National Trade Corridor Highway Investment Program
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Report and Recommendation of the President to the Board of Directors Project Number: 40075 October 2007 Proposed Multitranche Financing Facility and Technical Assistance Grant Islamic Republic of Pakistan: National Trade Corridor Highway Investment Program CURRENCY EQUIVALENTS (as of 18 September 2007) Currency Unit – Pakistan rupee/s (PRs) PRe1.00 = $0.0165 $1.00 = PRs 60.55 ABBREVIATIONS ADB – Asian Development Bank ADF – Asian Development Fund CAPE – country assessment program evaluation EA – executing agency EIRR – economic internal rate of return EMP – environmental management plan FFA – framework financing agreement FIRR – financial internal rate of return GDP – gross domestic product JBIC – Japan Bank for International Cooperation LIBOR – London interbank offered rate MFF – multitranche financing facility MTDF – Medium-Term Development Framework NHA – National Highway Authority NHDSIP – National Highway Development Sector Investment Program NTC – National Trade Corridor NTCIP – National Trade Corridor Improvement Program NWFP – North-West Frontier Province OCR – ordinary capital resources PC-1 – Planning Commission Pro-forma Report 1 PFR – periodic financing request PIU – project implementation unit PPP – public-private partnerships PRC – People’s Republic of China RSDF – road sector development framework SAPE – sector assessment program evaluation TA – technical assistance NOTES (i) The fiscal year (FY) of the Government of Pakistan and its agencies ends on 30 June of the following year. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2006 ends on 30 June 2006. (ii) In this report, "$" refers to United States dollars. Vice President L. Jin, Operations 1 Director General J. Miranda, Central and West Asia Department (CWRD) Director S. O’Sullivan, Infrastructure Division, CWRD Team leader F. Kawawaki, Senior Investment Specialist (Infrastructure), CWRD Team members O. Norojono, Transport Economist, CWRD A. Aleem, Programs Officer, CWRD L. Blanchetti-Revelli, Social Development and Resettlement Specialist, CWRD B. Ganiev, Economist, CWRD R. Narasimham, Senior Project Management Specialist, CWRD M. Rehman, Senior Transport Specialist, CWRD R. Sanda, Investment Specialist (Infrastructure), CWRD S. Tu, Environment Specialist, CWRD V. You, Senior Counsel, Office of the General Counsel A. Silverio, Administrative Assistant, CWRD CONTENTS Page NATIONAL TRADE CORRIDOR HIGHWAY INVESTMENT PROGRAM SUMMARY i MAPS I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 3 III. THE PROPOSED INVESTMENT PROGRAM 13 A. Impact and Outcome 13 B. Outputs 13 C. Technical Justification and Selection Criteria 15 D. Cost Estimates and Financing Plan 15 E. Implementation Arrangements 17 IV. TECHNICAL ASSISTANCE 22 V. BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 22 A. Investment Program Benefits and Beneficiaries 23 B. Overall Economic Analysis 23 C. Economic Analysis for Tranche 1 Projects 23 D. Financial Management and Financial Analysis 24 E. Environmental Assessment 25 F. Social Safeguards 25 G. Poverty and Social Impact 26 H. Potential Risks and Assumptions 26 VI. ASSURANCES 27 A. Specific Assurances 27 B. Condition for Loan Effectiveness 30 VII. RECOMMENDATION 30 APPENDIXES 1. Design and Monitoring Framework 32 2. Road Sector Analysis 35 3. Summary Investment Program and Projects 40 4. External Assistance for the Road Sector 42 5. Road Sector Development Framework 43 6. Status of Preparation of Proposed Projects 45 7. Selection Criteria and Approval Process for Projects 46 8. Cost Estimate and Financing Plan 49 9. Implementation Arrangements for the Investment Program 50 10. Project Implementation Arrangements 51 11. Implementation Schedule 52 12. Procurement Plan and Tentative Contract Packages 53 13. Summary of Economic Analysis of National Trade Corridor Highways 57 and Projects in Tranche 1 14. Summary of Social Safeguards 63 15. Summary Poverty Reduction and Social Strategy 68 SUPPLEMENTARY APPENDIXES (available on request) A. Design Approach and Technical Standards B. Terms of Reference for Capacity Building at the National Highway Authority C. Terms of Reference for Road Sector Policy and Institutional Strengthening of the National Highway Authority D. Terms of Reference for National Trade Corridor Highway Business Plan E. Terms of Reference for Construction Supervision Consulting Services F. Financial Management Analysis (Confidential) G. Environment Assessment Review Framework H. Cumulative Impact Assessment I. Terms of Reference for Social Safeguards Capacity Building Program J. Land Acquisition and Resettlement Framework K. Land Acquisition and Resettlement Plan L. Indigenous People Development Plan NATIONAL TRADE CORRIDOR HIGHWAY INVESTMENT PROGRAM SUMMARY Borrower Islamic Republic of Pakistan Classification Targeting classification: General intervention Sector: Transport and Communications Subsector: Roads and highways Themes: Sustainable economic growth, capacity development Subthemes: Fostering physical infrastructure development, institutional development Environmental Tranche 1 – Category A. Environmental impact assessments have Assessment been conducted for the Peshawar–Torkham Expressway (E-1) and Faisalabad–Khanewal Expressway (E-4) projects. Summaries were disclosed publicly on 30 May 2006 and 4 April 2007, respectively. Investment Program Under the strategic framework “Vision 2030” the Government of Description Pakistan (the Government) plans to raise the trade to gross domestic product (GDP) ratio from 30% to about 60%. This would be equivalent to $600 billion by 2030. To achieve this target, key actions under the strategy will be improving trade competitiveness and export diversification. Logistics are currently seen as a key constraint to raising competitiveness and attracting private sector investment. They are also a bottleneck to increasing productivity as well as to deepening and diversifying the industrial base both of which are necessary to provide sustainable jobs for a growing population. Several actions are planned or underway to address the logistics and investment gap. One of these is a comprehensive road network investment program. An enhanced road network will cut the time and cost of moving goods and services along the entire logistical chain. Specifically, the Government intends to double the road density from 0.32 kilometers per square kilometer (km/km2) at present to 0.64 km/km2 by 2030. In addition to improvements to physical infrastructure, the initiative includes meaningful policy and institutional actions aimed at providing a better enabling environment for investment, for industrial diversification, and for the logistics industry as a whole. Pakistan’s domestic trade flows are concentrated in one major north–south transport corridor. The proposed actions, while aimed at making this corridor more efficient, will also have a major and broader impact on the performance of the entire transport sector and thus on the economy overall. This comprehensive approach is embodied in a special initiative called the National Trade Corridor Improvement Program (NTCIP). The Government views NTCIP as a key success factor to the country’s growth prospects, to inclusiveness, to employment creation and social service renewal, and to the execution of second generation sector and macroeconomic reforms. NTCIP represents a flagship endeavor by ii the Government and the private sector to bring about better connectivity and trade facilitation. Beside roads, the initiative covers ports, railways, airports, customs clearing procedures, tariffs, and the trucking industry. The rationale for NTCIP is embedded in and emanates from plans for growth, job creation, and trade. When fully implemented, these efforts will save $5 billion–7.5 billion per annum that are currently lost because of inefficient logistics. The latter will thus increase in terms of its contribution to GDP, bringing the country closer to other benchmark countries in Asia. The National Highway Authority (NHA) is responsible for the operation, maintenance, and development of the national highway system. NHA manages 11,400 km of roads, of which 30% are already toll roads. The efficiency of the road network has been constrained by slow moving traffic, poor quality surfaces, and non- vehicular traffic. Currently, it takes 72 hours to travel between Peshawar and Karachi, a distance of about 1,700 km. The investment in the backbone of the national trade corridor is expected to reduce this travel time to 36 hours after completion. As a core component of NTCIP, NHA has developed the National Trade Corridor highway investment plan (NTC highway investment plan). It covers the corridor backbone from Peshawar to Karachi and the outlying links that connect Pakistan to the People’s Republic of China and Gwadar Port in Baluchistan. The initiative includes not only new road construction but also the improvement of over 3,500 km of roads, national highways, expressways, and motorways. The Asian Development Bank (ADB) is an active partner of the Government in the road sector and is involved in policy formulation including the National Transport Policy. ADB is currently supporting the engagement of an advisor to formulate a national trade corridor strategy. In view of this long-standing relationship in the sector, the Government has approached ADB along with other financing agencies to finance the investment plan for the medium