Completion Report
Project Numbers: 32234-013 and 32234-053 MFF Number: 0004 Loan Number: 3097 November 2019
Bangladesh: Railway Sector Investment Program (Multitranche Financing Facility and Tranche 3)
This document is being disclosed to the public in accordance with ADB’s Access to Information Policy.
CURRENCY EQUIVALENTS
Currency unit – taka (Tk)
At Appraisal At Project Completion (17 August 2006) (31 December 2015) Tk1.00 = $0.0144 $0.0128 $1.00 = Tk69.69 Tk78.43
ABBREVIATIONS
ADB – Asian Development Bank DMF – design and monitoring framework EIRR – economic internal rate of return EMP – environmental management plan FFA – Financing Framework Agreement FIRR – financial internal rate of return FY – fiscal year GDP – gross domestic product GRC – grievances redress committee IEE – initial environment examination LIBOR – London interbank offered rate LOB – line of business MFF – multitranche financing facility NGO – nongovernment organization O&M – operation and maintenance PFR – periodic financing request TA – technical assistance WACC – weighted average cost of capital
NOTES
(i) The fiscal year (FY) of the Government of Bangladesh ends on 30 June. “FY” before a calendar year denotes the year in which the fiscal year ends, e.g., FY2019 ends on 30 June 2019.
(ii) In this report, “$” refers to United States dollars.
Vice-President Shixin Chen, Operations 1 Director General Hun Kim, South Asia Department (SARD) Country Director Manmohan Parkash, Bangladesh Resident Mission, SARD
Team leader Jyotsana Varma, Principal Country Specialist, SARD Team members Faiza Ahad, Associate Project Officer (Education), SARD Kazi Akhmila, Associate Safeguard Officer (Resettlement), SARD Farhat Jahan Chowdhury, Senior Project Officer (Environment), SARD Nusrat Chowdhury, Associate Project Analyst, SARD Md. Humayun Kabir, Associate Project Officer (Transport), SARD Tika Limbu, Senior Portfolio Management Specialist, SARD
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 BASIC DATA i MAP vi I. PROGRAM DESCRIPTION 1 II. DESIGN AND IMPLEMENTATION 3 Program Design and Formulation 3 Program Outputs 5 Program Costs and Financing 6 Disbursement 7 Program Schedule 7 Implementation Arrangements 8 Technical Assistance 8 Consultant Recruitment and Procurement 8 Safeguards 9 Monitoring and Reporting 10 III. EVALUATION OF PERFORMANCE 11 Relevance 11 Effectiveness 12 Efficiency 13 Sustainability 14 Development Impact 15 Performance of the Borrower and the Executing Agency 15 Performance of the Asian Development Bank 16 Overall Assessment 16 IV. ISSUES, LESSONS, AND RECOMMENDATIONS 17 Issues and Lessons 17 Recommendations 17
APPENDIXES 1. Design and Monitoring Framework 19 2. Summary of Implemented Railway Reform Actions 22 3. Program Cost and Financing Plan 24 4. Disbursement of ADB Loan and Grant Proceeds 26 5. Actual Investment Program Implementation Schedule 28 6. Chronology of Main Events 29 7. Organizational Chart for Project Processing and Implementation 32 8. Technical Assistance Completion Report 33 9. Assessment of Environmental Safeguards and Management 35 10. Assessment of Social Safeguards Planning and Implementation 38 11. Status of Compliance with Loan Covenants 44 12. Economic and Financial Reevaluation 60 13. Financial Performance of Bangladesh Railway and Key Indicators 85 14. Contribution to the ADB Results Framework 88
BASIC DATA
A. Facility Identification 1. Country People’s Republic of Bangladesh 2. MFF number and financing source 0004-BAN 3. Facility title Railway Sector Investment Program 4. Borrower Government of Bangladesh 5. Executing agency Bangladesh Railway 6. Amount of facility $430 million 7. Financing modality Multitranche Financing Facility
B. Facility Data 1. Appraisal – Date started 21 May 2006 – Date completed 25 May 2006
2. Framework financing agreement negotiations – Date started 14 August 2006 – Date completed 16 August 2006
3. Date of Board approval 10 October 2006
4. Date of framework financing 7 September 2006 agreement
5. Number of amendments of financing 1 framework agreement
6. Multitranche financing availability period – In framework financing agreement 31 December 2013 – Actual 6 May 2016
Disbursements a. Dates Initial Disbursement Final Disbursement Time Interval PFR 1 (L2316) 19 September 2007 30 June 2016 105 months, 12 days PFR 1 (L2317) 17 October 2007 1 February 2017 111 months, 16 days PFR 2 (L2845) 12 August 2013 23 June 2016 34 months, 13 days PFR 3 (L3097) 7 April 2016 11 October 2016 6 months, 15 days PFR 4 (L3376) 23 June 2016 14 December 2016 5 months, 22 days Effective Date Actual Closing Date Time Interval PFR 1 (L2316) 24 April 2007 4 May 2017 120 months, 11 days PFR 1 (L2317) 24 April 2007 4 May 2017 120 months, 11 days PFR 2 (L2845) 5 November 2012 28 December 2016 49 months, 24 days PFR 3 (L3097) 17 September 2014 4 May 2017 31 months, 18 days PFR 4 (L3376) 30 May 2016 4 May 2017 11 months, 6 days PFR = periodic financing request.
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b. Amount ($ million) Increased Cancelled Last Original during during Revised Amount Undisburse Allocation Implementat Implementation Allocation Disbursed d Balance Category (1) ion (2) (3) (4=1+2–3) (5) (6 = 4–5) Tranche 1, Loan 2316 100.000 0.000 0.069 99.931 99.931 0.000 Tranche 1, Loan 2317 30.000* 0.000 5.384 23.986 23.986 0.000 Tranche 2, Loan 2845 150.000 0.000 0.703 149.929 149.929 0.000 Tranche 3, Loan 3097 100.000 0.000 27.351 72.648 72.648 0.000 Tranche 4, Loan 3376 50.000 0.000 27.294 22.706 22.706 0.000 Total 430.000* 0.000 60.169 369.201 369.201 0.000 *Due to currency fluctuation, L2317 was $29.37, with total $429.37
C. Multitranche Financing Facility Investment Plan ($ million) Multitranche Financing Facility Projects Financed under Tranches Item Tranche 1 Tranche 2 Tranche 3 Tranche 4 Investment Project Subproject 1 Subproject 1 Subproject 4 Subproject 1 Subproject 2 Subproject 2 Subproject 3 Subproject 3 Reform Project Reform project Subproject 1: 64 km meter gauge track, 22 km of meter gauge loops and sidings between Tongi and Bhairab Bazar. Subproject 2: Rehabilitation of yards and extension of loops between Dhaka and Darsana and at Sirajganj Bazar. Subproject 3: Upgrading of signaling at 11 stations between Dhaka and Darsana. Subproject 4: Procurement of 50 broad gauge and 100 meter gauge passenger carriages.
1. Program cost ($ million) Item Appraisal Estimate Actual Investment project 352.85 387.83 Reform project 34.06 27.20 Contingencies 92.77 Financing charges 57.82 8.80
Total 537.50 423.83
2. Financing plan ($ million) Source Appraisal Estimate Actual A. ADB Loan Tranche 1 130.00 123.91 Tranche 2 150.00 149.93 Tranche 3 100.00 72.64 Tranche 4 50.00 22.71 Subtotal (A) 430.00 369.20
B. Government Tranche 1 32.50 28.93 Tranche 2 37.50 10.26 Tranche 3 25.00 12.07 Tranche 4 12.50 3.37 Subtotal (B) 107.50 54.63
Total (A+B) 537.50 423.83
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II. Tranche 3 (Loan 3097) A. Loan Identification 1. Country People’s Republic of Bangladesh 2. Loan number and financing source Loan 3097 (Tranche 3) 3. Project title Railway Sector Investment Program 4. Borrower Government of Bangladesh 5. Executing agency Bangladesh Railway 6. Amount of loan $100 million 7. Financing modality Multitranche financing facility tranche
B. Loan Data 1. Appraisal – Date started 9 June 2013 – Date completed 9 June 2013
2. Loan negotiations – Date started 25 November 2013 – Date completed 25 November 2013
3. Date of approval 9 December 2013
4. Date of loan agreement 6 August 2014
5. Date of loan effectiveness – In loan agreement 4 November 2014 – Actual 17 September 2014 – Number of extensions 0
6. Project completion date – Appraisal 31 July 2016 – Actual 4 May 2017
7. Loan closing date – In loan agreement 9 October 2016 – Actual 4 May 2017 – Number of extensions 0
8. Financial closing date – Actual 4 May 2017
9. Terms of loan – Interest rate LIBOR plus 0.60% per annum – Commitment charges 0.75% – Maturity (number of years) 25 – Grace period (number of years) 5
10. Terms of relending (if any) Not applicable – Interest rate – Maturity (number of years) – Grace period (number of years) – Second-step borrower
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Disbursements
a. Dates Initial Disbursement Final Disbursement Time Interval 7 April 2016 11 October 2016 6 months, 15 days Effective Date Actual Closing Date Time Interval 17 September 2014 4 May 2017 31 months, 18 days
b. Amount ($ million) Increased Cancelled Last Original during during Revised Amount Undisbursed Allocation Implementation Implementation Allocation Disbursed Balance Category (1) (2) (3) (4=1+2–3) (5) (6 = 4–5) Goods 89.250 0.000 16.858 72.392 72.392 0.000 Interest and 2.520 0.000 2.263 0.256 0.256 0.000 commitment charges Unallocated 8.230 0.000 8.230 0.000 0.000 0.000 Total 100.000 0.000 27.351 72.648 72.648 0.000
1. Project cost ($ million) Cost Appraisal Estimate Actual ADB financing 72.10 74.43 Government financing 41.61 17.17 Total 113.71 91.60
2. Financing plan ($ million) Cost Appraisal Estimate Actual Implementation cost Borrower financed 41.21 16.77 ADB financed 72.10 74.43 Total implementation cost 113.31 91.20 Interest during construction costs Borrower financed 1.10 1.10 ADB financed Total interest during construction cost 1.10 1.10
3. Cost breakdown by project component ($ million) Component Appraisal Estimate Actual
A. Goods 100 meter gauge carriages (including spare 48.00 44.39 parts) 22.00 28.00 50 broad gauge carriages (including spare 0.50 0.60 parts) 0.10 0.14 B. Equipment C. Training 0.70 D. Contingencies 0.40 1. Physical contingencies 1.10 1.30 2. Price contingencies 0.40 E. Total Interest during construction F. Commitment charges Total 72.10 74.43
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4. Project schedule Item Appraisal Estimate Actual Goods contracts, date of award Meter gauge passenger carriages Q1 2007 27 November 2014 Broad gauge passenger carriages Q1 2007 27 November 2014 Completion of tests and commissioning Meter gauge passenger carriages Q2 2008 23 January 2017 Broad gauge passenger carriages Q2 2008 24 January 2017
5. Project performance report ratings Implementation Period Ratings From 1 July 2013 to 31 May 2015 On track From 1 June 2015 to 30 June 2017 On track
D. Data on Asian Development Bank Missions No. of No. of Specialization Name of Mission Date Persons Person-Days of Members Inception 24–30 September 2014 3 14 a, o, t Review 9–20 October 2014 2 5 a, t Review 21–23 May 2015 2 6 a, t Review 24–27 March 2016 2 6 a, t Consultation 2–3 May 2016 2 6 a, o, t a = analyst, c = consultant, d = director, e = environment specialist, f = financial specialist, h = economist, i = project implementation specialist, j = counsel, k = control officer, o = project officer, p = procurement specialist, s = social and/or resettlement specialist, t = transport specialist.
89o 00'E 91o 45'E BANGLADESH RAILWAY SECTOR INVESTMENT PROGRAM
Panchagarh (as completed)
Thakurgaon Nilphamari Lalmonirhat Kurigram N Syedpur Rangpur Teesta R. Parbatipur Dinajpur o 0 25 50 75 25 30'N R A N G P U R 25 o 30'N Gaibandha Kilometers Balashi Ghat Trimohoni Bonarpara Bahadurabad M Y M E N S I N G H Sunamganj Chhatak Tamabil Joypurhat Phulchari Ghat Sherpur
Jamuna R. Brahmap Netrokona Bogura utra R. Naogaon Jamalpur Sylhet Mymensingh Mohanganj S Y L H E T Kushiyara R. Chapai Nawabganj R A J S H A H I Bhuapur Jamuna Kulaura Madhupur Sirajganj Rajshahi Ganges R. Natore Kishoreganj Habiganj Moulvibazar Nalka Bonpara Tangail Ishwardi D H A K A Shahji Bazar BhairabBhairab BazarBazar Narsingdi Pabna Manikganj Gazipur Kushtia TongiTongi Brahmanbaria AAkhaurakhaura Meherpur Rajbari DDHAKAHAKA Chuadanga Faridpur Narayanganj Padma R. Daudkandi Jhenaidah Munshiganj DDarshanaarshana Magura Cumilla
Shariatpur Chandpur Jashore LLaksamaksam Khagrachhari Madaripur Meghna R. Narail Madhumati R. Gopalganj K H U L N A Lakshmipur Feni
Noakhali Barishal KKhulnahulna Bagerhat Satkhira Bhola Jhalakathi Rangamati Pirojpur
hala R. BARISHAL Mongla Port Pussur R. Patuakhali CChattogramhattogram Patiya
Haring Khepupara Dohazari Bandarban Barguna CHATTOGRAM 22o 00'N 22o 00'N
B a y o f B e n g a l Dhaka Metropolitan Area Project Railway Cox's Bazar National Capital Railway Divisional Headquarters River District Headquarters District Boundary Towns Divisional Boundary National Highway International Boundary Regional Highway Boundaries are not necessarily authoritative. Zilla/Other Road This map was produced by the cartography unit of the Asian Development Bank. The boundaries, colors, denominations, and any other information shown on this 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 St. Martin's Island 89o 00'E boundaries, colors, denominations, or information. 91o 45'E
19-1659b 18BAN AV
I. PROGRAM DESCRIPTION
1. Roads dominate the transport sector in Bangladesh, carrying over 70% of passengers and 60% of freight.1 The transport sector was the largest recipient of the Government of Bangladesh’s investments, accounting for about 20% of total annual development budget expenditures from 1999 to 2017. Three-fourths of these investments went to road transport, which expanded significantly at the expense of rail transport, whose market share declined steadily from 1973 to 2005, from 30% to 4%.2 A vicious cycle set in: limited investments led to declining quality and efficiency, which in turn led to poor traffic and high operating ratios. Bangladesh Railway's poor financial performance has led to ever-increasing dependence on government budget support (para. 62). Improving railways can increase the efficiency of the transport sector by relieving pressure on congested, unsafe roads.3 Railways are environment-friendly and require less land per unit of operation. Improving railways would improve passenger comfort and safety and reduce freight transport costs.
2. Bangladesh Railway has been a department directly under the Ministry of Railways since November 2011, when the new ministry was formed. Previously, it was under the Ministry of Communications. Bangladesh Railway operates a mix of passenger and freight services on a network of 2,956 route-kilometers.4 Separated into two zones—east and west—by the Jamuna River, the network comprises 1,846 kilometers (km) of meter gauge track largely in the east zone, 677 km of broad gauge track in the west zone, and 433 km dual gauge track.5 The two zones are connected through the Jamuna Bridge, currently the only east–west rail connection, essentially limited to broad gauge passenger operations because of load restrictions.6
3. On 10 October 2006, the Asian Development Bank (ADB) approved a multitranche financing facility (MFF) for the Railway Sector Investment Program for $430 million to improve rail sector performance by (i) supporting policy, organizational, and legal reforms to restructure Bangladesh Railway as a market-oriented business organization with improved financial governance, human resource, and operational systems, eventually to be transformed into a new government-owned corporate entity; and (ii) financing economically and financially viable investments in key rail corridors.7
4. The estimated cost for the MFF was $537.5 million, of which ADB was to contribute $430 million and the Government of Bangladesh $107.5 million. Collaborative cofinancing was provided by the Japan International Cooperation Agency for $116.7 million and the Export–Import Bank of Korea for $22 million.8 MFF implementation was completed on 9 October 2016, the last loan account for tranche 4 was closed on 4 May 2017, and project completion review missions were fielded in December 2018 and February 2019.
1 Planning Commission, Government of Bangladesh. 2015. Seventh Five-Year Plan, FY2016–FY2020. Dhaka. 2 Ministry of Finance, Government of Bangladesh. 2018. Bangladesh Economic Review, Appendix 38.1–38.3. Dhaka. 3 According to the Roads and Highways Department, Bangladesh, 2,088 persons died and 2,542 were injured in 1,828 road accidents in 2018. 4 Passenger services dominate and account for 85% of all traffic. 5 Broad gauge track has 1,676 mm spacing between rails while meter gauge track has 1,000 mm. Dual gauge design uses three guard rails instead of two and allows both broad gauge and meter gauge operations. The current meter gauge system comprises 1,114 km (68%) in the east zone and 535 km (32%) in the west zone. 6 ADB. 1997. Jamuna Bridge Railway Link Project. Manila 7 ADB. 2006. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing Facility and Technical Assistance Grant to the People’s Republic of Bangladesh for the Railway Sector Investment Program. Manila. 8 The Japan International Cooperation Agency financed 61 km meter gauge double tracking between Chinkiastana and Chattogram. The Export–Import Bank of Korea financed signaling between Chinkiastana and Chattogram.
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5. The expected impact of the MFF was to promote sustainable national economic growth and poverty reduction by improving rail transport efficiency and the capacity of Bangladesh Railway. It expected far reaching reforms and critical investments to unleash transformational forces in the economy, and improved competitiveness of railways to result in foreign direct investment of $5 billion within 6 years and an increase in gross domestic product (GDP) of $60 billion over 30 years. The expected outcome was to improve the performance of the railways sector through enhanced efficiency, indicated through increased train frequency, volume of freight traffic, modal share of container traffic, and improvement in Bangladesh Railway’s operating ratios. The expected outputs were that Bangladesh Railway would become a commercially- focused service provider with improved governance and safety.
6. Investment projects under the MFF were to be financed to overcome critical rail capacity bottlenecks and replace obsolete, worn-out assets on selected rail corridors. The Dhaka– Chattogram and Dhaka–Darsana–Khulna rail corridors (Map), which cater to Bangladesh’s imports and exports, were identified with serious operational problems despite being the busiest routes.9
7. The reform and investment projects under the MFF were integrated: approval of investment subprojects depended on the implementation of specific reform actions. Five loans were made in four tranches to finance one investment and one reform project: (i) The first tranche for $130 million, approved in February 2007, comprised two loans: (a) The first loan for $100 million financed Tongi–Bhairab Bazar meter gauge double tracking, as subproject 1, and consulting services for design, procurement, and construction supervision as well as preparation of other subprojects. (b) The second loan for $30 million supported the reforms project and financed an integrated information technology (IT) system for accounting, financial, and human resource management; safety and operational equipment; and related consulting services. (ii) The second tranche for $150 million, approved in December 2011, financed (a) the cost overrun under tranche 1, (b) the Dhaka–Darsana investment subproject for yard improvements and extension of station loops in the west zone (subproject 2), (c) the Dhaka–Darsana investment subproject for modernization of signaling in the west zone (subproject 3), and (d) consulting services for construction supervision for items (b) and (c). (iii) The third tranche for $100 million, approved in December 2013, financed passenger carriages. (iv) The fourth tranche for $50 million was approved in March 2016, in the lat year of MFF availability, as additional financing for tranche 2 to meet financing shortfalls.
8. This completion report covers the MFF and tranche 3. A separate completion report was prepared for tranches 1, 2, and 4.10
9 On 2 April 2018, the Government of Bangladesh changed the spelling of Chittagong to Chattogram. 10 The expected impact of tranches 1, 2, and 4 was improved efficiency and safety of railway transport, and the expected outcomes were improved railway connectivity, safety, and capacity on the Dhaka–Chattogram and Ihsurdi– Darshana–Khulna corridors. ADB. Forthcoming. Completion Report for Bangladesh: Railway Sector Investment Program (Tranches 1, 2 and 4). Manila.
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II. DESIGN AND IMPLEMENTATION
Program Design and Formulation
9. The MFF modality was used for the first time in Bangladesh because a performance audit of the previous Railway Recovery Program found that a program loan as a lending modality, solely pursuing policy and institutional reforms, was inadequate to achieve and sustain the objective of Bangladesh Railway overcoming constraints of inadequate infrastructure and aging rolling stock.11 Lessons learned pointed to adopting a holistic approach and addressing institutional capacity and operational weaknesses. These lessons informed the design of the MFF to integrate capacity building and modernization of Bangladesh Railway as part of the reform agenda rather than investments alone. Program preparation drew on sector work, studies, and assessments under past ADB assistance and benefitted from ADB’s long-time engagement in the sector. Program design included medium- to long-term investments with sector reforms and continued government engagement.
10. At appraisal, the investment and reform projects under the facility were fully aligned with the government’s sector investment plan 2007–2013 and railway sector road map. In fact, of the $883 million worth of projects to be implemented over 7 years under this plan, $500 million was to be financed from investment projects under this MFF. Projects under the MFF were also consistent with the government’s National Land Transport Policy 2004, ADB’s country partnership strategy, 2006–2010, and ADB’s transport sector strategy for Bangladesh. All of these emphasized increased investments and support for railways. During implementation, the subprojects were consistent with ADB’s Sustainable Transport Initiative Operational Plan 2010, which emphasized support to environment-friendly transport like railways. At completion, the program remained aligned with government priorities and ADB’s country operations.
11. The use of the MFF modality was considered sound at appraisal because it addressed Bangladesh Railway’s medium- and long-term capital-intensive investment requirements and facilitated a long-term partnership with the government to strengthen sector policies. However, since this was the first MFF in Bangladesh, and one of the first generation of MFFs in ADB, there was limited experience and guidance available on MFFs at appraisal.
12. The project design’s main deficiency was that it envisaged that the ambitious reform agenda and investment projects would be mutually reinforcing. Accordingly, numerous reform conditions for each subsequent tranche release were covenanted in the facility framework agreement and loan agreements, with 31 loan covenants related to reform actions. Because achieving these reform conditions within their time frame was unrealistic, the delay in meeting reform actions led to 2 year delays in approving investment subprojects under tranches 2, 3, and 4, adversely affecting their implementation performance. At the time of approval, the reform project was expected to be completed by 31 December 2010, and the investment project by 31 December 2013. However, both projects suffered substantial delays (paras. 30–32).
13. For the investment project, the design adopted a sector loan approach to finance a number of high priority subprojects, including (i) construction of a double line between Tongi and Bhairab Bazar ($108 million, the design also mentions a 2013-based cost of about $90 million), (ii) partial financing of construction of a chord line from Dhaka to Laksam ($119 million), (iii) strengthening of Jamuna Bridge for higher axle load ($25 million), (iv) signaling line capacity
11 ADB. 1994. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the People’s Republic of Bangladesh for the Railway Recovery Program. Manila.
4 improvement between Dhaka and Tongi ($5 million), (v) procurement of 50 broad gauge and 100 meter gauge carriages ($70 million), (vi) upgrade signaling in 14 stations between Dhaka and Darsana ($18 million), (vii) rehabilitation of yards and extension loops at different stations between Khulna and Parbatipur ($40 million), and (viii) construction of a new meter gauge line from Bogra to Jamtail ($80 million). Of these, only four subprojects were financed (one of them partially) under the MFF under the investment project, because the huge cost and time overruns in the Tongi– Bhairab Bazar subproject used up most of the resources and time available (para. 20).12
14. Designs for the subprojects under the MFF drew on assessments from the feasibility study prepared under technical assistance (TA) for the project.13 Procurement of passenger carriages was needed to address the high unmet demand. The design of tranche 3 was accordingly aligned with the MFF and straightforward.
15. The meter gauge (MG) design for the main investment under the MFF for the Tongi– Bhairab Bazar subproject did not plan for future gauge integration. At the time, MG was seen as an interim measure and broad gauge (BG) load standards for the track bed and bridges were built for future BG conversion.14 MG track cannot support higher speed trains and double-stacked containers with greater capacity, and is not aligned for higher freight traffic with neighboring India, which has a BG network. However, there was no approved government policy on gauge unification at the time of appraisal; the policy came later in 2013, with the approval of the Railway Master Plan, 2010–2030.15
16. Although the projects under the tranches achieved their defined targets, even if late, they did not lead to the envisaged transformation of Bangladesh Railway. However, the reform project put in place the basic building blocks for railway reform that Bangladesh Railway and ADB continue to pursue. Moreover, train frequency and safety improved significantly, even as operating ratios did not.16 The absolute volume of freight carried by Bangladesh Railway doubled from 2.19 million tons in 2012 to 4.55 million tons in 2018 and passenger traffic increased by 89% (paras. 52–53).
17. The design and monitoring framework (DMF) for the facility lacked clear logic, coherent results chain, and suitable targets (para. 52). Most output indicators were not appropriate measures for the output statements. While output statements focused on reforms for institutional development of Bangladesh Railway, most output indicators related to physical improvements. Further, the targeted outcomes were unrealistic, like the dramatic shift in modal share of container transport and increase in operating ratios. The average annual development budget of Bangladesh Railway was about $400 million in 2006 and this MFF invested $400 million over ten years, thus this expectation did not have a very sound basis. The first DMF for tranche 1 was
12 Its cost increased by 146% from $108 million at appraisal to $266 million at tranche 4 completion (para.25). Rebidding of the main works contract led to a 24% cost increase. This cost increase necessitated a minor change of project scope and reallocations of loan proceeds under tranche 1 and 2 (Basic Data) to secure subproject financing. 13 ADB. 2000. Technical Assistance to the People’s Republic of Bangladesh for Preparing the Regional Rail Traffic Enhancement Project. Manila. 14 The counter argument against adopting meter gauge—low loading capacity and speeds, no double-stacking of containers, and insufficient maintenance facilities—was available in the final report of the project preparatory TA in 2004 (footnote 13). 15 Subsequently, ADB financed railway projects have adopted dual gauge track design standard, which is again only an interim solution. Ultimately, Bangladesh Railway will need to create a broad gauge network on its main rail corridors to increase capacity and quality of rail services and to better integrate its rail operations with the subregional network. 16 A key financial indicator, the operating ratio is revenue divided by costs including depreciation.
5 updated for tranches 2 and 4. The DMF for tranche 3 had clear targets and aligned with the first outcome of the MFF of increased train frequency. Details in Appendix 1.
18. Collaborative cofinancing from Japan and the Republic of Korea was complementary and used to finance double tracking and signaling on other sections of the Dhaka–Chattogram rail corridor (footnote 8). At their completion review, the subprojects complied with environmental and social safeguards, including resettlement (paras. 39–42).
Program Outputs
19. At appraisal, it was anticipated that the MFF would deliver (i) the investment project comprising eight subprojects (para. 13) and (ii) the reform project (paras. 21–23). At completion, the MFF delivered four subprojects under the investment project; one of them partially. Under the reform project, Bangladesh Railway accomplished many of the targeted reform actions, while other actions by the government lay the groundwork for future railway reform, which is ongoing (footnote 21).
20. Investment project. The key outputs achieved were (i) for subproject 1, laying of 64 km of meter gauge track, including modernization of signaling, and 22 km of meter gauge loops and sidings between Tongi and Bhairab Bazar, (ii) for subproject 2, rehabilitation of yards and extension of loops at 8 stations for 18.3 km between Dhaka and Darsana and at Sirajganj Bazar, (iii) for subproject 3, upgrading signaling at 11 stations covering 78 km between Dhaka and Darsana, and (iv) for subproject 4, procurement of 50 broad gauge passenger carriages and 100 meter gauge passenger carriages. At completion, subproject 1 was delivered in three tranches instead of one (tranches 1, 2, and 4). Subprojects 2 and 3 were small in comparison, totaling about $22 million, and were delivered under tranches 2 and 4. Subproject 3 was substantially delivered, with unfinished works (30% by cost or $3.6 million) taken up under another ongoing railway project.17 Subproject 4 for procurement of passenger carriages was straightforward and successfully delivered under tranche 3 (table on page iv of Basic Data).
21. Reform project. Targeted outputs were (i) Bangladesh Railway transformed into a commercially focused rail service provider, (ii) Bangladesh Railway corporate governance improved, and (iii) Bangladesh Railway safety record improved. Reform conditions related to restructuring Bangladesh Railway into lines of business included: preparing an asset register; improving financial governance, management, and accounting systems; improving human resource governance and utilization; and transforming Bangladesh Railway into a government- owned corporate entity while enhancing the rail safety regulatory framework.
22. Though progress was slow, Bangladesh Railway ultimately met most of the reform conditions. Railway safety improved with the adoption of improved operational and maintenance standards, use of updated manuals for train operations (developed under the attached TA, para. 35), maintenance of track and permanent way, and signaling. The full implementation of the project also required procurement of IT equipment which is yet to be fully operationalized, but all
17 ADB. 2014. Report and Recommendation of the President to the Board of Directors: Proposed Loans and Technical Assistance Grant to the People’s Republic of Bangladesh: South Asia Subregional Economic Cooperation Railway Connectivity: Akhaura–Laksam Double Track Project. Manila. Some 174 km of dual gauge track is under construction (by 2020) under this project which also absorbed the unfinished work under the investment subproject for signaling.
6 other outputs are operational and contributing to Bangladesh Railway’s improved safety performance.18
23. During program implementation, Bangladesh Railway staff decreased by 36%, from 34,168 regular employees in 2006 to 25,400 in 2018, which improved staff productivity.19 While a new tariff structure was introduced in February 2016, the challenging conditions of tranche 4— transforming Bangladesh Railway into a government-owned corporate entity with its own assets and liabilities—were only partially achieved at completion.20 Human resources reform actions for market-based recruitment and rationalized management of public service obligations were not achieved (Appendix 11). The government established a company for Bangladesh Railway’s container operations in February 2016 and appointed some staff; this remained an initial step because the company is not yet operational. However, subsequent ADB assistance continued to support and sustain reforms and develop Bangladesh Railway capacities.21 Details on the achievements under the covenanted railway reform actions are in Appendix 2.
Program Costs and Financing
24. At appraisal, the MFF financing plan was estimated at $537.5 million of ADB financing, including $400 million from ADB ordinary capital resources, $30 million from ADB’s special fund resources, and $107.5 million from the Government of Bangladesh. The MFF was completed at a total cost of $433 million, with an ADB share of $369 million (87.10%) and government financing of $54 million (12.90%). ADB financing at completion included $345 million from ADB ordinary capital resources and $24 million from ADB’s special fund resources.
25. The MFF financing plan changed because the cost of subproject 1 (Tongi–Bhairab Bazar) increased by 146%, from $108 million at appraisal (based on 2006 cost data) to $266 million at tranche 4 completion.22 At appraisal, it was envisaged that tranche 1 would finance the subproject 1 and the reform project. However, significant cost overruns in subproject 1 led to tranches 2 and 4 financing the large shortfall. Only two other small investment subprojects could be taken up from tranches 2 and 4.
26. At appraisal, the cost for passenger carriages financed under tranche 3 was estimated at $113.71 million, including $72.10 million (63.41%) financed by ADB and $41.61 million (36.59%) from the government. The actual subproject cost at loan closing because of competitive bid prices was $91.60 million, with ADB financing equivalent to $74.43 million (81.25%) and the government share $17.17 million (18.75%).
18 Key physical outputs delivered were (i) IT systems and equipment and (ii) safety and operational equipment. 19 However, a contrary view is held by some policymakers in government, and within Bangladesh Railway, that the loss of key, highly trained staff (e.g. train drivers) in this exercise has led to a sharp decline in productivity. Bangladesh Railway has not been able to recruit the required manpower over the last decade due to government constraints on recruitment. 20 Tariffs were revised 50% on average for both passenger and freight in October 2012 for the first time since 1992. And in February 2016 (average 7%) along with approval for a new tariff structure as an index for future tariff adjustments. 21 Covenants for ongoing Bangladesh Railway projects (Akhaura–Laksam Double Track Project and SASEC Chittagong–Cox’s Bazar Railway Project) include operationalization of container corporation and ERP. 22 One reason for the cost increase was underestimation and reliance on 2006 costing data. Rebidding of the main works contract on 22 April 2010 led to a 24% cost increase. Significant cost increases became necessary because of the settlement of a contractor’s claim of price escalation. It may be noted that the report and recommendation of the President also indicates a different cost estimate of about $90 million based on 2003 data.
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27. The reform project was $30 million at appraisal and used $24.26 million at completion, mainly for procuring IT and other equipment. Details on costs and financing are in Appendix 3.
Disbursement
28. Disbursement followed ADB’s Loan Disbursement Handbook (2001, as amended from time to time). The executing agency, Bangladesh Railway, applied the appropriate disbursement procedures and ADB’s disbursement process was fairly efficient. Total disbursements under the five ADB loans totaled $369.20 million or 85.86% of the total loan amount of $430 million. Direct payment and reimbursement procedures were used.23 The MFF had an unutilized amount of $60.17 million that was canceled at completion. Surplus funds had to be canceled to keep within the MFF availability period. Loan amount categories under the five loans were reallocated as required to meet the emerging project requirements.
29. Disbursement for tranches 1, 2, and 4 was $296.55 million; tranche 3 was $72.60 million. Under tranche 3, $27.35 million was canceled (Appendix 4). Tranche 3 had savings because of competitive bid prices for passenger carriages.
Program Schedule
30. At appraisal, the reform project was expected to be completed by 31 December 2010. However, reform actions under the project continued for 10 years, until the end of the MFF availability period, which delayed the investment projects. Subproject 1, expected to be completed by 31 December 2013, took over 4 years for design and procurement, plus more than 4 years to complete construction (on 31 December 2015). The new section opened to traffic in early 2016.24 subprojects 2 and 3 took 4.5 to 5 years to complete.
31. Initial delays under tranche 1 are attributed to lack of project readiness (including lack of detailed design) and low procurement readiness at tranche approval. Subsequent delays resulted from weak procurement and prolonged procurement activities, such as reviews and approvals on both the lender and borrower side.25 In all, procurement for the Tongi–Bhairab Bazar works contract took almost 3 years, from 2008 to 2011. The tender was rebid after a misrepresentation by the lowest bidder. Bangladesh Railway took about 20 months to prepare tender documentation and another 16 months were needed for evaluations and approvals by the government and ADB. ADB took 6 months to review and decide on rebidding of works, causing a delay of one and a half years. Subprojects 2 and 3, included in tranche 2 for extension of loop lines and signaling, were appraised in early 2010, but tranche 2 effectiveness was delayed until November 2012 to meet tranche 2 reform conditions, substantially delaying implementation (Appendix 2). The signaling investment subproject also faced significant delays because of poor preparatory work, slow procurement, and slow responsiveness of Bangladesh Railway. Subprojects faced delays because strikes before the 2014 general elections hampered work. Slow progress in meeting
23 Disbursement followed ADB’s Loan Disbursement Handbook 20017, as amended from time to time. 24 The end of the liability period was 31 December 2016. 25 Expressions of interest for project implementation consultants were invited in May 2006 and the contract with the consultant was signed in August 2007. This recruitment took 16 months, while it should normally take no more than 8 to 9 months. Detailed design for the construction of Tongi–Bhairab subproject was completed in July 2008 and the bid was invited in August 2008. However, it was canceled in September 2009 and the revised bid issued in April 2010, a loss of almost two years. Finally, the contract for civil works was signed on 27 July 2011. The entire process took 36 months, which points to weak procurement capacity.
8 tranche-linked reform actions delayed tranche 3 implementation (Appendix 2). Thus other four priority subprojects could not be financed under the MFF, as envisaged (para. 13).
32. In the reform project, development and design of the new integrated IT system experienced substantial delays because of weak preparation, underestimation of required resources and time, use of three separate contracts which led to lack of coordination amongst contractors, and insufficient financing and staff provided by the government and Bangladesh Railway. A comparison of the implementation schedule at appraisal and actual achievement is in Appendix 5. A chronology of events is in Appendix 6.
Implementation Arrangements
33. Implementation arrangements were appropriate and adequate. As envisaged, Bangladesh Railway was the executing agency responsible for overall project implementation. It established two units: (i) the reform implementation unit headed by a reform project director, a senior Bangladesh Railway officer at the additional director level, and (ii) the project implementation unit, headed by the general manager (projects) as project director for the investment project. An organogram is in Appendix 7.
34. An inter-ministerial committee was co-chaired by (i) the Secretary, Ministry of Communications initially, and later by the Secretary of the Ministry of Railways once it was established in November 2011 (para. 2), and (ii) the Secretary, Finance Division, Ministry of Finance. The committee provided oversight and guidance to both project directors. Other members were the Economic Relations Division, Ministry of Establishment, Prime Minister’s Office, Bangladesh Railway, and other agencies.
Technical Assistance
35. ADB-financed project preparatory TA of $900,000 equivalent was provided on a grant basis from the Japan Special Fund at ADB to help the government carry out full due diligence and prepare the project (footnote 13). In addition, a TA attached to the MFF from ADB’s Technical Assistance Special Fund of $2 million was included to provide institutional support for railway reforms.26 This TA had three components: the first was to engage an international and a national advisor to help implement the railway reform program. The second component sought to improve the operational efficiency of Bangladesh Railway and to help improve its maintenance standards and practices for infrastructure, rolling stock, signaling, and telecommunications; and improve railway safety. The third component aimed to conduct performance and procurement audits. The components were largely implemented as envisaged at appraisal, with some delay, and the expected TA outputs were delivered with appropriate quality. The TA is rated successful, and its completion report is in Appendix 8.
Consultant Recruitment and Procurement
36. Consultants were recruited in accordance with ADB’s Guidelines on the Use of Consultants (February 2006, as amended from time to time). Recruitment followed the quality- and cost-based selection procedure and was largely carried out as envisaged at appraisal. Bangladesh Resident Mission staff facilitated and supported recruitment of consultants under the MFF.
26 ADB. 2006. Capacity Development Technical Assistance for Institutional Support for Railway Reforms. Manila.
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37. Procurement of civil works and goods followed ADB’s Procurement Guidelines (February 2006, as amended from time to time) and the procurement plan. The performance of the construction supervision consultant for subproject 1 was satisfactory. (With this support, ADB undertook contract performance reviews and field visits to address implementation challenges). Another consultant provided on-the-job training and technical support that strengthened contract management of Bangladesh Railway. These actions supported improved project performance and mitigated potential further delays. Procurement for subprojects 2 and 3 was under separate works contracts in accordance with plan. Performance of the contractor for subproject 2 was satisfactory. The contractor for subproject 3 performed below par and contributed to delays in implementation. The performance of some consultants and suppliers under the reform project was not entirely satisfactory. The consultants under the TA attached to the MFF performed satisfactorily. Details are in the project completion report (footnote 10).
38. Procurement for subproject 4 under tranche 3 was satisfactory
Safeguards
39. Environment. At their completion review, the subprojects complied with environmental safeguards in all aspects: design and pre-construction, natural environment, ecological environment, and environmental pollution. Subproject 1 (Tongi–Bhairab Bazar) was categorized B in accordance with ADB’s Environment Policy 2002. Mitigation measures were undertaken during preconstruction and construction phases. These included management of ballast waste; safety and cleanliness at construction site; tree planting and revegetation; and mitigating adverse effects of air pollution, solid waste and waste water.
40. Subproject 2 under tranche 2 was categorized B per ADB’s Safeguard Policy Statement 2009. Subproject 3 under tranches 2 and 4 was categorized C as its impact was assessed to be insignificant. Mitigation measures including monitoring plans for air and dust pollution, noise pollution, drinking water quality, surface water pollution, tree planting, and occupational health and safety. Subproject 4 under tranche 3 did not have any safeguards considerations as it only procured rolling stock. An assessment of environmental safeguards is in Appendix 9.
41. Land acquisition and social safeguards. At their completion review, the subprojects complied with social safeguards, including resettlement. During processing, due diligence was undertaken and resettlement frameworks prepared for subproject 1, the only subproject under the MFF to be categorized A for involuntary resettlement because it was anticipated to impact 1,956 households. It was categorized C for impact on indigenous people. During implementation, construction of the rail track required acquiring 102.43 hectares of land (including 86.52 hectares of Bangladesh Railway land and 15.91 hectares of private land), affecting 2,914 households from Narsingdi and Gazipur districts. A 2004 resettlement plan had to be updated (approved in 2011) to incorporate the increased number of impacted households. The revised land acquisition and resettlement cost increased from Tk831.73 million to Tk1,892.82 million, which was addressed through a revision of the government’s project proposal. The affected people were adequately consulted through 180 consultation meetings. All 1,164 non-titled households received due compensation. Among the 1,750 titled households, 1,672 (95.54%) received compensation by June 2016.27 Income and livelihood restoration training was provided to 278 affected persons (179 men and 99 women) and the project employed 55 other affected people in suitable positions to
27 Source: 8th Semiannual Social Safeguards Monitoring Report, June 2016.
10 restore livelihoods.28 The grievance redressal committee settled all 587 issues with 374 recommendations and 213 rejections. The overall objective of the resettlement plan was fulfilled (Appendix 10).
42. Subprojects 2 and 3 had no land acquisition or resettlement, with project activities confined to the existing right of way. Subproject 4 under tranche 3 did not have any safeguards considerations as it only procured rolling stock. An assessment of social safeguards is in Appendix 10.
Monitoring and Reporting
43. Monitoring. Bangladesh Railway established a dedicated project implementation unit to monitor the investment subprojects and a consultant-supported reform implementation unit for the reform project. Construction supervision consultants monitored progress of the works contracts at the site level and reported monthly to the project implementation unit. TA consultants monitored and supported implementation of reforms. A project performance management system was established to monitor progress for all tranches with the assistance of consultants. A database was also established to monitor the progress of land acquisition and resettlement.
44. Compliance with covenants. Of 74 total covenants for the facility, 31 related to reform actions and the remaining 43 to physical investments, implementation arrangements, and safeguards. Bangladesh Railway generally complied with 40 covenants, complied late with 19, partially complied with 4, and did not comply with 11. Of 31 covenants on reform actions, it did not comply with 9; for 22 compliance was late, partial, or ongoing. Covenant implementation was slow, especially for those on railway reform actions. Covenants not complied with relate to corporatization and human resource development in Bangladesh Railway. Out of 14 covenants under tranche 3, 12 were complied with, one relating to information disclosure was partially complied, and one reform covenant was only complied with after it was reformulated. (para. 46)
45. Government complied with covenants on commercializing Bangladesh Railway after significant delays of 2–5 years. Delayed key covenants include (i) reorganizing Bangladesh Railway by lines-of-business; (ii) preparing five-year business plans; (iii) developing and implementing a new IT system for accounting, financial, and human resource management including asset registry; and (iv) introducing a new tariff structure for Bangladesh Railway core services.
46. It partially complied with covenants on restructuring Bangladesh Railway to establish it as a government-owned corporate entity four years after tranche 1 loan effectiveness. Although covenants relating to corporatization—fourth periodic financing request (PFR) conditions—were not met, new covenants to establish a government-owned corporate entity for Bangladesh Railway container operations were introduced as fourth PFR conditions.29 Changes reflected in the revised loan agreement read as additions to covenants to include the container corporation. The status of compliance of covenants in the framework financing agreement and in the loan agreements is in Appendix 11.
28 Resettlement Plan Due Diligence Report, February 2016. The resettlement plan due diligence report confirms that livelihoods were restored to 72% affected and 28% were better off than before. Vulnerable households received full compensation in addition to allowances as per entitlement. Livelihood training was provided based on needs- assessment and to interest vulnerable households. 29 The periodic financing request report (2016) says that it was agreed in policy dialogue with government that the focus will be on the corporatization of the container business as a pilot case because corporatization of Bangladesh Railway was not immediately implementable.
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47. Reporting. During the entire facility implementation, Bangladesh Railway provided quarterly progress reports to ADB consistent with the project performance reporting system. They also prepared and updated project administration manuals during implementation and prepared and submitted audit reports annually in accordance with requirements. Audited project financial statement reports were of acceptable quality and submitted in a timely fashion, except for FY2017–2018. Under the program, an external independent audit firm under the attached TA carried out a performance audit.30
III. EVALUATION OF PERFORMANCE Relevance
48. Overall the MFF is rated less than relevant. It was aligned with government priorities and plans, ADB’s country strategy, and the relevant country business plan for Bangladesh at appraisal and completion. It also packaged together a comprehensive set of interventions for Bangladesh Railway: it offered far-reaching sector reforms and investments to decongest critical sections, enhance safety and increase traffic on existing lines, and replace ageing coaches to increase the number of trains and provide more comfort to passengers. Although it put in place the building blocks for Bangladesh Railway’s modernization and the ongoing reform agenda, in hindsight, MFF was not the best modality at completion because separate investment projects could have been financed more effectively along with a parallel policy-based loan for reform. Main deficiencies in project design were: ambitious reform agenda linked to investments, and poor estimation of project cost and time. Moreover opportunities for course correction during implementation were not taken up. Another design flaw was the overreaching ambition to expect full corporatization of Bangladesh Railway and achieve the attendant reform conditions in a short timeframe (para.12). The design linking numerous unrealistic reform conditions with progress on investments under the MFF dragged down the performance of the investment project, and was the main cause of process inefficiencies.
49. Time and cost overruns of investment subproject 1 (para. 31) led to the non- implementation of other envisaged investments subprojects like Dhaka–Laksam chord line and Bogra–Jamtail line (para. 13). The first would have reduced distance on the Dhaka–Chattogram corridor by about 100 km, and the second would have reduced distance on the northwest lines by roughly 80 km. Strengthening the Jamuna bridge would have allowed container traffic to India on the western side. Had they been financed, these projects would have significantly increased passenger and container traffic and revenues.
50. Tranche 3 is rated relevant.31 It was relevant to the government’s and ADB’s sector strategies and plans. It was aligned with ADB’s country strategy and country operations business plan for Bangladesh. Bangladesh Railway needed new passenger carriages to replace mostly old, worn out, and outdated rolling stock and meet the increasing demand for passenger traffic. The tranche design was straightforward, and scope was implemented as planned, but tranche approval was delayed because it was linked with reform conditions that were delayed.
30 Specific audit observations included (i) delay in release of government portion of mobilization advance resulted in additional financing charges of Tk3.03 million, (ii) a variation order for Tk449 million for soft ground treatment reflected deficient BOQ estimation, and (iii) late addressing of non-conformity reports increased project costs. 31 The forthcoming project completion report for tranches 1, 2, and 4 (footnote 10) has an overall rating of successful, i.e. less than relevant, efficient, effective, and likely sustainable (Table 1).
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Effectiveness
51. Although tranches 1, 2, and 4, as well as tranche 3, are separately rated effective, the MFF is rated less than effective because it achieved only one of the three intended outcomes. The ratings of the constituent tranches do not add up to the rating for the facility because there is a disconnect in the DMFs between the targeted outcomes for the subprojects and those for the facility. This inconsistency exists because the investment subprojects had clearer targets: for example, subproject 4 under tranche 3 targeted and achieved a 10% increase in the number of trains and passengers over the baseline. (Train frequency increased from 289 in 2011 to 352 in 2017, an increase of 22%. Number of annual passengers increased from 66 million in 2011 to 90.5 million in 2018, an increase of 37%). However, the facility DMF targeted that—apart from increase in train frequency on the main Dhaka–Chattogram corridor (achieved at completion)— the MFF would lead to significant increase in freight traffic and improvement in Bangladesh Railway’s working ratio. It did not achieve these two DMF targets, partly because (i) the targets were ambitious given the short time for far-reaching reform and the relatively small size of investments under the MFF and (ii) critical projects envisaged under the MFF that could have led to greater revenues and freight traffic were not taken up because of process inefficiencies in financed subprojects (para. 49).
52. The Tongi–Bhairab Bazar subproject undeniably decongested the most critical section of the Dhaka–Chattogram corridor. The number of trains on the Tongi–Bhairab Bazar new track increased from 44 trains per day in 2009 to 52 trains per day (target 55) in 2018. It lowered travel time, increased Bangladesh Railway revenues, and provided a more environment-friendly, safer option to passengers. Freight traffic handled by Bangladesh Railway decreased steadily from the 2006 baseline (3.06 million tons) due to shortage of locomotives (30% decline to 2.01 million tons in 2012). It started picking up after 2016-2017 as new rolling stock was deployed. It doubled from 2.19 million tons in 2012 to 4.55 million tons in 2018. Container traffic grew by 15% from 73,500 twenty-foot equivalent units in 2009 to 84,500 in 2019, improving from 2018 as new locomotives are procured and deployed. The target outcome of increase in modal share of container transport from 12% at baseline to 26% was not achieved—on the contrary, modal share declined to 3-4% in 2015. Total container traffic doubled on the Dhaka-Chattogram corridor from less than one million twenty-foot equivalent units (TEU) to over 2 million TEU from 2009–2015 but over 90% of these containers were transported by roads. Container traffic carried by railway is set to improve in coming years but improvements in modal share would need a longer time to become evident.
53. Similarly, the targeted outcome for Bangladesh Railway’s operating ratio to improve to 96% in 2013 and 85% in 2018 was not achieved. Bangladesh Railway’s operating ratio did improve from 216% in 2006 to 194% in 2013 after a tariff increase in October 2012, the first since 1992. However, the operating ratio was 196% in 2018 because tariff adjustments in February 2016 were offset with wage hikes.32 Another factor impacting operating ratios is the government’s passenger service obligations to service routes that are not remunerative.33 On the positive side, passenger traffic significantly increased by 83.9%, from 42.3 million in 2005 to 77.8 million in 2017
32 Under the tariff reform of 2016, a tariff adjustment formula was approved to compensate for increased cost, such as fuel prices and staff, repair, and maintenance expenses, to ensure that the operating ratio would remain at least at the current level without further deteriorating the financial performance of Bangladesh Railway because of inflation. 33 Government compensation for unremunerative services under the passenger service obligation scheme was kept flat without inflation adjustment, while Bangladesh Railway was directed to continue operating local train services on unremunerative routes. Best performing small to medium-size railways with a similar role as Bangladesh Railway carry a larger number of passengers both at shorter and longer distances and move freight over medium to longer distances. While such railways may carry some passenger categories, such as commuters, below financial cost, they are duly compensated and receive special targeted subsidies as public service obligation.
13 during the program period, with the bulk of this traffic increase on the Dhaka–Chattogram section, according to Bangladesh Railway statistics. Passenger traffic jumped within one year to 90.05 million in 2018 as Bangladesh Railway deployed new rolling stock. Revenue per passenger nearly doubled from about Tk53 in 2012 to Tk100 in 2018. Moreover, Bangladesh Railway proposes to increase passenger fares in 2019. Freight revenue per ton grew from Tk438 in 2012 to Tk628 in 2017. With higher revenues, Bangladesh Railway could improve its financial performance and operating ratios.
54. Tranche 3 is rated effective. The procured broad gauge and meter gauge carriages were delivered and commissioned in accordance with established plans. They were successfully put into operation by Bangladesh Railway on its key rail corridors. The project completion review mission traveled in the new meter gauge passenger carriages and found them to be in good order and fully utilized in Bangladesh Railway operations.
55. Safeguards implementation is assessed as satisfactory for the entire MFF. The relevant environmental and social safeguard policies and established good practices from previous projects were applied to the investment subprojects financed under the tranches. The grievance redressal mechanism was effective in addressing safeguard issues. While tranche 1 initially experience non-compliance, Bangladesh Railway took substantive corrective action to address critical issues, which resulted in full compliance. The program did not affect indigenous people and had no specific gender elements (paras. 39–42). The subprojects did not overlap with other development partners’ activities (para. 4).
Efficiency
56. Economic reevaluation. The overall rating of efficiency for all four tranches is efficient. The economic internal rate of return (EIRR) calculated for all investment projects at project completion is 18.7%. Sensitivity analysis shows all four MFF investment subprojects remain economically viable with a 10% increase in operation and maintenance (O&M) costs (18.6%) or 10% decrease in benefits (17.4%). The efficiency rating may have been higher if all project components had been completed and project process efficiency had not been poor, i.e. more than 5 year delay and 146% cost overrun. A detailed economic and financial reevaluation is in Appendix 12.
57. For subproject 1 (Tongi–Bhairab Bazar) the EIRR at appraisal in 2006 was 16% and at reappraisal in 2016 was estimated at 20.5%.35 At project completion the reevaluated EIRR of subproject 1 was 19.9%.34 The two smaller subprojects (2 and 3) for signaling and loop lining of a selected section on the Darsana–Dhaka line had EIRRs at appraisal in 2011 of 12.9% and 28.2% respectively. At completion the three subprojects together had reevaluated EIRR of 27.07%. Sensitivity analysis indicates subproject 1 will remain economically viable with a 10% increase in O&M costs (19.8%) or 10% decrease in benefits (18.7%). Subprojects 2 and 3 remain economically viable under similar changes in benefits and costs. Combined EIRR for them is 27.07%.
58. The overall rating of efficiency for tranche 3 is efficient. At appraisal in 2016, before approval of tranche 4, the EIRR was 31.9% for the procurement of passenger coaches. At completion the reevaluated EIRR was 26.2% (footnote 35). Sensitivity analysis indicates the
34 ADB Guidelines for Economic (2017) and Financial (2005) Analysis.
14 project will remain economically viable with a 10% increase in O&M costs (25.5%) or 10% decrease in benefits (22.6%).
Sustainability
59. Financial reevaluation. Investment subprojects 1 and 4 under the MFF are revenue generating, and financial sustainability is assessed by calculating the financial internal rate of return (FIRR) and comparing it to the weighted average cost of capital (WACC) at appraisal. The FIRR for all investment subprojects combined was reevaluated at 4.2% and the WACC at 3.58%. However, the combined sensitivity analysis of all investment subprojects is lower than the WACC only if O&M continues to be supported through the government budget.
60. The FIRR for the Tongi–Bhairab Bazar section was 14% at appraisal in 2006 and revised downwards to 8.5% at reappraisal in 2016 (footnote 35). The reevaluated FIRR is 5.2% for the Tongi–Bhairab Bazar section. The WACC was recalculated at 3.59%, higher than 2.8% at appraisal in 2016 at tranche 4 submission. A sensitivity analysis tested the impact of variations in project revenue and O&M costs. Because the recalculated FIRR for subproject 1 is marginally higher than the WACC, the adverse changes tested all yielded marginally higher or equal to WACC. According to Bangladesh Railway, there is room for an appropriate increase in tariffs, as proposed by the government in 2019.
61. No FIRR is calculated for the signaling and loop line subprojects, because they are not revenue generating projects but improve safety and punctuality. Financial analysis for subproject 4 for procurement of passenger coaches considered two scenarios: with support and without support. The FIRR with support is calculated to be about 6.8%, and without support is about 3.5%, indicating that the revenue from passengers alone does not cover the O&M expenses. The FIRR for the with-support scenario in the sensitivity analysis is higher than WACC of 3.59%. A detailed economic and financial reevaluation is in Appendix 12.
62. The financing gap is met by government budget support, which increased over five times from less than Tk27,000 million in 2010 to more than Tk140,000 million in 2018. Strong government commitment and budget support will ensure sustainability of all MFF subprojects. The government recognizes the importance of rail transport and is keen to modernize and expand the railway system, improve rail operations, and expand both freight and passenger services.35 It supports strengthening Bangladesh Railway institutional capacity and sector reforms. The government has continued to receive ADB support for track expansion, procurement of rolling stock, policy reform, and capacity development.
63. Adequate staff and O&M resources are available for this project from Bangladesh Railway and government support.36 The subprojects are technically sustainable because they were designed using proven technologies with appropriate construction quality and support environmentally sustainable growth. Tranche 3 investment is likely sustainable for the same reasons. On balance, investments under the MFF are likely sustainable. Financial projections for Bangladesh Railway are in Appendix 13.
35 Linked document 13, para. 11 (Financial Performance of Bangladesh Railway). Periodic Financing Request for SASEC Chittagong – Cox’s Bazar Railway Project, Phase 1, tranche 2. October 2018. 36 According to Bangladesh Railway, 276 staff are deployed and an annual O&M budget of Tk130 million is available. Separately mentioned without figures in Project Completion Report. MFF 0004: Bangladesh Railway Sector Investment Program. Bangladesh Railway. June 2016.
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Development Impact
64. Based on the impact statement in the original DMF for tranche 1, updated DMF for tranches 2 and 4, and assessed performance, the development impact for the facility is rated satisfactory. The MFF had expected that GDP would grow and attract additional foreign direct investment of $5 billion by 2012, increasing GDP by $60 billion over 30 years. While GDP grew an average of 6.5% over the last ten years and foreign direct investment increased during program implementation, neither of these can be solely attributed to the MFF. That said, investments and reforms under the MFF improved local mobility and contributed to economic growth. Although difficult to quantify, access to improved railway facilities and rail transport services generated jobs and supported medium- to long-term socioeconomic development.
65. Investments under the MFF made travel affordable, faster, and safer for people.37 Train journey time between Dhaka and Chattogram decreased by at least 1 hour on average, taking about 6–7 hours, while the same journey by road takes at least 7–8 hours.38 The upgraded services improved local mobility. Container trains on the same route have a time saving of 4.5 to 5 hours on an average. Access to improved railway facilities and rail transport services contributed to increased opportunities for private sector services, e.g. train operations and catering.
66. Reforms under the project created the foundation framework for ongoing reform (footnote 20). Rail safety increased, with fewer derailments. Overall institutional impact is assessed satisfactory, especially considering ongoing reform.
67. The development impact of tranche 3 is assessed satisfactory because it contributed to the stated impact, based on records and reported data. In 2016, 50 broad gauge and 100 meter gauge passenger carriages were commissioned. Total passenger-kilometers increased from 8,787 million in 2011 to 12,933 million in 2018; the number of annual passengers increased from 66 million in 2012 to 90 million in 2018.39
Performance of the Borrower and the Executing Agency
68. Overall, the performance of the borrower and Bangladesh Railway is rated less than satisfactory for the facility including tranche 3. On the positive side, the borrower and Bangladesh Railway established a steering committee and two project implementation units to support tranche implementation. Bangladesh Railway coordinated closely with ADB, including the Bangladesh Resident Mission, on physical aspects of tranche implementation and dealt with any implementation concerns in a satisfactory manner.
69. The borrower’s performance was below expectation in reform implementation. Most reform actions were taken late, some not at all, and a few covenants were not met. Bangladesh Railway could have done a lot more to commercialize its operations in line with the covenanted reform program. The significant delays in procuring the main civil works and installing the integrated IT system were partly because of long government procedures. The borrower’s
37 The fare between Dhaka and Chattogram during daytime on the new passenger carriages for first class intercity passenger services is Tk1,000. The corresponding fare for traveling in old carriages is Tk645. 38 According to Bangladesh Railway’s working timetables number 51 and 49, the Suvarna Express 701 between Dhaka and Chattogram takes 70 minutes less in 2017 than in 2012, and the Mahanagar Godhuli Express 703 on the same route takes 60 minutes less in 2017 than in 2012. 39 Tranche 3 contributed specifically to ADB’s results framework and the reported indicator: use of railways built or upgraded.
16 performance for tranche 3, which only included procurement of rolling stock, was satisfactory. (Appendix 11).
Performance of the Asian Development Bank
70. Overall, ADB’s performance is rated less than satisfactory. The MFF and the four tranches were processed by ADB headquarters in close coordination with Bangladesh Railway with assistance from ADB’s Bangladesh Resident Mission. During implementation, ADB provided guidance and support to the government and fielded loan review, special loan administration, and consultation missions that followed up on implementation matters on physical investments and the challenging railway reforms (although missions were few). ADB also monitored the financial performance of Bangladesh Railway.
71. ADB could have considered changing the overly complex and ambitious MFF design during implementation. Insufficient project preparatory work, and funds available for it, led to major delays. ADB responsiveness to some procurement submissions by the government was slow. ADB could have also convinced the government to reduce fragmentation of the railway network in different gauges. Performance for tranche 3, which was straightforward procurement of rolling stock, was satisfactory.
Overall Assessment
72. The overall rating for the MFF is less than successful. The facility is less than relevant because while the subprojects were aligned with the government’s development objectives and ADB policies, the complex MFF design and unrealistic reform expectations dragged down implementation performance. For effectiveness, the overall rating for the facility is less than effective because it did not achieve two of three envisaged outcomes. Also, four of the eight envisaged investment subprojects could not be taken up because of process inefficiencies. However, the MFF was overall efficient because the benefits from the financed subprojects were greater than if the money were invested in competing projects. The EIRR for the subprojects is above the hurdle rate and the economic opportunity cost of 12% despite cost overruns and significant delays. The overall rating for sustainability is likely sustainable based on strong government commitment and available O&M support for the subprojects. Also pertinent is the government’s continued financial support to Bangladesh Railway, tariff increases undertaken and planned, Bangladesh Railway capacity to operate and maintain railway assets, and continued reforms. Details are in Appendix 13.
73. Tranche 3 is rated successful based on its assessed relevance, effectiveness, efficiency, and sustainability. It was relevant and rated effective because it met planned outcome and output targets. Tranche 3 is rated efficient in achieving its outcome and outputs, because the EIRR for the project is above the hurdle rate and the economic opportunity cost of 12% and the FIRR in the with-support scenario exceeds the WACC in light of strong government budget support to Bangladesh Railway. With the support provided under the MFF and observed capacity to operate and maintain the rolling stock, tranche 3 is rated sustainable.
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Table 1 Overall Ratings Rating Criteria Tranche 1, 2, and 4 Tranche 3 MFF Relevance Less than relevant Relevant Less than relevant Effectiveness Effective Effective Less than Effective Efficiency Efficient Efficient Efficient Sustainability Likely Sustainable Likely Sustainable Likely Sustainable Overall Assessment Successful Successful Less than Successful Development Impact Satisfactory Satisfactory Satisfactory Borrower or BR Less than satisfactory Satisfactory Less than satisfactory Performance of ADB Less than satisfactory Satisfactory Less than satisfactory ADB = Asian Development Bank, BR = Bangladesh Railway, MFF = multitranche financing facility. Source: Asian Development Bank.
IV. ISSUES, LESSONS, AND RECOMMENDATIONS
Issues and Lessons
74. Quality of design. There were too many covenants (74 in all), and many of those related to reform actions were overambitious and unrealistic. The DMFs prepared under the MFF were weak, lacked good targets, and were not quantifiable (para. 17). Realistic targeting and sound estimation would have led to a better design.
75. Limited follow-through for railway reform. Continued high-level discussions with the government on substantive issues may have shown better results. Champions at high levels within the government could have been identified to push the reform agenda.
76. Weak monitoring and reporting. Available records point to weak implementation with few review missions. There is no record of any midterm review. The possibility for course correction was missed. Major delays in the reform program and financed subprojects indicate shortcomings in the project management system, which was not well-resourced during subproject preparation or implementation phases. The project completion review mission struggled to find aide-mémoire and other records of discussion.
Recommendations
1. Project-Related
77. Reformulation of railway reform. Renewed government commitment and action should be sought for (i) operationalizing the corporate entity for Bangladesh Railway’s container business; (ii) operationalizing the IT system for financial, accounting, and human resource management; (iii) strengthening the functioning of lines of business; (iv) adopting business and operations improvement plans; and (v) further outsourcing Bangladesh Railway’s core and noncore business activities.
78. Covenants. Covenants related to fully corporatizing Bangladesh Railway and operationalizing the container corporation need to be taken up in policy dialogue with the government.
79. Timing of the project performance evaluation report. The project performance evaluation report should be prepared after completion of the facility completion report.
18
2. General
80. Reforming Bangladesh Railway operations. The government needs to create enabling conditions for Bangladesh Railway to improve its operating ratios and decrease its annual deficit by increasing revenues and reducing expenditures. Revenues should be increased by adjusting annual tariffs to cover price escalation and salary bills, prioritizing lucrative passenger and freight operations through route analysis, and increasing the share of higher-class services. Bangladesh Railway needs to increase efficiencies in operations by increasing engine and coach kilometers per day, shortening maintenance idle times, managing inventory, increasing capacity by modernizing signaling, and optimizing O&M expenditures. Bangladesh Railway should run frequent short distance trains to relieve road traffic congestion, optimize engine and coach kilometers per day, increase comfort for passengers and increase revenues. These measures will also help optimize the newly purchased rolling stock.
81. Priority investment areas. Investments in railways in Bangladesh should be prioritized to eliminate railway network fragmentation to allow running trains at higher than 80 km/hour. The government should consider progressing to broad gauge rather than dual gauge, especially on sections that can be directly converted. For the Dhaka–Tongi–Bhairab Bazar–Akahura–Laksam– Chattogram section, this may mean creating dual or broad gauge tracks from Tongi to Akhaura (which includes the Tongi–Bhairab Bazar section) and from Laksam to Chattogram. The dual gauge section from Akhaura to Laksam supported by ADB is expected to be completed in 2020. Another priority should be to boost container traffic from the main port in Chattogram to an inland container depot outside the current location in Kamlapur in the congested capital. The planned project to build another depot at Dhirasram should be speeded up. Similarly, the planned project for another rail bridge on the Jamuna River should be speeded up to allow container traffic to directly access India on the western side. Bangladesh Railway should run several diesel electric multiple unit trains at very small intervals over short distances like Dhaka–Tongi, Dhaka– Narayanganj, and even from within the city (Motijheel, Kamlapur) to the airport and beyond, which will relieve traffic congestion on roads and increase comfort for passengers and revenue for Bangladesh Railway.
Appendix 1 19
DESIGN AND MONITORING FRAMEWORK — FACILITY Design Summary Performance Achievements Source Targets/Indicators Impact Promote sustainable Increase in GDP and attract Achieved. GDP National economic national economic additional foreign direct increased from $62 data and statistics. growth and poverty investment. Improved billion in FY2006 to reduction in competitiveness of railway $274.1 billion in FY2018, Bangladesh. It will expected to result in foreign much more than the achieve this by direct investment of $5 billion envisaged $60 billion improving rail by 2012 resulting in GDP increase over 30 years. transport efficiency and increase of $60 billion over Stock of foreign direct capacity. 30 years investment increased from $3.8 billion in FY2006 to $15.8 billion in FY2018, exceeding the envisaged $5 billion increase. Outcome Improve the (i) Train frequency in (i) Achieved at BR annual performance of the Dhaka-Chittagong corridor completion. information railways sector through increased by 10% by 2008 Train frequency booklet enhanced efficiency increased more than 10% by end of program BR operational completion in 2016. data and statistics
(ii) Absolute volume railways (ii) Not achieved. BR project for freight traffic increased Absolute volume of completion reports by 115% for Dhaka- freight carried Chittagong corridor, 115% decreased from 3.06 Consultancy for Dhaka-Darsana-Corridor million tons to 2.55 reports by 2015 and increase modal million tons in 2015, and share of container transport increased to 4.55 million from 12% currently to 26% tons in 2018. by 2015 In 2009, container traffic carried by railway on the Dhaka-Chattogram corridor was 73,500 TEU which declined to about 67,000 TEU in 2015, modal share was about 3-4%.
(iii) Working ratio improved (iii) Not achieved. to 0.96 by 2013 and 0.85 by BR’s operating (working) 2018 ratio improved from 2.16 in 2006 to 1.68 in 2013, but was lower than target. 1.78 in 2018. Outputs BR becomes a (i) New BR organizational (i) Substantially BR annual commercially focused structure complemented by achieved. information rail service provider new financial management New lines-of-business booklet and accounting systems organizational structure
20 Appendix 1
as well as human resource introduced at BR. New BR operational systems implemented integrated financial data and statistics management and accounting and human BR project resource system completion reports installed. Yet to be fully BR corporate operational. Consultancy governance is reports improved New integrated financial management and accounting and human resource system support improved corporate governance.
(ii) Dhaka-Chittagong (ii) Partially Achieved. railway line is completely Final double tracking for doubletracked Akhauara-Laksam section is currently ongoing through another ADB-assisted project, to be completed in 2020. BR safety record is improved (iii)Tracks, and signaling (iii) Achieved. systems in other key Yards at stations and corridors loop lines and signaling improved were improved on the Dhaka -Khulna rail corridor.
(iv) Sufficient numbers of (iv) Achieved. rolling stock is procured Envisaged rolling stock was procured under the MFF.
(v) Number of derailments is (v) Achieved. reduced by 20% in 2009 Derailments declined compared to baseline figure from 790 in 2006 to 408 in 2005 in 2009, 48%. 64 in 2018.
Appendix 1 21
DESIGN AND MONITORING FRAMEWORK — TRANCHE 3 Design Summary Performance Achievements Source Targets/Indicators Impact Bangladesh Railway Efficient and safe Bangladesh Railway Partially achieved. Annual Information railway transport in will operate additional Total passenger- Book Bangladesh 916 million passenger- kilometers increased to kilometers per year 12,933 million BR operational data (2011 baseline 8,787 passenger-kilometers and statistics million passenger- in 2018. kilometer) Number of passenger casualties remains zero Achieved. (2011 baseline: zero) 8 reported casualties in 2017, which is 0.1 per million passengers. Outcome Bangladesh Railway Improved railway Number of daily Achieved. Annual Information transport capacity in passenger trains Daily passenger trains Book the main line network increased by 10% increased by 22% to of Bangladesh (2011 baseline: 289) 352 in 2017. Railway Number of annual passengers increased Achieved. by 10% Annual passengers (2011 baseline: 66 increased by 17% to 77 million) million in 2017 and by 37% to 90.5 million in 2018 Output BR project completion New passenger Commissioned for Achieved. report carriages Bangladesh Railway's 50 broad gauge and commissioned main line network: 100 meter gauge BR records - 50 broad gauge passenger carriages passenger carriages; commissioned in 2016 - 100 meter gauge passenger carriages
22 Appendix 2
SUMMARY OF IMPLEMENTED RAILWAY REFORM ACTIONS
An ambitious reform agenda was to be implemented by the Government of Bangladesh and Bangladesh Railway under the multitranche financing facility for the Railway Sector Investment. Implementation was slow, especially on actions relating to corporatization of BR. Below is a summary of implemented railway reform actions.
A. Reform Action 1: Restructure Bangladesh Railway (BR) by line of business
Second PFR conditions (1 year from loan effectiveness): (i) Completed reorganization of BR by line of business (LOB) (ii) Developed an agreed 5-year business plan for each LOB and for BR as a whole including key operational and financial targets (iii) Developed key performance indicators for each LOB for each LOB to achieve business plan target
Third PFR conditions (2 years from loan effectiveness): (i) Completed BR asset registry (ii) Identified non-core services and approved outsourcing/divestiture plan (iii) Reviewed performance of LOBs and reported on performance
Fourth PFR conditions (4 years from loan effectiveness): (i) Completed partial divestiture or outsourcing of non-core services
B. Reform Action 2: Improve Financial Governance System
Second PFR conditions (1 year from loan effectiveness): (i) Developed an architecture for a new accounting and financial management system that will produce financial statement in conformity with international accounting standards and enable restatement to conform to Government reporting requirements
Third PFR conditions (2 years from loan effectiveness): (i) Implemented a new accounting and financial management system on pilot basis with agreed architecture (ii) Identified passenger services that need public service obligation and mechanism to calculate and pay public service obligation compensation (iii) Identified an internal pricing structure for LOB services
Fourth PFR conditions (4 years from loan effectiveness): (i) Implemented a tariff structure for freight services that was adopted in 2016
C. Reform Action 3: Improve Human Resource Governance System
Second PFR conditions (1 year from loan effectiveness): (i) Set up a personnel database as part of new integrated information technology (IT) system (ii) Identified personnel requirements, skills for each LOB and skills shortages and surplus and training and retraining needs and new positions
Appendix 2 23
Third PFR conditions (2 years from loan effectiveness): (i) Initiated limited work on redefined job descriptions, and career advancement processes needed to optimize LOB structure (ii) BR did not recruit and appoint any managers from outside BR
Fourth PFR conditions (4 years from loan effectiveness): (i) BR was not transformed into a corporate entity. No actions were taken to examine financial remuneration structure for BR employees or formulate performance-based incentive structure.
D. Reform Action 4: Transform BR into a Government-owned Corporate Entity
Fourth PFR conditions (4 years from loan effectiveness): (i) Instead of transforming BR into a corporate entity, the Government established and enacted in 2014 a corporate entity for BR’s container operations. However, it is not yet operational even as few staff have been posted as a token measure.
E. Reform Action 5: Improve BR Operation and Maintenance Practices and Performance
Second PFR conditions (1 year from loan effectiveness): (i) A basic monitoring system was implemented to collect and analyze LOB performance.
Third PFR conditions (2 years from loan effectiveness): (i) New standards for maintenance of track and permanent way and rolling stock maintenance were adopted by BR. (ii) An operational improvement program and action plan was adopted which reduced journey times on the Dhaka–Chattogram corridor. (iii) Relevant train operations and maintenance manuals were updated and formally adopted and used by BR.
24 Appendix 3
PROGRAM COST AND FINANCING PLAN
Table A3.1: Project Cost at Appraisal by Financier ($ million) Item At Appraisal Actual A. Investment Project Subproject 1 – Tongi-Bhairab Bazar Double Track 108.0 276.87 Subproject 2 – Rehabilitation of Loop Line Darsana-Khulna 8.5 12.5 Subproject 3 – Upgrading of Signaling Darsana-Khulna 22.0 9.26 Subproject 4 – Procurement of Carriages 78.0 89.2 Other investment subprojects 135.4 - Subtotal (A) 351.9 387.83 B. Reform Project 34.1 27.2 Subtotal (A+B) 386.9 415.0* C. Contingencies 92.8 - D. Financial charges 57.8 8.8 Total (A+B+C+D) 537.5 423.8 *Cost included contingencies
Table A3.2: Investment Program Financing ($ million) At Appraisal Actual Source Total Cost % of Cost Total Cost % of Cost ADB OCR 400.0 74.4 345.2 81.5 ADF 30.0 5.6 24.26 5.6 Government 107.5 20.0 54.8 12.9 Total 537.5 100.0 423.8 100
Table A3.3: Project Achievement Achievement Weights (weight x Physical (actual physical Component Project Cost achievement cost / achievement) total cost) At Appraisal Actual % % % A. Investment Project Subproject 1 – Tongi-Bhairab 108.0 276.87 100 0.67 67.0 Double Track Subproject 2 – Rehabilitation of 8.5 12.50 100 0.03 3.0 Loop Line Subproject 3 – Upgrading of 22.0 9.26 65 0.02 1.3 Signaling* Subproject 4 – Procurement of 78.0 89.20 100 0.21 21.0 Carriages B. Reform Project 34.1 27.20 82 0.07 7.0 Total 386.9 415.0 100 99.3 Note:* Remaining works were completed under Loan 3169
Appendix 3 25
Table A3.4 Tranche 3 Costs ($ million) Cost At Appraisal Actual DifferenceVariance Component (1) (2) (3=1-2) (%) A. Goods 100 meter gauge carriages 48.00 44.39 3.61 7.52 (including spare parts) 22.00 28.00 (6.00) 27.27 50 broad gauge carriages (including spare parts) 0.50 0.60 (0.10) 20.00
B. Equipment 0.10 0.14 (0.04) 40.00
C. Training 0.70 - 0.7 0.00 D. Contingencies 0.40 - 0.4 0.00 3. Physical Contingencies 4. Price Contingencies 1.10 1.3 (0.2) 18.18
E. Interest during Construction 0.40 0.4 0.00
F. Commitment Charges
Total 72.10 74.43 (1.23)
Table A3.5 Tranche 3 Financing ($ million) At Appraisal Actual Source Total Cost % of Cost Total Cost % of Cost ADB 72.10 63.41 74.43 81.25 Government 41.61 36.59 17.17 18.75 Total 113.71 100.0 91.60 100.0
26 Appendix 4
DISBURSEMENT OF ADB LOAN AND GRANT PROCEEDS Table 4.1: Annual and Cumulative Disbursement of ADB Loan Proceeds ($ million) Annual Disbursement Cumulative Disbursement Amount % of total Amount ($ million) ($ million) amount L2317- % of Year L2316 COLa L2845 L3097 L3376 Total Total 2007 0.99 0.38 1.37 0.00 0.92 0.00 2008 2.12 0.45 2.57 0.01 3.49 0.01 2009 1.05 0.83 1.88 0.01 5.37 0.01 2010 1.06 0.32 1.38 0.00 6.75 0.02 2011 20.08 1.39 21.47 0.06 28.22 0.08 2012 18.82 1.86 0.02 20.70 0.06 48.92 0.13 2013 47.74 4.76 40.39 92.89 0.25 141.81 0.38 2014 2.56 6.34 68.40 0.02 77.32 0.21 219.14 0.59 2015 1.62 1.41 39.67 0.15 42.85 0.12 261.99 0.71 2016 3.90 5.71 1.45 72.47 22.71 106.24 0.29 368.23 1.00 2017 0.53 0.53 0.00 368.76 1.00 Total 99.93 23.98 149.93 72.64 22.71 369.20 1.00 a in SDR 16,119,556.17;ADB = Asian Development Bank. Source: Asian Development Bank.
Table A4.2: Annual and Cumulative Disbursement under Tranche 3 ($ million) Annual Disbursement Cumulative Disbursement Amount % of Amount ($ million) ($ million) total amount Year L3097 Total % of Total 2014 0.02 0.02 0.000 0.02 0.000 2015 0.15 0.15 0.002 0.17 0.002 2016 72.47 72.47 0.997 72.64 1.000 Total 72.64 72.64 1.000
Appendix 4 27
Figure 4.1: S-Curve for MFF 0004- Projections Vs Actual
450
400 350
300
250
200 million $ 150
100
50
0 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
2010 2011 2012 2013 2014 2015 2016 2017
Contract Awards (Actual ) Disbursements (Actual ) Contract Award (Original Projection) Disbursement (Original Projection)
28 Appendix 5
ACTUAL INVESTMENT PROGRAM IMPLEMENTATION SCHEDULE
Appendix 6 29
CHRONOLOGY OF MAIN EVENTS Dates Activity 2000 - 2003 29 August 2000 Approval of PPTA 3490-BAN: Regional Rail Traffic Enhancement Feasibility study Policy dialogue on railway reform 2004 30 May-10 June ADB Fact Finding Mission 15 July ADB Management Review Meeting 2005 27 Feb-07 Mar ADB Consultation Mission 13-14 March ADB Consultation Mission 2006 21-25 May ADB Appraisal Mission for MFF 10 October Multi Tranche Financing Facility (MFF) approved by ADB 07 September Periodic Financing Request (PFR) #1 submitted by GOB to ADB 27 September Development Project Proforma (DPP) approved by GOB 17 December Umbrella Project DPP approved by ECNEC 2007 13 February Tranche 1 approved by ADB 15 February Loan Agreements for Tranche 1 signed 24 April Loans 2316-BAN and 2317-BAN became effective 06 August Consultancy contract signed with design and construction supervision consultants 24-30 September ADB Inception Mission for Loans 2316-BAN and 2317-BAN, and TA4847 2008 10-13 March ADB Loan Review Mission of Loans 2316-BAN and 2317-BAN, and TA4847 31 Jul 2008 Detailed Design for Tongi-Bhairab Bazaar line completed 04 August Bid documents for works contract issued 19-23 October ADB Loan Review Mission of Loans 2316-BAN and 2317-BAN, and TA4847 2009 29 September Works contract bidding cancelled by ADB. 20 December Bid Cancellation approved by GOB 24 December Revised bid documents submitted for ADB concurrence 2010 22 February ADB concurrence on revised bid documents 22-25 February ADB Loan Review Mission of Bangladesh Railway Investment Program (MFF) 22 April Revised bid documents for works contract issued (single stage, two envelope) 2011 27 July Construction works contract signed 21 June Revised DPP approved by GOB 02 August Reallocation of Loan 2316 proceeds and loan extension approved by ADB 26 August Revised RP submitted for ADB concurrence 31 August Construction supervision activities commenced by consultant 09 September Extension of FFA to 10 Oct 2016 approved by ADB 14-22 September ADB Consultation Mission on PFR 2 12 October NGO engaged for RP implementation
30 Appendix 6
Dates Activity 02 November Notice to commence issued to works contractor 17 November Revised RP approved by GOB and issued 17 November ADB Management Review Meeting for Tranche 2 22 December Tranche 2 approved by ADB 2012 27 August Loan 2045-BAN was signed 5 November Loan 2845-BAN became effective 2013 13-16 March ADB Loan Review Mission of Bangladesh Railway Investment Program (MFF) 27-30 March ADB Consultation Mission on project preparation of PFR 3 28-30 April ADB Consultation Mission on project preparation of PFR 3 21-23 May ADB Loan Review Mission for Loans 2316-BAN and 2845-BAN 1 July NGO engaged for 24 months for external monitoring for resettlement activities 9 December Tranche 3 approved by ADB 2014 24-27 March ADB Loan Review Mission for Loans 2316-BAN and 2845-BAN 6 August Loan agreement for Loan 3097-BAN under tranche 3 signed 17 September Loan 3097-BAN under tranche 3 became effective 24-30 September Inception mission for Loan 3097-BAN 9-20 October ADB Loan Review Mission for Loan 3097 under tranche 3 02 December Second revised DPP approved by GOB 18 November-11 Income & Livelihood Restoration Program (ILRP) carried out December 2015 21-23 May ADB Loan Review Mission for Loan 3097-BAN 24-26 August ADB Consultation Mission on approval of tranche 4 19 September First container freight train trial run on new line 30 December GIBR Certification of the new line for ”Public Carriage of Passengers” issued 31 December Taking-Over Certificate issued to works contractor on significantly substantial completion of Works. 2016 07 January Newly constructed line opened for operation on trial basis 19 February ADB Management Review Meeting for Tranche 4 25 February Inaguration by Hon’ble Prime Minister of the People’s Republic of Bangladesh 18 March Approval of Tranche 4 by ADB 24-27 March ADB Loan Review Mission for Loan 3097-BAN 10 April Signing of Loan 3376-BAN 12 April Reallocation of Loan 2316 proceeds approved by ADB 2-3 May ADB Consultation Mission on Loan 3376-BAN 30 May Loan 3376-BAN became effective 09 October Revised Closing Date for Loans 9-20 October ADB Loan Review Mission for Loans 2316-BAN and 2845-BAN 31 December End of defects notification period 2017 09 April Revised End of Loan Utilization Period after Loan Closing 03 June Performance Certificate issued to works contractor
Appendix 6 31
Dates Activity 13 June Discharge issued by works contractor 15 June Final payment certificate issued Source: Asian Development Bank.
32 Appendix 7
ORGANIZATIONAL CHART FOR PROJECT PROCESSING AND IMPLEMENTATION
Inter-ministerial Committee
Chaired by Secretary, Ministry of Communications / Executing Agency Director General, BR Sub project Evaluation Team Representative • Ministry of Finance • BR (Executing Agency)
Project Implementation Unit Reform Implementation Unit Project Director Project Director (General Manager from BR) Deputy Director (HQ)
Reform Team Financial Advisor & Chief Chief Engineer Accounts Officer
Addl. Chief Addl Chief Engineer Addl Chief Signal & Controller of Stores Reform Implementation Consultant (Engineer)
Deputy Director Deputy Director Deputy Director Deputy Director
Deputy Director Supervision Consultant (Site Officer) (Engineer) Assistant Director
Appendix 8 33
TECHNICAL ASSISTANCE COMPLETION REPORT TA Number, Country, and Name: Amount Approved: $2,000,000
TA 4847-BAN: Institutional Support for Railway Reforms Revised Amount: NA
Executing Agency: Source of Funding: Amount Undisbursed: Amount Utilized: Bangladesh Railway TA Special Fund-Other $45,215.03 $1,954,785 TA Approval TA Signing Fielding of First TA Completion Date Date: Date: Consultants: Original: 30 November Actual: 31 December 2010 2017 10 October 2006 2 June 2007 1 September 2007 Account Closing Date Original: 30 November Actual: 31 January 2010 2018 Description The technical assistance (TA) was piggy-backed to the multitranche financing facility (MFF) for the Railway Sector Investment Program in Bangladesh. The TA aimed to provide institutional support for railway reforms and had three components. The first component was to engage one international advisor and one national advisor to support implementation of the railway reform program. The second component was to help Bangladesh Railway improve its operational efficiency by improving maintenance standards and practices for infrastructure, rolling stock, signaling, and telecommunications. This component also aimed to improve railway safety. The third component was to conduct performance and procurement audits to assess sector and procurement governance, performance, and performance results.
Expected Impact, Outcome, and Outputs The expected impact of the TA was improved operational efficiency and operational effectiveness of Bangladesh Railway. The expected outcome was strengthened capacity of Bangladesh Railway in (i) railway reforms, (ii) train operations, (iii) railway safety, (iv) maintenance of track and permanent way, signaling systems, and rolling stock, and (v) governance and auditing. The expected TA outputs were to produce (i) railway reform proposals with recommendations, (ii) operational improvement program and updated operational procedures, (iii) improved maintenance practices and updated manuals for maintenance of track and permanent way, signaling systems, and rolling stock and (iv) performance and procurement audits.
Delivery of Inputs and Conduct of Activities The TA was formulated as part of the MFF documentation, its terms of reference were sound, albeit lacking details on scope and activities. The TA was administered by ADB headquarters and regular TA review missions were conducted to guide TA implementation. Two individual consultants supported the implementation of the railway reform program under the first component in a satisfactory manner. One consulting firm each was engaged for the second and third components. The performance of both firms was satisfactory.
The TA was expected to run for 3 years till 2010 after it was signed in 2007. However, it took more than 10 years to close because the MFF to which it was piggy-backed experienced delays in implementation. The MFF had two distinct projects: one for railway reform and the other for investments in key railway corridors and replacing aging rolling stock. The two projects were designed to be mutually reinforcing and the tranches for the investment project were dependent on specific reform actions being achieved. As it turned out, this was one of the reasons for delays in implementation. TA budget was appropriate. However, delays in TA implementation led to slower utilization of TA funds than originally anticipated. Nevertheless, at TA closing, 97% of allocated TA funds had been utilized.
The delivery of the second component under the TA was delayed by 2.5 years due to slow response and delays by Bangladesh Railway in commenting on the draft final report submitted in November 2009. The delay occurred partly because of the large volume of prepared documents (over 1,000 pages) that specifically included updated train operations and maintenance manuals. Because of the delays, the TA was extended four times. There were six minor changes of scope and implementation arrangements mainly to adjust outputs and activities. The most significant adjustment was addition of maintenance manuals, specifically for mechanized track maintenance.
The performance of Bangladesh Railway is rated satisfactory. While Bangladesh Railway was slow in responding to TA outputs, comments were ultimately provided which helped improve relevance and quality of TA outputs. Bangladesh Railway demonstrated TA ownership by implementing most TA outputs, especially those aimed at improved operations and maintenance. ADB’s performance is rated satisfactory. TA design was relevant and sound and addressed critical areas of railway operations. While the TA experienced delays, TA administration was conducted in accordance with relevant guidelines and project administration instructions and regular reviews were held to assess TA performance and determine necessary remedial actions.
34 Appendix 8
Evaluation of Outputs and Achievement of Outcome The TA generated several key reports and manuals. These were (i) reform proposals with recommendations, (ii) five- year actions plans to improve operations, (iii) operations manual, (iv) way and works manual, (v) signal engineering manual, (vi) long welded rail manual,(vii) rolling stock manual, (viii) six working papers on improved operational efficiency and strengthened maintenance practices and (ix) a procurement and performance audit report. In addition, inception, implementation progress, draft final and final reports were produced in accordance with TA contracts. The reports were generally of adequate quality, relevant to the TA outcomes and contributed to the expected TA impact.
Under the second TA component, eight workshops were organized 2008-2010 for around 110 officials that included training and transfer of knowledge and information. The workshops varied in structure depending on their purpose and content. The workshops were well received by Bangladesh Railway and contributed to new learnings, staff development and institution building.
The TA achieved the outcome of strengthened capacity of Bangladesh Railway in (i) railway reforms, (ii) train operations, (iii) railway safety, (iv) maintenance of track and permanent way, signaling systems, and rolling stock and (v) governance and auditing. While TA outputs were successfully delivered, comprehensive but long review and approval of manuals by Bangladesh Railway caused significant overall delay in delivery of outputs. Overall Assessment and Rating Overall the TA was successful. TA design was sound and aligned with country needs, ADB’s country partnership strategy and transport sector strategy. TA outputs were relevant. Notable amongst these are the reform proposals, updated operations and maintenance manuals and prepared actions plans. The TA was particularly useful in supporting implementation of the MFF. The TA was effective as it delivered all planned outputs and achieved its expected outcomes. The TA was less than efficient because it required 85 months extension. The TA is likely to be sustainable because major TA outputs, such as operations and maintenance manuals were handed over to Bangladesh Railway and are now utilized in train operations and maintenance.
Major Lessons Although the TA experienced delays, it was important in supporting implementation of the MFF and it delivered key outputs that were utilized in improving railway management and day-to-day operations. In hindsight, more workshops and dedicated training sessions could have been organized to facilitate further learnings and transfer of knowledge and information. The TA financed a team to support railway reforms that was engaged on full-time basis for a limited time frame. However, there was no initial TA provision or later change of TA scope to provide continued intermittent consultant support to monitor and assist in implementing challenging railway reforms that faced significant delays.
Recommendations and Follow-Up Actions ADB should continue to support Bangladesh Railway in improving operational efficiency and further institutional reforms. With large ongoing investments in the rail sector, Bangladesh Railway needs to continue enhancing its capacity in key areas of rail operations and introduce modern railway management practices. Bangladesh Railway also needs to develop further capacity in modern maintenance management including mechanized track and rolling stock maintenance. TA = technical assistance. Prepared by: Jyotsana Varma Designation and Division: Principal Country Specialist, Bangladesh Resident Mission
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
Appendix 9 35
ASSESSMENT OF ENVIRONMENTAL SAFEGUARDS AND MANAGEMENT
A. Introduction
The MFF implemented five loans under four tranches. Among the MFF’s four tranches (para. 7 of main text), tranche 3 was for purchase of rolling stock, and tranche 4 only added funds to complete projects under tranche 2 (refer to table under Project Costs in Basic Data). Thus environment impacts come only from tranches 1 and 2. The activities of MFF that were expected to have minor to moderate adverse impacts on the environment due to some civil works are: (i) expansion of railway embankment width from 7 meters to about 14 meters, (ii) construction of 11 bridges and several minor bridges and culverts, and (iii) loops extension.
Subproject 1 (Tongi-Bhairab Bazar Double Track) was categorized B in accordance with ADB’s Environment Policy 2002 as the adverse impacts were expected to be localized in spatial extent, short-term and manageable by implementing mitigation measures. An Initial Environmental Examination (IEE) was prepared and the summary IEE (SIEE) was disclosed per Public Communication Policy 2005. An Environmental Assessment and Review Framework (EARF) was prepared to guide the impact assessment procedure of the follow-up tranches and subprojects.
Subproject 2 under tranche 2 (Yards rehabilitation and loops extension in Darsana-Dhaka) was categorized B per Safeguard Policy Statement 2009 as the adverse impacts were expected to be minor, short-term, and mitigatable. An IEE was prepared and disclosed to identify and minimize the impacts.
Subproject 3 under tranche 2 (modernization of signaling in the west zone) and subproject 4 under tranche 3 (passenger carriages) were categorized C as the impacts were insignificant. As mandated by Environmental Conservation Act 1995, Environmental Clearance Certificate (ECC) was required for subproject 1 only and that was obtained by Bangladesh Railway accordingly.
B. Environmental Safeguard Measures
Environmental Management Plans (EMPs) prepared for the subprojects 1 and 2 were successfully included in the bidding documents and implemented by the contractors. A total of 34 environmental mitigation measures were identified (in revised plan) for subproject 1, of these 27 pertained to pre-construction and construction phase. Measures included management of ballast waste cleaning, local fish movement and migration, tree planting and re-vegetation, management of carried earth collection process, construction related plan, improvement of safety crossings and upgrading stations, to mitigate the adverse effects of air pollution, solid waste, wastewater, and occupational health and safety. An environmental due diligence (EDD) report was prepared which confirmed that (i) there was no encroachment of protected areas or other forms of environmentally sensitive areas by implementation of subproject 1, (ii) EMPs were included with the bidding documents, (iii) continuous improvement noted in implementation of EMPs, and (iv) partial compliance recorded for solid waste management and construction related health and safety. The MFF projects are expected to bring significant positive impact as rail projects will contribute significantly to reducing air pollution from vehicle emissions.
For subproject 2, 29 mitigation measures were included. Monitoring plans for the environment, health, and safety for the loop for Darsana, Chaudanga, Alamdanga, Halsha, Mirpur, Bheramara, Ishurdi, and Sirajganj railway stations was prepared. These monitoring plans covered air and dust pollution, noise pollution, drinking water quality, community safety, surface water pollution, tree
36 Appendix 9 planting, occupational health and safety, stocking of materials, and erosion and siltation, as applicable. For subproject 3, monitoring parameters were limited to occupational health and safety, tree planting, clearing and demolition of old structures, and drinking water quality.
C. Implementation of Environmental Safeguards
The environmental monitoring framework adopted by the MFF was rigorous and provided useful guidance to the PMO. A safeguard cell was created at BR with two officers for environmental and social safeguards monitoring. Environmental monitoring was conducted through: (i) 150 surface water samples collected and 900 laboratory analysis results monitored; (ii) 321 groundwater samples from 6 locations were collected and analyzed; (iii) 1,592 air samples were collected from 10 stations and analyzed for TPM, SO2, NO2 and CO; (iv) noise monitoring conducted at two major bridge construction sites for 14 months. In addition, fish survey was carried out at Old Brahmaputra, Arial Khal, Sitalakhya, and Balu rivers to understand movement of species of fish at major river crossings.
The poor water quality of water was evident with 393 of the 900 analysis results indicating the applicable ambient standard to be 44%. All upstream fecal coliform and oil and grease ambient concentrations exceeded admissible standards. Contaminants from upstream industrial discharges resulted in higher downstream readings. For air quality, 30% data exceeded the admissible standard, particularly at Tongi and Methikanda stations, the two major hubs. The deteriorated air quality indicated increase in induced traffic from the construction work. Some positive changes took place as a result of continuous environmental monitoring, such as groundwater sources used by construction workers was discontinued due to contamination by fecal coliform and arsenic, and a safe potable source was provided as an alternative. Fish survey indicated no blockade of fish movement during bridge construction.
A total of 6 semi-annual environmental monitoring reports were prepared and disclosed for subproject 1 and one annual environmental monitoring report covering the period of Jan – Dec 2015 was prepared and disclosed for subproject 2.
D. Compliance with Loan Covenants and EMP
The project achieved full compliance against the loan covenants and Bangladesh environmental rules and regulations, notably the Bangladesh Environment Conservation Act 1995, and the Environment Conservation Rules 1997. While incidents of some noncompliance with the EMP were initially experienced under tranche 1 in environmental monitoring, mainly due to delayed fielding of environmental specialist by the contractor, and less-than-perfect sampling and analysis protocols. However, corrective actions were taken with the mobilization of said specialist. As a result, the project demonstrated continuous improvement with full compliance on EMP requirements for tranche 1. Full compliance was achieved on design and pre-construction, natural environment, ecological environment, and environmental pollution aspects. Partial compliances were noted for occupational health and safety and construction waste management with the lack of waste bins in the station facilities, and dirty work and camp sites. Of the 29 mitigation measures for subproject 2, 10 non-compliant measures were recorded pertaining to camp and construction waste management. However, given the small scale of works scattered in different locations, no significant adverse environmental impacts were observed due to partial or non-compliance associated with construction waste at the project sites. Bangladesh Railway introduced an environmental management implementation work schedule (EMWS) for timely implementation of the mitigation measures schedule by the contractor which ensured the EMP was responsive to ground conditions.
Appendix 9 37
One clear recommendation is to ensure that environment specialists are on board timely so there are no gaps in data monitoring. Another is to improve sampling and analysis protocols so there are no counterintuitive errors (e.g. large number of surface water samples indicated lower pollution level downstream indicating cleaner water as it passes the project site which is counterintuitive).
38 Appendix 10
ASSESSMENT OF SOCIAL SAFEGUARDS PLANNING AND IMPLEMENTATION
I. INTRODUCTION
1. Investment subprojects under tranche 1, 2 and 4 included (i) design and construction of 64 km meter gauge track including 22 km of meter gauge loops and sidings between Tongi and Bhairab Bazaar, (ii) rehabilitation of yards and extension of broad gauge loops at 8 stations for 18.3 km in total between Dhaka and Darsana and at Sirajganj Bazaar and (iii) upgrading of signaling at 11 stations covering 78 km between Dhaka and Darsana. Among these, only the first subproject brought significant resettlement impacts through additional private land acquisition and relocation of households, community property and commercial entities from railway land. The other two subprojects had only minor resettlement impacts. Subproject 2 designs were modified to avoid potential negative impacts at 3 stations (i) Sirajgonj Bazar, (ii) Alamdanga and (iii) Bheramara). This assessment focus on subproject one that had significant impacts.
II. RESETTLEMENT AND LEGAL FRAMEWORK
2. A Resettlement Framework was prepared along with the approval of the Multi-tranche Financing Facility and disclosed on ADB’s website in 2006. A resettlement plan (RP) was prepared based on topographical and census surveys conducted in 2008. It was submitted to ADB and the executing agency, Bangladesh Railway (BR) in August 2009. A resettlement plan (RP) was prepared and subsequently updated due to changes in design and increased land rates over time. RPs were disclosed on ADB website during project preparation and monitoring reports during implementation. Overall, the RP was well implemented and helped ensure that construction activities were in line with the ADB Safeguard Policy 1995 and that relevant country’s legal framework, rules and regulations were adhered.
3. The project was abided by Acquisition and Requisition of Immovable Property Ordinance 1982 (Ordinance II of 1982) and subsequent amendments during 1993 – 1994, which was the principal land acquisition act at the period. The Ordinance requires that compensation be paid for (i) land and assets permanently acquired (including standing crops, trees, houses); and (ii) any other damages caused by such acquisition. The Deputy Commissioner (DC) determines the market price of assets based on the approved procedure and in addition to that pays an additional 50 percent on the assessed value as the market price established by Land Acquisition Officer (LAO) which remains much below the replacement value. The 1994 amendment made provisions for payment of crop compensation to tenant cultivators. The Ordinance, however, does not cover project-affected persons without titles or ownership record, such as informal settler/squatters, occupiers, and informal tenants and lease-holders (without document) and does not ensure replacement value of the property acquired. The act has no provision of resettlement assistance and transitional allowances for restoration of livelihoods of the non-titled affected persons. The Acquisition and Requisition of Immovable Property Ordinance (1982).1 will be applied for this project including its subsequent amendments. As per the loan agreement, ADB policy has been also applied through the RP guidance.
4. Subproject 1 encountered significant implementation delays and cost overrun. As a result, the RP was updated based on census conducted in 2008 according to the revised DPP and approved by the Ministry of Communication on 28 April 2011.2 with a budget of Tk1,892.82 million. The updated RP was posted on ADB’s website in August 2011. This RP was implemented by BR
1 The Ordinance was subsequently enacted in 2017. 2 RP Due diligence report; February 2016-paragraph 17–18.
Appendix 10 39 with the support of a non-governmental organization (NGO), which was recruited in October 2011. An external monitoring consulting firm was also engaged throughout implementation period (2013–2015) as per ADB safeguard policy 1995.
III. RESETTLEMENT IMPACTS
A. Affected People
5. The 2008 updated census survey.3 identified that about 14,512 persons will be affected by the subproject. Of the affected persons (APs), 509 affected households (AHs) owned 971 residential structures and 1,099 AHs owned 1,318 commercial structures. In addition, 66 Common Property Resources (CPR) would be adversely affected due to undertaking of the subproject. 348 households would lose narrow strips of agricultural land, 183 licensees would lose access to agricultural and 384 from commercial plots licensed from BR. In addition, 504 structures owned by legal owners, 44 structures owned by occupiers, 1260 structures owned by squatters, 547 structures owned by lessees and 820 tenants in existing affected structures would be affected. The impacts identified in the period February-April and August 2008 census survey were higher than those identified in 2004 due to reasons of revised right-of-way (RoW) boundaries and the time gap. According to estimate from census survey, 1,130 households were extreme poor, 160 female headed, 217 elderly headed households and 219 households were going to lose more than 10% of their agricultural land holding. According to census (February–April and August 2008) no people from indigenous or ethnic minority groups are affected by subproject 1.4 As for resettlement assistance, most of the affected persons opted for cash compensation and the second highest option is credit. Job and Skill training support are opted equally. Only one third of the APs opted for Job and Skill training support.
B. Mitigation Measures
6. Mitigation measures for resettlement followed national framework and ADB policies. According national legislation, only legally land owners were eligible to receive Cash Compensation by Law (CCL) for their lost assets from the respective DC offices. This include their land, structure, trees and crops only. Construction of the double line railway affected 1,750 titled households, among them 1,672 (95.54%) received compensation from DC office. In addition to the CCL, the title holder entitled persons (EP) also received additional grants from the project to adjust Property Evaluation and Advisory Team (PVAT) rates with CCL value for both land and structures. Compensation was paid based on the replacement cost as per ADB policy and was paid prior physical and economic displacements.
7. ADB policy requires that non-title holders to be eligible to receive compensation for their lost assets as well as income and access. This includes informal settlers on railway land, business tenants in the area, CPRs, etc. In total, 1,164 non-titled households were affected by the subproject. They received the compensation they were eligible for. In addition, 278 vulnerable households received Tk14,500 each after completion of Income Livelihood Restoration Plan (ILRP) trainings in their preferred area.
3 The census survey was undertaken February–March and April in 2008. 4 RP 2011; page 10, paragraph 30.
40 Appendix 10
Table A10.1: Entitlement Matrix Type of loss Affected People Entitlements Loss of Legal land owners Replacement value of land at market price to be agricultural, determined by PVAT. commercial and Refund of registration cost incurred for replacement homestead land land purchase at the replacement value. Loss of Legal owner(s) of Replacement value of structure to legal owner(s) as residential structures and non- determined by PVAT /commercial titled Transfer grant of Tk6,500 to legal owner(s), structure owners including Transfer grant of Tk5,200 to non-titled owner(s) renters including renters and informal settlers, and informal settlers/ Reconstruction grant of Tk7,800 to both legal squatters identified owner(s) and non-titled owner(s) by the Census for each For the homestead failures a plot in BR land for household/shop/ temporary relocation. community Unit Salvaged materials free of cost Loss of trees, Legal land owners Compensation at rate estimated by the Forest crops, Department and the Agriculture Extension Perennials Department fixed by DCs
Salvaged materials free of cost Loss of access Legal tenants of Crop compensation to titled sharecroppers or to land lessees. agricultural and identified by DCs commercial and Cash grant of Tk3,900 for non-titled sharecroppers land by non-titled tenants and licensees of agricultural land; sharecroppers/ /licensees/lea sees tenants of Cash grant of Tk5,200 for non-titled commercial land identified by lessees. Census Loss of income Head of poor Cash grant of Tk6,500 per household as subsistence and households for lost income/workdays work days due /employees to identified by Cash grant of Tk7,800 for loss of business income displacement Census by affected traders
Cash grant of Tk3,900 to the affected employees/wage earners equivalent to 2 months income. Poor and Poor and Additional cash grant of Tk6,500 for affected women vulnerable vulnerable headed households and poor households. households identified by Training and cash grant for income generation Census program (IGP);
Employment in the project construction work, if available
Appendix 10 41
Type of loss Affected People Entitlements Displacement of Community Cash compensation for structure to legal owner(s) as community representative as determined by DC structure identified by Tk13,000 as transfer grant for relocation of the Census structure Dismantling and reconstruction cash assistance as per assessed value by PVAT. Access to Households Community infrastructure facilities, access roads, community/civic identified by plantation, tube-wells, sanitary latrines and drainage. facilities at Census/Joint relocated verification sites Temporary Community/ The contractor shall bear the cost of any impact on impact Individual structure or land due to movement of machinery and during in connection with collection and transportation of construction burrow materials. All temporary use of lands outside proposed RoW to be through written approval of the landowner and contractor.
Land will be returned to owner rehabilitated to original preferably better standard.
8. The initial entitlement matrix in the subproject RP did not cover the cost for replacement value of the non-titled structures. The allowance of transfer grants for titled structure owners were greater than that for non-titled structures, Tk6,500 versus Tk5,200 respectively. In addition, the transfer and reconstruction grants also included at a lump-sum rate with no reference to the structure size or material. Necessary changes were made to the entitlement matrix and reflected in the budget and implementation of the RP.
9. Approval for the cost for payment of the replacement value of structures to Non-Titled EPs was issued on 19th October 2014 for a value of Tk52,060,497.19. Involving a total of 855 structures and 6 CPR units. A proposal prepared by BR for payment of Lump Sum grants as Replacement value for structures of Non-Tilted EPs was approved on 17 June 2015 under Office Order no. 54.00.0000.006.002.08.2011-733. Notices for Titled and Non-Titled EPs were published in local newspapers on 23 Jun 2015 informing these entitlements must be claimed before 31 July 2015.
C. Institutional Arrangements
10. BR project implementation unit headed by a Project Director (PD) established a resettlement unit (RU) for planning and implementation of land acquisition and resettlement. A resettlement NGO was recruited to assist in implementation of the RP guided by the supervision consultant. The RU had one HQ Deputy Director as Chief Resettlement Officer (CRO) for field level implementation of the resettlement plan with assistance from Resettlement Officers (ROs) and other staff. The PD oversaw the land acquisition process with assistance from Land Acquisition Offices (LAOs) of respective districts and the CRO. The CRO through the field office, managed coordination between the relevant departments-INGO, the Grievance Redress Committee (GRC), Resettlement Advisory Committee (RAC), Property Valuation Advisory Team (PVAT) and the affected people (APs). Among them, Joint Verification Team (JVT) for
42 Appendix 10 quantification of affected properties and (PVAT) for valuation of assets were formed by the Ministry of Communications (MoC).
11. A Grievance Redress Committee (GRC) was established with representation from BR as convener, designated representative of DC, designated representative of PWD, people's representatives from local government, representatives of APs and INGO representatives. The Resettlement Officer field chaired the GRCs. Other than disputes relating to ownership right under the court of law, GRC reviewed grievances involving all resettlement benefits, relocation and other assistance. The GRC for this project attended 587 cases of grievances. Among them, 100 were from Gazipur and 487 from Narsigndi. The key reasons for the grievances were entitlement mistakes, EPs being out of SES, succession claims, name corrections, etc. Majority of them- 374 were recommended for payment and remaining 213 applications were rejected. Lack of documentary and other supporting evidences led to the rejection of these grievance applications.
D. Monitoring Implementation
12. The BR Resettlement Unit, and Supervision Consultants carried out formative monitoring and evaluation (internal) on a regular basis throughout the RP implementation period from 2013 to 2015. INGO report analysis, progress meetings and field verification visits, consultation with the EPs have been the main monitoring tools applied to the process. In addition to distribution of 7,178 brochures and 6,998 leaflets, 180 consultation meetings have been carried out in the project. Among them, 156 meetings have been conducted during implementation and 24 during closing. The final external monitoring report also affirms through their SES findings that all APs affirmed to be consulted. In addition to distribution of 7,178 brochures and 6,998 leaflets, 180 consultation meetings have been carried out in the project. Among them, 156 meetings have been conducted during implementation and 24 during closing. The final external monitoring report also affirms through their SES findings that all APs affirmed to be consulted. In addition to internal monitoring, an external Independent Monitoring consulting firm- Knowledge Management Consultants Ltd was engaged by BR from July 2013 to carry out the Independent External Monitoring for Implementation of the RP. The EM has submitted four biannual monitoring reports till June 2015. The main purpose of such monitoring and evaluation is to detect where and at what point the implementation being conducted is off the track and not in compliance with the ADB Safeguard requirements. The BR Resettlement focal persons of the project attended three capacity building workshops in the Bangladesh Resident Mission. All the missions addressed the land acquisition and resettlement issues. Safeguards specialist joined in three review missions. The railway had a focal team including DD for resettlement. INGO was engaged in implementation and PIC, external monitor was engaged in monitoring RP implementation. The disclosed reports in addition to assessments by RP implementation monitors reflect adequacy of monitoring in social safeguards.
E. Assessment of Performance of RP Implementation
13. The implementation of the TBDLP resettlement plan has been completed. 1,671 out of an estimated 1,750 titled holders (95.49%) have been compensated and 1,164 non-title holders (100%) have received resettlement assistance. There are 137 award cases for titled-holders still pending with the deputy commissioner’s offices concerned by the project. The NGO has demobilized in December 2014 and the BR resettlement team followed-up with pending award payments and producing monitoring reports since then. Finally, there were 79 TAH eligible to 137 awards of which 40 awards have been approved and were under process for payments. Moreover, the 64 awards that could not be processed because of the failure of claimants to produce the required document to get the awards. It is estimated that the payment ratio is likely
Appendix 10 43 to be above 97% of estimated TAH as per the final safeguard due diligence report from February 2016. For non-titled APs, all 1,164 EPs received payments as per entitlements. Among them, 711 lost structures and 609 APs applied and received replacement cost for structures. As per the RP DDR, the remaining did not come forward to claim compensation.
Table A10.2: 2011 RP Estimates vs. Revised Estimates 2011 RP Revised Actual delivery as Estimates Estimates of Jan. 2016
Total no. of TAH paid CCL 852 1750 1671 Total no. of TAH paid RB n/a 1671 1637 Total no. of NAH paid RB 1851 1164 1164 No. of AH losing land 348 1744 1587 No. of TAH losing structures 504 522 342 No. of NAH losing structures 1260 711 609 No. of CPR 66 6 6 No. of WWHH 160 129 129 No. of businesses 1318 845 845 No. AH paid ILRP Grant n/a 278 278 Source: RP Due Diligence Report, (February 2016; page 3)
F. Assessment of Income Livelihood Restoration Program
14. Assessment of the ILRP have been conducted in two stages; the first one in 2017 through one to one telephone conversation with 20% of the training participants. In addition, case study interviews have been conducted for selected beneficiaries of the ILRP in 2019-during preparation of PCR. Some positive features have been revealed from the assessments: 278 people (52 female and 136 male) were trained • Training topic: • Tailoring 48 • Cattle rearing 4+136 • Tk14,500/$180 one-time cash assistance have been provided to 278 participants • 90% stated their income level improved to pre-project level • Women were happier to be able to contribute in family, previously they had no income • For 70% NGO selected participants according to APs choice • 30% wanted another training but sits were limited. • 90% purchased relevant materials poultry/sewing machines • 10% spent on home renovation
15. Recommendations from participants • Training with project relevance and jobs in project next time • To add new opportunities through training • Access to micro credit/ loan/ financial support would have been beneficial • Long term training and more seed money would be more sustainable for livelihood restoration.
16. It is worth mentioning that the ILRP training participants were mostly from vulnerable households with income level below national poverty line.
44 Appendix 11
STATUS OF COMPLIANCE WITH LOAN COVENANTS Covenant Reference Status of Compliance in Agreement Facility Terms and Conditions Each loan will be used to finance (i) a range of FFA Complied with. reform actions under the Reform project or (ii) a Five loans were approved under the range of Investment Subprojects defined by the MFF that financed a range reform Executing Agency under the Investment Project. actions under the Reform Project or a range of Investment Subprojects defined by the Executing Agency under the Investment Project. Investment Subprojects will meet the pre-agreed FFA Complied with. eligibility criteria described in Schedule 4 to this Pre-agreed eligibility criteria in FFA, as supplemented in each legal agreement. Schedule 4 to the FFA and loan The Reform Project and the Investment agreements were followed. Agreed Subprojects will adhere at all time to a set of terms and conditions in the areas of agreed terms and conditions in the areas of procurement, disbursement, procurement, disbursement, administration, administration, governance, governance, safeguards, technical and safeguards, technical and commercial terms, financial and fiduciary commercial terms, financial and oversight, and management arrangements. The fiduciary oversight, and management specific details applicable to individual loans will arrangements were followed. be documented in the relevant loan agreements. The Borrower will cause the proceeds of each FFA Complied with. loan to be applied to the financing of Each of the five loans financed expenditures of the Roadmap and Investment expenditures of the Roadmap and Program in accordance with conditions set forth Investment Program in accordance in this FFA and the legal agreements for each with provisions of FFA and loan loan. agreements. Execution The Executing Agency for the Roadmap and FFA Complied with. Investment Program will be the Bangladesh BR was the executing agency and Railways (BR). BR will implement the Roadmap was responsible for implementing and Investment Program in accordance with the the Roadmap and Investment principles set forth in Schedule 1 to this FFA, as Program. supplemented with more details in the legal agreements for each loan. Procedure Loans to be provided under the Facility will be FFA Complied with. subject to the following procedures and Four periodic financing requests undertakings: submitted by the Borrower were (a) The Borrower will have notified ADB of a received by ADB in accordance with forthcoming PFR at least 15 days in advance of Facility procedures and the submission of a PFR. undertakings. (b) The Borrower will have submitted a PFR in the format as agreed with ADB. (‘c) ADB may, in its sole discretion, and after consultations with the Borrower, decline to approve any PFR, or authorize the negotiation of any legal document for a loan, provided any decision to so decline is communicated to the Borrower by ADB within 30 days from receipt of the second and subsequent PFRs.
Appendix 11 45
Covenant Reference Status of Compliance in Agreement (d) If no such decline is communicated to the Borrower, the legal documents will be negotiated and executed no later than 30 days from ADB’s receipt of the second and subsequent PFRs. Safeguards All ADB safeguard policies, will apply to both the FFA Complied with. Projects and all Investment Subprojects financed All ADB safeguard policies were under the Facility. Schedule 5 to this FFA sets applied to the Reform Project and all forth the safeguard frameworks required under Investment Subprojects financed ADB’s safeguard policies and which the borrower under the Facility. will comply with and implement. Procurement All goods and services to be financed under the FFA Complied with. Facility will be procured in accordance with All goods and services financed ADB’s Procurement Guidelines (April 2006), as under the Facility were procured in amended from time to time. accordance with ADB’s Procurement Guidelines (April 2006), as amended from time to time. Consulting Services All consulting services to be financed under the FFA Complied with. Facility will be procured in accordance with All consulting services financed ADB’s Guidelines on Use of Consultants by under the Facility were procured in Asian Development Bank and its Borrowers accordance with ADB’s Guidelines (April 2006), as amended from time to time on Use of Consultants by Asian Development Bank and its Borrowers (April 2006), as amended from time to time Disbursements Disbursements will be made in accordance with FFA Complied with. ADB’s Loan Disbursement Handbook, 2001 and Disbursements were made in ADB’s Interim Guidelines for Disbursement accordance with ADB’s Loan Operations, LIBOR-based Loan Products, 2002, Disbursement Handbook, 2001 and each as amended from time to time. ADB’s Interim Guidelines for Disbursement Operations, LIBOR- based Loan Products, 2002, each as amended from time to time. Monitoring, Evaluation and Reporting Arrangements BR will, within six (6) months of the effective date FFA Partially complied with. of the first Loan Agreement under the Facility: Surveys were done by BR with help (i) develop a systematic Investment Program of consultants. Evaluation surveys performance monitoring and analysis for use were not annually done by BR. throughout the life of the Investment Program, and (ii) develop and conduct “quick and easy” rapid sample surveys to establish a baseline for subsequent performance monitoring, with monitoring on a gender-disaggregated basis, where appropriate. Thereafter, evaluation surveys will be conducted annually. The Borrower and ADB will agree on the key indicators and assumptions that determine the required data for rapid assessment.
46 Appendix 11
Covenant Reference Status of Compliance in Agreement BR will prepare Investment Program monthly and FFA Complied with. quarterly progress reports, including site reports, Program and quarterly reports and technical and financial reports, for including site reports and technical submission to ADB, a mid-term evaluation report and financial reports were prepared for each Project and an overall completion report and submitted to ADB. for each Project. Quarterly reports will include updated implementation, financial and procurement-related information. Monthly and quarterly reports will be submitted to ADB within 15 days of the end of each month or quarter, as applicable. Implementation Framework The Executing Agency for the Investment FFA, sch. Complied with. Program will be BR. Two implementation units 3, para. 1 BR was the executing agency and will be established: (i) the Reform two implementation units were Implementation Unit (RIU) will be headed by a established and staffed in senior BR officer, preferably at the Additional accordance with the provisions of the Director General level, who will be the Project FFA. Director for the Reform Project, and staffed by suitably qualified officers from the BR and Ministry of Communications (MOC), and (ii) Project Implementation Unit (PIU) will be headed by a General Manager from BR who will act as Project Director for the Investment Project. Each Project Director shall report to the Director General, BR, on a regular basis. An inter-ministerial committee co-chaired by the FFA, sch. Complied with. Secretary, MOC and the Secretary, Finance 3, para. 2 An inter-ministerial committee was Division, Ministry of Finance (MOF), and initially co-chaired by the Secretary, consisting of representatives from the Economic MOC and the Secretary, Finance Relations Division, MOF, the Ministry of Division. After establishment of Establishment, the Prime Minister’s Office, BR, Ministry of Railways in 2011, it was and other agencies as determined by the co-chaired by the Secretary of Borrower. Ministry of Railways and Ministry of Finance (MOF). It had representatives from the Economic Relations Division, MOF, the Ministry of Establishment, the Prime Minister’s Office, and BR.
BR’s Financial Adviser and Chief Accounts FFA, sch. Complied with. Officer will be responsible for coordinating all 3, para. 3 accounting procedures under the Investment Program and ensuring compliance with ADB’s auditing and accounting requirements. The Government will consult with ADB on FFA, sch. Complied with. matters related to Investment Program 3, para. 4 management. All matters relating to selection or appointment, of any officer-in-charge or a line of business (LOB) or a sub-unit of a LOB, Project Director, or Deputy Project Director will be promptly notified to ADB.
Appendix 11 47
Covenant Reference Status of Compliance in Agreement Without limiting the generality of the FFA, sch. Complied with. requirements in the legal documents, the 3, para. 5 OCAG performed audits required Borrower shall ensure that: under the Borrower’s and (a) the Borrower’s Office of Comptroller and regulations. Audit reports prepared Auditor General (OCAG) performs the audits by OCAG were regularly submitted required under the Borrower’s laws and to ADB albeit late. Independent regulations and these audits include an performance audits that included assessment of the Reform Project’s and procurement were done by Investment Project’s financial accounts as well international private sector auditors. as an audit of effectiveness of financial control A separate accounting system for mechanisms established by each project. OCAG each project was maintained. The shall make recommendations on strengthening consolidated audits including audit financial controls, if appropriate, and such opinion were submitted annually to recommendations shall be submitted to ADB as ADB. part of the next quarterly report after such recommendations are made. OCAG’s full annual report shall be submitted to ADB within 30 days of completion, but in no event later than six (6) months subsequent to the year being audited; (b) all procurement activities are subject to an independent performance audit by international private sector auditors. The performance audit shall be performed on two occasions during the Reform Project’s and Implementation Project’s implementation. The auditor shall also perform random and spot checks for contract implementation activities under the Project’s contracts, and (c) a separate accounting system for each Project’s expenditure is maintained in accordance with sound accounting principles. All accounts for the Reform Project and the Investment Project, including financial statements, statements of expenditures and account records, shall be audited annually as part of the regular audit of expenses and financial statements by a single auditing firm. The consolidated audit reports (in English) shall be submitted to ADB in accordance with the requirements and within the deadlines stated in the applicable Loan Regulations. The audit opinion shall include (i) a detailed description of the source of fund and expenditures made; (ii) an assessment of the adequacy of accounting and internal controls systems with respect to each Project’s expenditures and other financial transactions, and to ensure safe custody of each Project’s-financed assets; (iii) a determination as to whether the Borrower and the Project’s Executing Agency have maintained adequate documentation for all financial transactions, specifically including the statement of expenditures (SOE) and imprest account
48 Appendix 11
Covenant Reference Status of Compliance in Agreement procedures; and (iv) confirmation of compliance with this Agreements financial covenants. The Borrower shall ensure that: FFA, sch. Complied with. BR, in its bidding documents for each project, 3, para. 6 Issued bidding documents by BR for and in all contracts financed by ADB in each project included provisions for connection with each Project, includes provisions ADB to audit and examine. specifying the right of ADB to audit and examine the records and accounts for BR and all contracts, suppliers, consultants and other service provider as they relate to each Project. Safeguard Framework BR shall ensure that the Investment Project, FFA, sch. Complied with. each Investment Subproject and all Investment 5, para. 1 Initial Environmental examination (IEE) Project facilities are developed, conducted, including Environmental Management implemented and maintained in accordance with Plan (EMP) have been prepared for the all applicable laws and regulations, including the Investment Project (subproject 1) and Environmental Conversation Act Borrower’s each Investment Subproject in 1995, Environment Policy (2002). If and ADB’s accordance with all applicable laws and there is any discrepancy between the regulations, including the Borrower’s Government’s laws and regulations, and ADB’s Environmental Conservation Act 1995, Environmental Policy, the Initial Environmental and . Examination (IEE), including preparing an ADB’s Environment Policy (2002) Environmental Management Plan (EMP) for the The recommendations of IEE & EMP Investment Project and each Investment have been incorporated in the Subproject. All civil works and consultant construction contract of subproject 1 contracts shall contain provisions that reflect and same will be done in other these requirements. For the follow up Investment subprojects. IEE for subproject 1 is Subprojects, the BR shall ensure that an IRR or already approved by the DOE and the Environmental Impact Assessment (EIA), as Environmental Clearance has already applicable, is prepare in accordance with the been issued with a renewal to 2015 Borrower’s requirements and ADB’s Environment issued and applied for to 2016 and Policy. BR shall ensure that all IEEs or EIAs, as subsequently issued on 13 Jul 2015. applicable, are approved by the Borrower following its approval procedures. For each Investment Subproject for which an IEE FFA, sch. Complied with. has not been prepared, BR shall prepare an IEE 5, para. 2 Initial Environmental examination or EIA, as applicable, which includes an EMP (IEE) including Environmental specific to that Investment Subproject. Prior to Management Plan (EMP) have been civil works contracts being awarded for the prepared for subproject 1 and each Investment Subproject, BR shall ensure that Investment Subproject in accordance IEEs or EIAs, as applicable: (a) are based on the with all applicable laws and Investment Project IEE prepared during regulations, including the Borrower’s Investment Project preparation and follow the Environmental Conservation Act Environmental Assessment and Review 1995, and ADB’s Environment Policy Procedures set forth in the IEE; (b) meet ADB’s (2002). Both the IEE and EMP Environment Policy requirements; (c) include prepared for the Investment details of local consultation carried out before Subprojects has been approved by and during IEE or EIA, as applicable, BR, DOE and ADB. preparations; and (d) are approved by the appropriate authority of the Borrower for environmental compliance before being submitted to ADB for approval. For Investment Subprojects confirmed by ASB as
Appendix 11 49
Covenant Reference Status of Compliance in Agreement environmentally sensitive (i.e., Category A or B sensitive under ADB’s Environment Policy), the Investment Subproject proposal and the IEE or EIA, as applicable, shall be forwarded to ADB for review as well as environmental impact assessment if it is determined that there will be a significant environmental impact) and the Summary Environmental Impact Assessment (SEIA) or shall be made available to the general public at least 120 days before each Investment Subproject is approved. The Borrower and BR shall ensure that the FFA, sch. Complied with. contract documents for all civil works under the 5, para. 3 The recommendations of IEE & EMP Investment Project include specific measures as including EMP budget have been indicated in the IEE and Summary Initial incorporated in the construction Environmental Examination (SIEE) or EIA and contract of other subprojects. SEIA, as applicable, and in accordance with ADB’s Environment Policy to mitigate negative environmental impacts caused by the construction and to give due consideration to prevention of damage to the natural environment in the design, construction, operation and maintenance of Investment Project facilities. If there are any changes in the specific locations or alignments or infrastructure or Investment Project facilities under the IEE or EIA, as applicable, is completed, for either already approved Investment Subprojects or for proposed Investment Subprojects, as additional environmental assessment shall be completed and a process similar to that used for an IEE or SIEE, as applicable, and acceptable to ADB, shall be undertaken. BR shall: (a) prepare an Investment Project FFA, sch. (a) Complied with Environmental Management Plan to monitor the 5, para. 4 (b) Complied with contractors’ implementation of the EMPs; (b) (c) Complied with ensure that specific provisions are included the (d) Complied with preparation, implementation, and monitoring of EMPs in civil works and consulting services contracts; (c) ensure that the environmental mitigation measures in the IEE or EIA, as applicable, are adequately implemented by the contractors; and (d) provide adequate budgetary allocation for this activity. The Borrower and BR shall ensure that the FFA, sch. Complied with contract documents for all civil works under the 5, para. 5 The recommendations of IEE & EMP Investment Project include specific measures as have been incorporated in the indicated in the SIEE and IEE or EIA and SEIA, construction contract of subproject 1 as applicable, and in accordance with ADB’s and same will be done in other Environment Policy to mitigate negative subprojects. Mitigative measures will environmental impacts caused by the be taken during construction work construction and to give due to consideration to prevention of damage to the natural environment
50 Appendix 11
Covenant Reference Status of Compliance in Agreement in the design, construction, operation and maintenance of Investment Project facilities. Such mitigation measures may include, but not be limited to, rerouting traffic, maintaining moisture content during soil handling, controlling noise and vibration during construction, pumping stagnant water and providing adequate drainage, restricting placement of construction materials and equipment, stabilizing embankment side slopes, and rehabilitating/reclaiming the temporary access road when construction work in completed. If there are any changes in the specific location or alignments or infrastructure or Investment Project facilities after the IEE or EIA, as applicable, is completed, for either already approved Investment Subprojects or for proposed Investment Subprojects, as additional environmental assessment shall be completed and a process similar to that used for an IEE or EIA, as applicable, as acceptable to ADB, shall be undertaken. The Borrower shall cause (i) the contractors FFA, sch. Complied with. engaged under the civil works contracts to 5, para. 6 The implementation of EMP was comply strictly with all environmental impact carried out by CREC against mitigation requirements set out in the contract construction contract. The documents, and (ii) the consultants engaged for recommendations of IEE & EMP construction supervision to monitor closely the were incorporated in the construction compliance by the contractors with the contract of Project-1. Close environmental impact mitigation requirements. monitoring was done by BR and BR shall submit to ADB semi-annual reports on supervision consultants to ensure implementation of the EMP as stated in the IEE implementation of EMP during or EIA, as applicable. construction work. Bi-Annual Reports were submitted to ADB. The Borrower shall ensure that BR carries out all FFA, sch. Complied with. activities related to resettlement, including, but 5, para. 7 not limited to, land acquisition, valuation of property, compensation, relocation, grievance redress, establishment of a Resettlement Framework (attached as Annex 1 to this Schedule 5 and incorporated herein by reference) agreed upon between the Borrower and ADB, the Borrowers, laws, regulation, and procedures, and ADB’s requirements as described in ADB’s Policy of Involuntary Resettlement. In case of discrepancies between the Borrower’s laws, regulation, and procedures and ADB’s requirements, ADB’s Policy and requirements shall prevail. The Borrower shall ensure that BR carried out all FFA, sch. Complied with. activities related to resettlement, including, but 5, para. 8 not limited to, land acquisition, valuation of property, compensation, relocation, grievance redress, establishment of a Resettlement Unit
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Covenant Reference Status of Compliance in Agreement within the PIU, external monitoring, and reporting, in accordance with the Resettlement Plan for the Sample Subproject agreed upon between the Borrower and ADB and the Borrower’s laws, regulation, and procedures, and ADB’s requirements as described in ADB’s Policy on Involuntary Resettlement. In case of discrepancies between the Borrower’s laws, regulations, and procedures and ADB’s requirements, ADB’s Policy and requirements shall prevail. The Borrower shall ensure that BR prepares FFA, sch. Complied with. resettlement plans for Investment Subprojects in 5, para. 9 accordance with the Resettlement Framework attached as Annex 1 to this Schedule 5, the Borrower’s laws, regulations, and procedures, and ADB’s requirements as described in ADB’s Policy on Involuntary Resettlement. In case of discrepancies between the Borrower’s laws, regulations, and procedures and ADB’s requirements, ADB’s Policy and requirements shall prevail. The Borrower shall ensure that BR does not FFA, sch. Complied with. issue a notice of possession of site to any civil 5, para. 10 contractor for any section of construction works unless BR has satisfactorily completed all resettlement activities in a geographic area, ensured that the required rehabilitation assistance is in place, and the area required for civil works is free of all encumbrances. To the extent that any indigenous peoples are FFA, sch. Not applicable. likely to be affected under any Investment 5, para. 11 Subproject, such Investment Subproject shall be conducted in accordance with the measures set forth in the applicable laws and regulation for the Borrower, and ADB’s Policy on Indigenous People (1998). In the event there is a discrepancy between the Borrower’s laws, regulations, and procedures and ADB’s requirements, ADB’s Policy and requirements shall prevail. BR shall ensure that all civil works contractors (i) FFA, sch. Not applicable. As the MFF was comply with all applicable labor laws, (ii) use 5, para. 12 NGE, gender was not tracked. their best efforts to employ women and local people living in the vicinity of the Investment Subproject and (iii) disseminate information at worksites on the risks of sexually transmitted diseases and HIV/AIDS for those employed during construction. BR shall require contractors not to differentiate between men and women’s wages or benefits for work of equal value. Contracts for all Investment Subprojects shall include specific clauses on these undertakings,
52 Appendix 11
Covenant Reference Status of Compliance in Agreement and compliance shall be strictly monitored by BR during Investment Project implementation. Reform Project One year from loan effectiveness of first PFR Complete reorganization of BR by LOB and FFA, Complied with late. assignment of all BR staff to positions in the Annex 1 BR was reorganized by LOB and BR approved structure. staff assigned in the approved structure.
Develop an agreed 5-year business plan for FFA, Complied with late. each LOB and BR as a whole identifying the Annex 1 Agreed 5-year business plan was LOB operational and financial targets, the developed for each LOB and BR with service quality it will offer, and the expenditure operational and financial targets. necessary for each LOB and BR as a whole. Develop key performance indicators for each FFA, Complied with late. LOB to achieve business plan targets. Annex 1 Key performance indicators to achieve business plan targets were developed. Develop an architecture/model for a new FFA, Complied with late. accounting and financial management system Annex 1 Architecture for a new accounting that will produce BR’s financial statements in and financial management system conformity with commercial accounting was developed to produce BR’s standards internationally accepted in the railway financial statements in conformity industry, and enable restatement of these with internationally accepted financial statements to ones that conform to accounting standards. ERP IT Government reporting requirements. system has been rolled out in the Bangladesh Railway’s headquarters in Dhaka and Chattogram (formerly Chittagong) and the Pahartali rolling stock workshop in Chattogram. But the system is yet to be fully utilized due to the delay in basic data collection and inputs into the system, which are prerequisites to system operations. Bangladesh Railway lacks consolidated data and equipment such as computers/desktops, and staff capacity is not sufficient to use the system effectively. Bangladesh Railway has tried to prepare the first financial statements for Bangladesh Railway based on the lines of business structure and in accordance with international accounting standards for fiscal year (FY) 2017. But this has not materialized due to the incomplete basic data migration, allowing only partial use of the ERP IT system. While the government is processing the proposal of Bangladesh Railway
Appendix 11 53
Covenant Reference Status of Compliance in Agreement to set up an IT cell for the sustainable operations and maintenance of the ERP IT system, Bangladesh Railway recruited the consulting services of IT experts in September 2018 to bridge the gap period before the full setup of the IT cell in its organizational structure.
Set up a personnel database with completed FFA, Complied with late. data for all BR personnel and procedures for Annex 1 Personnel database was set up and maintaining the database in place. procedures adopted for maintaining database.
Identify personnel requirements showing skills FFA, Complied with late. needed at each LOB, skills existing at BR, skills Annex 1 Personnel requirements for LOB, shortages and surplus to requirements, training skills and needs and positions were and retraining needs, and positions that need to identified. be filled by recruitment from outside BR for successful implementation of LOB business plans. Implement monitoring system to collect and FFA, Complied with late. analyze data needed to monitor operational Annex 1 Monitoring system to collect and aspects of key performance indicators for each analyze operational aspects and LOB data was implemented. Two years from loan effectiveness of first PFR Complete the BR asset registry with all BR FFA, Complied with late. assets identified, revalued, and recorded in a Annex 1 An asset registry with BR assets was new asset register that shows which LOB owns completed. It became part of the new which asset. installed integrated information technology (IT) system. Identify noncore services, develop and approve FFA, Complied with late. an outsourcing/divesture plan for noncore Annex 1 Noncore services were identified and services. an outsourcing plan approved. has started outsourcing computerized railway reservation and ticketing systems for selected routes and trains to the private sector on contractual basis. This has improved the efficiency of the seat reservation system and the number of tickets sold. Catering of food and beverages in trains has also been outsourced on contractual basis, along with the installation, operation, and maintenance of fiber-optic cables along major railway lines.
Review performance of LOBs and report on LOB FFA, Complied with late. Performance of performance submitted. Annex 1 LOBs was reviewed and reported.
54 Appendix 11
Covenant Reference Status of Compliance in Agreement Fully implement new accounting and financial FFA, Complied with late. A new management system with the production of Annex 1 integrated accounting, financial and financial management and accounting human resource management statements as agreed in the accepted system based on agreed accepted architecture. architecture was installed. Identify passenger services that need public FFA, Complied with late. service obligation subsidies and implement a Annex 1 Services for public service obligation mechanism to calculate and pay public service subsidies were identified and a obligation subsidies. mechanism implemented. Implement a new internal pricing structure for the FFA, Complied with late. services provided by an individual LOB to Annex 1 A new internal pricing structure for another LOB. LOBs were developed and implemented.
Redefine job description, and career FFA, Complied with late. advancement processes of the different staff Annex 1 Work was done to redefine job grades and professions needed to optimize LOB description and career advancement structure and corporatization. processes.
Recruit managers with needed skills from outside FFA, Not complied. BR as and where necessary with the successful Annex 1 BR did not recruit any managers candidates appointed and in service with BR. from outside.
Formulate and accept improved standards for FFA, Complied with late. maintenance of permanent way and rolling stock. Annex 1 New maintenance standards for track and permanent way and rolling stock were formulated and adopted by BR. Improve timetabling, rake links, locomotive links, FFA, Complied with. and terminal operating practices to reduce Annex 1 With support of consultants, actions journey times in the Dhaka–Chittagong corridor plan were prepared and operational by 10% compared with the situation existing in improvements implemented that December 2005. reduced the journey times in the Dhaka-Chittagong corridor more than 10% compared with December 2005. Formulate standards for maintenance of FFA, Complied with late. permanent way and rolling stock. Annex 1 New maintenance standards for track and permanent way and rolling stock were formulated. Update all relevant BR operation and FFA, Complied with. maintenance manuals and formally adopt these Annex 1 All relevant BR operation and new manuals. maintenance manuals were updated with support of consultants and formally adopted by BR. Four years from loan effectiveness of first PFR Complete the divestiture/outsourcing of all FFA, Complied with late. noncore services in accordance with the Annex 1 Outsourcing of non-core services approved outsourcing/divesture plan. were done by BR in in accordance with approved plan.
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Covenant Reference Status of Compliance in Agreement Implement a new tariff structure for all BR core FFA, Complied with late. services and revise tariff book according to the Annex 1 A new tariff structure was adopted in approved tariff structure. 2016. Formulate a new market-based financial FFA, Not complied with. remuneration structure for BR employees to be Annex 1 Covenant became less relevant implemented after transformation of BR into a while no corporate entity was corporate entity. established for BR. Formulate a performance-based incentive FFA, Not complied with. structure and accountability measures for key BR Annex 1 Covenant became less relevant management personnel to be implemented after while no corporate entity was the transformation of BR into a government- established for BR. owned corporate entity is approved. Prepare options based on the principle that staff FFA, Not complied with. will be no worse off when BR personnel transfer Annex 1 Covenant became less relevant to the government-owned corporate entity and while no corporate entity was prepare the necessary documentation for the established for BR. various accepted options. Prepare and approve social safety net for BR FFA, Not complied with. staff, if any, who when BR is transformed into a Annex 1 Covenant became less relevant government-owned corporate entity become while no corporate entity was redundant established for BR. Decide on and approve option for the form and FFA, Not complied with. legal status of BR after it is transformed into a Annex 1 Covenant became less relevant government-owned corporate entity, taking into while no corporate entity was account the experience gained in restructuring established for BR. BR by LOB. Finalize and approve the division and transfer of FFA, Not complied with. assets and liabilities after BR is transformed into Annex 1 Covenant became less relevant a government-owned corporate entity. while no corporate entity was established for BR. Finalize and approve a technical and safety FFA, Not complied with. regulatory framework for the railway sector after Annex 1 Covenant became less relevant BR is transformed into a government-owned while no corporate entity was corporate entity including roles, reporting established for BR. arrangements, and institutional strengthening for a safety and technical regulatory body. Enact and promulgate legislation transforming FFA, Partially complied with. BR into a government-owned corporate entity Annex 1 Corporate entity established and with its own assets and liabilities, and provides enacted for BR container operations. for a regulatory framework for safety and technical regulations. Formally establish BR as a transformed FFA, Partially complied with. government-owned corporate entity with its own Annex 1 Corporate entity established and assets and liabilities in line with provisions of the enacted for BR container operations bill as approved by Parliament. Formally establish a safety and technical FFA, Not complied with. regulatory body for the railway sector in line with Annex 1 Became less relevant applicable provisions of the legislation as approved by while no corporate entity was Parliament. established for BR.
56 Appendix 11
STATUS OF COMPLIANCE WITH LOAN COVENANTS OF THE INVESTMENT PROJECT Covenant Reference Status of Compliance in Agreement Particular Covenants (a) The Borrower shall cause the Project to be LA, Article Complied with. carried out with due diligence and efficiency and IV, Section The Project was carried out with due in conformity with sound applicable technical, 4.01 diligence and efficiency and in financial, business, and development practices. conformity with sound applicable (b) In carrying out of the Project and operation of technical, financial, business, and the Project facilities, the Borrower shall perform, development practices. The Project or cause to be performed, all obligations set forth and operation of the Project facilities, in Schedule 5 to this Loan Agreement. followed all obligations set forth in Schedule 5 to this Loan Agreement (Schedule 4 to the Loan Agreement of Loan 2845). The Borrower shall make available, promptly as LA, Article Complied with. needed and on terms and conditions acceptable IV, Section The Borrower made available to BR to ADB, the funds, facilities, services, land and 4.02 the funds, facilities, services, land other resources, as required, in addition to the and other resources in addition to proceeds of the Loan, for the carrying out of the proceeds of the Loan, for the the Project and for the operation and carrying out of the Project and for maintenance of the Project facilities. the operation and maintenance of the Project facilities. (a) Whenever applicable, in carrying out of the LA, Article Complied with. Project, the Borrower shall cause competent and IV, Section (a) Competent and qualified qualified consultants and contractors, acceptable 4.03 consultants and contractors, to ADB to be employed to an extend and upon acceptable to ADB were employed terms and conditions satisfactory to the Borrower satisfactory to the Borrower and and ADB. ADB. (b) The Borrower shall cause the Project to (b) The Project was be carried out be carried out in accordance with plans, in accordance with plans, design design standards, specifications, work standards, specifications, work schedules and construction methods acceptable schedules and construction methods to the Borrower and ADB, as applicable. The acceptable to the Borrower and Borrower shall furnish, or cause to be furnished, ADB. to ADB, promptly after their preparation, such plans, design standards, specifications and work schedules, and any material modifications subsequently made therein, in such detail as ADB shall reasonably request. The Borrower shall ensure that the activities of LA, Article Complied with. its departments and agencies with respect to the IV, Section The activities of BR with respect to carrying out of the Project and operation of the 4.04 the carrying out of the Project and Project facilities are conducted and coordinated operation of the Project facilities in accordance with sound administrative policies were conducted and coordinated in and procedures. accordance with sound administrative policies and procedures a) The Borrower shall (i) maintain LA, Article Complied with. separate accounts and records for the Project; IV, Section The Borrower maintained separate (ii) prepare annual financial statements for the 4.05 accounts and records for the Project; Project in accordance with accounting (ii) prepared annual financial principles acceptable to ADB; (iii) have such statements for the Project in financial statements audited annually by accordance with accounting
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Covenant Reference Status of Compliance in Agreement independent auditors whose qualifications, principles acceptable to ADB; (iii) experience and terms of reference are had such financial statements acceptable to ADB, in accordance with audited annually by independent international standards for auditing or the auditors whose qualifications, national equivalent acceptable to ADB; (iv) as experience and terms of reference part of each such audit, have the auditors are acceptable to ADB, in prepare a report (which includes the accordance with international auditors’ opinion on the financial statements, standards for auditing or the use of the Loan proceeds and compliance national equivalent acceptable to with the financial covenants of this Loan ADB; (iv) as part of each such Agreement) and a management letter (which audits, had the auditors prepare sets out the deficiencies in the internal control a report (which includes the of the Project that were identified in the course of auditors’ opinion on the financial the audit, if any); and (v) furnish to ADB, no later statements, use of the Loan than 6 months after the end of each related fiscal proceeds and compliance with the year, copies of such audited financial financial covenants of this Loan statements, audit report and management Agreement) and a management letter, all in the English language, and such letter (which sets out the other information concerning these deficiencies in the internal control of documents and the audit thereof as ADB the Project that were identified in the shall from time to time reasonably request. course of the audit, if any); and (v) (b) ADB shall disclose the annual audited furnished albeit late to ADB after the financial statements for the Project and the end of each related fiscal year, opinion of the auditors on the financial copies of such audited financial statements within 30 days of the date of their statements, audit report and receipt by posting them on ADB’s website. management letter, all in the I The Borrower shall enable ADB, upon English language, and such other ADB’s request, to discuss the financial information concerning these statements for the Project and the Borrower’s documents and the audit thereof financial affairs where they relate to the as ADB shall from time to time Project with the auditors appointed pursuant to reasonably request. subsection (a) (iii) hereinabove, and shall (b) ADB disclosed the annual authorize and require any representative of audited financial statements for such auditors to participate in any such the Project and the opinion of the discussions requested by ADB. This is auditors on the financial statements provided that such discussions shall be within 30 days of the date of their conducted only in the presence of an receipt by posting them on ADB’s authorized officer of the Borrower, unless the website. The Borrower and BR Borrower shall otherwise agree. enabled ADB to discuss the financial statements for the Project and the Borrower’s financial affairs related to the Project with the auditors appointed and supported authorized representatives of auditors to participate Project Execution The Borrower and BR shall ensure that the LA 3097, Complied with. Project is implemented in accordance with the sch. 5, The Project was implemented in detailed arrangements set forth in the PAM. Any para.1 accordance with the detailed subsequent change to the PAM shall become arrangements set forth in the PAM. effective only after approval of such change by the Borrower and ADB. In the event of any discrepancy between the PAM and this Loan
58 Appendix 11
Covenant Reference Status of Compliance in Agreement Agreement, the provisions of this Loan Agreement shall prevail. The Borrower shall remain committed to the LA 3097, Substantially complied with late. reform program under the Reform Project sch. 5, Reform program was substantially throughout the Investment Program period and para. 2 complied with except for thereafter, and shall, together with BR, ensure establishment of a corporate entity (a) continued compliance with the actions and for BR. While this was difficult to measures taken pursuant to paragraphs 13 to 15 achieve, the covenant was waived of Schedule 1 to the FFA, and (b) completion of and reformulated to establish a the reform actions set out in paragraph 16 corporate entity for container thereof in a manner acceptable to ADB before operations that was achieved. submission of the PFR for tranche 4. The Borrower shall ensure that sufficient LA 3097, Complied with. counterpart funds are made available through sch. 5, budgetary allocations or other means for timely para. 3 and effective implementation of the Project, including without limitation, any funds required: (a) towards operation and maintenance of the Project facilities, (b) to mitigate any unforeseen environmental and social impacts, and (c) to meet additional costs, including those arising from design changes, price escalation in costs and/or unforeseen circumstances. The Borrower shall ensure that the Project does LA 3097, Complied with. not have any small ethnic community peoples sch. 5, impacts within the meaning of the Small Ethnic para. 4 Community Peoples Safeguards, or any environmental or involuntary resettlement impacts within the meaning of the SPS. In the event that the Project does have any such impact, the Borrower shall ensure compliance with: (a) all applicable laws and regulations of the Borrower relating to environment, land acquisition, involuntary resettlement, and small ethnic community peoples; (b) the SPS; and (c) any plans and measures to be developed and implemented in accordance with the EARF, RF, and/or any small ethnic community peoples planning framework. The Borrower shall ensure that no proceeds of LA 3097, Complied with. the Loan are used to finance any activity sch. 5, No proceeds of the Loan were used included in the list of prohibited investment para. 5 to finance any activity included in the activities provided in Appendix 5 of the SPS. list of prohibited investment activities provided in Appendix 5 of the SPS. The Borrower shall ensure that BR maintain the LA 3097, Complied with. Project facilities and that proper technical sch. 5, BR maintain the Project facilities and supervision and adequate routine funds for this para. 6 provide proper technical supervision purpose are provided to ensure safe railway and adequate routine funds for this operation. Maintenance shall be carried out in purpose to ensure safe railway accordance with BR’s operations manual and the operation. Maintenance is carried out recommendations from manufacturer(s) and in accordance with BR’s operations supplier(s). The funds for the O&M shall be manual and the recommendations allocated annually and released on a timely from manufacturer and supplier. The
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Covenant Reference Status of Compliance in Agreement basis. Furthermore, the Borrower shall cause BR funds for the O&M are allocated to ensure that all equipment and spare parts annually and released on a timely financed under the Project shall be used for the basis. All equipment and spare parts maintenance and operation of the Project. financed under the Project are used for the maintenance and operation of the Project. The Borrower and BR shall (i) comply with ADB’s LA 3097, Complied with. Anticorruption Policy (1998, as amended to date) sch. 5, The Borrower and BR complied with and acknowledge that ADB reserves the right to para. 7 ADB’s Anticorruption Policy (1998, investigate directly, or through its agents, any as amended to date) and cooperated alleged corrupt, fraudulent, collusive or coercive well with ADB. practice relating to the Project; and (ii) cooperate with any such investigation and extend all necessary assistance for satisfactory completion of such investigation. The Borrower and BR shall ensure that the LA 3097, Complied with. anticorruption provisions acceptable to ADB are sch. 5, Anticorruption provisions acceptable included in all bidding documents and contracts, para. 8 to ADB were included in all bidding including provisions specifying the right of ADB documents and contracts, to audit and examine the records and accounts of the executing and implementing agencies and all contractors, suppliers, consultants, and other service providers as they relate to the Project. Within 6 months after the Effective Date, BR LA 3097, Partially complied. shall, through its website or a project-specific sch. 5, BR established a project website website, disclose key project-related information, para. 9 which provided basic project-related including costs, safeguards (if any), procurement information. matters such as basic details on bidding procedures adopted, the list of participating bidders, name of the winning bidders, amount of contract awarded, and the list of goods/services procured. The website shall also include general information on Project progress, as well as contact details for the Project Executing Agency’s counterpart staff in Bangla and English languages, and shall provide a link to ADB’s Integrity Unit website http://www.adb.org/Integrity/complaint.asp for reporting to ADB any grievances or allegations of corrupt practices arising out of the Project and/or Project activities. The Borrower shall cause BR to ensure that all Project staff are fully aware of ADB’s procedures, including, but not limited to, procedures for implementation, procurement, use of consultants, disbursements, reporting, monitoring, and prevention of fraud and corruption.
60 Appendix 12
ECONOMIC AND FINANCIAL REEVALUATION
12.1 FOR TRANCHES 1, 2 AND 4
A. Introduction
1. Tranches 1, 2 and 4 of Bangladesh Railway Sector Investment Program financed three investment subprojects. The major subproject under the multi-tranche financing facility was construction of a 64 km second rail track including modernization of signaling between Tongi and Bhairab Bazar section on the Dhaka-Chittagong railway corridor (subproject 1). The other two subprojects financed (i) improvement of yards at 11 stations and modernization of signaling and communication system at 11 stations, and (ii) extension, rehabilitation and reconstruction of loop- lines between Darsana and Ishurdi on the Dhaka-Darsana-Khulna line.
2. The subproject for Tongi-Bhairab Bazar (cost $266 million) is analyzed separately. The other two subprojects for the Dhaka-Darsana-Khulna line (with a total cost of $10.56 million) for are considered together since they are closely linked for appropriately assessing the impact on safety and time savings.
B. Methodology
3. This economic and financial reevaluation closely follows the methodology used in the economic and financial analysis at appraisal and subsequent analysis at tranche 4 submission.1,2 For calculation of economic benefits, traffic projections have been made using existing container freight, additional container freight with project, existing other freight, additional other freight with project, existing intercity train passengers, and additional intercity train passengers with project have been used. To assess traffic benefits, data and projections for rail cost savings from existing container and other freight traffic, cost savings from diverted container and other traffic, capital loss and total cost savings have been used.
4. For calculation of financial benefits, actual costs of construction, actual and projected operations and maintenance (O&M) cost, additional revenue from container and other freight sources, additional revenue from intercity passenger trains and net cash flows have been used. Project O&M cost is assumed at 3% of capital cost. The baseline data and calculation of growth rates are based on the documents at appraisal for Multi-tranche Financing Facility and Technical Assistance Grant Railway Sector Investment (Bangladesh), 2006. Sources of data are as below: • Information on (a) Sections and Class of Trains, (b) Routes distance, (c) Sectional Capacity and Double Tracking, (d) Interlocking standard and loop number, (e) Sectional speed of train are from Bangladesh Railway Working Time Tables (East and West);3 • Information on (a) Traffic density by Section, (b) Passenger and freight revenue, (c) average passenger number by train, (d) average wagon number and average weight, (e) speed of freight train, (f) container service and its revenue, (g) Passenger train-km by class of trains are from Information Book of Bangladesh Railway published in different years;4
1 ADB, Manila; Guidelines for the Economic Analysis of Projects, 2017. 2 ADB, Manila; Financial Management and Analysis of Projects, 2005. 3 BR, Chittagong & Rajshahi, Working Time Table No. – 49 & 51, 2013 & 2017. 4 BR, Dhaka, Information Book, 2017 & 2018.
Appendix 12 61
• Road transport Vehicle Operating Cost (VOC), Travel Time Cost (TTC), Vehicle Purchase cost (large bus and truck) are from Road User Cost, 2016-2017, Bangladesh Road Research Laboratory, Road and Highways Department (RHD);5 • Reduction of travel time cost (30 minutes) is assumed based on the Government PCR, June 2016.
5. While the original excel sheets and calculation formulae were not available, the following assumptions have been made in the economic and financial reevaluation: (i) Analysis uses the currency as Tk. $ to Tk annual average exchange rates have been used and converted the historic price data in to 2017 constant price level. (ii) Economic values are estimated based on the world price numeraire. (iii) An standard conversion factor (SCF) of 0.80 was applied to adjust the financial cost and benefit in to the economic value. The same SCF value was used during the appraisal. (iv) The economic cost of capital was assumed to be 12%, the same as at appraisal. Inflation rate of 6% was assumed in the financial analysis. (v) The weighted average cost of capital (WACC) is reevaluated to be 3.59% based on actual project cost share between ADB and the government. At appraisal the WACC was 5.0% which was revised at the time of tranche 4 submission to 2.8%. (vi) Economic life of capital was assumed 20 years after the project completion, from 2015 to 2035. This is similar at appraisal, where the economic life was assumed to be 20 years from project commencement. Given the delays in project implementation, 20 years after completion is more realistic. To the extent that project benefits continue after 2035, i.e. have a residual value at the end of assumed project economic life, the analysis used 30% salvage value since the life of railway track is usually 50 years. (vii) Full economic benefit of the project could be realized if the proposed Inland Container Depot (ICD) at Dhirasram is built to relieve the pressure on the present congested ICD at Kamlapur in the capital city of Dhaka. This would enable freight traffic to make use of the Dhaka-Chittagong rail corridor relieving pressure of the traffic and accident- prone road corridor. Fuller benefit could also be realized if Bangladesh Railway (BR) introduces more intercity trains, makes tariff adjustment to at least cover domestic Consumer Price Index (CPI), and Wage Index (WI) of BR. Higher financial benefits could be achieved if the productivity of BR increases reflecting in lower operating ratios, greater timeliness and safety in its operations. (viii) This analysis assumes each container train is equivalent to 60 truckloads. It is also assumed that one intercity (IC) train is equivalent to 25 large buses. (ix) This analysis assumes passenger time savings are valued at Tk67.72 per passenger per hour.6
C. Project Costs
6. The financial costs of the double-tracking of the Tongi-Bhairab Bazar section consist of all construction costs and O&M costs. The economic costs include resource costs for construction including the costs of environment management plan, O&M costs, and social costs arising from land acquisition and resettlement compensation. A standard conversion factor of 0.80 was applied to financial costs of non-traded inputs to calculate economic costs. Subproject facilities are expected to have an average economic life 20 years. In addition, the economic and financial costs
5 Bangladesh Road Research Laboratory (BRRL), RHD, Dhaka, Road User Cost during 2016–2017, 2017 6 TSC Wing, Planning Commission, Dhaka, Draft Appraisal Framework, Railway Sector Manual, 2011
62 Appendix 12 are undertaken constant prices to 2016 prices7. Conversion of historic costs from $ to Tk8 is based on the actual exchange rate by year to year.
7. This reevaluation has been done using comparable data and projections for the entire Dhaka-Chittagong corridor, while the Tongi-Bhairab Bazar section also has been analyzed separately. The Dhaka-Chittagong rail corridor has a length of 321 km and consists of seven main sections (see table 12.1). At the beginning of the project, three sections were already double tracked while the remaining four sections had only a single track. At the time of appraisal, double tracking of Tongi-Bharab Bazar section was the core subproject of the MFF while other sections were non-core. It was assumed that all three single track sections would be double-tracked within the project time frame, so economic and financial analysis was done for the whole corridor. It may be noted that double track (dual gauge) from Akhaura to Laksam is ongoing through another ADB supported project which is expected to be completed in 2020.9 Benefits will increase once the entire corridor is double tracked.
Table A12.1.1: Dhaka-Chittagong Corridor Tongi- Dhaka- Meghna Ashuganj- Akhaura- Laksham- Chinkiastana- Year Track Bhairab Tongi Bridge Akhaura Laksham Chinkiastana Chittagong Bazar Length Baseline 23 64 4 29 71 61 69 km Double/ Baseline Single Double Single Single Double Single Single Double Track Length 2018 23 64 4 29 71 61 69 km Double/ 2018 Singe Double Double Double Double Single Double Double Track
D. Project Benefits and Revenues
8. The main economic benefits are generated by the project were quantified in terms of (i) railway operating cost savings arising from faster travel times for both goods and passenger services; (ii) savings in operating costs for both freight and passenger traffic arising from traffic diverted from road to rail made possible with the increase in rail capacity; (iii) savings in working capital loss for freight traffic arising from time savings including elimination of waiting times to get slots on railways for the goods being transported; and (iv) time savings for passengers arising from faster train travel times.
9. Railway operating costs were calculated for each ton-km for both, without and with the project cases. Factors included in the operating costs calculation include cost of documentation and other terminal services, marshalling yards, traction, track and signaling, general overhead expenses and central charges as allocated by BR. The operating cost savings resulted from faster travel times in the case of variable cost components as well as allocation of fixed overhead cost over a larger traffic volume in the case of overhead fixed costs. Rail operating costs savings were
7 BBS, Dhaka, Statistical Pocket Book, 2018 8 Ministry of Finance, Bangladesh Economic Review, 2018 9 ADB, Manila; Report and Recommendation of the President to the Board of Directors - South Asia Sub-regional Economic Cooperation Railway Connectivity: Akhaura–Laksam Double Track Project, Sept. 2014.
Appendix 12 63 calculated for the current traffic taking into account the difference in the two operating costs, Table 12.2 below shows the rail operating costs for both the cases with and without the project.
Table A12.1.2: Rail Operating Costs Estimates for BR (in traffic-unit km) Without Project With Project Without Project With Project Service Operating Costs Operating Costs Operating Costs Operating Costs (Baseline) (Baseline) (2018) (2018) Container Tk3.6 ton-km Tk2.1 ton-km Tk3.88 ton-km Tk2.66 ton-km Other Freight Tk3.2 ton-km Tk2.2 ton-km Tk3.45 ton-km Tk2.37 ton-km IC Passenger Tk0.44/pass-km Tk0.35/pass-km Tk0.42/pass-km Tk0.30/pass-km
10. The average operating speed at appraisal for freight trains was 12 kmph and for IC passenger trains 55 kmph. It was assumed that the average operating speed with the project will increase to 50 kmph for freight trains and 80 kmph for passenger trains. Now the average operating speed with the project has reached to 45 kmph for freight trains and 80 kmph for passenger trains. This means that there is a time saving of about 1 to 2 hours for existing passengers. It is assumed that the new passengers save an average of 1 to 2 hours if they undertake the journey by rail instead of road.
11. Vehicle operating cost (VOC) data, expressed in Tk/km, for medium truck and large bus (the two road vehicles directly competing with trains) were obtained from Road and Highways Department (RHD). At appraisal, it was assumed that each truck carries 14 tons and each bus carries 42 passengers to convert them to ton-km and passenger-km for freight and passenger road operating cost data. This analysis uses the same assumption, that each truck carries 14 tons and each bus carries 42 passengers. The value of passenger time was also obtained from RHD data. It is assumed that these are same for rail traffic. The road operating cost figures are shown in Table 12.3 below:
Table A12.1.3: Road Operating Costs Vehicle VOC (Tk/km) Assumed Load Road operating cost Value of time (per hr.) Type Truck 8.58 10 tons Tk0.858/ton-km Tk15.58 Large Bus 9.13 40 passengers Tk0.23/pass-km Tk14.00 per passenger Vehicle VOC (Tk/km) Actual Load Road operating cost Value of time (per hr.) Type 2018 (2018) (2018) 2018 Truck 23.81 14 tons Tk1.7/ton-km Tk10.9 Large Bus 31.13 42 passengers Tk0.74/pass-km Tk51.0 per passenger Source: Roads and Highways Department (RHD)
12. In the financial reevaluation, the incremental revenue was based on the passenger and freight revenue with and without the project. The tariff used for calculation of the FIRR is Tk 2.37/ ton-km for container freight, Tk3.45/ton-km for other freight and Tk0.30/pass-km for IC passengers. At appraisal these figures were Tk2.80/ton-km, Tk1.91/ton-km and Tk0.56/pass-km respectively. For the forward projection, it is assumed that there is no change in the tariff structure for either freight or passenger after February 2016. Thus, the financial reevaluation is on the conservative side.
13. At appraisal, growth rate of containers was assumed at 8% per annum and Tk514 million was calculated as the loss from demurrage based on 2009 figures. In this reevaluation, container growth rate was assumed based on the calculated growth rate for the years of 2015–2018 and
64 Appendix 12 same growth rate was used for the projection up to 2035. The projection of other freight traffic also used the same method. 10% growth rate is used for the purpose of projection. The Intercity Trains (IC) km for different years was used for the calculation of growth rate. It was seen that the historical growth rate of Intercity Train km is stagnant and decreasing from 6% to 5% for the years 1996–2018, because of limited track capacity and shortage of rolling stock. Therefore, this reevaluation used only 4% growth rate, conservatively, up to year 2035. Freight and passenger traffic projections. Freight and passenger traffic projections and benefits calculations are in Table 12.4, 12.5 and 12.6.
Sub-Project 1: Construction of Double Line Track from Tongi to Bhairab Bazar
Table A12.1.4 Freight and Passenger Traffic Projections Additional Additional Other Additional IC Container other IC Con Freight Mil Passenger Freight Freight mil Passenger Year Freight ton-km mil pass-km ton-km mill ton-km mill ton-km mill ton-km mill ton-km mil pass-km mil pass-km
2008 154 - 108 - 1,422 2009 157 - 178 - 1,479
2010 160 - 292 - 1,538
2011 186 - 342 - 1,600
2012 188 - 362 - 1,664
2013 190 - 384 - 1,713
2014 174 - 407 - 1,765
2015 178 - 431 - 1,818
2016 193 - 457 - 1,872
2017 185 - 485 - 1,928 2018 186 61 485 87 1,928 283 2019 205 66 534 96 2,024 297 2020 225 71 587 105 2,126 312 2021 248 77 646 116 2,211 324 2022 272 83 710 127 2,299 337 2023 300 90 781 140 2,391 351 2024 330 97 859 154 2,487 365 2025 362 105 945 170 2,586 380 2026 399 113 1,040 186 2,690 395 2027 439 122 1,144 205 2,797 411 2028 482 132 1,258 226 2,909 427 2029 521 142 1,384 248 3,025 444 2030 563 154 1,522 273 3,146 462 2031 608 166 1,674 300 3,272 480 2032 656 179 1,842 330 3,403 500 2033 709 194 2,026 363 3,539 520 2034 766 209 2,229 400 3,681 540 2035 827 226 2,451 440 3,828 562
Appendix 12 65
Table A12.1.5. With Project Freight Traffic Benefits Rail cost Rail cost Cost Cost Total cost Capital savings savings savings savings savings loss Year existing existing Diverted Diverted freight (Tk Container other freight Container other freight traffic million) Traffic traffic Traffic Traffic (Tk million) 2008
2009
2010
2011
2012 2013 61 83 - - - 144 2014 56 88 - - - 144 2015 57 93 - - - 150 2016 62 98 - - - 161 2017 60 104 - - - 164 2018 60 104 1,239 1,768 186 3,357 2019 66 115 1,339 1,944 203 3,666 2020 73 126 1,446 2,139 221 4,005 2021 80 139 1,561 2,353 242 4,374 2022 88 153 1,686 2,588 264 4,779 2023 97 168 1,821 2,847 288 5,221 2024 106 185 1,967 3,132 315 5,704 2025 117 204 2,124 3,445 344 6,233 2026 129 224 2,294 3,789 375 6,811 2027 142 246 2,478 4,168 410 7,444 2028 156 271 2,676 4,585 448 8,135 2029 168 298 2,890 5,043 489 8,889 2030 182 328 3,121 5,548 535 9,713 2031 196 361 3,371 6,102 585 10,614 2032 212 397 3,640 6,713 639 11,600 2033 229 436 1,504 2,825 10,672 15,668 2034 247 480 1,625 3,108 11,666 17,126 2035 267 528 1,755 3,419 12,752 18,721
66 Appendix 12
Table A12.1.6. With Project Passenger Traffic Savings
Rail cost Cost Time Cost Time Cost Total savings savings savings Savings Savings passenger Year existing Diverted Existing Diverted Traffic Passenger Passenger Passenger Passenger (Tk million) Traffic Traffic Traffic Traffic
2008 -
2009 -
2010 -
2011 -
2012 - 2013 206 - 394 0 599 2014 212 - 405 0 617 2015 218 - 418 0 636 2016 225 - 430 0 655 2017 231 - 443 0 674 2018 231 210 443 65 949 2019 243 220 465 68 996 2020 255 231 488 72 1,046 2021 265 241 508 75 1,088 2022 276 250 528 78 1,132 2023 287 260 549 81 1,177 2024 298 271 571 84 1,224 2025 310 281 594 87 1,273 2026 323 293 618 91 1,324 2027 336 304 642 94 1,377 2028 349 316 668 98 1,432 2029 363 329 695 102 1,489 2030 378 342 723 106 1,549 2031 393 356 752 110 1,611 2032 408 370 782 115 1,675 2033 425 77 276 41 818 2034 442 80 287 42 851 2035 459 83 299 44 885
E. Results of Economic Reevaluation
14. An economic reevaluation was carried out by comparing with and without the project options. Results for the Tongi-Bhairab Bazar subproject are in Tables A12.7 and A12.8 and the summary of economic analysis is in Table A12.9. For subproject 1, the EIRR is reevaluated at 20.6% and NPV at Tk16,559 million. This compares favorably with EIRR calculated for all subprojects together and found to be 16% at appraisal in 2006 and 20.5% at tranche 4 submission in 2016. The original appraisal document does not indicate NPV but the appraisal in 2016 indicated NPV at 12% discounted rate being Tk24,548 million. The reevaluation shows the investment was economically viable.
Appendix 12 67
Table A12.1.7: Base Case EIRR Calculations Year Construction Operation & Total cost savings Total cost savings Net Cash Cost Maintenance passenger traffic freight traffic Flow Cost (Tk million) (Tk million) 2008 236.14 (236.14)
2009 42.47 (42.47)
2010 29.53 (29.53)
2011 1,651.32 (1,651.32)
2012 2,092.34 (2,092.34)
2013 6,983.81 (6,983.81)
2014 5,265.27 (5,265.27)
2015 2,469.06 (2,469.06)
2016 1,612.03 (1,612.03)
2017 102 382 164 444
2018 105 446 4,151 4,492
2019 108 468 4,534 4,893
2020 111 491 4,951 5,331
2021 115 511 5,408 5,805
2022 118 532 5,908 6,281
2023 122 553 6,454 6,817
2024 125 575 7,051 7,462
2025 129 598 7,704 8,172
2026 133 622 8,418 8,759
2027 137 647 9,199 9,708
2028 141 673 10,053 10,583
2029 145 699 10,984 11,537
2030 150 727 12,003 12,576
2031 154 757 13,117 13,713
2032 159 787 14,335 14,962
2033 164 818 15,668 16,320
2034 169 851 17,126 17,807
2035 174 885 18,721 19,416 NPV = Tk15, 729 million EIRR = 19.9%
15. Results for other two subprojects on the Dhaka-Darsana-Ishurdi line for (i) upgrading signaling at 11 stations, and (ii) extension, rehabilitation and reconstruction of loop lines, considered together in Table 12.8 shows, the EIRR for the combined (subprojects 1 and 2) is 27.07% and NPV at Tk1,513 million.
68 Appendix 12
Table A12.1.8: Sub-Project 2 & 3: Upgrading of Signaling at 11 Stations between Ishurdi and Darsana and Extension, Rehabilitation and Reconstruction of Loops Line (Tk million) Year Capital Cost Annual Total ROC TTC of Total Cash Flow O&M Cost Cost Saved Train Benefit Passenger Saved 2012 2013 2014 2015 1040.2 1040.2 (1040.16) 2016 36.41 36.41 121.65 177.61 299.26 262.86 2017 37.13 37.13 124.08 181.17 305.25 268.12 2018 37.88 37.88 126.56 184.79 311.35 273.48 2019 38.63 38.63 129.10 188.49 317.58 278.95 2020 39.41 39.41 131.68 192.26 323.93 284.53 2021 40.19 40.19 134.31 196.10 330.41 290.22 2022 41.00 41.00 137.00 200.02 337.02 296.02 2023 41.82 41.82 139.74 204.02 343.76 301.94 2024 42.65 42.65 142.53 208.10 350.64 307.98 2025 43.51 43.51 145.38 212.27 357.65 314.14 2026 44.38 44.38 148.29 216.51 364.80 320.42 2027 45.27 45.27 151.26 220.84 372.10 326.83 2028 46.17 46.17 154.28 225.26 379.54 333.37 2029 47.09 47.09 157.37 229.76 387.13 340.04 2030 48.04 48.04 160.51 234.36 394.87 346.84 2031 49.00 49.00 163.72 239.05 402.77 353.77 2032 49.98 49.98 167.00 243.83 410.83 360.85 2033 50.98 50.98 170.34 248.70 419.04 368.07 2034 52.00 52.00 173.75 253.68 427.42 375.43 2035 53.04 53.04 177.22 258.75 435.97 382.94 2036 54.10 54.10 180.77 263.93 444.69 390.59 2037 0.00 55.18 55.18 184.38 269.20 453.58 398.41 NPV = Tk1,513 million EIRR = 27.07%
Table A12.1.9 Summary of Appraisal 2006/2011 Reappraisal Completion 2018 Economic Benefits 2016 of subproject 1 NPV EIRR NPV EIRR NPV EIRR (Tk (Tk (Tk million) (%) (%) (%) million) million) Investment subproject 1 4,476 16.0 24,548 20.5 15,729 19.9 Investment subproject 2 and 3 1,641 12.9/28.2* __ __ 1,513 27.07
*EIRR for loop lines and signaling subprojects (from 2011 subproject appraisal reports)
Appendix 12 69
16. A sensitivity analysis was carried out to test the impacts of (i) an increase in construction costs, (ii) a decrease in benefits and (iii) increase in O&M costs are presented in Table A12.10. According to this analysis, subproject 1 will remain economically viable with a 10% increase in costs (18.8%) and 10% decrease in benefits (18.7%). The other two subprojects remain economically viable.
Table A12.1.10: EIRR Values for Base Case and Sensitivity Analysis Cases
Scenarios EIRR a. Base Case 19.9% b. Sensitivity Tests 1. Construction Costs increased by 10% 18.8% 2. Benefits decreases by 10% 18.7% 3. O&M Costs increases by 10% 19.8%
F. Results of Financial Reevaluation
17. A financial reevaluation was carried out by comparing with and without the project. Results for Tongi-Bhairab Bazar subproject are summarized in Table A12.11. The reevaluated FIRR is 5.2% and NPV of Tk3,705 million. The financial reevaluation was done for a period of 20 years from the project completion (Table A12.12). The WACC of the project is calculated at 3.59% (Table A12.13). The recalculated FIRR is lower than at the appraisal of 14.0%. The FIRR at reappraisal and tranche 4 was 8.5% and WACC was 2.8%. The FIRR of 5.2% at completion, higher than the WACC of 3.59% confirms the investment was financially viable.
Table A12.1.11. Summary of Financial Benefits
Appraisal 2006/2011 Reappraisal 2016 Completion of subproject 1 NPV FIRR NPV FIRR NPV FIRR (Tk million) (%) (Tk (%) (Tk (%) million) million) Investment subproject 1 - 14.0 10,357 8.5 3,705 5.2 Investment subprojects 2 and 3 880.6 11.2/5.3* - - - *FIRR for loop lines and signaling subprojects (from 2011 subproject appraisal reports)
18. A sensitivity analysis was carried out to test the impact of variations in project revenues, O&M costs and capital investment. The tests with adverse changes all yielded FIRR higher or equal to WACC. FIRR for the signaling and loop line subprojects were not calculated. These subprojects improved the safety and punctuality. As such, it is not possible to attribute their benefits in monetary terms.
70 Appendix 12
Table A12.1.12: FIRR Base Case for Tongi - Bhairab Bazar Subprojects (Tk million) Year Construction O&M Cost Additional Con Additional Additional Net Cash Cost Freight other Freight IC Flow Revenue Revenue Passenger Revenue 2008 295.17 (295)
2009 53.09 (53)
2010 36.92 (37)
2011 2,064.15 (2,064)
2012 2,615.42 (2,615)
2013 8,729.76 (8,730)
2014 6,581.59 (6,582)
2015 3,086.32 (3,086)
2016 1,952.66 (1,953)
2017 127.54 363.50 461.10 340.84 1,038
2018 131.37 392.58 507.21 354.48 1,123
2019 135.31 423.98 557.94 368.65 1,215
2020 139.37 457.90 613.73 383.40 1,316
2021 143.55 494.53 675.10 398.74 1,425
2022 147.85 534.09 742.61 414.69 1,544
2023 152.29 576.82 816.87 431.27 1,673
2024 156.86 622.97 898.56 448.52 1,813
2025 161.56 672.80 988.42 466.47 1,966
2026 166.41 726.63 1087.26 485.12 2,133
2027 171.40 799.29 1195.98 504.53 2,328
2028 176.55 879.22 1315.58 554.98 2,561
2029 181.84 967.14 1447.14 610.48 2,817
2030 187.30 1063.86 1591.85 671.53 3,099
2031 192.92 1170.24 1751.04 738.68 3,409
2032 198.70 1287.27 1926.14 812.55 3,750
2033 204.66 1415.99 2118.76 893.80 4,125
2034 210.80 1557.59 2330.63 983.19 4,537
2035 217.13 1713.35 2563.70 1081.50 4,991 Net Present Value at WACC = Tk3,705 million FIRR = 5.2% Table A12.1.13: Weight Average Cost of Capital (WACC) ADB Loan Government Funds Total A. Amount ($ million) 245.3 28.7 274.0 B. Weighting 90% 10% 100% C. Nominal Cost 5.5% 12.2% D. Tax rate 0 0 E. Tax-adjusted nominal cost (Cx(1-D)) 5.5% 12.2% F. Inflation rate 1.9% 7.80% G. Real Cost [(1+E)/(1+F)-1 3.5% 4.1% H. Weighted WACC component 3.16% 0.43% 3.59% Weight Average Cost of Capital (Real) 3.59%
Appendix 12 71
12. 2 FOR TRANCHE 3
A. Introduction
1. Bangladesh Railway (BR) has procured 50 broad gauge and 100 meter gauge Carriages under Tranche 3 (Loan 3097-BAN) of Bangladesh Railway Sector Investment Program in 2016, which is one of the subprojects under the MFF. With the new carriages, the subproject has contributed to the overall program objective to improve the efficiency of the BR system, by providing modern, safe and improved quality passenger carriages. BR has increased Intercity Trains, for instance, Sonarbangla Express (Dhaka-Chittagong), Bijoy Express (Chittagong- Mymensingh), Kishoreganj Express (Dhaka-Kishoreganj) and replacement of old coaches in the broad gauge section.
2. The appraisal of the subproject (2016) assumed that the deployment of new carriages would mainly be allocated to critical corridor such as Dhaka-Chittagong IC trains on a preferential basis, in addition to the existing carriages operated on the system. Once the new carriages are put into operation, some of the existing carriages may be transferred to the other parts of the system, provided that its bogies are compatible with the track gauge. In general, BR performs first overhaul of passenger carriages after 12 years and after second overhaul, the carriages transfer to the branch lines, where train speed is equal or less than 50km/hour.10
3. Bangladesh Railway (BR) is serving both as a commercial enterprise and as a public utility service provider. As a public utility service provider, BR has special responsibility to operate specific services which are not commercially viable but socially necessary. For instance, BR has to bear certain cost burdens namely ‘Social Cost’ including i) carrying essential commodities and rendering transport facilities to passengers at lower prices than cost of services, ii) operation of un-economic branch lines, iii) carrying relief materials at concessional rates, and iv) carrying military traffic at less than normal tariff. BR is compensated under “Public Service Obligation” system and has been able to cover its operating expenses by government support.
B. Methodology
4. The economic and financial reevaluation closely follows the methodology used in the economic and financial analysis at appraisal but takes actual cost. The economic analyses compare the benefits and costs of with- and without-project situations to estimate the economic internal rate of return (EIRR) and net present value (NPV) at a discount rate of 12%. Bangladesh taka (Tk) is used as the currency unit of such analyses. The Standard Conversion Factor (SCF) of 0.80 is applied to adjust the financial cost and benefit into corresponding economic values at world price numeraire of all goods in the economy. The analysis period is 20 years for this subproject. The economic and financial analysis both are undertaken in constant 2017 price levels.
5. The financial analysis has taken the actual cost incurred and benefits streams which obtained from intercity (IC) trains’ fare per km/passenger from Information Book.11 The analysis considers the criterion rate of return is the weighted average cost of capital (WACC). The analysis is conducted for two cases; wit-support and without-support scenarios. Bangladesh taka is used as currency unit of the analyses. The analysis period is 20 years. The followings are the basis data, assumptions and sources for the calculation.
10 BR, Chittagong, Working Time Table No.-51, 2017 11 BR, Dhaka, Information Book, 2017
72 Appendix 12
• Average number of passenger per vehicle for meter gauge is 35 and broad gauge is 42.3 (source: BR, Information Book, 2017, Table 51 & 52) • Average number of vehicle per train for meter gauge is 30.5 and broad gauge is 22.3 (source: BR, Information Book, 2017, Table 42) • Train occupancy for meter gauge is 1068 and for broad gauge is 942 • Train operation days 330 in a year (source: appraisal report, 2016) • Average lead of a passenger km for intercity (IC) train is 267.9 • 100 meter gauge carriages and 50 broad gauge carriages is equivalent to 6 meter gauge and 4 broad gauge train respectively (calculation made from number of carriages per IC train) • Train speed with new carriages is more than 80 km/hr and after second overhauling i.e. after 20 years, restriction of train speed up to 50 km/hr and transfer to branch lines, which made passenger saving is 0.38 minutes per passenger • Train km for meter gauge is 260 and for broad gauge is 272 (source: BR, Dhaka, Information Book, 2017, Table 33 & 34) • Running cost of provision & maintenance of carrying unit per engine km excluding overhead is Tk80.41 and running cost of provision & maintenance of carrying unit per vehicle km is Tk3.80 for meter gauge, Page-23, and Running cost of provision & maintenance of carrying unit per engine km excluding overhead is Tk158.64 and running cost of provision & maintenance of carrying unit per vehicle km is Tk8.20 for broad gauge, Page-33,. (source: BR, Dhaka, Railway Costing Profile, 2016–2017) • Large Bus Vehicle Operating Cost (VOC) per km is Tk32.51 and Bus occupancy is 42 passengers, which is 1 train equivalent to 25 large buses (source: Bangladesh Road Research Laboratory (BRRL), RHD, Dhaka, Road User Cost during the year 2016–2017) • Travel Time Cost (TTC) of IC passenger is Tk67.72/hr (Bangladesh Road Research Laboratory (BRRL), RHD, Dhaka, Road User Cost during the year 2016–2017 and TSC Wing, Planning Commission, Dhaka, Draft Appraisal Framework, Railway Sector Manual, 2011) • Total passenger km is 10,041 million (source: BR, Information Mirror-2017) and project carriages passenger km 888 million (calculated). • Total support is Tk1,414 million (public service obligation compensation is Tk860 million and welfare grant is Tk554 million), of which share for the new carriages is Tk125.05 million (calculated based on passenger km) • Diesel price Tk49.85/liter (source: source: BR, Information Book, 2017, Table 59)
C. Evaluation of Project Costs
6. The financial costs of procurement of 50 broad gauge and 100 meter gauge carriage is $72.39 million (Tk6,073.52 million) including import and testing. In addition, operation and maintenance costs include coach operation & maintenance, locomotive fuel and maintenance of PW, which is a total of Tk210.56 per year with the increase of 1.5% yearly. In addition, the economic and financial costs are undertaken constant prices to 2017 prices12. Conversion of historic costs from $ to Tk13 is based on the actual exchange rate by year to year.
D. Evaluation of Project Benefits and Revenues
12 BBS, Dhaka, Statistical Pocket Book, 2018 13 Ministry of Finance, Dhaka, Bangladesh Economic Review, 2018
Appendix 12 73
7. Benefits14 and Revenues. By comparing the with-project and without-project situations, the economic analysis has estimated the following categories of benefits related to the subproject as appraisal in 2016. 1) Generalized cost. A passenger’s perceived cost of travel, or the generalized cost affects. The generalized cost includes the fare, travel time, accident risk, level of service such as comfort, and ability to travel at passenger’s preferred time. By the addition of modern and safe carriages, generalized cost of rail travel for normal passengers, those who are already traveling or would travel in the future in the without-project case, have decreased. However, the analysis considers only time savings from the difference between running speed of old carriage, 50 km/hr. and new carriage, 80 km/hr. 2) Saving in bus operating costs. It is calculated that the 250 large buses passenger are switched from bus to train because of present road congestion. Therefore, only large bus operating costs are added in the benefits stream along with time savings of passengers. 3) The revenue earning has considered only ticket sales from additional carriages.
E. Results and Economic Reevaluation
8. Economic Analysis. The results of economic analysis are in Table 1. It is estimated the EIRR is 26.2%, and the NPV of the subproject at 12% discount rate is Tk3,874 million.
Table A12.2.1: Summary of Economic Results Results NPV EIRR (Tk in million) (%) Appraisal 2016 10,105 31.9 Completion 2018 3,874 26.2
9. Sensitivity Analysis. The results of sensitivity analysis are in Table 2. The EIRRs of all scenarios are higher than 12%, which indicates that the procurement of carriages is well described and benefited to the railway sub-sector and BR can procure more carriages to increase revenues and reduction of road congestions.
Table A12.2.2: EIRR Values for Base Case and Sensitivity Analysis Cases Scenario EIRR Base Case 26.2%
Sensitivity Tests 1. Construction Costs 10% Higher 23.6% 2. Benefits 10% Lower 22.6% 3. O&M Costs 10% Higher 25.5%
F. Results and Financial Reevaluation
10. Financial analysis is conducted for two cases; with-support and without-support scenarios. It is estimated the FIRR with-support is about 6.8%, and the Financial Net Present Value (FNPV) of the subproject at 3.59% discount rate is Tk1,558.00 million. FIRR without-support is about 3.5%, indicating that the revenue from passenger does not cover the operation and maintenance expense. The results of financial analysis are in Table 3.
14 Incremental benefit is based on the additional passenger travel generated by the project. Additional passenger travel is calculated as the sum product of train occupancies and number of days in operation, and km per day.
74 Appendix 12
Table A12.2.3: Summary of Financial Results Results Without Support With Support NPV FIRR NPV FIRR (Tk in million) (%) (Tk in million) (%) Appraisal 2016 - - 9.5 3,525.0 3.9 Completion 2018 (22.44) 3.5 1,558.0 6.8
11. Sensitivity Analysis. The results of sensitivity analysis are in Table 4. The FIRRs for with- support scenario of all cases are higher than WACC (3.59%).
Table A12.2.4: EIRR Values for Base Case and Sensitivity Analysis Cases Scenario FIRR Base Case 6.8%
Sensitivity Tests 1. Construction Costs 10% Higher 5.5% 2. Benefits 10% Lower 4.5% 3. O&M Costs 10% Higher 5.7%
12. Tables of Economic Analysis Table A12.2.5: Investment and Maintenance Cost (Tk in million) of Meter Gauge Carriage Year Capital Cost of Coach Loco Locomotive Maintenance Total Carriages O&M O&M Fuel of PW
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 3,169.8 3,169.80
2018 26.10 33.12 10.27 79.04 148.53
2019 26.50 33.62 10.42 80.23 150.76
2020 26.89 34.12 10.58 81.43 153.02
2021 27.30 34.63 10.73 82.65 155.31
2022 27.71 35.15 10.90 83.89 157.64
2023 28.12 35.68 11.06 85.15 160.01
2024 28.54 36.21 11.22 86.43 162.41
2025 28.97 36.76 11.39 87.72 164.84
2026 29.41 37.31 11.56 89.04 167.31
2027 29.85 37.87 11.74 90.37 169.82
2028 30.29 38.44 11.91 91.73 172.37
Appendix 12 75
Year Capital Cost of Coach Loco Locomotive Maintenance Total Carriages O&M O&M Fuel of PW
2029 30.75 39.01 12.09 93.11 174.96
2030 31.21 39.60 12.27 94.50 177.58
2031 31.68 40.19 12.46 95.92 180.25
2032 32.15 40.79 12.64 97.36 182.95
2033 32.64 41.41 12.83 98.82 185.69
2034 33.13 42.03 13.03 100.30 188.48
2035 33.62 42.66 13.22 101.81 191.31
Table A12.2.6: Investment and Maintenance Cost (Tk in million) of Broad Gauge Carriage Year Capital Cost of Coach O&M Loco O&M Locomotive Maintenance Total Carriage Fuel of PW
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 1,584.9 1,584.90
2018 29.45 45.57 10.74 82.69 168.45
2019 29.90 46.25 10.90 83.93 170.97
2020 30.34 46.94 11.06 85.19 173.54
2021 30.80 47.65 11.23 86.47 176.14
2022 31.26 48.36 11.40 87.76 178.78
2023 31.73 49.09 11.57 89.08 181.47
2024 32.21 49.83 11.74 90.41 184.19
2025 32.69 50.57 11.92 91.77 186.95
2026 33.18 51.33 12.10 93.15 189.76
2027 33.68 52.10 12.28 94.54 192.60
2028 34.18 52.88 12.46 95.96 195.49
2029 34.69 53.68 12.65 97.40 198.42
2030 35.22 54.48 12.84 98.86 201.40
2031 35.74 55.30 13.03 100.35 204.42
2032 36.28 56.13 13.23 101.85 207.49
2033 36.82 56.97 13.43 103.38 210.60
2034 37.38 57.82 13.63 104.93 213.76
2035 37.94 58.69 13.83 106.50 216.96 Table A12.2.7: Cost Savings (Tk in million) of Meter Gauge Carriage
76 Appendix 12
Year Generalized Cost Saving Bus O&M Cost Saving Total Cost Saving 2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 2018 716.02 334.72 1,050.74 2019 716.02 334.72 1,050.74 2020 716.02 334.72 1,050.74 2021 716.02 334.72 1,050.74 2022 716.02 334.72 1,050.74 2023 716.02 334.72 1,050.74 2024 716.02 334.72 1,050.74 2025 716.02 334.72 1,050.74 2026 716.02 334.72 1,050.74 2027 716.02 334.72 1,050.74 2028 716.02 334.72 1,050.74 2029 716.02 334.72 1,050.74 2030 716.02 334.72 1,050.74 2031 716.02 334.72 1,050.74 2032 716.02 334.72 1,050.74 2033 716.02 334.72 1,050.74 2034 716.02 334.72 1,050.74 2035 716.02 334.72 1,050.74
Table A12.2.8: Cost Savings (Tk in million) of Broad Gauge Carriage Year Generalized Cost Saving Bus O&M Cost Saving Total Cost Saving
2008
2009
2010
2011
2012
2013
2014
2015
2016
Appendix 12 77
2017 2018 315.77 233.45 549.22 2019 315.77 233.45 549.22 2020 315.77 233.45 549.22 2021 315.77 233.45 549.22 2022 315.77 233.45 549.22 2023 315.77 233.45 549.22 2024 315.77 233.45 549.22 2025 315.77 233.45 549.22 2026 315.77 233.45 549.22 2027 315.77 233.45 549.22 2028 315.77 233.45 549.22 2029 315.77 233.45 549.22 2030 315.77 233.45 549.22 2031 315.77 233.45 549.22 2032 315.77 233.45 549.22 2033 315.77 233.45 549.22 2034 315.77 233.45 549.22 2035 315.77 233.45 549.22
Table A12.2.9: Economic Analysis Results Year Investment, O&M Costs Total Cost Savings Cash Flow
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 4,754.63 (4,754.63) 2018 316.98 1,599.96 1,282.98 2019 321.73 1,599.96 1,278.23 2020 326.56 1,599.96 1,273.40 2021 331.45 1,599.96 1,268.51 2022 336.43 1,599.96 1,263.53 2023 341.47 1,599.96 1,258.49 2024 346.59 1,599.96 1,253.36 2025 351.79 1,599.96 1,248.17 2026 357.07 1,599.96 1,242.89
78 Appendix 12
2027 362.43 1,599.96 1,237.53 2028 367.86 1,599.96 1,232.10 2029 373.38 1,599.96 1,226.58 2030 378.98 1,599.96 1,220.98 2031 384.67 1,599.96 1,215.29 2032 390.44 1,599.96 1,209.52 2033 396.29 1,599.96 1,203.67 2034 402.24 1,599.96 1,197.72 2035 408.27 1,599.96 1,191.69
NPV = Tk3,874 million EIRR = 26.2%
B. Tables of Financial Analysis Table A12.2.10: Investment and Maintenance Cost (Tk in million) of Meter Gauge Year Capital Cost of Coach O&M Loco O&M Locomotive Maintenance Total Carriage Fuel of PW
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 3,962.19 3,962.19
2018 32.63 41.40 12.83 98.80 185.66
2019 33.12 42.02 13.02 100.28 188.44
2020 33.62 42.65 13.22 101.79 191.27
2021 34.12 43.29 13.42 103.31 194.14
2022 34.63 43.94 13.62 104.86 197.05
2023 35.15 44.60 13.82 106.44 200.01
2024 35.68 45.27 14.03 108.03 203.01
2025 36.21 45.95 14.24 109.65 206.05
2026 36.76 46.63 14.45 111.30 209.14
2027 37.31 47.33 14.67 112.97 212.28
2028 37.87 48.04 14.89 114.66 215.46
2029 38.44 48.76 15.11 116.38 218.70
2030 39.01 49.50 15.34 118.13 221.98
2031 39.60 50.24 15.57 119.90 225.31
Appendix 12 79
2032 40.19 50.99 15.81 121.70 228.69
2033 40.79 51.76 16.04 123.52 232.12
2034 41.41 52.53 16.28 125.38 235.60
2035 42.03 53.32 16.53 127.26 239.13
Table A12.2.11: Investment and Maintenance Cost (Tk in million) of Broad Gauge Year Capital Cost Coach O&M Loco O&M Locomotive Maintenance Total of Carriage Fuel of PW
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 1,981.09 1,981.09
2018 36.82 56.96 13.42 103.36 210.56
2019 37.37 57.81 13.62 104.91 213.72
2020 37.93 58.68 13.83 106.48 216.92
2021 38.50 59.56 14.04 108.08 220.18
2022 39.08 60.45 14.25 109.70 223.48
2023 39.66 61.36 14.46 111.35 226.83
2024 40.26 62.28 14.68 113.02 230.24
2025 40.86 63.22 14.90 114.71 233.69
2026 41.47 64.16 15.12 116.43 237.19
2027 42.10 65.13 15.35 118.18 240.75
2028 42.73 66.10 15.58 119.95 244.36
2029 43.37 67.10 15.81 121.75 248.03
2030 44.02 68.10 16.05 123.58 251.75
2031 44.68 69.12 16.29 125.43 255.53
2032 45.35 70.16 16.53 127.31 259.36
2033 46.03 71.21 16.78 129.22 263.25
2034 46.72 72.28 17.03 131.16 267.20
2035 47.42 73.37 17.29 133.13 271.21
80 Appendix 12
Table A12.2.12: Revenue from New Passenger (Tk in million) of Meter Gauge & Broad Gauge Year Capital, O&M Revenue Revenue Total Ticket Cash Flow Cash Flow Cost from MG from BG Sale Revenue without with Support Support 2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 5,943.28 (5,943.28) (5,943.28) 2018 396.22 555.30 341.60 896.90 500.68 625.74 2019 402.16 555.30 341.60 896.90 494.74 619.79 2020 408.19 555.30 341.60 896.90 488.71 613.76 2021 414.32 555.30 341.60 896.90 482.58 607.64 2022 420.53 555.30 341.60 896.90 476.37 601.42 2023 426.84 555.30 341.60 896.90 470.06 595.12 2024 433.24 555.30 341.60 896.90 463.66 588.71 2025 439.74 555.30 341.60 896.90 457.16 582.21 2026 446.34 555.30 341.60 896.90 450.56 575.62 2027 453.03 555.30 341.60 896.90 443.87 568.92 2028 459.83 555.30 341.60 896.90 437.07 562.13 2029 466.73 555.30 341.60 896.90 430.18 555.23 2030 473.73 555.30 341.60 896.90 423.18 548.23 2031 480.83 555.30 341.60 896.90 416.07 541.12 2032 488.05 555.30 341.60 896.90 408.86 533.91 2033 495.37 555.30 341.60 896.90 401.54 526.59 2034 502.80 555.30 341.60 896.90 394.11 519.16 2035 510.34 555.30 341.60 896.90 386.56 511.62
Without With Support Support NPV= (Tk22.44) Tk1,558.00 FIRR= 3.5% 6.8%
Appendix 12 81
12.3 FOR ALL TRANCHES
A. Introduction
1. This economic and financial reevaluation has been undertaken for all tranches investment combined following the ADB’s guidelines on economic analysis of investment projects and financial management and analysis.15,16.The Multi-Tranche Financing Facility (MFF) for the Bangladesh Railway Sector Investment Program was designed to have a combination of reforms and investment (civil works). It is composed of 5 loans, spread over 4 tranches (Tranche 1 - Loan 2316 and Loan 2317, Tranche 2 - Loan 2845, Tranche 3 - Loan 3097 and Tranche 4 - Loan 3376). Loan approvals were linked to achievement of specific reform actions. The components of the MFF were: i) Tranche 1 - Construction of double line between Tongi-Bhairab Bazar section, ii) Tranche 2 - Construction of Tongi-Bhairab Bazar double track (90% of the Tranche amount) and upgrading of Signaling at 11 stations between Ishurdi and Darsana, iii) Tranche 3 - Procurement of 50 nos of broad gauge and 100 nos of meter gauge passenger carriages, and iv) Tranche 4 - Construction of Tongi- Bhairab Bazar double track and extension, rehabilitation and reconstruction of loop lines and Darsana-Ishurdi-Sirajganj Bazar broad gauge section. It could be noted that the economic reevaluation has been undertaken for Tranche 1, Tranche 2 and Tranche 4 investments combined, as all these investments complement each other. Economic and Financial analyses of Tranche 3 have been undertaken separately. These analyses have been made all four tranches combined.
B. Methodology
2. The assumption for i) duration of analysis period, ii) capital and maintenance costs, iii) benefits, and iv) revenues forecasts, in this economic and financial analyses for all four tranches combined are made based on the forecasts operation cost, demand for passenger and freights, and benefits from the investments of Tranches 1, 2 and 4 combined, and the Tranche 3.
C. Results of Economic Reevaluation
3. The results of economic analysis of Multi-Tranche Financing Facility (MFF) are in Table 1 and the sensitivity analysis is in Table 2. It is found that the EIRR is 18.7%, and the NPV at 12% discount rate is Tk10,565.58 million. The EIRRs of all scenarios are higher than 12%, which indicates the MFF is well designed to tolerate uncertainties during operation. The investment was economically robust.
15 ADB. 2017. Guidelines for the Economic Analysis of Projects. Manila 16 ADB. 2005. Financial Management and Analysis of Projects. Manila
82 Appendix 12
Table A12.3.1: Combined Economic Analysis of All Tranches combined Year Capital Cost of all O&M of all Benefits of All Cash Flow Tranches Tranches Tranches Analysis 2008 236 0 - (236) 2009 42 0 - (42) 2010 30 0 - (30) 2011 1,651 0 - (1,651) 2012 2,092 0 - (2,092) 2013 6,984 0 - (6,984) 2014 5,265 0 - (5,265) 2015 3,509 0 - (3,509) 2016 1,612 36 299 (1,349) 2017 4,859 139 851 (4,147) 2018 - 460 6,508 6,049 2019 - 469 6,919 6,451 2020 - 477 7,367 6,889 2021 - 486 7,850 7,363 2022 - 496 8,376 7,881 2023 - 505 8,950 8,445 2024 - 515 9,576 9,062 2025 - 525 10,259 9,735 2026 - 535 11,004 10,470 2027 - 545 11,818 11,273 2028 - 555 12,705 12,150 2029 - 566 13,671 13,105 2030 - 577 14,725 14,148 2031 - 588 15,876 15,288 2032 - 599 17,133 16,533 2033 - 611 18,505 17,894 2034 - 623 20,004 19,381 2035 - 635 21,642 21,007
NPV = Tk10,565.58 EIRR = 18.7%
Table A12.3.2: EIRR for Base Case and Sensitivity Analysis for all Tranches combined Scenario EIRR Base Case 18.7%
Sensitivity Tests 1. Construction Costs 10% Higher 17.6% 2. Benefits 10% Lower 17.4% 3. O&M Costs 10% Higher 18.6%
Appendix 12 83
D. Results of Financial Reevaluation 4. The financial analysis of the MFF combined shows that the FIRR is 4.2%, and the WACC at 3.58%. The Net Present Value at Net at the discount rate of 3.58% is Tk2,058.70. The results of FIRR, NPV, Sensitivity, and WACC are shown in the following tables Table 3, Table 4 and Table 5. The MFF investment was robust and sustainable as the FIRR is higher than the WACC. However, the sensitivity analysis shows, the MFF is sensitive to the variation in the construction cost and project benefits. At 10% higher construction cost and 10% lower benefits, the FIRR become lower than the WACC. Whereas, 10% additional O&M the FIRR remains higher than the WACC, and hence no adverse effect on the project financial returns.
Table A12.3.3: Combined Financial Analysis of All Tranches combined Year Capital Cost of all O&M of all Revenue of All Cash Flow Tranches Tranches Tranches Analysis 2008 295 0 - (295) 2009 53 0 - (53) 2010 37 0 - (37) 2011 2,064 0 - (2,064) 2012 2,615 0 - (2,615) 2013 8,730 0 - (8,730) 2014 6,582 0 - (6,582) 2015 4,126 0 - (4,126) 2016 1,953 36 - (1,989) 2017 6,074 165 1,165 (5,073) 2018 - 565 2,276 1,711 2019 - 576 2,373 1,796 2020 - 587 2,477 1,890 2021 - 598 2,590 1,992 2022 - 609 2,713 2,104 2023 - 621 2,847 2,226 2024 - 633 2,992 2,359 2025 - 645 3,150 2,505 2026 - 657 3,321 2,664 2027 - 670 3,522 2,852 2028 - 683 3,772 3,089 2029 - 696 4,047 3,351 2030 - 709 4,349 3,640 2031 - 723 4,682 3,959 2032 - 737 5,048 4,311 2033 - 751 5,451 4,700 2034 - 766 5,893 5,128 2035 - 781 6,381 5,600 NPV = Tk2,058.70 FIRR = 4.2%
84 Appendix 12
Table A12.3.4: FIRR for Base Case and Sensitivity Analysis for all Tranches combined Scenario FIRR Base Case 4.2%
Sensitivity Tests 1. Construction Costs 10% Higher 3.4% 2. Benefits 10% Lower 3.2% 3. O&M Costs 10% Higher 4.0%
Table A12.3.5: Weight Average Cost of Capital (WACC) for all tranches combined Government ADB Loan Funds Total A. Amount ($ million) 331.2 28.7 359.9 B. Weighting 92% 8% 100% C. Nominal Cost 5.5% 12.2% D. Tax rate 0 0 E. Tax-adjusted nominal cost (Cx(1-D)) 5.5% 12.2% F. Inflation rate 1.9% 7.80% G. Real Cost [(1+E)/(1+F)-1 3.5% 4.1% H. Weighted WACC component 3.25% 0.33% 3.58% Weight Average Cost of Capital (Real) 3.58%
Appendix 13 85
FINANCIAL PERFORMANCE OF BANGLADESH RAILWAY AND KEY INDICATORS1
1. Operating ratio. The operating ratio (operation expenses divided by operation revenues) has not improved in parallel mainly due to (i) the freezing of passenger and freight tariffs by the government since 1992 until 2012, and (ii) the fact that Bangladesh Railway has been operating beyond the theoretical operating capacity especially in the Dhaka–Chattogram corridor, where additional revenue can be earned through increased freight train operation. As shown in Table 1, the operating ratio with support reached 196% in FY2017. This has recovered from a weaker operating ratio in FY2016, which was due to increase in remuneration of all government officials.2 The drastic improvement in operating ratio was observed in FY2013, from 216% in FY2012 to 168% in FY2013, after an increase in tariff was approved by the government in October 2012. This adjustment of passenger and freight tariffs was the first since 1992. Furthermore, under the tariff reform approved in February 2016, a tariff adjustment formula was approved by the Prime Minister to compensate for increased cost, such as fuel prices and staff, repair, and maintenance expenses. This was to ensure that the operating ratio would remain at least at the current level without further deteriorating the financial performance of Bangladesh Railway due to inflation.
2. Steady improvement of the operating ratio is expected from investments in lucrative business opportunities such as luxury passenger train services and container transportation. Once the ongoing double tracking in the Dhaka–Chattogram corridor and the new lines in the Chattogram–Cox’s Bazar corridor are completed, additional passenger and freight trains with more reliable schedules can be introduced in the Dhaka–Chattogram–Cox’s Bazar and Dhaka– Khulna corridors with required new rolling stock. These additional services will generate increased revenue and improve the operating ratio. It has been assessed that container trains and intercity trains are operating with a net profit.
3. Financial performance. Bangladesh Railway is financed by budgetary support. The government has provided adequate budgetary support to sustain operations in light of the systemic importance of the railway network. The budgetary support to cover the full operating expenditures of Bangladesh Railway is provided as a separate budget item (non-development budget), in addition to budgetary support for development projects (development budget) financed by the Government of Bangladesh and the partial financial support from development partners. The budgetary support provided to the Ministry of Railways covered 113% of the operating expenditure for Bangladesh Railway in FY2014, 109% in FY2015, and 123% in FY2016.
1 Source: LD 13 of PFR for SASEC Chittagong – Cox’s Bazar Railway Project, Tranche 2. 2 If there had been no salary increase, the operating ratio without subsidy in FY2017 would be 1.89, which is the lowest in the last 6 years.
86 Appendix 13
Table A13.1: Key Ratios for Bangladesh Railway Bangladesh Railway Summary Sheet Unit 2012 2013 2014 2015 2016 2017 2018
Financial Performance Revenue without PSO compensation Tk million 6,034 8,043 8,002 9,354 9,040 13,037 14,8861.59 Revenue with PSO and welfare grant Tk million 7,264 9,293 9,221 10,608 10,273 14,452 16,378.50 Operating expenses Tk million (15,571) (15,524) 16,017 18,083 22,292 28,355 29,180.27 Net operating deficit Tk million (8,406) (7,581) (8,015) (8,728) (13,252) (15,317) (14318.68) Ministry of Railways Budget Tk million Non-development budget n.a. 15,900 18,158 19,773 27,474 29,378 31,654 Ratio of nondevelopment budget n.a. to operating expenses % 102 113 109 123 103 102
Development budget Tk million n.a. 33,100 35,487 34,500 46,296 91,150 20,616 Total budget of Ministry of Railways Tk million n.a. 49,000 53,645 54,273 73,770 120,528
Financial Ratios 196.30 Operating ratio – without support 260 194 200 193 246 217 Operating ratio – with support 216 168 174 170 217 196 178.20
Performance Ratios
Services: Passengers carried million 66.14 62.6 65 67.34 70.83 77.8 90.0 Passenger-kilometers million 8,787 8,253 8,135 8,711 9,167 10,041 12933.91 Tons carried million 2.19 2.01 2.52 2.55 2.48 3.87 4.55 Ton-kilometers million 582 525 677 694 675 1,053 1236.50 Casualties of passenger per million passenger originating 0 0 0 0.1 0.5 0.1 .52
Coaching vehicles: Broad-gauge passenger coaches 312 312 312 312 335 425 416 Meter-gauge passenger coaches 1,144 1,160 1,164 1164 883 883 1129 Total system passenger coaches 1,456 1,472 1,476 1476 1,218 1,308 1545
Rates and lead: Revenue per passenger Tk 53.06 79.11 75.14 77.5 75.6 91.9 100.50 Revenue per passenger-kilometer Poisha 38.55 57.91 57.84 57.9 59.4 79.3 69.67 Revenue per ton Tk 438.47 543.84 565 680.7 691.2 681.3 627.90 Revenue per ton-kilometer Poisha 158.8 200.3 202.5 238.3 242.1 362.0 237.97 Average number of kilometers a passenger travelled km 132.9 131.8 125.2 129.4 129.4 129.0 144.30
Appendix 13 87
Bangladesh Railway Summary Sheet Unit 2012 2013 2014 2015 2016 2017 2018 Average number of kilometers a ton of goods travelled km 265.6 261.3 268.4 271.6 271.6 271.5 271.50
Container services: Chattogram Port to Dhaka Inland Container Depot Tons thousand 360 352 350 355 372 356 473 Dhaka Inland Container Depot to Chattogram Port Tons thousand 224 219 217 225 231 221 293 Total container services Tons thousand 584 571 567 580 603 577 766
Employees: Number of employees 26,458 25,939 25,535 27,620 25,782 25,226 25,823 Cost of employees Tk million 5,559.2 6,442.30 5,472.00 5,694.00 6,119.00 9,786.13 10,727.88 ( ) = negative, Tk = taka, n.a. = not applicable, PSO = public service obligation. Notes: 1. Operating ratio equals operating expenses divided by revenues. Poisha is equivalent to 1/100 of a Bangladesh taka. 2. Prior to fiscal year 2013, Bangladesh Railway was a department under the Ministry of Communications. Sources: Government of Bangladesh, Bangladesh Railway, and Ministry of Finance.
Table A13.2: Bangladesh Railway’s Financial Performance Item Unit FY2014 FY2015 FY2016 FY2017 Financial Performance Total operating revenues Tk million 8,002 9,354 9,040 12,038 Total operating expenses Tk million 16,017 18,083 22,292 28,355 Net operating deficit Tk million (8,015) (8,728) (13,252) (15,317) Budget allocation from GOB Non-development Budget Tk million 18,158 19,773 27,474 29,378 Actual expenditure Tk million 16,017 18,083 22,292 28,355 Budget ratio to operating expenses % 113 109 123 103 Development Budget Tk million 36,687 34,500 46,296 91,150 Actual expenditure Tk million 35,338 34,323 42,203 60,800 Total Ministry Budget Tk million 53,645 54,273 73,770 120,528 FY = financial year, GOB = Government of Bangladesh, Tk = taka. Sources: Government of Bangladesh, Bangladesh Railway, and Ministry of Finance.
88 Appendix 14
CONTRIBUTION TO THE ADB RESULTS FRAMEWORK Sl Results Framework Targets Methods/comments No. Indicators 1 Railways 64 kilometers of double constructed and/or track and 22 kilometers of upgraded loop line meter gauge (kilometers) railway constructed 2 Use of railways 50 broad gauge and 100 meter gauge built or upgraded passenger carriages added to Bangladesh Railway’s fleet to provide additional passenger train services
Source: Asian Development Bank estimates.