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ASIAN DEVELOPMENT BANK RRP: PAK 38135 REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE BOARD OF DIRECTORS ON A PROPOSED LOAN TO THE ISLAMIC REPUBLIC OF PAKISTAN FOR THE MULTISECTOR REHABILITATION AND IMPROVEMENT PROJECT FOR AZAD JAMMU AND KASHMIR November 2004 CURRENCY EQUIVALENTS (as of 31 October 2004) Currency Unit – Pakistan rupee/s (PRe/PRs) PRe1.00 = $0.0167 $1.00 = PRs60.0 ABBREVIATIONS ADB – Asian Development Bank ADP – annual development program AJK – Azad Jammu and Kashmir AJKED – AJK Electricity Department AJKEPA – AJK Environmental Protection Agency AJKG – government of AJK AP – affected person CBO – community-based organization DHQ – district headquarters DOH – Department of Health EARPF – Environmental assessment review procedures framework EMP – environmental management plan IA – Implementing agency IEE – initial environmental examination IFAD – International Fund for Agriculture Development LARP – land acquisition and resettlement plan LCB – local competitive bidding LGRDD – Local Government and Rural Development Department M&E – Monitoring and evaluation MDG – Millennium Development Goal MIS – management information system NGO – non-government organization O&M – operation and maintenance P&D – Planning and Development Department PCU – project coordination unit PDP – Perspective Development Plan PHED – Public Health Engineering Department PIO – project implementation officer PIU – project implementation unit PPMS – project performance management system PSC – project steering committee PWD – Public Works Department RFPG – resettlement framework and procedural guidelines SIEE – summary initial environmental examination SMC – school management committee SOE – statement of expenditures SPRSS – summary poverty reduction and social strategy THQ – tehsil (subdistrict) headquarters UNDP – United Nations Development Programme UNICEF – United Nations International Children's Emergency Fund WAPDA – Water and Power Development Authority WEIGHTS AND MEASURES ha – hectare kV – kilovolt MW – megawatt NOTES (i) The fiscal year (FY) of the Government ends on 30 June. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2005 ends on 30 June 2005. (ii) In this report, "$" refers to US dollars. (iii) The proposed Project will be carried out in Azad Jammu and Kashmir, an area over which Pakistan and India have been in dispute since 1947. By financing the proposed Project, the Asian Development Bank does not intend to make any judgment as to the legal or other status of any disputed territories or to prejudice the final determination of the parties’ claims. This report was prepared by a team consisting of S. Khan (team leader), P. Song, S.Tahir Qadri, H. Masood, M. Good, M. Shafi, M. Sultana, and M. Bukhari. CONTENTS Page LOAN AND PROJECT SUMMARY iii I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Existing Situation 1 B. The Government’s Strategy 4 C. External Assistance 4 D. Lessons Learned 5 E. The Asian Development Bank’s Strategy 5 III. THE PROPOSED PROJECT 5 A. Objective 5 B. Components and Outputs 5 C. Special Features 7 D. Cost Estimates 9 E. Financing Plan 9 F. Implementation Arrangements 10 IV. PROJECT BENEFITS, IMPACTS, AND RISKS 16 A. Project Benefits and Impacts 16 B. Risks 18 V. ASSURANCES 18 A. Specific Assurances 18 B. Conditions for Loan Effectiveness 20 C. Conditions for Disbursement 20 VI. RECOMMENDATION 20 APPENDIXES 1. Project Framework 21 2. External Assistance 24 3. Component A: Rehabilitation and Improvement of Health Services 25 4. Component B: Rehabilitation and Improvement of Education Services 29 5. Component C: Rehabilitation and Improvement of Water Supply Systems 32 6. Component D: Rehabilitation of Roads and Bridges 34 7. Component E: Rehabilitation and Improvement of the Power Distribution Network 38 8. Detailed Cost Estimates and Financing Plan 41 9. Summary Poverty Reduction and Social Strategy 42 10. Environmental Assessment and Review Procedures Framework 46 11. Summary Resettlement Framework and Procedural Guidelines 49 12. Implementation Framework 52 13. Implementation Schedule 53 14. Proposed Contract Packages 54 15. Summary Initial Environmental Assessment 55 ii SUPPLEMENTARY APPENDIXES (available on request) A. Draft Terms of Reference for Consultants B. Resettlement Framework and Procedural Guidelines C. Initial Environmental Examination, and Environmental Assessment and Review Procedures Framework D. Economic Analysis E. Component A: Rehabilitation and Improvement of Health Services F. Component B: Rehabilitation and Improvement of Education Services G. Component C: Rehabilitation and Improvement of Water Supply Systems H. Component D: Rehabilitation of Roads and Bridges I. Component E: Rehabilitation and Improvement of Power Distribution Network LOAN AND PROJECT SUMMARY Borrower Islamic Republic of Pakistan Classification Targeting classification: Targeted intervention Sector: Health, Nutrition and Social protection Education Water Supply, Sanitation, and Waste Management Transportation and Communication, and Energy Subsector: Health systems, basic education, water supply and sanitation, roads and highways, transmission and distribution Themes: Sustainable economic growth, Human development, and Gender and development Environment Category B. A general overview of the environmental impacts of Assessment various components, along with the initial environmental examination (IEE) of two sample subprojects, is summarized as core Appendix 15 with details in Supplementary Appendix C. The IEEs of all subprojects will be carried out in accordance with the environmental assessment and review procedures framework in Appendix 10. Project Description This is the first Asian Development Bank (ADB)-supported investment project in Azad Jammu and Kashmir (AJK). The Project will make concerted efforts in rehabilitating and reconstructing essential physical and social infrastructure that could not be maintained during more than five decades mainly due to lack of security in the region. The Project has been formulated on the basis of a package of especially urgent needs in health, education, water supply, roads, and power sectors to fill the investment gap created over the past five decades in the above sectors. Such investments, together with the needed strengthening of related public agencies, are expected to provide the basis for sustainable economic growth and help reduce poverty in AJK. Rationale Due to security problems and the low level of investment in social and physical infrastructure, AJK has lagged behind in development and suffered from damage to infrastructure and displacement of people. Such damage has hampered the effective delivery of urban and rural services and considerably increased the poverty level. Hundreds of kilometers of roads, dozens of bridges, hundreds of schools, several health units and water supply systems are badly deteriorated. The health sector is constrained as none of the district hospitals has a proper accident and emergency department to efficiently handle emergencies. Every year about 4,000 people die and a greater number suffer from some kind of disability. Important departments like pediatrics, gynecology, and operation theaters lack essential basic iv equipment. The situation of some tehsil (subdistrict) hospitals is even worse. The education sector is facing serious financial constraints in repairing seriously damaged school buildings. Furthermore, about 80% of all the schools have no facilities for safe drinking water and sanitation. Students, particularly girls, face serious problems. Existing water supply networks and water treatment plants in all the urban towns are in a poor condition. Typhoid, hepatitis, cholera, and other gastrointestinal water- related diseases have reached an alarming level. Regarding transportation, the mountainous terrain and river valleys in AJK require a significantly large number of bridges to provide the desired level of connectivity to rural areas representing about 87% of the AJK population, and to achieve economic and social benefits from better access to markets, schools, and hospitals and thus reduce poverty. Several deteriorated roads need urgent rehabilitation. The current power distribution network supplies poor quality and unreliable power due to high system losses, frequent outages, and significant voltage drops, which had been a major constraint to economic and social development. Current system losses are about 37%. The Government of AJK (AJKG) has prepared a plan—Improvement, Renovation, and Augmentation of Power Distribution Network in AJK—for which external financial assistance is urgently required. Three major steps need to be taken to address the above issues: (i) urgent financing to address the existing significant backlog in basic social and physical infrastructure; (ii) strengthening of public agencies through extensive analysis of existing issues, inefficiencies, constraints, and accordingly undertaking specific measures and training considering best practices in regions under similar conditions; and (iii) strong government commitment to sustained operation and maintenance, public participation in all phases of development projects, cost recovery, and monitoring and evaluation (M&E) of the technical and financial operations and accordingly taking timely actions for ensuring the overall sustained operations. Such measures are expected to provide the basis for sustainable economic growth and help to reduce poverty in AJK. For this purpose the

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