Alyat–Astara Road) (The Project)

Home , Goychay (city), Hadrut, Hajiqabul, Ordubad, Yevlakh, Zardab (city)

Technical Assistance Report

Project Number: 39176 November 2005

Technical Assistance Republic of Azerbaijan: Preparing the Southern Road Corridor Improvement Project (Alyat-Astara Road) (Financed by the Japan Special Fund)

The views expressed herein are those of the consultant and do not necessarily represent those of ADB’s members, Board of Directors, Management, or staff, and may be preliminary in nature.

CURRENCY EQUIVALENTS (as of 30 September 2005)

Currency Unit – Azerbaijan manat/s (AZM) AZM1.00 = $0.00022 $1.00 = AZM4,601.50

ABBREVIATIONS

ADB – Asian Development Bank EIA – environmental impact assessment EW – east–west (highway) GDP – gross domestic product IFI – international financial institution MDB – multilateral development bank MOT – Ministry of Transport NS – north–south (highway) PPTA – project preparatory technical assistance RP – resettlement plan RTSD – Road Transport Services Department TA – technical assistance

TECHNICAL ASSISTANCE CLASSIFICATION

Targeting Classification – General intervention Sector – Transportation and communication Subsector – Roads and highways Theme – Sustainable economic growth Subtheme – Fostering physical infrastructure development

NOTE

In this report, "$" refers to US dollars.

Vice President: J. Eichenberger, Operations Group 2 Director General: H. Satish Rao, East and Central Asia Department Director: N. Rayner, Transport and Communications Division, East and Central Asia Department Team leader: H. Masood, Senior Transport Specialist, Transport and Communications Division Team member: S. Ferguson, Senior Resettlement Specialist, Transport and Communications Division o o 46 00’E 50 00’E

REPUBLIC OF AZERBAIJAN Balaken R U S S I A N F E D E R A T I O N er SOUTHERN ROAD CORRIDOR G E O R G I A iv Zagatala R ur IMPROVEMENT PROJECT m Sa (ALYAT-ASTARA ROAD) Gusar Khachmaz Gakh

Guba Sheki C A S P I A N S E A Devechi Agstafa Shamkir Gazakh Siazan o Reservoir Oghuz o 41 00’N Tovuz Gabala 41 00’N M in gec hev ir R Khyzy es Nabiagaly erv Shamkir oir Ismailly Mingechevir Shamakhy Sumgayit Ganja Yevlakh Geranboy Agdash Goychay Maraza Khanlar Gadabey K Agshu u r Dashkesan R Ujar iv Khyrdalan e r Kyurdamir Terter Barda BAKU Sangachal Zardab A R M E N I A Kelbajar Hajiqabul Agjabedi Sabirabad Alyat Agdam Sarisu Lake Ali-Bayramli

Khojaly Imishli Saatly K u

r Khankendi R Beilagan i v Khojavend e Shusha r Heidarabad Lachin A Sharur r National Capital a Salyan z r Fuzuli e R iv Bilasuvar i R City/Town v Hadrut z e ra r A Airport Shahbuz Gubadly Neftchala Jebrail Port NAKHCHIVAN Project Road AUTONOMOUS Jalilabad Araz Reservoir National Road REPUBLIC Nakhchivan Zangilan Masally Other Road o o 39 00’N Julfa Railway 39 00’N Ordubad Baku-Tbilisi-Ceyhan Pipeline Ara Yardymly z River River N Lenkaran Provincial Boundary Lerik International Boundary 0 25 50 75 Boundaries are not necessarily authoritative. I R A N 0 5

- Astara 4 Kilometers 1 0 0

H o o

R 46 00’E 50 00’E

I. INTRODUCTION

1. The Government of Azerbaijan (the Government) has requested technical assistance (TA) from the Asian Development Bank (ADB) for preparing the Southern Road Corridor Improvement Project (Alyat–Astara Road) (the Project). The TA1 was not included in ADB’s country strategy and program update 2005–2006 for Azerbaijan,2 as it was only identified during the country programming mission in April 2005. It is now part of the revised 2005 loan and TA program, and Management has approved the concept paper for the TA. A fact-finding mission was undertaken during 13–16 June 2005 to formulate the TA. The fact-finding mission reached agreement with the Government on the objectives, scope, cost estimates, financing plan, implementation arrangements, and terms of reference for the TA consultants. The design and monitoring framework is in Appendix 1. II. ISSUES 2. Transport sector plays an important role in Azerbaijan’s rapidly expanding economy. Over the last five years, the gross domestic product (GDP) has been growing at a rate of over 10% per year, and that is projected to increase to 22% by 2007. The transport sector accounts for 7% of Azerbaijan’s GDP.3 Road transport is the preferred mode, as it carries 78% of the passenger and 28% of the goods traffic. It is critical for the domestic economy, because it links the local population with urban and international markets. The improvement of road infrastructure is part of the Government’s poverty reduction strategy, as articulated in the State Program on Poverty Reduction and Economic Development that was initiated in 2001. Improved roads will help to reduce poverty by providing the rural poor better access to markets and social services while ensuring more balanced development. An improved road network will also enhance regional cooperation and facilitate international and transit trade.

3. Inherited from the former Soviet Union, the 18,800 kilometer (km) road network of Azerbaijan (excluding Nakhchivan) was developed for traffic volumes and patterns significantly different from those emerging since independence in the early 1990s. Approximately 52% of the roads are paved, 47% are gravel, and the remaining are earth tracks. There are two primary road transport corridors. The east–west (EW) highway connects the capital city of Baku with the Georgian border and passes through the country’s main population centers. It is part of the famed “Silk Route” linking Central Asia and China with Europe. The north–south (NS) highway runs parallel to the Caspian Sea and connects Baku with the Middle East and South Asia to the south and with the Russian Federation and Europe to the north. Both road corridors are part of the Asian Highway Network.4 Conflict during the early years of independence and lack of resources have prevented regular maintenance. As a result, about 75% of the network is in poor condition. Based on the road condition data available, 61% of the EW and NS highways, 76% of other republic roads, 66% of secondary roads, and 76% of rural roads require rehabilitation. In addition, projections of increased traffic indicate that the current capacity of the NS highway will be insufficient and that widening and upgrading is needed.

4. The road sector is regulated by a presidential decree5 that defines the general basis for design, construction, operations, maintenance, and development of roads and associated structures, as well as the legal, technical, economic, and institutional principles for road sector

1 The TA first appeared in ADB Business Opportunities (internet edition) on 19 July 2005. 2 ADB. 2004. Country Strategy and Program Update (2005–2006): Azerbaijan. Manila. 3 Based on 2004 figures in the Azerbaijan Monthly Statistical Review 2005. 4 Sponsored by the UN Economic and Social Commission for Asia and Pacific, the 140,000 km Asian Highway Network was adopted by an intergovernmental agreement in November 2003. 5 Presidential Decree No. 299 issued in March 2000 on the application of the Law of Roads of December 1999.

2 management. Until 2003, the road sector was managed by Azeravtoyol, a state-owned joint-stock company established in 1993. It was modeled on the centralized decision-making system of the former Soviet Union. Because of its poor performance, and as part of the Government’s initiative to restructure key agencies, the Government dissolved Azeravtoyol and established the Ministry of Transport (MOT) in April 2003 to assume overall responsibility for policy, regulations, and administration of the transport sector. The road sector is the responsibility of two MOT departments: the Road Transport Services Department (RTSD), which looks after planning, managing, and maintaining the road network infrastructure, and the Auto Transport Services Department, which is responsible for regulating the road transportation.

5. The Government has embarked upon an extensive road improvement program that begins with the high-priority EW and NS road corridors. The Government also plans to develop other priority highways, along with secondary and tertiary roads, that provide in-country links, as well as access and opportunities to the large rural population.6 With assistance from multilateral development banks (MDBs) and other international financial institutions (IFIs), improvement of the entire EW corridor is now fully funded and fieldwork has begun on most sections. Negotiations with MDBs and other IFIs for improving the northern section (Baku–Russian border) of the NS corridor are in their final stages. For the southern section (Baku–Iranian border)7, the Government is seeking assistance from MDBs and other IFIs, including ADB. Under a bilateral agreement, the Government of Iran is providing grant assistance for a feasibility study and detailed design of the 243 km Alyat–Astara road. An Iranian consulting firm began work in January 2005. The draft feasibility report is being prepared and the consultants are scheduled to complete their work by mid-2006.

6. The proposed Project will construct a part of the road from Alyat to Astara, develop the cross-border facility at Astara, improve local roads to provide accessibility to poor areas in the South, and enhance the road network’s sustainability by supporting policy and institutional reforms in the RTSD. In view of the projected high traffic volumes on the NS corridor, the RTSD intends to upgrade this road to category I with dual carriageway and four lanes. Based on the initial feasibility work, the proposed road will be constructed on over 80% new and improved alignment in order to avoid major resettlement along the original corridor and to reduce the length (to about 200 km). The terrain is predominantly flat, although in the southern portion the road is bordered on one side by the Caspian Sea and on the other side by a mountain range. The road passes through six districts, and the current estimated traffic level is about 5,000 vehicles per day. The institutional and policy aspects addressed under the Project include (i) generating adequate revenues for maintenance through, among other sources, road user charges; (ii) establishing mechanisms to manage these resources are used exclusively for road maintenance; (iii) institutional improvements to ensure effective maintenance operations; (iv) controlling vehicle overloading; (v) minimizing environmental and social impacts; (vi) enhancing road safety; and (vii) facilitating cross-border traffic. These are discussed in more detail in the following paragraphs.

7. The RTSD has received technical assistance8 for institutional strengthening and capacity building. The recently completed technical assistance specifically included (i) development of a corporate plan for the RTSD, (ii) road inventory and functional classification of the network, (iii) review of road user charges, (iv) a pavement management system, (v) review of technical

6 A presidential decree for improvement of the regional/secondary roads is expected soon. 7 The Baku-Alyat road section has already been improved by the Government. The remaining section is the 243 km Alyat-Astara road. 8 Under the ongoing World Bank-financed Highway Rehabilitation Project (approved in 2001).

3 standards and/or specifications, (vi) establishment of a financial management system, (vii) a quality assurance system, (viii) development of a rolling multiyear road management program, (ix) traffic safety, and (x) performance assessment. The technical assistance was implemented with varying degrees of success for each of the activities, and significant work remains to be done, particularly with regard to obtaining the Government’s acceptance of the reforms and their implementation.9 The proposed Project will focus on implementation of the reforms in coordination with other ongoing and planned projects by ADB and other MDBs and IFIs. The proposed Project will also benefit from the ADB-financed technical assistance for transport sector development strategy10 that is scheduled to begin in October 2005.

8. Road maintenance lacks adequate resources, planning that is based on road conditions, and timely implementation. The allocations for road maintenance increased significantly from $6.7 million in 2001 to $14.4 million in 2004. They are expected to increase further to $23 million in 2005, although this remains far below the present needs. It is estimated that $260 million would be required if the entire 18,800 km network were to be properly maintained. A 10-year program (2006–2015) is under discussion with the Government to gradually increase maintenance funding to the desired level. Road maintenance is currently undertaken by the RTSD’s 61 rayon-based road maintenance units on a force account basis. Each road maintenance unit is responsible for the main and secondary roads in its individual rayon and uses its own labor force and construction plants. Based on findings from the technical assistance cited in paragraph 7, the RTSD is considering the establishment of 4–5 regional road maintenance units that will be responsible for managing periodic maintenance using the newly introduced pavement management system, which provides the necessary steps of the planning cycle and relies on the HDM-4 model11 for prioritizing the network. Periodic maintenance will be undertaken by private sector contractors using competitive bidding procedures. Routine maintenance will be initially undertaken by the rayon-based road maintenance units using force account procedures. These units will gradually be encouraged to bid for these works, which will also be open to private sector contractors.

9. Road safety needs to be improved in Azerbaijan, as the number of road accidents has increased significantly since 2001. In 2002, there were over 2,200 road accidents recorded that resulted in 570 fatalities and about 2,500 injuries. The fatality rate was about 17 persons per 10,000 vehicles, which is much higher than in western European countries. The economic loss from road accidents in 2002 was over $110 million, which accounted for 1.7% of annual GDP. The major causes of road accidents are poor road conditions, lack of safety features and facilities, weak road safety enforcement, intoxicated driving, and inadequate driver education. The National Road Safety Commission is unable to coordinate, as it does not have executive or operational powers. The Government is reviewing a five-year road traffic safety plan,12 which includes an action plan to improve road safety as well as a national policy and targets for road accident reduction. However, formal adoption and implementation of these recommendations is pending.

9 A part of the follow-up work has been included under the proposed ADB-financed East–West Highway Improvement Project which is due for Board consideration this year. The proposed EBRD project for improvement of the North-West corridor also supports implementation of the reforms. 10 ADB. 2005. Technical Assistance to the Republic of Azerbaijan for Transport Sector Development Strategy. Manila. The strategy will cover all modes of transport and includes (i) a sector update, (ii) government development plans, (iii) long-term development needs, policy reforms and regulatory requirements in line with Government goals, (iv) stakeholder consultations, (v) MOT capacity building, and (vi) roles of the Government, private sector and regulatory bodies. 11 High Design and Maintenance software (version 4) 12 Draft Five-Year Road Traffic Safety Program, December 2004, prepared under the World Bank-financed Highway Rehabilitation Project.

10. Vehicle overloading is one of the major causes of premature and excessive pavement deterioration. Axle load surveys conducted during 1998−1999 on the EW highway showed that 20% of four-axle trucks, 16% of five-axle trucks and 13% of buses exceeded the axle load limit. The recently reconstructed Alyat–Haciqabul section of the EW highway shows serious pavement damage at a number of locations due to overloading. Although Azerbaijan has developed regulations that limit vehicle axle loads to 13 tons, there is an urgent need to strengthen enforcement of axle load control for sustainability of the road network.

III. THE TECHNICAL ASSISTANCE A. Impact and Outcome 11. The impacts of the Project will include (i) reduced transport costs on the NS corridor, (ii) enhanced regional cooperation and trade due to improved access to the Middle Eastern and South Asian markets to the south and to the Russian Federation and Europe to the north, and (iii) economic development of Azerbaijan’s southern region due to increased mobility. The Project belongs to one of the four strategically selected areas for ADB assistance in Azerbaijan. It is consistent with the poverty reduction strategy outlined in the State Program on Poverty Reduction and Economic Development, which includes, among other priorities, improvement of road infrastructure. The outcome of the Project is improved connectivity to southern Azerbaijan with better access to the population centers. The proposed Project will construct a part of the 243 km road from Alyat (south of Baku City) to Astara (on the border with Iran), develop the cross-border facility at Astara, enhance sustainability by supporting policy and institutional reforms, and improve local roads to provide accessibility to poor areas in the South.

B. Methodology and Key Activities 12. International consultants, supported by domestic consultants, will be engaged to help the Government prepare the Project. The consultants will work closely with RTSD staff and provide on-the-job training in order to develop necessary skills for project preparation. The TA will involve fieldwork and stakeholder consultations with the Government, local authorities, civil society, the private sector, user groups, and international development partners. The TA will include a stakeholder consultation workshop. The initial poverty and social analysis (Appendix 2) for the Project was undertaken during the fact-finding.

13. Key TA activities include (i) reviewing and finalizing the detailed engineering design of the Alyat–Astara road being undertaken by the Iranian consultants;13 (ii) economic, poverty, social, resettlement, and environmental analysis of the proposed Project; (iii) preparing the required resettlement plan, as well as initial environmental examination and environmental impact assessment; (iv) preparing a proposal for improving local roads to less developed areas in southern Azerbaijan; (v) designing a cross-border facility at Astara; (vi) identifying institutional strengthening needs of the RTSD and recommending measures for capacity development; and (vii) addressing the road sector policy issues that involve rationalizing road user charges for maintenance funding, managing maintenance resources, ensuring effective maintenance, controlling vehicle overloading, minimizing environmental and social impacts, and enhancing road safety.

14. The TA will result in a project suitable for ADB financing. The deliverables include (i) a feasibility study of the Alyat–Astara road, (ii) finalized detailed design of the road section to be

13 This will involve review of the design standards, methodology and technical specifications, and it will be supported by spot field surveys and selected material testing.

5 financed under the Project, (iii) design of a cross-border facility at Astara, (iv) meeting safeguard compliance requirements, (v) feasibility of proposed local roads in the project area, (vi) proposals for institutional strengthening of road agency and policy reforms, and (vii) a project framework that includes monitoring indicators for development impacts and baseline data.

C. Cost and Financing 15. The estimated cost of the TA is $875,000 equivalent, including a foreign exchange cost of $483,500 and a local currency cost of $391,500. The detailed cost estimate is in Appendix 3. ADB will finance $700,000 equivalent, including the foreign exchange cost of $483,500 and local currency cost of $216,500 equivalent. The TA will be financed on a grant basis from the Japan Special Fund, financed by the Government of Japan. The Government will finance the remaining local currency cost of $175,000 by providing office space, counterpart staff, and administrative support.

D. Implementation Arrangements 16. The RTSD will be the Executing Agency and will appoint a project director to manage the TA, oversee day-to-day functions, and coordinate with other Government agencies and other stakeholders. A steering committee, chaired by the deputy minister of the MOT, will be established to provide guidance and directions, particularly on policy and institutional aspects and to approve the proposal for local/secondary roads. The committee will include representatives from the MOT, RTSD, ministries of finance and of economic development, State Customs Committee, traffic police, and other relevant agencies.

17. The TA will be undertaken over a period of 5 months, starting in February 2006. It will be carried out by an international consulting firm in association with domestic consultants. The TA will require 74 person-months of consultants’ input, comprising 21 person-months of international consultants and 53 person-months of domestic consultants. Outline terms of reference and reporting requirements for the consulting services are in Appendix 4. The consultants will be engaged using ADB’s quality- and cost-based selection procedures, and according to ADB’s Guidelines on the Use of Consultants and other arrangements satisfactory to ADB for selecting and engaging the domestic consultants. The international staff will include (i) a transport economist/team leader, (ii) a highway engineer, (iii) a pavement specialist, (iv) contracts specialist, (v) an institutional/financial management specialist, (vi) a road maintenance/road safety specialist, (vii) a bridge engineer, (viii) a poverty/social development specialist, (ix) a resettlement specialist, and (x) an environmental specialist. These will be supported by domestic staff. The consultants will follow ADB’s Guidelines for Procurement in procuring equipment, supplies, and materials. The equipment will be turned over to the RTSD after TA completion.

18. A workshop involving all stakeholders—the Government, local authorities, community representatives, user groups, private sector, civil society, nongovernment organizations, and other development partners—will be conducted on the proposed Project, and the findings will be incorporated into the project design.

IV. THE PRESIDENT'S DECISION

19. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance not exceeding the equivalent of $700,000 on a grant basis to the Government of Azerbaijan for preparing the Southern Road Corridor Improvement Project (Alyat–Astara Road), and hereby reports this action to the Board.

6 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Summary Performance Targets Data Source/Reporting Assumptions and Indicators Mechanisms and Risks Impact Assumptions Improved connectivity to Reduced travel time from Baku to Government’s economic • Effective and timely southern Azerbaijan with Astara and social statistics implementation of the improved access for the Reduced transport cost on Alyat-Astara project design rural population road National transport and customs statistics • Provision of adequate Increased reliability and availability of resources for public transport RTSD traffic counts and implementation road roughness surveys Increased international and transit traffic Risk RTSD road maintenance Improved capacity of the road agency, budgets • The Government’s the Road Transport Services inability to implement Department (RTSD), to manage the road sector institutional road network and policy reforms

Outcome Assumption Project design and feasibility The ADB loan processing mission’s Memorandum of • The Government’s study acceptable to the memorandum of understanding signed understanding/aide support for project or aide memoire confirmed by the memoire Government and Asian Government design Development Bank (ADB) Risk • The Government seeks other sources of funding for the Project

Outputs Assumptions 1. Updated project feasibility Inception report submitted to the Technical assistance (TA) • Support from the study Government and ADB by early March progress reports Executing Agency and 2006 2. Detailed engineering of other relevant the proposed Alyat-Astara Draft final report submitted to the TA review mission reports Government agencies to road section to be Government and ADB by mid-June the TA consultant financed under the 2006 Project ADB TA completion report • Continued support from 3. Environmental impact Final report submitted to the other external aid assessment of the Project Government and ADB by early July agencies during TA 2006 4. Resettlement assessment implementation and detailed plans 5. Poverty and social • Active participation of assessment of the Project stakeholders in 6. Proposal for development workshop and other of rural roads in project consultations area 7. Proposal for development Risks of cross-border facility at • Lack of coordination by Astara (Iranian border) the Executing Agency 8. Plan for strengthening and other relevant road sector institutions Government agencies 9. Recommendations and during TA actions plan for improving implementation road sector policy • Timely availability of information and data needed for the TA

Appendix 1 7

Activities with Milestones Inputs 1. Technical review of the design of the Alyat–Astara road done by others (by May 2006) • ADB TA: $700,000 2. Preparation of proposals for secondary and tertiary rural roads in the project area (by June 2006) International 3. Development of proposal for cross-border facility at Astara (Iranian border) (by May 2006) consultants (21 4. Economic evaluation of the Project (by June 2006) person-months) 5. Social and poverty assessment of the Project (by July 2006) Domestic consultants 6. Resettlement assessment and preparation of resettlement plans (by July 2006) (53 person-months) 7. Environmental impact assessment (by July 2006) • ADB headquarters and 8. Institutional assessment and preparation of recommendations (by June 2006) resident mission staff: 9. Review of road sector policy and preparation of recommendation (by June 2006) TA inception (1 week) 10. Estimation of project costs and development of contract packages (by June 2006) Workshop (1 week) 11. Recommendation of project implementation arrangements (by June 2006) Participation in other 12. Development of project design and monitoring framework (by July 2006) TA activities (2 weeks) 13. Consultation with stakeholders, local communities and development partners (by June 2006) • Government: $175,000 (in-kind) ADB = Asian Development Bank, RTSD = Road Transport Services Department, TA = technical assistance.

8 Appendix 2

INITIAL POVERTY AND SOCIAL ANALYSIS

A. Linkages to the Country Poverty Analysis

Is the sector identified as a national Yes Is the sector identified as a national Yes priority in country poverty analysis? priority in country poverty partnership No agreement? Not applicable. No

Contribution of the sector or subsector to reduce poverty in Azerbaijan: The road sector is one of the important transport modes in Azerbaijan, carrying 78% of passengers and over 28% of freight annually. However, many roads are in poor condition, thus inhibiting economic growth and regional trade. The State Program on Poverty Reduction and Economic Development (2003−2005), developed with Asian Development Bank (ADB) assistance, and the State Program for Socioeconomic Development of the Regions (2004−2008) identify rehabilitation of major road infrastructure as a precondition for regional economic growth and poverty reduction. The Southern Road Corridor Improvement Project (the Project) will include construction of about 200 km of four-lane divided highway from Alyat to Astara at the border with Iran. This will promote economic growth and poverty reduction in Azerbaijan while fostering its cooperation with other countries in the region. The major poverty reduction impact of the Project will be due to (i) jobs and income created for the poor living along the road related to construction and maintenance, (ii) improved access of the poor to markets and social services, and (iii) reduced prices for food and other daily necessities in local markets because of lower transport costs.

B. Poverty Analysis Targeting Classification: General intervention

What type of poverty analysis is needed? The project area consists of six rayons (districts): Astara, Bilasuvar, Calilabad, Lankeran, Masalli, and Salyan. These have a total population of 850,000, according to 2004 population estimates. Urban residents account for about 72% of the total population in the project area. About half of the total population was living in poverty as of 2003, based on the international income standard of $1 per day. The national average salary was only AZM383,058 ($78.0) in 2003. There are few if any internally displaced people in the project area. However, the Talysh, who constitute the main indigenous group in this region, inhabit the southern half of the project area. Before 1989, the Talysh were not distinguished in the census. Government statistics from 2004, however, indicate that the Talysh number 80,000, of which 68,000 reside in the project area. Unofficially, many more people are of Talysh origin and still speak the Talysh language in addition to Azeri.

The main cause of poverty is unemployment from the closing down of industries that operated in Soviet times. Much of the economic development in the project area is based on agriculture, tourism and trade. However, poor road conditions limit the potential for economic development. The cost of reaching markets outside of the project area is high, due to poor road conditions and expensive transport services with low quality. Improving infrastructure, including roads, is one of the key strategic priorities in the State Program for Poverty Reduction and Economic Development for 2003−2005. The Project will contribute to poverty reduction in the area by improving the southern road corridor and local roads and providing conditions for increased roadside commercial activities, thereby increasing local communities’ access to markets, job opportunities, and basic social services. The Project is expected to create many temporary employment opportunities for local people during construction.

C. Participation Process

Is there a stakeholder analysis? Yes No Consultations began during the feasibility study and further consultation will be conducted as part of the project preparatory technical assistance (PPTA). Key stakeholders include central government agencies, local authorities, civil society, local communities, the private sector, and external aid agencies (particularly the World Bank, which may provide co-financing). Consultation will focus on major project issues, such as alignment alternatives, selection of local roads, potential benefits, and social and environmental impacts. Special attention is being given to the needs and constraints faced by the poor, women, ethnic minorities, and other vulnerable groups.

Is there a participation strategy? Yes No During the PPTA, an outline of the target groups and participation objectives will be developed for the preparation, construction and operations phases of the Project. This strategy will take into account the need for ensuring local awareness of project plans and activities, from detailed design through implementation. It will use multiple methods, such as public meetings, newspaper advertising, and local public announcements. The strategy will also include a consultative phase during PPTA wherein a consultant provided by the Project can cooperate with local stakeholders to develop appropriate locations and designs for pedestrian and livestock crossing points, lighting, speed control, roadside market

Appendix 2 9

areas, etc. This strategy will be reviewed with representatives of the identified target groups, and the strategy will be modified according to relevant inputs.

D. Gender Development

Strategy to maximize impacts on women: Although Azerbaijan’s Constitution guarantees equality of rights between men and women, women’s socioeconomic status has been declining since the breakup of the former Soviet Union, and especially in rural areas. The vulnerable women in the project area comprise widows, female heads of households, and orphans. The PPTA will assess the project impacts on women (including the potential risks of HIV/AIDS/STIa and of human trafficking) and identify opportunities and actions to enhance project benefits for women. These could include job opportunities during the implementation (e.g., in construction, catering, cleaning, food services, and office work) and in such roadside businesses as cafes and shops. Special consideration will be given to Talysh women.

Has an output been prepared? Yes No

E. Social Safeguards and Other Social Risks

Item Significant/ Plan Not Significant/ Strategy to Address Issues Required None Resettlement Significant Since the majority of the highway will be constructed along a Full Not significant new alignment, significant land acquisition (about 1,000 ha) None will be necessary. Private farmland and housing plots will be Short avoided as much as possible. This alternative will affect substantially fewer businesses and houses than would None widening the existing road. The Road Transport Services Department will prepare a resettlement plan with assistance from design consultants and the PPTA consultant. In view of the proposed World Bank financing of a part of the Alyat- Astara road, there may also be a combined resettlement plan. Affordability Significant No tolls are proposed for the project road. Lower vehicle Yes Not significant operating costs will reduce transport costs. None No Labor Significant The Project offers the opportunity for temporary construction Not significant work to local communities. Yes None No Indigenous Peoples Significant The southern portion of the project area is inhabited by the Yes Not significant Talysh people, who are indigenous to this area. Other None nationalities are very limited but include Kurds, Russians, No Turks, Tartars and Ukrainians. The PPTA will assess project impacts and will prepare specific actions to mitigate impacts and enhance project benefits for the Talysh people. Other Risks and/or Significant The Project may have an impact on HIV/AIDS and human Yes Vulnerabilities Not significant trafficking due to employment of workers during road None reconstruction and the increased movement of people on the No southern road corridor after project completion. These concerns will be assessed during PPTA and, if necessary, proper mitigation measures will be included in the Project.

a HIV = human immunodeficiency virus, AIDS = acquired immunodeficiency syndrome, STI = sexually transmitted infections.

10 Appendix 3

COST ESTIMATES AND FINANCING PLAN ($ '000)

Item Foreign Local Total Exchange Currency Cost A. Asian Development Bank Financinga 1. Consultants a. Remuneration and Per Diem i. International Consultants 420.0 0.0 420.0 ii. Domestic Consultants 0.0 106.0 106.0 b. International and Local Travel 24.0 23.0 47.0 c. Reports and Communications 3.0 2.0 5.0 2. Equipmentb 0.0 15.0 15.0 3. Workshops 0.0 5.0 5.0 4. Surveysc 0.0 45.0 45.0 5. Miscellaneous Administration and 0.0 10.0 10.0 Support Costsd 6. Representative for Contract Negotiations 10.0 0.0 10.0 7. Contingencies 26.5 10.5 37.0 Subtotal (A) 483.5 216.5 700.0

B. Government Financing 1. Office 0.0 70.0 70.0 2. Remuneration and Per Diem 0.0 80.0 80.0 of Counterpart Staff 3. Reports and Others 0.0 25.0 25.0 Subtotal (B) 0.0 175.0 175.0 Total 483.5 391.5 875.0 a Financed by the Japan Special Fund Grant, funded by the Government of Japan. b Includes a photocopier, fax machine, printers and computers. c Includes technical, resettlement, poverty/social, and environmental surveys. d Includes translation costs. Source: Asian Development Bank estimates.

Appendix 4 11

OUTLINE TERMS OF REFERENCE FOR CONSULTANTS

A. Terms of Reference 1. The services to be provided by the consultants will cover, but not be limited to, the following:

1. Technical Review of Alyat–Astara Road

2. Review the proposed alignment,1 preliminary design and detailed engineering under preparation/or finalized by the consultant appointed by the Road Transport Services Department (RTSD) and financed by the Government of Iran. Undertake field surveys to verify and supplement data and prepare comments. Discuss these with RTSD and its consultant and finalize the road alignment, proposed improvements, design criteria, and detailed engineering of the road section to be financed under the Project. Prepare contractor prequalification and bidding documents in accordance with the procurement guidelines of Asian Development Bank (ADB). Prepare detailed terms of reference and a cost estimate for the supervisory consultant.

2. Rural Connectivity in the South

3. Review the secondary and tertiary road network in the project area and, in consultation with RTSD and local communities, identify priority local roads requiring improvement. Develop criteria for selection of the local roads, conduct field surveys, undertake detailed engineering, and prepare feasibility of the local roads. Prepare contractor prequalification and bidding documents in accordance with ADB procurement guidelines. Prepare detailed terms of reference and a cost estimate for the supervisory consultant.

3. Cross-Border Facility

4. In consultation with the State Customs Committee, prepare preliminary design of the cross-border facility at Astara. This will require consultation with other Government agencies responsible for cross-border operations including immigration, health, vehicle inspection, etc. After approval of the preliminary design by the steering committee, prepare detailed design and procurement documents involving prequalification and bidding documents in accordance with ADB procurement guidelines.

5. Review ongoing initiatives for harmonization of cross-border procedures and tariffs under ADB’s Central Asian Regional Economic Cooperation and similar initiatives by others, then prepare recommendation for facilitating cross-border traffic at the Astara border crossing.

4. Economic Assessment

6. Conduct traffic counts including origin-destination surveys to establish the pattern and volume of vehicle, passenger, and cargo movements, including details on passenger characteristics and type of goods shipped. Assess the possibility of passenger and freight traffic diversions from other routes. Prepare traffic forecast by representative vehicle type, taking into consideration population growth rate, production increase, economic activity, and income in the hinterland of the project road. Identify and describe international and transit traffic.

1 To ensure that it avoids and/or minimizes resettlement impacts, as required under ADB’s Policy on Involuntary Resettlement (1995).

12 Appendix 4

7. Undertake an economic evaluation of all project components, including project financed Alyat-Astara road section, local roads and cross-border facility, according to ADB’s Guidelines for Economic Analysis of Projects (1997), by comparing with- and without-project cases. Calculate economic internal rates of return and net present values for the individual components and the overall Project. Taking into consideration the economic evaluation, least-cost analysis, social benefits, and environmental impact, recommend the most suitable road improvement options and rank these according to priority.

8. In cooperation with the poverty specialist, estimate the expected distribution of project net benefits among users of freight and passenger transport, vehicle owners, labor, the Government, and the economy in general.

9. Undertake sensitivity tests on the recommended improvements by appropriately varying project benefits, project costs and the implementation period, expected overall future volume of traffic, traffic growth rates and a combination of these factors. Carry out quantitative risk analysis by considering the possible values for key variables and the probability that they may occur. Recommend ways to reduce project risks.

5. Financial Sustainability

10. Assess financial sustainability of Project and suggest appropriate covenants to mitigate risks. Undertake financial management assessment of RTSD and road maintenance units and prepare proposals to improve financial management considering earlier efforts and proposed activities of other multilateral development banks and international financial institutions.

6. Poverty and Social Assessment

11. Conduct poverty and social analysis in accordance with ADB’s Handbook on Poverty and Social Analysis (2001) and Handbook for Integrating Poverty Impact on Economic Analysis of Projects (2001). Assess how proposed construction of roads will help improve incomes and livelihoods. Estimate (i) the number of project beneficiaries by area, occupation, and income level; (ii) the number of adversely affected people by type of impact; and (iii) the poverty impacts. Prepare socioeconomic and poverty profiles for areas to be served by the proposed roads. Data should be separated by income group and gender, where applicable. Review local government’s policy, strategy, and programs for poverty reduction and economic development that could complement the Project, particularly those targeting the poor. Assess gender issues, identify vulnerable groups and recommend appropriate measures to address impacts and promote development opportunities during construction, operations and maintenance. Assess potential risks related to health and human-trafficking in the project area as well as practical means by which the Project may help mitigate these risks. Conduct a survey to develop a profile of transport services and costs in the project areas, and assess whether accessibility is affordable for the poor and near-poor groups. Identify types of transport services affordable for the poor. Suggest interventions on how to maximize project benefits and make transport services more available, efficient, and reliable. Findings of the analysis and assessment and proposed actions should be included in a poverty and social assessment report and summarized using ADB’s summary poverty reduction and social strategy format.

12. Identify proposed actions to mitigate adverse social impacts and enhance project benefits, especially to the poor and other vulnerable groups. Identify and assess ethnic minorities issues and assist RTSD to formulate a plan of special measures in accordance with ADB’s Indigenous People’s Policy (1998) and requirements outlined in ADB’s Operations Manual, section F3. The cost of such measures and means for implementation must be clearly

Appendix 4 13 proposed in the plan(s) and included in project costs. Identify stakeholders and representatives and conduct consultations with key stakeholders, project beneficiaries and other affected people in relation to potential impacts or possible enhancement of project benefits. Assist RTSD to establish consultation and participatory processes and prepare a public participation plan and reporting system.

7. Resettlement Assessment and Planning

13. Assist RTSD to prepare a resettlement plan (RP) covering the Alyat–Astara road, local roads and any associated facilities to comply with ADB’s Handbook on Resettlement (1998) and requirements outlined in ADB’s Operations Manual, section F2. Conduct resettlement household surveys and surveys of seriously affected villages to ensure adequate understanding of social impacts. Define categories for impact and eligibility of affected people for compensation, and prepare an entitlements matrix covering compensation and other assistance for all types of impacts to achieve full replacement for lost assets, income, and livelihoods. The entitlements should be based on the relevant Azeri laws, local government regulations, and ADB’s Policy on Involuntary Resettlement (1995). Assess impacts on vulnerable groups and women. Identify potential impoverishment risks and vulnerable groups, including those severely affected through loss of land and those with low income, and formulate appropriate relocation and rehabilitation measures.

14. Prepare a consultation plan for RTSD and a format for documenting consultation with affected people, listing events and summarizing the outcomes and improvements resulting from consultation. Assist RTSD to expand consultation with the affected communities, local leaders, proponents, and stakeholders who may be opposed to the Project. Assess stakeholders' concerns and consider possible changes in the project design to minimize land acquisition and resettlement effects.

15. Assess whether (i) the compensation standards are based on replacement value, and (ii) the overall resettlement budget is sufficient to acquire the land and implement the RP based on the proposed entitlements and construction/rehabilitation plans. Based on compensation rates and impact quantities, prepare a detailed resettlement cost estimate and funding sources in the RP. Review the organizational structure and capacity for resettlement implementation and recommend improvements and actions required before starting land acquisition. Assist RTSD to prepare a detailed resettlement implementation schedule linked to the overall project schedule. The RP will also include a plan for internal monitoring and supervision by RTSD and a plan and terms of reference for periodic external monitoring and evaluation by an independent agency.

16. Assist RSTD to finalize, disclose and obtain Government endorsement of the RP based on preliminary design data. Include a 3–5 page executive summary in the RP.

8. Environmental Assessment

17. Undertake environmental surveys and prepare an environmental impact assessment (EIA) and a summary environmental impact assessment for the Project in accordance with the ADB Environment Policy (2002), Environmental Assessment Guidelines (2003), and requirements outlined in ADB’s Operations Manual, section F1.

18. The EIA will include (i) description of the Project; (ii) description of the environment, including physical resources, ecological resources, economical development and social and cultural resources; (iii) assessment of project alternatives; (iv) anticipated environmental impacts (direct, indirect and cumulative) and mitigation measures; (v) economic assessment; (vi)

14 Appendix 4 environmental management plan, including institutional arrangement and environmental monitoring plan; and (vii) public consultation and information disclosure.

19. Ensure the Executing Agency conducts appropriate public consultation in accordance with the ADB Environment Policy (2002) and Environmental Assessment Guidelines (2003). This will include (i) consultation during the early stages of EIA fieldwork, and (ii) consultation when the draft EIA report is available, and prior to loan fact-finding by ADB.

20. Determine costs for proposed environmental mitigation measures and environmental monitoring activities. Assist in incorporating appropriate mitigating measures into the project design. Identify the need of consultant for environmental management monitoring and reporting during implementation and prepare the term of reference.

9. Institutional Assessment and Capacity Development

21. Review the work to date by RTSD on institutional strengthening and capacity development. Assess RTSD capacity to plan, develop and manage road assets and identify areas needing further work. Undertake needs assessment and develop a proposal for capacity development of RTSD, including areas, type and duration of trainings, equipment needs, and terms of reference for the institutional specialist needed during implementation. Review proposed establishment of regional road maintenance units and commercialization of local road maintenance units, and identify actions for implementation, including capacity development.

10. Road Subsector Policy Review

22. Review the current road subsector policies, identify areas critical for sustainable development, and prepare recommendations for improvement. These include (i) generating adequate revenues for maintenance through, among others, road user charges, (ii) ensuring effective maintenance operations through regional road maintenance units and commercializing operations of local road maintenance units, (iii) minimizing environmental and social impacts, (iv) enhancing road safety through empowerment and better coordination of responsible agencies, and (v) facilitating cross-border traffic by simplifying procedures and rationalizing tariff structure. Undertake axle load survey on the main road transport corridors to assess the severity of vehicle overloading and prepare recommendations to control excessive overloading through improved enforcement.

11. Road Transport Services

23. Assess the provision of road transport services for passengers and freight in the project area in terms of pricing, quality and frequency of service. Assess the degree of competition and the proportion of reduced transport cost that is likely to be passed on to end users. Explore the possibilities for improving services to the poor and remote areas in order to determine the need to incorporate a public transport component under the Project.

12. Project Cost and Contract Packages

24. Prepare detailed cost estimates of the project components, indicating breakdown of foreign and local costs and taxes and duty components. Specify all procurement under suitable contract packages and identify the procurement procedure.

Appendix 4 15

13. Implementation Arrangements

25. Identify project implementation arrangements, including role of the executing and implementation agencies and composition of the project steering committee. Prepare detailed project implementation schedule specifying the key activities and the time frame taking into consideration the time frame required under ADB procurement guidelines.

14. Project Design and Monitoring Framework

26. Formulate, in a participatory manner, a result-based project design, monitoring framework and project-performance management system for monitoring and evaluating project impact, outcome, outputs, activities and inputs. Collect preliminary baseline data for the performance indicators and targets. Emphasize indicators for which data can be collected by Government staff during and after project implementation. Prepare appropriate formats, schedules, and cost estimates for collection of baseline data for monitoring and evaluation following project completion.

B. Composition of Consultants 27. The consultant team comprises 10 international consultants and 11 domestic consultants. The international consultants will consist of a transport economist/team leader (5 person-months), highway engineer (2 person-months), pavement specialist (1.5 person- months), institutional/financial management specialist (2 person-months), bridge engineer (1 person-month), contracts specialist (2 person-months), road maintenance/safety specialist (2 person-months), social development/poverty specialist (1.5 person-months), resettlement specialist (2 person-months), and environmental specialist (2 person-months). The 11 domestic consultants will comprise a transport economist (5 person-months), highway engineer (5 person-months), pavement specialist (5 person-months), traffic engineer (5 person-months), institutional/financial management specialist (5 person-months), bridge engineer (3 person- months), contracts specialist (5 person-months), road maintenance/safety specialist (5 person- months), social development/poverty specialist (5 person-months), resettlement specialist (5 person-months), and environmental specialist (5 person-months). Under the supervision of the international consultants, the domestic consultants will assist in (i) finalizing detailed engineering; (ii) collecting data and reviewing published documents and reports; (iii) analyzing information and data obtained in their respective areas; (iv) conducting consultations, including stakeholder workshops; (v) providing inputs; and (vi) performing other tasks as needed.

C. Reporting Requirements 28. The consultants will be required to submit to the Government and ADB (i) an inception report within 4 weeks after commencement of services; (ii) the poverty and social assessment report, RP and environmental reports within 12 weeks after commencement of services; (iii) the draft final report, including appendixes, within 18 weeks after commencement of services; and (iv) the final report within 3 weeks after receipt of comments on the draft document. The consultants also will be required to submit brief project progress reports to the Government and ADB each month during the services.

29. All reports will be delivered in a format and substance satisfactory to the Government and ADB. Six copies (three each in English and Azeri) are to be provided to the RTSD and three copies (in English) to ADB. An electronic copy of the final report (in MS Word/Excel format and on compact disc) and the executive summary (in PowerPoint) will be submitted to the RTSD (in English and Azeri) and ADB (in English) at the end of services.