Completion Report
Project Number: 35457-013 Loan Number: 2205/2206-AZE November 2011
Azerbaijan: East–West Highway Improvement Project
CURRENCY EQUIVALENTS Currency Unit – new Azerbaijan manat (AZN)
At Appraisal At Project Completion 1 November 2005 31 March 2010 AZN1.00 = $1.16 $1.25 $1.00 = AZN0.86 AZN0.80
At appraisal, the old Azerbaijan manat (AZM) was used in the report and recommendation of the President at the exchange rate of $1.00 = AZM4,597. On 1 January 2006, the new Azerbaijan manat (AZN) was introduced as the new national currency at the exchange rate of AZN1.00 = AZM5,000. The AZM continued as legal tender until 31 December 2006.
ABBREVIATIONS ADB – Asian Development Bank ARS – Azer Road Service Open Joint-Stock Company EIRR – economic internal rate of return GDP – gross domestic product IEE – initial environmental examination IDB – Islamic Development Bank IRI – International roughness index km – kilometer M&E – monitoring and evaluation MFF – multitranche financing facility MOT – Ministry of Transport OCR – ordinary capital resources PIU – project implementation unit PMS – pavement management system SCC – State Customs Committee SDR – special drawing right SFD – Saudi Fund for Development VOC – vehicle operating cost
NOTES (i) The fiscal year (FY) of the government and its agencies ends on 31 December. ―FY‖ before a calendar year denotes the year in which the fiscal year ends, e.g., FY2009 ends on 31 December 2009. (ii) In this report, ―$‖ refers to US dollars.
Vice-President X. Zhao, Operations 1 Director General J. Miranda, Central and West Asia Department (CWRD) Director H. Wang, Transport and Communications Division, CWRD
Team leader B. Reddy Bathula, Senior Transport Specialist, CWRD Team member C. Africa, Project Analyst, CWRD N. Bustamante, Senior Operations Assistant, CWRD
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
I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 2 A. Relevance of Design and Formulation 2 B. Project Outputs 2 C. Project Costs 4 D. Disbursements 5 E. Project Schedule 5 F. Implementation Arrangements 6 G. Conditions and Covenants 6 H. Consultant Recruitment and Procurement 7 I. Performance of Consultants and Contractors 7 J. Performance of the Borrower and the Executing Agency 8 K. Performance of the Asian Development Bank 8 III. EVALUATION OF PERFORMANCE 9 A. Relevance 9 B. Effectiveness in Achieving Outcome 9 C. Efficiency in Achieving Outcomes and Output 10 D. Preliminary Assessment of Sustainability 11 E. Environmental, Socioeconomic, and Other Impacts 11 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 14 A. Overall Assessment 14 B. Lessons 14 C. Recommendations 15
APPENDIXES 1. Project Framework 16 2. Project Cost and Financing Plan 21 3. Disbursement of ADB Loan Proceeds 22 4. Appraisal and Actual Implementation Schedules Compared 23 5. Chronology of Major Events 24 6. Organizational Structure for Project Implementation 26 7. Status of Compliance with Major Loan Covenants 27 8. Summary of Contract Packages 31 9. Summary of Institutional Strengthening Component 32 10. Economic Reevaluation 36 11. Summary of Socioeconomic Impact 42
BASIC DATA
A. Loan Identification
1. Country Republic of Azerbaijan 2. Loan Number 2205-AZE / 2206-AZE(SF) 3. Project Title East–West Highway Improvement Project 4. Borrower Republic of Azerbaijan 5. Executing Agency Ministry of Transport 6. Amount of Loan (i) $49 million from ordinary capital resources (ii) SDR2.075 million from the Asian Development Fund 7. Project Completion Report Number 1276
B. Loan Data 1. Appraisal – Date Started 1 June 2005 – Date Completed 15 June 2005
2. Loan Negotiations – Date Started 3 November 2005 – Date Completed 7 November 2005
3. Date of Board Approval 8 December 2005
4. Date of Loan Agreement 1 June 2006
5. Date of Loan Effectiveness – In Loan Agreement 90 days from the loan agreement – Actual 27 October 2006 – Number of Extensions None
6. Closing Date – In Loan Agreement 31 May 2010 – Actual 15 June 2010 – Number of Extensions None
7. Terms of Loan London interbank offered rate (LIBOR)– Ordinary capital resources based – Interest Rate 0.0%
– Commitment Charges 0.75% – Maturity (number of years) 24 – Grace Period (number of years) 4 Asian Development Fund – Interest Rate 1.0% yearly during grace period; 1.5% yearly thereafter – Commitment Charges 0.0% – Maturity (number of years) 32 – Grace Period (number of years) 8
8. Terms of Relending (if any) None – Interest Rate – Maturity (number of years) – Grace Period (number of years) – Second-Step Borrower
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9. Disbursements
a. Dates Initial Disbursement Final Disbursement Time Interval
Loan 2205-AZE: $591,964 (8 January 2007) $6,050,315 (7 June 2010) 39 months Loan 2206-AZE: $77,400 (21 May 2009) $12,375 (1 April 2010) 10 months
Effective Date Original Closing Date Time Interval
27 October 2006 15 June 2010 44 months
b. Loan 2205-AZE Amount ($) Last Amount Original Revised Increased/ Amount Undisbursed Category Allocation Allocation (Canceled) Disbursed Balance 1. Civil Works 34,100,000 40,000,000 5,900,000 34,657,418 5,342,582 a. Yevlakh–Ganja Section 14,400,000 (14,400,000) b. Gazakh–Georgian Border 14,200,000 37,000,000 22,800,000 34,657,418 2,342,582 Section c. Local Roads 3,000,000 3,000,000 3,000,000 d. Cross-Border Facilitation 2,500,000 (2,500,000) 2. Equipment for Cross-Border 1,200,000 (1,200,000) Facilitation 3. Consulting Services 3,800,000 4,500,000 700,000 3,650,777 849,223 a. Detailed Design and 3,000,000 4,500,000 1,500,000 3,650,777 849,223 Supervision b. Cross-Border Facilitation 800,000 (800,000) 4. Project Management 800,000 100,000 (700,000) 45,182 54,818 5. Environmental Management 100,000 100,000 100,000 6. Financial Charges 4,200,000 4,200,000 994,424 3,205,576 7. Unallocated 4,800,000 100,000 (4,700,000) 100,000 Total 49,000,000 49,000,000 39,347,801 9,652,199a a Canceled at loan closing on 15 June 2010.
c. Loan 2206-AZE(SF) Amount (SDR) Last Amount Original Revised Increased/ Amount Undisbursed Category Allocation Allocation (Canceled) Disbursed Balance Equipment 1,245,000 1,245,000 1,245,000 Consulting Services 830,000 830,000 676,138 153,862 Total 2,075,000 2,075,000 676,138 1,398,862a $ Equivalent 3,000,000 1,048,381
a Canceled at loan closing on 15 June 2010.
10. Local Costs (Financed) – Amount ($) (not available) – Percentage of Local Costs (not available) – Percentage of Total Cost (not available)
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C. Project Data
1. Project Cost ($ million)
Cost Appraisal Estimate Actual
Foreign Exchange Cost (not available) (not available) Local Currency Cost (not available) (not available) Total (not available) (not available)
2. Financing Plan ($ million)
Cost Appraisal Estimate Actual Implementation Costs Borrower-Financed 19.8 73.8 ADB-Financed 47.8 39.4 ordinary capital resources 44.8 38.3 Special Funds resources 3.0 1.1 Islamic Development Bank-Financed 10.4 10.4 Saudi Fund for Development-Financed 11.0 13.0 Implementation Total Financial Chargesa Borrower-Financed ADB-Financed 4.2 1.0 Islamic Development Bank–Financed Saudi Fund for Development–Financed Project Total 93.2 137.6 ADB = Asian Development Bank. a Including interest during construction and commitment fee.
3. Cost Breakdown, by Project Component ($ million) Component Appraisal Estimate Actual A. Base Cost 1. Road Improvement Component 64.6 135.1 a. Land Acquisition and Resettlement 0.5 b. Civil Works 59.7 129.1 i. Yevlakh–Ganja Section 39.1 84.1 ii. Gazakh–Georgian Border Section 16.8 45.0 iii. Local Roads 3.8 c. Consulting Services 4.2 6.0 d. Environmental Management 0.2 2. Road Subsector Institutional Strengthening 3.0 1.1 Component 3. Cross-Border Facilitation Component 4.9 4. Project Management 1.0 0.4 5. Local Taxes and Duties 7.8 B. Contingencies 7.7 C. Financial Charges 4.2 1.0 Total 93.2 137.6
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4. Project Schedule Item Appraisal Estimate Actual Civil Works Gazakh–Georgian Border Section Procurement Q2 2005–Q4 2006 Q1 2006–Q4 2007 Civil Works Q4 2006–Q4 2008 Q1 2008–Q1 2010 Yevlakh–Ganja Section Procurement Q2 2005–Q4 2006 Q3 2007–Q3 2008 Civil Works Q4 2006–Q4 2008 Q1 2008–Q1 2010 Consulting Services for Design and Supervision Gazakh–Georgian Border Section Q1 2006–Q4 2008 Q1 2008–Q1 2010 Yevlakh–Ganja Section Q1 2006–Q4 2008 Q1 2008–Q1 2010 Institutional Strengthening Component Recruitment Q2 2006–Q3 2006 Q1 2008–Q4 2008 Implementation Q4 2006–Q3 2008 Q1 2009–Q4 2009
5. Project Performance Report Ratings Ratings
Implementation Implementation Period Development Objectives Progress 1 Jul 2006–31 Dec 2006 Satisfactory Satisfactory 1 Jan 2007–31 Dec 2007 Satisfactory Highly satisfactory 1 Jan 2008–30 Jun 2008 Satisfactory Partially satisfactory 1 Jul 2008–30 Jun 2010 Satisfactory Satisfactory
D. Data on Asian Development Bank Missions No. of No. of Person- Specialization Name of Mission Date Persons Days of Membersa Fact-finding 24 Jan–4 Feb 2005 9 99 a, b, c, d, d, e, f, g Appraisal 1–15 Jun 2005 3 42 a, b, d Inception 8–11 Feb 2006 4 12 a, b, h, i Review 1 27 Nov–4 Dec 2007 2 14 a, j Review 2 24–27 Nov 2008 2 6 e, i Review 3 22–24 Apr 2009 1 3 e Review 4 13–15 Jul 2009 1 3 e Midterm Review 19–22 Oct 2009 3 9 b, e, i Review 5 28–30 Jan 2010 3 9 a, e, i Review 6 29 Apr–4 May 2010 3 15 d, e, i Completion Review 12–22 Sep 2011 3 27 b, g, j a a = environment specialist, b = transport specialist, c = program specialist, d = social specialist, e = financial management specialist, f = counsel, g = consultant, h = operations officer, i = project implementation officer, j = analyst.
I. PROJECT DESCRIPTION
1. At the request of the government of Azerbaijan, the Asian Development Bank (ADB) approved two loans for the East–West Highway Improvement Project in December 2005—a loan of $49.0 million (2205–AZE) from ADB’s ordinary capital resources (OCR) and another loan in various currencies equivalent to SDR2,075,000 ($3.0 million) (2206–AZE) from its Special Funds resources.1 The project, a priority in the government’s transport development program (2005–2014), would improve the east–west highway and local roads linking the western part of Azerbaijan to Baku, the country’s capital, thereby promoting the socioeconomic development of local communities through easier access to markets, job opportunities, and social services. By strengthening Azerbaijan’s transport links to Georgia, the project would also encourage regional cooperation. As part of the Asian highway network and one of Azerbaijan’s main routes for external trade, the east–west highway carries traffic between the Caspian and Black seas and has the potential to become an important route for transit transport between Asia and Europe. The project was consistent with ADB’s assistance strategy for Azerbaijan and was included in ADB’s assistance program for 2005.
2. At appraisal, the project had four components: (i) improvement of 127 kilometers (km) of a two-lane paved road on sections of the Yevlakh–Ganja and Gazakh–Georgian borders of Azerbaijan’s primary east–west highway, (ii) improvement of 10 local roads in the project area totaling about 65 km, (iii) support for policy reform and improved governance in the road subsector through institutional strengthening, and (iv) facilitation of movement across Azerbaijan’s border with Georgia (at Red Bridge). The total project cost of about $93.2 million equivalent, including physical and price contingencies, interest, and other charges during construction, would be cofinanced by ADB, the Islamic Development Bank (IDB), the Saudi Fund for Development (SFD), and the government. The executing agencies were (i) the Ministry of Transport (MOT) for the road improvement and institutional strengthening components; and (ii) the State Customs Committee (SCC) for the cross-border facilitation component. The project was scheduled to be completed by 30 November 2009.
3. The project was foreseen to benefit people living along the project sections of the east– west highway, road users, construction companies, traders, and other people who derive income from expanded traffic, trade, and investment in the project area. The major direct benefits would be (i) lower road transport and maintenance costs; (ii) faster and more reliable road transport services; (iii) better access of local communities to markets and social services; (iv) job and income opportunities created during project implementation (i.e., use of local labor and construction materials) and after project completion (i.e., roadside businesses); (v) efficient movement of freight and passengers across Azerbaijan’s border with Georgia (at Red Bridge); and (vi) strengthened institutional capacity in the road subsector. The economic internal rate of return for the project was estimated at 17.9%. The project was expected to create 5,250 person- months of skilled jobs at about $400 per person per month and 3,000 person-months of unskilled jobs at about $200 per person per month. Indirect benefits would be increased business and job opportunities with backward or forward links to the project, and expanded trade with Georgia and other countries in the region.
1 ADB. 2005. Report and Recommendation of the President to the Board of Directors on Proposed Loans to Azerbaijan for the East–West Highway Improvement Project. Manila. (Loans 2205-AZE and 2206-AZE, approved on 8 December 2005).
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II. EVALUATION OF DESIGN AND IMPLEMENTATION
A. Relevance of Design and Formulation
4. Roads are the dominant mode of passenger transport in Azerbaijan, and the second-most-important means of freight transport. The road network is composed of two major highways: (i) the east–west highway linking the capital, Baku, to the Georgian border; and (ii) the north–south highway running from the Russian border to the Iranian border through Baku. However, the poor condition of the road network at the time of the project was seen as a hindrance to sustained economic growth and poverty reduction in Azerbaijan. Substantial rehabilitation was required. The government therefore made road infrastructure a state development priority.2 ADB’s country strategy and program also highlighted transport network development and regional cooperation.3 From 1999, when the country joined ADB, to the end of 2010, Azerbaijan received a total of $687.40 million in ADB loans, 44.72% of which was for projects and programs in the transport and information and communication technology sectors.
5. During and after implementation, the project was found to be highly relevant to the government’s objectives and policies, as well as to ADB’s country strategy, in its design and formulation. At completion, a total of 94.0 km of roads along the east–west highway had been rebuilt, significantly improving connectivity in the project area, as well as traffic between Azerbaijan and Georgia. Remarkable socioeconomic impact was generated during and after implementation. Consulting services assisted in the successful implementation of the project and the development of the road subsector. The scope and financing plan changed significantly during implementation, mainly because of price escalation between appraisal and detailed design (paras. 7 and 10), but the impact and outcomes were as anticipated (paras. 7, 17, 22, 28–29, 37–44). The end results showed that the project outcome has contributed to meeting the government’s development objectives. The project framework showing the results is in Appendix 1. It is noted that some of the impact indicators (such as school dropout rates; grain production; industrial production) included in the project framework are not relevant to this transport project. However the PCR mission came out with some proxy results to assess the performance targets indirectly.
B. Project Outputs
6. At appraisal the project envisaged four outputs: (i) improvement of the east-west highway, (ii) improvement of local roads, (iii) institutional strengthening, and (iv) cross-border facilitation. During implementation, the local roads and cross-border components were dropped through change in scope due to cost overruns. The project road improvements were designed adequately, executed and implemented well. The institutional strengthening also contributed significantly to the improvement of road maintenance, axle load control, road safety, and project management and implementation in the road subsector. Relevant training and seminars were organized during implementation (para. 22).
2 Republic of Azerbaijan. 2003. State Program on Poverty Reduction and Economic Development for 2003–2005. Baku; and Republic of Azerbaijan. 2004. State Program on Socioeconomic Development of Regions for 2004– 2008. Baku. 3 ADB. 2006. Country Strategy and Program Update: Azerbaijan, 2006. Manila. http://www.adb.org/Documents/ CSPs/AZE/2005/CSP-AZE-2005.
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1. Road Improvements
7. At completion, a total of 94.0 km of roads—39.0 km at the Gazakh–Georgian border section and 55.0 km at the Yevlakh–Ganja border section—had been rebuilt.4 The existing two-lane road was upgraded to international standards, with the horizontal alignment generally following the existing road except for slight modifications in certain sections of curves with small radii. The civil works mainly involved (i) removing the asphalt surfacing; (ii) rebuilding the road pavement; (iii) improving drainage structures and constructing culverts; (iv) constructing new off-road service areas; (v) installing road furniture, signs, and markings for traffic safety and control devices; and (vi) rebuilding bridges. Mainly because of cost overruns during implementation (para. 10), the project underwent the following major changes in scope:
(i) The 41.15 km Ganja bypass road (part of the original Yevlakh–Ganja section) was excluded from the project and is being implemented under ADB Loan 2433-AZE.5 Though there was surplus loan amount, it was not enough to finance this section under the project. (ii) The local road component anticipated at appraisal was dropped from the project’s scope and its funding shifted to the projects under the multitranche financing facility (MFF) for road network development in the country.6 (iii) The cross-border facilitation component was implemented through other local projects using government funds and excluded from the project. (iv) A 445-meter road approaching the border was added to the Gazakh–Georgian border section using the loan savings, and the 7.2 km Ganja access road was added to the Yevlakh–Ganja section with cofinancing from IDB, SFD, and the government.
8. Quality control of construction was carried out jointly by the contractors and the construction supervision consultants. The consultants inspected and assessed the works to make sure that the specifications were met.7 No remarkable quality issues were reported during the defects liability period (1 year after completion). ADB’s project completion review mission observed that the reconstructed roads were of good quality; road surface roughness offered a comfortable ride; and safety and environment protection facilities had been installed along the roads.8
2. Institutional Strengthening
9. As anticipated at appraisal, the institutional strengthening component contributed greatly to the improvement of road subsector performance in the country. Many general and task- specific reports, manuals, guidelines, and memos were prepared and introductory training was provided. These reports and deliverables have proven to be useful references for the road subsector. Following are the main outputs of the institutional strengthening component:
4 Including the 47.85 km Yevlakh–Ganja road along the east–west highway and the 7.16 km Ganja access road. 5 At appraisal, the Yevlakh–Ganja section included 47.85 km main road along the east–west highway and the 41.15 km Ganja bypass road. 6 ADB. 2007. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing Facility for the Road Network Development Program in Azerbaijan. Manila. 7 Azerbaijan’s standards for a category II road, with a 7.5-meter-wide pavement and 3.75-meter shoulders. The designed speed was 120 km per hour, with cumulative 13-ton vehicle axle loading over 15 years. 8 The roads had an IRI value of about 2–5.
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(i) The country’s road maintenance status as well as related funding sources and applicable tools were reviewed. Plans for upgrading and utilizing the road Pavement Maintenance System (PMS) and Road Asset Management System (RAMS) were prepared. Equipment required by the regional maintenance units for effective routine road maintenance operations were identified. (ii) Axle load legislation and regulations were reviewed, and a pilot axle load survey was conducted. A plan for installing weighing stations for the whole road network was prepared and two vehicle weighing stations were installed in the project area. A program on axle load monitoring and public awareness was recommended. (iii) The status of the national road safety was reviewed and recommendations on improving its operation were provided. The existing road accident monitoring, reporting and information systems were reviewed and improvements suggested. An awareness campaign program on road safety was discussed and recommended to MOT. (iv) Existing road project management including its structure and capacity, and its practices were reviewed and improvements suggested. Operational guidelines were prepared, including those for project implementation management, environmental and social assessments.
C. Project Costs
10. During detailed design, the cost estimates for the civil works component were found to be much higher than the estimates at appraisal, or just about twice the appraisal estimates. The difference was mainly due to the sharp increases in the prices of fuel, utilities, and major road construction materials that had taken place in the interval.9 Accordingly, at the request of the government, ADB approved the aforementioned change in project scope, and the reallocation of loan proceeds on 20 November 2007. At completion, the total cost of the project (considering scope changes, para. 7) was $137.6 million, about $44.4 million (47.7%) higher than the $93.2 million estimated at appraisal. The cost overrun reflected the actual costs of civil works ($28.2 million increase for the Gazakh–Georgian border section and $45 million increase for the Yevlakh–Ganja section), excluding the Ganja bypass road, local roads, and cross-border facilitation components, all of which were dropped from the project scope and the related costs reallocated or canceled. There were also minor changes in the costs of consulting services, project management, and financial charges. Appendix 2 compares in detail the total project cost at appraisal and at completion.
11. Under the financing plan envisaged at appraisal, the project would be cofinanced by ADB (two ADB loans totaling $52.0 million—$49 million from OCR and $3.0 million equivalent from Special Funds resources), IDB (a loan of $10.4 million), SFD (a loan of $11.0 million), and the government of Azerbaijan (funding of $19.8 million). The financing shares were 55.8% for ADB, 11.2% for IDB, 11.8% for SFD, and 21.2% for the government. Because of the project scope changes, the project financing plan also changed: the ADB loan was reallocated and the government funding was substantially increased from $19.8 million to $73.8 million. At completion, the project financing plan had been revised to reflect financing shares of 29.4% for ADB, 7.6% for IDB, 9.4% for IDB, and 53.6% for the government. The ADB OCR loan financed the civil works for the Gazakh–Georgian border section, detailed design for all road sections at appraisal, construction supervision for the Gazakh–Georgian border section, project management, and the financial charges for the ADB loans. The ADB loan from Special Funds resources financed the institutional strengthening component. IDB, SFD, and the government
9 The producer price index was 18.9% in 2005 and 17.7% in 2006.
5 cofinanced the civil works and construction supervision for the Yevlakh–Ganja section. The appraisal and actual financing plans are compared in Appendix 2.
D. Disbursements
12. The ADB loans were approved on 8 December 2005, and the loan agreements were signed on 1 June 2006 and took effect on 27 October 2006. Disbursements were slow at the start, with the first disbursement recorded on 8 January 2007.10 After the civil works began, however, the disbursements picked up quickly in 2008 and reached their peak in 2009 ($16.97 million). The cost overrun necessitated the reallocation of loan proceeds under Loan 2205-AZE during implementation (see Basic Data for the loan reallocations). Funds under Loan 2206-AZE were used mainly for the institutional strengthening component, and were disbursed smoothly in 2009–2010. Failure to meet the loan closing deadline led to the shifting of the Ganja bypass road and the local road components to subsequent ADB loan projects. At the later stage of project implementation, there was a large amount of ADB loan savings,11 but it was too late to reallocate and use it before the loan closing. The undisbursed amounts of $9,652,199.59 under Loan 2205-AZE and SDR1,398,861.72 under Loan 2006-AZE at completion were canceled effective 15 June 2010, the actual loan closing date for both loans. Appendix 3 shows the projected annual disbursement of loan proceeds compared with the actual disbursement.
13. The IDB loan and the SFD loan were disbursed during implementation in 2007–2010.12 At completion, $10.4 million in IDB funds and $13.0 million in SFD funds had been disbursed. The government provided timely counterpart funds amounting to $73.82 million equivalent— $10.46 million for the Gazakh–Georgian border section and $63.37 million for the Yevlakh– Ganja section.
E. Project Schedule
14. The ADB loans took effect in October 2006. Detailed design began in December 2006 and was completed in September 2007. Procurement for the civil works packages was delayed by repeat tendering (para. 20). The contract for the Gazakh–Georgian border section was finally signed on 24 December 2007 (about 9 months later than scheduled), and the contract for the Yevlakh–Ganja section was signed on 26 August 2008. The civil works for the Gazakh– Georgian border section began in February 2008. The contractor was slow to mobilize, but, through the joint efforts of ADB and the implementing agency (para. 16), civil works activities were able to catch up. Both the civil works and construction supervision for the Gazakh– Georgian border section were completed in March 2010; the Yevlakh–Ganja section was completed later.13 Since the Yevlakh–Ganja section was not financed by ADB, it was agreed that 30 March 2010, the completion date for the ADB-financed Gazakh–Georgian border section should also be the project completion date. This date was 14 months after the completion date anticipated at appraisal (30 November 2009). The recruitment of consultants for the institutional strengthening component began in February 2008, the contract was signed on 8 January 2009,
10 $591,964 (from Loan 2205-AZE) advance payment for consulting services for detailed design and construction supervision. 11 The savings from Loan 2205-AZE were $2.34 million from the Gazakh-Georgian border road, $3.00 million from the local road component, $0.85 million from consulting services, $0.06 million from project management, and $3.21 million from financial charges. 12 The government signed the loan agreement with IDB on 10 March 2005. SFD approved its loan on 3 January 2006. 13 Civil works for the Yevlakh–Ganja section were completed on 3 September 2010 for the original 50 km, and on 20 April 2011 for the Ganja access road.
6 the consultants were mobilized on 21 January 2009, and the contract was completed on 31 January 2010. The actual implementation schedule is compared with the schedule envisaged at appraisal in Appendix 4, and a chronology of the main events is in Appendix 5.
F. Implementation Arrangements
15. As agreed at appraisal, MOT was the executing agency for the road components. To ensure close interagency coordination and supervision during implementation, a project steering committee was established in 2007. Its members represented the Ministry of Economic Development, the Ministry of Finance, MOT, and SCC. The committee met at least quarterly to review the implementation progress, and approve and guide implementation activities.
16. At appraisal, the road transport services department of MOT was chosen to implement the project. In 2007, it was transformed into Azer Road Service (ARS), a semiautonomous open joint-stock company reporting to MOT. ARS was reorganized to manage the implementation of all road projects supported by ADB, the European Bank for Reconstruction and Development, World Bank, and other international organizations; and also acted as the implementing agency for the project. A project implementation unit (PIU) headed by a project director, who served throughout the project and was assisted by a team of qualified technical, financial, and support staff, was established under ARS. The PIU actively managed all the project activities, including planning, financial management, consultant selection, civil works procurement, progress monitoring, and report preparation. Through the capacity-building programs under the project, including an overseas study tour and training provided by the consultants (para. 22), ARS gained substantial knowledge and experience in many aspects of road project management and road subsector development. Appendix 6 shows the institutional framework for project implementation.
G. Conditions and Covenants
17. The project complied with most of the loan conditions and covenants required in the loan agreements. 14 The government established an adequate organization structure for project implementation, including designating the executing and implementing agencies, and setting up the PIU with sufficient staffing. The project implementation activities were well managed; they covered, among others, carrying out procurement, using the services of consultants, monitoring progress, controlling construction quality, preparing monthly and quarterly reports, and implementing financial audits. The quality of the completed project roads met the standards specified in the project documentation. The government provided the required counterpart funds totaling $73.82 million equivalent, much higher than the amount estimated at appraisal. During implementation, the PIU, with assistance of the supervision consultants, carried out two monitoring and evaluation (M&E) activities in line with the project performance monitoring system (PPMS) adopted, including socioeconomic impact surveys in 2009 and 2010. Two M&E reports were submitted to ADB. The contractor and the subcontractors followed the labor laws and ADB’s requirement in hiring laborers, and encouraged women to participate in the project. An HIV awareness program was provided monthly. The government ensured that appropriate measures were undertaken to prevent human trafficking of illegal substances and humans at the border. The government likewise implemented the road safety program by developing road accident monitoring, reporting, and information systems, enhancing MOT’s capacity to identify accident black spots on the road network, and providing staff training.
14 The Loan Agreement between the Republic of Azerbaijan and the Asian Development Bank (Loan 2205-AZE), dated 1 June 2006; and the Loan Agreement between the Republic of Azerbaijan and Asian Development Bank (Loan 2206-AZE [SF], dated 1 June 2006.
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18. However, the cross-border component was dropped from the project scope (para. 7). Although two weigh bridges of high quality were installed and another four are being installed in subsequent ADB loan projects, the covenant to establish full vehicle weighing stations still has to be complied with. Moreover, funding for the local roads component was shifted to subsequent ADB loan projects. Details of the status of compliance with major loan covenants for the project are in Appendix 7.
H. Consultant Recruitment and Procurement
19. Consultant recruitment was undertaken as envisaged at appraisal and conformed with ADB’s Guidelines on the Use of Consultants (2010, as amended from time to time). An international consulting firm was recruited for the detailed design of all road components and construction supervision of the Gazakh–Georgian border section following quality- and cost-based selection (QCBS) procedures. The contract for a total of 797 person-months with the selected consultant was signed on 7 December 2006.15 This contract was later amended to cover an additional 52 person-months of services. Consultants were engaged in 2008 for the institutional strengthening component according to QCBS procedures; the contract, for a total of 92 person-months, was signed with the selected consultants on 8 January 2009.16 With respect to the Yevlakh–Ganja section financed by IDB, SFD, and the government, the supervision consultants were selected according to international competitive bidding/member countries (ICB/MC) procedures.17 The contract for a total of 242 person-months was signed with the selected consultants on 20 September 2007.18
20. The civil works procurement conformed with ADB’s Procurement Guidelines (2010, as amended from time to time). However, all the financial bids with the initial tender submissions exceeded the estimates of the engineer and the ADB funding allocated for the Gazakh– Georgian border section. The tender process had to be repeated for economically and efficiently implementing the project; this delayed the tender process by about 9 months. Eventually, the contract with the selected contractor for the Gazakh–Georgian border section was signed on 24 December 2007.19 The contractor for the Yevlakh–Ganja section was selected using ICB/MC procedures, and the contract was signed on 26 August 2008.20
21. The contract packages for the civil works and consulting services, with contracted and actual values, are summarized in Appendix 8.
I. Performance of Consultants and Contractors
22. Overall, the performance of the consultants was satisfactory. The consultants for the detailed design and construction supervision carried out all activities required in the terms of reference. During implementation, the consultants discharged their duties as the engineer under the terms of the Fédération Internationale des Ingénieurs-Conseils (FIDIC) contract, working in close cooperation with the PIU. As such, the consultants were empowered to make certain decisions on technical and contractual issues on behalf of ARS. They helped the PIU prepare
monthly and quarterly progress reports, implemented monitoring and evaluation programs, and held on-the-job training and seminars for the contractors and PIU staff. The consultants for the
15 The consulting firm was Kocks Consult GmbH, Stegemannstrasse, 32–38, 56068 Koblenz, Germany. 16 The consulting firm was Finnroad Ltd., Opastinsilta 12 H, 00521 Helsinki, Finland. 17 ICB/MC procedures are used by the Islamic Development Bank in consultant recruitment. 18 Industrial and Engineering Consulting Office, Kuwait. 19 Impressa S.p.A., Via G. Saliceto N. 7/9, 00161 Rome, Italy. 20 Polat Yol Yapi Sanayi ve Ticaret A.Ş., Turkey.
8 institutional strengthening component worked closely with MOT, ARS, and other stakeholders to obtain Azerbaijani ownership of the project and its sustainable implementation. They prepared numerous general and task-specific reports, manuals, guidelines, and memos that were circulated for comments in draft forms, finalized on the basis of the comments received, and distributed to relevant recipients, after introductory training where necessary. These reports and other deliverables have proven to be useful references for the road subsector. A study tour to Finland for four ARS staff, arranged by the institutional strengthening consultants to familiarize the staff with on-road safety and axle load control issues, proved advantageous in subsequent works. The ADB loans financed a total of 236 person-months of consulting services for detailed design (70 person-months international and 166 person-months national), 613 person-months for construction supervision of the Gazakh–Georgian border section (53 person-months international and 560 person-months national), and 92 person-months for the institutional strengthening component (31 person-months international and 61 person-months national).
23. The overall performance of the civil works contractors was satisfactory. The main contractor for the Gazakh–Georgian border section deployed a team of 10 expatriate staff, mostly from Italy. In the early stages of implementation, mobilization was slow and the contractors experienced difficulties finding suitable local subcontractors. The team leader was replaced several times, adversely affecting the work to a degree. However, the contractor completed the civil works as required within the contracted schedule. The quality of the civil works was well recognized by the supervision consultants and ARS. During the defects liability period (1 year after completion), no significant issues in construction quality occurred.
J. Performance of the Borrower and the Executing Agency
24. The borrower was the Government of Azerbaijan and the executing agency was MOT. During implementation, an adequate organizational framework was established for efficient and timely project management. The government provided the required counterpart funds and all necessary support timely. MOT and ARS exercised close coordination and regular monitoring of construction progress, as well as quality control of physical works. The PIU, with assistance from the consultants, prepared the required progress reports. The project accounts and financial statements were audited by external chartered accountants acceptable to ADB, and the audit reports were submitted to ADB as required under the loan agreement.21 With assistance from ADB, the capacity of MOT and ARS significantly improved through the institutional strengthening component under the project. MOT and ARS facilitated well and fully supported ADB’s review missions during implementation and at completion. The draft project completion report received from ARS lacked enough data/information on the results of performance indicators. Considering that the project was the first road project in the country financed by ADB, the performance of the borrower and MOT was satisfactory.
K. Performance of the Asian Development Bank
25. The project was administered from ADB headquarters with active assistance from the ADB resident mission in Baku. During implementation, ADB was closely involved in identifying and resolving issues through the regular fielding of review missions. ADB conducted eight review missions for the project, including site visits. Approval of documents at both processing and implementation stages (procurement of civil works, hiring of consultants) was punctual. All claims for payment were processed without unreasonable delays. The role of the ADB
21 The external audit firm engaged for the Gazakh–Georgian border section was Audit-Lider Ltd., 70-190, Azadliq Avenue, Baku, Azerbaijan.
9 missions in providing timely advice on technical and contract administration matters was well recognized by MOT and ARS. The overall performance of ADB was satisfactory.
III. EVALUATION OF PERFORMANCE
A. Relevance
26. The project was highly relevant to the government’s objectives and policies, as well as ADB’s country strategy. The country’s development programs have identified the improvement of major road infrastructure as a precondition for economic growth and poverty reduction. By improving the east–west highway, a government priority, the project was expected to give local communities better access to markets, job opportunities, and social services, and thereby facilitate socioeconomic development. By strengthening Azerbaijan’s transport links to neighboring countries, the project would also promote regional cooperation.
27. The project was included in ADB’s assistance program for 2005, which was fully consistent with ADB’s assistance strategy for Azerbaijan. ADB’s country strategy and program (footnote 3) focused on pro-poor sustainable growth, social development, and good governance. This meant (i) supporting broad-based, inclusive economic development by improving infrastructure, financial systems, and the skills base; (ii) reducing vulnerability by improving the access of the poor to resources (forest areas and land), human capital, and public services; and (iii) improving governance to enhance the effectiveness of public investment, and supporting decentralization to strengthen local government. In harmony with these strategies, the project (i) improved access to markets and social services (education and health) facilities while making available direct job opportunities for the poor; (ii) developed the skills of local contractors in road rehabilitation and maintenance; and (iii) providing institutional development assistance and technical training to road subsector staff to improve their capacity to administer, supervise, and monitor civil works contracts. After the project, ADB approved an MFF to demonstrate its continued support for road network development in Azerbaijan (footnote 6).
B. Effectiveness in Achieving Outcome
28. The project was effective in achieving its intended outcome. During loan processing, about 75% of the road network in Azerbaijan was assessed to be in poor condition. About 61% of the east–west and north–south highways, 76% of other national roads, 66% of secondary roads, and 76% of rural roads required major rehabilitation. Such insufficiency of road infrastructure increased transport costs and the frequency of accidents, and was therefore a major impediment to economic growth and private sector development. The implementation of the project, which improved the last two sections of the east–west highway and addressed road maintenance and vehicle axle overloading issues, helped maximize the benefits from other improved sections of the highway, hence fostering private sector development and contributing to economic growth.
29. At completion, a total of 94.0 km of roads—comprising the 39.0 km Gazakh–Georgian border section and the 55.0 km Yevlakh–Ganja section—had been rebuilt. The implementation of the project has facilitated cross-border traffic (para. 30), promoted transport service development in the project area, and accelerated socioeconomic development (para. 38–44) in west Azerbaijan. The institutional strengthening component contributed greatly to the improvement of road subsector performance in road maintenance, axle load control, road safety, and project management and implementation (Appendix 9). The overseas study tour, training, and seminars under the project effectively assisted and enhanced capacity building for
10 road project management and implementation in the country. Considering that this was the first road project financed by ADB, substantial experience was gained and lessons were learned, to the benefit of ongoing and future road project design and implementation. The full impact of the project will be realized in due course.
C. Efficiency in Achieving Outcomes and Output
30. The project was efficient in achieving its intended outcomes and outputs. During detailed design, the consultants carried out a traffic count in December 2006.22 The traffic data from the count were processed into average annual daily traffic (AADT) and compared with historical traffic counts on the same road sections (Yevlakh–Ganja, Ganja bypass, Tovuz–Gazakh, and Gazakh–Georgian border). Traffic on the Gazakh–Georgian border section increased by an average of 9.4% yearly in 2001–2006. The latest traffic counts, provided to the project completion review mission showed an accelerated increase in traffic on the Gazakh–Georgian border section, averaging 10.8% per year in 2006–2010. The numbers of vans increased by an average of 38%, small trucks by 35%, and large trucks by 31% yearly during the period. These actual traffic counts were much higher than the appraisal estimates.23 A large amount of cross-border traffic was observed at the border area—about 20 large passenger buses and 1,000 trucks per day, as well as many local transport vehicles carrying passengers and freight from the border inland. Most of the vehicles ran at an average of 60–80 km per hour on the project road, compared with 30–40 km per hour before the project.24 In consideration of the existing traffic, the fast increase in traffic demand, and road capacity limitations, the traffic forecast was revised. It was assumed that the traffic on the project roads would sustain this high increase trend in the near future, with rates of increase averaging 8.0% in 2011–2015, 7.6% in 2016–2020, and 4.8% from 2021 onward. The revised traffic forecast indicates much higher traffic increase rates than those estimated at appraisal, reflecting the faster pace of socioeconomic development in the project area.25 The revised traffic forecast was used in the economic reevaluation presented in this project completion report.
31. To better assess the efficiency of the project, the mission reevaluated the economic internal rate of return (EIRR), using the same methodology adopted at appraisal and the updated present data. The economic costs and benefits were compared for the ―with project‖ and ―without project‖ cases. The economic benefits considered in the reevaluation were (i) vehicle operating cost (VOC) savings, (ii) passenger time cost savings, and (iii) other potential benefits. The recalculated EIRR was 20.4% for the project, 21.5% for the Gazakh– Georgian border section, and 19.6% for the Yevlakh–Ganja section. The higher EIRR than that at appraisal (17.9%) was due mainly to much heavier traffic. All of the recalculated EIRRs exceeded the discount rate of 12%, so the project was economically viable. The sensitivity analysis results showed the project to be economically viable for all scenarios tested. In the case of a combination of a 20% increase in maintenance cost and a 20% reduction in benefit, the EIRRs would be 16.4% for the project. The sensitivity test also showed the EIRR to be more sensitive to changes in benefits. Therefore, the government should pay more attention to socioeconomic development in the project area, promote cross-border transport, and implement policies that will foster transport services and increase the incomes of rural transport users. Appendix 10 presents the details of the traffic analysis and economic reevaluation. Because the
22 Kocks Consult GmbH. 2009. Social Monitoring and Evaluation Report: Gazakh–Georgian Border Section. Koblenz. 23 At appraisal, passenger traffic was projected to increase by an average of 7.8% yearly, and freight traffic by 7.5% yearly in 2005–2009. 24 The design speed of the project road is 120 km per hour. 25 At appraisal, passenger traffic was projected to increase by an average of 6.8% yearly, and freight traffic by 6.0% yearly in 2010–2028.
11 project roads are not tolled and have no revenue provision, this project completion report does not include a financial reevaluation.
D. Preliminary Assessment of Sustainability
32. The project is considered likely to be sustainable. A complete institutional framework for road development is in place, including MOT for sector administration, ARS for road construction and maintenance, and growing domestic construction capacity. However, road development in the country still needs external assistance. After the project, ADB approved an MFF of up to $500 million for the Road Network Development Program in Azerbaijan (footnote 6). At the time this project completion report was prepared, two tranches with a total loan amount of $245.4 million had been implemented, and a third tranche is under preparation.26 To improve the implementation of its road development plan and program, the government needs to continue institutional reforms to deepen corporatization and privatization in the road subsector; enhance road development planning; and improve sector performance in maintenance, axle load control, road safety, and project management.
33. Road development financing will be a challenge to the government. Besides speeding up road construction and maintenance, the government will have to allocate more funds to the subsector. It needs to explore multimodal financing mechanisms, restructure fund sources, introduce a road utilization toll, establish a road development fund, and invite private sector participation. The government should pay more attention to road maintenance by preparing an adequate budget, enhancing the maintenance team, and applying advanced maintenance planning tools. Local roads should also be well developed as essential parts of the road network, bringing more benefits to the rural areas, especially the poor.
34. The roads rebuilt under the project are important sections of the east–west transport corridor in the country. This road corridor is also part of AH5, the east–west route of the Asian Highway Network. 27 Cross-border trade facilitation, in addition to road infrastructure development, will be important in promoting cross-border traffic and keeping the project sustainable. The government should also encourage the development of local logistic services and implement proper policies and interventions that will accelerate socioeconomic development, widen the reach of the project benefits, and eventually transform this transport corridor into an economic corridor.
E. Environmental, Socioeconomic, and Other Impacts
1. Environmental Safeguards
35. At appraisal, an initial environmental examination (IEE) of the project was undertaken in accordance with ADB’s Environmental Assessment Guidelines (2003). The IEE report concluded that the project would have no major adverse impact on the environment, as the road improvements would be primarily carried out on the existing alignments. No protected or environmentally sensitive areas, such as designated wetlands, forests, nature conservation
areas, or places of archaeological importance, were within or near the project area. The project was classified as category B. However, the IEE report identified mitigation measures that civil
26 ADB, Loan Agreement for Road Network Development Program, Project 1 - Masally-Astara Section of the North- South Highway Between Republic of Azerbaijan and Asian Development Bank, signed on 15 January 2008; Loan Agreement for Road Network Development Program, Project 2 – Rehabilitation of the Ganja Bypass Road between Republic of Azerbaijan and Asian Development Bank, signed on 15 December 2008. 27 http://www.unescap.org/ttdw/index.asp?menuname=asianhighway
12 works contractors were requested to take while monitored by the supervision consultant, the implementing agency, and government environmental agencies.
36. An environmental protection report prepared by the consultants in September 2007, during detailed design, became the basis for environmental monitoring works during project implementation. 28 The report also indicated that the project would follow the existing road alignments and would not pass through any environmentally sensitive areas (e.g., forests, archaeological or historical sites, national parks, wildlife reserves, or sanctuaries) or be in the vicinity. Hence, the project would not have any significant adverse environmental impact, and no environmental impact study or full environmental monitoring program was required. However, substantial considerations for environmental protection were incorporated in the detailed design, including using the original loan allocation for environmental management ($100,000). During implementation, ARS and the contractors took all precautions to prevent any adverse environmental impact in design and construction. Adequate drainage measures (bridges, culverts, stabilizing structures, and drains) were incorporated in the project design and construction. Wherever required, roadside utilities lines were shifted before the start of construction works in those sections. Some road signs and barricades were provided. The PIU, with assistance of the consultants, prepared four biannual environmental reports, which recorded all the environmental issues and indicated no significant negative environmental impact that occurred during implementation.29
2. Socioeconomic Impacts
37. During implementation, the supervision consultants carried out two M&E activities in 2009 and 2010. The socioeconomic impact of the project was monitored according to the designed project performance monitoring framework. The survey focused on seven villages near the project roads.30 A final report on the social impact assessment was prepared and submitted to ADB.31 The report is summarized below and detailed in Appendix 11.
38. Economic development. The improvement of the east–west highway has significantly promoted economic growth in Azerbaijan and facilitated cooperation with other countries in the region. All of these developments have resulted in an increase in Azerbaijan’s gross domestic product (GDP) through non-oil trading. The project also stimulated rural growth by increasing access to remote areas, and allowing efficient exchange of goods and services within and among the various parts of the country. The 2010 survey identified 56 new small and medium commercial enterprises along the Gazakh–Georgian border section; most had a positive business outlook. Many households surveyed in the seven villages expressed their desire to work for those businesses, indicating good prospects for improved livelihood.
39. Poverty reduction. Poverty in the project area was reduced through (i) increased access to employment and income for the poor residents in roadside businesses and work related to road improvement and maintenance; (ii) improved access of the poor to markets and social services; and (iii) lower prices of transport services, food, and other daily necessities made possible by lower transport costs. During implementation, the project was able to provide local employment to about 406 people, including technical, administrative, and skilled workers, as well as semiskilled workers and manual laborers. The civil works contracts required the
28 Kocks Consult GmbH. 2007. Environmental Protection Report: Gazakh–Georgian Border Section. Koblenz. 29 Kocks Consult GmbH. 2010. Environmental Assessment Report: Gazakh–Georgian Border Section, Koblenz. 30 The villages of Birinci Shixli, Ikinci Shixli, Chayli, Chanali, Orta Salahli, Qazaxbayli, and Yuxari Salahli were in the primary impact zone of the project roads. 31 Kocks Consult GmbH. 2010. Social Impact Assessment Final Report: Gazakh–Georgian Border Section, Koblenz.
13 contractors to hire locally for at least 60% of their unskilled labor requirements. Thirteen apartments and guesthouses were rented long term by staff and workers. The project reduced travel time by half for most villagers and increased the frequency of travel to town centers from five to six times a year to 1.4 times a month.
40. Women empowerment. The contracts for civil works and consulting services included provisions to encourage the employment of skilled and unskilled women laborers. During implementation, 13 of the 406 total local labors hired were women. This number is significant, considering the nature of construction work and the cultural restrictions on women in the country. A sizable number of women were working in roadside businesses, operating small shops at the border area, and selling farm products along the project road. The ancillary businesses that catered to the project staff and workers (e.g., restaurants and lodging houses), and thus derived financial benefits from them, were generally managed by women. Women also have more opportunities now to access to social services and facilities, especially hospitals and schools.
41. Health and human safety. During the project, seven seminars on HIV/AIDS were held for the project management staff, contractors, and subcontractors. Manuals and booklets were distributed to workers and residents in the project area to intensify HIV/AIDS prophylaxis, promote a healthy lifestyle, and increase awareness of HIV/AIDS. The government undertook measures in accordance with applicable national laws and regulations to prevent the trafficking of illegal substances and humans at the border with Georgia during implementation and after project completion. The project also helped the government implement its road safety program.
42. Mobility and migration. The 2010 survey revealed that 71% of the households in the seven impact villages were highly satisfied with the convenience of travel along the Gazakh– Georgian border road. Sixty-four percent of the villagers surveyed indicated that travel to any destination is now less of a problem, and 20% noted the easier transport of farm products. During implementation, a national program on establishment of a rehabilitation center for human trafficking victims was developed, where they will be provided with medical and psychological assistance. Measures to combat human trafficking were taken generally at the national level.
43. Community consultations. Intensive public consultations were held during project preparation on major project issues such as project alternatives, the selection of local roads, potential benefits, and social and environmental impact. The consultations revealed a high degree of public support for the project. The design of the project incorporated the views of stakeholders. Special attention was given to the needs and constraints faced by women, internally displaced people, refugees, and other vulnerable groups. The consultations also helped identify the role of each stakeholder. Stakeholder participation and consultations were sustained during project implementation.
44. Displacement and resettlement. The project required minor land acquisition and temporary land occupation. MOT prepared a resettlement plan to ensure that fair compensation
and assistance would be provided to affected people or businesses. According to the surveys and interviews, there were no complaints concerning land acquisition and resettlement. Regarding temporary impact (e.g., vibration, noise, dust), the contractor was required to undertake appropriate measures, such as the use of new rollers that cause minimal vibration and noise, and the frequent spraying of water on the road sections under construction. The resettlement plan was satisfactorily implemented and no outstanding land acquisition and resettlement issues were reported to ADB. The project implementation had no impact on indigenous peoples.
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IV. OVERALL ASSESSMENT AND RECOMMENDATIONS
A. Overall Assessment
45. The project improved part of the east–west highway, especially the important sections near the Georgian border. The rapid socioeconomic development in the project area, the improvements in the road subsector, the reconstructed road sections, the increased traffic on the project roads, and the project’s remarkable social impact, particularly on the poor, have proven that the project’s outcomes and outputs anticipated at appraisal were substantially achieved and the project’s long-term impact is likely to be achieved within the project’s operation cycle. The recalculated EIRR was robust. Overall, the project is rated successful.
46. The project, however, experienced significant changes in scope and financing plan during implementation. A positive development is that the excluded components were or are being implemented in subsequent ADB-assisted projects or with government funds. The overall project impact and outcomes were as anticipated at appraisal. To keep the project sustainable, the government needs to develop a long-term transport network development plan, allocate a sufficient funding for road maintenance, support local road construction, facilitate trade especially international trade, and promote local socioeconomic development in the project area. In addition, the lessons learned from project implementation should be well incorporated in ongoing and future road projects, including those financed by ADB.
B. Lessons
47. The project was the first of the ADB-assisted road projects in Azerbaijan. Many lessons were learned during project preparation and implementation. The main lessons are summarized below:
(i) Azerbaijan experienced sharp increases in the prices of fuel, utilities, and major road construction materials between project appraisal and detailed design. These led to significant changes in the project scope and financing plan. In future road projects, greater due-diligence needs to be undertaken during project design and formulation, which includes carrying out adequate cost estimations, setting aside enough resources to cover contingencies, and shortening the interval between appraisal and implementation. (ii) The contractor for the Gazakh–Georgian border section was perhaps not familiar with the country’s situation at the start, and this caused mobilization delays and difficulty in finding suitable local subcontractors. In future road projects, MOT needs to provide bidders with adequate local information at pre-bidding meetings, and publish information on the cost of locally available inputs (materials, equipment, and labor) on its website to allow bidders to submit sensible bids. (iii) The project was cofinanced by several external aid agencies. This modality proved to be suitable for financing the rapid development of the road subsector. In future road projects financed by multiple aid agencies, ARS needs to strengthen its project management capacity in the aspects of financial accounts, project scheduling, and quality control. (iv) At appraisal, the project was designed to cover two subsectors: roads and customs. Projects of this type, covering different administration sectors, need adequate guidance and coordination. A project coordination office may be established at the central government to coordinate project management and implementation activities between the concerned government agencies.
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(v) The implementation delay for the local roads component resulted in the shifting of this component to subsequent ADB-assisted projects. As local road development can efficiently bring project benefits to rural areas, especially to the poor, in future road projects more attention should be paid to the development of local roads, an integral part of the country’s road network.
C. Recommendations
1. Project-Related 48. Project monitoring. According to the Report and Recommendation of the President, project performance would be monitored against a set of indicators during implementation. The supervision consultants undertook two monitoring surveys during implementation, but these covered only the ADB-assisted road sections. MOT needs to organize a large-scale M&E activity covering other road sections in the project area, using similar methodology.
49. Further actions or follow-up. The measures for keeping the project sustainable should be strengthened. ADB needs to continue supporting road subsector development in Azerbaijan. Future ADB projects could incorporate logistic and regional development programs to maximize project benefits.
50. Timing of the project performance evaluation report. The project performance evaluation report may be prepared in 2014 or later. By that time, the project roads will have been fully operational for about 4 years, and the rehabilitation of the whole east–west highway will be fully completed. Consequently, the traffic, road maintenance and physical condition, benefits attained, and impact on poverty can be better assessed.
2. General
51. With the efforts of the government and assistance from international organizations, the main highways in Azerbaijan have been, or are being reconstructed or rehabilitated. ADB could design and implement an economic corridor development program, especially on roads financed by ADB. The program could focus on (i) completion of the road networks, with branch roads and rural roads, to widen the reach of benefits and generate more traffic for the main roads; (ii) logistic development, including transport services for passenger and freight, roadside business, and cross-border facilitation; (iii) rural socioeconomic development through the use of new technology, labor-intensive industry promotion, health care improvement, education, and local market development; (iv) transport-related poverty reduction programs; (v) better road maintenance, with adequate funding and capacity to keep the roads in good condition; and (vi) strengthened road safety, with sufficient campaigns and measurements related to vehicle speed limits, accident response, and axle load control.
16 PROJECT FRAMEWORK
Data Sources/Reporting Design Summary Performance Targets/Indicators Results Mechanisms Assumptions and Risks 1 Appendix Impact Assumptions Accelerated socioeconomic Poverty incidence in the 6 rayons Likely to be achieved. National and rayon Continued political development in the 6 reduced from 37.2% in 2003 to Poverty shows reducing trend and statistics stability and economic rayons (districts) of west below 20% in 2020 Per capita income is in increasing growth in Azerbaijan and Azerbaijan, and enhanced trend. This is due to (i) increased the region cooperation between Per capita monthly income from access to employment and income; National and rayon Azerbaijan and employment for the bottom (ii) improved access to markets and statistics State Program on Poverty neighbouring countries. quintile of the population in the 6 social services; and (iii) reduced Reduction and Economic rayons increased by 5% per year, price of transport, food, and other Development from AZM22,380 in 2003 to daily necessities. implemented as planned AZM51,200 in 2020
Dropout rate for secondary National and rayon schools in the 6 rayons reduced statistics by 10% by 2020
Grain production in the 6 rayons The travel time for villagers reduced National and rayon increased by 4% per year, from by half and the frequency of travel to statistics 149,400 tons in 2003 to 290,000 town centers increased from five to tons in 2020 six to around 15 times per year.
Industrial production in the 6 A total of 56 new small and medium National and rayon rayons increased by 7% per year, commercial and business statistics from AZM310 billion in 2003 to enterprises were established. AZM820 billion in 2020
Trade across the border of Red The total foreign trade of the country National transport and Bridge with Georgia increased by increased by average 30% per customs statistics Government’s continued at least 100% in 2020,compared annum in 2005—2009 and reached commitment to regional with 2004 $27.5 billion in 2009. cooperation
Daily traffic across the border of Cross-border traffic in 2010—about Red Bridge increased by 10% per 20 large passenger buses and 1,000 Asian Development Bank year, from 10 vehicles in 2004 to trucks per day, as well as many local (ADB) project 500 vehicles in 2020 passenger and freight vehicles. performance audit report Outcome Achieved. Assumptions Improved quality and Daily traffic increased from 4,000 Traffic on the Project roads Traffic counts by the road Effective implementation efficiency of transport on vehicles in 2004 to 6,300 in 2010 increased by an average of 10.8% transport service of the government’s road the east–west highway and on the Yevlakh–Ganja section, per year in 2006–2010, reached department (RTSD) development program selected local roads and from 2,300 vehicles in 2004 7,401 vehicle per day on Yevlakh– (2005–2014) to3,600 in 2010 on the Gazakh– Ganja section and 4,123 vehicles
Data Sources/Reporting Design Summary Performance Targets/Indicators Results Mechanisms Assumptions and Risks Georgian border section per day on the Gazakh–Georgian Adequate capacity of border section in 2010. domestic firms for road International roughness index maintenance (IRI) value for the project section Partially Achieved. of the east–west highway reduced An average IRI value of the ADB project completion Risk from more than 6.0 in 2005 to 2.5 Gazakh–Georgian border section report (PCR) Higher-than-anticipated in 2009 (after project completion) and Yevlakh–Ganja section is rate of deterioration of the reduced to 3. project roads after completion due to weak International roughness index The local roads were dropped from enforcement of axle load value for improved local roads the project and are being RTSD’s surveys on road control and insufficient reduced from more than 6.0 in constructed under subsequent ADB- roughness for the project funding for maintenance 2005 to less than 5.0 in 2009 assisted projects. road and selected local (after project completion) roads Assumptions Achieved. Contribution of VOC Vehicle operating cost (VOC) on The VOC has reduced by 20% on savings to reduced bus the project roads reduced by 40% average from very high traffic fares and freight charges after project completion, generated. In 2011, the total VOC Direct measures of VOCs compared with VOC of 19.5 saving is estimated at about $11 for trucks, buses, and Improved traffic million in 2004 million. Considering the very high cars by RTSD enforcement and public increase in traffic compared to 2004 awareness of road safety traffic, it is treated as the indicator is achieved.
Likely to be achieved. Bus fares and freight charges on The improvement of the road the project sections reduced by condition stimulated the 10% by 2012 development of local transport Monitoring of bus fares services and reduced transport cost. and freight charges by However, it will take at least 2 years RTSD for a reduction in transport prices to be realized.
Likely to be achieved. Road accidents reduced by 10% Improvements in road safety
in 2012, compared with 2,388 in operation and awareness campaign 1 Appendix 2004 programs have resulted in Road accident statistics decreasing trend. The accident rate from the Traffic Police (persons killed) per 10,000 vehicles Department has reduced from 14.6 in 2004 to 9.5 in 2010. Outputs Achieved. Assumptions
1. Improved two-lane About 40 km completed by mid- 94.0 km of roads, comprising 39.0 Midterm review and Close coordination 17 paved road on the 2007, and 127 km by the end of km of the Gazakh–Georgian border project completion review among government
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Data Sources/Reporting Design Summary Performance Targets/Indicators Results Mechanisms Assumptions and Risks Yevlakh–Ganja section 2008 and 55.0 of km Yevlakh– Ganja missions agencies during project and Gazakh–Georgian rebuilt. Ganja bypass sections were implementation 1 Appendix border section of the dropped and being implemented east–west highway under separate project. Safety audits implemented during Achieved. Progress reports and PCR Timely arrival of
design and construction Safety audits were incorporated in equipment imported the detailed design. under the project Resettlement plan implemented Achieved. satisfactorily before the start of The resettlement plan implemented Independent monitor’s Avoidance or prompt civil works satisfactorily and no complaints report and PCR resolution of disputes were reported. among contractors, Achieved. supervision consultants, Mitigation measures in the initial Mitigation measures in the IEE were and executing agencies environmental examination fully undertaken to prevent adverse implemented during project environmental impact during Environmental monitoring Strong support from local implementation implementation. reports and PCR communities in the project area Risks of sexually transmitted Achieved. infections (including HIV/AIDS) Seven seminars on HIV/AIDS were Timely provision of and health risks for construction held for project management staff, counterpart funding workers, service providers, and contractors, and subcontractors. local residents adequately Monitoring by the Ministry Timely cofinancing from controlled of Health the Islamic Development Bank (IDB) and the Saudi 2. Improved local roads in About 65 km of 10 local roads The local roads were dropped from Fund for Development the project area improved by 2008 the project scope and being (SFD) improved under subsequent ADB Progress reports and PCR 3. Strengthened projects. institutional capacity in the road subsector
3.1 Road maintenance Annual maintenance funding Achieved. increased from $32 million in 2005 The budget for road maintenance RTSD’s approved budgets to at least $41 million in 2006, $48 was $55 million in 2006, $80 million million in 2007, $57 million in in 2009 and $72 million in 2011. 2008, and $65 million in 2009
Achieved. 6 regional maintenance units Road maintenance units were reorganized and fully operational reorganized and operational in all 6 by 2007 regions. ARS also reorganized to Progress reports and PCR manage implementation of all road projects.
Data Sources/Reporting Design Summary Performance Targets/Indicators Results Mechanisms Assumptions and Risks 3.2 Axle load control 12 vehicle weigh stations Partially achieved. established and fully operational Two weigh bridges (one is in along the main roads by 2007 Agstafa and one in Alat) were established; four weigh bridges are being installed under other ADB- Progress reports and PCR financed projects.
3.3 Road safety New road safety program Achieved. implemented by 2008 The road safety audit undertaken on Progress reports and PCR Road accident monitoring, the Kurdamir bypass road in March reporting, and information 2009 and a road safety audit manual systems developed by 2008 and black spot improvement guidelines prepared and system developed..
3.4 Project The project implementation unit in Achieved. management and RTSD reorganized to manage all ARS was reorganized to manage implementation road projects supported by ADB, implementation of all road projects Progress reports and PCR European Bank for Reconstruction financed by external aid agencies. and Development and World Bank before project implementation Achieved. Operational guidelines on project Operational guidelines on Progress reports and PCR implementation units prepared harmonized project implementation and adopted by 2008 units prepared and adopted.
Achieved. Guidelines on environmental and Guidelines on environmental and Progress reports and PCR social impact assessments and social impact assessments and management for road projects management for road projects developed and adopted by 2008 prepared and adopted.
4. Improved facilities and Completed by November 2008 Achieved. capacity for border The cross-border facilitation Progress reports and PCR
crossing at Red Bridge component was excluded from the 1 Appendix project and implemented with government funds under other government projects.
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20 Activities with Milestones Input at Appraisal Actual Input 1. Civil works ADB: $52.0 million ($49.0 ADB: $40.4 million ($39.3 1.1 Yevlakh–Ganja and Contracts awarded by November 2006 and civil works completed by million from ordinary million from ordinary
Gazakh–Georgian November 2008 capital resources; capital resources; 1 Appendix border road Contracts awarded by July 2007 and civil works completed by October SDR2.075.000 [$3.0 SDR676,138 [$1.0 million sections 2008 million equivalent] from equivalent] from Special 1.2 Local roads Contracts awarded by July 2007 and ivil works completed by July 2008 Special Funds resources) Funds resources)
1.3 Cross-border Civil works: $34.1 Civil works: $129.1 facilitation million million Consulting services: Consulting services: 2. Consulting services and $5.1 million (993 $7.1 million (1,417.8 capacity building person-months) person-months) 2.1 Detailed design and Equipment: $3.0 Equipment: $0.0 construction Consultants recruited by January 2006 and work completed by November million million supervision for road 2008 Project management: Project management: improvement Consultants recruited by October 2006 and work completed by $0.8 million $0.4 million 2.2 Road subsector September 2008 Contingencies:$4.8 Contingencies:$0.0 institutional Consultants recruited by July 2006 and work completed by November million million strengthening 2008 Government: $19.8 million 2.3 Cross-border IDB: $10.4 million Government: $73.8 facilitation SDF: $11.0 million million IDB: $10.4 million 3. Equipment SDF: $13.0 million Procured by July 2008 ADB = Asian Development Bank, ARS = Azer Road Service Open Joint-Stock Company, AZM = Azerbaijan Manat, IDB = Islamic Development Bank, IEE= initial environmental examination, IRI = international roughness index, MOF = Ministry of Finance, MOT = Ministry of Transport, PCR = project completion report, PIU = Project Implementation Unit, RTSD = Road Transport Service Department (of the Ministry of Transport), SDF = Saudi Fund for Development, SDR = special drawing right. VOC = vehicle operating cost. Sources: ADB and ARS.
Appendix 2 21
PROJECT COST AND FINANCING PLAN
Table A2.1: Project Costs ($ million) Appraisal Actual Total ADB Total ADB Item Cost Financing Cost Financing A. Base Cost 1. Road Improvement Component a. Land Acquisition and Resettlement 0.5 b. Civil Works i. Yevlakh–Ganja Section 39.1 14.4 84.1 ii. Gazakh–Georgian Border Section 16.8 14.2 45.0 34.7 iii. Local Roads 3.8 3.0 c. Consulting Services for Detailed Design and Construction Supervision 4.2 3.0 6.0 3.7 d. Environmental Management 0.2 0.1 2. Road Subsector Institutional Strengthening Component a. Consulting Services 1.2 1.2 1.0 1.0 b. Equipment 1.8 1.8 3. Cross-Border Facilitation Component a. Civil Works 2.9 2.5 b. Consulting Services 0.8 0.8 c. Equipment 1.2 1.2 4. Project Management 1.0 0.8 0.4 0.0 5. Local Taxes and Duties 7.8 Subtotal (A) 81.3 43.0 136.6 39.4 B. Contingencies 1. Physical Contingencies 5.3 3.0 2. Price Contingencies 2.4 1.8 Subtotal (B) 7.7 4.8 0.0 0.0 C. Financial Charges Interest and Commitment Charges during Construction 4.2 4.2 1.0 1.0 Subtotal (C) 4.2 4.2 1.0 1.0 Total (A+B+C) 93.2 52.0 137.6 40.4 ADB = Asian Development Bank. Sources: Report and recommendation of the President; ADB loan financial information system; Azer Road Service Open Joint-Stock Company.
Table A2.2: Financing Plan ($ million) Appraisal Actual Source Amount % Amount % Asian Development Bank 52.0 55.8 40.4 29.4 Ordinary Capital Resources 49.0 52.6 39.3 28.6 Special Funds Resources 3.0 3.2 1.0 0.8 Islamic Development Bank 10.4 11.2 10.4 7.6 Saudi Fund for Development 11.0 11.8 13.0 9.4 Azerbaijan Government 19.8 21.2 73.8 53.6 Total 93.2 100.0 137.6 100.0 Sources: Report and Recommendation of the President; ADB loan financial information system; Azer
Road Service Open Joint-Stock Company. 1 Appendix
21
22 Appendix 3
DISBURSEMENT OF ADB LOAN PROCEEDS Table A3.1: Annual and Cumulative Disbursement of ADB Loan Proceeds (Loan 2205-AZE, $ million) Annual Disbursement Cumulative Disbursement Amount ($ million) Amount Year Projected Actual % of Total ($ million) % of Total 2006 0.35 0.02 0.05 0.02 0.05 2007 6.32 1.44 3.66 1.46 3.72 2008 8.60 11.01 27.99 12.47 31.70 2009 16.00 16.97 43.13 29.45 74.83 2010 12.50 9.90 25.17 39.35 100.00 Total 39.35 39.35 ADB = Asian Development Bank. Source: Asian Development Bank.
Figure A3: Annual and Accumulative Disbursement of ADB Loan Proceeds (Loan 2205-AZE, $ million)
ADB = Asian Development Bank. Table A3.2: Annual and Cumulative Disbursement of ADB Loan Proceeds (Loan 2206-AZE, $ million) Annual Disbursement Cumulative Disbursement Amount ($ million) Amount Year Planned Actual % of Total ($ million) % of Total 2008 0.22 0.00 0.0 0.00 0.0 2009 1.60 0.56 53.6 0.56 53.6 2010 2.35 0.49 46.4 1.05 100.0 Total 1.05 1.05 ADB = Asian Development Bank. Source: Asian Development Bank.
APPRAISAL AND ACTUAL PROJECT IMPLEMENTATION SCHEDULES COMPARED
2005 2006 2007 2008 2009 2010 Item Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Gazakh–Georgian Border Section Procurement
Civil Works
Defects Liability Period
Consulting Services Yevlakh–Ganja Section Procurement
Civil Works
Defects Liability Period
Consulting Services Institutional Strengthening Component Recruitment
Implementation
At appraisal Actual Preparation, tendering, mobilization, liability period Preparation, tendering, mobilization, liability period
Implementation Implementation Appendix
4 Source: Project Implementation Unit, ARS.
23
24 Appendix 5
CHRONOLOGY OF MAJOR EVENTS
Date Main Event 2005 24 January–4 February ADB fact-finding mission held 10 May Management Review Meeting held 1–15 June ADB pre-appraisal mission held 6 July Pre-appraisal mission converted to appraisal mission as approved. 23 September Staff Review Committee Meeting held 10 March Loan agreement signed by government and Islamic Development Bank 3–7 November Loan negotiations held in Baku, Azerbaijan 8 December ADB Board approval granted 2006 3 January Loan agreement signed by government and Saudi Fund for Development 8–11 February ADB inception mission held 1 June Loan agreements signed 7 July ADB fax approving the issuance of the revised draft request for proposal to shortlisted firms and MOT’s proposed shortlist sent out 4 September MOT request for a 6-month extension in the loan effectiveness deadline, (i.e., until 28 February 2007) received 14 September ADB reply to MOT approving its request to extend loan effectiveness deadline until 28 February 2007 sent out 20 October ADB fax (i) approving MOT’s evaluation of financial proposals and final ranking, (ii) advising MOT to invite the first-ranked firm for contract negotiations, and (iii) advising MOT to submit the draft negotiated contract and minutes of contract negotiations for ADB approval. 27 October ADB fax to MOT declaring loan effectiveness sent out 13 November ADB fax approving the draft negotiated contract and advising MOT to sign the contract with Kocks Consult GmbH (Germany) sent out Contract with consultants for detailed design and construction supervision 7 December signed 2007 8 January First disbursement made under the loan 29 May Draft prequalification evaluation report submitted by MOT to ADB for review and approval 18 June ADB fax advising MOT of the results of ADB’s review of MOT’s prequalification evaluation report sent out 3 September Invitation to bid covering the two civil works contracts (lot 1: Ganja Bypass, and lot 2: Gazakh–Georgian border) posted on ADB website 3 September Invitation to bid issued to all prequalified contractors Addendum No. 1 issued by Azer Road Service Open Joint-Stock Company to all 12 September bidders 20 September Contract for construction supervision of the Yevlakh–Ganja section signed 4 October First periodic financing request ($200 million) approved by ADB 11 October MOT’s letter sent out to all bidders informing them that bidding for the Ganja bypass package was canceled and that information regarding bid submission would be announced accordingly, while bidding for the reconstruction of the Gazakh–Georgian border would be carried forward 7 November Detailed design completed 20 November Major change in scope approved by VPO1 reducing the scope of the east– west highway reconstruction component from the originally approved two contract packages covering two road sections to only one contract covering the Gazakh–Georgian border section and consequently reallocating the loan proceeds from subcategory 1A to subcategory 1B 23 November MOT’s recommendation in its bid evaluation report to award contract to
Appendix 5 25
Date Main Event Impresa S.p.A. (Italy) approved by the Procurement Committee 27 November–4 December ADB review mission held 26 December MOT’s e-mail advice regarding the signing of contract with Impresa S.p.A. on 24 December 2007 issued 2008 2 February Team leader of construction supervision consultant arrives 26 June ADB fax approving MOT’s draft RFP and proposed shortlist of firms sent out; RFP issued to the shortlisted firms 26 August Contract for civil works for the Yevlakh–Ganja section signed 25 September ADB fax endorsing results of MOT’s technical evaluation report and advising MOT to proceed with public opening of financial proposals sent out 15 October ADB fax endorsing results of MOT’s evaluation of financial proposals and advising MOT to proceed with contract negotiations with first-ranked firm sent out 24–27 November ADB review mission held 2009 8 January Contract for institutional strengthening consultant signed 21 January 2009 Institutional strengthening consultant mobilized 22–24 April ADB review mission held 5 May Minor change made in project scope covering additional services for design change and full project performance monitoring system at a cost of $0.5 million, necessitating a contract variation in Kocks contract (VO1) and reallocation of loan proceeds from category 3B (cross-border facilitation) to category 3A (detailed design and construction supervision) 5 May Minor change in scope for civil works contractor made in Impresa S.p.A.’s contract at a cost of $5.5 million 22–24 April ADB review mission held 13–15 July ADB review mission held 19–22 October ADB midterm review mission held 2010 28–30 January ADB review mission held 31 January Contract for institutional strengthening consultant completed 23 February Minor change in scope (representing various changes in the bill of quantities for general works, earthworks, culvert, drainage, pavement, etc.), necessitating a contract variation (VO2) and reallocation of loan proceeds, approved by ADB 30 March Civil works for the Gazakh–Georgian border section completed Contract for construction supervision of the Gazakh–Georgian border 30 March section completed 8 April Takeover certificate issued for the Gazakh–Georgian border section 29 April–4 May ADB review mission held 31 May Original ADB loan closing date 1 June Undisbursed contract amount as of 10 May 2010 transferred to Loan 2433- AZE, as Kocks contract under Loan 2205-AZE was to close on 31 May 2010 7 June Final disbursement made under the loan 15 June ADB fax advice sent to MOT regarding undisbursed balance under the two loans to be canceled effective 15 June 2010; loans closed Appendix 23 June ADB fax advice sent to MOT attaching revised amortization schedule subsequent to ADB’s earlier advice regarding cancellation of a certain
amount from the loan account effective 15 June 2010 4 2011 12–22 September ADB project completion review mission held
ADB = Asian Development Bank, MOT = Ministry of Transport, RFP = request for procession, VO = variation order. 23
Source: ADB.
26 Appendix 6
ORGANIZATIONAL STRUCTURE FOR PROJECT IMPLEMENTATION
Steering Committee
Islamic Development Bank Ministry of Transport Asian Development Bank Saudi Fund for Development (Executing Agency)
Azer Road Service Institutional (Implementing Agency) Strengthening Consultant
Design and Supervision Supervision Consultants Consultants
PIU PIU
(GG Border Section) (YG Section)
Contractor Contractor (GG Section) (YG Section)
Subcontractors Subcontractors
GG = Gazakh–Georgian, PIU = project implementation unit, YG = Yevlakh–Ganja. Source: Azer Road Service Open Joint-Stock Company.
Appendix 7 27
STATUS OF COMPLIANCE WITH MAJOR LOAN COVENANTS
Reference in Loan/Project Particulars Agreement Status of Compliance 1. Project Executing Agencies Partially complied with. RTSD will be the project Executing Agency for components A1 and LA, Schedule MOT acted as the executing agency B (Loan 2205), and C (Loan 2206) of the project and SCC will be 6, para. 1 for the road related components the project Executing Agency for the carrying out of component D of (the cross-border related the project. component was excluded from the project at completion). 2. Project Implementation Unit Complied with. A joint PIU will be reorganized to manage all road projects LA, Schedule The PIU for the project was supported by ADB, the European Bank of Reconstruction and 6, para. 2 established under ARS, which was Development, and the World Bank, including ADB-funded road headed by a Project Director and improvement activities under the project. The PIU will comprise comprised a team of qualified RTSD staff and externally contracted staff to supplement limited technical, financial, and support human resources in RTSD. It will be headed by a project director staff. who will be assisted by a team of qualified technical, financial and support staff. SCC will appoint a project coordinator to manage implementation of the components C (Loan 2205) and D (Loan 2206) of the project and liaise with RTSD and other relevant government agencies during implementation. 3. Project Steering Committee Complied with. A PSC will be established to ensure close interagency coordination LA, Schedule The Steering Committee for the and supervise implementation. The PSC will be chaired by the 6, para. 3 project was established in 2007, Director of RTSD and will comprise representatives of the Ministry which comprised representatives of Economic Development, Ministry of Finance, Ministry of from the Ministry of Economic Transport, PIU project director and the project coordination from Development, Ministry of Finance, SCC, Representatives of relevant local communities will be invited and Ministry of Transport as well as to attend PSC meetings for local road improvement. The PSC will the PIU Project Director and the meet at least quarterly to review the progress of implementation SCC Project Coordinator. The PSC and provide approvals and guidance on Project implementation, as met at least quarterly to review necessary. implementation progress and provide approvals and guidance on project implementation as necessary. 4. Counterpart Funding Complied with. The Borrower shall provide, on a timely basis, all funds and LA, Schedule The government provided required resources necessary for reconstruction operations, maintenance 6, para. 4 counterpart funds and all necessary and management of the project facilities. The Borrower shall cause supports for the project timely, with the Ministry of Transport to ensure that RTSD can successfully a total of $73.82 million equivalent, implement Components A1 and B as identified in Schedule1 and comprising $10.46 million for the operate and maintain them after completion. The Borrower shall Gazakh–Georgian border section ensure that SCC successfully implements Component D as and $63.37 million for the Yevlakh– identified in Schedule 1. Ganja section respectively. 5. Construction Quality Complied with. The Borrower through RTSD shall ensure that the project roads are LA, Schedule The quality control of construction rehabilitated according to technical specifications of the design. In 6, para. 5 was carried out by the contractor addition, the Borrower through the Ministry of Transport and RTSD and the construction supervision shall also ensure that construction supervision, quality control and consultants. The consultants project management are performed according to internationally inspected and assessed the works accepted standards. to ensure that the standard and
Appendix Appendix specifications in the project document were met. No remarkable quality problem was reported in the
defect liability period. 4 6. Road Maintenance Complied with. The Borrower shall ensure that a road maintenance program LA, Schedule MOT, with assistance from the covering the country’s road network and based on the recently 6, para. 6 consultants, implemented the road
23 introduced pavement management system will be implemented. maintenance program, including (a)
28 Appendix 7
Reference in Loan/Project Particulars Agreement Status of Compliance developing and updating the road network database annually with the maximum use of staff of regional road maintenance units; (b) preparing annual road maintenance plans; (c) implementing the annual road maintenance plans; (d) providing training to ARS staff for operating the PMS database. 7. Axle Loads Complied with. The Borrower shall cause RTSD to fully establish vehicle weighing LA, Schedule Two weight bridges of high quality stations along the roads in Azerbaijan, including the two stations 6, para. 7 (one in Agstafa and one in Alat) located in the project area to enforce the axle-road regulations prior were established. The other four are to project completion. under installation under other ADB- assisted road projects. 8. Project Management Complied with. In the interest of providing continuity for project management, the LA, Schedule During implementation, an adequate PIU project director shall serve in the position throughout the project 6, para. 8 institutional arrangement was well implementation period, except in case of gross dereliction of duties (Loan 2205); established to ensure efficient and or such other serious cause, provided that such determination is para. 4 (Loan timely management of the project. made through appropriate due process. The Borrower, through 2206) MOT and the ARS provided close RTSD, shall provide the PIU with adequate office space and monitoring and coordination to the support services in a form satisfactory to ADB throughout the construction progress and quality implementation period. The Borrower, through RTSD, shall ensure control of the project. The PIU that upon project completion, PIU staff is integrated in RTSD to director served throughout the implement future projects. project and was assisted by a team of qualified technical, financial, and support staff. The PIU, with assistance from the consultants, prepared the periodic project progress reports. 9. Project Auditing Complied with. The Borrower shall cause RTSD to (a) undertake timely audit of LA, Schedule The financial accounts and project accounts according to sound auditing standards by an 6, para. 9 statements for the project were external auditor acceptable to ADB and (b) submit to ADB audited (Loan 2205); audited by the external charted project accounts and related financial statements in English within 6 para. 5 (Loan accountants acceptable to ADB, months of the end of each fiscal year during implementation. 2206) and the audit reports were submitted to ADB as required. 10. Safeguard Policies and Co financing Complied with. The Borrower shall (a) inform the cofinancers in writing of its LA, Schedule According to the surveys and obligation to comply with ADB’s policies on Involuntary 6, para. 10 interviews, there were no serious Resettlement and Environment and the steps that will take to complains concerning the land comply with such policies; and (b) immediately inform ADB if any acquisition and resettlement. The cofinancer objects to the government complying with ADB’s such project implementation had no policies. All project activities financed by the cofinancers will be impact on indigenous peoples. The implemented in accordance with ADB’s policies on Involuntary Resettlement Plan was satisfactorily Resettlement and Environment. implemented and there were no any outstanding issues on the land acquisition and resettlement, which was reported to ADB. 11. Land Acquisition and Resettlement Complied with. The Borrower, through RTSD and concerned local authorities, will LA, Schedule The project required only minor land ensure that (a) all land and rights-of-way required by the project are 6, para. 11 acquisition and temporary land made available in a timely manner; (b) the resettlement plan occupation. MOT prepared a prepared by RTSD and acceptable to ADB is implemented resettlement plan to ensure that fair according to its terms, all applicable domestic laws and regulations compensation and assistance would and ADB’s Policy on Involuntary Resettlement; (c) the plan is be provided for affected people or updated based on detailed design and the updated resettlement businesses. On the temporary plan is submitted to ADB for approval and disclosed to affected impacts (e.g., vibration, noise, dust,
Appendix 7 29
Reference in Loan/Project Particulars Agreement Status of Compliance persons prior to the commencement of civil works; (d) no further etc), the contractor undertook road reserve clearance is undertaken in the project area until a appropriate measures such as the socioeconomic assessment of affected persons is completed and use of new rollers that causes appropriate mitigation measures are included in the updated minimal vibration and noise, and the resettlement plan, (e) civil works contractors’ activities are in frequent water spraying of the road compliance with requirements of the resettlement plan and ADB’s section under construction. Policy on involuntary Resettlement; and (f) an independent monitor acceptable to ADB is engaged to carry out monitoring and evaluation and report to ADB. 12. Environment Complied with. The Borrower, through RTSD, will ensure that (a) the project LA, Schedule An environmental protection report1 design, improvement and operation comply with applicable 6, para. 12 was prepared during detailed domestic laws, regulations and standards; (b) all environmental design. During implementation, ARS mitigation measures, institutional requirements and monitoring and the contractors took measures plans specified in the initial environmental examination are to prevent adverse environmental complied with; (c) the mitigation measures are updated during the impact in design and construction. detailed design; and (d) all the above requirements are incorporated Adequate drainage measures were in the bidding documents and civil works contracts to ensure incorporated in the project design compliance. and constructed. The PIU prepared four biannual environmental reports that recorded all the environmental issues and indicated no significant negative environment impacts that occurred during implementation. 13. Governance and Anticorruption Complied with. The Borrower, through RTSD and SCC, shall follow ADB’s LA, Schedule The government followed ADB’s Anticorruption Policy. Borrower acknowledges that ADB, consistent 6, para. 13 Anticorruption Policy during with its commitment to good governance, accountability and (Loan 2205); implementation, including carrying transparency, reserves the right to undertake directly or through its para. 6 (Loan out all the procurement and agents, investigation of any alleged corrupt, fraudulent, collusive or 2206) recruitment in accordance with coercive practices related to the project. The Borrower will ADB’s guidelines; established cooperate with such investigation and extend all necessary project account, which were audited assistance including access to all relevant books and records and by the charted financial auditors engaging in depended experts who may be needed for satisfactory acceptable to ADB. completion of such investigations. All costs related to such investigations will be borne by the project. The Borrower through RTSD and SCC will ensure that the following anticorruption measures during project implementation are taken: (a) anticorruption provisions acceptable to ADB will be included in all bidding documents and contracts, including provisions specifying ADB’s right to audit and examine the records and accounts of the executing agencies and all contracts, suppliers, consultants and other service providers as they relate to the project; (b) all decisions relating to procurement will be made by the Tendering Committee that comprises representatives of the Ministry of Economic Development, Ministry of Finance, Ministry of Transport, State Customs Committee and State Procurement Agency in accordance with ADB’s Guidelines for Procurement and the Procurement law of Azerbaijan; and (c) the supervision consultant shall verify the contractors’ payment claims in accordance with contract specification. Appendix 14. Labor Laws Complied with. The Borrower, through RTSD, shall ensure that civil works LA, Schedule The civil works contractors were contractors comply with all applicable labor laws and regulations as 6, para. 14 required to meet all labor law
4 well as international treaties, do not employ child or forced labor for standards, in terms of conditions of road improvement, provide equal opportunities for women in road employment, safety in the
23
1 Environmental Protection Report for the Gazakh-Georgian Border Road, Kocks Consult GmbH. September 2007.
30 Appendix 7
Reference in Loan/Project Particulars Agreement Status of Compliance improvement activities and promptly pay equal value. RTSD and workplace, insurance and pay SCC will ensure that specific provisions to this effect are included in conditions according to national all bidding documents and civil works contracts and that compliance laws in Azerbaijan, and equal job is monitored on an ongoing basis. and pay opportunities for women. 15. Gender and Development Complied with. The Borrower, RTSD shall take measures to encourage contractors LA, Schedule During implementation, 13 women to employ women during project implementation and promote 6, para. 15 out of the total 406 local labors were women’s participation in activities to monitor project impacts on hired by the project, which was local communities. RTSD and SCC shall ensure that the project is significant, considering the nature of implemented according to ADB’s Policy on Gender and construction work and the cultural Development. restrictions for women in Azerbaijan. 16. Health Standards Complied with. The Borrower, through RTSD and SCC, shall ensure that all bidding LA, Schedule The government undertook documents and civil works contracts require contractors to provide 6, para. 16 appropriate measures in the following to construction workers at camp sites: (a) information accordance with applicable national on the risk of sexually transmitted infections; and (b) benefits on laws and regulations to prevent accidental death and disability, safety and security, sanitation and trafficking of illegal substances and appropriate working conditions. The Borrower, RTSD and SCC humans at the border with Georgia shall also disseminate similar information to transport operators during implementation and after using project facilities and local residents in the project area. project completion. The HIV awareness program was provided monthly. Documentation of HIV/AIDS information dissemination is discussed in the attached Social Impact Assessment Report. 17. Drugs and Human Trafficking Complied with. The Borrower shall ensure that appropriate measures are LA, Schedule A national program was developed undertaken in accordance with applicable domestic laws and 6, para. 17 to establish a rehabilitation centre regulations of Azerbaijan to prevent trafficking of illegal substances for trafficking victims, where they and humans at the border of Red Bridge with Georgia during project will be provided with medical and implementation and after project completion. psychological assistance. Measures to combat trafficking were taken on the national level. 18. Monitoring and Evaluation Partially complied with. The Borrower, RTSD with assistance of the PIU and the supervision LA, Schedule Two monitoring and evaluation consultant shall monitor and evaluate project impacts to ensure that 6, para. 18 activities were carried out during the project facilities are managed effectively and the project benefits (Loan 2205); implementation in 2009 and 2010. maximized. The Borrower, RTSD and SCC shall collect the data para. 7 (Loan Socioeconomic impacts of the agreed with ADB at the inception, project completion and 3 years 2206) project were monitored. A final after project completion. report was submitted to ADB. ADB = Asian Development Bank; AIDS = acquired immunodeficiency syndrome; ARS = Azer Road Service Open Joint-Stock Company; HIV = human immunodeficiency virus; MOT = Ministry of Transport; PIU = project implementation unit; PSC = project steering committee; RTSD = Road Transport Service Department; SCC = State Customs Committee.
SUMMARY OF CONTRACT PACKAGES
Original Contract Actual Contract Contractor/Consultant Mode Date Currency Amount $ Equivalent ADB Finance 1 Civil Works 1.1 Gazakh–Georgian Border Section Impresa S.p.A (Italy) ICB 24/12/07 AZN 30,848,135 45,009,634 34,657,418
1.2 Yevlahk–Ganja Section Polat Yol Yapi Senqye ve ICB/MC 26/08/08 US$ 83,426,000 84,083,260 Ticazet A.S. (Turkey) 2 Consulting Services 2.1 Detailed Design and Construction Kocks Consultants QCBS 07/12/06 US$ 1,717,225 Supervision for GG Section (Germany) AZN 1,486,685 3,650,777 3,650,777
2.2 Construction Supervision for YG Industrial and Engineering ICB/MC 20/09/07 Section Consulting Office (Kuwait) US$ 1,119,000 2,384,650
2.3 Institutional Strengthening Finnroad Ltd. (Finland) QCBS 08/01/09 US$ 387,000 1,048,381 1,048,381 Consultancy EUR 518,000
Total 136,176,702 39,356,576
ADB = Asian Development Bank, AZN = new Azerbaijan manat, GG = Gazakh to Georgian road section, ICB= international competitive bidding, ICB/MC = international competitive bidding and member country, QCBS = quality- and cost-based selection, YG = Yevlakh to Ganja road section. Source: Project completion report prepared by Ministry of Transport; ADB.
Appendix Appendix
8
31
32 Appendix 9
SUMMARY OF INSTITUTIONAL STRENGTHENING COMPONENT
A. Background
1. To support the road development subsector in Azerbaijan, the Asian Development Bank (ADB) approved two loans in 2005 to finance the East–West Highway Improvement Project.1 An institutional strengthening component was designed to support policy reform and improve governance in the road subsector through institutional strengthening with the objective of building effective institutions for sustainable road network management. The component was designed to cover the areas of (i) road maintenance, (ii) axle load control, (iii) road safety, and (iv) project management and implementation.
2. A consulting firm, Finnroad Ltd., was recruited in January 2009 to provide consulting services. The consulting services were completed in January 2010. At completion, a total of 92 person-months consulting services—31 person-months international and 61 person-months national—had been provided. The main activities and outputs of this institutional strengthening component are summarize below.
B. Road Maintenance
3. The status of the recently installed pavement management system (PMS) in Azerbaijan was reviewed and a plan was made for (i) developing and updating the road network database annually with the maximum use of staff of regional road maintenance units; (ii) using the PMS to prepare annual road maintenance plans; (iii) assisting in the implementation of the annual road maintenance plans; and (iv) providing further training to ARS staff for operating the PMS database. The road user costs in the PMS were reviewed and updated, for the use of Azer Road Service (ARS, the implementing agency) in feasibility studies. Additional equipment required by ARS to conduct annual road condition and traffic surveys associated with maintaining the PMS database, as well as the equipment required for regional maintenance units for effective routine road maintenance operation, was identified and procured. Alternative sources of funding for road maintenance, in addition to budgetary allocations, were identified and appropriate recommendations were provided with a view to ensuring the sustained financing of road maintenance. The current road asset management system (RAMS) being used by ARS, especially the road database (RDB), was also updated and upgraded.2
4. The consultant believed that the current RAMS could be developed into a system that would satisfy ARS’ future needs. The introduction of any new system would require tailoring and adjusting it to the Azerbaijan context. International experience shows that the technology of the PMS and RAMS systems is not the key to success; systems of varying complexity and sophistication may work well if (i) adequate processes for using the system are in place, (ii) data collection is properly carried out, and (iii) there are capable persons to run the system. In other words, the system has to have an institutionalized position in the road agency, and backing from all levels of management for its adequate resourcing and genuine use in planning and programming of works. The key issue with ARS was institutionalizing the RAMS and accepting it as a tool to assist in optimizing road maintenance programs by using available maintenance
1 One loan (2205-AZE) of $49.0 million was from ADB’s ordinary capital resources (OCR) and the other (2206-AZE) was in various currencies equivalent to SDR2,075,000 ($3.0 million equivalent) from its Special Funds resources. 2 In 2003–2004, in connection with a World Bank–funded technical assistance project for the Road Transport Service Department (RTSD) of the Ministry of Transport, a road database (RDB, MS Access application) and a pavement management system (PMS, HDM-4) were developed, tailored, and implemented, as part of 11 task areas.
Appendix 9 33 funding as effectively as possible. The RAMS needs to be integrated with the annual maintenance cycle of road maintenance planning and implementation, and should be sufficiently resourced with (i) competent staff, and (ii) adequate funding for regular data updating and other related activities.
5. Based on the consultant’s assessment and international comparison, it was suggested that some changes be made in the revenue items currently included in the Road Fund. The current revenue items are mainly ―access fee‖ type–based charges (i.e., the use of roads is not sufficiently charged). It was thus proposed that a fuel charge per liter of fuel be introduced to cover 67%–75% of the maintenance needs. The charge was considered feasible, as fuel prices in Azerbaijan are lower than those in other countries, and the rising amounts of fuel used mean that the amount of the charge per liter would remain relatively small. Detailed calculations are needed by ARS, but it was estimated that applying a charge of AZN0.08 to each liter would mean a revenue stream of about AZN110 million per year.
C. Axle Loan Control
6. A study was undertaken to assess the vehicle axle overloading problem in Azerbaijan, which included (i) assisting ARS in conducting axle load surveys to provide updated data on the scale of overloading on the road network; (ii) analyzing the causes of axle overloading; and (iii) recommending on how to address the problem. Existing axle load legislation and regulations in Azerbaijan and neighboring countries were reviewed. Advice was provided to ARS on any amendments necessary to ensure that (i) ARS has the legal powers to stop vehicles on the highway and direct them to off-load cargo; and (ii) Azerbaijan harmonizes its legislation with that of neighboring countries. The consultants supported the installation of two vehicle weigh stations along the project road by assisting in the procurement of axle load weighing equipment and associated infrastructure and capacity building. Public awareness of the need for vehicle axle load control was increased, and advance notice of overloading control procedures to be implemented was given. The consultants also advised ARS of methods for monitoring axle load and the effectiveness of vehicle weigh stations, and assisted in the procurement and installation of axle weighing equipment (e.g., mobile axle load control facilities and weigh-in-motion strips) at each station and other selected locations.
7. Overloading is a serious problem in Azerbaijan, although there was little recent adequate data available to verify this. Pavement deterioration, even on some newly constructed roads, demonstrates the problem. The axle load surveys done by the consultant in November 2009 confirmed the seriousness of the overloading problem. The survey report describes the surveys and the results, notes the heavy traffic by survey location, and comments on the reliability of the results. Further, the report includes an analysis of the results, and conclusions and recommendations for addressing the overloading problem. The consultant reviewed the draft regulation on granting special permissions for the transport of abnormal loads on public roads, and found it necessary to raise a number of comments and revise the regulation for the Ministry of Transport (MOT) and ARS to consider. The comments and the revised regulation text were
Appendix Appendix aimed to make the regulation as clear and logical as possible, and minimize the bureaucracy involved in considering and granting the special permissions without compromising the need to control abnormal transport and protect roads and bridges.
8
8. The consultant reviewed all vehicle-related charges and customs levies on foreign vehicles transporting goods into or in transit through Azerbaijan. The present road user charges 31 and other charges applicable to foreign trucks in Azerbaijan were also reviewed.
34 Appendix 9
The road user charges and sanctions on vehicles transporting abnormal loads under Regulation 104 were reviewed. Finally, a gap analysis compared the present charges and customs levies that foreign trucks have to pay when using the public roads of Azerbaijan with the road user charges and sanctions determined in Regulation 104. On the basis of the decisions made by ARS and what was agreed in the preparation of the weighing stations technology procurement, the consultant took the specifications of the preselection system and the weighing station scales to the detailed level required in the procurement. The consultant also prepared bidding documents for the supply and installation of weigh bridges and other goods for heavy-vehicle weighing stations, and the provision of user training. This was done on the agreement that ARS would arrange and finance the construction of the vehicle weighing stations. The exact locations of the five weighing stations and the preselection sensors were determined by ARS after it received the consultant’s proposals based on field visits, and the locations were included as information for tenders in the specifications.
D. Road Safety
9. The status of the National Road Safety Committee was reviewed and specific recommendations on how to improve its operations were provided. The consultant assisted ARS and other concerned government agencies in (i) implementing a traffic safety program prepared under World Bank assistance; (ii) updating the road accident monitoring, reporting, and information systems; and (iii) implementing a campaign to raise public awareness of road safety.
10. At the request of ARS, and as an exercise in addition to the scope of work, the consultant carried out a road safety audit in March 2009 on the Kurdamir bypass road, especially on the junctions of the bypass. Numerous serious accidents had taken place since the opening of the bypass. The audit was conducted in cooperation with ARS staff, and a number of recommendations on safety improvement were made. However, the consultant experienced difficulties in getting a proper, genuine response from the key stakeholders of the institutional road safety work. The Cabinet of Ministers, MOT, and the Traffic Police Department were contacted, meetings were held, and cooperation was promised. Later on, it was difficult to get access to the right persons to discuss the consultant’s recommendations. Thus, the involvement of the stakeholders was much thinner than what was wished for.
11. The existing accident monitoring, reporting, and information systems were reviewed. However, it seemed that the traffic police were not willing to share with the consultant details of the accident monitoring system, such as the data collection methodology, data system structure, programs being used, or how the collected data was reported and analyzed in work towards better road safety. It was suggested that collecting road accident data be systematic and comprehensive. Relevant data—data that have significance and are useful in road safety work—need to be collected. To establish reliable trends over years, data collection should be consistent and continuous. The accident database should be used by traffic/road engineers and the traffic police. It should be possible to show the accidents on digital maps and change the scale easily. Training was provided to cover black spot improvements, safe road design, and road safety audit. The consultant also conducted two training workshops in Baku and Ganja. The contents of the training are described in detail in the road safety training report, which includes the training materials (handouts), the workshop program and schedule details, lists of participants, and assessment of the training. As separate attachments, the training materials include draft versions of the road safety audit manual and black spot improvement guidelines. ARS needs to review and use these drafts.
Appendix 9 35
E. Project Management and Implementation
12. Operational guidelines on harmonized project implementation units, including contract administration, evaluation of contractual claims, reporting on financial and physical progress, and processing of payments, were prepared. A computerized system for monitoring and reporting on the financial and physical progress of investment and maintenance activities related to the national road network was installed and operated with assistance of the consultant. Guidelines on environmental and social assessments and management for road projects were developed, which included (i) preparing and implementing resettlement plans, and environmental and social management plans; and (ii) monitoring and evaluating environmental and social impact of road construction, rehabilitation, operation, and maintenance.
13. The consultant reviewed Azerbaijan’s legal and regulatory framework, and assessed the division of duties and responsibilities of relevant government ministries and other stakeholders. The procedural requirements in the field of resettlement and environmental were identified, including social and environmental impact and management. Comparison and reference was made to international requirements, like those of ADB. On the basis of the review, an understanding of capacity-building needs and of appropriate contents of the guidelines was established. The guidelines conform to the legal and administrative requirements of Azerbaijan concerning the environmental aspects of road projects. They also conform to the requirements of multilateral development banks (MDBs) including ADB related to environmental protection.
14. The consultant reviewed ARS’ project implementation structure. The current setup of ARS for managing externally financed projects is typical. The financiers require separate project implementation units (PIUs) that concentrate on specific programs and projects, and create competence in managing the projects according to the financiers’ requirements, and in communicating daily with the financiers, contractors, consultants, and other service providers. Alternatives to the current situation were assessed. The consultant concluded that it was not advisable at this stage to make major changes in the current PIU structure and approach. What needs to be ensured is that each PIU has adequate human resources and expertise to meet its requirements. Considerable weaknesses still exist in PIU operations, and these should be corrected through capacity building and training. Later on, changes may be necessary and justified as the ARS overall organization is likely to be revised and ARS capacity increased.
F. Training and Overseas Study Tour
15. With assistance of the consultants, four senior ARS staff made a study tour to Finland on 6–14 June 2009. The study tour aimed to familiarize the ARS participants with Finnish approaches to coordinated road safety work. During the visit, ARS participants met with road related agencies and companies, including the Finnish Road Administration, the Traffic Management Center, the Central Organization for Traffic Safety, and Traffic Policy Finland. They also visited sites of road safety and axle load control in several cities. The study tour provided a good opportunity for ARS staff in improving road safety and axle load controls. Appendix 16. During the consulting services, a considerable amount of documentation—substance reports, guidelines, manuals, working papers, training reports, correspondence—was prepared.
8
In addition to submitting all the relevant documents in hard copy to stakeholders during the assignment, the consultants also compiled and submitted the documents in electronic format with the draft final report, the revised draft final report, and the final report. A significant amount
31
of training was also conducted for ARS staff and the officers of related government agencies.
36 Appendix 10
ECONOMIC REEVALUATION
A. General
1. The Asian Development Bank (ADB) project completion review mission conducted an economic reevaluation of the project by comparing ―with project‖ and ―without project‖ cases using similar methodology as that at appraisal and updated data. In the ―without project‖ case, it was assumed that the original state of the road, without rehabilitation, would be retained. In the ―with project‖ case, the roads were rehabilitated so that vehicles could drive at faster speeds with low operating cost and less travel time. More traffic would also be diverted from other routes and some generated traffic would be induced by the project. A traffic analysis was carried out on the existing traffic before and after the project. The traffic forecast was revised in consideration of the fast-growing traffic demand and development. Economic benefits were estimated by comparing the ―with project‖ and ―without project‖ scenarios. Consequently, the economic internal rate of return (EIRR) was calculated and sensitivity was tested. The economic reevaluation was carried out for the whole project, comprising the Gazakh– Georgian border section and the Yevlakh–Ganja section.
B. Traffic Analysis
2. During detailed design, the consultants carried out a traffic count in December 2006 (2-day manual counts at four cross sections, and a 1-day manual count at six junctions).1 The collected traffic data were processed into average annual daily traffic (AADT) and compared with the historical traffic counts on the same road sections (Yevlakh–Ganja, Ganja bypass, Tovuz–Gazakh, and Gazakh–Georgian border). Traffic on the Gazakh–Georgian border section increased by an average of 9.4% yearly in 2001–2006. The project completion review mission provided the latest traffic counts. It was noted that the increase in traffic on the Gazakh–Georgian border section accelerated with an average growth of 10.8% per year in 2006–2010. The numbers of vans, small trucks, and large trucks remarkably increased by an average of 38%, 35%, and 31% per year, respectively. Actual traffic was much higher than the appraisal estimates.2 In the border area, a large amount of cross-border traffic was observed: about 20 large passenger buses and 1,000 trucks per day, as well as many local transport vehicles carrying passengers and freight from the border inland. It was also found that most of the vehicles ran at an average of 60–80 km per hour on the project road, compared with 30– 40 km per hour before the project.3 In consideration of the existing traffic, the fast growth in traffic demand, and road capacity limitations, the traffic forecast was revised. It was assumed that traffic on the project roads would keep its high increase trend in the near future, with the increase rates averaging 8.0% in 2011–2015, 7.6% in 2016–2020, and 4.8% from 2021 onward. The revised traffic increase rates were higher than those estimated at appraisal, reflecting the faster socioeconomic development in the project area.4 Table A10.1 shows the existing traffic and the revised traffic forecast. The revised traffic forecast was used in the economic reevaluation.
1 Kocks Consult GmbH. 2009. Social Monitoring and Evaluation Report: Gazakh–Georgian Border Section. Koblenz. 2 At appraisal, passenger traffic was projected to increase by an average of 7.8% yearly, and freight traffic by 7.5% yearly in 2005–2009. 3 The design speed of the project road is 120 km per hour. 4 At appraisal, passenger traffic was projected to increase by an average of 6.8% yearly, and freight traffic by 6.0% yearly in 2010–2028.
Appendix 10 37
Table A10.1: Existing Traffic and Revised Forecast (AADT on the Gazakh–Georgian Border Section)
Small Medium Large Motor- Year Car Minibus Van Bus Truck Truck Truck cycle Tractor Total Existing Traffic 2001 1,314 158 39 94 25 52 53 2 10 1,747 2006 1,911 265 45 82 125 102 192 5 13 2,740 2010 2,100 468 163 196 415 184 559 16 22 4,123 Existing Vehicle Composition 2001 75% 9% 2% 5% 1% 3% 3% 0% 1% 100% 2006 70% 10% 2% 3% 5% 4% 7% 0% 0% 100% 2010 51% 11% 4% 5% 10% 4% 14% 0% 1% 100% Existing Traffic Increase Rate 2006/01 8% 11% 3% -3% 38% 14% 29% 20% 5% 9.4% 2010/06 2% 15% 38% 24% 35% 16% 31% 34% 14% 10.8% Future Traffic Increase Rate Estimation 2011–15 4% 10% 12% 10% 10% 10% 15% 15% 10% 8.0% 2016–20 6% 8% 8% 8% 8% 8% 10% 8% 8% 7.6% 2021–30 4% 4% 6% 6% 4% 6% 6% 6% 4% 4.8% AADT = annual average daily traffic. Source: ADB project completion review mission.
C. Costs and Benefits
3. The project costs comprised capital and maintenance costs. The actual capital costs for the project were about 47.7% higher than the appraisal estimate. The unit costs for civil works were about double, mainly due to sharp increases in prices of fuel, utilities, and major road construction materials in the period from appraisal to detail design. Actual annual investment costs for the project were used in the economic reevaluation. Standard national norm for road maintenance cost was used in the analysis, including $30,000 per km per year for category II road and overlay by every 5 years (20% of the capital cost). The financial costs for capital and maintenance were converted into economic costs with the use of a standard conversion factor of 0.98 in the project area. All economic costs were estimated in constant 2011 prices.
4. Using a similar methodology at appraisal, the main sources of economic benefits were (i) vehicle operation cost (VOC) savings, (ii) passenger travel time costs saving, and (iii) other non-quantified benefits. The benefit calculation only considered normal and diverted traffic. The induced traffic was excluded in the benefit calculation. The VOC savings were recalculated using unit VOC data by different road roughness, which were adopted from other analysis5 but with adjustment by inflations. The VOC savings in $ per vehicle-kilometer were estimated at 0.06 for car, 0.15 for bus, 0.21 for small truck, and 0.18 for large truck. Average passenger vehicle speeds were assumed at 60–80 km per hour for the ―with project‖ case and Appendix 30–40 km per hour for the ―without project‖ case. The passengers’ travel time cost savings were recalculated by different types of passenger vehicles. The passenger time cost was derived from the GDP per capita of the country in 2010 and was estimated to increase 5–3% 8 each year to reflect income increasing in the near future. Other factors taken into account in
31 5 ADB. 2007. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing Facility for the Road Network Development Program in Azerbaijan. Manila.
38 Appendix 10 the calculation for passenger time cost saving include average vehicle loads, percentage of work-related trips, time costs for different road users, and travel speeds for different types of passenger vehicles. Due to data unavailability, 5% were added to the VOC and time cost savings to reflect other benefits such as socioeconomic development in the project area, poverty reduction, less accident cost, maintenance cost savings for the ―without project‖ case. The benefit calculation results show that VOC savings accounted for 48.7% of the total benefits in 2011, but passenger time cost benefits increased rapidly along with socioeconomic development and income increasing, reaching 60.1% of the total benefits in 2030.
D. Economic Reevaluation and Sensitivity Test
5. Based on the above estimations on economic costs and benefits, the economic internal rate of return (EIRR) was recalculated at 20.4% for the project (21.5% for the Gazakh– Georgian border section and 19.6% for the Yevlakh–Ganja section). Compared with 17.9% at appraisal, the higher EIRR was mainly caused by higher existing and future traffic levels. All of the recalculated EIRRs are above a discount rate of 12%. The project is therefore economically viable. The detailed EIRR reevaluations for the project and for each road section are shown in Tables A10.3–A10.5.
6. The EIRRs were subjected to sensitivity analysis to test different scenarios of costs and benefits. The sensitivity analysis results show that the project continued to be economically viable for all scenarios tested. In the case with a combination of a 20% maintenance cost increase and a 20% benefit reduction, the EIRRs would be 16.4% for the project. The sensitivity test also shows that the EIRR is more sensitive to the changes of benefits. Therefore, the government needs to pay attention to the socioeconomic development in the project area, promote cross-border transport, foster transport services, and increase incomes for the rural users. The results of the sensitivity tests are shown in Table A10.2.
Table A10.2: Sensitivity Analysis ($ million) Scenarios EIRR (%) NPV Base Case 20.4 116.9 Sensitivity Tests 1 Maintenance Cost 10% Higher 20.1 112.2 2 Maintenance Cost 20% Higher 19.8 107.4 3 Benefits 10% Lower 18.7 86.4 4 Benefits 20% Lower 17.0 55.9 5 Benefits 10% Higher 22.0 147.4 6 Benefits 20% Higher 23.5 177.9 7 Maintenance Cost 10% Higher and Benefits 10% Lower 18.4 81.7 8 Maintenance Cost 20% Higher and Benefits 20% Lower 16.4 46.4 EIRR = economic internal rate of return, NPV = net present value. Source: Asian Development Bank project completion review mission.
Appendix 10 39 Table A10.3: Economic Reevaluation for the Project ($ million) Costs Benefits Net NPV Capital Maintain Total VOC Time Cost Others Total Benefit 2006 0.0 - 0.0 -0.0 -0.0 2007 2.4 - 2.4 -2.4 -3.4 2008 30.4 - 30.4 -30.4 -38.1 2009 48.5 - 48.5 -48.5 -54.3 2010 42.6 - 42.6 -42.6 -42.6 2011 9.9 2.8 12.7 11.1 10.6 1.1 22.8 10.1 9.0 2012 - 2.8 2.8 12.2 12.0 1.2 25.4 22.5 18.0 2013 - 2.9 2.9 13.4 13.6 1.3 28.3 25.4 18.0 2014 - 3.0 3.0 14.7 15.4 1.5 31.6 28.5 18.1 2015 26.8 3.1 29.9 16.2 17.4 1.7 35.3 5.4 3.1 2016 - 3.2 3.2 17.5 19.6 1.9 39.0 35.8 18.1 2017 - 3.3 3.3 18.9 22.1 2.1 43.1 39.8 18.0 2018 - 3.4 3.4 20.4 24.9 2.3 47.6 44.2 17.9 2019 - 3.5 3.5 22.1 28.1 2.5 52.7 49.2 17.7 2020 26.8 3.6 30.4 23.9 31.7 2.8 58.4 28.0 9.0 2021 - 3.7 3.7 25.1 34.2 3.0 62.4 58.6 16.9 2022 - 3.8 3.8 26.4 37.1 3.2 66.6 62.8 16.1 2023 - 3.9 3.9 27.7 40.1 3.4 71.2 67.3 15.4 2024 - 4.1 4.1 29.1 43.4 3.6 76.2 72.1 14.8 2025 26.8 4.2 30.9 30.6 47.0 3.9 81.5 50.5 9.2 2026 - 4.3 4.3 32.2 50.9 4.2 87.2 82.9 13.5 2027 - 4.4 4.4 33.8 55.1 4.4 93.3 88.9 12.9 2028 - 4.6 4.6 35.5 59.6 4.8 99.9 95.4 12.4 2029 - 4.7 4.7 37.4 64.6 5.1 107.0 102.3 11.9 2030 -107.1 4.8 -102.2 39.3 69.9 5.5 114.6 216.9 22.5 Net Present Value (NPV): 116.9 Internal Rate of Return (EIRR): 20.4% Discount Rate: 12% Source: Asian Development Bank project completion review mission.
Appendix Appendix
10
39
40 Appendix 10
Table A10.4: Economic Reevaluation for the Gazakh–Georgian Border Road Section ($ million) Costs Benefits Net NPV Capital Maintain Total VOC Time Cost Others Total Benefit 2006 0.0 0.0 -0.0 -0.0 2007 2.4 2.4 -2.4 -3.4 2008 13.7 13.7 -13.7 -17.2 2009 20.2 20.2 -20.2 -22.6 2010 12.5 12.5 -12.5 -12.5 2011 1.1 1.1 4.6 4.4 0.5 9.5 8.3 7.4 2012 1.2 1.2 5.0 5.0 0.5 10.5 9.4 7.5 2013 1.2 1.2 5.5 5.6 0.6 11.7 10.5 7.5 2014 1.3 1.3 6.1 6.4 0.6 13.1 11.8 7.5 2015 9.8 1.3 11.1 6.7 7.2 0.7 14.6 3.6 2.0 2016 1.3 1.3 7.2 8.1 0.8 16.2 14.8 7.5 2017 1.4 1.4 7.8 9.2 0.9 17.9 16.5 7.5 2018 1.4 1.4 8.5 10.3 0.9 19.8 18.4 7.4 2019 1.5 1.5 9.2 11.7 1.0 21.9 20.4 7.4 2020 9.8 1.5 11.3 9.9 13.1 1.2 24.2 13.0 4.2 2021 1.5 1.5 10.4 14.2 1.2 25.9 24.3 7.0 2022 1.6 1.6 11.0 15.4 1.3 27.7 26.1 6.7 2023 1.6 1.6 11.5 16.6 1.4 29.6 27.9 6.4 2024 1.7 1.7 12.1 18.0 1.5 31.6 29.9 6.1 2025 9.8 1.7 11.5 12.7 19.5 1.6 33.8 22.3 4.1 2026 1.8 1.8 13.4 21.1 1.7 36.2 34.4 5.6 2027 1.8 1.8 14.0 22.8 1.8 38.7 36.9 5.4 2028 1.9 1.9 14.7 24.7 2.0 41.5 39.6 5.1 2029 2.0 2.0 15.5 26.8 2.1 44.4 42.4 4.9 2030 -39.0 2.0 -37.0 16.3 29.0 2.3 47.6 84.6 8.8
Net Present Value (NPV): 54.8 Internal Rate of Return (EIRR): 21.5% Discount Rate: 12% Source: ADB project completion review mission.
Appendix 10 41
Table A10.5: Economic Reevaluation for the Yevlakh–Ganja Road Section ($ million) Costs Benefits Net NPV Capital Maintain Total VOC Time Cost Others Total Benefit 2006 - - - - 2007 - - - - 2008 16.7 16.7 -16.7 -20.9 2009 28.3 28.3 -28.3 -31.7 2010 30.1 30.1 -30.1 -30.1 2011 9.9 1.6 11.5 6.5 6.2 0.6 13.3 1.8 1.6 2012 1.7 1.7 7.1 7.0 0.7 14.9 13.2 10.5 2013 1.7 1.7 7.8 7.9 0.8 16.6 14.8 10.6 2014 1.8 1.8 8.6 9.0 0.9 18.5 16.7 10.6 2015 17.0 1.8 18.8 9.5 10.2 1.0 20.6 1.8 1.0 2016 1.9 1.9 10.2 11.5 1.1 22.8 20.9 10.6 2017 1.9 1.9 11.1 12.9 1.2 25.2 23.3 10.5 2018 2.0 2.0 12.0 14.6 1.3 27.9 25.9 10.5 2019 2.0 2.0 12.9 16.4 1.5 30.8 28.8 10.4 2020 17.0 2.1 19.1 14.0 18.5 1.6 34.2 15.0 4.8 2021 2.2 2.2 14.7 20.0 1.7 36.5 34.3 9.9 2022 2.2 2.2 15.5 21.7 1.9 39.0 36.8 9.4 2023 2.3 2.3 16.2 23.5 2.0 41.7 39.4 9.0 2024 2.4 2.4 17.1 25.4 2.1 44.6 42.2 8.6 2025 17.0 2.4 19.5 17.9 27.5 2.3 47.7 28.2 5.2 2026 2.5 2.5 18.8 29.8 2.4 51.0 48.5 7.9 2027 2.6 2.6 19.8 32.2 2.6 54.6 52.0 7.6 2028 2.7 2.7 20.8 34.9 2.8 58.5 55.8 7.3 2029 2.8 2.8 21.9 37.8 3.0 62.6 59.9 7.0 2030 -68.0 2.8 -65.2 23.0 40.9 3.2 67.1 132.3 13.7
Net Present Value (NPV): 62.1 Internal Rate of Return (EIRR): 19.6% Discount Rate: 12% Source: Asian Development Bank project completion review mission.
Appendix Appendix
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42 Appendix 11
SUMMARY OF SOCIOECONOMIC IMPACT
A. Background
1. The project. Under the Asian Development Bank (ADB)–financed East–West Highway Improvement Project, the road section from Gazakh to the Georgian border was reconstructed. The project was a priority in facilitating the socioeconomic development by improving the east– west highway linking the western part of Azerbaijan to the capital and increasing local communities’ access to markets, job opportunities, and social services. The project would also strengthen Azerbaijan’s connectivity with neighboring countries and promote regional cooperation. As part of the Asian highway network and one of Azerbaijan’s main routes for external trade, the east–west highway has the potential to become an important route for transit transport between Asia and Europe. The reconstruction of the Gazakh–Georgian border section started in December 2007 and was completed in March 2010.
2. Affected area and monitoring programs. There are seven villages considered as the primary impact areas of the project road (Gazakh–Georgian border section), namely: Birinci Shixli, Ikinci Shixli, Chayli, Chanali, Orta Salahli, Qazaxbayli, and Yuxari Salahli, with a total of 6,203 households and 22,855 people in 2009. During implementation, the consultants carried out two monitoring and evaluation activities: (i) a baseline survey in May 2009 (covering 60 sample households), and (ii) a follow-up survey in May 2010 (with 79 sample households).1 Socioeconomic impact of the project was monitored according to the designed project performance monitoring framework. A final report 2 on the social impact assessment was prepared and submitted to ADB. A summary of the assessment is given below.
B. Economic Impact
3. National economic growth. The improvement of the east–west highway has significantly promoted the economic growth in Azerbaijan and facilitated cooperation with other countries in the region. All of these have resulted in the increase of Azerbaijan’s gross domestic product (GDP) through non-oil trading. According to the consultant’s observation, the traffic on the Gazakh–Georgian border section increased by average 9.4–10.8% annually in recent years. The numbers of vans, small trucks, and large trucks increased remarkably. There was a large amount of cross-border traffic: about 20 large passenger buses and 1,000 trucks per day as well as a lot of local transport vehicles for passenger and freight from the border to the inter-land. Most of the vehicles ran at average 60–80 km per hour on the project road, compared with 30–40 km per hour before the project.
4. Local economic development. The road infrastructure improvement stimulated the rural economic growth through providing closer access of remote areas to the capital and intermediate cities, and allowing efficient exchange of goods and service within and among them. According to the 2010 survey, a total of 56 new small (not more than 10 employees) and medium (over 10 but not more than 20 employees) businesses were identified along the Gazakh–Georgian border section. 3 Most of them had a positive business outlook. A large number of the households surveyed in the seven villages expressed their desire to work for these businesses and indicated a positive prospective on improving livelihood.
1 Kocks Consultant GmbH (Stegemannstrasse, 32–38, 56068 Koblenz, Germany), recruited for detailed design and construction supervision for the project. 2 Kocks Consult GmbH. 2010. Social Impact Assessment Final Report: Gazakh–Georgian Border Section. Koblenz. 3 15 restaurants/cafés/tea shops, 7 petrol stations, 21 mini shops, 7 car repair shops, 3 construction material/hardware shops, 1 pharmacy, 1 car parking station, and 1 water pumping station.
Appendix 11 43 C. Poverty Reduction
5. Increased employment during and after implementation. Since the start of construction until completion, the project provided jobs to approximately 406 people ranging from technical, administrative, skilled, semi-skilled works and manual labor. Specifically, construction supervision work provided employment to 30 administrative and technical workers. The construction supervision staff are mostly men whose ages range from 19 to 58 years. Some of them are from Gazakh and Agstafa, while some workers came from different regions of Azerbaijan.The civil works contractors were required to meet all labor law standards, in terms of conditions of employment, safety in the workplace, insurance and pay conditions according to national laws, and equal job opportunities and payments for local and international labors. Civil works contracts required that 60% of unskilled labor be recruited locally. Ancillary businesses, which benefited the impact communities, are related to catering/food business and provision of housing accommodation for staff and workers of the project. There were 13 apartments and guest houses (2 in Aghstafa and 11 in Gazakh) were rented by the staff/workers on a long-term basis. The development of roadside businesses along the project road also provided large job opportunities to local people.
6. Improved access to markets and social services. The project has remarkable impact on poverty reduction by increasing local communities’ access to markets and basic social services including health care, school, recreation, religious, etc. There were significant reductions in the travel time in going to the district/town center after the project road was improved. For instance, travel time from Shixli villages to the district/town center before the project was about 50–60 minutes, compared with the travel time of 30–35 minutes after project completion. Further, Chayli Village residents travel 18 minutes now to reach the town center compared to 20–25 minutes before the project. The survey results revealed a significant and glaring increase in the frequency of travel to the recreation areas in the town center, an average of 1.4 times in one month, compared to 5–6 times in one year before the project. The most popular destinations of travel on the project road among villagers are markets (75% of the interviewed households), community functions (60%), transport of goods and services (43%), hospitals (37%), workplace (33%), business operations and livelihood activities (25%), and recreation areas (18%).
7. Reduced prices of transport services. Transport fares for going to work or performing business operations consume a large proportion of the household’s expenses in the rural area. The improvement of the road condition stimulated the local transport services development and reduced transport cost. However, significant reduction in transport price will be realized in at least two years. First, since no tolls are proposed for the use of the rehabilitated roads, the private motorists and transport operators are likely to enjoy reduced vehicle operating costs. Second, the good quality of the project road will lessen vehicle breakdown. Transport operators may reduce their bus/van fares, and this will benefit the commuting residents. Moreover, retail stores in villages are likely to reduce the prices of their retail commodities because of reduced costs in transporting their commodities from the town center or other villages.
Appendix D. Women Empowerment and Human Safety
8. Women empowerment. Contracts for civil works and consulting services included
10
provisions to encourage employment of skilled and unskilled women laborers. During implementation, 13 women out of the total 406 local employments were hired by the project, which was significant by considering the nature of construction work and the cultural restrictions 43 for women in Azerbaijan. There was a significant number of women working in the roadside
44 Appendix 11 business, operating small shops in the border area, and selling farm products along the project road. Women now have more chance to access social services and facilities, especially hospitals schools. Women were generally managing the ancillary businesses that catered to the project staff and workers (e.g., restaurant and lodging houses), and thus derived financial benefits from them.
9. Health and human safety. A HIV/AIDS awareness program was carried out by the project. To ensure that construction workers are made aware of the risks of HIV/AIDS infection and to institute preventive measures, regular coordination with the NGOs in the project area were undertaken and seven seminars on HIV/AIDS were held for project management staff, contractors, and subcontractors. Manuals and booklets were distributed to workers and residents in the project area to intensify HIV/AIDS prophylaxis, promote healthy lifestyle, and increase knowledge level on HIV/AIDS. The government undertake appropriate measures in accordance with applicable national laws and regulations to prevent human trafficking of illegal substances and humans at the border with Georgia during implementation and after project completion. The project also helped the government implement the road safety program through the development of road accident monitoring, reporting, and information systems; enhancing MOT’s capacity to identify accident black spots on the road network; and providing staff training.
E. Migration and Public Consultation
10. Mobility and migration. The improvement of the east-west highway influences people to migrate temporarily or permanently to places where there are more opportunities for livelihood and personal development. The surveys revealed that a great proportion, 71%, of the households in the seven impact villages, was highly satisfied with the current ease and convenience of travel along the Gazakh–Georgian border road. Majority of villagers responded positively on the improved mobility as convenient travel to any destination (64%) and easy to transport farm products (20%). A national program was developed to establish a rehabilitation centre for human trafficking victims, where they will be provided with medical and psychological assistance. Measures to combat human trafficking were taken generally at the national level.
11. Community consultations. Intensive public consultations were held during project preparation with various stakeholders, including representatives of the government, civil society, local communities, private sector, and external aid agencies. The consultations covered major issues such as project alternatives, selection of local roads, potential benefits, and social and environmental impacts. Consultations revealed a high degree of public support to the project. The design of the project was well incorporated the views of stakeholders. Special attention was given to the needs and constraints faced by women, internally displaced people, refugees, and other vulnerable groups. The consultations also helped identify the role of each stakeholder. Stakeholder participation and consultations were sustained during project implementation.