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ASIAN DEVELOPMENT BANK RRP:IND 29250 REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE BOARD OF DIRECTORS ON A PROPOSED LOAN TO THE NATIONAL HIGHWAYS AUTHORITY OF INDIA FOR THE SURAT–MANOR TOLLWAY PROJECT IN INDIA June 2000 CURRENCY EQUIVALENTS (as of 15 May 2000) Currency Unit – Rupee/s (Re/Rs) Re1.00 = $0.022 $1.00 = Rs43.97 In this report, an exchange rate of $1.00 = Rs42 is used. ABBREVIATIONS ADB – Asian Development Bank EIRR – economic internal rate of return FIRR – financial internal rate of return JBIC – Japan Bank for International Cooperation km – kilometer MOST – Ministry of Surface Transport NHAI – National Highways Authority of India NH – national highway PAP – project-affected person PIU – project implementation unit RAP – Resettlement Action Plan TA – technical assistance VOC – vehicle operating cost NOTES (i) The fiscal year (FY) of the Government ends on 31 March. FY before a calendar year denotes the year in which the fiscal year ends. For example, FY1998 begins on 1 April 1997 and ends on 31 March 1998. (ii) In this report, “$” refers to US dollars. CONTENTS Page LOAN AND PROJECT SUMMARY ii MAP vi I. THE PROPOSAL 1 II. INTRODUCTION 1 III. BACKGROUND 1 A. Sector Description 1 B. Government Policies and Plans 6 C. External Assistance to the Sector 7 D. Lessons Learned 7 E. ADB’s Sector Strategy 8 F. Policy Dialogue 9 IV. THE PROPOSED PROJECT 11 A. Rationale 11 B. Objectives and Scope 12 C. Cost Estimates 13 D. Financing Plan 13 E. Implementation Arrangements 14 F. The Executing Agency 15 G. Social and Environmental Impacts 16 V. PROJECT JUSTIFICATION 18 A. Financial and Economic Analyses 18 B. Poverty Impact 19 C. Risks 19 VI. ASSURANCES 20 A. Specific Assurances 20 B. Condition of Award of Civil Works Contract 21 VII. RECOMMENDATION 21 APPENDIXES 22 LOAN AND PROJECT SUMMARY Borrower National Highways Authority of India (NHAI) Guarantor India Project Description The Project will improve to four-lane standard (construction of two lanes and pavement strengthening of the existing two lanes) about 180 kilometers (km) of National Highway Number 8 (NH8) in the states of Gujarat (largely) and Maharashtra. The Project will remove a critical bottleneck in the movement of freight and passengers from the industrial and agricultural areas of Gujarat to the ports, including Mumbai on the west coast of India. Classification Economic growth Environmental Assessment Category B An initial environmental examination was undertaken and the summary is a core appendix. Rationale A large portion of the national highway network in India is in urgent need of improvement. Large traffic volumes to a mainly two-lane national highway network inflict heavy social and economic costs on the country. The western transport corridor, the NH8 and NH4, which connects Delhi, Mumbai, Bangalore, and Chennai, is the busiest corridor in India, particularly in the section between Ahmedabad and Mumbai where it passes through an industrial belt with connections to several major and minor ports on the west coast. The section between Ahmedabad and Mumbai is 528 km, of which 348 km has been or is being widened to four-lane standard. There remains a section of about 180 km (between Surat and Manor), which is now a severe bottleneck for the efficient movement of goods and passengers between the industrial heartland of Gujarat and the port of Mumbai on the west coast of India. The Asian Development Bank’s (ADB) involvement with the Project will provide an opportunity to advance policy dialogue with the Government on road sector reform issues. The commercialization of the completed project facility through a private iii sector operation and maintenance toll concession will represent a significant step in increasing private participation in national highway development. Efforts to introduce private financing for highway development, particularly for long interurban stretches, which have long payback periods and higher risks, are continuing with ADB assistance under the Project and separately through technical assistance. Objectives and Scope The objectives of the Project are to remove capacity constraints and improve road safety on critical sections of the western transport corridor from Delhi to Mumbai. The completed project highway will be operated and maintained by the private sector through a toll concession. The commercialization of the operation and maintenance of the Project represents a significant step in increasing private participation in national highway development in India and will have a demonstration effect on the management of other national highway sections. The Project will comprise (i) widening to four lanes (including the strengthening of the existing two- lane pavements) about 180 km of NH8 between Surat and Manor, and (ii) provision of consulting services for construction supervision and for the development of private participation and toll operations. Cost Estimates ($ million) Foreign Local Total Item Exchange Currency Cost Base Cost 134.0 84.0 218.0 Contingencies 28.6 16.0 44.6 Interest during Construction 17.4 0.0 17.4 Total 180.0 100.0 280.0 iv Financing Plan ($ million) Foreign Local Total Source Exchange Currency Cost Percentage ADB 180.0 0.0 180.0 64 NHAI 0.0 100.0 100.0 36 Total 180.0 100.0 280.0 100 ADB = Asian Development Bank; NHAI = National Highways Authority of India. Loan Amount and Terms $180 million from ADB’s ordinary capital resources, with a repayment period of 25 years including a grace period of 5 years and with interest at ADB’s pool-based variable lending rate for US dollar loans. Period of Utilization Until 30 September 2004 Executing Agency NHAI Implementation Arrangements The Project will be implemented by a separate project implementation unit within NHAI. Procurement The civil works contract packages will be procured in accordance with ADB’s Guidelines for Procurement following international competitive bidding procedures. Consulting Services International and domestic consultants will be required for construction supervision and to assist with the process of encouraging private participation in the financing of highways and expressways. The consultants will be recruited in accordance with ADB’s Guidelines on the Use of Consultants and other arrangements satisfactory to ADB on the engagement of domestic consultants. Estimated Project Completion Date 31 March 2004 v Project Benefits and Beneficiaries The main quantifiable benefit accruing from the Project consists of savings in vehicle operating costs, which will lead to a reduction in transport costs. The economic internal rate of return of the Project is estimated at 25 percent, while the financial internal rate of return is estimated at 14 percent. The Project will also improve road safety and reduce travel time between Ahmedabad and Mumbai. Operation and maintenance of the completed project facility by the private sector through a toll concession will bring efficiencies from entrepreneurial skills and superior management practices. The direct beneficiaries of the Project are road users, transport operators, and importers and exporters who will benefit from lower transport costs, faster travel time, and improved safety. The Project’s influence area has a population of about 14 million, of which 30-50 percent, depending on district, are poor. The people in the project influence area will benefit from increased agriculture-related activities, like horticulture, poultry, and dairy farming, as the produce will now be able to reach markets at reduced cost and time. The Government of Gujarat has began a program of improving rural roads that will provide the rural population in about 1,000 villages with access to the project road and thereby to markets and employment opportunities. A road safety campaign and activities to improve road safety, particularly among school children, will be carried out along the project road as part of the resettlement activities. vi I. THE PROPOSAL 1. I submit for your approval the following Report and Recommendation on a proposed loan to the National Highways Authority of India (NHAI) for the Surat-Manor Tollway Project. II. INTRODUCTION 2. A large portion of the national highway network in India is in urgent need of improvement. Large traffic volumes on a mainly two-lane national highway network inflict heavy social and economic costs, and adversely affect all levels of society and all sectors of the national economy. During the 1998 Country Programming Mission, the Government requested Asian Development Bank (ADB) assistance in developing the national highway network along the high-density western transport corridor that connects the cities of Delhi, Mumbai, Bangalore, and Chennai. The feasibility study for the proposed Surat-Manor Tollway Project was prepared by domestic consultants funded by the Government. The ADB Fact-Finding Mission1 visited India from 4 to 20 May 1998, to formulate the Project on the basis of discussions with the Government, other agencies active in the road sector, and the project feasibility report. The Appraisal Mission completed the review and analysis of all aspects of the Project and the sector from 27 July to 7 August 1998. Loan negotiations with representatives of the Government and NHAI were held in Manila from 28-29 January 1999. The project data and sector analysis were updated by a Project-Specific Contact Mission in December 1999 and through regular contact with NHAI officials. The project framework is shown in Appendix 1. III. BACKGROUND A. Sector Description 3. India has an extensive and diversified transport system, comprising about 3,290,000 kilometers (km) of roads, 62,570 km of rail, 12 major and 139 minor ports, four major international airports, 86 domestic airports, and about 14,500 km of navigable inland waterways. The modal mix between road and rail transport has been continuously shifting away from rail to road because of underfunding of the Government-owned rail system; the road transport industry is largely private sector operated. Consequently, road transport is now the dominant mode, accounting for 60 percent of freight movement and 80 percent of passenger traffic, with rail transport accounting for much of the remaining.