Report and Recommendation of the President to the Board of Directors

Project Number: 45432 August 2012

Proposed Grant and Administration of Loan Republic of : Central Asia Regional Economic Cooperation Corridor 6 (Ayni– Border Road) Improvement Project

This document is being disclosed to the public prior to Board consideration in accordance with ADB’s Public Communications Policy (2011). Subject to any revisions required following Board consideration, this document is deemed final.

CURRENCY EQUIVALENTS (as of 6 August 2012)

Currency unit – somoni (TJS)

TJS1.00 = $0.2099 $1.00 = TJS4.765

ABBREVIATIONS

ADB – Asian Development Bank ADF – Asian Development Fund CAREC – Central Asia Regional Economic Cooperation EIRR – economic internal rate of return IEE – initial environmental examination km – kilometer MOT – Ministry of Transport OFID – OPEC Fund for International Development 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 H. Wang, 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 J. Ngai, Counsel, Office of the General Counsel F. Nuriddinov, Project Officer, CWRD S. Roth, Social and Gender Development Specialist, CWRD I. Setyawati, Resettlement Specialist, CWRD J. Stickings, Senior Social and Gender Development Specialist, CWRD Peer reviewer H. Iwasaki, Principal Infrastructure Specialist, Southeast 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 6 C. Governance 7 D. Poverty and Social 7 E. Safeguards 8 F. Risks and Mitigating Measures 8 IV. ASSURANCES AND CONDITIONS 9 V. RECOMMENDATION 9

APPENDIXES 1. Design and Monitoring Framework 10 2. List of Linked Documents 12

PROJECT AT A GLANCE

1. Project Name: Central Asia Regional Economic Cooperation Corridor 6 (Ayni– 2. Project Number: 45432-002 Uzbekistan Border Road) Improvement Project 3. Country: Tajikistan 4. Central and West Asia Department/Transport and Department/Division: Communications Division 5. Sector Classification: Sectors Primary Subsectors Transport, and information and √ Road transport communication technology

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

6a. Climate Change Impact 6b. Gender Mainstreaming Gender equity theme (GEN)

No Climate Change Indicator available Effective gender mainstreaming (EGM) √ 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 growth level Urban Low √

9. Project Risk Categorization: Low risk

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 100.0 Total 100.0

12. Cofinancing:

Financier Category Amount ($ million) Administration Type OPEC Fund for International Official-Loan 14.0 Partial Administration Development

13. Counterpart Financing: Source Amount ($ million) Government 22.0 Total 22.0

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

o 69 o 00'E 73 00'E TAJIKISTAN UZBEKISTAN CENTRAL ASIA REGIONAL ECONOMIC COOPERATION CORRIDOR 6 (AYNI–UZBEKISTAN BORDER ROAD) IMPROVEMENT PROJECT Taboshar Buston Kayrokkum Reservoir N Kayrokkum Chkalovsk Gafurov o Nov o 40 00'N 40 00'N Gonchi Proletar 0 50 100

Istaravshan Kilometers Shakhriston KYRGYZ REPUBLIC SUGD Shakhristan Pass REGION

Ayni Kizil-Art Jirgatol Pass PEOPLE'S REPUBLIC Pass Garm OF CHINA Tojikobod REGIONS UNDER DIRECT Darband Lake Karakul UZBEKISTAN REPUBLICAN Varzob JURISDICTION Tavildara Shahrinav Rogun Akbaytal Pass Fayzobod Hissor Vakhdat Kalaikhumb Khovaling Somoniyon Norak GORNO-BADAKHSHAN Baljuvon Vanch AUTONOMOUS REGION Yovon Nulvand Murgob Kulma Pass Lake Sarez Obikiik Dangara Muminobod Kuybishev Sovet Rushon Kurgonteppa Sarband Vose Shuroobod Ismoili Somoni Moskva Vakhsh Isoev Farkhor Jilikul Khorug o Kubodiyon 37 00'N Dusti 37 o 00'N Panj Shakhrituz Roshtkala Panji Poyon A F G H A N I S T A N

Ishkoshim National Capital Project Road River Regional Center CAREC Corridor 3 District Boundary This map was produced by the cartography unit of the Asian Development Bank. The boundaries, colors, denominations, and any other information shown on this Autonomous Regional Center CAREC Corridor 6 Regional Boundary map do not imply, on the part of the Asian Development Bank, any judgment on the District Center/Town National Road Autonomous Regional Boundary 12-2030 legal status of any territory, or any endorsement or acceptance of such boundaries, colors, denominations, or information. Railway Other Road International Boundary Boundaries are not necessarily authoritative. o o A 73 00'E

V 69 00'E

I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on (i) a proposed grant, and (ii) proposed administration of a loan to be provided by the OPEC Fund for International Development (OFID), both to the Republic of Tajikistan for the Central Asia Regional Economic Cooperation (CAREC) Corridor 6 (Ayni–Uzbekistan Border Road) Improvement Project.1

2. The project is located in the isolated and remote Zarafshan Valley in northern Tajikistan. To support regional cooperation and inclusive growth in the region, the project will finance the rehabilitation and reconstruction of a road of approximately 113 kilometers (km) between Ayni– Panjakent and the border with Uzbekistan, the improvement of road safety, the upgrading of border post infrastructure, and community development, including improving feeder roads and public facilities and training local communities.2

II. THE PROJECT

A. Rationale

3. Tajikistan’s geographic isolation and mountainous territory (comprising over 90% of the country) results in high transport and logistics costs, which makes it uncompetitive in international and regional markets. The country’s remoteness from seaports, and limited transport infrastructure and facilities constrain development. Large parts of the country are sparsely populated. Connectivity is a key development issue: the railway network is fragmented because of construction difficulties resulting from the mountainous topography, while roads (which are the dominant transport mode) are deteriorating rapidly due to inadequate maintenance, ineffective traffic loading control, and harsh terrain and climate.

4. The Zarafshan Valley is an isolated and remote region, which is prone to extreme natural events.3 The project road provides the only access to rest of the country and beyond. Overland travel to this high elevation valley is often restricted, particularly during winter, due to poor road conditions, avalanches, and mudflows. Consequently, the more than 300,000 inhabitants living in the region have limited access to markets, educational and medical services, while the region's capacity to develop diverse industries—including agriculture, mining and tourism4—is severely constrained.

5. The project road—part of the historic Silk Road—runs east–west following the Zarafshan River through the valley, crossing the Ayni and Panjakent districts before ending at the border with Uzbekistan in the west. The connecting road in Uzbekistan (national road A377) links with Samarkand (about 40 km from the border) via the CAREC Corridor 6 in Uzbekistan. Through the north–south transport artery—the CAREC Corridor 6 in Tajikistan—the project road goes (i) northeast to Khudjand (the provincial center), and onward to Uzbekistan; and (ii) south to Dushanbe, onward to Afghanistan and east–west bound to the Kyrgyz Republic and Uzbekistan

1 The design and monitoring framework is in Appendix 1. 2 The Asian Development Bank (ADB) provided project preparatory technical assistance. ADB. 2012. Technical Assistance to the Republic of Tajikistan for the Roads Improvement Project. Manila. 3 The valley is located in northern Tajikistan, comprising the districts of Ayni, Kuhistoni , and Panjakent and belonging to the Sughd province. The valley has one of the highest migration rates in Central Asia and is one of the poorest regions, with per capita gross domestic product about 60% of the national average in 2010. 4 Aside from abundant agricultural products, Zarafshan Valley is one of the country's main tourist attractions, featuring an ancient history with the country’s only United Nations Educational, Scientific and Cultural Organization World Heritage site, and stunning natural scenes for hiking, mountaineering and homestays in the valley and the surrounding mountains. The valley is also rich in natural resources including gold, coal, phosphate, and antimony. 2 respectively through the CAREC Corridor 3 in Tajikistan. The project road is a vital link in the national network, and is regionally strategic as it provides a trade corridor with Uzbekistan in the long term,5 particularly for northern Tajikistan. Accordingly, it has been classified as part of the CAREC Corridor 6 and included in the list of CAREC medium-term (2011–2015) priority projects.6 Improvements to this road will increase regional connectivity, reduce transport costs, and strengthen competitiveness. This will also improve access to markets and social services for impoverished local communities; stimulate development of agriculture, tourism and mining industries that in return create job opportunities and improve the region’s living standards.

6. Progress has been made on policy and institutional reforms in Tajikistan’s transport sector, 7 including (i) developing the Transport Sector Master Plan; 8 (ii) outsourcing the performance-based maintenance contracts to the private sector; (iii) restructuring the Ministry of Transport (MOT); and (iv) refining the budget process by including provisions for capital investment, operation, and maintenance. Substantial gaps remain, however. The core problem is the constrained road transport connectivity, attributable to deteriorating infrastructure and deficient asset management. This has hampered economic and social development by limiting access to markets and social services, and increasing transport costs. Under the project, the Asian Development Bank (ADB) will finance the connectivity improvement and also help improve road safety, road maintenance, and vehicle overloading control.

7. The government, in its poverty reduction strategy for 2010–2012,9 notes the importance of infrastructure development in promoting economic development, creating favorable conditions for poverty reduction and achieving the main goals of the National Development Strategy up to 2015.10 One of the government’s main objectives is to unblock bottlenecks of the country’s transport network by improving roads and railways. The project is included in the government’s 2012–2014 public investment program,11 fits with two core operational areas (infrastructure and

5 Facilitated by relaxed customs and visa requirements, the project road was for years predominantly used for tourists, local trade and mining operations activities higher up the valley in Tajikistan, with cross-border traffic of about 1,000 vehicles per day. The border crossing point was closed by Uzbekistan in November 2010 due to deteriorating bilateral relations. Tajikistan is making efforts—including construction of a dedicated market place for bilateral trading, planned upgrade of the border infrastructure, and continuation of dialogue with Uzbekistan—for the border reopening in the near future. 6 Endorsed at the 10th Ministerial Conference on CAREC in Baku, Azerbaijan in November 2011 and confirmed at the 11th CAREC Transport Sector Coordinating Committee Meeting in Manila, Philippines in May 2012, these represent the operational priority projects of CAREC for the next 5 years, and form an integral part of medium-term priority projects for the 10-year CAREC strategic framework (CAREC 2020). 7 ADB implemented a series of technical assistance and road projects to support institutional and policy reforms in the transport sector, including (i) ADB. 2000. Technical Assistance to the Republic of Tajikistan for Institutional and Policy Support in the Road Sector. Manila (TA 3602-TAJ, for $500,000, approved on 20 December); (ii) ADB. 2003. Technical Assistance to the Republic of Tajikistan for Strengthening Implementation of Road Maintenance. Manila (TA 4294-TAJ, for $600,000, approved on 18 December); (iii) ADB. 2005. 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 Dushanbe–Kyrgyz Border Road Rehabilitation Project (Phase II). Manila; (iv) ADB. 2007. Technical Assistance to the Republic of Tajikistan for Transport Sector Master Plan. Manila (TA 4926-TAJ, for $600,000, approved on 4 April); (v) ADB. 2007. Report and Recommendation of the President to the Board of Directors: Proposed Loan, Asian Development Fund Grants, and Technical Assistance Grant to Kyrgyz Republic and the Republic of Tajikistan for the CAREC Regional Road Corridor Improvement Project. Manila; and (vi) ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Grant to the Republic of Tajikistan for the CAREC Corridor 3 (Dushanbe–Uzbekistan Border) Improvement Project. Manila. 8 ADB. 2011. Developing Tajikistan’s Transport Sector –Transport Sector Master Plan. Manila. 9 International Monetary Fund (IMF). 2010. Poverty Reduction Strategy of the Republic of Tajikistan for 2010–2012. IMF Country Report No. 10/104. Washington, D.C. 10 Republic of Tajikistan. 2007. National Development Strategy of the Republic of Tajikistan for the Period to 2015. Dushanbe. 11 Republic of Tajikistan. The State Programme Investments, Grants and Capital Construction for the Period 2012– 2014. Government Degree No.578 issued on 3 December 2011.

3 regional cooperation and integration) of ADB’s Strategy 2020,12 and is included in the country operations business plan for Tajikistan, 2012–2014.13

8. ADB assistance in Tajikistan’s transport sector has been successful. The government and development partners recognize transport as one of ADB’s main areas of expertise.14 The project design incorporates the key lessons from ADB’s experience in the transport sector in Tajikistan and other Central Asian countries, including (i) obtaining government assurances regarding adequate maintenance funding of the project road, and increases in financing of road maintenance; (ii) using advance contracting to avoid initial implementation delays; (iii) strengthening the executing agency’s capacity, and (iv) expanding the project’s social development benefits.

B. Impact and Outcome

9. The impact of the project will be enhanced regional cooperation and inclusive economic growth in Tajikistan, particularly in the Sughd province. The outcome will be improved connectivity and mobility along the CAREC Corridor 6 (Ayni–Uzbekistan Border Road).

C. Outputs

10. The outputs will comprise (i) approximately 113 km of rehabilitated and reconstructed road between Ayni–Panjakent and the border with Uzbekistan, (ii) improved road safety, and (iii) upgraded Sarazm border post infrastructure and improved local communities.

11. Road rehabilitation and reconstruction. The project will improve a 47-km category IV mountainous road section (from Ayni roundabout to km 47) and a 66-km category III plain section with minor rolling (from km 47 to the border with Uzbekistan).15 Road improvement work will use the existing alignment, covering detailed design, earthworks, pavement structures, culverts and drainage, bridges, slope protection works, and road appurtenances, among others. A total of 31 bridges will be rehabilitated and/or reconstructed. The existing road categories will be maintained and traffic level of service improved.

12. Road safety improvement. The project will promote community road safety awareness and improve MOT’s road safety management capacity through (i) development of a national road safety action plan, (ii) project road safety audits, and (iii) traffic safety-related training and public campaigns in the project area. The project will also procure (i) mobile weighbridges to enhance control of vehicle overloading on the project road, and (ii) routine and periodic maintenance equipment (e.g., bulldozer, motor grader, and snow plow) to handle traffic disruptions and/or road damage caused by extreme natural events.

12 ADB. 2008. Strategy 2020: The Long Term Strategic Framework of the Asian Development Bank, 2008-2020. Manila. 13 ADB. 2011. Country Operations Business Plan: Tajikistan, 2012–2014. Manila. 14 ADB is the largest multilateral development partner involved in Tajikistan’s transport sector, beginning in 1998 with the Post-Conflict Infrastructure Rehabilitation Program. The following projects have been rated successful and/or highly successful upon completion: ADB. 2010. Completion Report: Dushanbe–Kyrgyz Border Road Rehabilitation Project (Phase 1) in the Republic of Tajikistan. Manila (Loan 2062-TAJ); ADB. 2010. Implementation Completion Memorandum: Community-Based Rural Road Maintenance in Tajikistan. Manila. (Grant 9078-TAJ); ADB. 2008. Completion Report: Road Rehabilitation Project in the Republic of Tajikistan. Manila (Loan 1819-TAJ [SF]); ADB. 2009. Validation Report: Road Rehabilitation Project in the Republic of Tajikistan. Manila (PCV: TAJ 2009-01). 15 In accordance with Russian road design standard SNiP 2.05.02-85 (which was adopted by the government), category III roads require a design speed of 80 km/hour in rolling terrain (50 km/hour in mountainous terrain), and a carriageway of two 3.5-meter lanes. Category IV roads require a design speed of 60 km/hour in rolling terrain (40 km/hour in mountainous terrain), and a carriageway of two 3.0-meter lanes.

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13. Border infrastructure and community development. The project will improve the Sarazm border post infrastructure, including constructing an administration building with amenities for travelers, parking areas, a warehouse, and vehicle weighing scales. The project will also contribute to the social development of local communities by improving approximately 60 km of village feeder roads, constructing roadside rest areas for male and female vendors and travelers, and providing entrepreneurship and business development training for women in local communities, and anti-harassment training for border staff.

D. Investment and Financing Plans

14. Investment plan. The project is estimated to cost $136.0 million equivalent (Table 1).

Table 1: Project Investment Plan ($ million) Item Amount A. Base Costa 1. Rehabilitation and reconstruction of the Ayni–Panjakent-Uzbekistan border road 85.40 2. Road safety improvement 2.50 3. Border infrastructure upgrade and community development 2.50 4. Consulting services for engineering, supervision and project management, and 5.60 project auditing 5. Land acquisition and resettlement 0.20 6. Project management 0.80 7. Taxes and dutiesb 20.70 Subtotal (A) 117.70 B. Contingenciesc 18.30 Total (A+B) 136.00 a In mid-2011 prices. b All local taxes and duties will be financed by the government. c Physical contingencies computed at 15% for civil works. Price contingencies are computed based on Asian Development Bank cost escalation factors. Source: Asian Development Bank estimates.

15. Financing plan. The government has requested a grant16 not exceeding $100,000,000 from ADB’s Special Funds resources to help finance the project. OFID will provide a loan of $14,000,000 to cofinance the project. The OFID loan will have a 20-year term including a grace period of 5 years and an annual interest rate of 2.5% (inclusive of a 1.0% service charge). The OFID loan will be administered by ADB on a partial administration basis and will finance exclusively civil works of the project road. The government will provide counterpart funding of $22,000,000 to cover (i) taxes and duties related to all civil works, goods, and consulting services; and (ii) land acquisition and resettlement costs, incremental administrative expenses, and other miscellaneous costs. The summary financing plan is in Table 2.

Table 2: Financing Plan Amount Share of Total Source ($ million) (%) Asian Development Bank (Asian Development Fund) 100.00 73.53 OPEC Fund for International Development 14.00 10.29 Government 22.00 16.18 Total 136.00 100.00 Source: Asian Development Bank estimates.

16 A country’s eligibility for Asian Development Fund (ADF) 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 ADF allocation as grants.

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E. Implementation Arrangements

16. MOT will be the executing agency. It has implemented six ADB-financed road projects since 1998 and has reasonable project management capacity. Its project implementation unit (PIU) staff have the necessary experience and skills. MOT technical departments will also assist the PIU during project implementation.

17. An international firm will be recruited in accordance with ADB’s Guidelines on the Use of Consultants (2010, 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 and the ADB-administered OFID loan will follow international competitive bidding procedures pursuant to ADB’s Procurement Guidelines (2010, as amended from time to time) and ADB’s prior review procedures.

18. Advance contracting and retroactive financing to expedite pre-construction works and avoid initial implementation delays have been proposed in line with ADB’s procurement and consulting guidelines. The implementation arrangements are summarized in Table 3 and described in detail in the project administration manual.17

Table 3: Implementation Arrangements Aspects Arrangements Implementation period September 2012–March 2016 Estimated completion date 31 March 2016 Management (i) Executing agency Ministry of Transport (ii) Implementation unit 7 staff members Procurement ICB 1 contract (main road civil works)a $85.4 million ICB 1 contract (goods) a $2.5 million NCB 3 contracts (other civil works) a $2.5 million Consulting services QCBS 553 person-monthsb $5.5 million CQS 10 person-monthsb $0.1 million Retroactive financing ADB may, subject to its policies and procedures, allow on request (i) and/or advance contracting advance contracting of civil works and consulting services; and (ii) retroactive financing of eligible expenditures up to 15% of the proposed grant, incurred prior to grant effectiveness but not earlier than 12 months before the date of signing of the grant agreement. Any approval of advance contracting or retroactive financing will not constitute a commitment by ADB to finance the project. Disbursement The ADB grant proceeds and OFID loan 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, CQS = consultants’ qualifications selection, ICB = international competitive bidding, NCB = national competitive bidding, OFID = OPEC Fund for International Development, QCBS = quality- and cost- based selection. a Excluding taxes, duties and contingencies. b ADB’s Guidelines on the Use of Consultants (2010, as amended from time to time) will apply. Source: Asian Development Bank.

17 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 road links Dushanbe, the capital and largest domestic market for goods and services, and provides connections among the regional center, provincial areas, sub-districts and the surrounding rural area. The design, equipment and implementation modality were selected in view of the technical viability, sustainability of the road maintenance operations and the need to improve road safety.

20. The project road has been devastated by the civil war and has not been restored for over 30 years. Growth of cargo traffic, coupled with damage caused by natural disasters and lack of adequate maintenance, has led to rapid deterioration of roads and structural deficiencies of bridges. This has caused an unacceptable level of service and requires urgent improvement to ensure efficient traffic and safety. The road design allows flexibility for locations constrained by terrain and right-of-way, and maximizes the use of local construction materials. The road alignment follows the existing right-of-way, minimizing environmental and involuntary resettlement impacts. Maintenance equipment to be procured and vehicle overloading control measures to be implemented will improve road service quality and prolong road service life.

21. Road safety improvement will be preceded by road safety audits and safety-related training and public campaigns. Safety improvement measures, primarily simple and low-cost solutions, have been incorporated in the design to mitigate safety concerns as a result of increased traffic speed after road rehabilitation. Road safety will be substantially improved with the provision of traffic signs, marked pedestrian crossings protected by speed humps, and slope stabilization netting systems in mountainous sections where soil erosion, rock and debris flow, and slope failure often obstruct traffic throughout the year. Different type of traffic calming devices will also be constructed to reduce vehicle speed at entries, exits, and through all villages along the project road. In addition, a review of road safety will continue throughout implementation, including a post-construction audit to correct any potential deficiencies.

22. Minor repairs to about 60 km of connecting feeder roads in Ayni and Panjakent districts to upgrade them to an all-weather surface will 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 order to reach a consensus on which roads to select. The local governments will be responsible for the continued maintenance following the road repairs.

23. The project will increase sustainability and efficiency of the road maintenance operations by (i) maximizing the use of local construction materials; (ii) providing maintenance equipment for the removal of snow, rock falls, landslide debris; and (iii) procuring and operating mobile weighbridges to reduce undue pavement damage from vehicle overloading. The design solutions and procurement of maintenance equipment will also benefit local road agencies, whose maintenance operations have been hampered by lack of equipment and a large volume of maintenance work. With expected institutional improvements, these local organizations will develop the necessary capacity for sustainable road maintenance in the long run.

B. Economic and Financial

24. The economic analysis compared the with- and without-project scenarios. The project

7 economic benefits include (i) vehicle operating cost savings, (ii) travel time savings, (iii) generated traffic, and (iv) agricultural producer surplus. The project is economically viable, with an economic internal rate of return (EIRR) of 18.7%. 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 various unfavorable scenarios. A quantitative risk analysis has also been undertaken to reinforce the economic appraisal results. A number of key variables relating to cross-border traffic, construction cost, economic growth, and traffic disruption from connecting roads have been incorporated into the risk analysis to test their effect on the appraisal results. Risk analysis results show that the minimum risk-based EIRR is 12.5%, with a 95% probability that the EIRR will be above 15.0%.

25. The project financing comprises an Asian Development Fund grant from ADB and a loan from OFID, with the government providing counterpart funding for taxes and duties, land acquisition and resettlement costs, and miscellaneous administrative costs. Accordingly, issues regarding funding availability within the government will have a negligible financial impact on the project. MOT road maintenance funding has increased by an average of 17% annually during 2004–2012, with TJS46.8 million ($9.8 million equivalent) in 2012. While this accounts for about one third of nationwide maintenance needs due to the government’s fiscal constraints, this budget outlay will continue to increase by about 15% per year during 2012–2016. In addition, an automated road databank to be developed under an ongoing ADB project will help validate the maintenance budget, and a contract management system to be developed under the same project will contribute to improving sustainability of road projects.18

C. Governance

26. Tajikistan’s performance in governance has improved in recent years. Following the sector governance assessment completed in November 2009, an updated assessment of MOT’s procurement capacity and financial management, among other governance-related aspects, confirmed that its capacity is sufficient to manage international procurement and proper funds flow arrangements, accounting policies and procedures, internal and external audits, and information systems. Obstacles identified include less transparent operations, outdated operational tools, and a skills gap. Given some of the governance improvement aspects are being addressed under other ongoing ADB projects, the project will focus on road safety and infrastructure management through training and consulting services.

27. 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 17).

D. Poverty and Social

28. Increased connectivity will benefit men and women in access to social services and trade. Many households in the project area are headed by women due to the high incidence of labor migration of men to other countries. The households headed by women face problems in coping with poverty, as women have less access to land and to local markets to sell their agricultural products. The long travel time to markets and limited electricity supply for food processing activities relegate women to the lower end of the agricultural production value chain. The project will significantly benefit women and men by reducing travel time to reach social

18 ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Grant to the Republic of Tajikistan for the CAREC Corridor 3 (Dushanbe–Uzbekistan Border) Improvement Project. Manila.

8 services and markets. Moreover, rural growth, disaster mitigation, education and other poverty alleviation projects are being implemented in the project area by other international organizations, including the United Nations Development Programme, United Nations Children's Fund, and World Food Programme. By improving transport in the area the project will help these projects realize their full potential.

29. To expand benefits for women and local communities, the project will finance roadside public facilities for improved travel comfort, road safety measures for reduced traffic injuries, and feeder roads for improved access to markets for poor villages not located on the main road. Women will be employed during civil works construction, and for road maintenance following project completion. The road improvement is a precondition for developing the mining sector in this region, which will bring employment opportunities for local communities, reduce labor migration, and ultimately contribute to poverty reduction.

E. Safeguards

30. The project is classified as 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 ADB website on 6 July 2012. 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. MOT, assisted by an international firm, will be responsible for implementing the plan and submitting a semiannual monitoring report to ADB.

31. The project is classified as involuntary resettlement category B. The major impacts are the relocation of three residential houses and possible temporary income loss of several shops in the Dar-Dar village during road construction. 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 disclosed on the ADB website on 10 July 2012. MOT will submit an updated resettlement plan to ADB if any changes are made during project implementation, following finalization of the detailed design. The project is classified as indigenous peoples category C (it will not affect indigenous peoples, as described in the ADB’s Safeguard Policy Statement (2009)).

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.19 The integrated project benefits and impacts are expected to outweigh the project costs.

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

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Table 4: Summary of Risks and Mitigating Measures Risks Mitigating Measures Inadequate road The government covenants to increase annual road maintenance maintenance budget from TJS3,000 per km in 2011 to TJS6,000 per km in 2016. Under the project, mobile weighbridges will be procured and operated to enhance vehicle overloading control, and road maintenance equipment will be procured to address traffic disruption and/or road damage from extreme natural events. Delayed reopening of Tajikistan is making efforts to reopen the border. Cross-border issues cross-border trade will be further discussed among relevant member countries under CAREC. Risk analysis confirmed the project’s economic viability even if border reopening is delayed. ADB = Asian Development Bank; CAREC = Central Asia Regional Economic Cooperation; MOT = Ministry of Transport; PPTA = project preparatory technical assistance. Source: Asian Development Bank.

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 included in the grant agreement. Disbursement of the grant proceeds for civil works for the project road will be conditional upon the effectiveness of the OFID loan and allocation of funds for implementation of the resettlement plan.

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

(i) the grant not exceeding $100,000,000 to the Republic of Tajikistan from ADB’s Special Funds resources for the Central Asia Regional Economic Cooperation Corridor 6 (Ayni–Uzbekistan Border Road) Improvement Project, on terms and conditions that are substantially in accordance with those set forth in the draft grant agreement presented to the Board; and (ii) the administration by ADB of the loan not exceeding $14,000,000 to the Republic of Tajikistan for the Central Asia Regional Economic Cooperation Corridor 6 (Ayni–Uzbekistan Border Road) Improvement Project, to be provided by the OPEC Fund for International Development.

Haruhiko Kuroda President 20 August 2012

10 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Summary Performance Targets and Data Sources and Assumptions and Risks Indicators with Baselines Reporting Mechanisms Impact By 2020 Assumption Enhanced regional Sample-based poverty Living Standards Continued commitment by cooperation and headcount ratio in the Sughd Measurement Survey (State the government to social inclusive economic province declined to 25% Statistical Agency and World and economic growth in Tajikistan, from 48% in 2009 Development Indicators development in the region particularly in the database, World Bank) Sughd province Per capita GDP (nominal) National economic report increased to $1,600 from (MOF and State Statistical $830 in 2011 Agency)

Outcome By 2016 Assumption Improved connectivity Travel time between Ayni– MOT statistics Continued commitment by and mobility along the Panjakent and the the government to improve CAREC Corridor 6 Uzbekistan border reduced road transport network (Ayni–Uzbekistan to 2 hours from 3.5 hours in Border Road) 2010 Risks Inadequate annual road Reported traffic accidents on Traffic Police Department maintenance allocation the project road reduced by annual traffic accident report 10 from 20 in 2010 MOT road safety audit report Delayed reopening of cross-border trade Cross-border traffic via the Statistics from MOT and Sarazm border crossing point Customs restored to 900 vehicles/day, from zero in 2011 Outputs By 2016 Assumptions 1. 113 km of 113 km road rehabilitated MOT project progress report Minimum turnover of rehabilitated and and reconstructed, with the and project completion report trained PIU staff during reconstructed road international pavement implementation between Ayni– roughness index reduced to Panjakent and the less than 4.0 meters per km Support from local border with from 11.0 meters per km in governments and Uzbekistan 2011 communities

2. Improved road Road safety audit and MOT annual report Close coordination among safety awareness training MOT project progress report relevant government completed (30% women), agencies during and national road safety implementation action plan developed

Road maintenance MOT project progress report equipment and weighbridges and project completion report procured and operational

Passenger crossings, road MOT project progress report signage, speed humps and and project completion report street lighting installed for settlements along the roada

3. Upgraded Sarazm Border administrative border post MOT project progress report building with separate infrastructure and and project completion report facilities for women improved local constructed communities

Appendix 1 11

Design Summary Performance Targets and Data Sources and Assumptions and Risks Indicators with Baselines Reporting Mechanisms 60 km village feeder roads MOT project progress report improved and project completion report

Roadside rest areas with MOT project progress report sanitary facilities for women and project completion report constructed

Training on financial literacy, MOT project progress report business skills, and and project completion report prevention and care of HIV/AIDS and other sexually transmitted infections conducted in selected roadside communities (100 women trained) Activities with Key Milestones Inputs 1. Rehabilitated and reconstructed road between ADB: $100 million Ayni–Panjakent and the border with Item Amount ($ million) Uzbekistan Consulting services 5.6 1.1 Construction supervision consultants recruited by 31 December 2012 Civil works (project road) 71.4 Civil works (border infrastructure 1.2 Civil works contract awarded by 31 December 2.5 2012 and feeder roads) 1.3 Civil works completed by 31 March 2016 Equipment 2.5 Contingencies 18.0 2. Improved road safety 2.1 Goods contract for maintenance equipment and Government: $22 million weighbridges awarded by 31 December 2013 Item Amount ($ million) 2.2 Road safety audit and awareness program Taxes and duties 20.7 completed by 31 March 2014 Land acquisition and resettlement 0.2 2.3 Maintenance equipment and weighbridges Administrative Expenses and 0.8 operational by 30 June 2014 Other Miscellaneous Costs 2.4 Road safety action plan developed by 30 Contingencies 0.3 September 2014 OFID: $14 million 3. Upgraded Sarazm border post infrastructure and improved local communities Item Amount ($ million) 3.1 Civil works contracts for village feeder roads Civil works (project road) 14.0 awarded by 31 December 2013

3.2 Civil works contract for border infrastructure improvement awarded by 31 March 2014 3.3 Civil works contract for village feeder roads completed by 31 March 2015 3.4 Civil works for border infrastructure improvement completed by 30 June 2015 3.5 Community development program implemented by 30 September 2015 ADB = Asian Development Bank, CAREC = Central Asia Regional Economic Cooperation, GDP = gross domestic product, km = kilometer, MOF = Ministry of Finance, MOT = Ministry of Transport, OFID = OPEC Fund for International Development, PIU = project implementation unit. a Passenger crossings, road signals, and street lighting are crucial for girls and women because most people walking along the streets are women and girls; girls are often not sent to school in winter because of lack of street lighting and related safety risks. Source: Asian Development Bank.

12 Appendix 2

LIST OF LINKED DOCUMENTS http://adb.org/Documents/RRPs/?id=45432-002-2

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