Report and Recommendation of the President to the Board of Directors

Project Number: 46543 August 2013

Proposed Grant Republic of : Central Asia Regional Economic Cooperation Corridors 3 and 5 Enhancement Project

This document is being disclosed to the public prior to Board consideration in accordance with ADB’s Public Communications Policy (PCP) 2011 after excluding information that is subject to exceptions to disclosure set forth in the PCP. Subject to any revisions required following Board consideration, this document is deemed final.

CURRENCY EQUIVALENTS (as of 15 July 2013) Currency unit – somoni (TJS) TJS1.00 = $0.2098 $1.00 = TJS4.7669

ABBREVIATIONS

ADB – Asian Development Bank AH – Asian Highway CAREC – Central Asia Regional Economic Cooperation EIRR – economic internal rate of return IEE – initial environmental examination km – kilometer MOT – Ministry of Transport PIU – project implementation unit

NOTE

In this report, “$” refers to US dollars.

Vice-President X. Zhao, Operations 1 Director General K. Gerhaeusser, Central and West Asia Department (CWRD) Director X. Yang, Transport and Communications Division, CWRD

Team leader Z. Wu, Transport Specialist, CWRD Team members N. Djenchuraev, Environment Specialist, CWRD D. Hill, Senior Transport Specialist, CWRD G. Jurado, Operations Assistant, CWRD M. Mamayson, Associate Project Analyst, CWRD V. Medina, Social Development Specialist (Safeguards), CWRD F. Nuriddinov, Project Officer, CWRD D. Perkins, Counsel, Office of the General Counsel S. Soetantri, Transport Specialist, Regional and Sustainable Development Department J. Stickings, Senior Social and Gender Development Specialist, CWRD C. Tiangco, Energy Specialist, CWRD Peer reviewer J. Procak, Regional Cooperation Specialist, East Asia Department

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

CONTENTS Page PROJECT AT A GLANCE MAP I. THE PROPOSAL 1 II. THE PROJECT 1 A. Rationale 1 B. Impact and Outcome 3 C. Outputs 3 D. Investment and Financing Plans 4 E. Implementation Arrangements 5 III. DUE DILIGENCE 6 A. Technical 6 B. Economic and Financial 7 C. Governance 7 D. Poverty and Social 8 E. Safeguards 8 F. Risks and Mitigating Measures 9 IV. ASSURANCES AND CONDITIONS 10 V. RECOMMENDATION 10

APPENDIXES

1. Design and Monitoring Framework 11 2. List of Linked Documents 13

PROJECT AT A GLANCE

1. Project Name: Central Asia Regional Economic Cooperation Corridors 3 and 5 2. Project Number: 46543-002 Enhancement Project 3. Country: Tajikistan 4. Department/Division: Central and West Asia Department/Transport and Communications Division 5. Sector Classification: Sectors Primary Subsectors Transport, and information and √ Road transport communication technology

6. Thematic Classification: Themes Primary Subthemes Capacity development Institutional development Economic growth Widening access to markets and economic opportunities Regional cooperation √ Cross-border infrastructure Social Development Other vulnerable groups

6a. Climate Change Impact 6b. Gender Mainstreaming Gender equity theme (GEN) Adaptation Low Effective gender mainstreaming (EGM) √ Mitigation Some gender elements (SGE) No gender elements (NGE)

7. Targeting Classification: 8. Location Impact: Targeted Intervention National Medium Geographic Income General Millennium Regional High dimensions poverty at Intervention development Rural Medium of inclusive household goals Urban Low growth level √

9. Project Risk Categorization: Low

10. Safeguards Categorization: Environment B Involuntary resettlement B Indigenous peoples C

11. ADB Financing: Sovereign/Nonsovereign Modality Source Amount ($ million) Sovereign Project grant Asian Development Fund 70.0 Total 70.0

12. Cofinancing:

No Cofinancing available

13. Counterpart Financing: Source Amount ($ million) Government 19.0 Total 19.0

14. Aid Effectiveness: Parallel project implementation unit No Program-based approach No

o 69 o 00'E 73 00'E

TAJIKISTAN CENTRAL ASIA REGIONAL ECONOMIC COOPERATION

Shaydon CORRIDORS 3 AND 5 ENHANCEMENT PROJECT

Taboshar Buston UZBEKISTAN Kayrokkum Reservoir Khujand N Kayrokkum Konibodom Zafarobod Chkalovsk Gafurov o Nov Isfara o 40 00'N Gonchi Proletar 0 50 100 40 00'N Vorukh Istaravshan Kilometers KYRGYZ REPUBLIC Shakhriston

Panjakent SUGD Shakhristan Pass REGION Karamyk Ayni Mehron Jirgatol Kizil-Art Sayron Pass Anzob Pass Garm Tojikobod REGIONS UNDER DIRECT Darband Lake Karakul REPUBLICAN Varzob JURISDICTION Tavildara Shahrinav Rogun Tursunzoda Akbaytal Pass Fayzobod Hissor Vakhdat Kalaikhumb Khovaling Somoniyon Norak GORNO-BADAKHSHAN PEOPLE'S Baljuvon Vanch AUTONOMOUS REGION REPUBLIC OF Yovon Nulvand Murgob CHINA UZBEKISTAN Lake Sarez Kulma Pass Obikiik Dangara Muminobod Kuybishev Sovet Kulob Rushon Kurgonteppa Sarband Vose Shuroobod Ismoili Somoni Moskva Vakhsh Isoev Farkhor Jilikul Khorug o Kubodiyon 37 00'N Dusti 37 o 00'N Shakhrituz Roshtkala Panji Poyon A F G H A N I S T A N National Capital CAREC Corridor 5 Regional Center CAREC Corridor 6 Ishkoshim Autonomous Regional Center Asian Highway 66 This map was produced by the cartography unit of the Asian Development Bank. District Center/Town Proposed Road The boundaries, colors, denominations, and any other information shown on this Railway Planned Road 13-0046b map do not imply, on the part of the Asian Development Bank, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries, River Existing Road colors, denominations, or information. CAREC Corridor 3 International Boundary o o Boundaries are not necessarily authoritative. A 73 00'E

V 69 00'E

I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed grant to the Republic of Tajikistan for the Central Asia Regional Economic Cooperation (CAREC) Corridors 3 and 5 Enhancement Project.1

2. The project is located in the Regions under Direct Republican Jurisdiction and the Khatlon region. To support regional cooperation and inclusive growth in the country, the project will finance (i) the rehabilitation and reconstruction of approximately 175 kilometers (km) of the Sayron–Karamyk road section of CAREC corridors 3 and 5 and the subnetwork (the Vose– Khovaling road); (ii) the enhancement of road safety and maintenance; and (iii) local community development including improving rural feeder roads and public facilities, and training local communities.2

II. THE PROJECT

A. Rationale

3. Tajikistan is landlocked and depends on transport corridors for investment, job creation, trade, and ultimately economic growth and poverty reduction. High transport costs, because of ailing transport infrastructure and low network connectivity coupled with geographic isolation and mountainous terrain, pose a significant barrier to the country’s economic and social development.3 The backbone of Tajikistan’s national road network, comprising three CAREC corridors and three Asian Highway (AH) routes, has been largely improved with assistance from the Asian Development Bank (ADB) and other development partners.4 The improved network enables Tajikistan to serve as an important transit route in Central Asia. With continued transport and trade facilitation support from ADB5 and other development partners, and the planned Turkmenistan-Afghanistan-Tajikistan railway construction that will connect southern Tajikistan with Turkmenistan through planned Afghanistan railway network, the synergistic effect will offer new opportunities to intensify regional cooperation and trade, particularly with Tajikistan’s accession to the World Trade Organization on 2 March 2013.

4. The overlapping portion of CAREC corridors 3 and 5—from the capital Dushanbe to the Karamyk border with the Kyrgyz Republic—is a largely two-lane highway of about 340 km. Around 160 km of the road passes along deep riverbanks and is difficult to widen because it is constrained by mountainous topography. Because of the government’s limited budget for

1 The design and monitoring framework is in Appendix 1. 2 The Asian Development Bank (ADB) provided project preparatory technical assistance. ADB. 2013. Technical Assistance to the Republic of Tajikistan for the CAREC Corridors 3 and 5 Enhancement Project. Manila. 3 For example, the domestic freight rate between Dushanbe and Khujand (approximately 300 km apart) exceeds that between Moldova and the United States, according to the World Bank’s latest Country Economic Memorandum on Tajikistan (Report No. 54677-TJ) released in 2011. The cost to export (US$ per container) that includes inland transport is 8,450 in Tajikistan, around four times of those in Eastern Europe and Central Asia, as per the World Bank’s Doing Business 2013 data for Tajikistan. 4 CAREC corridor 3 (concurrently AH65) runs east–west from the border with Uzbekistan through Dushanbe to the border with the Kyrgyz Republic; CAREC corridor 6 (concurrently AH7) runs north–south from the border with Uzbekistan through Dushanbe to the border with Afghanistan; CAREC corridor 5 overlaps with corridor 3 from the border with the Kyrgyz Republic up to Dushanbe, and with corridor 6 from Dushanbe to the border with Afghanistan; AH66 starts at Dushanbe and passes through Vakhdat, Dangara, Vose, Kulob, Khorug, and Murgob before reaching the Kulma Pass (to the People’s Republic of China). 5 ADB. 2013. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Grants to the Kyrgyz Republic and the Republic of Tajikistan for the Central Asia Regional Economic Cooperation Regional Improvement of Border Services Project. Manila. 2 improving a longer section of road at the time the project was designed in 2006 and the limited traffic forecasted at the time, the design for the Sayron–Karamyk section adopted one asphalt concrete layer.6 Additionally, other rehabilitation work such as rock excavation, drainage, and concrete retaining walls was reduced in quantity because of a lack of funds. The rehabilitation of the section was completed in August 2011. The traffic has since then surged in both volume and axle loading, degrading the pavement condition faster than initially anticipated.7 There is an imminent need to enhance the Sayron–Karamyk section to extend road service life, and improve road safety and maintenance for better serviceability. Moreover, because the traffic capacity on CAREC corridors 3 and 5 is likely to be realized earlier than expected, the connectivity and capacity of the subnetwork will need improving.8

5. The Vose–Khovaling–Tavildara road extends the first ADB-assisted road in Tajikistan, starting at AH66 and connecting through the Darband–Tavildara–Kalaikhumb road to CAREC corridors 3 and 5. This road was categorized as a republican (national) road during the Soviet era but has seriously deteriorated because of prolonged inadequate maintenance and recent flood damage, causing transport difficulty and safety concerns. The government has prioritized rehabilitating the Vose–Khovaling road, with the Khovaling–Tavildara road to follow. Improvements to this stretch of road will (i) cut travel time almost in half from the Kyrgyz border to Khatlon; (ii) open a new trade corridor in the most populous region in Tajikistan; (iii) provide easier access to southern markets; and (iv) enhance economic connections with CAREC corridors 3 and 5, AH66, and Afghanistan and beyond.9

6. Progress has been made on policy and institutional reforms in Tajikistan’s transport sector including (i) developing the Transport Sector Master Plan,10 (ii) restructuring the Ministry of Transport (MOT), (iii) strengthening maintenance, and (iv) building procurement capacity through introducing competitive bidding. While more sector activities including developing a road condition database and strengthening vehicle overloading controls are under way, substantial gaps remain. The core problems are poor road connectivity and serviceability, deteriorating infrastructure network, deficient asset management, limited private sector involvement, and limited institutional capacity. Poor connectivity and high transport costs have caused constrained economic and social development. Under the project, ADB will help improve the connectivity and strengthen institutional capacity in road safety and maintenance.

7. The improvement of the regional and national transportation network remains the government’s top priority, as stressed in its Living Standards Improvement Strategy of Tajikistan

6 ADB. 2007. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Asian Development Fund Grant to the Republic of Tajikistan for the CAREC Regional Road Corridor Improvement Project. Manila. The project will be closed in September 2013 upon completion of the ongoing institutional strengthening component. 7 Traffic on CAREC corridors 3 and 5 grew at about 15% per year in 2005–2012. International traffic passing the Karamyk border increased from about 10 trucks per day in 2006 to around 100 trucks per day in 2012. The average daily traffic on the corridor in 2012 reached 2,000 vehicles comprising over 50% trucks. 8 For example, the rehabilitation of the Kurgonteppa–Dangara road is nearly finished; the extensional rehabilitation work for the Dangara–Khovaling road is ongoing. The improvement of the Darband–Tavildara–Kalaikhumb road that links CAREC corridors 3 and 5 to AH66 is planned for 2014, the project feasibility study of which is near completion. Sections of AH66 between Kulob and Murgob are being rehabilitated or planned for improvement in 3– 5 years. 9 The road will alleviate future traffic pressure to the national capital by providing a new conduit for southbound traffic. Multimodal goods transport at Vose rail station was functioning efficiently before the Tajik rail line got disconnected from the Uzbekistan rail network. With the extension of southern Tajik rail line to connect with the planned Afghanistan rail network, goods can again be efficiently transported through AH66 and CAREC corridors 5 and 6 or through the planned rail network. 10 ADB. 2011. Developing Tajikistan’s Transport Sector—Transport Sector Master Plan. Manila.

3 for 2013–2015 and Tajikistan’s National Development Strategy 2007–2015. The project is part of the country’s Transport Sector Development Program up to 2025 and is included in the government’s 2014–2016 Public Investment Program. It also fits well with ADB’s Strategy 2020 in two core operational areas (infrastructure, and regional cooperation and integration) and is in line with ADB’s country partnership strategy for Tajikistan, 2010–2014.11

8. ADB assistance to Tajikistan’s transport sector has been successful. The government and development partners recognize transport as one of ADB’s main areas of expertise. The project design incorporates key lessons learned from past experience including (i) obtaining government assurances on project sustainability, (ii) expanding the project’s social development benefits for more inclusive development, and (iii) using advance contracting to avoid implementation delays.

B. Impact and Outcome

9. The impact of the project will be enhanced regional economic cooperation and inclusive economic growth in Tajikistan. The outcome will be improved regional network (CAREC corridors 3 and 5 and the subnetwork) connectivity.

C. Outputs

10. The project outputs will be (i) improved road conditions and enhanced road safety on CAREC corridors 3 and 5 (the Sayron–Karamyk road section, 88 km) and the subnetwork (the Vose–Khovaling road, 87 km) totaling 175 km; (ii) extended access to local communities through the improvement of rural feeder roads; and (iii) institutional strengthening of project management, contract supervision, and efficient road maintenance.

11. Improved road condition and enhanced road safety. The scope of rehabilitation and/or reconstruction work for the Vose–Khovaling road (category IV) includes selective widening at substandard sections; the easing of vertical and horizontal alignments at key locations; earthworks; pavement milling and overlay; the construction and/or rehabilitation of bridges, culverts, and drains; and roadside improvements and safety engineering features such as traffic signs, road markings, traffic barriers, sidewalks, road lighting, and slope protection measures. The scope of road enhancement work on the Sayron–Karamyk road section (category IV) includes remedial works of the base and/or subgrade layers in weak subsections; pavement overlay; the installation of improved drains in problematic areas; slope stabilization works in areas with regular rock fall risks; and road safety improvements including traffic signs, road markings, traffic barriers, road lighting, and slope protection measures. The existing road category will be maintained and level of service improved for both road sections.12

12. Extended access to local communities. The project will contribute to the social development of local communities by improving about 30 km of village feeder roads in the Vose and Khovaling districts, constructing roadside rest areas for male and female vendors and

11 ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, 2008–2020. Manila; ADB. 2010. Country Partnership Strategy: Tajikistan, 2010–2014. Manila. The improvement of Sayron– Karamyk section was included in ADB. 2012. Country Operations Business Plan: Tajikistan, 2013–2014. Manila. On 6 December 2012, the government requested ADB to finance the Vose–Khovaling road section as well. 12 In accordance with Russian road design standard SNiP 2.05.02-85 (which was adopted by the government), category IV roads require a design speed of 80 km/hour in plain terrain (60 km/hour in rolling terrain; 40 km/hour in mountainous terrain), a carriageway of two 3-meter lanes, and shoulder strengthening (paved portion) of 0.5 meters on both sides.

4 travelers, and providing solar energy installations for villages with winter electricity deficiencies. Training on maintenance of solar power facilities and women’s entrepreneurship, and public campaigns for community road safety awareness will also be provided.

13. Institutional strengthening. The project will strengthen institutional capacities on project management, contract supervision, and efficient road maintenance by piloting performance-based maintenance contracts for both project roads. The project will also improve institutional road safety management through (i) project road safety audits that include a final design review and post-construction audit on the completion of the physical works to correct deficiencies if any, and (ii) traffic safety training.

D. Investment and Financing Plans

14. The project is estimated to cost $89.0 million equivalent (Table 1).

Table 1: Project Investment Plan ($ million) Item Amount A. Base Costa 1. Road improvement and safety enhancement Improvement of the Sayron–Karamyk road section [This information Rehabilitation of the Vose–Khovaling road has been 2. Extended access to local communities removed as it 3. Institutional strengthening falls within Performance-based road maintenance exceptions to disclosure Consulting services for engineering, supervision and project management specified in Consulting services for project auditing and gender activities paragraph 97 (v) Recurrent cost for project administration and land acquisition and resettlement of ADB’s Public b 4. Taxes and duties Communications Subtotal (A) Policy 2011.] B. Contingenciesc Total (A+B) 89.0 a In mid-2013 prices. b To be financed from government resources. c Physical contingencies computed at 10% for works and goods, and 6% for consulting services. Price contingencies computed at 2.3% on foreign exchange costs and 7% on local currency costs; includes provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate. Source: Asian Development Bank estimates.

15. The government has requested a grant13 not exceeding $70,000,000 from ADB’s Special Funds resources to help finance the project. The financing plan is in Table 2.

Table 2: Financing Plan Amount Share of Total Source ($ million) (%) Asian Development Bank (ADF grant) 70.0 78.6 Government 19.0 21.4 Total 89.0 100.0 ADF = Asian Development Fund. Source: Asian Development Bank estimates.

13 A country’s eligibility for Asian Development Fund grants under the revised grant framework is determined by its risk of debt distress. The latest debt sustainability analysis determined that Tajikistan had a high risk of debt distress and was therefore eligible to receive 100% of its Asian Development Fund allocation as grants.

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E. Implementation Arrangements

16. MOT will be the executing agency. It has implemented six ADB-assisted road projects since 1998. Its project implementation unit (PIU) staff has the necessary experience and skills, and will be assisted by the technical departments of MOT and project management consultants during project implementation.

17. An international firm will be recruited in accordance with ADB’s Guidelines on the Use of Consultants (2013, as amended from time to time) to (i) help the PIU supervise project implementation, (ii) provide hands-on training in project management and reporting, and (iii) improve institutional capacity in road safety management and promote community road safety awareness. All procurement financed under the ADB grant will follow international competitive bidding and/or national competitive bidding procedures pursuant to ADB’s Procurement Guidelines (2013, as amended from time to time) and ADB’s prior review.

18. Advance actions in line with ADB’s procurement and consulting guidelines have been taken to expedite pre-construction works and avoid initial implementation delays. The implementation arrangements are summarized in Table 3 and described in detail in the project administration manual.14

Table 3: Implementation Arrangements Aspects Arrangements Implementation period January 2014–April 2017 Estimated completion date 30 April 2017 Management (i) Executing agency Ministry of Transport (ii) Implementation unit 7 staff members Procurement ICB 2 contracts (road civil works)a [This information has been removed as it ICB 2 contracts (goods) a falls within exceptions to NCB 1 contract (road civil works) a disclosure specified in paragraph 97 (v) Consulting services QCBS 453 person-monthsb of ADB’s Public Communications LCS 20 person-monthsb Policy 2011.] Retroactive financing Advance contracting was approved by ADB on 4 June 2013. Retroactive and/or advance financing is allowed for expenditure incurred up to 12 months prior to the contracting date of signing of the grant agreement, subject to the ceiling of 20% of the grant amount. Disbursement The ADB grant proceeds will be disbursed in accordance with ADB’s Loan Disbursement Handbook (2012, as amended from time to time) and detailed arrangements agreed upon between the government and ADB. ADB = Asian Development Bank, ICB = international competitive bidding, LCS = least-cost selection, NCB = national competitive bidding, QCBS = quality- and cost-based selection. a Excluding taxes, duties, and contingencies. b ADB’s Guidelines on the Use of Consultants (2013, as amended from time to time) will apply. Source: ADB.

14 Project Administration Manual (accessible from the list of linked documents in Appendix 2).

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III. DUE DILIGENCE

A. Technical

19. The project roads link northeastern and southern Tajikistan and provide connections among provincial areas, subdistricts, and the surrounding rural area. Inadequate maintenance and natural disasters have led to rapid road deterioration and necessitate improvement to ensure the safe and efficient movement of people and goods. The design and implementation modalities were selected in consideration of the technical viability, traffic safety, and road sustainability. For example, the road design allows flexibility for locations constrained by terrain and right-of-way, maximizes the use of local construction materials, and minimizes environmental and involuntary resettlement impacts. Climate resilience measures such as soil bioengineering for slope stabilization, solar energy installations for road safety, and special river bank protection for flood-prone road sections have been integrated in the road rehabilitation plan. Performance-based road maintenance will also be adopted to improve road service quality and prolong service life.

20. Road safety audits, and safety-related training and community awareness education programs will be conducted before the road safety improvements are carried out. A review of road safety will continue throughout implementation, including a post-construction audit to correct any potential deficiencies. Safety improvement measures, primarily simple and low-cost solutions, have been incorporated in the design to mitigate safety concerns as a result of the potential increase in traffic speed and volume after road rehabilitation. Road safety will be substantially improved with the provision of traffic signs, line markings, marked pedestrian crossings protected by speed control devices, and slope stabilization measures in mountainous sections where soil erosion, rock and debris flow, and slope failure often obstruct traffic throughout the year. Traffic calming devices and road lights will also be constructed to promote speed reduction at access points and improve safety through villages along the project roads.

21. The sustainability and efficiency of road maintenance operations will be increased by (i) maximizing the use of local construction materials, (ii) applying weighbridges to reduce undue road damage from vehicle overloading, and (iii) introducing a performance-based mechanism for contracting road maintenance to private sectors. The design solutions and performance- based maintenance will benefit local road agencies whose maintenance operations have been hampered by a lack of equipment and skilled labor force, and a high volume of maintenance work. With the expected institutional improvements, MOT’s road maintenance program will be strengthened and relevant local road agencies and/or organizations will develop the necessary capacity for sustainable road maintenance.

22. The minor upgrading to an all-weather surface of about 30 km of road that connects village feeder roads in the Vose and Khovaling districts will further improve access to basic social services such as schools, hospitals, and local markets. These roads will be selected from the list approved by MOT and local governments based on (i) geographic location, (ii) safeguards consideration, (iii) social and economic aspects, and (iv) opportunities for cooperation with other poverty alleviation projects in the area. Consultations with local governments and residents of rural villages will be conducted in identifying roads for repair. The local governments will be responsible for the continued maintenance following the road improvement.

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B. Economic and Financial

23. The economic analysis compared with-project and without-project scenarios. The project economic benefits include (i) vehicle operating cost savings, (ii) travel time savings, (iii) generated traffic, and (iv) road safety benefits. The project is economically viable, with a consolidated economic internal rate of return (EIRR) of 23.2% (28.9% for the Sayron–Karamyk road section and 15.9% for the Vose–Khovaling road). The sensitivity analysis pertaining to capital investment and economic and traffic growth was conducted to assess the robustness of the results of the economic analysis. The results show the project will maintain its economic viability under unfavorable scenarios. A quantitative risk analysis has also been carried out to reinforce the economic appraisal results, with two key variables relating to construction cost and economic growth incorporated. Risk analysis results show that the minimum risk-based EIRR predicted for the Sayron–Karamyk road section is 23.1%, with a 95% probability that the EIRR will be above 24.6%; and 14.4% for the Vose–Khovaling road, with a 95% probability that the EIRR will be above 15.1%.

24. The project financial sustainability is deemed strong because (i) funding for the main works comes directly from ADB’s Asian Development Fund grant, with the government providing counterpart funding mainly for taxes and duties, land acquisition and resettlement costs, and contingencies. As such, issues regarding government funding shortage will have negligible financial impact on the project; (ii) the project aligns well with other development activities such as rural growth, disaster mitigation, and education from other development partners including the European Bank for Reconstruction and Development, German development cooperation through KfW, United Nations Development Programme, World Food Programme; and (iii) the government is committed to provide funds to complete any required land acquisition and resettlement. The government has increased the road maintenance budget continuously, despite fiscal constraints. State budget allocations for road maintenance increased from TJS13.5 million ($4.4 million equivalent) in 2004 to TJS52.7 million ($11.1 million equivalent) in 2013. While this is still less than half of the nationwide maintenance needs, this budget outlay will continue to increase by about 15% per year during 2013–2017, and road maintenance continues to be prioritized by road importance.

C. Governance

25. The assessments of MOT’s procurement and financial management capacity, among other governance-related aspects, confirmed that its PIU has sufficient capacity to manage international and national procurement and has no major financial management deficiencies. The unit’s policies and procedures are adequate and in line with national and international legislation and ADB requirements. The PIU is capable of making timely payments, correctly recording all transactions and balances, supporting the preparation of regular and reliable financial statements, and safeguarding its assets. Further improvement areas include more transparent operations such as inviting civil society organizations to observe public biddings, streamlining the PIU business processes with more quality control measures, regularly updating operational tools, and providing necessary training for finance, accounting, and procurement staff.

26. ADB’s Anticorruption Policy (1998, as amended to date) was explained to, and discussed with, the government and MOT. The specific policy requirements and supplementary measures are described in the project administration manual (footnote 14).

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D. Poverty and Social

27. In consultation with communities on and near project roads, strong enthusiasm was expressed for the planned road improvement. The long travel time to markets and limited electricity supply for food processing activities relegates women to the lower end of the agricultural production value chain. Increased connectivity will benefit women and men in access to social services and trade. The project will significantly benefit them by reducing travel time to reach social services and markets. Moreover, by improving transport in the area, the project will help other poverty alleviation projects from development partners realize their full potential.

28. Many local men of working age are away working overseas, so the women left behind have to earn cash for daily expenses in addition to their responsibilities for the household and caring for the sick and elderly. To expand benefits for women, the project will finance roadside public facilities for women’s improved comfort and income generation, street lighting and road safety measures, and feeder roads for improved access to poor villages not located on the main road. Women will gain a share of project-related jobs (including those in construction and maintenance), take advantage of rest areas and stopping points along the road to sell goods and services, and profit from increased tourism, e.g., to the shrine, the Vose museum, and the resort (all located in Khovaling). Training will be provided to improve livelihoods and develop entrepreneurship, raise road safety awareness, combat HIV/AIDS and human trafficking, and improve gender awareness in local communities.

29. Tajikistan depends on hydropower to solve its energy needs, but in rural areas— particularly during winter when glacial melt is at its lowest and energy demand at the highest— energy cuts, including for traffic lights, restrict the movement of people and goods, and harm economic activities. With abundant solar energy resource in project areas, the project will enhance road safety by introducing photovoltaic solar applications to power street lights and public facilities along the road corridor. The project will also demonstrate photovoltaic solar solutions in three off-grid villages on or near project roads to help mitigate greenhouse gas emissions by replacing the use of fossil-intensive fuels (e.g., kerosene and diesel) for lighting and diesel generators for power supply. This will contribute to improved living standards by having efficient and environment friendly illumination, increased and better trading opportunities, access to electronic media, and more time to study for children.

E. Safeguards

30. Environment (category B). Due diligence confirmed that the project does not pass through any environmentally sensitive areas and will not result in significant negative environmental impacts. MOT prepared an initial environmental examination (IEE) according to ADB’s Safeguard Policy Statement (2009) and national legislation and regulations. The IEE was disclosed on the ADB website on 19 June 2013. The project will have temporary and reversible environmental impacts during implementation. Project-affected people were consulted. The IEE includes an environmental management plan to minimize the project’s potential environmental impacts. The environmental management capacity of MOT will be strengthened by a new environmental and social officer position in the PIU. MOT, assisted by an international firm, will be responsible for implementing the plan and submitting semiannual monitoring reports to ADB.

31. Involuntary resettlement (category B) and indigenous peoples (category C). In the Vose–Khovaling road section, the impacts are mostly minor such as the impact on fences and wall structures except for four households and business entities that will likely be adversely

9 impacted; while in the Sayron–Karamyk road section, land acquisition impact is not expected. MOT prepared a resettlement plan according to ADB’s Safeguard Policy Statement (2009) and national legislation and regulations to mitigate the impacts and assigned a dedicated staff with resources to carry out the land acquisition and resettlement activity of the project. The resettlement plan was disclosed to affected persons through public consultations, and on the ADB website on 21 June 2013. MOT will submit an updated resettlement plan to ADB if any changes are made during implementation, following the finalization of the detailed design.

F. Risks and Mitigating Measures

32. Major risks and mitigating measures are summarized in Table 4 and described in detail in the risk assessment and risk management plan.15 The integrated project benefits and impacts are expected to outweigh the project costs.

Table 4: Summary of Risks and Mitigating Measures Risks Mitigating Measures Inadequate road The government covenants to increase annual road maintenance budget from maintenance TJS3,000/kilometer in 2013 to TJS7,000/kilometer in 2017, or increase at the same rate as increases of the national budgets during 2014–2017, whichever is higher. Under the project, vehicle overloading control measures will be implemented to reduce undue road damage. Performance-based road maintenance for project roads will be contracted out to private sectors following project completion, which should ensure good levels of maintenance. Weak executing The Ministry of Transport, assisted by implementation consultants, is gaining agency capacity experience from a similar community development component under another Asian in implementing Development Bank (ADB) road project approved in September 2012. community For the solar energy installations, consulting services (including technical support development and capacity development) will be recruited through the research and development subcomponents technical assistance for Effective Deployment of Distributed Small Wind Power other than civil Systems in Asian Rural Areas to provide extensive training to the project works implementation unit and local communities on related installation, repair, and maintenance.a Additionally, operation and maintenance contract of 2–3 years will be procured from the supplier or separate service provider. Government fails The government's allocation of adequate funds and resources for implementation of to fund land the resettlement plan is covenanted in the grant agreement. compensation, ADB will field safeguards review missions from time to time in addition to regular resettlement, and project implementation reviews. Resettlement and environment consultants are rehabilitation included in the construction supervision team. requirements Inadequate There will be timely public disclosure of project information at various stages transparency in through the ADB website and government website to ensure fair competition. procurement a ADB. 2009. Technical Assistance for Effective Deployment of Distributed Small Wind Power Systems in Asian Rural Areas. Manila (TA 7485-REG). Source: ADB.

15 Risk Assessment and Risk Management Plan (accessible from the list of linked documents in Appendix 2).

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IV. ASSURANCES AND CONDITIONS

33. The government and MOT have assured ADB that implementation of the project will conform to all applicable ADB policies including those concerning anticorruption measures, safeguards, gender, procurement, consulting services, and disbursement as described in detail in the project administration manual and grant agreement.

34. The government and MOT have agreed with ADB on certain covenants for the project, which are set forth in the grant agreement.

V. RECOMMENDATION

35. I am satisfied that the proposed grant would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve the grant not exceeding $70,000,000 to the Republic of Tajikistan from ADB’s Special Funds resources for the Central Asia Regional Economic Cooperation Corridors 3 and 5 Enhancement Project, on terms and conditions that are substantially in accordance with those set forth in the draft grant agreement presented to the Board.

Takehiko Nakao President 23 August 2013

Appendix 1 11

DESIGN AND MONITORING FRAMEWORK Performance Data Sources/Reporting Design Summary Targets/Indicators Mechanisms Assumptions and Risks Impact By 2022 Assumption Enhanced regional Cross-border cargo volume National economic report Continued commitment by the economic for Tajikistan–Kyrgyz (MOF and State Statistical government to social and cooperation and Republic and Tajikistan– Agency) economic development in the inclusive economic Afghanistan increased to region growth in Tajikistan 1,300,000 tons (2012 baseline: 530,000 tons) and to 1,500,000 tons (2012 baseline: 550,000 tons), respectively

Sample-based poverty Living Standards headcount ratio in the Measurement Survey (State Khatlon Province declined Statistical Agency and to 30% (2009 baseline: World Development 54%) Indicators database, World Bank) Outcome By 2017 Assumption Improved regional Crash rate per 100 million Traffic Police Department Continued commitment by the network (CAREC vehicles km travelled annual traffic accident government to improve connecting corridors 3 and 5 maintained at no more report road transport network and the than 10.8 for the Vose– subnetwork) Khovaling road and 22.1 MOT road safety audit connectivity for CAREC corridors 3 and report 5 (Dushanbe–Karamyk Risk section) Inadequate annual road Use of roads upgraded MOT statistics maintenance allocation (average daily vehicle- kilometers in the first full year of operation) increased to 196,582 from 158,593 in 2012 Outputs By 2017 Assumptions 1. Improved road 87 km road section from MOT project progress Minimum turnover of trained PIU conditions and Vose to Khovaling report and project staff during implementation enhanced road rehabilitated and completion report safety on CAREC reconstructed with IRI of Sustained support from local corridors 3 and 5 less than 3 m/km governments and communities and the throughout project implementation subnetwork 88 km road section from Sayron to Karamyk enhanced with IRI of less than 4 m/km

Road safety features installed and functionala

2. Extended Roadside rest areas with access to local sanitary facilities for communities women constructed

30 km rural access roads improved

Three villages with no power supply and associated public facilities 12 Appendix 1

Performance Data Sources/Reporting Design Summary Targets/Indicators Mechanisms Assumptions and Risks improved with solar energy installations and associated maintenance training conducted for MOT (20 staff) and selected roadside communities (100 women trained)

3. Institutional Performance-based road strengthening maintenance introduced and operational

Road safety audit completed and road safety awareness training completed (at least 60% women) for local communities

PIU is effectively functioning with contract awards and disbursements achieved on time Activities with Milestones Inputs 1 Improved road conditions and enhanced road safety on CAREC ADB: $70.0 million (ADF grant) corridors 3 and 5 and the subnetwork 1.1 Civil works contract (Vose–Khovaling) awarded by 31 December 2013 Government: $19.0 million 1.2 Civil works contract (Sayron–Karamyk) awarded by 30 June 2014 1.3 Civil works (Sayron–Karamyk) completed by 31 October 2015 1.4 Civil works (Vose–Khovaling) completed by 31 October 2016

2 Extended access to local communities 2.1 Goods and works contract(s) for repairs of rural road and roadside facilities and for solar energy installations awarded by 30 June 2014 2.2 Training on women business development and solar energy installations maintenance developed by 30 June 2015 2.3 Goods and works contract(s) for repairs of rural road and roadside facilities and for solar energy installations completed by 30 June 2016

3 Institutional strengthening 3.1 Engineering, supervision, and project management consultants recruited by 31 December 2013 3.2 Road safety awareness program completed by 31 May 2015 3.3 Performance-based road maintenance contract (Sayron–Karamyk) awarded by 30 September 2016 3.4 Performance-based road maintenance contract (Vose–Khovaling) awarded by 30 September 2017 ADB = Asian Development Bank, ADF = Asian Development Fund, CAREC = Central Asia Regional Economic Cooperation, IRI = international roughness index, km = kilometer, m = meter, MOF = Ministry of Finance, MOT = Ministry of Transport, PIU = project implementation unit. a For settlements along the roads, passenger crossings, road signals, and road lighting are crucial for girls and women because most people walking along the roads are women and girls; girls are often not sent to school in winter because of lack of road lighting and related safety risks.

Appendix 2 13

LIST OF LINKED DOCUMENTS http://adb.org/Documents/RRPs/?id=46543-002-2

1. Grant Agreement 2. Sector Assessment (Summary): Transport, and Information and Communication Technology (Road Transport) 3. Project Administration Manual 4. Contribution to the ADB Results Framework 5. Development Coordination 6. Economic and Financial Analysis 7. Country Economic Indicators 8. Summary Poverty Reduction and Social Strategy 9. Gender Action Plan 10. Initial Environmental Examination 11. Resettlement Plan: Land Acquisition and Resettlement Plan 12. Risk Assessment and Risk Management Plan

Supplementary Document

13. Financial Management Assessment