document of the world bank · 2016. 7. 8. · document of the world bank report no: icr00003483...

Document of The World Bank

Report No: ICR00003483

IMPLEMENTATION COMPLETION AND RESULTS REPORT

(IBRD-7356 IBRD-7516 IBRD-7725 IDA-4615)

ON A

LOAN

IN THE AMOUNT OF US$ 200 MILLION

AND

TWO ADDITIONAL FINANCING LOANS IN THE AMOUNT OF US$413 MILLION

AND A

CREDIT

IN THE AMOUNT OF SDR41.7 MILLION (US$62 MILLION EQUIVALENT)

TO THE

REPUBLIC OF AZERBAIJAN

FOR THE

SECOND HIGHWAY PROJECT

December 1, 2015

Transport and ICT Global Practice Armenia, Azerbaijan and Georgia Country Unit Europe and Central Asia Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective December 1, 2015)

Currency Unit = Azerbaijani Manat (AZN) US$ l.00 = AZN 1.05 US$ 1.00 = SDR 0.71

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ADB Asian Development Bank AHP Azerbaijan Highway Project

AH2P Azerbaijan Highway 2 Project AH2P-AF1 Azerbaijan Highway 2 Project Additional Financing 1 AH2P-AF2 Azerbaijan Highway 2 Project Additional Financing 2

ARS Azerroadservice JSC CAS Country Assistance Strategy CPS Country Partnership Strategy

EBRD European Bank for Reconstruction and Development EIRR Economic Internal Rate of Return EMF Environmental Management Framework EMP Environmental Management Plan GDP Gross Domestic Product

IBRD International Bank for Reconstruction and Development IDA International Development Association

IFI International Financial Institution ISR Implementation Status Results

MoT Ministry of Transport PDO Project Development Objective

PP Project Paper PPIAF Public Private Infrastructure Advisory Facility

PIU Project Implementation Unit ROA Republic of Azerbaijan

RAMS Road Asset Management System RDB Road Database

RTSD Road Transport Service Department

Regional Vice President: Cyril E Muller (ECAVP)

Country Director: Mercy Miyang Tembon (ECCU3) Senior Global Practice Director: Pierre Guislain, (GTIDR)

Practice Manager/Manager:Task Team Leader/s: ICR Team Leader:

Juan Gaviria (GTIDR) Nijat Valiyev (GTIDR) Rodrigo Archondo-Callao (GTIDR)

REPUBLIC OF AZERBAIJAN

Second Highway Project

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design ............................................... 12. Key Factors Affecting Implementation and Outcomes ............................................ 103. Assessment of Outcomes .......................................................................................... 194. Assessment of Risk to Development Outcome ......................................................... 245. Assessment of Bank and Borrower Performance ..................................................... 246. Lessons Learned ....................................................................................................... 267. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 29Annex 1. Project Costs and Financing .......................................................................... 30Annex 2. Outputs by Component ................................................................................. 33Annex 3. Economic and Financial Analysis ................................................................. 36Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 42Annex 5. Beneficiary Survey Results ........................................................................... 45Annex 6. Stakeholder Workshop Report and Results ................................................... 46Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 47Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ....................... 56Annex 9. Objectives, Outputs and Outcomes of Project Components ……………….59Annex 10. List of Supporting Documents .................................................................... 65

MAP

i

A. Basic Information

Country: Azerbaijan Project Name: Highway 2

Project ID: P094488 L/C/TF Number(s): IBRD-73560,IBRD-75160,IBRD-77250,IDA-46150

ICR Date: 09/09/2015 ICR Type: Core ICR

Lending Instrument: SIL Borrower: REPUBLIC OF AZERBAIJAN

Original Total Commitment:

USD 200.00M Disbursed Amount: USD 665.57M

Revised Amount: USD 674.96M

Environmental Category: A

Implementing Agencies: Azeryolservis JSC

Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 06/06/2005 Effectiveness: 08/09/2006 08/09/2006

Appraisal: 11/28/2005 Restructuring(s):

12/19/2006 03/13/2013 10/18/2013 12/11/2014

Approval: 01/17/2006 Mid-term Review: 06/30/2008 10/07/2008

Closing: 02/28/2011 06/30/2015 C. Ratings Summary C.1 Performance Rating by ICR

Outcomes: Satisfactory

Risk to Development Outcome: Moderate

Bank Performance: Satisfactory

Borrower Performance: Moderately Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Satisfactory Government: Satisfactory

Quality of Supervision: Satisfactory Implementing Agency/Agencies:

Moderately Satisfactory

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Overall Bank Performance:

Satisfactory Overall Borrower Performance:

Moderately Satisfactory

C.3 Quality at Entry and Implementation Performance Indicators

Implementation Performance

Indicators QAG Assessments

(if any) Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

No Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Satisfactory

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

Central government administration 1 1

Rural and Inter-Urban Roads and Highways 99 99

Theme Code (as % of total Bank financing)

Administrative and civil service reform 20 20

Infrastructure services for private sector development 40 40

Rural services and infrastructure 20 20

Trade facilitation and market access 20 20 E. Bank Staff

Positions At ICR At Approval

Vice President: Cyril E. Muller Shigeo Katsu

Country Director: Mercy Miyang Tembon D-M Dowsett-Coirolo

Practice Manager/Manager:

Juan Gaviria Motoo Konishi

Project Team Leader: Nijat Valiyev Olivier P. Le Ber

ICR Team Leader: Rodrigo Archondo-Callao

ICR Primary Author: Rodrigo Archondo-Callao F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The PDO given on the PAD is:

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The main project development objective is to reduce road transport costs and improve access, transit and road safety within Azerbaijan's East-West and North-South corridors, through upgrading some sections of the Alat-Masalli road of the Baku-Iran highway (M3) and rehabilitating the Baku-Shamakhi road (M4). The PDO given on the Loan Agreement is: The objective of the Project is to reduce road transport costs and improve access, transit and road safety by upgrading and rehabilitating selected sections of the existing East-West and North-South corridors. Revised Project Development Objectives (as approved by original approving authority) The PDO definition was revised in the 2009 AF2 by expanding the scope of the project described in the PDO, but the outcome part of that PDO that is included in the PDO remained the same as in the original legal agreement and PAD. Therefore, the PDO itself did not change, but the outcome targets changed. The new PDO is: The project development objective is to reduce road transport costs and improve access, transit and road safety by upgrading and rehabilitating selected sections of existing East-West (M4) and North-South (M3) corridors and the Hajigabul Bahramtapa Highway (M6) (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Transit time from Alat to Masalli (minutes) Value quantitative or Qualitative)

180 minutes 120 minutes Deleted

Date achieved 06/06/2005 06/06/2010 03/13/2013 Comments (incl. % achievement)

Deleted under the 2013 second restructuring. Target will be achieved with other sources of financing.

Indicator 2 : Vehicle operating cost from Alat to Masalli (percent) Value quantitative or Qualitative)

100 percent 88 percent Deleted



Indicator 3 : Transit time from Alat to Shorsulu (minutes) Value quantitative or Qualitative)

70 minutes 50 minutes Deleted

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Added under the 2013 second restructuring. Deleted under the 2013 third restructuring. Target will be achieved with other sources of financing.

Indicator 4 : Vehicle operating cost from Alat to Shorsulu (percent) Value quantitative or Qualitative)

100 percent 90 percent Deleted



Indicator 5 : Transit time from Alat to Yenikend (minutes) Value quantitative or Qualitative)

30 minutes 20 minutes 18 minutes


Added under the 2013 third restructuring. Target surpassed by 10 percent

Indicator 6 : Vehicle operating cost from Alat to Yenikend (percent) Value quantitative or Qualitative)

100 percent 91 percent 89 percent


Added under the 2013 third restructuring. Target surpassed by 2 percent.

Indicator 7 : Transit time from Baku to Shamakhi (minutes) Value quantitative or Qualitative)



Target achieved.

Indicator 8 : Vehicle operating costs from Baku to Shamakhi (percent) Value quantitative or Qualitative)



Target surpassed by 4 percent.

Indicator 9 : Decline in the percentage of road accidents in the Project roads (percent) Value quantitative or Qualitative)


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Added under 2006 first restructuring. Renamed from "Number of accident in the project roads" in 2008 AF. Target surpassed by 60 percent.

Indicator 10 : Transit time from Kurdamir to Ujar (minutes) Value quantitative or Qualitative)



Added under 2006 first restructuring. Target achieved.

Indicator 11 : Vehicle operating costs from Kurdamir to Ujar (percent) Value quantitative or Qualitative)



Added under 2006 first restructuring. Target surpassed by 16 percent

Indicator 12 : Transit time from Tagiyev to Sahil (minutes) Value quantitative or Qualitative)



Added under 2008 AF1. Target achieved.

Indicator 13 : Vehicle operating costs from Tagiyev to Sahil (percent Value quantitative or Qualitative)

100 percent Not Available 84 percent


Added under 2008 AF1. Although a target was not set, based on the other project roads indicators, a satisfactory reduction in vehicle operating costs was achieved.

Indicator 14 : Transit time from Hajigabul to Bahramtapa (minutes) Value quantitative or Qualitative)




Indicator 15 : Vehicle operating costs from Hajigabul to Bahramtapa (percent) Value quantitative or Qualitative)


vi



Indicator 16 : Increase in travel frequency for villagers in the Hajigabul - Bahramtapa region (percent)

Value quantitative or Qualitative)



Added under 2009 AF2. Target surpassed by 3 percent

Indicator 17 : Average increase in farmgate prices of key commodities in Hajigabul - Bahramtapa region (percent)

Value quantitative or Qualitative)



Added under 2009 AF2. Target partially achieved on the short time the evaluation was done after the rehabilitation works. Target is expected to be achieved after 2 years after the rehabilitation works.

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Number of km upgraded for Alat-Astara (km) Value (quantitative or Qualitative)

0 km 80 km Deleted



Indicator 2 : Number of km upgraded for Alat to Shorsulu (km) Value (quantitative or Qualitative)

0 km 81 km Deleted



Indicator 3 : Number of km upgraded for Alat-Yenikend (km) Value (quantitative

0 km 31 km 31 km

vii

or Qualitative) Date achieved 06/06/2012 06/06/2014 06/15/2015 Comments (incl. % achievement)

Added under the 2013 third restructuring. Target achieved.

Indicator 4 : Number of km rehabilitated for Baku-Shamakhi (km) Value (quantitative or Qualitative)

0 km 124 km 123 km 123 km

Date achieved 06/06/2005 07/06/2010 02/28/2014 06/15/2015 Comments (incl. % achievement)

Revised on 2013 second restructuring. Target achieved

Indicator 5 : Number of km rehabilitated for Kurdamir-Ujar (km) Value (quantitative or Qualitative)

0 km 41 km 42 km 42 km


Added under 2006 first restructuring. Revised on 2013 second restructuring. Target achieved.

Indicator 6 : Number of km rehabilitated for Tagiyev-Sahil (km Value (quantitative or Qualitative)

0 km 40 km 41 km 41 km


Added under 2008 AF1. Revised on 2013 second restructuring. Target achieved.

Indicator 7 : Number of km rehabilitated for Hajigabul-Bahramtapa (km) Value (quantitative or Qualitative)

0 km 120 km 112 km 112 km


Added under 2009 AF2. Revised on 2013 second restructuring. Target achieved.

Indicator 8 : Number of km rehabilitated for connecting roads (km) Value (quantitative or Qualitative)

0 km 200 km 100 km 113 km


Added under 2009 AF2. Revised on 2013 second restructuring. Target surpassed by 13 percent.

Indicator 9 : Roads rehabilitated, Non-rural (km, Core) (km) Value (quantitative

0 km 349 km 349 km

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Added under 2013 second restructuring. Target achieved.

Indicator 10 : Roads rehabilitated, Rural (km, Core) (km) Value (quantitative or Qualitative)

0 km 100 km 113 km


Added under 2013 second restructuring. Target surpassed by 13 percent.

Indicator 11 : Preparation of the revised Road Law (text) Value (quantitative or Qualitative)

No Yes Yes


Target achieved.

Indicator 12 : Number of km of road data introduced in the RDM (km) Value (quantitative or Qualitative)

1,600 km 4,500 km 13,000 km 13,500 km


Revised on 2013 second restructuring. Target achieved

Indicator 13 : Number of people trained in its use (number) Value (quantitative or Qualitative)

0 10 10


Target achieved

Indicator 14 : Preparation of new geometric and structural design standards (text) Value (quantitative or Qualitative)

No Yes Deleted


Deleted under 2013 second restructuring. Target achieved.

Indicator 15 : Preparation of the new norms for maintenance (text) Value (quantitative

No Yes Deleted

ix


Deleted under 2013 second restructuring. Target achieved

Indicator 16 : Development of new civil engineering curriculum (text) Value (quantitative or Qualitative)

No Yes Deleted


Added under 2008 AF1. Deleted under 2013 second restructuring. Target achieved.

Indicator 17 : Development of Road Safety Strategy (text) Value (quantitative or Qualitative)

No Yes Yes


Added under 2008 AF1. Target achieved

Indicator 18 : Development of Road Master Plan (text) Value (quantitative or Qualitative)

No Yes Yes


Added under 2008 AF1. Target achieved

G. Ratings of Project Performance in ISRs

No. Date ISR Archived

DO IP Actual

Disbursements (USD millions)

1 03/22/2006 Satisfactory Satisfactory 0.00 2 03/31/2006 Satisfactory Satisfactory 0.00 3 08/28/2006 Satisfactory Satisfactory 0.50 4 12/20/2006 Satisfactory Satisfactory 2.53 5 05/16/2007 Satisfactory Satisfactory 5.08 6 09/12/2007 Satisfactory Satisfactory 14.69 7 03/22/2008 Satisfactory Satisfactory 26.13 8 03/03/2009 Satisfactory Satisfactory 65.16 9 04/08/2009 Satisfactory Satisfactory 70.15

10 11/11/2009 Satisfactory Moderately Satisfactory 130.99 11 04/01/2010 Satisfactory Moderately Satisfactory 194.33 12 09/23/2010 Satisfactory Moderately Satisfactory 218.70

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13 02/14/2011 Satisfactory Moderately Satisfactory 268.36 14 05/30/2011 Satisfactory Moderately Satisfactory 272.27 15 03/11/2012 Satisfactory Moderately Satisfactory 363.75 16 06/17/2012 Moderately Satisfactory Moderately Satisfactory 387.11 17 12/25/2012 Moderately Satisfactory Moderately Satisfactory 468.35 18 06/22/2013 Moderately Satisfactory Moderately Satisfactory 528.89 19 12/29/2013 Moderately Satisfactory Moderately Satisfactory 593.13 20 06/28/2014 Moderately Satisfactory Moderately Satisfactory 618.45 21 12/18/2014 Moderately Satisfactory Moderately Satisfactory 636.33 22 06/24/2015 Satisfactory Moderately Satisfactory 664.53

H. Restructuring (if any)

Restructuring Date(s)

Board Approved

PDO Change

ISR Ratings at Restructuring

Amount Disbursed at

Restructuring in USD millions

Reason for Restructuring & Key Changes Made

DO IP

12/19/2006 N S S 2.53 Include within the project scope the improvement of the Ujar-Kurdamir road.

03/13/2013 N MS MS 506.45

Replace within the project scope the improvement of the Alat-Masalli road by the improvement of the Alat-Shorsulu road and delete the indicators: (i) development of new civil engineering curriculum, (ii) preparation of new geometric and structural design standards, and (iii) preparation of the new norms for maintenance.

10/18/2013 N MS MS 562.44

Replace within the project scope the improvement of the Alat-Shorsulu road by the improvement of the Alat-Yenikend road and to extend the project closing date for ten months until December 31, 2014.

12/11/2014 N MS MS 636.33 Extend the project closing date for six months until June 30, 2015.

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I. Disbursement Profile

1

1 Project Context, Development Objectives and Design

1.1 Context at Appraisal

1.1.1 Country Background. Azerbaijan was on the verge of a major oil boom and an important economic transition in 2005. Azerbaijan had put into place both the infrastructure needed to realize rapid growth in oil and gas exports, but with the oil boom expected to last maybe 15 years only, the challenge ahead was for Azerbaijan to ensure growth in the non-oil economy and a sustainable reduction in poverty. There was a need to maintain fiscal discipline to avoid inflation, while at the same time investing in the non-oil economy and broadening participation in economic growth by rebuilding crucial infrastructure and removing barriers for doing business. During the 2000 to 2005 period, the non-oil economy developed rapidly, with average growth of 13 percent, which was faster than the oil sector. In 2005, 70 percent of Gross Domestic product (GDP) and 99 percent of employment came from the non-oil economy, which has tripled since 1995. It was expected that Azerbaijan was going to grow rapidly in the years ahead because of the oil and gas resources. Overall GDP was estimated to increase from US$8.5 billion in 2004 to US$22.2 billion in 2008. Continued growth in the non-oil sector was critical for improving the living standards of the low-income population and achieving the objectives of the State Program on Poverty Reduction and Economic Development, which had as one of its six major pillars the development of infrastructure.

1.1.2 Road Sector. With the location of Baku as the only major city at the Caspian

Sea, Azerbaijan had a unique opportunity to become a prosperous transit hub for energy and goods flowing along the East-West and North-South corridors at the crossroads between Europe and Asia. Azerbaijan’s geographical position makes it an important link between the Black and Caspian Seas and between Russia and Iran. Azerbaijan has access to the high seas either from the Caspian Sea via Volga-Don Canal or through Georgia to the Black Sea, or through Iran to the Persian Gulf. Azerbaijan also has direct maritime connections to other Caspian littoral states. Baku is the largest port on the Caspian Sea.

1.1.3 In 2005, the main road network of Azerbaijan1 comprised 18,437 km of roads2,

which were divided into 958 km of major arterial (‘magistral’) roads, 1,216 km of minor arterial (‘republican’) roads, and 4,312 km of ‘collector’ roads. The remaining part of the network consisted of ‘local’ roads. Half of the total network was paved, and much was in a poor state of disrepair with three-quarters in need of rehabilitation. Only 191 km were four-lane highways. Road transport accounted for 54% of all freight in 2003, up from about 48% in 1999. The railways have lost market share in recent years taking just 18% of freight in 2003, compared with 21% in 1999. Poor condition of the transport infrastructure was

1 This main road network, also called “roads of common use”, is under ARS responsibility. There are also other roads under the local municipalities, urban roads, etc. 2 Excluding Nakhchivan and occupied territories, including Nagomo-Karabakh.

2

hindering the growth of the non-oil economy. The total vehicle fleet was around 520,000 in 2004. Traffic on the Baku to Astara road was about 10,000 vehicles per day (vpd) between Baku and Alat, falling to around 6,000 vpd after Alat and then ranging between 3,000 to 5,000 vpd near the Iranian border.

1.1.4 The Ministry of Transport (MoT) is responsible for the transport sector in

Azerbaijan. The management in term of upgrading rehabilitation and maintenance of roads of the public road network in the main Azerbaijan (excluding Nakhchivan) was under the Road Transport Service Department (RTSD) during the project preparation and until February 2007 when the Azerroadservice JSC3 (ARS) started managing the public road network. Until 2000, the road sector in Azerbaijan was financed through a Road Fund, funded primarily from earmarked charges on road users (fuel excise tax, annual vehicle inspection tax, vehicle sales tax, transit tax) and a turnover tax. The vehicle sales tax and the turnover tax have been abolished and, with the abolition of the Road Fund, all of the revenues were allocated directly to the central budget. Hence, RTSD was then a direct recipient of allocations from the government budget.

1.1.5 Rationale for Bank Assistance. Road transport has been a sector in which the

Bank has been involved in Azerbaijan prior to 2005 through both investments in the road infrastructure and assistance on transport policy 4 , however the Azerbaijan Highway 2 Project (AH2P) was the start of the Bank’s Substantive involvement in the Azerbaijan road sector. The involvement of the Bank helped the Government achieve both high quality and considerable savings in the design and contracting of works. The Bank has helped to establish MoT, strengthen RTSD and to enable MoT to complete a prioritized five-year rolling budget. The Republic of Azerbaijan (ROA) decided to implement an investment program of approximately US$1,500 million to rehabilitate and reinforce major transit highways (M roads) and secondary roads over the next 10 years. It requested the Bank to take a leading role and a very significant share of this program to be implemented under a programmatic approach by different donors in stages function of the available budget and other constraints of the ROA and the donors. The key rationale for the Bank’s involvement went beyond financing and included the Bank ability to provide the necessary project management capacity, best practice safeguard measures, critical design issues advice, and transparent procurement procedures, as well as policy and institutional support. The context for the technical assistance component of the project was to build on the technical assistance program of the Highway Project, respond to new issues and be coordinated with similar programs of Asian Development Bank (ADB) and European Bank for Reconstruction and Development (EBRD).

3 The shares of Azerroadservice Open Joint Stock Company belongs to the Government and it performs services dealing specially with maintenance, rehabilitation, reconstruction, construction of highways, bridge, tunnels and other road structures, and development of the related infrastructure in the country. 4 The Highway Project (started in 2001 and closed in 2007) has enabled Azerbaijan to rehabilitate parts of the main East-West highway and started strengthening and reorganizing roads maintenance.

3

1.1.6 The project was consistent with the FY03-05 Country Assistance Strategy (CAS) that had as a central element the improvement of transportation infrastructure. The FY03-05 CAS identifies improving the quality and capacity of Azerbaijan’s transportation infrastructure as a critical component of two of the CAS’ four strategic goals: “Generating Jobs and Sustainable Non-oil Growth” and “Improving Social Services and Infrastructure”. The CAS emphasized Azerbaijan’s need for much improved infrastructure to cope with the fast growing economy and recommended a balanced combination of policy based assistance, investment projects, institution building and technical assistance, as well as Economic and Sector Work through a South Caucasus Trade and Transport Facilitation Study. The project two additional financings were fully consistent with the FY07-10 Country Partnership Strategy (CPS) that indicated “Significant investments in infrastructure and transit corridors …will be needed to develop Azerbaijan’s non-oil potential”. The FY07-10 CPS included developing essential Transit Corridors as well as access roads in order to enhance accessibility as part of its second pillar. The project two additional financings were planned during project preparation to scale up the project investments once the funds under the original project were fully committed and the required additional budget to the support the government’s large investment program was available.

1.2 Original Project Development Objectives (PDO) and Key Indicators (as

approved)

1.2.1 The PDO of the AH2P, which was approved on January 17, 2006 (IBRD-73560), and became effective on August 9, 2006 with a Loan (Loan: IBRD-7356 AZ) amount of US$200.0 million, was given on the Project Appraisal Document (PAD) as5:

(i) to reduce road transport costs and improve access, transit and road safety within Azerbaijan’s East-West and North-South corridors, through upgrading some sections of the Alat-Astara road of the Baku-Iran highway (M3) and rehabilitating the Baku-Shamakhi road (M4). 1.2.2 The indicators proposed for the monitoring and evaluation of the project

included:

(A) Project Outcome Indicators: Reduction in transit time from Alat to Masalli; Reduction in vehicle operating costs from Alat to Masalli;

5 On the loan agreement the objective of the project is defined slightly differently: “to reduce road transport costs and improve access, transit and road safety by upgrading and rehabilitating selected sections of the existing East-West and North-South corridors”. The outcome part of the PDO (up to “by”) is the same, but the scope is defined differently (from “by” onwards). The ICR assessed the objective of the project based on the first part of the PDO,

4

Reduction in transit time from Baku to Shamarhi; Reduction in vehicle operating costs from Baku to Shamarhi; and Reduction in number of road accidents in the project roads.

(B) Intermediate Outcome Indicators: Number of km upgraded for Alat-Astara6; Number of km rehabilitated for Baku-Shamakhi; Preparation of the revised Road Law; Number of km of road data introduced in the Road Data Bank (RDB); Number of people trained in its use; Preparation of new geometric and structural design standards; and Preparation of new norms for maintenance.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification

1.3.1 The Project had a first restructuring (Level 2), approved by the Bank management on December 2006, in which the PDO of is the same as under AH2P. The results framework and the monitoring indicators were increased in scope to monitor the Kyrdamir-Ujar road to be rehabilitated under the project. The additional indicators include:

(A) Project Outcome Indicator:

Reduction in transit time from Kurdemir to Ujar and Reduction in vehicle operating costs from Kurdemir to Ujar

(B) Intermediate Outcome Indicator: Number of km rehabilitated for Kurdemir-Ajar.

1.3.2 The Project had an Additional Financing (A2HP-AF), with load amount of

US$300.0 million, approved by the Board on April 29, 2008 (IBRD-75160), in which the PDO is the same as under AH2P. The results framework and the monitoring indicators were increased in scope to monitor the Tagiyev-Sahil road to be rehabilitated under the project and additional road sector strengthening activities. The additional indicators include:

(A) Project Outcome Indicator:

Reduction in transit time from Tagiyev to Sahil and Reduction in vehicle operating costs from Tagiyev to Sahil.

(B) Intermediate Outcome Indicator:

Number of km rehabilitated for Tagiyev–Sahil; Development of new civil engineering curriculum; Development of Road Safety Strategy; and

6 This refers to the Alat-Masalli road section, which is the first part of the Alat-Astara road that connects Baku with the Islamic Republic of Iran Border.

5

Development of Road Master Plan.

1.3.3 The project had a Second Additional Financing (A2HP-AF2), with loan amount of US$113.0 million and a credit amount of SDR41.7 million (US$62.0 million equivalent), approved by the Board on June 24, 2009 (IBRD-77250 and IDA-46150), in which the PDO was revised by expanding the scope of the project described in the PDO, but the outcome part of that PDO remained the same as in the original legal agreement and PAD. Therefore, it is considered that the PDO itself did not change. The updated PDO is:

(i) to reduce road transport costs and improve access, transit and road safety by upgrading and rehabilitating selected sections of the existing East-West (M4) and North-South (M3) corridors and the Hajigabul Bahramtapa Highway (M6).

1.3.4 The results framework and the monitoring indicators were increased to monitor

the Hajigabul-Bahramtapa road and local roads to be rehabilitated and other road technical assistance activities. The additional indicators include.

(A) Project Outcome Indicators:

Reduction in transit time from Hajigabul to Bahramtapa; Reduction in vehicle operating costs from Hajigabul to Bahramtapa; Increased frequencies for villagers to visit markets in Hajigabul-Bahramtapa

region; and Increased farmgate prices of key commodities in the Hajigabul-Bahramtapa

region.

(B) Intermediate Outcome Indicators: Number of km rehabilitated for Hajigabul-Bahramtapa and Number of km rehabilitated for connecting roads.

1.3.5 The Project had a second restructuring (Level 2), approved by the Bank

management on March 2013, in which the PDO did not change. The results framework and the monitoring indicators were decreased to reflect the reduction in the length of the M3 Alat-Masalli road sections financed under the project and deletion of the indicators: (i) development of new civil engineering curriculum, (ii) preparation of new geometric and structural design standards, and (iii) preparation of new maintenance norms. The indicators related to the upgrading of the Alat-Masalli road were deleted and replaced by the indicators related to the upgrading of the Alat-Shorsulu road. In addition, the closing date of the AH2P-AF1 was extended by one year to the closing date of the AH2P-AF2 (February 28, 2014). The additional indicators include:


Reduction in transit time from Alat to Shorsulu and Reduction in vehicle operating costs from Alat to Shorsulu.

6

(B) Intermediate Outcome Indicators: Number of km rehabilitated for Alat-Shorsulu

1.3.6 The Project had a third restructuring (Level 2), approved by the Bank management on October 2013, in which the PDO did not change. The results framework and the monitoring indicators were decreased to reflect the reduction in the length of the Alat-Shorsulu road sections financed under the project. The indicators related to the upgrading of the Alat- Shorsulu road were deleted and replaced by the indicators related to the upgrading of the Alat-Yenikend road. The additional indicators include:


Reduction in transit time from Alat to Yenikend and Reduction in vehicle operating costs from Alat to Yenikend.

(B) Intermediate Outcome Indicators: Number of km rehabilitated for Alat- Yenikend

1.3.7 The Project had a fourth restructuring (Level 2), approved by the Bank

management on December 2014 to extend the Loan closing date by six months to June 30, 2015, in which the PDO, results framework and monitoring indicators did not change.

1.3.8 The changes to the key indicators during the project implementation, to take into account the added civil works financed under the project and the new focus of the institutional development activities, were appropriate considering that the project was implemented over a span of ten years requiring adaptation to new circumstances.

1.4 Main Beneficiaries

1.4.1 The primary target groups were the road users of the project roads and the rural communities living along the project roads that directly benefited from better access to social services and economic markets. For road users, the project lead to better road quality and level of serviceability, avoiding or deferring costly congestions, better road safety through new alignments and city bypasses, avoiding hazardous crossing of urban areas by heavy transit traffic, and savings derived from shorter travel times and vehicle operating costs.

1.4.2 The secondary groups of beneficiaries include MoT and RTSD. The strengthening of the road administration allowed a more efficient use of the resources allocated to the sector. Sector agencies got ready for the gradual shift of emphasis from modernization to maintenance of the network and focused on setting the basis for sound maintenance budgeting, planning, programming and implementation.

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1.5 Original AH2P Components (as approved)

1.5.1 Component 1: Road Upgrading and Rehabilitation (US$259.0 million): The

project was expected to upgrade the Alat – Shorsulu section (80 km of expansion of the existing two-lane roadway to a four-lane roadway under a mostly new alignment) of the M3 highway between Alat and Masalli7 and rehabilitate the existing M4 Baku-Shamakhi road (124 km), as well as the upgrade of key access roads (120 km) connecting to the M3 highway between Alat and Masalli and connecting to the Baku-Shamakhi road. This component comprises the civil works for these roads as well as consultancy services for the alternative analysis of the Alat-Astara road upgrading, engineering designs, environmental and social studies, and supervision works.

1.5.2 Component 2: Technical assistance, training and goods (US$5.4 million):

The project was expected to fund specialized consultancy studies, technical assistance, training, services, and equipment as needed to support MoT and RTSD strengthening and project implementation. The project was also to finance basic equipment (US$1 million) to support the agreed increased level of routine maintenance since the existing equipment was mostly obsolete and/or in a state of disrepair. The technical assistance included: (i) updating and modernization of the Road Law; (ii) improving and expanding the computer systems in MoT; RTSD; (iii) completing the road data bank; (iv) establishing technical road classes superimposed on the functional road classification, including a review and update geometric and structural design standards and development of road condition norms for each technical class; (v) developing a model for the Service Agreement between RTSD and its Regional Offices; and (vi) developing the capacity of the Ecology and Safety Sector and the Land Acquisition Department in RTSD for environmental and resettlement issues, including possible use of a Geographical Information System to manage environmental and social impacts.

1.6 First Restructuring Components

1.6.1 The project was restructured in December 2006 to add to the project’s scope the rehabilitation of the Ujar-Kurdamir road (41 km)8 of the Baku-Alat-Gazakh-Georgai state border highway (M2). The financing of this new section (US$ 35 million) was made through a reallocation of funds originally allocated to the Alat

7 The Alat-Shorsulu section (85 km before project) was the first phase of a broader programmatic program to complete the upgrading of the Alat-Astara road (about 243 km). The section Shorsulu-Masalli (94 km before project) was planned to have Bank financing through an AH2P additional financing and the section Masalli-Astara (64 km before project) was planned to be financed by ADB. 8 As part of the ROA effort to rehabilitate and upgrade its main corridors, Kurdamir-Ujar road was foreseen to be rehabilitated under the proceeds of the Kuwait Fund for Arab Economic Development. The loan from the Kuwait Fund, however, did not materialize and the ROA requested the Bank to finance this section within the AH2P considering it was in line with the objective of the Project.

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– Masalli road9, with the expectation that the upgrading of the total Alat-Masalli was going to be completed with funds from a forthcoming AH2P additional financing or a new project. Thus, the reallocation of funds was a temporary measure to fund the rehabilitation of the Ujar-Kurdamir road.

1.7 First Additional Financing Revised Components

1.7.1 An additional loan was approved on April 2008 to finance the scaling up of the project’s activities through upgrading and rehabilitating additional roads and financing additional technical assistance activities. There were no changes applicable to the institutional arrangements, financial management, and disbursement arrangements. The closing date was extended by two years, from February 28, 2011 to February 28, 2013.

1.7.2 Component 1: Road Upgrading and Rehabilitation (US$348.5 million): The

project was expected to upgrade the remaining sections of the M3 highway between Alat and Masalli (112 km10), including the sections dropped under the first restructuring, rehabilitate the existing R6 Baku bypass (41 km) between Tagiyev and Sahil, as well about 200 km of secondary and local roads. This component comprised the civil works for the above roads as well as the consultancy services for engineering design and the supervision of the works. The scope of the road works increased to support the ROA program of upgrading the M roads network to international standards.

1.7.3 Component 2: Technical assistance (US$9.3 million). The project was expected to fund continued capacity development of ARS through provision of support to the development of standard documents for domestic investment projects, a Road Safety Strategy and a Road Master Plan, preparation of seminars and training to the ARS investment divisions, support to technical universities for curriculum development, purchase of equipment such as weighting scales and installation of automatic traffic counters; Project Implementation Unit (PIU) salaries, incremental operating costs, vehicles and project auditing. The technical assistance activities increased in scope to support broader reforms in road safety, road asset management, and road works programming.

1.8 Second Additional Financing Revised Components

1.8.1 Another additional loan and credit were approved on June 2009 to finance the scaling up of the project activities. There were no changes to the implementation

9 The target of kilometers to be upgraded under the project between Alat and Masalli was reduced from 80 to 60 km at the restructuring, with the expectation that under financing of an AH2P forthcoming additional financing or a new Bank project, the entire Alat-Masalli section would be improved. 10 The upgrading of the 112 km complemented the 31 km contracted for upgrading at the time of the preparation of the AH2P-AF (a portion of the planned 60 km at the first restructuring) to total the new target of 143 km for upgrading works between Alat and Masalli.

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arrangements. The closing date was extended by one year, from February 28, 2013 to February 28, 2014.

1.8.2 Component 1: Road Upgrading and Rehabilitation (US$214.9 million): The project was expected to rehabilitate around 116 km11 of the M6 road between Hajigabul and Bahramtapa12 and 200km of local roads connecting rural areas to the M6 road. This component comprises civil works for the above roads, consultant services for engineering design of connecting roads and the supervision of the works. The scope of the road works increased to support the ROA program of upgrading the M roads network to international standards

1.8.3 Component 2: Technical assistance (US$3.5 million). The project was expected to fund PIU salaries and operating costs, staff training, monitoring and evaluation, financial audits and design of future investments.

1.9 Second, Third and Fourth Restructurings Components

1.9.1 The second, third and fourth restructurings did not add project components. The

second restructuring reduced the scope of Alat-Masalli sections upgraded under the project to 81 km13, due to construction costs increases, and adjusted the corresponding monitoring indicators and deleted the development of new civil engineering curriculum, preparation of new geometric and structural design standards, and preparation of new norms for maintenace activities from the intermediate outcome indicators, for which the targets were achieved within other projects14. The third restructuring reduced further the scope of Alat-Masalli sections upgraded under the project to 31 km15 due also to construction costs increases on this and other roads. The reductions in scope of the Alat-Masalli upgrading were done with coordination with other donors to ensure that the

11 The target indicator for the rehabilitation of the Hajigabul-Bahramtapa was set to 120 km at the AH2P-AF2, which was adjusted to 112 km at the second restructuring. 12 The Hajigabul-Bahramtapa road was a priority of the ROA “State Program for Rehabilitation and Development of Azerbaijan’s Republic Highways”, which aimed to rehabilitate more than half the major road network that was in need of repair. The rehabilitation was expected to foster the development of local business and create local employment, which was an important factor under the global economy slowdown of that time. 13The road sections (62 km) no longer being upgraded under the project as a results of the second restructuring are under construction with financing from the ADB. Thus, there is expectation that the AH2P-AF2 target indicators will be achieved efficiently. 14 The Transport School faculty was provided with a resource to assist them in meeting the university’s modernization plans. The project moved the reform of road design and maintenance standards forward. The use of service level criteria defined under the project has been adopted during subsequent projects aimed at reforming road maintenance practices. ADB and EBRD financed projects are in place to further develop standard documents for use in the road sector for design, construction and for maintenance activities. 15 The road sections (50 km) no longer being upgraded under the project as a results of the third restructuring are under construction with financing from the Bank Highway 3 project. Thus, there is expectation that the second restructuring target indicators will be achieved efficiently.

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planned road work were going to be completed efficiently. The fourth restructuring only extended the closing date of the project.

2 Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

2.1.1 Project preparation and design built upon the experience with the Azerbaijan Highway Project (AHP) that was ongoing during project preparation. The preparation of AH2P was initiated in April 2005 with a very tight preparation and implementation schedule in response to the request from ROA16. The AH2P Board Approval was on January 17, 200617, the Project Agreement was signed on May 16, 2006 and the project became effective on August 19, 2006. The AHP started in 2001 and closed in 2009 and has enabled Azerbaijan to rehabilitate parts of the main East-West highway and started strengthening and reorganizing roads maintenance. For the AH2P, the Government asked the Bank to concentrate on the modernization of the highways M3 Alat-Masalli and M4 Baku-Shamakhi, which are part of the country’s arterial road network. The project followed an integrated network approach also including the upgrading of about 120 km of access roads to the Alat-Masalli and Baku-Shamakhi roads. Following a programmatic approach, the operation was originally planned to be divided into two projects, with the second loan expected to be approved as a repeater or through Additional Financing if the Bank was satisfied with the performance of the first project and when funds under the first project were fully committed. Due to requests of the ROA, two additional financing were approved under the project instead of the one originally planned. The preparation of the additional financings was done including the principles agreed on when the original project was prepared18. The main reason behind the two successive additional financings was to scale up the priority road works. Having two separate additional financings nearly doubled the efforts in terms of project preparation resources and Bank staff time. The various project restructurings affected the scope of the road works, in the first case the restructuring increased the scope while in other two project restructurings the scope was modified and reduced. The different phases of the project constituted a program consisting of two or three traditional highway projects combined into one. To implement the project in phases helped to tackle other issues not foreseen on the original design,

16 To support its investment program to improve the M roads network, the ROA presented a challenging request in April 2005 to the Bank to construct the M3 Motorway Alat Astara with a requirement for a Board date by end of 2005 and commence works by March 2006 at the latest. 17 To respond to the clients’ needs in such short time, and innovative and responsive approach was taken by dividing the project in different sections, but dealing with safeguards upfront and for the whole alignment using new instruments: Environmental Management Framework and Resettlement Policy Framework. A programmatic approach has been adopted for phasing the M roads improvements under different projects with different sources of financing to provide just in time resources for the required improvements. 18 The planned additional financings were originally conceived in part to avoid payment of large commitment fees.

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but caused delays and brought uncertainties and risks. The project was well structured and provided an innovative and responsive approach to the client’s needs, with simple financial arrangements that involved only Bank financing. There were an adequate number of components, which were not complex to implement. The project was prepared considering the available knowledge at tat time regarding land acquisition and engineering aspects. The quality at entry is rated satisfactory.

2.1.2 Project design tailored to a capital investments project. The AH2P design

was appropriate and realistic in terms of components and involved organizations. AH2P had two components, which did not include complex activities. The project design included the following lessons from similar projects in the sector and in the region: (i) ensure client ownership of the institutional components; (ii) keep the level of project difficulty in line with the local institutional capacity; (iii) avoid giving sole priority to the construction of major thoroughfares; and (iv) avoid design changes and variations during construction. The AH2P initial focus was to start the road works as soon as possible without compromising the quality by expediting land acquisition and review processes. Land acquisition was a critical issue during the initial years of the project and influenced the project implementation. The project had proper monitoring of project implementation. Nevertheless, the technical capacity of the PIU had to be strengthened during the project implementation. The quality of engineering designs and bid documents at entry were moderately satisfactory requiring additional or revised designs. The focus of the AH2P-AF and AH2P-AF2 increased to include concerns about road safety and road asset management. The AH2P activities under the institutional strengthening component and later on more activities added to the same component under the AH2P-AF and AH2P-AF2 focused on: (i) adopting cost effective designs and technical standards; (ii) improving expropriation and the road law; (iii) improving road safety, and (iv) ensuring proper road asset management by financing a Transport Master Plan and a Road Asset Management System (RAMS). The rationale for adding additional activities to the project institutional strengthening components during the additional financings was that the AH2P components were focused on quick execution of the road works of good quality and once this was achieved there was the opportunity to tackle other broader issues.

2.1.3 The financial arrangements were simple and only involved Bank financing. The implementation arrangements were not complex; with RTSD having the overall responsibility for implementation of the project assisted by the PIU19, which was established in 2001 as a state institution to implement the AHP. The project was mainly implemented by the PIU that has overseen the project preparation and implementation. The highway development program to be financed under

19 The PIU was responsible for the implementation of World Bank highway projects as well projects funded by EBRD and ADB. As the investment portfolio of ARS increased substantially, an additional PIU was established by ARS on September 2012 to manage the projects financed by ADB and EBRD.

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the project was classified through environmental screening as Category A with a number of Category A or B sub-projects. An Environmental Management Framework (EMF) 20 was developed for the project that outlines the procedures for the environmental screening, management, consultation and disclosure related to the proposed Category A and B sub-projects. Site–specific Environmental Management Plans (EMP) were prepared for each project road section. Within RTSD, the Ecology and Safety Sector (ESS) unit was responsible for environmental management. Under safeguards policies, OP/BP 4.01 (environmental assessment), OP/BP 4.04 (Natural Habitats), OP 4.11 (Cultural Property), and OP/BP 4.12 (Involuntary Resettlement) were triggered.

2.1.4 The AH2P PDO consisted of three clearly defined development objectives

related to the project civil works: (i) reduce road transport costs; (ii) improve access and transit; and (iii) improve road safety. The AH2P had three outcome indicators corresponding to the development objectives: (i) reduction of vehicle operating costs; (ii) reduction of travel time, and (iii) reduction of road accidents. Under the AFs and the restructurings, the PDO outcomes remained the same as the original Project, but mentioned the new investments. The PDO were realistic and important to assess the impact of the civil works, but did not include any element to measure the impact of the institutional strengthening activities, which was not a strict requirement at that time.

2.1.5 Government’s commitment was strong along project cycle. The ROA

demonstrated a strong commitment to the project through efficient project preparation and implementation21. The project was prepared and delivered to the board quickly within six months. The ROA also closely cooperated with the Bank during the preparation of the relevant safeguard documentation. The ROA recognized the importance of maintaining the same PIU team throughout project preparation and implementation to ensure continuity. The ROA reiterated its commitment to upgrade the road network and strengthening the capacity of ARS, by requesting a follow-up Bank project (Highway Three) to further upgrade 100km section of existing two lane M4 Baku-Shamakhi road into a four-lane motorway, which was approved by the Board on April 2010. There were no co-financiers to the whole project22.

2.1.6 Project risks identified. The AH2P PP defined as critical risks for the project:

(i) weak institutional capacity; (ii) land acquisition; (iii) environmental issues; (iv) handling of safeguards; (v) overheating of the economy; (vi) counterpart funding; (vii) road sector budget; and (viii) sharing the wealth. The land

20 The development of a framework was an innovative activity of the project since at that time this was not common practice. 21 There were no periods where counterpart funds flows were slow. 22 The Bank coordinates road sector activities with other prominent partners in Azerbaijan, such as ADB and EBRD, but they were not involved on the AH2P as co-financiers. Coordination was done related to the institutional strengthening program, unifying alignment selections, and ensuring consistent environmental management approaches.

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acquisition risk did materialize during the project implementation but was mitigated by the development of a new expropriation law that ensures expedient and transparent land acquisition for public purposes. The AH2P-AF and AH2P-AF2 and restructurings did not identify any other significant risks. The FM risks were not considered significant and were mitigated by the development of budgeting arrangements satisfactory to the Bank and the strengthening of the budgeting processes and the monitoring process of budget execution. The risk related to the quality of works was addressed with technical assistance provided to strengthen of the ARS in supervision.

2.2 Implementation

2.2.1 The overall implementation progress was rated in the Implementation Status Results (ISR) reports satisfactory throughout November 2009, when it was downgraded to moderately satisfactory due to the difficulties that the ROA encountered in finalizing the RAPs for the Alat-Masalli road, which represented the bulk of the civil works financed under the project. If land acquisition was delayed then disbursements could stall. A Bank team due diligence review done in 2010 of the land acquisition activities carried out by the ROA showed that ROA aligned its activates with the safeguard requirements. Nevertheless, the moderately satisfactory rating of project implementation was maintained up to the end of the project due to new issues that surfaced: (i) ARS was slow to seek technical solutions to the issue of cost overruns; and (ii) ARS did not managed to reach its disbursement targets.

2.2.2 Implementation of civil works. The pace of implementation of the civil works

suffered delays thorough the project due to land acquisition, procurement and availability of bitumen issues, in addition to the lack of experience of ARS on implementing large construction works23. On average for the project main roads, around 250 days passed between the original end of contract date and the actual end of contract date and around 35 days between the contract signature date and the order to commence date. The 2006-2008 economic boom brought about by the oil revenues, which overheated the economy and caused inflation and currency appreciation, and the world economic crisis of 2008-2009, which disturbed the contractor’s finances, influenced the project implementation. The project started to face a financing gap in 2009/2010 to improve the entire Alat-Masalli road due to project cost increases 24 . The financing gap issue was resolved by the decision to transfer the Shorsulu-Masalli section (62km) from the World Bank to ADB financing and the remaining works of the Yenikend-Shorsulu section to the World Bank Third Highway project.

23 In the beginning of the project, the lack of ARS experience on technical issues and the pressure to finish the road works resulted in deficiencies in some of the works completed, large variation orders, etc. 24 Road works costs increased during project implementation, half of it due to inflation and appreciation of the manat and half of it because of technical matters, such as overdesign, design changes due to unforeseen technical problems that caused several variation orders.

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2.2.3 Land acquisition regulations addressed by the project. The project financed

the preparation of an Expropriation Law of Azerbaijan consistent with modern European practice and following the legal traditions of Azerbaijan25. The new expropriation law established clear principles and procedures for efficient execution of property expropriation for a public interest in a fair and transparent manner. The Land Expropriation Law for State Needs was adopted by the Decree of the President of Azerbaijan in 2010. Since then, all land acquisition for projects financed by either national budget or with IFI support follow the principals and provisions of the legislation. As a result of the legislation, provisions of the main international financial institutions, such as World Bank’s OP 4.12 requirements, are now covered under national legislation of Azerbaijan.

2.2.4 Attention to road safety. The project financed a national Road Safety Strategy for Azerbaijan26 with a policy framework and an associated five-year action plan. In addition, develop a country-wide system of crash and injury data collection, storage, retrieval and analysis; designed and delivered a professional development program to enhance enforcement skills of traffic police officers; and prepared road safety audit guidelines and guidelines for the identification and treatment of black spots. Consultation on the Road Safety Strategy and State Program on Road Safety was completed with all relevant Government stakeholders and documents were submitted to the Cabinet of Ministers. Road safety audits have been introduced by ARS for major highway schemes.

2.2.5 Road asset management. The project financed the collection of relevant road

and pavement data for use in the RAMS27. ARS has established a Road Database Management Sector and staffed the unit with personnel who have been trained and involved directly in the data collection project28. The network data is used to identify roads that are in such a condition that a road work is required and assess its economic feasibility to sort the road works by economic priority. In the medium term, the RAMS will serve as a basis for conducting network wide economic analysis, preparation of budgets, planning maintenance and prioritization of investments.

25 A draft Expropriation Law was prepared which gave priority to issues like public interest, public notification, property valuation and compensation, and categories of property ownership. It reconciled differences between national and international policies on land acquisition that had been creating difficulties in preparation, adoption and implementation of Resettlement Action Plans. 26 A draft National Road Safety Strategy (2012-2022) and State Program on Road Safety (2012-2016) were prepared. The strategy contains a range of initiatives and interventions in four key areas - Safe Roads, Safe Speeds, Safe Vehicles and Safe People. 27 This included the creation of road reference system, defining of a road centerlines by GPS, taking ROW video, measuring road geometry, conducting an inventory survey, defining pavement condition, conducting bridge surveys, traffic counting and establishing an efficient data storage system. 28 In total 13 500 km were surveyed, defining: (i) the classification, location and geometry of each road section; (ii) the condition (IRI, rutting, distresses, bearing capacity); (iii) traffic data; (iv) pavement structure composition measurements; and (v) the status and condition of bridges (in total 1,130).

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2.2.6 Road sector master plan. The project financed the development of a road sector

strategy consistent with the Government’s transportation strategy and the preparation of a Road Investment and Maintenance Master Plan in line with the sector strategy. These plan cover the period 2015-2024 and the Magistral, Republican and Local roads under the responsibility of ARS. The strategy has been developed by ARS into a State Program for the Azerbaijan Road Network under the Responsibility of the MoT. This is currently under review by the MoT. The maintenance philosophy proposed in the Maintenance Plan of using “Level of Service” criteria is being adopted in the currently plans for Region Maintenance Units.

2.2.7 Mid-term review. The AH2P mid-term review, done on October 2008, confirmed that the project was likely to meet the objectives, identified that the quality of works needed improvement and that the cost of works have been above the expected budget. The ARS agreed to a list of actions to strengthen the supervision of works and reduce costs. The ratings for procurement and financial management, which have been satisfactory throughout implementation, were rated marginally satisfactory during the mid-term review meetings.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

2.3.1 M&E Design. The overall M&E function was the responsibility of PIU since

the start of the project. The PIU used effective collection methods relying on reports of the construction supervision consultants to monitor the physical works and outcomes. Data was collected for all monitoring indicators. Semiannual reports on implementation progress and monitoring indicators were submitted to the Bank. The design of the monitoring indicators allowed them to measure the outcome for achievement of the PDO. The Results Frameworks consisted of a list of outcome indicators and intermediate results for monitoring progress and outcomes. The design included sufficiently appropriate specific indicators for each component, and covered physical works as well as implementation of institutional development activities. The indicators were simple to collect and used to monitor the implementation of the civil works and the main institutional strengthening activities. The monitoring data was used in decision making to adapt the scope of the project to new circumstances.

2.3.2 The project outcome indicators measured well the outcomes of the PDO. The results framework and monitoring indicators were updated under the AH2P-AF, AH2P-AF2 and restructurings to consider the escalation and reduction of the project civil works and new institutional development activities, such as the development of a Road Safety Strategy and a Road Master Plan. Overall, the results frameworks reflected properly the PDO and the project activities. The PDO objective to reduce transport costs was measured by the vehicle operating costs; the objective to improve access and transit by the travel time; and the objective of improving road safety by the decline in road accident. The intermediate outcome indicators included the km of M roads upgraded or

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rehabilitated under the project, the km of local (connecting) roads rehabilitated under the project, and indicators to monitor the achievement of the institutional development activities 29 . The average increase in farmgate prices of key commodities in Hajigabul-Bahramtapa region measured the impact of the rehabilitation of the local roads, which was not part of the PDO.

2.4 Safeguard and Fiduciary Compliance

Environmental Safeguards. The project was classified as Environmental Category A, with expected negative impacts on the environment due to upgrading works such as construction of four lane roads and bypasses30. In compliance with the World Bank OP/BP 4.01 Environmental Assessment, a Regional Environmental Review (RER) and an Environmental Management Framework (EMF31) were developed at the project preparation stage and site–specific EMPs were produced for each individual project road in accordance with national requirements and the Bank’s guidelines. The EMF and d RER were disclosed and consultations on environmental aspects of the Project implementation were carried out. An EIA has been carried out for the entire Alat-Masalli road. The project's environmental category and safeguard policies triggered originally for AH2P remained the same for AH2P-AF1 and AH2P-AF2, because the project continued to provide support for upgrading road works. Some instances of non-compliance with the EIA and EMPs were noted by the Bank for several contracts 32 , thus, the Overall Safeguards Rating and the Environmental Assessment Rating were downgrade from satisfactory, which was the rating since the start of the project, to moderately satisfactory in 2013 and remained with moderately satisfactory rating until 2015 when they were upgraded to satisfactory because the latest environmental supervision mission, carried out in February 2015, assessed environmental compliance and provided recommendations, mostly related to rehabilitation of borrow areas and camps, which were satisfactorily addressed by ARS.

2.4.1 Social Safeguards. Some project roads required resettlement and land acquisition as indicated on the Resettlement Action Plans (RAPs) done separately for all project roads. In addition a Resettlement Policy Framework (RPF) has been developed and disclosed during the preparation of the AH2P. Land acquisition was on the critical path for the upgrading of the Alat-Massali

29 The AH2P-AF1 added the intermediate outcome indicators: development of new civil engineering curriculum; development of Road Safety Strategy; and development of Road Master Plan. 30 The project had Several Category A or B sub-projects. For an early start of the project, the first section improved under the project was a category B section free of encroachment and without major environmental issues. 31 The EMF was compatible with the national Law on Environmental Protection and the guidelines contained in the Azerbaijan’s EIA Handbook. 32 E.g., removal of waste material along Baku-Shamakhi roads, large unrestored borrow areas, poor living conditions and inadequate waste disposal system at base camps; poor patterns associated with aggregate extraction from river, etc.

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road and was one of the key factors for the delays on project implementation33. The issues about land acquisition were complex and involved the quantity of land owners involved, current regulations, and changes in the institutional arrangements and compensation valuation methodology for land acquisition that required retrofitting of some RAPs34. The Bank team met with representatives of the Oil Workers Rights Protection Organization (OWRPO) to discuss land acquisition issues under the project35. The PIU undertook intense learning on safeguards and due diligence36. The Involuntary Resettlement rating remained satisfactory throughout the implementation of the project. The project complied with all Bank safeguard policies.

2.4.2 Procurement. The AH2P and the AFs followed standard Bank procurement

procedures. No major issues in the procurement process or mis-procurement cases were recorded during the project implementation. At the same time, the project suffered from slow implementation of works contracts. In most cases, the contractors have started works after extended delays – up to 12 months. Procurement matters were being delayed because of cumbersome procedures at the Tender Committee. In addition the designs had to be approved by the Ministry of Emergency Situation after award. This is not a welcome practice as the contractors bid on the employers’ designs. In addition Ministry of Emergency Situations suspended the works in several instances. Procurement of the civil works was affected by rapidly increased prices in Azerbaijan, which led to the Bank to highlight the importance of the price Adjustment Formula to work contracts37. Two major contracts were terminated due to poor performance of the international contractors. In another instance the contractor was allowed to submit a revised design and consider it under value engineering. While the design was significantly improved, the change led to delays in implementing the contract. Due to insufficient coordination between the local authorities and ARS, several local roads identified to be part of the project were changed, because financing was allocated from the local budget to these roads. There was a need to improve the quality of the design reviews prior to submission of the bid documents to the Bank to minimize variation orders. The October 2008 mid-

33 Some issues during project implementation were land swaps, court cases, grievance cases, compensation rates for different lands and employment to affected people, and employment issues with contractors. 34 In 2009, a new Decree of the Cabinet of Ministers was adopted which altered the institutional arrangements and compensation procedures, as a result RAPs needed to be revised. 35 The OWRPO is an NGO that raised issues of land acquisition on behalf of some land owners in April 2010. All cased were addressed under the implementation of the RAPs and the grievance redresses mechanism. The Bank team met often with the OWRPO and developed a constructive relationship with them. This was important since the OWRPO was the organization acting as intermediary to claim rights for the affected person in one of the land acquisition cases. 36 The PIU became very cognizant of Bank policies and applications and overall safeguards management. A key process instrument internalized by the PIU was of detailed and comprehensive record keeping on safeguards, which was instrumental in determining appropriate courses of action in the contested RAP compensation cases. 37 The local indices used for price adjustment issued by the Statistics Committee was not reliable and a contractor had a large claim following Arbitration.

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term review rated procurement as moderately satisfactory as a result of delays in procurement. The rating returned to satisfactory on April 2009 after the mitigation measures agreed with the PIU have been implemented and the substantial volume of procurement handled by the PIU. However, the rating returned to moderately satisfactory in 2012 per recommendation of a fiduciary review and remained moderately satisfactory for the rest of the project38.

2.4.3 Financial Management. The Financial Management (FM) arrangements at the PIU, including planning and budgeting, accounting, financial reporting, funds flow, external auditing, and staffing remained satisfactory and acceptable to the Bank up to the October 2008 mid-term review, when the financial management rating was downgraded to moderately satisfactory due to delayed audit reports, no regular financial management reports submitted to the bank and weak project budgeting arrangements. The rating returned to satisfactory on April 2010 once the PIU took measures to improve staffing, budgeting, reporting and auditing as indicated on a Bank FM due diligence report. In 2011, the PIU did not execute proper FM activities and many deficiencies were noted, thus the rating was again downgraded to moderately satisfactory until 2015 when it was upgraded to satisfactory considering the latest Bank review39.The fiduciary compliance did not affect the final outcomes of the project.

2.5 Post-completion Operation/Next Phase

2.5.1 The maintenance of the project roads is under responsibility of ARS, which is managed through ARS headquarters with maintenance being carried out by 63 road maintenance units as in-house operations. The budget allocation for maintenance of the Magistral roads is sufficient to cover the main needs but improvements on maintenance management are needed. The next Bank involvement on Azerbaijan in the main roads sector was the Third Highway Project, approved in 2010. Its PDO is to contribute to a more efficient and safer Baku-Shamakhi road and higher quality road services as part of the upgrading to motorway standards, and to improve the management of the nascent motorway network. This would be achieved by: (i) upgrading a 100km section of existing two lane M4 Baku-Shamakhi road into a four-lane motorway, (ii) preparation of a study to explore options for a policy on management and financing and efficient allocation of resources for Azerbaijan’s motorways; and (iii) institutional development of the ARS in motorway operation and maintenance. There is an ongoing dialog with the Government for the preparation of a forthcoming Regional Roads Development project, a new road project in which maintenance reform would be an important project component.

38 Currently, the PIU procurement staff are familiar with Bank procurement procedures and have acquired adequate experience and capacity under on-going World Bank projects. 39 Currently, Accounting and Internal Control systems of the PIU are reliable and effective. FM staffing arrangements of the PIU are also assessed as adequate.

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3 Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

3.1.1 The relevance of PDO, design and implementation is rated substantial. The PDO design and implementation of the AH2P and the AFs remain relevant to the roads development program of the ROA. The PDO is closely aligned to the strategic objectives of the FY11-14 CPS for Azerbaijan40, which is building a competitive non-oil economy. The CPS indicates that a key government goal is to strengthen Azerbaijan‘s role as a regional transport corridor and improve connectivity within Azerbaijan (to be measured by increased transit traffic) and a key obstacle is that roads need upgrading and widening. The PDO is relevant to the both the Bank and the ROA strategies41.

3.1.2 The designs of the AH2P and the AFs are relevant because their components are

consistent with the PDO. The civil works component sought to contribute to the achievements of the PDO in terms of upgrading or rehabilitating the project roads. However, the institutional components did not directly contribute to the PDO of reducing road transport costs and improving access, transit and road safety on the project roads. The PDO did not include development objectives related to institutional strengthening activities. The institutional components sought initially to address critical land acquisition issues and project level technical matters, such as design standards and maintenance norms to later focus on broader issues such as road network asset management, the development of a Road Safety Strategy, and the development of a Roads Master Plan. Implementation arrangements were appropriately chosen to facilitate the implementation of the components. The project implementation was very responsive to changed circumstances along the project life.

3.2 Achievement of Project Development Objectives

3.2.1 The efficacy rating of achievement of the PDO is rated substantial. The

rating is based on the evaluation of the achievement of the PDO, its indicators and outcomes during the duration of the project, considering the different RF targets during each phase of the project (see Annex 2). The ratings consider the three objectives of the PDO:

3.2.2 Reduce road transport costs on the project roads (Fully Achieved). The reduction in vehicle operating costs on the project roads financed under the project have meet the end targets or been exceeded for all project roads. In total 349 km of M roads were improved or rehabilitated under the AH2P and the

40 A new Country Partnership Framework for FY 2015-19 is under preparation and is expected to become operational by the summer of 2015. 41 The relevance of the project original design is demonstrated by the fact that other donors were interested in financing the improvement of the M road sections not financed by the project.

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AFs42 compared to the latest target value of 349 km43. The average target reduction in vehicle operating costs was 10 percent, while the average actual reduction was 15 percent. The road works let to a reduction of the roughness of the road pavements and reduced road congestion, which in turn reduced vehicle operating costs and increased vehicle speeds.

3.2.3 Improve access and transit on the project roads (Fully Achieved). The reduction

in travel times on the project roads financed under the project have meet the end targets or been exceeded for all project roads. The average target travel time was 56.0 minutes, while the average actual travel time was 55.6 minutes. Travel times are a function of vehicles speeds, which were increased by the upgrading or rehabilitation of the project roads.

3.2.4 Improve road safety on the project roads (Fully Achieved). The indicator on decline in the percentage of road accidents on the project roads was exceeded. The end target value was a 30 percent reduction in road accidents, while the reduction achieved was 48 percent. Road accidents are a function of the condition and geometric of a road, which were improved on the project roads.

3.2.5 In addition to achieving the RF road works targets, the project addressed

successfully the issue of land acquisition on road projects, supported the development of a Road Safety Strategy, a Roads Master Plan and a Road Asset Management System and implemented other institutional development act ivies. The project was the foundation for other IFIs highway projects in Azerbaijan. Annex 9 presents the outputs and outcomes. However, the progress towards the achievement of the PDO was rated moderately satisfactory from 2012 to 2014, being upgraded to satisfactory in 2015. The implementation progress was rated moderately satisfactory from 2009 up to the end of the project due to the delays in implementing the civil works.

3.3 Efficiency

3.3.1 The efficiency in achieving the PDO is rated substantial. An ex-ante cost benefit analysis was done at the AH2P appraisal for the upgrading the road between Alat and Shorsulu and Shorsulu and Masalli and rehabilitating the road between Baku and Shamakhi. The ex-ante overall Economic Internal Rate of Return (EIRR) estimate was 27.0 percent (25.0 percent for Alat-Shorsulu, 29.2 percent for Shorsulu-Masalli and 21.3 percent for Baku-Shamakhi). The AH2P AF2 appraisal presented the economic justification of the rehabilitation of the Hajigabul to Bahramtapa road yielding an EIRR of 28.6 percent. The ex-post analysis reevaluated the three project road sections for which there is and ex-

42 In addition, 113 km of local roads were rehabilitated exceeding the latest target value. 43 The plan was to improve or rehabilitate 461 km of M roads under the project. The road sections of the Alat-Masalli road that were deleted from the project under the second (62 km) and third (50 km) restructurings are being improved under ADB financing and the Bank Highway 3 project respectively, thus, the road works are expected to be done efficiently and the corresponding reduction in vehicle operating costs, travel times and road accidents to be fully achieved.

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ante economic evaluation. The ex-post evaluation considers actual construction costs and annual traffic growth rates from 2005 to 2013.

3.3.2 The ex-post EIRRs range from 21.9 to 26.6 percent, which is above the 12

percent threshold, confirming the economic justification of the project (Table 1). For the three roads, the overall EIRR decreased from 25.5 to 24.4 percent. Efficiency was affected by higher actual construction costs (ranging from 2 to 32 higher than appraisal estimates at constant prices), which were somewhat compensated by actual traffic growth rates observed from 2005 to 2013. The delays in the project implementation did not affect the economic justification of the project, considering the worsen road condition and higher traffic when the road works were executed. Detailed economic analysis is available in Annex 3.

Table 1. Ex-Post Economic Evaluation Results

Actual Actual Ex-Ante

Ex-Post

Length Investment EIRR EIRR

Project Road Section (km) (US$ million) (%) (%)

AH2P Alat – Yenikend* 31.0 85.3 25.0% 23.1%

Baku - Shamakhi 123.0 142.5 21.3% 21.9%

AH2P-AF2 Hajigabul - Bahramtapa 112.0 209.7 28.6% 26.6%

All Sections 266.0 437.5 25.5% 24.4%

Source: ICR Study

* Ex-Ante EIRR is for Alat - Shorsulu road section

3.4 Justification of Overall Outcome Rating

3.4.1 The overall outcome is rated Satisfactory taking into account that during the entire duration of the project, the relevance of the PDO, design, and implementation; efficacy in terms of achievement of the PDO; and efficiency are rated substantial. The PDO did not change during the duration of the project, but the monitoring indicator were adjusted during the additional financings and restructurings; thus, each phase of the project was evaluated considering relevance, efficacy and efficiency under a split evaluation. The substantial relevance of the PDO, design, and implementation did not change with the additional financings and restructurings. The project development objectives were achieved on each phase44. The efficiency of the road works was guaranteed by the actual high traffic annual growth. A summary of the assessment is provided on Table 2.

Table 2: Assessment of the Overall Outcome

Against Against Against Against Against Against Against

Original 12/2016 03/2008 05/2009 03/2013 10/2013 12/2014 Over

PDO and Restr. AF1 AF2 Restr. Restr. Restr. all Indicators Indicators Indicators Indicators Indicators Indicators Indicators

44 The road sections deleted from the project on the second and third restructurings are expected to be achieved efficiently with other sources of financing.

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1 Relevance of the PDO, design, and implementation

Subst. Subst. Subst. Subst. Subst. Subst. Subst.

2 Efficacy in terms of achievement of the PDO

Subst. Subst. Subst. Subst. Subst. Subst. Subst.

3 Efficiency Subst. Subst. Subst. Subst. Subst. Subst. Subst.

4 Overall Outcome Rating

S S S S S S S

5 Rating Value 5 5 5 5 5 5 5

6 Weight (% disbursed after Indicators change)

0% 2% 6% 56% 12% 17% 7% 100%

7 Weighted Value (7 x 8)

0 0.08 0.24 2.24 0.48 0.68 0.28 5

8 Final rating S

Source: ICR Team Restr. = Restructuring

Subst.= Substantial

S = Satisfactory

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

3.5.1 The population on the Rayons adjacent to the project roads is 1.7 million inhabitants. There was no specific study on poverty impacts or gender aspects45 undertaken during the project preparation or implementation. However, the rehabilitation of local roads typically facilitate the provision of social services and livelihood opportunities to the persons living along the local roads that were rehabilitated; create temporary jobs in construction; reduced transport costs; and supported regional economic development46. On forthcoming highway project in Azerbaijan, the RAPs will be gender sensitive with special provisions and entitlements for more vulnerable groups such as women headed families.

(b) Institutional Change/Strengthening

3.5.2 Notable progress was achieved in: (i) addressing land acquisition issues by the

adoption, by a decree of the President, of the Land Expropriation Law for State Needs in 2010; (ii) improving road safety by the development of a Road Safety

45 In Azerbaijan the role of women has significantly changed since the Soviet era when rural women enjoyed similar opportunities for paid employment as men. With the collapse of large-scale farming and industries, employment opportunities for women have diminished considerably. As a result, today men travel more than women and therefore make more use of transport means. 46 A baseline survey done for the AH2P-AF2 indicates that the poor condition of local and connecting roads restricts access to markets and health services for local villagers. Bad roads make journeys outside the village unsafe. Children walk from 2 to 5 km to schools away from their homes. Poor children don’t go to school during bad weather because the local roads are so muddy and they don’t have two pairs of boots.

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Strategy; (iii) strengthening general principles that govern road administration and management by the signing of the President of the amendments to the Road Law in 2013, which provides the legal, technical, economic, and institutional framework for the road sector; (iv) strengthening environmental and social safeguards; and (v) improving engineering designs47. The project improved the engineering design standards adopted on the project roads, consolidated the experience with International Federation of Consulting Engineers (FIDIC) and Dispute Board procedures and facilitated the transfer of knowledge from international advisors.

(c) Other Unintended Outcomes and Impacts (positive or negative)

3.5.3 A noticeable unintended negative impact from the project was the substantial

drainage of some rivers of aggregate materials for the construction works that was solved with a study on prospective construction materials sources and better regulation of river extraction. On the positive side, unintended impacts from the project were the increased cooperation with other donors and NGOs and improved technical capacity of the private sector. In addition, the project has set the stage for the discussion on the efficient maintenance and operation of the motorways of Azerbaijan.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

3.6.1 The main project beneficiaries are the road users who will reduce their vehicle

operating costs and travel time costs and will travel on safer roads. The project was expected to have a positive impact on the livelihood of local populations as it sought to improve rural connectivity by rehabilitating local roads. The impact on temporary job creation was also expected to be significant48. However, no comprehensive beneficiary surveys or stakeholders workshops or impact assessments were done under the project. A limited survey was done for identification of progress in farm-gate prices and travel frequencies in Hajigabul-Bahramtapa region. A baseline study for connecting local roads in the Hajigabul-Bahramtapa region was done in 2010 for the AH2P-AF249. A baseline survey for the Azerbaijan Second Rural Investment Project was done in 201350.

47 The Bank reviews of standards assisted in improving the quality of the engineering designs for highway projects in Azerbaijan. Engineering designs prepared under the AH2P are being used on other highway projects and started to use some European standards. 48 About 20 percent of a road works value is usually spent to hire unskilled workers who are hired locally. 49 The baseline survey indicates the households spend more on transport (8 to 14% of their monthly income) than on either of the following: agriculture, household amenities, education or communication. 50 The baseline survey indicates that on local roads the average distance to reach a market is 16 km (0% use foot, 82% use public transport, and 18% use car) and vehicles travel at an average speed of 30 km per hour.

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4 Assessment of Risk to Development Outcome

Rating: Moderate

4.1.1 The risk the achieved development outcomes may not be sustained is Moderate. Provision of maintenance for the project roads is needed to ensure that the current good road condition is maintained over time. In recent years, the ROA significantly increased the budgetary allocation for road maintenance51, although maintenance is done by traditional force account. The ROA is working on improving the efficiency of maintenance expenditures and the sustainability of road sector investments by the introduction of regional maintenance units, which will be responsible for routine, winter and emergency maintenance of newly upgrade Magistral and Republican roads. However, the recent reduction in oil revenues could compromise the maintenance of the road network.

4.1.2 With regard to sustaining the policy and institutional reforms, positive steps were

taken with the approval the Land Expropriation Law for State Needs in 2010 and the amendments to Road Law in 2013. In addition, the Road Safety Strategy and Road Sector Master Plan prepared under the project provide a path for additional institutional reforms.

5 Assessment of Bank and Borrower Performance

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry – Satisfactory

5.1.1 The Bank’s performance during the AH2P preparatory period was satisfactory

with regard to strategic relevance and approach, technical, financial and economic analysis, and paying adequate attention to fiduciary and safeguards arrangements52. The AH2P was prepared in a short time. The AH2P-AF, AH2P-AF2 and the restructurings were also processes quickly and were done to support the evolving needs and financial limitations of the ROA that appreciated the speed of preparation and flexibility of the Bank team. Insufficient foresight was observed on part of the Bank for not having combined the two AFs into a single AF to reduce the processing burden, considering that both were approved within around one year, and for restructuring the project twice during a year in 2013.

(b) Quality of Supervision – Satisfactory

5.1.2 The quality of the supervision is rated satisfactory. The Bank had been engaged with the client during the implementation of all planned activities, paying due attention to technical and institutional development issues. The around two

51 Maintenance funding increased from AZN30 million in 2005 to AZN222 million in 2013 52 Social and environmental specialists were embedded in the project preparation team, there was exemplary cooperation with the safeguards unit; and good coordination with the ADB.

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supervision missions per year of the project were appropriate considering the simple nature of the project. The Bank team introduced a well-received tool (Performance Assessment Tool53) to support the civil works supervision. The AH2P mid-term review strengthened the project implementation by establishing how to improve the efficiency and timeliness of procurement and agreeing with the PIU on mitigation measures. The Bank team was responsive to the PIU and ROA requests for advice and project modifications. The ISR ratings given during supervision where candid highlighting the issues found with financial management and procurement. The AH2P and the AFs had three task managers in eleven years, which did not impact the implementation of the project. The PIU had only one Director in this period.

(c) Justification of Rating for Overall Bank Performance - Satisfactory

5.1.3 Overall, Bank performance is rated Satisfactory. The Bank assisted the Borrower in the adequate preparation of the project and was very responsive to the needs of the Borrower. The Bank also actively addressed implementation problems through proactive and intensive supervision and useful and practical technical recommendations. The Bank prepared the project and the additional financings on a very tight schedule, assigned an experienced project preparation team, mobilized international experts as needed and provided extensive supervision during implementation.

5.2 Borrower Performance

(a) Government Performance – Satisfactory

5.2.1 The ROA demonstrated a satisfactory level of commitment and ownership toward the project design, preparation and implementation. The ROA responded in a positive manner ensuring availability of counterpart funding, compliance will all project covenants, the completion of all institutional strengthening activates and the approval by the by the National Assemble and President of the Land Expropriation Law for State Needs and the amendments to the Road Law. The Bank raises issues with land acquisition, EMP compliance, adequate staff of the PIU and financial management and procurement matters and, although with some delays, they were properly addressed by the ROA.

(b) Implementing Agency or Agencies Performance – Moderately Satisfactory

53 The Performance Assessment Tool (PAT) aim to identify bottlenecks ahead of time in order to address them more rapidly in the future. PAT monitors the disbursements, rate of progress, quality of works, working environment and payments efficiency of a civil works contract.

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5.2.2 The project was implemented by a Project Implementation Unit (PIU), which gained experience managing IFI projects54 and delivered overall satisfactory project outcomes. The PIU had to manage contracts for complex civic works that required many variation orders and extensive supervision. The moderately satisfactory rating is due to the delays in the implementation of the civil works, resulting in low disbursements during a large period of the project, and the financial management, procurement and environmental issues that affected the project overall implementation, which could have been addressed more proactively and expeditiously by the PIU. While some of the issues were beyond the control of the PIU, driven by external factors such as the macroeconomic situation of the country, the overall project implementation was not totally satisfactory during long periods of the project.

(c) Justification of Rating for Overall Borrower Performance – Moderately Satisfactory

5.2.3 Considering that the performance of the Implementing Agency is Moderately Satisfactory, the overall performance of the Borrower is rated as Moderately Satisfactory. While the ROA performance is satisfactory, the impact of the Implementing Agency performance was considered higher on achieving the project objectives on time and on an efficient manner.

6 Lessons Learned

6.1.1 The project was possible because the ROA has a strong commitment to upgrading the main roads of Azerbaijan to international standards. The project faced difficult times when addressing land acquisition issues and delays in project implementation, but with support of all parties involved, the project development objectives were achieved. Incremental improvements were possible during project implementation adjusted to the current conditions (for example: move to more comprehensive institutional development activities) because of the phased approvals.

6.1.2 The lessons learnt from implementation of the project are:

(i) A well prepared PIU is needed to facilitate project implementation. a. A PIU needs to maintain close monitoring of supervision consultants

and civil works contractors to ensure disbursement targets are achieved; b. A PIU needs to have proper internal controls and budgeting

arrangements to for a satisfactory financial management of a project;

54 The PIU is today staffed with seasoned local consultants, including engineering, procurement, and financial management staff, and has significant capacity developed during implementation of past and ongoing Bank operations.

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c. A PIU needs to strictly follow the recommendations on checking the authenticity and validity of bank guarantee letters to conduct due diligence;

d. A PIU requires continuous technical assistance to enable them to handle the high volume of work that is required; and

e. A PIU should undertake intense learning on safeguards management and due diligence.

(ii) The government and the road agency can take actions to facilitate project implementation. a. A government should consider delegating the authority for signing

contracts of low value to a road agency to avoid delays on signing of consultancy contracts;

b. A government should take measures for ensuring availability of bitumen and avoiding sharp fluctuation o bitumen prices to avoid potential delays in implementation of projects;

c. A government should ensure that all required reviews of engineering designs done by government organizations are done prior to contract signing.

d. A road agency needs to properly evaluate the size of the land to be acquired prior to commencement of works to avoid potential bottleneck on project implementation;

e. A road agency should engage an experienced international adviser on a full-time basis to enhance its contract management capacity and also transfer of international practice and knowledge to the road agency local staff;

f. A road agency needs to guarantee that proper human and financial resources are available to ensure the proper operation of a Road Asset Management System;

g. A road agency needs to find effective and durable solutions for the enforcement of axle load limits considering that high tonnage trucks lead to rapid deterioration of roads; and

h. A road agency should ensure proper coordination between RAP implementation and civil works activities.

i. A road agency should allocate sufficient time to preparation of designs and ground investigations to avoid significant variations and cost increases during the implementation.

(iii) An efficient private sector facilitates project implementation. a. Companies in charge of supervision need to focus on the timely issuing

of variation orders and proper management of civil works contracts; b. Contractors should fulfill all requirements for the operation of borrow

pits, have a site operation and reinstatement plan, and have adequate management of hazardous, construction and domestic wastes to ensure environmental compliance;

c. Consultants and contractors should request permissions from various ministerial organizations earlier in the process to avoid implementation delays;

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d. Consultants should carry out a good geological survey on the ground conditions prior to designs, explore the possibility of re-using existing material in the lower pavement layers, and strive to locate borrow pits closer to the project sites to contain road work costs; and

(iv) The Bank team actions contribute to a successful project implementation. a. The quality of the consultants working for the project has to be properly

ascertained to avoid delays in the project implementation; b. It is important an open dialogue with civil society on matters of

representation and safeguard compliance; c. To strengthen the institutional and technical capacity of the road agency

it is necessary to collaborate with other entities like universities or the traffic police.

d. Institutional strengthening studies have to be very decision-making oriented providing practical recommendations on what and how to change the current system. A candid dialogue on institutional issue is needed;

e. The level of investment on each road section has to be carefully assessed considering the expected traffic on the road section. Avoiding under designs of investments are as important as avoiding over designs, thus, a proper vision of the economic development brought about by the road investment is needed;

f. To measure well the impact of a project on farmgate prices, sufficient time should pass between the completion of the road works and the impact evaluation study; and

g. The project operational manual has to be finalized early in the process to avoid delays in the project effectiveness.

(v) The management of large road investment project requires especial attention. a. To implement large road investment project in phases is desirable and

helps to tackle other issues not foreseen on the original design, but can cause delays and bring uncertainties and risks that can be minimized with an open dialogue with the government, obtaining the government trust, and the readiness to be flexible;

b. Large road investment project should facilitate the engagement of the civil society to address social and environmental issues; and

c. Large road investment project that focus on main corridors should not neglect the road maintenance of the remainder of the road network.

6.1.3 Land acquisition legislation and implementation practices should be properly

and timely addressed to avoid delays in project implementation. In addition, slow progress in detailed design should be avoided, the procurement process of civil works should be expedited, and the availability of key construction materials should be secured during project implementation. The project timeline allowed for a progression of its institutional development activities, evolving from supporting a revised transport law and engineering project level geometric

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standards and maintenance norms to broader issues, such as road network asset management, development of a Road Safety Strategy and development of a Road Master Plan.

7 Comments on Issues Raised by Borrower/Implementing Agencies/Partners

(a) Borrower/implementing agencies

7.1.1 The Borrower submitted to the Bank its Completion Report (CR) on July 2, 2015. Please refer to Annex 7. The draft ICR was discussed with Government counterparts responsible for the implementation of the project during the last supervision mission. Their comments were incorporated on the final ICR. The draft ICR was submitted to the Azerbaijan Cabinet of Ministers for comments. The Deputy Prime Minister of the Republic of Azerbaijan responded with a letter dated September 11, 2015 that the Cabinet of Ministers don’t have any comments or suggestions with regards to the Draft Implementation Completion Report for the Highway 2 Project.

(b) Co-financiers Not Applicable (c) Other partners and stakeholders Not Applicable

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Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent) Appraisal Latest Percentage Estimate Estimate Of Components (USD millions) (USD millions) Appraisal

Road works including design and supervision 807.400 879.284 109% Land acquisition and resettlement costs 15.000 1.380 9% Technical assistance and goods 18.175 18.510 102% Total Baseline Cost 840.575 899.174 107%

Contingencies 69.7 0.000 0% Total Project Costs 910.275 899.174 99%

Front-end fee IBRD 1.530 1.530 100% Value Added Tax (VAT) 116.260 101.632 87% Total Financing Required 1028.065 1002.336 97%

AH2P Appraisal Latest Percentage Estimate Estimate Of Components (USD millions) (USD millions) Appraisal

Road works including design and supervision 244.000 248.667 102% Land acquisition and resettlement costs 15.000 1.380 9% Technical assistance and goods 5.375 3.961 74% Total Baseline Cost 264.375 254.008 96%

Contingencies* Total Project Costs 264.375 254.008 96%

Front-end fee IBRD 0.500 0.500 100% Value Added Tax (VAT) Total Financing Required 264.875 254.508 96%

* included on above amounts (10% physical contingencies and 20% price contingencies) AH2P-AF1 Appraisal Latest Percentage Estimate Estimate Of Components (USD millions) (USD millions) Appraisal

Road works including design and supervision 348.500 405.578 116% Land acquisition and resettlement costs Technical assistance and goods 9.300 14.439 155% Total Baseline Cost 357.800 420.017 117%

Contingencies 69.700 0% Total Project Costs 427.500 420.017 98%

Front-end fee IBRD 0.750 0.750 100% Value Added Tax (VAT) 76.950 60.789 79% Total Financing Required 505.200 481.556 95%

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AH2P-AF2 Appraisal Latest Percentage Estimate Estimate Of Components (USD millions) (USD millions) Appraisal

Road works including design and supervision 214.900 225.039 105% Land acquisition and resettlement costs Technical assistance and goods 3.500 0.110 3% Total Baseline Cost 218.400 225.149 103%

Contingencies* Total Project Costs 218.400 225.149 103%

Front-end fee IBRD 0.280 0.280 100% Value Added Tax (VAT) 39.310 40.843 104% Total Financing Required 257.990 266.272 103% * included on above amounts (20% contingencies) (b) Financing

Appraisal Actual/Latest Percentage Estimate Estimate of

Source of Funds (USD millions) (USD millions) Appraisal

Government 359.075 348.962 97% IBRD 613.000 601.710 98% IDA 63.700 63.700 100% Total Funding 1035.775 1014.372 98%

AH2P Appraisal Actual/Latest Percentage Estimate Estimate of Source of Funds (USD millions) (USD millions) Appraisal

Government 64.875 64.875 100% IBRD 200.000 200.000 100% IDA Total Funding 264.875 264.875 100%

AH2P-AF1 Appraisal Actual/Latest Percentage Estimate Estimate of Source of Funds (USD millions) (USD millions) Appraisal

Government 205.200 195.087 95% IBRD 300.000 288.710 96% IDA Total Funding 505.200 483.797 96%

AH2P-AF2 Appraisal Actual/Latest Percentage

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Estimate Estimate of Source of Funds (USD millions) (USD millions) Appraisal

Government 89.000 89.000 100% IBRD 113.000 113.000 100% IDA 63.700 63.700 100% Total Funding 265.700 265.700 100%

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Annex 2. Outputs by Component

Table 1. Project Outcome and Intermediate Outcome Indicators

First

Restr. AF1 AF2 Second

Restr. Third Restr. Status

Original 2006 2008 2009 2013 2013 At Baseline Target Target Target Target Target Target Closing Remarks Project Outcome Indicators Transit time from Alat to Masalli (minutes)

180` 120` 80’ 80` 80` Deleted under the 2013 second restructuring. Target will be achieved with other sources of financing.

Vehicle operating cost from Alat to Masalli (percent)

100% 88% 88% 88% 88% Deleted under the 2013 second restructuring. Target will be achieved with other sources of financing.

Transit time from Alat to Shorsulu (minutes)

70’ 50’ Added under the 2013 second restructuring. Deleted under the 2013 third restructuring. Target will be achieved with other sources of financing.

Vehicle operating cost from Alat to Shorsulu (percent)

100 90 Added under the 2013 second restructuring. Deleted under the 2013 third restructuring. Will be achieved with other sources of financing.

Transit time from Alat to Yenikend (minutes)

30’ 20` 18` Added under the 2013 third restructuring. Target surpassed by 10 percent.

Vehicle operating cost from Alat to Yenikend (percent)

100% 91% 89% Added under the 2013 third restructuring. Target surpassed by 2 percent.

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Transit time from Baku to Shamakhi (minutes)

150` 100` 100’ 100` 100` 100` 100` 100` Target achieved.

Vehicle operating costs from Baku to Shamakhi (percent)

100% 90% 90’ 90% 90% 90% 90% 86% Target surpassed by 4 percent.

Decline in the percentage of road accidents in the Project roads (percent)

NA 30% 30% 30% 30% 30% 48% Added under 2006 first restructuring. Renamed from “Number of accident in the project roads” in 2008 AF. Target surpassed by 60 percent.

Transit time from Kurdamir to Ujar (minutes)

48` 30` 30` 30` 30` 30’ 30` Added under 2006 first restructuring. Target achieved.

Vehicle operating costs from Kurdamir to Ujar (percent)

100% 90% 90% 90% 90% 90% 76% Added under 2006 first restructuring. Target surpassed by 16 percent.

Transit time from Tagiyev to Sahil (minutes)

120’ 30’ 30` 30` 30` 30` Added under 2008 AF1. Target achieved.

Vehicle operating costs from Tagiyev to Sahil (percent)

100% TBD TBD TBD TBD 84% Added under 2008 AF1. Although a target was not set, based on the other project roads indicators, a satisfactory reduction in vehicle operating costs was achieved.

Transit time from Hajigabul to Bahramtapa (minutes)

120` 100’ 100` 100` 100` Added under 2009 AF2. Target achieved.

Vehicle operating costs from Hajigabul to Bahramtapa (percent)

100% 88’ 88% 88% 88% Added under 2009 AF2. Target achieved.

Increase in travel frequency for villagers in the Hajigabul - Bahramtapa region (percent)

100% 150% 150% 150% 154% Added under 2009 AF2. Target surpassed by 3 percent.

Average increase in farmgate prices of key commodities in Hajigabul - Bahramtapa region (percent)

100% 120% 120% 120% 108% Added under 2009 AF2. Target partially achieved on the short time the evaluation was done after the

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rehabilitation works. Target is expected to be achieved after 2 years after the rehabilitation works. The impact study was done only several months after completion of works due to the closing date of the project and the delayed completion of the rehabilitation of the local roads. Typically, longer time (1-2 full seasons) should be allowed to measure real impacts on farmgate prices.

Intermediate Outcome Indicators Component One Number of km upgraded for Alat-Astara (km)

0 80 60 143 143 Deleted under the 2013 second restructuring. Target will be achieved with other sources of financing.

Number of km upgraded for Alat to Shorsulu (km)

81 Added under the 2013 second restructuring. Deleted under the 2013 third restructuring. Target will be achieved with other sources of financing.

Number of km upgraded for Alat-Yenikend (km)

0 31 31 Added under the 2013 third restructuring. Target achieved.

Number of km rehabilitated for Baku-Shamakhi (km)

0 124 124 124 124 123 123 123 Revised on 2013 second restructuring. Target achieved.

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Number of km rehabilitated for Kurdamir-Ujar (km)

0 41 40 40 42 42 42 Added under 2006 first restructuring. Revised on 2013 second restructuring. Target achieved.

Number of km rehabilitated for Tagiyev-Sahil (km)

0 40 40 41 41 41 Added under 2008 AF1. Revised on 2013 second restructuring. Target achieved.

Number of km rehabilitated for Hajigabul-Bahramtapa (km)

0 120 112 112 112 Added under 2009 AF2. Revised on 2013 second restructuring. Target achieved.

Number of km rehabilitated for connecting roads (km)

0 200 100 100 113 Added under 2009 AF2. Revised on 2013 second restructuring. Target surpassed by 13 percent.

Roads rehabilitated, Non-rural (km, Core) (km)

0 349 349 349 Added under 2013 second restructuring. Target achieved.

Roads rehabilitated, Rural (km, Core) (km)

0 100 100 113 Added under 2013 second restructuring. Target surpassed by 13 percent.

Component 2

Preparation of the revised Road Law (text)

No Yes Yes Yes Yes Yes Yes Yes Target achieved.

Number of km of road data introduced in the RDM (km)

1600 4500 4,500 4,500 4,500 13,000 13,000 13,500 Revised on 2013 second restructuring. Target achieved.

Number of people trained in its use (number)

3 10 10 10 10 10 10 10 Target achieved.

Preparation of new geometric and structural design standards (text)

No Yes Yes Yes Yes Deleted under 2013 second restructuring. Target achieved.

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Preparation of the new norms for maintenance (text)

No Yes Yes Yes Yes Deleted under 2013 second restructuring. Target achieved.

Development of new civil engineering curriculum (text)

No Yes Yes Added under 2008 AF1. Deleted under 2013 second restructuring. Target achieved.

Development of Road Safety Strategy (text)

No Yes Yes Yes Yes Yes Added under 2008 AF1. Target achieved.

Development of Road Master Plan (text)

No Yes Yes Yes Yes Yes Added under 2008 AF1. Target achieved.

Note: The 2014 fourth restructuring did not change the project indicators

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Annex 3. Economic and Financial Analysis

1. The economic evaluation of the AH2P done at appraisal covered: (i) upgrading the entire M3 highway between Alat and Masalli from two-lane to four-lane roadway; and (ii) rehabilitating the existing road between Baku and Shamakhi. The AH2P was set to finance the upgrading of sections of the M3 highway between Alat and Masalli totaling 75-80 km. The upgrading works required on the M3 highway between Alat and Masalli were estimated to total 136 km. For the 120 km of access roads to the M3 and M4 highways going to be selected for rehabilitation during the project implementation a selection criteria was defined depending on the annual traffic: (a) above 250 vehicles per day, have an Economic Internal Rate of Return (EIRR) of at least 12 percent; (b) between 150 and 250 vehicles at least 10 percent; and (c) below 150 vehicles at least 8 percent.

2. Savings in vehicle operating costs, travel time and road maintenance were computed using the Highway Development and Management model (HDM-4), comparing the “without project” case with the proposed project case. Capital investments and maintenance costs reflected 2005 prices. The evaluation considered a 25 year evaluation period and 12 percent discount rate.

3. The Alat – Masalli highway was divided into two sections, the first section Alat – Shorsulu (80 km) mostly follows the existing alignment, while the section Shorsulu – Masalli (56 km) created a 38 km shortcut between Shorshulu and Masalli. Despite the high distance savings of the section Shorsulu – Masalli, it was estimated that only 50 percent of the existing traffic will use the project road because the project road is distant from the cities of Bilasuvar (25,000 inhabitants) and Jalilabad (35,500 inhabitants). Traffic growth rates have been determined based on the projected growth of non-oil GDP and estimated elasticity of demand of 1.0 for transport of goods and 1.3 for the movement of people. Generated traffic was assumed to be 10% of normal traffic. Because of the poor quality of available traffic data at that time, reduction of accidents benefits were not quantified. The economic evaluation of the Alat – Masalli road yielded an estimated Economic Internal Rate of Return (EIRR) of 25.0 percent for the first section and 29.2 for the second section. The same methodology was applied for the evaluation of the rehabilitation of the section Baku – Shamakhi (124 km) that carried about 4,000 vehicles per day in 2005. The rehabilitation cost of the Baku – Shamakhi road was estimated to be around US$ 0.52 million per km, which yielded an EIRR of 21.3 percent. The ex-ante estimate of the whole project was 27.0 percent. The table below presents the project characteristics found at appraisal of the original Project and the AFs.

Table 1. Project Characteristics at Appraisal

Existing Project Distance

Length Length Savings Traffic Traffic

Project (km) (km) (%) (veh/day) Diversion

AH2P Alat - Shorsulu 85 80 6% 5,636 100%

Shorsulu - Masalli 94 56 40% 4,873 50%

Total Alat - Masalli 179 136 24% 5,322

Baku - Shamakhi 124 124 0% 4,000 100%

Whole Program 303 260

Restructuring Kurdamir - Ujar 41 41 0%

AH2P-AF1 Tagiyev - Sahil 41 41

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AH2P-AF2 Hajigabul - Bahramtapa 116 116 0% 5,092 100%

Source: Project Appraisal Document and Project Papers

AH2P = 2005 Traffic, AH2P-AF1 = 2008 Traffic

4. Under the AH2P 2006 restructuring, the rehabilitation of the M2 Kurdamir – Ujar road (41 km), with an estimated cost of US$ 50 million, was added to the project, but no economic evaluation was presented for this road at the restructuring Project Paper, which however (i) considered that the proposed addition did not have a major effect on the original economic justification of the project as appraised and (ii) expected that the EIRR for the rehabilitation of this road was comparable to those road sections financed under AH2P in view of the current and expected traffic. Under the AH2P-AF1, the rehabilitation of the Tagiyev – Sahil road (41 km), with an estimated cost of US$ 40 million, was added to the project, but no economic evaluation was presented for this road at the AH2P-AF1 Project Paper, which indicated however that a preliminary economic analysis of the Tagiyev – Sahil road, given the assessment of the current traffic volume and future increase of traffic, showed that the EIRR will not be less than 12 percent. Under the AH2P-AF2, the rehabilitation of the Hajigabul – Bahramtapa (116 km and 5,092 vehicles per day average daily traffic), with an estimated cost of US$ 186 million, was added to the project, for which an economic evaluation was done in 2008 that found that the investment on the project road was economically justified with and EIRR of 28.6 percent. The table below presents the ex-ante economic evaluation results found at appraisal of the original Project and the AFs.

Table 2. Economic Evaluation Results at Appraisal

Investment Investment

Cost Cost EIRR

Project (US$ M) (US$ M/km) (%)

AH2P Alat - Shorsulu 122.7 1.53 25.0%

Shorsulu - Masalli 98.5 1.76 29.2%

Total Alat - Masalli 221.2 1.63 26.6%

Baku - Shamakhi 80.0 0.65 21.3%

Whole Program 301.2 1.16 27.0%

Restructuring Kurdamir - Ujar 50.0 1.22 NA

AH2P-AF1 Tagiyev - Sahil 40.0 0.98 NA

AH2P-AF2 Hajigabul - Bahramtapa 186.3 1.61 28.6%

Source: Project Appraisal Document and Project Papers AH2P and restructuring = 2005 US$, AH2P-AF1 = 2008 US$, AH2H-AF2 = 2009 US$

5. The table below present a comparison between the contract costs and the actual costs for the project roads. Overall the actual costs were on average 23 percent higher than the contract costs due to variation orders and price adjustments. Variation orders represented 15 percent of the original contract costs and price adjustments 8 percent.

Table 3. Actual Project Costs

Variation Price Actual Actual Actual

Road Length Contract Orders Adjustments Total Total per

Section (km) (US$ M) (US$ M) (US$ M) (US$ M)

(US$ M/km) Contract

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Alat-Astara Section 1A 9.0 48.8 48.8 5.4 1.00

Alat-Astara Section 1B 22.0 31.3 5.2 36.5 1.7 1.17

Alat-Astara Section 2A Kur Bridge 1.4 35.7 4.4 2.5 42.6 1.19

Total Alat-Astara 32.4 115.8 9.6 2.5 127.9 3.9 1.10

Baku-Shamaxi Section 1 15.0 21.5 0.4 5.3 27.2 1.8 1.27



Total Baku-Shamaxi 123.0 98.0 16.4 28.1 142.5 1.2 1.45

Kurdemir-Ujar Section 1 21.0 33.4 0.0 2.7 36.2 1.7 1.08

Kurdemir-Ujar Section 2 21.0 30.9 0.0 5.7 36.5 1.7 1.18

Total Kurdemir-Ujar Section 42.0 64.3 0.0 8.4 72.7 1.7 1.13

Total Tagiyev-Sahil Section 41.0 75.8 1.2 0.0 77.0 1.9 1.02

Hajigabul-Bahramtepe Section 1 40.0 65.3 5.6 4.1 74.9 1.9 1.15

Hajigabul-Bahramtepe Section 2 72.0 91.6 43.1 0.0 134.8 1.9 1.47

Hajigabul-Bahramtepe Kur Bridge 1.4 13.3 0.3 0.0 13.6 9.7 1.02

Total Hajigabul-Bahramtepe Section 113.4 170.2 49.0 4.1 223.3 2.0 1.31

Total Project 351.8 524.0 76.2 43.1 643.3 10.7 1.23

Source: ICR Report

6. The table below presents available traffic data on the project roads and the actual annual traffic growth rate since the earliest year. On average, the annual traffic growth rate on the project roads varied between 7.3 to 13.1 percent per year, which is higher than the annual traffic growth rates estimated at appraisal at around 6.0 percent per year.

Table 4. Annual Average Daily Traffic (veh/day)

Period

Road Annual

Section 2005 2008 2010 2011 2012 2013 Growth (%)

Alat-Astara Section 1A 10,626

Alat-Astara Section 1B 8,341 12,191

Total Alat-Astara 5,235 8,341 11,737 10.6%

Baku-Shamaxi Section 1 19,130 20,555



Total Baku-Shamaxi 4,000 9,214 10,723 13.1%

Kurdemir-Ujar Section 1 9,351 12,069

Kurdemir-Ujar Section 2 9,243 13,196

Total Kurdemir-Ujar Section 9,297 12,633 16.6%

Total Tagiyev-Sahil Section 1,561

Hajigabul-Bahramtepe Section 1 6,053 7,284

Hajigabul-Bahramtepe Section 2 6,290 7,217

Total Hajigabul-Bahramtepe Section 5,092 6,205 7,241 7.3%

Total Project Average 11.9%

Source: ICR Report

7. The ex-post economic evaluation was done for the three road sections financed by the Project for which ex-ante economic evaluation results are available. The ex-post economic evaluation was done using the HDM-4 model adopting the same assumptions adopted for the ex-ante economic evaluation, but considering the actual investment costs per km and the actual annual traffic growth rate from 2005 to 2013 on the project roads. The actual investment costs were

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adjusted to reflect constant prices of the year of the ex-ante economic evaluation (2005 or 2009) based on the consumer price index of Azerbaijan. In constant prices, the actual costs range from 2 to 32 percent higher than the appraisal estimates.

8. The table below presents the ex-post economic evaluation results. For the three road sections, the ex-post economic justification is satisfactory with EIRRs ranging from 21.9 percent to 26.6 percent. The higher investment costs compared to the appraisal estimates were somewhat compensated by the higher actual annual traffic growth rates. For the three roads the overall ex-ante EIRR is 25.4 percent, while the ex-post EIRR is 24.4 percent.

Table 5. Ex-Post Economic Evaluation Results

Actual Actual Actual Per Ex-Ante

Ex-Post

Length Investment Estimated EIRR EIRR

Project Section (km) (US$ million) Investment** (%) (%)

AH2P Alat - Yenikend * 31.0 85.3 129% 25.0% 23.1%

Baku - Shamakhi 123.0 142.5 132% 21.3% 21.9%

AH2P-AF2 Hajigabul - Bahramtapa 112.0 209.7 102% 28.6% 26.6%

All Sections 266.0 437.5 117% 25.5% 24.4%

Source: ICR Study * Ex-Ante EIRR is for Alat - Shorsulu road section ** In Constant US$

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Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members Names Title Unit

Lending

Le Ber, Olivier P. Project Team Leader ECSIE

Abbasov, Elkhan Ayyub Project Officer ECSIE

Asadova, Vusala Mamed Senior Program Assistant ECCAZ

Bennett, Christopher R. Lead Transport Specialist ECSIE

Benouniche, Salim Sr. Procurement Specialist ECSPS

Bure, Jacques Lead Transport Specialist ECSIE

Camos-Daurella, Gibet Junior Professional Associate ECSIE

Carrier, Gregoire Transport Economist ECSIE

Chesheva, Elena Y. Transport Adv. ECSIE

Cousin, Remi Consultant ECSIE

Daniyarov, Norpulat Senior Financial Management Specialist ECSIE

Delarue, Arnaud Consultant ECSIE

Ebinger, Jane Olga Environmental Specialist ECSIE

Faiz, Asif Consultant ECSIE

Gruss, Hans Jurge Chief Council LEGEC

Ishihara, Satoshi Social Specialist ECSSD

Kurgan, Geoffrey John Consultant ECSIE

Lawrence, Martha B Senior Transport Specialist ECSIE

Muhoho, Ida N Senior Financial Management Specialist ECSIE

Ning, Jiangbo Highway Engineer ECSIE

Pavis, Ross S Senior Operations Officer GPSOS

Podolske, Richard C Consultant ECSIE

Pokorny, Mirtha Susan S. D. Transport Economist ECSIE

Silcock, David Road Safety Consultant ECSIE

Talibova, Irada Office Aide ECCAZ

Talvitie, Antti P. Consultant ECSIE

Valiyev, Nijat Infrastructure Specialist ECSIE

Wang, Elizabeth C. Senior Financial Officer ECSIE

Youness, Ghada Counsel LEGEN

Supervision/ICR Le Ber, Olivier P. Project Team Leader ECSIE

Bure, Jacques Project Team Leader ECSIE

Valiyev, Nijat Project Team Leader ECSIE

Abbasov, Elkhan Ayyub Project Officer ECSIE

Aghayeva, Nigar Consultant GENDR

Aliyev, Sadig Infrastructure Specialist ECSIE

Asadova, Vusala Mamed Senior Program Assistant ECCAZ

Babinard, Julie Senior Transport Specialist GTIDR

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Bagirli, Saida R. Senior Operations Office ECCAZ

Bennett, Christopher R Lead Transport Specialist ECSIE

Benouniche, Salim Sr. Procurement Specialist ECSPS

Butler, Michael Junior Professional Associate ECSIE

Camos-Daurella, Gibet Junior Professional Associate ECSIE

Chesheva, Elena Y. Transport Advisor ECSIE

Cousin, Remi Consultant ECSIE

Daniyarov, Norpulat Senior Financial Management Specialist ECSIE

Delarue, Arnaud Consultant ECSIE

Ebinger, Jane Olga Environmental Specialist ECSIE

Ertenlice, Yagut Iltifat Procurement Assistant ECSIE

Faiz, As Consultant ECSIE

Fernando, Deepal Senior Procurement Specialist ECSIE

Hajiyeva, Gulana Enar Senior Environmental Specialist ECSIE

Haythorne, Eric Consultant GFMDR

Ishihara, Satoshi Social Development Specialist ECSIE

Jamalov, Tural Financial Management Specialist ECSIE

Japarova, Aida Operations Analyst GFMDR

Kiss, Agnes I Regional Environmental and Safeguards Advisor OPSOR

Lalik, Zeynep Senior Financial Management Specialist GGODR

Lindsay, Jonathan Mills Lead Counsel LEGEN

McPherson, Kevin Consultant ECSIE

Melibaeva, Sevara Transport Economist GTIDR

Mostipan, Karina Senior Procurement Specialist GGODR

Ning, Jiangbo Highway Engineer ECSIE

Owen, Daniel P. Senior Social Development Specialist ECSIE

Pison, Romain Junior Professional Associate ECSIE

Podolske, Richard C. Consultant ECSIE

Pokorny, Mirtha Susan S. D. Consultant ECSIE

Ranasinghe, Anne N Procurement Assistant GGODR

Reddy, I. U. B. Senior Social Development Specialist ECSIE

Renzoli, Jesus Senior Procurement Specialist ECSIE

Rukavishnikov, Alexander Senior Procurement Specialist GGODR

Ryskulova, Nargis Operations Officer ECSIE

Seekings, Robert Charles Highway Engineer ECSIE

Silcock, David Consultant ECSIE

Skempas, Marinos Highway Engineer ECSIE

Somani, Anil H Consultant GENDR

Talvitie, Antti P Consultant ECSIE

Vukanovic, Svetlana Transport Specialist ECSIE

Wang, Elizabeth C. Senior Financial Officer ECSIE

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(b) Staff Time and Cost

Stage of Project Cycle Staff Time and Cost (Bank Budget Only)*

No. of staff weeks USD Thousands (including travel and consultant costs)

Lending FY05 13.3 72.5

FY06 40.6 258.9

FY07 4.0 20.1

FY08 13.1 89.6

FY09 18.3 166.2

FY10 0.4 ‐0.5

Total: 89.7 606.7

Supervision/ICR FY06 28.0 91.0

FY07 44.4 148.4

FY08 53.3 178.6

FY09 86.3 243.5

FY10 104.1 292.5

FY11 53.4 177.9

FY12 46.0 121.7

FY13 46.4 119.8

FY14 36.3 93.1

FY15 33.3 108.6

Total: 531.5 1,575.1

*Includes budget allocations for AH2P-AF1 and AH2P-AF2 preparation

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Annex 5. Beneficiary Survey Results

Not Applicable

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Annex 6. Stakeholder Workshop Report and Results Not Applicable

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Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR

1 PROJECT DESCRIPTION AND OBJECTIVES

1.1 Introduction

The Republic of Azerbaijan (the Borrower) received loans and a credit from the International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA) (the Bank) in connection with the Azerbaijan Highway 2 Project (the Project). The Project was co-financed by the Government of the Republic of Azerbaijan. This report is the Borrower’s own evaluation of the Project on completion. It covers the execution of the Project and its outcomes. It also considers what lessons have been learnt.

1.2 Key Data

Financier Approval Date Closing Date

(Revised)

Loan/Credit Amount (USD million equivalent)

IBRD 73560 17 January 2006 28 February 2013 200

IBRD 75160 29 April 2008 30 June 2015 300

IBRD 77250 24 June 2009 28 February 28 2014 113

IDA 46150 24 June 2009 31 December 2014 62

TOTAL 675

1.3 Project Development Objective

The main project development objective of the Azerbaijan Highway 2 Project was to reduce road transport costs and improve access, transit and road safety within Azerbaijan's East - West and North - South corridors, through upgrading some sections of the Alat - Masalli road of the Baku - Iran highway (M3) and rehabilitating the Baku - Shamakhi road (M4).

1.4 Components

The Project had two components:

Component 1: Upgrading sections of the M3 highway between Alat and Yenikend and rehabilitation of the M4 Baku - Shamakhi, M2 Kurdamir - Ujar, R6 Tagiyev - Sahil, and M6 Hajigabul - Bahramtepe roads and key access roads.

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Component 2: Provision of technical assistance, training and goods to support strengthening of the Ministry of Transport and Azeryolservis ASC, and carry out project implementation.

Component 1 accounted for more than 94% of the cost of the Project.

1.5 Restructuring & Additional Financing

The Azerbaijan Highway 2 Project commenced early in 2006 and was revised a number of times to respond to developments within the road sector during the eight years of its implementation. Revisions were made through restructuring and with two rounds of additional financing which enabled further sections of road to be rehabilitated.

1.6 Implementation Arrangements

The Project was implemented by a Project Implementation Unit (PIU) within Azeryolservis ASC. The salaries and operational costs of the PIU were met by the Republic of Azerbaijan and the World Bank as part of the Azerbaijan Highway 2 Project.

2 DISBURSEMENTS

The Project successfully utilized the available financing with almost complete disbursement of each loan and credit. Disbursements from the Bank were matched by contributions from the Government of Azerbaijan.

Breakdown by Loan

Component / Section

Costs (US$ million equivalent)

Loan Loan

Disbursed %

Govern-ment

Portion Total

IBRD 73560 200 200 100% 50 250

IBRD 75160 300 289* 96%* 124* 412*

IBRD 77250 113 113 100% 28 141

IDA 46150 62 62 99.9% 0 62

TOTAL 675 664* 98.4%* 202 865*

*As of May 2015. Amounts to be update after the loan closes.

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3 COMPONENTS

3.1 Component 1

Component 1 involved the design and construction of sections of road in the three highway corridors originally identified for the Project, namely:

o M2 Kurdamir to Ujar

o M3 Alat to Masalli

o M4 Baku to Shamakhi

The Project also upgraded the M6 Hajigabul - Bahramtepe road (including local connecting roads) and the R6 Tagiyev - Sahil road. These roads were included in the project following restructuring and additional financing.

Component 1 Outcomes Reference Works Outcome

AHP2-2006-1 M3 Alat-Astara Section 1B from 9 km to 31 km

22 km of new dual carriageway motorway constructed and opened to traffic.

AHP2-2007-1 M3 Alat-Astara Section 1A from 0 km to 9 km

9 km of new dual carriageway motorway constructed and opened to traffic.

AHP2-2007-2 M2 Kurdamir Ujar Section 1 21 km of single carriageway highway reconstructed and opened to traffic.

AHP2-2007-3 M2 Kurdamir Ujar Section 2 21 km of single carriageway highway reconstructed and opened to traffic.

AHP2-2006-2 M4 Baku Shamakhi Section 1 13 km of dual carriageway constructed and 2 km of single carriageway highway reconstructed and opened to traffic.

AHP2-2006-2 M4 Baku Shamakhi Section 2 65 km of single carriageway highway reconstructed and opened to traffic.

AHP2-2006-2 M4 Baku Shamakhi Section 3 43 km of single carriageway highway reconstructed and opened to traffic.

AHP2-AF-CW2008-1

M4 Alat Astara Section 1C 23 km of new dual carriageway motorway partly completed. This section is now being constructed under the Azerbaijan Third Highway Project following loan restructuring.

AHP2-AF-CW2008-2

M3 Alat Astara Section 2 23 km of new dual carriageway motorway partly completed. This section is now being constructed under the Azerbaijan Third Highway Project following loan restructuring.

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Reference Works Outcome

AHP2-AF-CW2008-4

M3 Alat Astara Section 2A Kur Bridge

New river crossing for dual carriageway motorway completed.

AHP2-AF-CW2008-5

R6 Tagiyev Sahil Road 41 km of single carriageway highway reconstructed and opened to traffic.

AHP2-AF2 CW-2009-1

M6 Hajigabul Bahramtepe Road Section 1

40 km of single carriageway highway reconstructed and opened to traffic.

AHP2-AF2 CW-2009-2

M6 Hajigabul Bahramtepe Road Section 2

72 km of single carriageway highway reconstructed and opened to traffic.

AHP2-AF2 CW-2009-3

M6 Hajigabul Bahramtepe Road Construction of Kur River Bridge

New river crossing for single carriageway highway completed and opened to traffic.

AHP2-AF CW-2010 - multiple lots

Rehabilitation and Reconstruction of Local Roads in the Districts of Gobustan and Shamakhi

24 km of local roads in the M4 corridor completed and opened to traffic.

AHP2-AF2 CW-2013 - multiple lots

Rehabilitation of Local Roads in the Districts of Sabirabad, Saatli and Imishli

54 km of local roads in the M6 corridor completed and opened to traffic.

This component is considered to have been largely successful as it has transformed 427 km of roads within major transport corridors into efficient links capable of carrying high volumes of international, regional and local traffic. Roads that were degraded, to the extent that they could not be practically maintained, have been reconstructed and now form vital links within Azerbaijan’s road network. The improvements made to the structure of existing roads, combined with periodic maintenance in the future, will ensure the assets remain fully serviceable for their design life. Geometric and other improvements contribute to the comfort and safety of road users. The substandard bridges on the selected roads have been strengthened or replaced and two new crossings over the River Kur built.

The overall impact of the highway project was to significantly reduce journey times leading to savings in transport costs in the regions impacted by the project. Roads constructed under this project are now important links in the country’s primary road network which is currently in the process of being fully upgraded to support the rapid economic development of Azerbaijan. Under this component, the targeted roads were designed to international standards and the appropriate environmental and social safeguards put in place. Construction work was supervise by qualified firms of international consultants, also financed under this component.

Difficulties were encountered with two works contracts on the M3 Alat Astara when a contractor failed to adequately perform. Despite a proven track record in Azerbaijan, the international contractor failed to properly resource the works which led to delays and

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disputes. Once it became evident that the contractor would not complete the project within a reasonable timeframe, the contracts were terminated. This was done in a way that safeguarded the investment already made and protected Azeryolservis ASC from any potential financial liability arising from arbitration or legal action. With the support of the Bank, these works contracts have been retendered and are now being completed with financing under the Third Azerbaijan Highway Project.

The original scope of this component was widened through restructuring and additional financing, increasing the kilometres of roads and number of regions benefiting from this investment. This beneficial change reflected the increasing need for the road network to have the capacity to support the rapid economic development seen in Azerbaijan over the duration of the project. Later projects, financed by the Republic of Azerbaijan with support from the World Bank and other institutions, are further expanding the capacity of the international corridors improved under the Azerbaijan Highway 2 Project, with the M2 and M4 highways now being dualled. In future road rehabilitation projects, additional consideration should be given at the planning and design stage to the possibility of a road needing dualling in the short to medium term, as has become necessary on M2 and M4.

3.2 Component 2

The component of Azerbaijan Highway 2 Project to provide technical assistance and other support for the strengthening of the Ministry of Transport and Azeryolservis ASC had many parts. However it mainly involved activities in eight areas:

Updating the Road Law Establishing a road database Improving quality of road works through better standards, management and

equipment Modernizing civil engineering education Development of a Road Safety Program Preparation of a Road Sector Master Plan Support for the project implementation Preparation for future projects.

Component 2 Outcomes Support Activities Outcome

Updating the Road Law

Consulting services for a national and an international legal expert for the preparation of Azerbaijan expropriation law.

A draft law addressing shortcomings with land acquisition was prepared and submitted to the Government. The law was adopted and came into force in 2010.

Establishing a road database

Consulting services for developing a strategy for updating the road data base.

Azeryolservis now has an extensive database covering the whole road network. Information includes the

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Support Activities Outcome

Consulting services for the collection of road data, the establishment of a road database, and the auditing of the data.

Procurement of road data collection equipment.

location, width, classification, condition (including data on roughness and rutting, and from falling weight deflectometer and ground penetrating radar), composition, and traffic volume, for road network elements. A road data unit has been established by Azeryolservis to manage the multi-annual collection and processing of data.

Improving quality of road works through better standards, management and equipment

Consulting services for a national and an international expert for Quality Management in Road Sector Projects in Azerbaijan.

Consulting services for the review and revision of geometric and structural design standards and specifications and development of road maintenance standards.

Consulting services for the preparation of a manual for the design of roads in Azerbaijan.

Procurement of pickup trucks and excavators for road maintenance.

Study on prospective construction materials sources and better regulation of river extraction and revision of the environmental management plan for gravel borrow pits.

A quality manual and guidelines for managing quality have been prepared and an implementation action plan is in place for Azeryolservis to adopt quality management principles. Requirements for both contractors and consultants to have quality management systems in place have been introduced in all IFI financed road sector contracts. A draft Design Manual for Roads in Azerbaijan has been prepared based on an analysis of international best practice. Similarly, maintenance standards and methods have been identified. Twenty-five pickup trucks and nine excavators have been provided to Azeryolservis for road maintenance. Prospective construction materials sources have been identified and environmental management procedures updated.

Modernizing civil engineering education

Capacity building and modernization of the curriculum at the transport school of the Azerbaijan architecture and construction university.

Consultant’s contract cancelled due to under performance.

Development of a Road Safety Program

Consulting services for the preparation Road Safety Program.

Road safety program and training completed. Legal reforms drafted and are now with Government for implementation.

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Support Activities Outcome

Preparation of a Road Sector Master Plan

Consulting services for the preparation of Azerbaijan’s Road Sector Master Plan.

A Road Sector Master Plan covering both investment and maintenance has been prepared and is awaiting adoption. Plans for road maintenance have been further developed by a separate consultancy under the Third Azerbaijan Highway Project. An ADB financed project has also developed the plan in relation to raising revenue through tolling.

Support for the project implementation

Salaries and office equipment for PIU.

Project Financial Audit. Procurement of Technical Services

- Financial Management System. Technical assistance for highway

financing seminar. PIU Technical Support Consultant. Consulting Services for Assistance

to the PIU in Developing Filing and Archiving Systems.

The PIU within Azeryolservis continues to be operational and has managed AHP2, AHP3 and projects financed by other IFIs. All projects are independently audited.

Preparation for future projects

Preparation of environmental assessment reports and management plans for the road section R45 and R46

Preparation of the resettlement policy framework and socio -economic study for the road section R45 and R46

Preparation of Prepare the preliminary design, environmental assessment, detail design for the M7 & M8 roads in Nakhchivan.

In addition to the design and preparation of safeguard documents for the works carried out in Component 1, Azeryolservis has ensure continuity by preparing for further investment projects.

Component 2 of the Azerbaijan Highway 2 Project strengthened the road sector in Azerbaijan by introducing and modernizing several important practices in a logical way. Component 2 tasks have developed the road law, thereby safeguarding individual rights, and provided Azeryolservis ASC and the Ministry of Transport with tools necessary to manage the sector.

The updating of the road database has enabled Azeryolservis ASC and the Republic of Azerbaijan to make investment and maintenance decisions based on reliable data. This task benefited from the World Bank’s experience in the field and Azerbaijan’s data

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collection and management system is now a leading example in the region. The data collected was used in preparing the road sector master plan. Although this has yet to be formally adopted, it does provide a working framework for Azeryolservis ASC activities for the next ten years. The strategy contained in the plan reflects Azeryolservis ASC plans to ensure all roads are in a fully maintainable state within the next ten years.

Other areas where Component 2 has helped strengthen Azeryolservis ASC, and other relevant institutions, include road safety, technical documentation for design, and quality management. For example, Azeryolservis now requires road safety audits both during design and pre-opening for all IFI financed projects. Activities to further implement and formalize good practice in these fields continue with the support of initiatives financed under other IFI projects.

The support provided under Component 2 for the implementation enabled Azeryolservis ASC to develop a PIU capable of efficiently managing this, and other projects, financed by the World Bank and other IFIs. By 2012, the experience and skills gained by Azeryolservis ASC staff enabled a second PIU to be set-up and staffed to separately manage the growing ADB and EBRD programmes.

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4 RESULTS INDICATORS

4.1 Project Outcome Indicators

The Project Outcome Indicators are a tool used by the Borrower and the Bank to assess the success of the Project. The status of each indicator at completion is shown below.

Project Outcome Indicators Baseline Target Status at Closing

Remarks

Component 1

Transit time from Alat to Yenikend 30 minutes 20 minutes 18 minutes Target achieved.

Vehicle operating cost from Alat to Yenikend

100% 91% 89% Target achieved.

Transit time from Baku to Shamakhi 150 minutes 100` 100` Target achieved.

Vehicle operating costs from Baku to Shamakhi


Decline in the percentage of road accidents in the Project roads

0 30% 48% Target achieved.

Transit time from Kurdamir to Ujar 48 minutes 30 minutes 30 minutes Target achieved.

Vehicle operating costs from Kurdamir to Ujar


Transit time from Tagiyev to Sahil 120 minutes 30 minutes 30 minutes Target achieved.

Vehicle operating costs from Tagiyev to Sahil

100% --- 84%

A target was not set but based on the other project roads, a satisfactory reduction in vehicle operating costs was achieved.

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Remarks

Transit time from Hajigabul to Bahramtepe

120 minutes 100 minutes 100 minutes Target achieved.

Vehicle operating costs from Hajigabul to Bahramtepe


Increase in travel frequency for villagers in the Hajigabul - Bahramtepe region


Average increase in farm gate prices of key commodities in Hajigabul - Bahramtepe region

100% 120% 108%

Target partially achieved. Note: The impact study was done only several months after completion of works due to the closing date of the project and the delayed completion of the rehabilitation of the local roads. Ideally a longer time should be allowed to measure real impacts on farm gate prices.

Number of km upgraded for Alat-Yenikend

0 31 31 Target achieved.

Number of km rehabilitated for Baku-Shamakhi


Number of km rehabilitated for Kurdamir-Ujar


Number of km rehabilitated for Tagiyev-Sahil


Number of km rehabilitated for Hajigabul-Bahramtepe


Roads rehabilitated, non-rural (km) 0 349 349 Target achieved.

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Remarks

Roads rehabilitated, rural (km) 0 100 78

Target partially achieved. Note: 35km of project roads were rehabilitated by the local authorities between the design and implantation phases. These roads are not including in the figures.

Component 2

Preparation of the revised Road Law Yes Yes Target achieved.

Number of km of road data introduced in the road database

1,600 13,000 13,500 Target achieved.

Number of people trained in its use 3 10 10 Target achieved.

Development of Road Safety Strategy Yes Yes Target achieved.

Development of Road Master Plan Yes Yes Target achieved.

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Annex 8. Comments of Co-financiers and Other Partners/Stakeholders Not Applicable

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Annex 9. Objectives, Outputs and Outcomes of Project Components

Project Component

Cost without

VAT (US$ m)

Closing Date

Objective Output Short Term and Long Term

Outcome

AH2P Preparation of Expropriation Law of Azerbaijan Individual Consultant (International) Individual Consultant (National) Individual Consultant (National)

0.0963

0.023

0.0325

29/11/2007

16/9/2008

18/02/2009

The objective of these consultancy services was to review the current legal provisions for expropriation and prepare a draft Expropriation Law of Azerbaijan consistent with modern European practice and following the legal traditions of Azerbaijan. The new expropriation law should establish clear principles and procedures for efficient execution of property expropriation for a public interest in a fair and transparent manner.

A draft Expropriation Law was prepared which gave priority to issues like public interest, public notification, property valuation and compensation, and categories of property ownership. It reconciled differences between national and international policies on land acquisition that had been creating difficulties in preparation, adoption and implementation of Resettlement Action Plans.

The Land Expropriation Law for State Needs was adopted by the Decree of the President of Azerbaijan in 2010. Since then, all land acquisition for projects financed by either national budget or with IFI support follow the principals and provisions of the legislation. As a result of the legislation, provisions of the main international financial institutions, such as World Bank’s OP 4.12 requirements, are now covered under national legislation of Azerbaijan.

AH2P Preparation of Road Law

0.083 10/11/2008

The objective of the consultancy was to review the current “Law on Motor Roads” and to propose revisions consistent with modern (European) practice while observing the legal tradition in Azerbaijan. This consultancy referenced and reviewed other closely related laws: Road Traffic Law, the Law on Road Administration, and the Land Acquisition Law to establish if they also needed updating.

The proposed road law addressed, amongst other subjects, the classification of roads, general principles that govern road administration and management, roadside facilities, responsible entities for road administration and access to public roads.

The Law No 648-IVQ about the application of amendments to the Road Law of the Azerbaijan Republic dated 14 May, 2013 was ratified by the National Assemble of the Republic of Azerbaijan and signed by the President. According to the Law, the following was added: Clause 10-1 “Urban Roads” Cluase 15-1 “Right of Way Clause 15-2 “Reserve Zones of

Roads” Chapter II –I - Toll Roads,

Clauses 19-1&4 Clause 25-1 “Establishment of

Road Public Registry” Clause 34-1 “unallowable cases

on use of roads ” Chapter V – Road Safety (Clause

40-1&4)

AH2P Preparation for Data Collection Strategy

0.0535 21/05/2009

The objective of the technical assistance was to define the optimal strategy to extend the existing Road Asset Management System (RAMS) data base to the whole road network and ensure its long-term relevance through

The output provided a strategy for road asset management based on a RAMS database with information on the main network with components for pavement management, and geographic information tools.

Following this activity, Azeryolservis defined the project “Collection of Road Condition and Inventory Data for Azerbaijan” to establish a comprehensive road asset management system.

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Project Component

Cost without

VAT (US$ m)

Closing Date


Outcome

continuous updating.

AH2P-AF

Collection of Road Condition and Inventory Data for Azerbaijan Collection of Road Condition and Inventory Data for Azerbaijan

8.57

1.70

12/31/2014

12/31/2013

The main objective was to collect relevant road and pavement data for use in road and bridge asset management (RAMS). This included the creation of road reference system, defining of a road centrelines by GPS, taking ROW video, measuring road geometry, conducting an inventory survey, defining pavement condition, conducting bridge surveys, traffic counting and establishing an efficient data storage system.

The Azerbaijan state road network, in total 13 500 km, was surveyed and defined giving: (i) the classification, location and geometry of each road section; (ii) the condition (IRI, rutting, distresses, bearing capacity) of the network which is updated annually; (iii) traffic data for the whole network; (iv) the status and condition of bridges (in total 1 130); (v) pavement structure measurements on paved roads, in total 7 710 km; (vi) pavement composition measurements, in total for 10 920 km; A database and road and bridge asset management (RAMS) system has been installed to store and manage the collected data. Local experts have been trained and participated on daily basis both with data measurement and data processing.

Azeryolservis has established a Road Database Management Sector and the staffed the unit with personnel who have been trained and involved directly in the data collection project. At present, data is used by the Investment Department to identify roads that are in such a poor condition that full rehabilitation is required. Then, for identified roads, data on traffic, pavement condition and existing geometry is used to assess a project’s economic feasibility. Data has also been used for other institutional strengthening activities, such as the preparation of the Road Sector Master Plan. In the medium term, the road asset management system will serve as a basis for conducting network wide economic analysis, preparation of budgets, planning maintenance and prioritization of investments.

AH2P-AF

Road Data Auditing for Azerbaijan

0.574 28/12/2014

Provide technical expertise needed to ensure the supervision of data collection contracts, to review equipment calibration and validation, audit and monitor contractor data collection procedures and performance.

The contract “Collection of Road Condition and Inventory Data for Azerbaijan” and the associated goods procurement contracts were successfully completed and the road and bridge asset management system established.

The collected road network data has been validated and is of a sufficient quality and quantity to be of use to Azeryolservis. This data assists Azeryolservis with planning investments and maintaining the road network.

AH2P-AF

Road Condition and Inventory Data Equipment

0.22 EUR

23/01/2012

Purchase of equipment to measure road surface properties.

A Greenwood Profilograph measuring device mounted on a Land Rover Discovery was provided and is operational. Training was provided for Azeryolservis staff.

The equipment is in use and was used in the project “Collection of Road Condition and Inventory Data for Azerbaijan”. Azeryolservis now has the capacity to collect and interpret data collected by this method.

AH2P Falling Weight Deflectometer (FWD)

0.28 16/08/2010

Purchase of equipment to measure road bearing capacity.

The equipment, including specialist software, was provided and is operational. Training was provided for Azeryolservis staff.

The equipment is in use and was used in the project “Collection of Road Condition and Inventory Data for Azerbaijan”. Azeryolservis now has the capacity to

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Project Component

Cost without

VAT (US$ m)

Closing Date


Outcome

collect and interpret data collected by this method.

AH2P-AF

Database Server for RAMS

0.54 01/11/2011

Purchase of a Database Server and a File Server for road and bridge asset management system (RAMS).

The equipment, including software, was provided and is operational.

The equipment is in use and was used in the project “Collection of Road Condition and Inventory Data for Azerbaijan”. Azeryolservis has the capacity to store, analyse and output data on Azerbaijan’s road network.

AH2P Video Logging System

0.049 Euros

04/10/2010

Procurement of video logging equipment and software to collect information on the road network.

Road Doctor Cam Link Road Surveying System was provided and is operational. Training was provided for Azeryolservis staff.

The equipment is in use and was used in the project “Collection of Road Condition and Inventory Data for Azerbaijan”. Azeryolservis now has the capacity to collect and interpret data collected by this method.

AH2P Traffic Counters

0.049 04/10/2010

Procurement of movable traffic counters.

25 MetroCount movable traffic counters were supplied and are in use.

The equipment is in use and was used in the project “Collection of Road Condition and Inventory Data for Azerbaijan” to collect data traffic.

AH2P Developing the capacity of the Ecology and Safety Sector and the Land Acquisition Department in RTSD for environmental and resettlement issues

0.526 15/08/2007

To strengthen capacity in ESS, LAD and DMUs to handle national and international Banks’ social and environmental safeguard procedures during pre-project and post-project stages.

The Consultant developed and implemented a hands-on, field based training programs for ESS, LAD and DMUs to help them address the environmental management, monitoring, resettlement and land acquisition, as well as auditing of Highway 2 project.

Improvement of Azeryolservis LAD capacity on preparation of all documents related to resettlement and land acquisition, informing the Bank's resettlement policy.

AH2P-AF1

Preparation of Azerbaijan Road Safety Program

1.67 10/06/2013

Prepare an effective road safety strategy for Azerbaijan with a policy framework and an associated five-year action plan. Develop a country-wide system of crash and injury data collection, storage, retrieval and analysis. Design and deliver a professional development program to enhance enforcement skills of traffic police officers. The preparation of road safety audit guidelines and guidelines for the identification and treatment of blackspots.

A draft National Road Safety Strategy (2012-2022) and State Program on Road Safety (2012-2016) were prepared by the Consultant. The strategy contains a range of initiatives and interventions in four key areas - Safe Roads, Safe Speeds, Safe Vehicles and Safe People. The Consultant developed a country-wide system of crash and injury data collection which permits comprehensive analysis of the road safety situation in Azerbaijan. A program for training traffic police officers was developed and delivered.

Consultation on the National Road Safety Strategy and State Program on Road Safety was completed with all relevant Government stakeholders and documents was submitted to the Cabinet of Ministers. The Ministry of Transport is reviewing the comments received from Cabinet of Ministers. Road safety audits, based on the Road Safety Audit Guidelines, have been introduced by Azeryolservis for major highway schemes. A separate contract with the consultants “Road Safety Improvements for Selected Road Sections” saw the application of safety audits to three World Bank financed highway projects. The further mainstreaming of road safety audits to include secondary and

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Project Component

Cost without

VAT (US$ m)

Closing Date


Outcome

Guidelines for road safety audits and for the identification and treatment of blackspots were prepared.

local roads forms part of the ongoing ADB financed Second Road Network Development Investment Program.

AH2P Seminar on Road Financing

0.035 23/09/2007

The main objective of the technical assistance was to assist the Ministry of Finance in designing and implementing a one-day high level Highway Financing Seminar to exchange ideas with officials of other countries on their experience with different methods of sector financing.

The Consultant identified different alternatives for sector financing, including private sector participation in construction projects for which the investment will be recovered through tolls.

The government determined possible benefits of private sector managerial expertise in highway construction and operation. The Ministry of Finance identified the most efficient instruments for financing the sector.

AH2P-AF

Azerbaijan Road Sector Master Plan Consultant Firm (International) Individual Consultant (National)

0.72

0.015

15/08/2012

28/07/2013

The objective of this consultancy was to develop a road sector strategy consistent with the Government’s transportation strategy and prepare a Road Investment and Maintenance Master Plan in line with the sector strategy.

The Consultant prepared a strategy for the road sector and separate Master Plans for Road Investment and for Road Maintenance. These Master Plans cover the period 2015-2024. As well as covering the road network of Magistral, Respublica and local roads under the responsibility of Azeryolservis, the plans also considers Baku Metropolitan Area streets investments and road rehabilitation needs in the currently Occupied Areas.

The strategy prepared under this assignment has been developed by Azeryolservis, with the assistance of the World Bank, into a State Program for the Azerbaijan Road Network under the Responsibility of the Ministry of Transport. This is currently under review by the Ministry of Transport. The maintenance philosophy proposed in the Maintenance Plan of using “Level of Service” criteria has been adopted in the currently plans for Region Maintenance Units.

AH2P Capacity Building for the Road Investments and Maintenance Planning Unit

0.11 10/11/2009

The primary objective of the assistance was to support the establishment in the RTSD of a fully functional Planning Unit for road investment and maintenance and strengthen their capacity to develop multi-year investment and maintenance programs based on HDM4.

Staffing and capacity needs were identified.. Suitable training program including seminars on HDM were developed. The capacity of the Planning Unit was determined.

The long term outcome arising from this, and related projects will be the production of multiyear maintenance and rehabilitation plans, identification of the optimal long-term network condition and forecasts of network condition as well as annual maintenance needs.

AH2P Study on Prospective Construction Materials Sources and Better Regulation of River Extraction

0.58 31/08/2008

The objective of the consultancy service was to (i) identify prospective construction materials quarries, borrow pits and other possible sources of construction material across Azerbaijan as a substitute to some of the material currently derived from river

The Consultant identified existing and potential material sources and their location and reviewed of current aggregates extraction practice and assessment of needs for various kinds of aggregates. An economic analysis of current aggregate market was also

Sources of construction materials were identified in sufficient quantities to meet Azerbaijan’s road development plans. The assignment also confirmed the suitability of river extracting as a source of high quality aggregates.

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Project Component

Cost without

VAT (US$ m)

Closing Date


Outcome

extraction, and (ii) propose improvements for better regulation of river extraction.

conducted.

AH2P Review and revision of geometric and structural design standards and specifications for roads and bridges, and development of road maintenance standards and maintenance methods

0.55 6/1/2012

Revise the technical standards for geometric and structural design, specifications, and for maintenance

The Consultant delivered technical reports on geometric and structural standards and maintenance standards and methods. A typical Standard Specifications was also delivered. The recommended maintenance standards are based on Maintenance Criteria and Service Levels.

The consultancy moved the reform of road design and maintenance standards forward. The use of service level criteria has been adopted during subsequent projects aimed at reforming road maintenance practices.ADB and EBRD financed projects are in place to further develop standard documents for use in the road sector for design, construction and for maintenance activities.

AH2P Road Maintenance Equipment (in lots)

0.449

0.545

28/4/2011

28/7/2011

Buying equipment 9 Excavator Loaders and of 25 Pick Up Vehicles-were procured

The vehicles and excavators are in use by Azeryolservis Road Maintenance Units.

AH2P Revision of the Civil Engineering

0.10 31/12/2009

Define a strategy and prepare an action plan to develop a study programme for Azerbaijan Architecture and Construction University

A strategy and action plan were prepared aimed at improving the effectiveness of learning and providing students enrolled in the Transport School of AACU with enhanced knowledge and skills. The contract with the consultant was terminated in 2009 mostly because of the lack of cooperation between the University counterparts and the consultant, as the university had very specific requirements regarding laboratory development.

The Transport School faculty was provided with a resource to assist them in meeting the university’s modernization plans.

AH2P Project Financial Audits

0.20

6/8/2010

The objective of the audit was enable the auditor to express an opinion on the project financial statements (PFS) of the Azerbaijan Highway Project, İDA Credit 3517 AZ for the period from 1 January 2007 until the last payment under the credit.

The auditor examined the eligibility of financial transactions during the period under examination and fund balances at the end of such a period, the operation and use of the Special Account in accordance with the relevant general conditions, relevant financing agreements and

The audit activities concluded counterpart and external funds have been provided and used in accordance with the relevant general conditions. Expenditures have been made wholly and necessarily for the realization of project objectives. Goods and services financed have been procured in accordance with the relevant general conditions and

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Project Component

Cost without

VAT (US$ m)

Closing Date


Outcome

disbursement letter, and the adequacy of internal controls for this type of disbursement.

relevant financing agreements.

AH2P-AF

Technical Assistance to PIU

0.846 12/09/2014

Assist and support Azeryolservis PIUs in the efficient, cost-effective and sustainable management and implementation of the Road Network Development Program.

Technical assistance to the Investment Department of Azeryolservis was provided, specifically by improving the capacity of PIUs to liaise with IFIs, manage consultancy assignments, and manage civil works construction contracts.

This technical assistance assignment improved the capacity of Azeryolservis to progress road schemes through the project pipeline, from feasibility study and procurement to taking-over of works. PIU staff are better experienced to manage technical and contractual aspects of project management.

AH2P-AF

TA to Investment Division

0.55 03/05/2012

Assist and support the PIUs in the efficient, cost-effective and sustainable management and implementation of the RNDP.

Technical assistance to the investment department of Azeryolservis.

This assignment helped Azeryolservis to improve the performance, recordkeeping and reporting of consultants supervising works contracts.

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Annex 10. List of Supporting Documents 01A – Project Appraisal Document 2005 01B - Project Paper Restructuring 2006 01C - Project Paper Additional Financing 2008 01D - Project Paper Additional Financing 2 2009 01E - Project Paper Restructuring 2 2013 01F - Project Paper Restructuring 3 2013 01G – Project Paper Restructuring 4 2014 01H – Project Appraisal Document Highway 3 2010 0201 - ISR 01 0202 - ISR 02 0203 - ISR 03 0204 - ISR 04 0205 - ISR 05 0206 - ISR 06 0207 - ISR 07 0208 - ISR 08 0209 - ISR 09 0210 - ISR 10 0211 - ISR 11 0212 - ISR 12 0213 - ISR 13 0214 - ISR 14 0215 - ISR 15 0216 - ISR 16 0217 - ISR 17 0218 - ISR 18 0219 - ISR 19 0220 - ISR 20 0221 - ISR 21 0222 – ISR 22 0301 - AM 2006 04 0302 - AM 2006 07 0303 - AM 2006 11 0304 - AM 2007 04 0305 - AM 2007 07 0306 - AM 2008 01 0307 - AM 2008 07 0308 - AM 2008 10 0309 - AM 2009 03 0310 - AM 2009 07 0311 - AM 2010 02 0312 - AM 2010 08 0313 - AM 2010 09 0314 - AM 2011 14 0315 - AM 2011 11 0316 - AM 2012 03

66

0317 - AM 2012 04 0318 - AM 2012 09 0319 - AM 2013 04 0320 - AM 2013 11 0321 - AM 2014 04 0322 - AM 2014 09 0323 – AM 2015-05

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MAP