Report and Recommendation of the President to the Board of Directors

Sri Lanka Project Number: 41127 August 2008

Proposed Loan : State Highways Project

CURRENCY EQUIVALENTS (as of 25 August 2008)

Currency Unit – Indian rupee/s (Re/Rs)

Re1.00 = $0.0230 $1.00 = Rs43.4550

ABBREVIATIONS

ADB – Asian Development Bank BOT – build-operate-transfer DFID – Department for International Development (DFID) of the United Kingdom EIRR – economic internal rate of return GOB – government of Bihar IEE – initial environmental examination km – kilometer LIBOR – London interbank offered rate MDR – major district road ODR – other district road PMU – project management unit RCD – Road Construction Department TA – technical assistance

NOTES

(i) The fiscal year FY of the ends on 31 March. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2008 ends on 31 March 2008.

(ii) In this report, "$" refers to US dollars.

Vice-President B. N. Lohani, Vice-President-in-Charge (Operations 1) Director General K. Senga, South Asia Department (SARD) Director K. Higuchi, Transport and Communications Division, SARD

Team leader H. Yamaguchi, Senior Transport Specialist, SARD Team members B. Huang, Young Professional, SARD A. Motwani, Project Implementation Officer, India Resident Mission, SARD R. Nagpal, Counsel, Office of the General Counsel M. Roesner, Transport Specialist, SARD L. M. Tai, Social Development Specialist, SARD D. Utami, Senior Environment Specialist, SARD

CONTENTS Page LOAN AND PROJECT SUMMARY i MAP I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 2

III. THE PROPOSED PROJECT A. Impact and Outcome 6 B. Outputs 7 C. Special Features 7 D. Project Investment Plan 8 E. Financing Plan 8 F. Implementation Arrangements 9 IV. TECHNICAL ASSISTANCE 12 V. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 12 A. Institutional and Operational Improvements 12 B. Economic Assessment 12 C. Financial Sustainability 13 D. Social Impacts 13 E. Environmental Impacts 15 F. Risks 15 VI. ASSURANCES 16 VII. RECOMMENDATION 18 APPENDIXES 1. Design and Monitoring Framework 19 2. Bihar Road Sector Analysis 21 3. Institutional Strengthening Action Plan 29 4. External Assistance to the Road Sector 33 5. List of Project Roads and Summary of Design Standards 36 6. Detailed Cost Estimates and Financing Plan 37 7. Organization Structure for Project Implementation 38 8. Implementation Schedule 39 9. Indicative Contract Packages 40 10. Procurement Plan 41 11. Technical Assistance for Institutional Strengthening of the Bihar Road Sector: Outline Terms of Reference for Consulting Services 44 12. Summary Poverty Reduction and Social Strategy 49 SUPPLEMENTARY APPENDIXES (available on request) A. Outline Terms of Reference for Consulting Services for Construction Supervision B Economic Assessment C. Summary Resettlement Plans D. Summary Initial Environmental Examination

LOAN AND PROJECT SUMMARY

Borrower India

Classification Targeting classification: General intervention Sector: Transport and communications Subsector: Roads and highways Themes: Sustainable economic growth, capacity development Subtheme: Fostering physical infrastructure development

Environment Category B Assessment An initial environmental examination was undertaken for all project roads.

Project Description The Bihar State Highways Project will rehabilitate and reconstruct about 820 kilometers (km) of state highways identified under the State Highway Development Program in the state of Bihar. Consulting services will be provided to support implementation of the civil works. Road improvement works under the Project include upgrading of existing roads to two lanes, strengthening culverts and bridges, constructing new bridges and cross- drainage structures, and constructing structures for resettlement and rehabilitation.

The Project will enhance overall sector management capacity by providing (i) equipment necessary for the government of Bihar (GOB) to enhance sector capacity in areas such as quality control, survey and design, road safety, and control of overloading and vehicle emissions; and (ii) technical assistance (TA) to support institutional development initiatives of GOB, especially for reform of the Road Construction Department (RCD) and capacity development, including (a) modernization of road institutions, (b) improvements to RCD business processes, and (c) support for increasing private sector participation.

Rationale The road network in Bihar is very poor in terms of coverage and conditions while demand for road transport is increasing. Insufficient funding for road maintenance has increased the number of roads that are beyond maintainable condition, and the backlog of deferred maintenance. GOB is undertaking the State Highway Development Program to rehabilitate and upgrade state highways to at least two lanes and expand the state highway network by upgrading major district roads to two lanes. The improvement of 820 km of state highways is part of a series of the program to help meet increased demands for road transport, and accelerate the process of economic development in the state. ii

RCD, in charge of overall sector development and management, lacks modern project management and procurement systems. This often leads to cost and time overruns in project delivery. For efficient and effective road asset development and management, RCD needs to be modernized by (i) harnessing private sector structures and skills to meet the public demand for infrastructure; (ii) encouraging private sector participation in road financing; and (iii) outsourcing functions of project preparation, design, construction, construction supervision, and quality audit to private entities. Improvements to road safety and control of overloading and vehicle emissions are also required for the safe and efficient use of road assets with minimal adverse environmental impacts.

Impact and Outcome The Project will improve transport efficiency of the state road network, which will contribute to expansion of economic opportunities and poverty reduction. This will be realized by (i) improving the state highway network, (ii) facilitating safe and appropriate road usage, (iii) increasing efficiency of transport services, and (iv) enhancing GOB capacity for road asset development and management. Improved roads will improve accessibility to social services and markets, and enhance the efficiency of road transport usage.

Project Investment Plan The investment cost of the Project is estimated at $468 million, including taxes and duties.

Financing Plan A loan of $420,000,000 from the ordinary capital resources of the Asian Development Bank (ADB) will be provided under ADB’s London interbank offered rate (LIBOR)-based lending facility. The loan will have a 25-year term including a grace period of 5 years, an interest rate determined in accordance with ADB’s LIBOR- based lending facility, a commitment charge of 0.15% per annum, and such other terms and conditions set forth in the draft loan and project agreements.

Allocation and Relending The Government of India (the Government) will provide the loan Terms proceeds in local currency to GOB on the same terms and conditions as received from ADB. GOB will bear the foreign exchange risk on the loan.

Period of Utilization Until 31 July 2012

Estimated Project 31 January 2012 Completion Date

Executing Agency GOB through RCD

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Implementation The project management unit, headed by the chief engineer at Arrangements RCD headquarters, will implement the Project. Project implementation units, each headed by a project manager, have been established and will be responsible for implementation in the field. One or two full-time project managers will be assigned for each contract package. The project managers will be delegated adequate technical and administrative authority for expeditious project implementation. RCD will engage construction supervision consultants to act as the engineer for the construction contracts.

Procurement Procurement under the Project will be carried out in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time) and the Government’s tender procedures acceptable to ADB. The civil works contracts will be procured under international competitive bidding. The Project will provide $4 million for equipment to be procured using national competitive bidding procedures if the estimated contract is valued from $0.1 million to $1 million, and shopping if the estimated contract amount is less than $0.1 million.

Consulting Services Two international consulting firms will be recruited for construction supervision of civil works under the Project. RCD will select and engage the consultants in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time). About 68 person-months of international consultants and 3,020 person-months of national consultants will be required.

Project Benefits and Improving management of the state highway network through the Beneficiaries institutional development component and the TA, and the improvement to the road network under the Project will enhance the overall road condition and usability of state trunk roads. This will increase travel speeds, and reducing travel time, accidents, overloading, and vehicle emissions. The Project will enhance RCD capacity for road asset development and management. This will improve governance in road administration and accountability, and create an environment encouraging competition and efficiency within RCD and the construction industry. This will ensure more efficient road asset development and management, and higher quality of construction and maintenance, resulting in decreased recurrent costs over the medium and long term. These will lead to overall social and economic development in Bihar.

Poverty is high in Bihar, among the highest of all India’s states. The Project will improve access to socioeconomic services, increase employment opportunities, and improve transport services. This will reduce poverty in the region, and stimulate economic growth and human development in the state. Improved mobility will provide households with better-paying jobs outside of their villages.

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Risks and Assumptions The risk of initial delays has been mitigated through advance actions by RCD and support provided by ADB. Training on safeguard and procurement requirements was provided to RCD staff to mitigate potential risk of initial delays due to procedural clearance. ADB has provided support to due diligence for all project roads.

The risk of an unrealistic sector reform agenda has been mitigated by reflecting the context of the state in the institutional strengthening action plan. The plan considers the rather short- term project duration, actions taken by GOB, Planning Commission recommendations, and recent development policy loan approved by the World Bank.

The risk of maintenance financing will be mitigated by GOB initiatives to implement road asset management systems for better planning and budgeting. GOB has increased its maintenance budget to substantially meet requirements and obtained the full Government grant-in-aide under the 12th Finance Commission. RCD’s strict monitoring systems for project implementation minimize the risk of underutilizing the maintenance budget.

Technical Assistance In conjunction with the Project, a TA will be provided to support GOB sector development initiatives. RCD will be developed into a state-of-the-art road agency equipped with modern systems of business procedures, planning processes, quality assurance, engineering (pavement design, maintenance methods, and safety), and human resource management. The estimated total cost of the TA is $1,250,000, of which ADB will finance $1,000,000 on a grant basis from the ADB TA funding program. The TA consultants will be recruited in accordance with ADB’s Guidelines on the Use of Consultants.

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I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed loan to India for the Bihar State Highways Project. The report also describes proposed technical assistance (TA) for Institutional Strengthening of the Bihar Road Sector, and if the Board approves the proposed loan, I, acting under the authority delegated to me by the Board, will approve the TA.

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES

A. Performance Indicators and Analysis

2. Bihar, a landlocked state lying in the middle Gangetic region, has an area of 94,164 square kilometers. It is surrounded by (west), Jharkhand (south), West Bengal (east), and Nepal (north). The state has a rich history and cultural tradition, making it a major religious and tourist destination. While it has an extensive and well-developed rail system, and considerable potential for developing and utilizing inland waterways, rapid development and strengthening of the road network will provide momentum for accelerating economic development in the state, enabling Bihar to move from being dependent on subsistence farming to focusing on market-oriented agriculture and tourism. Since Bihar is the third most populous, poorest, and slowest-growing state in fast-growing India, development of the state is key to the country’s goal of regionally balanced growth.

3. Bihar has 82,000 kilometers (km) of roads; 45,000 km are surfaced. It has 3,723 km of national highways, 3,128 km of state highways, 7,714 km of major district roads (MDRs), and 67,080 km of other district roads (ODRs) and village roads. The road density is 901 km per million population compared with the national average of 2,567 km. Almost all of the higher class of roads (national highways, state highways, and MDRs) are provided with a sealed (bitumen or concrete) surface, while 55% of ODRs and village roads remain unsealed. Only 2% of state highways have two or more lanes; 71% are single lane. For MDRs, 83% are single lane. All ODRs and village roads are single lane. The majority of state highways, MDRs, ODRs, and village roads are assessed to have deteriorated severely and require major rehabilitation largely because of the continuous short fall in investment for road maintenance until recently, and increasing volume of traffic and loads. The need to increase and improve the existing state highway network is critical. This can be accomplished by widening existing carriageways, and strengthening and constructing or reconstructing bridges and culverts.

4. Bihar Road Construction Department (RCD) is responsible for state highways, MDRs, and national highways approved and funded by the Government of India (the Government). Of the 3,700 km of national highways in Bihar, the National Highway Authority of India is responsible for 800 km. The Government recently approved upgrading 890 km of national highways to four lanes under the National Highway Development Program III using build- operate-transfer (BOT). Roads that GOB identifies for development on a BOT basis are entrusted to India Infrastructure Finance Company and Infrastructure Development Finance Company to structure and implement the projects. District councils and the Rural Works Department are responsible for ODRs and village roads. The Rural Works Department is responsible for the ’s rural roads program, Mukhya Mantri Gram Sadak Yojana (MMGSY), which connects habitations with populations of 500–999, in parallel with the nationwide Prime Minister’s rural roads program, Pradhan Mantri Gram Sadak Yojana (PMGSY), which gives priority to connectivity for habitations with populations of more than 1,000. The chief minister’s rural roads program follows the basic principles and incorporates the 2 good practices of the Prime Minister’s rural roads program, but employs more decentralized administrative and technical sanction procedures, and utilizes a separate set of guidelines for project selection.

5. Budgetary expenditure for state roads in 2006/07 was Rs1,974 crore1 ($506 million) against an original budget of Rs2,147 crore ($551 million). In 2006/07, the budget was 2.8 times as large as the previous year’s Rs648 crore ($171 million) due to the new ’s priority for road rehabilitation and development, supported by the Government’s Backward Region Grant Fund (Rashtriya Sam Vikas Yojana or RSVY). The extent of underspending was only 8% of the original budget. This demonstrates remarkable improvement in RCD capacity and commitment to deliver. The 2007/08 budget has gone up further to Rs2,379 crore ($610 million).

6. Revenues relating to road use include vehicle taxes, permits, fees, and penalties and were Rs308 crore ($124 million) in 2005/06, up from Rs178 crore ($87 million) in 2002/03. The average annual increase is very high at 20% due to improved vehicle registration and tax payment. In addition, road users pay commercial sales taxes for such items as vehicles, fuel, tires, and spare parts. The Bihar Transport Department is a major resource-generating department, along with the commercial tax, registration, and excise departments.

7. The Transport Department is responsible for licensing, registration, and regulation of motor vehicles, drivers, and passenger and freight transport. Motor vehicle registration increased from 0.95 million in 2000/01 to 1.56 million in 2006/07, an annual average of 8.6%. The highest increase was for two-wheelers; when they are excluded, registration increased by 5.5%. Of the 1.56 million motor vehicles registered, 68% were two-wheelers. Excluding two wheelers, registered vehicles comprise cars and jeeps (31%), trucks (10%), buses and minibuses (3%), and tractors and trailers (43%).

8. The state-owned Bihar State Road Transport Corporation provides intra- and interstate bus services. It currently operates 2%–3% of buses in the state, and is authorized by GOB to fix its fares based on sound business principles. GOB grants permission for contract and private buses also on the same routes of the State Road Transport Corporation. Private bus operators adopt fares based on demand for specific routes. Truck hire rates are fixed by market demand. Private sector operators provide most of the services for passenger and freight transport. Competition is good.

9. The design and monitoring framework for the Project is in Appendix 1. Appendix 2 provides details of the road sector in Bihar.

B. Analysis of Key Problems and Opportunities

1. Main Sector Issues and Government Initiatives

10. The state’s road network is very poor in terms of coverage and conditions. Demand for road transport is increasing. Insufficient funding to road maintenance in the past has increased the number of roads that are beyond maintainable condition and the backlog of deferred maintenance. GOB has taken on the State Highway Development Program to rehabilitate and upgrade state highways to at least 2 lanes, and expand the state highway network by upgrading MDRs to 2 lanes. The program covers upgrading 2,831 km of the 3,127 km of state highways

1 A crore is equal to 10,000,000.

3 during the 11th Five Year Plan period through various schemes, including the Government- supported RSVY, BOT schemes, and Asian Development Bank (ADB) assistance.

11. GOB also takes on sector development initiatives in the framework specified in Bihar Road Sector Development–New Dimensions 2 to develop and sustain the road network by modernizing road agencies; encouraging private sector participation in road financing; outsourcing design, supervision, and construction along with systems for independent proof checking and audit; setting up a stable source of funding for road development and maintenance; attracting financially sound and fully equipped contractors by offering large contracts for national and state highway projects; enabling smaller contractors to acquire experience; introducing long-term, performance-based maintenance contracts; initiating corridor management to expedite clearance of utilities and availability of materials; and strengthening capacity of local contractors.

a. Reform and Capacity Building in Road Sector Management

12. Approaches identified by the Bihar road sector development strategy (footnote 2) include (i) harnessing private sector structures and skills to meet public demand for infrastructure; (ii) encouraging private sector participation in road financing; and (iii) outsourcing functions of project preparation, design, construction, construction supervision, and quality audit to private entities. This would leave government functionaries with the limited but important responsibility of policy development and management oversight, and improving accountability concentrating on performance monitoring and output, rather than the day-to-day running of public services.

13. For this purpose, RCD initially outsourced works of upgrading old state highways under RSVY with Rs3,000 crores ($790 million) to other road implementation agencies, targeting completion by 2008/09. Work on the remaining 1,554 km, of newly declared state highways, is proposed to be implemented with international best practices with ADB financing, adopting FIDIC3-based contract management and international competitive bidding procedures. GOB has been discussing potential BOT projects for 500 km of national highways with India Infrastructure Finance Company and Infrastructure Development Finance Company.

14. RCD is considering setting up a state roads and highways development authority or corporation to streamline decision making and increase autonomy for project execution and delivery. This requires redefinition of powers, functions, and accountability of road agencies; and changes to existing business procedures. Major actions taken by RCD so far include streamlining bidding procedures, quality control, asset management, and project management and monitoring. RCD’s sector management capability, which was significantly strengthened during the last one and half years, will be improved under the Project. The established project management unit (PMU) for the ADB project is considered an embryo cell to be expanded and strengthened to become an autonomous authority for state road development and maintenance.

b. Road Maintenance Financing

15. The nonplan budget increased from Rs201 crore ($52 million) in 2003/04 to Rs311 crore ($80 million) in 2006/07, an annual increase of 15.6%. The maintenance requirement until completion of the State Highway Development Program is not high as most

2 Government of India. 2007. Bihar Road Sector Development – New Dimensions. New . 3 Federation Internationale Des Ingenieurs-Conseils

4 state highways and MDRs will be upgraded under the program. After the program, the budget requirement for maintenance will be increased and is estimated at Rs420 crore ($108 million) annually. Revenue relating to road use is estimated at Rs308 crore ($79 million) in 2005/06, excluding excise, with historical increase of 20% per annum. This matches maintenance requirements and is absorbed in the general government revenue.

16. Efficiency of the use of nonplan budget has improved. The share of salaries and wages in the nonplan budget reduced from 43% in 2003/04 to 36% in 2006/07. This demonstrates GOB’s increased commitment to maintenance and efficiency of road maintenance. Considering past budgetary provisions and trends, GOB is assessed as adequately providing maintenance financing in a sustainable manner. Increased maintenance quality due to introduction of 5-year performance-based maintenance contracts will increase the efficiency of maintenance works and reduce maintenance costs. GOB has provided assurance that it will provide adequate financing to maintain state highways developed with ADB financing.

c. Road Safety

17. Bihar has a higher accident rate (17.3 fatalities per 10,000 vehicles between 2001 and 2004) than the national average (12.8 in 2003), and the rate is expected to increase as traffic grows. One of the major causes of accidents is lack of awareness and knowledge of traffic rules. To enhance awareness of traffic rules, the Transport Department organizes a road safety week every year for school children and the public. In and major district centers including rural areas, the Transport Department undertakes inspection missions to ensure people follow traffic rules. GOB is planning to establish state and district road safety councils to provide guidance on road safety.

18. RCD will develop a road safety unit within its organization to institutionalize road safety audits, ensuring safety elements of India Roads Congress standards are incorporated in design and during construction.

19. In 1996, the Government recommended establishing a directorate of safety and traffic management and set up a road safety fund allocating 1% of cess revenue for national highways. An expert committee at the Ministry of Shipping, Road Transport and Highways will review these recommendations and finalize a road safety policy to address legal, institutional, and financial issues for road safety. This will provide a new context for the funding and institutional setup for state road safety.

d. Overloading

20. Overloading is a nationwide problem; the number of multiaxle trailers has increased. Overloaded trucks on Bihar’s major highways are also expected to increase in accordance with economic growth. An overloading control program is being set up; six weighbridges are being installed at state border points. More weighbridges will be installed, and regulations more strictly enforced, e.g., off-loading of overloaded trucks will be enforced in coordination with the police.

e. Vehicle Pollution Control

21. To support a clean environment, GOB amended the 1992 Bihar Motor Vehicle Rules to require all vehicles to have a pollution control certificate. All vehicles must undergo pollution checks to obtain the certificate. While it continues to establish permanent pollution check centers, GOB is encouraging the private sector to develop centers and has given permission for

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103 so far. GOB has established centers in 21 of the 38 districts in the state. Emission test machines are further required for each center.

f. Construction Industry

22. The proposed large programs require good construction firms equipped with adequate technical personnel and modern construction machinery. In the absence of regular work in the past, the state’s construction industry has become weak; only a few contractors are from outside the state. Local contractors have difficulty mobilizing the necessary financial resources to even bid and subsequently implement the works.

23. A local construction industry can develop around a large program if work is seen to be available on a regular basis over a long time. Initially, local agencies could associate with qualified construction firms from outside the state, and acquire the necessary technical and managerial skills to subsequently qualify on their own. Good contractors from outside the state will invest their resources only if they perceive a good opportunity in terms of contract size. Under the Project, GOB made the contracts as large as possible to attract qualified bidders.

24. The infrastructure equipment bank was set up to lease construction equipment to local contractors, starting with the first three branches at , Muzaffapur, and Patna. This will help expedite the process of road construction in the state. RCD simplified contractor registration rules to reduce barriers to entry. This will help increase competition between contractors, and hence increase quality and reduce cost.

25. Key sector development initiatives are summarized in the institutional strengthening action plan (Appendix 3).

2. External Assistance and ADB Strategy

26. External assistance to roads in India has been substantial. ADB has provided loans as well as TA for about $3.7 billion. The World Bank has provided loans and grants totaling $5.6 billion for upgrading national highways, improving state highways, and upgrading rural roads. Japan Bank for International Cooperation (JBIC) has provided five loans for a total of $0.33 billion to upgrade national highways and construct bridges. The Government of the United Kingdom has provided TA to support the sector. ADB support has been developed in close collaboration with these key development partners. Coordination with the World Bank has particularly been active for transport operations. Mini retreats for transport operations in South Asia have become a regular practice for headquarters staff. For the resident missions, a broad- based sector collaboration mechanism has been instituted to facilitate the exchange of information between key sector coordinators of both institutions. With the Government of Japan and JBIC, cooperation has been active, particularly for the railway and urban subsectors. ADB has formed a close partnership with the Department for International Development (DFID) of the United Kingdom for the provision of TA for areas contributing to poverty reduction in India. Two organizations hold regular coordination meetings. A summary of external assistance is in Appendix 4.

27. Since 2002, ADB has provided four loans to improve India’s state road network; to Madhya Pradesh in 2002 and 2007, Chhattisgarh in 2003, and Uttarakhand in 2006. Other state road projects are being prepared for the eight northeastern states and Jharkhand. In principle, ADB’s support is provided to improve state road management capacity along with physical investment to improve the state road network. The states have shared their experience to

6 improve sector management and project implementation capacity. ADB facilitates experience sharing by holding workshops in states utilizing TA for state road projects.

28. To provide assistance to Bihar, ADB, DFID, and the World Bank have established a Bihar assistance coordination working group. The World Bank approved a development policy loan and credit in 20074 for policy and institutional reforms covering fiscal and procurement reforms, governance and administrative reforms, investment climate reforms, and sector- specific policy reforms. For the road sector in Bihar, it has been closely coordinated to make synergy. The World Bank is providing support to rural road development and medium- to long- term sector reform, while ADB provides support for developing state roads in parallel with institutional strengthening focusing on project delivery in coordination with DFID.

3. Lessons

29. Many ongoing ADB-financed road projects in India are experiencing delays. These delays are mostly attributable to (i) lack of safeguard consideration in the selection and preparation of investments, and insufficient support in safeguards planning and implementation; and (ii) the gap in support between the feasibility phase and the construction phase for executing and implementing agencies that are often not familiar with ADB procedures for procurement of civil works contracts and recruitment of consultants. For the Project, RCD engaged detailed project report consultants to prepare subprojects and ADB provided support to RCD preconstruction activities so that the construction can commence without unnecessary delay after loan approval. RCD has prepared bidding documents, in close consultation with ADB, and initiated advance action for contracting, such as engagement of construction supervision consultants. RCD takes initiatives for speedy and quality completion of construction works, which include regular weekly monitoring of project progress.

30. For state road projects, ADB has undertaken policy dialogue in sector performance improvement; ADB’s sector assistance program evaluation recommends broadening policy dialogue while ADB has been promoting private sector involvement in roads, mostly in rehabilitation and maintenance activities for state road projects. Under the Project, TA will be provided to support RCD initiatives in setting up enabling environments for implementing public– private partnership schemes. The Project takes into account broad areas to be improved including development of the local construction industry.

III. THE PROPOSED PROJECT

A. Impact and Outcome

31. The Project will improve transport efficiency of the state road network in Bihar, which will contribute to expansion of economic opportunities and poverty reduction. This will be realized by (i) improving the state highway network, (ii) facilitating safe and appropriate road usage, (iii) increasing efficiency of transport services, and (iv) enhancing GOB capacity for road asset development and management. Improved roads will improve accessibility to social services and markets, and enhance the efficiency of road transport usage.

4 IBRD and IDA. 2007. Program Document for a Proposed Loan in the Amount of US$150 million and a Proposed Credit in the Amount of SDR 47.8 million ($75 million equivalent) to the Republic of India for the First Bihar Development Policy Loan and Credit to the Republic of India, Washington DC.

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B. Outputs

32. Investment Component. The Project will rehabilitate and reconstruct about 820 km of state highways identified under the State Highway Development Program, focusing on newly declared state highways. Consulting services will be provided to support implementation of civil works. Under the program, about 2,800 km of state highways and 5,700 km of MDRs are identified for rehabilitation and upgrading. During RCD’s detailed project report preparation, more than 1,000 km of state highways were initially selected and about 820 km of these were identified for the Project, taking into account preliminary assessment of traffic volume, social and environmental impacts, state priority, and project readiness (Appendix 5). Road improvement works under the Project include improving roads to two lanes, strengthening culverts and bridges, constructing new bridges and cross-drainage structures, and constructing structures for resettlement and rehabilitation.

33. Institutional Development Component. The Project will provide equipment required by GOB to enhance sector capacity in areas such as quality control, survey and design, road safety, and control of overloading and vehicle emissions. Major equipment includes laboratory equipment, survey and design equipment and software, vehicle emission and fitness testing machine, and weighbridges. The consultants, engaged under a TA to support institutional strengthening, will identify the required equipment and timing for installation in line with the detailed institutional development action plan (Appendix 3).

C. Special Features

34. This is the first road construction project in Bihar to adopt international best practices of procurement and contract management, e.g., international competitive bidding, FIDIC-based contracts, and outsourcing of construction supervision. This will attract qualified contractors to participate in state projects. Contracts are packaged into a larger size to attract qualified contractors who will transfer the necessary technical and managerial skills to local contractors through association like subcontracts. RCD officials will be exposed to international best practices in bidding procedures and contract management. ADB will provide support to RCD in managing FIDIC-based contracts. This exposure will help equip RCD with capacity to take on modern road development methods such as performance-based contracts, long-term operation and maintenance contracts, and public–private partnerships.

35. The Project was prepared in collaboration with state government officials of Madhya Pradesh Road Development Corporation; they have gained substantial experience with ADB requirements and procedures. RCD engaged detailed project report consultants with its own funds, for possible ADB financing, and requested ADB to supplement the consultants’ work to fully comply with ADB requirements. The engineering design is prepared to minimize social and environmental impacts. Advance actions have been undertaken to ensure that the construction can be commenced without unnecessary delay. All of these are enabled by the support of ADB consultants, various exchanges between officials of state road agencies, and workshops and training provided. The Project demonstrates sufficient lessons accumulated to share among state road agencies to prepare and implement successful state road projects with improved project readiness.

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D. Project Investment Plan

36. The project investment cost is estimated at $468 million, including taxes, duties, commitment charges, and interest during construction (Table 1). The detailed cost estimates and financing plan are in Appendix 6.

37. ADB will finance part of the local taxes and duties estimated at $47 million. On average, taxes and duties, which amount to 9%–13% of project costs for construction of state highways in India, are considered reasonable, transparent, and nondiscriminatory.

Table 1: Project Investment Plan ($ million) Item Amounta A. Base Costb 1. Investment Component 407.5 2. Institutional Development Component 4.0 Subtotal (A) 411.5 B. Contingenciesc 37.7 C. Financing Charges during Implementationd 18.8 Total (A+B+C) 468.0 a Includes taxes and duties estimated at $47 million. b In 2008 prices. c Physical contingencies computed at 5% for civil works. Price contingencies computed at 0.8% for foreign exchange costs and 6% for local currency costs; includes provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate. d Includes interest and commitment charges. Source: Asian Development Bank estimates.

E. Financing Plan

38. The Government has requested a loan of $420,000,000 from ADB’s ordinary capital resources to help finance the Project. The loan will have a 25-year term, including a grace period of 5 years, an interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility, a commitment charge of 0.15% per annum, and such other terms and conditions set forth in the draft loan and project agreements. The Government has provided ADB with (i) the reasons for its decision to borrow under ADB’s LIBOR-based lending facility on the basis of these terms and conditions, and (ii) an undertaking that these choices were its own independent decision and not made in reliance on any communication or advice from ADB.

39. The ADB loan will finance about 90% of the project cost. This is considered acceptable, taking into account that (i) the Project is part of the $2 billion state road development programs over the next 5 years, excluding projects under the National Highway Development Program, the Prime Minister’s rural roads program, and the chief minister’s rural roads program; (ii) the Project is part of ADB assistance to the Government’s overall development program for roads, including the National Highway Development Program III ($12.5 billion by 2012) and the Prime Minister’s rural roads program ($11 billion by 2009); (iii) state road development is the priority for ADB assistance in India and the Project serves one of the poorest states in India; (iv) even if the Project is included to the country program and strategy period starting from 2003, average

9 cost sharing will remain at 68%, which is less than the current country limit of 70%; and (v) the higher cost sharing by ADB helps the state with fiscal reforms.

40. The Government will provide the loan proceeds in local currency to GOB on the same terms and conditions as received from ADB. GOB will bear the foreign exchange risk on the loan. The financing plan for the Project is in Table 2.

Table 2: Financing Plan ($ million) Source Total % Asian Development Bank 420.0 89.7 Government 48.0 10.3 Total 468.0 100.0 Source: Asian Development Bank estimates.

F. Implementation Arrangements

1. Project Management

41. The Executing Agency for the Project will be the state of Bihar through RCD. RCD has established a PMU at its headquarters, headed by a chief engineer, for implementation of the Project. RCD has also established five project implementation units, each headed by a project manager, who will be responsible for the implementation of one or two project roads in the field. One or two full-time project managers will be assigned for each contract package. The project managers will be delegated adequate technical and administrative authority for expeditious project implementation. RCD will engage construction supervision consultants to act as the engineer for the civil works contracts. The organization structure for project implementation is in Appendix 7.

2. Implementation Period

42. The Project will be implemented over 4 years, inclusive of procurement, preconstruction activities in 2007, and defect liability period of 1 year. It is expected to be completed by January 2012. The implementation schedule is in Appendix 8.

3. Procurement

43. Procurement to be financed from the ADB loan will be carried out in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time). The civil works contracts will be undertaken in nine contract packages (Appendix 9). These contracts are estimated at more than $10 million and will be procured through international competitive bidding procedures. ADB standard bidding documents for large works with postqualification under the two-envelope system will be adopted. Equipment financed by the Project will be $4 million under the institutional development component, and will be procured using national competitive bidding procedures if the estimated contract is $0.1 million to $1.0 million, and shopping if the estimated contract amount is less than $0.1 million. Contract packaging for equipment will be based on required technical features and timing of procurement. The TA consultants engaged for institutional development will identify the packages during TA implementation. The procurement plan is in Appendix 10. National competitive bidding procedures adopted for procurement of goods and services under the Project will use the advertised tender enquiry

10 method stipulated in the General Financial Rules, 2005, and elaborated in the Manual on Policies and Procedures for the Purchase of Goods issued in August 2006, by the Ministry of Finance of the Government, with clarifications and modifications described in the procurement plan.

4. Consulting Services

44. RCD will recruit two international consulting firms using the quality and cost-based selection method to supervise construction of civil works under the Project. One consultant will be engaged for the north region and the other for the south. RCD will select and engage consultants in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time). The outline terms of reference for consulting services for construction supervision are in Supplementary Appendix A. About 68 person-months of international consultants and about 3,020 person-months of national consultants will be required.

5. Advance Contracting and Retroactive Financing

45. ADB approved advance contracting of civil works in May 2007. During project preparation, RCD’s procurement activities were well advanced; all contracts were bid out in February 2008. Based on this, the Government and GOB requested retroactive financing for all project components. Up to 20% of the loan proceeds will be eligible for retroactive financing, provided that expenditures are incurred on works, equipment, and consulting services for the Project in accordance with agreed procedures and during the 12 months before the signing of the loan agreement. The Government and GOB have been informed that approval of advance contracting and retroactive financing does not in any way commit ADB to finance the Project.

6. Anticorruption

46. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the Government, GOB, and RCD. Consistent with its commitment to good governance, accountability, and transparency, ADB reserves the right to review and examine, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the Project. In this regard, investigation of government officials, if any, would be requested by ADB to be undertaken by the Government. To support these efforts, relevant provisions of ADB’s Anticorruption Policy are included in the loan regulations and the bidding documents for the Project. In particular, all contracts financed by ADB in connection with the Project will include provisions specifying the right of ADB to audit and examine the records and accounts of the Executing Agency and all contractors, suppliers, consultants, and other service providers as they relate to the Project.

47. RCD has significantly strengthened its governance during the last 2 years. It has standardized bidding documents and initiated e-procurement for selected contracts. For project management and monitoring, RCD introduced strict monitoring systems of work progress, controlled under the newly established supervision and monitoring wing. It discloses the targets, progress, and achievements to the public on the website and in the local newspaper. RCD has identified roads for inclusion in public–private partnership schemes, and outsourced all maintenance works to the private sector. Accounting officers in field offices have been deputed from the accountant general’s office to ensure appropriate recording of financial matters. To ensure construction quality, laboratory equipment is being enhanced, and mobile quality control squads have been established in all district offices. It also introduced a third-party quality control system. To enhance competition and capacity of the construction industry, RCD set up an

11 equipment bank and simplified contractor registration rules. This will help increase competition between contractors, and hence increase quality and reduce cost. To enhance overall road sector management, TA will be provided for institutional strengthening of RCD, which will improve governance of road administration and accountability and create an environment that encourages competition and efficiency within RCD and the construction industry. For the Project, ADB procurement procedures using international competitive bidding will enhance transparency and fair competition, and ADB disbursement procedures and FIDIC-based contract management will mitigate corruption problems during implementation.

7. Disbursement Arrangements

48. Loan disbursements will be in accordance with ADB’s Loan Disbursement Handbook (2007, as amended from time to time). Direct payment and reimbursement procedures will be used for civil works, consulting services, and equipment. Any individual payment to be reimbursed under statement of expenditure procedures will not exceed $100,000.

8. Accounting, Auditing, and Reporting

49. RCD will maintain separate records and accounts adequate to identify the goods and services financed from the loan proceeds, expenditures incurred, and the use of local funds under the project components and their subprojects. The accounts will be set up in accordance with sound accounting principles. Independent auditors, acceptable to ADB, will audit the accounts and related financial statements annually. The Government will submit consolidated annual audited reports and related financial statements to ADB within 6 months from the end of the previous fiscal year. The annual audit report will include an audit of the statement of expenditure procedures, and will include a separate audit opinion on the use of loan proceeds and compliance with statement of expenditure procedures.

50. RCD will prepare and provide ADB with quarterly project progress reports, including any changes to the implementation schedule, problems or difficulties encountered and remedial actions taken, anticipated problems and the proposed remedial measures, and work to be undertaken in the following period. RCD will submit the quarterly progress reports to ADB within 45 days from the close of each quarter. These reports will include a summary financial account for each subproject, expenditures to date, report on performance monitoring, and results of monitoring of social and environmental impacts.

51. RCD will prepare and provide ADB with a road completion report within 3 months of physical completion of each individual road and a project completion report within 3 months of completion of transactions under the Project. These reports will provide a detailed evaluation of the design, costs, contractors’ and consultants’ performance, social and economic impact, economic rate of return, and other details relating to the Project as may be requested by ADB.

9. Project Performance Monitoring and Evaluation

52. RCD will, within 3 months of the loan signing, develop a systematic project performance monitoring system, in a form and substance acceptable to ADB, for use throughout the life of the Project.

53. RCD will establish, within 3 months of loan effectiveness, a baseline for performance indicators to be used for monitoring implementation of each road subproject. It will conduct annual evaluation surveys for each road subproject, in accordance with the project performance

12 monitoring system, to evaluate the scope, implementation arrangements, progress, and achievement of the project objectives.

10. Project Review

54. ADB and RCD will meet regularly as required to discuss the progress of the Project and any changes to implementation arrangements or remedial measures required to achieve the project objectives. They will undertake a midterm review focusing on issues related to implementation arrangements, and agree on changes, if needed, to achieve the project objectives.

IV. TECHNICAL ASSISTANCE

55. A TA for $1,000,000 for Institutional Strengthening of the Bihar Road Sector will support some of GOB’s institutional development initiatives set out in the action plan (Appendix 3). The focus of the TA will be to (i) redefine and restructure RCD to a state-of-the-art road agency, and (ii) implement new business procedures and provide training to RCD officials to enable RCD to restructure and adopt a new institutional and management structure. New business procedures will cover (i) procurement and contracting processes, (ii) planning processes, (iii) quality assurance systems, (iv) engineering (pavement design, maintenance methods, and safety), and (v) human resource management.

56. The consultants will undertake the services in close consultation with principal secretary and engineer-in-chief, RCD. They will conduct district and state training and workshops as required. They will consult with all RCD divisions to disseminate the concepts of the sector development initiative.

57. The TA will be financed on a grant basis from the ADB TA funding program, and be carried out by an international consulting firm, to be recruited in accordance with ADB Guidelines on the Use of Consultants. International consulting inputs of 31 person-months are required (Appendix 11). The TA will be implemented from October 2008 to August 2009.

V. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS

A. Institutional and Operational Improvements

58. Improving management of the state road network through the institutional development component and the TA, and the improvement to the road network under the Project will enhance overall road conditions and usability. This will increase travel speeds and reduce travel time, accidents, and overloading. The enhancement of RCD’s capacity for road asset development and management will improve road administration governance and accountability, and create an environment within RCD and the construction industry that encourages competition and efficiency. This will ensure more efficient road asset development and management, and higher quality of construction and maintenance, resulting in decreased recurrent costs over the medium and long term. This will lead to overall social and economic development in Bihar.

B. Economic Assessment

59. The approach used to evaluate the Project follows the standard practice of comparing life cycle road agency and user costs with and without the Project, using net present value with

13 a 12% discount rate and economic internal rate of return (EIRR) as decision criteria. The Highway Development and Management Model, HDM-4, was used for the analysis. The analysis focuses on transport cost savings. Value added from better transport links resulting in new industries and employment are not quantified in this analysis but are captured through benefits to generated traffic.

60. The EIRR for the roads evaluated varies from 15% to 48%. The EIRR for three roads is below 20%, and for five roads is higher than 30%. The Project, which is for the state road sector rather than for individual roads, is very robust with a high EIRR, satisfying the economic efficiency criteria.

61. The sensitivity of the EIRR for the project roads was analyzed with respect to changes in the benefit and cost streams. The following sensitivity test cases were examined: (i) construction costs increase by 15%, (ii) no time is saved, (iii) benefits decrease by 15%, and (iv) generated traffic is reduced by 50% in addition to a combination of (i) and (iii). The results show that the quantified economic benefits are robust to various sensitivity tests. Only two roads have an EIRR slightly below 12% in the worst case scenario. These two roads serve relatively less-developed areas of the state and their improvement will have a positive impact on the development of these areas. Considering their positive development impact and the fact that even in the worst case scenario, they have an EIRR more than 10%, these two roads are recommended for implementation under the Project along with all other roads included in the analysis. Details of the economic assessment are in Supplementary Appendix B.

C. Financial Sustainability

62. RCD is currently undertaking a comprehensive road rehabilitation program to rehabilitate and upgrade 91% of state highways and 74% of MDRs in the next 5 years. During this period, the funding requirement for maintenance is small compared to capital expenditure and can be accommodated by the budget. After completion of the rehabilitation program, sufficient funds are expected to be available for all recurrent and periodic maintenance work of the upgraded state highways and MDRs; total annual maintenance costs are likely to be less than 4% of the projected GOB budget or 40% of the RCD budget.

D. Social Impacts

63. Poverty Reduction and Social Impact. GOB and the Planning Commission of India estimate that 42.6% of Bihar’s total population lives below the poverty line, which is highest in the country. The human development index,5 a composite of literacy, life expectancy, and per capita income, has increased for Bihar as in the rest of India. Bihar’s rank among the states has remained unchanged at 15 since 1981. The human development index for Bihar was 0.267 in 2001 in comparison to the national value of 0.472. A poverty and social assessment was undertaken during project preparation. Agriculture is the mainstay of residents in the project areas, with the majority deriving their livelihood from agriculture and labor (both agricultural and nonagricultural). By improving state roads, economic opportunities are expected to increase by (i) enabling villagers to shift from subsistence farming to market-oriented agricultural surplus production; and (ii) helping local people, particularly rural youth, to work at better-paying jobs in trading and other new jobs. The Project will indirectly contribute to social benefits such as improved access to health, education, and social services. The Project will have a short-term impact on poverty reduction as the rural poor will be hired for construction, tree planting, and

5 National Planning Commission, Government of India. 2001. National Human Development Report. New Delhi.

14 ensuing maintenance works. These opportunities will directly increase earnings of the poor who are largely dependent on occasional and uncertain employment. A summary poverty reduction and social strategy is in Appendix 12.

64. Gender. In Bihar, the gender ratio of the population is 921 females for every 1,000 males (2001 census). The literacy rate is 47.53%: 60.32% for males and 33.57% for females (2001 census). Focus group discussions were undertaken with women belonging to different socioeconomic groups in project influence areas. The majority of women work in the home and outside; the majority are consulted by their spouse and other family members prior to any family decision. Improved road conditions will encourage better transport services, thereby improving access for women and children to social services, markets, workplaces, higher education, better health facilities, and better employment opportunities for women and men.

65. HIV/AIDS. India is on the brink of one of the biggest public health challenges in its history. The Government estimates that in 2006, about 2.45 million Indians were living with HIV (1.75 million–3.15 million) with an adult prevalence rate of 0.41%. According to India’s National AIDS Control Organization, HIV infection is typically concentrated among poor, marginalized groups, including sex workers, drug users, migrant laborers, and truck drivers who are categorized as high-risk groups. These groups, particularly truckers, drive the HIV/AIDS epidemic and many studies indicate that infection is spreading rapidly to the general population. Bihar is categorized as a low prevalence state. The detailed study undertaken during project preparation did not anticipate any risks that HIV/AIDS would increase as a result of the Project. In addition, state, district, and block campaigns by the health department and state AIDS Control Society are already being undertaken to increase awareness of the disease. Interactions with the medical health officer, AIDS counsellors, nongovernment organizations, and United Nations Children’s Fund officers in the project areas indicate that 2–3 block awareness campaigns are organized each year to increase awareness of HIV and AIDS. RCD will conduct awareness program of social aspects including HIV/AIDS in project areas for which GOB may engage an agency/nongovernment organization.

66. Indigenous People. According to the Census of India 2001, Bihar has an indigenous people population of 758,351, constituting 0.9% of the state’s total population vis-à-vis the national percentage of 8.2%. Of the 38 districts in Bihar, 6 have no indigenous people members; in the rest, the indigenous people population varies from 0.1% to 5.9%. has the highest proportion of indigenous people (5.9%), followed by Jamui (4.8%), Banka (4.7%), and (4.4%). has the lowest proportion (0.01%), preceded by and Khagaria (0.03% each). No demarcated indigenous people areas are located in the project area. Since the Project entails rehabilitating existing road alignments, the social assessments undertaken have revealed limited or no significant impact on indigenous people groups within the area of influence of the project roads. Such impacts are addressed through specific measures for indigenous groups embedded in the resettlement plans. The assessment also notes that the indigenous people members in the project area have been mainstreamed and assimilated into the local population. The study undertaken for project preparation did not indicate differential impacts between indigenous and non-indigenous groups in project locations. The improved road network is expected to augment access to socioeconomic facilities of indigenous people groups along with other sections of the subproject population. Construction will not have any adverse consequences for socioeconomic conditions or lead to any disruption in the community life or culture of these communities.

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67. Resettlement Impacts. The Project was developed with a view to avoid or minimize the need for land acquisition and resultant involuntary resettlement by means of adopting the most feasible technical design. In addition, the Project entails rehabilitation of existing state roads, which will occur within the available right-of-way; no land acquisition will be required. A 100% census was conducted based on detailed design of nine roads. Resettlement plans were prepared in accordance with the Government’s National Rehabilitation and Resettlement Policy 2007, and GOB’s Bihar Land Acquisition Resettlement & Rehabilitation Policy 2007, ADB’s Policy on Involuntary Resettlement (1995), ADB’s Operation Manual F2 on Involuntary Resettlement, for each road. Based on the census survey, all nine roads will have resettlement impacts limited to nontitleholders as the proposed work is within the existing right-of-way. A total of 2,067 structures will be affected including 1,944 private structures (residential, commercial, and mixed), 5 community structures, 78 religious structures, and 40 government structures and utilities. Among the 1,944 private structures, 1,156 belong to encroachers, 784 belong to squatters, and 4 are owned by business license holders. The compensation entitled for the loss of structures at replacement value, shifting assistance, and other income restoration assistance is detailed in the entitlement matrix of the resettlement plans. Special support provisions for affected people belonging to vulnerable groups, e.g., indigenous people groups, are included in the resettlement plans. The total cost for resettlement for all nine subproject roads is estimated at Rs58 million. A summary of the resettlement plans is in Supplementary Appendix C.

E. Environmental Impacts

68. The Project is classified "B" in accordance with Government and ADB environmental assessment requirements. Therefore, initial environmental examinations (IEEs) were prepared for the nine subprojects. The summary of the IEE reports provides a brief description of environmental conditions of the project-affected areas, a summary of potential environmental impacts, and the recommended mitigation measures. The summary IEE is attached as Supplementary Appendix D and will be disclosed simultaneously with the report and recommendation of the President.

69. The findings of the IEEs indicate that the Project is not expected to have adverse environmental impacts. The impacts mainly occur during construction and are mostly temporary. The main causes are land clearing for widening the carriageway, earthwork involving cut and fill, and quarrying and transportation of construction materials to support construction activities. During the operation, direct local impacts are mostly related to road accidents. The IEE reports detail proposed mitigation measures to minimize these adverse impacts. They include environmental management plans to guide implementation of the mitigation measures by contractors, supervision consultant, and RCD through its PMU (to be assisted by a consultant). The PMU with the assistance of a consultant and in close consultation with relevant state agencies, such as the Forest Department and Bihar Pollution Control Board, will be responsible for carrying out environmental monitoring and preparing an environmental monitoring report on behalf of RCD.

F. Risks

70. A recent sector assistance program evaluation identified issues for state road projects in India, including (i) initial delays in implementation, (ii) risk of incomplete network development because of avoiding areas that require major involuntary resettlement and are environmentally sensitive, (iii) appropriateness of sector development framework, and (iv) a need for government to efficiently and effectively secure the maintenance budget.

16

71. The risk of initial delays has already been mitigated through RCD’s advance actions and support provided by ADB for full compliance with requirements. Training on safeguard requirements was provided to RCD staff to mitigate the potential risk of initial delays due to procedural clearance.

72. Project roads were identified in accordance with the state highway development program. The Project will minimize or nullify any negative social and environmental impacts through appropriate engineering design.

73. The risk of an unrealistic sector reform agenda has been mitigated by reflecting the state context in the institutional strengthening action plan by taking into account the rather short-term project duration, actions taken by GOB, and the policy framework of Bihar Road Sector Development–New Dimensions (footnote 2).

74. GOB has increased its maintenance budget to meet requirements and obtained the full grants-in-aide provided by the Government’s under the 12th Finance Commission by providing adequate funds under the nonplan budget. The risk of underutilization of the maintenance budget is low based on the recent year’s high utilization, resulting from RCD’s strict monitoring systems for project implementation.

75. Fiduciary risks are addressed by adopting international best practices in procurement with ADB prior review; and parallel support by the World Bank and DFID in improving public financial management, governance, and anticorruption initiatives.

VI. ASSURANCES

76. In addition to the standard assurances, the Government and GOB have given the following assurances, which will be incorporated in the legal documents:

77. Implementation. The Government will ensure that GOB provides timely and adequate counterpart funds and facilities for the Project, including the funds needed for implementing the environmental management plans and resettlement plans, and any cost overruns in respect thereof.

78. The Government will ensure that GOB implements the institutional strengthening action plan, utilizing the recommendations of ADB’s TA for Institutional Strengthening of the Bihar Road Sector during project implementation.

79. GOB shall cause RCD to designate at least one officer in the PMU to supervise implementation of the environmental management plans and resettlement plans.

80. Road Maintenance Financing. The Government and GOB will ensure that adequate and timely funding is provided to RCD for maintenance of the roads rehabilitated and reconstructed under the Project.

81. GOB will ensure that it provides adequate funds under the non-plan budget for road maintenance during implementation of the project, and also after its completion.

82. Environment. The Government through GOB shall cause RCD to ensure that (i) the Project is designed, constructed, operated, and maintained in accordance with the environmental laws and regulations of the Government and ADB’s Environment Policy (2002);

17

(ii) the environmental management plans and mitigation measures included therein, as specified in the IEEs, are properly implemented; (iii) the environmental management plans are incorporated into the bidding documents and civil works contracts, and are updated, if necessary, in course of project implementation with prior approval of ADB; (iv) all environmental permits, licenses, and clearances are obtained in a timely manner prior to commencement of civil works in the relevant section of the project roads; (v) any adverse impact on the environment that may arise from project implementation is promptly mitigated or minimized in accordance with the environmental management plans; (vi) implementation of the environmental management plans, including any safety breaches, violation of environmental standards, and corrective measures taken in respect thereof are reported semiannually to ADB; and (vii) reports and information are provided to ADB on request to enable it to verify that the goods, works, and consulting services, if any, financed out of the proceeds of the loan, have been produced in a responsible manner with a view to resource efficiency, waste minimization, and other environmental considerations.

83. GOB shall cause RCD to report to ADB any change in the alignment of any project road, so as to determine if additional environmental assessment study is necessary.

84. Involuntary Resettlement. The Government through GOB shall cause RCD to ensure that (i) the Project is implemented in accordance with the Government’s National Rehabilitation and Resettlement Policy 2007, GOB’s Bihar Land Acquisition Resettlement and Rehabilitation Policy 2007, ADB’s Involuntary Resettlement Policy (1995) and Indigenous Peoples Policy (1998), and the resettlement plans; (ii) all affected people are given adequate opportunity to participate in resettlement planning and implementation; (iii) the resettlement plans are disclosed to the affected people, who are compensated and assisted prior to displacement from their houses, land, and assets; and before commencement of civil works in the relevant section of the project road; (iv) affected people receive priority for wage employment in project construction; (v) additional assistance is provided for vulnerable groups; (vi) resettlement plans are updated, if necessary, in course of project implementation, disclosed to the affected people, and submitted to ADB for approval and disclosure on its website; (vii) civil works contracts under the Project include requirements to comply with the resettlement plans; (viii) implementation of the resettlement plans is monitored (a) internally by the project implementation units and reported monthly to the PMU, which shall report the results quarterly to ADB, and (b) independently by an expert under the construction supervision consultant and reported biannually directly to ADB; and (ix) affected people have an opportunity to express grievance at appropriate levels, and that local officials are instructed to resolve disputes and implement measures promptly.

85. HIV/AIDS, Human Trafficking, and Child Labor. GOB shall conduct awareness program in respect of HIV/AIDs, human trafficking, and child labor in project areas for which GOB may engage an agency/nongovernment organization. RCD will ensure that the civil works contracts under the Project incorporate provisions to the effect that the contractor is required to (i) carry out HIV/AIDS awareness programs for labor; (ii) disseminate information at worksites on risks of sexually transmitted diseases and HIV/AIDS as part of health and safety measures for those employed during construction; and (iii) follow and implement all statutory provisions on labor (including equal pay for equal work and non-employment of child labor), health, safety, welfare, sanitation, and working conditions. The civil works contract will provide for termination of the contracts by GOB and RCD in case of breach of any of the said provisions by the contractors.

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VII. RECOMMENDATION

86. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve the loan of $420,000,000 to India for the Bihar State Highways Project from ADB’s ordinary capital resources, with interest to be determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility; a term of 25 years, including a grace period of 5 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft Loan and Project Agreements presented to the Board.

Haruhiko Kuroda President

27 August 2008

Appendix 1 19

DESIGN AND MONITORING FRAMEWORK

Data Sources and/or Design Performance Targets and/or Reporting Assumptions Summary Indicators Mechanisms and Risks Impact Assumption Increased Contribution of road transport to National and state • Various government economic growth the state gross domestic socioeconomic data development activities are in Bihar product (1.7% in 2006) and statistics effectively coordinated increased to 3.5% by 2015 with road sector investment.

Risk • Roadside small businesses lose business opportunities due to increased efficiency and speed of vehicle travel. Outcome Assumptions Enhanced road Actual growth rates of traffic on Post-implementation • Delivery of the project is transport project roads surpasses measurement timely. efficiency and assumed growth rates, e.g., 8% • The state allocates safety for cars Data collected through sufficient maintenance the road asset budget to be eligible for Vehicle operating costs on management system grants-in-aid available project roads reduced by 30% during FY2005–FY2009 for two-axle trucks (from the Social and household as provided by the 12th current average of Rs19/km) survey Finance Commission and by 35% for passenger ruling. buses (from the current Project performance • Funds allocated for average of Rs21/km) by monitoring system maintenance works are completion fully utilized. • Transport modes and Travel time on project roads services are available for reduced by an average of 40% the project roads (speed increased from current average of 35 km/hour to 60 km/hour) by completion

Access of the rural poor to social services, markets, and other economic activities improved (e.g., number of daily trips by the rural poor increased by 50% by 2012)

At project completion, accident rate (fatalities by vehicle-km) reduced by 20% from 2008 rate

Project roads maintained with International Roughness Index below 5 from over 10 at appraisal

20 Appendix 1

Data Sources and/or Design Performance Targets and/or Reporting Assumptions Summary Indicators Mechanisms and Risks Efficiency of RCD operations (length of maintainable state roads per RCD engineers) increased by 100% by completion Outputs Assumptions 1. Rehabilitated Approximately 820 km of state Progress reports of • Civil works are and improved highways rehabilitated or RCD implemented on state roads upgraded to two lanes by 2011 schedule. ADB review missions • Institutional strengthening 2. Improved Effective sector institution is implemented. sector framework set and RCD Project completion • Qualified civil works management redefined with adequate powers report contractors and for managing 11,000 km of consultants are state roads Project performance participated. Procurement monitoring system is efficient and effective, Project delay reduced by 50% and safeguard policies follow ADB procedures Annual maintenance costs per and requirements. maintainable roads reduced by 10%

Full utilization of allocated funds Activities with Milestones Inputs

1. Investment Component For 1 and 2: 1.1 Engagement of construction supervision consultants by August 2008 • ADB: $420 million 1.2 Procurement of first group of civil works completed by August 2008 • Government: $48 million 1.3 Construction of all civil works completed by January 2011 For 3: 2. Institutional Development (equipment) • ADB: $1 million 2.1 Equipment procured by the end of 2009 • Government: $0.25 million in-kind 3. Institutional Development (technical assistance) contributions 3.1 Consultant selection by the end of 2008 3.2 Consulting services by the end of 2009 3.3 Training of RCD staff by the end of 2009 3.4 RCD redefined with adequate legal backing by mid 2010 3.5 New business procedures of RCD adopted by mid 2010

ADB = Asian Development Bank, RCD = Road Construction Department.

Appendix 2 21

BIHAR ROAD SECTOR ANALYSIS

1. Bihar, a landlocked state in the middle Gangetic region, has an area of 94,164 square kilometers. It is surrounded by Uttar Pradesh (west), Jharkhand (south), West Bengal (east), and Nepal (north). The state has a rich history and cultural tradition, making it a major religious and tourist destination.

2. While an extensive and well-developed rail system passes through Bihar and considerable potential exists for development and utilization of inland waterways, rapid development and strengthening of the road network will provide momentum for accelerating the process of economic development.

A. Road Network and Traffic

3. The road network in Bihar in 2007 is described in Table A2.1. Not all roads are of the same type in terms of either width or quality. Most of the higher class of roads have been provided with a sealed (bitumen or concrete) surface while the less important ones remain unsealed (metalled or gravel).

Table A2.1: Roads in Bihar (kilometers)

No. Class of Road Sealed Gravel/Earth Total 1. National Highways 3,705 18 3,723 2. State Highways 3,120 8 3,128 3. Major District Roads 7,714 0 7,714 4. Other District Roads and Village Roads 30,228 36,852 67,080 Total length 44,775 36,870 81,645 Source: Government of India. 2007. Bihar Road Sector Development–New Dimensions. New Delhi. Updated for national highways, state highways, and major district roads.

4. The carrying capacity of a road is governed by its carriageway width. Nearly 70% of state highways and 80% of the major district roads (MDRs) are single lane (Table A2.2). Of national highways, 45% have not been improved to two or more lanes.

Table A2.2: Distribution of Roads by Carriageway Width (%) Percent of Road Length Two or Single Intermediate More No. Class of Road Lane Lane Lanes Total 1. National Highways 20 25 55 100 2. State Highways 71 27 2 100 3. Major District Roads 83 13 4 100 Source: Bihar Road Construction Department.

5. The road network is poorly developed, and for years has been underfunded and experienced extensive damage due to lack of maintenance, overloading, and frequent floods. Recent floods have washed away many roads built recently under various government programs. The road density in Bihar is only 901 kilometers (km) per million population compared with the national average of 2,567. About half of villages lack all-weather road connectivity. Most roads have poor riding quality, poor geometry, weak pavement, and inadequate capacity; and

22 Appendix 2 lack bridges. The result is high transport costs and excessive travel time. A major part of the network is almost not usable.

6. Vehicle registrations increased from 0.95 million in 2000/01 to 1.56 million in 2006/07, an annual averaging increase of 8.6%. The highest increase was 2-wheelers; excluding the 2- wheelers, the increase is 5.5%. Trucks increased at a very low rate, whereas tractors and trailers have increased more quickly. This may be mainly due to the poor road network, where tractors and trailers are preferred for transporting goods, especially agricultural produce— agriculture is the mainstay of the rural economy. The number of trucks, especially multiaxle trailers, is expected to increase once the road conditions and network are improved.

B. Asset Management of State Roads

7. Bihar Road Construction Department (RCD) is responsible for state highways, MDRs, and national highways approved and funded by the Government of India (the Government). Of the 3,700 km of national highways in Bihar, the National Highway Authority of India is responsible for 800 km. The Government recently approved upgrading 890 km of national highways to four lanes under the National Highway Development Program III using build- operate-transfer (BOT). Roads that GOB identifies for development on a BOT basis are entrusted to India Infrastructure Finance Company and Infrastructure Development Finance Company to structure and implement the projects. District councils and the Rural Works Department are responsible for ODRs and village roads. The Rural Works Department is responsible for the chief minister’s rural roads program, Mukhya Mantri Gram Sadak Yojana (MMGSY), which connects habitations with populations of 500–999, in parallel with the nationwide Prime Minister’s rural roads program, Pradhan Mantri Gram Sadak Yojana (PMGSY), which gives priority to connectivity for habitations with populations of more than 1,000. The chief minister’s rural roads program follows the basic principles and incorporates the good practices of the Prime Minister’s rural roads program, but employs more decentralized administrative and technical sanction procedures, and utilizes a separate set of guidelines for project selection.

8. RCD is responsible for construction and maintenance of roads on behalf of GOB. The engineer-in-chief is the technical head of the department and professional advisor to GOB on policy and implementation related to road construction. The engineer-in-chief reports to the RCD principal secretary. RCD is organized with four wings, which are responsible for construction and maintenance of roads (north Bihar, south Bihar, national highway, special project). The wings are headed by chief engineers who are responsible for implementation of policy and overall supervision of RCD administration.

9. Under each wing are circle offices headed by superintending engineers. Under every circle are divisions, headed by executive engineers. They are the basic operations units and executive engineers are responsible for management of works including contracts and payment for works. In every division, subdivisions are headed by assistant engineers who manage and supervise works within their subdivision. This involves design and contract management including quality control and testing. Assistant engineers are required to check the quality and quantity (measurement) of works. Under every subdivision are sections headed by junior engineers who are the basic field functionaries and responsible for managing actual construction activity in the field, taking measurements, giving day-to-day guidance, and reporting to the assistant engineer.

Appendix 2 23

10. In addition, there are wings in charge of surveys and planning (advance plan); design, training, and research (central design office); monitoring implementation (supervision), and maintaining RCD equipment including machinery for roads (mechanical). RCD has divisions in charge of procurement (headed by a director) and transport (headed by a special officer), centrally operated under the engineer-in-chief.

11. The existing RCD headquarters organization meets the assigned requirements. The mechanical wing functions well, and is equipped with adequate machines and compactors. The Bihar State Bridge Construction Corporation effectively undertakes all major bridge works in the state. However, the capacity of RCD for core processes requires strengthening and reorganization, especially in the areas of policy making, planning, and programming. No training institutes are available to train contractors and RCD personnel to improve their skills in construction management.

C. Road Transport Regulation and Industry

12. The Bihar Transport Department is responsible for licensing, registration, and regulation of motor vehicles, drivers, and passenger and freight transport; as well as road safety policy and enforcing axle-load regulations. It has started to address controlling overloading and installing six weigh stations at entry points into the state. Installation of additional weighbridges is planned. Traffic police, under the Home Department, are responsible for enforcing traffic and road safety regulations. The Transport Department is headed by principal secretary and its functions are designed in accordance with the provisions of the Motor Vehicles Act, 1988. The principal legislation and regulations affecting the functioning of the department are the Motor Vehicles Act, 1988; Central Motor Vehicles Rules, 1989; Bihar Motor Vehicles Rules, 1992; Bihar Motor Vehicles Taxation Act, 1994; Bihar Motor Vehicles Tax Rules, 1994; Bengal Ferries Act and rules; and Inland Vessels Act, 1917. The principal functions of the department are revenue collection; registration of vehicles; issuance of permits; inspection of vehicles and enforcement of penalties under various central and state laws and regulations; monitoring, implementing, and coordinating interstate and interregional transport arrangements; prevention of vehicular pollution and enforcement of relevant regulations; and maintenance of statistical data for the use of the central and state governments and transport organizations.

13. The state-owned Bihar State Road Transport Corporation provides intra- and interstate bus services with about 350 buses, i.e., about 2%–3% of buses operated in the state. It is currently restructuring in line with the state program. Buses are replaced with new ones, and fleet utilization, bus productivity, and effective operation kilometers are being improved. Most of these efficiency parameters are also expected to be improved as a result of improving road conditions. GOB grants permission to contract and private buses to use the same routes as the State Road Transport Corporation. GOB authorized the corporation to fix fares based on sound business principles. Private bus operators adopt different fares based on demand for specific routes. Truck hire rates are fixed by market demand. Competition is good. Private sector operators provide most of the services for passenger and freight transport.

D. Road Expenditures and Revenues

14. Budgetary expenditure for state roads in 2006/07 was Rs1,974 crore1 ($506 million) compared with the original budget of Rs2,147 crore ($551 million). In 2006/07, the budget is 2.8 times larger than the previous year’s Rs648 crore ($171 million) due to the new state

1 A crore is equal to 10,000,000.

24 Appendix 2 government’s high priority for road rehabilitation and development, supported by the Government’s grant fund (Rashtriya Sam Vikas Yojana). The extent of underspending was only 8% of the original budget. This demonstrates remarkable improvement in RCD’s capacity and commitment to deliver. The 2007/08 budget increased to Rs2,378.85 crore ($610 million). Table A2.3 summarizes the plan and nonplan budget allocation with details of the nonplan budget.

Table A2.3: Road Construction Department Budget Allocation and Expenditure (Rs Crore) Item 2003/04 2004/05 2005/06 2006/07 Budget Allocation Plan 120.88 318.48 648.04 1,804.80 Nonplan 228.22 248.00 289.56 342.31 Wages and Salaries 101.81 107.01 116.41 126.01 Maintenance 124.92 140.15 172.15 215.00 Other 1.50 0.83 1.00 1.30 Total 349.10 566.48 937.60 2,147.11 Expenditure Plan 51.20 133.87 263.26 1,663.25 Nonplan 201.23 228.31 263.95 310.78 Wages and Salaries 87.03 89.27 98.00 112.70 Maintenance 112.78 138.25 164.97 196.86 Other 1.42 0.80 0.99 1.23 Total 252.43 362.18 527.21 1,974.03 Source: Bihar state government.

15. Revenues relating to road use, including vehicle taxes, permits, fees, and penalties, were Rs308 crore ($124 million) in 2005/06, up from Rs178 crore ($87 million) in 2002/03. The average annual increase is very high at 20% due to improved vehicle registration and tax payments. In addition, road users pay commercial sales taxes such as for vehicles, fuel, tires, and spare parts. The Transport Department is one of the major resource-generating departments along with the commercial tax, registration, and excise departments.

E. Main Sector Issues and Government Initiatives

16. The state’s road network is very poor in terms of coverage and conditions. Demand for road transport is increasing. Insufficient funding to road maintenance in the past has increased the number of roads that are beyond maintainable condition and the backlog of deferred maintenance. GOB has taken on the State Highway Development Program to rehabilitate and upgrade state highways to at least 2 lanes, and expand the state highway network by upgrading MDRs to 2 lanes. The program covers upgrading 2,831 km of the 3,127 km of state highways during the 11th Five Year Plan period through various schemes, including the Government- supported RSVY, BOT schemes, and Asian Development Bank (ADB) assistance.

17. GOB also takes on sector development initiatives in the framework specified in Bihar Road Sector Development–New Dimensions 2 to develop and sustain the road network by modernizing road agencies; encouraging private sector participation in road financing;

2 Government of India. 2007. Bihar Road Sector Development – New Dimensions. New Delhi.

Appendix 2 25 outsourcing design, supervision, and construction along with systems for independent proof checking and audit; setting up a stable source of funding for road development and maintenance; attracting financially sound and fully equipped contractors by offering large contracts for national and state highway projects; enabling smaller contractors to acquire experience; introducing long-term, performance-based maintenance contracts; initiating corridor management to expedite clearance of utilities and availability of materials; and strengthening capacity of local contractors.

1. Sector Institution Framework

18. The sheer magnitude of the task requires substantial improvement in efficiency of sector management. Currently RCD is in charge of all state roads, e.g., state highways and MDRs, irrespective of strategic importance requiring priority improvement and maintenance.

19. Approaches identified by the Bihar road sector development strategy (footnote 2) include (i) harnessing private sector structures and skills to meet public demand for infrastructure; (ii) encouraging private sector participation in road financing; and (iii) outsourcing functions of project preparation, design, construction, construction supervision, and quality audit to private entities. This would leave government functionaries with the limited but important responsibility of policy development and management oversight, and improving accountability concentrating on performance monitoring and output, rather than the day-to-day running of public services.

20. For this purpose, RCD initially outsourced works of upgrading old state highways under RSVY with Rs3,000 crores ($790 million) to other road implementation agencies, targeting completion by 2008/09. Work on the remaining 1,554 km, of newly declared state highways, is proposed to be implemented with international best practices with ADB financing, adopting FIDIC3-based contract management and international competitive bidding procedures. GOB has been discussing potential BOT projects for 500 km of national highways with India Infrastructure Finance Company and Infrastructure Development Finance Company.

21. For long-term frameworks, it is often effective to split the functions of road development policy/programming, and project implementation. While the government would determine the extent, an autonomous body like a highway authority or road development corporation would execute the project, e.g., project preparation, design, bidding, and contract awards and management. This will ensure efficient decision making for program implementation and help build up expertise in outsourcing technical work, understanding FIDIC, other new forms of contracts, and public–private partnerships.

22. RCD is considering setting up a state road and highway development authority to streamline decision-making and provide more autonomy for project execution and delivery. This requires redefining powers, functions, and accountability of road agencies. The established project management unit of the ADB project is considered an embryo cell to be expanded and strengthened to be an autonomous authority for state road development and maintenance.

23. All right-of-way management authority is currently with police and revenue departments, and managing encroachments requires time, resulting in time and cost overruns for road projects. Well-defined right-of-way and asset management authority should be placed with RCD engineers to provide long-term benefits of road development planning.

3 Federation Internationale Des Ingenieurs-Conseils

26 Appendix 2

2. Business Procedures

24. RCD undertakes businesses in accordance with the 1958 Bihar Public Works Department Code. Layers of approval for project sanctioning are required, which takes time for project approval and payment to contractors. GOB recently amended the code to delegate more sanctioning power with increased financial amount to field offices, which helps expedite project implementation. RCD’s sector management capability was significantly strengthened during the last one and half years. Major actions taken by RCD include streamlining bidding procedures, quality control, asset management, and project management.

25. Procurement and Bidding Documents. For procurement and subsequent execution of works, outdated performance standards resulted in very poor quality of the road network. No mechanism was available to measure contractor performance. RCD developed standard bidding documents for civil works in 2006 to streamline procurement procedures. For larger contract packages, such as those under ADB financing, it adopts FIDIC contracts and international competitive bidding procedures.

26. Quality Control. A 2–3 year performance guarantee and/or defect liability are included in contracts. Laboratory equipment is being enhanced, and mobile quality control squads are set up in all district offices. A third-party quality control system has been introduced.

27. Asset Management. A geographic information system-linked database of road inventory and work history is currently being prepared. At the same time, a new asset management system is being set up, which plans the budget under headings of routine maintenance, periodic maintenance, widening/strengthening, and resurfacing. This will help develop optimal allocations of the road budget for development and maintenance.

28. Project Management and Monitoring. RCD introduced penalty and bonus clauses in contracts to motivate completion of projects on time. To implement the system, RCD introduced strict monitoring systems of work progress. This will be connected online between all field offices and headquarters by the end of this fiscal year. Accounting officers for the field offices were deputed from the accountant general’s office to ensure appropriate recording of financial matters.

3. Road Maintenance Financing

29. The nonplan budget increased from Rs201 crore ($52 million) in 2003/04 to Rs311 crore ($80 million) in 2006/07, an annual increase of 15.6%. The maintenance requirement until completion of the State Highway Development Program is not high as most state highways and MDRs will be upgraded under the program. After the program, the budget requirement for maintenance will be increased and is estimated at Rs420 crore ($108 million) annually. Revenue relating to road use is estimated at Rs308 crore ($79 million) in 2005/06, excluding excise, with historical increase of 20% per annum. This matches maintenance requirements and is absorbed in the general government revenue.

30. Efficiency of the use of nonplan budget has improved. The share of salaries and wages in the nonplan budget reduced from 43% in 2003/04 to 36% in 2006/07. This demonstrates GOB’s increased commitment to maintenance and efficiency of road maintenance. Considering past budgetary provisions and trends, GOB is assessed as adequately providing maintenance financing in a sustainable manner. Increased maintenance quality due to introduction of 5-year

Appendix 2 27 performance-based maintenance contracts will increase the efficiency of maintenance works and reduce maintenance costs. GOB has provided assurance that it will provide adequate financing to maintain state highways developed with ADB financing.

4. Road Safety

31. Bihar has a higher accident rate (17.3 fatalities per 10,000 vehicles between 2001 and 2004) than the national average (12.8 in 2003), and the rate is expected to increase as traffic grows. One of the major causes of accidents is lack of awareness and knowledge of traffic rules. To enhance awareness of traffic rules, the Transport Department organizes a road safety week every year for school children and the public. In Patna and major district centers including rural areas, the Transport Department undertakes inspection missions to ensure people follow traffic rules. GOB is planning to establish state and district road safety councils to provide guidance on road safety.

32. RCD will develop a road safety unit within its organization to institutionalize road safety audits, ensuring safety elements of India Roads Congress standards are incorporated in design and during construction.

33. In 1996, the Government recommended establishing a directorate of safety and traffic management and set up a road safety fund allocating 1% of cess revenue for national highways. An expert committee at the Ministry of Sipping, Road Transport and Highways will review these recommendations and finalize a road safety policy to address legal, institutional, and financial issues for road safety. This will provide a new context for the funding and institutional setup for state road safety.

5. Overloading

34. Overloading is a nationwide problem and the number of multiaxle trailers is increasing. Overloaded trucks are expected to increase on major Bihar highways in accordance with economic growth. An overloading control program being set up comprises 43 actions, such as multilane weighbridge installation with separate lanes for small vehicles, officers residing at check posts, computerized processing and networking, and smart-card-based systems for verification and payment. Initially, six weighbridges are being installed at state border points, and more are planned. Strict enforcement of the regulation, e.g., practicing off-loading of overloaded trucks, will be undertaken in coordination with the police.

6. Vehicle Pollution Control

35. To support a clean environment, GOB amended the 1992 Bihar Motor Vehicle Rules to require all vehicles to have a pollution control certificate. All vehicles must undergo pollution checks to obtain the certificate. While it continues to establish permanent pollution check centers, GOB is encouraging the private sector to develop centers and has given permission for 103 so far. GOB has established centers in 21 of the 38 districts in the state. Emission test machines are now required for each center.

7. Construction Industry

36. The proposed large programs require good construction firms equipped with adequate technical personnel and modern construction machinery. In the absence of regular work in the past, the state’s construction industry has become weak; only a few contractors are from

28 Appendix 2 outside the state. Local contractors have difficulty mobilizing the necessary financial resources to even bid and subsequently implement the works.

37. A local construction industry can develop around a large program if work is seen to be available on a regular basis over a long time. Initially, local agencies could associate with qualified construction firms from outside the state, and acquire the necessary technical and managerial skills to subsequently qualify on their own. Good contractors from outside the state will invest their resources only if they perceive a good opportunity in terms of contract size. Under the Project, GOB made the contracts as large as possible to attract qualified bidders.

38. The infrastructure equipment bank, QUIPO, was set up to lease construction equipment to local contractors, starting with the first three branches at Bhagalpur, Muzaffapur, and Patna. This will help expedite the process of road construction in the state. RCD simplified contractor registration rules to reduce barriers to entry to help increase competition between contractors, and hence increase quality and reduce cost.

39. Key sector development initiatives undertaken are summarized in the institutional strengthening action plan (Appendix 3).

Appendix 3 29

INSTITUTIONAL STRENGTHENING ACTION PLAN

Actions Taken or Objective Elements Actions to be Taken Under Way A. Road Sector Institutional Framework and Strategy Enhance sector Develop road policy Road policy framework Redefine RCD functions and institutional developed powers with adequate legal framework with a Manage right-of-way backing, e.g., State Highway sustainable long-term Short-term plan Act. strategy for the state Develop investment developed road sector programs for state Based on road asset highways and major management systems, district roads prepare long-term state and district investment and maintenance programs. B. Organization Reform and Strengthening Enhance organization Reorganize road Strategically important Review state road institutions structure for roads sector institutions to roads outsourced, e.g., and develop a restructuring policy, planning, and modernize sector CPWD and IRCON roadmap to make RCD a execution functions development and under the state-of-the-art modern road management Government’s grant agency. fund, build-operate- transfer roads to IDFC of IILFC, and others through FIDIC-based contract/project management

Enhance RCD Supervision and Equip the RCD planning wing planning capacity monitoring wing with staff and tools to prepare established and weekly (i) condition-based investment reporting systems and maintenance budget established via e-mails annually and (ii) medium- and with all district offices long-term state road connected development program.

Enhance Project management RCD is to establish and staff environment and unit equipped with an environment and social social management specialists and nodal management unit. capacity officers to be in charge

Improve state roads Develop sound Standard bidding Administrative approval based business practices procurement and document developed on the detailed project report. contracting processes E-procurement initiated, RCD is to enhance project and advertisement and contract management published in websites skills. and newspapers RCD is to increase Procurement outsourcing construction procedures use supervision, especially of international best state highways. practices

30 Appendix 3

Actions Taken or Objective Elements Actions to be Taken Under Way Ensure sound norm- Road inventory is being RCD is to adopt asset based planning prepared and a core management practices based process road network identified on international best practices.

Improve quality Third-party quality Establish planning practices assurance control introduced based on international best practices. Mobile quality control squads set up in all Establish competent quality district offices control unit.

Divisional testing Enhance laboratory capacity. laboratory enhanced

Improve efficiency RCD discloses the RCD is to enhance monitoring and transparency of target and achievement systems for efficient and resource use including payments of effective budgeting, and all works on its website develop road asset management. Weekly monitoring system established

Improve financial RCD equipped with Computerize RCD financial management computers and management systems. capacity connected with all district offices via e-mail Improve human Increase staff RCD enhanced Cadre management systems resource productivity productivity of staff are to ensure promotion management through weekly opportunities and adequate monitoring systems staffing.

Improve skill mix Annual training RCD is to increases the provided to engineers number of staff for planning, procurement, quality assurance, and social and environment.

Develop learning and training program. C. Private Sector Participation Improve quality and Increase private Build-operate-transfer Develop an enabling efficiency of road sector participation in schemes identified environment, e.g., laws and development and road financing regulations. management Increase cost- All maintenance works Establish non-lapsable road effectiveness of road outsourced to the development fund. construction and private sector maintenance Implement build-operate- transfer schemes; maintain, operate, and transfer contracts; and performance- based contracts.

Appendix 3 31

Actions Taken or Objective Elements Actions to be Taken Under Way D. Road Development and Maintenance Financing 1. Economic budget Introduce rational RCD is to introduce electronic for road improvement selection of road road register and asset and maintenance investment projects management systems for condition-based budget Develop condition- estimates. based budget estimate for Collect required data for state maintenance road network.

Increase budget Efficient utilization of Institutionalize the data allocation to maintenance budget collection program. maintenance achieved 2. Enhance Ensure road user Increased maintenance Increase maintenance transparency and satisfaction financing for state financing as roads are accountability for fund roads rehabilitated. usage Use allocated funds efficiently Weekly monitoring of Fully utilize allocated funds progress established through close monitoring systems. Enhanced quality of works after third party quality assurance introduced

Target and progress published on the website E. Road Safety Improve road safety Enhance GOB Road safety program in RCD is to formulate a road capacity to improve place and monitored in safety cell. and manage traffic all districts safety RCD is to implement road safety audits.

Improve GOB capacity for vehicle fitness testing.

F. Overloading Reduce overloading Enhance GOB Action plans laid out to Install more weighbridges. capacity to reduce enhance control of overloading overloading Enforce the regulation, e.g., practice off-loading of Overloading control overloaded trucks. program being set up with initial installment of six weighbridges at state border points

32 Appendix 3

Actions Taken or Objective Elements Actions to be Taken Under Way G. Vehicle Emissions Reduce pollution Enhance GOB Bihar motor vehicle Enhance staffing and capacity to reduce air rules amended to equipment. pollution from require all vehicles to vehicles have a pollution control certificate

Vehicle emission test centers set up H. Construction Industry Enhance technical, Increase GOB Equipment bank set up Set up more equipment operation, and support for enhancing in three districts banks. management capacity contractors’ capacity of local contractors Provide a medium- State road development Provide more detailed and long-term programs and other information on potential pipeline of road programs published in projects to the public at early projects the website stages of project preparation.

Increase number of Package large contracts to well-qualified attract qualified contractors contractors from from outside the state. outside the state

Increase the entry of Registration systems new entities to the simplified construction industry

RCD = Road Construction Department, CPWD = Central Public Works Department, FIDIC = Federation Internationale Des Ingenieurs-Conseils, GOB = government of Bihar, IDFC = Infrastructure Development Financing Company, IIFC = India Infrastructure Finance Company, IRCON = IRCON International Limited, RCD = Road Construction Department.

Appendix 4 33

EXTERNAL ASISTANCE TO THE ROAD SECTOR

Table A4.1: Asian Development Bank

Amount No. Project Name Type ($’000) Date Approved

A. Technical Assistance 0955 Road Improvement PP 75 24 Feb 1988 1058 Pavement Management A&O 490 3 Jan 1989 1059 Expressway System Planning A&O 260 3 Jan 1989 1164 Second Road PP 100 9 Jun 1999 1325 Vadodara–Bombay Expressway PP 600 15 Jun 1990 1402 Pavement Management for National Highways A&O 760 30 Oct 1990 1403 Private Sector Participation in Expressway Financing, A&O 500 30 Oct 1990 Construction and Operation 1404 Road Construction Industry A&O 340 30 Oct 1990 1325 Vadodara–Bombay Expressway (Supplementary) PP 250 19 Mar 1991 1678 Third Road PP 250 26 Mar 1992 1942 Faridabad–Noida–Ghaziabad Expressway PP 550 27 Aug 1993 1951 Bombay–Vadodara Expressway Technical Assistance Project PP 90 10 Sep 1993 Environmental Impact Assessment 2001 Road Safety A&O 210 29 Nov 1993 2002 Environmental Management of Road Projects A&O 240 29 Nov 1993 2003 Technical Standards of Highway Concrete Structures A&O 350 29 Nov 1993 2986 Western Transport Corridor─Facilitating Private Participation PP 1,000 9 Feb 1998 3142 North–South Corridor Development in West Bengal PP 1,000 23 Dec 1998 3361 Capacity Building for Contract Supervision and Management in A&O 600 22 Dec 1999 the National Highways Authority of India 3365 Capacity Building for Social Development A&O 800 23 Dec 1999 3445 Establishing a Public Private Joint Venture for the West Bengal A&O 150 25 May 2000 North–South Economic Corridor Development 3538 Preliminary Engineering for the West Bengal Corridor PP 150 13 Nov 2000 Development 3539 Resettlement and Environmental Assessment for the West PP 150 13 Nov 2000 Bengal Corridor Development 3540 Economic and Poverty Analysis for the West Bengal Corridor PP 150 13 Nov 2000 Development Project 3724 Enhancing the Corporate Finance Capability of National A&O 700 20 Sep 2001 Highways Authority of India 3751 Madhya Pradesh State Road Sector Development PP 600 29 Oct 2001 3752 National Highway Corridor and Public–Private Partnership PP 700 29 Oct 2001 3845 Madhya Pradesh State Road Development PP 1,000 14 Mar 2002 3914 Economic Studies for the Rural Roads Sector Development PP 150 3 Sep 2002 3915 Engineering Studies for the Rural Roads Sector Development PP 150 3 Sep 2002 3916 Environmental Analysis for the Rural Roads Sector PP 100 3 Sep 2002 Development 3917 Institutional and Policy Development Studies for the Rural PP 150 3 Sep 2002 Roads Sector Development 3918 Social Analysis for the Rural Roads Sector Development PP 150 3 Sep 2002 3995 Chhattisgarh State Roads Sector Development PP 800 21 Nov 2002 4013 Institutional Strengthening and Capacity Building for Madhya A&O 1,500 5 Dec 2002 Pradesh State Road Sector 4036 National Highway Corridor (Sector) PP 500 16 Dec 2002 4152 National Highway Sector II PP 300 21 Jul 2003 4220 Rural Roads Sector II PP 1,000 20 Nov 2003 4271 Development of High-Density Corridors under the Public– A&O 700 18 Dec 2003 Private Partnership 4355 High Priority National Highways PP 1,000 8 Jul 2004 4378 Northeastern State Roads PP 800 23 Aug 2004

34 Appendix 4

Amount No. Project Name Type ($’000) Date Approved 4013 Institutional Strengthening and Capacity Building for Madhya A&O 600 29 Apr 2005 Pradesh State Road Sector (Supplementary) 4697 Development of Road Agencies in the North Eastern States ADTA 900 23 Nov 2005 4814 TA Cluster for Project Processing and Capacity Development 15,000 30 June 2006 4934 Institutional Strengthening of Madhya Pradesh Public Works ADTA 1,000 31 May 2007 Department

B. Loans from Ordinary Capital Resources 0918 Road Improvement 198 10 Nov 1988 1041 Second Road 250 30 Oct 1990 1274 National Highways 245 29 Nov 1993 1747 Surat–Manor Tollway Project 180 27 July 2000 1839 Western Transport Corridor 240 20 Sept 2001 1870 West Bengal Corridor Development 210 11 Dec 2001 1944 East–West Corridor 320 26 Nov 2002 1958 Madhya Pradesh State Roads Sector Development (Program Loan) 30 5 Dec 2002 1959 Madhya Pradesh State Roads Sector Development (Project Loan) 150 5 Dec 2002 2018 Rural Roads Sector I 400 20 Nov 2003 2029 National Highway Corridor (Sector) I 400 4 Dec 2003 2050 Chhattisgarh State Roads Development Sector 180 15 Dec 2003 2154 National Highway Sector II 400 21 Dec 2004 MFF Rural Roads Sector II Investment Program 750 20 Dec 2005 2248 Rural Roads Sector II Investment Program–Project 1 180 31 July 2006 MFF Uttarakhand State Road Investment Program 550 18 Dec 2006 Uttarakhand State Road Investment Program–Project 1 50 2 Jan 2007 2330 Madhya Pradesh State Roads Sector II 320 31 May 2007 Source:

Table A4.2: Other Funding Sources

Project Length Loan Amount $ Million Region/State Project Name (km) (¥ million) Equivalent

A. Japan Bank for International Cooperation Uttar Pradesh Mathura–Agra 51 4,855 43.3 Uttar Pradesh Allahabad–Naini Bridge 5 10,037 89.6 Chilakaluripet–Vijayawada 83 11,360 101.4 Orissa Jagatput–Chandikhol 33 5,836 52.1 Uttar Pradesh Ghaziabad–Hapur 33 4,827 43.0

Amount ($ million) Region/State Project Name IBRD IDA Date Approved B. World Bank Group Countrywide Roads 72.11 1 Jun 1961 Bihar Bihar Rural Roads 35.00 1 Nov 1980 Countrywide National Highway 200.00 1 May 1985 Gujarat Gujarat Rural Roads 119.60 1 Feb 1987 Countrywide State Roads 80.00 1 Oct 1988 Countrywide State Roads 170.00 1 Oct 1988 Countrywide Second National Highways 153.00 1 May 1992 Countrywide Second National Highways 153.00 1 May 1992 Countrywide State Road Infrastructure Development 51.50 1 Dec 1996 Technical Assistance Andhra Pradesh State Highways 350.00 1 Jun 1997 Countrywide Third National Highways 516.00 12 May 2000 Countrywide Gujarat State Highways 381.00 15 Sep 2000 Countrywide Grand Trunk Road Development 589.00 21 Jun 2001 Karnataka State Highways Improvement 360.00 24 May 2001 Kerala Kerala State Transport 255.00 14 Mar 2002

Appendix 4 35

Amount ($ million) Region/State Project Name IBRD IDA Date Approved Mizoram Mizoram State Roads 60.00 14 Mar 2002 Uttar Pradesh Uttar Pradesh State Roads 488.00 19 Dec 2002 Tamil Nadu Tamil Nadu Road Sector 348.00 17 Jun 2003 Himachal Pradesh, Rural Roads 99.50 300.00 23 Sep 2004 Jharkhand, Rajasthan, Uttar Pradesh Uttar Pradesh, Bihar Lucknow– National Highway 465.00 21 Dec 2004 A&O = advisory and operational, IBRD = International Bank for Reconstruction and Development, IDA = International Development Association, PP = project preparatory. Sources: Asian Development Bank, Japan Bank for International Cooperation, and World Bank.

36 Appendix 5

LIST OF PROJECT ROADS AND SUMMARY OF DESIGN STANDARDS

Table A5: List of Project Roads

State Length Highway Project Road (kilometer) 68 Sheogunj–Baidrabad 78 69 Dumaria–Ranitalab 153 70 Gaya–Rjauli 58 71 Jehanabad–Parwatipur 85 73 Siwan–Shitalpur 88 74 –Aseraj 85 75 Arbhanga–Madhwapur 47 76 Araia–Bhaptiyahi 121 77 Krsela–Forbesgunj 105 Total 820 Source: Road Construction Department.

The design standards and general design considerations for subprojects include the following:

(i) The design criteria adopted are in accordance with the applicable Indian Roads Congress/Ministry of Shipping, Road Transport and Highways codes and standards for the design and construction of roads and bridges. (ii) The existing single and intermediate lane carriageways will be rehabilitated and widened to two-lane (7.0 meters) carriageway width. The overall formation width of the highway will be 10–12 meters. In built-up and urban areas, the widening will be accommodated within the existing right-of -way as far as possible. (iii) Proper cross-drainage structures will be provided, wherever necessary, to ensure all weather connectivity. (iv) The overall width of culverts and new bridges with a length of less than 60 meter will be 12 meter. The carriageway width of new bridges with a length of more than 60 meter will be 7.5 meter. (v) Adequate road safety features will be provided in accordance with the requirements of Indian Roads Congress/Ministry of Shipping, Road Transport and Highways standards. (vi) Bituminous pavement will be provided, except through built-up and urban areas, where concrete pavement will be provided.

DETAILED COST ESTIMATES AND FINANCING PLAN ($ million) Appendix 6 Appendix 37

ORGANIZATION STRUCTURE FOR PROJECT IMPLEMENTATION

38 RCD-HQ • Road Commissioner RCD-HQ • Engineer-in-Chief 7 Appendix Project Management Unit Asian • Chief Engineer Development (Project-in-Charge) Bank RCD-HQ • Superintendent Engineer Supporting Consultants • Executive Engineer • Contract Management Specialist • Environment Officer (EE) • Resettlement and Social Specialist • Resettlement/Social Officer (EE) • Environment Specialist • Road Safety Engineer (EE)

5 Project Implementation Project Implementation Unit Project Implementation Unit ● ● ● ● ● ● Units (PIUs) in the Executive Engineer Executive Engineer Divisions

1–2 Project Managers for Each Project Manager Project Manager Contract under (each contract) (each contract) ● ● ● ● ● ● Each PIU

Supervision Consultant Supervision Consultant (North Bihar Package) (South Bihar Package)

5 Civil Works Contracts 4 Civil Works Contracts

RCD-HQ = Road Construction Department Headquarters. Source: Asian Development Bank.

IMPLEMENTATION SCHEDULE

Appendix 8 Appendix

39

40 Appendix 9

INDICATIVE CONTRACT PACKAGES

Civil Estimated Estimated Work SH Length Cost Cost Procurement Package No. Road Name (km) (Rs crore) ($ million) Mode 1 68 Sheogunj–Baidrabad 78 114 31 ICB 2 69 Dumaria–Ranitalab 153 230 61 ICB 3 70 Gaya–Rjauli 58 77 20 ICB 4 71 Jehanabad–Parwatipur 85 130 34 ICB 5 73 Siwan–Shitalpur 88 175 47 ICB 6 74 Hajipur–Aseraj 85 165 46 ICB 7 75 Darbhanga–Madhwapur 47 106 28 ICB 8 76 Araia–Bhaptiyahi 121 282 62 ICB 9 77 Krsela–Forbesgunj 105 248 53 ICB Total 820 1,527 402 ICB = international competitive bidding; km = kilometers; SH = state highway. Note: Estimated cost exclusive of contingencies. Source: Road Construction Department.

Appendix 10 41

PROCUREMENT PLAN

Project Information

Country India Name of Borrower India Project Name Bihar State Highways Project Loan or Technical Assistance Reference - Date of Effectiveness Targeted for September 2008 Asian Development Bank Financing Amount $420,000,000 Executing Agency Road Construction Department, Government of Bihar Approval Date of Original Procurement Plan Targeted at June 2008 Approval of Most Recent Procurement Plan Not applicable Publication for Local Advertisements November 2007 Period Covered by this Plan June 2007 to October 2008

Section 1: Procurement Thresholds and 18-Month Procurement Plan

A. Procurement Thresholds, Goods, and Works

Procurement Method Thresholds International Competitive Bidding Works All civil works National Competitive Bidding (NCB) Goodsa Up to $1 million Shopping Goods Below $0.1 million a NCB procedures adopted for procurement of goods and services under the Project will be in accordance with Section 3 NCB Annex.

B. Procurement Thresholds, Consulting Services

Procurement Method To be used above/below Quality- and Cost-Based Selection (QCBS) FTP: Over $1,000,000 FTP = full technical proposal.

42 Appendix 10

Section 2: Indicative Contract Packages

C. List of Contract Packages in Excess of $100,000, Goods, Works, and Consulting Services

Expected Date Estimated Procurement of Ref Contract Description Cost Method Advertisement Prior Review 1. Consulting services for $13 million QCBS with April 2008 Yes construction FTP (Advertised) supervision (two packages)

2. Civil works contracts $20 million to ICB February 2008 Yes (nine packages) $74 million (Advertised)

3. Equipment (detailed $4 million NCB (see Targeting Yes (NCB)a specification and details) or October 2008 No contract packaging will Shopping (Shopping) be finalized during project implementation by the TA consultants.) QCBS, FTP = full technical proposal, ICB = international competitive bidding, NCB = national competitive bidding, QCBS = quality and cost-based selection. a ADB’s prior review for at least the first two packages and postreview for subsequent packages.

Section 3: National Competitive Bidding Annex

D. Details for Procurement of Goods under National Competitive Bidding

1. General

1. National competitive bidding (NCB) for the procurement of goods and related services will conform to the provisions for advertised tender enquiry as prescribed in the General Financial Rules, 2005 issued in July 2005 by the Ministry of Finance, and elaborated in the Manual on Policies and Procedures for the Purchase of Goods issued by the Ministry of Finance in August 2006, with clarifications and modifications described in the following paragraphs required for compliance with the provisions of the Procurement Guidelines (2007, as amended from time to time) of the Asian Development Bank (ADB).

2. Registration and Other Prebid Requirements

2. The following details apply to registration.

(i) Bidding will not be restricted to registered suppliers of the director-general supplies and disposals of the Ministry of Supply and Rehabilitation, and such registration will not be a condition for the submission of bids in the bidding process. (ii) Where registration is required prior to award of contract, bidders: (a) will be allowed a reasonable time to complete the director-general supplies and

Appendix 10 43

disposals registration process; and (b) will not be denied registration for reasons unrelated to their capability and resources to successfully perform the contract, which will be verified through postqualification. (iii) Foreign suppliers and contractors from ADB member countries will be allowed to bid, without registration, licensing, and other government authorizations. However, if these foreign suppliers and contractors are declared the winning bidders, the requirements may be completed after award and before signing of the contract, without unreasonable costs or additional requirements.

3. Advertising

3. Bidding of NCB contracts estimated at $1,000,000 or more for goods and related services will be advertised on the ADB website concurrent with general procurement notices.

4. Bidding Documents

4. Procuring entities will use standard bidding documents acceptable to ADB, based ideally on the standard bidding documents issued by ADB.

5. Two-Bid System

5. The two-bid system as applied for the procurement of goods will be considered the equivalent of ADB’s single-stage, two-envelope bidding procedure.

6. Bidding Period

6. Procuring entities will allow a minimum of 4 weeks for submission of bids.

7. Bid Security

7. Where required, bid security will be in the form of a bank guarantee from a reputable bank and should normally be about 2% of the estimated value of the contract to be procured. The bid security must remain valid for not more than 30 days after the final bid validity period.

8. Preferences 8. No preference will be given to domestic bidders or for domestically manufactured goods such as those manufactured by small-scale industrial units, government corporations, and private companies operating in India.

9. Price Negotiations

9. Price negotiation will be allowed only where the price offered by the lowest evaluated and substantially responsive bidder substantially exceeds costs estimates. ADB approval is required prior to any negotiation of prices.

44 Appendix 11

TECHNICAL ASSISTANCE FOR INSTITUTIONAL STRENGTHENING OF THE BIHAR ROAD SECTOR: OUTLINE TERMS OF REFERENCE FOR CONSULTING SERVICES

A. Objective

1. The main objective of the consulting services is to support the government of Bihar (GOB) in improving sector management performance by implementing institutional development initiatives. The focus of the technical assistance (TA) is to (i) redefine and restructure the Road Construction Department (RCD) as a state-of-the-art road agency, and (ii) implement new business procedures and provide training to RCD officials to enable RCD to adopt a new institutional and management structure. New business procedures will cover (i) procurement and contracting processes, (ii) planning processes, (iii) quality assurance systems, (iv) engineering (pavement design, maintenance methods, and safety), and (v) human resource management.

B. Scope of Services

2. The consultants will undertake the services in close consultation with the principal secretary and engineer-in-chief, RCD. They will conduct state and district training and workshops as required. RCD-wide consultation will be conducted to disseminate the concepts of the sector development initiative.

3. For a long-term framework, splitting the functions of road development policy and programming from project implementation is often effective. While the government would determine the extent, an autonomous body like a state highway authority (SHA) or road infrastructure corporation (RIC) would execute the project, e.g., project preparation, design, bidding, contract awards, and management. This will ensure efficient decision making for project implementation and help build up expertise in outsourcing of technical work, understanding FIDIC,1 using new forms of contracts, and developing public–private partnerships. For these terms of reference, the newly modernized RCD is, in any form, named as the SHA/RIC.

4. The consultant will be expected to undertake the following tasks:

(i) Recommend an appropriate institutional structure for managing the overall state road network, including state highways and major district roads. (ii) Recommend appropriate management structures for managing each layer of the road network. (iii) Review existing and draft laws and acts being prepared for Bihar and examples in other states and countries; and use these to develop a draft highway act, incorporating adequate provision for concession arrangements like public–private partnerships for consideration by GOB. (iv) Recommend and implement new business procedures, and provide training to RCD staff to enable restructuring and adoption of a new institutional and management structure.

1. Institutional Framework

5. The main task of the consultants is to seek agreement from various groups involved on how roads are to be administered. They will be expected to (i) examine if SHA and/or RIC

1 Federation Internationale Des Ingenieurs-Conseils

Appendix 11 45 remain responsible for all state highways and major district roads, or be dedicated to strategically important roads with other roads left for RCD; (ii) identify functions and powers RCD and/or SHA and/or RIC require for effective corridor management; and (iii) identify and structure for SHA and/or RIC to be able to work as a project implementation agency for dedicated roads, e.g., strategically important roads.

2. Management Structures

6. The institutional analysis should determine how each part of the road network is to be managed. The task following is to recommend appropriate organization and management structures for SHA/RIC. The intention is to do most road works under contract. RCD and SHA/RIC should thus be primarily staffed to plan and manage the road network, and to hire and supervise consultants and contractors to carry out any required civil works. In this connection, the consultant will be expected to undertake the following:

(i) Recommend an appropriate organization structure for SHA/RIC, including the need for a management board (including functions, composition, and remuneration of members). Recommend the management structure, e.g., chief executive officer (CEO) and line managers, and develop procedures for appointing the CEO and, if necessary, the deputy CEO; and the relationship between other line departments, the board, and the CEO. (ii) Define the middle-management structure. Arrangements should articulate the regional structure of the proposed organization. Proposals should indicate the middle management structure, how it relates to the CEO, and appropriate terms and conditions for staff employment for staff to ensure the agency can attract and retain suitably qualified staff. (iii) Propose suitable financial reporting and accounting arrangements. Proposals should include recommended formats for simple accounts to help SHA/RIC maintain effective financial control; including identification of costs by activity and project; and preparation of a consolidated income statement, partial balance sheet, and cash flow statement. Advise on the most appropriate way of reflecting shortfalls in regular road maintenance and erosion of capital in the accounts. (iv) Propose (a) arrangements for establishing a performance-based budgeting system for planning, implementing, and monitoring road maintenance; and (b) an appropriate auditing system, including internal audit and control procedures, with independent external audit arrangements. (v) Recommend how SHA/RIC should deal with planning and management of road networks. (vi) Identify arrangements needed for the unclassified road network. Determine if a form of cost-sharing arrangement would encourage local communities to take ownership. When they agree to take ownership of these roads, tracks, and trails, identify how to register their commitment and provide advice and technical assistance. Identify arrangements to ensure the funds allocated from the road fund are used effectively.

3. Highway Act

7. The consultant will be expected to review draft laws being prepared for Bihar and examples from other states and countries, and taking into account the work specified in the terms of reference, to prepare a draft highway act. The bill should be divided into sections dealing with the following:

46 Appendix 11

(i) The general responsibilities of RCD and GOB with regard to classifying roads, assigning them to a legally constituted SHA/RIC, promulgating authorized road signs and signals, setting appropriate geometric standards for road construction, issuing notices regarding regulation of roads and road traffic (e.g., governing vehicle weight and dimensions), delegating administration of responsibilities to a designated SHA/RIC, and initiating research on matters related to roads. (ii) The detailed responsibilities of SHA/RIC, including the role (if any) in negotiating and signing contracts to have part of the road network under its jurisdiction managed under a concession agreement, e.g., build-operate-transfer projects. (iii) The establishment of the road fund and its basic working modalities. The preference is for short enabling legislation, supported by regulations to be published (and updated) by RCD and GOB.

4. Business Procedures

8. Adherence to old codes and procedures sometimes cause delays in preparing and implementing projects. Decision making is not sufficiently decentralized and operating decisions are delayed due to too many layers of interventions. RCD is aware of the need to streamline business procedures and introduce internationally recognized systems and practices for procurement, quality management, planning, contract and project management, and financial management.

9. The consultants are to help RCD and SHA/RIC to become modern road management agencies. This requires introducing new business procedures for new institutional and management structures, covering (i) procurement and contracting processes, (ii) planning processes, (iii) quality assurance systems, (iv) engineering (pavement design, maintenance methods, and safety), and (v) human resource management.

a. Project and Contract Management and Procurement Processes

10. The consultants will undertake the following:

(i) Introduce computerized project management tools, train engineers, and implement standardized district reporting systems in project and contract management. (ii) Refine RCD standard bid documents and request for proposals using international best practices. (iii) Assess several contracting modalities to maintain state roads, and help RCD develop and test several contracting modalities to maintain state roads, including corridor management, performance-based maintenance contracts, and community-based maintenance contracts.

b. Planning Processes

11. The consultants will undertake the following:

(i) Develop state-specific norms for road development and maintenance, and implement in planning and design. (ii) Establish planning practices and train engineers at the district level based on international best practices.

Appendix 11 47

c. Quality Assurance

12. The consultants will undertake the following:

(i) Identify resource requirements for the unit. (ii) Establish a quality assurance strategy and arrangement, including quality management manual, procedures, and reporting system, taking into account the extensive state road network. (iii) Pilot test the manual on a sample of different types of works. Train the staff to use the manual. Assist RCD and SHA/RIC operationalize the manual and reporting system. (iv) Help RCD and SHA/RIC identify, prepare specifications, and procure testing equipment and facilities for the quality management system.

d. Engineering Practices

13. The consultants will establish manuals, introduce the system, and provide training to concerned officials in RCD and SHA/RIC in pavement design, maintenance methods, and safety audit.

e. Human Resource Management

14. RCD engineers are competent but need training, capacity building, and more effective cadre management; career development strategies are needed. Avenues for promotion of staff have to be ensured, particularly for lower level functionaries. The consultants will do the following:

(i) Identify human resource requirements and assist RCD and SHA/RIC in recruiting adequate number of staff for planning, procurement, quality assurance, and social and environment aspects. (ii) Develop and implement a scheme of skill development and redeployment in other organizations for full utilization of available human resources. (iii) Develop cadre management and help RCD and SHA/RIC with implementation to ensure opportunities for promotion and adequate staffing. (iv) Develop continuous results-oriented posting of personnel and help RCD and SHA/RIC with implementation. (v) Identify training requirements and develop a learning and training program.

C. Reporting

15. The consultants will provide ADB with progress reports on the institutional strengthening action plan, including achievements, problems, and policy recommendations. They will prepare specific reports in accordance with the terms of reference. Upon completion of their services, the consultants will prepare a draft final report covering all tasks and a final report 30 days after the tripartite review meeting with RCD, ADB, and the consultants.

16. The consultants, in consultation with RCD, will prepare a training program and comprehensive training proposals in the areas specified in this terms of reference, including selection criteria for candidates, training objectives, cost estimates.

48 Appendix 11

D. Staffing

17. The TA will be implemented from October 2008 to August 2009. International consulting inputs include (i) institutional management specialist as team leader (8 person-months), (ii) legal specialist knowledgeable in laws and acts in the road sector (3 person-months), (iii) contract and project management specialist (4 person-months), (iv) road planning specialist (3 person- months), (v) quality control and management specialist (3 person-months), (vi) road maintenance and pavement specialist (4 person-months), (vii) road safety specialist (3 person- months), and (viii) human resource management specialist (3 person-months).

E. Cost Estimates

18. The TA is estimated to cost $1,250,000 equivalent. ADB will finance $1,000,000 equivalent, on a grant basis from the ADB TA funding program. The Government’s counterpart in-kind contribution will be $250,000 equivalent (Table A11).

Table A11: Cost Estimates ($’000)

Total Item Cost A. Asian Development Bank Financing 1. Consultants a. Remuneration and Per Diem i. International Consultants 776.0 ii. National Consultants 0.0 b. International and Local Travel 75.0 c. Reports and Communications 8.0 2. Equipment (Computer, Printer, etc.) 20.0 3. Workshops, Training, Seminars, and Conferences 20.0 4. Vehicle 0.0 5. Surveys 2.0 6. Miscellaneous Administration and Support Costs 5.0 7. Representative for Contract Negotiations 6.0 8. Contingencies 88.0 Subtotal (A) 1,000.0

B. Government Financing 1. Office Accommodation and Transport 120.0 2. Remuneration and Per Diem of Counterpart Staff 80.0 3. Others 50.0 Subtotal (B) 250.0 Total Source: Asian Development Bank estimates.

Appendix 12 49

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

Country/Project Title: India/Bihar State Highways Project

Lending/Financing Department/ South Asia Department/ Project Loan Modality: Division: Transport and Communications Division

I. POVERTY ANALYSIS AND STRATEGY A. Linkages to the National Poverty Reduction Strategy and Country Partnership Strategy

Between 2002 and 2006, based on 1999 constant prices, India’s gross domestic product (GDP) grew by an average of 8.6%, largely pushed by transportation and communication (including trade), agriculture, and manufacturing. Of all the industry subsectors, transportation, communication, and trade combined for the highest share, at 25.6% of the country’s GDP. This performance should be largely credited for the country’s impressive economic growth and for reducing poverty. However in some poor areas, gains from economic growth have yet to be distributed equitably, including in the state of Bihar.

In 2007, the Asian Development Bank (ADB) approved the 2008–2010 country operations business plana. This is part of the larger 2008–2012 India country partnership strategy. Under the strategy, support for infrastructure development will remain the core focus of ADB’s India assistance strategy. For transport and communications, the Bihar State Highways Project will be ADB’s first support for Bihar’s roads; it aims to improve transport connectivity within the state. The Project will augment transport capacity in a financially sustainable manner. As Bihar is one of the least-developed states in India, the Project is expected to have significant development impacts. Its short-term impacts on poverty reduction include employment of poor people in road construction, tree planting, and ensuing maintenance works. These opportunities will directly increase their earnings, especially for those who are largely dependent on occasional and uncertain employment. Over the long-term, villagers are expected to shift from subsistence farming to market-oriented agricultural surplus production. The Project will help residents, particularly the youth, of rural areas to work for better-paying jobs in trading and other new employment areas. Moreover, it will directly contribute to peoples’ access to social benefits such as health, education, and social services.

B. Poverty Analysis Targeting Classification: General intervention

1. Key Issues

The main objective of the Project is to rehabilitate the state roads in Bihar and augment connectivity within the state. The Project will cover an estimated 820 kilometers of state roads in 18 districts, hence creating a reliable and efficient road network within the state. Some of the immediate benefits will be improved access to socioeconomic facilities, safe and comfortable journeys with reduced fuel consumption and vehicle operating cost, and development of the rural economy.

A socioeconomic baseline survey, community consultations, and focus group discussions were undertaken for all the subprojects during August–October 2007. In addition, poverty analysis using secondary data, and a review of government programs and schemes were conducted. The data revealed that 42.6% of the total population in Bihar lives below the poverty line, the highest in the country. The human development index for Bihar was 0.267 in 2001 in comparison to the national value of 0.472. The people largely depend on agriculture, which has the lowest value-added among the country’s industries. The literacy rate at 47.53% is also an issue; 60.32% for males and 33.57% for females.

2. Design Features. Not Applicable.

C. Poverty Impact Analysis for Policy-Based Lending

1. Discuss the impact channels of the policy reform(s) (direct and indirect, short and medium term) to the country and major groups affected. Not applicable.

2. Discuss the impact of the policy reform(s) on vulnerable groups and ways to address it/them (refer to social analysis). Not applicable.

3. Discuss how the policy reform(s) contribute(s) to poverty reduction, pro-poor growth, and the MDGs. Not applicable.

50 Appendix 12

II. SOCIAL ANALYSIS AND STRATEGY A. Findings of Social Analysis

Bihar has a large population, a high unemployment rate, and increasing social tensions arising from failure to meet development aspirations. The main sources of income of residents in the project locations are agriculture wages or casual nonfarm jobs. Many are landless or near landless. All economic and noneconomic indicators indicate their poor status. All basic services and infrastructure are poor. The communities look forward to having upgraded roads as improved transport services will provide them with better economic opportunities and quality of life. B. Consultation and Participation 1. Provide a summary of the consultation and participation process during project preparation.

A socioeconomic survey covering 908 households from 20 districts, and 73 focus group discussions were conducted during August–October 2007 to gather feedback from local communities on the proposed development and perceived socioeconomic impacts. These discussions were held with men, women, farmers, indigenous people, high-income groups, the poor, shopkeepers, and truckers to ensure comprehensive understanding of the Project and its impacts. Other key stakeholders such as government officials; including Bihar Sate AIDS Control Society, United Nations Children’s Fund, village health workers, and block development officers were consulted by means of key stakeholder discussions. Additionally, screening and categorization checklists were completed for each road to assess the likely impact of project development in terms of indigenous population and involuntary resettlement.

2. What level of consultation and participation (C&P) is envisaged during the project implementation and monitoring? Information sharing Consultation Collaborative decision making Empowerment

3. Was a C&P plan prepared? Yes No If a C&P plan was prepared, describe key features and resources provided to implement the plan (including budget, consultant input, etc.). If no, explain why.

C&P will be carried out during implementation of resettlement plans by local nongovernment organizations. C. Gender and Development 1. Key Issues. Gender participation was ensured during the course of the social study by undertaking a process of gender analysis to assess the impact of the Project. Focus group discussions were undertaken with women belonging to different socioeconomic groups such as high-income group, the poor, and women belonging to other vulnerable classes. These discussions brought forth that the majority of the women felt the expansion of the road will benefit them as they will be able to transport their products to markets and help increasing household income. They expected that some local residents will get involved in project activities. They wanted that the road should be constructed without any delay. During the discussions, it was observed that literacy among women is low, but education status has improved for the younger generation. Participation of women in political activities and employment opportunities is limited. However, the majority of women in the project areas take an active part in family decision making. Some noted that the status of women is far better in this state than in many states in the country. The women work both in the house and outside; the majority reported that they are consulted by their spouse and other family members for taking any decision in the family.

2. Key Actions. Measures included in the design to promote gender equality and women’s empowerment—access to and use of relevant services, resources, assets, or opportunities and participation in decision-making process:

Gender plan Other actions/measures No action/measure

Summarize key design features of the gender plan or other gender-related actions/measures, including performance targets, monitorable indicators, resource allocation, and implementation arrangements.

The Project will provide women with job opportunities and will not differentiate wages between men and women particularly for work of equal value.

Appendix 12 51

III. SOCIAL SAFEGUARD ISSUES AND OTHER SOCIAL RISKS Significant/ Plan or Other Issue Limited/ Strategy to Address Issue Measures Included No Impact in Design Involuntary Significant The Project is designed to avoid land acquisition and minimize Resettlement resettlement impacts by adopting the most feasible technical Full Plan

design. In addition, it entails rehabilitation of state roads, which Short Plan

will occur within the available right-of-way and no private land Resettlement acquisition will be required. The implications of these are being Framework verified. Resettlement plans were prepared to guide No Action implementation of the nine subprojects.

Indigenous Limited The indigenous people population constitutes only 0.9% of the Peoples total state population. No indigenous people households will be Plan adversely affected by the Project. The indigenous people Other Action population in Bihar and areas affected by the subprojects is Indigenous integrated with the modern and dominant population of the state. Peoples They freely interact and share their sources of water, folklore, Framework food, infrastructure, and other belongings with the mainstream No Action population and outside community. Moreover, these groups have nuclear families, and are open to new ideas such as family planning and formal education. Therefore, the socioeconomic impacts of the subprojects will be the same for these people as the mainstream population. In view of these facts, no separate indigenous people development plan was prepared.

Labor No Impact Project construction is expected to generate employment Employment opportunities for local communities during the construction opportunities phase. Men and women will be paid equally for equal work. The Plan Labor Road Construction Department (RCD) will ensure that all civil Other Action retrenchment works comply with all applicable labor laws, including equal pay No Action Core labor for equal work and non-employment of child labor. standards Affordability No Impact The rehabilitation of roads will reduce transport costs and increase the mobility of the local population in the project areas. Action No Action Other Risks Limited The social assessments undertaken have not identified any and/or significant risks on social aspects such as gender, HIV/AIDS and Plan Vulnerabilities human trafficking. However, RCD will ensure that all civil works Other Action HIV/AIDS contractors disseminate information at worksites on the risks of No Action Human sexually transmitted diseases and HIV/AIDS for those employed trafficking during construction. Contracts for all subprojects will include specific clauses on these undertakings, and the Government will Others(conflict, strictly monitor compliance during project implementation. In political addition, RCD will conduct awareness programs for HIV/AIDS, instability, etc), human trafficking, and child labor for which please specify agenies/nongovernment organizations may be engaged.

IV. MONITORING AND EVALUATION

Are social indicators included in the design and monitoring framework to facilitate monitoring of social development activities and/or social impacts during project implementation? Yes No

ADB = Asian Development Bank, MDG = millennium development goals, RCD = Road Construction Department. a. ADB. 2007. Country Operations Business Plan: India 2008–2010. Manila.