Completion Report

Project Number: 39265-022 Grant Number: 0107 November 2019

Mongolia: Western Regional Road Corridor Development Project, Phase 1

This document is being disclosed to the public in accordance with ADB’s Access to Information Policy.

CURRENCY EQUIVALENTS

Currency unit – togrog (MNT)

At Appraisal At Project Completion (8 January 2008) (30 July 2019) MNT1.00 = $0.00085 $0.00038 $1.00 = MNT1,169.75 MNT2,666.00

ABBREVIATIONS

ADB – Asian Development Bank CAREC – Central Asia Regional Economic Cooperation EIA – environmental impact assessment EIRR – economic internal rate of return EMP – environmental management plan km – kilometer m – meter MFF – multitranche financing facility MRTD – Ministry of Road and Transport Development PIU – project implementation unit PRC – People’s Republic of China RRP – report and recommendation of the President TA – technical assistance

GLOSSARY aimag – province soum – local administrative subdivision

NOTE

In this report, “$” refers to United States dollars.

Vice-President Ahmed M. Saeed, Operations 2 Director General Amy S. P. Leung, East Asia Department (EARD) Director Sujata Gupta, Sustainable Infrastructure Division, EARD

Team leader Masahiro Nishimura, Senior Rural Development Specialist, South Asia Department Team members Alice Corinna Bañez, Operations Assistant, EARD Anand Ganbaatar, Transport Officer, EARD Cristina P. Roldan, Project Analyst, EARD Yun Zhou, Senior Environment Specialist, EARD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page BASIC DATA i MAP v I. PROJECT DESCRIPTION 1 II. DESIGN AND IMPLEMENTATION 1 A. Project Design and Formulation 1 B. Project Outputs 2 C. Project Costs and Financing 4 D. Disbursements 5 E. Project Schedule 5 F. Implementation Arrangements 5 G. Consultant Recruitment and Procurement 6 H. Gender Equity 6 I. Safeguards 7 J. Monitoring and Reporting 8 III. EVALUATION OF PERFORMANCE 8 A. Relevance 8 B. Effectiveness 9 C. Efficiency 9 D. Sustainability 9 E. Development Impact 10 F. Performance of the Borrower and the Executing Agency 10 G. Performance of the Asian Development Bank 10 H. Overall Assessment 11 IV. ISSUES, LESSONS, AND RECOMMENDATIONS 11 A. Issues and Lessons 11 B. Recommendations 12

APPENDIXES 1. Design and Monitoring Framework 13 2. Project Cost at Appraisal and Actual 15 3. Project Cost by Financier 16 4. Disbursement of ADB Grant Proceeds 18 5. Contract Awards of ADB Grant Proceeds 19 6. Chronology of Main Events 20 7. Appraisal and Actual Implementation Schedule 23 8. Ministry of Road and Transport Development Organization Chart 24 9. Economic Reevaluation 25 10. Status of Compliance with Grant Covenants 32 11. Details of Contract Packages 40 12. Environmental Management Plan Implementation Checklist 41

BASIC DATA

A. Grant Identification 1. Country Mongolia 2. Grant number and financing source 0107, Asian Development Fund 3. Project title Western Regional Road Corridor Development Project, Phase 1 4. Recipient Ministry of Finance, Mongolia 5. Executing agency Ministry of Road and Transport Development (formerly Ministry of Roads, Transport, and Tourism) 6. Amount of grant $37.60 million 7. Financing modality Project grant

B. Grant Data 1. Appraisal – Date started 4 September 2007 – Date completed 12 September 2007 2. Grant negotiations – Date started 7 January 2008 – Date completed 8 January 2008 3. Date of Board approval 26 February 2008 4. Date of grant agreement 18 April 2008 5. Date of grant effectiveness – In grant agreement 17 July 2008 – Actual 22 May 2008 – Number of extensions 0 6. Project completion date – Appraisal 30 April 2012 – Actual 1 December 2015 7. Grant closing date – In grant agreement 31 October 2012 – Actual 1 December 2015 – Number of extensions 2 8. Financial closing date – Actual 18 May 2016 9. Terms of grant – Interest rate Not applicable – Maturity (number of years) Not applicable – Grace period (number of years) Not applicable 10. Terms of relending (if any) – Interest rate Not applicable – Maturity (number of years) Not applicable – Grace period (number of years) Not applicable – Second-step borrower Not applicable

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11. Disbursements a. Dates Initial Disbursement Final Disbursement Time Interval 7 October 2008 14 April 2016 91 months

Effective Date Actual Closing Date Time Interval 22 May 2008 1 December 2015 91 months

b. Amount ($ million) Increased Canceled Last Original during during Revised Amount Undisbursed Allocation Implementation Implementation Allocation Disbursed Balance Category (1) (2) (3) (4=1+2–3) (5) (6=4–5) 1. Works 32.76 0.94 0.00 33.70 33.54 0.16 1A. Package 1 21.86 11.84 0.00 33.70 33.54 0.16 1B. Package 2 10.90 (10.90) 0.00 0.00 0.00 0.00 2. Equipment 0.60 (0.13) 0.00 0.47 0.45 0.02 2A. Road Maintenance 0.25 (0.02) 0.00 0.23 0.23 0.00 2B. Other Equipment 0.35 (0.11) 0.00 0.24 0.22 0.02 3. Community Development 0.15 (0.01) 0.00 0.14 0.11 0.03 4. Capacity Building and Training 0.16 (0.08) 0.00 0.08 0.08 0.00 5. Consulting Services 2.74 (0.04) 0.00 2.70 2.68 0.02 5A. Construction Supervision 2.30 0.24 0.00 2.54 2.52 0.02 5B. Environmental Monitoring 0.44 (0.28) 0.00 0.16 0.16 0.01 6. Project Administration 0.25 0.26 0.00 0.51 0.52 0.00 7. Unallocated 0.94 (0.94) 0.00 0.00 0.00 0.00 Total 37.60 0.00 0.00 37.60 37.36 0.24 Note: Numbers may not sum precisely because of rounding.

C. Project Data

1. Project cost ($ million) Cost Appraisal Estimate Actuala Foreign exchange cost 53.28 37.36 Local currency cost 58.94 24.19 Total 112.22 61.55 a Limited to the section where the grant was actually used.

2. Financing plan ($ million) Cost Appraisal Estimate Actuala Implementation cost Borrower financed 74.62 24.19 ADB financed 37.60 37.36 Other external financing 0.00 0.00 Total implementation cost 112.22 61.55 Interest during construction costs Not applicable Not applicable Borrower financed Not applicable Not applicable ADB financed Not applicable Not applicable Other external financing Not applicable Not applicable Total interest during construction cost Not applicable Not applicable a Limited to the section where the grant was actually used (110.8-kilometer section against 431.2-kilometer project scope at appraisal).

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3. Cost breakdown by project component ($ million) Component Appraisal Estimate Actuala A. Investment Costs 1. Civil Works (including safety) 78.79 51.20 2. Construction Supervision and Environment 4.70 2.68 3. Community Development 0.15 0.11 4. Road Maintenance Units and Equipment 0.60 0.45 5. Capacity Building 0.16 0.08 6. Project Administration 0.25 0.52 7. Taxes and Duties 10.06 6.53 Subtotal (A) 94.71 61.55 B. Contingencies 17.51 0.00 Total (A+B) 112.22 61.55 Note: Numbers may not sum precisely because of rounding. a Limited to the section where the grant was actually used.

4. Project schedule Item Appraisal Estimate Actual Dates of contracts with consultants Construction supervision Q1 2009 21 August 2009 Environmental monitoring Not applicable 28 September 2012 Environmental monitoring (archaeological survey and Not applicable 15 February 2013 protection work) Environmental monitoring 6 January 2014 Completion of engineering designs Q4 2008 16 January 2009 Civil works contract Date of award Q1 2009 22 December 2010 Completion of work March 2012 24 November 2015 Equipment and supplies Dates First procurement Q1 2009 October 2014 Last procurement Q1 2012 November 2015 Completion of equipment installation Q2 2012 October 2015 Q = quarter.

5. Project performance report ratings Ratings Implementation Period Development Objectives Implementation Progress From 29 February 2008 to 31 July 2009 Satisfactory Satisfactory From 1 August 2009 to 29 September 2009 Satisfactory Highly satisfactory From 30 September 2009 to 31 March 2011 Satisfactory Satisfactory Single Project Rating From 1 April 2011 to 31 March 2016 On track

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D. Data on Asian Development Bank Missions No. of No. of Name of Mission Date Persons Person-Days Specialization of Membersa Fact-finding 26 May–4 Jun 2007 6 60 a, b(3), c, d Appraisal 4–12 Sep 2007 4 36 a, b(2), e Inception 27 Aug–1 Sep 2008 3 18 e, f, g Review mission 1 11–14 Oct 2009 2 8 b, f Review mission 2 5–11 May 2010 2 14 e, f Review mission 3 10–22 Jun 2011 7 89 b, c, e, g, h, i(2) Review mission 4 30 Sep–6 Oct 2012 3 21 c, h, j Midterm review mission 3–6 Jun 2013 7 28 b(2), c, e, h, j, k Review mission 5 14–21 Sep 2013 3 24 b, c, j Review mission 6 24–29 Jun 2014 3 18 b(2), j Review mission 7 20–24 Oct 2014 3 15 b(2), j Review mission 8 24–31 Aug 2015 5 35 b, e, h(2), j Review mission 9 13–24 Mar 2016 8 56 b(2), h(2), i, j, l, m Project completion review 23–30 May 2017 9 65 b, c, f, h, j, n, o, p, q Project completion review 14–15 Mar 2019 1 2 b (follow-up) a a = financial analysis specialist or senior financial analysis specialist, b = transport specialist or senior transport specialist, c = transport economist or senior transport economist, d = social development specialist, e = associate project analyst, f = project analyst, g = counsel, h = consultant, i = principal project implementation specialist, j = environment specialist or senior environment specialist, k = social safeguards specialist, l = resettlement specialist, m = young professional, n = advisor to the executive director for the United States, o = social development specialist (safeguards), p = senior portfolio management specialist, q = associate transport officer.

96o 00'E 111o 00'E

50o 00'N 50o 00'N Ulaangom UVS KHUVSGUL Sukhbaatar Murun SELENGE Ulgii BULGAN BAYAN- Darkhan Erdenet DARKHAN-UUL DORNOD ULGII Khovd ZAVKHAN Bulgan ORKHON ARKHANGAI KHENTII Choibalsan Uliastai ULAANBAATAR TUV KHOVD Tsetserleg Zuunmod Chinggis GOVISUMBER N Bayankhongor Baruun-Urt Altai Arvaikheer Choir SUKHBAATAR GOVI-ALTAI Mandalgovi Project Area UVURKHANGAI 0 25 50 75 100 BAYANKHONGOR DUNDGOVI Sainshand Kilometers Dalanzadgad DORNOGOVI o 42 00'N UMNUGOVI 42o 00'N

96o 00'E 111o 00'E

90 o 00'E MONGOLIA WESTERN REGIONAL ROAD CORRIDOR DEVELOPMENT PROJECT, PHASE 1 (as completed) Ulaangom UVS Malchin Ulaanbaishint

Tsugaannuur Naranbulag Nogoonnuur

Tsengel Ulgii Ulgii

Dayan BAYAN-ULGII ZAVKHAN Khovd Chandman 58 o 00'N 58 o 00'N

National Capital Provincial Capital Mankhan KHOVD

City/District Bayan Uul Other Town/Village Dzereg Phase 1 Road Corridor (at appraisal) Dariv Section completed by ADB’s Phase 1 project (Grant 0107-MON)

Section completed by government funding Tsetseg Section included in ADB’s ensuing loan project (Loan 2847-MON) Section completed by the Export-Import Bank of China loan project Tonhil Yarant Main Road Uyench Provincial Road Bulgan GOVI-ALTAI River Provincial Boundary Altai Tamchi International Boundary Boundaries are not necessarily authoritative.

This map was produced by the cartography unit of the Asian Development Bank. The boundaries, colors, denominations, and any other information shown on this map do not imply, on the part of the Asian Development Bank, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries, colors, denominations, or information. 90 o 00'E

19-1619 AV

I. PROJECT DESCRIPTION

1. At the request of the Government of Mongolia, the Asian Development Bank (ADB) approved a grant of $37.6 million on 26 February 2008 for the Western Regional Road Corridor Development Project—Phase I. The project aimed to improve the efficiency and safety of the road corridor in western Mongolia.

2. Mongolia is a vast, sparsely populated country located between the People’s Republic of China (PRC) to the south and the Russian Federation to the north. Mongolia’s western region suffers from a slow rate of development because of its remoteness from the country’s political and economic centers and its inadequate transport network. At appraisal, roads to and within the region were mostly unpaved and imposed heavy travel costs on residents and visitors. As a result, the region lacked adequate access to jobs, markets, and social services, and was significantly poorer than other parts of Mongolia. The government put a high priority on the development of paved roads in the region. Gross domestic product per capita in the project aimags1 was only 42.1% of the national average in 2017. At the time of the feasibility study in 2008, the poverty incidence of the region was 48% compared with the national average of 34%; by 2016, it had fallen to 36% compared with the national average of 30%.

3. The western regional road corridor runs north–south from Mongolia’s border with the Russian Federation at Ulaanbaishint to its border with the PRC at Yarant and has a total length of about 743 kilometers (km). It is part of Asian Highway 4 and is designated Central Asia Regional Economic Cooperation (CAREC) Corridor 4a. In the long term, the corridor will serve as a transit route for traffic from the Kyrgyz Republic, Tajikistan, and Uzbekistan to the Siberia region of the Russian Federation, promoting regional cooperation and integration. Rising incomes will increase the demand for imports from neighboring countries, which have been constrained by the difficult road conditions and extremely high transport costs.

4. The impact of the phase I grant project envisaged at appraisal was the promotion of regional transport via the Western Regional Road Corridor and increased economic development and regional trade. The outcome was to be an efficient and safe regional transport route developed in the western region of Mongolia to link Mongolia with Xinjiang Uygur Autonomous Region in the PRC and Siberia in the Russian Federation. The outputs were to be (i) improved 431.2 km Yarant–Hovd city road; (ii) establishment of road maintenance centers; (iii) procurement of equipment; (iv) improved road safety; (v) community development; (vi) HIV/AIDS awareness; and (vii) strengthening of institutional capacity of the Ministry of Roads, Transport and Tourism.

II. DESIGN AND IMPLEMENTATION

A. Project Design and Formulation

5. The project was formulated in accordance with Mongolia’s national development plan2 and ADB’s country strategy.3 The government aimed to improve the efficiency and safety of road transport to facilitate the country’s economic and social development. The government’s sector strategy prioritized completing the international roads that connected with Asian highways and

1 The project aimags refers to Khovd and Bayan-Olgiy aimags. 2 Government of Mongolia. 2007. Report on Needs Assessment for Millennium Development Goal Achievement in Mongolia. Ulaanbaatar. 3 ADB. 2006. Mongolia: Country Strategy and Program Update, 2007–2009. Manila.

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CAREC corridors. One of these international roads was the project road, which links the PRC with the Russian Federation through the western region of Mongolia.

6. ADB’s country strategy at the time of appraisal aimed to foster pro-poor economic growth to reduce poverty. It focused on support for (i) creating an environment conducive to private sector-led growth, (ii) generating employment, (iii) maintaining standards of human development, (iv) strengthening and reforming the social protection system, and (v) undertaking governance reforms.

7. The project preparatory technical assistance (TA) elaborated various options and justified the construction of the road as envisaged, and surveyed the entire western regional road corridor including the project road section.4 The project road was designed in accordance with Mongolian technical Category III standards. Category III is a two-lane, undivided road with design speeds of 100 km per hour, 80 km per hour, or 60 km per hour depending on the terrain. The cross section comprises carriageways of a width of 3.5 meters (m) on each side and shoulders of 1.5 m. The cross section and road design standards were consistent with Class II Asian Highway standards. The pavement was designed for a 5-centimeter asphalt concrete surface course to cope with the expected daily traffic volume of 4,841–5,573 vehicles in 2032.

B. Project Outputs

8. Output 1: Improved 431.2-kilometer Yarant–Hovd city road. At appraisal, it was envisaged that the project would improve the 431.2 km Yarant–Hovd city road. The scope was not changed during implementation. However, the project grant financing only delivered the 110.8 km Temeen Huzuu hill–Baga Ulaan Pass section because of cost overruns partly as a result of price escalation during implementation (Table 1, item 2). The Government of Mongolia and the Export– Import Bank of China (China Exim Bank) funded other sections, while ADB’s ensuing multitranche financing facility (MFF) program included the Baga Ulaan Pass–Manhan Soum section (Table 1, item 3).5 Although the envisaged completion year was 2012, the entire 431.2 km road was only completed in October 2018, when the government-funded Uyench River–Khuviin Honhor section was finished (Table 1, item 1-2).

Table 1: Road Sections Included at Appraisal Section Cumulative Distance Distance Item Starting and Ending Points (km) (km) Remarks 0 Yarant border to Bulgan Soum 64.0 64.0 Completed before appraisal by government funding 1-1 Bulgan Soum–Uyench River 40.0 104.0 Completed in 2017 by government funding 1-2 Uyench River–Khuviin Honhor 12.0 116.0 Completed in 2018 by government funding 1-3 Khuviin Honhor–Temeen Huzuu 8.0 124.0 Completed in 2017 by government hill funding 2 Temeen Huzuu hill–Baga Ulaan 110.8 234.8 Completed in 2015 by ADB grant and Pass government funding

4 ADB. 2006. Technical Assistance to Mongolia for Preparing the Western Regional Road Development Project. Manila (TA 4785-MON). 5 ADB. 2011. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing Facility to Mongolia for the Western Regional Road Corridor Investment Program. Manila.

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Section Cumulative Distance Distance Item Starting and Ending Points (km) (km) Remarks 3 Baga Ulaan Pass–Manhan 103.3 338.1 Included in ADB’s ensuing multitranche Soum financing facility tranche 1 project and completed in 2015a 4 Manhan Soum to Khovd 93.1 431.2 Included in the ensuing loan from the Export–Import Bank of China and completed in 2014 ADB = Asian Development Bank, km = kilometer. a ADB. 2011. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing Facility to Mongolia for the Western Regional Road Corridor Investment Program. Manila. Source: Asian Development Bank.

9. Output 2: Establishment of road maintenance centers. The project scope at appraisal included the establishment of three road maintenance centers along the project road (about 1 in every 100 km) by 2012. The project established two road maintenance centers near Altai Soum and Botgon in 2017 at facilities that had been used as construction campsites. These centers will be used as temporary shelters for winter maintenance workers, who are usually based in the city of Khovd, rather than full-fledged maintenance centers.

10. Output 3: Procurement of equipment. The project scope at appraisal included the procurement of equipment for maintenance centers with an estimated value of $250,000 and other equipment with an estimated value of $380,000 amounting to a total amount of $600,000 by 2012. The maintenance equipment procured totaled $447,250 and comprised one tractor (backhoe loader), three asphalt cutters and three compactors, one set of hand tools including two bitumen spreaders, two dual-cabin utility vehicles, one pneumatic tire roller, one motor grader, and one truck- mounted crane. The equipment was handed over to Khovd Road Maintenance Company. The project procured and installed one weigh bridge at a newly established weigh station near Bulgan Soum.

11. Output 4: Improved road safety. The project scope at appraisal included enforcement of axle load limits by 2012 as a performance target for this output. The weigh station near Bulgan Soum began operations in 2016 to maintain safety and prevent road damage by overloaded vehicles. Road alignment and condition were significantly improved after project completion. However, the improvements enabled the average travel speed to increase to 80 km per hour despite a speed limit of 80 km. Project teams often observed speeding vehicles during site visits as strict enforcement is difficult given the sparse population and low traffic volumes. The executing agency conducted road safety audits at various stages, and installed road safety measures such as guardrails, road signs and markings, rest areas, and kilometer posts.

12. Output 5: Community development. At appraisal, the performance targets for this output were to conduct five training programs by 2012, each with 20 targeted participants; conduct community development activities in Altay, Manhan, and Must soums; and build 1 well and 10 greenhouses in each soum, as well as associated training programs. Site visits at completion confirmed the following. (i) Altay Soum: The project built a well in a location that had no water. This may be because of a lack of groundwater, or because the contractor did not bore deep enough to reach the groundwater. The project built only two greenhouses—one for a school and one for a household. (ii) Manhan Soum: The project built a well that is operational throughout the year, and all 10 greenhouses. The soum government paid proper attention to the project and

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allocated MNT6.8 million for new fences, electricity, and water containers. Three community members with a background in agriculture conducted training courses on vegetable farming. The community includes household heads who were unemployed, households headed by women, and poor and vulnerable households. The soum government established the initiative, named Joint Power, in March 2017. Joint Power plans to expand its activities into beekeeping and tree planting. (iii) Must Soum: The project built a well 100–200 m from the soum center. The site was not determined based on a technical survey, and the well is located in permafrost land. Water is available only during the summer months of June–September, and the outer wall of the well has developed cracks. Only three greenhouses were built.

13. Output 6: HIV/AIDS awareness. The performance target for this output at appraisal was to raise HIV/AIDS awareness among 2,300 construction workers by 2009. The project consultants provided training on HIV/AIDS, traffic safety, and human trafficking to about 1,500 construction workers, local people, health organizations, police, and administration staff of cities and aimags.

14. Output 7: Strengthening of institutional capacity of Ministry of Roads, Transport and Tourism. The performance target for this output at appraisal was to conduct 30 person-months of training and seminars by 2012. The project consultants conducted training and seminars as stipulated in the terms of reference, enhancing the capacity of the relevant government officials.

C. Project Costs and Financing

Table 2: Cost at Appraisal versus Cost at Completion Cost at Financing at Cost at Financing at Appraisal Appraisal Completiona Completion Source ($ million) (%) ($ million) (%) Asian Development Bank 37.60 33.5 37.36 60.7 Government of Mongolia 74.62 66.5 24.19 39.3 Total 112.22 100.0 61.55 100.0 a Limited to the section where the grant was actually used (110.8-kilometer section against the 431.2-kilometer project scope at appraisal). Source: Asian Development Bank.

15. Cost overruns. Table 2 shows the cost and financing plan at appraisal and completion, but the cost at completion is limited to the section where the grant was actually used. The road project experienced cost overruns and implementation delays. The cost overruns were primarily because of large price increases and the lack of bid prices upon which to base road construction cost estimates. The financing plan at appraisal allocated $17.5 million for contingencies (15.6% of the total cost), including physical contingencies at 5.0%–8.0% of civil works costs. However, the contingencies were designed to be shouldered mostly by the government (94.6% of the total contingencies), and only 2.5% of the total grant amount ($0.9 million of $37.6 million) was saved as unallocated. Because of the cost overruns and insufficient government counterpart funds, the grant project could cover only 30.2% of the total road length included in the project scope at appraisal (110.8 km of 367.2 km, excluding the section already completed at appraisal, as shown in Table 1).

16. Additional financing. ADB approved an ensuing MFF program on 9 December 2011 and its tranche 1 loan on 22 December 2011 (footnote 5). Tranche 1 included additional financing to complete the phase I grant project. The report and recommendation of the President (RRP) for the MFF program implied that the project preparatory TA due diligence had not been sufficient by stating the following as a lesson: “ADB has taken steps to prevent cost overruns under the proposed investment program through extensive due diligence on the detailed design and cost estimates.”

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The government completed all the sections included in the project scope at appraisal in October 2018, almost 3 years after the grant closing, using funds from the government, China Exim Bank, and ADB’s ensuing MFF program (footnote 5), as shown in Table 1. The total project cost for the entire 367.2 km was $168.2 million (Table 3).

Table 3: Cost by Road Sections at Completion Section Cost Distance (MNT Costa Item Starting and Ending Points (km) million) ($ million) 1-1 Bulgan Soum–Uyench River 40.0 15,690 5.9 1-2 Uyench River–Khuviin Honhor 12.0 4,707 1.8 1-3 Khuviin Honhor–Temeen Huzuu hill 8.0 3,138 1.2 2 Temeen Huzuu hill–Baga Ulaan Pass 110.8 162,962 61.6 3 Baga Ulaan Pass–Manhan Soum 103.3 102,492 38.7 4 Manhan Soum–Khovd 93.1 156,085 59.0 Total 367.2 445,074 168.2 km = kilometer. a Exchange rate used is: $1 = MNT2,645.50. Sources: Ministry of Road and Transport Development and the Asian Development Bank.

D. Disbursements

17. ADB financed 65% of the civil works costs and 100% of the other categories. Actual contract awards were $37.36 million, which is equal to the actual annual and cumulative disbursements made; $0.24 million was cancelled upon financial closing of the grant. The RRP did not include disbursement projections, but the disbursement have been delayed by about 2 years as the contract award of the first civil works package was delayed by 2 years, and the implementation period was 20 months longer than scheduled at appraisal. The actual annual and cumulative disbursement contract awards are in Appendixes 4 and 5.

E. Project Schedule

18. At appraisal, the project was expected to be implemented over 5 years. The project closing date was extended twice, from 31 October 2012 to 1 December 2014 and then to 1 December 2015. The total implementation period from 22 May 2008 (effectiveness date) to 1 December 2015 (loan closing date) was about 7.5 years. The extensions were necessary to cope with the implementation delay. The delay was caused mainly by (i) longer than expected procurement processing time; (ii) delayed permits, which held up the mobilization of labor and equipment at the beginning of each construction season; and (iii) frequent flooding in Bodonch Canyon, including significant floods in 2012 and 2014. The environmental impact assessment (EIA) identified the flood risk as a natural hazard, and proposed the installation of culverts as a mitigation measure, which was implemented. In addition, the project included concrete flood protection walls in Havchig Canyon. The government and China Exim Bank implemented a 153.1 km road section in 2012–2018 (Tables 1 and 3, items 1-1, 1-2, 1-3, and 4), and ADB’s ensuing MFF program implemented a 103.3 km section in 2012–2015 (Tables 1 and 3, item 3). The chronology of main events is in Appendix 6, and the implementation schedules at appraisal and completion are in Appendix 7.

F. Implementation Arrangements

19. At appraisal, the Department of Roads under the Ministry of Roads, Transport and Tourism was the executing agency for the project. The government restructured the ministry and changed

6 its name to the Ministry of Roads, Transport, Construction and Urban Development in 2008, the Ministry of Road and Transport in 2012, and the Ministry of Road and Transport Development (MRTD) in 2016.6 These changes did not materially affect project implementation. The executing agency established a project implementation unit (PIU) to implement activities on a day-to-day basis. This was the first ADB project for improving the western regional road corridor, and the executing agency, implementing agency, and PIU set precedents for ensuing projects. ADB extended the grant closing date twice for a cumulative extension of 37 months. The implementation arrangements were adequate except for the implementation period.

20. Government- and China Exim Bank-funded sections. The ADB PIU was not in charge of the government-funded sections. Review mission memorandums of understanding and progress reports also suggest that ADB was not involved in the implementation and did not monitor safeguard compliance of the government- and China Exim Bank-funded sections.7 Although ADB’s project administration instructions did not officially exclude these sections from the project scope, the project team treated them as if this were the case. Based on information received from the MRTD, there were no major safeguard or complaints in these sections.

21. ADB approved project preparatory TA for $600,000 in May 2006 to appraise the project’s technical feasibility, economic and financial viability, environmental and social impacts, and other aspects (footnote 4). The TA contributed to the preparation of the project, but the technical and financial appraisal underestimated the costs and resulted in significant cost overruns.

G. Consultant Recruitment and Procurement

22. Consultant recruitment. The MRTD selected a construction supervision consultant through quality- and cost-based selection method with the quality–cost ratio of 80:20, and the contract was signed on 8 September 2009. The MRTD engaged two individual environmental consultants (one from 2012 to 2013 and one from 2013 to 2015), who monitored environmental compliance and implementation of the environmental management plan (EMP). The MRTD engaged the Mongolian Academy of Sciences Institute of Archaeology for archaeological survey and monitoring. The consultants conducted the tasks successfully following the terms of reference.

23. Procurement. According to the procurement plan at appraisal, the expected date of advertisement of civil works was the fourth quarter of 2008. However, the procurement process took longer, and the notification of contract award was issued on 15 December 2010 and the contract agreement was signed on 22 December 2010. The delay was caused mainly by a lack of understanding of ADB’s procurement procedures. The procurement plan envisaged two civil works packages, for the Temeen Huzuu hill–Baga Ulaan Pass section and the Baga Ulaan Pass– Manhan section, but only the first package was procured because of lack of funding resulting from the cost overruns. The section for the second package was eventually included in ADB’s ensuing MFF program tranche 1 (footnote 5). The actual cumulative contract awards totaled $37.36 million.

H. Gender Equity

24. The project was categorized as some gender elements. The project had no gender action plan, but it included gender and development measures to promote equal access to and use of

6 The organizational chart of the MRTD is in Appendix 8. 7 MRTD is responsible for safeguard monitoring and reporting of ADB’s ensuing MMF Tranche 1 (Loan 2847-MON).

7 relevant services, resources, assets, and opportunities by women and girls. The gender and development measures comprised (i) provision of road maintenance training and employment opportunities regardless of gender, and (ii) prevention activities for sexually transmitted infections and HIV/AIDS. The project provided technical training in the areas of land use, road construction, and environmental protection to 4,097 people, of whom 1,736 (42%) were women, and implemented the measures envisaged at appraisal.

I. Safeguards

25. Environment. ADB categorized the project environment category A under ADB’s Environment Policy 2002.8 The categorization was based on the project’s (i) potential impacts on local flora and fauna, including on endangered mammal species in the region; (ii) potential impact on water quality during the construction of road crossings over the Bodonch River, Tsahir River, and two springs in Havchig Canyon; (iii) extraction of borrow materials such as sand and stone aggregates; (iv) risks to the safety of herders and their livestock crossing the road; (v) potential for increased poaching or hunting of wildlife and risks to wildlife in crossing points; and (vi) scale.

26. The government undertook an EIA, and the summary was circulated to the ADB Board of Directors and made public through the ADB website on 17 August 2007. The EIA assessed the environmental impact of selected alignments of the project road, and prescribed environmental protection and mitigation measures. Covenants of the grant agreement require the project to be designed, constructed, and operated in line with relevant legislation, the EIA, the summary EIA, and the EMP; and to provide semiannual monitoring reports to ADB and the government. The monitoring reports submitted and ADB’s project review missions confirmed that environmental mitigation measures had been implemented, environmental monitoring was carried out, and no significant environmental issues arose during implementation.

27. During construction, the PIU recorded five grievances. Two grievances concerned the project road being too close (3–5 m) to livestock shelters. The contractor addressed the issue by helping the aggrieved parties to relocate their livestock shelters. The other three grievances involved suggestions that local residents should be hired for cleanup activities. Soum governors and the PIU discussed solutions at the Local Citizen’s Representative Meeting and resolved the issues. Complaints and recommendations from local residents were well addressed. One fatal accident occurred during the grant project implementation in 2013, when an informal miner had rushed into a blasted area seeking gold in the debris and was killed by a falling rock. There were no reports of serious road accidents during operation.

28. The contractor hired professional environmental organizations, such as the Institute of Meteorology in Khovd Aimag, to carry out monthly monitoring activities. A team of soil, water, and air quality specialists conducted field monitoring activities. Soil, water, and air samples taken at the construction sites were tested at the laboratories of the professional environmental organizations. Temporary impacts, such as dust, noise disturbance, and damage to landscapes from borrow pits and quarries, were controlled and minimized through adherence to national regulations and implementation of the EMP. No noncompliance with the EMP provisions was observed.

29. Involuntary resettlement. At appraisal in 2005, ADB classified the project category C based on ADB’s involuntary resettlement policy.9

8 ADB. 2002. Environment Policy of the Asian Development Bank. Manila. 9 ADB. 1995. Involuntary Resettlement. Manila.

8

30. Based on the Resettlement Plan with Due Diligence Report dated September 2013, it was stated that during implementation in 2012, two stone sheds located near Bodonch canyon had to be removed as they were both located on the government land within the road corridor. The stone sheds were used as storage and did not result in relocation or loss of income to the owners. In consultation with the owners, one of the sheds was reconstructed during the construction season in 2012 while the owner of the other shed was paid monetary compensation. Site visits in 2017 found that a wooden storage structure of 6 square meters built in 1993 was within the right-of-way and needed to be demolished. The contractor compensated for this structure by building a new, larger storage structure with improved construction materials. The review mission confirmed that there were no pending issues.

31. Indigenous peoples. No impact on indigenous peoples was anticipated at appraisal. The project did not adversely impact indigenous peoples or significantly change their livelihoods or culture.

J. Monitoring and Reporting

32. The project complied with all but two covenants specified in the grant agreement: (i) Schedule 4, para. 5: Development of phase II. The grant agreement required, “Recipient shall ensure that adequate funds are allocated to phase II and the implementation of phase II is started by 31 December 2010.” Compliance with this covenant was delayed because the ensuing MFF was approved on 9 December 2011. The delayed compliance affected the timing of the delivery of major outputs because the phase II project was partially used as a source of additional financing for the grant project. (ii) Schedule 4, para. 18: Cross-border trade. The grant agreement required, “Recipient shall take necessary measures to implement harmonized cross-border procedures at Yarant by 31 December 2012 and ensure that the border crossing is open to the public year-round without restricting the border crossing to residents and citizens of the Recipient and PRC”. This covenant was only partly complied with because although year-round border operations were established in 2011, the cross-border procedures between Mongolia and the PRC were not harmonized. An agreement was made but not enforced. The partial compliance may have affected delivery of the project outcome because the border trade and traffic might have grown more if the harmonized cross-border procedures had been implemented.

33. The MRTD complied with the reporting requirements. The financial management arrangements of the recipient, the executing agency, and the implementing agency were adequate. The recipient submitted audited project financial statements and reports on time, including the auditors’ opinion on the use of the grant proceeds and compliance with the financial covenants.

III. EVALUATION OF PERFORMANCE

A. Relevance

34. The project is rated highly relevant. It was highly relevant to the government’s road sector strategy, which aims to improve the efficiency of road transport to facilitate the country’s economic and social development. It was one of the government’s highest-priority transport projects and had significant demonstrative effects by transforming the remote area of western Mongolia into a

9 regional economic corridor together with ensuing projects funded by ADB and China Exim Bank. The project was also in line with ADB’s country strategy, which aimed to foster pro-poor economic growth to reduce poverty. Developing the road sector was among the strategic focuses of ADB operations, and the completion of the north–south road corridor in the western region was considered a high priority. The Mongolia’s Road Master Plan 2008–2020 and Road Development Program up to 2016 prioritized completing the international roads connected with Asian highways and CAREC corridor.10 One of these international roads was the project road, which links the PRC with Russian Federation through the western region of Mongolia. The project design included technically innovative features to successfully construct paved roads in a region with severe climate and geographic conditions, and comprehensive outputs to boost the socioeconomic impacts of the international road corridor development such as road safety and maintenance, community development, and HIV/AIDS prevention.

B. Effectiveness

35. The project is rated effective in achieving its intended outcome and major outputs. Between 2010 and 2015, average travel speed increased from 40 km per hour to 80 km per hour; travel time from Yarant to Ulaanbaishint decreased by 8 hours; the average border processing times for goods and passengers at Yarant and Ulaanbaishint shortened by 5 hours; and traffic volume at the Yarant and Ulaanbaishint border increased by 10%–15% annually. The project improved the transport network in the region, allowing residents easier, cheaper, and faster access to social, health, and other services.

C. Efficiency

36. The project is rated less than efficient. An economic reevaluation undertaken based on 2014–2018 traffic counts indicated that the investment costs of the project road were higher than the economic benefits. The recalculated economic internal rate of return (EIRR) was 6.6%, which is below ADB’s threshold of 10.0%–12.0% for an efficient rating. The EIRR estimated at appraisal was 13.6%. The EIRR is lower because of cost overruns, implementation delays, and lower than forecast traffic volumes. However, besides the immediate benefits for road users of lower travel cost and time, the unquantified strategic importance of the corridor and the socioeconomic impact of the road on local communities are essential elements to be included in the overall judgment of the project’s economic viability. In addition, the project road is the least-cost option given the difficult terrain and climate.

37. Traffic was assumed to increase with an elasticity to growth in gross domestic product per capita of 1.30 for passenger vehicles and 0.55 for trucks in the reevaluation. The results of the economic reevaluation are explained in more detail in Appendix 9.

D. Sustainability

38. The project is rated likely sustainable. The government passed the Road Law Amendment, 2017, which aims to expand road maintenance funding and enhance asset management practices. ADB approved transaction TA in 2018 to support the MRTD’s road asset management and related efforts.11 In addition to the nationwide efforts by the MRTD, the project

10 Government of Mongolia. 2007. Road Master Plan 2008–2020. Ulaanbaatar; and ADB. 2011. Road Sector Development to 2016. Manila. 11 ADB. 2018. Technical Assistance to Mongolia for Regional Road Development and Maintenance Project. Manila (TA 9544-MON).

10 and ADB’s ensuing program (footnote 5) established two maintenance stations and a weigh station to increase the efficiency of routine and periodic maintenance and enhance the enforcement of axle load control. The MRTD established a toll collection facility near Bulgan Soum in Khovd Aimag, and ADB’s ensuring MFF project will establish two more toll collection facilities and weigh stations along the western regional corridor, one in the south of Khovd city and the other in the south of Ulgii city. These stations will enhance axle load control and increase available maintenance budgets in the project road.

E. Development Impact

39. The development impact of the project is rated highly satisfactory. The project’s intended impact was the promotion of regional transport via the Western Regional Road Corridor and increased economic development and regional trade. The PRC’s Xinjiang Uygur Logistics Association found that the improved road conditions have benefited the regional supply chain significantly, and the travel time on the Takeshiken (Xinjiang Uygur Autonomous Region)–Yarant– Khovd route was shortened by 12 hours. The road improvement has significantly reduced the time and cost required for regional trade, as indicated in the CAREC Corridor Performance Measurement & Monitoring Annual Report 2016.12 Heavy, fuel-inefficient old trucks were used in the past because they could cope with the bad roads. When loaded, their maximum attainable speeds were 20–30 km per hour on gravel sections and 60 km per hour on paved sections. After the road was improved, Mongolian drivers switched to lighter, more fuel-efficient trucks that are capable of speeds of up to 100 km per hour. Better road conditions stimulated tourism from the PRC and spurred higher exports of Mongolian coal and minerals. Forwarders and truckers from the Mongolian western aimags added more trucks to the Takeshiken–Yarant–Khovd and Takeshiken–Yarant–Olgiy routes and increased their revenue.

40. Phase 1 of the Western Regional Road Corridor Development Project is a flagship ADB project and the first to support the government’s efforts to enhance economic development and poverty reduction through enhanced regional connectivity in the isolated western region of Mongolia. The project was followed by ADB’s MFF and China Exim Bank loans, and construction is underway in some sections of the western regional corridor. The completion of the corridor will further enhance regional trade and communication and greatly stimulate economic activity.

F. Performance of the Borrower and the Executing Agency

41. The performance of the recipient and the executing agency is rated satisfactory. The project steering committee worked actively during project implementation to solve coordination issues, making decisions and carrying out actions to address project implementation issues, including delays in the issuance of contractors’ work permits and equipment imports. The PIU generally provided the necessary coordination and supervision of the implementation of the project activities, especially the road construction. However, it should have given more attention to some of the components, such as the community development activities. During project implementation, the PIU received 48 recommendations and complaints. The local governments or the PIU solved these issues or implemented corrective measures in each case.

G. Performance of the Asian Development Bank

42. The performance of ADB is rated satisfactory. Cost overruns posed a significant challenge for project administration but did not require a change in scope. Another limitation during project

12 ADB. 2018. CAREC Corridor Performance Measurement & Monitoring Annual Report 2016. Manila.

11 processing was that although the RRP recognized the capacity constraint in the Ministry of Road and Transport, it did not identify the risks posed by regulations related to work permits and equipment importation and thus did not formulate and incorporate effective mitigation measures into the project design.

43. During project implementation, ADB helped the government overcome the project financing and implementation problems by fielding frequent missions to identify construction works problems, such as the repeated floods in Bodonch Canyon, and providing contract management support to maintain compliance with ADB guidelines. In response to the cost overruns, ADB agreed to provide additional financing through Tranche 1 of the MFF and the government mobilized funding from China Exim Bank, ensuring completion of the entire 431.2 km length of the road corridor.

H. Overall Assessment

44. The project is rated successful overall. The project was highly relevant as its design was well aligned with the strategic priorities of the government and ADB. The project was effective because it achieved the outcome. It was less than efficient because the EIRR was lower than the cut-off for an efficient rating. It was likely sustainable because of the government’s efforts to secure maintenance funding and enhance asset management practices.

Overall Ratings Criteria Rating Relevance Highly relevant Effectiveness Effective Efficiency Less than efficient Sustainability Likely sustainable Overall Assessment Successful Development impact Highly satisfactory Borrower and executing agency Satisfactory Performance of Asian Development Satisfactory Bank Source: Asian Development Bank.

IV. ISSUES, LESSONS, AND RECOMMENDATIONS

A. Issues and Lessons

45. Cost overruns and implementation delay. The government underestimated the project cost and required additional funds and projects to improve the entire section that was within the project’s scope. As the government has accumulated experience with similar corridor improvement projects, it has become more capable of conducting the proper technical due diligence and estimating the project costs. To reduce delays, the government should provide more prompt and comprehensive support to foreign contractors selected through ADB’s competitive process for obtaining labor and equipment import permits so that mobilization can occur at the beginning of each construction season.

46. Road maintenance and axle load control. The improved road assets can only achieve their economic life if proper periodic and routine maintenance are conducted and overloading of vehicles is prevented. The extremely low temperatures and occasional flooding, and the low traffic volume in the sparsely populated areas present challenges for maintenance works and traffic enforcement. Continued ADB support from the ensuing MFF program and transaction TA will help mitigate such risks.

12

B. Recommendations

47. Further action or follow-up. Sections of the western regional corridor still require improvement. The ensuing MFF program is improving the section north of Khovd city. A further increase in cross-border regional trade is expected, and some new supply chain networks may be established to use local products and minerals. Further follow-up actions in transport development, trade facilitation, socioeconomic development, and other comprehensive approaches will further boost such regional supply chains.

48. Timing of the project performance evaluation report. The project performance evaluation report should be prepared in 2021, when the road improvement from Yarant border to Olgiy City is expected to be complete and further changes in traffic and the movement of goods may be observed.

Appendix 1 13

DESIGN AND MONITORING FRAMEWORK

Performance Indicators and Design Summary Targets Project Achievements Impact Promotion of regional Gross regional product of Hovd No data available yet. transport via the aimag increased by 6% per year Western Road Regional after completion of the project Corridor and increased economic development Regional transit trade tonnages Due to delays in project implementation, and regional trade increased by 25% during 2007– the impact indicator cannot be 2014 measured yet.

Trade between the western region Due to delays in project implementation, and the PRC increased by 15% the impact indicator cannot be during 2007–2014 measured yet. Outcome An efficient and safe Average speed on road increased Average speed on road increased to 80 regional transport route from 40 to 60 kilometers per hour kilometers per hour in 2019. is developed in the by 2013 western region to link Mongolia with the Travel time from Yarant to Hovd Travel time from Yarant to Hovd city Xinjiang Uygur city reduced by 3 hours from 10 reduced by 2 hours in 2015 and by 3 Autonomous Region in hours at present by 2013 hours in 2019. the People’s Republic of China, and Siberia in the Average border processing times Average border processing times for Russian Federation. for goods and passengers at goods and passengers at Yarant Yarant reduced by 1 hour by 2013 reduced by 1 hour in 2013.

Traffic volume at the border at Traffic volume at the border at Yarant Yarant increased by 15% annually increased by 64% from 2014 to 2018. from 2012 to 2015 Outputs 1. Improved 431.2- 431.2-kilometer Yarant–Hovd city 431.2-kilometer Yarant–Hovd city road kilometer Yarant–Hovd road opened to traffic as opened to traffic in October 2018.a city road scheduled by 2012

2. Establishment of road Establishment of three road Two road maintenance centers were maintenance centers maintenance centers along the established in 2017. project road by 2012

3. Procurement of Equipment for maintenance Equipment for maintenance center was equipment centers with estimated value of procured, comprising (i) 1 tractor $250,000 and two weigh scales by (backhoe loader), (ii) 3 asphalt cutters 2012 and 3 compactors, (iii) 1 set of hand tools including 2 bitumen spreaders, (iv) 2 dual cabin utility vehicles, (v) 1 pneumatic tire roller, (vi) 1 motor grader, and (vii) 1 truck mounted crane. One weigh scale was also procured.

4. Improved road safety Enforcement of axle-load limits for A weigh station near Bulgan Soum trucks by 2012 started its operation in 2016.

14 Appendix 1

Performance Indicators and Design Summary Targets Project Achievements 5. Community Conduct five training programs Training programs were conducted to development with 20 targeted participants in 4,097 participants, of which 1,736 were each of the training program by female, in three soums. The training 2012 covered project outputs, land use, road construction, and environment protection.

6. HIV/AIDS awareness HIV/AIDS awareness among 2,300 Awareness raising was conducted to construction workers by 2009 1,500 construction workers and other vulnerable people.

7. Strengthening of 30 person-months of training and 90 person-days of conference room institutional capacity of seminars by 2012 seminars were conducted. On-the-job MRTT trainings were conducted to 7 persons by the project consultants mainly in 2012. MRTT = Ministry of Roads, Transport, and Tourism (currently Ministry of Road and Transport Development); PRC = People’s Republic of China. a Refer to Table 1 of main text. Source: Asian Development Bank.

Appendix 2 15

PROJECT COST AT APPRAISAL AND ACTUAL ($ million) Appraisal Estimate Actual Foreign Local Foreign Local Item Exchange Currency Total Cost Exchange Currency Total Cost A. Investment Costsa 1. Civil Worksb (including safety) 43.69 35.10 78.79 33.54 17.66 51.20 2. Detailed Design and Supervision 1.90 2.80 4.70 2.68 0.00 2.68 3. Community Development 0.00 0.15 0.15 0.11 0.00 0.11 4. Road Maintenance Units and Equipment 0.30 0.30 0.60 0.45 0.00 0.45 5. Capacity Building 0.14 0.02 0.16 0.08 0.00 0.08 6. Project Administration 0.00 0.25 0.25 0.52 0.00 0.52 7. Taxes and Dutiesc 0.00 10.06 10.06 0.00 6.53 6.53 Subtotal (A) 46.03 48.68 94.71 37.36 24.19 61.55 B. Contingencies 1. Physicald 6.46 2.17 8.63 0.00 0.00 0.00 2. Pricee 0.79 8.09 8.88 0.00 0.00 0.00 Subtotal (B) 7.25 10.26 17.51 0.00 0.00 0.00 Total (A+B) 53.28 58.94 112.22 37.36 24.19 61.55 Notes: 1. Numbers may not sum precisely because of rounding. 2. The costs are only for the section where the ADB grant was used and exclude the sections funded by China Exim Bank and ensuing ADB’s multitranche financing facility (only the 110.8-kilometer section against 431.2-kilometer project scope at appraisal). a In mid-2007 prices for the appraisal estimate. b Includes environmental protection, mitigation, and monitoring costs. c Taxes and duties are estimated at 10% of base cost for value-added tax and 5% customs duty on foreign exchange components for the appraisal estimate. d Physical contingencies computed at 8% for civil works in the Bodonch Canyon section and 5% in all other sections for the appraisal estimate. e Computed based on cost escalation factors published by the Asian Development Bank. For foreign exchange components, cost escalation is 0.8%; and for local currency components: 7.5% in 2008, 8.0% in 2009, and 9.0% in 2010 for the appraisal estimate. Source: Asian Development Bank estimates.

16 Appendix 3

PROJECT COST BY FINANCIER

Table A3.1: Project Cost at Appraisal by Financier ADB Government Total Costa Amount % of Cost Amount % of Cost Amount Taxes and Item ($) Category ($) Category ($) Duties A. Investment Costsa 1. Civil Worksb (including safety) 32.76 41.6% 46.03 58.4% 78.79 0.00 2. Detailed Design and Supervision 2.74 58.3% 1.96 41.7%% 4.70 0.00 3. Community Development 0.15 100.0% 0.00 0.0% 0.15 0.00 4. Road Maintenance Units and Equipment 0.60 100.0% 0.00 0.0% 0.60 0.00 5. Capacity Building 0.16 100.0% 0.00 0.0% 0.16 0.00 6. Project Administration 0.25 100.0% 0.00 0.0% 0.25 0.00 7. Taxes and Dutiesc 0.00 0.0% 10.06 100.0% 10.06 10.06 Subtotal (A) 36.66 38.7% 58.05 61.3% 94.71 10.06 B. Contingenciesd 0.94 5.4% 16.57 94.6% 17.51 0.00 Total Project Cost (A+B) 37.60 74.62 112.22 10.06 % Total Project Cost 33.5% 66.5% 100% Note: Numbers may not sum precisely because of rounding. a In mid-2007 prices. b Includes environmental protection, mitigation, and monitoring costs. c Taxes and duties are estimated at 10% of base cost for value-added tax and 5% customs duty on foreign exchange components. d Physical contingencies computed at 8% for civil works in the Bodonch Canyon section and 5% in all other sections. Price contingencies computed based on cost escalation factors published by the Asian Development Bank. For foreign exchange components, cost escalation is 0.8%; and for local currency components: 7.5% in 2008, 8% in 2009, and 9% in 2010. Source: Asian Development Bank estimates.

Appendix 3 17

Table A3.2: Project Cost at Completion by Financier ADB Government Total Cost Amount % of Cost Amount % of Cost Taxes and Item ($) Category ($) Category Amount Duties A. Investment Costs 1. Civil Worksa (including safety) 33.54 65.5% 17.66 34.5% 51.20 0.00 2. Detailed Design and Supervision 2.68 100.0% 0.00 0.0% 2.68 0.00 3. Community Development 0.11 100.0% 0.00 0.0% 0.11 0.00 4. Road Maintenance Units and Equipment 0.45 100.0% 0.00 0.0% 0.45 0.00 5. Capacity Building 0.08 100.0% 0.00 0.0% 0.08 0.00 6. Project Administration 0.52 100.0% 0.00 0.0% 0.52 0.00 7. Taxes and Duties 0.00 0.0% 6.53 100.0% 6.53 6.53 Subtotal (A) 37.36 60.7% 24.19 39.3% 61.55 6.53 B. Contingencies 0.00 0.0 0.00 0.00 Total Project Cost (A+B) 37.36 60.7% 24.19 39.3% 61.55 6.53 % Total Project Cost 100% Notes: 1. Numbers may not sum precisely because of rounding. 2. The costs are only for the section where the Asian Development Bank (ADB) grant was used and exclude the sections funded by China Exim Bank and ensuing ADB’s multitranche financing facility (only the 110.8-kilometer section against 431.2-kilometer project scope at appraisal). a Includes environmental protection, mitigation, and monitoring costs. Source: Asian Development Bank estimates.

18 Appendix 4

DISBURSEMENT OF ADB GRANT PROCEEDS

Table A4.1: Annual and Cumulative Disbursement of ADB Grant Proceedsa ($ million) Annual Disbursement Cumulative Disbursement Amount Amount Year ($ million) % of Total ($ million) % of Total 2010 0.48 1.29 0.48 1.29 2011 5.19 13.88 5.67 15.17 2012 6.59 17.63 12.26 32.81 2013 10.15 27.16 22.41 59.97 2014 8.41 22.51 30.82 82.48 2015 6.26 16.75 37.07 99.22 2016 0.29 0.78 37.36 100.00 Total 37.36 100.00 ADB = Asian Development Bank. a Includes disbursements to advance accounts. Source: Asian Development Bank.

Figure A4.1: Cumulative Disbursement of ADB Grant Proceedsa ($ million) 40

35

30

25

20

$ million $ 15

10

5

0 2010 2011 2012 2013 2014 2015 2016

Actual

ADB = Asian Development Bank. a Disbursement projections are not included because data are not available. Source: Asian Development Bank.

Appendix 5 19

CONTRACT AWARDS OF ADB GRANT PROCEEDS

Table A5.1: Annual and Cumulative Contract Awards of ADB Grant Proceeds ($ million) Annual Contract Awards Cumulative Contract Awards Amount Amount Year ($ million) % of Total ($ million) % of Total 2010 2.65 7.09% 2.65 7.09% 2011 33.81 90.50% 36.46 97.58% 2012 0.14 0.38% 36.60 97.96% 2013 0.23 0.62% 36.83 98.58% 2014 0.08 0.20% 36.91 98.78% 2015 0.45 1.22% 37.36 100.00% 2016 0.00 0.00% Total 37.36 100.00% ADB = Asian Development Bank. Note: Numbers may not sum precisely because of rounding. Source: Asian Development Bank.

Figure A5.1: Cumulative Contract Awards of ADB Grant Proceeds ($ million) 40

35

30

25

20

$ million 15

10

5

0 2010 2011 2012 2013 2014 2015 2016

Actual

ADB = Asian Development Bank. Note: Disbursement projections are not included because data are not available. Source: Asian Development Bank.

20 Appendix 6

CHRONOLOGY OF MAIN EVENTS

Date Event A. General 2007 26 May–4 Jun Fact-finding mission fielded 14 Aug Management review meeting held 4–12 Sep Appraisal mission fielded 13 Sep Staff review committee meeting held 2008 7–8 Jan Grant negotiations 5 Feb Board circulation 26 Feb Board consideration and approval 18 Apr Grant agreement signed 22 May Grant effectiveness 27 Aug–1 Sep Inception mission fielded 7 Oct First disbursement 2009 16 Jan Engineering designs completed 26 Aug Review mission fielded 2010 5–11 May Review mission fielded 28 Jun MRTCUD requested ADB no objection on participation of five MRTCUD staff to the workshop in Yunnan, PRC to be charged to the capacity building component 29 Jun Participation of five MRTCUD staff to the workshop in Yunnan, PRC charged to the capacity building component approved by ADB 2011 17 Mar First extension of grant closing date from 31 October 2012 to 1 December 2014 approved by ADB 10–22 Jun Review mission fielded 30 Sep First reallocation of grant proceeds from civil works package 2 and unallocated categories to civil works package 1 category approved by ADB 2012 6 Apr DOR request for an overseas training program in Birmingham, UK from 18 to 30 June 2012 received by ADB 30 Apr DOR proposal for an overseas training program in Birmingham, UK approved by ADB 12 Jul Minor change in scope to update the procurement plan to accommodate the procurement of consulting services for archaeological survey and protection work under the SSS method approved by ADB 30 Sep–6 Oct Review mission fielded 31 Oct MOF requested second reallocation of grant proceeds / original grant closing date 6 Nov Second reallocation of grant proceeds approved by ADB 12 Dec Consulting services for archaeological survey and protection work approved by ADB 2013 3–15 Jun Midterm review mission fielded 14–21 Sep Review mission fielded 7 Nov Consulting services for environmental monitoring approved by ADB 2014 24 Mar MRT request for international trainings in Australia and Korea received by ADB 30 Apr ADB no objection to the international trainings sent to MRT 24–29 Jun Review mission fielded 25 Jul Change in procurement method for equipment from NCB to shopping approved by ADB 22 Sep MOF requested extension of grant closing date 20–24 Oct Review mission fielded 12 Nov Second extension of grant closing date from 1 December 2014 to 1 December 2015 approved by ADB 2015 5 May Environmental monitoring consultant contract amendment 1 to extend completion date to 1 December 2015 approved by ADB 24 May Consulting services for local coordinator approved by ADB 20 Aug Grant contract number G13779 (local coordinator for community development) issued by ADB 6 Oct Grant contract numbers G14012 (supply of greenhouses) and G14013 (construction of three wells for drinking water) issued by ADB 9 Nov Contract award for road maintenance equipment (motor grader, pneumatic tire roller, and truck-mounted crane) approved by ADB / Reallocation of grant proceeds from works and consulting services (environmental monitoring) to

Appendix 6 21

Date Event consulting services (construction supervision) and project administration approved by ADB 26 Nov Grant contract numbers G14222 (motor grader), G14221 (pneumatic tire roller), and G14224 (truck mounted crane) issued by ADB 1 Dec Actual grant closing date 2016 13–24 Mar Review mission fielded 14 Apr Last disbursement 10 May Fax sent to MRT regarding closing of grant account and cancellation of the remaining grant balance of $238,928.01 18 May Financial closing date 2017 23–30 May Project completion review mission fielded 2019 14–15 May Project completion review mission (follow up) fielded

B. Construction Supervision Consultant (Quality- and Cost-Based Selection Method, 80:20, Full Technical Proposal) 2008 7 Nov Submission 1 (shortlisting and RFP issuance) submitted to ADB 2009 8 Jan Submission 1 (shortlisting and RFP issuance) approved by ADB 3 Apr Submission 2 (technical evaluation report) submitted to ADB 8 Jun Submission 2 (technical evaluation report) approved by ADB 19 Jun Public opening of financial proposals of consulting firms 25 Jun Submission 3 (EA’s financial proposal evaluation and overall ranking) submitted to ADB 8 Jul Submission 3 (EA’s financial proposal evaluation and overall ranking) approved by ADB 28 Jul Submission 4 (draft negotiated contract) submitted to ADB 13 Aug Revised Submission 4 (draft negotiated contract) submitted to ADB 23 Aug Submission 4 (draft negotiated contract) approved by ADB 8 Sep Signed contract received by ADB 13 Oct Grant contract number G03666 issued by ADB 2011 19 Aug MRTCUD request to recruit a procurement specialist through the existing consulting services contract for construction supervision submitted to ADB 7 Sep MRTCUD request to recruit a procurement specialist approved by ADB 20 Oct MRTCUD request of 19 Oct to amend the existing supervising engineer’s contract to engage a procurement specialist and increase contract amount submitted to ADB 25 Oct MRTCUD request to amend and increase contract amount approved by ADB 31 Oct MRTCUD variation 1 to engage an international procurement specialist submitted to ADB 3 Nov MRTCUD variation 1 approved by ADB 2013 7 Oct MRT requested contract extension of project supervision consultant from 5 October 2013 to 31 May 2014 10 Oct Extension of contract completion date to 31 May 2014 with no additional cost implication approved by ADB

C. Civil Works – Package 1: 110.8 km Road from Temeen Huzuu to Baga Ulaan Pass 2009 25 May Draft IFB and BD received by ADB 3 Jul ADB comments (first round) on the draft BD sent to MRTCUD 23 Jul Revised draft BD received by ADB 30 Jul ADB comments (second round) on the draft BD sent to MRTCUD 19 Aug IFB and revised BD approved by ADB 20 Aug IFB published at ADB’s website and local daily newspaper 16 Sep Pre-bid meeting and site visit (12–15 Sep) held in Hovd 30 Sep Technical bid opening (12 bids submitted) 30 Dec Technical proposal evaluation report submitted to MOF 2010 2 Mar Technical bid evaluation approved by MOF 9 Mar Technical bid evaluation report received by ADB 1 Jul Technical bid evaluation report approved by ADB 9 Jul Financial proposals opened publicly 5 Aug Price bid evaluation report approved by MOF 2 Nov Price bid evaluation report approved by ADB 5 Dec Contract negotiations between the EA and contractor

22 Appendix 6

Date Event 22 Dec Contract signing between the EA and contractor

D. Goods – Various Equipment (Shopping) 2014 27 Oct Evaluation report for the procurement of four packages of road maintenance equipment (dual cabin utility vehicle, hand tools, tractor, and weighing scale mat) received by ADB 29 Oct Procurement of road maintenance equipment (dual cabin utility vehicle, hand tools, tractor, and weighing scale mat) approved by ADB 2015 22 Apr Grant contract numbers G13124 (2 units dual cabin utility vehicle), G13126 (1 set hand tools), G13128 (1 unit tractor [backhoe loader]), and G13129 (1 unit weighing scale mat) issued by ADB 25 Aug MRT request for ADB no objection on the procurement of road maintenance equipment (motor grader, pneumatic tire roller, and truck-mounted crane) received by ADB 9 Nov Procurement of road maintenance equipment (motor grader, pneumatic tire roller, and truck-mounted crane) approved by ADB 26 Nov Grant contract numbers G14222 (motor grader), G14221 (pneumatic tire roller), and G14224 (truck mounted crane) issued by ADB Note: The government restructured the ministry and changed its name to the Ministry of Roads, Transport, Construction and Urban Development in 2008, the Ministry of Road and Transport in 2012, and the Ministry of Road and Transport Development in 2016. ADB = Asian Development Bank; BD = bidding document; BER = bid evaluation report; DOR = Department of Roads; EA = executing agency; IFB = invitation for bids; km = kilometer, m = meter, MOF = Ministry of Finance; MRT = Ministry of Road and Transport; MRTCUD = Ministry of Roads, Transport, Construction, and Urban Development; RFP = request for proposal; SSS = single source selection. Source: Asian Development Bank.

Appendix 7 23

APPRAISAL AND ACTUAL IMPLEMENTATION SCHEDULE

Time 2008 2009 2010 2011 2012 2013 2014 2015 2016 (months) Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Activities 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 Grant effective Tendering for civil works 4.5(19) Construction preparation 2(3) Construction work (Package 36(56)a 1:110.8 km) Road defects liability period 12(12) Outstanding minor works (3) Construction work (government- (60) funded section from Bulgan Soum 2018 to Temeen Huzuu hill: 60.0 km) – Construction work (ADB’s ensuing (34) project from Baga Ulaan Pass to Manhan soum: 103.3 km) Construction work (China Exim (36) Bank-funded section from Manhan soum to Khovd: 93.1 km) Procurement of equipment 12 (3) Consulting service Detailed design and preparation of 12 tender Road safety auditing of DD 3 Recruitment of construction 4 (7) supervision consultant Construction supervision 38 (48)b Community development 6 (6) Capacity building(training) 7(2) Project completion report Note: Original schedule Actual schedule. a Contract period was extended three times due to heavy flood in Bodonch canyon. b Construction supervision consultant’s working months are included in Tranche 1’s months (Package 2).

24 Appendix 8

MINISTRY OF ROAD AND TRANSPORT DEVELOPMENT ORGANIZATION CHART

MIAT = Mongolyn Irgenii Agaaryn Teever (Mongolian Civil Air Transport). Note: The government restructured the ministry and changed its name to the Ministry of Roads, Transport, Construction and Urban Development in 2008, the Ministry of Road and Transport in 2012, and the Ministry of Road and Transport Development in 2016. Source: Ministry of Road and Transport Development.

Appendix 9 25

ECONOMIC REEVALUATION

A. Introduction

1. This project completion reevaluation considers the road between Temeen Huzuu hill and Baga Ulaan Pass (110.8 kilometers [km]) financed by the Asian Development Bank (ADB) Grant 0107, within the longer section from Bulgan to Khovd (total length 367.2 km), which is part of the 743 km Mongolian Western Regional Road (WRR) corridor between Ulaanbaishint (Russian Federation border) and Yarant (People’s Republic of China [PRC] border).

2. The reevaluation updates the 2008 economic analysis at appraisal using actual implementation costs and benefits at 2019 price levels and revised traffic projections. The appraisal period is from 2008 to 2040, which includes the construction period and 25 operational years. The first year of operation was 2016. In 2008, the economic internal rate of return (EIRR) was estimated at 16.3% for the complete WRR corridor and 13.6% for the Yarant–Bulgan–Khovd section.

B. Revised Traffic Forecast

3. The old road consisted of a very rough earth track. Certain sections were particularly difficult due to fallen rocks, landslides, and river flooding in summer. Driving conditions were harsh and travel speeds very low, estimated to be 40 km per hour on average. In 2006, traffic was reported to be 234 vehicles per day (annual average daily traffic [AADT]). The appraisal analysis forecast that traffic would increase to 1,290 AADT by 2020 and 4,040 by 2030. Actual traffic volumes1 have been found to be much lower than forecast, with 230 AADT in 2014, declining by a further 50% to 2017. However, indications from traffic counts elsewhere in the country2 suggest that strong traffic growth returned in 2018.

Table A9.1: Observed Traffic Volume Yarant–Bulgan–Khovd (AADT) Light Medium Heavy Year Car Minibus Bus Total Truck Truck Truck 2014 126 46 5 23 9 21 230 2015 55 16 4 9 3 9 96 2016 87 19 2 24 4 8 144 2017 76 15 0 14 4 5 114 AADT = annual average daily traffic. Source: Ministry of Road and Transport Development.

4. In this reevaluation, traffic on the new paved road is forecast to grow with an elasticity to growth in gross domestic product (GDP) per capita of 1.30 for passenger vehicles and 0.55 for trucks, based on observed elasticities over the 10-year period 2006–2015 and consistent with elasticities used in previous Asian Development Bank (ADB) road sector reports.3 The revised forecast is shown in Table A9.2. It may be noted that this forecast is somewhat optimistic as compared with traffic volumes observed since 2014 but is consistent with GDP growth.

1 Traffic data was only available from the annual counts conducted by the Ministry of Road and Transport Development. Only one counting point was located in the project section. It is recommended for future projects that specific count locations are identified where the implementing agency is required to collect traffic data by vehicle type before and after project implementation. 2 For example, traffic data between Ulaanbaatar and Darkhan. 3 ADB. 2012. Mongolia Road Sector Development to 2016. Manila.

26 Appendix 9

Table A9.2: Traffic Forecast (AADT) Light Medium Heavy Year Car Minibus Bus Total Truck Truck Truck 2018 122 45 5 23 9 21 225 2025 229 84 9 30 12 27 391 2030 295 108 12 33 13 31 492 2035 380 139 15 37 15 34 620 AADT = annual average daily traffic. Source: Asian Development Bank.

5. The project is located on Central Asia Regional Economic Cooperation (CAREC) Corridor 4a running from the Tashanta–Ulaanbaishint border crossing between the Russian Federation and Mongolia to Urumqi in the PRC. The improvement of 367 km of road out of 743 km across Mongolia and even longer total trip lengths from ultimate origin to ultimate destination in Russia, PRC, and other CAREC countries benefited transit traffic. A 2017 CAREC report quotes that road traffic is developing rapidly due to road rehabilitation efforts.4 However, the border crossing time is the longest at Takeshiken–Yarant (PRC–Mongolia) border at 5.2 hours with up to 30 hours additional waiting time. Regional benefits on the project section of the WRR will be further recognized if waiting times are reduced and transit procedures are simplified at border crossings.

C. Costs

6. The actual project investment costs are shown in Table A9.3. The total cost was $168.2 million, including a $37.4 million ADB grant and $24.2 million counterpart fund for the section Temeen Huzuu hill–Baga Ulaan pass.

Table A9.3: Project Cost at Completion by Section, Financier, and Year ($ million) Section Financier Total 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Bulgan–Uyench R. Gov. 5.91 0.48 0.53 0.26 1.37 1.82 1.45 Uyench R.–Khuviin Gov. 1.78 0.43 1.35 Khuviin–Temeen H. Gov. 1.19 0.29 0.90 Temeen H.–Baga U. ADB 37.37 0.48 5.19 6.59 10.15 8.41 6.26 0.29 Temeen H.–Baga U. Gov. 24.19 0.31 3.36 4.26 6.57 5.45 4.05 0.19 Baga U.–Mankhan Gov./ADBa 38.70 3.10 6.19 9.68 7.74 3.48 8.51 Mankhan–Khovd China Exim 59.02 8.13 43.72 1.25 0.55 3.10 2.27 Total 168.16 0.48 1.25 0.00 11.43 52.27 15.20 24.83 23.54 22.97 3.96 12.23 Note: $1 = MNT2,645.5. a ADB. Mongolia: Western Regional Road Corridor Investment Program (Tranche 1). Source: Ministry of Road and Transport Development.

7. A residual value of $21.6 million was included in the final evaluation year. Maintenance costs were added in the with-project case in line with the Mongolian standard of $3,800/km per year for routine maintenance and 7% of the investment for periodic maintenance every 10 years.

8. A conversion of the actual costs to the domestic price numeraire was undertaken, using a shadow price factor for unskilled labor of 0.804 and a shadow exchange rate factor (SERF) of 1.006. This resulted in a composite conversion factor of 0.899 as shown in Table A9.4.

4 ADB. 2019. Corridor Performance Measurement and Monitoring, Annual Report 2017. Manila.

Appendix 9 27

Table A9.4: Calculation of Composite Conversion Factor

Source: Asian Development Bank.

D. Benefits

9. The benefits were recalculated using ADB’s evaluation model EEROAD. They included vehicle operating cost (VOC) savings, value of time (VOT) savings, and accident cost savings. The VOC savings were calculated by applying unit VOCs to the total vehicle km on each section. VOCs vary according to type of terrain, surface roughness, and type of vehicle. VOCs for different vehicle types and international roughness index (IRIs) were estimated using the VOC module of the industry standard Highway Development and Management Model (HDM-4). The inputs are shown in Table A9.5 and the resulting VOCs for a range of IRIs and types of terrain in Table A9.6.

Table A9.5: Vehicle Operating Cost Input Parameters Light Medium Heavy Item Car Minibus Bus Truck Truck Truck Economic Unit Costs New Vehicle Cost ($/vehicle) 20,000 15,000 30,000 20,000 35,000 55,000 Fuel Cost ($/liter) 1.00 1.00 0.95 0.95 0.95 0.95 Lubricant Cost ($/liter) 5.00 5.00 5.00 5.00 5.00 5.00 New Tire Cost ($/tire) 40.00 50.00 90.00 50.00 100.00 150.00 Maintenance Labor Cost ($/hour) 2.50 2.50 2.50 2.50 2.50 2.50 Crew Cost ($/hour) 0.00 2.50 2.50 2.50 2.50 2.50 Utilization Use per Year (km) 25,000 50,000 60,000 50,000 60,000 70,000 Service Life (year) 10 10 11 10 10 12 Source: Asian Development Bank.

28 Appendix 9

Table A9.6: Vehicle Operating Costs ($/kilometer) Light Medium Heavy Surface IRI Car Minibus Bus Truck Truck Truck Earth 16.0 0.38 0.40 0.50 0.37–0.38 0.67–0.69 1.12–1.15 Paved 4.0 0.25 0.25 0.32 0.23 0.43–0.45 0.71–0.77 IRI = international roughness index. Source: Asian Development Bank estimates.

10. Unit values of time were derived from the most recent average gross monthly wage rate of the country of $425,5 assuming 25%6 of trips were made for work purposes and an average of 3 passengers per car, 10 passengers per minibus, and 40 passengers per bus. Following standard practice, trips made for work purposes were valued at the gross monthly wage rate plus employers' overheads (estimated at 50% of the gross wage), while other trips were valued at 30% of the net monthly wage rate. The resulting VOTs were calculated to be $4.15/vehicle-hour for cars, $13.85/vehicle-hour for minibuses, and $55.38/vehicle-hour for buses. The unit VOTs were increased in line with forecast growth in GDP on an annual basis.

11. The value of accident cost savings was based on a road safety assessment carried out by iRAP elsewhere in Mongolia,7 which assumes a 2019 cost of $271,040 per fatality and $67,760 per serious injury. Additional costs of $2,710 per slight injury and $542 per unit of material damage were derived from relationships to more serious accidents established by Ricardo-AEA8 and DeJong.9 Accident rates for the improved road compared with the old road were based on the assumption that a road with an IRI of 16 or more will have 40% more accidents than a road with an IRI of 2 or better (iRAP10). Roads with an IRI between 2 and 16 are assumed to have a proportionate change in accident rate and are thus adjusted for an IRI of 4 in the current with- project case.11

12. The assumptions made relating to overall travel speed, surface roughness, and accident rates are summarized in Table A9.7.

5 MNT1,120,300 per month, 2018 Q4, National Statistical Office. 6 Based on origin–-destination surveys carried out in 2016. 7 The iRAP road safety design methodology uses road attribute risk factors to assess the likelihood that a crash will occur, and the severity of those that do occur, for both existing roads and road designs. The methodology involves an economic analysis of road safety countermeasure options, with benefits expressed in terms of the value of deaths and serious injuries prevented. 8 Ricardo-AEA (2014) Update of the Handbook on External Costs of Transport. 9 DeJong et al. (2012) Update of the Value of Safety Methodology. 10 iRAP (2017) Analysis of changes in the rate of severe crashes for typical road infrastructure investments, Table 13 11 Actual accident data was requested from the implementing agency, but only very limited data was available. It is recommended for future projects that the implementing agency is required to collect accident data (including numbers of accidents, fatalities, serious injuries and slight injuries) at specified locations before and after project implementation.

Appendix 9 29

Table A9.7: Project Characteristics and Benefit Assumptions LV HV Accident

Length Speed Speed Rate / mln. Section Terrain Scenario Surface IRI (km) (km/h) (km/h) Veh.km Bulgan-Uyench R. 40.0 Rolling WOP Earth 16 40 36 1.25 WP Paved 4 85 76.5 1.01 Uyench R.-Khuviin 12.0 Mountain WOP Earth 16 40 36 1.25 WP Paved 4 75 67.5 1.01 Khuviin-Temeen H. 8.0 Rolling WOP Earth 16 40 36 1.25 WP Paved 4 85 76.5 1.01 Temeen H.-Baga U. 18.2 Rolling WOP Earth 16 40 36 1.25 WP Paved 4 85 76.5 1.01 Temeen H.-Baga U. 92.6 Mountain WOP Earth 16 40 36 1.25 WP Paved 4 75 67.5 1.01 Baga U.-Khovd 32.9 Flat WOP Earth 16 40 36 1.25 WP Paved 4 95 85.5 1.01 Baga U.-Khovd 96.4 Rolling WOP Earth 16 40 36 1.25 WP Paved 4 85 76.5 1.01 Baga U.-Khovd 67.1 Mountain WOP Earth 16 40 36 1.25 WP Paved 4 75 67.5 1.01 Total 367.2 WOP Earth 16 40 36 1.25 WP Paved 4 81.7 73.5 1.01 IRI = international roughness index, LV = light vehicle, HV = heavy vehicle, km = kilometer, km/h = kilometer per hour, mln veh. km = million vehicle kilometer, WOP = without project, WP = with project. Source: Asian Development Bank estimates.

E. Results of the Economic Cost-Benefit Analysis

13. Table A9.8 presents the economic indicators and streams of costs and benefits for the project at post-completion. The analysis results in an EIRR of 6.6%, compared with 13.6% at appraisal. The reevaluation shows an NPV of -$138.6 million at a discount rate of 12%, with benefits coming 45% from VOC savings, 49% from time savings and 6% from accident cost savings. The EIRR is below the threshold of 12%, indicating that the project costs were greater than the benefits. The difference compared with the results at appraisal is largely due to the traffic volume being lower than forecast, cost overrun, and implementation delay.

Table A9.8: Economic Evaluation of Project Sections Combined ($ million) Costs Benefits Net Year Capital Maint. Total VOC Time Accident Total Benefit NPV 2008 1.6 0.0 1.6 0.0 0.0 0.0 0.0 -1.6 -5.4 2009 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2010 10.3 0.0 10.3 0.0 0.0 0.0 0.0 -10.3 -28.5 2011 47.0 0.0 47.0 0.0 0.0 0.0 0.0 -47.0 -116.3 2012 10.9 0.0 10.9 0.0 0.0 0.0 0.0 -10.9 -24.0 2013 16.8 0.0 16.8 0.0 0.0 0.0 0.0 -16.8 -33.1 2014 12.5 0.0 12.5 0.0 0.0 0.0 0.0 -12.5 -21.9 2015 13.7 0.0 13.7 0.0 0.0 0.0 0.0 -13.7 -21.5 2016 0.4 0.9 1.3 3.8 1.8 0.3 5.8 4.5 6.3 2017 3.3 0.9 4.2 3.7 1.7 0.3 5.7 1.4 1.8 2018 0.0 0.9 0.9 3.7 1.6 0.2 5.5 4.6 5.2 2019 0.0 0.9 0.9 4.1 2.1 0.3 6.5 5.6 5.6 2020 0.0 0.9 0.9 4.4 2.6 0.4 7.4 6.5 5.8 2021 0.0 0.9 0.9 4.8 3.1 0.5 8.4 7.5 6.0 2022 0.0 0.9 0.9 5.1 3.6 0.5 9.3 8.4 6.0 2023 0.0 0.9 0.9 5.5 4.1 0.6 10.3 9.4 5.9 2024 0.0 0.9 0.9 5.9 4.7 0.7 11.2 10.3 5.8

30 Appendix 9

Costs Benefits Net Year Capital Maint. Total VOC Time Accident Total Benefit NPV 2025 0.0 9.0 9.0 6.2 5.2 0.8 12.1 3.1 1.6 2026 0.0 0.9 0.9 6.5 5.8 0.8 13.1 12.2 5.5 2027 0.0 0.9 0.9 6.8 6.4 0.9 14.1 13.2 5.3 2028 0.0 0.9 0.9 7.1 6.9 1.0 15.0 14.1 5.1 2029 0.0 0.9 0.9 7.4 7.5 1.1 16.0 15.1 4.9 2030 0.0 0.9 0.9 7.7 8.1 1.2 17.0 16.1 4.6 2031 0.0 0.9 0.9 8.1 9.0 1.3 18.4 17.5 4.5 2032 0.0 0.9 0.9 8.4 10.0 1.4 19.8 18.9 4.3 2033 0.0 0.9 0.9 8.8 10.9 1.5 21.2 20.3 4.2 2034 0.0 0.9 0.9 9.2 11.8 1.7 22.7 21.7 4.0 2035 0.0 9.0 9.0 9.6 12.7 1.8 24.1 15.0 2.5 2036 0.0 0.9 0.9 9.9 13.6 1.8 25.4 24.5 3.6 2037 0.0 0.9 0.9 10.3 14.6 1.8 26.7 25.8 3.3 2038 0.0 0.9 0.9 10.7 15.5 1.8 28.0 27.1 3.1 2039 0.0 0.9 0.9 11.1 16.4 1.8 29.3 28.3 2.9 2040 -19.4 0.9 -18.5 11.4 17.3 1.8 30.5 49.0 4.5 Total NPV -138.57 Economic Internal Rate of Return 6.6% NPV = net present value. Source: Asian Development Bank estimates.

14. Sensitivity tests were conducted on key variables as Table A9.9. The results show that under the range of values tested, the EIRR remains below 12% in all cases. Investment cost was identified as a critical variable (i.e., 1% change in the value of the variable leads to a change in NPV of 1% or more) and the switching value was calculated for this variable.

Table A9.9: Sensitivity Analysis (NPV at 12% in 2019 $ million) NPV Switching Variable Test EIRR ($ million) Critical? Value Base Case 6.6% -138.57 Traffic 50% 2.2% -204.53 No 150% 9.5% -72.61 VOC 80% 6.0% -152.11 No 120% 7.3% -125.03 VOT 80% 6.0% -149.80 No 120% 7.2% -127.34 Accidents 80% 6.6% -140.18 No 120% 6.7% -136.96 Investment cost 80% 8.1% -87.43 Yes 45.8% 120% 5.5% -189.71 O&M 80% 6.8% -135.25 No 120% 6.5% -141.89 Residual 0% 6.5% -140.37 No EIRR = economic internal rate of return, NPV = net present value, O&M = operation and maintenance. Source: Asian Development Bank estimates.

15. A scenario analysis combining variations in costs and benefits was also carried out as Table A9.10. The results show that under the range of values tested, the EIRR remains below 12% in all cases.

Appendix 9 31

Table A9.10: Scenario Analysis (NPV at 12% in 2019 $ million) Scenarios EIRR NPV Base Case 6.6% -138.57 Investment Cost, O&M, Residual 20% Lower 8.2% -84.47 Benefits 20% Higher 7.9% -112.19 Investment Cost 20% Lower, Benefits 20% Higher 9.5% -58.09 EIRR = economic internal rate of return, NPV = net present value, O&M = operation and maintenance. Source: Asian Development Bank estimates.

32 Appendix 10

STATUS OF COMPLIANCE WITH GRANT COVENANTS

Reference in Grant Covenant Agreement Status of Compliance Sector 1. Recipient, through MRTT, shall ensure that (i) the project road is constructed in Schedule 4, • Complied for (i) and (ii). The project roads accordance with recipient's national technical para. 6 consisting of Package 1: 110.8 km, Package 2: standards; 103.3 km, total 214.1 km roads have been newly (ii) project construction supervision, quality constructed in accordance with the approved control, and contract management are designs, drawings and technical specifications, conducted in accordance with the recipient's road material testing, and other standards followed national standards and internationally in Mongolia and FIDIC contract agreement under accepted practices; the contract management and construction supervision of Korea Consultants International Co., Ltd. During the construction period, there were some minor changes and additional works. However, these have been resolved based on the employer’s decision in time. (iii) ongoing works under the recipient's • Complied. financing are executed in accordance with the national technical standards; and (iv) the completed sections of the project road • Complied. are adequately maintained.

2. Before the opening of the project road to Schedule 4, • Complied. To prevent the road pavement damages public, the recipient shall introduce necessary para. 16 due to overloaded vehicles, heavy trucks, and regulation and take necessary measures to mining trucks, it supplied the automatic weigh in control axle weight of vehicles on the project 150 ton and installed it at the center of Bulgan soum road to maximum weight of 10 tons per axle (near Yarant border) and Khovd-AZZA Co., Ltd. and to prevent overloaded vehicles entering (state-owned company) will be responsible for the project road after its completion. further operations of this automatic weigh and regular road maintenance along the project corridor in Khovd aimag.

3. The recipient shall ensure that all collected Schedule 4, • Complied. Due to the installation of the 150-ton road user fees are directly used for the para. 17 automatic weigh at the Bulgan soum of Khovd maintenance and rehabilitation of the project aimag, it can collect road user’s fee from state and road and the project road is well-maintained international roads in accordance with Minister’s after its completion. In the event that road user order following the national procedures for toll fees collected are insufficient for the roads; organization of road maintenances; maintenance and rehabilitation of the project inspections of road conditions; and technical road, the recipient shall undertake specification on routine, periodic maintenance, and maintenance work by allocating adequate rehabilitation. funds from the recipient's budget.

4. The recipient shall take necessary Schedule 4, • Partly complied. Now, the Yarant state border with measures to implement harmonized cross- para. 18 the PRC opens to public all year round without border procedures at Yarant by 31 December restricting the border crossing to residents and 2012 and ensure that the border crossing is citizens of Mongolia and the PRC. Total 189 open to the public all year round without vehicles per day in 2013, 251 vehicles per day in restricting the border crossing to residents and 2015 entered and existed through the border. Also, citizens of the recipient and the PRC. new terminal equipped with modern equipment has been constructed at the state border when project implementation started and now it is comfortable for passengers and drivers and could save time to cross the border (before project implementation, there was nothing except small house). At the Ulaanbaishint border crossing, the average customs processing and clearance times for freight

Appendix 10 33

Reference in Grant Covenant Agreement Status of Compliance traffic is approximately 30 minutes/vehicle, with approximately 40% of the overall traffic being trucks. This number is well below the norms established for the crossing point. The primary exception to this figure is trucks coming from Kazakhstan, all of which are given detailed inspections before being cleared by Mongolian Customs. At the Yarant border point, clearance times are approximately 1–3.5 hours, often taking 2 hours on the PRC side and 1.5 hours on the Mongolian side. The primary causes of the difference in processing times relates to the relatively inadequate facilities in Yarant and the wide variety cargo that traders carry from the PRC to Mongolia. Total 78,215 passengers year round passed through Yarant state border and 22,115 passengers year round passed through Ulaanbaishint state border with Russia in 2015.

5. The recipient shall ensure that a policy and Schedule 4, • Complied. Road Transport Policy Implementation planning division is established in MRTT within para. 19 and Coordination Department in the MRT is two (2) years after the effective date. responsible for all kind of roads, road sector’s policy and planning and implementing works, also road construction, all kind of road maintenance works, and planning of road network and development of infrastructure of road sector.

6. The recipient, through MRTT, shall manage Schedule 4, • Complied. Six government officials from DOR, and monitor capacity building activities para. 20 MRTCUD, and MOF participated in a training proposed under the project and agreed by program in UK in June 2012. The program included ADB. modules on road financing, road safety, and road maintenance management. During the project implementation period, MRT regularly managed and monitored the capacity building activities which have been done under the project.

Environmental 7. The recipient, through MRTT, shall ensure that (i) the project is designed, constructed, and Schedule 4, • Complied. The environmental monitoring operated in accordance with the para. 7 consultant worked with the MRT to monitor field environmental laws and regulations of the environment and construction work’s recipient and ADB's Environment Policy environmental requirement in accordance with Law (2002); the EIA; and SEIA; on Environmental Protection of Mongolia and ADB’s environmental requirements.

(ii) the EMP and the mitigation measures • Complied. During the construction period, the included therein, as specified in the EIA and consultant monitored and evaluated SEIA are properly implemented; implementation of the EIA, SEIA, and EMP/EMOP through regular site audits, consultation with site contractors and consultants, and monitoring of agreed parameters for air and water quality, noise, and fauna.

(iii) the EMP is updated at the engineering • Complied. design stage and incorporated into bidding documents and works contracts;

34 Appendix 10

Reference in Grant Covenant Agreement Status of Compliance (iv) any adverse impact on the environment • Complied. The consultant oversaw river basin, that may arise from the project implementation presence of sensitive water, and ecological activities is promptly mitigated or minimized in receptors, restoring of used quarry by the accordance with the EMP; and contractors, special protected areas (Khar Us lake SPA which is in 3.8 km distance from project road, no impacts were identified), and reviewed the environmental report submitted by contractors according the EMP and provided comments, if necessary.

(v) the implementation of the EMP, including • Complied. The consultant submitted monthly and any safety breaches, violation of quarterly reports in accordance with Mongolia and environmental standards, and corrective ADB requirements. In addition, the contractors had measures taken thereto, is reported at least engaged permanent on-site environmental staff semiannually to ADB. during construction period responsible for implementing EMP measures. MRTD has engaged Archaeological Institute of Mongolia to conduct a survey on cultural heritage. Awareness raising instructions was provided for the contractors and no cultural heritage was damaged or affected. EMP implementation checklist in Appendix 12 provides overview of impacts and mitigation measures implemented. PIU staff held public consultations with local administration staff and roadside community on quarterly basis and presented project progress and EMP implementation. No environment-related complaints were received during construction.

Social 8. The recipient, through MRTT, shall manage Schedule 4, • Complied. In accordance with the GRM, there were and monitor community development activities para. 8 three entry points for grievances: the contractor, proposed under the project by the PIU and local administration, and community outreach agreed by ADB. monitoring officers (COMO). COMO from Altai, Must, and Manhan soums appointed by the MRTD worked with local people to undertake information dissemination campaigns about the project, construction activities, social development works, any complaint, and comment of community. They have regularly submitted reports in time and PIU submitted their reports in English to ADB.

9. The recipient, through MRTT, shall cause Schedule 4, • Complied. During the road construction period, the contractors to employ unskilled workers para. 9 local workers from Altai, Manhan, and Must soums from local areas to maximize the employment were employed. A total of 165 unskilled local of ethnic minorities, who meet the job and workers (132 in 2014 and 132 workers in 2015) efficiency requirements for construction and were hired, of which 40 are women. Trainings such maintenance of the project road. The recipient, as routine, periodic maintenance, and emergency through MRTT, shall ensure that such workers repairs were conducted by the Mongolian Road are provided with adequate on-the-job Association among the workers including local training. people.

10. The recipient, through MRTT, shall ensure Schedule 4, • Complied. During the construction work, it was that all the employment and labor standards para. 10 controlled whether the contractors follow the sub- provided in the applicable laws and clause 6.1. Engagement of Staff and Labor, 6.2. regulations of the recipient are complied with, Rates of Wages and Conditions of Labor, 6.4. and in particular, that all works contractors Labor Laws, 6.5. Working hours, 6.7. Health and engaged under the project (i) provide timely safety, 6.20. Forced labor and 6.21 Child labor of

Appendix 10 35

Reference in Grant Covenant Agreement Status of Compliance payment of wages on at least a monthly basis; the Contract Agreement and there was no violation (ii) provide safe working conditions to all of the contract agreement. The contractors workers, with such requirements being employed local unskilled workers from Altai, included into the works contracts and Manhan, and Must soums and provided monitored by the construction supervision transportation and food and paid them MNT30,000 consultants; (iii) provide employment per day which is equivalent to current labor wage opportunities to women and ethnic minorities, under the contract made with them. Wage was paid where appropriate, and pay equal wages to to local workers in time. There was no child labor the male and female employees for work of during the construction period. Some women equal value; and (iv) do not employ child labor worked for leveling slope of embankment by hand in the project works. and spreading turfs on side slope.

11. The recipient, through MRTT, in Schedule 4, • Complied. The social safeguard and HIV/AIDS coordination with appropriate agencies para. 11 monitoring consultant worked from 1 Sep 2014 to 1 identified by the recipient, shall cause the Sep 2015 based on the contract made with MRT contractors to disseminate information on the and performed the following works: (i) collection of risks of sexually transmitted infection, data related to traffic accidents, human trafficking, including HIV/AIDS, to employees during HIV/AIDS from Altai, Must, and Manhan soums of project implementation. MRTT shall cause the project area; (ii) analysis and recommendations appropriate agencies to disseminate similar based on data collected included in her report; (iii) information to transport operators and local conduct of training courses on how to prevent traffic communities living in the project area during accident, human trafficking, and HIV/AIDS to local project implementation and operation of the people, health organizations, policemen, project road. The recipient, through MRTT, administration staff in Khovd and Bayan-Olgiy shall cause contractors to monitor health risk aimag; and (iv) distribution of relevant brochures to control. more than 1,000 school children, 40 local officers, and about 200 college students.

12. To ensure that the expected benefits of the Schedule 4, • Complied. project are channeled through to the local para. 12 community, the recipient shall start implementation of the Western Region Development Plan within 2 years after completion of the construction of the project road.

13. The recipient shall ensure that the project Schedule 4, • Complied. The resettlement plan for package 1 was does not entail any land acquisition and/or para. 13 prepared in accordance with ADB’s requirement, resettlement. In the event of any unforeseen submitted to ADB in September 2013, and resettlement, (i) the recipient shall inform ADB published at ADB website. Under this resettlement, and prepare a resettlement plan according to storeroom in size of 30 m2 located at STA 49+540, its relevant laws and regulations. adobe house in size of 24 m2 located at STA 60+580 were removed from the original road alignment and new houses were built based on owners’ requests. Also, the construction works were executed not damaging the stone shed located at STA 72+361.65 which was very near the alignment.

14. The recipient shall ensure that the project Schedule 4, • Complied. During project implementation, any does not have any adverse impact on the para. 14 adverse impact on the livelihood of nomadic livelihood of nomadic herders and ethnic herders and ethnic minorities was controlled by minorities living in the project area. In the community outreach officers and social safeguard event of any unforeseen impact on the monitoring consultant. Of the population, 88.7% are livelihood of nomadic herders and ethnic Kazak, 7.2% are Uriankhai, and 4.1% of other minorities, (i) the recipient shall inform ADB ethnicity in the project area. There was no adverse and prepare a plan according to relevant laws impact on the livelihood of nomadic herders and and regulations, and ADB's Policy on ethnic minorities and no complaint was found out Indigenous People (1998); and (ii) works shall during the monitoring works related.

36 Appendix 10

Reference in Grant Covenant Agreement Status of Compliance not start until ADB has reviewed and approved the said plan.

Financial 15. In the carrying out of the project and Article IV, • Complied. operation of the project facilities, the Recipient Sec. 4.01 shall perform, or cause to be performed, all obligations set forth in Schedule 4 to this Grant Agreement.

16. (a) The Recipient shall (i) maintain, or Article IV, • Complied. Required audit reports were submitted cause to be maintained, separate accounts for Sec. 4.02 on time. the project; (ii) have such accounts and related financial statements audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience, and terms of reference are acceptable to ADB; (iii) furnish to ADB, as soon as available but in any event not later than 6 months after the end of each related fiscal year, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors’ opinion on the use of the Grant proceeds and compliance with the financial covenants of this Grant Agreement as well as on the use of the procedures for imprest account/statement of expenditures), all in the English language; and (iv) furnish to ADB such other information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request.

17. (b) The Recipient shall enable ADB, upon Article IV, • Complied. ADB’s request, to discuss the Recipient’s Sec. 4.02 financial statements for the project and its financial affairs related to the project from time to time with the auditors appointed by the Recipient pursuant to Section 4.02(a) hereabove, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB, provided that any such discussion shall be conducted only in the presence of an authorized officer of the Recipient unless the Recipient shall otherwise agree.

18. (c) The Recipient shall enable ADB’s Article IV, • Complied. representatives to inspect the project, goods Sec. 4.03 financed out of the proceeds of the Grant, and any relevant records and documents.

19. Except as ADB may otherwise agree, the Schedule 2, • Complied. During project implementation, the recipient shall establish immediately after para. 5(a) imprest account was established, managed, effective date, an imprest account at a replenished, and liquidated in accordance with commercial bank, acceptable to ADB. The ADB’s Loan Disbursement Handbook and detailed imprest account shall be established,

Appendix 10 37

Reference in Grant Covenant Agreement Status of Compliance managed, replenished, and liquidated in arrangements agreed upon between the recipient accordance with ADB's Loan Disbursement and ADB. Also, recipient followed the main principle Handbook and detailed arrangements agreed that the initial amount to be deposited into the upon between the recipient and ADB. The imprest account shall not exceed (i) the estimated initial amount to be deposited into the imprest expenditure for the first 6 months of project account shall not exceed the lower of (i) the implementation, or (ii) the equivalent of $200,000. estimated expenditure for the first six (6) However, this $200,000 ceiling requirement was months of project implementation, or (ii) the removed as per ADB’s updated Loan equivalent of $200,000. Disbursement Handbook in 2015. The quarterly financial plans by each category such as civil 20. The recipient shall ensure that all funds Schedule 4, works, construction supervision, and other and resources necessary for construction, para. 4 consultants were submitted to recipient and operation and maintenance, and management financier in time and expenditures were in of the project are provided in a timely manner. accordance with approved financial plans and The recipient shall take all necessary allocated amounts. All payment requests were measures, including but not limited to, the reviewed and approved by employer, recipient, and provision of additional funds to ensure that the financier. The final grant reallocation was submitted project is successfully implemented, by ADB on 9 November 2015 and the Grant was managed, and operated after construction is closed on 1 December 2015. ADB’s and recipient’s completed. portions for civil works allocation were not changed during project implementation. There were some changes on other component’s works. However, these were approved by employer, recipient, and financier in time.

21. The recipient shall ensure that adequate Schedule 4, • Complied with delay. The construction of package funds are allocated to phase II and the para. 5 2 (103.3 km new road from Baga Ulaan pass to implementation of phase II is started by 31 Manhan Soum) for phase II which is under Loan December 2010. 2847 started in 2012 and completed in 2015 and State Commission of MRT took over new construction on 30 October 2015.

Economic 22. The recipient, through MRTT, shall Schedule 4, • Partly complied. PIU collected related data and establish and use the project performance para. 21 social and economic indicators, and prepared the management system (PPMS). The recipient, project performance report including (i) average through MRTT, shall monitor and evaluate the daily traffic flows compared before construction and project impacts including poverty indicators after construction, (ii) poverty levels in the project and community development activities with area, (iii) customs processing times before and the assistance of the consultants to ensure after construction, (iv) environmental concerns, (v) that the project facilities are managed current situation of main road and maintenance effectively, and the benefits, particularly to the centers, (vi) supplied equipment to state-owned poor, are maximized. The recipient shall cause maintenance company in Khovd aimag, (vii) road MRTT to (i) employ a qualified domestic safety measures, (viii) community development institute to carry out the monitoring activities activities, (ix) social and economic development in prior to project implementation; (ii) ensure that the project area, and (x) land acquisition and local government, including local statistics resettlement etc. and submitted to ADB in March offices, collect the data to measure the 2015. relevant indicators prior to and during project implementation, at completion, and annually 3 To minimize poverty in the project area, the years thereafter, with the frequency as following have been done under the community specified; and (iii) submit to ADB the reports development activities: summarizing the key findings of monitoring. 1. Three new wells including three small houses (3.5 m x 3.0 m) for regular drinking water of herders and local people in Altai, Must, and Manhan soums located along the project corridor were constructed and handed over to soum governors.

38 Appendix 10

Reference in Grant Covenant Agreement Status of Compliance 2. Total 30 set new greenhouses in size of 20 m x 6 m were supplied for help and improve the livelihood and income of poor households and handed over 10 sets for Altai, Manhan, and Must soums.

3. Training courses of regular project road maintenance and emergency repairs among engineers, workers, drivers, Khovd-AZZA Co. Ltd., and Jol Co. Ltd.

Others 23. Immediately after the effective date, the Schedule 4, • Complied. The PIU was established by the Order of recipient shall establish a PIU under MRTT to para. 3 State Secretary of MRTCUD in September of 2008 implement activities on a day-to-day basis. A and three road engineers, secretary, and financial senior official of DOR shall be appointed as officer worked under the project coordinator’s the project director to head the PIU. The management to coordinate and monitor daily project director shall be assisted by a full-time project implementation and manage the civil works, project manager and a team of qualified construction supervision, and other consultants on technical, financial, and administrative staff behalf of employer and to cooperate with MRT, comprising three highway engineers, an MOF, ADB, contractors, consultants, local accountant, and an administrative assistant. administrators, and other organizations to implement the contract works. The PIU worked following the grant agreement, FAM, and regularly submitted quarterly progress reports to ADB, MOF, MRT within 15 days after each quarter summarizing the current status of project implementation: (i) progress made against established targets, (ii) delays and problems encountered during implementation, (iii) problems encountered during the quarter and steps taken or proposed to be taken to solve the problems, and (iv) program activities proposed for the succeeding implementation. PIU always tried to implement any work following the relevant laws of Mongolia, ADB’s requirements, relevant documents, procedures, and guidelines to be followed.

24. The recipient shall ensure that all ADB- Schedule 3, • Complied. KCI performed daily construction financed contracts with consultants contain para. 8 supervision and consulting service during the appropriate representations, warranties and, if project implementation. The consultant worked appropriate, indemnities from the consultants following the sub-clause 3.4 liability of the to ensure that the consulting services provided consultant, and sub-clause 3.4.d that do not violate do not violate or infringe any industrial or infringe any industrial property or intellectual property or intellectual property right or claim property right or claim of any third party and there of any third party. was no violation related to this. During project implementation, the PIU and EA regularly monitored the consulting contract agreement.

25. MRTT shall be the project executing Schedule 4, • Complied. The Project Steering Committee worked agency responsible for overall execution and para. 1 to resolve the project problems during implementation of the project. implementation, review, and monitor progress of project implementation and other activities. The members were from relevant ministries such as Ministry of Finance, Ministry of Labor, Ministry of Environment, Green and Tourism and other organizations in charging of nature and environment, social welfare and labor, and customs general administration of Mongolia.

Appendix 10 39

Reference in Grant Covenant Agreement Status of Compliance 26. Within 3 months of the effective Date, the Schedule 4, • Complied. The PSC was established under Order recipient shall set up the PSC at central level. para. 2 123 of the MRTCUD in 2008, thereafter was The PSC shall be chaired by the state reestablished under Order 85 of Minister for Roads secretary of MRTT and shall comprise and Transportation dated 29 November 2012. representatives from the recipient's Customs However, the new PSC was established again by General Administration, Ministry of Foreign the Order 74 of Minister for Roads and Affairs, Ministry of Health, MOF, MRTT, Transportation dated 13 March 2015 due to change Ministry of Nature and Environment, Ministry of government’s organizational structure. During of Social Welfare and labor, and government project implementation, PIU submitted project of Hovd aimag. The PSC shall meet at least implementation report, key issues of the project, once in every six (6) months and review the and PIU’s work plan and report to PSC. progress of implementation and provide guidance, as necessary. ADB representative may attend PSC meetings as an observer.

27. The recipient, through MRTT, shall ensure Schedule 4, • Complied. Anticorruption Policy requirements were that ADB's Anticorruption Policy (1998, as para. 15 clearly indicated in the sub-clause 1.11 of the amended to date) and the recipient's consultancy contract agreement and sub-clause anticorruption policy are followed. 15.6. Corrupt or Fraudulent Practices of the Contract Agreement with Contractors, and there was no record that these clauses were violated by neither consultant nor contractor.

28. The recipient, through MRTT, shall ensure Schedule 4, • Complied. KCI submitted monthly, quarterly that the companies contracted for the project para. 22 progress reports, and completion reports in road reconstruction provide monthly reports accordance with sub-clause 3.8. Reporting on works performance to the supervision Obligations and Contractor China Jiangsu Jianda consultant and MRTT, who will then provide Construction Co. Ltd. submitted its construction any findings to ADB based upon inspection progress reports and environmental monitoring and verification of works performed. reports during project implementation.

29. In addition to the regular annual reviews, Schedule 6, • Complied. A midterm review mission was carried approximately 20 months after the project para. 23 out in June 2013, and the items specified in the starts, MRTT and ADB shall carry out a covenant were reviewed. midterm project review, which shall focus on policy, institutional, administrative, organizational, technical, environmental, social, economic, financial, and other relevant factors that may have an impact on the project's performance and its continuing viability. The review shall examine progress in reform and compliance with covenants set forth in this Grant Agreement.

ADB = Asian Development Bank; DOR = Department of Roads; EA = executing agency; EIA = environmental impact assessment; EMOP = environmental monitoring plan; EMP = environmental management plan; FAM = facility administration manual; GRM = grievance redress mechanism; KCI = Korea Consultants, International; km = kilometer; m2 = square meter; MOF = Ministry of Finance; MRT = Ministry of Road and Transport; MRTCUD = Ministry of Roads, Transport, Construction, and Urban Development; MRTD = Ministry of Road and Transport Development; MRTT = Ministry of Road, Transport, and Tourism; PAM = project administration manual; PIU = project implementation unit; PRC = People’s Republic of China; PSC = project steering committee; SEIA = summary environmental impact assessment; SPA = special protected area; UK = United Kingdom.

40 Appendix 11

DETAILS OF CONTRACT PACKAGES

Road Cost Estimate Contract Length in Civil Work at Appraisal Amount Package (km) ($ million) ($ million)

A. Project Roads 110.81 78.79 52.18 1. Package 1: road from Temeen Huzuu to Baga Ulaan Pass 110.81 78.79 33.70 or 64.58% (ADB) 18.48 or 35.42% (GOM) Total 78.79 52.18 ADB = Asian Development Bank, GOM = Government of Mongolia, km = kilometer.

Appendix 12 41

ENVIRONMENTAL MANAGEMENT PLAN IMPLEMENTATION CHECKLIST

Environmental Issues Mitigation Measures Responsibility Compliance Status I. Pre-construction 1. Fauna Wildlife corridor Studying/monitoring Research institute Implemented restriction wildlife routes and /wildlife biologist animal behavior

2. HIV/AIDS/STI's, Awareness raising PIU/DOR Implemented communicable campaign for local diseases and human population trafficking

3. Public consultation on EMP implementation People's opinion on Conduct public PIU Implemented the EMP consultations Implementation Reporting project Training PIU on project DOR Implemented environmental environmental reporting monitoring II. Construction Phase 1. Grievance redress Grievances GRM implementation PIU/DOR Implemented

2. Soil Soil erosion Soil erosion Contractor Implemented management: soil clearance areas minimized, reuse of topsoil for rehabilitation, reshaping slope surface, biological

rehabilitation, stabilization of embankment slopes etc.

3. Natural hazards Flashfloods Installation of culvert Contractor Implemented boxes

4. Air quality Dust generation All vehicles shall be Contractor Implemented covered with tarpaulin Material storage site shall be 300m away from receptors Water will be sprayed regularly

42 Appendix 12

Environmental Issues Mitigation Measures Responsibility Compliance Status Emissions from All vehicles and Contractor Implemented construction vehicles machineries shall be and machineries regularly maintained and correctly operated

5. Water Issues Contamination of Implement prevention Contractor Implemented water bodies measures: water drainage and retention basin constructed, spill management

Contamination of Existing water wells Contractor Implemented drinking water and springs shall be sources prevented from accidental damage

Impacts on water Water quality Contractor Implemented bodies monitoring

Protection of water Measures for surface Contractor Implemented sources and ground water withdrawal points to be implemented

6. Wildlife Wildlife corridor Installation of warning Contractor Implemented restriction signs, speed restrictions during the construction period

Illegal poaching and Prohibitive actions Contractor Implemented hunting taken during the construction

7. Noise and vibration Blasting operations Implement prevention Contractor Implemented measures in accordance with relevant laws and regulations

Noise from vehicles, All equipment and Contractor Implemented equipment and plants vehicles conform to local noise standards Noisy activities will be stopped between 22:00 and 06:00 8. Historical, cultural and archaeological heritage Encountered during If chance finds occur Contractor Implemented construction during construction,

Appendix 12 43

Environmental Issues Mitigation Measures Responsibility Compliance Status activity will halt, notify local government. Works will recommence only after appropriate measures will be taken

9. Restoration of borrow pits and quarries Borrow pits and Reinstatement of Contractor Implemented quarry sites borrow pits and quarries

10. Construction camps Damage of topsoil, Proper construction Contractor Implemented contamination camp management, waste management

11. Traffic safety Road safety Proper traffic Contractor Implemented management during construction period

III. Operation phase 1. Solid waste Solid waste collected Contractor Implemented properly, place garbage bins

2. Water quality Water quality Contractor Implemented monitoring

DOR = Department of Roads, EMP = environmental management plan, GRM = grievance redress mechanism, PIU = project implementation unit.

44 Appendix 12

IMPLEMENTATION OF ENVIRONMENTAL MANAGEMENT PLAN

A. Introduction

1. The Project was classified as category A for environment. A summary environmental impact assessment, containing an environmental management plan (EMP) and an environmental monitoring plan (EMoP) in accordance with ADB’s Environment Policy (2002) and Environmental Assessment Guidelines (2003) was prepared and disclosed on ADB website in August 2007. The outputs of the Project include (i) improved 431.2 km Yarant–Hovd city road; (ii) establishment of road maintenance centers; (iii) procurement of equipment; (iv) improved road safety; (v) community development; (vi) HIV/AIDS awareness; and (vii) strengthening of institutional capacity of the Ministry of Roads, Transport and Tourism.

B. Institutional Arrangement

2. At appraisal, the Department of Roads under the Ministry of Roads, Transport and Tourism was the executing agency for the project. The government restructured the ministry and changed its name to the Ministry of Roads, Transport, Construction and Urban Development in 2008, the Ministry of Road and Transport in 2012, and the Ministry of Road and Transport Development (MRTD) in 2016. These changes did not materially affect project implementation. The executing agency established a project implementation unit (PIU) to implement activities on a day-to-day basis.

C. Environmental Impacts and Mitigations

3. Soil Erosion. At construction stage, soil-related impacts mitigation measures included minimizing soil clearance, selecting less erodible materials, placing gabions and riprap around bridges and culverts, using stepped embankments for embankments greater than 6 meters, separating topsoil from subsoil during excavation works and reuse of topsoil as superficial layers, reshaping the slope by notching, blazing and pocking to enhance seedling survivability, planting vegetative cover immediately after fill placement with native species, finishing discharge zones from drainage structures and channel embankments with riprap, and stabilizing embarkment slopes and road cuts by revegetating with grazing resistant plant species, etc.

4. Permafrost. Mitigation measures for permafrost were implemented during construction phase, including (i) designing roadbed in embankments, (ii) using natural and artificial heat- insulating materials for subgrade embankment and road pavement, (iii) use non-woven synthetic materials in subgrade and embankment; and (iv) replacing waterlogged soils of seasonally thawing layer and ice-saturated underlying permafrost with coarsely clastic rocks and sand soils.

5. Natural Hazards. For natural hazards like rockfalls, flash floods and blowing and drifting snow, such preventive/mitigation measures as installing rockfall retaining structures and box culverts, placing warning signs, and installing earth fencing were taken.

6. Air Quality. At construction stage, mitigation measures included environmentally friendly construction practices such as covering all earthwork vehicles to avoid spillage, spraying water at construction sites, regular maintenance of construction vehicles, equipment and machineries, etc. At operation stage, air quality monitoring was conducted at representative sensitive receptors.

7. Surface Water. At construction stage, stormwater drainage and retention basins where the river/stream is nearby were constructed. Water quality was monitored during construction

Appendix 12 45 following the requirement in the EMP. During the operation stage, water quality monitoring will be conducted for major rivers.

8. Fauna and Flora. At construction stage, clauses to prevent illegal poaching and hunting were incorporated in the construction contracts. Trees were planted in Bodonch area and areas with favorable conditions for tree planting. Wildlife reflectors were installed. At operation stage, mitigation measures include maintenance of wildlife reflectors and capacity building activities to customs staff at Mongolia-PRC borders on antipoaching and illegal trading of wildlife.

9. Noise and vibration. At construction stage, a number of mitigation measures was applied including source controls, site controls, schedule of construction time, baseline and routine noise monitoring. At operation stage, noise and vibration monitoring at locations close to towns will be conducted.

10. Borrow Pits and Quarries. After completion of construction works, the borrow pits and quarries were restored by providing a topsoil strip where necessary and planting grass.

11. Construction Camps. Proper mitigation measures including providing sanitation facilities, collection of solid waste, developing spill management plan, etc. were implemented during construction stage. During operation, garbage bins are provided in maintenance centers and service stations and the garbage are being collected periodically.

D. Public Consultation and Grievance Addressed

12. During project implementation, public consultations were carried out to address the grievances of the public. The PIU recorded five grievances. Two grievances concerned the project road being too close (3–5 m) to livestock shelters. The contractor addressed the issue by helping the aggrieved parties to relocate their livestock shelters. The other three grievances involved suggestions that local residents should be hired for cleanup activities. Soum governors and the PIU discussed solutions at the Local Citizen’s Representative Meeting and resolved the issues. Complaints and recommendations from local residents were well addressed. One fatal accident occurred during the grant project implementation in 2013, when an informal miner had rushed into a blasted area seeking gold in the debris and was killed by a falling rock. There were no reports of serious road accidents during operation.

E. Environmental Monitoring and Reporting

13. An individual environmental consultant was engaged throughout the project construction stage who conducted regular site visits, monitoring of the implementation of environmental mitigation measures, and prepared environmental monitoring reports (EMRs) during 2013-2015. During project implementation, the Grant Project was rolled into Tranche 1 and Tranche 2 of Western Regional Road Investment Program. Consolidated EMRs including the Grant Project, Tranche 1 and Tranche 2 projects were submitted to ADB. A total of four EMRs covering the Grant Project were disclosed on ADB website during 2013–2015, which contained project progress, and environmental management status including implementation of mitigation measures.

F. Conclusion

14. Overall implementation of the project environmental management plan is satisfactory. No unexpected adverse environmental issue other than predicted in the original EMP was identified.

46 Appendix 12

A range of good engineering practices incorporating environmental protection measures were implemented. At the time of the project completion review mission, there were no pending environmental safeguards-related non-compliance issues.