Report and Recommendation of the President to the Board of Directors Project Number: 40005 November 2009 Proposed Loan India: Jharkhand State Roads Project CURRENCY EQUIVALENTS (as of 3 November 2009) Currency Unit – Indian rupee/s (Re/Rs) Re1.00 = $0.02118 $1.00 = Rs47.205 ABBREVIATIONS ADB – Asian Development Bank CSC – construction supervision consultant DFID – Department for International Development of the United Kingdom EA – executing agency EIRR – economic internal rate of return EMP – environmental management plan FYP – Five Year Plan GOJH state government of Jharkhand IEE – initial environmental examination LIBOR – London interbank offered rate NGO – nongovernment organization NHAI – National Highways Authority of India NHDP – National Highway Development Program NH2 – National Highway 2 PIC – project implementation cell PPTA – project preparatory technical assistance RCD – Road Construction Department SAPE – sector assistance program evaluation TA – technical assistance NOTES (i) The fiscal year (FY) of the Government of India begins on 1 April. FY before a calendar year denotes the year in which the fiscal year begins, e.g., FY2009 begins on 1 April 2009. (ii) In this report, "$" refers to US dollars. Vice-President X. Zhao, Operations 1 Director General K. Senga, South Asia Department (SARD) Director S. Widowati, Officer-In-Charge, Transport and Communications Division, SARD Team leader H. Iwasaki, Principal Transport Specialist, SARD Team members D. K. Lee, Transport Specialist, SARD R. Nagpal, Counsel, Office of the General Counsel L. M. Tai, Transport Specialist, SARD O. Tonkonojenkov, Transport Specialist, SARD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area. CONTENTS Page LOAN AND PROJECT SUMMARY i MAP 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 2 III. THE PROPOSED PROJECT 6 A. Impact and Outcome 6 B. Outputs 6 C. Special Features 6 D. Project Investment Plan 7 E. Financing Plan 8 F. Implementation Arrangements 9 IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 11 V. ASSURANCES 15 VI. RECOMMENDATION 17 APPENDIXES 1. Design and Monitoring Framework 18 2. State Road Subsector in India 20 3. External Assistance to the Road Sector 29 4. Project Roads and Summary of Design Standards 32 5. Detailed Cost Estimates and Financing Plan 33 6. Organizational Structure for Project Implementation 34 7. Implementation Schedule 35 8. Procurement Plan 36 9. Summary Poverty Reduction and Social Strategy 38 10. Summary Resettlement Plan 41 SUPPLEMENTARY APPENDIXES (available on request) A. Economic Assessment B. Summary Initial Environmental Examination C. Executing Agency Procurement Capacity Assessment Report and Recommendations LOAN AND PROJECT SUMMARY Borrower India Classification Targeting classification: General intervention Sector (subsector): Transport and information and communication technology (road transport) Themes (subthemes): Economic growth (widening access to markets and economic opportunities), capacity development (institutional development) Location impact: Rural (high), urban (medium), and national (low) Environment Category B Assessment Project Description The Jharkhand State Roads Project will rehabilitate and improve a 311 kilometer (km) state road from Govindpur to Sahebganj (via Jamtara, Dumka, and Barhet) to a two-lane standard. The improved road will become a backbone of the northeastern part of the state, and connect it to National Highway 2 (NH2), the state’s main highway, and to the larger national highway network. The Project will also enhance the project management skills of the officials of the Road Construction Department (RCD) of the state government of Jharkhand (GOJH) through involvement in activities that are central to project management, such as project design, implementation planning, procurement, land acquisition, resettlement and rehabilitation, environmental management, utility shifting, contract management, and financial management. This will be replicated by RCD for future road improvement projects. Rationale Jharkhand is one of four states in India with a poverty incidence above 40%. It was created in 2000 out of the southern half of the state of Bihar, and a high proportion of its population is tribal. Socioeconomic indicators reveal that significant improvements are needed in terms of income, literacy, health, and access to basic amenities. Jharkhand has prominent industrial cities, due to its abundant natural and mineral resources, but also has the highest rural poverty incidence in India. Industrial activities are concentrated in the area south of NH2, which connects Delhi to Kolkata and forms part of the core national transport network called the “golden quadrilateral.” The area to the north of NH2 lacks major industrial activities despite its rich mineral reserves. The poor quality of the road infrastructure is one factor constraining the development of this part of the state. The Project proposes to address the disparities within Jharkhand by providing a good transportation network in a hitherto neglected area, and will contribute to reducing interstate disparities in India, ii which is one of the key goals of the Government’s 11th Five Year Plan for 2007–2012. Impact and Outcome The Project will improve transport connectivity in the state of Jharkhand through improvement of a key state road section in one of the state’s least developed but resource-rich areas. This will contribute to expansion of economic opportunities and poverty reduction in the area that the project road serves, and in turn improve the overall economic wellbeing of the state. Since Jharkhand is one of the least-developed states (as measured by social and economic indicators), this development is expected to contribute to the overall reduction of interstate disparities in India. The Project’s immediate outcome will be improved transport connectivity in the project area resulting from reduction in vehicle operating costs and travel time on the project road. Project Investment Plan The Project’s investment cost is estimated at $240.0 million, including taxes and duties of about $21 million. Financing Plan A loan of $200,000,000 from the ordinary capital resources of the Asian Development Bank (ADB) will be provided under ADB’s London interbank offered rate (LIBOR)-based lending facility. The loan will have a 25-year term including a grace period of 5 years, an interest rate determined in accordance with ADB’s LIBOR- based lending facility, a commitment charge of 0.15% per annum, and such other terms and conditions set forth in the draft loan and project agreements. Allocation and Relending The Government of India will provide the loan proceeds in local Terms currency to the state government of Jharkhand on the same terms and conditions as received from ADB. The state government will bear the foreign exchange risk on the loan. Period of Utilization Until 31 December 2014 Estimated Project 30 June 2014 Completion Date Executing Agency The state government of Jharkhand, through RCD Implementation A dedicated project implementation cell (PIC) established within Arrangements RCD will be responsible for overall project management throughout the Project implementation period. The PIC is headed by a director reporting to the RCD secretary, and will have enough staff to handle duties related to consulting services, civil works, land acquisition and resettlement, environment, and financial management (disbursement, accounting, and internal auditing). The PIC finance and accounts wing will handle project payments and accounting. For each civil works contract package, the PIC will have a project implementation unit headed by an assistant director (at the level of assistant engineer) to interact on a daily iii basis with the civil works contractor and construction supervision consultant (CSC). Two project-related committees were established in December 2008: (i) a high-level project coordination committee (chaired by the chief secretary of GOJH), which will facilitate preconstruction activities concerning different GOJH line departments; and (ii) a project monitoring committee, chaired by the secretary of RCD, to monitor project implementation. Procurement All procurement to be financed under the proposed ADB loan will be carried out in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time). International competitive bidding will be used for all civil works contracts. Shopping will be used for supply contracts less than $100,000. Advanced contracting and retroactive financing will be used to facilitate rapid implementation. Consulting Services Consultants under the Project will be recruited in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time). RCD will hire a consulting firm as CSC, which will assume the role of the “Engineer” for the civil works contracts. The CSC will be selected using quality- and cost-based selection procedure with a quality–cost ratio of 80:20. Project Benefits and The Project aims to redress the sharp urban–rural divide by Beneficiaries improving a key state road in one of the state’s underdeveloped areas. The improvement to the road infrastructure