Initial Project Information Document (PID) Report No: AB137

Project Name INDIA -Lucknow-Muzaffarpur National Highway Project Region South Asia Regional Office Public Disclosure Authorized Sector Roads and highways (100%) Theme Infrastructure services for private sector development (P); Public expenditure, financial management and procurement (S) Project P077856 Borrower(s) GOVERNMENT OF INDIA Implementing Agency(ies) NATIONAL HIGHWAYS AUTHORITY OF INDIA Address: NHAI, Plot No. G5&G6, Sector 10, Dwarka, New Delhi Contact Person: G. R. Singhal, Chief General Manager (East-West Corridor) Tel: 91-11-2507-4100 Fax: 91-11-2508-0360 Email: [email protected] Environment Category A (Full Assessment) Date PID Prepared June 24, 2003 Auth Appr/Negs Date April 15, 2004 Public Disclosure Authorized Bank Approval Date September 30, 2004

1. Country and Sector Background Road transport plays a significant role in India's economy, carrying 80% of the land transport demand. The national highway network has a total length of 58,100 km, which accounts for about 1.8% of the total road network but carries over 40% of the road traffic. With steady economic growth during the last 12 years, traffic on the national highways have increased 6 to 7.5% a year. The network is divided into two parts, the National Highway Development Program (NHDP) network (13,000 km) and non-NHDP network (about 45,000 km), which are managed by the National Highways Authority of India (NHAI) and the Ministry of Road Transport & Highways (MORTH), respectively. NHAI is an implementing agency established Public Disclosure Authorized by Government of India (GOI) under the NHAI Act of 1988. In 1998, GOI entrusted NHAI to implement the NHDP. The management of the non-NHDP network remains with MORTH who has long been responsible for the national highways mainly through delegating considerable responsibilities to state-level public works departments (PWDs). Despite the importance of national highways in India's economy, its performance has been poor by international standards. This is due primarily to the following main sector issues . (a) Serious road capacity constraints on the core national highways network . With steady traffic growth, the trunk national highways are increasingly congested. However, over 90% of the national highways are two-lane or narrower roads. Although GOI is upgrading the core national highways network through NHDP, capacity constraints on the core network will remain before NHDP's completion by 2007. Moreover, the network connectivity to the Northeastern states is especially inadequate. Public Disclosure Authorized (b) Poor management of road infrastructure services . The level of service on national highways is not only limited by capacity constraints, but also worsened by the mixed traffic of fast and slow vehicles, encroachment activities on the rights-of-way (especially those passing through urban areas), and state border check posts (for commodity permit inspection and tax 2 PID collection) that often delay trucks for many hours. Truck and bus speeds on national highways average 30-40 km per hour, though the expected averages are twice these figures. The poor driving condition due to mixed traffic on two-lane national highways, especially through the densely populated urban areas, is a major contributing factor to traffic accidents. The death rate per 10,000 vehicles in India is around 10 times the level seen in European Union countries, and 38% of the road accidents in India occur on national highways. (c) Inadequate institutional capacity for the development, management and operation of national highways . While institutional capacity has been significantly developed during the last several years, further policy and institutional reforms are needed. For example, it is unclear what long-term role NHAI should play after the completion of NHDP. The future institutional arrangements among MORTH, NHAI, and state PWDs for the management of national highways is yet to be examined, and the functional responsibilities of these agencies sorted out. Within NHAI, there are needs to strengthen O&M policy and management, monitoring and evaluation, and capacity to address legal and contracting issues, frequently arising from land acquisition and law and order problems on the highways. (d) Limited private sector participation in road financing . The financial requirements for increasing national highway capacity through 4-laning, 6-laning, and expressway construction are enormous, and exceed the funds that could be raised by the public sector. Currently, the major public funding comes from a dedicated Central Road Fund (CRF) with revenues from a fuel cess (tax). The allocation to national highways amounts to just Rs. 2000 crores a year, far below the funding level required. Private sector financing is evolving but still limited. Few projects can be financially viable for a stand-alone BOT (Build, Operate, and Transfer) scheme, and most would require Public-Private Partnerships (PPP) to be viable. While NHAI has reached financial closure for some annuity-based BOT projects and Special Purpose Vehicle projects, various modalities of private sector financing and PPP need to be tested and applied to cover more projects. Government strategy . Recognizing that the poor performance of national highways has been a major drag on economic growth, GOI initiated the NHDP to strengthen and widen the core national highways in 1998. Total cost for the program is estimated to be US$12 billion over ten years, and funding sources include government grants, fuel levies, tolls, bonds, private investments, and loans from international development banks. In 1999, GOI established the CRF through a cess of Rs. 1 per litre each on petrol and diesel, and earmarked a substantial portion of the CRF for national highway development, maintenance, and operation. GOI also amended the National Highway Act and developed policy guidelines to permit private financing of highways under BOT schemes or PPP arrangements. In 2002, GOI raised the cess on fuels to Rs. 1.5 per litre. Institutional reforms to improve the effectiveness of public road agencies to deliver road infrastructure services are also part of the government strategy. Before 1998, nearly all national highway responsibilities, from policy and planning to civil works implementation and maintenance, were rested with MORTH. GOI's assigning the NHDP implementation to NHAI was a major initial step toward the separation of implementation functions from the government bureaucracy. Moreover, the NHAI Act requires NHAI to discharge its functions on business principles as far as possible. The agency has managed to maintain a lean organization by 3 PID outsourcing most of its activities to the private sector. Through the institutional development actions supported under the Bank and ADB projects in recent years, NHAI has taken significant steps to develop and strengthen its institutional capacity in the direction of commercial management of national highways.

2. Objectives The Lucknow-Muzaffarpur National Highway Project (LMNHP) aims to (i) reduce transport constraints on national economic activity, and (ii) improve institutional capabilities to manage road programs, assets, and services on a more commercial basis.

The project will be the fourth Bank loan to support the NHDP, which funds the upgrading of 13,000 km of the core national highway network, including the Golden Quadrilateral (linking Delhi, Kolkata, Chennai and Mumbai), and the East-West and North-South corridors. With a programmatic approach, the Bank has been financing the NHDP through a series of loans. The first two, the Third National Highway Project (TNHP) and the Grand Trunk Road Improvement Project (GTRIP), were approved by the Board in June 2000 and June 2001, respectively. The third, Allahabad Bypass Project (ABP), has recently been appraised. LMNHP will finance the upgrading of a 513 km stretch of national highway between Lucknow, Uttar Pradesh and Muzaffarpur, Bihar on the East-West Corridor, and support institutional strengthening actions under an institutional development framework agreed with the client. Its development objectives are consistent with the other three projects.

3. Rationale for Bank's Involvement The most important contribution of the Bank in this sector is the knowledge of effective institutions, policies, financing and implementation mechanisms in other parts of the world, and experience with economic, social, and environmental analyses of projects. This project focuses on the strengths and weaknesses of current practices in the sector, and will mobilize technical expertise in examining and testing new approaches. Many of the procedures that have been put in place during the preparation of TNHP, GTRIP, and ABP are now being adopted by NHAI for all of its project preparation activities, including procurement, engineering, environment, land acquisition, resettlement, construction supervision and dispute resolution practices. The Bank has been supporting NHAI's institutional development, and facilitating the exchange of information between the central government, states and the private sector. Continued involvement of the Bank will facilitate institutional reforms in sound business management, accountability and responsiveness to external stakeholders, improved road asset management and traffic efficiency and safety, and better planning, policies and regulations. The Bank's financial participation is also important for the implementation of NHDP, until a more sustainable financial mechanism is developed for national highway development and maintenance. 4 PID

4. Description Highway upgrading : The national highway sections proposed for upgrading to 4-lane divided carriageway under the project are all located along a 513 km continuous stretch between Lucknow and Muzzafarpur along the East-West Corridor in the states of Uttar Pradesh and Bihar. The entire stretch is divided into five engineering design contract packages: (i) Lucknow-Ayodhya (126 km); (ii) Ayodhya-Gorakhpur (117 km); (iii) Gorakhpur-Gopalganj (106 km); (iv) Gopalganj-Muzzaffarpur (134 km), and (v) Gorakhpur Bypass (40 km). The civil works for the first four sections (total 483 km) are proposed by NHAI for Bank financing, and the Gorakhpur Bypass for NHAI’s own financing. The feasibility study and detailed engineering design including the Environmental Assessment (EA) and Resettlement Action Plan (RAP) for all packages are being carried out by design consultants funded by NHAI’s own funds, under Terms of Reference (TOR) cleared by the Bank.

Corridor management : This component will fund the contracts to private operators for the O&M of national highway stretches under five Corridor Management Units (CMU, approximately 600 km each), and the procurement of relevant equipment such as automatic traffic management and toll collection systems. The concept, policy, and operational procedures of CMUs were studied through a technical assistance (TA) component under the TNHP. A few CMUs have been established by NHAI to manage stretches of the GQ. The TNHP, GTRIP, and ABP all have made provision to fund the O&M contracts and equipment. A similar component under this LMNHP will fund the future needs arising from the growing number of CMUs on the NHDP network.

Institutional strengthening : This component will fund institutional strengthening actions identified under the institutional development framework agreed by NHAI, MORTH, the Bank, and ADB. The framework itself is developed but continues to evolve to meet the emerging needs for institutional capacity and arrangements. An institutional strengthening study funded as a TA component under the TNHP is underway, and specific actions to be supported under the LMNHP will be defined based on the specific recommendations of the study. It was agreed with NHAI in principle that the following actions may be supported by the project: (i) TA to examine the long-term relationship of NHAI with MORTH and capacity building actions to better position NHAI to complete the NHDP and take up new responsibilities; (ii) TA on the O&M management strategy, policy, and procedures; (iii) capacity building for addressing legal and contracting issues that often arise from land acquisition and law and order problems on highways; (iv) performance monitoring and benchmarking for India's road sector and road agencies; and (v) future project preparation and relevant sector studies.

5. Financing Source (Total ( US$m)) BORROWER ($225.00) IBRD ($525.00) Total Project Cost : $750.00 5 PID

6. Implementation Similar to the arrangement under TNHP, GTRIP and ABP, this project will be prepared and implemented by NHAI with extensive outsourcing to the private sector and close coordination with the relevant states. Within NHAI, the civil works under LMNHP will be the direct responsibility of a Chief General Manager under the general guidance of a Member (Technical), and managed in the field by two on-site Project Implementation Unit (PIU), one at Gorakhpur and the other at Muzzaffarpur. The preparation and implementation of the institutional strengthening component will be the responsibility of Member (Administration). High-level State Project Coordinating Committees in Uttar Pradesh and Bihar have been in place and functional in coordinating with NHAI on matters relating to land acquisition, resettlement, utility shifting, and tree cutting and re-planatation under the on-going projects. Responsibility for land acquisition, resettlement, and financing of all project-related costs will remain with NHAI. NHAI has decentralized accounting arrangements. Its on-site project management teams prepare monthly trial balances which are sent to the headquarters. All projects are supervised by independent professional construction supervision consultants. The contractor's bills are checked by the consultants in addition to ensuring quality control. Bills are also checked by NHAI technical and accounts staff before making payments to contractors. NHAI has a team of finance professionals who will coordinate the consolidation and submission of reimbursement claims for the project. A computerized integrated financial management system (FMS) has been developed and is rolling out to cover all NHAI activities. The internal audit function is being re-established and will assist management in strengthening the internal control function. The internal auditors are assisting NHAI to update the manual on operational accounting policies and procedures. It is expected that NHAI will fully develop its FMS capacity by the time this project commences implementation.

7. Sustainability

Benefits of the project are likely to be sustained over time as the traffic volumes increase. Nevertheless, a key factor will be NHAI’s capacity to properly maintain and efficiently operate the newly created road assets. The Bank supported national highways projects will enhance this capacity through institutional strengthening, promotion of private sector involvement, and assured funding mechanisms. Key issues that remain to be addressed include: (a) clarification of the roles of NHAI, MORTH and the states; (b) formulation of an overall strategy for national highway spending; and (c) adequate funding for maintenance. The implementation under TNHP and GTRIP of the recommendations of the Institutional Strengthening Study and Corridor Management Study will be critical for project benefits to be sustained over a period of time. 6 PID

8. Lessons learned from past operations in the country/sector Due to the programmatic approach, each subsequent project is built on the experiences gained from the previous ones. Three main lessons learned from TNHP, GTRIP, and ABP are reflected in the design of LMNHP. First, weaknesses have been identified in the areas of financial management and environmental and social safeguard capacity during the preparation and implementation of these projects, and are being addressed through on-going actions under these projects, from which LMNHP stands to benefit. Second, land acquisition and the implementation of Environmental Management Plan (EMP) and RAP under the on-going project are being closely monitored and strengthened, and much stronger processes are proposed for LMNHP, especially at the early stage of project preparation. The capacity of NHAI's Environmental and Social Management Unit is also being strengthened in line with the increasing workload. Third, learning from the civil works implementation experience of TNHP and GTRIP, it is proposed that the civil works contracts be down-sized slightly to increase competition and diversify the risk of poor contractor performance, and that the qualification of the supervision consultants include skills and experiences in contract dispute resolution. HIV/AIDS . As part of the social safeguard management, GTRIP includes an HIV/AIDS awareness program. Contractual clauses for the HIV/AIDS awareness and prevention for construction camps are built in the civil work contracts for ABP. NHAI collaborates with the National AIDS Control Organization (NACO) for technical advice and anti-HIV/AIDS material supplies. Learning from similar operational experience from African Region, LMNHP may include an expanded preventive program to cover other high risk groups such as truckers and sex workers along the project links.

9. Environment Aspects (including any public consultation) Issues :

EA Process: The project stretch is divided into four design consultant contract packages. A preliminary environmental screening of the options available has substantiated the view that (predominantly eccentric) widening along the existing alignment may be preferred along almost the entire stretch. The Bank reviewed the outputs from the preliminary environmental screening, and reviewed the proposals on the ground during a project identification mission in April 2003. Detailed EAs are being prepared for each of the four contract packages. NHAI has also sought the services of independent review consultants to confirm that the EA process and outputs have proceeded without undue interference of the design consultants, and that these are adequately integrated into the project's design. NHAI will obtain various GOI environment clearances required for this project.

Summary of key environment issues, assessment of impacts and mitigation measures : The main environmental issues are: (i) unavoidable felling of a large number of roadside trees, (ii) possible impacts with archaeological chance finds, particularly near the heritage site of Kushinagar, (iii) impairment to or worsening of the local and regional drainage and flood situations, if the road works are not properly designed based on adequate hydrological investigations, (iv) unavoidable conversion of some fertile agricultural land to the rights of way (RoW), (v) potential poorly planned or managed development induced by the presence of a high quality transport facility, (vi) unavoidable removal and shifting of community assets from the entire RoW and severance of 7 PID some communities, (vii) possible impacts on aquatic flora and fauna in the rivers and rivulets the project highway passes over, and (viii) temporary impacts due to construction, such as dust from the haul roads, pollution from the plants and machinery required for construction. These potential impacts will be avoided, minimized and/or mitigated through sound management practices, to be detailed in the EMPs. Some of the community resources, either shifted or re-built, will be enhanced on a case-to-case basis with commitment from local communities for their upkeep. On the positive side, a large section of the highway will use fly ash from nearby thermal power plants in embankment construction; and a number of roadside community assets and environmental resources will be enhanced by the project.

10. List of factual technical documents: 1. NHAI, Prioritization Study Report for the East-West Corridor and North-South Corridor, 2001; 2. NHAI, Draft Feasibility Study Reports, various stretches, prepared by appointed design consultants (CES, ICT, and CPCS Upham), 2003.

11. Contact Point:

Task Manager Zhi Liu The World Bank 1818 H Street, NW Washington D.C. 20433 Telephone : (86-10) 6554-3361 Fax: (86-10) 6554-5600

12. For information on other project related documents contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http:// www.worldbank.org/infoshop

Note: This is information on an evolving project. Certain components may not be necessarily included in the final project.