E443 E443 ` ASIAN DEVELOPMENT BANK RRP:IND 37139 REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE BOARD OF DIRECTORS ON A PROPOSED LOAN TO INDIA FOR THE CHHATTISGARH STATE ROADS DEVELOPMENT SECTOR PROJECT November 2003 CURRENCY EQUIVALENTS (as of 30 October 2003) Currency Unit – Indian rupee/s (Re/Rs) Re1.00 = $0.021 $1.00 = Rs45.5 ABBREVIATIONS ADB – Asian Development Bank ARD – Agency for Road Development BOT – Build-operate-transfer CACS – Chhattisgarh AIDS Control Society FDGOC – Finance Department Government of Chhattisgarh PWDGOC – Public Works Department Government of Chhattisgarh TDGOC – Transport Department Government of Chhattisgarh CIDC – Chhattigarh Infrastructure Development Corporation DRA – dedicated road authority EIRR – economic internal rate of return EMMP – environmental Monitoring and Management Plan ESU environment and social unit GOC – Government of Chhattisgarh GOI – Government of India HDM – Highway Development and Maintenance Tool HIV/AIDS – human immunodeficiency virus/ acquired immunedeficiency syndrome ICB – international competitive bidding IEE – initial environmental examination IRC – Indian Roads Congress IRI – international roughness index ISA – initial social assessment JBIC – Japan Bank for International Cooperation LIBOR – London inter-bank offered rate NOTES (i) The fiscal year (FY) of the Government ends on 31 March. (ii) In this report, "$" refers to US dollars. MORTH – Ministry of Road Transport and Highways MOT – Maintenance-operate-transfer MPRSD – Master Plan for Road Sector Development NGO – Non-government organization PIA – poverty impact assessment PIR – poverty impact ratio PIU – project implementation unit PMGSY – Pradhan Mantri Gram Sadak Yojana PPTA – project participatory technical assistance PWD – Public Works Department PWDM – Public Works Department Manual RMC – Road Management Committee VOC – vehicle operating cost This report was prepared by a team consisting of: S. Wu ( team leader/sr. project specialist), S. Widowati, D. Utami, H. Yamaguchi, R. Sabirova, A. Motwani, and G. Atay . CONTENTS Page LOAN AND PROJECT SUMMARY iii MAP ix I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 3 III. THE PROPOSED PROJECT 7 A. Objectives 7 B. Components and Outputs 8 C. Special Features 10 D. Cost Estimates 11 E. Financing Plan 11 F. Implementation Arrangements 11 IV. PROJECT BENEFITS, IMPACTS, AND RISKS 15 A. Policy and Institutional Benefits 15 B. Economic Benefits 15 C. Poverty Reduction 16 D. Social and Environmental Impacts 17 E. Project Risks and Safeguards 20 VI. ASSURANCES 21 VII. RECOMMENDATION 23 APPENDIXES 1. Supplementary Sector Analysis 24 2. External Assistance 31 3. Project Framework 33 4. Time-bound Policy Action Plan for Institutional Reform 39 5. Indicative Contract Packages 45 6. Project Cost Estimates and Financing Plan 46 7. Implementation Schedule 48 8. Summary Economic Analysis and Distribution Analysis 49 9. Summary of Poverty Reduction and Social Development Strategy 54 SUPPLEMENTARY APPENDIXES (available on request) A. Development Coordination Matrix B. Summary of Reengineering Plan C. Framework for Indigenous Peoples Development D. Summary Resettlement Plan E. Environmental Assessment F. Subproject Selection Criteria G. Outline Terms of Reference for Consulting Services on Institutional Strengthening and Capacity Building for Chhattisgarh’s Road Sector H. Outline Terms of Reference for Construction Supervision Services I. Project Performance Monitoring System (PPMS) J. Economic Analysis and Distribution Analysis K. Project Risk Analysis L. Summary of Poverty Impact Assessment M. Resettlement Policy Framework N. Preliminary Indigenous People Development Program LOAN AND PROJECT SUMMARY Borrower India Classification Poverty: Poverty Intervention Thematic: Economic Growth and Good Governance Environment Category B. Assessment An initial environmental examination (IEE) was undertaken for sample subprojects. The summary IEE is in Supplementary Appendix E. Project Description The Project will improve the connectivity of the state road network in Chhattisgarh. It will provide a more effective institutional and policy framework; and the capacity to ensure that investments in roads are implemented successfully, and that project-generated impacts in road development are sustained through improved governance and accountability. Rationale The Public Works Department, Government of Chhattisgarh (PWDGOC), with its existing institutional and technical capability and capacity, is reaching its limit in effective sector management and efficient management of investments in state roads. This, and the inherited 10 years of neglect of investment in road improvement and maintenance, has caused serious deterioration of most state roads. The riding quality of most roads ranges from poor to very poor. Poor road quality has undermined the long-term growth potential of Chhattisgarh economy. Bad roads have increased transport capacity bottlenecks, and meant poorer transport services for the entire economy, especially the rural poor and tribal populations. Better management of the road sector is crucial to support the policy initiative of the Government of Chhattisgarh (GOC) to improve this situation. Better road management will improve the institutional and policy framework. It will help ensure that investments in road sector development are successfully implemented and the road improvements generated by the Project can be sustained through better governance and accountability. The road sector investment is expected to help GOC significantly improve the connectivity of Chhattisgarh’s road network, to directly support the state’s economic growth. Meanwhile, the investment will also provide a vehicle through which Chhattisgarh can establish a transparent and conducive environment for more competition and increased private sector participation in the road sector. That in turn, will ensure better infrastructure and decreased recurrent costs for road maintenance over the medium and long terms. That will allow higher expenditures for priority social sectors, and for poverty reduction. iv Objectives and Scope The main objective of the Project is to support economic growth and reduce poverty by providing improved connectivity and access to development opportunities and social services, including health and education. The Project will also support GOC’s initiative to improve state management of the road sector by improving effectiveness and efficiency. Thus, the Project will provide the capacity required to ensure the efficiency and sustainability of road investments and development to support social and economic development. The objective will be achieved through (i) improving priority state roads between economic growth centers and rural areas, (ii) instituting measures to improve governance and accountability for road sector management, (iii) improving sector capability and building capacity for more efficient resource and asset management, and (iv) initiating steps to increase private sector participation in road development and maintenance projects. The Project, through sector lending modality, will finance improvement of about 1,700 km of state roads in Chhattisgarh. It will improve the connectivity of the road network, and of priority road links among national highways, state highways, and rural roads to improve access of rural and underdeveloped populations to the mainstream economy and development opportunities. The Project will defer huge reconstruction costs that will result if improvement and rehabilitation are not undertaken immediately. It will also complement the Rural Roads Sector I Project of the Asian Development Bank (ADB). Consulting services will be provided to help PWDGOC prepare and implement the road improvement subprojects, construction supervision, capacity building and training in project management and quality control. Consulting services will also be provided to help GOC improve the institutional and policy frameworks of the state road institutions for good governance and better accountability of sector management, (ii) establishing sustainable systems of asset management, and (iii) capacity building and training in modern sector management and operation. Cost Estimates The total Project cost in 2003 prices is estimated at $285.7 million equivalent, of which the foreign exchange cost is estimated at $199.52 million, or 70%. The local currency cost, including taxes and duties, is estimated at $86.18 million equivalent, or 30% of the total. The cost estimate includes contingencies; a front-end fee of 0.5% of the total loan amount of the Project; and interest charge during construction (IDC); and the commitment charge. v Financing Plan It is proposed that ADB provide a loan of $180 million from its ordinary capital resources, which will be 63% of the total project cost. The loan will finance: (i) the Project’s entire foreign exchange cost, excluding front-end fee, the commitment charge, and interest during construction; and (ii) part of the local currency costs for domestic consulting services to prepare the subprojects to be selected during project implementation, and to help GOC implement the institutional reform. GOC will provide the remaining local currency cost of about $85.7 million equivalent. Appendix 6 summarizes the proposed Project financing plan. GOC has assured that it will secure the counterpart financing as committed. Loan Amount