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World Bank Document 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
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