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ASIAN DEVELOPMENT BANK RRP:IND 32203 REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE BOARD OF DIRECTORS ON A PROPOSED LOAN TO INDIA FOR THE WEST BENGAL CORRIDOR DEVELOPMENT PROJECT November 2001 CURRENCY EQUIVALENTS (as of 1 November 2001) Currency Unit – Rupee/s (Re/Rs) Re1.00 = $0.208 $1.00 = Rs47.98 In this report, an exchange rate of $1.00 = Rs46 prevailing during appraisal is used. ABBREVIATIONS ADB – Asian Development Bank CRF – Central Road Fund EIRR – economic internal rate of return EMAP – Environmental Mitigation Action Plan GWB – Government of West Bengal JBIC – Japan Bank for International Cooperation km – kilometer MORTH – Ministry of Road Transport and Highways NHAI – National Highways Authority of India NH – national highway PIU – project implementation unit PWRD – Public Works Road Department RP – Resettlement Plan ROW – right-of-way SH – state highway STC – State Transport Corporation STD – sexually transmitted diseases TA – technical assistance VOC – vehicle operating cost WBPWRD – West Bengal Public Works (Roads) Department NOTES (i) The fiscal year (FY) of the Government ends on 31 March. FY before a calendar year denotes the year in which the fiscal year ends. For example, FY2001 begins on 1 April 2000 and ends on 31 March 2001. (ii) In this report, “$” refers to US dollars. CONTENTS Page LOAN AND PROJECT SUMMARY ii MAP vii I. THE PROPOSAL 1 II. INTRODUCTION 1 III. BACKGROUND 1 A. Sector Description 1 B. Government Policies and Plans 6 C. External Assistance to the Sector 6 D. Lessons Learned 7 E. ADB’s Sector Strategy 7 F. Policy Dialogue 8 IV. THE PROPOSED PROJECT 12 A. Rationale 12 B. Objectives and Scope 13 C. Cost Estimates 14 D. Financing Plan 15 E. The Executing Agency 16 F. Implementation Arrangements 16 G. Environmental and Social Measures 18 V. PROJECT JUSTIFICATION 20 A. Economic Analysis 20 B. Poverty Impact 22 C. Risks 24 VI. ASSURANCES 24 A. Specific Assurances 24 B. Conditions for Award of Contracts 26 VII. RECOMMENDATION 26 APPENDIXES 27 LOAN AND PROJECT SUMMARY Borrower India Project Description The east South Asia subregion, comprising Bangladesh, Bhutan, eastern India (West Bengal and the northeastern states), and Nepal, is home to about half a billion people and is one of the poorest regions in the world. The Indian state of West Bengal is strategically located to play a pivotal and catalytic role in promoting subregional economic cooperation and reducing poverty in the subregion. Good transport infrastructure is recognized as a prerequisite and foundation on which governments can plan and implement their economic and social development programs. The development of the West Bengal Corridor with the improvement of access and capacity will remove a critical bottleneck in the movement of freight and passengers from the northern parts of West Bengal; the northeastern states of India; and neighboring Bangladesh, Bhutan, and Nepal to the ports of Kolkata and Haldia. Classification Economic growth Environmental Assessment Category B. An initial environmental examination was undertaken and the summary is a core appendix. Rationale The north-south transport corridor in West Bengal (West Bengal corridor) extends from Haldia port via Kolkata (also a river port) to the northern parts of West Bengal. In northern West Bengal, the corridor divides into routes to Nepal and Sikkim in the west; and Assam, Bhutan, and the northeastern states of India in the east. Along the corridor, are several eastward links to Bangladesh. A large portion of the West Bengal corridor and the eastward links to Bangladesh are in urgent need of improvement from the current deteriorated two-lane, intermediate lane and single-lane standard. National Highway (NH) 34, which forms the spine of the transport system in the corridor, provides the nearest access to ports (Kolkata and Haldia) for the northeastern states of India and neighboring Bhutan and Nepal, which are landlocked. Two state highways provide links from the border with Bangladesh to the north- south corridor and the Indian national road network (map p.vii). An efficient transport system along the iii north-south corridor will not only provide the basis for economic growth and poverty reduction in West Bengal, but will also have significant implications for improving subregional economic cooperation by increasing trade and other economic activities. The ability of regions and countries to grow rapidly depends on their capacity to link with regional and global markets. Connectivity through improved transport has important implications for poverty reduction by offering new economic opportunities through better market linkages and increased employment possibilities. In 1998, the Asian Development Bank (ADB) provided technical assistance (TA) to assist the Government of West Bengal in preparing a strategy and investment plan for the development of the north-south corridor. The TA study, which was completed in June 2000, identified a number of high-priority multimodal transport infrastructure components for financing and implementation through a mixture of government budget and public-private partnerships. The highest priority component in terms of economic development and poverty reduction impacts, strategic importance, and suitability for public funding is the improvement of NH 34, which is the artery of the north-south transport corridor, and the eastward connections to the border with Bangladesh. Two other priority components, the connections between Haldia and Kolkata and the national highway network, are being examined through detailed feasibility studies funded by the National Highways Authority of India and will be considered for ADB financing under the next phase of corridor development. Meanwhile, two other corridor sections with potential for private participation are being developed as public-private partnership projects. Objectives and Scope The objective of the Project is to support the development of a corridor in West Bengal to promote subregional economic activities, reduce poverty, and facilitate trade by removing critical capacity constraints and improving transport efficiency. Because of the strategic location of the north-south corridor, an improved transport system will facilitate subregional economic cooperation, and enhance the mobility of rural communities, thus supporting rural development and increasing the earnings of low-income groups. iv The Project will (i) enhance access along the north- south corridor by improving about 370 kilometers (km) of NH 34; (ii) upgrade subregional connectivity by improving about 150 km of state highways that connect the corridor to the border with Bangladesh; and (iii) provide rural communities with access to markets, schools, hospitals, other social services, and employment opportunities by rehabilitating about 100 km of rural access roads. Through policy dialogue carried out during Project processing, a corridor and sector development framework was developed to promote (i) sound corridor development and management practices; and (ii) improve the policy environment for the efficient delivery of transport infrastructure in West Bengal. The Project will also strengthen environmental and social governance through mitigation measures in Project design, construction, and operation. Cost Estimates ($ million) Foreign Local Total Item Exchange Currency Cost Right-of-Way 0.0 18.6 18.6 Civial Works 147.4 79.3 226.7 Consulting Services 12.6 2.9 15.5 Project Management 0.0 4.6 4.6 Contingencies 26.5 13.6 40.1 Interest During Construction 17.5 0.0 17.5 Total 204.0 119.0 323.0 Financing Plan ($ million) Foreign Local Total Source Exchange Currency Cost Percentage ADB 204.0 6.0 210.0 65 Government 0.0 113.0 113.0 35 Total 204.0 119.0 323.0 100 ADB = Asian Development Bank. Loan Amount and Terms A loan of $210 million from ADB’s ordinary capital resources will be provided under ADB’s LIBOR- based loan facility. The loan will have a 25-year term, including a grace period of 5 years, an interest rate determined in accordance with ADB’s LIBOR-based lending facility, a commitment charge of 0.75 percent per annum, a front-end fee of 1.0 percent, conversion options that may be exercised v in accordance with the terms of the draft Loan Agreement, the Loan Regulations, and ADB’s Conversion Guidelines, and such other terms and conditions set forth in the draft Loan Agreement. Period of Utilization Until 30 June 2007 Executing Agency Ministry of Road Transport and Highways (MORTH) and West Bengal Public Works (Roads) Department (WBPWRD) Implementation Arrangements The Project will be implemented by Project Implementation Units under MORTH for the national highway component and WBPWRD for the state highway and rural access roads components. Procurement The civil works contract packages will be procured in accordance with ADB’s Guidelines for Procurement following international competitive bidding procedures. The contracts for the rural access roads will be let under local competitive bidding procedures. Consulting Services International and domestic consultants will be required for design and construction supervision. The consultants will be recruited in accordance with ADB’s Guidelines on the Use of Consultants and other arrangements satisfactory to ADB for the engagement of domestic consultants. Estimated Project Completion Date 30 June 2006 Project Benefits and Beneficiaries The main quantifiable benefit accruing from the Project consists of savings in vehicle operating costs, which will lead to a reduction in transport costs. The economic internal rate of return of the Project is estimated at 21 percent. The Project will also improve road safety and reduce travel time between Shiliguri in the north of West Bengal, close to the border with Nepal and Bhutan, and Kolkata and Haldia in the south. The direct beneficiaries of the Project are road users, transport operators, and importers and exporters who will benefit from lower transport costs, reduced travel time, and improved safety. The Project’s influence area has a population of about 19 million, of which 31-33 percent, depending on the project district, are poor compared with the national average of 26 percent.