ASIAN DEVELOPMENT BANK

RRP: IND 34420

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

TO THE

BOARD OF DIRECTORS

ON A

PROPOSED LOAN

TO INDIA

FOR THE

NATIONAL HIGHWAY CORRIDOR (SECTOR) I PROJECT

November 2003

CURRENCY EQUIVALENTS (as of 20 October 2003)

Currency Unit – rupee/s (Re/Rs) Re1.00 = $0.022 $1.00 = Rs45.34

For the purpose of calculation, $1.00 = Rs45.00 was used.

ABBREVIATIONS

ADB – Asian Development Bank AP – project-affected person BOT – build-operate-transfer CAG – Controller and Auditor General of India CMU – corridor management unit CRF – Central Road Fund EIRR – economic internal rate of return ESDU – environment and social development unit E-W – East-West (Corridor) FIRR – financial internal rate of return FYP – Five-Year Plan

GAAP – generally accepted accounting practices GRC – Grievance Resolution Committee HDC – high-density corridor HIV/AIDS – human immunodeficiency virus/acquired immunodeficiency

syndrome ICB – international competitive bidding IEE – initial environmental examination IPDP – indigenous people development plan IPSA – initial poverty and social analysis IRI – international roughness index JBIC – Japan Bank for International Cooperation LIBOR – London interbank offered rate MORTH – Ministry of Road Transport and Highways NACO – National Aids Control Organization NGO – nongovernment organization NH – national highway NHAI – National Highways Authority of India NHDP – National Highways Development Program N-S – North-South (Corridor) O&M – operation and maintenance PCU – passenger car unit PIU – project implementation unit PPP – public private partnership PSP – private sector participation RP – resettlement plan R&R – resettlement and rehabilitaiton ROW – right of way SMT – Surat-Manor Tollway Project SOE – statement of expenditure SPV – special-purpose vehicle WTC – Western Transport Corridor Project

NOTES

(i) The fiscal year (FY) of the Government ends on 31 March (ii) In this report, “$” refers to US dollars.

This report was prepared by S. Tsukada (team leader), E. Glennie, H. Iwasaki, R. Jayewardene, A. Motwani, V. S. Rekha, R. Sabirova, S. Tanaka, D. Utami, H. Yamaguchi, and L. Weidner.

CONTENTS

Page

LOAN AND PROJECT SUMMARY iii MAP vii I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, 1

AND OPPORTUNITIES A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 3 C. Lessons Learned 5 D. External Assistance 5

III. THE PROPOSED PROJECT 6 A. Priority Highways 6 B. Objectives 6

C. Components and Outputs 7 D. Cost Estimates 9 E. Financing Plan 9 F. Implementation Arrangements 10

IV. PROJECT BENEFITS, IMPACTS, AND RISKS 14

A. Social Aspect 14 B. Environmental Assessment 19 C. Economic Assessment 20 D. Financial Analysis 20 E. Potential Risks 20

VI. ASSURANCES 21 VII. RECOMMENDATION 24

APPENDIXES 1. Project Framework 25

2. Sector Analysis, Government Strategy, and Sector Profile 27 3. External Assistance to the Highway Sector 33 4. Cost Estimates 34 5. Contract Packages 35

6. Implementation Schedule 36 7. Financial Statement of NHAI 37 8. Economic, Financial, and Poverty Impact Assessment 39

9. Summary Poverty Reduction and Social Strategy 45 10. Revised Summary Resettlement Plan 49 11. Eligibility Criteria and Procedure for the Subprojects 57

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SUPPLEMENTARY APPENDIXES

A. SECTOR OVERVIEW

1. Transport Profile 2. Private Sector Participation in NHDP – Overview and Lessons Learned 3. Road Safety Policy Matrix in India 4. Organization Structure of NHAI

B. PROJECT STRUCTURE AND DESCRIPTION

1. Design Feature of Investment Component 2. Description of Private Sector Participation Component 3. Description of HIV/AIDS and Anti Trafficking Component 4. Road Safety Component 5. Organizational Structure of Project Implementation Units

C. SECTOR LOAN ELEMENTS

1. Summary Appraisal Report Format 2. Checklist for Involuntary Resettlement and Indigenous People 3. Environmental Screening Form 4. Institutional Assessment of NHAI 5. Summary Initial Poverty and Social Analysis (IPSA) Project Form 6. Resettlement Framework 7. Indigenous People Development Framework 8. Detailed Environment and Resettlement Procedure and Criteria

D. PROJECT IMPLEMENTATION

1. Compilation of Performance Monitoring Indicators 2. Outline TOR for the Construction Supervision Consultants 3. Compliance of Covenants of Ongoing Projects 4. Terms of Reference for Financial Adviser

E. ECONOMIC AND FINANCIAL ASPECTS

1. Financial Management System 2. Financial Viability and Sustainability Assessment 3. List of Assumptions for Economic and Financial Analyses

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LOAN AND PROJECT SUMMARY Borrower India Classification Thematic – Economic growth and private sector development

Poverty – Others Environment Assessment

Category B sensitive An initial environmental examination (IEE) was undertaken. The summary IEE was circulated to the Board on 4 August 2003.

Project Description To solve chronic capacity shortage of national highways (NHs) and

upgrade key arterial corridors, in 1999 the Government launched the National Highways Development Program (NHDP). Its key components are (i) rehabilitation and widening of the Golden Quadrilateral, a 6,000-kilometer (km) highway network, to be completed by the end of 2004 (first phase); and (ii) rehabilitation and widening of the 4,000 km North-South (N-S) and 3,300 km East-West (E-W) corridors, to be completed by the end of 2007 (second phase).

In support of NHDP, since 2000 the Asian Development Bank (ADB) has provided a series of loans. The National Highway Corridor (Sector) I Project is the fourth in this series and the first sector loan. The Project’s main element is to rehabilitate and widen priority sections of the E-W Corridor, with emphasis on 662 km of existing highway in the states of Rajasthan, Madhya Pradesh, and Uttar Pradesh.

Rationale A program of this magnitude requires broad-based policy reforms, ranging from institutional capacity building for financial management to creation of an enabling environment for private sector participation (PSP). ADB has adopted a programmatic approach to advance these reforms in a progressive and evolutionary manner through a multiyear lending program. ADB, through the programmatic approach, will assist the Government in its efforts to (i) strengthen project development and implementation capability of National Highways Authority of India (NHAI); (ii) enhance PSP in highway development; (iii) boost sources of funds for NHDP development; (iv) strengthen operation and maintenance (O&M) functions of NHAI; and (v) through these actions, enhance NHAI’s professional management capability and financial viability. A key instrument to facilitate reaching these goals is the trigger point, which requires satisfactory implementation of the agreed-on milestone action before project processing starts. While the trigger point for last year’s project was the progress of PSP, for this year’s project it was to secure adequate funds to complete phase 2 of NHDP. Based on ADB’s 2002 recommendation to increase the

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cess by 40%, the Government increased it by 50% effective 28 February 2003, triggering the initiation of this year’s project processing.

Objectives and Scope The objective of ADB’s programmatic approach is to help the Government strengthen a policy and institutional framework for the efficient delivery of highway development and O&M services through policy and institutional reforms of current systems. Under this overall framework, this year’s Project focuses on the E-W Corridor, using the sector loan modality, to achieve the following objectives:

(i) Upgrade the key national arterial corridors connecting the

eastern and western ends of the country to help reduce regional disparities.

(ii) Facilitate PSP in highway development by providing advisory services to process the PSP component.

(iii) Help the Government to prevent further spread of HIV/AIDs and raise public awareness of the risks of trafficking in women and children.

(iv) Enhance road safety by introducing a “safety zone” concept for a pilot section in the E-W Corridor.

Cost Estimates The total project cost is estimated at $760 million equivalent,

including allowances for interest during construction. Foreign exchange costs are estimated at $454 million, representing 60% of the total cost, while the local currency costs are estimated at $306 million equivalent, representing 40%.

Financing Plan It is proposed that ADB provide a loan of $400 million from its

ordinary capital resources to help finance the Project, while the Government will provide the foreign currency cost of $34 million to cover the front-end fee and interest during construction, as well as local currency cost of $258 million equivalent.

($ million)

Source

Foreign Exchange

Local Currency

Total Cost

Percentage

Asian Development Bank

381 19 400 53

Government 34 258 292 38 Private Sector 40 29 69 9 Total 454 306 760 100

Source: ADB mission and NHAI.

Loan Amount and Terms A loan of $400 million from ADB’s ordinary capital resources will be provided under ADB’s 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 0.75% per annum, a front-

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end fee of 0.50%, and such other terms and conditions set forth in the draft Loan and Project Agreements. The Government will cover the cost of $292 million equivalent in foreign and local currency cost.

Allocation and Relending Terms

The Government will make the loan proceeds available promptly to NHAI. The Government’s policy of assistance to NHAI for the E-W Corridor is a loan-grant ratio of 20:80. In June 2003, the Public Investment Board issued blanket approval of the entire E-W and N-S corridors. The Government will bear the foreign exchange risk on the loan.

Period of Utilization Until 31 December 2007 Estimated Project Completion Date

30 June 2007

Executing Agency NHAI

Implementation Arrangements

The Project will be implemented by two project implementation units (PIUs) to be established by NHAI along the priority highways, and such other PIUs as required for non-core subprojects.

Procurement Civil works will be procured in accordance with ADB’s Guidelines

for Procurement, following international competitive bidding (ICB). Procurement of civil works will be carried out among prequalified bidders. ICB will be used to procure equipment of an estimated value of $500,000, international shopping for contracts with an estimated value of $100,000–$500,000, and direct purchase arrangement for contracts of less than $100,000.

Consulting Services Consulting services will be required for (i) construction supervision

for the project roads (except for the PSP component), (ii) provision of a financial adviser’s services for the PSP component, and (iii) design of the road “safety zone” concept and establishing operational arrangements for enforcement and emergency medical services along the pilot section of the safety zone. Consultants will be recruited using the quality- and cost-based selection method (and full or simplified technical proposals, depending on the size of the contracts) in accordance with ADB’s Guidelines on the Use of Consultants, and other arrangements acceptable to ADB for selecting and engaging domestic consultants. In addition, an individual domestic consultant would be engaged for overseeing the activities of nongovernment organization who would implement an awareness campaign to prevent HIV/AIDs and trafficking of women and children, and to build capacity. The domestic individual consultant will be recruited in accordance with arrangements acceptable to ADB for selecting and engaging domestic consultants.

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Project Benefits and Beneficiaries

A major benefit of the Project is the sustainable economic growth to be attained through enhanced efficiency of economic activities. The Project will enable cargo and people to move faster and wider at lower cost. While the Project’s overall impact on economic growth is difficult to estimate quantitatively, direct economic benefits were estimated conservatively based on the estimate of vehicle operating cost savings. The economic internal rate of return thus calculated was 23% for the core subproject. Another related project benefit is reduced disparities between fast- and slow-growing states. Linking the eastern and western ends of the country to major manufacturing and consumption centers will help significantly integrate isolated and backward economies into the mainstream economies. The Project will contribute to the poverty reduction by establishing an integrated road network consisting of rural roads, major district/state roads, and national highways. The network will thus enhance long-term economic opportunities of rural communities by (i) enabling villagers to shift from subsistence farming to market-oriented agricultural surplus production; and (ii) helping local people, particularly the youth, move out of their communities to work at better-paid jobs in manufacturing or trading. Project construction, tree planting, and ensuing maintenance works will directly increase earnings of the poor, who are largely depending on temporary employment, and thus have a short-term poverty reduction impact.

Risks and Assumptions A potential risk is possible delays in implementation due to prolonged land acquisition. The need for land acquisition is relatively limited. Existing right of ways are usually broad enough to accommodate service roads and drainage lines. The recent amendment of the National Highway Act enables NHAI to acquire land expeditiously and predictably. Another potential project risk is possible delay in processing non-core subprojects due to unfamiliarity of NHAI with procedural requirements of ADB’s sector loan. Detailed forms of summary subproject appraisal report, checklists, and other reporting formats have been provided to NHAI to facilitate processing of its subprojects. To strengthen its technical capability, NHAI has established a technical group of experts within the project team. The project preparatory technical assistance consultants will train the team staff, including the experts. These actions will minimize possible delay due to a new lending modality.

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I. PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed loan to India for the National Highway Corridor (Sector) I Project.

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES A. Performance Indicators and Analysis 2. India’s economy has long suffered from the national highway (NH) system’s chronic capacity shortage. Of the NH network of 58,112 kilometers (km), 39% are still single lane and 59% are two lane, while four-lane highways, a desirable standard for arterial national corridors, account for only 2%. The Government’s Tenth Five-Year Plan (FYP, 2003–2007) thus set forth several investment programs to improve the NH system by (i) widening 22,000 km of two-lane roads to four lanes; (ii) constructing 2,000 km of expressways; (iii) widening 22,500 km of single-lane roads to two lanes; and (iv) strengthening 19,300 km of pavement. Total investment required to implement these programs is estimated at $37 billion (Appendix 2). 3. Because of the magnitude of investments required, the Government has placed highest priority on the National Highway Development Program (NHDP) to upgrade three key arterial corridors in 10 years (1998-2007): (i) Golden Quadrilateral—6,000 km; (ii) North-South (N-S) Corridor—4,000 km; and (iii) East-West (E-W) Corridor—3,300 km. Total program cost is estimated at $13–$15 billion, on which the Government decided to allocate the central road funds on a priority basis. NHDP is expected to help contribute to the increased integration of the country by connecting the entire eastern and western and also northern and southern ends of the country. 4. Since 2000, the Asian Development Bank (ADB) has supported NHDP with three loans, and plans to provide another two for 2003–2004, totaling $1.54 billion (12% of the total program cost). As NHDP implementation is halfway through, ADB conducted a mid-term review and evaluated (i) physical progress of NHDP; (ii) extent of PSP; (iii) financial viability and sustainability of NHDP; and (iv) effectiveness of the institutional arrangements. 5. Physical delivery of the program. The first phase of NHDP for the Golden Quadrilateral, slated for completion by the end of 2004, is well underway. To date, 24% (or 1,408 km) has been completed, 74.5% (or 4,354 km) is currently under implementation, and 1.5% (or 84 km) has yet to be awarded. Over the last 4.5 years, the National Highways Authority of India (NHAI) has issued approximately 155 contracts for a total of 6,025 km under NHDP (of which 40 contracts or 893 km have been completed). This is an impressive procurement achievement— an estimated 35 contracts on average per year or roughly 1,400 km annually. However, assuming an average contract implementation period of 3 years, NHAI will have to double this number of kilometers to complete the remaining 6,962 km programmed by the end of 2007. Doubling the pace of delivery will require NHAI to strengthen project management capability and, wherever possible, simplify and standardize project preparation and processing. 6. Private sector participation. Since 1999, NHAI has actively explored options to increase participation of the private sector in highway development. To date, eight toll-based build-operate-transfer (BOT) concessions, eight annuity-based contracts, and eight special-purpose vehicles (SPVs) have been awarded, covering 1,154 km (19% of total length contracted to date), and $1.9 billion of the total project cost with PSP (of which $1.1 billion is

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estimated to be the private sector contribution). By the end of FY2007/08, the private sector will have contributed $1.8 million or almost 12% of total capital cost for NHDP. This level of PSP, however, has been achieved by the Government provision of subsidies of 16–49% of construction costs1 and also by its payment of annuity of around 16% return. As projects move to less-trafficked segments of NHDP networks as those in the E-W and N-S corridors, the public sector contribution is likely to be increased significantly. This potential increase should be minimized by introducing a variety of credit enhancement mechanisms and innovative PSP schemes (Supplementary Appendix A-2 for an overview of, and lessons learned from, PSP). 7. Financial viability and sustainability. To complete NHDP, the first- and second-phase programs, and others mandated to NHAI, require a total of $32.5 billion2 over FY1999–FY2017: $15.2 billion for capital financing, and $17.3 billion for debt service ($1.6 billion for on-lent government loans and $15.7 billion for market borrowings). To finance these capital works and debt service, it is anticipated for NHAI to raise $30.7 billion over the same period: $15.7 billion from cess (tax), $9.1 billion from market borrowings, $4.1 billion from external assistance, and $1.8 billion from PSP. The shortfall of $1.8 billion is envisaged to be financed out of NHAI tolls. Toll revenue for FY2005–FY2017 is estimated to amount to $6.5 billion,3 of which operation and maintenance (O&M) will require $5.0 billion.4 Assuming tolls are fully indexed with inflation, estimated toll revenue is almost sufficient to cover government debt servicing of $1.8 billion for the period estimated5 (Supplemental Appendix E-2). 8. A year ago, ADB conducted a long-term cash-flow analysis to find out whether NHAI could finance investments to complete the second phase of NHDP and associated cost of debt services. The analysis found that NHAI would face major cash-flow problems during FY2007-FY2009, and recommended substantial increase of cess or toll.6 Acting on this recommendation, the Government increased cess by 50% effective on 28 February 2003. While this action will substantially resolve anticipated cash-flow problems, overall achievability of NHAI’s cash-flow forecast still needs to be critically reviewed. The following are the issues:

(i) An additional $6.7 billion has to be raised from the market (2-3 times larger than the amount already raised from the market [$2.4 billion]). While the market has been receptive to NHAI offerings, they will become less attractive as liabilities of NHAI increase and its liquidity becomes more dependent on future borrowings. Strengthening cash-flow management and developing a more transparent financial reporting system will be critically important (paras. 48–50), and will be supported by ADB technical assistance (TA).7

(ii) A fund of $4.1 billion must be raised from multilateral and bilateral agencies. NHAI is likely to receive $1.5 billion from ADB (including 2003 and 2004 loans for NHDP) and $1.5 billion–$2.0 billion from the World Bank (including one or two pipeline loans for 2003-2005). The Japan Bank for International Cooperation

1 A notable exception to this is the BOT project for the Delhi-Gurgaon section, which has generated to NHAI a

negative grant amounting to 11% of project cost. 2 Rupee cash-flow forecasts converted at $1 = Rs45. 3 Rupee cash-flow forecasts assume Rs2.0 million and Rs1.0 million is collected per kilometer on the golden

quadrilateral, and N-S and E-W corridors, respectively. NHAI toll estimates are indexed in accordance with inflation estimated at 4.56% per annum.

4 Cash-flow forecasts estimate O&M at Rs11.5 lakh/km of four-lane highway. O&M estimates are indexed in accordance with inflation estimated at 4.56% per annum.

5 With no growth in traffic, Rs1.4 billion will be generated from tolls; with 2% growth in traffic, Rs2.2 billion will be generated (the latter covering the entire $1.8 billion shortfall).

6 ADB. 2002. Report and Recommendation of the President to the Board on a Proposed Loan to India for the East-West Corridor Project. Manila (Loan 1944-IND, para. 13 of the main text, and Supplemental Appendix Z).

7 The TA’s scope of work was modified in February 2003 to include social issues and road safety.

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(JBIC) has not yet committed any new loans for the highway sector. The sources for the additional $1.1 billion–$1.6 billion have yet to be identified or confirmed.

(iii) $6.5 billion tolls need to be collected, which require reliable traffic forecast and ability to collect toll revenues immediately after roads are commissioned, and political willingness to fully and annually index toll revenues with inflation.

9. Institutional aspect. Since NHDP started, NHAI has expanded significantly. In 2000, it had 200 staff,8 350 in 2001,9 and 530 now.10 Although the pace of expansion is very fast, it might be justifiable as investment programs are escalating rapidly and government pressure to speed up NHDP is mounting. In 2000–2002, staff, productivity increased significantly (by 60%) in terms of kilometers processed. However, this pace of staff expansion is still alarming, and staffing increase should be kept to a minimum. 10. A key element to slowing down the pace of expansion is outsourcing. NHAI has been pursuing this direction in a vigorous manner by contracting out various project development and implementation activities to the private sector, including design, construction, construction supervision, and O&M. While enabling NHAI to deliver a larger number of contracts more efficiently, this approach outstrips NHAI’s capability to monitor consultants and contractors. The problem is compounded by NHAI’s recruitment policy, which largely depends on deputation of staff from government agencies such as Ministry of Road Transport and Highways (MORTH) and state public works departments (PWDs). Most professional staff of NHAI (270 out of 530) are deputed from these agencies for 2 years, with possible extension of another 3. This staffing policy has caused problems in retaining qualified professional staff, building internal engineering and operational capacity, and nurturing a corporate culture significantly different from ordinary government agencies. The Project addresses monitoring capacity by strengthening the project team’s capacity by engaging six experienced technical experts. Staffing is being addressed under the ongoing Institutional Strengthening Study financed by the World Bank. B. Analysis of Key Problems and Opportunities

1. ADB Strategy

a. Programmatic Approach and Policy Dialogue 11. In providing a series of loans to NHDP, ADB has adopted a programmatic approach to realize medium- to long-term goals in a progressive and evolutionary manner. ADB, through the programmatic approach, will assist the Government in its efforts to achieve the mid-term objectives to (i) strengthen project development/implementation capability; (ii) enhance PSP in highway development; (iii) strengthen NHAI’s fund mobilization capability; (iv) strengthen NHAI’s O&M function; and (v) enhance NHAI’s professional management capability and financial viability. As the midterm review indicates, significant progress has been made for the first three goals. 12. ADB has systematically pursued these goals by introducing the concept of the trigger point (project processing starts only upon satisfactory implementation of agreed-on milestones). While the trigger point for last year’s project was progress of PSP, for this year’s project the trigger point is to secure adequate funds to complete the second phase of NHDP. The trigger

8 World Bank. 2002. India Transport Sector: The Challenges Ahead. Volume 2. Washington DC. 9 ADB. 2001. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to India

for the Western Transport Corridor Project. Supplemental Appendix L. Manila. 10 NHAI: A finding of the Loan Fact-Finding Mission.

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point of this year’s project was met when the Government increased cess on 28 February 2003. With progress made in achieving the first three goals, policy dialogue will shift its focus to the remaining two goals – (i) enhancement of O&M function, and (ii) organizational realignment. 13. Operation and Maintenance Issue. As more highways are constructed and placed in service, O&M is becoming an increasingly important issue for NHAI. Newly created assets need to be maintained, tolls collected with minimum leakage, and rights of way (ROW) kept clear. Given the government decision to convert four-laned NHs into toll roads, O&M should no longer be considered a cost center but a potential profit center. NHDP could generate $200 million–$400 million per year. The organizational arrangement, however, is not structured to capture this opportunity. The possibility of establishing a separate line of business within NHAI should be explored, together with development of associated accounting systems which would enable proper cost and revenue allocations among different lines of businesses. 14. The concept of O&M has been significantly expanded to include asset management, and will be further expanded to include traffic and ROW management. The ongoing corridor management unit approach is one trial moving in this direction, which will be continuously pursued under the programmatic approach. It should be fine-tuned so that the corridor management unit approach is effectively implemented under diverse operational circumstances such as annuity-based or BOT concession schemes. During the Appraisal Mission, it was agreed to hold a tripartite meeting between ADB, World Bank, and the Government to discuss these O&M-related issues in more depth and from a broader context. 15. Another O&M-related issue is tolling, which is a major determinant of NHAI’s financial sustainability. Once NHs have four lanes, tolls should be collected as soon as possible—in any event, within six months after construction is completed. Once tolling is widely accepted, the next challenge will be setting tolls at the right level to cover O&M costs and debt services from multilateral agencies. While this current toll policy is justifiable, in the long run they should be gradually increased to cover all debt services. Another element of tolls is how they are collected. NHAI recently set up an in-house committee to deliberate on toll collection and optimization. These issues will be addressed in the tolling system study funded under ADB’s Surat-Manor Tollway Project.11 This study will be conducted as an integral part of the policy dialogue to be conducted between the Government and ADB. Another issue is the need to grant NHAI the right to retain tolls as revenue. Based on the covenant between the Government and ADB in October 2002, NHAI initiated discussions this year with agencies to acquire this right. The Government agreed to finalize an arrangement so that NHAI can be able to retain tolls collected as its own revenue by 31 December 2004. 16. Organizational structure of the National Highways Authority of India. This relates to two sub-issues: a short-term one—a need to realign the current organizational arrangement, and a long-term one—a need to change corporate structure. NHAI’s organizational arrangement evolved over the years in a rather ad hoc manner. New units were created and new project implementation units (PIUs) added without a clear guide to allocate functions among various units. Now that it has entered a new phase of program implementation and grown in size, NHAI should evaluate how efficient the current organization is and what readjustments are necessary to accomplish its mission more efficiently. 17. In the long run, NHAI should look into the possibility of introducing alternative form of organization. NHAI’s current business model (a government agent that receives management

11 Negotiation with a consultant was delayed and is now scheduled for 15 November 2003.

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fees in return for construction and maintenance)12 is less valid now in light of the future operation of NHAI. The resulting financial structure (tolls collected are not NHAI’s revenue, and highways constructed are not NHAI’s assets) has significantly constrained strategic options to mobilize funds. Once it is allowed to retain tolls as revenue as covenanted in the Loan Agreement of the East-West Corridor Project, NHAI should start exploring alternative forms of organization (including public corporation) and compare their merits and demerits with those of the present organization. Since next year’s project is likely to be the last in this series of lending to NHDP, the issue of organization will be addressed during preparation and processing of next year’s project.

b. Sector-Loan Approach 18. The midterm review indicated that subproject preparation and processing should be standardized and project monitoring capability strengthened. To do so and to grant the Government’s request to increase flexibility in selection of road sections to be financed by ADB, it was decided to apply the sector-loan modality for this year’s project. Requirements for the sector loan are (i) existence of a sector development plan, (ii) institutional capability to implement the sector development plan, and (iii) development of policies to enable the sector to improve its performance. The Fact-Finding Mission found that these requirements were satisfactorily met (Supplemental Appendix C-4). 19. The sector-loan approach adopted for this Project has the following features:

(i) Priority highways will be identified to ensure minimum contiguity of project roads. (ii) From the above priority highways, a core subproject will be selected as an

exemplary subproject for the appraisal of the rest of subprojects. (iii) NHAI will select eligible non-core subprojects and appraise them according to

criteria agreed on between ADB and NHAI (Appendix 11). Appraised subprojects will be sent for approval to ADB using a summary report format, with supportive documents being attached.

C. Lessons Learned 20. Since 1988, ADB has approved eight loans for the road subsector (Appendix 3) in India, totaling $1.8 billion. Implementation of earlier projects approved in 1988-1993 were significantly delayed due to operational and institutional shortcomings. ADB has thus (i) allowed advance civil works procurement and recruitment of construction supervision consultants, ensuring award of contracts upon loan effectiveness; (ii) removed utilities and other encumbrances before construction starts; (iii) introduced a larger size of contract packages to attract experienced international contractors; and (iv) raised the level of authority of the engineer to ensure efficient and objective decision making during execution. Challenges now are system-wide operational issues rather than project-by-project implementation problems. The former includes the need to standardize project development, to be addressed by adopting the sector-loan modality. D. External Assistance 21. The World Bank has also provided 16 loans, amounting to about $3.5 billion, to upgrade national highways, improve state highways, and construct and rehabilitate rural roads. As combined World Bank and ADB assistance for the road subsector is over $5 billion, providing

12 The fee for construction is 1% of cost, while that for maintenance is 9%.

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such assistance should be done in a well-coordinated manner to generate maximum synergy in operations, with minimum duplication. In 2001, ADB and World Bank developed their coordinated assistance strategy for India’s road subsector, which has been updated from time to time to keep it relevant to the government agenda. The Government, ADB, and World Bank, have been holding tripartite meetings periodically to discuss major policy and investment issues in the road sector. The most recent meeting was held in April 2003, with secretary-level participation from the Government. Close coordination between ADB and World Bank will continue using these mechanisms. 22. JBIC is another major donor to the highway sector, having provided five loans amounting to $300 million to upgrade NH sections and construct a bridge. While JBIC has not been active in India’s highway sector for the last few years, ADB has been in close contact with JBIC to exchange information and explore the possible areas of cooperation. The Department for International Development of the United Kingdom is another important partner of ADB in its operations in India, having provided grant assistance to the Madhya Pradesh State Road Project and the proposed rural roads sector project.

III. THE PROPOSED PROJECT A. Priority Highways 23. The Project13 will finance sections of the E-W Corridor under the sector-loan modality. Of these sections, 662 km are priority highways in Rajasthan, Madhya Pradesh, and Uttar Pradesh. Priority highways are divided into five sections. Among them, section C was selected as a core subproject since it represents a typical set of project development issues, including technical, environmental, and social ones. If NHAI identifies other sections that need to be developed more urgently, the above sections can be replaced by others, or other sections can be added to the above sections, provided that the other sections (i) are part of the E-W Corridor and (ii) satisfy eligibility criteria of subprojects (Appendix 11).

Table 1: Priority Highways Section Priority Highways Specific Locations Length State A Chittorgarh-Kota (excluding Kota

Bypass) NH 76 (km212–km376) 164 km RJ

B Kota- RJ/MP Border (excluding Kota Bypass)

NH 76 (km406–km579) 173 km RJ

C RJ/MP Border-Jhansi (excluding Jhansi Bypass)

NH 76 (km579–km609) Shvpuri Bypass (24km in length) NH 25 (km15–km92)

131 km MP/UP

D Jhansi-Orai (including Jhansi Bypass)

Jhansi Bypass (16km in length) NH 25 (km104–km212)

124 km UP

E Orai-Bognipur-Barah NH 25 (km212–km255) NH 2 (km422–km449)

70 km UP

km = kilometer, MP = Madhya Pradesh, RJ = Rajasthan, UP = Uttar Pradesh. B. Objectives 24. The objective of ADB’s programmatic approach is to help the Government strengthen the policy and institutional framework for efficient delivery of highway development and O&M

13 The Project was prepared under ADB. 2002. National Highway Corridor (Sector). Manila (TA 4036-IND). ADB’s

previous requirement to convert the grant amount exceeding $250,000 into a part of the subsequent loan will not be applied.

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services through policy and institutional reforms to enhance transport efficiency without causing major environmental and social problems. 25. Under this framework, the Project focuses on the E-W Corridor to achieve the following:

(i) Upgrade key national arterial corridors connecting the eastern and western ends of the country to help reduce regional disparities.

(ii) Facilitate PSP in highway development by providing necessary advisory services.

(iii) Contribute to the Government’s efforts to prevent spread of HIV/AIDS14 and increase awareness of possible risk of trafficking in women and children by collaborating with relevant state authorities concerned with health, women, and children.

(iv) Enhance road safety through pilot introduction of a safety zone for a part of national highway under the E-W Corridor.

C. Components and Outputs

1. Highway Investment 26. The component will finance the widening of stretches between Chittorgarh and Orai (592 km) into four-lane roads. The core subproject, a 131 km section between the Rajasthan and Madhya Pradesh border and Jhansi, will cost $151.8 million, while non-core subprojects will cost an estimated $484.5 million, covering 461 km. ADB will finance the entire foreign exchange portion of the project cost, except the front-end fee and interest during construction, which will be borne by the Government (Supplementary Appendix B-1), and part of local currency costs. Once these sections are completed, their O&M will be contracted out to a third party.

2. Private Sector Participation 27. As NHAI must be encouraged to use PSP as a key modality to finance highways, ADB and NHAI agreed that at least 10% of project highways are to be developed under a PSP scheme. NHAI will identify section(s) to be developed under the PSP scheme within 3 months of loan effectiveness. NHAI will explore the possibility of PSP in the Orai-Balah section (70 km)—the eastern end of the priority highways adjoining golden quadrilateral at Barah. An agreement was reached with NHAI that the PSP component(s) will meet all requirements imposed on the subprojects to ensure, among other requirements, compliance with ADB’s safeguard policies. NHAI further agreed to report to ADB in a timely manner the results of the bidding, negotiations, and financial closure so that, in case these are not finalized, the Government and ADB can take necessary action promptly. 28. While it will not directly finance the PSP development, ADB will help NHAI engage a financial adviser (a domestic firm costing $100,000 equivalent) (Supplementary Appendix D-4 for terms of reference). Furthermore, to catalyze the inflow of commercial funds for PSP, if requested by the Government and NHAI, ADB’s private sector window would help the private concessionaire through lending or guarantee operations. ADB’s private sector support modalities will, however, be subject to a separate due-diligence exercise.

14 Human immunodeficiency virus/acquired immunodeficiency syndrome.

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3. HIV/AIDS and Anti-Trafficking 29. This component is designed to reduce risks of spreading HIV/AIDS and trafficking women and children. 30. HIV/AIDS subcomponent. This subcomponent will build upon the collaborative model to be finalized between NHAI and the National AIDS Control Organization in the form of a memorandum of understanding.15 The subcomponent will involve contribution of technical expertise by state AIDS control societies as well as on-the-ground operations along priority highways carried out by nongovernment organizations (NGOs). This subcomponent will engage in the following key activities: (i) awareness raising among construction workers, (ii) public awareness raising and a change behavior campaign among high-risk groups, (iii) strengthening of referral systems for sexually transmitted diseases and HIV for early diagnosis along priority highways, (iv) condom promotion and distribution; and (v) capacity building of service providers and decision makers. 31. Anti-trafficking subcomponent. This subcomponent will be carried out by NGOs in conjunction with HIV/AIDS prevention activities. It will draw on knowledge and expertise from state departments of women and child development and social welfare, already-operating NGOs, and other locally available resources. The subcomponent will engage in three main activities: (i) awareness raising and a safe-migration campaign (target groups are from the demand side [e.g., truck drivers/helpers] and supply side [e.g., commercial sex workers, tribal women and children, and migrant women]); (ii) channeling resources from national or state programs to empower women and children to vulnerable tribal women or children; and (iii) capacity building of service providers, communities, and decision makers. 32. NHAI’s environment and social development unit (ESDU)16 will establish an HIV/AIDS prevention and anti-trafficking cell within the unit to implement this component. The cell will be headed by a general manager in charge of social development issues, who will be assisted by three staff consultants to be engaged later under a separate financing arrangement.17 The cell will engage three locally based NGOs. The activities of these NGOs would be coordinated and monitored by a domestic consultant to be financed by ADB. The estimated cost for the component is about $400,000 (Supplementary Appendix B-3).

4. Road safety 33. This component is designed to enhance road safety by introducing a safety zone to a selected pilot section on the E-W Corridor. The safety zone is intended to institute several road safety equipment/systems in an integrated manner to maximize their impacts. It will be equipped with (i) advanced traffic management systems to monitor the road situation in a centrally controlled manner; (ii) weigh-in-motion and/or static weighing platforms to control overloading; (iii) speed-monitoring equipment to spot speeding vehicles; and (iv) ambulances and other relief equipment to provide emergency road services. To ensure the effective operation of the safety zone, appropriate operators and/or authorities will be mobilized to enforce traffic regulations and provide emergency medical services. The component will decide what systems will work best for the pilot section. The 150-200 km pilot section will be identified for the Jhansi-Lucknow section, which has the highest traffic level in the E-W Corridor. NHAI’s corridor management 15 Development of the memorandum of understanding was facilitated by the World Bank. 16 ESDU was established in 2000 at the headquarters to handle environmental and social development issues. It is

headed by a general manager. 17 Financed by the World Bank.

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unit will be a focal point for this component and guided by an appropriate arrangement to be established within 6 months of loan effectiveness, in coordination with MORTH and relevant state authorities. ADB will finance the consultancy services of $500,000 to define the safety zone concept and operational arrangements for enforcement and emergency medical services. ADB will also finance the cost of purchasing equipment and systems ($11.8 million) (Supplemental Appendix B-4). D. Cost Estimates 34. The total project cost is estimated at $760 million equivalent, including allowances for contingencies and interest during construction. Foreign exchange costs are estimated at $454 million, representing 60% of the total cost, while local currency costs are estimated at $306 million equivalent, representing 40%. The estimated project cost is in Table 2 (Appendix 4 for more details).

Table 2: Project Cost Estimatesa

($ million) Item Foreign

Exchange Local

Currency Total

A. Base Cost 1. Civil Works 399.0 206.6 605.7 2. Right of Way 0.0 42.9 42.9 3. Relocation of Utilities 0.0 20.0 20.0 4. Environment 0.0 11.6 11.6 5. Consulting Services 9.6 19.2 28.8 6, Equipment 11.8 0.0 11.8 7. Project Management 0.0 5.4 5.4 Subtotal 420.5 305.9 726.3 B. Front-End Fee 2.0 0.0 2.0 C. Interest/Commitment Charges During Construction

31.9 0.0 31.9

Total 454.4 305.9 760.2

a Contingencies were not included because of the sector-loan modality. Source: Asian Development Bank staff. E. Financing Plan 35. The Government has requested a loan of $400 million from ADB’s ordinary capital resources to finance the Project. 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 0.75% per annum, a front-end fee of 0.50%, and such other terms and conditions set forth in the draft Loan and Project Agreements. The Government has provided ADB with (i) reasons for borrowing under ADB’s LIBOR-based lending facility on the basis of these terms and conditions, and (ii) an undertaking that these choices were its own independent decision and not made in reliance on any communication or advice from ADB. 36. The Government will cover the foreign exchange cost of $34 million to cover the front-end fee, interest, and other charges on the loan during construction. The Government will also cover the local currency cost equivalent to $258 million. The construction cost of the Orai-Barah section of priority highways ($67 million equivalent) or such other subproject to be identified by

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NHAI to be developed under a PSP scheme will be covered by a private concessionaire. ADB will fund consulting services for the PSP scheme ($100,000). The detailed financing plan is in Table 2.

Table 3: Financing Plan ($ million)

Source Foreign Exchange Local Exchange Total Cost Percentage Asian Development Bank 380.8 19.2 400.0 53 Government 33.9 257.7 291.6 38 Private Sector 39.7 28.9 68.6 9 Total 454.4 305.8 760.2 100

Note: The Government’s foreign exchange contribution is toward the front-end fee and interest during construction. Asian Development Bank’s local currency contribution is toward the domestic consultants fee, but will not be applied to other local currency costs. Source: ADB team and NHAI.

37. The Government will make loan proceeds available to NHAI promptly. The Government’s policy of assistance to NHAI for the E-W and N-S corridors is a loan-grant ratio of 20:80. Clearance was obtained on 6 June 2003 from the Public Investment Board for construction of the E-W and N-S corridors and for the loan-grant ratio. The Government will bear the foreign exchange risk of the loan. F. Implementation Arrangements 1. Project Management 38. NHAI will be the Executing Agency for the Project. The Project will be implemented by two especially created PIUs, which will be in Kota (for the sections in Rajasthan and Jhansi (for the sections in Madhya Pradesh and Uttar Pradesh) (Supplementary Appendix B-5 for organizational structure) and by such other PIUs as required to implement additional non-core subprojects. PIUs should be adequately staffed within 2 months of loan effectiveness and, in any case, before the award of civil works contracts under the subprojects, whichever is earlier. Two staff at the level of general manager or deputy general manager will be assigned as project directors, one for each PIU, to be assisted by deputy general managers or managers, each responsible for one contract package or a PSP component. An additional deputy general manager or manager will be assigned for each PIU to oversee resettlement activities, and handle grievances to be filed by the public, including project-affected people and NGOs. An accountant/financial management specialist will be assigned to each PIU. Sufficient administrative authority will be delegated to PIUs for effective and timely project implementation. PIU activities will be overseen by the NHAI chair through the project team, which is headed by a chief general manager in charge of the E-W Corridor. The project team’s main function is to organize preparation and implementation activities of the Project and process and implement various consulting service contracts. 39. NHAI has already established a project team to develop the E-W Corridor. The team will be supported by a technical group of experts consisting of (i) a group leader/highway engineer; (ii) a bridge engineer, (iii) a pavement cum material engineer, (iv) an economic and financial analysis and PSP specialist, (v) an environmental specialist, and (vi) a resettlement and other social development specialist. The core functions of the technical group of experts are the following:

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(i) Review and examine all technical reports, including the feasibility studies, preliminary design, initial environment examination (IEE), resettlement plans, poverty and social development strategy, indigenous peoples’ development plan (IPDP) if required, and detailed design to ensure that subprojects are prepared in accordance with ADB’s policies and NHAI’s design standards and other requirements.

(ii) Evaluate the overall viability of individual subprojects, and prepare a summary appraisal report to be submitted to ADB for approval, together with necessary attachments.

(iii) Conduct proof checking for highways and bridges. (iv) Prepare bidding documents for the PSP component(s).

40. Eligibility criteria and detailed procedures for the approval process to facilitate preparation of non-core subprojects are in Appendix 11 and the Summary Appraisal Report Format in Supplementary Appendix C-1. 2. Implementation Schedule and Period 41. The Project will be implemented over 48 months, inclusive of procurement and pre-construction activities, and is expected to be completed by 30 June 2007. The schedule will allow for acquisition of land free from encumbrances; resettlement; and clearance of all utilities, trees, and any other obstructions from the land to be used for construction. The implementation schedule is in Appendix 6. 3. Procurement 42. Civil works will be procured in accordance with ADB’s Guidelines for Procurement through international competitive bidding (ICB). Procurement of civil works under ICB will be carried out among prequalified bidders. A list of contract packages for the core subprojects is in Appendix 5. For procurement of goods, ICB will be used for supply contracts estimated at more than $500,000, international shopping for $100,000–500,000, and direct purchase arrangement for less than $100,000. 43. To expedite procurement, advance action for prequalification for civil works contracts was approved by Management on 29 July 2003. The Government has been advised that this approval does not commit ADB to finance the Project.

4. Consulting Services 44. For the highway investment component, three consulting firms will be engaged to supervise construction of civil works using full technical proposal method (Supplemental Appendix D-2 for terms of reference, 417 person-months of international and 4,719 person-months of domestic consultants will be required). For the PSP component, a domestic consulting firm will be engaged to provide financial adviser’s services using simplified technical proposal method (Supplemental Appendix of B-2; 15 person-months of domestic consultants will be required). For the road safety component, an international consulting firm will be engaged using simplified technical proposal method to develop a safety-zone concept and build capacity to enforce traffic regulations and provide emergency medical services (Supplemental Appendix B-4; 15 person-months of an international consultant and 15 person-months of domestic consultants will be required). NHAI will engage these consultants in accordance with ADB’s Guidelines on the Use of Consultants and other arrangements satisfactory to ADB on the

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selection and engagement of domestic consultants. The consultants will be engaged using the quality- and cost-based selection method and full or simplified technical proposals in accordance with the size of contracts as stated. 45. For the HIV/AIDS and anti-trafficking component, NHAI will engage locally based NGOs in accordance with its own procedures (Supplemental Appendix B-3; 98 person-months of domestic NGOs will be required). These NGOs’ activities will be supervised by a domestic individual consultant who will also be financed under the component (36 person-months). The domestic consultant will be engaged through arrangements satisfactory to ADB on the selection and engagement of domestic consultants.

5. Disbursement Arrangements 46. The loan proceeds will be disbursed in accordance with ADB’s Loan Disbursement Handbook (January 2001) and Disbursement Guidelines for Disbursement Operations, LIBOR-based Loan Products (July 2002), as amended from time to time, primarily using direct payment procedures for funds under large civil works contracts and consultancy services. To facilitate project implementation through timely release of funds, an imprest account will be established by the Government with the Reserve Bank of India. The imprest account will be managed, replenished, and liquidated in accordance with the above handbook and guidelines. The initial amount to be deposited in the imprest account will be equivalent to the estimated eligible project expenditures for the next 6 months or 10% of the loan amount, whichever is lower. Any individual payment to be reimbursed or liquidated under the statement of expenditure (SOE) method for reimbursement of certain eligible expenditures will not exceed the equivalent of $300,000.

6. Accounting and Auditing 47. NHAI’s accounting system was established in accordance with government requirements, and its financial statements are prepared in a format prescribed by the Controller and Auditor General of India, which audits NHAI’s financial statements annually. As a public sector authority, NHAI’s accounting system generally adheres to basic commercial accounting practices commonly employed in India, and in this regard is broadly in accordance with Generally Accepted Accounting Practices (GAAP) of India. Accrual accounting is used, transactions are recorded on a historical-cost basis, and a balance sheet and a profit-and-loss statements are annually prepared (Appendix 7 for financial statements of NHAI). 48. To date, however, NHAI operates as a government agent with primary responsibility to develop national highways. As such, NHAI does not recognize road infrastructure as assets. On the balance sheet, road construction expenditure is shown as work in progress where it remains upon completion of works. An accounting policy to otherwise retain these assets on the books has yet to be determined. NHAI’s primary source of reported revenue is the management fee received from the Government in return for completing the entrusted works. Toll revenues are not treated as NHAI income but as accounts payable to the Government. Similarly, interest received on unused advances is not treated as NHAI income but is recognized as a capital surplus or an increase to capital. As of FY2000, the main differences NHAI accounting practices and statement presentation with those of GAAP in India are detailed in NHAI’s notes to the financial statements. 49. Thus, while in accordance with government reporting requirements, NHAI financial statements do not provide sufficient information to appropriately evaluate the effectiveness of

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NHAI’s financial structure or financial performance. The lack of integrated physical and financial planning systems and integrated accounting and financial reporting systems does not support provision of timely information to management, or effective cash-flow management. NHAI recognizes that if it is to become more efficient and autonomous, it needs to strengthen its financial management capacity and ability to mobilize financing in domestic as well as international financial markets. The envisaged TA18 will help NHAI address these issues. 50. NHAI will maintain separate project (including subproject) accounts. An independent auditor acceptable and satisfactory to ADB will annually audit the project accounts and financial statements of NHAI. It will submit unaudited project accounts to ADB not later than 6 months from the close of each fiscal year, and the audited financial statements including project accounts not later than 9 months. The annual audit of the project account should separately cover the imprest account and SOE procedure. The auditor’s opinion on the imprest account and SOE should be separately set out in the auditor’s report. NHAI was made aware of ADB’s policy on delayed submission and also of the importance of satisfactory and acceptable quality of audited reports.

7. Project Supervision and Review and Reporting 51. A project inception mission will be fielded soon after project loan approval to initiate implementation. The Government and NHAI will periodically review the Project to assess and evaluate the scope, implementation arrangements (with due participation of local NGOs and community), benefit monitoring, and progress and achievement in accordance with ADB’s Project Performance Management Systems Handbook. The Borrower, NHAI, and ADB will undertake a midterm project review in May 2005. It will (i) review the project scope, design, and implementation arrangements; (ii) identify changes needed since project appraisal; (iii) assess implementation performance against project performance indicators; (iv) review resettlement operations; (v) review and establish compliance with the legal covenants; (vi) identify problems and constraints; and (vii) if necessary, recommend changes in project design or implementation arrangements. In case the midterm review requires changes in project implementation, NHAI and ADB will agree on appropriate measures, including changes in implementation arrangements, to ensure that project objectives are met. 52. NHAI will provide quarterly and semi-annual reports to ADB on project execution. Three months after project completion, NHAI will provide ADB with a project completion report.

8. Project Performance Monitoring and Evaluation

53. With help from construction supervision consultants, NHAI will monitor and evaluate project performance in accordance with ADB’s Project Performance Management System Handbook. NHAI will set up the project performance management system within 3 months of loan effectiveness. Primary monitoring indicators to be used by NHAI and reported to ADB will be (i) percentage of roads without discernable congestion, to measure capacity expansion; (ii) international roughness index, to measure the riding quality of project roads; (iii) travel/transit time, to measure increased efficiency for passenger/goods transport; (iv) freight for trucking service and intercity fare for bus services, to measure reduction in transport costs; (v) traffic fatalities, to measure increased road safety; and (vi) length of highway sections to be developed by the private sector for the entire E-W Corridor, to measure the extent of PSP. Initial and target

18 ADB. 2000. Enhancement of NHAI’s Capacity for Financial Management and Social/Operational Issues. Manila

(TA 3724-IND, included in the Western Transport Corridor Project, whose scope was modified in February 2003).

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values for each indicator, together with methodologies for compiling data, are in Supplementary Appendix D-1.

IV. PROJECT BENEFITS AND IMPACTS

A. Social Aspect 54. An initial poverty reduction and social assessment was carried out during project preparation and, based on the findings, the poverty reduction and social strategy was developed (Appendix 9). The Project is classified as economic growth but not as a poverty intervention. A participatory approach was taken in designing the Project, including consultation with local governments and communities. NHAI has instituted a system to obtain feedback from road users and other relevant parties. An advisory group of key stakeholders was established in October 2000 with participation of representatives from trucking industries, the public, automobile manufacturers’ associations, financial institutions, chambers of commerce, state governments, NGOs, and construction and consultancy industries. The Advisory Group meets at least twice a year to deliberate on all aspects of highway operations and improvements on highway use. The Advisory Group expressed the need to (i) strengthen road safety measures, (ii) control overloading, (iii) prevent encroachment, and (iv) maintain highways.

1. Resettlement and Indigenous Peoples’ Issues 55. Core subproject. A resettlement plan for the core subproject from the Rajasthan/Madhya Pradesh border to Jhansi (package C), covering a stretch of 131 km, has been prepared. The plan is based on an enumeration of all structures within the existing ROW width and on the land to be acquired for road widening, including the proposed 24 km Shivpuri bypass. The survey data indicates that the impact will be largely on roadside shops/businesses. A total of 859 structures (residential/commercial) will require demolition. In addition, the road widening and improvements will affect 45 religious/community structures. Land acquisition survey data have been collected to assess subproject impact on agricultural households. Over 1,400 households will be affected by loss of agricultural land: of these, 123 families will experience loss of over 10% of their holdings while 14 will lose 75%. 56. According to the revised resettlement plan, construction of the core subproject will require acquisition of an estimated 332 hectares (ha) (212 ha private, 84 ha forest, and 34 ha revenue/government land). The bulk of land acquisition will be from the two ends of the Shivpuri bypass. A considerable length of the bypass (about 12 km) will cut through protected forest areas. Efforts have been made to minimize land acquisition and reduce resettlement impacts as much as possible by (i) keeping ROW to 45 meters (m) wide in built-up areas and reserve forest areas, (ii) adopting concentric symmetrical widening, (iii) raising carriageway over congested segments, and (iv) using bypasses to avoid congested urban settlements. The ROW in the bypass through the reserve forest will use the existing “fire lane” corridor to minimize the impact on the forest. Statutory approval will be obtained for change in land use. 57. As per the resettlement plan, people will lose residential, commercial, and community structures; business and employment; homestead and agricultural land; crops; and livelihood sources. Nearly 70% of the structures are pucca (brick and cement) and the rest are semi-pucca or temporary houses. Over 40% of users of the structures (particularly shops) are tenants. Based on estimated incomes from all sources, about 15% of the households are below the poverty line.

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58. The summary resettlement plan (Appendix 10) provides further details about subproject impact and measures proposed for mitigation. As per the entitlement matrix, key measures include compensation at full replacement cost for all lost assets. In addition to payments by the competent authority, affected people will receive additional grants to match replacement costs of lost assets (land and houses), transaction costs such as stamps and registration costs (in case of purchase of replacement land), and other cash grants and resettlement assistance such as shifting allowance, and compensation for loss of workdays/income due to dislocation. Female-headed households and other vulnerable households will be eligible for further assistance in accordance with entitlement as detailed in the RP. 59. Two resettlement sites have been identified in consultation with affected people and local administrations. The sites are close to existing settlements to minimize disruption. Affected people will be given several options for relocation, including additional assistance. The sites for residential dwellers will be developed with basic amenities (e.g., internal roads, sanitary/water supply, community infrastructures, etc.). Displaced households have expressed their desire for self-relocation. Besides compensation for lost assets, families requiring relocation will receive shifting allowances for resettlement. NHAI disclosed the draft resettlement plan to the affected people/local officials on 27 June 2003. The comments have been used to improve resettlement plan entitlements. The project director (NHAI-Kota) conducted an information seminar in September 2003 to disseminate information among various stakeholders, particularly district-level government officials in Shivpuri. 60. A detailed field survey was undertaken to assess the socioeconomic status of indigenous people and their livelihood sources. The most important scheduled tribes of the project area are the Bhil, Mina, and Saharia in Shivpuri, while a small number of Bhotiya inhabit Jhansi district of Uttar Pradesh. The core subproject will directly affect only 13 households and shops over the 131 km stretch. Socioeconomic and occupational/income data suggest that affected scheduled tribes are similar to the overall affected population and largely assimilated into local mainstream communities. The scheduled and non-scheduled tribe population view the highway project as beneficial as it will likely generate more business and economic opportunities. Improved transportation and connectivity will increase jobs. 61. As indicated earlier, scheduled tribes directly affected by the subproject are shop owners and businesspeople. Their economic activities are strongly tied to mainstream economic activities, and unlikely to be affected any differently than non-tribals. As such, a separate IPDP for scheduled tribes is not needed. The resettlement plan paid special attention to scheduled tribes and other vulnerable groups within the resettlement processes, particularly livelihood and income restoration, including a separate income restoration program for them. 62. To effectively manage resettlement and further strengthen ESDU, NHAI has engaged a manager for resettlement. NHAI has indicated that the ESDU will also engage two long-term staff consultants from its own funds—one for resettlement and one for environment from its own funds—to enhance its capacity for management and operations, and thus more closely involve ESDU staff in resettlement management and supervision of NGOs/consultants in resettlement plan implementation. A local resettlement specialist and ESDU will undertake training program under the Project for NGOs and NHAI officials. 63. Non-core subprojects. A resettlement framework (Appendix C-6) and an indigenous peoples’ development framework (Appendix C-7) will serve as a basis to prepare subsequent resettlement plans for non-core subprojects and IPDPs as required. The frameworks were disclosed in the project areas in June 2003. All plans will be prepared in full consultation with

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affected persons and disclosed in draft form to them. The resettlement and IPDP frameworks will be placed on the ADB web site before submission of the Project for board approval. 64. Based on the initial checklist and social assessment, NHAI will determine if IPDPs are required for non-core subprojects. NHAI will ensure that social assessments are incorporated into the subproject design, including measures to minimize or avoid resettlement impacts and impacts on indigenous people who are dependent on land for their livelihoods. NHAI will screen and review resettlement plans/IPDPs for subprojects before submitting them to ADB. A qualified resettlement specialist has been included in the technical group within the project team for subproject evaluation and screening.

2. HIV/AIDS and Trafficking in Women and Children 65. Over the past decade, HIV/AIDS and human trafficking have become major development concerns in India. The Government estimates that about 4 million people are infected with HIV, including 500,000 with AIDS cases in 2002; 85% of transmission is through heterosexual sex, and condom use is still not a norm. This makes commercial sex workers and their clients such as truck drivers and helpers along national highway corridors among the most vulnerable high-risk groups. The increase in traffic volume may mean more unsafe sexual activity unless strengthened and targeted interventions are in place. 66. The centuries-old phenomenon of trafficking in women and children has reportedly intensified with growing economic disparities, increasing number of migrants, and improved transport and communication. Of human trafficking, 90% occurs within the country, with major cities such as Delhi, Kolkata, Mumbai, and Ahmedabad as destinations or transit points to abroad. Traffickers target the most desperate and vulnerable—women and children from communities stricken by chronic poverty and debt and by natural calamities such as droughts and floods; and from scheduled tribes and castes, who are illiterate and have few life skills outside their communities. Deception through false promises of better jobs or false marriage proposals is the common modus operandi. The combination of the economically and socially low status of women and widespread poverty is at the core of the flesh trade. The known points for trafficking include local roadside teashops, brothels, construction sites and quarries, factories, bus terminals and railway stations, and urban streets. 67. The feasibility study projected an extremely high risk of an AIDS epidemic and human trafficking. The project areas have been severely affected by recent droughts and have communities of economically and socially vulnerable scheduled castes and tribal groups (e.g., Meena, Bedia, Saharia, Bhil). Commercial sex areas are developing along the corridors. The improved connection from these vulnerable roadside communities to major cities, and the anticipated increase in roadside commercial sex activity will significantly increase the risk of HIV/AIDS and human trafficking. The influx of outside laborers (mainly male) during construction and their interaction with vulnerable local communities and access to roadside teashops will need special attention. 68. Truck drivers are not only clients of sex workers but also reportedly help in trafficking women and children. Young girls are brought from one place to another and subsequently handed over to waiting agents. Meanwhile, the truck drivers themselves drivers shut off a possible avenue for these girls to return to normal life. In project areas, major traffic runs from north to south or vice versa, passing through Shivpuri along NH3 and also through Jhansi along NH26. East-west movement is much less frequent due to poor road conditions. However, once

17

the E-W Corridor is completed, such movement will significantly increase, with the likely result that HIV/AIDS and human trafficking will become more prevalent. 69. As HIV/AIDS and other emerging social problems such as poverty and indigenous peoples’ lack of development become more serious, NHAI has strengthened ESDU’s organizational structure by engaging a general manager in charge of these issues. NHAI also plans to engage a manager to handle emerging social problems and establish an ESDU cell to deal with HIV/AIDS and human trafficking (para. 32).

3. Road Safety

70. While contributing to economic growth, an improved road network can also lead to more road accidents. National road safety statistics show a 5% annual increase of road accidents in the past 2 years, with around 70,000 fatalities in 2001.19 The fatality rate per 10,000 vehicles is 21, which is twice higher than in some other Asian countries (for instance, 10 in Thailand). About 65% of all road accidents occur on NHs; 83% of all nationwide road accidents are the fault of drivers. About 50–60% of road traffic accidents involve heavy commercial vehicles such as trucks and buses. 71. The project states have fewer traffic accidents due to low traffic density. Madhya Pradesh had 58 fatalities per 1 million people in 2000, and Uttar Pradesh, 50—lower than the national average of 78. However, as traffic increases, these numbers are likely to increase substantially. 72. The institutional set-up for road safety faces a number of problems. Coordination among various agencies is weak. While the National Road Safety Council was established in the late 1990s, it does not function effectively. The lack of effective traffic regulation enforcement is another problem. Institutional arrangements for enforcement need to be reexamined. ADB intends to undertake soon TA20 on emerging social issues, a component of which will address enforcement and compare the current state police-based system and a possible network-based highway police system. 73. The establishment of an effective vehicle inspection system is another challenge. Based on the Motor Vehicle Act and its state implementation regulations, vehicle inspection systems are already in place but ineffective. The Government (MORTH and other relevant agencies) and the private sector (automotive industry associations and other parties) have jointly taken a sector initiative, in which ADB will actively participate. 74. Facilities along highways such as rest areas should be improved. The Government is experimenting with several types of wayside amenities on a pilot basis (for instance, in Haryana and Tamil Nadu states), but the facilities appear not to cover a wide range of needs (including of truck drivers, who need special small-scale rest areas). 75. Road safety audits have been an integral part of ADB highway projects. Consultants will soon be engaged to carry out safety audits on roads included in the Surat-Manor Tollway, West

19 Government of India. 2003. The 10th Five-Year Plan 2002–2007. Chapter 8.3: Transport. 20 ADB. 2000. Enhancement of NHAI’s Capacity for Financial Management and Social/Operational Issues. Manila

(TA 3724-IND, included in the Western Transport Corridor Project, whose scope was modified in February 2003). As soon as the details of the TA proposal are agreed on with the Government, consultants will be short-listed.

18

Transport Corridor, and East-West Corridor projects. The scope of the consultants’ work will be expanded to include the Project.21 76. Implementation of the above actions requires a comprehensive, targeted road safety policy. A policy and institutional matrix on road safety (Supplementary Appendix A-3) was prepared and discussed with the Government and World Bank to support the Government’s effort to develop comprehensive action plans on road safety.

4. Poverty Impact 77. The overall objective of the Project is to connect the eastern and western ends of India via better road networks. Although not designed as a poverty intervention project, the Project will, by virtue of passing through the countryside where a large percentage of the population lives below the poverty line, help reduce poverty by encouraging human development and economic growth. Better connectivity with mainstream economic regions will also help reduce regional disparities among fast-growing and backward states such as those in the northeast. 78. Project roads mostly have two lanes; some have only one. Poverty levels in Madhya Pradesh are 37%, and in Uttar Pradesh 31%, significantly higher than for India as a whole at 26.1%. The project region is part of the Bundelkhand plateau, which has little or no productive land and low rainfall. Recent persistent drought has forced migration of productive labor and encouraged human trafficking and the commercial sex trade in vulnerable sections along the corridor. A separate HIV/AIDS prevention and anti-trafficking program will be implemented under the Project. Scheduled tribes in the interior have taken to a nomadic lifestyle, moving and settling along the road, seeking jobs. 79. Rural inaccessibility is one of several key reasons for poverty and deprivation in Rajasthan, Madhya Pradesh and Uttar Pradesh. Their rural populations are widely dispersed, making road connectivity a particularly critical factor for those seeking economic opportunities and social services. However, past neglect of the road network overall has contributed to lack of rural mobility in the states. 80. The Government’s road sector policy is to establish an integrated road network linking lower levels of road systems (rural and major district roads) to higher levels (state roads and national highways) to connect rural communities to urban centers (vertical connectivity), which are, in turn, connected to other urban centers (horizontal connectivity). ADB will thus provide loans for rural roads, major district/state roads, and NHs. While it will deal with the NH segment, the Project will also improve rural accessibility by establishing a well-integrated road network, and thus help reduce poverty in project areas. 81. Improved road networks will increase long-term economic opportunities of rural communities by (i) enabling villagers to shift from subsistence farming to market-oriented agricultural surplus production; and (ii) helping local people, particularly the youth, move out of their communities to work at better-paid jobs in manufacturing or commerce. The Project will also provide social benefits such as improved access to health, education, and social services. The Project will have a short-term poverty reduction impact as the rural poor are hired for construction, tree planting, and ensuing maintenance works. These opportunities will directly increase earnings for the poor, who are largely dependent on occasional and temporary employment. 21 The need for an expeditious road safety audit was discussed during project appraisal. NHAI has assigned a new

general manager, who is expected to expedite engagement of consultants.

19

(H orizon tally connected}

R ural R oads R ura l R oads

F igure 1 : H ierarch ica l S tructure o f Ind ia 's R oad

R ural R oads R ura l R oads

N ationa l H ighways

M a jo r D is tric t R oads M a jo r D is tric t R oads

S tate C ap ita lS tate C ap ita l

D istrict H Q

D istrict H Q

B lock H Q B lock

H QB lock

H Q B lock H Q

Villag e V illag e V illag e V illag e V illag e V illag e V illag e V illag e

Vertically connected

S tate C apita l S tate C ap ital

B. Environmental Assessment 82. The Project was originally classified as an A/B project in accordance with ADB’s 2003 Environmental Assessment Guidelines since project roads were planned to traverse Madhav National Park, but it was agreed to develop a bypass to the park. With this modification in alignment, the Project was reclassified as a category B sensitive. The summary IEE was prepared for the core subproject and circulated to the Board on 4 August 2003.

83. The park bypass goes through Chironji Reserve Forest, where diversification of forestland to other use is permitted with clearance from the Ministry of Environment and Forests. NHAI prepared the IEE report, which assessed environmental impacts of the core subproject and prescribed environmental mitigation measures as part of the environmental management and monitoring plan. The subproject will have major environmental impacts during construction. The contractor will implement all required mitigating measures during construction. NHAI will ensure that the measures are stated clearly in contract documents. It will be responsible for overall implementation of the environmental management plan and, therefore, through its construction supervision consultant, will supervise and monitor implementation of mitigation measures. ADB will also be given all access to undertake environmental monitoring. The total cost of environmental mitigation measures, including the tree planting program and environmental monitoring, is about Rs70 million. 84. NHAI will also prepare the environmental assessment for non-core subprojects. The procedure for reviewing the IEE report has been established. The key requirements for the environmental assessment for non-core subprojects are as follows:

(i) No subprojects will pass through a designated national park or sanctuaries. (ii) The IEE, including the environmental management and monitoring plan, will be

prepared for each subproject. (iii) If a subproject is less than 500 m from the border of a national park or sanctuary,

the subproject will be classified as B sensitive, and the summary IEE must be made public 120 days before awarding of construction works.

(iv) Only subprojects that meet the Government’s environmental requirements will be funded by the Project.

20

(v) All environmental assessment documents should be properly kept as part of the project document and made available to the public if required.

C. Economic Assessment 85. An economic evaluation of the core section has been undertaken to compare the with- and without-project scenarios. In the with-project scenario, the upgraded four-lane highway will allow improved traffic flow, higher vehicle speeds, and shorter travel time, all resulting in lower vehicle operating costs (VOCs). Economic benefits estimated include VOC savings (as a result of better road conditions and increased vehicle operating speeds) for normal traffic,22 and time savings for cargo transport. Economic benefits anticipated from savings in passenger travel time and reduced traffic accidents have not been included as they are difficult to estimate. 86. Economic costs of implementing the Project are based on financial cost estimates, and include civil works; environmental improvement works; land acquisition, relocation of utilities, and resettlement costs; and construction supervision. Costs related to the HIV/AIDS prevention and anti-trafficking, and road safety components; taxes and duties;23 and financing charges, including interest during construction, have been excluded. Nontradables have been adjusted using a conversion factor of 0.9. 87. The economic internal rate of return (EIRR) of the core section is calculated at 22.9%. A sensitivity analysis of the EIRR has been undertaken for changes in the underlying cost-and-benefit parameters. Based on the sensitivity analysis, the Project is determined to be most sensitive to a decrease in estimated project benefits. In the most adverse situation—a simultaneous increase of 20% in project costs (capital and O&M), a reduction of 20% in project benefits, and a 2-year delay in project completion—the combined EIRR is estimated at 16.2% per cent (Appendix 8). D. Financial Assessment 88. The core section was also financially evaluated to assess the projected toll revenues against capital costs to improve and widen the road, and recurring costs for road operations and routine and periodic maintenance over 30 years. The financial internal rate of return (FIRR) for the core section is calculated at 6.8%, above NHAI’s weighted average cost of capital in real terms at 4.2%, and is most sensitive to reductions in tariff level and traffic assumptions, and less sensitive to changes in O&M costs and delays in project completion. Verification and appropriate modeling of traffic assumptions, and development and implementation of an appropriate toll strategy will be critical to ensure the Project’s financial viability and sustainability. E. Potential Risk 89. A potential risk is the existing possible delay in project implementation due to prolonged land acquisition. The need for it is relatively limited. Most existing ROWs are broad enough to accommodate service roads and drainage lines. Land acquisition procedures were streamlined by the recent amendment of the National Highway Act, which will enable NHAI, to acquire land more expeditiously and predictably. As indicated by NHAI, the competent authority under the National Highways Act of 1956 was notified in September 2003, notification to acquire land is expected by February 2004, and detailed declaration of land acquisition by May 2004. 22 Normal traffic refers to projected traffic in the road corridor that will occur without and with the Project. 23 Value-added tax, customs, and duties are roughly estimated to equal 10% of the base cost.

21

90. Another potential risk associated with project implementation is possible delay in processing non-core subprojects due to the unfamiliarity of NHAI with procedural requirements of ADB’s sector loan. Detailed forms of summary subproject appraisal report, checklists, and other reporting formats have been provided to NHAI to facilitate its processing of subprojects. To strengthen its technical capability, NHAI has established a technical group of experts within the project team, covering highway design, bridge construction, pavement and material, economic and financial analysis, environmental assessment, resettlement, and PSP. Project preparatory TA consultants will train staff of the project team, including those of the technical group of experts. Such action and support will minimize the chance of delay due to a new lending modality.

V. ASSURANCES 91. The Government and NHAI have given the following specific assurances, in addition to the standard and usual assurances, which will be incorporated in the legal documents:

A. Project Implementation

(a) Within 2 months of loan effectiveness, and in any case before the award of civil works contracts under the subprojects, whichever is earlier, NHAI will ensure that the two PIUs (in Kota and Jhansi) and the project team are adequately staffed by experienced managerial and professional personnel, including accounting, financial management, and resettlement experts, during the entire period of project implementation.

(b) The PIUs will be headed by project directors (at the level of general or deputy general manager) assisted by deputy general managers/managers, each responsible for one contract package or PSP component. An additional deputy general manager/manager of NHAI will be assigned to each PIU and be responsible for overseeing resettlement, HIV/AIDS prevention, and anti-trafficking activities; and for handling grievances filed by the public, including project-affected people and NGOs.

(c) NHAI will make within 6 months of loan effectiveness, adequate arrangements for coordination with MORTH and relevant state authorities for implementation of Road Safety Component. B. Execution of Civil Works

(d) That NHAI will, subject to the provisions of clauses (u) and (aa): (1) acquire or make available on time (i.e., strictly in accordance with the schedule in the civil works contract) the land and rights in land, free from any encumbrances; and (2) clear utilities, trees, and any other obstruction from such land on time as required for construction relating to each section of the civil works contract under a subproject.

(e) NHAI will ensure that subsequent to award of the civil works contract under any subproject, no section or part thereof under the civil works contract will be handed over to the contractor unless the provisions of clauses (d), (u), and (aa) have been complied with. C. Road Safety

(f) NHAI will carry out road safety audit for the subproject highways during construction and operation, and by 31 May 2006 develop recommendations for other parts of the NH system. NHAI will also monitor incidence of traffic accidents on subproject highways to ADB as agreed, during implementation and 2 years after the Project completion.

22

D. Operation and Maintenance

(g) NHAI will ensure that upon completion of each subproject highway, its O&M contracts are awarded to the third parties under arrangements satisfactory to ensure sustainability of the subproject highways. NHAI will keep ADB informed of the terms and conditions of the O&M arrangements.

(h) The Government will ensure that NHAI starts tolling the subproject highways as soon as possible, and in any event within six months of construction completion. To achieve this the Government will help NHAI in obtaining the statutory approvals and public notification of the tolling. E. Toll

(i) NHAI will initiate a study on the toll system (as financed under a loan Loan No. 1747-IND: Surat-Manor Tollway Project) by December 2003 at the latest, for implementation not later than December 2004.

(j) The Government and NHAI will finalize arrangements so that NHAI will be able to retain tolls collected, as its own revenue from not later than 31 December 2004. F. Private Sector Participation

(k) NHAI will ensure that at least 10% of the length of the E-W Corridor to be developed under the Project will be under the PSP component.

(l) NHAI will identify and recommend subprojects for inclusion under PSP within three months of loan effectiveness.

(m) The Government and NHAI will ensure that the subproject sponsors/bidders for the PSP Component are selected in a transparent manner through competitive bidding procedures under intimation to ADB.

(n) NHAI will finance and take necessary steps to ensure that the bidding process and award of contract are carried out on time so that the PSP part is completed and operationalized along with the rest of the subproject highways.

(o) NHAI will ensure that the results of the bidding process, negotiations, and financial closure with the private sector are reported to ADB on time so that the Government and ADB can take necessary and prompt action to complete the part(s) in case PSP does not finalize.

(p) NHAI will engage, not later than six months from identification of the PSP subprojects, a financial adviser to help package PSP.

(q) The Government and NHAI will ensure that in the selection, construction, and O&M of the PSP, all criteria and requirements are followed as required for subprojects. G. Environment

(r) NHAI will implement the Project in accordance with ADB's 2003 Environmental Assessment Guidelines, as amended from time to time.

(s) NHAI will ensure that all subproject environmental mitigation measures identified in the IEE and summary IEE are incorporated into the detailed subproject designs and followed during construction and O&M of the subproject highways. NHAI will also ensure that the subprojects are designed and constructed according to the environmental management and monitoring plan agreed upon with ADB in accordance with its 2003 Environmental Assessment Guidelines, as amended from time to time.

23

(t) Any subproject classified as category A in accordance with ADB’s 2003 Environmental Assessment Guidelines, as amended from time to time, will not be eligible for financing under the Project.

(u) NHAI will ensure that any subproject that involves acquisition of a section or part thereof under a civil works contract and that passes through forestland and/or needs diversification of forestland to other use, statutory clearances under the 1980 Forest Conservation Act, and environmental clearances under the 1994 Indian Environmental Impact Assessment Notification shall be obtained before civil works start in that section. H. Land Acquisition, Resettlement, and Indigenous Peoples

(v) For the core subproject the Government and NHAI will implement the resettlement plan agreed upon with ADB, in consultation with the concerned state and district authorities and with people affected by the subproject, in accordance with the Government’s applicable laws, ADB’s 1995 Policy on Involuntary Resettlement, ADB’s 1998 Handbook on Resettlement, and ADB’s 1998 Policy on Indigenous Peoples all as amended from time to time. Similarly for the non-core subprojects, NHAI will prepare and implement resettlement plans and IPDP as required, in accordance with the principles and procedures laid out in the resettlement framework and IPDF, respectively, to be submitted to ADB for approval before award of the related civil works contracts. Any changes required in the resettlement plan or IPDP based on detailed subproject designs will be subject to ADB’s approval before the award of any civil works contracts.

(w) NHAI will ensure that people affected by the Project are consulted and fairly compensated on replacement values such that their living standards are not adversely affected, in accordance with the resettlement plan.

(x) NHAI will submit the progress and completion reports on land acquisition and resettlement that will be included under the financial audit statements for each subproject.

(y) NHAI will disclose the resettlement plans for the subprojects and make the information available to all affected people before land acquisition and resettlement, and confirm that such information is posted on ADB’s web site. NHAI will also ensure that essential public infrastructure that may be affected under land acquisition and resettlement is replaced appropriately and expeditiously in accordance with the resettlement plan.

(z) To ensure timely monitoring of resettlement plan implementation, NHAI will appoint an independent monitoring expert within three months of loan effectiveness. The expert will provide monitoring reports to ADB through NHAI once every six months.

(aa) Under each subproject as applicable, NHAI will settle land acquisition and resettlement compensation issues through (i) payment of full compensation/replacement value for land/structure (residential/ commercial) to legal titleholders (ii) payment of full replacement value of structure (residential/commercial) to affected informal settlers/roadside squatters (iiii) payment of full compensation for acquired land to titled owners and (iv) payment of all other additional benefits and provision of assistance in accordance with resettlement plan provisions, including income restoration grants and skill training during subproject implementation. I. Social Measures

(bb) NHAI will ensure public awareness and acceptance of the Project and subprojects through participation of NGOs and local community. To avoid the influx of informal dwellers and fraudulent claims during implementation, upon approval of each subproject, NHAI will immediately (within not more than 2 months) commence issuing photo identity cards to all eligible, including non-titled, affected persons. To facilitate timely and effective implementation

24

and monitoring of the resettlement plan, NHAI will hire NGOs and depute resettlement-monitoring officers in the PIUs.

(cc) NHAI will set up grievance-handling units in ESDU and in each PIU, to address environmental, resettlement, and other social issues promptly. Grievance redress committees will be formed in accordance with the resettlement plan and resettlement framework in each district to resolve land acquisition and resettlement disputes.

(dd) NHAI will ensure that civil works contracts under the subprojects incorporate provisions requiring contractors to (i) carry out HIV/AIDS awareness and prevention programs for labor; (ii) not employ or use children as labor; (iii) disseminate information at worksites on risks of sexually transmitted diseases and HIV/AIDS as part of health and safety measures for those employed during construction; and (iv) follow and implement legally mandated provisions on labor (including equal pay for equal work), health, safety, sanitation, and working conditions. The contracts will also provide for termination of the contract by NHAI in case of breach by contractors of any of the provisions.

(ee) NHAI will set up within ESDU an HIV/AIDS prevention and anti-trafficking cell and engage qualified locally based NGOs to carry out the HIV/AIDS prevention and anti-trafficking component as agreed on with ADB. ESDU will supervise the NGOs and work closely with state agencies such as AIDS control societies, departments of women and child development and social welfare, and other networks dedicated to preventing HIV/AIDS, human trafficking and to empowerment of women and children. J. Subproject Selection Criteria and Procedures

(ff) NHAI will ensure that for being selected, the subprojects follow the eligibility criteria and procedures as agreed on with ADB as given in detail in Appendix 11. K. Condition for Award of Civil Works Contract

(gg) NHAI will not award any civil works contract under a subproject unless it has, subject to provisions of clauses (d), (u), and (aa), (1) acquired or made available the land and rights in land, free from any encumbrances; and (2) cleared the utilities, trees, and any obstruction from such land relating to the first section required to be handed over for commencement of construction in accordance with the schedule as agreed under the related civil works contract. L. Condition for Loan Disbursement

(hh) The Government will have paid the front-end fee on the loan to ADB.

VI. RECOMMENDATION

92. I am satisfied that the proposed loan would comply with the Articles of Agreement of ADB and acting in the absence of the President, under the provisions of Article 35.1 of the Articles of Agreement of ADB, I recommend that the Board approve the loan of $400,000,000 to India for the National Highway Corridor (Sector) I Project from ADB’s ordinary capital resources with interest to be determined in accordance with ADB’s LIBOR-based lending facility; a term of 25 years, including a grace period of 5 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft Loan and Project Agreements presented to the Board.

JOHN LINTJER 12 November 2003 Vice President

PROGRAM AND PROJECT FRAMEWORK

Design Summary Performance Indicators/Targets Monitoring Mechanism

Assumptions & Risks

Goal • Help enhance overall economic efficiency (for the

entire program) • Help reduce economic regional discrepancies

• Effective policy and institutional framework • Domestic net state products per capita for

key states, including those in the northeast

• Macro-economic

data Asian

Development Bank (ADB) operations evaluation

• The market

mechanism functions well.

Purposes (for the entire program) • Increase the capacity of National Highway

Development Project (NHDP) networks • Enhance project development and

implementation capability of National Highways Authority of India (NHAI)

• Increase private sector participation (PSP) in NHDP

• Boost the financial source for highway development

• Strengthen operation and maintenance (O&M) of NHDP highways

• Make NHAI more efficient and financially stronger

• Increase the share of NHDP four-lane

highways to 80% by the end of 2007 • Maintain a staff-highway kilometer (km) ratio

at less than five staff per 100 km • Increase the proportion of PSP to 10% • Increase cess by 50% • Outsource O&M to the private sector at

more than 60% section • Set tolls at a level sufficient to cover O&M,

and debt service to multilateral lending agencies

• Policy dialogue

with the Government

• ADB Project Completion Review Mission

• The Government is

committed to reforms.

Outputs (for this Project) • Upgrade selected sections of the East-West (E-

W) Corridor under the public sector financing scheme

• Introduce PSP to develop and maintain the E-W Corridor

• Help prevent the spread of HIV/AIDS1 and increase awareness of the risk of trafficking in women and children

• Enhance road safety measures along a selected pilot section between Jhansi and Lucknow

• Reduce the number of discernibly congested

roads by 50% by 2010 • Reduce the international roughness index by

30% by 2010 • Reduce travel time by 30% by 2010 • Reduce freight for trucking service by 10%

by 2010 • Reduce fares of long-distance bus services

by 10% • Conduct risk awareness workshops at each

districts more than twice per year • Reduce traffic fatalities by 20% by 2010

• Quarterly

progress reports • ADB Supervision

Mission

• Land acquisition

and resettlement are not delayed.

• The private sector sustains its interest in participating in the Project.

• The project performance management system is properly implemented.

1 Human immunodeficiency virus/acquired immunodeficiency syndrome.

Appendix 1 25

Design Summary Performance Indicators/Targets Monitoring Mechanism

Assumptions & Risks

Activities (only for this Project) • Civil works for the Chhitorgarh-Orai section • Development of a financial package for the

selected PSP section and processing of bidding • HIV/AIDS prevention and anti-trafficking

campaign • Development of a safety-zone concept and

installation of advanced traffic management systems and other equipment

• 592 km of roads (131 km core subproject

and 461 km non-core subprojects), to start in the third quarter (Q3) of 2004, and to be completed by the second quarter (Q2) of 2007

• More than 66 km of the roads in the E-W Corridor, to start in Q2 for selection of the concessionaire, and Q3 of 2004 for civil works to be initiated; and to be completed by Q2 of 2007

• Project roads in Rajasthan, Madhya Pradesh, and Uttar Pradesh, to start in Q2 of 2004 and to be completed by Q2 of 2007

• A selected pilot section of 150–200 km

• Quarterly

progress reports • ADB Supervision

Mission

• The technical group

of experts operates effectively.

• NHAI has the capacity to supervise and monitor.

• Contractors, the build-operate-transfer concessionaire, and consultants perform well.

Inputs • Engagement of contractors and supervision

consultants • Engagement of a concessionaire for the PSP

component • Engagement of local NGOs for HIV/AIDS and

anti-trafficking activities • Engagement of a consulting firm to develop a

safety zone and to procure road safety equipment

• $564.0 million • $ 69.0 million • $ 400,000 • $12.3 million

• Quarterly

progress reports • ADB Supervision

Mission

• Procurement of civil

works is timely. • Engagement of

consultants is timely.

26 Appendix 1

Appendix 2 27

SECTOR ANALYSIS, GOVERNMENT STRATEGY, AND SECTOR PROFILE 1. India has an extensive and diverse transport system of about 3.4 million kilometers (km) of road; 63,140 km of rail; 12 major and 182 minor and intermediate ports; 4 major international airports; 86 domestic airports; and about 14,500 km of navigable inland waterway. The ratio of road to rail transport has been continuously shifting as demand for transport services changes. Road transport now accounts for over 60% of freight movement and 80% of passenger traffic, with rail transport accounting for much of the remainder. A profile of transport in India is in Supplementary Appendix A-1. A. Sector Profile 1. Transport Planning and Coordination 2. Transport planning, coordination, and policy setting at the central government level are handled by several line ministries, with overall coordination by several agencies such as the Prime Minister’s Office, Ministry of Finance, Planning Commission, and Public Investment Board. The Ministry of Surface Transport was reorganized in November 2000 into the Ministry of Road Transport and Highways (MORTH) and Ministry of Shipping. MORTH’s duties are to develop and maintain national highways (NHs), and formulate road transport policies. MORTH coordinates state roads and issues guidelines on highway planning, design, and construction. The Ministry of Shipping is responsible for major ports, inland waterway transport, and shipping. All railway planning and operations are under the Ministry of Railways. The Ministry of Rural Development is responsible for policy development, monitoring, and coordination of rural roads being funded by the Central Road Fund (CRF). Airports and civil aviation are under the responsibility of the Ministry of Civil Aviation. 3. The responsibility for developing and maintaining the NH system rests with the central Government, while state and district roads are the responsibility of the state governments. To separate its NH planning and operation functions, the Government established the National Highways Authority of India (NHAI) in 1988. However, it was activated only in 1995. Its responsibilities include the Golden Quadrilateral, North-South and East-West Corridors, and several links to major ports and industrial centers. NHAI covers one fourth of the NH network, and MORTH is responsible for the rest, with state public works departments as its executing agencies. 2. Road Network and Traffic 4. The road network is divided into NHs, state highways and major district roads, and rural roads comprising other district roads and village roads. The national and state highways facilitate mobility between states and also between districts, while district and rural roads provide the means to meet social needs and to transport agricultural produce to markets. The road network grew 7.5 times, from 400,000 km in 1951 to 3.4 million km in 2001 (including 230,000 km of urban roads and 1 million km of earth tracks to villages). Road density is now 1 km/km2, which is higher than in other developing countries, but road network quality and capacity are grossly inadequate to meet present and future demand for freight and passenger traffic and to connect all villages. 5. The NH network of 58,112 km carries about 40% of total road traffic. However, 33% of this network is still single lane, 65% two lane, and only 2% four lane. Under the National Highway Development Program (NHDP) 1,400 km are planned to be upgraded to four lanes.

Appendix 2 28

6. From 1990 to 2000, annual passenger road transport grew at 7.8%, and freight transport by 7.6%, which was higher than the growth rate of the gross domestic product (GDP) of 6%.

3. Sector Investment Plan 7. Capacity shortage of the NH systems has been a major problem. Out of a total network of 58,112 km, 39% is still single lane, 59% two lane, while four-lane highways, a desirable standard for arterial national corridors, account for only 2%. Faced with this capacity shortage, the Government set forth a major investment plan to improve the NH systems. Key areas of investment in the 10th Five-Year Plan (FYP, 2003–2007) are (i) widening of 22,000 km of two-lane roads to four-lane standard; (ii) construction of 2,000 km of expressways; (iii) widening of 22,500 km of single-lane roads to two-lane standard; (iv) improvement of 19,300 km of pavement; (v) construction of 1,200 km of access-controlled bypasses; and (vi) construction and rehabilitation of bridges. Total investment required to implement these programs is estimated at $37 billion. The program-by-program details are as follows:

Table A2.1: Program Details

Category Length Estimated Amount ($ million)

Widening from single lane to 2 lanes 22,522 km 6,256 Pavement strengthening of 2-lane roads 22,000 km 19,556 Widening from 2 lanes to 4 lane or 6 lanes 19,250 km 3,211 Construction of expressways 2,000 km 3,211 Construction of access-controlled bypasses (average 20 km of bypass at $5 million per km)

60 bypasses 2,000

Construction of bridges 210 bridges 94 Rehabilitation of bridges 425 bridges 71 Miscellaneous (missing links, road safety, etc.) Lump sum 1,778 Total 36,521

km = kilometers. Source: Asian Development Bank staff.

The 10th FYP represents a major uplift of NH development programs compared with those of the 9th FYP (1997–2002), which had aimed to (i) widen 944 km of roads to four lanes; (ii) widen 1,791 km of single-lane roads to two lanes; and (iii) improve 3,042 km of pavement. 8. Because of the magnitude of investments required, the Government has placed highest priority on the National Highway Development Program (NHDP) to upgrade three key arterial corridors in 10 years (1998-2007): (i) Golden Quadrilateral—6,000 km; (ii) North-South (N-S) Corridor—4,000 km; and (iii) East-West (E-W) Corridor—3,300 km. Total program cost is estimated at $13 billion, on which the Government decides to allocate the central road funds on a priority basis. NHDP is expected to connect the entire country. 9. In March 2003, the Government announced another program, comparable to NHDP in terms of the scale of investments ($8 billion) and length of corridors (10,000 km). The High-Density Corridor Program aims to rehabilitate and widen 2.0- and 1.5-lane corridors with average daily traffic of more than 30,000 private car equivalent units. MORTH identified 38 HDCs qualified for the Program. It was intended to alleviate traffic congestion along these corridors, which often have higher traffic density than those of NHDP. MORTH was designated

Appendix 2 29

to be an executing agency. The Program will start this year and will be completed in 7 years (including 2 years of construction). 10. As public sector funds are limited (i.e., central road funds will not be available for the Program even after the NHDP completion in 2007 since the funds are already tied up for the next 10 years in debt service on market borrowings for NHDP), the Government will resort to the private sector by adopting build-operate-transfer (BOT) schemes for HDC development. Given the nature of HDCs (which have been used for decades as non-toll roads), tolls cannot be charged on a full cost recovery basis. For this reason, the Government provides a grant to cover part of construction costs to keep tolls at a level affordable for various groups, including local communities (the public-private partnership scheme). Under the scheme, prospective contractors compete for toll concessions.

4. Vehicle Fleet and Automobile Manufacturing 11. India had 300,000 vehicles in 1950/51, and around 53 million in 2000/01. Buses accounted for 1%; trucks, 5%; cars and jeeps, 13%; and motorcycles and scooters (two-wheelers), 71%. The rest were mostly auto-rickshaws (three-wheelers) and agricultural tractors. The number of automobiles has been growing at approximately 9% a year, and heavy commercial vehicles, at 7.5% over the last 10 years. 12. The automobile manufacturing industry has been regulated since independence. In 1947, the Government declared that only indigenous firms operating according to an approved plan could manufacture motor vehicles. A vehicle-manufacturing industry was established using domestic capital and little foreign technology transfer. Deregulation started with two-wheelers in the mid-1980s, then passenger cars and commercial vehicles in the 1990s to encourage production of more fuel-efficient, safer, and better-quality vehicles at reasonable prices. In 2000/01, 4.75 million motor vehicles were manufactured, 155% over the 1992/93 level, due to the unprecedented increase in manufacturing of two- and three-wheeler vehicles from 1.50 million to 3.96 million. 5. Road Transport Services

a. Road Freight Services 13. The private sector almost wholly operates road freight. The road freight service industry has four tiers truck operators, brokers, truck owners, and truck drivers. Shippers usually contact truck operators that provide trucking services themselves or use trucks provided by brokers. Since they have limited trucking fleets, these truck operators usually contact cargo brokers based in the regions from which cargoes originate. These brokers (usually individuals) then contact truck owners (again, individuals) or truck drivers, who wait for cargoes at truck yards or along highways. Truck yards are on city outskirts, and most are informal and surrounded by small buildings housing cargo brokers and small shops. 14. Trucking operations are small: 77% of truck operators have fleets of five trucks or less. Most are family businesses. Truck operators with fleets of more than 20 account for only 6%, and many use trucks owned by other people, partly to avoid coming under the Motor Transport Workers Act, which allows truck drivers to work 8 hours per day at most. Large fleet operators have a network of branches and a large market share: 12–15% of their business is handled by their own trucks, and the rest is provided by smaller truck operators or brokers.

Appendix 2 30

15. The fragmented structure of the trucking industry is a major impediment to its modernization. Since they often have limited capital resources, individual truck owners are not willing to invest in high-performance trucks such as multi-axel trucks, but use poorly performing low-priced trucks. Larger truck operators take advantage of these low-cost trucking services. Although still limited, changes have begun to take place in container-haulage operations in which multi-axel vehicles are becoming the norm. 16. Market entry is not restricted. While the Motor Vehicle Act requires prospective truck operators to obtain a permit, the regional transport authorities usually grant permits to all applicants. The real function of the permit system is to facilitate collection of state motor vehicle taxes rather than to control trucking operations. Motor vehicle taxes reportedly account for nearly 10% of state tax revenue. Freight rates are not regulated. Although the Motor Vehicle Act grants the state government authority to set freight rates, it rarely does so as it believes that rates should be determined by the market. 17. Competition among trucking operators is intense and any vehicle’s operating cost savings resulting from improved road conditions will mostly likely be passed on to the public.

b. Road Passenger Services 18. Main operators of road passenger services are state road transport undertakings (SRTUs), which serve villages, towns, and cities. Until the 1980s, SRTUs dominated passenger transport service. However, their dominance has been declining due to the gradual introduction of competition policies announced by the Planning Commission. SRTUs owned 118,000 buses as of 31 March 2000, while private sector operators own 440,000 (based on vehicle registration data). Active in urban areas, these private sector operators own smaller vehicles, including tricycles. 19. SRTUs’ financial performance is deteriorating, with large deficits being registered (operating ratio is 77% for urban services, and 89% for rural and intercity services). Yet, central and local governments are increasingly reluctant to provide subsidies, which has led to fleet deterioration. 20. Passenger services are under economic regulation and safety and environmental regulation. The former is implemented by state transport authorities, which regulate market entry by issuing operation licenses. Service requirements (e.g., scope of business operations) are stated in the operating permits. The authorities also regulate passenger service fares, which tend to be kept low due to political pressure. 21. Regional transport authorities are responsible for safety and environmental regulations, and safety inspections for passenger transport vehicles, their registration, issuance of licenses to professional drivers and conductors, and inspection of emission gas. 22. Competition in the passenger transport service industry exists but is regulated. Since fares are regulated and most SRTUs are in the red, the benefits of vehicle operating cost savings are less likely to be passed on to the public

1 D.P. Gupta, a local consultant, provided the data.

Appendix 2 31

6. Revenues/Expenditures and Road Fund 23. The central Government provides funds from yearly budgetary allocations to develop and maintain NHs, while state governments fund state highways and major district and rural roads. Transport investments have accounted for about 13% of total public sector spending under the Government’s 5-year plans.

Table A2.2: Five-Year Plan Expenditure in the Transport Sector

(Rs billion) Subsector

VI Plan (1980-85)

VII Plan (1985-90)

VIII Plan (1992-97)

IX Plan (1997-2002)

Railways 65.85 165.49 321.39 464.05 Roads 38.87 63.35 161.33 475.10 Road Transport 12.76 21.51 36.34 59.33 Ports 7.25 15.13 24.91 53.31 Shipping 4.68 7.20 47.26 29.67 Inland Water Transport 0.63 1.88 1.54 2.80 Civil Aviation 9.57 19.48 75.04 69.58 Other Transport — 0.72 2.44 18.51 Total Transport 139.61 294.76 670.25 1,172.35 Total Public Sector 1,092.91 2,187.29 5,332.52 — Total Transport as age to Pubic Sector 12.80 13.00 12.60 —

— = not available. Source: Planning Commission, Government of India.

24. Road expenditure increased 11 times, from Rs39 billion in the Sixth FYP (1980–1985) to Rs475 billion in the Ninth FYP (1997–2002). The transport budget allocation increased about 7 times in the same period. The road sector’s share of total transport investment also increased from about 28% in the Sixth FYP to about 40% in the Ninth FYP, reflecting government commitment to improve highway infrastructure to meet the demands of the growing economy and help reduce poverty. 25. A central road fund had existed for years. The central Government revamped it through cess (excise duties) of Rs1 per liter of petrol (1998) and diesel (1999, through the CRF Ordinance). To institutionalize the revamped CRF, Parliament passed the CRF Act in November 2000. Another increase of Rs0.50 per liter of petrol and diesel (50% increase in cess) was effected on 28 February 2003. These cess are expected to raise Rs90 billion ($1.8 billion) per annum. According to the allocation formula, and assuming Rs15.0 billion is raised from petrol and Rs75.0 billion from diesel, approximately Rs37.5 billion will be allocated for rural roads, Rs30.0 billion for NHs, Rs16.0 billion for state highways and major district roads, and Rs6.5 billion for railway crossings and other purposes. Unlike a typical road fund, which is primarily used for maintenance, CRF will be used mainly to develop the road network. In the case of state highways and major district roads, however, a portion may be spent on removing maintenance backlog and rehabilitating badly deteriorated roads.

7. Maintenance 26. NH network maintenance has been neglected due to inadequate fund allocation. The Ninth FYP doubled the allocation for maintenance, but the maintenance shortfall in FY2000 remained at practically the same level (50%) in FY2002. MORTH dealt with this shortfall by improving riding quality. 27. NHAI maintains its NHs primarily through a private contractor (and occasionally by itself). Maintenance cost has been covered by budgetary support from the central Government.

Appendix 2 32

Faced with rapid expansion of its road network, NHAI decided to explore the possibility of introducing asset management to maintain and manage its road network more systematically. NHAI commissioned a study under World Bank funding to develop the concept of the corridor management units (CMUs). A key element of the CMU concept is to operate and maintain the road network by contracting out to private contractors. A CMU also ensures the integrity of the right of way by maintaining fences and markers, controlling overloading of trucks, taking accident-prevention measures, removing obstacles on roads, controlling emission, and keeping noise within acceptable limits. With the recent completion of the study, two pilot CMUs will be established under the Third National Highway Project financed by the World Bank. 28. NHAI’s policy is to contract out operation and maintenance (O&M) as much as possible to the private sector. Under the Surat-Manor and Western Transport projects, advisory services will be provided to develop performance-based O&M agreements with the private sector.

8. Environmental Issues 29. Since 1991, the Government has gradually intensified its control over vehicle gas emission. First-stage control was introduced for petrol-powered vehicles in 1991, and for diesel-powered vehicles in 1992. The Bharat stage-1 emission standards, which are akin to Euro-1 standards, have been effective throughout the country since 2000. The Government plans to introduce tougher standards, corresponding to Euro-2 requirements, for passenger cars and commercial vehicles. Bharat stage-2 standards, which are close to Euro-2 standards, have been in force in the National Capital Region and are intended to be enforced shortly throughout the country. Leaded fuel has been gradually phased out from metropolitan cities since 1998 with the introduction of unleaded fuel. Now petrol fuel is fully unleaded all over the country. Benzene in petrol has also been reduced to 3% all over the country and to 1% in Delhi. Since December 1998 commercial vehicles over 15 years old have been banned from Delhi’s center. 30. The ADB has been working with the Government to solve road sector-related environmental problems by preventing environmental degradation during construction and operation of highways, for example, and controlling urban traffic pollution. An ADB technical assistance2 on environmental management prepared highway project guidelines. They are now used on all highway improvement and reconstruction projects in India. ADB’s Second Road Project3 studied measures to control traffic pollution in urban areas. The Central Pollution Control Board then updated its mass emission regulations and enforced them more stringently.

2 ADB. 1993. Technical Assistance to India for Environmental Management of Road Projects. Manila. 3 ADB. 1990. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to India

for the Second Road Project. Manila.

Appendix 3 33

EXTERNAL ASSISTANCE TO THE HIGHWAY SECTOR

A. Asian Development Bank Loans from Ordinary Capital Resources

Loan No. Project Name Amount ($ million) Date Approved

0918 Road Improvement 198.00 10 Nov 1988 1041 Second Road 250.00 30 Oct 1990 1274 National Highways 245.00 29 Nov 1993 1747 Surat-Manor Tollway Project 180.00 27 July 2000 1839 Western Transport Corridor 240.00 20 Sept 2001 1870 West Bengal Corridor Development 210.00 11 Dec 2001 1944 East-West Corridor 320.00 26 Nov 2002 1958 Madhya Pradesh State Roads Sector

Development (program loan) 30.00 5 Dec 2002

1959 Madhya Pradesh State Roads Sector Development (project loan)

150.00 5 Dec 2002

Total 1,673.00

B. Other Funding Sources

Japan Bank for International Cooperation

Region/State Project Name

Project Length (km)

Loan Amount

(Ym) $m

Equivalent Uttar Pradesh Mathura-Agra 51 4,855 43.3 Uttar Pradesh Allahabad-Naini Bridge 5 10,037 89.6 Andhra Pradesh Chilakaluripet-Vijayawada 83 11,360 101.4 Orissa Jagatput-Chandikhol 33 5,836 52.1 Uttar Pradesh Ghaziabad-Hapur 33 4,827 43.0 Total 329.4

World Bank Group

Amount ($ million) Region/State Name IBRD IDA Date Approved Countrywide Roads 72.11 1 Jun 1961 Bihar Bihar Rural Roads 35.00 1 Nov 1980 Countrywide National Highway 200.00 1 May 1985 Gujarat Gujarat Rural Roads 119.60 1 Feb 1987 Countrywide State Roads 80.00 1 Oct 1988 Countrywide State Roads 170.00 1 Oct 1988 Countrywide Second National Highways 153.00 1 May 1992 Countrywide Second National Highways 153.00 1 May 1992 Countrywide State Road Infrastructure

Development Technical Assistance

51.50 1 Dec 1996

Andhra Prades h State Highways 350.00 1 Jun 1997 Countrywide Third National Highways 516.00 12 May 2000 Countrywide Gujarat State Highways 381.00 15 Sep 2000 Countrywide Grand Trunk Road Development 589.00 21 Jun 2001 Karnataka Karnataka State Highways

Improvement 360.00 24 May 2001

Kerala Kerala State Transport 255.00 14 Mar 2002 Mizoram Mizoram State Roads 60.00 14 Mar 2002 Total = 3,545.21 2,974.00 571.21

Source: Asian Development Bank staff.

Total

A. Public Sector Portion

1. Base Costa

A-1. Core Projecta. Core Projecti. Civil Works (RJ/MP border - Jhansi: 131 km) 85.9 42.4 128.4ii. Land Acquisition/Resettlement 0.0 8.5 8.5iii. Relocation of Utilities 0.0 4.0 4.0iv. Environment 0.0 2.3 2.3v. Consulting Services 2.5 5.0 7.5vi. Project Managementb 0.0 1.3 1.3

Subtotal (a) 88.4 63.4 151.8b. Noncore Projecti. Civil Works (E-W corridor highways: 461 km) 273.4 135.3 408.7ii. Land Acquisition/Resettlement 0.0 29.5 29.5iii. Relocation of Utilities 0.0 13.8 13.8iv. Environment 0.0 8.0 8.0v. Consulting Services 6.7 13.6 20.3vi. Project Managementb 0.0 4.1 4.1

Subtotal (b) 280.2 204.3 484.5c. HIV/AIDs and Anti-Traffickingi. Consulting Services 0.0 0.4 0.4d. Road Safety1. Advanced Traffic Management System 10.0 0.0 10.02. Equipment 1.8 0.0 1.83. Consulting Services 0.3 0.2 0.5

Subtotal (d) 12.1 0.2 12.3 Subtotal (1) 380.7 268.3 649.0

2. Front-End Fee 2.0 0.0 2.03. Interest During Constructionc 30.4 0.0 30.4

4. Commitment Chargesd 1.5 0.0 1.5

Total (A)414.6 268.3 682.9

B. Private Sector PortionA. Base Costa

1. Civil Works and O&M (70 km) 39.7 28.9 68.62. Land Acquisition/Resettlement 0.0 5.0 5.03. Relocation of Utilities 0.0 2.3 2.34. Environment 0.0 1.3 1.35. Consulting Services 0.1 0.0 0.1

Total (B) 39.7 37.5 77.3

454.4 305.8 760.2a In 2003 prices, inclusive of taxes and dutiesb Assuming 1% of civil works for project management.c At 4% for US$ LIBORd At 0.75% for commitment charge

E-W = east-west, HIV/AIDs = human immunodeficiency virus/acqired immunodeficiency syndrome, km = kilometers, MP = Madhya Pradesh, O&M = operation and maintenance, RJ = Rajasthan.Source: Feasibility Study and Mission.

Total

COST ESTIMATES($ million)

34 Appendix 4

Foreign Exchange

Local CurrencyItem

Appendix 5 35

CONTRACT PACKAGES

Details of Packaging for the Core Subproject Packages

Section

Approx. Length

of Package (km)

Cost of Civil Works (in $ million)

Package 1 NH-76 (km 579 to km 610)

(Rajasthan/Madhya Pradesh to junction of NH-76/NH-3) NH-76/NH-3 junction to NH-45 (km 15)

53.4 59.15

Package 2 NH-25 (km 15 to km 50)

Including Ghat road and Sindh bridge 35.0 38.3

Package 3 NH-25 (km 50 to km 91)

Including Mahuar bridge and approaches 41.0 27.8

Note: Procurement by International competitive bidding. km = kilometer, NH = national highway. Source: Asian Development Bank staff.

36

A. Project PreparationMRM SRC

1. Core Subproject Components i. Loan Processing and Approval by ADB

ii. Detailed Engineering Design

2. Noncore Subprojects i. Preparation of Criteria and Procedure

ii. Development of Guidelines

iii. Preparation and Appraisal by NHAI

iv. Subproject Approval by ADB

v. Detailed Engineering Design

B. Right of Way

1. Engagement of NGO for RP Implementation

2. Land Acquisition

C. Procurement

1. ADBBO listing & framework PQ

2. Bidding

3. Evaluation

4. Signing of Contract and Commencement

D. Construction

1. Selection of Supervision Consultants

2. Construction Supervision Services `

3. Construction `

E. BOT Package

1. Financial Closure

2. Construction ADB = Asian Development Bank, ADBBO = Asian Development Bank Business Opportunities, BOT = build-operate-transfer, NGO = nongovernment organization, NHAI = National Highways Authority of India, PQ = prequalification, RP = resettlement plan.

Preparatory WorkDefect Liability Period

Q2 Q3 Q4

Appendix 6

Q2 Q3 Q4 Q1Q2 Q3 Q4 Q1Q2 Q3 Q4 Q1Q3 Q4Q1 Q2 Q3 Q4 Q1

IMPLEMENTATION SCHEDULE2003 2004 2005 2006 2007 2008

Q1 Q2

FY 2002 FY 2001 FY 2000Item (Rs) (Rs) (Rs)

1.Cash & Bank Balance 39,977,009,005 35,109,990,267 18,237,706,674Interest Accrued on Deposit 969,563,071 1,868,924,163 246,963,683Deposits, Loans, and Advances 23,794,485,705 7,076,694,513 3,107,623,624Sundry Debtors 0 0 0Inventories 0 0 0 Subtotal 64,741,057,781 44,055,608,943 21,592,293,981

2. Fixed AssetsCapital Work in Progress 43,760,815,127 20,249,309,191 9,188,645,193 Less:Assets Created Out of Grants 128,522,319 111,392,398 68,345,836 Net Capital Work in Progress 43,632,292,808 20,137,916,793 9,120,299,357Gross Block 506,810,571 186,168,287 133,805,271 Less: Depreciation 60,543,284 25,052,133 19,316,888 Net Block 446,267,287 161,116,154 114,488,383 Subtotal 44,078,560,095 20,299,032,947 9,234,787,740

3. Investments 533,769,839 315,000,420 315,000,000

Total Assets 109,353,387,715 64,669,642,310 31,142,081,721

4. Current LiabilitiesLiabilities 4,297,551,607 1,832,454,303 374,037,326Provisions 6,638,800 4,387,908 0 Subtotal 4,304,190,407 1,836,842,211 374,037,326

5. Borrowings 18,099,430,295 7,969,157,540 900,000,000

6. Shareholder's Funda) Capital 63,163,347,901 39,411,155,023 18,024,474,930b) Reserves & Surplus 570,061,215 995,703,115 1,944,534,364 Subtotal 63,733,409,116 40,406,858,138 19,969,009,294

7. Grants 23,216,357,897 14,456,784,421 9,899,035,101

Total Liabilities & Equity 109,353,387,715 64,669,642,310 31,142,081,721

Appendix 7 37

Source: National Highways Authority of India

Table A7.1 Comparative Balance SheetAs at 31 March 2002

FINANCIAL STATEMENT OF NATIONAL HIGHWAYS AUTHORITY OF INDIA

Current Assets, Loans, and Advances

FY 2002 FY 2001 FY 2000Item (Rs) (Rs) (Rs)

1. IncomeOther Income 527,300,333 343,695,432 343,202,655Interest (gross) 25,534,915 14,325,304 715,079,084Grant-in-Aid for Maintenance of Highways 0 0 0 Total 552,835,248 358,020,736 1,058,281,739

2. ExpenditurePersonnel & Administrative Expenses 299,745,649 201,056,716 104,498,582Finance Charges 188,479 1,171,332 3,668,631Depreciation 35,431,303 7,061,384 4,357,625Assets of Small Value Charged Off 1,017,559 4,148,493 0 Total 336,382,990 213,437,925 112,524,838

3. Profit 216,452,258 144,582,811 945,756,901Add: Prior Period Adjustment (15,150,823) (1,720,357,393) (1,925,974)Add: Transfer from General Reserve 33,257,984Add: Surplus from Previous Year 368,759,782 1,944,534,364 967,445,453 Total Surplus to Balance Sheet 570,061,217 368,759,782 1,944,534,364

Source: National Highways Authority of India.

Table A7.2: Comparative Profit and Loss StatementFY 2000--2002

38 Appendix 7

Appendix 8

39

ECONOMIC, FINANCIAL, AND POVERY IMPACT ASSESSMENT A. General 1. The Project comprises rehabilitation and widening of 662 kilometers (km) of existing highways to dual two-lane carriageways. A financial and economic evaluation of the Project was undertaken comparing the with- and without-project scenarios. 2. The project road is divided into five sections, A to E, stretching from Chittorgarh in the west to Barah in the east. Table A8.1 shows the profile of each section.

Table A8.1: Section Profile Section Length

(km) Section A Chittorgarh–Kota excluding Kota bypass (NH76) 164 Section B Kota–Rajasthan/Madhya Pradesh border (NH76) 173

Section C Rajasthan/Madhya Pradesh border–Jhansi excluding Jhansi bypass (Shivpri Bypass and NH25)

131

Section D Jhansi–Orai including Jhansi bypass (NH76)

124

Section E Orai–Barah (NH76) 70 km = kilometer, NH = national highway. Source: Asian Development Bank staff.

B. Traffic Forecast 3. Traffic volume and growth rates have been based on National Highways Authority of India (NHAI) traffic surveys and historical traffic data, and are presented by vehicle type in Tables A8.2 and A8.3. Adjustments have been made to take into account directional distribution, seasonal variation, as well as net state domestic product, population growth, and growth in per capita income.

Table A8.2: Base Year Traffic Volume in 2003 (number per day)

Car/Jeep/Van Three Wheeler

Two Wheeler

Bus/ Minibus

Tempo Trucks (2 & 3 axle)

Articulated Tractor

Section A 550 136 1406 122 84 660 4 228 Section B 584 69 1365 130 77 324 3 278 Section C 969 82 1213 223 109 2848 153 336 Section D 635 203 1035 189 181 2833 42 49 Section E 1,447 36 1657 218 205 3161 62 237

Source: Asian Development Bank staff.

Table A8.3: Annual Growth Rate for Different Vehicle Types (%)

Car/Jeep/Van Three

Wheeler Two

Wheeler Bus Tempo Trucks (2 & 3 axle)

Articulated Tractor

2004–10 7.50 7.50 8.00 6.50 7.00 6.50 6.00 5.00 2011–20 8.00 8.00 8.50 6.50 7.00 6.50 6.00 5.50 2021–30 6.50 6.50 7.00 5.50 6.00 5.50 5.00 5.00 2031–36 6.00 6.00 6.00 5.00 5.00 5.00 4.50 4.50

Source: Asian Development Bank staff

Appendix 8 40

C. Economic Analysis 4. The economic analysis was conducted for section C—the core section representing typical project roads. The economic internal rate of return (EIRR) of the core section was calculated on the basis of incremental economic costs and benefits resulting from the Project over an assumed period of 30 years and a residual value proportional to the estimated remaining economic life. Economic costs and benefits are expressed in 2003 constant prices.

1. Costs 5. The economic costs of implementing the Project are based on the financial cost estimates, and include civil works; environmental improvement works; land acquisition, relocation of utilities, and resettlement costs; and construction supervision. Costs related to the prevention of HIV/AIDS1 and human trafficking, and road safety components; taxes and duties;2 and financing charges, including interest during construction, have been excluded. Nontradables. primarily unskilled labor costs and domestically produced materials, have been adjusted to use a conversion factor of 0.90. 6. The incremental operation and maintenance (O&M) costs were calculated as the difference between maintenance requirements for the proposed new four-lane highway and the existing two-lane highway. In the with-project scenario, the new road will require routine maintenance as well as periodical surface renewal (every 5 years) and a periodical structural overlay (every 20 years). In the without-project scenario, the existing road will require routine maintenance and periodical surface renewal only.

2. Benefits 7. In the with-project scenario, the upgraded four-lane highway will allow improved traffic flow, higher vehicle speeds, and shorter travel time, all resulting in lower vehicle operating costs (VOCs). Economic benefits estimated include: VOC savings (as a result of better roads and increased vehicle operating speeds) for normal traffic,3 and time savings for cargo transport. Economic benefits anticipated from savings in passenger travel time, and reduced traffic accidents, have not been included as such savings are difficult to estimate. 8. Utilizing the highway design and maintenance 4 (HDM4) model, version 1.3, VOC and time savings for cargo transport were calculated for a range of vehicle types and road characteristics. Vehicle types include motorized vehicles (two wheeler, small car, medium-sized car, minibus, bus, light truck, medium-sized truck, heavy truck, and articulated truck) and nonmotorized vehicles (cycle, rickshaw, and animal cart). Operating cost estimates assume local driving habits, and local vehicle and road conditions. Decreases in cargo delivery times were estimated by type of cargo vehicle.

3. Economic Internal Rate of Return 9. An economic evaluation was undertaken for the core section, and annual cost-and-benefit streams are summarized in Table A8.4. The EIRR of the core section is calculated at 22.9%. 1 Human immunodeficiency virus/acquired immunodeficiency syndrome. 2 Value-added taxes, customs, and duties are roughly estimated to equal 10% of the base cost. 3 Normal traffic refers to projected traffic in the road corridor that will occur in both with- and without- project

scenarios. Generated traffic was not included because of lack of reliable information.

Appendix 8

41

Table A8.4: Annual Cost and Benefit Streams for the Core Section (Rs million)

Construction Maintenance Costs VOC Time Net Benefit Year Costs Periodic Routine Savings Savings Stream

2004 2,073.37 0.00 (16.70) 0.00 0.00 (2,056.67) 2005 2,764.50 0.00 (16.70) 0.00 0.00 (2,747.80) 2006 2,073.37 0.00 (111.35) 0.00 0.00 (1,962.02) 2007 0.00 0.00 0.00 1,513.55 96.04 1,609.59 2008 0.00 0.00 0.00 922.49 47.58 970.07 2009 0.00 0.00 0.00 1,555.32 106.95 1,662.27 2010 0.00 0.00 0.00 1,627.33 124.10 1,751.43 2011 0.00 0.00 0.00 1,629.05 135.33 1,318.98 2012 0.00 0.00 0.00 2,182.75 150.05 2,332.80 2013 0.00 0.00 0.00 1,431.37 85.89 1,517.25 2014 0.00 0.00 0.00 2,336.57 183.74 2,520.31 2015 0.00 0.00 0.00 2,340.13 203.75 2,543.88 2016 0.00 445.40 0.00 2,306.54 225.95 2,087.09 2017 0.00 0.00 0.00 3,247.69 252.52 3,500.21 2018 0.00 0.00 0.00 1,973.56 157.02 2,130.58 2019 0.00 0.00 0.00 3,177.62 313.12 3,490.74 2020 0.00 0.00 0.00 3,102.74 348.98 3,451.72 2021 0.00 445.40 0.00 3,175.17 390.04 3,119.81 2022 0.00 0.00 0.00 4,798.37 437.43 5,235.80 2023 0.00 0.00 0.00 2,600.81 292.34 2,893.14 2024 0.00 0.00 0.00 4,298.21 539.60 4,837.81 2025 0.00 0.00 0.00 4,383.80 601.34 4,985.14 2026 0.00 1,002.15 0.00 4,581.87 672.63 4,252.36 2027 0.00 1,096.80 0.00 4,780.00 754.00 4,437.21 2028 0.00 0.00 0.00 2,475.86 544.01 3,019.87 2029 0.00 0.00 0.00 7,809.24 1,003.54 8,812.78 2030 0.00 0.00 0.00 7,459.08 1,174.33 8,633.41 2031 0.00 0.00 (94.65) 8,276.37 1,470.66 9,841.67 2032 0.00 540.05 0.00 9,486.48 1,842.76 10,789.19 2033 0.00 0.00 0.00 7,705.52 2,188.04 9,893.56 2034 0.00 0.00 0.00 11,759.26 2,053.63 13,812.89 2035 0.00 0.00 0.00 9,163.37 1,936.31 11,099.68 2036 (4,146.75) 0.00 (94.65) 7,737.79 1,801.53 13,780.72 EIRR 22.9% NPV 9,685.03 EIRR = economic internal rate of return, NPV = net present value, VOC = vehicle operating cost. Note 1: Incremental operation and maintenance (O&M) costs in some years is shown as zero—reflecting that

the routine maintenance cost for the with-project scenario is, at Rs150,000/kilometer of four-lane highway, estimated as equal to the cost of routine maintenance cost for a two-lane highway under the without-project scenario.

Note 2: Incremental O&M cost in some years is negative, when routine maintenance cost for the with-project scenario was less than that for the without-project scenario.

Source: Asian Development Bank staff.

10. A sensitivity analysis of the EIRR of the core section was undertaken for changes in underlying cost-and-benefit parameters in accordance with the project’s risk assessment. As

Appendix 8 42

detailed in this report’s text, section IV.E, the identified potential risk is a delay in implementation. The results of the sensitivity analysis are in Table A8.5. Based on the sensitivity indicator, the Project is determined to be most sensitive to a decrease in estimated benefits. In the most adverse situation—a simultaneous increase of 20% in project costs (capital and O&M), a reduction of 20% in project benefits, and a delay in the project completion by 2 years—the overall EIRR is estimated at 16.2%.

Table A8.5: Sensitivity Analysis

Scenario EIRR (%)

Sensitivity Indicator

1 Base case 22.9 0.00 2 Increase in Project Capital Costs by 20% 20.4 0.55 3 Increase in Project O&M Costs by 20% 22.8 0.02 4 Decrease in Project Benefits by 20% a 19.8 0.68 5 Delay in Project Completion by 2 years 20.5 0.00 6 Combination of Cases 2, 3, 4, and 5 16.2 0.00

EIRR = economic internal rate of return, O&M = operation and maintenance. a The decrease in the benefits by 20% reflects the reduction in the traffic volume due to toll imposition. Source: Asian Development Bank staff.

11. Major assumptions adopted for the economic assessment were summarized in Supplemental Appendix E-3. D. Financial Analysis 12. The financial internal rate of return (FIRR) of the core section was calculated on the basis of incremental financial costs and benefits resulting from the Project over an assumed period of 30 years with a residual value proportional to the estimated remaining economic life. Financial costs and benefits are presented in 2003 constant prices.

1. Costs 13. Project costs are comprised of capital costs and O&M costs. Capital costs include: civil works; environmental improvement works; land acquisition, relocation of utilities and resettlement costs; construction supervision; and taxes and duties. Capital costs are to be incurred over 36 months starting in 2004 and ending in 2007. O&M costs include annual routine maintenance (estimated at Rs150,000 per km and periodic maintenance undertaken every five years (estimated at Rs5 million per km) and 20 years (estimated at Rs20 million per km and implemented over 2 years).4

2. Benefits 14. Toll revenues are based on the traffic levels and traffic growth rates presented in Tables A8.2 and A8.3 and have been projected at 2003 constant prices5—Rs0.55 per km for cars, Rs0.96 for LCVs and minibuses, and Rs1.92 for trucks and large buses,6 assuming a capture ratio of 75%.

4 Total O&M costs are roughly equal to 2.2% of capital cost per kilometer. 5 Toll rates are assumed to be relatively inelastic given the general absence of easily accessible alternative roads

and the small proportional cost of the toll compared to the total cost of vehicle O&M. 6 2004 toll rates will be based on 1997 approved toll levels, annually indexed for inflation (by an inflation rate that

is estimated at 4.65%).

Appendix 8

43

3. FIRR 15. Based on the above assumptions, the FIRR for the core section is calculated at 6.8%, greater than NHAI’s marginal weighted average cost of capital (WACC) in real terms estimated at 4.2%. NHAI’s marginal WACC was estimated on the basis of the following assumptions: (i) 88% government funding (of which 40% is from cess and 48% grants) at 7%;7(ii) 12% long-term debt at 11%;8 (iii) domestic inflation of 5%, and NHAI’s application for tax-exempt status is approved. 16. Several tests were undertaken to determine the sensitivity of the FIRR to changes in toll levels, traffic capture ratio, traffic volume and traffic volume growth rate, O&M costs, and delayed project completion. A sensitivity analysis was conducted for the case of 20% less traffic due to toll introduction. FIRR is 5.2%, greater than NHAI’s marginal WACC in real terms estimated at 4.2%. The FIRR is most sensitive to reductions in tariff level and traffic assumptions and less sensitive to changes in O&M costs and delays in project completion. Verification and appropriate modeling of traffic assumptions, and development and implementation of an appropriate toll strategy will be critical to ensure the Project’s financial viability and sustainability. 17. Major assumptions adopted for the financial assessment are in Supplementary Appendix E-3. E. Poverty Impact Assessment 18. The core project area has an estimated population of 605,792, with 200,737 living below the poverty line. The potential poverty penetration ratio is, therefore, above 33%.9 With project road improvements, anticipated VOC savings in passenger (bus) and freight (truck) transport in a competitive environment will translate to decreased transport costs for the poor. 19. The poor account for about 80% of passenger traffic but only about 40% of freight traffic.10 Along the core road bus traffic makes up about 20% of traffic volume, and truck traffic, 70%. The estimated poverty economic impact ratio is 1.95, indicating that the total net economic benefits reaching the poor as a result of the project are likely to be substantial. 20. Extending the poverty impact analysis to the entire East-West Corridor increases the population living in project area to 3 million, of whom approximately 876,000 live below the poverty line. The potential poverty penetration ratio for the entire route remains at 29%, with an estimated poverty impact ratio of 2.0211 for the entire route. The potential poverty penetration ratio and the estimated poverty economic impact ratios strongly indicate that the Project will have a positive impact on the area’s poor.

7 Approximately equal to a 10-year Treasury Bond rate (institutional sales only) and 5-year Triple-A Corporate Bond

rate (publicly traded). 8 Assuming that 200,737 are considered to be below the poverty line. 9 Assuming that 200,737 are considered to be below the poverty line. 10 NHAI. 2003. NHAI Corridor Socio-Poverty Impact Report. 11 Assessed as a difference of 4% more than that for the core road.

Appendix 8 44

Table A8.6: Annual Revenue and Cost Streams for the Project

(Rs million)

Construction Maintenance Costs Base Casea Case with 20% Lower Trafficb

Year Costs Periodic Routine Revenue Net Benefit Stream Revenue Net Benefit Stream

2004 2,049.30 0.00 0.00 0.00 (2 049.30) 0.00 (2 049.30)

2005 2,732.40 0.00 0.00 0.00 (2 732.40) 0.00 (2 732.40)

2006 2,049.30 0.00 0.00 0.00 (2 049.30) 0.00 (2 049.30)

2007 0.00 0.00 39.90 347.17 307.27 277.74 237.84

2008 0.00 0.00 39.90 369.73 329.84 295.78 255.88

2009 0.00 0.00 39.90 393.77 353.87 315.02 275.12

2010 0.00 0.00 39.90 419.37 379.47 335.50 295.60

2011 0.00 675.25 0.00 446.82 (228.43) 357.46 (317.79)

2012 0.00 0.00 39.90 476.07 436.17 380.86 340.96

2013 0.00 0.00 39.90 507.25 467.35 405.80 365.90

2014 0.00 0.00 39.90 540.48 500.58 432.38 392.48

2015 0.00 0.00 39.90 575.90 536.00 460.72 420.82

2016 0.00 675.25 0.00 613.65 -61.59 490.92 (184.33)

2017 0.00 0.00 39.90 653.90 614.00 523.12 483.22

2018 0.00 0.00 39.90 696.79 656.90 557.43 517.53

2019 0.00 0.00 39.90 742.52 702.63 594.02 554.12

2020 0.00 0.00 39.90 791.27 751.37 633.02 593.12

2021 0.00 675.25 0.00 834.94 159.70 667.95 (7.30)

2022 0.00 0.00 39.90 881.04 841.15 704.83 664.93

2023 0.00 0.00 39.90 929.70 889.80 743.76 703.86

2024 0.00 0.00 39.90 981.05 941.16 784.84 744.94

2025 0.00 0.00 39.90 1,035.26 995.36 828.21 788.31

2026 0.00 1,330.25 0.00 1,092.47 (237.77) 873.98 (456.27)

2027 0.00 1,330.25 0.00 1,152.86 (177.38) 922.29 (407.96)

2028 0.00 0.00 39.90 1,216.61 1,176.71 973.29 933.39 2029 0.00 0.00 39.90 1,283.90 1,176.72 1,027.12 987.22

2030 0.00 0.00 39.90 1,354.92 1,176.73 1,083.94 1,044.04

2031 0.00 0.00 39.90 1,423.00 1,176.74 1,138.40 1,098.50

2032 0.00 675.25 0.00 1,494.53 1,176.75 1,195.62 520.37

2033 0.00 0.00 39.90 1,569.66 1,176.76 1,255.73 1,215.83

2034 0.00 0.00 39.90 1,648.60 1,176.77 1,318.88 1,278.98

2035 0.00 0.00 39.90 1,731.53 1,176.78 1,385.22 1,345.32

2036 (4,098.6) 0.00 39.90 1,818.65 1,176.79 1,454.92 5,513.62

FIRR 6.77% 5.16%

NPV 3,607.10 FIRR = financial internal rate of return, NPV = net present value. a a case without toll. b a case with toll. Source: Asian Development Bank staff.

Appendix 9

45

SUMMARY POVERTY AND SOCIAL ANALYSIS REPORT A. Linkages to the Country Poverty Analysis Sector identified as a National Priority in Country Poverty Analysis?

Yes

Sector identified as a National Priority in Country Poverty Partnership Agreement?

Yes

Contribution of the sector to poverty reduction: The Government has highly prioritized improvement of the national highway (NH) system to develop the economy and contribute to overall poverty reduction. The absence of adequate road infrastructure, including connectivity between states, has long been considered an impediment to development, particularly for transport of goods between states. Road, rail, and inland waterway development are all considered to be integral to inter- and intrastate development. Infrastructure development encourages other development initiatives, which together considerably stimulate economic growth. B. Poverty Analysis Proposed Classification: Other The sector loan covers a total distance of 662 kilometers (km), rehabilitating and widening an east-west linkage from Rajasthan to Uttar Pradesh. The core project covers a distance of 131 km from the Rajasthan-Madhya Pradesh border to Uttar Pradesh. The main objective of the Project is to connect the eastern and western ends of India via better road networks. Although not designed as a poverty intervention project, the Project will, by virtue of passing through the countryside where a large percentage of the population lives below the poverty line, help reduce poverty by encouraging human development and economic growth. Better connectivity with mainstream economic regions will also help reduce regional disparities among fast-growing and backward states such as those in the northeast. Project roads are mostly two lanes and, in some parts, single lane. Due to disrepair, a road may remain flooded during the monsoon season for up to 4 months which increases people’s hardship and loss of workdays by the poorest. Poverty levels in Madhya Pradesh and Uttar Pradesh are 37% and 31% respectively, significantly higher than for India’s average of 26.1%. The project region is on the Bundelkhand plateau, which has little or no productive land and low rainfall. More than three fourths of the Project is in Madhya Pradesh, with only 20 km in Jhansi district in Uttar Pradesh. The proposed road improvement passes through 51 rural settlements and 3 urban areas. In Madhya Pradesh, life expectancy is 44 years at birth as opposed to the national average of 61, infant mortality rate is 125 compared to 68, and less than 10% of houses have access to safe drinking water compared to 62%. Recent persistent drought has forced migration of productive labor and encouraged human trafficking and the commercial sex trade in vulnerable sections along the corridor. A separate HIV/AIDS prevention and anti-trafficking program will be implemented under the Project. Scheduled tribes in the interior have taken to a nomadic lifestyle, moving and settling along the road, seeking jobs. Average landholding is 2.5 hectares, most of it unirrigated, and landless families predominate. An estimated 600,000 people reside within the corridor of influence, of whom about 200,000 are below the poverty line. The estimated annual per capita income of those living below the poverty line is less than $100, in each of the three states, reflecting an average daily income of about $0.30. Table A9.1 provides details of poverty in the project area.

Appendix 9 46

Table A9.1. Poverty in Direct Area of Influence

Direct Area of Influence Total

Population BPL

Population % BPL

Jhansi Tehsil + Jhansi Town (Uttar Pradesh) 421,059 130,141 30.90 Shivpuri Tehsil + Shivpuri Town (Madhya Pradesh) 139,236 53,439 38.38 Karera Tehsil + Karera Town (Madhya Pradesh) 32,983 12,519 37.96 Kolaras Tehsil (Madhya Pradesh) 12,514 4,638 37.06 Total 605,792 200,737 33.14

BPL = below poverty line. Source: Asian Development Bank staff.

Impacts of Road Improvement Rural inaccessibility is one of several key reasons for poverty and deprivation in Rajasthan and Uttar Pradesh. Their rural populations are widely dispersed, making road connectivity a particularly critical factor for those seeking economic opportunities and social services.1 However, neglect of the road network overall has also hampered rural mobility in all three states. Studies conducted during preparation of the recently approved Madhya Pradesh State Road Sector Development Project of the Asian Development Bank (ADB) for example, found that outdated institutional arrangements had led to most of the state road sector budget being spent on personnel instead of maintaining and developing the roads. Road connectivity is very poor, estimated at 22% in Madhya Pradesh—one of the lowest of all the states. The ADB-financed Madhya Pradesh road project will rehabilitate about 1,750 km of state highways and rural connector roads identified as significant road corridors. The focus on rural and state roads to develop internal and interstate connectivity, and improvement of national highways to enhance interstate connectivity will contribute to the overall well being of the local population. The proposed India rural road sector project, through provision of all-weather road connectivity, is expected to directly benefit some 71,127 rural villages in Madhya Pradesh and Chhattisgarh. Finally, the cost of travel is also considered high, especially for those living below the poverty line. The minimum fare of Rs10, by local bus, is close to a full day’s income for persons in this group, with the freight rate at 90 rupees/quintal, equivalent to 3 days' work. Nonetheless, about 80% of the passenger and about 50% of freight traffic come from this group. Table A9.2 indicates rural access roads within the project corridor.

Table A9.2: Rural Access Roads No. of Roads Project Corridor

Left Right NH-25 11 33 NH-3 8 10 NH-76 14 18 Total 33 61

NH = national highway. Road development offers opportunities for development to be brought to the region and for local communities to move in and out of the region, fostering the pull and push of economic development. In the immediate project influence areas, development opportunities are supported by providing people with access to economic opportunities, links to better-priced markets, jobs, and better-quality social and other public services, as well as short-term project-related employment. Equally important is the fact that the Project will have indirect impacts on poverty reduction by improving transport efficiency and outreach, thus increasing incomes and jobs; and also generating higher tax revenues to support the state governments’ programs for economic growth, poverty reduction, and human development. Some of the mechanisms through which the Project may be expected to contribute to poverty reduction include (i) growth in

1 In 2001, the population density of Rajasthan was 165/square kilometer (km2) and that of Madhya Pradesh 195/km2,

compared with 324/km2 nationally.

Appendix 9

47

agricultural incomes due to access to higher-priced markets, ability for the first time to transport horticultural and other high-value produce to market, and reduced spoilage; (ii) growth of the local economy, leading to increased incomes and jobs; (iii) ability to travel to work outside the community; (iv) reduction in prices of consumer goods and services due to lower transport cost; (v) improved health and longevity due to improved access to hospitals and health services (particularly for births); (vi) improved education due to improved access to schools (including post-primary schooling), improved capacity to attract qualified school teachers, and more frequent supervision visits by school inspectors; (vii) improved access to agricultural, veterinary, and other extension services; and (viii) improved opportunities for participation in the wider society outside the villages. Considerable potential for tourism also exists in Madhav National Park, King George Castle, Survaya Fortress (with its palace and temples), Jhansi Fort and Museum, and Rocha Fort complex (with its three palaces and sacred pilgrim sites). Improving roads; rationalizing congested areas with junctions, truck stops, and lay -bys, improving traffic flow; and providing service roads in congested locations will bring immediate benefits to roadside communities and non-motorized road users. The project beneficiaries will include the rural population of the two states: (i) direct users of road transport, including owners and operators of buses and trucks, passengers of the various vehicle categories, labor, and the Government; (ii) those benefiting indirectly because they live in the roads’ area of influence; and (iii) those benefiting indirectly through the wider impacts of higher economic growth in their districts and in the states as a whole. Some expected positive impacts include the following: (i) Agricultural diversification often rapidly follows provision of all-weather road access to district markets, potentially increasing incomes of farmers. Milk and vegetable production can potentially increase annual incomes of marginal farmers by Rs4,000–Rs8,000 a year or more, of small farmers by Rs20,000 or more, and farmers with medium-sized or large holdings by Rs50,000 or more. Increased nonagricultural investment mainly by the nonpoor is also likely in enterprises ranging from small shops and service businesses to transport enterprises.

(ii) Social service delivery, access, and improved social status of the villages is another positive impact resulting from road connectivity with increased attendance by teachers, health personnel, and more frequent supplies for various government poverty relief programs. Access to social services beyond the village tends to improve as well because better transportation services make distant services accessible daily the whole year round. Attendance at middle and high schools outside the village also increases. Surveys of all groups, including the poorest, indicate significant benefits resulting from road upgrading, in particular by increasing the social status of the village and the families living there.

(iii) Gender impacts are positive, with improved connectivity and transportation, which enhances conditions and opportunities to raise the social, educational, and health status of girls and women, and improve conditions for safe motherhood. More girls are likely to be sent to high school outside the village when transport services are improved, and generally women have been found to benefit from more frequent contact with their families in distant locations.

(iv) Poverty reduction results from provision of upgraded all-weather roads in recent years, (specifically in Madhya Pradesh. Control studies confirmed that such projects decrease poverty by removing economic and social development barriers created by isolation. Some landless households benefited from opportunities to invest in raising cows and operate roadside stalls. Lower passenger fares and freight rates improved social and economic prospects, and increased economic opportunities to participate in civil works during construction.

Appendix 9 48

C. Participation Process

The project technical design is continually influenced by community discussions and consultations. Service roads, severance impacts, safety considerations, and designing rest and truck stops are based on technical and social considerations. Consultations regarding resettlement planning and implementation are ongoing among all stakeholders. D. Potential Issues

Significant/ Not Significant/

Uncertain/ None

Strategy to Address Issues

Plan

Required

Resettlement

Significant Resettlement framework for the non-core subprojects and a resettlement plan for the core subproject have been prepared.

Full for core subproject and as required for noncore subproject

Gender Neutral The Project areas entail two major gender related issues: HIV/AIDS and women trafficking. These issues are addressed under the proposed Project.

None

Affordability

Not significant Tolls were set at a level to cover the cost of highway operation and maintenance, but not the entire construction cost. Around 1,100 km of the national highways have been placed in service with this level of tolls. NHAI has not encountered major objections to the tolls from major users.

None

Labor None Not required

Indigenous People

Depends on the project road sections / states

Indigenous peoples’ framework prepared for noncore subproject.

Not required for core subproject and s required for noncore subproject

Other Risks/ Vulnerabilities

None expected None

Appendix 10

49

REVISED SUMMARY RESETTLEMENT PLAN A. Description of the Project

1. The National Highway Corridor (Sector) I Project will widen and improve 653 kilometers (km)of two-lane highways to four lanes under the East-West (E-W) Corridor development program of the National Highway Authority of India (NHAI). The Project includes priority sections of the E-W Corridor in Rajasthan, Madhya Pradesh, and Uttar Pradesh. The total project length is divided into five packages (Table A10.1).

Table A10.1: Project Packages

Package Project Roads Specific Locationa Length State A Chittorgarh-Kota (excluding Kota

Bypass) NH 76 (212-376) 164b km RJ

B Kota- RJ/MP Border (excluding Kota Bypass)

NH 76 (406-579) 173 km RJ

C RJ/MP Border-Jhansi (excluding Jhansi Bypass)

NH 76 (579-609) Shvpuri Bypass (24 km) NH 25 (15-92)

131 km MP/UP

D Jhansi-Orai (including Jhansi Bypass)

Jhansi Bypass (16 km) NH 25 (104-212)

124 km UP

E Orai-Bognipur-Barah NH 25 (212-255) NH 2 (422-449)

70 km UP

km = kilometers, NH = national highway, MP = Madhya Pradesh, RJ = Rajasthan, UP = Uttar Pradesh. a See Map b Excluding Kota bypass (30 km), which has been dropped from the project roads. Source: Asian Development Bank staff.

2. The packages have been classified into (i) a core subproject to be appraised by Asian Development Bank (ADB); and (ii) non-core subprojects, including private sector investment, to be prepared, screened, appraised by NHAI before submission to ADB for approval under the sector lending approach. Package C (Rajasthan/Madhya Pradesh border to Jhansi—132 km) has been selected as the core subproject for loan processing. 3. NHAI is the Executing Agency of the Project. NHAI prepared a draft resettlement plan for the core subproject (i.e., package C) in June 2003. The resettlement plan has been revised based on new data on land acquisition and structure surveys, with particular attention to impacts on farm families and tenant households caused by the Shivpuri bypass. For non-core projects, a resettlement framework, based on ADB policy guidelines, has been approved by NHAI for resettlement plan preparation. B. Package C—Project Impacts

4. Package C consists of three sections and will improve and upgrade 131 km of highways (National Highway (NH) 76, and NH25) from Shivpuri to Jhansi (Table A10.2). Improvement activities include widening the 3 stretch to four lanes, and improving junctions, underpasses, a fly-over, and a major bypass to avoid urban settlements and congestion. The four-lane carriageway is designed for an average of 100 km/hour.

Appendix 10

50

Table A10.2: Package-C Roads

Road Section

Roads Length (km)

Section 1 NH 76, km 579–km 609 MP Border (includes Shivpuri bypass) 55 Section 2 km 15–km 40 (includes Sind River Bridge – new approach) 26 Section 3 km 40–km 92 (includes River Mahuar Bridge – new approach) 52

km = kilometers, MP = Madhya Pradesh, NH = national highway. Source: Asian Development Bank staff. 5. The existing right of way (ROW) of the NHs varies from 30 to 50 meters (m). Widening to four lanes will require additional land in several sections beyond the existing ROW. Improvements will be confined to 45 m in built-up areas and 60 m in case of the new bypass. The Project area traverses 25 villages and settlements, including the Shivpuri bypass. A major part of the Project is within Shivpuri, Madhya Pradesh, while few settlements along NH25 are within Jhansi, Uttar Pradesh, bordering the Jhansi Development Authority Area. 6. The construction of the project highway sections will require acquisition of an estimated 332 hectares (Table A10.3). The bulk of land acquisition will be for section 1, particularly for the Shivpuri bypass, involving forest, revenue/government, and privately owned agricultural land at the two approach ends. Efforts have been made to minimize land acquisition and reduce resettlement impacts as much as possible by (i) keeping ROW to 45 m in built-up areas; (ii) adopting concentric symmetrical widening; (iii) raising carriageway over congested segments, and (iv) building bypasses to avoid congested urban settlements. Further efforts to minimize project impacts will be made during final design and project implementation.

Table A10.3: Land Acquisition by Road Sections

Road Section

Road Area in ha

Section 1 NH76–Km 579 to 609 and Shivpuri bypass 194.84 Section 2 NH 25–Km 14 to 40 (includes Sind Bridge) 45.71 Section 3 NH 25–Km 40 to 92 (includes Mahuar)

realignment) 90.91

Total 331.46 ha = hectares, NH = national highway. Source: As ian Development Bank staff. 7. A complete enumeration of all structures within the 45 m ROW was conducted in two phases in April-May and early June 2003, to assess the loss of assets and the number of affected farm families/households and shops/businesses. Table A10.4 provides detailed data of the project impacts on roadside shops/businesses and village settlements. A total of 859 structures (residential/commercial) will require demolition, affecting some 5,154 people. Road widening and improvements will also affect 45 religious/community structures. Plot acquisition survey data have been collected to assess the project impact on households affected by the loss of agricultural land. In all, the Project will affect 17,470 people (2,915 households), including those affected by loss of agricultural plots but not required to move.

Appendix 10

51

TableA10. 4: Type and Loss of Structures

District Type of Structure

Residential Residential/ Commercial

Commercial Total Structures

Total APs

Permanent 55 73 105 233 1,398 Temporary 6 5 9 20 120 Semi-Permanent

29 26 25 80 480

Shivpuri

Subtotal 90 104 139 333 1,998 Permanent 2 5 1 8 48 Temporary 1 1 1 3 18 Semi-Permanent

1 2 1 4 24

Datia

Subtotal 4 8 3 15 90 Permanent 142 102 91 335 2,010 Temporary 9 18 19 46 276 Semi Permanent

38 57 35 130 780

Jhansi

Subtotal 189 177 145 511 3,066 Total 283 289 287 859 5,154

Source: Asian Development Bank staff. 8. Roadside shops/businesses will experience the most impact and be required to relocate. People will lose (i) residential and commercial structures, (ii) community structures, (iii) business/employment, (iv) homestead and agricultural land, (v) crops, and (vi) livelihood sources. Nearly 70% of the structures are pucca (brick and cement) and the rest are semi-pucca and kuccha. About 40% of the structure users (particularly of shops) are tenants. Based on the estimated incomes from all sources, about 15% of the households are below the poverty line. 9. A detailed field survey assessed the socioeconomic status of indigenous people and their livelihood sources. The most numerous scheduled tribes of the project area are the Bhil and Saharia in Shivpuri district, while a small number of Bhotiya inhabit Jhansi. Other important tribes in the region include the Agariya, Korku, Sonar, and Gond. Among the indigenous/tribal groups, the Saharia are more visible. Socioeconomic and occupational/income data clearly suggest that the project-affected. Scheduled tribes (STs) are similar to the overall affected population and are largely assimilated into the local mainstream communities. 10. Only 13 tribal households/shop owners are likely to be affected over the 132 km stretch of the highway. Survey data confirmed that they have the same general pattern of activity as non-tribals. For example, 58% of tribals are involved in agriculture as cultivators and laborers. Some combine agriculture with small business while about 15% derive their livelihood solely from trade and non-farm activities. Few depend on forest products. ST and non-ST populations both view the highway project as beneficial as it will likely generate more business and economic opportunities. The improved transportation and connectivity will increase jobs. 11. Affected ST populations engage in economic activities that are strongly tied to mainstream ones and will unlikely be affected differently than non-tribals. A separate Indigenous People Development Plan (IPDP) for the STs, therefore, is not needed. However, given their higher incidence of poverty (about 40%), scheduled tribes and other vulnerable groups will need additional assistance. The revised resettlement plan emphasized ST issues, with special attention to livelihood and income restoration, including a separate program, for STs and vulnerable groups.

Appendix 10

52

C. Resettlement Principles and Entitlement Matrix 12. The resettlement principles and entitlements are derived from the National Highways Act (1956) and ADB’s policy on Involuntary Resettlement (1995) and other safeguard policies. The principles establish eligibility and provisions for all types of losses (land, crops/trees, structures, business/employment, and workdays/wages). For example, affected people will be compensated fully to replace all lost assets. Besides payments by district collectors, affected persons (APs) will receive additional grants to match replacement costs for lost assets (land and houses), transaction costs such as stamps/registration costs (in case of purchase of replacement land), and other cash grants and resettlement assistance such as shifting allowance and compensation for loss of workdays/income due to dislocation. Female-headed households and other vulnerable households will be eligible for further cash assistance for relocation and house reconstruction. Table A10.5 outlines the entitlement in the form of a matrix. It incorporates some lessons from ongoing NHAI projects, particularly in income restoration and other livelihood/training programs for economic rehabilitation of affected people, particularly those below the poverty line. 13. Resettlement sites for relocation of shops/business and affected households have been identified in consultation with APs and local administration. The sites are close to the existing settlements, which will minimize disruption during relocation. APs will be given several options for relocation, including additional assistance. The sites for residential dwellers will be developed with basic amenities (e.g., internal roads, sanitary/water supply, community infrastructures, etc.). Households affected by land acquisition have expressed their desire for self-relocation. In addition to compensation for lost assets, families requiring relocation will receive shifting allowances for resettlement and income restoration support. D. Stakeholder Participation, Disclosure of Resettlement Plan, and Grievances 14. At various stages of project planning, affected people have been informed and consulted about the likely project impacts. Stakeholders consulted include (i) heads of households/businesses to be affected; (ii) affected people in small groups; (iii) village panchayat, sarpanch, and members; (iv) local voluntary organizations and nongovernment organizations; (v) government agencies and departments; and (vi) women and other vulnerable groups. A consultation plan to disseminate information and involve APs and host populations has been adopted. 15. The draft resettlement plan was disclosed among APs and other stakeholders at the project site in June 2003. The adequacy of the entitlement and mitigation policies were reviewed and discussed by project officials. Stakeholders’ comments have been used to minimize impacts through alternative options/road realignments and improvements in the policy and entitlement matrix. The project director (NHAI-Kota) responsible for project preparation at the field level will conduct an IEC in mid-September in Shivpuri to further disseminate information on the project. 16. APs will be involved in resolving any dispute or grievance with regard to resettlement plan implementation and benefits. The grievance resolution committee will comprise the project director (NHAI); district commissioner or his or her representative; representatives of affected people (male and females); local government/panchayat representative; resettlement officer for the project section (NHAI); local land acquisition officer; and NGO representative implementing the resettlement plan. GRC claims will be reviewed and resolved within 3 weeks from the date of submission to the local committee.

Appendix 10

53

E. Implementation Framework and Budget 17. The environmental and social development unit (ESDU) of NHAI will implement and supervise the resettlement plan. NHAI will engage qualified and experienced NGOs to implement the resettlement plan. They will play an important role in the information campaign on resettlement plan policies/entitlements, disbursement of compensation packages as described in the matrix, ensure redressal of legitimate grievances by APs, and pay special attention to vulnerable groups. 18. For effective management of resettlement and to further strengthen ESDU, NHAI will soon engage a manager for resettlement. In addition, as indicated by NHAI ESDU will engage two long-term staff consultants form its own funds—one for resettlement and one for environment—to enhance its capacity for management and operations. For future projects, NHAI has agreed to engage consultants for resettlement planning separately from detailed project report/engineering consultants. This will more closely involve ESDU staff in planning of resettlement and supervision of consultants in resettlement plan development. 19. A resettlement unit will be established within the project implementation unit (PIU) for project-level resettlement plan implementation. The project director of the PIU will head the resettlement unit. A full-time NHAI officer will be in charge of resettlement and rehabilitation (R&R), including supervision of the NGO work in the field. The resettlement consultant of the project technical team will provide technical support to the PIU and the R&R officer in terms of coordination and supervision of NGO work in the field as well as help all committees at the district level resolve resettlement issues. NHAI will conduct a short training program for R&R officers before project implementation. 20. The total budget for R&R is Rs379.65 million, including cost for land acquisition, resettlement/income restoration, and other administrative/logistic costs, including monitoring and evaluation. Resettlement, including land acquisition, will take 36 months. Compensation for acquired assets will be paid before construction. The resettlement site will be provided before relocation. Social development and income restoration will be based on needs assessment and consultation with beneficiary groups. The budget provides for separate provisions for income restoration activities and assistance to vulnerable groups. F. Monitoring and Evaluation 21. The resettlement plan will have internal and external monitoring. Methods are specified in the resettlement plan. Internal monitoring will be done by the PIU-ESDU. It will monitor compliance with the principles and matrix set out in the resettlement plan, payment of compensation, compensation record, completion of compensation before construction, job creation, information dissemination, and settling of GRC grievances. 22. Independent monitoring, including a major midterm review, will be carried out annually by a suitably qualified external expert/agency to be hired by NHAI with ADB concurrence. The external monitor will be selected within 3 months of loan approval. The monitoring findings will be shared in the form of reports to NHAI and ADB. NHAI will follow up on the monitoring reports by the external monitoring experts.

Appendix 10

54

Table A10.5: Detailed Entitlement Matrix

S.No Category Type of Loss

Unit of Entitlement

Entitlement Details

1A Private Property

Agricultural land and assets

Titleholder Compensation at “replacement cost” or “actual market value”

1. If the replacement cost (determined as per para. 5.7.1 of the policy framework) is more than the compensation, as determined by the competent authority, then the difference is to be paid by the project in the form of “assistance.”

2. If the residual plot(s) is (are) not viable, i.e., less than average landholding of the district, the following options will be given to the affected person (AP). • The AP keeps the remaining land, and the compensation and assistance is paid to

the AP for the land to be acquired. • Compensation and “assistance” are given for the entire plot, including residual plot,

if the owner of such land wishes that his residual plot should also be acquired by the project authority. The residual plot so paid will be acquired by the project authority.

• If the AP is from a vulnerable group, compensation for the entire land is by means of land for land if so wished by AP, provided that the land of equal or more productive value is available.

3. Transitional allowance of Rs2,000 per month for 9 months if the residual land is not viable, or for 3 months if the residual land is viable

4. In case of severance of agricultural land, an additional grant of 10% of the amount paid for land acquisition.

5. All fees, taxes, and other charges, as applicable under the relevant laws, incurred in the relocation and resource establishment, are to be borne by the project.

6. If the AP becomes landless or falls below the poverty line, then the following will hold: • Training will be provided to upgrade skills @ Rs1,500 per family. • Such APs will be provided a one-time economic rehabilitation grant @ Rs3,000 per

family, in the form of productive assets. 1B Private

Property Non-agricultural land and assets

Titleholder/ owner: Residential

Compensation at “replacement cost”

1. EP will be provided replacement cost of the residential structure (part or full), which will be calculated as per the prevailing basic schedule of rates without depreciation, subject to relevant “quality standards” of BSR as maintained by government and local bodies authorities.

2. Compensation for the loss of residential land will be paid at replacement value. 3. If replacement cost is more than the compensation (as determined by the competent

authority), then the difference is to be paid by the project in the form of “assistance.” 4. Transitional assistance of Rs2,000 per month will be provided in the form of grant to

cover a maximum 9 months rental accommodation. 5. Lumpsum shifting allowances of Rs700 for temporary, Rs1,200 for semipermanent,

and Rs2,200 for permanent structures will be paid. 6. Absentee landlords will receive only compensation at “replacement cost.” 7. AP will have the right to salvage materials from the demolished structure.

Titleholder/ owner: Commercial

1. AP will be provided replacement cost of the commercial structure (part or full), which will be calculated as per the prevailing basic schedule of rates without depreciation, subject to relevant “quality standards” of BSR as maintained by government and local bodies authorities.

54 A

ppendix 10

S.No Category Type of Loss

Unit of Entitlement

Entitlement Details

2. Compensation for the loss of commercial land will be paid at replacement value. 3. If replacement cost is more than the compensation (as determined by the competent

authority), then the difference is to be paid by the project in the form of “assistance.” 4. Transitional assistance of Rs2,000 per month will be provided in the form of grant to

cover a maximum 9 months rental accommodation. 5. Lumpsum shifting allowance of Rs700 for temporary, Rs1,200 for semi-permanent and

Rs2,200 for permanent structures. 6. Absentee will receive only compensation at “replacement cost”. 7. Right to salvage materials from the demolished structure. 8. Training will be provided for upgrade skills @ Rs1,500 per family. 9. Vulnerable APs would be provided a one-time economic rehabilitation grant @ Rs3,000

per family, in the form of productive assets. Tenant:

Residential 1. The amount of deposit or advance payment paid by the tenant to the landlord or the

remaining amount at the time of expropriation. This will be deducted from the payment to the landlord.

2. A sum equal to 9 months rental @ Rs2,000 per month in consideration of disruption caused.

3. Compensation for any structure the tenant has erected on the property. This will be deducted from the payment to the landlord.

4. A shifting allowance of Rs800 lump sum for shifting. Tenant:

Commercial 1. The amount of deposit or advance payment paid by the tenant to the landlord or the

remaining amount at the time of expropriation. This will be deducted from the payment to the landlord.

2. A sum equal to 9 months rental @ Rs2,000 per month will be paid in consideration of disruption caused.

3. Compensation for any structure the tenant has erected on the property. This will be deducted from the payment to the landlord.

4. Shifting allowance of Rs800 lumpsum will be paid. 5. Training will be provided to upgrade skills @ Rs1,500 per family 6. Vulnerable APs will be provided a one-time economic rehabilitation grant @ Rs3,000

per family, in the form of productive assets. 2 Others 2A Livelihood Wage

earners Individual Lump sum They will be paid a flat sum of Rs 2,000.00 as transitional assistance.

Training will be provided to upgrade skills @ Rs1,000 per family. Vulnerable APs will be provided a one-time economic rehabilitation grant @ Rs3,000, in the form of productive assets.

2B Non-perennial corps

Family Notice to harvest standing crops

They are entitled to be given 4 months notice. A grant will be given toward crop lost before harvest due to forced relocation, equal to market value of crop lost plus cost of replacement of seeds for the next season’s harvest.

2C Perennial crops such as fruit trees

Family Compensation at “market value”

Compensation will be paid for perennial crops and trees, calculated as annual produce value for one season.

Appendix 10 55

Appendix 10

56

S.No Category Type of Loss

Unit of Entitlement

Entitlement Details

3 Illegal Use of the ROW 3A Illegal use of

the ROW Encroachers Family Will receive no

compensation for land but assistance for assets to the vulnerable

1. Encroachers will be notified to give them time to remove their assets (except trees) and harvest their crops.

2. Compensation will be paid for structures at replacement cost to the vulnerable person. 3. Training will be provided to upgrade skills @ Rs1,500 per family to the APs losing

commercial activities 4. Vulnerable APs loosing commercial activities would be provided a one-time economic

rehabilitation grant @ Rs3,000 per family, in the form of productive assets. 5. AP will have the right to salvage materials from the demolished structure.

3B Squatters Family Will receive no compensation for land but assistance for assets.

1. Compensation will be provided for loss of structure at replacement cost. 2. Lumpsum shifting allowance of Rs700 for temporary, Rs1,200 for semipermanent, and

Rs2,200 for permanent structures will be paid. 3. A transitional allowance @ Rs2,000 per family lump sum will be paid. 4. Training will be provided to upgrade skills @ Rs1,000 per family to the APs losing

commercial activities. 5. Vulnerable APs losing commercial activities will be provided a one-time economic

rehabilitation grant @ Rs3,000 per family, in the form of productive assets. 6. AP will have the right to salvage materials from the demolished structure.

3C Shifting Business

Mobile and ambulatory vendors (Kiosks)

Family They are not eligible for compensation or “assistance”

Ambulatory vendors will receive licenses for fixed locations which will be considered as kiosks. Ambulatory vendors will receive a lumpsum shifting assistance of Rs2,000.00

4. Community infrastructure, cohesion and amenities

Common property resources

Community Conservation, protection, compensatory replacement

Easily replaced resources, such as cultural properties will be conserved (by means of special protection, relocation, replacement, etc.) in consultation with the community. Loss of access to firewood, etc. will be compensated by involving the communities in a social forestry scheme, in coordination with the Department of Forests, wherever possible. Adequate safety measures, particularly for pedestrians and children; landscaping of community common areas; improved drainage; roadside rest areas, etc. are all provided in the highway design. The Project will hire local people. Loss of trees will be replaced by compensatory afforestation.

4 A Any other impact not yet identified, whether loss of asset or livelihood

Unforeseen impacts will be documented and mitigated based on the principles agreed upon in this policy framework.

56 A

ppendix 10

Appendix 11

57

ELIGIBILITY CRITERIA AND PROCEDURE FOR THE SUBPROJECTS

A. Eligibility Criteria

1. Eligibility criteria of each subproject is as follows:

(i) The subproject will rehabilitate and widen part of the East-West (E-W) Corridor to four lanes, with priority given to the national highway between Chittorgarh and Barah, except as otherwise acceptable to the Asian Development Bank (ADB).

(ii) The Subprojects will be technically feasible, and a feasibility study and preliminary design will have been prepared for the same. The National Highways Authority of India (NHAI) will ensure that the detailed subproject report will be prepared within not more than 5 months of subproject approval.

(iii) The Subprojects will be economically viable and their estimated economic internal rate of return equal to or higher than 12%. The economic analysis of the Subproject will be conducted in accordance with ADB’s Guidelines for the Economic Analysis of Projects, as amended from time to time.

(iv) An environmental screening will have been conducted for the Subproject. Any Subprojects classified as category A in accordance with ADB’s 2003 Environmental Assessment Guidelines, as amended from time, will not be eligible under the Project. An initial environmental examination (IEE) report for the Subproject will have been prepared in accordance with the said Guidelines.

(v) The Subprojects will be socially sound and include measures to mitigate any social impacts that it may cause if any. The initial poverty and social assessment (IPSA) for the Subproject will have been conducted in accordance with ADB’s Guidelines on Initial Poverty and Social Assessment, as amended from time.

(vi) The resettlement plans for the Subproject will have been prepared in accordance with the resettlement framework and ADB’s policy on involuntary resettlement, as amended from time to time.

(vii) If any indigenous peoples/scheduled tribes are likely to be affected significantly by a Subproject, an indigenous people’s development plan (IPDP) will have been prepared, following the measures set forth in the IPD framework.

(viii) Sufficient government counterpart funding will be allocated to implement the Subprojects as scheduled.

(ix) All necessary central and state government approvals will have been obtained for the Subproject.

B. Procedures

2. Each Subproject will be prepared and processed in accordance with the procedures set out below.

Appendix 11 58

(i) Feasibility study for the selected Subprojects will be conducted by consultants to be engaged by the National Highway Authority of India (NHAI).

(ii) Upon completion of the feasibility study for Subprojects, NHAI will fill out

checklists for IPSA (Supplementary Appendix C-6), involuntary resettlement (Supplementary Appendix C-2), indigenous people (Supplementary Appendix C-2), and environmental screening (Supplementary Appendix C-3). These documents should be sent to ADB for review, and revisions as may be required by ADB.

(iii) Upon completion of preliminary design, resettlement plans, initial environmental

examination (IEE), and IPDP (if required), NHAI will appraise the Subprojects in accordance with ADB’s policies as well as procedures under the Loan Agreement for the Project. Based on this, NHAI will prepare and submit to ADB for its review, a summary appraisal report for each Subproject together with required attachments to demonstrate compliance with ADB policies: resettlement plan, IEE, summary poverty reduction and social strategies (Appendix 9), and IPDP (if required).

(iv) NHAI will disclose each subproject resettlement plan to the affected people

before submitting it to ADB, and will revise it if required, based on comments from affected people and ADB.

(v) NHAI will disclose the summary IEE for each Subproject to the public before

submitting the summary appraisal report to ADB. If the Subproject is classified as category B sensitive in accordance with ADB’s Environmental Assessment Guidelines, such disclosure will be made 120 days before ADB approval of the Subproject.

(vi) ADB will review the summary appraisal reports, together with required

attachments. If ADB finds that the proposed subproject does not satisfy the eligibility criteria and procedures, or does not comply with ADB’s applicable policies, ADB may advise NHAI on modification and remedial measures to be taken for the proposed Subprojects for compliance with ADB’s policies and procedures.

3. For procurement of works and engagement of consultants, the usual procedures for investment projects, whether core or non-core, will be applied. 4. Based on ADB’s approval and subject to modification and remedial measures if any, as required by ADB to its satisfaction, NHAI will proceed with implementation of the subproject. NHAI should ensure that ADB has access to all documents on which NHAI’s subproject screening and processing are based. These documents should be kept for five years for possible ADB review if required. 5. For detailed instructions for environment and resettlement procedures and criteria see Supplementary Appendix C-8.

Appendix 11

59

C. Organizational Arrangements

6. NHAI will appraise the subprojects, while ADB will advise NHAI as indicated in above procedures, to ensure that its compliance and other relevant policies are adequately followed. 7. The project team headed by the chief general manager in charge of E-W Corridor will be responsible for processing subprojects. The project team will be assisted by its group of technical experts, established on 15 August 2003, who will consist of several staff and/or staff consultants engaged by NHAI. They will be in charge of (i) engineering; (ii) economic and financial analyses; (iii) environment protection; (iv) social development, including resettlement, indigenous peoples, and poverty; and (v) the private sector participation. Project team activities, including those of the technical experts, will be overseen by the NHAI chair.

8. The technical experts will review and examine all technical reports, including feasibility studies, preliminary design reports, IEE, resettlement plans, and detailed design reports to ensure that ADB and NHAI requirements are fully met. 9. The technical experts will evaluate the overall viability of individual Subprojects and prepare a summary appraisal report to be submitted to ADB for approval. This report will require clearance from the project director and NHAI chair before sending to ADB along with all the necessary attachments.

60 Appendix 11

Figure A11: Sector Loan Procedure

No

Yes

No Yes ADB = Asian Development Bank, IEE = initial environmental examination, NHAI = National Highways Authority of India.

NHAI selects the subprojects

Feasibility Study of the subprojects

Initial Poverty & Social Assessment, Involuntary Resettlement/Indigenous People (if

required), and Environmental Screening checklists

IEE Resettlement Plan

Summary poverty reduction and social strategies IPDP (if required)

NHAI Appraisal

Summary appraisal report with required attachments

Detailed design Procurement of civil work*

Amend documents

Preliminary Design

ADB Approval

ADB Approval

Design change