O&M, and toll collection in the same way as in the BOT toll projects, but the cost of constructing the road is paid to the concessionaire by the government on a fixed-months basis according to the progress of the construction (the details depend on the concession agreements). 6 The Baran PIU was merged with the Kota PIU in 2010. 6 India: National Highway Corridor (Sector) I Project

E. Technical Assistance

22. Major project preparation activities were carried out by the NHAI using its own resources. ADB provided project preparatory technical assistance to supplement the NHAI’s efforts in due diligence and preparation of specific documents to ensure that all ADB requirements are satisfactorily met.7

F. Consultants and Procurement

23. Three construction supervision consultants were recruited during November 2005–February 2006 to supervise the civil works for (i) three packages in Rajasthan, (ii) three additional packages in Rajasthan, and (iii) six packages in Madhya Pradesh and Uttar Pradesh, respectively. Owing to delays in the completion of civil works, particularly for the contracts in Uttar Pradesh, the contracts of the consultants were extended until they fulfilled their contractual liabilities.

24. For the PSP component, the NHAI engaged a financial adviser using its own funds.8 For the road safety component, the recruitment of the road safety consultant was substantially delayed for two reasons: (i) the original budget for the consulting services underestimated the input costs, and (ii) the NHAI had tried to recruit consultants using its own funds and procedures, which lessened the opportunity to advertise the business opportunity widely to international firms, hence, no bids were received. To overcome the underlying problems, a sufficient amount for the assignment was allocated in the supplementary loan, and the NHAI initiated a fresh recruitment process using ADB’s procedures and loan proceeds. An international consulting firm was engaged, and the contract was signed in March 2011. For the HIV/AIDS and anti-trafficking component, several NGOs engaged by the NHAI and the civil works contractors conducted an HIV/AIDS and anti-trafficking awareness program.

G. Safeguards

25. The project was classified under environmental category B, sensitive. The NHAI carried out initial environmental examinations (IEEs), which complied with ADB’s Environment Policy (2002) and ADB’s Environmental Assessment Guidelines (2003). One IEE for the core subproject was prepared before the approval of the original loan. The eligibility criteria and procedure for the noncore subprojects stipulated the environmental due diligence criteria. Four IEEs were prepared for the noncore subprojects. The IEE report indicated that the project would not have significant adverse environmental impacts, as it would upgrade existing highways primarily within existing rights-of-way. However, an environmental management plan was prepared to ensure that all activities would be performed in compliance with principles and objectives of ecologically sustainable development.

26. During implementation, the environmental monitoring cells under each PIU were responsible both for monitoring and for implementing environmental mitigation measures. The statutory clearances required for the project were obtained. The contractors implemented mitigation measures related to disposal of debris during

7 ADB. 2002. Technical Assistance to India for Preparing the National Highway Corridor (Sector) Project. Manila. 8 At appraisal, $100,000 of the original ADB loan was allocated for a financial adviser to provide consulting services for the PSP component. During implementation, the financial adviser was engaged by the NHAI using its own funds, and the ADB allocation was transferred to civil works under the loan. Design and Implementation 7 construction, noise and air pollution, borrow areas and quarries, labor and staff camps, environmental quality at the construction and plant sites, traffic safety for road users, personal safety for workers, and flora and fauna. Environmental experts from the construction supervision consultants visited the project sites regularly to monitor the air quality, noise level, soil pollution, forestation, and other environmental parameters. Any noncompliance was recorded and reported for the contractors to take immediate corrective action. The environmental monitoring results were incorporated in the progress reports. ADB monitored compliance with environmental safeguard requirements by fielding environment experts as monitors and reviewing the monitoring reports.

27. The PCR mission observed that adequate drainage measures (bridges, culverts, and drains) had been constructed to avoid water clogging and reduce soil erosion problems. The completed project had improved the environmental quality along the project highways by (i) reducing air and dust pollution, particularly emissions, due to afforestation as well as the construction of flyovers, underpasses and overpasses, and service roads; (ii) reducing noise levels by planting trees and shrubs in the right-of-way and median; and (iii) reducing erosion of the embankments by using vegetation and other protective works. The planting of trees and shrubs was well implemented, with sufficient and timely maintenance. However, the implementation of environmental safeguards was not initially considered a priority area by the contractors, CSCs, and the executing agency, although it was strengthened during implementation; and the approval for cutting trees was delayed in some cases, which delayed the overall construction progress.

28. At appraisal, it was anticipated that the highway improvement would be carried out within the existing right-of-way except for minor realignment and two bypasses. One resettlement plan for the core subproject and five resettlement plans for the noncore subprojects were prepared based on detailed engineering design, which met the requirements of the national acts on land acquisition and resettlement, as well as ADB’s Involuntary Resettlement Policy (1995). During implementation, efforts were made to minimize land acquisition and reduce resettlement impacts as much as possible by (i) keeping rights-of-way to 45 meters wide in built-up areas and reserve forest areas, (ii) adopting concentric symmetrical widening, (iii) raising carriageways over congested segments, and (iv) using bypasses to avoid congested urban settlements. Micro-plans were prepared in accordance with the entitlement matrix, and entitlement-cum-identity cards were provided to each affected person, indicating the type of loss and entitlement. Payments were made to the affected people in accordance with the respective resettlement plans before the commencement of civil works on that section. According to the PCR, in accordance with the entitlement matrix, none of the affected people were made more disadvantaged through involuntary resettlement.

29. Measures to mitigate resettlement impacts included compensation of the affected people for all lost assets at full replacement cost. In addition, the affected people received resettlement and rehabilitation assistance such as an allowance for relocating affected assets, a transitional allowance for loss of workdays and/or income because of dislocation, and economic rehabilitation grants for livelihood restoration. A consultative and participatory approach was adopted in the development of resettlement sites, allotment of residential plots, and design of a training and skill development program. Monitoring mechanisms were put in place to monitor utilization of the assistance provided to affected people. Grievance redress committees were established in all related districts to deal with disputes. However, very few cases were referred to these committees and all were resolved. Upon completion, the total cost of land acquisition 8 India: National Highway Corridor (Sector) I Project

and resettlement was Rs1,338.95 million. The common property resources, such as schools, religious structures, bus stops, wells, statues, cattle troughs, and hand pumps, were relocated and compensated for a total cost of Rs399.78 million.

H. Compliance of Loan Covenants

30. The project complied with all the covenants specified in the loan and project agreements except for the covenant related to the road safety component, which it complied with partially. The government and the executing agency established an adequate organizational framework with adequate staff. The required monthly and quarterly progress reports were submitted to ADB regularly. During implementation, the government provided the required counterpart funds in a timely manner and ensured that the project was implemented successfully. Separate financial accounts for the project were maintained, as required, and audited on an annual basis by statutory auditors. The loan and project covenants related to project implementation, O&M, selection of subprojects, and social and environmental safeguards were complied with.

CHAPTER 3 Performance Evaluation

A. Relevance

31. Government policy. The government launched the NHDP in 1999 to upgrade key arterial corridors of the national highways network to relieve the network’s chronic capacity constraints, and placed the highest priority on the NHDP. The 3,300 km east– west corridor was included in the three key arterial corridors under the NHDP and was expected to help increase the integration of the country by connecting the eastern and western regions. The project highway is part of the east–west corridor, and the project was aligned with government policy.

32. ADB strategies. ADB's country partnership strategy, 2009–2012, and updated country partnership strategy, 2013–2017, supported government efforts to address infrastructure constraints identified in the Eleventh Five-Year Plan for 2008–2012. These included (i) strengthening infrastructure development in poor states, (ii) promoting PSP in infrastructure development, (iii) supporting climate change adaptation and mitigation, and (iv) encouraging innovative financing modalities to increase the leverage of ADB operations. The project was found to be highly relevant to ADB’s country strategy.

33. Sector loan modality. The PCR noted that the sector loan modality was used for the project to increase flexibility and standardization in the selection of road sections and facilitate both appraisal and approval during implementation. Sector loan modality is particularly appropriate for financing many subprojects in a sector. The core subproject is designed before project approval, and noncore subprojects are selected and designed after approval with the same outcome. However, the tendering process for the core subproject was delayed, and contracts for the core subproject and most noncore subprojects were made within the same year. Thus, the core subproject had little opportunity of becoming a showcase for subsequent noncore subprojects. In addition, because contingencies for noncore subprojects were not added at appraisal, as the cost estimate for the core subproject was expected to be used for noncore subprojects, the project design was weak in terms of cost overruns. The project adopted the programmatic approach, but it is not clear how well this approach worked to improve sector performance. The project also did not implement a sector-wide approach in integrating a series of projects to improve sector performance. Under the programmatic approach, ADB has systematically pursued goals by introducing the concept of the trigger point (project processing starts only upon satisfactory implementation of agreed-on milestones), and the trigger point for the project was to secure funds to complete the second phase of the NHDP. However, it is not clear how the trigger point was related to achievement of the sector performance, and this programmatic approach was not focused during the implementation, giving more attention to implementing the physical investment program at the expense of institutional and policy reform. In addition, the sector-level outcomes were deleted at the supplementary loan approval, and the PCR did not indicate how the project contributed to the sector. The IEM further noted that the sector modality was not suitable for corridor road development in terms of flexibility in choosing the project sections. The sector loan modality was useful only for facilitating simultaneous approval of the subprojects. If the project sections in the corridor were not

10 India: National Highway Corridor (Sector) I Project

clear at appraisal, the project readiness might be weak. If the project had been approved with a project loan for several sections, the approval and the implementation would have been simpler. At appraisal, there was no multitranche financing facility (MFF) modality. MFFs can finance slices of large stand-alone projects with more flexibility than the sector loan modality. MFF could have been selected for this project if the MFF modality had been in existence at appraisal.

34. Project design. The project financed roads from Chittorgarh to Baran, excluding a Kota bypass. The Kota bypass is 27 km long, including a bridge on Chambal River that collapsed during construction in December 2009. At the time of IEM fielding, the bridge was expected to be completed in 2017. As the bypass was not completed, traffic on the sections in both ends of the bypass—the Chittorgarh-Kota and Kota-Baran sections— might be affected. Impacts on the Chittorgarh-Kota section were lessened because of increasing local traffic, resulting from mining and cement industry development, but traffic has been lower than expected on the Kota-Baran section owing to lower transit traffic at the corridor. The risk of not completing the middle section on the corridor was not identified at appraisal or at the supplementary loan approval stage, though that section was outside the project scope.

35. Added values. The project was the fourth in the series of multiyear lending for the NHDP and the second for the east–west corridor.9 The PIUs explained to the IEM that they learned project management from ADB projects. Safeguards were also well addressed, and the PIUs indicated that NGO involvement in land acquisition improved the transparency of the process. The know-how gained through ADB projects was transferred to other road projects in India as those who were involved in the ADB projects moved to other PIUs and managed other road projects.

36. Innovative feature of private sector participation. The project introduced the BOT scheme in the Orai-Barah section and OMTT contracts in other sections, except the Jhansi-Orai section. The project introduced various types of innovative PSP contracts, and the NHAI accumulated know-how on PSP and learned lessons from the experience, which were used in other projects in India with some modifications.

37. Rating. The project was fully aligned with government policies and ADB’s strategies. The project had innovative PSP features and experience gained from the project was used in other projects in India. However, there was a weakness in the project design as the core subproject was delayed and the sector loan modality did not work well. Also, the sector loan modality was not suitable and the project did not address sufficiently its contribution to the sector. Although the completion delay in the middle section, which was outside the project scope, affected traffic in the ADB-financed sections at both ends, this risk was not addressed at appraisal or during the implementation. The project is assessed less than relevant, whereas the PCR rated it relevant.10

9 Approved on 26 November 2002, the first loan in the east-west corridor was Loan 1944-IND: East-West Corridor Project. 10 The regional department disagrees with the rating and provided the following reasons: “(i) sector loan provided the modality for the fastest subproject implementation (compared with divided project loans); (ii) outcome level programmatic issues were reflected in the follow-on loan (Loan 2154-IND: National Highway Sector II Project); and (iii) it was fully aligned with government policies and ADB strategies with innovative PSP features." Performance Evaluation 11

B. Effectiveness

38. Outcomes. At appraisal, the outcome indicators were (i) increasing the share of NHDP four-lane highways to 80% by the end of 2007, (ii) maintaining a ratio of staff to highway km of fewer than 5 staff per 100 km, (iii) increasing the proportion of PSP to 10%, (iv) increasing the cess by 50%, (v) outsourcing O&M to the private sector for more than 60% of each section, and (vi) setting tolls at a level sufficient to cover O&M and debt service to multilateral lending agencies. At the supplementary loan approval, the outcome indicators were revised to (i) a decrease in travel time (average running speed increase) upon completion of project roads (targeted average speeds were 80 km per hour for cars and 60 km per hour for trucks), and (ii) a number of traffic fatalities in the project corridor in 2012 not to exceed the preproject level (308 fatalities in 2001). At appraisal, overall sector outcome targets were set up, but at the supplementary loan approval, these were changed to project-level outcomes without explanation. This PPER focused on the revised outcomes, but it will also gauge to what extent the original targets intended for sector-level outcomes were achieved.

39. Improved road transport services. The designed maximum speed of the project highway is 100 km per hour. Maximum speed limits are 80 km per hour for cars and 60 km per hour for trucks, except in urban areas. The IEM observed a free flow of traffic and noted that the targeted speeds were presumed to be achieved, as actual average traffic speeds were not available. The project highway significantly reduced travel time. For example, the travel time from Shivpuri to Jhansi (100 km) was reduced from 3.5 hours to 2.5 hours, and that from Kanpur to Orai (112 km) from 3 hours to 2 hours. Frequency of government bus services increased from every 1 hour to every 30 minutes from Orai to Kanpur. In addition, medium-distance private bus services have also increased. Truck transport improved their services in terms of travel time and damages to goods carried. Thus, road transport services significantly improved. However, according to an interview with a long-distance truck driver at the border between Madhya Pradesh and Rajasthan, trucks carrying goods have to spend 1.5 hours to cross state borders for tax clearance. To support a seamless transport corridor, the facilitation of state border crossings needs improvement. Long-distance bus transport services across states need improvement as well. Every state requires permits for buses to operate across state borders. This administrative hurdle is a significant constraint in making the benefits of the road corridor available to non-car owners.

40. Improved road safety. The number of fatalities by road accidents in the corridor was 53 in 2015, which was much lower than the target. Thus, the road safety target was achieved. The police department in Shivpuri advised the IEM that ADB-financed national highways made a significant improvement in road safety. Comparing the ADB-financed section in Madhya Pradesh with the non-ADB-financed section (two-lane National Highway 3), the fatality accident rate per km in the ADB-financed highway was seven times lower in 2014.11 Four major causes of the fatalities on the ADB-financed highway in Madhya Pradesh12 are (i) rear-end collisions with trucks parked on the highway, (ii) speeding, (iii) collisions at intersections and crossings, and (iv) animals on the road. The project includes many new endeavors for road safety design, and these indeed contributed to road safety. However, the IEM found many lessons from these innovative designs. The following are IEM findings based on meetings with PIUs and stakeholders:

11 In 2014, there were 46 fatalities in the ADB-financed section (170 km), while there were 145 fatalities on National Highway-3 (75 km). 12 The 46 fatal accidents were analyzed based on in-depth accident data by the police department. 12 India: National Highway Corridor (Sector) I Project

(i) As a positive safety feature, the project has 145 km of service roads, which contributed to separating community transport in roadside towns and villages from main roads. (ii) Truck parking facilities were provided along the project highway, but many of them are not used. Truck drivers prefer to park along highways where basic amenities and cheap eating places are available. Truck parking facilities should have been constructed with drivers’ needs in mind. (iii) The center islands of roads have cuts at a certain interval, but some sections need to have more frequent cuts in center islands. As the center cuts are limited in some sections, many vehicles run on the opposite lanes and create a risk of head-on collisions. (iv) Pedestrian bridges and pedestrian underpasses are needed in villages. (v) Ambulances were introduced under O&M concessions, but ambulance services need closer coordination with other ambulance services for their effective usage.

41. Sector-level outcomes. Overall, one indicator was not achieved, two indicators were achieved, and three indicators were difficult to assess owing to the unavailability of data: (i) The NHDP has only 64% of roads with four or more lanes in 2016, whereas the target was 80%—target not achieved; (ii) the ratio of staff to highway km was 2 staff per 100 km in 2014 and 2015, while the target was fewer than 5 staff per 100 km— target achieved; (iii) the cess was increased by 50% in 2003 and by 33% in 2005, respectively—target achieved; (iv) in 2005 the government adopted a policy to develop the NHDP using PPP, but the proportion of PSP in each section was not available; (v) O&M is at present commonly outsourced to the private sector, but the percentage was not available; and (vi) sector-level data on setting tolls at a level sufficient to cover O&M and debt service to multilateral lending agencies were not available. The project was virtually redesigned like a project loan from a sector loan, and sector-level outcome indicators were not followed up after the supplementary loan approval. Also, as the project roads are less than 2% of the national road network, the attribution to the sector-level outcomes of the project is very limited. Nevertheless, the project provided some experience to other national road projects in PSP and outsourcing O&M.

42. Outputs. At the supplementary loan approval, the output indicators were revised to (i) 595 km of widened four-lane roads between Chittorgarh and Orai, (ii) Baran-Orai section (62.8 km) developed through a BOT concession by 2010, (iii) implementation of a road safety zone in a selected pilot section by 2011, and (iv) risk awareness workshops on HIV/AIDS and trafficking in women and children conducted during construction period. This PPER used the revised output indicators for evaluation, since at appraisal only the core section was proposed and ADB-financed sections were not decided yet.

43. Road construction. Upon completion, 594.3 km of national highways between Chittorgarh and Orai were widened to four lanes, except for 1.7 km in the town of Kalpi and about 1.0 km in Jhansi, which were not completed. The completion rate was 99.5% of the targeted figure. The IEM noted that the uncompleted section in Kalpi was still in the process of purchasing land and that two-lane roads were in operation for this section, with rough road surface conditions. The section was, thus, a bottleneck in the corridor and urgently needed to be completed. The reason for the delay was opposition to an alignment that will cross a mosque. According to the NHAI, the alignment to cross the mosque was agreed during the planning stage, but during the construction stage, strong opposition was raised and this land acquisition issue is now filed at court. The 1 km uncompleted section in Jhansi was caused by a delay in acquiring a military-controlled Performance Evaluation 13 area. Alternate routes are two-lane roads in good condition and are not found to create a serious bottleneck.

44. Private sector participation. The Orai-Barah section (62.8 km) was completed in December 2011 by the private sector through the BOT concession. This output was achieved with a delay of one year. In addition to the achievement of the indicator target, PSP was introduced at a large scale for O&M and toll collection in other sections. The stretch between Chittorgarh and Barah has three OMTT concessionaires, one OMT concessionaire, and three toll collection concessionaires.

45. Road safety. The IEM had meetings with all PIUs, but none of the PIUs confirmed that the road safety zone was implemented. According to the report and recommendation of the President (RRP) for the original loan, the road safety zone was to include (i) an advanced traffic management system to monitor the road situation in a centrally controlled manner, (ii) weigh-in-motion or static weighing platforms to control overloading, (iii) speed monitoring equipment, and (iv) ambulances and other relief equipment to provide emergency road services. Of these, the advanced traffic management system and speed monitoring equipment were not introduced. Weighing stations and ambulances were introduced under O&M concessions. Road safety consultants were recruited at the headquarters of the NHAI under the project; that report was not yet completed at the time of IEM fielding. In fact, the IEM could not find the details of the consulting services. The NHAI pays more attention to road safety, and thus it becomes more common that road safety audits are introduced at every important stage of project processing and implementation. The output for road safety was only partially achieved as the road safety zone was not introduced but some road safety measures, which were planned to be implemented in the road safety zone concept, were introduced.

46. HIV/AIDS and human trafficking. According to the PCR, during implementation, NGOs were engaged to conduct several campaigns to help prevent the spread of HIV/AIDS and increase awareness of the risk of trafficking in women and children. Although the IEM visited state governments and PIUs, no details were found because those who were involved in the campaigns had left the offices.

47. Safeguards. The government indicated that safeguards were adequately managed during the implementation. In this project, NGOs were involved in the resettlement process. It was a new endeavor when the project started, and NGO involvement has become a family practice in India. However, the project road crossing the religious site in Kalpi should have been more carefully designed. Those who managed the safeguards had already left the offices, so detailed discussion was not held.

48. Rating. Road transport services and safety along the corridor were significantly improved, and the outcome targets reset at the RRP for the supplementary loan were fully achieved. Improved road transport services, which are a very important outcome, were highly successful. However, although the output for road construction was nearly achieved (99.5% in terms of length of highways), the two missing short sections (2.7 km in total) in which construction was not completed due to difficulty of land acquisition, and a road safety zone was not introduced. Overall, the project is rated effective.

14 India: National Highway Corridor (Sector) I Project

C. Efficiency

49. Methodology of economic analysis. The economic costs and benefits of the project were analyzed using a standard evaluation approach, comparing the "without project" and "with project" scenarios. The project costs comprised capital investment and maintenance costs, as used in the PCR. However, as the Orai–Barah road was resurfaced after completion because of damage from heavy vehicles, that cost was added to the 2016 cost. The expected cost of constructing missing sections was also added. The main sources of economic benefits were savings in vehicle operating costs and passenger travel time savings. The traffic forecasts were revised on the basis of updated traffic data and gross domestic product (GDP) forecasts. The economic analysis is described in detail in Appendix 6.

50. Actual traffic versus traffic forecast. The actual 2016 traffic was 37% lower than the appraisal estimate and 4% lower than the PCR estimate for the overall project. The actual 2016 traffic for the core subproject was 68% lower than the appraisal estimate and 41% higher than the PCR estimate. By section, the 2016 traffic was 11% higher in the Chittorgarh-Kota section but lower in the other four sections than the appraisal estimates. Compared with the PCR estimates, it was 61% higher in the core subproject and 273% higher in the Jhansi-Orai section but lower in the other three sections. In some sections, there are large gaps between the PCR estimates and the actual numbers reported in the PCR, but the reasons are not clear. The IEM conducted traffic counting at three places and combined these traffic data with data from toll plazas, whereas the PCR used only traffic data from toll plazas. Thus, the actual data in the PPER may be more reliable than the PCR estimate. Another possible reason for the 71% lower traffic than the PCR estimate in the Kota-Shivpuri section could be the incompletion of the Kota bypass.

51. Economic internal rate of return. At appraisal, the core subsection was found to be economically viable, with an EIRR of 22.9% (for a sector loan project, economic analysis is required only for the core subproject). At supplementary loan approval, the EIRR for the overall project was calculated at 15.2%. The PCR recalculated the EIRR at 14.4% for the overall project. This PPER recalculated the EIRR at 19.2% for the overall project and 13.5% for the core project. As the traffic for the Kota-Shivpuri section was much lower than the estimates, the recalculated EIRR for this section was 10.5%, which is lower than the threshold of economic viability. If the Kota bypass is opened, traffic is likely to increase and the EIRR will be higher. For other sections, the recalculated EIRR was well above 12%. Although the actual traffic was lower than the PCR estimates for the whole project, the recalculated EIRR in the PPER was higher than those calculated in the PCR (the EIRR for the whole project was not calculated at appraisal but the traffic for the whole project was estimated at appraisal, and this traffic estimate was used to calculate the EIRR at the supplementary loan approval). It is partly because the kinds of vehicles on the project roads shifted to larger trucks with higher unit benefits (the number of large, multi-axle trucks nearly doubled, while the number of small, two-axle trucks decreased by more than half). As the details of the calculation are not provided in the approved supplementary loan document and the PCR, it is difficult to identify other reasons.

52. Sensitivity analysis. A sensitivity analysis was conducted for (i) 20% lower traffic growth, (ii) 20% higher vehicle operating cost, (iii) a combination of 20% lower traffic growth and 20% higher vehicle operating cost, and (iv) 50% and 25% reduction of the friction factors for 1.5 lanes and 2 lanes respectively. In all cases, the project exceeds the threshold of 12%, and it is thus concluded that the project is economically viable. Performance Evaluation 15

53. Implementation delays. The project experienced 54 months of delay in implementation, which postponed the anticipated benefits. The initial delay of about 1 year was mainly due to a longer procurement period caused by a delay in prequalification of civil works contractors, and a prolonged process for approval of the noncore subprojects. The physical progress for the nine civil works contracts in Madhya Pradesh and Rajasthan was satisfactory. The progress on three civil works contract packages in Uttar Pradesh was slow because of (i) initial delays in site clearance, (ii) slow mobilization of contractors, and (iii) insufficient staffing of construction supervision. The NHAI undertook measures to resolve these issues, including organizing high-level coordination meetings with the state government to resolve the site clearance delays, and conducting regular meetings with the management of the contractors to discuss and resolve related issues. To support completion of the project, ADB approved the extension of the loan closing date three times for the original loan and approved the supplementary loan. The civil works in Uttar Pradesh were completed by December 2011, which was about 54 months later than anticipated at appraisal.

54. Cost overrun. During implementation, the project experienced a substantial cost overrun in civil works, mainly caused by contract prices for the noncore subprojects that were about 51% higher than that estimated at appraisal. During processing of the original loan, a cost estimate of $0.90 million per km was used for noncore subprojects, but the actual cost was $1.35 million per km. As detailed estimates were not available for noncore subprojects under the sector loan modality, this estimate was based on the cost of upgrading artery corridors to four lanes encountered in previous, similar projects. During the construction period, prices of input items for labor, cement, steel, plant, machinery and spares, fuel and lubricants, bitumen, and other local materials rose significantly. When ADB approved the subprojects and contract awards in 2005, the NHAI opted to retain ADB financing for all the subprojects by lowering the percentage to be financed by ADB. However, as construction costs continued to escalate during implementation, the government asked ADB to provide a supplementary loan. The analysis in the RRP for the supplementary loan approval found that 67% of the increase in civil works contracts was attributable to underestimation during the period of processing the core subproject and the rest was attributable to price escalation during construction. In this case, the delay in start-up of the core subproject meant a lost opportunity to learn the unit cost in the core subproject. The price escalation during the construction period was unforeseeable. The cost estimate at appraisal was weak, but the project intended to learn the cost estimate for the core subproject and use this experience in noncore subprojects, and thus the weak cost estimate at appraisal was expected. The weak point was that the project lost the opportunity to gain from the experience of the core subproject.

55. Rating. Although the EIRR varies depending on the calculations, the recalculated EIRR is much higher than the threshold of 12% for economic viability. However, the project experienced a 54-month delay and a substantial cost overrun in civil works partly owing to the inability to learn from the experience with the core subproject. Overall, the project is rated efficient. The PCR rated the project less than efficient, but this PPER upgraded the rating, as the recalculated EIRR was much higher than the PCR’s EIRR.

16 India: National Highway Corridor (Sector) I Project

D. Sustainability

56. Financial sustainability. The financial internal rate of return (FIRR) of the project was recalculated on the basis of actual capital cost, prevailing O&M cost, a revised traffic forecast, and existing toll rates and revenues. The recalculated FIRR of 0.7% is lower than the estimate of 5.8% under the supplementary loan. At appraisal, the FIRR was estimated only for the core subproject, at 6.8%. This PPER recalculated the FIRR for the core subproject at 1.0%. These lower FIRRs were due to lower traffic and thus lower revenues than expected. By section, the recalculated FIRR was –0.3% for the Chittorgarh-Kota section, –2.7% for the Kota-Shivpuri section, 3.7% for the Jhansi-Orai section, and 3.7% for the Orai-Barah section. The FIRR for the Kota-Shivpuri section was particularly low because the traffic was much lower than expected. The recalculated FIRRs were lower than the recalculated weighted average cost of capital (WACC) of 2.1%, except in two sections. However, according to the sensitivity analysis, if toll prices increase 5% annually, the recalculated FIRR will be 3.7%, which is higher than the WACC. In either case, according to the Ministry of Roads and Highways, the government set tolls from the viewpoint of affordability for users, in accordance with the law. The tolls are set without consideration of cost recovery of projects. If the tolls are not enough to recover the cost, the loss will be compensated by the government. The government is also levying a cess on petrol and diesel and using the proceeds for the development of the highways. Thus, the FIRR for the project is considered not to be a dominant factor for evaluating the financial sustainability. Details of the financial reevaluation appear in Appendix 6.

57. Private sector participation. The BOT annuity contract was signed for the Orai- Baran section. The BOT concessionary is responsible for construction, O&M, and toll collection. The section was chosen for a BOT concession because it was expected to have the highest traffic of the five sections. The actual 2016 traffic in this section was the highest of the five sections and 9% higher than the appraisal estimate. The recalculated FIRR was 3.7%, which was higher than the WACC. The IEM had a meeting with the concessionaire and noted that the BOT generally worked well for the section, but the concessionaire raised the issue that the section had more damage than expected from overloaded trucks in one lane of the highway. The concessionaire had BOT contracts for other road projects in India and advised that they have the know-how to assess the risks but that the private sector becomes more sensitive to the risk assessment.

58. Operation and maintenance concessionary arrangements. In three sections,13 OMTT contracts were signed with private sector companies. The revenues from toll plazas are used for O&M. In the tendering process of selecting the OMTT concessionaires, the government selected those companies that pledged to pay the highest amount to the government. Thus, the OMTT concessionaires need to make a fixed amount of payment to the government, without regard to how much they collect in tolls. Long-term contracts for OMTT may improve the efficiency of O&M as the concessionaires could then make efficient investments from a long-term perspective. The concessionaire in the Jhansi-Baran section advised that early repairs on road pavement reduce total repair costs and keep the road surface in a highly satisfactory condition. If the traffic is higher than expected, the OMTT concessionaires will get more revenues from tolls and spend more for increased O&M needs. Thus, the risk of traffic estimates can be hedged to some extent by fluctuations in O&M expenses. In addition, the OMTT scheme gives an incentive to collect tolls that are as high as possible. If only toll collection is trusted to the private sector, the concessionaire has little incentive to collect tolls properly. However, on the

13 The three sections are the Chittorgarh-Kota section, the Kota-Shivpuri section, and the Shivpuri-Jhansi section. In the Jhansi-Orai section, the O&M contract and the toll collection contract were made separately. Performance Evaluation 17 negative side, OMTT concessionaires need to bear the risks of (i) much lower traffic than estimated, which leads to much lower revenues, and (ii) greater than expected damage on roads due to overloading and inadequate construction of pavement, which leads to greater expenses for O&M. For example, the concessionaire for the Kota-Baran section made revenues that were less than the amount that it had to pay to the government, and thus no funds were available for O&M. As a result, the road surface has deteriorated because of inadequate maintenance. The NHAI was trying to solve this issue at a high level. The OMTT contract is working well generally, but the system needs improvement, taking account of the lessons from the Kota-Baran section.

59. Institutional capabilities. The NHAI has a pool of skilled staff. At the project level, the IEM had meetings with PIUs and noted that (i) they have a good understanding of the issues they face, (ii) they maintain records and documents on projects at a satisfactory level and use them for analysis, (iii) they are open to discussion to improve the quality of projects, and (iv) qualified contractors and consultants are available locally.

60. Overloading. The IEM observed that overloading is a serious issue on the project roads. Several sections were particularly damaged by overloaded trucks. For example, in the Orai–Barah section, overloaded trucks carry heavy bricks and construction materials from the Orai area to Kanpur through Barah and have seriously damaged two lanes of the road in one direction. The government had developed regulations for an increase in vehicle axles of heavy trucks from two to three, but the effects were not enough to solve this issue. There are some weigh stations at toll plazas, but these are still not enough to stop overloading. Enforcement of overloading prohibitions is under the jurisdiction of state governments. Coordination between state governments and the NHAI is needed to reduce overloading, but the management of controlling overloading is not sufficiently coordinated. The BOT concessionaire for the Orai–Barah section was planning to introduce costly pavements involving special materials to strengthen the durability of the pavement, as reduction of overloading was in practice not expected in the short term. However, the issue is who will bear the additional cost. As a good practice, the Chittorgarh–Kota section was paved with concrete—which was locally available at a relatively low cost—because it was expected that overloaded trucks would carry heavy stones on that section, and the condition of the road pavement there was found to be good despite usage by heavily loaded trucks.

61. Rating. Although the recalculated FIRR is lower than the WACC, the government has a clear policy that tolls are not set up to cover returns on investments and thus the low FIRR is not a consideration for evaluating financial sustainability. A more important point is whether the system of BOT and OMTT contracts is sustainable. These systems generally work well, but the concessionaire for the Kota-Baran section did not have enough funds for O&M and, in practice, the IEM observed that the road pavement has deteriorated faster than expected. This issue has already been discussed at a high level and is expected to be resolved. As the other four sections have generally shown good performance in sustainability, the project was rated likely sustainable.

18 India: National Highway Corridor (Sector) I Project

E. Overall Assessment

62. The project is assessed less than relevant (see footnote 10), effective, efficient, and likely sustainable. The project was successfully implemented to develop a strategically important corridor in India. It achieved its main objectives of improving transport services and safety along the corridor. The project contributed to economic growth and poverty reduction in the project area. The project introduced PSP in construction and O&M, and these endeavors were generally successful. The reevaluated EIRR of 19.2% confirms the economic viability of the project. However, the sector loan modality was not suitable, the sector loan modality did not work well, and the project did not address contribution to the sector well during implementation. Overall, the project is rated successful (Table 1).

Table 1: Overall Performance Assessment

Rating Weight (%) Rating Rating Value Weighted Relevance 25 Less than relevant 1 0.25 Effectiveness 25 Effective 2 0.5 Efficiency 25 Efficient 2 0.5 Sustainability 25 likely 2 0.5 Overall rating Successful 1.75 Source: Independent Evaluation Department estimates.

CHAPTER 4 Other Assessments

A. Impact

63. Impact indicators. The impact indicators at appraisal were (i) establishment of an effective policy and institutional framework, and (ii) domestic net state products per capita for key states, including those in the northeast. These indicators did not include quantitative targets, and it was not possible to assess the achievements. The impact indicators were revised at the supplementary loan approval to (i) 7% and 5% average annual growth rates for passenger vehicles and goods vehicles, respectively, from 2003 to 2015 in the project corridor, and (ii) a 1% increase in direct contribution by the road transport sector to GDP by 2015 (baseline in 2006: 3% in Rajasthan, 3% in Madhya Pradesh, 4% in Uttar Pradesh).

64. Impact indicator achievements. The annual growth rates from 2003 to 2015 were 7.7% for passenger vehicles and 1.3% for goods vehicles. The target for passenger traffic was achieved, but that for freight traffic was not. However, because trucks with three or more axles and higher carrying capacity had been more commonly used, the indicator for the number of trucks does not represent freight transport volumes fairly. As there are no data on transport volumes in the corridor, it is difficult to assess the achievement of freight transport. The direct contribution of the road transport sector to GDP in 2015 was 3.1% in Madhya Pradesh, 3.5% in Rajasthan, and 7.0% in Uttar Pradesh. Thus, the target was achieved only in Uttar Pradesh. However, the IEM notes that the direct contribution by the road transport sector in each state is not largely attributable to the project, as the project road is a tiny part of the road network in each state.

65. Corridor development. One of the objectives envisaged at appraisal was to upgrade the national arterial corridor connecting the eastern and western ends of the country, to help reduce regional disparities. Although it is difficult to assess the attribution of the project to reducing regional disparities, the IEM conducted an origin- destination survey at a place between Kota and Shivpuri to get a grasp of long-distance traffic on the corridor.14 The survey indicates that about 7% of 710 surveyed heavy goods vehicles (large trucks) traveled between Gujarat (west end area of the corridor) and northeast India (east end area of the corridor), and about 60% of the surveyed trucks traveled across all sections of the project highways. Local truck traffic was less than 6%. These survey results indicate that a significant share of trucks use the corridor for long- distance travel and thus that presumably the project contributed to connecting the eastern and western ends of the country.

66. Impact on local economy. The IEM had meetings with state governments, representatives of villages along the project highways, road users, and stakeholders. All participants at the meetings agreed that the project brought enormous benefits to the local economy. Before the project, the markets for local products were limited to the local area, but after its completion, many of the local products are being transported to other areas. For example, bricks produced around the Orai area are transported to

14 The survey was conducted at Ramnagar on 25 October 2016.

20 India: National Highway Corridor (Sector) I Project

Bombay using the project highways. Agriculture products in the project area are now transported to many cities in India. Improved road surface and reduced travel time are other advantages, enabling agricultural goods to be transported by trucks in fresher condition.

67. Poverty reduction and improved living standards. The IEM had a meeting with a representative of Shemri village, which is 3.5 km away from the highway near Orai. In the village, wheat prices doubled after the completion of the highway as buyers come to the village from cities to buy wheat directly. Many people in the village also purchased trucks and became self-hired drivers. According to an interview with a chief of a village that is 3.5 km away from the highway, the number of low-income households (below the poverty line) in the village has decreased significantly over the past decade. The improved highways and thus improved access to the village have also facilitated complementary investments in local infrastructure, including telecommunications and water supply. The IEM was also advised that more teachers were willing to come to work along the highway and that the project thus contributed to improving the quality of education.

68. Employment. New business activities along the project highway created job opportunities and stimulated local economy. Major examples are (i) mining for square stones near the Chittorgarh-Kota section, (ii) cement factories in the Chittorgarh area, (iii) brick industries in the Orai area, (iv) warehouses in the Chittorgarh and Kota areas, and (v) petrol stations, restaurants, and hotels along the highway.

69. Tourism. Famous tourist sites along the highway include (i) an old historical fort and a tiger park in Chittorgarh, (ii) an old town and historical places in Jhansi, and (iii) national parks around Shivpuri. The IEM visited the tourism office in Shivpuri, and the staff advised that, although they did not have statistics, the number of tourists had increased significantly. The Chittorgarh-Jhansi section is used for popular international tourist routes. Increases in the number of tourists bring job opportunities and stimulate local economies.

70. Safeguards. An environmental management plan was prepared to ensure that all activities are performed in compliance with the principles and objectives of ecologically sustainable development. During implementation, ADB monitored compliance with environmental safeguard requirements by fielding environment experts and reviewing the monitoring reports. According to the PCR, any noncompliance was recorded and reported so that the contractors could take immediate corrective action. The planting of trees and shrubs was well implemented, with sufficient and timely maintenance. Six resettlement plans were prepared on the basis of the detailed engineering design, which met the requirements of the national acts on land acquisition and resettlement, as well as ADB’s Involuntary Resettlement Policy (1995). Monitoring mechanisms were put in place to monitor utilization of the assistance provided to affected people. Nevertheless, the case for resettling the mosque is still at the court and is considered the project’s bottleneck.

71. Rating. The project is likely to have significant socioeconomic impacts, and there were no reported significant negative effects. The project contributed to creating job opportunities and reducing poverty in the project area. The project also contributed to connecting the eastern and western ends of the country. Although the project is presumed to have high significant impact, the impact indicator targets were only partly achieved. Given that the impact indicators do not represent the impacts fairly, this PPER assessed the project as significant, the same as the PCR. Other Assessments 21

B. Performance of the Asian Development Bank

72. The project was administered by ADB headquarters until January 2010, when administration was delegated to ADB’s India Resident Mission. ADB was closely involved in identifying and resolving issues during implementation through tripartite project review meetings between the borrower, the executing agency, and ADB. During implementation, ADB conducted 12 review missions, including the inception mission in 2006, the midterm review mission in 2007, and two special loan administration missions. ADB analyzed implementation issues affecting the project and provided substantial inputs in preparing action plans to expedite project implementation. Documents were approved in a timely manner at the processing and implementation stages. All claims for payment were processed promptly. At the request of the government, ADB extended the loan closing date three times and approved the supplementary loan to facilitate implementation and completion of the project.

73. The IEM highlighted a weakness. The project was approved as a sector loan project, but at the supplementary loan approval, the project was virtually redesigned as a project loan without any explanation (the RRP for the supplementary approval did not state that the modality was changed, but the DMF was redesigned for the project loan modality). This ambiguity meant a lost opportunity to discuss the appropriateness of the modality and explore the lessons learned from the sector modality. The PCR also did not discuss this issue. Overall, the PPER rated the performance of ADB as satisfactory, the same as the PCR.

C. Performance of the Borrower and the Executing Agency

74. The related government agencies, including the Ministry of Finance, actively participated in the coordination and monitoring of project implementation. The executing agency established well-staffed PIUs, which coordinated activities, including feasibility studies, project preparation, utility shifting, land acquisition, tree cutting, environmental clearance, procurement of civil works contracts, and engagement of supervision consultants. The executing agency complied with the conditions of the loan covenants, except for the road safety component.

75. As part of ADB’s programmatic approach to establish a policy and institutional framework for efficient and sustainable development of the national highway system, the executing agency continued strengthening the framework for PSP in construction and O&M. The project included challenging features such as PSP and new technical designs for road safety, and the IEM noted that the NHAI established a good learning process (para. 35). The IEM noted that the PIUs accumulated a high level of institutional capacity through the project experience. The IEM was advised that some staff who accumulated expertise through the project were transferred to other PIUs and contributed to improving the quality of other projects. That said, the project experienced substantial cost overruns and delays in civil works, and road safety components were not fully implemented as anticipated. Overall, the PPER rates the overall performance of the borrower and the executing agency satisfactory, the same as the PCR.

CHAPTER 5 Issues, Lessons, and Recommendations

A. Issues and Lessons

76. Consultation for land acquisition is difficult. In the project, two sections (0.5% of the project roads) are not yet completed owing to difficulty in acquiring the land (para. 43). The NHAI recently adopted a policy that construction procurements will be started only when more than 80% of land acquisition is completed. However, even if this policy had been adopted in the project, the project still might not have resolved the issues it faced. Land acquisition in itself is a difficult issue in India, and lack of careful consultation with landowners can lead to delays in the acquisition of land for roads. Moreover, the inclusion of religious sites in land acquisition plans entails both more time and thorough planning and consultation, as resolving the issue requires a more conservative approach.

77. Seamless transport across state boundaries is lacking. The east–west national highway corridor was improved significantly between Chittorgarh and Kanpur, and travel time was reduced. For example, the travel time from Shivpuri to Jhansi (100 km) decreased by 1 hour. However, trucks carrying goods must spend 1.5 hours at state border checkpoints to get tax and customs clearances to cross (para. 39). The World Bank’s Logistic Performance Index, which ranks 160 countries every 2 years, ranked India 25th in 2016, up from 54th in 2014.15 Logistics performance in India is improving, but for the timeliness component of the index India was ranked 42nd in 2016. Although hard infrastructure for logistics has been improving, soft logistic infrastructure still lags. In the same way, long-distance bus services across state borders have not been well developed. Requirements for getting operating permits in each state are a constraint on expanding the long-distance bus service network (para. 39). To use the road corridor infrastructure more effectively, measures such as harmonization across states of both regulations and taxes and charges and swift clearance at border checkpoints need to be introduced. The government planned to introduce a nationwide goods and service tax in July 2017 by combining federal- and state-level taxes. The introduction of the new tax will significantly reduce the time spent at state border checkpoints.

78. Delays in sections outside the project scope in the same corridor can have big impacts on a project. The Kota bypass, which is in the middle of the Chittorgarh–Kota and the Kota–Baran sections, was not completed owing to the collapse of the bridge under construction at the time of IEM fielding. Although the bypass is not within the scope of the project, the delay of its completion affected the traffic on adjacent sections of the project. In corridor development, if sections outside the scope of ADB projects are not completed as planned, it will affect the adjacent sections within the scope of ADB projects. Such risk needs to be carefully considered at the planning stage, and the

15 World Bank. 2016. Connecting to Compete 2016: Trade Logistic in the Global Economy; The Logistics Performance Index and Its Indicators. Washington, DC.

Issues, Lessons, and Recommendations 23 progress of adjacent sections in the same corridor requires follow-up even if they are outside the project scope.

79. Build–operate–transfer (BOT) schemes have large risks but can be successful in high-traffic sections. The BOT annuity concessionaire for the Orai-Baran section, with higher traffic than expected, represents a successful case. However, in many cases BOT schemes in India are not successful. BOT concessionaires need to take large risks as (i) lack of achievement of expected traffic volumes owing to external factors such as the unexpected opening of competitive roads and construction delay in adjacent sections, and (ii) delays in land acquisition. There is also a risk that competitive tendering may excessively lower bidding prices to such a degree that the contractor cannot perform satisfactory service sustainably. Although the BOT annuity scheme is considered to have less risk than the BOT toll scheme, the existence of growing numbers of unsuccessful BOT projects in India has made financiers more prudent in financing BOT projects. Given this situation, the NHAI has introduced an engineering procurement and construction scheme to reduce contractors’ risks by increasing bidders’ participation in road projects. Under the engineering procurement and construction, contractors carry out the detailed engineering design of the project, procure all the equipment and materials, and construct roads. It is like a turnkey project, and the NHAI makes milestone payments. The government is continuously reviewing and updating the policy, legislative, and administrative framework for PSP on the basis of experiences and lessons learned. The IEM noted that various PPP schemes have pros and cons and that the selection of PPP schemes is largely affected by the potential profitability of road sections.

B. Recommendations

80. Careful road safety design is needed. The project has improved road safety significantly, but the following safety measures need to be considered for future highway projects (para. 40). These measures were discussed with PIUs, road safety experts, civil society organizations, academics, and road users. The suggestions may not be applicable to all cases, but discussions on adopting these measures are recommended:

(i) Service roads are effective in terms of separating transit traffic from local communities’ traffic. (ii) Truck parking facilities should be improved so that drivers can take a rest. It is important to take account of the needs of drivers. Minimum amenities such as toilets and water supply should be provided in the parking facilities. It may be useful to build parking facilities under public- private partnerships. (iii) Center-island cuts on roads should be carefully designed. If these cuts are not enough, some vehicles run on the opposite lanes. The IEM also observed that center islands were destroyed at many places to allow vehicles to enter opposite lanes. (iv) Pedestrian bridges and underpasses are needed in villages so that pedestrians can cross national highways safely. (v) Speed cameras may be effective to reduce over-speeding. (vi) Lighting intersections and crossings could reduce road accidents.

81. Suggestions by road safety auditors need to be incorporated in concessionaires’ agreements. The project intended to hire independent road safety experts at the design stage, but road safety experts were already hired in road design teams and the independent road safety experts were not hired. At the operation stage, independent road experts were hired under the project. It has become a common practice in India to 24 India: National Highway Corridor (Sector) I Project

introduce road safety audits at every important stage and have the experts provide suggestions for road safety. However, suggestions by road safety auditors and independent road safety experts are not always reflected by concessionaires, as these suggestions need additional investment and are not included in the concessionaires’ agreement. Thus, road safety audits should be conducted before the tendering process, and their suggestions should be reflected in the tendering documents and the agreements. The agreement also needs to specify penalties in case the suggestions are not incorporated.

82. Durability of pavement needs to be carefully designed. The feasibility study needs to forecast what types of goods are likely to be carried on roads, and the technical design needs to consider the durability of the pavement based on the expected road usage. As the experience of the Orai–Baran section shows (para. 60), if heavy bricks are likely to be transported from Orai to Baran, two lanes from Orai to Baran should have more durable pavement. The technical design needs to have more flexibility based on road usage. For example, some service roads are heavily used in towns and large villages. If heavy traffic is expected on service roads, the pavement standards need to be equivalent to those of the main roads.

83. To maximize the gains from public-private partnerships arrangements, an in- depth study on the pros and cons of contract schemes is needed. Under the OMTT scheme, concessionaires collect tolls and pay a fixed amount specified in the contract to the government. The surplus is used for O&M, and the rest is the concessionaires’ margins. For example, the concessionaire for the Kota–Baran section collected fees that were less than the amount that should be paid to the government and thus, no funds were available for O&M (para. 58). As a result, the road surface deteriorated because of inadequate maintenance. In contrast, the concessionaire for the Jhansi–Baran section rationalized the maintenance cost as the maintenance works were provided under a long- term perspective. Thus, the concessionaire keeps the road surface in a highly satisfactory condition. The success of the Jhansi-Baran section came from the realization of much higher traffic than in the appraisal estimate, thus generating enough funds to cover the increased demand for O&M. The recalculated FIRR for the section was 3.7%, which was higher than the WACC. Another merit of the OMTT is an incentive to concessionaires to collect as high of tolls as possible. In contrast, a concern is whether the OMTT scheme can maximize benefits for society. The scheme is useful in terms of maximizing government revenues, but that does not always mean that it maximizes the benefits to society. If the pavement condition is not maintained satisfactorily, users will not see the expected travel time savings. To reduce the risk of unexpected traffic, the OMTT scheme may include an opportunity to reconsider the payment to the government if actual traffic fluctuates beyond certain ranges. The pros and cons of contract schemes should be analyzed in more detail, and lessons learned from this project should be incorporated into future projects.

Appendixes

APPENDIX 1: REVISED DESIGN AND MONITORING FRAMEWORK

Performance Results Assessed PPER Update Assessment Design Summary Targets/Indicators by PCR Impact (i) Impact for the program (deleted in the (There were no supplementary RRP) performance indicators) Enhanced economic efficiency through improved National Highway Development Project (NHDP) networks

(ii) Impact for the project Average annual growth The average The average The target for the (incorporated in the rates of passenger annual growth annual growth passenger traffic supplementary RRP) vehicles in the project rates of traffic on rates of the traffic was achieved, but Improved mobility of people corridor achieve 7% and the project on the project that for the and goods to contribute to of goods vehicles achieve highway were highway was freight traffic was the economic growth of the 5% from 2003 to 2015 7.7% for 7.0% for not achieved. states connected by the passenger vehicles passenger vehicles However, since project corridor and 1.3% for and 1.1% for trucks with three goods vehicles goods vehicles or more axles and during 2003– during 2003– higher carrying 2014. Completion 2016. capacity were of the east–west used more corridor beyond commonly, the the project indicator for the corridor will lead number of trucks to a further does not increase in traffic represent freight growth. transport volumes fairly.

Direct contribution by The direct No compatible road transport sector to contribution by figures were gross state domestic the road found. product increases by 1% transport by 2015 (baseline in sector to gross FY2006 at current prices: domestic 3% in Rajasthan, 3% in product in Madhya Pradesh, 4% in 2015 was Uttar Pradesh) 3.45% in Rajasthan, 3.10% in Madhya Pradesh, and 7.00% in Uttar Pradesh.

Outcome (i) Outcome for the program (deleted in the supplementary RRP)

Increased capacity of NHDP Share of NHDP four-lane The NHDP Not achieved. networks highways increased to embraces 41,112 80% by the end of 2013 km of roads in 2016, of which

Revised Design and Monitoring Framework 27

Performance Results Assessed PPER Update Assessment Design Summary Targets/Indicators by PCR 26,200 km have four or more lanes (64%).

Enhanced project A staff-highway 6 in 2004/2005, Achieved. development and kilometers (km) ratio of 2 in 2014/2015 implementation capacity of fewer than 5 staff per National Highways Authority 100 km maintained of India (NHAI)

Private sector participation Proportion of PSP Sector data are Not assessed. (PSP) increased in NHDP increased to 10% by 2013 not available. Under the project, 9.6% of road construction was financed by PSP under BOT arrangements.

Increased financial source for Increase cess by 50% The cess was Achieved. highway development increased by 50% in February 2003 and by a further 33% in 2005.

The data are not available.

Operation and maintenance Tolls collected to cover Sector data are Not assessed. (O&M) of NHDP highways O&M cost of NFDP by the not available. strengthened time NHDP highways are Under the project, four-lane. 100% of O&M (including toll O&M outsourced to the collection) was Not assessed. private sector at more financed by PSP. than 60% of sections by 2013

(ii) Outcome for the project (incorporated in the supplementary RRP)

Improved road transport Travel time decreases Upon Achieved. The services and safety along the (average vehicle speed completion, road was project corridor increases upon the average constructed to completion of project vehicle speeds the required roads: cars 80.0 km/h were 80 km/h standard, and (51.5 km/h in 2002) and for cars and 60 there is no trucks 60.0 km/h (40.0 km/h for congestion. km/h in 2002) trucks. Delays at toll plazas appear minimal. Trucks are subject to delay on the state border between Madhya Pradesh and Rajasthan, 28 Appendix 1

Performance Results Assessed PPER Update Assessment Design Summary Targets/Indicators by PCR where they are subject to checks of paperwork and vehicle weight.

Number of traffic According to the There were 53 Achieved. fatalities of project data provided by fatalities in 2015. However, the old corridor in 2012 does not the O&M The fatalities were roads passed exceed pre-project level concessionaires, 109 in 2013 and through all the (308 fatalities in 2001) there were 221 62 in 2014. towns, so the fatalities in the target of 231 project corridor in included fatalities 2014 due to road in the urban accidents. areas. The figure for 2014 does not match that obtained in the PCR. Thus, it may not be a fair comparison. Outputs Stretches between Chittorgarh and Orai are 595 km completed by Upon completion, By 2011, some Nearly achieved, widened into four-lane roads 2010 594.3 km of 594.3 km of with the delay in national highways national highways terms of length, along the east– had been widened but two short west corridor had to four lanes. sections have not been widened to However, 1.7 km been widened. four lanes. in Kalpi and 1.0 km in Jhansi were not completed in the planned corridor.

10% of the project corridor is Barah–Orai section (62 The Barah–Orai The section was Achieved with a developed through a build– km) under operation section (62.8 km) completed by delay. operate–transfer concession phase by 2010 was constructed December 2011. by the private sector through a build–operate– transfer concession.

A road safety zone concept is A road safety zone One section (150 The IEM did not Not achieved. implemented implemented in a selected km) of the project confirm the However, safety pilot section (120 km) by highway was implementation of enhancement 2011 selected for the the road safety equipment was road safety zone zone. Some of the introduced. pilot. Road safety safety equipment consultants were has been engaged to carry introduced in the out a road safety project road. audit and design of the road safety zone. The study is still ongoing. Some of the safety Revised Design and Monitoring Framework 29

Performance Results Assessed PPER Update Assessment Design Summary Targets/Indicators by PCR equipment has been incorporated in the completed highway facility as a part of the O&M concession.

Campaigns to help prevent Risk awareness During the Achieved. the spread of HIV/AIDS and workshops conducted construction increase awareness of the risk during construction period, of trafficking in women and period nongovernment children are conducted organizations and contractors conducted several campaigns to help prevent the spread of HIV/AIDS and increase awareness of the risk of trafficking in women and children. BOT = build–operate–transfer, HIV/AIDS = human immunodeficiency virus/acquired immunodeficiency syndrome, IEM = independent evaluation mission, km = kilometer, km/h = kilometers per hour, PCR = project completion report, PSP = private sector participation, RRP = report and recommendation of the President. Note: Design and monitoring framework was revised at the time of the supplementary loan. Source: Asian Development Bank. 2015. Completion Report: National Highway Corridor (Sector) I Project in India. Manila (Loans 2029 and 2527).

APPENDIX 2: SUMMARY OF SALIENT FEATURES OF THE PROJECT

Baran/Kota PIU Shivpuri PIU Jhansi PIU Chittorgarh PIU RJ-9 RJ-10 RJ-11 MP-1 MP-2 UP-4UP-5 (MP/RJ MP/ BOT RJ-7 RJ-8 (Kota– Border – UP-1 (Orai– RJ-6 (Chittor (Chittor RJ/ (Kota– (Kota– Shiv (Shiv (Shiv UP-3 Bhogni (Chittorgarh garh– garh– MP RJ/MP RJ/MP puri puri– puri– (Jhansi (Jhansi (Jhans pur- Feature Unit Bypass) Kota) Kota) border) border) border) Bypass) Jhansi) Jhansi) Bypass) –Orai) –Orai) Barah) Total Length (four- km 41.00 60.00 61.00 43.00 60.00 70.00 53.00 35.00 40.30 15.00 66.00 50.0 62.80 657.10 lane section) Service road km 7.95 10.80 24.37 9.35 5.27 12.27 5.00 1.00 9.00 9.00 19.00 4.00 27.83 144.84 Interchange no. 2 9 11.00 Toll plaza no. 1 1 1 1 1 1 1 1 1 1 1 11.00 BOT = build–operate–transfer, km = kilometer, MP = Madhya Pradesh, PIU = project implementation unit, RJ = Rajasthan, UP = Uttar Pradesh. Source: Asian Development Bank. 2015. Completion Report: National Highway Corridor (Sector) I Project in India. Manila (Loans 2029 and 2527).

APPENDIX 3: PROJECT COST AND FINANCING PLAN

Table A3.1: Project Costs ($ million) Original Estimated Cost Revised Cost Actual Foreign Total Foreign Local Total Foreign Item Currency Local Cost Exchange Currency Cost Exchange Currency Local Cost Total A. Public Sector Portion 1. Base Cost a. Highway Investment i. Civil works 359.3 177.7 537.1 582.5 288 870.5 610.2 301.8 912.0 ii. Land acquisition and resettlement 38.0 38.0 25.3 25.4 29.2 29.2 iii. Relocation of utilities 17.7 17.7 13.6 13.6 8.8 8.8 iv. Environment 10.3 10.3 13.9 13.9 v. Consulting services 9.2 18.6 27.8 5.4 10.8 16.1 5.4 10.9 16.3 vi. Project management 5.4 5.4 5.4 5.4 8.8 8.8 Subtotal (a) 368.5 267.8 636.3 587.8 343.2 931 615.6 373.4 989.0 b. HIV/AIDS and Anti-Trafficking i. Consulting services 0.4 0.4 0.4 0.4 0.4 0.4 Subtotal (b) 0.4 0.4 0.4 0.4 0.4 0.4 c. Road Safety i. Advanced traffic management 10.0 10.0 10.0 10.0 0 0 system ii. Equipment 1.8 1.8 1.8 1.8 0 0 iii. Consulting services 0.3 0.2 0.5 0.6 0.3 0.9 0.4 0.2 0.6 Subtotal (c) 12.1 0.2 12.3 12.4 0.3 12.7 0.4 0.2 0.6 Subtotal (1) 380.7 268.4 649 600.2 344 944.2 616 374.1 990.1 2. Front-End Fee 2.0 2.0 2.0 2.0 2.0 2.0 3. Interest During Construction 30.4 30.4 40.3 40.3 35.5 35.5 4. Commitment Charges 1.5 1.5 3.7 3.7 3.6 3.6 Subtotal (A) 414.6 268.4 682.9 646.3 344 990.1 657.2 374.1 1,031.2

B. Private Sector Portion 1. Base Cost i. Civil works and operation and 39.7 28.9 68.6 59.8 43.5 103.3 58.3 42.4 100.7 maintenance ii. Land acquisition and resettlement 5.0 5.0 3.0 3.0 2.9 2.9 iii. Relocation of utilities 2.3 2.3 2.4 2.4 2.3 2.3 iv. Environment 1.3 1.3 iv. Consulting services 0.1 0.1 0.1 0.1 0.1 0.1

32 Appendix 3

Original Estimated Cost Revised Cost Actual Foreign Total Foreign Local Total Foreign Item Currency Local Cost Exchange Currency Cost Exchange Currency Local Cost Total Subtotal (B) 39.8 37.5 77.3 59.9 48.9 108.8 58.4 47.7 106.1 Total 454.3 305.9 760.2 706.1 392.9 1,099.00 715.5 421.8 1,137.3 a Under National Highway Corridor (Sector) I Project in India (Loan 2029). b Revised cost estimated at the time of processing of supplementary loan (Loan 2527-IND). In the revised estimate, the cost of environment is included in the cost of civil works. The cost for environment at completion for the private sector portion is included in the cost of civil works. Sources: Asian Development Bank loan financial system and the project implementation units. Project Cost and Financing Plan 33

Table A3.2: Project Financing ($ million) Original Appraisala Revisedb Actual Source Cost % of Total Cost % of Total Cost % of Total Asian Development Bank 400.0 52.6 500.0 45.5 499.6 43.9 Government 291.6 38.4 495.7 45.1 531.6 46.7 Private Sector 68.6 9.0 103.3 9.4 106.1 9.3 Total 760.2 100.0 1,099.0 100.0 1,137.3 100.0 a Under Loan 2029-IND. b Revised cost estimate at the time of processing of the supplementary loan (Loan 2527-IND.) Sources: Asian Development Bank (ADB). 2003. Report and Recommendation of the President to the Board of Directors: Proposed Loan to India for the National Highway Corridor (Sector) I Project. Manila; ADB. 2009. Report and Recommendation of the President to the Board of Directors: Proposed Supplementary Loan to India for the National Highway Corridor (Sector) I Project. Manila; and ADB Loan Financial Information System.

Table A3.3: Annual and Cumulative Disbursement of ADB Loan Proceeds ($ million) Annual Disbursement Cumulative Disbursement Loan 2029 % of Total Loan 2527 Amount Year (amount) (amount) % of Total ($ million) % of Total 2005 3.59 0.90 3.59 0.7 2006 101.39 25.40 104.98 21.0 2007 152.09 38.10 257.06 51.5 2008 131.11 32.80 388.17 77.7 2009 11.43 2.90 25.64 25.64 425.24 85.1 2010 55.53 55.53 480.78 96.2 2011 18.83 18.83 499.60 100.0 Total 399.60 100.00 100.00 100.00 ADB = Asian Development Bank. Sources: Asian Development Bank (ADB). 2003. Report and Recommendation of the President to the Board of Directors: Proposed Loan to India for the National Highway Corridor (Sector) I Project. Manila (Loan 2029-IND) and ADB. 2009. Report and Recommendation of the President to the Board of Directors: Proposed Supplementary Loan to India for the National Highway Corridor (Sector) I Project (Loan 2527-IND).

APPENDIX 4: CHRONOLOGY OF MAJOR EVENTS

Date Event 29 July 2003 ADB approval of advance action for prequalification of civil works contracts 3–4 November 2003 Loan negotiation for Loan 2029 4 December 2003 ADB board approval for Loan 2029 27 October 2004 Signing of loan agreement for Loan 2029 9 December 2004 ADB approval of bidding documents for civil works packages 24 January 2005 Loan effectiveness for Loan 2029 24 May 2005 ADB approval of the award of all 12 civil works contracts 16 June–29 September 2005 Contract signing for all civil works packages 19–30 September 2005 ADB inception mission for Loan 2029 24 November 2005 Contract signing with the supervision consultants for civil works packages in Madhya Pradesh and Uttar Pradesh 2 December 2005 Contract signing with the supervision consultants for civil works packages RJ-6, RJ-7, and RJ-8 2 February 2006 Contract signing with the supervision consultants for civil works packages RJ-9, RJ-10, and RJ-11 27 April 2006 Awarding of BOT contract to private sector 30 June 2007 Original project completion date 10–18 December 2007 ADB project midterm review mission 31 December 2007 Original loan closing date for Loan 2029 12 September–11 November Completion of civil works contract packages RJ-11, MP-1, MP-2, and MP/UP-1 2008 5–8 December 2008 Completion of civil works contract packages RJ-6, RJ-7, and RJ-8 15–18 May 2009 Completion of civil works contract packages RJ-9 and RJ-10 25 May 2009 Loan negotiation for Loan 2527 30 June 2009 ADB board approval for Loan 2527 30 June 2009 Last extension of loan closing date for Loan 2029 4 August 2009 Signing of loan agreement for Loan 2527 15 September 2009 Loan effectiveness for Loan 2527 22–24 September 2009 ADB inception mission for Loan 2527 30 August 2010 Completion of civil works contract package UP-3 31 August 2010 Contract completion of supervision consultants for civil works contract packages RJ-5, RJ-6, and RJ-7 31 October 2010 Contract completion of supervision consultants for civil works contract packages RJ-9, RJ-10, and RJ-11 31 January 2011 Completion of civil works contract package UP-4 11 March 2011 Contract signing for road safety consultants 31 December 2011 Actual loan closing date for Loan 2029 and Loan 2527 9 May 2012 Financial closures of Loan 2029 and Loan 2527 30 April 2013 Completion of civil works contract package UP-5 30 April 2013 Contract completion of supervision consultants for the civil works contract packages in Uttar Pradesh and Madhya Pradesh 8–16 March 2015 ADB project completion review mission 15–31 August 2016 ADB independent evaluation mission ADB = Asian Development Bank, BOT = build–operate–transfer, RJ = Rajasthan, UP = Uttar Pradesh. Source: ADB Independent Evaluation Department.

APPENDIX 5: ORGANIZATION STRUCTURE FOR PROJECT IMPLEMENTATION

National Highways Authority of India (Headquarters)

PIU–Chittorgarh PIU–Baran/Kota PIU–Shivpuri PIU–Jhansi PIU–Kanpur

(i) Project Director (i) Project Director (i) Project Director (i) Project Director Project Director (ii) Managers (ii) Managers (ii) Managers (ii) Managers Manager for three civil works for three civil works for three civil works for three civil works contract packages in contract packages in contract packages in contract packages in Accountant Rajasthan Rajasthan Madhya Pradesh and Uttar Pradesh Uttar Pradesh Supporting Staff

Financial Advisor Road Safety for the PSP Consultants

BOT

Construction Supervision Consultants Nongovernment Organizations

Civil Works Contractors

BOT = build–operate–transfer, PIU = project implementation unit, PSP = private sector participation. Source: Asian Development Bank project completion review mission and project implementation units.

APPENDIX 6: ECONOMIC AND FINANCIAL EVALUATION

A. General

1. The independent evaluation mission (IEM) carried out a reevaluation of the economic costs and benefits of the project using a standard evaluation approach, comparing "without project" and "with project" scenarios. A spreadsheet model was used for calculating vehicle operating costs and passenger travel time savings. The general methodology used for this evaluation is similar to one used at appraisal, at the supplementary loan approval, and in the project completion report (PCR). Since details of the methodologies were not provided in the reports and recommendations of the President (RRPs) and the PCR, the methodologies could not be fully synchronized. Input data from the PCR were used as much as possible to maintain some consistency in approach. However, not all input unit values were reported in the PCR and certain assumptions had to be made. Economic indicators were calculated separately by subproject and for the whole project. General assumptions relating to the project assessment included an appraisal period of 20 years from the first year of operation, a social discount rate of 12% in accordance with ADB guidelines, and a base year for monetary values of 2016.

B. Traffic Analysis

1. Traffic survey

2. Traffic counts by the IEM and traffic data counted by toll plazas were used for traffic analysis. The 24-hour traffic survey was carried out by the IEM consultants at three locations in September 2016: (i) the Bassi toll plaza between Chittorgarh and Kota, (ii) Ramnagar, between Kota and Shivpuri, and (iii) the Usaka toll plaza between Orai and Barah. These traffic counts were used to determine the annual average daily traffic (AADT) for the Chittorgarh-Kota section and the Orai-Barah section. For other sections, toll plaza counts were used with some adjustments for actual traffic data at Ramnagar. Since some local and government vehicles are exempt from tolls, traffic counts at toll plazas are lower than the actual traffic. As a result of combining the IEM traffic survey and toll plaza traffic counting, the AADT for each section was estimated as shown in Table A6.1. It shows that there are large gaps between the PPER and PCR traffic estimates for some categories of vehicles in some sections. The reasons are not clear, but the PCR mission did not conduct their own traffic counts and depended entirely on concessionaires’ data. The PCR also did not count the effects of the incompletion of the Kota bypass.

Table A6.1: Traffic Volumes by Category of Vehicles (Annual Average Daily Traffic) Two- Three- Multi-Axle Location Wheeler Wheeler PC LCV Bus Truck Vehicle Tractor Chittorgarh-Kota PCR 2,353 94 1,634 485 2,224 1,643 571 203 PPER 2,251 68 1,214 302 662 1,637 200 Kota-Shivpuri PCR 5,727 489 2,898 777 70 437 1,301 79 PPER 831 75 683 300 275 580 75 Shivpuri-Jhansi PCR 1,416 121 717 257 24 147 646 26 PPER 526 477 516 1,757 Jhansi-Orai PCR 1,353 115 685 138 255 599 301 109 PPER 3,066 644 651 4,016 Orai-Barah PCR 2,405 204 1,217 1,007 102 635 3,975 114 PPER 3,554 211 972 848 732 3,584 137 Weighted average PCR 2,860 216 1,556 497 629 727 1,048 168 PPER 1,229 462 525 2,017 PC = passenger car, LCV = light commercial vehicle, PCR = project completion report, PPER = project performance evaluation report. Note: PPER estimates are for 2016 and PCR estimates are for 2014. Sources: Asian Development Bank (ADB). 2015. Completion Report: National Highway Corridor (Sector) I Project in India. Manila (Loans 2029 and 2527); ADB Independent Evaluation Department.

Economic and Financial Evaluation 37

2. Traffic for Economic Analysis

3. Table A6.2 shows the estimated 2016 AADT in each section and the whole project, except for two- and three-wheelers and tractors, for which the economic analysis for the PPER excluded benefits. The RRP and PCR estimates were calculated from the expected traffic growth rates, excluding the AADT for two- and three-wheelers and tractors.

Table A6.2: Estimated 2016 Traffic for Economic Analysis and Comparison with Former Estimates Chittorgarh- Shivpuri-Jhansi Chittorgarh-Barah Item Kota Kota-Shivpuri (core subproject) Jhansi-Orai Orai-Barah (whole section) RRP forecast for 2016 3,451 2,775 10,128 9,095 12,144 6,763 PCR forecast for 2016 4,914 6,231 2,035 2,247 7,882 4,417 2016 actual 3,815 1,838 3,276 8,387 6,136 4,233 2016 as % of RRP 111% 66% 32% 92% 51% 63% forecast 2016 as % of PCR 78% 29% 161% 373% 78% 96% forecast PCR = project completion report, RRP = report and recommendation of the President. Sources: Asian Development Bank (ADB). 2003. Report and Recommendation of the President to the Board of Directors: Proposed Loan to India for the National Highway Corridor (Sector) I Project. Manila; ADB. 2009. Report and Recommendation of the President to the Board of Directors: Proposed Supplementary Loan to India for the National Highway Corridor (Sector) I Project. Manila; and Asian Development Bank independent evaluation mission.

4. The actual 2016 traffic was 37% lower than the appraisal estimate and 4% lower than the PCR estimate for the whole project. The actual 2016 traffic for the core subproject was 68% lower than the appraisal estimate and 61% higher than the PCR estimate. By section, the 2016 traffic was 11% higher than the appraisal estimates in Chittorgarh but lower in the other four. Compared with the PCR estimates, it was 61% higher in the core subsection and 273% higher in the Jhansi-Orai section but lower in the other three sections.

5. The average annual growth rate for passenger car traffic was estimated at 7.5%, based on the expected GDP growth rate and the correlation between GDP growth and passenger car traffic. In the same way, average annual traffic growth rates for light commercial vehicles, two-axle buses and trucks, and multi-axle vehicles (most of them large trucks) were estimated at 5.0%, 2.0%, and 6.6%, respectively.

C. Economic Costs

6. The project cost comprises capital costs and operation and maintenance (O&M) costs. The actual annual expenditures of the project for both the public and the private portions were used as the capital cost. They included expenditures for civil works, land acquisition and resettlement, relocation of utilities, environment, consulting services, project management, and the financial charges of the loans. In U.S. dollar terms, the total project cost was about 49.6% higher than estimated at appraisal, mainly due to higher contract prices for noncore subprojects, prolonged project implementation, and price escalation for labor and construction materials. Since the road in the Orai-Barah section was resurfaced after completion owing to damage by heavy vehicles, the resurfacing cost was added to the 2016 cost. The expected capital cost of constructing missing sections was also added.

7. O&M costs were used for those estimated by the PCR. The average O&M costs of the operators in 2014 were used with slight adjustments. It was assumed that these O&M costs would increase by 3% each year, considering the increase in traffic and the deterioration of the highway. The periodic maintenance cost for pavement overlay is assumed to be 20% of the capital cost every 5 years. The financial costs of investment and O&M were converted into economic costs using an average conversion 38 Appendix 6

factor of 0.90 at appraisal. A residual value of 60% was added as a negative cost in the final appraisal year. All economic costs were estimated in or converted to 2016 prices.

D. Economic Benefits

8. As estimated at appraisal, the main sources of economic benefits were savings in vehicle operating costs and savings in travel time costs. The vehicle operating costs and time savings were calculated by vehicle type based on the reduction of road roughness. The weighted average international roughness index (IRI) of the project road surface in 2003 was 6.6, which was derived from the RRP. The IRI in 2006 was 3 to 4 depending on the section, derived from the drive-over survey1 conducted by the IEM. The values of vehicle operating and time savings were taken from the 2010 official highway economic evaluation study in India2 and adjusted by an average annual inflation rate of 1.57%. The values were given for IRIs of 6.3 and 4.2. On the project roads, the IRI was supposed to be higher than 6.0 before the project and is estimated to be lower than 4.2 after the completion of the project. However, the road surface may be deteriorated—in some limited sections, it already was—so to be on the safe side, it is appropriate to adopt the IRI values from the study.

9. Vehicle operating costs and travel time costs are higher on congested roads traveled by mixed types of motorized and non-motorized vehicles. Operating costs calculated in the Indian Roads Congress study were based on roughness and road width, assuming a free flow of traffic, and did not account for effects on congestion. Of the 662 kilometers (km) of roads between Chittorgarh and Barah before the project, 371 km could be classified as “intermediate lane” roads (more than one but less than two lanes) and 291 km as two-lane roads. Extremely high levels of congestion along all the project roads were reported in the RRP. In the “without project” case, extra costs for congestion would have been borne over 2003–2015. In the “with project” case, traffic is generally free-flowing. This gap has been accounted for in the analysis by using a “friction” factor to account for roadside delays by parked vehicles, congestion by mixed types of motorized and non-motorized vehicles, avoiding animals on roads, and pedestrian crossings. The factors used in the preproject situation were 2.0 for the 371 km of intermediate lane and 1.6 for the two-lane sections. No friction factor was applied in the “with project” case. This methodology was also included in the Highway Development and Management 4 (HDM-4) program, which was developed by the World Bank, and is likely to suit congested roads in India where trucks, buses, cars, motorbikes, non-motorized vehicles, pedestrians, and cows use the same road.

10. The unit costs per km for each type of vehicle were applied to the project length in km, by type of road, and multiplied by 365 to give annual benefits. All the benefits assume that traffic generated or diverted from other transport modes has been negligible.

11. Time savings were calculated in the same way as the vehicle operating costs (footnote 2), with the same source data and assumptions. For the economic analysis, however, they were increased by 2% per year in the future to reflect the current increase in average real income, which derives from the fact that gross national income is rising each year about 2% faster than population growth.

E. Economic Reevaluation and Sensitivity Test

12. Based on these estimates of economic costs and benefits, the economic internal rate of return (EIRR) was recalculated. At appraisal, the core subsection was found to be economically viable, with an EIRR of 22.9% (for a sector loan project, economic analysis is required for only the core project). At supplementary loan approval, the EIRR for the overall project was calculated at 15.2%. The PCR

1 The survey was conducted according to the assessment method recommended in World Bank Technical Paper 46 of 1986, Guidelines for Conducting and Calibrating Road Roughness Measurements, by Thomas Gillespie, William Paterson and Michael Sayers. 2 Indian Roads Congress. 2009. Manual on Economic Evaluation of Highway Projects in India (Second Revision). New Delhi. Economic and Financial Evaluation 39

recalculated it at 14.4%. This PPER recalculated it at 19.2% for the whole project and 13.5% for the core subproject (Table A6.3). It also calculated the EIRR for each section as shown in Table A6.4. The project is considered economically viable, as the EIRR is higher than the Asian Development Bank (ADB) recommended discount rate of 12%.

Table A6.3: Economic Evaluation for the Whole Project (Rs million) Costs Benefits Net Year Capital Operation Maintenance Total VOC Time Cost Total Benefit 2005 4,574 4,574 (4,574) 2006 14,592 14,592 (14,592) 2007 24,191 24,191 (24,191) 2008 19,254 19,254 (19,254) 2009 8,036 8,036 1,628 885 1,884 (6,152) 2010 2,045 12 30 2,087 6,300 3,399 7,274 5,187 2011 1,871 36 164 2,073 9,421 5,168 13,131 11,059 2013 97 240 337 12,540 7,002 19,542 19,205 2013 121 300 421 13,788 7,852 21,639 21,218 2014 121 300 421 14,730 8,556 23,286 22,865 2015 121 300 421 16,110 6,719 22,828 22,407 2016 10,829 125 300 11,254 17,490 4,805 22,295 11,041 2017 200 129 309 638 18,548 5,128 23,676 23,038 2018 800 133 318 1,251 19,674 5,477 25,151 23,900 2019 137 328 465 20,872 5,853 26,725 26,260 2020 141 338 479 22,147 6,258 28,405 27,926 2021 9,179 145 300 9,624 23,504 6,696 30,201 20,577 2022 149 309 458 24,949 7,170 32,118 31,660 2023 154 318 472 26,486 7,681 34,167 33,695 2024 158 328 486 28,123 8,234 36,357 35,871 2025 163 338 501 29,866 8,838 38,699 38,198 2026 9,179 168 300 9,647 31,722 9,480 41,202 31,555 2027 173 309 482 33,697 10,182 43,879 43,397 2028 178 318 497 35,801 10,941 46,743 46,247 2029 184 328 512 38,042 11,765 49,806 49,294 2030 189 338 527 40,428 12,658 53,085 52,558 2031 (46,328) 195 348 (45,785) 42,969 13,626 56,595 102,380 ( ) = negative, VOC = vehicle operating cost. Source: Asian Development Bank Independent Evaluation Department.

Table A6.4: Comparison of Economic Internal Rate of Return for the Project (%) Chittorgarh- Chittorgarh- Kota- Shivpuri-Jhansi Jhansi- Orai- Barah Item Kota Shivpuri (core section) Orai Barah (whole section) Appraisal 22.9 Supplementary loan 15.2 approval PCR 14.4 PPER 13.5 10.5 13.5 22.9 25.5 19.2 PCR = project completion report, PPER = project performance evaluation report. Source: Asian Development Bank Independent Evaluation Department.

13. As the traffic for the Kota-Shivpuri section was much lower than the estimates, the recalculated EIRR for the section was 10.5%, which is lower than the threshold of economic viability. If the Kota bypass is opened, traffic is likely to increase and the EIRR will be higher for the Kota-Shivpuri section. For other sections, the recalculated EIRR was well above 12%. Although the actual traffic was lower than the appraisal and PCR estimates, the recalculated EIRR in this PPER was higher than those calculated at the 40 Appendix 6

supplementary loan approval. Although the details of the calculation were not provided by the RRP for the supplementary loan, the major reason for the difference is presumably due to differences in calculation method. This PPER introduced the friction factor, which takes account of significant increases in vehicle operating costs and reduction of passenger travel time savings in road congestion, although it is not clear that the friction factor was not introduced in the original EIRR calculations.

14. The introduction of the friction factor might contribute to a significantly higher EIRR than the former EIRRs, but the benefits were recalculated by the PPER in the conservative manner: (i) the rising usage of three-axle trucks instead of two-wheel trucks brought less damage to the roads from overloading as well as benefits from transporting goods more efficiently, but these benefits were not counted in the PPER calculation; and (ii) accident cost savings were not counted in the PPER calculation owing to the difficulty of obtaining reliable data, whereas the PCR included accident cost savings, as many other studies do. Thus, the actual benefits might have been larger than the PPER estimate.

15. A sensitivity analysis was conducted for (i) 20% lower traffic growth, (ii) 20% higher vehicle operating cost, (iii) a combination of 20% lower traffic growth and 20% higher vehicle operating cost, and (iv) 50% and 25% reduction of the friction factors for 1.5 lanes and 2 lanes, respectively. In all cases, the project exceeds the cut-off rate of 12% and it is concluded that the project is economically viable (Table A6.5).

Table A6.5: Sensitivity Analysis—Economic EIRR Scenario (%) Base case 19.2 20% lower traffic growth rate 18.8 20% lower traffic growth rate and 20% lower vehicle operating costs 18.7 With a friction factor of 1.5 (rather than 2.0) for intermediate-lane sections and 1.2 (rather 12.2 than 1.6) for two-lane sections EIRR = economic internal rate of return. Source: Asian Development Bank Independent Evaluation Department.

F. Basic Assumptions for Financial Analysis

16. The financial internal rate of return (FIRR) of the project was recalculated on the basis of actual capital costs, actual O&M costs, the revised traffic forecast, and existing toll rates (Table A6.6). The major assumptions used in the FIRR recalculation are as follows:

(i) Traffic figures used in this financial analysis were the same as the ones used in the economic analysis. (ii) The capital costs included all capital expenditures related to the civil works, land acquisition and resettlement activities, and consulting services but excluded the financial charges. In addition, the large-scale highway maintenance (periodic maintenance) expenditures were treated as capital costs. (iii) The average O&M costs of the operators were used as the basic costs. The O&M costs were kept at constant prices, and a 3% increase per year was added to account for traffic increases and deterioration of road conditions. (iv) Toll revenues were calculated by the traffic figures multiplying tolls: Rs755 for passenger cars, Rs1,215 for light commercial vehicles, Rs2,525 for buses and two-axle trucks, and Rs3,555 for multi-axle vehicles (motorcycles do not pay tolls). Some vehicles do not pay tolls, and there are some discounts for round-trips and for vehicles with monthly tickets. Thus, 20% of tolls are assumed to be lost. Future tolls were assumed to be constant.

Economic and Financial Evaluation 41

17. On the basis of these assumptions and estimations, the FIRR was recalculated at 0.7%, lower than the 5.8% calculated at the supplementary loan approval (Table A6.7). At appraisal, the FIRR was estimated only for the core subproject, at 6.8%. This PPER recalculated the FIRR for the core subproject at 1.0%. By section, the recalculated FIRR was –0.3% for Chittorgarh–Kota, –2.7% for Kota-Shivpuri, 3.7% for Jhansi–Orai, and 3.7% for Orai–Barah. These lower FIRRs were due to the lower traffic and thus lower revenues than estimated. The FIRR for the Kota-Shivpuri section was low because the traffic was much lower than expected. The recalculated FIRR was lower than the recalculated weighted average cost of capital of 2.1% except in the Jhansi–Orai and Orai–Barah sections.

18. The results of the sensitivity analysis are shown in Table A6.8. The test results indicate that the FIRR was very sensitive to revenue changes. If the toll prices are inflated by 5% a year, the FIRR will be higher than the weighted average cost of capital. Also, improving the collection rate of tolls will significantly affect the FIRR.

Table A6.6: Financial Evaluation for the Whole Project (Rs million) Costs Toll Revenue Year Capital Operation Maintenance Total Possible Achieved Net Cash Flow 2005 4,876 4,876 (4,876) 2006 16,003 16,003 (16,003) 2007 26,197 26,197 (26,197) 2008 20,407 20,407 (20,407) 2009 8,421 8,421 (8,421) 2010 2,070 12 30 2,112 252 (1,860) 2011 1,918 36 165 2,119 2,080 755 (1,364) 2013 97 240 337 2,773 2,013 1,676 2013 121 300 421 3,050 2,516 2,095 2014 121 300 421 3,259 2,793 2,372 2015 121 300 421 3,452 2761 2,340 2016 12,020 125 300 12,445 3,645 2,916 (9,529) 2017 222 129 309 660 3,863 3,090 2,430 2018 888 133 318 1,339 4,095 3,276 1,937 2019 137 328 465 4,342 3,473 3,008 2020 141 338 479 4,605 3,681 3,205 2021 10,199 145 300 10,644 4,885 3,908 (6,736) 2022 149 309 458 5,183 4,146 3,688 2023 154 318 472 5500 4,400 3,928 2024 158 328 486 5,838 4,670 4,184 2025 163 338 501 6,198 4,958 4,457 2026 10,199 168 300 10,667 6,581 5,265 (5,402) 2027 173 309 482 6,989 5,591 5,109 2028 178 318 496 7,424 5,939 5,443 2029 184 328 512 7,887 6,309 5,797 2030 189 338 527 8,380 6,704 6,177 ( ) = negative. Source: Asian Development Bank Independent Evaluation Department.

Table A6.7: Comparison of Financial Internal Rate of Return for the Project (%) Chittorgarh- Kota- Shivpuri-Jhansi Jhansi- Orai- Chittorgarh-Barah Item Kota Shivpuri (core section) Orai Barah (whole section) Appraisal 6.8 Supplementary loan approval 5.8 Project completion report 2.9 Project performance (0.3) (2.7) 1.0 3.7 3.7 0.7 evaluation report ( ) = negative. Source: Asian Development Bank Independent Evaluation Department.

42 Appendix 6

Table A6.8: Sensitivity Analysis FIRR Scenario (%) Base case, using constant toll prices, assuming 80% of tolls collected 0.7 90% of tolls collected 1.8 5% annual inflation of toll prices 3.7 5% annual inflation of toll prices and 90% of tolls collected 4.2 FIRR = financial internal rate of return. Source: Asian Development Bank Independent Evaluation Department.