DBL Highway Project: Report and Recommendation of the President
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Report and Recommendation of the President to the Board of Directors Project Number: 53376-001 December 2020 Proposed Loan DBL Anandapuram Anakapalli Highways Private Limited DBL Highway Project (India) This is a redacted version of the document approved by ADB's Board of Directors, which excludes information that is subject to exceptions to disclosure set forth in ADB's Access to Information Policy. CURRENCY EQUIVALENTS (as of 6 October 2020) Currency unit – Indian rupee/s (₹) ₹1.00 = $0.01366 $1.00 = ₹73.2165 ABBREVIATIONS ADB – Asian Development Bank BOT – build-operate-transfer COVID-19 – coronavirus disease E&S – environmental and social EHS – environment, health, and safety EPC – engineering, procurement, and construction DBL – Dilip Buildcon Limited DBLAAHPL – DBL Anandapuram Anakapalli Highways Private Limited HAM – hybrid annuity model km – Kilometer MORTH – Ministry of Road Transport and Highways NHAI – National Highways Authority of India O&M – operation and maintenance PAP – project-affected person PIM – price index multiple ROW – right of way SCA – social compliance audit NOTES (i) The fiscal year (FY) of DBL Anandapuram Anakapalli Highways Private Limited ends on 31 March. “FY” before a calendar year denotes the year in which the fiscal year ends, e.g., FY2020 ends on 31 March 2020. (ii) In this report, “$” refers to United States dollars. Vice-President Ashok Lavasa, Private Sector Operations and Public–Private Partnerships Director General Michael Barrow, Private Sector Operations Department (PSOD) Deputy Director Christopher Thieme, PSOD General Director Shantanu Chakraborty, Infrastructure Finance Division 1 (PSIF1), PSOD Team leader Mayank Choudhary, Principal Investment Specialist, PSIF1, PSODa Team members Genevieve Abel, Principal Transaction Support Specialist (Integrity), Private Sector Transaction Support Division (PSTS), PSOD Keshari Agrawal, Investment Specialist, PSIF1, PSODa Ian Bryson, Senior Safeguards Specialist, PSTS, PSOD Ulritz Uzein T. Corcuera, Associate Economics Officer, PSTS, PSOD Toni Rose Galang-Ante, Operations Assistant, PSIF1, PSOD Beatrice Yulo Gomez, Senior Safeguards Specialist, PSTS, PSOD Purificacion F. Guilaran, Senior Investment Officer, Office of the Director General - Risk Analytics Unit, PSOD Manfred Kiefer, Senior Economist, PSTS, PSOD Aarti Mehra, Senior Guarantees and Syndications Specialist, Office of the Director General - Guarantees and Syndications Unit, PSOD Sumika Nakane, Investment Specialist, PSIF1, PSOD Emmanuel Ong, Investment Officer, PSIF1, PSOD Amanda Satterly, Senior Social Development Specialist (Gender and Development), PSTS, PSOD Amiko Sudo, Senior Counsel, Office of the General Counsel a Outposted to the India Resident Mission. In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area. CONTENTS Page PROJECT AT A GLANCE I. THE PROPOSAL 1 II. THE PROJECT 1 Project Identification and Description 1 Development Impact, Outcome, and Outputs 3 Alignment with ADB Strategy and Operations 3 Project Cost and Financing Plan 3 Implementation Arrangements 4 Projected Financial and Economic Performance 4 III. THE PROPOSED ADB ASSISTANCE 4 The Assistance 4 Value Added by ADB Assistance 4 Risks 4 IV. POLICY COMPLIANCE 5 Safeguards and Social Dimensions 5 Anticorruption Policy 7 Investment Limitations 7 Assurances 7 V. RECOMMENDATION 7 APPENDIXES 1. Design and Monitoring Framework 8 2. List of Linked Documents 10 I. THE PROPOSAL 1. I submit for your approval the following report and recommendation on a proposed loan of up to $51,800,000 in Indian rupee equivalent to DBL Anandapuram Anakapalli Highways Private Limited (DBLAAHPL) for the DBL Highway Project in India. 2. The National Highways Authority of India (NHAI) is augmenting the capacity of the 50.8- kilometer (km) Anandapuram–Pendurthi–Anakapalli section of National Highway (NH)-5 (now NH-16) in Andhra Pradesh by converting it from a two-lane into a six-lane road. Based on competitive bidding, the NHAI awarded DBLAAHPL the build-operate-transfer (BOT) concession, which follows the hybrid annuity model (HAM). The project will decongest a critical connectivity corridor from the hinterland to the port of Vishakhapatnam on the east coast, increase traffic volumes and vehicular speeds, and reduce logistics costs. The assistance is the first private sector road project of the Asian Development Bank (ADB) in South Asia. II. THE PROJECT Project Identification and Description 3. Project identification. India has one of the largest road networks in the world, consisting of (i) national highways; (ii) state highways; (iii) major district roads; and (iv) rural roads, including district and village roads. The 132,500 km of national highways represent about 2% of the entire road network but carry 40% of total road traffic. About 77% of the national highway network was two-lane or less as of 31 March 2017.1 The low capacity of highways is aggravated by diverse traffic, road encroachments, and poor-quality road surfaces. The capacity and quality of the road network have not kept pace with the growth in registered vehicles. While road network capacity expanded at a compound annual growth rate (CAGR) of 4.2% in FY1951–FY2017 (footnote 1), the number of vehicles increased by a CAGR of over 10.7%.2 Due to an increase in number of vehicles and lack of enforcement of road safety measures, India witnessed the highest number of fatal road accidents in the world in 2019. Andhra Pradesh ranked seventh on this account across all the states in India in 2019.3 4. The project is under Bharatmala Pariyojana, a Government of India project which envisages constructing 66,100 km of economic corridors, coastal roads, and expressways to boost the highway network. Bharatmala Pariyojana aims to increase vehicular speed by 20%– 25% and reduce supply chain costs by 5%–6% by providing at least four-lane connectivity to 550 districts. The approved outlay for phase 1 is $73 billion, which includes upgrading 34,800 km of road network by FY2022.4 The NHAI has awarded projects with an aggregate length of about 6,400 km under Bharatmala Pariyojana, and is preparing detailed project reports for about 25,000 km. The HAM is the NHAI’s preferred mode of concession award. Since April 2015, the NHAI has awarded private developers about 7,640 km of HAM projects, 15% of which are operational, 81% of which are under implementation, and 4% of which have been terminated because of land acquisition issues. 5. (Confidential information redacted). 1 Government of India, Ministry of Road Transport and Highways. 2017. Basic Road Statistics of India. Delhi; and Government of India, Ministry of Road Transport and Highways. 2017.Road Transport Year Book. Delhi. 2 Statista (accessed on 11 November 2020). 3 Government of India, Ministry of Road Transport and Highways. 2020. Road Accidents in India 2019. Delhi. 4 National Investment Promotion & Facilitation Agency. Invest India Roads & Highways (accessed 28 August 2020). 2 6. Project design. The project comprises the Anandapuram–Anakapalli section of NH-5, which connects Vishakhapatnam port to the Andhra Pradesh hinterland. The two-lane highway will be expanded to six lanes leading to significant improvement in road connectivity to the port (the fourth largest in India and second largest on the east coast). The heavy traffic passing through Vishakhapatnam city on the Kolkata-Chennai corridor will be diverted to the project, thereby decongesting the city. Climate risk screening was undertaken and climate change impact on the project was assessed to be medium risk. The proposed infrastructure potentially faces flooding risks due to increase in heavy rainfall and storm surges caused by climate change. This has impact on the drainage system, which need to be adequately sized to cope with higher runoff volumes to reduce flood risk. The project design also ensures road safety and is expected to prevent accidents, through a highway traffic management system, cautionary and/or warning road signs, and road safety devices such as object hazard markers, pedestrian facilities, and roadside safety barriers. 7. (Confidential information redacted). 8. The NHAI was set up by the NHAI Act, 1988 and operates under the Ministry of Road Transport and Highways, and has several funding sources, including budgetary allocation from India’s consolidated budget, levy on the sale of diesel and petrol, toll revenues from operating roads, and revenue share from public–private partnership projects. The NHAI is rated internationally Baa3/negative (same as India’s sovereign rating) by Moody’s, and domestically AAA by CRISIL and ICRA Limited. 9. (Confidential information redacted). 10. (Confidential information redacted). 11. Borrower and Sponsor. ADB’s loan will be provided to DBLAAHPL, a special purpose vehicle incorporated by DBL to implement the project. DBL is a leading highway developer and contractor headquartered in Bhopal, Madhya Pradesh. DBL has more than 38,000 employees and owns one of the largest fleets of construction equipment in India. Dilip Suryavanshi is the chairperson and managing director of DBL and owns 40.3% of its shares. Devendra Jain is the executive director and chief executive officer of DBL and owns 26.0%. Seema Suryavanshi, the spouse of Dilip Suryavanshi, is the executive director and owns