Report and Recommendation of the President to the Board of Directors

Project Number: 50218-002 October 2019

Proposed Loan and Grant Republic of the Union of Myanmar: Rural Roads and Access Project

Distribution of this document is restricted until it has been approved by the Board of Directors. Following such approval, ADB will disclose the document to the public in accordance with ADB's Access to Information Policy.

CURRENCY EQUIVALENTS (as of 29 August 2019) Currency unit – kyat/s (MK) MK1.00 = $0.0007 $1.00 = MK1,520

ABBREVIATIONS

ADB – Asian Development Bank CRRN – core rural road network DDIS – detailed design and implementation supervision DRRD – Department of Rural Road Development IEE – initial environmental examination km – kilometer m – meter MOC – Ministry of Construction PAM – project administration manual RAI – Rural Access Index REGP – resettlement and ethnic group plan

NOTE

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

Vice-President Ahmed M. Saeed, Operations Group 2 Director General Ramesh Subramaniam, Southeast Asia Department (SERD) Directors Hiroaki Yamaguchi, Transport and Communications Division, SERD Newin Sinsiri, Country Director, Myanmar Resident Mission, SERD

Team leaders Shihiru Date, Senior Transport Specialist, SERD Chaorin Shim, Transport Specialist, SERD Team members Elah Marie Abangan, Project Analyst, SERD Leonida Afable-Limqueco, Project Analyst, SERD Meenakshi Ajmera, Principal Safeguards Specialist, SERD Vijay Kumar Akasam, Senior Procurement Specialist, Procurement, Portfolio and Financial Management Department Marie France Balawitan, Senior Operations Assistant, SERD Sarah Bennett, Young Professional, SERD Margarita Javier, Senior Project Assistant, SERD Antoine Morel, Senior Environment Specialist, SERD Takako Morita, Senior Counsel, Office of the General Counsel Jason Rush, Principal Operations Communication Specialist, SERD Yumiko Tamura, Principal Country Specialist, SERD Kyaw Thu, Infrastructure Specialist, SERD Peer reviewer Lee Ming Tai, Unit Head, Portfolio Management, East Asia Department

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page PROJECT AT A GLANCE MAP I. THE PROPOSAL 1 II. THE PROJECT 1 A. Rationale 1 B. Impact and Outcome 4 C. Outputs 4 D. Summary Cost Estimates and Financing Plan 5 E. Implementation Arrangements 6 III. DUE DILIGENCE 6 A. Technical 6 B. Economic and Financial 7 C. Governance 7 D. Poverty, Social, and Gender 7 E. Safeguards 8 F. Summary of Risk Assessment and Risk Management Plan 9 IV. ASSURANCES 10 V. RECOMMENDATION 10

APPENDIXES 1. Design and Monitoring Framework 11 2. List of Linked Documents 13

Project Classification Information Status: Complete

PROJECT AT A GLANCE

1. Basic Data Project Number: 50218-002 Project Name Rural Roads and Access Project Department/Division SERD/SETC Country Republic of the Union of Myanmar Executing Agency Ministry of Construction Borrower Republic of the Union of Myanmar

Country Economic https://www.adb.org/Documents/LinkedDocs/ Indicators ?id=50218-002-CEI Portfolio at a Glance https://www.adb.org/Documents/LinkedDocs/ ?id=50218-002-PortAtaGlance

2. Sector Subsector(s) ADB Financing ($ million) Transport Road transport (non-urban) 51.20 Total 51.20 3. Operational Priorities Climate Change Information Addressing remaining poverty and reducing inequalities Climate Change impact on the Medium Accelerating progress in gender equality Project Tackling climate change, building climate and disaster resilience, and enhancing environmental sustainability ADB Financing Promoting rural development and food security Adaptation ($ million) 18.53 Strengthening governance and institutional capacity Sustainable Development Goals Gender Equity and Mainstreaming SDG 9.1 Effective gender mainstreaming (EGM) SDG 13.a Poverty Targeting Geographic Targeting 4. Risk Categorization: Low . 5. Safeguard Categorization Environment: B Involuntary Resettlement: B Indigenous Peoples: B

. 6. Financing Modality and Sources Amount ($ million) ADB 51.20 Sovereign Project grant: Asian Development Fund 5.80 Sovereign Project (Concessional Loan): Ordinary capital resources 45.40 Cofinancing 0.00 None 0.00 Counterpart 1.21 Government 1.21 Total 52.41

Currency of ADB Financing: US Dollar

Source: Asian Development Bank This document must only be generated in eOps. 14102019154103170661 Generated Date: 14-Oct-2019 15:41:32 PM o 94 00’E 100 o 00’E

MYANMAR Pantanaw Township RURAL ROADS AND ACCESS PROJECT Puta-O PTN

PTN

Lahe KACHIN STATE Hkamti Pantanaw PTN Myitkyina PTN

PTN PTN Homalin

Bhamo Natmauk Township Tamu Indaw Muse o 24 o 00’N 24 00’N SAGAING REGION Namhkhan Kale Kanbalu Falam Kalewa Mogok Lashio Shwebo Budalin NMK Hakha Monywa Kyaukme Mandalay Natmauk NMK Gangaw Sagaing CHIN STATE Mongla SHAN STATE Pakokku Lawksawk Paletwa MANDALAY Kengtung REGION Buthidaung Bagan Loilen Thazi Namhsan Maungdaw Meiktila Taunggyi Tachileik Yenangyaung Natmauk Magway Sittwe RAKHINE NAY PYI TAW STATE Myothit Kyaukpyu MAGWAY Loikaw N Ramree Island REGION KAYAH Taungoo STATE Pyay BAGO 0 100 200 Munaung Island Thandwe REGION Kilometers Ngapali Penwegon Hpapun

Hinthada Thayarwady KAYIN National Capital STATE Gwa Region/State Capital B a y o f B e n g a l Chaung Thar Pantanaw Bago City/Town Hpa-An Thaton Project Road Ngwe Saung Pathein Yangon YANGON n Expressway Maubin ba Myawaddy REGION ta r Main Road a Mawlamyine Phyapon M

AYEYARWADDY f MON Railway f o Kyaikdon REGION Gul STATE River Region/State Boundary MBN MBN Ye Boundaries are not necessarily authoritative.

MBN

Maubin MBN Dawei 14 o 00’N 14 o 00’N MBN

Maubin Township

Myeik

TANINTHARYI Myothit REGION

Myeik (Mergui) MYT Archipelago This map was produced by the cartography unit of the Asian Development Bank. The boundaries, colors, denominations, and any other information shown on this map do not imply, on the part of the Asian Development Bank, any judgment on the A n d a m a n S e a legal status of any territory, or any endorsement or acceptance Kawthoung of such boundaries, colors, denominations, or information. o Myothit Township 94 o 00’E 100 00’E

19-1229 18MYA AV

I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed loan and a proposed grant, both to the Republic of the Union of Myanmar for the Rural Roads and Access Project.

2. The project will improve rural road access in two less-developed regions in Myanmar, Ayeyarwady and Magway, by improving (i) about 152 kilometers (km) of rural roads to paved standard, (ii) the rural road maintenance system responding to disasters triggered by natural hazards by supporting suitable contracting modalities and developing a pilot emergency management plan, and (iii) rural road safety.

II. THE PROJECT

A. Rationale

3. Despite solid economic growth since 2011, reducing income-based and broader forms of poverty is the single most important challenge facing Myanmar. This challenge is exacerbated by difficulties in bringing public services to the poor and vulnerable. In 2015, 32% of the population lived below the poverty line and another 14% was classified “near poor.” 1 The significant remaining subnational disparity is also daunting. Much of the country’s rural population has limited access to basic services or markets, so an improved rural road network will help promote economic and social inclusion nationwide and in remote areas by enhancing job opportunities and incomes for disadvantaged and marginalized groups.

4. Lowest rural road access in Asia. 40% of Myanmar’s rural population live in villages without access to all-season roads. Asian Development Bank (ADB) studies on rural access in Myanmar have found that 4 million people live in the 8,200 villages that are not connected by road. 2 Another 20,000 villages with an estimated 10 million people are connected by roads that are not passable during the rainy season. Myanmar’s rural access problem is severe by international standards, with the Rural Access Index (RAI) estimated at 36%—the lowest in Asia. 3 This lack of access constrains mobility and job opportunities during a large part of the year. The project is located in the Ayeyarwady and Magway regions, which have low levels of access and are more vulnerable to disasters triggered by natural hazards.

5. Upgrading rural roads. Myanmar needs to build or upgrade more than 50,000 km of rural roads by 2030. It has a 95,000 km rural road network, of which 6% is paved and 28% has an improved (gravel or stone macadam) surface, typically in poor condition. In July 2018, the National Strategy for Rural Roads and Access was published, which defines the core rural road network (CRRN) to ensure better connectivity for rural areas. 4 To meet the national target to connect 80%

1 This refers to the state of living on an income marginally above the poverty line, defined by the U.S. Census Bureau at an income "between 100 percent and 125 percent of the poverty line". 2 ADB. 2016. Myanmar Transport Sector Policy Note: Rural Roads and Access. Manila; and preparatory studies for Myanmar’s National Strategy for Rural Roads and Access carried out under ADB. 2014. Technical Assistance to the Republic of the Union of Myanmar for Transport Sector Reform and Modernization. Manila. 3 The RAI is an internationally used indicator that shows the portion of the rural population that lives less than 2 km from an all-season road. The RAI is indicator 9.1.1 of the Sustainable Development Goals. 4 Government of the Republic of the Union of Myanmar. 2018. National Strategy for Rural Roads and Access. Nay Pyi Taw. The strategy is developed based on the National Transport Sector Development Master Plan (footnote 11) to address specific issues on rural roads. Under the strategy, the CRRN is defined as “the minimum rural road network in a township required to connect all villages to each other and to the higher-level road network.” The Department of Rural Road Development (DRRD) under the Ministry of Construction (MOC) and regional offices worked together to

2 of registered villages by 2030, the government estimates that Myanmar needs to upgrade about 42,000 km of existing rural roads and construct 10,000 km of new roads. The total cost of this program is estimated at $2.5 billion, considering only the most basic improvements needed to make the roads all-season.

6. Disaster risk. Myanmar has a high risk of disaster triggered by natural hazards, which is compounded by insufficient disaster resilience of the road network. It is also highly exposed to typhoons and floods. 5 Following severe events, the logistics system frequently collapses, cutting access to villages, and entire regions sometimes cannot be reached by emergency response. In 2008, Cyclone Nargis devastated the Ayeyarwady region, resulting in at least 138,000 casualties and economic losses of more than $10 billion. In 2015, catastrophic floods and landslides displaced 1.6 million people and resulted in economic loss equivalent to 3.1% of Myanmar’s gross domestic product. 6 The 2015 floods washed away about 900 bridges and damaged more than 1,000 km of rural roads, including in the Ayeyarwady and Magway regions. Rural unpaved roads are particularly vulnerable to damage during the wet season.

7. Rural road maintenance. The sustainability of Myanmar’s rural road network is generally low because of lack of adequate maintenance. Rural road maintenance funding was introduced in 2014, but has only increased marginally since then, providing about $150 per km for the existing CRRN. Much of this funding is concentrated on a limited portion of the rural road network, leaving most of the network without any maintenance. The implementation modalities for maintenance are not well developed, leading to delays in implementation and putting a high burden on the Department of Rural Road Development (DRRD) for supervision and inspection.

8. Emergency maintenance for disaster resilience. Myanmar’s rural road network is of a low standard, resulting in frequent damage because of seasonal flooding and disasters triggered by natural hazards. The DRRD under the Ministry of Construction (MOC) faces frequent damages to rural roads that are addressed through annual emergency maintenance. However, the current contracting mechanisms cause delays in procurement, leaving disaster-damaged roads unrepaired and affected villages without access for extended periods. Many CRRN roads face repeated damage each year, but the DRRD lacks the capacity to remedy the issues.

9. National rural road strategy and program. To remedy rural road subsector issues, in 2018, the government published the National Strategy for Rural Roads and Access with support from ADB (footnote 4). One of the objectives of the strategy is to connect 80% of all villages by all-season roads by 2030. To implement the strategy, the government plans to introduce a national rural road program, financed by national and state and/or regional governments, development partners, and a road fund. 7

10. ADB strategy and value added by ADB assistance. The project is included in ADB’s country operations business plan, 2019–2021 for Myanmar and is aligned with Strategy 2030 (Table 1). 8 Under the National Strategy for Rural Roads and Access and the national rural road

confirm the CRRN in 2017 and 2018, following guidance provided by the policy note (footnote 2). The CRRN will be further developed during the implementation of the proposed project. 5 United Nations University Institute for Environment and Human Security (UNU-EHS). 2016. World Risk Report 2016. Berlin and Bonn. 6 World Bank. 2015. Myanmar Post-Disaster Needs Assessment of Floods and Landslides, July–September 2015. Washington, DC. 7 The road fund is currently being planned. 8 ADB. 2016. Country Operations Business Plan: Myanmar, 2019–2021. Manila; and ADB. 2018. Strategy 2030: Achieving a Prosperous, Inclusive, Resilient, and Sustainable Asia and the Pacific. Manila.

3 program, the government plans to address the overall needs of rural roads improvement and the safety of selected high-priority townships (para. 12) in a phased manner. The government has requested ADB to support its pilot project and to assist the government in planning future phases. 9

Table 1: Alignment with Strategy 2030 Strategy 2030 Priorities Rural Roads and Access Project Addressing remaining poverty Promoting connectivity in rural areas, thereby enabling increased and reducing inequalities participation in the national economy; and by providing greater access to social services Promoting rural development Improving market connectivity of the project areas by providing all- and food security weather access Boosting agricultural productivity and minimizing product loss (Improving rural roads will allow easier access to agricultural inputs and reduce the loss on products during transportation.) Accelerating progress in Support for effective gender mainstreaming incorporated in all three gender equality project outputs, to promote gender equality Tackling climate change, Scaling up support to address climate and disaster risks and building climate and disaster environmental degradations (The design of the project roads takes resilience, and enhancing into consideration the impacts of climate change and natural environmental sustainability disasters, and includes remedial measures.) Source: Asian Development Bank.

11. Lessons learned. The project builds on ADB’s past and ongoing experience with road projects in Myanmar, and incorporates the following lessons from past operations: (i) provide road access with pavement surfacing suitable for local challenges and conditions; (ii) consider the local contracting industry in sizing lots for contract packages; and (iii) ensure the project is implemented in a timely manner by managing resettlement issues efficiently during project planning. 10

12. Road selection criteria and the project. The two project regions were selected based on a ranking of the number and percentage of villages or rural populations with only dry-season road access.11 Maubin and Pantanaw in the Ayeyarwady region, and Myothit and Natmauk in the Magway region were prioritized based on a ranking of poverty and access conditions. The DRRD identified networks that are part of the CRRN in the four project townships. Candidate roads were ranked according to population, the number of villages connected, connectivity to paved national roads, and economic rate of return; and additional priority was given to unpaved roads that are not passable during the rainy season and thus have low disaster resilience, and roads that provide access to social services.

13. The poor and landless account for 8%–25% of the population in the project townships. Challenges include overcoming years of underinvestment in rural infrastructure as well as poorly

9 ADB. 2017. Rural Roads and Access Project. Consultant’s report. Manila (TA 9184-MYA). 10 ADB. 2014. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the Republic of the Union of Myanmar for the Maubin–Phyapon Road Rehabilitation Project. Manila; ADB. 2015. Report and Recommendation of the President to the Board of Directors: Proposed Loans to the Republic of the Union of Myanmar for the Greater Mekong Subregion East–West Economic Corridor Eindu to Kawkareik Road Improvement Project. Manila; and ADB. 2018. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the Republic of the Union of Myanmar for the Greater Mekong Subregion Highway Modernization Project. Manila. 11 Ayeyarwady and Magway score highest in terms of the number of villages with only dry-season road access, each with more than 35% of the total number of existing villages affected (1,600 villages in Magway, and 5,700 villages in Ayeyarwady). The regions score highest in terms of the rural populations that have only dry-season rural road access, each with more than 30% of the total number of rural people affected (1.1 million people in Magway, and 2.5 million people in Ayeyarwady).

4 developed nonfarm economic sectors. The main source of livelihood is agriculture and livestock activities for all four townships. Many producers and farmers are still isolated, mainly because annual natural hazard events disconnect villages from the main road network. This exacerbates their workload in carrying products, food, wood, or even clean water. The project is expected to improve the villagers’ livelihoods by providing them with connectivity which will enable increased participation in the national economy and by reducing transportation costs.

B. Impact and Outcome

14. The project is aligned with the following impact: all-weather and safe road infrastructure developed. 12 The project will have the following outcome: disaster-resilient road access for rural people in Ayeyarwady and Magway regions improved. 13

C. Outputs

15. Output 1: Climate-resilient roads rehabilitated. The project will upgrade about 152 km of 14 unpaved roads in Ayeyarwady and Magway regions to paved standard, with road widths of about 2.6 meters (m) to 3.0 m. To increase disaster resilience, especially in the Ayeyarwady region, the roads will be raised above frequently occurring flood levels, with consideration for future climate change impacts. Pavement surfacing will be with cement concrete, penetration- macadam or double bituminous surface treatment. The detailed design and implementation supervision (DDIS) consultants will help the DRRD prepare rural road projects for future phases.

16. Output 2: Rural road maintenance management strengthened. The project will develop simple inventories of the CRRN, starting with the project roads. It will cover data on the geographical location; length; cross-section; historical maintenance records; and future maintenance plans, budgetary requirements, and evaluations with respect to routine and periodic maintenance. The project will help the DRRD improve its delivery of emergency maintenance works. The DRRD‘s current contracting modalities for emergency maintenance are not suitable for this type of maintenance, resulting in delays in starting urgent works to restore access. The project will support the DRRD in developing suitable ex ante contracting modalities (e.g., term- based contracts), which would allow procurement to take place before disasters occur, and works to be initiated through a simple work order. The project will also help the DRRD assess the disaster risk of the rural road network in the project regions by (i) gathering historical disaster loss and damage data, flood hazard maps, and climate change impacts, and (ii) integrating them in the CRRN database, to improve the disaster resilience of the roads. Building from this information, the project will develop a pilot emergency management plan for the DRRD for the most disaster- vulnerable village in the project region.

17. Output 3: Rural road safety strengthened. Given the improved road conditions to paved standards at project completion, road users will be exposed to safety risks because of the increased speeds of motorized vehicles. Traffic is expected to increase, and current traffic may change behaviors drastically. To mitigate these risks, this output will introduce a community- based road safety program. Since most road crashes are attributable to road user behavior, the focus will be on road user education and community enforcement. 14

12 Government of Myanmar, Ministry of Transport and Communications. 2015. National Transport Sector Development Master Plan. Nay Pyi Taw. 13 The design and monitoring framework is in Appendix 1. 14 A road crash is an event occurring between a motorized vehicle and another motorized vehicle, a road user, or an object, which is fully attributable to human error.

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D. Summary Cost Estimates and Financing Plan

18. The project is estimated to cost $52.41 million (Table 2). Detailed cost estimates by expenditure category and by financier are included in the project administration manual (PAM). 15 The government has requested (i) a concessional loan of $45.40 million from ADB’s ordinary capital resources (including $11.6 million allocation from the Disaster Risk Reduction funding set- aside of concessional ordinary capital resources), and (ii) a grant not exceeding $5.8 million from ADB’s Special Funds resources (Asian Development Fund) to help finance the project. The loan will have a 32-year term, including a grace period of 8 years; an interest rate of 1.0% per year during the grace period and 1.5% per year thereafter; and such other terms and conditions set forth in the draft loan agreement. The government will finance the equivalent of $1.21 million for interest during implementation, and the resettlement cost.

Table 2: Summary Cost Estimates ($ million) Item Amounta A. Base Costb 1. Output 1: Climate-resilient roads rehabilitated 44.06 2. Output 2: Rural road maintenance management strengthened 0.15 3. Output 3: Rural road safety strengthened 0.09 Subtotal (A) 44.30 B. Contingenciesc 6.90 C. Financial Charges During Implementationd 1.21 Total (A+B+C) 52.41 a The Asian Development Bank loan and grant will finance taxes and duties of $4.06 million. Such amount does not represent an excessive share of the project cost. b In April 2019 prices. c Physical contingencies computed at 10.0% for civil works and at 5% for consulting services. Price contingencies computed at average of 4.5% on foreign exchange costs and 7.9% on local currency costs; includes provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate. d Includes interest charges. Interest during construction for the OCR loan has been computed with a 1.0% interest rate per year during the 8-year grace period and 1.5% per year thereafter. Source: Asian Development Bank estimates.

19. The summary financing plan is in Table 3. ADB will finance the expenditures in relation to civil works, consultants, incremental administrative costs, taxes, and duties on ADB-financed expenditures. The government will finance the cost of resettlement and interest during construction. Climate adaptation is estimated to cost $18.53 million. ADB will finance 100% of such costs.

Table 3: Summary Financing Plan Amount Share of Total Source ($ million) (%) Asian Development Bank Ordinary capital resources (concessional loan)a 45.40 86.7 Special Funds resources (Asian Development Fund grant)b 5.80 11.0 Government of Myanmar 1.21 2.3 Total 52.41 100.0 a Includes $11.6 million allocation from the Disaster Risk Reduction funding set-aside of concessional ordinary capital resources. b To be financed by the Asian Development Fund 12 Disaster Risk Reduction funding. Source: Asian Development Bank estimates.

15 Project Administration Manual (accessible from the list of linked documents in Appendix 2).

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E. Implementation Arrangements

20. The MOC will be the executing agency. The DRRD will be the implementing agency, responsible for project management. The implementation arrangements are summarized in Table 4 and described in detail in the PAM (footnote 14). The project implementation period will be 5 years.

21. The MOC and ADB have taken advance actions to improve project readiness, and ADB has advised the MOC that approval of advance action for consultant recruitment does not commit ADB to finance the project. The DDIS consultants will be engaged to assist with implementation of the project for the design of all roads, procurement and supervision of all civil works, monitoring of safeguards implementation, and supporting project management.

Table 4: Implementation Arrangements Aspects Arrangements Implementation period April 2020–June 2025 Estimated completion date 30 June 2025 Estimated loan/grant closing date 31 December 2025 Management (i) Oversight body Ministry of Planning and Finance (ii) Executing agency Ministry of Construction (iii) Key implementing agency Department of Rural Road Development (iv) Implementation unit Department of Rural Road Development: 1 project management unit, 2 site offices (26 staff) Procurement and consulting Open competitive bidding 3 packages with 7 lots $38.7 million services QCBS (90:10) 451 person-months $5.1 million Advance contracting Advance contracting for DDIS consulting services Disbursementa The loan and grant proceeds will be disbursed following ADB’s Loan Disbursement Handbook (2017, as amended from time to time) and detailed arrangements agreed between the government and ADB. ADB = Asian Development Bank, DDIS = detailed design and implementation supervision, QCBS = quality- and cost- based selection. a The grant amount of $0.7 million for civil works will be disbursed first, as front-loading, before the loan amount is disbursed for civil works. Source: Asian Development Bank estimates.

III. DUE DILIGENCE

A. Technical

22. The technical due diligence undertaken during project preparation confirmed that the project’s technical designs are appropriate for roads in the project locations—in terms of alignment, cross-sections, structural characteristics, and road safety provisions—and for the projected traffic volume. Pavement structures have been selected to enable a 10-year design life for double bituminous surface treatment and macadam, and 20 years for concrete, with 20-year flood returns for all drainage structures. The underlying traffic projection is based on present traffic volumes, with growth rates that consider Myanmar’s economic potential. All materials used in road construction are locally procured except for bitumen, road signs, road furniture, and reinforcement steel in concrete.

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B. Economic and Financial

23. Economic viability. The project is economically viable. The main benefits of the rural road improvement work under output 1 are reduced vehicle operating costs and shorter travel times. The overall economic internal rate of return of the project is 11.7%. Each of the 14 project roads is economically viable, with economic internal rates of return exceeding 9.6%. 16

24. Financial sustainability. The DRRD receives fiscal allocations from the central and regional governments for rural road development and maintenance. It estimates its annual budget needs based on requests from its divisions and proposes to the Ministry of Planning and Finance (MOPF) for allocation. However, a needs assessment and maintenance budget allocation has not been established to ensure sustainable maintenance. The incremental operation and maintenance cost associated with the project is estimated at an annualized cost of about $0.6 million, which the DRRD will ensure to be secured in coordination with the MOPF.

C. Governance

25. Institutional capacity. The procurement management risk is high, mainly because the project is the DRRD’s first large-scale project to be financed by a multilateral development bank, and because of DRRD’s capacity constraints. The DDIS consultant will support strengthening the DRRD’s capacity in procurement management throughout the project.

26. Financial management. The pre-mitigation financial management risk is substantial, mainly because of weaknesses in government-wide financial management systems and the limited experience of the DRRD in implementing projects with development partners, including ADB. The DRRD will manage day-to-day activities to mitigate the risks. The MOC, under its Department of Highways (DOH), is implementing three other ADB-financed projects; and the MOC management has assured support to the DRRD, as the DOH has knowledge and experience of ADB policies and procedures. The specific policy requirements and supplementary measures are described in the PAM (footnote 14).

27. ADB coordinates with other development partners such as Japan International Cooperation Agency and the World Bank to harmonize support to the government in capacity building. ADB will extend its ongoing support for the transport sector and to the DRRD through the existing technical assistance supporting the MOC for ongoing projects (footnote 10) in environment and social safeguards, gender, project management, procurement, communication, and project coordination. 17 The World Bank has been helping the DRRD establish a proper accounting system by introducing automated software, which will be used for this project. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the government and the DRRD.

D. Poverty, Social, and Gender

28. Poverty. In 2014, 35% of residents of the Ayeyarwady region and 25% of residents of the Magway region lived in poverty. 18 In rural areas, where township-specific data do not exist, poverty is higher. The project roads will improve access to markets and socio-economic services,

16 Economic and Financial Analysis (accessible from the list of linked documents in Appendix 2). 17 ADB. 2014. Technical Assistance to the Republic of the Union of Myanmar for Transport Sector Reform and Modernization. Manila. 18 World Bank. 2014. Myanmar—Ending poverty and boosting shared prosperity in a time of transition: A Systematic Country Diagnostic. Washington, DC.

8 and directly benefit an estimated 60,870 people in the 90 villages along the project roads. The project is expected to contribute to higher ex-farm produce prices and lower input costs. It will also contribute to general economic development by lowering transport costs and via time savings, leading to more diversified local economies and additional job opportunities. The road selection criteria under the project (paras. 12 and 13) target the most disadvantaged population. The benefits of the project vary by townships: Maubin, Myothit, and Natmauk will benefit from having better access to markets and greater opportunity to sell their agricultural products. Pantanaw has a higher unemployment rate (20.83%), and the project will facilitate increased access to jobs that would generate adequate and stable earnings (footnote 9).

29. HIV/AIDS and human trafficking. The project will improve existing roads and is thus not expected to pose a significant long-term risk with respect to increased incidence of HIV/AIDS, sexually transmitted infections, or human trafficking. However, the increased presence of road workers during construction and increased traffic may elevate the risk of HIV/AIDS transmission during construction. To mitigate this risk, the contractors will implement prevention and assistance activities for their workers. The DDIS consultants will oversee a community-awareness program to guide and coordinate all activities. 19

30. Conflict sensitivity approach. In the Ayeyarwady and Magway regions, the project will benefit all communities and groups in a fair, unbiased, and equal manner.20 Increased connectivity under the project will create greater trade opportunities which could foster growth and reduce poverty. This connectivity will also augment the development impacts of ADB-assisted national roads (footnote 10) to reach remote rural areas.

31. Gender Mainstreaming. The project is classified effective gender mainstreaming. The lack of basic road access for poor rural women amplifies their workload in carrying products, food, wood, or even clean water. For this reason, basic access to markets and services within a day- return basis is particularly important to women. Gender elements in the project include (i) ensuring that women constitute at least 30% of unskilled labor during construction and that gender- sensitive measures are incorporated in the contractors’ requirements, including mitigating risks of sexual harassment, exploitation, and abuse; 21 (ii) training women in labor-based technology for construction and road maintenance; 22 and (iii) training women as facilitators in the safe school zone program and in community enforcement. 23

E. Safeguards

32. In compliance with ADB’s Safeguard Policy Statement (2009), the project’s safeguard categories are as follows.24

33. Environment (category B). Initial environmental examination (IEE) reports were prepared for the two project regions of Ayeyarwady and Magway in accordance with ADB’s Safeguard Policy Statement and Myanmar’s Environmental Impact Assessment Procedure (2015), and were uploaded to the ADB website in May 2019.25 The IEE reports confirm that the proposed upgrading of existing unpaved roads to paved standard is not anticipated to cause

19 Summary Poverty Reduction and Social Strategy (accessible from the list of linked documents in Appendix 2). 20 Myanmar uses “ethnic groups” rather than “indigenous peoples.” 21 Actual numbers of women hired and trained will be reported, in addition to the actual percentage indicator. 22 Labor-based technology in road works refers to input of labor that is performed with non-mechanical tool. 23 Gender Action Plan (accessible from the list of linked documents in Appendix 2). 24 ADB. Safeguard Categories. https://www.adb.org/site/safeguards/safeguard-categories. 25 Initial Environmental Examination: Ayeyarwady; and Initial Environmental Examination: Magway (accessible from the list of linked documents in Appendix 2). 9 significant adverse environmental impacts. Anticipated impacts include the generation of dust, noise, and exhausts from haul trucks and hot mix plants; waste from construction and worker camps; water contamination; and occupational health and safety hazards. These construction impacts are temporary, localized, and can be mitigated through sound construction practices and measures defined in the environmental management plan.

34. The increased traffic safety risks resulting from improved road conditions will be addressed through output 3. Community consultation conducted during the IEE confirmed broad community support for the project. Possible community concerns during project implementation will be addressed through the project grievance redress mechanism, coordinated by the DRRD. The capacity of the DRRD will be strengthened through the appointment of qualified environment staff within the DRRD, and the recruitment of specialists under the DDIS consulting services.

35. Involuntary resettlement and indigenous peoples (category B). The project is categorized B for both involuntary resettlement and indigenous peoples in accordance with ADB’s Safeguard Policy Statement. Involuntary resettlement impacts were identified in 3 of the 14 proposed roads. Anticipated impacts affect four households, including three households losing marginal strips of land together with the associated trees and crops. An additional household will lose trees but not land. No loss of structures or physical displacement will occur. No shops or other livelihood sources will be affected. Therefore, the involuntary resettlement impacts are not significant.

36. Several ethnic groups are present in the project areas of Pantanaw and Maubin townships. The project will benefit all people living in the project area with no bias to any particular group. Consultations with local ethnic groups reveal that the communities are well integrated. A draft combined resettlement and ethnic group plan (REGP) has been prepared by MOC in accordance with ADB’s Safeguard Policy Statement and in line with the relevant rules and regulations of Myanmar. 26

37. The draft REGP will be updated based on a detailed measurement survey during the detailed design, a complete census survey and socioeconomic assessment. The REGP contains a broad entitlement matrix, which will cover any unanticipated or new impacts to be identified during the detailed design. An institutional mechanism and grievance redress mechanism have been proposed in the draft REGP, with roles and responsibilities of officials, representatives and committee members delineated for various activities. The project’s communication and participation plan has been prepared and included in the PAM. The DRRD and the MOC will be supported by DDIS consultants for updating, implementing, and monitoring the REGP. The DRRD will have designated safeguards staff, and the DDIS consultants will provide on-the-job training when needed for the implementation and monitoring of the REGP.

F. Summary of Risk Assessment and Risk Management Plan

38. Significant risks and mitigating measures are summarized in Table 5 and described in detail in the risk assessment and risk management plan. 27

26 Resettlement and Ethnic Group Plan (accessible from the list of linked documents in Appendix 2). 27 Risk Assessment and Risk Management Plan (accessible from the list of linked documents in Appendix 2).

10

Table 5: Summary of Risks and Mitigating Measures Risks Mitigation Measures Initial delays occur in project implementation. Initiate the recruitment of the DDIS consultant under advance action. Weak government capacity in procurement, Minimize the number of contracts, set up a project contract management, financial management, financial management system, and strengthen project and safeguards delays implementation or leads management unit capacity through training and day-to- to noncompliance with approved plans. day assistance from the DDIS consultant. Extreme weather events delay civil works or Monitor the status and consider requiring the DDIS require an increase in the scope of works. consultant to design additional works. The government’s budget for operation and The DRRD will allocate annual budget of $0.6 million maintenance falls below the minimum from 2025, and improve rural road maintenance requirements. management with support from DDIS consultant. DDIS = detailed design and implementation supervision, DRRD = Department of Rural Road Development. Source: Asian Development Bank.

IV. ASSURANCES

39. The government, the MOC, and the DRRD have assured ADB that implementation of the project shall conform to all applicable ADB policies, including those concerning anticorruption measures, safeguards, gender, procurement, consulting services, and disbursement as described in detail in the PAM and loan documents.

40. The government, the MOC, and the DRRD have agreed with ADB on certain covenants for the project, which are set forth in the draft loan and grant agreements.

V. RECOMMENDATION

41. I am satisfied that the proposed loan and grant would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve:

(i) the loan of $45,400,000 to the Republic of the Union of Myanmar for the Rural Roads and Access Project, from ADB’s ordinary capital resources, in concessional terms, with an interest charge at the rate of 1.0% per year during the grace period and 1.5% per year thereafter; for a term of 32 years, including a grace period of 8 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft loan agreement presented to the Board; and (ii) the grant not exceeding $5,800,000 to the Republic of the Union of Myanmar for the Rural Roads and Access Project from ADB’s Special Funds resources (Asian Development Fund), on terms and conditions that are substantially in accordance with those set forth in the draft grant agreement presented to the Board.

Takehiko Nakao President

11 October 2019

Appendix 1 11

DESIGN AND MONITORING FRAMEWORK

Impact the Project is Aligned with All-weather and safe road infrastructure developed (National Comprehensive Development Plan, 2011– 2031)a

Data Sources and Performance Indicators with Reporting Results Chain Targets and Baselines Mechanisms Risks Outcome By 2026: Disaster-resilient a. 150 registered villages in a. DRRD annual Catastrophic climate road access for rural the four project townships report events severely people in in Ayeyarwady and deteriorate road

Ayeyarwady and Magway, where the project infrastructure. Magway regions roads traverse, gained Weak institutional improved access to all-weather roads capacity for rural (2019 baseline: 0) roads limits b. Average daily traffic on implementation of the project roads increased to b-c Project project as envisaged. 9,523 passenger car units completion report (2019 baseline: 2,545 passenger car units) c. Average travel time on project roads for motorized vehicles reduced by at least 18 minutes (2019 baseline: 41 minutes) Outputs By 2026: 1. Climate-resilient 1a. About 152 km of rural 1a. DRRD annual Project roads suffer roads roads in four project report severe damage from rehabilitated townships improved to unusual climate

paved standard events during

(2019 baseline: 0) construction.

1b. Contractors’ cumulative 1b. Project Government budget unskilled labor days will be completion report for operation and at least 30% women, for all maintenance falls contracts (2019 baseline: below minimum 0) requirements. 2. Rural road 2a. Core rural road network 2a. DRRD annual maintenance database—including report management routine, periodic, and

strengthened emergency maintenance plans, with annual budget—established in the four project townships (2019 baseline: 0 townships)

2b. At least 50% of those 2b. Project trained in labor-based completion report technology are women in four project townships (2019 baseline: 0)

12 Appendix 1

Data Sources and Performance Indicators with Reporting Results Chain Targets and Baselines Mechanisms Risks 3. Rural road safety 3a. All 43 schools in four 3a. DRRD annual strengthened project townships receive report SSZ facilities and training

(2019 baseline: 0) 3b. At least 50% of those 3b. Project completion trained as road safety report facilitators in SSZ implementation and in community enforcement in four project townships are women (2019 baseline: 0)

Key Activities with Milestones 1. Climate-resilient roads rehabilitated 1.1 DDIS consultants complete inception phase by Q3 2020 1.2 Complete detailed engineering design for all 152 km of project rural roads by Q1 2021 1.3 Complete bidding for civil works 1 and civil works 2 by Q4 2021 1.4 Complete bidding for civil works 3 by Q4 2022 1.5 Complete project design for high readiness of future projects by Q2 2023 1.6 Complete all civil works by Q2 2025 2. Rural road maintenance management improved 2.1 DRRD, through DDIS consultants, completes road database for 152 km of rural roads by Q2 2021 2.2 DRRD prepares routine, periodic, and emergency maintenance technical and budget plans for 152 km of project rural roads by Q1 2023 2.3 DRRD develops a pilot emergency management plan for one most disaster-vulnerable village for natural disaster response to save lives and livestock by Q3 2024 2.4 DRRD, through the Ministry of Construction, requests sufficient budget from the Ministry of Planning and Finance for 152 km of project rural road maintenance for 2025 and receives the full allocation by Q4 2024 3. Rural road safety strengthened 3.1 DDIS consultants draft a community-based road safety program for all four project townships by Q4 2021 3.2 All 43 schools in the four project townships implement SSZ by Q2 2025 Project Management Activities Recruit DDIS consultants by Q2 2020 Inputs Asian Development Bank: $45.40 million (loan) and $5.80 million (grant) Government of Myanmar: $1.21 million Assumptions for Partner Financing Not applicable DDIS = detailed design and implementation supervision, DRRD = Department of Rural Roads Development, km = kilometer, Q = quarter, SSZ = safe school zone. a Government of Myanmar, Ministry of Transport and Communications. 2015. National Transport Sector Development Master Plan. Nay Pyi Taw. Source: Asian Development Bank.

Appendix 2 13

LIST OF LINKED DOCUMENTS http://www.adb.org/Documents/RRPs/?id=50218-002-3

1. Loan Agreement 2. Grant Agreement 3. Sector Assessment (Summary): Transport 4. Project Administration Manual 5. Contribution to the ADB Results Framework 6. Development Coordination 7. Economic and Financial Analysis 8. Country Economic Indicators 9. Summary Poverty Reduction and Social Strategy 10. Climate Change Assessment 11. Risk Assessment and Risk Management Plan 12. Gender Action Plan 13. Initial Environmental Examination: Ayeyarwady 14. Initial Environmental Examination: Magway 15. Resettlement and Ethnic Group Plan

Supplementary Documents 16. Output 2: Rural Road Maintenance Management Strengthened 17. Output 3: Rural Road Safety Strengthened 18. Stakeholder Communication Strategy 19. HIV/AIDS and Human Trafficking Awareness-Raising and Prevention Program 20. Overview of Gender Issues in Myanmar