Disbursement Linked Indicators Matrix And

Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 67866-NP

PROGRAM APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT Public Disclosure Authorized SDR 38.7 MILLION (US$60.0 MILLION)

NEPAL

FOR A

Public Disclosure Authorized BRIDGES IMPROVEMENT AND MAINTENANCE PROGRAM

June 1, 2012

Sustainable Development Department Bangladesh and Nepal Country Management Unit South Asia Regional Office

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Public Disclosure Authorized CURRENCY EQUIVALENTS

(Exchange Rate Effective March 31, 2012)

Currency Unit = Nepalese Rupee (NPR) NPR 81.29 = US$1 US$0.645 = SDR1

GOVERNMENT OF NEPAL FISCAL YEAR July 15 – July 14

ABBREVIATIONS AND ACRONYMS

ACG Anti-Corruption Guidelines M&E Monitoring and Evaluation ADB Asian Development Bank MDGs Millennium Development Goals ARMP Annual Road Maintenance Plan MoF Ministry of Finance BMS Bridge Management System MoLD Ministry of Local Development CIAA Commission for the Investigation of MoPPWTM Ministry of Physical Planning, Works Abuse of Authority and Transport Management CMS Contract Management System MTEF Medium Term Expenditure Framework DDG Deputy Director General NA Not Applicable DFID Department for International NPC National Planning Commission Development (UK) DiD difference-in-difference NPV Net Present Value DLI Disbursement-linked Indicator NVC National Vigilance Center DoLIDAR Department of Local Infrastructure OAG Office of the Auditor General Development and Agricultural Roads DOR Department of Roads PAD Program Appraisal Document DTCO District Treasury Comptroller Office PBMC Performance Based Maintenance Contract EIA Environmental Impact Assessment PDO Program Development Objective EIRR Economic Internal Rate of Return PEFA Public Expenditure and Financial Accountability ESMF Environmental Social Management PFM Public Financial Management Framework ESSA Environment and Social Systems PforR Program-for-Results Assessment F&C Fraud and Corruption PIP Priority Investment Plan FA Financiing Agreement PPA Public Procurement Act FCGO Financial Comptroller General Office PPMO Public Procurement Monitoring Office FMS Financial Management System PPR Public Procurement Regulations FY Financial Year PWD Public Works Directives GDP Gross Domestic Product RAIDP Rural Access Improvement and Decentralization Project GESU Geo-Environmental and Social Unit RBN Roads Board Nepal GIZ German Society for International RMRP Roads Maintenance and Rehabilitation Cooperation Project GON Government of Nepal RNDP Road Network Development Project GPSA Global Partnership for Social RSDP Road Sector Development Project Accountability GRM Grievance Redressal Mechanism SBD Standard Bidding Document IDA International Development SDC Swiss Agency for Development and Association Cooperation IMF International Monetary Fund SIL Specific Investment Lending IRC Indian Roads Congress SRN Strategic Road Network ISN Interim Strategy Note UNCAC United Nations Convention against Corruption JICA Japan International Cooperation UNDP United Nations Development Program Agency LRN Local Road Network VOC Vehicle Operating Costs

Vice President: Isabel M. Guerrero Country Director: Ellen Goldstein Sector Director: John Henry Stein Acting Sector Manager: Binyam Reja Task Team Leader: A.K. Farhad Ahmed

NEPAL Bridges Improvement and Maintenance Program TABLE OF CONTENTS Page I. Strategic Context 1 A. Country Context 1 B. Macroeconomic and Fiscal Context of the Program 1 C. Sectoral and Institutional Context of the Program 2 D. Relationship to the CAS/CPS and Rationale for Use of Instrument 3 II. Program Description 4 A. SRN Bridge Program Scope and Activities 5 B. Program Development Objectives 7 C. Program Key Results and Disbursement Linked Indicators 7 III. Program Implementation 9 A. Institutional and Implementation Arrangements 10 B. Results Monitoring and Evaluation 11 C. Disbursement Arrangements, Disbursement-linked Indicators, and Verification Protocols 12 IV. Assessment Summary 13 A. Technical 13 B. Fiduciary 15 C. Environmental and Social Effects 17 D. Integrated Risk Assessment Summary 18 E. Program Action Plan 19 Annex 1: Detailed Program Description 20 Annex 2: Results Framework Matrix 28 Annex 3: Disbursement Linked Indicators Matrix and Verification Protocols 32 Annex 4: Program Action Plan 42 Annex 5: Technical Assessment 44 Annex 6: Fiduciary Systems Assessment 52 Annex 7: Environmental and Social Systems Assessment 61 Annex 8: Integrated Risk Assessment 65 Annex 9: Implementation Support Plan 69 Annex 10: Impact Evaluation Concept Note 73 Map – IBRD 39229

NEPAL BRIDGES IMPROVEMENT AND MAINTENANCE PROGRAM PROJECT APPRAISAL DOCUMENT SOUTH ASIA REGION Basic Information Date: June 1, 2012 Team Leader: A.K. Farhad Ahmed Country Director: Ellen Goldstein Sectors: Rural/Inter Urban Roads – 100 percent Sector Director: John Henry Stein Themes: Infrastructure Services for private sector development (90 percent); Governance & Institution Building (10 percent) Program ID: P125495 Lending instrument: Program-for- Results (PforR) Program Implementation Period: Start Date: July 15, 2012 End Date: July 15, 2017 Expected Financing September 30, Effectiveness Date: 2012 Expected Financing Closing January 15, 2017 Date: Program Financing Data [ ] Loan [ ] Grant [ ] Other [X] Credit For Loans/Credits/Others (US$M): Total Program Cost : 147.9 Total Co financing: Financing Gap: Financing Source Amount BORROWER/RECIPIENT 87.9 IBRD IDA: New 60.0 IDA: Recommitted Others Financing Gap Total 147.9 Borrower: Nepal Responsible Agency: Department of Roads, Ministry of Physical Planning, Works and Transport Management (MoPPWTM) Contact: Mr. Krityanand Thakur Title: Project Chief, Bridge Project Telephone No.: +977-1-426-8580 Email: [email protected] Expected Disbursements (in US$ Million) Fiscal Year 2013 2014 2015 2016 2017 Annual 12 12 12 12 12 Cumulative 12 24 36 48 60

Program Development Objective(s)

The Program Development Objective is to provide safe, reliable and cost effective bridges on Nepal’s Strategic Roads Network.

Compliance Policy Does the project depart from the CAS in content or in other significant respects? Yes [ ] No [ X ] Does the project require any waivers of Bank policies applicable to Program-for-Results operations? Yes [ ] No [ X ] Have these been approved by Bank management? Yes [ X ] No [ ] Is approval for any policy waiver sought from the Board? Yes [ ] No [ X ] Does the project meet the Regional criteria for readiness for implementation? Yes [ X ] No [ ] Overall Risk Rating: Substantial Legal Covenants Name Recurrent Due Date The Recipient shall carry out the Program, or cause the Program to be carried out, in accordance with financial management, procurement and environmental and social Yes Ongoing management systems acceptable to IDA The Recipient shall carry out the Program, or cause the Program to be carried out, in Yes Ongoing accordance with the provisions of the Anti-Corruption Guidelines The Recipient shall carry out the Action Plan in accordance with the schedule set out in the As specified in Yes Action Plan in a manner satisfactory to IDA Annex 4 Team Composition Bank Staff Name Title Specialization Unit UPI Farhad Ahmed Sr. Transport Specialist Task Team Leader SASDT 377258 Chaohua Zhang Lead Social Development Specialist Social System SASDS 86742 Simon Ellis Sr. Transport Economist Transport SASDT 171418 Deepak Shrestha Sr. Transport Specialist Transport SASDT 384874 Dominic Patella Transport Specialist Transport/Finance SASDT 321027 Drona Raj Ghimire Environmental Specialist Environment SASDI 251759 Hiramani Ghimire Sr. Governance Specialist Governance SASGP 255081 Kiran Baral Sr. Procurement Officer Procurement SARPS 182335 Shambhu Uprety Procurement Specialist Procurement SARPS 359093 Silva Shrestha Research Analyst Risk management SASDU 296902 Bigyan Pradhan Sr. Financial Management Specialist Financial Management SARFM 20092 Rama Krishnan Venkateswaran Sr. Financial Management Specialist Financial Management SARFM 228270 Richard Holloway Governance Specialist Governance SASDS 106965 Rajesh B Dongol Program Assistant Administrative SASDO 145740 Shubu Thapa Team Assistant Administrative SASDT 316990 Non Bank Staff Name Title Office Phone City Ishwor Neupane Social Development Specialist Kathmandu Narayan Datt Sharma Procurement Consultant Kathmandu

Toran Sharma Environmental Specialist Kathmandu Duncan Hamilton Transport Economist London Pradeep Kumar Shrestha Financial Management Consultant Kathmandu Rod Stickland Engineering Consultant Kathmandu

iii

I. STRATEGIC CONTEXT

1. This introductory chapter puts into perspective the political, economic, and institutional background that impacts the need for the Bridges Improvement and Maintenance Program in Nepal and rationale for using the Program-for-Results (PforR) financing instrument. A. Country Context

2. Nepal is still emerging from a 10-year armed conflict that ended in 2006 and is currently passing through a momentous and prolonged political transition which is still in a fragile and incomplete state. This transition entails two interrelated processes: promulgation of a new Constitution and the completion of the ongoing peace process. The Constitution is expected to lead to a major restructuring of Nepal into a federal state while the completion of the peace process is expected to resolve the integration/rehabilitation of former Maoist combatants. Nepal’s peace process is progressing with the closure of Maoist cantonments and political parties attempting to resolve all contentious outstanding constitutional issues. These issues include state restructuring, forms of governance, electoral system, constitutional court, and citizenship questions to be enshrined in the new Constitution. 3. Nepal’s economic growth has been adversely affected by the political uncertainty. Growth over the past decade has been below potential, relying largely on remittances and tourism. Nonetheless, Nepal has made good progress both in terms of poverty reduction and improvement of social indicators. The proportion of poor people has fallen substantially from 45 percent in 1995-96 to 25 percent in 2010-11. This reduction in poverty level has come with improvements in income equality. Nepal’s overall Gini coefficient has simultaneously declined from 0.41 to 0.35, a measure that shows poor segments of the population have been able to increase household incomes (often with the help of remittances). Nepal has also made impressive progress toward achieving the Millennium Development Goals (MDGs) in the areas of primary education, gender parity, and under-5 child mortality. Several MDG targets have already been met and Nepal has received the United Nation’s MDG award for reducing maternal mortality. 4. Many of the improvements in social outcomes have benefitted from improved access to all weather roads. In the period 1995-96 to 2010-11 the proportion of people with access to paved roads has increased from 24 percent to 51 percent. However, while the quantity of access has increased, the armed conflict and the political instability have had a detrimental impact on the overall quality of the road network and bridges on those roads. The proportion of the Strategic Road Network (SRN) in poor condition has increased from 18 percent in 2008 to 22 percent in 2010 and much of the existing bridge stock is over 35- 40 years old and in desperate need of rehabilitation and maintenance. Further, there are still many gaps in SRN caused by lack of bridges contributing to a substantial lack of physical access to economic centers and social services, particularly in remote areas. Nepal’s topography and geology also complicate efforts to provide adequate transport infrastructure. The lack of physical access is seen as one of the root causes of the conflict and current instability in the country. Roughly one-fourth (18 out of 75) of district headquarters do not have an all-weather road connection. This lack of connectivity has adversely impacted the ability of people, particularly in the severely affected rural areas, to participate in economic activities and access quality health care and education services. As a result, Nepal’s economic growth has not reached its potential. One of the key priorities of the Government of Nepal (GON) is investing in physical and social infrastructure to attain broad-based growth and poverty reduction. B. Macroeconomic and Fiscal Context of the Program

5. Nominal Gross Domestic Product (GDP) per capita in Nepal has doubled from US$350 in 2006 to US$735 in 2011. Nepal’s economy is projected to grow by 4.6 percent in FY 2012 compared to 3.9 percent in FY 2011. Inflation is currently running at 7 percent, which is the lowest level attained in three years. Overall fiscal discipline has been maintained and Nepal’s general government debt level at 34

1 percent of GDP is among the lowest in the South Asia Region. While Government revenues have risen and supported increased spending, the quality of expenditures remains a concern. On the external sector front, with high remittance growth, Nepal’s current account is in surplus and reserves have risen to a level sufficient to cover 9 months of goods and services imports (as of mid-March, 2012). Remittances play a large role in the Nepalese economy and were estimated to be 20 percent of GDP in 20101. The Nepal Rastra Bank’s accommodative monetary stance is also a concern as the broad money supply in 2011 grew at a rate of 20 percent, which exceeded the official target of 12.5 percent, and could drive future inflationary pressures. 6. Fiscal priorities of the Government of Nepal show a shift toward greater levels of investment in physical infrastructure in an effort to drive economic growth and achieve policy goals relating to socioeconomic integration. The Government of Nepal budgeted US$898 million for capital investment in FY 2011/12 which was equivalent to roughly 5.4 percent of GDP. Budgeted capital spending in the transport sector was US$460 million (2.8 percent of GDP) in the same fiscal year. This represented a 38 percent increase from the previous fiscal year. The Ministry of Physical Planning, Works and Transport Management (MoPPWTM) is the lead line ministry for developing transport infrastructure and managed 86 percent of all budgeted expenditures in the sector. The MoPPWTM’s transport sector capital spending alone accounted for nearly 39 percent of the GON’s entire capital expenditure budget during FY 2011/12. Important revenues in the transport sector include fuel levy and vehicle registration fees which accounted for roughly USD 23 million and USD 21 million respectively in 2011/12. A key aim of increased transport sector investment is to connect all 75 district headquarters with all-weather road access. Increasing resource allocations to the transport sector demonstrates the Government of Nepal’s seriousness for achieving road transport-related policy objectives that will support economic growth and social integration. 7. Nepal has a well-developed Medium-Term Expenditure Framework (MTEF) and sectoral business plans. The MTEF aims to link annual budget allocations to policy priorities in an effort to ensure resource continuity over a three-year period. However, weak public financial management (PFM) has diluted the effectiveness of the annual budget as a tool for efficient expenditure planning. These weaknesses are being addressed through the GON’s Public Financial Management Reform Program. The PFM Reform Program is supported by a multi-donor trust fund, managed by the World Bank. The multi-donor trust fund will: (i) support implementation of a treasury single account system to allow MIS-based real time budget checks; (ii) strengthen accounting and reporting practices in public and private sector; and (iii) support the capacity building of Nepal’s Public Expenditure and Financial Accountability (PEFA) Secretariat. Reforms to Nepal’s national PFM framework will enhance the effectiveness of public expenditures and mitigate the fiduciary risks within GON agencies, including the Department of Roads (DOR) over the medium term. C. Sectoral and Institutional Context of the Program

8. The road network in Nepal totals about 42,800 kilometers (km). The SRN and Local Road Network (LRN) are roughly 10,800 km and 32,000 km, respectively. National highways, feeder roads and other roads of national importance constitute the SRN. Rural roads and urban roads constitute the LRN. The SRN is managed by the Department of Roads under the MoPPWTM and the LRN comes under the Department of Local Infrastructure Development and Agricultural Roads (DoLIDAR) and municipalities under the Ministry of Local Development. Due to the challenging terrain of Nepal, bridges play a significant role. They are managed and budgeted for as a subset of the main DOR roads program. Most new bridge construction on both the SRN and LRN has been managed by the Department of Roads to date. This is because the Department is considered to be the most technically capable organization to

1Estimates from the World Bank's Migration and Remittances Unit 2 undertake this work. The DoLIDAR has, so far, focused on trail bridges, which provide non-vehicular access to remote communities. Going forward, the Government of Nepal wants to clarify institutional responsibilities. Under the new arrangement, the Department of Roads will only be responsible for SRN- specific bridges and DoLIDAR will take over all LRN bridge-related responsibilities. 9. In 2007, the Government of Nepal developed a 10-year (2007-2016) Priority Investment Plan (PIP) for the road sector which prioritized investments to reach target accessibility levels by 2016 (87 percent of hills and 100 percent of Terai population within 4-hour and 2-hour of walking time respectively, to the nearest all weather road). The projected upgrading and maintenance costs of the SRN during the plan period are estimated at NPR100 billion (US$1.25 billion). Since June 2007, the development partners have committed approximately US$400 million for SRN projects. This still leaves a substantial deficit (approximately US$0.85 billion) to implement the priority investment plan. This plan has largely ignored bridges to-date, and hence there is a need to provide support to these critical assets. 10. The nature of funding and its allocation process have also been a considerable challenge for DOR’s bridge sector investments. The overwhelming majority of the budget for bridge maintenance and new construction is allocated directly, through separate budget lines, to the Department of Roads. To date, these funds have been used for both LRN and SRN bridges and have been subject to an ad-hoc prioritization that is often driven by political expediency. Until recently, maintenance activities have taken second place to new construction. However, some recent bridge failures have made the Government rethink its priority. Now maintenance activities receive a higher priority and funding. The lack of clear institutional mandates and opaque planning and funding mechanisms for bridge development have resulted in a proliferation of bridges on non-priority routes, over procurement, and under completion. Some bridges have remained incomplete for up to 10 years. 11. The priority for the sector is to clarify institutional responsibilities, and to develop mechanisms for funding and planning that prioritize activities according to the most beneficial social and economic returns possible. The Roads Board Nepal (RBN) was set up to manage maintenance activities on the country’s road network. Revenues to the Roads Board Nepal come from the fuel levy and vehicle registration fees of which it received roughly 78 percent (about USD 35 million) from the Ministry of Finance (MoF) in FY 2011/12. The limited revenues to the Roads Board Nepal diminish its role and effectiveness in the sustainable maintenance of road and bridge infrastructure. Its current levels of funding are only sufficient for fully supporting routine maintenance of roads and bridges. 12. The ongoing World Bank assisted Road Sector Development Project (RSDP) has been helping the Department of Roads in improving its management of bridge assets. Consultancy services procured under RSDP have been used for updating bridge inventory and condition data, development of a Bridge Management System (BMS), and preparing prioritized maintenance and investment plans based on sound technical, economic and social criteria. The Bridge Management System now includes updated asset inventory data. Department of Roads is working to fully integrate the Bridge Management System into its operating processes. Consultancy services under RSDP will also be used for capacity building to support this operation. D. Relationship to the CAS/CPS and Rationale for Use of Instrument

13. Support to the SRN Bridge Program is consistent with the Interim Strategy Note for Nepal (FY12 to FY13), particularly the first pillar that relates to enhancing connectivity and productivity for growth. Poor road and bridge quality is seen as one of the main constraints to the provision of universal physical access. The Interim Strategy Note (ISN) explicitly mentions supporting bridge-related interventions in Nepal to extend year round accessibility and improve the quality of existing bridges. 14. The Bank and other development partners have had an on-going dialogue with the Government of Nepal on taking a more programmatic and results oriented approach to interventions in the roads sector.

This operation is seen as an appropriate candidate for use of the Program-for-Results (PforR) instrument for the following reasons: (a) There is a strong Government support for the bridge sector and for improving outcomes from DOR’s existing SRN bridge program. Department of Roads has recognized that achieving better outcomes will require improvements to institutional capacity and core business processes. The PforR instrument provides better alignment with the Government’s objectives for strengthening capacity while simultaneously supporting the development and management of much needed physical assets. (b) Developing a well-planned, prioritized, and rigorously monitored investment approach is the main challenge facing the SRN Bridge Program. A revised approach should balance maintenance and rehabilitation needs with the need for new bridges. The PforR instrument will incentivize improvements in the way that Department of Roads plans and prioritizes investments to achieve this goal. Key to this will be the full integration of the recently developed Bridge Management System that provides the basis for planning and monitoring and evaluation (M&E) in the sector (Section IIIB provides details). Technical assistance support will help DOR staff to integrate BMS outputs with planning and budgeting activities. (c) The Bank, and other development partners2 have been engaged with Department of Roads for many years and have supported the development of fiduciary, social and environmental systems in line with good practice. The Government has shown strong commitment to the development of these systems and continuous development has been demonstrated over the last decade. However, improvements are still needed to apply these systems uniformly and effectively. The PforR approach would allow the Bank’s support to better align with and strengthen the application of existing processes and procedures. (d) Earlier bridge initiatives using project approaches did not fully succeed at achieving sustainable results. Anecdotal evidence suggests that these isolated project-style approaches succeeded at building assets but failed at building the institutional mechanisms required for managing longer term maintenance. The PforR instrument mitigates this risk by facilitating the use of processes that Department of Roads will use for managing SRN bridge maintenance into the future. (e) DOR’s SRN bridge program involves a decentralized implementation model which depends heavily on DOR’s 25 divisional offices. In general, SRN bridges are numerous, short in span, and relatively inexpensive. Achieving the Program Development Objective (PDO) for this type of diffuse capital program requires changes to broadly applied processes and organizational behaviors. The Specific Investment Lending (SIL) instrument is suitable for a concentrated capital program involving fewer, higher value assets. However, the PforR approach better aligns with impacts needed to achieve the program development objective given the structure of the SRN bridge program.

II. PROGRAM DESCRIPTION

15. The World Bank will support the SRN bridge-related activities (hereinafter referred as the “SRN Bridge Program” or “Program”), a subset of the overall program of capital investment by Department of Roads in Nepal’s road and bridge infrastructure.

2 e.g., Asian Development Bank (ADB), German Society for International Cooperation (GIZ), UK’s Department for International Development (DFID), United Nations Development Program (UNDP), Japan International Cooperation Agency (JICA) 4

A. SRN Bridge Program Scope and Activities

16. Program overview: The scope of the SRN Bridge Program encompasses three primary activities: (i) planning, technical design and quality control of bridges; (ii) major and minor maintenance of existing bridge assets; and (iii) new bridge construction. There are also a number of complementary activities that fall outside the scope of the Program, and relate to the overall DOR road and bridge program. These activities include DOR’s Annual Road Maintenance Plan which is funded and monitored by Roads Board Nepal and does include some routine maintenance activities of bridges on the Strategic Road Network. 17. Department of Roads has identified the following medium-term goals to make progress against intended SRN bridge-related outcomes: (i) completing all urgent major maintenance requirements; (ii) completing the current backlog of unfinished bridges already under construction; (iii) reducing the accumulated backlog of major maintenance requirements; (iv) undertaking minor and routine maintenance to prolong existing asset lives; and (v) continuing to develop economically and socially important new bridge crossings. The Bank’s operation will support the Department of Roads in developing more explicit quantitative targets for Program results. 18. Sound investment planning and improved implementation procedures are critical for the Program’s success. While bridges do require specialized expertise and some pose significant engineering challenges, most bridges under the Program are relatively small and involve straight-forward engineering design. The existing stock of bridges on the SRN has an average span of 43 meters, 47 percent are single span (average length 22 meters) and only about 10 percent have 6 or more spans (average length of 214 meters). Cost estimates for the Program suggest that for 71 percent of SRN bridges requiring urgent major maintenance, the costs will be less than US$250,000 per bridge. Similar estimates suggest that 85 percent of new bridges are likely to cost less than US$1 million per bridge. The single most expensive bridge that is being considered is estimated to cost US$8 million. Costs of engineering designs, feasibility studies, and quality management are estimated to be approximately 5-6 percent of civil work spending. 19. Government commitment to the Program: The Government’s recent budget activity reflects increased priority for the bridge sector. The overall DOR expenditures across its bridge sector programs have increased substantially in recent years. Most notably, there has been a 450 percent increase in the budget for major maintenance works – albeit from a low base. In FY 2011/12 the total budget for SRN bridges was approximately US$10 million and the Government of Nepal has indicated that this figure will increase to US$18.5 million in the next fiscal year. While this is encouraging, the estimated cost of meeting all SRN bridge needs is in the range of US$328 million. With Government funding alone it may take nearly two decades to meet all current SRN bridge-related needs. Adding inevitable future needs would extend this estimate further. 20. The SRN Bridge Program will support Government’s efforts to clear the backlog of urgent and major maintenance, which over time will reduce the overall maintenance burden for bridges. That said, there are still huge needs in the sector and limited resources and capacity. It is expected that the Government will continue to rely on donor financing and technical assistance in the foreseeable future. The other key to sustainability is ensuring high-quality construction and good bridge asset management. Through the institutional strengthening supported by the Program, the management capacity of Department of Roads and other implementing agencies will be enhanced, so that these agencies can better carry out the responsibilities for management and delivery of services. 21. Fiscal context: Over the next five years the SRN Bridge Program will spend approximately US$ 29.5 million per year. This amount is equivalent to 0.2 percent of International Monetary Fund’s (IMF) estimates for Nepal’s 2012 GDP or 3.3 percent of what GON budgeted for capital investment in FY 2011/12. The GON’s contribution to the SRN Bridge Program over the next five years (US$87.9 million) fits within MOF indicated US$185 million funding envelope for GON’s contribution toward all of DOR bridge sector investment programs and leaves sufficient room for other programs.

22. Additional funding from the Bank’s operation will support the SRN Bridge Program to deliver an increased volume of civil works, which would otherwise not be possible with Government funding alone. Regardless of the Bank’s involvement, Department of Roads would continue taking up new SRN bridge construction on account of the social and political importance of new bridges. However, the World Bank’s support will prevent the SRN Bridge Program from making a tradeoff between completing its backlog of bridges under construction and undertaking critical major maintenance needed to sustain the existing stock of SRN bridges. The amount of World Bank funds committed for this operation (US$60 million) is roughly equivalent to the expected amount of SRN Bridge Program spending on major maintenance over the next five years (US$58.5 million). 23. Program scope – Planning, technical design and quality management: A minimum of 5 percent of its civil works budgets (US$7.4 million over the Program support period) will be budgeted for activities to plan, prepare, supervise and monitor the civil works, including social and environmental aspects. This will include funding for consulting services to prepare detailed engineering designs, supervision of bridge construction works, quality assurance and monitoring, data collection linked to bridge conditions and maintenance of the Bridge Management System, auditing and verification, training and miscellaneous activities. 24. Program scope – SRN bridge maintenance: The SRN Bridge Program is expected to focus on approximately 98 bridges (about 6,225 meters) that urgently need major maintenance in order to prevent impending failures. Many of these bridges are considered structurally unsound and therefore unsafe. The Program will also complete major maintenance (233 bridges; totaling 10,900 meters in length) and minor maintenance (95 bridges; totaling 3,500 meters in length) on bridges that are in relatively stable condition. 25. Program scope – SRN bridge construction: The SRN Bridge Program will construct approximately 121 new bridges (6,000 meters). This total includes approximately 95 bridges (5,000 meters) in existing DOR backlog of bridge construction. In addition, a total of 26 new bridges (1,000 meters) on existing gaps will be constructed. 26. Role of development partners: Several development partners are currently supporting SRN bridge construction through stand-alone projects. Specifically, the ADB, JICA, the Government of the Peoples’ Republic of China and the Government of India are all currently funding portions of SRN bridge construction. These entities are financing bridges associated with individual road projects and have applied their own procedures to govern project implementation along with ‘ring-fenced’ project budgets. As such, these bridges fall outside the remit of the SRN Bridge Program until such time that completed assets are transferred for long term maintenance. On the Local Roads Network the Swiss Agency for Development and Cooperation (SDC) has been providing a technical assistance program to support motorable bridges. Also ADB, DFID, SDC and the World Bank are providing support for a trail bridge sector-wide program. The Bank support is being provided under its Rural Access Improvement and Decentralization Project (RAIDP). 27. Program expenditures: The estimated funding envelope for the SRN Bridge Program over the next 5 years is approximately US$147.6 million (Table 1). This includes an indicative commitment from the Government of Nepal of US$87.6 million and the proposed Bank support of US$60 million. Annex 1 provides a detailed table of the activities and outputs associated with this funding. 28. All funding (regardless of source) will flow through distinct GON budget line items with headings or sub-headings for: (i) bridge construction; (ii) bridge maintenance; and (iii) design, feasibility study and quality management. Ministry of Finance will make appropriate revisions to the MoPPWTM’s budget framework so that programs to develop LRN/urban bridges will draw resources from separate budget line items. The Ministry of Finance will track and report the source of funds in its budget (as required by law and national financial management rules). However, Department of Roads will see no difference between GON funding and the Bank’s support at the level of the SRN Bridge Program’s implementation.

29. Program exclusions: The SRN Bridge Program will exclude bridges that, in the opinion of the Bank, are likely to have significant adverse impacts that are sensitive, diverse, or unprecedented on the environment and/or affected people; or involve procurement of: (i) works, estimated to cost $50 million equivalent or more per contract; (ii) goods, estimated to cost $30 million equivalent or more per contract; (iii) non-consulting services, estimated to cost $20 million equivalent or more per contract; and (iv) consultants’ services, estimated to cost $15 million equivalent or more per contract. The current estimate suggests that a total of approximately 24 (out of 760 potential Program interventions) existing or planned bridges will be excluded under the SRN Bridge Program. This is just over 3% of the total interventions planned under the SRN Bridge Program. Most bridges in Nepal’s environmentally sensitive areas are lower priority or are likely to be financed by other sources and their exclusion will not undermine the integrity of the Program. Table 1: SRN Bridge Program Financing Amount Item % of Total (US$ m) Estimated Program Expenditures SRN bridge maintenance 58.5 40% SRN bridge construction 81.7 55% SRN bridge feasibility, design and quality management 7.4 5% (minimum) TOTAL estimated expenditures 147.6 100%

Program Funding Sources IDA (via DOR budget lines) 60.0 41% GON (via DOR budget lines) 87.6 59% TOTAL sources 147.6 100% 30. Beneficiaries: The main beneficiaries from the SRN Bridge Program will be road users who will benefit from year-round access on structurally safe bridges to social and economic facilities and services. Given the network wide nature of the Program, the beneficiaries will include all road users in the country including transport operators (both freight and passenger) and the women, children, poor and physically- challenged persons that use their services. The new bridge construction in the remote areas of the country will benefit an estimated 3 million people, either directly or indirectly. Evidence suggests that improved physical access to health facilities and educational institutions will particularly benefit women, especially during the rainy seasons. Investment in the Program will generate approximately 12 million person-days of employment including long term maintenance work. Women are expected to get a fair share of these opportunities. A separate impact evaluation study, planned under the Program, will estimate the actual benefits to various social and gender groups.

B. Program Development Objectives

31. The Department of Roads has a Bridge Policy and Strategy (2004) which sets out the overall vision for the bridge program in Nepal. In that document the program objective, which will be used as the Program Development Objective (PDO) for this operation, is stated as follows: to provide safe, reliable and cost effective bridges on Nepal’s Strategic Roads Network. C. Program Key Results and Disbursement Linked Indicators

32. The emphasis in the SRN Bridge Program objective is to provide safe, reliable and cost effective bridges. In the Bridge Policy and Strategy (2004), safety refers to design that adequately addresses standard loading requirements and user safety; reliability refers to uninterrupted access through adequate

7 maintenance and emergency measures; and cost effectiveness refers to the use of sound bridge management and commercial practice within the sector. Achievement of these objectives will be measured through the following PDO indicators: PDO Indicator 1: Improved condition of bridges on SRN; PDO Indicator 2: Increased share of bridges on SRN meeting minimum loading requirements; and PDO Indicator 3: Strengthened performance management in the bridge sector 33. Disbursements under the SRN Bridge Program will be triggered by the achievement of specific results contributing to the PDO indicators called disbursement-linked indicators (DLIs). The disbursement-linked Indicators are designed to be simple and to address the primary objective of this engagement: moving from the current ad hoc approach to planning and prioritization to one which is driven by technical, economic and strategic priorities. The Disbursement-linked Indicators are heavily weighted toward maintenance activities, with DLI-1 on major maintenance activities and DLI-2 on minor maintenance activities accounting for 55 percent of the credit amount. The DLI-3, which relates to new construction or upgrading activities (where the priority will be on the backlog of unfinished bridges), accounts for 30 percent of funds allocated. This reflects the importance of extending year-round access on the SRN as a second priority to consolidating the condition of existing bridge assets. These three disbursement-linked indicators will support the achievement of PDO Indicators 1 and 2 and disburse against physical targets being met in terms of the cumulative meters of completed bridges for maintenance and new construction works. However, to reflect the importance of the recently developed Bridge Management System in improving the management of the sector, completed bridges will only contribute towards one of the DLI targets if they are included in a list prioritized by the Bridge Management System, budgeted for in the budget cycle and included in the annual procurement plan. 34. Three disbursement-linked indicators relate to the achievement of PDO Indicator 3 on strengthening overall performance management in the sector. DLI-4 is also a PDO level indicator. It relates to the timely implementation of contracts. DLI-4 is a proxy for cost-effectiveness because timely implementation can only take place with improved planning and implementation based on reliable data from the Bridge Management System combined with improvements in procurement and contract management. While DLI-5 relates to the continued updating and operationalization of the Bridge Management System, DLI-6 relates to the improved management of complaints as they relate to improved transparency and social accountability. These elements have a combined weight of 15 percent. 35. The first three disbursement-linked indicators (1,2 and 3) are output indicators from the SRN Bridge Program and considered as the highest-level indicators that can be accurately measured given the basic M&E systems that are currently in place. The other three (4,5, and 6) are process-level indicators that set out a number of actions designed to ensure that the outputs are delivered in a way that is cost effective, transparent and to the highest quality. Table 2 summarizes the disbursement-linked indicators. The Results Framework Matrix for the SRN Bridge Program is provided in Annex 2 and Annex 3 provides the details of the disbursement-linked indicators and their verification protocols.

Table 2: Disbursement Linked Indicators Total disburse- Percent Period 1 Period 2 Period 3 Period 4 Period 5 ment of total amount loan ( US$ m) DLIs related to the achievement of PDO Indicator 1&2 DLI-1: Completion of 425 2,575 6,225 11,025 17,125 30 50% major maintenance of bridges on SRN (cumulative meters) DLI-2: Completion of 700 1,400 2,100 2,800 3,500 3 5% minor maintenance of bridges on SRN (cumulative meters) DLI-3: New bridges 1,700 2,800 3,800 5,100 6,000 18 30% built or improved on SRN (cumulative meters) DLIs related to PDO Indicator 3 DLI-4: Strengthened 20 25 30 40 50 3 5% performance management in bridge sector (percent works complete on schedule) DLI-5: Improved BMS fully BMS fully Condition Condition Condition 3 5% Bridge Asset operational operational survey survey survey Management in 15 in all 30 undertaken undertaken undertaken divisional/ divisional/ on at least on at least on at least regional regional 20% of SRN 40%of SRN 60% of offices offices SRN DLI-6: Increased Grievance Report Report Report Report 3 5% effectiveness of the redressal disclosed disclosed disclosed disclosed institutions responsible mechanism detailing detailing detailing detailing for bridge sector implemented status of status of status of status of management in DOR and complaints complaints complaints complaints report and actions and actions and actions and disclosed on fraud and on fraud and on fraud actions on detailing corruption corruption and fraud and status of and those and those corruption corruption complaints related to related to and those and those and actions social and social and related to related to on fraud and environment environment social and social and corruption al issues al issues environmen environme and those tal issues ntal issues related to social and environment al issues Total amount disbursed 8.8 9.2 11.5 14.7 15.8 60 100% (US$ million)†

†Figures for disbursements in periods 1 through 5 are indicative only.

III. PROGRAM IMPLEMENTATION

36. This section discusses the institutional and implementation arrangements; results monitoring and evaluation; and disbursement arrangements, including disbursement-linked indicators and verification protocols for implementing the SRN Bridge Program. A. Institutional and Implementation Arrangements

37. Kathmandu-Based “Bridge Project” of the Department of Roads will lead the SRN Bridge Program’s implementation. Four other entities within the Department of Roads will have major roles in assisting the Bridge Project. Table 3 summarizes the roles of different entities. Table 3: Internal DOR Entities and SRN Bridge Program Roles DOR Entity SRN Bridge Program Roles . Coordinating all activities under the SRN Bridge Program . Providing technical advice and design vetting for regional directorates and divisional offices implementing SRN bridge investments . Implementing technically complex SRN bridge investments The Bridge Project . Overall stewardship of Bridge Management System and providing inputs (Lead entity for Program into the Annual Road Maintenance Plan delivery) . Design, planning, monitoring, and maintaining budgetary control for all SRN Bridge Program investments . Undertaking quality monitoring and evaluation . All coordination activities with the Bank . Regional directorates: contract monitoring of Program investments 5 regional directorate offices and . Divisional offices: procurement and contract management within their 25 divisional offices financial limits and technical capacity Financial Administration Section . Financial control and reporting Geo-Environment and Social . Social and environmental assessment and impact management Unit (GESU) . Integrating SRN Bridge Program’s maintenance planning within DOR’s Maintenance Branch ARMP. The basis for this planning will be outputs from the Bridge Management System. 38. There are eight other Government institutions that have noteworthy roles relating to different aspects of the SRN Bridge Program. They are: (i) Ministry of Physical Planning, Works and Transport Management (MoPPWTM); (ii) Ministry of Finance (MoF); (iii) Office of the Auditor General (OAG); (iv) Public Procurement Monitoring Office (PPMO); (v) Financial Comptroller General Office (FCGO); (vi) National Vigilance Centre (NVC); (vii) Commission for Investigation of Abuse of Authority (CIAA); and (viii) National Planning Commission (NPC). The National Planning Commission will play a particularly critical role in supporting DLI verification through an engagement with independent consultants. Table 4 below summarizes the roles and responsibilities for each of these institutions. Table 4: Other GON Institutions and SRN Bridge Program Roles SRN Bridge Program Roles Entity Line item budgeting and funding . MoF – overall ministerial budget allocations allocations . MoPPWTM – departmental and SRN Bridge Program budgeting Procurement oversight and complaints . PPMO resolution mechanisms Oversight of financial control and internal . FCGO audit . NVC (SRN Bridge Program specific integrated technical audit) Governance and anti-corruption . CIAA (ex-post investigation and prosecution, as part of the overall country system)

SRN Bridge Program Roles Entity Compliance and Performance Auditing (for . OAG MoPPWTM, DOR ) . NPC (DLI verification with support from independent technical National planning and DLI verification consultants) 39. While the institutional framework is in place to implement the SRN Bridge Program and manage it at all levels of government, the various assessments (technical, integrated fiduciary and social and environment) have highlighted capacity constraints and the need for long term capacity building. To support the various institutions outlined here, consultancy services procured under the on-going RSDP project will support long term capacity building for the Bridge Project (lead entity for the Program delivery) regional directorates and divisional offices, and the various institutions responsible for audits and oversight of the SRN Bridge Program. The capacity building program will support all the major business processes related to the functioning of the SRN Bridge Program. This will include fiduciary, social and environment, planning, implementation, monitoring and managing maintenance/new construction activities. These services (hereafter referred to as the Capacity Building Consultants) will be structured to give particular weight to activities that support in meeting the DLIs and the various elements of the Action Plan (see Annex 4). A full description of the services to be provided by the Capacity Building Consultants is included in Annex 9. B. Results Monitoring and Evaluation

40. The Bridge Management System will be the primary basis for monitoring results under the SRN Bridge Program. The Bridge Management System, in conjunction with appropriate Geographic Information Systems (GIS) software and spatial data, will have the ability to provide data on: (i) physical bridge characteristics and recent works (e.g. location, or meters constructed/maintained); (ii) network information (e.g. potential detour time if a bridge is out of service); and (iii) ‘soft’ variables such as the population served by a bridge. In order to control the quality of BMS data, Department of Roads is developing a hierarchy of checks and approvals that aligns with the SRN Bridge Program’s implementation structure. Box 1 provides details on the use of Bridge Management System in monitoring and improving the governance within the SRN Bridge Program. 41. Department of Roads is also in the process of implementing a new web-based Financial Management System and a Contract Management System with support from Road Sector Development Project. These RSDP-supported systems will provide progress reports every three months detailing financial and physical progress at the individual contract level. During the initial stages of developing these systems, Department of Roads will provide paper-based reports on the status of program implementation and results achievement. The World Bank will support an impact evaluation study for the SRN Bridge Program under a separate technical assistance operation. This study will look at the impacts of new SRN bridge construction. Specific areas for consideration will include an assessment of travel time savings for various road users and the broader socio-economic impacts of new SRN bridges. Annex 10 provides an initial detailed concept of the impact study.

C. Disbursement Arrangements, Disbursement-linked Indicators, and Verification Protocols

42. The Disbursement Linked Indicators for the SRN Bridge Program are provided in Annex 3 along with the disbursement amounts for each of the indicators and the protocols for their verification. The SRN Bridge Program is planned over a five year period with disbursements up to a maximum of US$60 million over this period. The first three indicators (DLI-1, DLI-2, and DLI-3) are fully scalable meaning they could be adjusted to reflect the performance of the SRN Bridge Program. The DLI targets are specified as the cumulative number of meters completed for either the maintenance or new construction activities. A bridge will only count toward the target when it has been completed. Partial completion of a bridge will not count toward the target. The values over the period of the Program also take into consideration a gradual improvement in implementation momentum in certain parts of the Program. Where targets are not met in any particular year, the related disbursements are rolled over into the next year. If the Program consistently out-performs the targets, the credit can be fully disbursed before the formal end of the operation. 43. The remaining disbursement-linked indicators are process DLIs. Two of which, DLI-4 on contract implementation and DLI-5 on BMS updating, are partially scalable. DLI-6 on the grievance redressal mechanism (GRM) is an “all-or-nothing” target, which is considered both essential and achievable. 44. The Bridge Management System will be the basis for providing the data needed for verifying most of the Program results. The results from the Bridge Management System will be validated through a verification process undertaken by National Planning Commission. The results will also be uploaded on the DOR website. This will provide an opportunity for the general public to lodge any complaints linked to the improvement and maintenance of bridges. It is proposed that the verification process for the disbursement-linked indicators will take place in the period between June and August. Such timing will help in making disbursements by end-September, which is the start of the construction season. Given the existing program of bridges under construction and maintenance and need for these to be provided financing in a timely manner, an advance of up to US$15 million (or 25 percent of Bank financing) would be made when the operation becomes effective. Similar advances will also be made at the beginning of each financial year on a rolling basis provided funds are recovered through meeting subsequent disbursement-linked indicators. At the end of each period a re-conciliation will be made based on the achievement of the disbursement-linked indicators in the preceding period and forecast expenditures for the next. These arrangements will ensure the Program does not suffer from implementation delays because of a shortage of funds which is the common problem in the current program.

Box 1: Bridge Management System – A Governance Tool Bridge Management System is a critical part of improving governance under the SRN Bridge Program. As of May 2012, BMS is functional and contains updated condition data from DOR’s 2012 SRN bridge asset survey. Throughout the next one or two years DOR will be operationalizing BMS in its headquarters and field offices. Bridge Management System is a web-based tool that contains a detailed inventory and condition assessment for each SRN bridge. It also contains information on gaps in the SRN and details of bridges under construction. All BMS entries are geo-referenced and include available histories of work previously undertaken on each bridge, any design documentation, and photographs. Bridge Management System is web-based. Therefore, each of DOR’s 25 divisional offices will be able to access and update data for bridges within their respective jurisdictions. The SRN Bridge Program will use BMS data to develop priority investment plans, which will be available on DOR’s external website. The map at the end of this PAD shows SRN bridge locations along with the interventions recommended by Bridge Management System data. DOR has plans to develop an interface between BMS, the Contract Management System and the Financial Management System. This will help in the reconciliation of technical, contract and financial information. Combined BMS and CMS outputs will facilitate the assessment of disbursement-linked indicators.

IV. ASSESSMENT SUMMARY

A. Technical

45. The SRN Bridge Program is strategically relevant to Nepal’s development. SRN roads comprise Nepal’s primary corridors for trade and economic activity. They also provide socially important connectivity between Nepal’s development regions. The current and planned Strategic Road Network is essential for ensuring the sustainability of hard-won peace and stability by providing connectivity to post- conflict areas in line with the Government’s strategy of post-conflict integration. 46. The SRN Bridge Program has the necessary technical and institutional framework to support the World Bank’s proposed operation. However, there is considerable room for improving the Program’s processes that deliver results. Specific areas for improvement include: (i) planning and budgeting; (ii) quality management; (iii) procurement and contract management; and (iv) monitoring and evaluation. These are fundamentally important for planning and implementing capital investment effectively which is the primary determinant of the Program’s intended outcomes. 47. Addressing SRN bridges through a dedicated national program apart from Nepal’s other road and bridge infrastructure is technically sound for several reasons: First, the Strategic Road Network SRN is a nationally significant network of infrastructure assets that cannot function without bridges to connect different linkages. Second, bridge structures are fundamentally different from roads and involve unique technical considerations. Third, the political economy associated with SRN bridges is very different from other LRN and urban bridge assets. And finally, many critical linkages of the SRN require a high density of bridges to provide year-round access. 48. The general structure for managing the SRN Bridge Program is sound. Department of Roads relies heavily on its 25 divisional offices to implement investments under the technical oversight of a specialized Kathmandu-based unit. This is appropriate given the challenges of travel throughout Nepal, the need for close supervision of civil works, and the nature of SRN bridge assets concerned. Most SRN bridges are short in span and relatively simple structures. However, they require specialized expertise. In contrast, the Program's budget framework requires immediate attention to support desired program results. Most notably, the Program needs independent capital expenditure budgets that prevent diversion for other purposes. The current budgeting system does not allow the SRN bridge program to credibly plan and execute multi-year contracts effectively. Changing the current budget framework is essential to improving the Program’s effectiveness. 49. Department of Roads Bridge Policy and Strategy (2004) sets out the overall vision for the SRN Bridge Program along with its intended outcomes. This, together with the Public Works Directives manual, the Guidelines for Inspection and Maintenance of Bridges (2007), and DOR environmental and social guidelines provides a sound basis for the SRN Bridge Program. Department of Roads is one of the Government’s strongest implementing agencies and has benefited from a long history of interaction with the World Bank and other development partners. This experience has helped the Department of Roads to develop implementation frameworks that are in line with best practice. Applying these frameworks consistently, monitoring results, and subsequently revising key processes to improve effectiveness is now the next stage in DOR’s development and a key opportunity for the PforR approach to add value. 50. Department of Roads designs bridges to Indian Roads Congress standards. These standards are fit for the purpose. Department of Roads may also look at alternatives to bridges (e.g. vented causeways for low-volume networks where short periods of seasonal inaccessibility could be tolerated). A greater issue relates to quality management both during the design and supervision phase of implementation. Part of this problem relates to budgeting as only one percent of investment costs go towards these activities. There are also capacity issues both in the local consulting industry and within Department of Roads, a lack of facilities to adequately test materials, and limited equipment to inspect bridges.

51. The capacity of Nepal’s contracting industry has significantly improved over recent years and national contractors now carry out the majority of contracts. A recent Bank-supported assessment, has identified that approximately 30 firms are active in the local bridge sector. Roughly 20 of these firms act as lead partners with the remaining 10 serving exclusively as sub-contractors. SRN bridges are relatively small and inexpensive, which limits interest from international contractors. Bridge maintenance is an evolving segment of the local market on account of limited experience. Department of Roads perceives a need to improve its maintenance contracting approach in order to attract greater market interest. The Bank-supported study has recommended increasing the size of the packages by bundling a number of contracts together in order to achieve economies of scale and to attract more competent contractors. Department of Roads plans to follow a bundling strategy when implementing maintenance contracts for the SRN Bridge Program. 52. However, Nepalese contractors are still reliant on materials and equipment from India, which can cause delays in contract implementation. Where more complicated designs are required, international consultants/contractors are used. Capacity building is still required for the national industry particularly as the size of the sector will be increasing significantly. In terms of monitoring the Program results, DOR systems for M&E to date have been weak, with very poor recording of work underway and the status of individual contracts. 53. The economic analysis of the SRN Bridge Program was conducted based on a sample of bridges requiring urgent major maintenance, new construction and capacity expansion (see Annex 5 for details). Benefits considered in the economic analysis included vehicle operating costs and time cost savings. The analysis showed very high rates of return particularly for major maintenance activities and capacity enhancements but lower returns for new construction. Many new SRN bridges will address gaps on the existing SRN where traffic volumes are relatively low. In some cases the rates of return for this new construction did not meet a hurdle rate of 12 percent. However, if investments are grouped, overall measures are very attractive. Taking the nine bridges as part of the analysis package, an investment of US$8.7 million will offer a return of 64 percent with a ratio of net present value to capital of five (see Table 5). Sensitivity analysis using the "switching values" shows that the rate of return on investment is robust. This means that the economic case underpinning the SRN Bridge Program could withstand considerable uncertainties in appraisal assumptions. Table 5: Summary Economic Evaluation Indicators

Economic Internal Rate of Return (EIRR) 64 percent Net Present Value (NPV) US$43.1 million Financial Capital Cost (CAP) US$’000 US$8.7 million NPV/CAP 5.0 54. The analysis did not attempt to calculate the broader social and political benefits associated with improved access in remote areas of Nepal. However, access to these facilities and services is important for reducing poverty and to achieving Millennium Development Goals. According to a 2009 study, the intensity of conflict in Nepal between 1996 and 2006 showed an inverse correlation with the availability of road transport infrastructure. The causality of this relationship is uncertain, but may result from road infrastructure’s role in: (i) providing access to economic opportunity; and/or (ii) facilitating Government’s efforts to counter insurgency once it has started (Do & Iyer 2009).3

3 Do, Quy-Toan (World Bank DECPI); Iyer, Lakshmi; “Geography, Poverty and Conflict in Nepal” Harvard Business School, 2009. In this study, both poverty and road density (km of road per km2) show negative relationship with areas prone to conflict during the 1996-2006 “People’s War” in Nepal. 14

B. Fiduciary

55. An integrated fiduciary assessment has been carried out that assessed the fiduciary arrangements relevant to the SRN Bridge Program to determine whether they provide reasonable assurance that the Program funds will be used for their intended purpose. Based on the assessment carried out, it is concluded that the overall fiduciary framework for the SRN Bridge Program is adequate to support the Program implementation and to achieve the desired results. 56. The government of Nepal has a well-developed budget process along with a Medium Term Expenditure Framework (MTEF) and sectoral business plans. However, there are weaknesses in their implementation. To address the fiduciary risks arising out of these weaknesses, the Ministry of Finance will provide an indicative resource envelope for three years at a time for the SRN Bridge Program against which annual plans would be prepared. The Ministry will also inform Department of Roads of the annual allocations of budgetary resources well in advance at the start of the fiscal year so that the divisional offices can prepare the annual operating plans based on a firm assurance of resource availability. The proposed SRN Bridge Program is classified as a priority (“P1”) program, which gives it first claim to Government resources. Therefore, the risk linked to the availability of financial resources to meet the program’s operational requirements is low. 57. The SRN Bridge Program will rely on DOR’s institutional systems and processes for procurement and financial management. The Public Procurement Act (2007) and the Public Procurement Regulations (2007) are adequate and provide the necessary legal and regulatory framework and procedural guidance for public procurement. However, there are scopes for improving procurement and operating practices at the divisional level to enhance procurement performance. These include inaccurate cost estimates, inadequate quality assurance, poor record keeping and weak procurement skills among staff. 58. The Financial Procedure Act and Regulations provide the necessary framework for expenditure accounting and financial reporting at the divisional office level. Necessary actions have been agreed to mitigate risks associated with financial management systems. 59. To improve the operating framework of the SRN Bridge Program, Department of Roads will initiate the preparation of comprehensive capital investment plans for each contract at the divisional office level that would include technical, procurement, financial and implementation plans. To strengthen the accountability for project implementation, Department of Roads will constitute adequately staffed and trained project teams for the needs of individual bridge investments. A suitably qualified staff in each procuring entity will be designated as a procurement unit chief to ensure that program activities are implemented in accordance with the Government’s procurement procedures and policies as well as to provide procurement guidance to project teams. Department of Roads will also develop a Bridge Operations Toolkit, which will bring together operating rules and procedures to aide divisional offices and regional directorates with implementing control procedures for the SRN Bridge Program. 60. The SRN Bridge Program has a significant, but manageable, exposure to potential fraud and corruption (F&C) on account of weaknesses in the following areas: (i) implementation of procurement and contract administration procedures; (ii) internal control systems and processes; (iii) monitoring and oversight of project preparation and implementation; and (iv) the transparency and accountability regime. As part of improving the transparency of the Program, Department of Roads will publish and share all relevant information (e.g. annual investment plans, audit reports, procurement plans) with the public using feasible media outlets (e.g. DOR website). A key element of the anti-corruption strategy for the SRN Bridge Program, as encapsulated in DLI-6, is the development of a grievance redressal mechanism. 61. The National Vigilance Centre will carry out an integrated technical audit that will examine the adherence of the SRN Bridge Program to the technical, procurement, and social and environmental standards and guidelines. Department of Roads will refer all credible allegations/complaints regarding corrupt practices to the Ministry of Physical Planning, Works and Transport Management. If specific 15 instances of fraud and corruption are identified, investigations will be conducted through CIAA in accordance with Nepal’s laws and regulations. 62. The Government of Nepal (GON) has agreed to implement the Program in accordance with the Anti-Corruption Guidelines applicable to PforR operations (ACG) and will provide the Bank with reports detailing the status of complaints/ actions taken on fraud and corruption (F&C); not use contractors and consultants debarred by the Bank; and extend the right for the Bank to investigate F & C complaints within the Government's laws and regulations. However, since the Bank will not have direct access to third parties’ (contractors and consultants) books and accounts, nor the right to audit such documents under the Program, alternative arrangements have been made in lieu of the Bank’s direct access to such documents and audit right as required by ACG. For F&C cases, the Bank can request an investigation by GON and GON will refer such cases to CIAA. The Bank and GON/CIAA will agree on the investigation methodology but the investigation will be undertaken by CIAA with the findings shared with the Bank in accordance with Nepal’s existing laws and regulations. The CIAA acts on all complaints received. CIAA has indicated its support for any technical assistance by the Bank to strengthen their investigative capabilities. 63. Also, as part of the implementation of United Nations Convention Against Corruption (UNCAC), which was ratified by the Government, draft legislation to allow joint investigations with external agencies is pending parliamentary approval. The ability to carry-out joint investigations will allow Bank access to third party information. 64. To improve SRN Bridge Program governance a third-party monitoring mechanism, mutually agreed with the Government of Nepal, will be employed learning from the experience of World Bank financed projects and other experiences from Nepal. Resources from Trust Funds (e.g. Global Partnership for Social Accountability or GPSA) will be used to implement this mechanism. As also agreed with the Government, the selected third-party will be made familiar with the publically disclosed information on the SRN Bridge Program, the mechanisms for complaints handling and provided with the necessary tools and skills to monitor SRN Bridge Program outputs. 65. Section IB of this document described the initiatives that are currently underway to reform Nepal’s PFM framework. These reforms will reduce fiduciary risks linked to the SRN Bridge Program over the medium term. In addition, the Program will also include program-level audits and reviews as an interim measure to mitigate fiduciary risks. These will specifically include: (i) compliance (financial) audits; (i) performance audits; (ii) integrated technical audits; and (iii) internal reviews. Table 6 summarizes specific review that will apply to the Program over the life of the Bank’s operation.

Table 6: Program Audit/Review Arrangements

Scope of Audit Responsible agency Mode of execution Compliance (Financial) Independent audit by the OAG • Financial statement of the Program Supreme Audit Institution Performance audit • Program performance in terms of achievement Independent audit by the OAG of results against targets Supreme Audit Institution • Value-for-money Integrated technical audit • Technical (design, quality etc.) Through externally hired NVC • Procurement performance consultants • Social and environmental performance Internal audit FCGO / District Treasury • Transactions and expenditures under the Comptroller Office Internal audit by DTCO Program against budgets and financial rules. (DTCO) External firms will be Internal Review External consultants hired by hired by Department of • Transactions and expenditures under the DOR to report the findings to Roads for internal reviews Program against budgets and financial rules. the DOR management of the transactions. C. Environmental and Social Effects

66. An Environment and Social Systems Assessment (ESSA) was carried out during preparation. The draft findings and recommendations of the ESSA were discussed in two consultation meetings, and disclosed locally through the InfoShop. From a regulatory, legal and operational perspective, the environmental and social management system for the SRN Bridge Program is considered to be consistent with the core principles and elements of OP/BP 9.00. However, it is recognized that field implementation by the Department of Roads is not always consistent or optimal. Environmental Benefits and Risks 67. Given the SRN Bridge Program scope, coverage and size of the bridges, the anticipated adverse environmental issues and impacts related to program implementation are expected to be limited in nature and also limited in their geographic extent. While the Program is expected to be national in scope, it excludes some investments that may affect environmentally sensitive areas such as Government-listed national parks and conservation areas. At the same time, the Program is expected to deliver a number of environmental benefits. The rehabilitation and maintenance of bridges will ensure that the risks of bridge failure are reduced and that erosion and sedimentation are minimized through repair of failing foundations and river training or abutment works. Improved performance of the Department of Roads with respect to environmental planning and management will help to ensure that issues are identified earlier and more consistently and that contractors will be supervised more regularly with respect to environmental provisions of contracts enforced more consistently. 68. Key environmental issues of concern include: (i) construction impacts associated with dredging, foundation works, or river bank reinforcements which may affect aquatic biodiversity; (ii) occupational health and safety of the construction workforce during construction phase; (iii) community health and safety related to traffic accidents during the operation phase; (iv) waste management, from the construction activities as well as from the labor-camps; and (v) pressures on the surrounding environment (extraction of sand and gravel, pressures on local forests) in some of the bridge locations.

Social Benefits and Risks 69. Limited adverse impacts from land acquisition and resettlement are anticipated from the SRN Bridge Program, and past experience shows the adverse social impacts are likely to be temporary. This is because the area of impact will be confined, mostly, within bridge worksites. Similar to environmental benefits, the SRN Bridge Program is expected to benefit many isolated communities due to improved physical access. The Program will also benefit indigenous communities that make up a third of the population in Nepal. Furthermore, past experience shows that indigenous communities demand and support such programs to improve physical access that is vital to public services and economic development. 70. The key issue of concern in the management of social impacts, which will be relevant to the SRN Bridge Program, are (i) National programs’ lack focus on vulnerable communities (e.g. limited application of vulnerable community development plans); (ii) Nepalese laws do not allow assistance to squatters and compensation payments for the restoration of livelihoods and replacement costs of the properties, although in many cases such assistances/compensations are provided informally; (iii) Nepal practices the notion of land donations, especially in projects in rural areas, but such practices are hardly regulated and formalized, apart from internationally financed projects; (iv) The treatment of social issues are non-exclusive. For example, social issues are subsumed under the environmental screening, assessment and documentation process; (v) Grievance redressal mechanism are non-existent at the operational level, leaving the formal legal system as the only avenue available to any aggrieved persons. Environmental and Social Management 71. The DOR’s Environment and Social Management Framework (ESMF) encompasses environmental and social procedures, practices, mitigation measures and analytical approaches applicable to road projects, and covers the national legislative framework; potential environmental and social impacts of road projects; consultation requirement; standards for land acquisition, compensation, and assistance; standard impact mitigation measures; and treatment of vulnerable communities, including indigenous peoples. The ESMF is comprehensive in scope with respect to road sector issues and its procedures and requirements are consistent with the principles and attributes of OP/BP 9.00. However, the ESMF was not designed to take into account bridge-specific risks and will require minor revisions to ensure that unique environmental and social aspects of bridge maintenance and construction are fully incorporated. The ESSA makes specific recommendations on the nature and scope of the necessary revisions to the ESMF as well as measures to address operational performance issues raised above. Annex 7 gives details of the ESSA report. 72. The ESSA recommends proceeding with the PforR operation, but makes important recommendations for actions to address institutional capacity constraints and fill important operational gaps. The following actions are proposed: (i) Updating the DOR ESMF to include DOR Bridge Program (ii) Strengthen environmental and social management within DOR; and (iii) Strengthen the Geo- Environmental and Social Unit in terms of manpower and financial resources.

D. Integrated Risk Assessment Summary

73. Table 7 shows the summary risk ratings. The overall risk rating of the SRN Bridge Program is “substantial”. The detailed risk assessment is provided in Annex 8. This primarily reflects substantial country and fiduciary risks. Risk ratings in several key areas of the Program are “moderate” (i.e. technical, DLIs, social and environmental risks). At the country level the risks are associated with the ongoing political instability and frequent change of government as the country tries to agree on a new Constitution. Fiduciary risks are associated with the overall performance of Nepal’s PFM system relating to budgeting and fund release and the overall governance environment.

Table 7: Risk Rating Summary Risk Rating Technical Moderate Fiduciary Substantial Environmental and Social Moderate Disbursement Linked Indicator Moderate Other risk Moderate Overall Risk Substantial

E. Program Action Plan 74. A number of assessments (technical, integrated fiduciary, environmental and social) have been undertaken to assess the capacity of the Program’s implementation agencies and to identify any gaps that may require action. The actions have been grouped under four headings: technical, fiduciary, environmental and social, and cross-cutting with the full list included in Annex 4. 75. The most critical actions have also been combined with the disbursement-linked indicators, in particular actions related to a functioning Bridge Management System. Its use for the planning, budgeting and prioritization of bridge works is seen as critical for the effective management of all other aspects of the Program and is built into the disbursement-linked indicators. The development of an effective grievance redressal mechanism is another action backed by a disbursement-linked indicator, which is seen as critical to the overall governance of the Program. Other actions seen as critical to the functioning and definition of the Program include the creation of relevant budget heads for the Program, provision of sufficient budget for design and supervision activities, a review and the revision of the environmental and social management rules and procedures to incorporate bridge specific mitigation measures, and formalization of GESU roles to strengthen environmental and social management. Finally, there are a number of actions that will support the on-going implementation of the Program. These include the implementation of annual training plans, implementation of quality assurance plans, adequate staffing levels and improved SRN Bridge Program guidelines.

Annex 1: DETAILED PROGRAM DESCRIPTION

SRN Bridge Program’s Scope The SRN Bridge Program under the Department of Roads is a subset of the overall program of investment in Nepal’s road and bridge infrastructure. The scope of the Program under DOR encompasses three primary activities: (i) planning, technical design and quality management of bridges; (ii) major and minor maintenance of existing bridge assets; and (iii) investments in new bridge construction. Effectively planning and implementing capital investment is the most critical part of achieving the SRN Bridge Program’s intended outcomes. Table 1. 1 provides a summary of the Program’s scope. Table 1. 1: Description of SRN Bridge Program Components

Element of scope Description and explanation

#1 Planning technical design and . Engineering design, construction supervision, surveys, and quality quality management of bridges management

. Major maintenance activities require engineering inputs and involve significant civil works such as resurfacing or structural repairs #2A Major bridge maintenance . In practice DOR differentiates between major and minor maintenance by whether an activity requires engineering inputs . Does not involve engineering design input #2B Minor bridge maintenance . For example, minor railing repair, drainage improvement, minor expansion joint repair, etc. . Involves new structures along existing alignments #3 New bridge construction . Many existing SRN roads lack bridge structures and vehicles must ford crossings when seasonal conditions allow. New bridges can allow for year- round access on such roads. Program Activities and Outputs Over 5-Year Period Table 1.2 summarizes the SRN Bridge Program’s forecasted activities and outputs over the next five years. During this period, the Program will concern works on approximately 594 existing bridges, and 166 new bridges with works reaching full completion on approximately 426 existing bridges and 121 bridges under construction. These quantities do not constitute the entire stock of SRN bridges. Some SRN bridges will not require investment from the Program over the next five years. Others have relatively low priority investment needs that are beyond the reach of estimated funding resources. Stand alone integrated road projects (e.g. with JICA, ADB, and Government of India support) will also develop many of the new crossings needed on SRN roads over the next five years. Beyond these natural boundaries, restrictions on the PforR instrument will exclude approximately 24 bridges from the Program as discussed in detail below.

Table 1.2: Summary of Program Activities and Outputs Program Activity Unit Yr. 0† Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr. 5 TOTAL

URGENT major maintenance backlog Program Spend [US$ m] 6.5 13.3 6.3 0.0 0.0 26.1 100% of need met over 5 years # bridges taken up 9 33 56 0 0 0 98 # bridges completed 8 1 33 56 0 0 98

# meters completed 325 100 2,150 3,650 0 0 6,225 Non urgent major maintenance backlog Program Spend [US$ m] 0.0 0.0 5.0 11.5 14.8 31.3 52% of need met over 5 years # bridges taken up 0 0 102 131 168 401 # bridges completed 0 0 0 102 131 233

# meters completed 0 0 0 4,800 6,100 10,900

Minor maintenance Amount [US$ m] 0.2 0.2 0.2 0.2 0.2 1.1 98% of need met over 5 years # bridges taken up 19 19 19 19 19 95 # bridges completed 19 19 19 19 19 95

# meters completed 700 700 700 700 700 3,500 New crossings Program Spend [US$ m] 1.8 3.6 5.5 7.2 9.2 27.3 17% of need met over 5 years # bridges taken up 13 13 13 12 20 71 # bridges completed 0 0 0 13 13 26

# meters completed 0 0 0 500 500 1,000 Completion of existing backlog Program Spend [US$ m] 18.6 10.9 10.9 9.4 4.5 54.4 96% of need met over 5 years # bridges completed 12 20 20 19 16 8 95 # meters completed 600 1,100 1,100 1,000 800 400 5,000 Design, feasibility & quality, management, training etc. Program Spend [US$ m] 2.4 1.5 1.5 1.2 0.9 7.4 EST. DOR SPEND / YEAR (US$ million) 29.5 29.5 29.5 29.5 29.5 147.6 Note: Year 0 outputs completed after July 15, 2011 will count toward year one DLIs

Summary of SRN Bridge Program Exclusions OP/BP 9.00 explicitly excludes activities that “(a) are judged to be likely to have a significant adverse impacts that are sensitive, diverse, or unprecedented on the environment and/or affected people; or (b) involve procurement of goods, works, and services under high-value contracts” from using the PforR instrument. Over the next five years, the SRN Bridge Program will not include any contracts in excess of US$50 million that would constitute “high value” contracts according to the Bank’s OPRC threshold. However, there are 49 existing SRN bridges, 5 SRN bridges under construction, and 21 planned new SRN crossings that fall within the boundaries of Nepal’s national parks. Since these areas are considered to be environmentally sensitive, the bridges within their boundaries will be excluded from the SRN Bridge Program. It is noteworthy that the majority of such SRN bridges and proposed new SRN crossings in national parks are low priority or already part of stand-alone projects outside the SRN Bridge Program. Regardless of the PforR instrument’s requirements, the Program would be unlikely to undertake works on them over the next five years based on envisaged resources available. Table 1. 3 summarizes the relatively few SRN bridges that are within national parks and would otherwise be relevant to the SRN Bridge Program within

21 the next 5 years based on their level of priority. Ministry of Finance will make budget provisions for Department of Roads to address these bridges outside of the Program. Outputs related to these bridges will not count towards Program disbursement-linked indicators. Table 1. 3: Summary of Relevant PforR Exclusions for 5 Year SRN Bridge Program

Item Nos. of bridges NPR '000 US$ mil equivalent

Major maintenance 6 58,734 0.73 Minor maintenance 6 2,135 0.03 Bridges under construction 5 228,600 2.83 New crossings 7 108,000 1.34 TOTAL relevant to5 year program 24 397,469 4.92 % of estimated 5 year SRN Bridge Program 3.3% Sizing up the SRN Bridge Program Figure 1.1 summarizes the distribution of span length for bridges that fall within the scope of the SRN Bridge Program. On average, most of the Program’s bridges are short in span and relatively simple structures. For example, 73 percent of bridges requiring urgent maintenance and 87 percent of bridges requiring major maintenance are less than 75 meters. Similarly, 84 percent of new crossings needed for the SRN are less than 75 meters.

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Major Maintenance Major maintenance Under maintenance Under construction New br. needed for All existing bridges needed (URGENT) needed (not urgent) existing alignment needing / under major maintenance more than 100 meters 50 meters to 100 meters 25 meters to 50 meters up to 25 meters

Figure 1.1: Distribution of Span Length by Bridge Status (SRN Bridge Program Only) Figure 1.2 summarizes the distribution of costs for major maintenance and new crossings by required (or currently ongoing) intervention per bridge. Figures for estimated future costs are based on the latest inventory data collected by DOR’s technical consultants as part project preparation activities. Estimated contract sizes for individual SRN Bridge Program investments are relatively small. For example, 83 percent of urgent major maintenance is expected to cost less than US$500,000 per bridge. Similarly, 92 percent of non-urgent major maintenance is expected to cost less than US$250,000 per bridge. Estimates suggest that 85 percent of new bridges that the Program may build are likely to cost less than US$1 million per bridge. The single most expensive bridge is estimated to cost about US$8 million. These figures are based on current exchange rates without accounting for potential cost inflation or currency fluctuations that may occur over the next 5 years.

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Major Maintenance Major maintenance Under maintenance Under construction New br. needed for All works on existing needed (URGENT) needed (not urgent) existing alignment bridges 1000k USD to 10m USD 500k USD to 1000k USD 200k USD to 500k USD 50k USD to 200k USD up to 50k USD

Figure 1.2: Actual & Estimated Cost Distribution of SRN Bridge Program Contracts Implementation Arrangements Section III of this Program Appraisal Document describes DOR’s approach to implementing the SRN Bridge Program. In addition, there are eight other Government institutions that have noteworthy/complementary roles in supporting the Program. Table 1.4 summarizes the roles and first- instance accountability arrangements for each of these institutions. The National Planning Commission will play a particularly critical role in supporting DLI verification. NPC’s mandate is particularly amenable to this role as it includes monitoring and evaluation of Government programs. National Planning Commission is planning to undertake DLI verification though an engagement of independent consultants. Table 1.4: Summary of Other Institutions Supporting the SRN Bridge Program

Accountability Position in Budget Institution Role (first instance) Framework

Institutions Directly Assisting Implementation Ministry of Physical Planning, Works and . Office of the Prime . Independent budget . Oversight of DOR Transport Minister (PM) headings Management Institutions Providing Complementary Inputs . Provide guidelines on policy targets National and priorities regarding formulation Development Council of budget for the coming fiscal year . Office of the PM / . Independent budget / National Planning to the Ministry of Finance Council of Ministers headings Commission . Highest GON policy-level body . Verification of DLIs . Budget allocations to MoPPWTM, . Office of the PM / . Treasury (source of Ministry of Finance RBN, DOR and others Council of Ministers GON funds) . Compliance audits (financial) . Performance audits – including Office of the Auditor . Independent budget achievement of results against . Parliament General headings targets and value-for-money

Financial Comptroller . Exercise of financial controls and . Independent budget . MoF General expenditure oversight for all GON headings

. Oversee application of Public Procurement Act, 2063 (B.S.) & Public Procurement Regulation, 2064 (B.S.) including procurement . Headings under PM Public Procurement complaint resolution . Office of the PM / Office / Council of Monitoring Office . Maintaining national ‘blacklist’ of Council of Ministers Ministers ineligible contract recipients . Provide standard bidding documents and manage e- procurement portal . Corruption prevention . Integrated technical audit including: . Headings under PM National Vigilance technical performance (design, . Office of the PM Office / Council of Centre quality etc.), procurement Ministers performance, social and environmental performance . Investigation and prosecution of . Independent budget CIAA . Parliament alleged corruption headings Figure 1. 3 summarizes the budget and accountability structure for institutions that are relevant to the SRN Bridge Program over the next 5 years.

LEGEND Funding & Budget World Office of the PM (incl. authorization to spend) Parliament Bank / Council of Ministers Accountability

ACRONYM EXPANDED CIAA NPC/NDC Commissions for Investigation of NVC CIAA Abuse of Authority MoF MoPPWTM DLI Disbursement Linked Indicator Capacity-Bld. DOR Department of Roads Consultants Financial Comptroller General FCGO Office DOR FCGO GESU Geo-Environment and Social Unit Reg. Direct. Admin/cont OAG Office of the Auditor General OAG GESU RSDP MoF Ministry of Finance Br. Project Div. Offices Ministry of Physical Planning, DLI Verification MoPPWTM Works and Transport Consultants Management

Impl. Support (contract and payment National Planning Commission / from NPC) Consultants NPC/NDC SRN Br. Program National Development Committee investments

er, smaller smaller er, NVC National Vigilance Centre investments investments investments PM Prime Minister Complex larger larger Complex Simpl RSDP Road Sector Dev. Project

Figure 1. 3: Broad Institutional Framework for the SRN Bridge Program Initial Program Lists for Highest Priority Works Envisaged of the SRN Bridge Program’s activities during the first two years of the Bank’s operation will include: (i) completing approximately 52 bridges within existing DOR construction backlog; (ii) taking up new construction on approximately 26 new crossings; and (iii) taking up approximately 98 bridges for

24 urgent maintenance. Any bridge completed since July 15, 2011 will qualify toward results linked to DLI- 1, DLI-2 and DLI-3, provided that they do not fall under a PforR exclusion category. During an initial period of integrating and refining Bridge Management System, Department of Roads may draw from manually generated priority lists4 in any order desired so as to accommodate rapid mobilization and initial output achievement. Any bridge which Department of Roads selects from these lists will be considered in accordance with BMS rankings for the purpose of DLI verification. When full operationalization of Bridge Management System is complete, Department of Roads will defer to the automated BMS rankings. The map at the end of this PAD shows the location of each SRN bridge along with the type of intervention required based on the data that are accessible through Bridge Management System. Throughout all program years, Department of Roads may deviate by 20 percent in any program year from the BMS rankings for maintenance and new construction. This deviation will provide some flexibility in contract packaging and to allow for unexpected or emergency situations.

4 Available on program files. 25

Table 1.5: List of SRN Roads Code Road Name Code Road Name Code Road Name SRN Highways SRN Feeder Roads (continued) SRN Feeder Roads (continued) H01 MRM (East West Highway) F056 Jhumka - Chatara - Barahachhetra F133 Maldhunga - Beni Dharan - Chatara - Gaighat-Katari-Sindhuli- H02 Tribhivan Rajpath F057 F134 Tamghas - Sandhikharka - Pyuthan Hetauda H03 Arniko Rajmarg F058 Bhedetar - Rajarani - Rabi - Ranke (MERM) F135 Ramapur (MRM) - Lumbini Shivgadhiya - Padariya (Lumbini- H04 Prithiwi Rajmarg F059 Birtamod - Sanischare - Budhabare F136 Circumambulatory) Bardanga - Urlabari (MRM) - Madhumalla - H05 Narayanghat Mugling Rajmarg F060 F137 Pipara (MRM) - Chakar Chauda Daregaunda Rangeli - Kanepokhari - Dandagaun - H06 Dhulikhel Sindhuli Bhittamod Rajmarg F061 F138 Lamahi (MRM) - Koilabas Budhabare H07 Mechi Rajmarg F062 Ghinaghat (MRM) - Biratchok F139 Holeri- Sworgadware - Jaluki (Bhingri) H08 Koshi Rajmarg F063 Inerwa (MRM) - Kaptanganj F140 Sitalpati (H11) - Salyan Phattepur - Kanchanpur - Rajbiraj - H09 Sagarmatha Rajmarg F064 F141 Tulasipur - Purandhara - Botechaur Govindapur H10 Siddhartha rajmarg F065 Kathauna (MRM) - Pato F142 Nepalganj - Baghauda H11 Rapti Rajmarg F066 Kalyanpur (MRM) - Subharpatti F143 Ranjha (H12) - Nepalganj Airport H12 Ratna Rajmarg F067 Dhangarhi (MRM) - Vidyanagar - Bariyarpatti F144 Tallo Dungeswor - Mathillo Dungeswor H13 Karnali Rajmarg F068 ICD (Pokhariya) - Jitpur F145 Hilsa - Simikot H14 Mahakali Rajmarg F069 Galchhi (PRM) - Debighat F146 Sanphebagar- Martadi - Kolti - Sukhadhik H15 Seti Rajmarg F070 Khurkot (DSRM) - Manthali F147 Sati (Khairipur) - Khakraula H16 Kathmandu Ringroad F071 Panchkhal (ARM) - Palanchok Bhagawati F148 Muda (MRM) - Bhajani - Lalbojhi H17 Hulaki Rajmarga (Postal Road) F072 Gwarko - Panauti - DSRM (H06) F149 Sahajpur- B.P. Nagar - Silgadhi (Dipayal) Mid-hill (Pushpa Lal) Highway Bakhundol (ARM) - Bogatigaun (Ktm H18 F073 F150 Kaluwapur (MRM) -Shreepur - Belauri (Chhyangtapu- MERM) University Road) H19 Shabha( MRM) - Bramhadev F074 Nuwakot Darbar Access Road F151 Daiji (MRM )- Jogbudha - Buddar (MKRM) H20 Kathmandu- Terai Fast Track (Express Way) F075 Kalimati - Sitapaila - Bhimdhunga - Dharke F152 Leguwaghat - Sabha Khola (Boharatar) Bastipur - Makri- Pashupatinagar (Hetauda H21 Kathmandu Outer Ringroad F076 Ringroad - Tinpipale - Okharpauwa - Kolpu F153 Bypass) SRN Feeder Roads F077 Budhanilkantha - Kakani - Kaulethana (F21) F154 Nagma-Gamgadhi Shobhabhagwati - Nishangaun - Halchok - F001 Birtamod Chandragadhi F078 F155 Brahmadev- Jogbuda Narayanthan F002 Damak Gauriganj F079 Thulo Bharyang (Ring Road) - Raniban Post F156 Phikkal ( MERM) - Sriantu - Baudhadham F003 Bharda Rajbiraj F080 Balaju - Nepaltar - Sangla Bazar F157 Ilam ( MERM) - Maipokhari - Sandakpur F004 Rupani Kunauli F081 Baniyatar - Lainchaur F158 Damak (MRM) - Chisapani Samakhusi - Tokhagaun-Dandagaun-Gurje- Khurkot - Ramechhap - Sanghutar - F005 Chaurahawa- Madar F082 F159 Tadi-Gangate Okhaldhunga F006 Nawalpur (M.R.M.) - Malangwa - Sonbarsa F083 Kapan - Mandikhatar - Handi Gaun (Bulbule) F160 Janakpur Circumambulatory Chandranigahapur (M.R.M.) - Gaur - F007 F084 Chuchchepati - Kapan - Gamcha F161 Lothar (MRM) - Chuniyadhara - Malekhu Bairganiya F008 Bardaghat Surajpur Harpur F085 Mahankal - Atterkhel F162 Beganastal - Bhorletar Sunwal - Parasi - Mahespur (Tanka Pd. Khairenitar (PRM) - Bhimad - Kawaswoti F009 F086 Jadibuti (ARM) - Thimi - Sallaghari F163 Aacharya Marg) (MRM) F010 Jitpur Khunuwa F087 Pepsikola - Gothatar F164 Gagangaunda (PRM) -Begnastal Taulihawa - Gorusinghe (M.R.M.) - F011 F088 Gokarna - Jorpati- Gothatar F165 Pratapur-Raninagar-Triveni Sandhikharka F012 Chabauta Krishnanagar F089 Pepsikola - Karkigaun F166 kagbeni(F042) - Muktinath Bhaluwang (M.R.M.) - Liwang (Rolpa) - Thimi (SOS) - Lokanthali - Tikathali - F013 F090 F167 Gaindakot-Rampur Phat-Pipaldanda Madichaur - Darbot Manohara F014 Pyuthan - Chakchake - Ghorahi F091 Kausaltar - Balkot - Sirutar - Biruwa F168 Bansgadhi (MRM) - Mainapokhar F015 Lasmahi Tulsipur F092 Thimi - Mulpani - Gokarna F169 Kothiya -Thakurdwara - Amreni (MRM)

Code Road Name Code Road Name Code Road Name F016 Bhuregaun (M.R.M.) - Gulariya - Murtihawa F093 Sallaghari - Duwakot F170 Baddichour - Gutu F017 Junga - Rajapur - Bhimapur F094 Byasi (Bhaktapur) - Changunarayan F171 Bhuregaun (MRM) - Bangesimal (Surkhet) F018 Birgunj Kalaiya F095 Mulpani - Changunarayan - Phedigaun F172 Karnali Corridor (Manma - Kolti) F019 Bhainse Bhimphedi F096 Nagarkot - Sankhu F173 Gamgadhi - Sukadhik F020 Palung Kulekhani F097 Chyamasingh - Nala - Banepa F174 Silgadhi - Khaptad Kathmandu - Trisuli - Dhunche - F021 F098 Kamalbinayak - Sudal - Nagarkot F175 Patan - Pancheswor Rasuwagadhi (Pasang Lhamu Marg) F022 Balkhu Dakschinkali F099 Trolly Bus (ARM) - Suryabinayak - Bhujunge F176 Ugratara - Melauli F023 Satdobato Tikabhairab F100 Sallaghari - Katunje - Lubhu F177 Jumla Khalanga - Gamgadhi Manohara Bridge (RR) - Sankhamul-Teku- F024 Satdobato- Phulchoki F101 F178 Bijulebhanjyang - Lamidanda Balkhu (RR) Shahid Road (Ghorahi Nuwagaun Tila F025 Lainchaur - Maharajgunj - Budhanilkantha F102 Satdobato - Dhapakhel - Thecho F179 Ghartigaun Thabang) F026 Chabahil - Sankhu - Jhule - Chautara F103 Jayanepal - Bhaisepati - Tikabhairab F180 Ganesh Man Marg (Thankot-Markhu ) Tadi (Gangate) -Labdhu-Samundratar- F027 Jorpati Sundarijal F104 Khasibajar - Kirtipur - Tinthana F181 Golphubhanjyang F028 Bhaktapur Nagarkot F105 Nagdhunga -Tankeswor F182 Tallo Dungeshwor - Dullu F029 Banepa Khopasi F106 Charikot - Dolakha -Lamabagar - Lapchegaun F183 Shivanagar - Gumi - Patihalnachaur 11 Kilo (F035) - Chhepetar - Bhaluswara - F030 Panchkhal Melamchi Helambu F107 Birendra Bazar -Yadukuha - Mahinathur F184 Barpak F031 Dolalghat Chautara F108 Janakpur - Yadukaha F185 Putalikhet - Karkineta -Majhbeni (Kusma) F032 Lamosangu Ramechap F109 Dharapani (MRM) - Dhanusadham - Janakpur F186 Mirdi - Chitre - Bhimad F033 Tamakoshi Jiri F110 Janakpur (H06) - Jatahi F187 Traffic chok(MRM)-Baniniya F034 Malekhu Dhading F111 Jaleswor - Matihani F188 Banke (MRM) - Sangrampur F035 Ambukhaireni Gorkha F112 Janakpur(H06) - Manara - Bathanaha F189 Gadhimai - Kawahigoth F036 Dumre - Besisahar - Chame F113 Janakpur - Kurtha - Samsi F190 Dumkibas (MRM) - Tribeni F037 Bharatpur Bypass road F114 Bardibas - Jaleswor F191 Kathawa -Tribeni Rajapur-Daulatpur-Sati (Junction to Postal F038 Fikkal Pashupatinagar F115 Maithan (MRM) - Gashala - Samsi F192 rd) F039 Biratnagar Rangeli F116 Phuljor (MRM) -Bayalbas - Tribhuwannagar F193 Chaurjahari - Bas Khola - Devisthal F040 Hile Basantapur Tearthum F117 Nayaroad (MRM) - Barhathwa - Madhubani F194 Saljhandi - Satyawati - Badahare River Tikapur - Muda - Sanphe Bagar - Dandakot - F041 Pokhara Sarangkot F118 Tamagadhi (MRM) - Simraungadh F195 Gothalkhet - Chainpur - Saipal - Urai Bha F042 Pokhara - Baglung - Beni - Jomsom-Ghoktang F119 Manmat (MRM) - Kalaiya - Matiarwa F196 Beni Ghat - Aru Ghat Larke Bhanjyang F043 Bartung - Tamghas - Warmi Taksar F120 Hetauda - Tikabhairab (Kanti Rajpath) F197 Aryabhanjyang-Rampur F044 Bhairahawa - Lumbini - Kakrahawa F121 Pharping - Kulekhani F198 Birgunj Bypass F045 Lumbini Taulihawa F122 Bhimphedi - Kulekhani F199 Gandhi Manamohan Marga F046 Nepalgunj Guleriya F123 Dhadingbesi - Arughat - Gorkha F200 MRM(Kharindpur)-Shitalpur-Vilmi F047 Chhinchu - Jajarkot - Dunai F124 Tandi (MRM) - Sauraha F201 Jiri-Salleri Road F048 Birendranagar Dailekha F125 Bharatpur - Meghauli Airport - Dhruwa F202 Jiri-Those-Bamti Road F049 Khodpe Chainpur F126 Aanptari (H05) - Debghat F203 Guleria-Jabdhighat-Ramvapur F050 Satbhanj Jhulaghat F127 Dumre (PRM) - Bandipur F204 Khutiya-B.P. Nagar-Dipayal F051 Silgadhi Sanfebagar F128 Damauli (PRM) - Neupanebesi - Bhorletar F205 Nijgadh-Pataura-Bankul-Gaur Talchok (PRM) - Khudimuhan (Beganas Gaur-Pipara-Samanpur-Santapur-nunthar F052 Mirchaiya - Katari - Okhaldhunga - Salleri F129 F206 Lake) Road Basantapur - Chainpur - Khandbari - F053 F130 Bhumahi - Parasi - Bhairahawa F207 Parsa-Bara-Rautahat-Gandaknahar Road Kimathanka Malunga (SRM) - Mirmi (Kaligandaki- Triveni-Sanahi-Gandak Nahar Sadak- F054 Duhabi - Inerwa F131 F208 Kushma)-Gupteswor Nawalparasi F055 Lahan - Bhagwanpur -Thadi F132 Ridi - Rudrabeni- Wami Taksar

Annex 2: RESULTS FRAMEWORK MATRIX

Program Development Objective: to provide safe, reliable and cost effective bridges on Nepal's Strategic Roads Network Target Values Data Resp. for

PDO Level Unit of Baseline Freq. Source/ Data Results Indicators Measure Yr 1 Yr 2 Yr 3 Yr 4 Yr 5

Core DLI Method Collection Data on bridge conditions will be collected and updated The At on BMS. PDO Indicator 1: percentage of mid- Bridges in Improved bridges on term good and condition of SRN rated as 53 60 75 and fair Bridge bridges on SRN. being in end of condition Project good or fair project are defined condition as those under routine maintenance or requiring only minor maintenance Data on bridge conditions will be collected At The and updated PDO Indicator 2: mid- percentage of on BMS. Reduced number term bridges on Structurally of structurally 6 3 1 and Bridge SRN rated as unsafe unsafe bridges end of Project structurally bridges are project unsafe. defined as

those requiring urgent maintenance .

Program Development Objective: to provide safe, reliable and cost effective bridges on Nepal's Strategic Roads Network Target Values Data Resp. for

PDO Level Unit of Baseline Freq. Source/ Data Results Indicators Measure Yr 1 Yr 2 Yr 3 Yr 4 Yr 5

Core DLI Method Collection Data will be collected every year through the contract managemen t system (or paper-based system until CMS becomes operational) PDO Indicator 3: and Percentage of Strengthened completion bridge works Every performance dates completed on negligible 20% 25% 30% 40% 50% year Bridge management in compared to planned Project bridge sector those in schedule originally prepared and disclosed procurement plan. Relates only to new contract awards. NPC will validate results. Intermediate Results Areas: Intermediate Cumulative 0 425 2,575 6,225 11,025 17,125 Every BMS and Bridge Results Indicator meters of year capacity Project/ 1: Completion of bridge that building Consultants major maintenance has completed consultant of bridges on SRN major reports. maintenance Independent (m) consultants hired by NPC will

Program Development Objective: to provide safe, reliable and cost effective bridges on Nepal's Strategic Roads Network Target Values Data Resp. for

PDO Level Unit of Baseline Freq. Source/ Data Results Indicators Measure Yr 1 Yr 2 Yr 3 Yr 4 Yr 5

Core DLI Method Collection validate BMS results Intermediate Cumulative 0 700 1,400 2,100 2,800 3,500 Every BMS and Bridge Results Indicator meters of Year capacity Project/ 2: Completion of bridge that building Consultants minor repairs of has completed consultant bridges on SRN minor reports maintenance Independent (m) consultants hired by NPC will validate BMS results Intermediate Cumulative 0 1,700 2,800 3,800 5,100 6,000 Every BMS and Bridge Results Indicator meters of new Year capacity Project/ 3: New bridges bridge building Consultants built or improved completed consultant on SRN (m) reports Independent consultants hired by NPC will validate BMS results Intermediate Number of BMS fully BMS fully DOR DOR DOR Every Independent Bridge Results Indicator actions operational in operational in undertakes undertakes undertakes Year consultants Project/ 4: Improved completed 15 divisional/ all 30 condition condition condition hired by Consultants Bridge Asset regional divisional/ survey of at survey of at survey of at NPC will

Management Offices regional least 20 least 40 least 60 validate offices percent of its percent of its percent of its results bridges and bridges and bridges and updates BMS updates BMS updates BMS Intermediate Number of 0 DOR DOR DOR DOR DOR Every Independent Bridge Results Indicator actions implements publically publically publically publically year consultants Project/ 5: Increased completed GRM to track discloses a discloses a discloses a discloses a hired by Consultants effectiveness of the complaints report report report report NPC will institutions related to detailing detailing detailing detailing validate responsible for contract status of status of status of status of results bridge sector procurement complaints complaints complaints complaints management and resolution resolution resolution resolution

Program Development Objective: to provide safe, reliable and cost effective bridges on Nepal's Strategic Roads Network Target Values Data Resp. for

PDO Level Unit of Baseline Freq. Source/ Data Results Indicators Measure Yr 1 Yr 2 Yr 3 Yr 4 Yr 5

Core DLI Method Collection implementatio and actions and actions and actions and actions n including a taken in F&C taken in F&C taken in F&C taken in F&C publically cases and cases and cases and cases and available those related those related those related those related report to social and to social and to social and to social and detailing environment environmenta environment environmenta status of al issues l issues al issues l issues complaints resolution and actions taken in F&C cases and those related to social and environmental issues

Annex 3: DISBURSEMENT LINKED INDICATORS MATRIX AND VERIFICATION PROTOCOLS

Table 3.1: Disbursement-Linked Indicator Matrix Disbursement Linked Indicators Total percent Period 1 Period 2 Period 3 Period 4 Period 5 disbursement of total amount loan DLIs related to PDO Indicator 1 & 2 DLI-1: Completion of major maintenance of 425 2,575 6,225 11,025 17,125 bridges on SRN Length of bridge in meters that has completed major maintenance 50 Disbursement Amount (see note): US$0.7 m US$3.8m US$6.4m US$8.4m US$10.7m US$30m percent DLI-2: Completion of minor maintenance of 700 1,400 2,100 2,800 3,500 bridges on SRN Number of bridges that have completed minor maintenance Disbursement Amount (see note): US$0.6m US$0.6m US$0.6m US$0.6m US$0.6m US$3m 5 percent DLI-3: New bridges built or improved on 1,700 2,800 3,800 5,100 6,000 SRN Length of bridge in meters built/improved 30 Disbursement Amount: US$5.1m US$3.3m US$3.0m US$3.9m US$2.7m US$18m percent DLIs related to PDO Indicator 3 DLI-4: Strengthened performance management in bridge sector 20 25 30 40 50 Percentage of bridge works completed on planned schedule

Disbursement Amount (see note): US$0.8m US$0.4m US$0.4m US$0.7m US$0.7m US$3m 5 percent

Disbursement Linked Indicators Total percent Period 1 Period 2 Period 3 Period 4 Period 5 disbursement of total amount loan DLI-5: Improved Bridge Asset Management BMS fully BMS fully DOR DOR DOR operational in 15 operational in all undertakes undertakes undertakes regional/divisional 30 condition condition condition offices regional/divisional survey of at survey of at survey of at offices least 20 least 40 percent least 60 percent percent of its of its bridges of its bridges bridges and and updates and updates updates BMS BMS BMS Disbursement Amount: US$0.6m US$0.6m US$0.6m US$0.6m US$0.6m US$3m 5 percent DLI-6: Increased effectiveness of the DOR implements DOR publically DOR DOR DOR institutions responsible for bridge sector GRM to track discloses a report publically publically publically management complaints related detailing status of discloses a discloses a discloses a to contract complaints report report report procurement and resolution and detailing status detailing status detailing status implementation actions taken in of complaints of complaints of complaints including a F&C cases and resolution and resolution and resolution and publically those related to actions taken actions taken actions taken available report social and in F&C cases in F&C cases in F&C cases detailing status of environmental and those and those and those complaints issues related to related to related to resolution and social and social and social and actions taken in environmental environmental environmental F&C cases and issues issues issues those related to social and environmental issues (formats to agreed between DOR and the Bank) Disbursement Amount: US$1.0m US$0.5m US$0.5m US$0.5m US$0.5m US$3m 5 percent 100 Total Loan Amount Disbursed (see note) US$8.8m US$9.2m US$11.5m US$14.7m US$15.8m US$60m percent Note: Figures for disbursements in periods 1 through 5 are indicative only.

Table 3.2: Summary Protocol for Verifying Achievement of DLIs

1 Completion of The initial condition survey has A maximum Yes BMS and NPC Progress tracked major identified a total of 716 bridges of 25 percent consultant in BMS. maintenance of which are in need of major rolling reports Independent bridges on SRN maintenance including 98 bridges advance will consultants hired (Table 3.3 defines which require urgent attention. be paid and by the NPC will different Given the likely budgets available will be independently maintenance and the time to prepare the adjusted in verify results in types) necessary bidding documents it is the conjunction with estimated that 331 bridges can be subsequent the Bank team addressed in the period of this year. operation. It is estimated that this equates to 17,125 meters of bridge which will be the ultimate target for this DLI. A bridge will be eligible to count towards the physical targets if it has been through the following planning process: (i) the bridge is identified for major maintenance in the prioritized annual work plans generated from BMS5; (ii) the bridge appears in the work plan which is the basis for funding through the budget cycle; and (iii) implementation of the work plan in line with a time bound procurement

5 In the case of the first year program works have been agreed based on 2011/12 condition surveys but prioritized manually as the BMS was still under development. This will be an acceptable basis for determining agreed bridges. 34

Protocol to evaluate achievement of the DLI and data/result verification Definition/Description of Advances Scalability of # DLI achievement and recovery Disbursements Data Verification Procedures source/agency Entity plan. A flexibility of 20 percent will be given to cover bridges that do not follow this process to allow for unforeseen or emergency situations. Included in this target will be any temporary bridges (e.g. Bailey bridge) that DOR procures to support emergency works. Major maintenance activities are defined in Table 3.3 below. The Bank will contribute US$30 million based on this DLI. Achievement will be based on the cumulative number of meters based on completed bridges and the meters of temporary bridges (Bailey bridge) made available in the country. Major maintenance completed after July 15, 2011 will be counted towards first year DLI and need not be required to be a part of the BMS generated work plan.

2 Completion of The initial condition survey has Ditto Ditto Ditto NPC Ditto minor identified 95 bridges which are in maintenance of need of minor maintenance and bridges on SRN within the SRN Bridge Program’s (Table 3.3 of scope. The consultants have Program estimated the total span of the bridges at 3,500 m. Appraisal Document A bridge will be eligible to count defines different towards the physical targets if it has been through the following maintenance planning process: (i) the bridge is types) identified for minor maintenance in the prioritized annual work plans generated from BMS; (ii) the bridge appears in the work plan which is the basis for funding through the budget cycle; and (iii) implementation of the work plan in line with a time bound procurement plan. A flexibility of 20 percent will be given to cover bridges that do not follow this process to allow for unforeseen or emergency situations. Minor maintenance activities are defined in Table 3.3 below. The Bank will contribute US$3 million based on this DLI. Achievement will be based on the cumulative number of meters based on completed bridges.

3 New bridges built The consultant surveys have Ditto Ditto Ditto NPC Ditto according to identified the requirement for 349

Protocol to evaluate achievement of the DLI and data/result verification Definition/Description of Advances Scalability of # DLI achievement and recovery Disbursements Data Verification Procedures source/agency Entity priority new bridges on the network. In investment plan addition DOR has 95 incomplete on SRN bridges. It is estimated that 121 bridges can be completed over a five year period with a total span of 6,000 meters. A bridge will be eligible to count towards the physical targets if it has been through the following planning process: (i) the bridge for new construction or upgrading in the prioritized annual work plans generated from BMS; (ii) the bridge appears in the work plan which is the basis for funding through the budget cycle; and (iii) implementation of the work plan in line with a time bound procurement plan. A flexibility of 20 percent will be given to cover bridges that do not follow this process to allow for unforeseen or emergency situations. New bridges include already contracted incomplete bridges, new bridge construction, replacement bridges, bridge widening and strengthening. The Bank will contribute US$18 million based on this DLI. Achievement will be based on the cumulative number of meters based on completed bridges. New bridges completed after July

Protocol to evaluate achievement of the DLI and data/result verification Definition/Description of Advances Scalability of # DLI achievement and recovery Disbursements Data Verification Procedures source/agency Entity 15, 2011 will be counted towards first year DLI and need not be required to be a part of the BMS generated work plan.

4 Strengthened This DLI will measure the overall Ditto Yes. However, over a DOR NPC Ditto performance performance of DOR in the timely baseline of 10% of bridge management in execution of bridge contracts. Data works contracts under the the bridge sector will be collected every year through Program completed on the contract management system (or contract schedule for the paper based reporting) and first year Program completion dates compared to implementation. If the contract agreement. The target target is not met in a relates to total number of contracts particular year but is due to be substantially completed in achieved in the any one period of the program. Any subsequent years, the contracts signed prior to July 1st cumulative disbursed 2012 are excluded from this amount will be rolled provision. over.

5 Improved bridge In periods 1 and 2 disbursements Ditto Yes. Up to a maximum DOR/BMS NPC Ditto asset management will be triggered when amount available for this regional/divisional offices have DLI fully implemented the BMS. Full implementation will be judged when the office has provided a letter confirming training has been undertaken, an official appointed for divisional offices who will be in charge for BMS and that they have verified the 2011/12 condition data in BMS also in divisional offices. For periods 3, 4 and 5 will be based on the availability of updated

6 Increased The implementation of the GRM Ditto No Consultant NPC Ditto effectiveness of will be considered complete when a reports the institutions procedure for lodging complaints responsible for and ensuring timely response to bridge sector those complaints is in place and management operational. The system will be able to generate publically available reports that detail the status of complaints and their resolutions and any actions taken in F&C cases or those related to social and environmental issues. After the first period this report should be available in each subsequent period.

Table 3.3: Maintenance Classification and Definitions

Class Diagnostic Scope of work 1. Routine No significant defect & no replacement • Removal of debris(soil, aggregate, cow dung and or any foreign material) from deck, footpath, railings, Maintenance or repair of any element of the bridge is bearing, expansion joints; required. The work involves routine • Cleaning and lubrication of bearing; and activities to be conducted in a cyclic • Removal of grass, bushes from bridge surfaces, wing and or abutment wall, bearing area approach road manner. RM is defined as the servicing • Cleaning of drainage spout on the deck of a bridge structure • Drain out the accumulated water in the chambers, cleaning and re-greasing of main and hanger cables for suspension bridge and check the abnormal vibration of stay –cable for cable-stayed bridge. 2. Minor Damages detected are very minor and • Rectification and replacement of bridge expansion joints, railing posts, safety barriers, sign board; Maintenance do not require any design input to carry • Rectification damages of approach slabs, ballast walls etc. out the treatment or rectify the defects. • Minor bed protection to minimize scour required to keep the foundations unexposed, bank protection in order to prevent breaching of approach road; • Tightening of loose bolts/ U-hooks, replacement of missing knot bolts in the steel members, spot re-painting work of steel members of suspension as well as cable-stayed bridge. Reporting to DRO office in case of abnormal vibration of cable system during wind. 3. Major • Numerous defects of structural and • All or some of the minor maintenance work scope plus Maintenance hydraulic significance which may • Major repair/replacement of slabs/ railings, bearings, piers soon prevent the bridge in its proper • Painting and replacement of steel members functioning. • Greasing, covering of cables, changing of deck material and tightening or replacing bolts, inspection of • Detailed investigation may be anchoring system etc of suspension /cable-stayed bridge required to design the maintenance • Bed and or bank protection works (River training works) costing more than 0.3 million rupees work (e.g. non-destructive testing) • Major maintenance of decking system and re-painting of steel members • Seeking expert advice for major maintenance of anchorage system, main cable/hanger, cable/suspension devices/saddles for suspension bridges and also stay-cable pylon/tower and anchoring devices at pylon as well as at deck for cable-stayed bridges • Jacketing of pier columns 4. Emergency • One or more elements of the bridge • All or some of the minor maintenance work scope plus Maintenance is heavily and critically damaged • Major repair/replacement of slabs; and/or that compromises the safety of the • Major repair/replacement of railings traffic using the bridge; • Major repair/replacement of piers; and/or • Emergency repair of one or more • Repair rehabilitation or new construction of check dam when the bridge is at risk from scour parts are required followed by • Remedial measures as advised by experts after investigations shown in scope of works for Major major maintenance of the bridge; Maintenance. • Load restriction and traffic safety signs need to be put in place

Table 3.4: Disbursement Amount against Unit DLI Value

• Under DLI #1 (i.e. DOR has completed major maintenance of bridges under the Program): for each meter of major maintenance of bridges under the Program, an amount of $1,751 per meter may be made available by the Association for withdrawal by the Recipient. • Under DLI #2 (i.e. DOR has completed minor maintenance of bridges under the Program): for each bridge under the Program that DOR has completed minor maintenance, an amount of $857 per meter may be made available by the Association for withdrawal by the Recipient. • Under DLI #3 (i.e. DOR has built or improved new bridges under the Program): for each meter of new bridges built or improved under the Program, an amount of $3,000 per meter of such new bridges built or improved may be made available by the Association for withdrawal by the Recipient. • Under DLI #4 (i.e. DOR has strengthened performance management of the Program): over a baseline of ten percent 10% of DOR’s bridge civil works contracts completed on contract schedule, for each one percent (1%) of DOR’s bridge civil works contracts completed on contract schedule, an amount of $75,000 for each such one percent (1%) may be made available by the Association for withdrawal by the Recipient. • Under DLI #5 (i.e. DOR has improved its bridge asset management): For each DOR’s divisional/regional office that has fully adopted and operationalized DOR’s Bridge Management System, an amount of $40,000 per such DOR’s divisional/regional office may be made available by the Association for withdrawal by the Recipient; and For each one percent (1%) of bridges under the Program that DOR has undertaken a condition survey and has updated its Bridge Management System accordingly, an amount of $30,000 per such one percent (1%) of bridges may be made available by the Association for withdrawal by the Recipient. • Under DLI #6 (i.e. DOR has increased its institutional effectiveness in bridge assets management): For the following action that has been taken during the first year of the Program implementation, an amount of $1,000,000 may be made available by the Association for withdrawal by the Recipient: namely that DOR has implemented a grievance handling mechanism to track complaints related to contract procurement and implementation and publically disclosed a report detailing status of complaints resolution and actions taken in fraud and corruption cases and those related to social and environmental issues; and For the following action that has been taken during each subsequent year during the Program implementation, an amount of $500,000 for each such subsequent year may be made available by the Association for withdrawal by the Recipient: namely that DOR has publically disclosed a report detailing status of complaints resolution and actions taken in fraud and corruption cases and those related to social and environmental issues.

Annex 4: PROGRAM ACTION PLAN

The following table summarizes the Program Action Plan. The actions listed are formulated based on the various assessments and risk analysis conducted during the preparation of the Program.

Table 4.1: Program Action Plan

Action description DLI Deadline Responsible party Completion Measurement Technical Actions i. BMS, the basis for planning, prioritization and M&E, to be continuously Linked to DLI On-going Bridge Personnel trained in use of BMS, maintained and used for prioritization of the program. 1-3 and 5 Project/Regional conditions surveys updated and Directorate/Divisional annual prioritized programs Office available. ii. DOR implements a Quality Assurance Plan. All materials testing to be On-going Bridge Project/DOR Continued compliance will be undertaken according to specifications as described in the Quality monitored by technical audit Assurance Plan and in the contract between DOR and the contractor. consultants. iii. DOR will assign project management teams for each contract that has October 31, DOR Continued compliance will be value over US$125,000 equivalent (roughly NPR10 million). The project 2012 and monitored by technical audit management team will comprise technical, social and environmental ongoing consultants. personnel. A team can manage multiple contracts depending on operational requirements. iv. through MOF, during the implementation of the Program, allocate at least October 31, MoPPWTM/MoF Increased budgetary allocation five percent (5%) of its total civil works budget under the Program in 2012 and July each said Fiscal Year, for feasibility studies, design, supervision, quality 31 in control, management of environmental and social impacts, and other subsequent required inputs for the maintenance and construction of bridges under the years Program. v. DOR prepares annual training plans for all SRN bridge related functions October 31, DOR/Bridge Project Training Plan prepared and and implements these plans throughout the Program implementation 2012 and training implemented. Activities period. annually supported by capacity building thereafter consultants. Fiduciary Actions i. Creation of separate budget heads for SRN bridges which will provide Effectiveness MoF Separate budget lines for SRN and the budget allocation for expenditures under the SRN Bridge Program. condition LRN bridges appear in annual budget issued by MoF. ii. Annual preparation and public disclosure of prioritized investment and Linked to DLI October 31, Bridge Project Annual investment plan prepared maintenance plans based on BMS and limited by identified budget 1-3 2012 and and disclosed in DOR website envelop. annually iii. Appoint and maintain a procurement unit chief in each of the procuring October 31, DOR A memo from DOR with the list entities with clear job descriptions and provide them with at least one- 2012 and of procurement unit chiefs and a week training on procurement (if they are not already trained). revise the list confirmation from DOR that as appropriate training has been provided

Action description DLI Deadline Responsible party Completion Measurement iv. through DOR, (i) establish an audit committee meeting the requirements October 31, DOR The committee will have met of the Recipient’s Office of the Auditor General, to address outstanding 2012 following receipt of the audit observations from Fiscal Year 2009/2010 and those in subsequent preliminary report and responded years, if any, resulting from DOR’s own operations; and (ii) ensure that within 35 days. all said outstanding audit observations from Fiscal Year 2009/2010 are addressed according to a time-bound action plan acceptable to the Association and Recipient’s Office of the Auditor General. Environment and Social Actions i. through DOR, review and revise DOR’s current environmental and social October 31, DOR/GESU Revised ESMF disseminated via management rules and procedures to incorporate bridge specific 2012 web and hardcopy environmental and social impact mitigation measures, in form and substance satisfactory to the Association, and immediately thereafter implement said revised rules and procedures in a manner satisfactory to the Association throughout the Program implementation. ii. through DOR, provide the Geo-Environmental and Social Unit within October 31, DOR Memo from DOR to formally DOR with power and adequate resources, acceptable to the Association, 2012 assign GESU to SRN Bridge to enable it to carry out the social and environmental management Program measures in accordance with the revised rules and procedures referred to in action (i) above. iii. Preparation of a plan, and subsequent implementation of that plan, to October 31, DOR GESU is strengthened as per strengthen GESU both in terms of manpower and financial resources 2012 and on- agreed plan going Cross-cutting Actions i. Grievance Redressal Mechanism (GRM) developed, made operational, DLI-6 September, 30, DOR GRM developed and made and implemented in DOR for managing all type of complaints including 2013 and on- operational technical, fiduciary and social/environmental issues going ii. Preparation of a Bridge Operations Toolkit (with support from the December 31, Bridge Project Toolkit developed and published Association) that will summarize various bridge planning, construction, 2012 maintenance and management procedures. The toolkit will be developed based on the existing procedures that exists in different DOR manuals, guidelines etc.

Annex 5: TECHNICAL ASSESSMENT

Strategic Relevance of the SRN Bridge Program Nepal is still emerging from a 10 year armed conflict which has contributed to overall deterioration in the condition of physical infrastructure, including the national road and bridge network. Limited access to economic centers and social services, particularly in remote areas, is seen as a contributing cause of conflict and instability. Gaps on Strategic Road Network caused by lack of bridges are one of the primary causes for limited access. The conditions of existing bridges are becoming worse. Most existing SRN bridges are over 35-40 years old and require costly rehabilitation and maintenance. Many of the existing bridges are experiencing structural problems. Over the medium term future, Department of Roads will be required to invest approximately US$328 million on SRN bridge maintenance and construction in order to meet all SRN bridge needs. This figure is equivalent to 6.9 percent of the Government’s national budget for 2011/12. Despite being minor infrastructure assets on average (see Annex 1), SRN bridges play a very critical role in Nepal’s economic development. There are 532 existing SRN bridges (about one-third of all SRN bridges) located along the East West Highway which traverses all regions and comprises Nepal’s most critical transportation backbone for inter-regional connectivity. Providing inter-regional connectivity is a key Government policy objective aimed at ensuring the sustainability of hard-earned peace and stability. Technical Soundness of the SRN Bridge Program Addressing SRN bridges through a dedicated national program is technically sound for the following reasons: (i) the SRN is a nationally significant network of infrastructure assets that cannot function without bridges to connect different linkages; (ii) bridge structures are fundamentally different than roads and involve unique technical considerations; (iii) the political economy associated with SRN bridges is very different from LRN and urban road network bridge assets; and (iv) many SRN linkages have a high density of bridges. For example, there is roughly 1 SRN bridge for every 2 kilometers of the East West Highway. The overall institutional arrangements for the SRN Bridge Program’s delivery are technically sound for achieving desired results. The Department of Roads is the GON’s lead agency for managing the SRN and has considerable implementing capacity. Department of Roads has benefitted from extensive previous work with development partners. The World Bank, ADB, GIZ, DFID, UNDP, JICA and the Government of India have previously invested in DOR's development as a technically competent institution. The scale of most SRN bridge investments and the general difficulties of traveling throughout Nepal suggest that Department’s heavy reliance on divisional offices for program implementation is appropriate. However, the ‘in-practice’ functionality of DOR’s implementation arrangements is a key opportunity for improving SRN Bridge Program outcomes. Specific areas for improvement are discussed below. Improving the SRN Bridge Program Development partners have made meaningful contributions to DOR’s capacity and capabilities. The Bank-supported Roads Maintenance and Rehabilitation Project (RMRP) from 1994-1999 and subsequent projects included a dedicated institutional strengthening component that aimed at improving DOR’s capacity for: (i) financial management; (ii) environmental assessment; (iii) geo-technical engineering; (iv) bio-engineering; (v) long term investment planning; and (vi) bridge asset management. Similarly, ADB’s Road Network Development Project (RNDP) from 2001 and 2010 helped strengthen DOR’s ability to tender, negotiate, and manage complex performance based maintenance contracts for individual stretches of SRN highways. Project completion reports from both the RMRP and RNDP rated DOR’s participation as “satisfactory.” The ADB’s Resident Mission awarded MoPPWTM/DOR as the “best project management team” for three consecutive years during the RNDP. The current on-going Bank financed

RSDP is continuing this work by funding the development of Bridge Management System. The RSDP will also fund the Capacity-Building Consultants for the SRN Bridge Program. Areas for Improving Capacity to Manage the SRN Bridge Program Department of Roads could benefit from further process and capacity improvements to achieve better results from the SRN Bridge Program. Specific areas for improvement include: (i) planning and budgeting; (ii) quality management; (iii) procurement and contract management; and (iv) monitoring and evaluation. These are fundamentally important for planning and implementing capital investment effectively which is the primary determinant of the Program’s intended outcomes. The Bank’s PforR operation includes specific measures to address each of these areas for improvement as discussed below. Program- level planning and budgeting Most investments in SRN bridge maintenance and new construction involve multi-year contracts that require detailed technical preparation along with multi-year budgeting. DOR’s approach to bridge sector investment currently exists in a perpetual state of over procurement and under funding. There is presently no coherent plan to match procurement with envisaged future resources. This is partially due to a budget framework that permits politically driven investments in LRN bridges to spontaneously capture space in the SRN bridge program’s budget (see above). DOR’s current strategy involves trickling whatever funding is available towards a continuously expanding portfolio of active contracts. This results in a large backlog of unfinished investment as progress against active contracts can only occur to the extent of available funding. Technical assistance associated with the Bank’s operation will include both training for existing DOR staff in addition to embedded advisors. This will provide the SRN Bridge Program with access to expertise along with direct ‘on-the-job’ assistance to develop capacity. In the future, Department of Roads will need to match contract procurement with the future financial resources needed for timely completion of works. This is not simple as the cash flow profile for bridge investments are not uniform by year and will depend on the specific payment milestones in each individual contract. Therefore, each individual contract will require accurate forecasts for both physical progress of works and the timing of payments. In order to spend available budgets, Department of Roads will also need to have a sufficient number of active contracts ready to absorb payments in a given year. Gaining the ability to balance between annual resource allocations, medium-term budget envelopes, procurement activities, and physical progress will immensely improve the Program’s effectiveness. A key aim for the Capacity Building Consultant will be helping DOR staff to build competency in all of these areas. The PforR approach is an important part of making such improvements sustainable. Most notably, DOR systems for planning, budgeting, and procuring SRN Bridge Program investments will need to perform in order to meet disbursement-linked indicators. Contract management & quality management The SRN bridge program is highly decentralized and dependent on divisional offices to implement the majority of contracts for new bridge construction and maintenance. However, geographical distance and transportation difficulties limit the oversight from Central offices. Ostensibly, DOR regional directorates oversee divisions within their respective regions. However, Department of Roads notes that regional directorate Offices have been largely “hollowed out.” A typical regional directorate organizational structure includes approximately six full time engineers plus a Regional Director and administrative staff. However, many of DOR’s regional directorates do not fund their full complement of engineering staff – despite having official approval for these positions from the Public Service Commission. Recurrent budget allocations include funding for all approved positions. However, there is a disconnect between authorization to spend and budgets that leaves a large human resource gap in DOR’s decentralized model for managing bridge sector investments. It is also important to note that frequent stand alone projects (often involving development partners) are partially culpable for reducing the human resource allocated to

45 regional directorates. When new projects come into formation, they often absorb senior regional directorate engineering staff. Concentrating resources to deliver focused stand-alone project investments therefore compromises the quality of the SRN bridge program’s investments. Vacancies and headcount constraints mean that Department of Roads relies heavily on budgets to engage external support for implementing key technical functions (e.g. engineering design). However, the magnitude of historical budget allocations in this area has been insufficient to engage adequate support. DOR’s FY 2010/11 capital program for bridge construction and maintenance totaled approximately NPR 2.6 billion (including both SRN and other bridges). However, the bridge-related component of DOR’s FY 2010/11 budget for design and feasibility study was approximately NPR 24million slightly less than 1 percent of the overall capital program budget. Rough estimates based on international benchmarks suggest that design and feasibility expenditures should total approximately 5-8 percent of a similar capital program’s cost. As part of the action plan for this operation an action has been included to increase the provision under this budget component to a minimum of 5 percent of the overall civil works budget for the program. DOR’s organizational structure includes a dedicated Asset Management, Contract Management, and Quality Control Project. However, the name for this unit is slightly deceptive as its primary functions include managing IT systems and presiding over DOR’s Central Road Research Laboratory. In practice, this unit does not handle contract management for bridge investments. DOR’s Financial Administrative Section manages spending against contracts and maintains financial control over expenditures. However, managing contractual compliance and technical performance occurs at the level of DOR’s procuring units. In the case of smaller, less complex bridge investments, divisional offices undertake core contract management functions. Similarly, the Bridge Project handles technical contract management for larger, more complex bridge investments. The Bridge Project may also assist division offices as and when called upon. The Bank’s operation addresses this gap by including an action for improved quality and contract management. Specifically, Department of Roads will develop a Bridge Operations Toolkit to guide contact management as well as other key processes related to quality management. In addition, greater funding resources allocated toward engaging external design, supervision, and quality management support will augment DOR’s internal capacity for enforcement of contract quality assurance plans and the associated materials testing. Bridge design standards Department of Roads designs bridges to Indian Roads Congress (IRC) Class A and Class AA loading standards which are fit for the purpose. Bridges are designed for a minimum life of 50-years. A return period of 100-years is considered for discharge calculations. There is a need to look at alternatives to bridges (e.g. vented causeways for the very low-volume networks where short periods of seasonal inaccessibility could be tolerated). Consultant and contractor capacity The capacity of Nepal’s contracting industry has significantly improved over recent years. National contractors now carry out the majority of contracts. A recent Bank-supported assessment has identified approximately 30 firms that are active in the bridge sector. Roughly 20 of these firms act as lead partners and the remaining 10 serve exclusively as sub-contractors. SRN bridges are relatively small and inexpensive, which limits interest from international contractors. Bridge maintenance is an evolving segment of the local market on account of limited experience. Department of Roads perceives a need to improve its maintenance contracting approach in order to attract sufficient market interest. The Bank- supported study has recommended increasing the size of the packages by bundling together a number of contracts to achieve economies of scale and attract more competent contractors. Department of Roads plans to implement a bundling strategy for many of the SRN Bridge Program’s investments.

Nepalese contractors still rely on materials and equipment from India which can cause delays in contract implementation. Complex bridge designs often require international contractors to build the physical works. Nepal’s national construction industry still needs capacity building, particularly as the size of the bridge sector will be increasing significantly. There is also a capacity issue in the local consulting industry and a lack of facilities to adequately test materials such as cement and concrete and to inspect bridges. The Capacity Building Consultants will address the needs of the local consulting and contracting markets in their training activities. Program monitoring and evaluation At present, DOR’s Planning and Design Branch includes a monitoring and evaluation unit. However, this unit focuses primarily on tracking progress against budgets and proposed work plans with less focus on monitoring or evaluating program quality and associated outcomes. Indicators of success (or failure) do not exist in a form that would allow Department of Roads to assess, review and improve the effectiveness of its bridge investment program. In some instances, Department of Roads uses third-party verification to oversee and validate construction. External evaluators (e.g., technical firms) are engaged for this purpose. The National Vigilance Centre occasionally undertakes technical audits of DOR road and bridge projects but their capacity is weak. This capacity constraint is already being addressed through the on-going RSDP which has a technical assistance component focused on strengthening the role of National Vigilance Centre to undertake technical audits. Through RSDP additional support will be given to National Vigilance Centre to address bridge-specific issues and broader process issues associated with the implementation of social and environmental issues under the program. Expenditure Framework The SRN Bridge Program's budget framework requires immediate attention to support desired program results. Most notably, the SRN Bridge Program needs independent capital expenditure budgets that prevent diversion for other purposes. The current budgeting system does not allow the SRN bridge program to credibly plan and execute multi-year contracts effectively. Table 5. 1 summarizes historical budget line items and their relevance.

Table 5. 1: Line Items and 2011/12 Budget Allocations – all DOR Bridge Investment (NPR million)

Line FY2011/12 Description Historic relevance Item allocation Capital Budgets (NOTE: also funded LRN and urban bridges) . Funded construction of new bridges. In 2010/11 3371574 Bridge Construction Program 2,000 divisional offices spent roughly 83 percent of this line item . Supported major maintenance of bridges. Bridges and Culverts . In FY 2011/12 about half of this line item went to 3371584 Protection, Repair and 600 centrally managed investment with the remaining Maintenance balance supporting divisional office led projects Detail Feasibility Study of 3371594 30 . Funded centrally managed design and feasibility studies. Roads and Bridges Capital Budgets (NPR’000) 2,630 - Roughly US$31.5million equivalent Note: SRN bridge program was approximately US$10 million of the total combined amount for these line items Budgeting for DOR’s broader program of bridge investments has historically been problematic. This reflects a lack of technically sound planning and the impact of political interference on DOR’s investment programs in LRN and urban bridges. Table 5. 2 compares actual expenditures for relevant line items with original budgets for FY2009/10 (the most recent data available). Most notably, capital spending was 74 percent above original budget estimates. Under the current program scenario, chronic over-procurement

47 due to political interference makes it nearly impossible for Department of Roads to plan its bridge sector capital programs with any degree of accuracy. Despite being officially mandated to focus on the Strategic Road Network, roughly 68 percent of DOR’s existing bridge sector capital backlog is supporting Local Road Network and urban bridge assets. This situation has resulted from a capital expenditure framework that does not accommodate the differences in political economy between SRN and LRN bridges. Improving this arrangement will be a key goal of the Bank’s proposed operation. Table 5. 2: Actual Expenditure Vs. Original Budget FY 2009/10

Line item 2009/10 2009/10 2009/10 Line item (2008/09) Description Original Actual Estimated (2011/12) (2009/10) budget expenditure variance (NPR ‘000) (NPR ‘000) 66.8 3371574 48-4-650 Bridge Construction Program 1,350,000 2,252,257 percent Bridges and Culverts Protection, Repair and 64.5 3371584 48-4-660 Maintenance 30,000 49,335 percent 494.5 3371594 48-4--661 Detail Feasibility Study of Roads and Bridges 25,000 148,634 percent +74.4 Subtotal - capital budgets 1,405,000 2,450,226 percent Note: combined scope of expenditures for these line items included SRN, LRN, and urban bridges Desired Results, Technical Risks & Mitigations Assisting Government and Department of Roads to achieve better outcomes from expenditures on SRN bridges is the key result underpinning the case for Bank support. Achieving this will include: (i) developing DOR’s capability to apply a technically rigorous system of prioritization for investments in SRN bridge maintenance and new construction; (ii) reducing DOR's backlog of partially completed SRN bridges (approximately 95 bridges); (iii) eliminating the backlog of major and minor maintenance required for SRN bridges; (iv) providing Department of Roads with a budget framework and associated planning tools to manage the SRN Bridge Program for the long-term future; (v) the strengthening of DOR's capacity for assessing, monitoring and continuously improving the quality of investments. There are significant technical risks relating to the achievement of desired results which the Bank’s proposed operation will work to mitigate. Table 5.3 summarizes these risks along with their proposed mitigations. Table 5.3: Desired Results, Technical Risks and Proposed Mitigations Desired result Key technical risks Proposed mitigation . Incentives provided in DLIs 1-3 to Applying a technically rigorous system of . Prioritization system is not followed apply BMS prioritization for investments in SRN bridge . Prioritization system is flawed . Vetting of prioritization system maintenance and new construction prior to implementation . Insufficient funding resources . Budgetary separation for SRN Reduction in backlog of partially completed allocated to SRN Bridge Program Bridge Program SRN bridges . Diversion of funding resources to . DLIs weighted to reflect priorities other programs or new bridges . Insufficient funding resources . Budgetary separation for SRN Elimination of backlog of major and minor allocated to SRN Bridge Program Bridge Program maintenance required for SRN bridges . Diversion of funding resources to . DLIs weighted to reflect priorities other programs or new bridges . Budget virement from SRN Bridge . Result based disbursement – DLIs Budget framework and associated planning Program occurs will not be achievable without tools to manage the SRN Bridge Program for . Political interference leads to over- minimum GON resources and the long term future procurement completed results

. Capacity Building Consultants embedded within DOR will help to . Periodic program assessments and Strengthening of DOR's capacity for ensure quality of review process reviews are not held or are or poor assessing, monitoring and continuously . Annual technical audits will be quality improving the quality of SRN Bridge Program undertaken by NVC . No actions follow from assessment investments . DLIs on process improvement will and review incentivize improvements to actually occur Economic Assessment Introduction The economic analysis presents a framework for investment decision-making and prioritization of bridge improvement and construction within Department of Roads. Nine bridges were selected for appraisal that reflect the typical types of interventions likely under the SRN Bridge Program. The nine bridges selected include three each of new construction, rehabilitation, and capacity improvement. The interventions are appraised over a period to 2033, and both the rate of discount and the opportunity cost of capital are taken to be 12 percent. Where road user costs are saved by an investment, these have been calculated using World Bank RED software. Traffic growth rates have been estimated at 6.6 percent over the period of the appraisal and maintenance costs at 1.8 percent per year of the new construction cost. Table 5. 4 summarizes the appraisal scope. The nine bridges are grouped according to the intervention: those with new construction, those to be rehabilitated, and those to be widened. The table includes characteristics relevant to each type of appraisal, together with indicative economic costs of intervention in terms of costs per meter. Appraisal Approach New construction: Construction of a new bridge reduces both distance and time costs of road use by shortening access distance, avoiding costs crossing the river by ford or ferry, or both. Ford crossings are generally closed in the rainy season; and thus benefits to bridge construction are distance cost savings (of a detour) during the rainy season and time saved during the dry season (by crossing by bridge as opposed to fording). Time taken to negotiate a ford is longer than even a single-lane bridge. Where a new bridge is replacing a ferry crossing, the costs avoided are the time costs incurred by vehicles waiting to cross and crossing, and the cost of providing the ferry services. Weak bridges: When a weak bridge fails, two sets of costs may be incurred: the cost of providing a temporary crossing while the bridge is reconstructed (not considered in the present appraisal) and the costs of additional kilometres driven to find a detour. The main issue is determining just when a weak bridge may be expected to fail and result in road closure. For the present exercise, probability of failure is assessed according to DOR’s 2012 bridge asset inventory with probability of failure increasing every year over the appraisal period. This assessment classified weak bridges into two categories: • High probability of failure (within a period of four years): In the first appraisal year the probability of failure was assumed to be 25 percent. In subsequent years this probability increases by 5 percent a year until reaching near certainty and remaining at that level for the remainder of the appraisal period. • Medium probability of failure (with a period of 20 years or more): the appraisal assumes that these bridges have a 5 percent probably of failure that increases at 5 percent over a 20-year period. Inadequate capacity bridges: Replacing a single-lane bridges with two-lane structures avoids delays caused both by vehicles slowing to negotiate the narrower bridge and by waiting for approaching vehicles to cross. The appraisal incorporates estimations of delays at single lane bridges based an Erlang queuing model. A single lane bridge would have a width of 3.5m; the three bridges that were assessed are all

49 wider than this, but still have less than a full two-lane capacity. Accordingly, benefits from increased capacity are factored by the difference between current width and a single lane Table 5. 4: Economic appraisal scope

Bridge/ Rainy 2012 Span Cost Failure Crossing Detour Current intervention Road season ADT (m) [US$/m] probability type route crossing type percent (km) times/speeds

New Construction Goji Chinchu-Jajarkot 70 16,576 NA Ford 20 35 26.5 sec 69 Jaleshwar- Dhedua Bharatpur 70 33,151 NA Ford 30 12 25.8 sec 119 Jayaramghat- Dhud Koshi Diktel 300 3,868 NA Ferry NA NA 138 min 82 Rehabilitation Sansara EWH 40 3,347 High NA NA 10 NA 3,140 Tinau EWH 226 4,937 Medium NA NA 50 NA 14,770 Kathmandu- Bagmati Sankhu 260 2,146 Medium NA NA 1.5 NA 11,808 Widening Bagmati EWH 366 1,252 6 NA NA NA 25 kph 2,196 Banmara EWH 33 258 5.5 NA NA NA 28 kph 2,338 Chandi EWH 168 272 5.5 NA NA NA 38 kph 2,319 Note: NA – Not applicable Appraisal Results Table 5.5 provides combined economic evaluation results of nine bridges. Rehabilitation or deferred maintenance and investments to increase capacity are generally easy to justify. New construction is less so given that current gaps on the SRN are likely on low-volume roads and new construction is typically more expensive than maintenance. However, if investments are grouped, overall measures of economic return are much more attractive. Taking the nine bridges as a package, an investment of US$8.7 million will offer a return at 64 percent, greatly above the cost of capital, and a ratio of value to capital of five. Switching values in Table 5.5 indicate that the degree to which the package could withstand uncertainties in appraisal assumptions and method are considerable. Table 5.5: Summary Economic Evaluation Results

EIRR 64.2 percent NPV/CAP 5.0 Present Value of Costs (US$000) 6,134 Benefit to Cost ratio 8.0 Present Value of Benefits (US$’000) 49,280 Switch Value for Costs 703 percent Net Present Value percent (US$’000) 43,146 Switch Value for Benefits -86 percent Financial Capital Cost [CAP) (US$’000) 8,700 This appraisal used a partial equilibrium approach and only considered users’ benefits in calculations for economic benefits. Due to resource and procedural limitations, some benefits could not be estimated and factored into the benefit calculations. They include benefits from the value added of induced production, generated traffic and modal shift (from non-motorized modes to motorized modes and from 2-wheeled motorized modes to 4-wheeled motorized modes). Other benefits, real but unquantifiable, include improved access to social and economic facilities and services. Such access is crucial to reducing poverty and achieving the MDGs. According to a 2009 study, the intensity of conflict in Nepal between 1996 and 2006 showed an inverse correlation with the availability of road transport infrastructure. The causality of

50 this relationship is uncertain, but may result from road infrastructure’s role in: (i) providing access to economic opportunity; and/ or (ii) facilitating Government’s efforts to counter insurgency once it has started (Do & Iyer 2009).6

6 Do, Quy-Toan (World Bank DECPI); Iyer, Lakshmi; “Geography, Poverty and Conflict in Nepal” Harvard Business School, 2009. In this study, both poverty and road density (km of road per km2) show negative relationship with areas prone to conflict during the 1996-2006 “People’s War” in Nepal. 51

Annex 6: FIDUCIARY SYSTEMS ASSESSMENT

In accordance with OP/BP 9.0 an integrated fiduciary systems assessment was carried out that evaluated the fiduciary systems pertaining to the SRN Bridge Program to determine whether they provide reasonable assurance that the Program funds will be used for their intended purpose. The integrated fiduciary assessment comprised of three separate sub-assessments of the fiduciary risks relating to SRN Bridge Program: (i) procurement; (ii) financial management; and (iii) governance (including fraud and corruption risks). The objective of the Integrated Fiduciary Systems Assessment is to provide a reference that can be used to monitor fiduciary systems performance during the SRN Bridge Program’s implementation and to identify actions, as needed, to enhance those systems. Findings from the assessment conclude that the overall fiduciary framework for the SRN bridge program is adequate to support implementation and to achieve its desired results. This annex summarizes assessment findings and concludes with a summary table of key risks and corresponding mitigation measures identified. Program Financing and Expenditure Framework: Funding for the SRN Bridge Program will be provided through the GON’s annual budget to Department of Roads through Ministry of Physical Planning, Works and Transport Management. In the past, the SRN Bridge Program’s capital budgets have been co-mingled among a wider national program of bridge sector investment which includes urban and LRN bridges. Historically, three GON budget line items have provided capital budgets for all DOR bridge sector programs in a combined fashion. This has compromised the SRN Bridge Program’s ability to plan, identify, and monitor the results of its investments. Therefore, in order to focus on effective and transparent delivery of SRN bridge investments, the Government has agreed to revise its budget framework and create separate and distinct budget line items for the SRN Bridge Program within MoPPWTM’s budget structure. IDA resources under the proposed operation will be part of the Government’s budget framework for (i) SRN bridge construction; (ii) SRN bridge maintenance; and (iii) design, feasibility study and quality management. SRN Bridge Program funds will flow through the treasury system. Since the SRN Bridge Program is classified as a priority (“P1”) program, the availability of financial resources is seen as a low risk. The Bank’s operation will provide support through budget line items that are specific to the SRN Bridge Program. The exclusivity of these line items to program-specific expenditures will provide “reasonable assurance that program funds will be used for their intended purpose” rather than being diverted for other purposes. The Government has a well-developed budgeting process with a Medium Term Expenditure Framework (MTEF) and sector-level business plans. However, weak implementation reduces the effectiveness of the budgeting process as a tool for efficient expenditure planning. Challenges to effective budget implementation stem from the unpredictability and inaccuracy of indicative resource envelopes. This compromises any efforts to plan medium term expenditures for the SRN Bridge Program. In addition, there is limited use of systematic and transparent procedures for prioritizing and selecting investment proposals for funding from the annual budget. Even with GON’s current MTEF at the aggregate level, DOR’s medium-term resource envelopes are not credible, and this prevents effective medium-term planning. Historically, the annual allocation of resources has deviated substantially from DOR’s work plans and has primarily reflected political considerations. Weaknesses in the planning and budgeting processes require revisions to operational plans after the start of the fiscal year. This causes significant delays as departmental approval chains slow the process of implementing investments. Since funding allocations expire within each fiscal year, this situation often encourages hasty execution with poor results.

The aforementioned risks have been discussed with the Ministry of Finance (MoF) and it has been agreed that Ministry of Finance will provide credible indicative three year resource envelopes for the SRN Bridge Program. These will form a basis for preparing annual capital investment plans for SRN bridges.

The Ministry of Finance will also inform Department of Roads of annual budget allocations well in advance of the start of the fiscal year so that divisional offices can prepare annual operating plans with confidence in resource availability. The new Bridge Management System will include clear guidelines for prioritizing and selecting projects that will ensure that project proposals are not arbitrarily changed from year to year based on political preferences. The annual allocations to the SRN Bridge Program will be published in MoF’s Red Book which is publicly available. Program Implementation Framework: Implementation of the SRN Bridge Program will involve Department of Road’s Kathmandu-based Bridge Project, along with its five regional directorates and 25 divisional offices. The divisional offices, in collaboration with the Bridge Project, will be responsible for identification of proposed projects, for preparing detailed cost estimates, and for handling the procurement, implementation and contract management relating to the SRN Bridges Program within their respective jurisdictions. The SRN Bridge Program’s implementation framework will rely on the institutional systems and processes that govern DOR’s procurement and financial management functions.

Assessment of the Program Procurement Framework: Procurement of SRN Bridge Program investments will be governed under the Public Procurement Act (2007) and Public Procurement Regulations (2007), as well as the associated complaints, investigating and reporting mechanisms applicable in Nepal. The PPA requires open competitive bidding and provides procedures for reviewing the complaints related to the actions prior to and after the signing of agreements. The Public Procurement Monitoring Office (PPMO) has issued standard bidding documents (SBDs) for large and small works contracts that can be used for this framework. These provide adequate guidance for applying the PPA effectively. Introduction of e-bidding in Department of Roads has resulted in significant increase in competition and has proved to be an effective measure to reducing collusion and coercion among bidders. At the same time, Department of Roads has capacity constraints relating to skills and competencies required for efficient and transparent procurement at its divisional offices. Most divisional office staff are qualified engineers with technical skill sets, but with little formal training on procurement or contract management. Even though there are rate fixation committees in every district, a lack of uniform standards in project costing prevents standardized and comparable cost structures across projects. While the PPR clearly lays out the procedures for contract administration (including the timelines for contract supervision and oversight) there are gaps in its practice. Weaknesses in the monitoring of project cost and time overruns results in many projects remaining incomplete for long periods of time. There are also gaps in the systems and practices for procurement record keeping and filing.

Financial Management Assessment: Nepal’s Financial Procedures Act (1998) and Financial Procedures Rules (2007) provide a solid framework for the SRN Bridge Program’s key financial management and budgeting systems. However weaknesses and gaps in the implementation of this framework pose fiduciary risks for the SRN Bridge Program. There are weaknesses in the application of internal controls procedures that pose risks to the transparent and efficient financial management at the implementation level. The various controls procedures and directives relating to expenditure management are not codified and readily available in a manner that facilitates effective management and oversight of program implementation at the divisional office level. The present arrangements for internal audit (carried out by the District Treasury Comptroller Office) need strengthening and would need to be supplemented to provide an adequate overall control framework for program implementation. Monitoring of audit findings generally is weak, and audit observations remain unresolved for extended periods of time, thereby reducing the overall effectiveness of the audit process. DOR will address this gap by establishing an audit committee to address outstanding audit observations from Fiscal Year 2009/2010 and those in subsequent years, (if any). This committee will meet and respond to any audit observations within 35 days of receiving preliminary audit reports throughout the Program support period.

Strengthening the Program Operating Framework: The SRN Bridge Program will strengthen its planning activities by preparing comprehensive capital investment plans for each project (or bundle of projects within a single contract) at the divisional office level. These plans will cover technical, financial and implementation plans for the project. The identification and planning for projects will be based on the indicative medium term resource envelope and annual financial and operating plans (including detailed procurement plans for each approved project). Annual budget allocations will provide the basis for this planning. The Bridge Project (in consultation with divisional offices) will prepare realistic standard cost estimates and provide necessary technical support for updating them. This will support divisional offices to prepare accurate investment plans.

To strengthen the accountability for project implementation, Department of Roads will constitute adequately staffed and trained project teams for individual bridge investments. Divisional office heads will designate an experienced person to function as a procurement unit chief to ensure that program activities are implemented in accordance with DOR’s procurement procedures, applicable policies, and SRN Bridge Program-specific guidance. Designated procurement unit chiefs will coordinate procurement-related training and will provide procurement advice to project teams.

In addition, the Office of the Auditor General (OAG) will carry out a performance audit of the SRN Bridge Program as per OAG’s procedures that will assess performance relative to intended targets. Department of Roads will develop a Bridge Operations Toolkit that will bring together the operating rules and procedures for the SRN Bridge Program. This resource will include user-friendly references to assist implementing units in executing the SRN Bridge Program’s fiduciary systems effectively.

Program Fraud and Corruption Risks: Nepal has a relatively strong legislative framework to deal with fraud and corruption that includes the Commission for the Investigation of Abuse of Authority Act (1991), Prevention of corruption Act (2002), the Public Procurement Act (2007), and the Good Governance Act (2008). The lead institution for addressing fraud and corruption allegations is the Commission for the Investigation of Abuse of Authority (CIAA) which has a mandate which is enshrined in Nepal’s provisional Constitution along with legal authority granted by subordinate legislation. The CIAA acts on all complaints that it receives and may investigate any person holding a public post. Not all complaints lead to full investigations and CIAA follows a multi-staged approach with preliminary reviews proceeding detailed investigations. CIAA plays a very active role in Nepal’s governance framework and fielded 6,145 complaints in FY2011/12 that led to some form of investigation in 3,904 instances.

Any citizen may file a complaint with CIAA against any public official for alleged improper conduct that may have adversely affected public interest. Complaints may be anonymous and the legislative framework provides protection for whistleblowers in order to mitigate the potential threat of reprisals. The CIAA provides transparent annual reports regarding its operations that include summaries of successful prosecutions.

Despite the strength of Nepal’s legislative framework, there are noteworthy weaknesses in how public agencies implement their roles. Specifically, the Government of Nepal’s Service Delivery Guidelines (2008) require all agencies to set up mechanisms to handle administrative level public complaints/grievances. Department of Roads has yet to implement such a system, but will do so as an agreed action associated with the Bank’s support. This action is also associated with DLI-6.

There are also some positive trends emerging that could help to mitigate the risk of fraud and corruption. Nepal has passed the Right to Information Act and has recently ratified the United Nations Convention against Corruption (UNCAC), which has created public awareness regarding the menace of corruption. As part of the implementation of UNCAC the Government has drafted legislation pending parliamentary

54 approval which will allow it to undertake joint investigations with other external agencies. The strong stance taken by Nepal’s judiciary in cases involving political and bureaucratic corruption is heartening. Tough sentencing may also act as a deterrent against future fraud and corruption. The Prime Minister’s Office has set up a dedicated cell (“Hello Government”) to listen to suggestions and complaints from the public.

The SRN Bridge Program has a significant, but manageable exposure to potential fraud and corruption on account of the following weak areas: (i) implementation of procurement and contract administration procedures; (ii) internal control systems and processes; (iii) monitoring and oversight of project preparation and implementation; and (iv) the transparency and accountability regime. To mitigate these risks, the SRN Bridge Program will include program-specific measures to guard against Fraud and corruption. The SRN Bridge Program will put in place necessary administrative and monitoring systems to ensure that existing systems for internal control and oversight are implemented rigorously within DOR’s divisional offices. As part of preparing the Bridge Operations Toolkit, Department of Roads will review control procedures for the SRN Bridge Program and strengthen them as necessary. The SRN Bridge Program is currently setting up a rigorous system of operational and financial monitoring through the Bridge Management System, CMS and FMS. These systems will help ensure that procedural requirements, schedules, and budgets are adhered to. In addition to the internal audit carried out by the DTCOs, the SRN Bridge Program will institute an internal review annually using the services of an audit firm to review the transactions and expenditures against program budgets and work plans. The National Vigilance Center will carry out an integrated technical audit that will examine adherence to technical and procurement standards and their associated guidelines. Department of Roads will refer all credible allegations/complaints regarding corrupt practices to the Ministry of Physical Planning, Works and Transport Management. Where specific instances of fraud and corruption are identified, processes for investigation of transactions/contracts and debarment of contractors will apply in accordance with existing country processes and in agreement with the Bank’s anti-corruption Guidelines. Section IV B of this Program Appraisal Document describes the audit arrangements that will apply to the SRN Bridge Program. To further mitigate the risks from fraud and corruption, Department of Roads will provide the necessary administrative leadership and coordination for establishing a robust framework to prevent and address fraud and corruption issues based on the key principles of transparency, accountability, and participation. As part of improving the transparency of the program, Department of Roads will put in place a pro-active communications strategy that will include publishing and sharing with the public all relevant SRN Bridge Program information. Annual budget allocations, approved capital investment plans, Program implementation and financial progress, major contracts, and other relevant information will be placed on the DOR’s website.

Complaints Handling and Grievance Resolution: A key element of the SRN Bridge Program’s anti- corruption strategy (encapsulated within DLI-6), is the development of a grievance redressal mechanism that coordinates other departments and offices, develops a formal tracking system for complaints, and generates reports on the status of complaints. The SRN Bridge Program also falls within the remit of the Prime Minister’s office grievance and redress mechanism (called “Hello Government”). The Department of Roads is planning to set up a hotline with PPMO and to provide a space on DOR’s website for receiving complaints.

The measures outlined above will be complemented by a third-party monitoring mechanism, mutually agreed with the Government of Nepal, that will be designed based on the experience learned from other World Bank financed projects and other experience from Nepal. Resources from Trust Funds (e.g. Global Partnership for Social Accountability or GPSA) will be used to implement this mechanism similar to that

55 being piloted under an on-going Bank financed rural access project in Nepal , to improve SRN Bridge Program governance.

Program Management: Department of Roads manages the SRN Bridge Program under the overall supervision of the MoPPWTM. The Director General, Department of Roads is ultimately responsible for overall coordination and management, with support from Deputy Director Generals (DDGs) and the Bridge Project Manager. DOR Bridge Project handles day-to-day program management, which includes many of the arrangements for implementing and/monitoring financial management, procurement, and governance aspects of the SRN Bridge Program. Other units such as DOR’s Financial Administration Section, and Planning and Design Branch assist the Bridge Project with these key functions. The new Bridge Management System will provide the Bridge Project with a tool for compiling project proposals from various divisional offices. Bridge Management System, will help to prioritize investments and match them to the medium term resource envelope and the annual budget allocations provided by Ministry of Finance. Bridge Project will coordinate with Ministry of Finance and MoPPWTM on the timely release of SRN Bridge Program funds to the divisional offices and will be responsible for compiling the SRN Bridge Program’s financial statements from the reports submitted by the divisional offices. The Finance Administration Section will also provide the necessary guidance to the divisional offices on complying with the internal control procedures for the SRN Bridge Program as described in the Bridge Operations Toolkit.

Department of Roads will arrange for divisional office staff to receive adequate training in procurement, including guidance on efficient, economical, and transparent procurement procedures and practices. The Bridge Project will coordinate with divisional office procurement points of contact to provide training and guidance to the project management teams and to monitor compliance. The grievance redressal mechanism will ensure that any procurement complaint received will be addressed expeditiously.

Table 6. 1: Summary of Fiduciary Risks and Mitigations

Risk/Gap Mitigation measure

Financing and expenditure framework

Current budget framework intermingles LRN and SRN bridge expenditures which blurs priorities and institutional . MoF will create separate budget headings for SRN and LRN bridges. responsibility Insufficient GON funds made available for SRN Bridge Program . Bridge Program is priority “P1” program therefore has a ‘first claim’ on GON resources. Timing of funds release / authorization to spend for capital . Design of the Bank’s operation allows for a 25 percent advance of total credit to ensure money budgets available. The advance will be paid as soon as pre-conditions are met and the project is declared effective. Advances will be paid on annual rolling basis. DOR does not have a credible medium term resource . DLIs 1, 2, and 3 will only disburse if prioritization is according to BMS and part of a defined work envelope for the SRN Bridge Program which leads to ad-hoc plan agreed during the budget cycle and implemented as defined in a procurement plan. work plans, political prioritization of works, late . DLI 4 will reward effective contract management and timely completion of the bridge works. commitments to start of works and hence rushed and poor . MoF will provide indicative three year resource envelopes to assist with planning SRN Bridge implementation Program investments Implementation Framework

. Increased funding ( at least 5 percent of civil works budgets) for feasibility study, design and The main procurement and contract implementation risks supervision which will allow better planning, cost estimation and quality management (on Action relate to: Plan) . Weak linkages between the budget and procurement . The Bridge Operations Toolkit will define administrative procedures for record keeping and internal plans controls . Contract management and administration . DOR will designate a focal person in each of the divisional offices as a procurement unit chief for . Record keeping and filing coordinating procurement processes and trainings and for providing procurement guidance to project . Quality management and materials testing teams. Training will be arranged for these focal persons on procurement in order to facilitate their . Procurement reporting and oversight (incl. cost roles estimation and extensions of time) . Implementation of quality assurance plans will be enhanced as well as necessary material testing (on Action Plan)

Risk/Gap Mitigation measure

. The SRN Bridge Program will include a framework of audits (see section IV B of PAD) to guard The main FM risks relate to: against financial management risks and detect any irregularities . The Bridge Operations Toolkit will include administrative procedures and internal controls . Internal controls applicable to the Program. The Internal Review using the audit firm will provide feedback to DOR . Internal audit management on the implementation of control procedures . Delayed follow up on outstanding audit observations . DOR will set up an Audit committee to review the audit observations and develop remedial actions . Funding from the RSDP will provide capacity building consultants to support on all aspects of the Inadequate capacity in all aspects of program implementation DOR program and the various agencies of government responsible for audit functions and oversights could adversely affect the ability of DOR to meet the development objectives . DOR will implement a comprehensive training plan over the five year period to build capacity of its staff (on Action Plan) Fraud and Corruption

. DLI-5under the project will disburse once the formal GRM is in place and regular reports are made available detailing status of complaints and any actions taken where fraud and corruption has been confirmed. When allegations of fraud and corruption are identified there . DOR will assign an existing unit dedicated to dealing with complaints. DOR will disclose all is no formal system for tracking and addressing these relevant information on the Program and its performance (e.g. annual budget allocation, program complaints; and the public has insufficient information on the implementation and financial progress, list of major contracts) to the public using feasible media Program to determine whether wrong-doing is likely to have outlets (e.g. DOR website with a dedicated page for the Program) taken place. . The system will be capable of handling complaints received from the Prime Minister’s Office, CIAA, NVC, PPMO, MoPPWTM and any other relevant agency (e.g., Chief District Officer). . A system of third party monitoring will be put in place

Risk/Gap Mitigation measure

. DOR will disseminate the ACG through the DOR website. . The Bank’s debarment list will be circulated to all Program implementing entities every six months. The annual technical audit will verify that implementing entities have complied with IDA’s debarment list. . DOR will provide reports on the status of fraud and corruption complaints and actions taken annually, or more frequently on occasion should it be requested by the Bank. Likewise, the Bank will report to GON on similar allegations. The PforR Anti-Corruption Guidelines may not be . GON has agreed to extend the right for the Bank to investigate F & C complaints within the implemented adequately. Government's laws and regulations. However, since the Bank will not have direct access to third parties’ (contractors and consultants) books and accounts, nor the right to audit such documents under the Program, alternative arrangements have been made. For F&C cases, the Bank can request an investigation by GON, and GON will refer such cases to CIAA. The Bank and GON/CIAA will agree on the investigation methodology but the investigation will be undertaken by CIAA with the findings shared with the Bank in accordance with Nepal’s existing laws and regulations. As a signatory to the UNCAC, GON has drafted legislation to allow joint investigations with external agencies which is awaiting parliamentary approval. The ability to carry-out joint investigations will allow the Bank access to third party information.

Program Management

. DOR will develop a Bridge Operations Toolkit. It will provide user friendly guidance (that already The current regulations governing the program do not provide exists in different manuals, guidelines in DOR) on different aspects of the SRN Bridge Program sufficient guidance to DOR staff on all aspects of program (including planning/programming, procurement, contract management, and M&E). This toolkit will implementation guide users through the various manuals already in place including the Public Works Directives (PWD) manuals, financial management manuals, quality management manuals etc. (on Action Plan) . The SRN Bridge Program will include a framework of audits (see section IV B of PAD) which includes an integrated technical audit to address all aspects of program implementation including Given that the Bank will undertake no reviews (prior or post) procurement, and technical considerations. The integrated technical audit will be undertaken by at the transaction level the GON system may not be independent consultants hired by NVC. sufficiently robust to report back on overall progress . DOR will procure the services of a private firm/individual consultants to carry out internal reviews of financial transactions and compliance with procedures.

Table 6. 2: Recommended Financial Management Standards

# Fiduciary risk Performance Indicator Baseline Recommended Standard Budget allocation Annual budget allocations for the Authorization to spend against and authorization Bridge Program made in Authorization to spend does approved budget allocations 1 to spend for SRN accordance with agreed work plans not follow any time given by end of the first trimester bridge and authorization to spend given in schedule of the financial year investments a timely manner All observations in the reports of Compliance of Response to audit observation 2 the Program internal audit Inconsistent follow-up of internal control within 35 days after the receipt of addressed in an effective and internal audit observations procedures draft audit report efficient manner SRN Bridge Program audit Timely external Program external audits carried out reports available within 6 months 3 9 months audits in a timely manner after the close of the financial year Audit observations are not All audit observations are Audit observations addressed 4 Audit follow up resolved in a time-bound monitored and satisfactorily expeditiously manner resolved to the extent possible Program Program financial statements Financial Program financial statements are prepared within three months 5 5 months Management prepared on time after the close of the financial (unaudited) year

Table 6. 3: Recommended Procurement Standards

# Process Performance indicator Baseline Recommended standard indicator Percentage of implementing units 100 percent by end of year 1 of 1 Procurement plan 15 percent that prepare procurement plans Program implementation One bridge, irrespective SRN Bridge Program procurement Consolidate or bundle contracts 2 Contract of size and location, is reflects efforts to bundle contracts where possible and commercially packaging procured under 1 efficiently (esp. for maintenance advantageous contract works). Enforcement of contractual Year 1: Devise standard procedures Liquidated provisions in particular for for time extension at DOR; 6 Nominal damages liquidated damages imposed for Year 2 and thereafter: implementation delay in completion of the agreed procedures.

Annex 7: ENVIRONMENTAL AND SOCIAL SYSTEMS ASSESSMENT

Introduction The World Bank’s team conducted an Environment and Social Systems Assessment that included: (i) a review of existing policies, state development plans, acts, regulations, frameworks and guidelines; (ii) meetings and interviews with different stakeholders ranging from central-level agencies to local-level agencies, particularly those involved in the environmental and social assessment as well as planning, implementation and monitoring of transport sector projects including bridges; (iii) an assessment of relevant environmental and social management system relative to PforR principles; (iv) an assessment of capacity and performance of Department of Roads. Based on the findings, it proposes measures to: (i) enhance environmental and social management capacity and performance; and (ii) strengthen monitoring and implementation support. The draft Environment and Social System Assessment has been publicly disclosed and discussed with relevant stakeholders in Nepal. Environmental Benefits and Risks Given the program scope, coverage and size of the bridges under the SRN Bridge Program the anticipated adverse environmental issues and impacts related to program implementation are expected to be limited in nature and are not expected to pose a significant risk. The program activities will not encroach upon or degrade the sensitive habitats by completely avoiding any bridges located in the sensitive areas of floral and faunal biodiversity value or in the protected area. Nevertheless, minor implications on the existing vegetation cover (limited to the bridge abutments locations) and on the aquatic ecology (limited to a few hundred meters upstream and downstream of the bridge crossings), needs to be given due attention from the natural environmental perspective depending upon the bridge site locations. Impacts associated with the bridge maintenance and construction are not significant and can be readily managed with known mitigation and management techniques provided that contractors take care to implement agreed management plans. At the same time, the program is expected to deliver a number of environmental benefits. The rehabilitation and maintenance of bridges will ensure that the risks of bridge failure are reduced and that erosion and sedimentation are minimized through repair of failing foundations and river training or abutment works. Improved performance of the Department of Roads with respect to environmental planning and management will help to ensure that issues are identified earlier and more consistently and that contractors will be supervised more regularly and environmental provisions of contracts enforced more consistently. An important issue of concern related to the bridge projects during construction is the construction impacts associated with dredging, foundation works, or river bank reinforcements which may affect aquatic biodiversity. Also of concern is the occupational health and safety of the construction workforce. A similar issue is the community health and safety related to traffic accidents during the operation phase of the program, as adjoining areas of bridge abutment locations are invariably occupied by encroachers for market development throughout Nepal. Field observations have shown that waste management, from the construction activities as well as from the labor-camps, is commonly poor. In some of the bridge locations pressures on the surrounding environment (extraction of sand and gravel, pressures on local forests) have continued after construction has been completed. Although from regulatory and legal provisions and operational guidance perspective, Nepal’s environmental management system reflect the core principle and element of OP/BP 9.00, but field implementation is not optimal. The issues linked to operational performance of environmental impact of bridges include: (i) partial application of environmental screening and the rarity of a standalone Environmental Impact Assessment (EIA); (ii) the absence of specific environmental mitigation measures for bridges in the ESMF; (iii) inadequate alternative analysis (only covers design and “no project” alternatives); (iv) main focus of the impact identification is on the direct impacts(coverage of indirect, cumulative and trans-boundary impacts is rare); (v) non-inclusion of environmental mitigation costs in 61 bid documents and poor environmental management and mitigation during construction of bridges; (vi) lack of environmental monitoring (except donor funded projects); and (vii) non-compliance with disclosure and stakeholder consultation requirements. Social Benefits and Risks The adverse impacts from the SRN Bridge Program should only be limited and confined to land acquisition and resettlement in the area near bridge works. Based on past experiences adverse social impacts are likely to be temporary during project works, such as temporary land leasing for contractor operations. The SRN Bridge Program will include some new bridge construction which may require land for construction or access roads development. However, such land acquisition or resettlement requirements are likely to be insignificant since many of these bridges are in remote and sparsely populated areas where public land is plentiful and chance of affecting private property is quite small. With the aim to improve access of communications, the SRN Bridge Program will benefit a large number of communities, particularly those with no or little access and isolated in remote areas. This is particularly true with indigenous communities that are among the targeted beneficiaries. Indigenous peoples, or Adivasi Janajati in Nepali, account for about one-third of the population. Any development interventions are bound to come across indigenous communities. Past experiences show that indigenous communities demand and support such programs to improve vital road access to public services and economic centers. However, bridge rehabilitation and construction activities may also have adverse impacts upon nearby indigenous communities as a result of land acquisition, public health impacts, noise, and traffic safety impacts. Key shortcomings in DOR’s current practices for managing social impacts include: (i) national programs do not provide adequate focuses on vulnerable communities. For instance, only projects that involve development partner funding have vulnerable community development plans; (ii) existing laws of Nepal do not have provisions for assisting squatters and compensating them for restoration of livelihoods and replacement costs of properties. However, in many cases such assistance/compensation is provided informally; (iii) Nepal practices, especially in the case of community projects (e.g. schools, local roads), the notion of land donations. This is more relevant in the case of projects in rural areas. However, apart from internationally financed projects, such practices are hardly regulated and formalized (e.g. non-transfer of legal titles); (iv) it is not necessary under the national policy requirements to separately document plans linked to social issues. Social issues (e.g. issues linked to land compensation and indigenous people) are subsumed under the environmental screening, assessment and documentation process. There are no requirements for Resettlement Action Plans (RAPs) or vulnerable community development plans (VCDPs); (v) No grievance handling mechanism exists at the operational level. The only legal avenue for any aggrieved person or entity is the formal legal system (i.e. courts), irrespective of grievance type or sector. Grievances are generally addressed locally, though informally, through the local administrations or DOR officials.

Environmental and Social Management Department of Roads developed and adopted an Environment and Social Management Framework (ESMF) that includes environmental and social procedures, practices, mitigation measures, and analytical approaches applicable to road projects. The ESMF has been reviewed, evaluated, and endorsed by the Ministry of Physical Planning Works and Transport Management and since 2007 has been a key document guiding DOR projects funded by international donors. The ESMF supplements the national environmental and social legislation and regulations and has been authorized by the Department of Roads for full implementation in letter and spirit. The ESMF covers the national legislative framework, potential environmental and social impacts of road projects, consultation requirements, standards for land acquisition, compensation and assistance, standard impact mitigation measures, and treatment of vulnerable communities, including indigenous peoples. The ESMF is comprehensive in scope with respect to roads sector issues and lays down procedures and requirements that are consistent with the 62 principles and attributes of OP9.0. The ESMF includes measures to address key gaps in the local legal and regulatory system for management of environment and social risks in a way consistent with OP9.00. However, the ESMF (developed in 2007) was not designed to specifically take into account bridge- specific risks. It will therefore require minor revision to ensure that environmental and social aspects of bridge maintenance and construction are fully incorporated. The Environment and Social System Assessment (ESSA) report makes specific recommendations on the nature and scope of changes required to update the ESMF to take into account bridge impacts. Consultations and Information Disclosure The ESSA report considers consultation, stakeholder involvement and disclosure of information from two perspectives. First, the report describes the requirements of the Government and Department of Roads with respect to individual sub-projects and evaluates the extent to which DOR practices are effective and consistent with Bank policy expectations. These practices are described in the ESSA and its specific recommendations and support for improved performance by the Department of Roads is provided for in the ESSA. Second, the ESSA itself was the subject of public consultation meetings held in Kathmandu and Pokhara April 23 and 25, 2012 respectively. The ESSA was revised incorporating comments obtained from the two consultation meetings. The consultations held provided more detailed information on the PforR process, the proposed SRN Bridge Program, and key findings and recommendations of the ESSA. Overall the participants showed support for the SRN Bridge Program. Some of the general themes which were raised in the questions of participants include: how the DLIs will be developed and decided between the World Bank and Government, how consultation and land acquisition will be handled under PforR, how the environmental and social standards under PforR policy relate to the Bank’s safeguards policies, how will program screening and alternative analysis be conducted, and what will the role of Geo-Environmental and Social Unit be under the SRN Bridge Program. Recommendations for Environmental and Social Actions Given the low-to-moderate levels of environmental and social risk associated with the SRN Bridge Program, the ESSA recommends proceeding with the PforR operation. Nevertheless, the ESSA report makes a number of important recommendations for addressing institutional capacity constraints and gaps across a range of environmental and social management system constraints. These recommendations are summarized below. Updating the DOR ESMF to include DOR Bridge Program: The existing DOR ESMF was developed and issued in 2007 and was mainly developed for DOR’s road program, including new constructions and rehabilitation. This ESMF was developed on the basis of relevant government policies, taking into consideration international best practices, including relevant ADB and World Bank policies. Review of the ESMF has revealed some gaps and areas of improvement to fully reflect the principles and attributes of OP/BP: 9.0. It is recommended that the current DOR ESMF be updated and strengthened in line with OP 9.00 and be expanded to include bridge-specific risks. The updating of the ESMF will include a technical review, revision, and formal endorsement within Department of Roads. This is expected to start once the PforR operation is approved. Strengthening environment and social impact management within DOR: Currently, Geo-Environmental and Social Unit lacks a clear mandate managing environmental and social issues within Department of Roads. Geo-Environmental and Social Unit sits on a back-bench in DOR operational decisions and implementation and is greatly constrained in performing its responsibilities due to the limited allocation of financial and human resources. These indicate a lack of adequate attention within Department of Roads to the management of environmental and social impacts in its investment operations. In order to address this, it is recommended that Department of Roads elevate and authorize GESU officially as the mandated and responsible unit within Department of Roads for the management and performance of the environmental and social aspects of DOR road and bridge operations both in preparation, planning, and

63 implementation monitoring. This needs to be achieved through a decision note within Department of Roads. Strengthening Geo-Environmental and Social Unit: In order to perform its responsibilities, Geo- Environmental and Social Unit will be strengthened in terms of staffing, financial resources, its internal operating arrangements and coordination with other technical units and ministries. In this regard, Department of Roads will develop an operational plan to strengthen GESU. This plan will be reviewed and agreed with the Bank and will be monitored during implementation. This plan will include: • Staffing arrangements, including outsourcing, and a schedule of their recruitments • Annual financial allocation forecast and allocation for the next three years • Geo-Environmental and Social Unit operation plan for the SRN Bridge Program describing its responsibilities, staffing (number, specialization and qualification), staff assignment, operating methodologies, procedures, tools, monitoring modalities and coordination arrangements with other units and divisions.

Annex 8: INTEGRATED RISK ASSESSMENT

NEPAL: BRIDGES IMPROVEMENT AND MAINTENANCE PROGRAM Stage: Appraisal or Negotiations or Board

2. PROGRAM RISKS

2.1 Technical Risk Rating: Moderate (M) Description: Limited technical capacity may result in bridge designs Risk Management: (i) TA resources (via RSDP) will help increase technical capacity of DOR staff via training. that lack new or innovative technologies. Inappropriate or high cost DOR will prepare annual training plans to coordinate how TA resources are used; (ii) integrated technical audit designs and inefficient construction techniques may compromise SRN (NVC) and performance audit (OAG) will identify whether this risk is impacting upon the SRN Bridge Program’s Bridge Program results. performance and recommend remedial actions as necessary. Due Date : Status: (i) training plans produced (i) RSDP resources Resp: DOR/NVC/OAG Stage: Implementation annually from end Oct. identified 2012 (ii) audit arrangements (ii) audits on annual basis agreed Description: Possible delays in establishing annual BMS-based Risk Management: (i) MoF will allocate greater proportion of SRN Bridge Program’s budget towards planning, capital investment plans, preparing detailed designs, and awarding designing, supervising, and managing the quality of works (5% of civil works budgets); (ii) BMS-prioritized first contracts for SRN bridge maintenance and new construction could year program of urgent major maintenance already identified; (iii) phasing of 5 year SRN Bridge program uses delay results. initial years to focus on completing backlog of under-construction bridges. Contracts for these works are already underway and do not require procurement. Status: (i) action agreed Stage: Preparation/ Due Date : st Resp: DOR/MoF (ii) 1 year program Implementation Updated annually identified (iii) draft phasing complete Description: SRN Bridge Program funds may be used for low Risk Management: (i) MoF will create a separate budget framework for SRN Bridge Program; (ii) SRN bridge priority bridge investments selected on the basis of ad-hoc (often asset inventory has established objective needs and priorities for existing bridges/new crossings; (iii) BMS will political) rather than technical merits. Other programs or projects may provide a technically rigorous basis for prioritizing investment according to needs; (iv) DLIs 1,2, and 3 only divert SRN Bridge Program funding as has happened in the past. disburse against investments that follow BMS priorities as per agreed DLI verification protocol; (v) DLI - 5 provides incentive to keep BMS up to date; (vi) MoPPWTM to issue memo formally endorsing SRN roads.

Status: Due Date : (i) action agreed (i) effectiveness (ii) complete (iii) BMS-based first year Stage: Preparation/ (iii) BMS based Resp: DOR/MoF plan agreed Implementation investment plans produced annually (iv) DLI verification (iv) & (v) DLIs verified protocol agreed annually (v) DLI - 5 agreed (vi) complete Description: Capacity of local construction industry is low and may Risk Management : (i) MoF will allocate greater proportion of SRN Bridge Program’s budget towards planning, not deliver works according to quality standards, budgets, or designing, supervising and managing quality of works (5% of civil works budgets); (ii) TA resources (via RSDP) schedules on account of limited capacity and/or poor supervision. and action plan measures will increase DOR’s procurement capacity and help to ensure competitiveness in the market for SRN Bridge Program tenders; (iii) DLI – 4 (on-time contract delivery) captures a key output of sound planning and rigorous contract management. Due Date : Status: (i) end Oct. 2012 (i) action agreed Resp: DOR/MoF Stage: Implementation (ii) training plans produced (ii) RSDP TA resources annually identified (iii) DLI verified annually (iii) DLI agreed Description: Funding for the SRN Bridge Program may not Risk Management: (i) MoF has designated SRN Bridge Program as “P1’ (priority one) giving it first claim on materialize. Other programs or projects may divert SRN Bridge Government Resources; (ii) MoF will create separate budget framework for the SRN Bridge Program – apart from Program funds for unintended purposes. This would impact on the LRN/urban bridge programs; (iii) achieving target values for output-level DLIs 1,2 and 3 will require the SRN SRN Bridge Program’s ability to plan and implement investments Bridge Program to receive and spend envisaged funds; (iv) Financing Agreement (FA) includes requirement that according to schedules / budgets. GON spend at least the amount of IDA loan on SRN Bridge Program. Status: Due Date : (i) complete Stage: Preparation/ Resp: DOR/MoF (ii) effectiveness (ii) action agreed Implementation (iii) DLIs verified annually (iii) DLIs agreed (iv) in FA 2.2 Fiduciary Risk Rating: Substantial (S) Description: Risk of fraud / corruption at design, contract award, Risk Management : (i) use of existing DOR e-bidding procedures to reduce risk of bidder intimidation / collusion; construction and payment stages. Possible collusion amongst bidders (ii) grievance redressal mechanism and annual public disclosure on grievances received/addressed tied to DLI-6 or bidder intimidation is also a risk. (US$ 3m) will provide a tool for catching instances of fraud and corruption. Status: Stage: Preparation/ Due Date : Resp: DOR (i) already in use Implementation (ii) DLI verified annually (ii) DLI agreed

Description: Observed weaknesses in internal controls and previously Risk Management: (i) DOR to form Audit Committee to review and respond to audit observations within 35 days unaddressed audit observations suggests future risk of financial of receiving preliminary audit reports; (ii) Bridge Operations Toolkit to include guidelines on fiduciary procedures irregularities. Existing fiduciary procedures are applied inconsistently to assist DOR staff with applying existing procedures more consistently; (iii) DOR to assign project management in many cases. teams that include fiduciary staff for SRN Bridge contracts above US$125,000; (iv) audit arrangements in place to help DOR maintain fiduciary control over SRN Bridge Program funds. Due Date : Status: (i) end Oct. 2012 (i) action agreed (ii) end 2012 (ii) action agreed Resp: DOR/OAG/NVC Stage: Implementation (iii) from end Oct. 2012 (iii) action agreed and ongoing (iv) audit arrangements (iv) trimester and annual agreed audits Description : Weak procurement capacity may compromise the SRN Risk Management : (i) training program and TA resources (via RSDP) will help increase procurement skills of Bridge Program’s ability to use funding effectively via contracts with DOR staff; (ii) divisional offices will appoint and ensure training for procurement unit chief to lead / advise on private firms for construction or consultancy services procurement processes; (iii) annual integrated technical audit (NVC) will review procurement results and advise on remedial measures; (iv) Bridge Operations Toolkit to provide DOR staff with resources for understanding/applying procurement procedures. Status: Due Date: (i) RSDP to provide TA (i) training plans produced resources. Action annually agreed to produce Resp: RSDP/DOR/NVC Stage: Implementation (ii) by end Oct. 2012 and annual training plans. updated as required (ii) action agreed (iii) annually (iii) audit arrangements (iv) by end 2012 agreed (iv) action agreed 2.3 Environmental and Social Risk Rating: Moderate (M) Description: The existing DOR ESMF was primarily developed for Risk Management: (i) DOR will modify the ESMF to include bridge specific issues; (ii) Bridge Operations Toolkit DOR’s road program, and has gaps relating to bridge-specific will provide DOR staff with resources to assist with deploying the ESMF consistently; (iii) DOR project considerations. Application of the ESMF on bridge projects is also management teams will include social and environmental specialists for contracts above US$ 125,000. spotty and inconsistent which could result in unmanaged social or Due Date : environmental risks. Status: (i) end Oct. 2012 Stage: Preparation/ (i) action agreed Resp: DOR (ii) end Oct. 2012 Implementation (ii) action agreed (iii) will apply to contracts (iii) action agreed after Oct. 2012 Description: The unit within DOR that manages social and Risk Management: (i) DOR will issue an official departmental memo articulating GESU’s role in supporting SRN environmental risks (GESU) may not have sufficient mandate, Bridge Program investments. (ii) DOR will prepare and implement a plan to strengthen GESU. (iii) MoF will financial resources, or human resources to support the SRN Bridge increase SRN Bridge Program’s budget for design, feasibility study and quality management (5% of civil works Program. This could result in unmanaged social and environmental budgets). Part of this funding will support environmental and social assessments along with risk management.

67 risks. Due Date : Status: (i) end Oct. 2012 (i) action agreed Resp: DOR/MoF Stage: Implementation (ii) end Oct. 2012 (ii) action agreed (iii) end Oct. 2012 (iii) action agreed 2.4 Disbursement-Linked Indicator risks Rating: Moderate (M) Description: DLI values may not be achievable given budgetary and Risk Management: (i) MoF will create separate budget framework for the SRN Bridge Program – apart from other resource constraints and risk that other programs may divert LRN/urban bridge programs to enhance integrity of planning and budgeting process; (ii) DLIs 1-3 reflect up-to-date resources. There may be disagreement regarding whether specific estimates derived from 2012 bridge asset inventory survey. Program phasing and timing of outputs reflect indicative DLIs have been achieved. budget framework provided by MoF; (iii) DLI verification protocols agreed with client and arrangements made for third party DLI verification via NPC; (iv) MoF will allocate increased proportion of SRN Bridge Program’s budget used for design, feasibility study, and quality management to 5% of civil works budgets. This funding will enable the SRN Bridge Program to augment internal resources with external consultancy support as required. Due Date : Status: (i) effectiveness (i) action agreed (ii) DLIs agreed Resp: DOR/MoF Stage: Implementation (iii) third party verification to occur annually (iii) DLI protocols agreed (iv) end Oct. 2012 and in PAD ongoing (iv) action agreed Description: Partial achievement of DLIs and associated Risk Management: DLIs 1, 2, and 3 are fully scalable and disbursements will be proportional to the incremental disbursement risks. quantity of outputs achieved (i.e. meters complete) rather than an all-or-nothing target. DLIs 4 and 5 are partially scalable which will allow for partial disbursement based on partial output achievement. Where DLIs are not fully met the residual amounts can be rolled over into subsequent years for disbursement. Resp: Bank/GON Stage: Implementation Due Date : NA Status: DLIs agreed 2.5 Other Risks (Optional) Rating: Moderate (M) Description: Frequent transfer of key senior staff within DOR may Risk Management: NPC is Nepal’s lead policy body with a mandate to evaluate / improve delivery of results from disrupt SRN Bridge Programs continuity. Existing staff vacancies in GON programs. Achieving DLIs will require the SRN Bridge Program to function effectively. NPC’s will act as the Regional Offices (despite available budget and approved staff third party verification argent for DLIs. If the SRN Bridge Program is underperforming due to staff transfers, under positions) may compromise SRN Bridge Program’s ability to oversee resourcing, or other factors NPC can exercise its mandate and take corrective action within GON. divisional office led investments. Resp: GON Stage: Implementation Due Date : Recurrent Status: NPC role agreed 3. OVERALL RISK RATING Substantial (S)

Annex 9: IMPLEMENTATION SUPPORT PLAN

To provide the necessary implementation support to the SRN Bridge Program to ensure the successful completion of the DLIs and various commitments under the Action Plan the support strategy consists of two main elements: • Capacity-building support to DOR , the regional directorates and divisional offices and other entities responsible for the functioning of the SRN Bridge Program through appointment of Capacity-Building Consultants; and • Continuous monitoring and implementation support from the Bank team with intermittent inputs from specialist consultants. Capacity Building Consultants: Arrangements have been made to use resources within the on-going DOR-managed Road Sector Development Project (RSDP), to procure the services of a consultant to provide long term capacity building services to the Program. The Capacity-Building Consultants will support the Bridge Project, the regional directorates and divisional offices and other entities responsible for the effective implementation of the Program. The consultants will provide a combination of supply driven capacity building support and demand-driven services in the technical, fiduciary and social and environmental aspects of the SRN Bridge Program. Priority will be given to services that directly support in the achievement of the DLIs and other important areas of the SRN Bridge Program’s development as reflected in the Action Plan. The main areas of capacity building support are as follows:

Technical Bridge technology management, asset management and use of Bridge Management System, quality management procedures, planning and design and M&E including reporting of physical and financial progress.

Fiduciary Procurement, financial management and support to entities responsible for SRN Bridge Program audit.

Social and Environment Effective implementation of environmental and social issues at planning and implementation phases, strengthening of GESU

Cross cutting issues Public awareness campaigns, and reporting and training programs

The Capacity-Building Consultants will provide intensive support to the program for the first three years of program implementation. After this time, and once the various Program systems have become better established, the consultant services will become more intermittent and demand responsive. The extent to which this happens will be dependent on the capacity developed within the Program. The Capacity- Building Consultants will be led by a full time resident international advisor and supported by a full time resident deputy advisor. This full time team will be supported by intermittent inputs from international and domestic experts on specific technical issues. The estimated cost for these services is US$2.6 million over the five year period. Bank implementation support: The core Bank Task Team, including team leader, will be located in the Kathmandu office so that emerging issues can be identified and resolved in a timely manner. The task team will make use of reports from the Capacity Building Consultants, M&E reports from the program and evidence from implementation support visits to the field to prioritize areas for additional task team support. The implementation support will focus on a number of issues including the implementation progress review, achievement of program results and DLIs, progress on actions set out in the action plan, the identification and resolution of emerging issues, and the monitoring of performance of different

69 systems (financial management, procurement, governance, and social and environment). The table below summarizes the implementation support focus. Table 9.1: Main focus of Implementation Support

Resource Time Focus Skills Needed Estimate First • Monitoring of resource flow, and individual • Task leadership US$200,000 twelve project-level budgeting. • Financial months • Monitoring the working of BMS and fine management tuning, if necessary • Procurement • Setting up of the quality assurance mechanism • Governance and its implementation • Bridge management • Setting up outsourcing of Program and engineering implementation activities and its assessment. • Quality assurance • Setting up of Bank technical support and • Social monitoring its effectiveness • Environmental • Monitoring of agreed actions linked to • Impact assessment institutional development, Financial • Asset management management, procurement, governance, social • Change and environmental management and • Assessment of working of the system set up to process observation verify the DLIs and the achievement of and consultation program results and DLIs. • Establishment of third party verification mechanism and assessment of its effectiveness • Baseline surveys 12-36 • Monitoring of resource flow and budgeting. • Program US$150,000 months • Monitoring the working of BMS management per year • Quality assurance system monitoring • Fiduciary • Program scope with the maintenance first • Governance approach • Bridge management • Bank technical support monitoring and engineering • Continue monitoring of agreed actions linked • Quality assurance to institutional development, financial • Social management, procurement, governance, social • Environmental and environmental • Impact assessment • Monitoring of the third party verification • Asset management mechanism • Change • Assessment of the achievement of program management and results and DLIs. process observation • Follow-up surveys and consultation 36-60 • Monitoring of resource flow and budgeting. • Program US$100,000 months • Monitoring the working of BMS management per year • Quality monitoring • Fiduciary • Program scope with adherence to the • Governance maintenance first approach • Bridge management • Continue monitoring of agreed actions linked and engineering to institutional development, financial • Quality assurance

Resource Time Focus Skills Needed Estimate management, procurement, governance, social • Social and environmental • Environmental • Monitoring of the third party verification • Impact assessment mechanism • Change • Monitoring of bridge asset management system management and • Impact analysis process observation and consultation The presence of the core task team in Kathmandu will allow continuous follow-up with the relevant Program entities and allow timely identification of emerging issues linked to program implementation. Visits to the bridge construction/maintenance sites will be made, on a sample basis, at least every six months but with greater frequency in the first two years of the SRN Bridge Program. A good relationship will be built with DOR based on close client support and mutual trust. The implementing agencies will be encouraged to notify the Bank of any problems encountered during implementation and to seek the Bank’s help and support. In addition, the Bank team will keep contact with other program-related government agencies to make sure any support is tailored to their requirements. Apart from routine supervision and monitoring, the Bank will provide advisory support to the SRN Bridge Program. The Bank will also provide further demand-driven technical backstopping support during implementation (e.g., in the areas of bridge design, bridge technology, bridge asset management, supervision, monitoring and evaluation, social and environment, procurement, etc.). Such support will be identified jointly by the Bank and DOR at different stages of the program implementation. The Bank’s advisory support will be provided by a combination of Bank staff and consultants with specific technical expertise. Table 9.2 provides the expected skill mix and levels of input. Table 9. 2: Task Team Skills Mix Requirements for Implementation Support

Number of Number of Skills Needed Comments Staff Weeks Trips Project management & 60 10 Responsibility of TTL. Assumed that the TTL control will be stationed in Nepal; All international trips; local field trips not included. Bridge technology and 30 10 International specialists. All international trips. Bridge Management Local field trips not included. System Social issues 30 5 Local Specialist and international specialist ratio: 50:50; All international trips. Local field trips not included. Environmental issues 30 5 Local Specialist and international specialist ratio: 75:25; All international trips. Local field trips not included. Procurement issues 30 0 Local Specialist and international specialist ratio: 75:25; All international trips. Local field trips not included. Financial management 30 0 Local Specialists; Local field trips not included. Governance 20 0 Local Specialists; Local field trips not included.

Quality assurance 30 0 International specialists. All international trips. Local field trips not included. Results monitoring 30 5 Local Specialist and international specialist ratio: 75:25; All international trips. Local field trips not included. Impact assessment 30 10 International specialists. All trips are international trips. Local field trips not included. Bridge asset management 15 5 Local Specialist and international specialist ratio: 50:50; All international trips. Local field trips not included. Role of Development Partners: The Swiss Development Corporation (SDC) is providing technical assistance support to DoLIDAR in bridge management on the LRN. Close coordination will be maintained with SDC to share experience and bridge management tools. Although not confirmed at the time of writing SDC may also provide support on monitoring the achievement of results for SRN.

Annex 10: IMPACT EVALUATION CONCEPT NOTE

Introduction The goal of this document is to propose an evaluation design to assess the impact of the Nepal Bridge Improvement and Maintenance Program. As in any impact evaluation, the aim is to go beyond simple correlations between outcomes and program participation and to detect causal relationships between the relevant variables. In the literature, the causal effect of a program (or treatment) is defined as the difference between the observed outcome of a treated unit (city/village/person/etc) and the result that this same unit would have obtained in absence of the program, i.e. the counterfactual outcome. Since the counterfactual outcome is unobservable by definition, in order to assess the average impact of a program it is necessary to compare the treated units to a pool of non-participants, i.e. a comparison group. The main challenge of an impact evaluation is, then, to find a credible identification strategy to construct a control group; an appropriate control group should only differ from the treatment group in that it did not receive the program, since this ensures that the differences in outcomes between groups are due exclusively to the program. The key to the construction of a valid control group is the identification assumption, which states under what conditions the untreated group can be considered comparable to the treated group. Intervention The Nepal Bridge Improvement and Maintenance Program aims at enhancing connectivity of communities in Nepal by improving bridge infrastructure. More precisely, the program will help in the maintenance and rehabilitation of several existing bridges, completion of construction activities of the under-construction bridges and in the construction of some new bridges. The new bridge construction is contingent on the amount available after fulfilling the maintenance and under-construction bridge obligations. The selection of bridges to be maintained and rehabilitated will be based on a prioritized list considering the condition of the existing bridges and the program’s budget constraints, and an analogous procedure will be used to select the sites where new bridges will be constructed. This document will focus on evaluating the third component, that is, the construction of new bridges. Research Questions The proposed impact evaluation aims to determine whether the program is successful in enhancing connectivity of communities in Nepal. The evaluation will also seek to identify impacts across different groups including any differential gender impacts. More specifically, the evaluation seeks to answer the following questions: (i) Does the program increase access to services? a. Health: reduction of travelling time to the nearest facility, increase in frequency of trips / increase in the number of people attending medical facilities b. Education: reduction of travelling time to the nearest facility, increase in school attendance / reduction of absenteeism and delays (ii) Does the program increase access to markets? a. creation of income-generation opportunities b. opening of new shops near the constructed bridges c. access to market centers to sell products and buy household goods (iii) Does the program reduce travel time for non-local traffic?

Control Group and Identification Strategy An ideal impact evaluation would randomly choose the sites where the new bridges will be constructed among a list of eligible sites. This randomization would ensure that the treated and untreated sites are, on average, identical in terms of both observable and unobservable characteristics. In this context, the comparison of outcomes between groups would yield the estimate of the causal effect of the program. For this reason, the closer the evaluation design gets to this ideal experimental benchmark, the more credible the results will be. However, randomizing participation between all eligible sites may not be feasible because it is not compatible with the priorities that each site has been assigned. Nevertheless, considering that the budget only allows treating a subsample of the eligible sites, the list can be restricted to the first 60 prioritized sites. One implication of this is that this restricted list of eligible sites will be much more homogeneous than the whole population of eligible sites, since the first 60 sites have approximately the same priority. This creates the possibility of randomizing participation. Moreover, the fact that not all the needed bridges can be constructed simultaneously may help construct a comparison group even if eventually all eligible sites will be treated. One strategy would consist on randomizing across the first 60 sites, assigning 30 sites to the treatment group and the remaining 30 sites to the control group. It is worthy to note that this randomization does not mean that the control group will be excluded from the program; for instance, it can be treated in subsequent years. The construction of the comparison group by means of an experimental design ensures that, with a sufficiently large sample size, the treated and control groups will have the same characteristics on average, and thus the simple difference in outcomes between groups captures the causal effect of the program without the need of sophisticated econometric techniques. With a sample as small as 60, however, simple randomization may not be totally successful in balancing the treatment and control, and thus some differences in ex-ante characteristics between groups could prevail. A useful alternative that allows “forcing” the balancing between groups may be to form pairs of similar sites and randomly assign the treatment within each pair. To treat 30 sites in the first year, one would take the list of the first 60 sites and form 30 pairs of comparable sites and then, within each pair, randomly assign one site to the treatment, one site to the control group. The prioritized list could help construct homogeneous pairs, in the following way: using the ordered ranking of sites, it is reasonable to assume that each site will be very similar to the following site in the list, i.e., the first and second sites will be very similar, the third and the fourth, and so on. Thus, one could form pairs using two consecutive sites from the list, and then randomly assign one of them to the treatment, the other to the control group. Under this design, the treated and control groups will be comparable by construction. Again, this avoids having to resort to complex econometric methods to account for differences between groups. If randomization is not feasible, a second-best alternative would be to divide the list of eligible sites in blocks in decreasing order of priority; then, the upper block is treated in the first phase, the second block in the second phase, and so on. Thus, the blocks that are treated in the final phases can serve as a control group for the blocks treated in the first phases. However, since the different blocks are not directly comparable because they have different priority, additional statistical techniques (under stronger identification assumptions) need to be used to account for potential biases that may affect the estimation, as explained in the next section. Methodology of analysis In addition to the identification of the research questions, the sample structure, treatment and control groups, a systematic impact evaluation requires the definition of a framework analysis. Although the exact methodology of analysis will depend on the identification strategy chosen, the study will implement a difference-in-difference (DiD) approach for comparisons between treatment and control groups. The DiD methodology consists on measuring the average change in a given outcome between two periods; before and after the intervention, for both treatment and control groups, and then comparing the

74 changes between the two groups. Since the groups are comparable and they only differ in their treatment status, this double difference reflects the causal effect of the program. The DiD econometric analysis allows controlling for several factors that may differ between treated and comparison groups. The before-after difference for each group corrects for any time-constant difference between treatment and control, whereas the difference between groups deals with external factors that affect the target population during the interval of analysis. Assuming that those factors reach treatment and control equally, the double difference successfully isolates the true causal effect of the intervention. Even in an experimental context, where there should be no baseline differences between groups, DiD may help account for some “contamination” of the data, especially when sample sizes are small. It is important to emphasize that this approach requires the existence of base-line and post-intervention information for treatment and control groups. Data collection and sources The evaluation requires two data collection rounds, the baseline, which will be collected before the implementation of the program, and the follow up. Both rounds will include information on the top 60 sites of the prioritized list, half of which will be treated as explained in previous sections. As to the data sources, several instruments can be used to obtain the relevant information: i. Household surveys ii. Origin-destination surveys to characterize the traffic in the bridges iii. Secondary sources such as school and health center registries to complement the information on outcomes and other relevant variables iv. Ad-hoc surveys to include information on people’s perceptions Timeline • 2012: finalization of prioritized list of sites • 2013: baseline survey • 2016: follow-up survey

IBRD 39229 81° 00' 00" 82° 30' 00" 84° 00' 00" NEPAL BRIDGES IMPROVEMENT AND MAINTENANCE PROGRAM SUPPORT PROJECT

NATIONAL PARKS/CONSERVATION AREAS/ WILD LIFE RESERVES/HUNTING RESERVES BRIDGE STATUS: ORIGINATION DISTRICTS OF MAOIST NEW NEEDED INSURRECTION IN 1996 UNDER CONSTRUCTION HIGHWAYS URGENT PRIORITY – MAJOR MAINTENANCE 30° 00' 00" 30° 00' 00" ASPHALT ROADS HIGH PRIORITY – MAJOR MAINTENANCE NEEDED GRAVELLED ROADS MEDIUM PRIORITY – MAJOR MAINTENANCE NEEDED RAILROADS FAR WEST Rara National CHINA MINOR MAINTENANCE NEEDED NATIONAL CAPITAL Khaptad Park ROUTINE MAINTENANCE DEVELOPMENT REGION CAPITALS National UNDER MAINTENANCE INTERNATIONAL BOUNDARIES Park She-Phoksundo National DEVELOPMENT REGION BOUNDARIES Park Silgadhi 85° 30' 00" 87° 00' 00" MID WEST

Annapurna Birendranagar Dhorpatan Conservation Hunting Area Shukla Phant Reserve Manaslu 28° 30' 00" Wild Life Reserve Conservation Area

Pokhara Langtang Shivapuri Bardiya National Park National Park National Sagarmatha Park National Park WEST Makalu Barun Kanchanjunga KATHMANDU National Park Conservation Area CENTRAL Chitawan Conservation Parsa Area Wild Life 27° 00' 00" Reserve EAST Dhankuta 27° 00' 00"

INDIA

Koshi Tappu Wild Life Reserve

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. 81° 00' 00" 82° 30' 00" 84° 00' 00" 85° 30' 00" 87° 00' 00" MAY 2012