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ROAD SECTOR DEVELOPMENT PROJECT (IDA Credit No 4832-NP, 5002-NP and IDA Grant No.H-339-NP, H-629-NP) Implementation Review August 26-September 04, 2013 Public Disclosure Authorized AIDE MEMOIRE I. Introduction and Acknowledgments 1. A World Bank review team1 (see Annex 1a for the Team members’ list) carried out an implementation review from August 26-September 04, 2013 of the Road Sector Development Project (RSDP). The review had two-fold objectives: (i) to appraise the project status and to identify key implementation issues; and (ii) to identify and agree with the Government of Nepal (GON) on future course of actions that are necessary for the satisfactory project implementation. This review was particularly important given that the last review had established significant deterioration of the project’s overall performance. The Team visited RSDP roadwork sites to summarily assess the roadwork quality and progress status of contracts’ implementation. 2. The Team would like to thank GON for the hospitality extended to it, especially by counterpart Public Disclosure Authorized agencies and officials (see Annex 1b for the list of persons met). This Aide Memoire summarizes the main review findings, agreements reached, and recommendations made Discussions held in the wrap up meeting (September 03, 2013) at the Ministry of Physical Infrastructures and Transport (MoPIT) and comments received on the draft are reflected in this version of the Aide Memoire. This Aide Memoire will be classified as a public document, as per the World Bank’s Access to Information policy and as per the decision of the wrap up meeting. II. Key Project Data 3. The following table provides the summary project data and the summary performance ratings: Project Data Project Performance Ratings Board Approval: 06-Dec-2007 Summary Ratings Last Now Effectiveness Date: 21-Feb-2008 Achievement of PDO MS MS ◄► Public Disclosure Authorized Closing Date: 30-Jun-2015 Implementation Progress MU MU ◄► Loan/Crdit Amount: $116.07m Project Management MU MU ▲ Amount Disbursed: $79.21m (68 %) Procurement MS MS ◄► Financial Management MU MU ◄► Safeguards MU MS ▲ M&E MS MS ◄► Counterpart Funding MU MS ▲ Notes: S- Satisfactory; MS – Moderately Satisfactory; MU - Moderately Unsatisfactory; U – Unsatisfactory;▲ Improving trends; ▼ Deteriorating trends; ◄► Static III. Achievement of Development Objectives Status 4. The progress made towards the achievement of the Project Development Objective (PDO) has been judged as “moderately satisfactory”. As reported earlier a social impact study was conducted in October, 2011. The study verified the two outcome indicators (linked to all weather access and travel time reduction) under original project scopes. The study results show that two outcome indicators Public Disclosure Authorized have surpassed targets. RSDP has also completed baseline studies for roads under additional financing (AF). The comprehensive achievements of these two PDO outcome indicators will be assessed once the socio-economic impact study is completed. RSDP plans to commence the study in February, 2014, at the end of the completion of the civil works, and to conclude the study by September, 2014. The most recent road condition survey (November, 2012) results show that the proportion of black-topped Strategic Road Network (SRN) roads that are in poor condition was 11.27% (against an end-project 1 Hereinafter referred as “The Team” target of 15%). The comparable figure from November, 2012 was 11.31%. This means that the condition of the network remains stable. The last review reported that the progress linked to the implementation of roadwork contracts and asset management had been unsatisfactory. The situation has not improved significantly between two reviews. This may influence the PDO indicators’ outcome adversely. Annex 2 provides the summary progress on the achievement of results. IV. Current Implementation Status Road Development Component 5. The progress of road development component continues to be “moderately unsatisfactory”. There has not been any significant progress in the contractors’ performance. However, recently RSDP has become more involved in the contractors’ performance monitoring. 6. Upgrading Works Sub-Component: RSDP’s target is to upgrade 700km of earthen tracks to all- season low-cost motorable road standards. Eight remote district headquarters2 in Mid and Far-Western regions of Nepal will get all-weather road connections once these roads are built. As of end-August, 2013 two district headquarters (Baitadi and Dailekh) are connected. So far RSDP upgraded 449km of roads (414km-Otta-seal, 5km-DBST surface, 30km-gravel surface; 299km-original project scopes plus 150km-under AF). Two contracts covering 30km roads (sections previously left as gravel surface due to slope stability problems) have been awarded for upgrading to Otta-seal standards. They are in the initial stage of implementation. 7. The progress of implementation of 23 on-going upgrading contracts ranges from 24% to 96%. Among them, three contracts (two contracts of Khodpe-Chainpur (KC) road and a contract of Chinchu-Jajarkot (CJ) road) are at the last stage of completion. The recent flood in the Mid and Far- West has affected two project roads significantly. The most affected road is the Gokuleshwor- Darchula (GD) road (contract 2B sections). The flood has left 9 cuts and a 900m washed-away section. Re-alignments are now necessary at various locations of this road. DOR has already started emergency road opening activities at these sections. Once these activities are completed RSDP plans to upgrade these sections to remaining upgraded road section standards. The Team advised RSDP to liaise closely with District Road Office (DRO), Baitadi on this in order to ensure that appropriate planning and engineering steps are followed in the opening of these sections. The World Bank policy also requires due-diligence in such a case, as these sections will be a part of a World Bank funded road. In the case of other roads (including KC road) the additional activities linked to the restoration of flood damaged sections will be accommodated within existing contracts. It was agreed that RSDP will provide the Bank with a full report on the flood damages by end-September, 2013 and complete the redesign works by November, 2013. 8. The Team has noted significant slow progress in 14 contracts. The affected roads are: Sitalpati- Musikot (SM) road 4 contracts, Khidkijula-Manma-Jumla (KMJ) road 8 contracts and CJ road 2 contracts. The physical progress of 10 RSDP upgrading contracts is below 35%, against 86% of the time elapsed. Contactors already missed milestones in many cases. However, RSDP has started close monitoring of these contracts recently. The project has issued warning letters to non-performing contracts. In some cases, three warning letters have been issued. RSDP has started fortnightly progress review of contracts, has been arranging one-to-one meetings with contractors, and applied liquidated damages to some contracts. In spite of all these initiatives, no significant progress (of non- performing and slow performing contracts) has been achieved. The Team expressed serious concerns about the performance of a number of contractors. RSDP had agreed to instruct the contractor’s to prepare and submit detail resource-based revised work schedule for all incomplete contracts. Subsequently the project will check, approve and monitor the revised contract completion schedules. RSDP will share these work schedules with the Bank before end-September, 2013. Even after taking these measures those contracts that do not show sign of significant improvements will be terminated. The Bank team will continue to assess the progress. The Bank may unilaterally cancel funding of those contracts that do not show adequate progress and the project fails to take appropriate actions against the contractors. 2 District headquarters are: Baitadi, Darchula, Bajhang, Dailekh, Kalikot, Jajarkot, Rukum and Jumla 2 9. RSDP has agreed to take immediate steps to restore the ferry service at Veri river crossing. The ferry cannot operate any more given that the recent flood damaged the tower and the ferry itself. It is to be noted that the performance of three CJ road contracts (5B, 5C and 5D) is dependent on the operation of the ferry service. The ferry provides the only transport link access to these contract sites. RSDP has also agreed to mobilize consultants’ design and supervision team immediately for the design and implementation of two newly awarded contracts (SKM 8A and TSD 8B). The quick finalization of the slope stability designs is important for the implementation of these contracts. 10. Field visits have identified a number of issues. The Team recommends the following to address them: (i) pro-active monitoring of contracts progress to expedite contract implementation; (ii) due diligence checks and controls applied in quarry operations and managing spoil disposal; (iii) ensuring all-time use of safety gears by workers and supervision staff at sites and the safety of pedestrians and vehicles on under-construction roads; (iv) completion of bio-engineering works including small scale structures and slope drain works within the remaining wet period; (v) completion of the assessment of flood damages and finalization of contract variations; (vi) making the codes available to the field laboratories and ensuring appropriate setting up of mini laboratories; (vii) improvement of gabion works qualities (including the use of binding wire, production of sample gabion boxes and training of workers). These were discussed and agreed with RSDP. While Annex 3 provides details of the sub- component progress, Annex 11 provides the field visit findings. 11. Periodic Maintenance Road works: RSDP target is to undertake periodic maintenance (PM) of 2,550 km of black-topped strategic roads. So far, the project completed approximately 1,323 km (original financing: 436 km and AF: 887 km). The Team noted with concerns that six PM contracts (constitute 148 km sections) procured over two years ago (in FY2010/11) are yet to be completed. Progress of these contracts ranges from 10% to 80%.