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Document of The World Bank
FOR OFFICIAL USE ONLY
Report No: 74365-AM
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED LOAN
IN THE AMOUNT OF US$45 MILLION
TO THE
REPUBLIC OF ARMENIA
FOR THE
LIFELINE ROAD NETWORK IMPROVEMENT PROJECT
December 19, 2012
Transport Sector Unit Sustainable Development Department Europe and Central Asia Region
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
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CURRENCY EQUIVALENTS
(Exchange Rate Effective October 23, 2012)
Currency Unit = Armenian Dram (AMD) 405.9 = US$1
FISCAL YEAR
January 1 – December 31
ABBREVIATIONS AND ACRONYMS
AADT Average Annual Daily Traffic ADB Asian Development Bank AF Additional Financing ARD Armenian Roads Directorate ASRA Accounting Standards of the
Republic of Armenia BDs Bidding Documents CAS Country Assistance Strategy CBA Cost Benefit Analysis CPAR Country Procurement Assessment
Review CPS Country Partnership Strategy CQ Consultant Qualifications DA Designated Account DPL Development Policy Loan EA Environmental Assessment EBRD European Bank for Reconstruction
and Development EIB European Investment Bank EMF Environmental Management
Framework EMP Environmental Management Plan ERR Economic Rate of Return ESMF Environmental and Social
Management Framework EU European Union FM Financial Management FMS Financial Management System GDP Gross Domestic Product GoA Government of Armenia GPN General Procurement Notice GRSF Global Road Safety Facility HDM-4 Highway Development and
Management Model IBRD International Bank for
Reconstruction and Development
IC Individual Consultants ICB International Competitive Bidding IFAC International Federation of
Accountants IFIs International Financial Institutions IFR Interim Unaudited Financial
Reports IMF International Monetary Fund IRI International Roughness Index ISA International Standards on
Auditing KM Kilometer LCS Least Cost Selection LRIP Lifeline Road Improvement
Project LRN Lifeline Road Network LRNIP Lifeline Road Network
Improvement Project MOF Ministry of Finance MoTC Ministry of Transport and
Communication MTR Mid Term Review NCB National Competitive Bidding NGO Non-Government Organizations NPV Net Present Value NRSC National Road Safety Council OECD Organization for Economic
Cooperation and Development OPRC Operational Procurement Review
Committee PBC Performance- Based Contract PDO Project Development Objective POM Project Operational Manual PP Procurement Plan QCBS Quality and Cost-based Selection RAMS Road Asset Management System
RDCAD Road Data Collection and Analysis Department
RFP Request for Proposals RPF Resettlement Policy Framework SBD Standard Bidding Document SDR Special Drawing Rights SIL Specific Investment Loan SOE Statement Of Expenditure
SRFP Standard Request for Proposals TOR Terms of Reference TPIU Transport Project Implementation
Unit VOC Vehicle Operating Costs VPD Vehicles Per Day WA Withdrawal Applications WB The World Bank
Regional Vice President: Philippe H. Le Houérou, ECAVP Country Director: Henry G. R. Kerali, ECCU3
Sector Director: Laszlo Lovei, ECSSD Sector Manager: Juan Gaviria, ECSTR
Task Team Leader: Co-Task Team Leader:
Vickram Cuttaree, ECSTR Nargis Ryskulova, ECSTR
ARMENIA Lifeline Road Network Improvement Project
TABLE OF CONTENTS
Page
I. STRATEGIC CONTEXT ....................................................................................................1
A. Country Context ............................................................................................................ 1
B. Sectoral and Institutional Context ................................................................................. 2
C. Higher Level Objectives to which the Project Contributes .......................................... 8
II. PROJECT DEVELOPMENT OBJECTIVES......................................................................9
A. PDO............................................................................................................................... 9
B. Project Beneficiaries ..................................................................................................... 9
C. PDO Level Results Indicators ....................................................................................... 9
III. PROJECT DESCRIPTION ................................................................................................10
A. Project Components .................................................................................................... 10
B. Project Financing ........................................................................................................ 13
C. Lessons Learned and Reflected in the Project Design ................................................ 14
IV. IMPLEMENTATION ........................................................................................................15
A. Institutional and Implementation Arrangements ........................................................ 15
B. Results Monitoring and Evaluation ............................................................................ 15
C. Sustainability............................................................................................................... 16
V. KEY RISKS AND MITIGATION MEASURES ..............................................................16
A. Risk Ratings Summary Table ..................................................................................... 16
B. Overall Risk Rating Explanation ................................................................................ 17
VI. APPRAISAL SUMMARY ................................................................................................17
A. Economic Analyses ..................................................................................................... 17
B. Technical ..................................................................................................................... 18
C. Financial Management ................................................................................................ 19
D. Procurement ................................................................................................................ 19
E. Governance ................................................................................................................. 20
F. Social (including Safeguards) ..................................................................................... 21
G. Environment (including Safeguards) .......................................................................... 22
H. Other Safeguards Policies Triggered .......................................................................... 22 Annex 1: Results Framework and Monitoring...................................................................... 23 Annex 2: Detailed Project Description ................................................................................. 28 Annex 3: Implementation Arrangements .............................................................................. 33 Annex 4: Economic Analysis................................................................................................ 43 Annex 5: Road safety in Armenia and previous Bank activities .......................................... 49 Annex 6: Operational Risk Assessment Framework (ORAF) .............................................. 51 Annex 7: Implementation Support Plan ................................................................................ 55 Annex 8: Sustainability Roadmap ........................................................................................ 58 Annex 9: Map ....................................................................................................................... 60
.
PAD DATA SHEET
Armenia
LIFELINE ROAD NETWORK IMPROVEMENT PROJECT (P126782) PROJECT APPRAISAL DOCUMENT
.
EUROPE AND CENTRAL ASIA
ECSTR
Report No.: PAD237 .
Basic Information
Project ID Lending Instrument EA Category Team Leader
P126782 Specific Investment Loan
B - Partial Assessment Vickram Cuttaree
Project Implementation Start Date Project Implementation End Date
04-Jun-2013 30-Jun-2017
Expected Effectiveness Date Expected Closing Date
04-Jun-2013 30-Jun-2017
Joint IFC
No
Sector Manager Sector Director Country Director Regional Vice President
Juan Gaviria Laszlo Lovei Henry G. R. Kerali Philippe H. Le Houerou .
Borrower: Ministry of Finance, Republic of Armenia
Responsible Agency: Ministry of Transport and Communication
Contact: A. Bakhtamyan Title: Director, Transport PIU State Institution
Telephone No.:
(374-10) 545-748 Email: [email protected]
.
Project Financing Data(US$M)
[ X ] Loan [ ] Grant [ ] Term: The variable spread loan has a final maturity of twenty-five years including a grace period of ten years.
[ ] Credit [ ] Guarantee
For Loans/Credits/Others
Total Project Cost (US$M): 56.22
Total Bank Financing (US$M):
45.00
.
Financing Source Amount(US$M)
Borrower 11.22
International Bank for Reconstruction and Development
45.00
Total 56.22 .
Expected Disbursements (in USD Million)
Fiscal Year
2014 2015 2016 2017 0000 0000 0000 0000 0000
Annual 10.00 10.00 15.00 10.00 0.00 0.00 0.00 0.00 0.00
Cumulative
10.00 20.00 35.00 45.00 0.00 0.00 0.00 0.00 0.00
.
Project Development Objective(s)
The Project Development Objective is to improve access of rural communities to markets and services through upgrading of selected lifeline roads, and to strengthen the capacity of the Ministry of Transport and Communication to manage the lifeline road network. .
Components
Component Name Cost (USD Millions)
Lifeline Road Improvement 52.39
Project Management and Institutional Strengthening 3.72 .
Compliance
Policy
Does the project depart from the CAS in content or in other significant respects?
Yes [ ] No [ X ]
.
Does the project require any waivers of Bank policies? Yes [ ] No [ X ]
Have these been approved by Bank management? Yes [ ] No [ X ]
Is approval for any policy waiver sought from the Board? Yes [ ] No [ X ]
Does the project meet the Regional criteria for readiness for implementation? Yes [ X ] No [ ] .
Safeguard Policies Triggered by the Project Yes No
Environmental Assessment OP/BP 4.01 X
Natural Habitats OP/BP 4.04 X
Forests OP/BP 4.36 X
Pest Management OP 4.09 X
Physical Cultural Resources OP/BP 4.11 X
Indigenous Peoples OP/BP 4.10 X
Involuntary Resettlement OP/BP 4.12 X
Safety of Dams OP/BP 4.37 X
Projects on International Waterways OP/BP 7.50 X
Projects in Disputed Areas OP/BP 7.60 X .
Legal Covenants
Name Recurrent Due Date Frequency
Maintenance of LRNIP road sections Yes
Description of Covenant
The Borrower shall ensure, until completion of the Project, that adequate budgetary resources are allocated and made available for the maintenance of those sections of the Lifeline Road Network rehabilitated under the Project
Name Recurrent Due Date Frequency
Use of international design standards Yes
Description of Covenant
The Borrower shall permit the use of standards recommended by the European committee for standardization on design and construction of roads and highways (in additional to the national standards) in the design and construction of road works under the Project .
Conditions
Name Type
Project Operational Manual adopted Condition for effectiveness
Description of Condition
The Operational Manual satisfactory to the Bank is adopted by the Borrower, through the Ministry of Transport and Communication
Team Composition
Bank Staff
Name Title Specialization Unit
Rodrigo Archondo-Callao
Sr Highway Engineer Sr Highway Engineer ECSTR
Joseph Paul Formoso Senior Finance Officer Senior Finance Officer CTRLA
Marie Antoinette Laygo Program Assistant Program Assistant ECSSD
Zaruhi Tokhmakhian Operations Officer Operations Officer ECSUW
Darejan Kapanadze Senior Environmental Specialist
Senior Environmental Specialist
ECSEN
Alexander Astvatsatryan Senior Procurement Specialist
Senior Procurement Specialist
ECSO2
Vickram Cuttaree Senior Infrastructure Economist
Task Team Leader ECSTR
Cecilia Claudia Corvalan Senior Transport Economist
Senior Transport Economist
LCSTR
Mariana Margarita Montiel
Senior Counsel Senior Counsel LEGLE
Elena Y. Chesheva Operations Officer Operations Officer SASDT
Petrus Benjamin Gericke Lead Transport Specialist
Lead Transport Specialist
AFTTR
Nargis Ryskulova Operations Analyst Co-Task Team Leader ECSUW
Chukwudi H. Okafor Senior Social Development Specialist
Senior Social Development Specialist
ECSSO
Arman Vatyan Sr Financial Management Specialist
Sr Financial Management Specialist
ECSO3
Irina Tevosyan Program Assistant Program Assistant ECCAR
Michael Butler Junior Professional Associate
Junior Professional Associate
ECSTR
Marinos Skempas E T Consultant E T Consultant / Engineer
ECSTR
Non Bank Staff
Name Title Office Phone City
David Silcock Consultant, Road Safety .
Locations
Country First Administrative Division
Location Planned Actual Comments
Armenia Syunik'i Marz Syunik'i Marz X
Armenia Aragatsotni Marz Aragatsotni Marz X
Armenia Armaviri Marz Armaviri Marz X
Armenia Geghark'unik'i Marz
Geghark'unik'i Marz
X
Armenia Kotayk'i Marz Kotayk'i Marz X
Armenia Lorru Marz Lorru Marz X .
Institutional Data
Sector Board
Transport .
Sectors / Climate Change
Sector (Maximum 5 and total percentage must equal 100)
Major Sector Sector % Adaptation Mitigation
Co-benefits % Co-benefits %
Transportation Rural and Inter-Urban Roads and Highways
100
Total 100
I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project. .
Themes
Theme (Maximum 5 and total percentage must equal 100)
Major theme Theme %
Rural development Rural services and infrastructure 60
Trade and integration Trade facilitation and market access 20
Financial and private sector development Infrastructure services for private sector development
20
Total 100
Gender Flag
Does the activity support (select all that apply)
Analysis and/or consultation on gender related issues
Specific actions to address the distinct needs of women and girls, or men and boys, or positive impacts on gender gaps
Mechanisms to monitor gender impact to facilitate gender-disaggregated analysis
1
I. STRATEGIC CONTEXT
A. Country Context
1. Despite a substantial recovery from the global economic crisis in 2008/09, economic growth and local employment in Armenia remain low. Armenia suffered severe economic contraction in 2009 following the global economic crisis, making it one of the hardest hit countries in the Europe and Central Asia region. Real GDP declined by about 14.6 percent in 2009. This was mainly caused by the decline in the construction sector, which had previously been the major source of growth. The economy resumed growth in 2010 and has maintained a modest recovery path. The growth rate was 2.1 percent in 2010, 4.6 percent in 2011, and 6.6 percent (on an annual basis) for the second quarter of 20121. The growth rates remain low in contrast to the double-digit growth rates in the years preceding the crisis. The recession also had a major impact on local employment, causing many job losses, reduction in hours of work, and declining earnings. This consequently disrupted the poverty reduction momentum of Armenia and increased poverty for the first time since the late 1990s2.
2. Rural population and female-headed households were particularly impacted by the crisis. At the height of the recession, about 42 percent of Armenian households reported suffering the negative consequences of the global economic crisis. Towards the end of 2010 there were still 40 percent of rural households who had experienced job losses, reduction in wages and a decline in agricultural business. The poverty headcount increased from 28 percent of the population in rural areas in 2008 to 36 percent in 2010, compared to 26 percent in Yerevan. Poverty rate for female-headed households increased from 35.3 percent in 2008 to 53 percent in 2010.
3. The Armenian Government reacted to the economic crisis by initiating a recovery strategy to protect the poor and support local employment. To mitigate the impact of the global economic crisis, the Government initiated a strategy to improve rural infrastructure and boost the economy in rural communities by improving connectivity to markets and generating local employment. The Family Benefit program, a means-tested social assistance program, helped contain poverty during 2008-10. Post-recession, economic growth shifted towards a more broad-based approach, all sectors were to contribute to the economy. Recovery in 2012 is being driven by a few sectors, including manufacturing and mining, agriculture, and construction.
4. Trade facilitation and connecting local production to markets remains paramount in reducing rural poverty and promoting economic growth. The agricultural sector represents about 20 percent of the country’s GDP and involves around 335,000 households. Trade from rural areas is less than optimal due to restricted connectivity to markets as a result of the poor condition of roads. This has hindered trade facilitation for rural farmers, resulting in substantial crop losses for some communities due to an inability to get them to markets on time. It is vital that rural infrastructure is improved and maintained to promote agricultural trade, thus stimulating economic growth and local employment for the future. 1 The World Bank. Program Snapshot. Report prepared by The World Bank in Armenia, October 2012. 2 The World Bank. Armenia: Poverty Update Using Revised Poverty Lines. Report by Human Sector Development Sector Unit, The World Bank, Washington DC, March 2011.
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B. Sectoral and Institutional Context
5. Armenia has distinctive economic and geographic features that pose considerable transport challenges. Armenia is a landlocked country in a strategically important location of the South Caucasus in Eurasia. The country shares its borders with four countries: Georgia, Iran, Azerbaijan and Turkey. However, only two of these borders are open: the southern border with Iran and the northern border with Georgia. The western border with Turkey and the eastern border with Azerbaijan were closed in the early 1990s as a result of the Nagorno-Karabakh conflict. In addition, Armenia has very challenging topography and weather conditions – the country’s terrain is very mountainous and experiences very low winter temperature, heavy snowfall and high intensity rainfall. The combination of all of these factors results in high transport costs and expensive infrastructure maintenance and development.
6. The transport sector plays a critical role in the economy and the Government has put forward a plan to address poor quality transport infrastructure. Transport and communications sector has represented an average of 6.7 percent of GDP over the last five years and has employed about 5.6 percent of total employment in 2011. The Global Competitive Index 2012 ranked Armenia’s infrastructure at 80 out of 144 countries, with a score of 3.7 (with 1-very bad infrastructure, and 7-very good infrastructure). Armenia’s roads ranked 80, railway infrastructure ranked 63 and air transport infrastructure ranked 69, an improvement compared to 2010 but still constituting a constraint to growth. In order to bridge the investment gap in transport infrastructure and promote economic development, the Government of Armenia (GoA) has given priority to the rehabilitation of transport infrastructure. The Bank’s engagement is part of a broader package of transport operations put forward to promote economic development. In 2008, Armenia Transport Sector Development Strategy 2020 was prepared, which included an investment plan for the road sector. Priority investments were identified to improve the interstate and rural road network during 2010-2020. The noninvestment component focused on priority reforms, including the development of regulations and operational procedures; encouragement of private sector participation in construction and maintenance; and capacity building for planning, monitoring, evaluation and reporting.
7. The total length of the road network is 7,704 km, excluding urban roads, with less than half being in good or fair condition. Most of the road network in Armenia was built in the 1960s and 1970s. The percentage of paved roads, at 93 percent, is high compared to other developing countries, but in line with most European countries. The majority of republican and local roads have deteriorated since independence and only 48 percent of the total road network and 60 percent of main roads (interstate and republican) are in good or fair condition. The road network density of Armenia is about 2.6 km per thousand persons and 279 km per square km, which is very low compared to other countries in the region, reflecting in part the difficulties to provide basic access to the rural population.
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Table 1: Road Network Characteristics in Armenia (km and percent)
Road Category Length (km) Length ( percent) Interstate roads 1,686 22% Republican Roads Main Roads Managed by ARD Managed by Marzes
4,056 1,814 2,242
53% 24% 29%
Local Roads State-owned roads Community-owned roads TOTAL
1,962 962
1,000 7,704
25% 12% 13%
100% Source: Introduction of Road Maintenance Microenterprises in Armenia, Report 1, April 2010 and ARD estimates
8. Armenia’s railway network is relatively small but plays an important role in the economy. Armenian Railways was established in 1992 as a closed joint-stock company. The railway transports mainly cereals, oil and oil products, cement, chemical and mineral fertilizers. Traffic has decreased ten times since independence in 1991, primarily due to the closing of Armenia’s borders with Azerbaijan and Turkey. About 30,000 containers are imported annually through Georgia’s port of Poti on the Black Sea, with the railway carrying 30 percent of the traffic. However, the Armenian Railways is facing competition from the trucking industry, improving condition of the road network and decline of some industries. Since 2008, a subsidiary of Russian Railways has been operating Armenia’s railways.
9. Air transportation has not improved significantly in recent years and remains constrained by regulatory and commercial practices. The three main airports are Zvartnots (Yerevan), Shirak and Erebuni. Armenian International Airports manages and maintains the airports in Zvartnots and Shirak under a 30-year concession. Although Zvartnots airport is a public-private partnership that brought private investment in a new terminal and operations of the airport, there is scope to improve regulatory and commercial practices. Air services operate under an investment agreement with Armavia, a private Armenian carrier that has exclusive rights for ten years to all domestic and international routes.
10. About 64 percent of the population lives in urban areas, which increased the pressure on public transportation in cities. Since 2002, most bus lines in Yerevan and other major cities have been franchised to private operators on a per route basis under three-four year concessions. The demand for public transport has changed dramatically in recent years with the introduction of minibuses and a decline in large bus, trolleybus and metro services. The poor integration of public transport network penalizes transfers from one mode of transport to another. However, the Yerevan municipal Government has been putting efforts to develop passenger transport and traffic management and the Asian Development Bank (ADB) is currently engaged in urban transport in Armenia.
11. The Ministry of Transport and Communication (MoTC) is responsible for the transport sector in Armenia. The MoTC is responsible for formulating transport programs, projects, and regulatory measures, and for planning transport systems. It is also responsible for managing interstate and republican main roads (1,814 km). Regional administrations (marzes) and local communities are responsible for maintaining about 55 percent of republican roads (2,242 km) and all local roads. The Armenian Road Directorate (ARD) is the agency responsible for
4
maintaining interstate and republican main roads: MoTC delegates road-related tasks to ARD through formal annual contracts. The ARD’s mission is to: (i) support Armenia road network development, develop and implement the State strategic plan for the sector; (ii) support international organizations and donor countries in the development, repair and maintenance of the road network; (iii) conduct laboratory and design research, surveys and analysis; (iv) analyze traffic crashes and recommend actions to reduce their incidence; and (v) make periodic observations of roads and engineering construction.
12. In 2008, the Government launched the Lifeline Road Development Program, introducing the concept of Lifeline Roads. The objective of the program was to stimulate economic growth and contribute to poverty reduction by improving a selected number of lifeline roads. The Government defined a lifeline network, comprised of about 4,000 km, mainly of main republican roads and around 2,250 km local roads that were reclassified into republican roads in 2008. The lifeline road concept identifies a priority network ensuring at least one access road to all 960 communities in Armenia. Around 58 percent of these roads carry traffic higher than 300 vehicles per day and 20 percent carry traffic higher than 1,000 vehicles per day. As a result of the program, the republican road network more than doubled in length between 2008 and 2009.
13. Since the launch of the Lifeline Road Improvement Project (LRIP) in 2009 there have been noticeable improvements in both local employment and journey time. The World Bank financed Lifeline Road Improvement Project (LRIP) upgraded lifeline roads in selected regions, created local employment in road construction and improved access to markets. The roads were selected from a list of high priority lifeline road sections defined by the Government. The design of the Project was also a response to the emergency economic situation resulting from the recent crisis to improve about 430 km of lifeline roads, out of 4,000 km. Two additional financings were approved in 2009 and 2010 and the Project has had a positive impact on rural communities. By 2011-2012, as a result of the road improvements, reduction in journey times for road users using the lifeline roads rehabilitated under the Project has reached 36.8 percent and 33,647 person-months of local jobs were created3. The LRIP is rehabilitating about 11 percent of the lifeline network and has demonstrated the importance of lifeline roads to the local population and the economic gains which can be made from improved connectivity.
14. Despite visible improvement since 2009, the majority of Armenia’s Lifeline Road Network remains in poor condition and there is still an important investment backlog for Lifeline Road Network. Since 2009, more than 8114 km of lifeline roads have been rehabilitated, mainly with the World Bank’s assistance and from the State budget. However, about 50 percent of lifeline roads are still in poor condition. The degraded part of the Lifeline Road Network (LRN) causes high transport costs and journey times for road users, thus restricting the connectivity to key markets such as agriculture, and important services such as health and education, and negatively affecting the country’s competitiveness. This situation has occurred due to a historic pattern of underinvestment and deferred maintenance, resulting in a considerable maintenance backlog. Deferred maintenance leads to a future burden of more
3 The World Bank (2011). Project Development Objective Indicators for the Armenia LRIP. 4 In parallel to the LRIP, the Government has been rehabilitating roads with the financing from the State budget
5
expensive rehabilitation and road reconstruction, which increases overall transport costs in the long run.
15. One of the main constraints remains the limited budget allocation and poor asset management of the road sector. The budget allocated to maintenance has not kept up with the increase in size of the LRN over the past four years and the pace of rehabilitation financed out of the budget is not sufficient to bridge the investment gap. It would take over ten years to bridge the investment gap for lifeline roads. By this time, the initial road investments would have deteriorated due to insufficient maintenance and new investments will be required anew5. Furthermore, design standards used for improvement of lifeline roads have overall been too conservative, resulting in very expensive rehabilitation. Sometimes, a simple resurfacing with appropriate maintenance would have been less expensive, and would have allowed more km of roads to be improved. Box 1: Lessons from the Lifeline Road Improvement Project (Parent Project and two Additional Financings)
The Lifeline Road Improvement Project, launched in 2009, aims to upgrade selected sections of the lifeline road network and create temporary employment in road construction. It included the improvement of 430 km of lifeline roads with a focus on job creation. The original project, financed by a loan of US$ 25 million closed on December 31, 2010 and two additional financings was approved in 2009 (US$ 36.6 million, closed on December 31, 2011) and 2010 (US$ 40 million, closing on December 31, 2013). As of July 1, 2012, 416 km of roads out of total 430 km have been improved and about 33,647 of person-months of employment were created.
The lessons learnt from the implementation of the LRIP are the following: • Short-term employment generation was supported by infrastructure investment and use of
design standards to increase use of labor. A choice was made to foster employment generation by using labor intensive techniques in road improvement.
• Incremental improvements have been possible during the implementation of LRIP. These include the move toward more efficient design standards, and testing of cheaper technical solutions.
• Road Safety Audit has been successful in improving the safety of LRIP road designs and should be undertaken on all road construction and rehabilitation projects.
• The ‘Safe Village’ approach, piloted under LRIP, was met with wide approval amongst the communities involved and, judged qualitatively, has reduced accident risk in the villages treated.
16. Road expenditure has given priority to urgent rehabilitation at the expense of routine and periodic maintenance. Government and IFI funded rehabilitation of interstate and lifeline roads increased from approximately US$ 46.9 million in 2008 to an average of US$ 63.7 million per year during 2009-2012. However, only US$ 24.9 million was allocated in 2012 to routine maintenance for 5,742 km of roads of interstate and lifeline roads, and no funds allocated to periodic maintenance. Such budget allocation for maintenance of republican lifeline roads was insufficient, resulting in only half of the roads receiving winter maintenance and only 26 percent 5 The World Bank. Improving the Sustainability of Road Management and Financing in Armenia. Report No. 66533-AM, The World Bank, Washington D.C, October 13, 2011.
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of republican lifeline roads under the responsibility of marzes receiving summer maintenance. To address this shortage of resources, MoTC has allocated maintenance resources for roads under ARD responsibilities to those in better conditions, resulting in 87 percent of roads in good and fair conditions receiving maintenance. However, marzes often lack the financial resources and capacity to conduct routine maintenance. A preliminary estimate by the World Bank confirmed that routine maintenance funding for lifeline roads and local roads needed to be tripled in order to ensure proper maintenance, assuming that road conditions would continue to improve as a result of rehabilitation. Addressing the issue of sufficient maintenance would require better assessment of the needs and options for financing of the sector, including for the roads under the responsibility of marzes.
17. Moving towards Road Asset Management would improve further the sustainability of public investment in lifeline roads. International best practice shows that road maintenance and network improvements can be more efficiently implemented by determining priorities through the use of a Road Asset Management System (RAMS). The MoTC and the ARD have access to software, such as HDM, to support decision making and budget planning, but its use is limited due to the absence of a single database for the lifeline network and updated information on the network. There is scope to improve the management of Armenia’s LRN using a RAMS, thereby prioritizing spending through the proper monitoring, planning and programming of maintenance and rehabilitation works. This type of system limits less productive expenditures and redirects funds to higher priority projects, which yield greater economic return. A modernized road asset management system ensures that initial public investments are more efficiently spent. It also helps to prevent underfunding and deferred maintenance as it takes into consideration life-cycle cost of the lifeline roads.
18. Multi-year routine maintenance contracts are in effect but with limited risk transferred to the contractor. During the implementation of the ongoing LRIP there has been continuing progress with multi-year maintenance contracts. Armenia is now using 5-year performance-based contracts (PBC) for all routine maintenance but payments are determined on a yearly basis. Such limitation prevents an effective transfer of risk to the contractor, who is unlikely to invest in new equipment without more certainty on future payment. The efficiency of these contracts can be improved by providing multi-annual PBCs incorporating rehabilitation and maintenance, thus transferring construction risk to the private sector for a longer duration, and encouraging more innovation and investments in modern equipment.
19. Moreover, simple and low cost maintenance contracts could be implemented to ensure routine maintenance and some risk transfer. There is not a single model to ensure more efficient maintenance contracts for the whole network and low cost solutions are particularly needed given limited resources. Small performance-based maintenance of roads could be added to rehabilitation contracts, allowing the transfer of risks to the contractor responsible for rehabilitation at a minimal additional cost. Some innovative approaches, such as routine maintenance by microenterprises, have been successfully implemented in Latin American and adapted to Africa and South Asia in recent years. The use of microenterprises for routine maintenance can ensure that basic routine maintenance, involving grass cutting and culvert cleaning, is performed at a very minimal cost, which would be appealing for roads under the maintenance responsibility of marzes. This approach can also increase entrepreneurship, community involvement and ownership of lifeline roads.
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20. Armenian women have the potential to play a strong role in the local economy and are currently facing constraints to mobility and access to markets and social services. Women traditionally travel by foot in rural areas and would particularly benefit from road safety features such as continuous sidewalks and street crossings. Specific activities, such as the provision of inclusive income generation opportunities to women, especially in terms of short-term employment in basic construction activities, could be envisaged. The project will encourage women participation in the pilots for Routine Maintenance through Microenterpises. Consultations in a few villages in Armenia confirmed the interest from women to participate in basic routine maintenance and to provide additional services, such as food, to workers on construction or maintenance sites.
21. The application of these modern principles would require strengthening the institutional capacity of the MoTC, the ARD, and local contractors. A modern road asset management approach coupled with the adoption of PBC would require a significant strengthening in the institutional capacities of the MoTC, ARD and the local contracting industry. At government level, there is scope to improve the financing and management of the LRN through sector reform and training of ARD staff in modernized road asset management practices. Furthermore, there is scope to increase the capacity of the Road Data Collection and Analysis Department (RDCAD) within the ARD to collect additional road data for the LRN. The institutional capacity of the local contracting industry could be strengthened through pilot multi-annual PBC projects, which transfers construction risk to the contractor for a long period of time, thus providing incentives to train staff in using innovative techniques and equipment.
22. Positive steps were taken in 2009 on Road Safety, with the creation of the National Road Safety Council and the adoption of a five-year action plan. In August 2009, the Government of Armenia adopted a Decree approving the National Road Safety Strategy of Armenia (Strategy) and Five Years Action Plan (Action Plan) which included the establishment of a National Road Safety Council of Armenia (NRSC), supported by a Secretariat. The main objective of the NRSC was to implement the Action Plan and to reduce the number of road crash fatalities in the country by 30 percent within the following five years6. Subsequent actions have largely focused on Action Plan implementation, principally through a grant from the Bank-administered Global Road Safety Facility (GRSF) and under the LRIP. However, there is scope to improve coordination of activities, strengthen capacity in road safety design within ARD and support programs approved for the coming years.
23. Despite improvement since 2010, the number of traffic crashes and casualties remain high compared to European countries. The number of deaths per vehicles is much higher in Armenia than in Europe, with ten deaths per 10,000 vehicles compared to an average of six in EU member states. These activities have resulted in a significant reduction in road deaths since 2008 when the total number of reported road deaths was 407. By 2010 deaths had fallen to 294, however the latest full year results for 2011 show an increase to 327. The increase in 2011 can be in part explained by an increase in crashes being reported following the introduction in 2011 of
6 National Road Safety Council. Achievements and developments during the function period of the secretariat of the National Road Safety Council of the Republic of Armenia. Report produced by Head of Secretariat of the NRSC, June 2011.
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compulsory motor vehicle insurance, leading to an increase in reporting of accidents in order to support insurance claims. The situation illustrates the need for the Government to stay focused on financing, coordinating and implementing activities.
24. The rationale for the World Bank’s involvement is to build on the success of the ongoing LRIP and add a stronger emphasis on: (i) capacity building of MoTC in road asset management, and (ii) efficiency of rehabilitation and maintenance contracts. The LRIP has been successful at rehabilitating a large proportion of the lifeline road network. The proposed Project will build on this success through the improvement and maintenance of the lifeline road network in key agriculture areas and other areas of growth potential. Furthermore, the LRNIP will strengthen MoTC and ARD capacity in road asset management, which will support more efficient public expenditure. Finally, the LRNIP will provide the tools to strengthen the sector financial sustainability and pilot more efficient contracts focusing on road maintenance and implement road safety activities.
25. The Bank engagement will also complement the activities of other International Financial Institutions (IFI), including the Asian Development Bank (ADB) and the European Investment Bank (EIB). An important topic discussed as part of the sector dialogue is the sustainability of the road sector. The Bank engagement is focused on the lifeline road network, while the ADB is supporting the North-South Corridor and the EIB is expected to be more involved in the financing of inter-state roads. Close cooperation with the EIB will be ensured in order to closely link sections improved during the second and third year of implementation of the LRNIP with the EIB project under preparation. The project preparation involved extensive dialogue on the issue of sustainability. A roadmap for sustainability of the road sector was agreed with MoTC and discussed with other donors. Other operations under preparation, such as the Bank prepared Development Policy Lending (DPL) series will complement the project technical assistance and support sector reforms to increase the financing of road maintenance.
C. Higher Level Objectives to which the Project Contributes
26. The Project supports one of the Strategic Objectives of the Country Partnership Strategy for Armenia, i.e. Strengthening Competitiveness for Post-Crisis Growth (Results Area 5, Outcome 3). The proposed Project is referenced in the Country Partnership Strategy Progress Report (FY09-FY13) presented to the Board in June 2011. The report highlights the importance of continued investments in lifeline roads rehabilitation in an effort to “further strengthen the CPS goals aiming at addressing vulnerability, while building the foundations for competitiveness and medium-term growth”.
27. The Project is also in line with the Sustainable Development Program of the GoA, which prioritizes improvement of the transport sector including roads sub-sector. . The proposed Project will continue financing the rehabilitation of parts of the country’s lifeline road network but will provide tools and build capacity to help MoTC address the broader issues facing the road sector.
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II. PROJECT DEVELOPMENT OBJECTIVES
A. PDO
28. The Project Development Objective is to improve access of rural communities to markets and services through upgrading of selected lifeline roads, and to strengthen the capacity of the MoTC to manage the lifeline road network.
29. This would be achieved by: (i) improving about 170 km of lifeline roads, including road safety features piloted under LRIP, (ii) the institutional strengthening of MoTC and ARD in road asset management related activities, and (iii) the implementation of two pilots on the use of microenterprises for basic routine maintenance and one pilot on performance-based contract for rehabilitation and maintenance. In addition the project implementation will provide the platform for policy dialogue with the MoTC on the sustainability of the road sector. The project was prepared in close coordination with other IFIs (ADB, EIB) and the Bank’s DPL series under preparation.
B. Project Beneficiaries
30. The main beneficiaries are road users who would have improved access to services, reduced travel time, and reduced traffic crash risk. The other beneficiaries include communities that will be involved in construction and maintenance activities linked to the improvement of roads. The MoTC and ARD will strengthen their capacity to manage road assets and better plan investment and maintenance activities through training and use of systems to support decision making. Finally, the introduction of pilot rehabilitation and maintenance contracts will contribute to building capacity of local construction companies.
C. PDO Level Results Indicators
31. The achievement of the PDO will be measured through the following Project Development Objective indicators:
• Average speed on lifeline roads in project areas • Development and use of RAMS within MoTC to support decision making on LRN • Share of rural population with access to an all-season road • Number of rural people with access to an all-season road, disaggregated by gender • Users' perception of improved access to markets and services
32. The Intermediate Results Indicators for the proposed Project are:
• Roads rehabilitated, Rural • Number of km of lifeline roads fed into RAMS • Number of ”Safe Village” projects completed • PBC pilot designed and endorsed by MoTC • Road Financing Study completed and endorsed by GoA • Roads in good and fair condition as a share of total classified roads • Size of the total classified network
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• Pilot for Routine Maintenance through Microenterprises designed, implemented, and evaluated
• Pilot on Rehabilitation and Maintenance Contract designed, implemented, and evaluated
III. PROJECT DESCRIPTION
A. Project Components
33. Component 1: Lifeline Road Improvement (Total cost US$52.39 million; Bank: US$41.91 million). This component will finance the improvement (rehabilitation and/or upgrading) of an estimated 170 km of lifeline roads. The first year program was identified during the project preparation. Around 72 km (seven road segments) will be improved (including a 23 km corridor where a pilot on rehabilitation and maintenance is going to be implemented), at a total estimated cost of around US$20 million. The remaining 98 km will be identified during the implementation. Detailed designs for those roads, as well as supervision of civil works are also included under this Component.
(a) Sub-component 1.1: Road Rehabilitation Works (Total cost US$41.51 million; Bank: US$33.21 million). This sub-component covers the improvement of lifeline roads. The first package of works included 49 km of roads. Remaining road segments will be identified during the project implementation, based on the selection criteria agreed during the project preparation (three main criteria are used: economic returns, population served, and potential economic development). The investment, including road safety measures for each road segment must have an ERR of at least 12 percent.
(b) Sub-component 1.2: Pilot on Rehabilitation and Maintenance Contract (Total cost US$6.76 million; Bank US$5.41 million). This sub-component will finance one pilot where maintenance activities will be added to a rehabilitation contract for a total period of three years after the rehabilitation is completed. The road section for this pilot has been identified, covering around 23 km. The rehabilitation will be undertaken as part of the first year program.
(c) Sub-component 1.3: Pilot for Routine Maintenance through Microenterprises (Total cost US$0.17 million; Bank US$0.14 million). This sub-component will finance the operation of two Microenterprises for Routine Maintenance at least for two years. The pilot will be designed during the first year project implementation.
(d) Sub-component 1.4: Supervision and Technical Designs (Total cost US$3.7 million; Bank US$2.96 million). This sub-component will finance detailed design studies and related supervision activities for all rehabilitation works under the Project. As agreed during the Negotiations, this sub-component will also finance independent technical audits of civil works, which will be carried out about three times during the project implementation, tentatively for Y2, Y3, and Y4 of the Project.
(e) Sub-component 1.5: Road Safety Engineering and Black Spot Improvement (Total cost US$0.25 million; Bank US$0.20 million). This sub-component will cover
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construction costs associated with the works of four Safe Village schemes on road sections previously rehabilitated (not LRIP sections), as well as black spot improvements at locations identified by the Government.
34. Component 2: Project Management and Institutional Strengthening (Total cost: US$3.72 million; Bank: US$2.98 million). This component aims at helping strengthening capabilities within the MoTC on issues related to road assets management, road safety, performance based contracts, road sector financing, sustainability, and social monitoring. It will finance technical assistance, equipment, and operational costs associated with the implementation of the Project. It will also finance studies required for the preparation of potential future investments in the road sector. This component is split into four sub-components, as detailed below.
(a) Sub-component 2.1: Project Management and Implementation, including audits (Total cost US$1.11 million; Bank US$0.887 million). This sub-component will finance operational costs associated with implementation of the Project. It also includes yearly audits of the project accounts, to be submitted to the Bank.
(b) Sub-component 2.2: Road Asset Management System and Survey Equipment (Total cost US$0.5 million; Bank US$0.4 million). This sub-component will finance the purchase of the Road Asset Management System (including its installation and training) and road survey equipment to be used by ARD for surveying road condition and traffic.
(c) Sub-component 2.3: Road Safety Technical Assistance (Total cost US$0.25 million; Bank US$0.2). This sub-component will finance such elements of the road safety activities as the design of Black Spot Improvement works and training programs for the staff of the Road Safety Engineering Unit to be created within the ARD, road safety education in “Safe Village” schools, and road safety campaigns linked to LRNIP road sections.
(d) Sub-component 2.4: Technical Assistance (Total cost US$0.86 million; Bank US$0.49 million). This sub-component will provide a comprehensive technical assistance package that includes: (i) design of pilots and feasibility of a Performance- Based Contract (PBC); (ii) social monitoring and evaluation study; (iii) study on road sector sustainability; (iv) training of the MoTC staff and local contractors in multi-year performance based standards, microenterprises and other new concepts introduced by the LRNIP, and (v) technical studies and designs required for the preparation of potential future investments in the road sector.
35. Road Selection. A first package of roads, amounting 72 kilometers has been identified and designed. The remaining roads to be rehabilitated (about 98 km) will be identified and designed during the implementation. Preparation of the procurement documents (bidding documents, RFP, and contracts for the first year rehabilitation program, both for civil works and technical supervision) is well underway, and will be finalized by the end of December 2012. Selection of roads for inclusion in the rest of the Project will be based on economic return or/and population being served. Roads with low economic return or not servicing large population will
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not be selected, particularly if the economic return is below the minimum threshold for all considered viable technical solutions.
36. The scope of the second to fourth year program will include the whole universe of Lifeline roads. The ARD will update the inventory of all Lifeline roads with additional information, such as current traffic, population served, and road condition. Whenever needed, an expert opinion will provide input on the potential for economic development of a region and the traffic forecast will be adapted based on conservative assumptions. The condition and traffic data will be measured with sufficient detail to perform a network level economic evaluation, which will compare the proposed investment with a series of alternatives, including cheaper technical solutions.
37. The economic viability of the rest of the project interventions will be based on the same economic evaluation assumptions and methodology employed in evaluating the first year program. The selection of roads will be based on the evaluation of two main criteria: (i) NPV per investment and (ii) total population served per US$1,000 investment of the Project. The evaluation of the potential for economic development impact will complement the decision making process and help select road sections within those with the highest NPV or population served within each Marze. Should the ERR for any road in the program fall below 12 percent; designs would be revised to reduce costs and ensure that all investments supported under the Project are economically viable with an ERR higher than 12 percent.
38. Policy dialogue on sustainability of the road sector. Component 2 of the proposed Project will provide the tools to help MoTC improve the road sector sustainability. The road financing study will assess the financing needs of the sector, identify sources of financing (including dedicated taxes) and prepare a draft financing plan to secure sufficient allocation to the road sector. Road asset management system will be strengthened through the purchase and use of a consolidated database on road statistics (condition, traffic, etc.), and additional road survey equipment. The efficiency of road design standards will improve through the introduction of pilot rehabilitation and maintenance contracts, and the training of local contractors and MoTC staff on the use of efficient design standards and multi-year performance based standards. Finally, the introduction of microenterprises will provide low cost instruments to marzes on maintenance of roads under their responsibility. These elements of sustainability supported by the Project are incorporated in a sustainability roadmap, which was discussed and agreed with the MoTC and will be used to support policy dialogue during the project implementation.
39. Maintenance budget allocation to the road sector. About 87 percent of lifeline roads in good and fair condition, under the responsibility of the ARD and 22 percent of lifeline roads in good and fair condition, under the responsibility of marzes, receive routine and winter maintenance. Maintenance budget has remained stable over the past four years but was not increased due to limited resources available from the budget. The project will finance a study that will provide the GoA with a road sector financing plan. The DPL series under preparation includes road sustainability triggers and the Bank team will closely work with the ADB and the EIB, and other IFIs, to maintain a coherent dialogue on financial sustainability and funding of maintenance in the road sector.
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40. Maintenance of roads improved by the LRNIP. The Project will not provide funding for maintenance of all roads rehabilitated under Component 1. The responsibility for maintenance of some of these road sections will be with marzes. The Government confirmed that all roads sections rehabilitated by the Project will be maintained (routine and winter maintenance) during implementation. The Bank team will also review and discuss on a yearly basis the budget allocation for maintenance and maintenance programs with the MoTC. The introduction of microenterprise pilot contracts for basic routine maintenance will be a tool that can be used for roads under the responsibility of marzes. The scope of the road financing study and financing plan will cover roads under the responsibility of ARD and marzes. Training will be provided to marzes to help them design and implement low-cost maintenance solutions.
B. Project Financing
Lending Instrument
41. The lending instrument to be used is a Specific Investment Loan (SIL). Financing of activities will take place through an IBRD loan to the Republic of Armenia. The Borrower chose a variable spread loan with a 10-year grace period and a 25-year repayment period. Level repayment schedule will be linked to commitment. The Front-end fee will be financed out of the loan proceeds.
42. Retroactive financing in the amount of US$ 9 million was requested to mitigate the impact of any potential delays on the first year investment program7. Bidding for civil works and technical supervision for the first year rehabilitation program will start in early January 20138 with construction expected to start in March/April 2013 after the winter season. Retroactive financing will be allowed for up to 20 percent of the loan amount for the procurement of the works of the first year investment program. Pursuant to the Bank’s policies, retroactive financing is permitted under the following conditions, namely that: (a) the activities financed are included in the project description; (b) the payments were made for items procured in accordance with applicable Bank procurement procedures, and processing and clearances are subject to the Bank's Procurement and Consultant Guidelines; (c) such payments do not exceed 20 percent of the loan amount; and (d) the payments were made by the borrower after project appraisal (November 13, 2012) and within 12 months before the expected date of loan signing. Documentation requirements for expenditures claimed under retroactive financing are the same as those for disbursement against payments made after the Loan Agreement is signed.
7 Presidential elections in Armenia are planned for February 2013. Following the elections there may be changes in the Government and there is a risk that loan signing and effectiveness may get delayed. However, this risk is assessed as not substantial, and retroactive financing is requested in case some delays do take place. 8 All procurement documents (including BDs, RFP, and contracts are under preparation and will be finalized by December 31, 2012)
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Table 2: Project Cost and Financing
Project Components Project cost Million USD
IBRD Financing % Financing
Lifeline Road Improvement
Project Management and Institutional Strengthening
$52.39
$3.72
$41.91
$2.98
80%
80%
Total Project Costs
Front-End Fees
Total Financing Required
$56.11
0.11
$56.22
$44.89
$0.11
$45.0
80%
100%
80%
C. Lessons Learned and Reflected in the Project Design
43. Incorporation of additional safety measures in design of road improvement. Under LRIP the village of Gyulagarak was selected as a pilot for a “Safe Village” program and a combination of traffic calming measures, footway construction and an education program in the village school has been implemented. The Project received enthusiastic support from the local mayor, the school headmaster and people in the village, and appears to have been successful. The approach used in the pilot project has been taken on board in the designs for subsequent sections of the LRIP where they pass through villages. Eight additional “Safe Villages” have been completed in the on-going project. The proposed Project will implement at least four Safe Villages.
44. Move from emergency to sustainability. The focus of the LRIP was to respond to an emergency situation and support temporary job creation through improvement of lifeline roads. Although this approach was justified in 2009, there is a need to focus more on efficiency of public spending and support improvement in sustainability of the road network. The fundamental challenges include: (i) low funding allocation to road maintenance; (ii) limited institutional capacity of MoTC/ARD and contractors; (iii) lack of planning and prioritization of rehabilitation and maintenance works; and (iv) potential for more efficiency gain in the design of contracts for works and maintenance. The proposed Project will strengthen MOTC/ARD institutional capacity and provide the tools to improve the sustainability of the sector.
45. Progressive approach to sector reform and building on existing engagement. The LRIP has been successful in highlighting the need to focus more on efficiency of rehabilitation and maintenance contracts. The engagement and project implementation allowed testing more efficient design standards that have now been mainstreamed in the LRNIP. The Project is also going further into testing new pilots to improve maintenance of LRN. Although there is still a need to improve coordination of road safety activities, the financing of specific activities under the responsibility of MoTC will provide the opportunity to engage with Government on this issue.
46. Efficiency in technical standards. The use of more efficient design standards for road improvement, introduced in the LRIP, will be mainstreamed in the LRNIP. Such design standards take into consideration the traffic on the roads and the current conditions to determine the most economically viable technical solution. The use of more efficient design standards will
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reduce the overall cost of road improvement and will be applied to all road investment financed by the LRNIP.
47. Additional options to improve maintenance of Lifeline Roads. The LRNIP will also test, on a pilot basis, two approaches: (i) the use of microenterprises for basic routine maintenance, (ii) the incorporation of routine maintenance (summer and winter) in contracts for rehabilitation of road sections. The LRNIP will also finance a feasibility study for PBC for a larger section of road to be identified and not financed by the Project. The use of performance based contracts can result in savings of around 20-35 percent over a 5-year period by ensuring optimal maintenance and transferring construction risk to contractors.
IV. IMPLEMENTATION
A. Institutional and Implementation Arrangements
48. The MoTC, as policy making authority for the transport sector, will have the overall responsibility for implementation of the Project and, as for the previous Bank financed LRIP and two additional financings, will delegate the project management and day-to-day implementation to the Transport Project Implementation Unit (TPIU). Operational monitoring and supervision of the Project will be carried out by TPIU, which will work daily with MoTC to streamline decision-making. The Project will use qualified international consultants for supervision of civil works. The Project Operational Manual (POM) describes the institutional and implementation arrangements in details. A first draft of the POM was submitted by the TPIU to the Bank on November 5, 2012. Adoption of POM, satisfactory to the Bank is a condition for effectiveness.
49. The TPIU will also be responsible for the implementation of the financial management (FM) function of the project including planning and budgeting, accounting, financial reporting, external auditing, funds flow, and internal controls. TPIU is successfully implementing LRIP project , and LRNIP is largely built on the strong implementation experience and structure of the LRIP. No significant weaknesses were identified at TPIU. Prior to the project implementation the TPIU will update the current FMM to reflect LRNIP project’s specific activities and controls.
B. Results Monitoring and Evaluation
50. Project monitoring during the course of implementation will be carried out by TPIU under the close supervision from the MoTC. The TPIU will provide the necessary FM reporting inputs, semi-annual management reports, in a format satisfactory to the Bank, covering implementation progress and key issues, will be submitted to the Bank one month after the end of each calendar semester. Summary annual report, in a format satisfactory to the Bank, will be submitted to the Bank within 60 days of the end of each project year. The reports will be supplemented by regular implementation support missions by the Bank team and by regular monitoring of the Project implementation. The mid-term review is planned for December 2015 and will assess progress towards achieving the Project Development Objective and will pay special attention to the progress on the sustainability roadmap, pilot contracts and institutional strengthening activities under the Project.
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C. Sustainability
51. The Project will increase the sustainability of the road sector by (i) contributing to bridging the investment gap in LRN through the rehabilitation of key road sections in poor condition and (ii) providing the tools to improve decision making on public investment. These tools will strengthen the capacity of the MoTC to better allocate resources, improve efficiency of public expenditure in the road sector, and move towards an increased sustainability of the road sector.
52. Armenia has traditionally followed design standards for construction inherited from the Soviet times. Such standards result in conservative technical solutions, and are based more on road classification than traffic counts, which tends to favor rehabilitation over more simple periodic maintenance activities. While more conservative technical solutions may better sustain lack of maintenance and cold temperatures during winter, they result in being more expensive in the medium-term than construction standards based on traffic and with proper routine, periodic and winter maintenance. Moreover, given the limited resources available for lifeline roads, road improvement has focused on the rehabilitation of small sections of roads, without doing additional works to improve the life of the roads or to improve safety and accessibility in villages. The use of more efficient design standards was introduced in the LRIP and will be mainstreamed in the LRNIP. Moreover, two new types of performance based contracts will be piloted under the LRNIP: (i) microenterprises for basic routine maintenance in areas without routine maintenance, and (ii) rehabilitation and maintenance contract, where three-year maintenance will be added to one rehabilitation contract of the first year program. Finally, the Project will finance the feasibility study of a more complex multi-year performance based contract incorporating rehabilitation, routine and periodic maintenance of a section of road above 15 km.
53. The project implementation will also provide the platform to an increased policy dialogue, together with other donors, on the broader sustainability of the road sector. A sustainability roadmap, that will provide the base for policy dialogue during the implementation, has been agreed with MoTC. The Project will provide the tools to support the improvement in sustainability of the road sector. Several elements of the sustainability roadmap will monitor, in the result framework, progress in the following areas: (i) developing a financing plan to ensure sufficient resources to the road sector, (ii) strengthening the ARD Road Asset Management System, (iii) mainstreaming the use of efficient design standards, (iv) improving institutional arrangement and coordination of road safety activities, (v) improving ownership of local community of road maintenance, and (vi) improving efficiency of maintenance contracts. The detailed roadmap is presented in Annex 8.
V. KEY RISKS AND MITIGATION MEASURES
A. Risk Ratings Summary Table Stakeholder Risk Rating
Implementing Agency Risk
- Capacity Moderate
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- Governance Moderate
Project Risk
- Design Low
- Social and Environmental Moderate
- Program and Donor Low
- Delivery Monitoring and Sustainability Moderate
Operating Environment
- Country Moderate
- Sector & Multi-sector Moderate
Overall Implementation Risk Moderate
B. Overall Risk Rating Explanation
54. The proposed Project is suggested to have the following risk ratings: overall Preparation Risk, overall Implementation Risk, and overall Project Risk are rated as Moderate. The following Implementing Agency and Project risks are also rated as Moderate: Capacity Risk, Governance Risk and Social & Environment Risk while the Design Risk and Program & Donor Risk are rated as Low. A detailed discussion of risks and suggested mitigated measures are provided in Annex 6.
VI. APPRAISAL SUMMARY
A. Economic Analyses
55. The MoTC selected seven lifeline roads to be included in the first year program based on a prioritization study done by the ARD in January 2012. The study included a survey of a portion of the Lifeline Road Network, totalling 679 km subdivided into 103 roads, which are in need of rehabilitation or upgrading. A traditional cost benefit analysis was done, using the Highway Development and Management Model (HDM-4), which computes annual road agency and user’s costs (vehicle operating plus travel time costs) over the evaluation period, evaluating up to three project alternatives per road. The selected first year program roads are among the roads with high economic priority and taking into account a balanced geographical distribution.
56. The seven road sections are bituminous roads in fair to very poor condition. The current Average Annual Daily Traffic (AADT) varies between 798 to 1,605 vehicles per day, comprised, on average, of 10 percent trucks and buses and 90 percent passenger cars. The project roads serve in total 69,753 persons living in 31 communities. The total beneficiary population varies from 390 to 2,884 persons per km with an average of 953 persons per km. The total financial capital cost for the first year program is estimated at US$ 20.1 million, with an average rehabilitation cost of US$ 275,000 per km.
57. The economic evaluation of the prioritization study considers an evaluation period of 20 years, a discount rate of 12 percent and a conversion factor of 0.83 to identify economic costs.
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The overall Economic Rate of Return (ERR) of the first year program is 30.2 percent and the Net Present Value (NPV) is US$22.85 million. All roads have the ERR above 12 percent, ranging from 16.5 percent to 47.0 percent. If construction costs were 15 percent higher, the overall ERR would reduce to 26.9 percent and if the annual traffic growth rates were 15 percent lower, the overall ERR would reduce to 29.9 percent. Switching values analysis shows that construction costs would have to increase by 161 percent or benefits reduce by 62 percent for the overall ERR to reach 12 percent. The outcomes of the economic evaluation are summarized below, with more details provided in Annex 4.
Table 3: Economic Evaluation Results
Road Section NPV(US$ Million)
NPV/Investment Ratio
ERR(%)
M9-Arteni-Aragats-Getap 10.66 1.76 47.0% M1-Agarak-Byurakan-Antarut 6.50 2.42 27.9% M5-Nor Kesaria-Shenavan-Getashen 0.42 0.27 16.5% M10-Nerkin Getashen- Verin Getashen-Madina 0.93 0.32 17.8% Mayakovski-Nor Gyugh-Kotayk-Kapputan-Zovashen 3.75 0.88 31.4% M7-Arevashogh 0.23 0.24 17.1% M12-Kornidzor 0.35 0.20 16.5% Total 22.85 1.14 30.2%
B. Technical
58. The roads included in the Project are roads in fair to very poor condition in need of rehabilitation. Much of the deterioration is related to environmental factors, exacerbated by poor drainage design and maintenance practice. The Project will repair pavements on the existing alignment, including repair and/or upgrade of drainage facilities within the alignments, as well as small bridges/culverts if needed. The design will include provision of safety features such as guardrails, pavement markings, and sidewalks in urban areas. The design will use international design standards rather than Armenian standards to get solutions incorporating actual and forecast traffic volumes and local conditions.
59. Detailed designs for the LRNIP first year program roads with a total length of about 73 km were completed in October 2012. Many sections lost structural pavement and necessitate pavement reconstruction. The average road roughness varies between 6.5 and 16.0 IRI, m/km, and the average deflections vary between 0.64 to 1.56 mm. The rehabilitation road works to be implemented on the LRNIP first year program are asphalt overlays on existing pavements (42 percent of total length), reconstruction with asphalt concrete pavement (48 percent), and reconstruction with surface treatment pavement (10 percent). The road sections within the villages require special challenging design solutions considering that in some cases the limits of properties and fences do not allow for full width of the road, and special measures will need to be put in place with regards to ditches, shoulders, sidewalks and road safety measures. The design of the remaining road sections will be financed with the project funds.
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C. Financial Management
60. The financial management arrangements of TPIU were reviewed and assessed as satisfactory. The LRNIP project FM assessment was undertaken in July-August 2012. The information available from previous regular FM implementation support (latest in February 2012) of LRIP was also used. As a result of the assessment, it was established that TPIU has adequate FM arrangements in place, which are acceptable to the Bank for the LRNIP implementation. Particularly, the following was noted: i) significant experience of the TPIU’s FM staff in implementing Bank-financed projects over the past several years; (ii) adequate accounting system and software utilized by the TPIU, (iii) FM arrangements similar to the LRIP (including AFs) implemented by the TPIU, and found to be acceptable, and (iv) unmodified audit reports issued on LRIP’s financial statements confirmed this fact.
61. No significant weaknesses were identified at TPIU. Prior to the project implementation the TPIU will update the current Financial Management Manual (FMM) to reflect the LRNIP’s specific activities and controls.
62. The Treasury system is being used to maintain designated accounts of Bank-financed projects, including this Project. In addition, the country budget system will be used for the Project. For all the other FM elements the TPIU’s respective systems are going to be used for this particular Project.
D. Procurement
63. Procurement for the LRNIP would be carried out in accordance with the World Bank‘s Guidelines Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers published in January 2011 (Consultants Guidelines); and Guidelines Procurement of Goods, Works, and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers published in January 2011 stipulated in the Loan Agreement for the LRNIP. The World Bank Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credit and Grants dated October 15, 2006 and Revised in January 2011, would also apply. Procurement will be conducted following implementation arrangements described in the POM and using the latest version of the Bank’s Standard Bidding Documents (SBD) for Goods and Civil Works, and Standard Request for Proposals (SRFP) for consulting assignments available on the Bank’s web site.
64. General Procurement Notice (GPN) was published through the Bank’s Operations Portal on August 19, 2012. Specific Procurement Notices will be published for all procurements of Civil Works, Goods and Consulting contracts as per Guidelines, once the corresponding bidding documents and RFPs become ready and available.
65. Civil works procured under the Project will improve, through rehabilitation and maintenance, about 170 km of lifeline roads. Under the Goods contracts, equipment for TPIU for road safety and road assets management system will be procured. Consultants’ Services under the Project, will include preparation of the detail designs, technical supervision of the works as well as strengthening of the MoTC/ARD/TPIU capacity to manage the road network, support
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road safety activities. It will also include development of a sustainability plan for the road sector, a social monitoring and evaluation study.
66. For each contract to be financed under the LRNIP, the various procurement or consultant selection methods, estimated costs, prior review requirements, and time frame have been agreed between the Borrower and the World Bank in the Procurement Plan (PP).
67. Procurement will be carried out by the TPIU that has gained experience with the Bank's procurement rules and procedures since 2001 based on the implementation of several Bank financed projects in Armenia.
E. Governance
68. The design and supervision of the Project will include measures to help achieve the PDO by overcoming the identified governance risks and vulnerabilities. Although the Project does not have a dedicated Governance and Anti-Corruption Action Plan, specific measures have been taken to address the identified risks. Low participation in the bidding process has been a concern, with about 3-4 bids received for each rehabilitation contract under the LRIP. The Project will be implemented in accordance with the Bank’s Anti-Corruption Guidelines (“Guidelines on Preventing and Combatting Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants”, dated October 15, 2006 and revised in January, 2011).
69. In addition to the posting on the Bank’s website and UNDB, the Procurement Plans with subsequent updates and bidding opportunities will be posted on the official public procurement website of GoA. The Bank’s procurement specialist assigned to the project will provide the team with a full set of the most recent procurement documents. Due diligence will be exercised to avoid any collusive practices/risks during the bidding process, by checking bid patterns during bid evaluation by comparing unit prices of all bidders against the detailed cost estimates and prices among them. The supervision will include regular training session of the TPIU staff on identification of red flags in the bidding/contract implementation process.
70. The fiduciary due diligence on financial management will be implemented by following Bank’s operational policies, guidelines, and procedures. The TPIU has adequate Financial Management arrangements in place, which have been satisfactory during the implementation of the LRIP, and are acceptable to the Bank for implementation of the proposed Project. The audit of LRNIP will be conducted (i) by independent private auditors acceptable to the Bank, on terms of references acceptable to the Bank and procured by the TPIU, and (ii) according to the International Standards on Auditing (ISA) issued by the International Auditing and Assurance Standards Board of the International Federation of Accountants (IFAC). The audit reports for the Project will be posted on the MoTC and the TPIU websites.
71. Implementation Support missions will carefully review the implementation of the works through physical site inspections and careful review of progress reports. The supervision of the Project will include periodic field data collection, laboratory tests, and analysis as part of the normal supervision of the Project. The technical audit will include the hiring of an independent consulting firm to carry out material testing on drilled core samples from completed road sections to check compliance with the technical specifications. The nature of the tests and
21
sampling required will be further detailed in the terms of reference of the technical audit, which will be subject to formal clearance by the Bank. This independent quality check will be an integral part in ensuring not only that quality is met, but also that the sustainability of such an important asset is maintained to yield better governance outcomes for road users and all other stakeholders.
72. The details of the implementing arrangements to address Governance issues are presented in Annex 3 on Implementation Arrangements.
F. Social (including Safeguards)
73. Armenia poverty rate is about 36 percent of the total population and its rural areas are particularly vulnerable, lacking basic social amenities like access roads, potable water, health care facilities, with associated social issues including high unemployment, structural and gender concerns. The improvement and maintenance of the lifeline road network in rural and other areas have been an important Government and Bank’s strategy in addressing the challenges of rural poverty. The proposed Project will facilitate the provision of social services and livelihood opportunities, create temporary jobs in construction, reduce transport costs and support economic activities in rural Armenia.
74. The project preparation included extensive consultation with community representatives, Non-Government Organizations (NGOs), Government and other stakeholders on the project design. The outcome of the consultation is supporting the inclusion of microenterprise as an important instrument to develop entrepreneurship (including of women) and improve access to road maintenance. Social accountability will be enhanced through transparent information disclosure of all procurement/bidding documents, contracts awards, and other relevant project documents.
75. The Project has also incorporated lessons learned from other similar projects on the importance of community participation. Specifically, the Social Monitoring and Evaluation Survey will be carried out before and after subprojects interventions to assess user’s perception of the construction, maintenance and management of the road network and to provide data that go beyond outputs. Social outcome such as how road improvement is changing women’s lives, particularly in access to schools, health facilities, markets, and enhancing social capital will be monitored.
76. The initial screening of sub-project activities during the project preparation confirmed that there will be no land acquisition or resettlement, as all project physical activities is envisaged to be carried out on existing sites and structures. However, since the Project deals with road safety issues, civil works, and rehabilitation/repairs of road infrastructure, OP4.12 was triggered as a precautionary measure and Resettlement Policy Framework was prepared and publicly disclosed.
77. Once the detailed designs for specific road sections are finalized and if resettlement/land acquisition is foreseen, a first draft of the Resettlement Action Plan (RAP) will be prepared by consultants, finalized by the Government and submitted to the Bank for approval. The
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Government will be responsible for implementing the RAPs prior to commencement of civil works. Bank approval will be sought if project financing is proposed for land acquisition.
G. Environment (including Safeguards)
78. The Project will invest in rehabilitation of the roads infrastructure, and physical works to be undertaken will have certain impact on the natural environment. The OP/BP 4.01 Environmental Assessment is therefore triggered. The Project is classified as environmental category B, because the planned interventions will rehabilitate/upgrade the existing roads within the present right-of-way. Therefore, the associated risks of environmental damage are modest. For the purposes of the LRNIP implementation the Borrower has updated an Environmental Management Framework (EMF), developed earlier during preparation of the LRIP. The EMF was disclosed within the country on August 28, 2012, discussed with stakeholders in a meeting held on September 20, 2012, re-disclosed in-country and posted in the Bank’s InfoShop on October 18,2012. Based on the principles outlined in the EMF, site-specific environmental management plans (EMPs) were prepared for the rehabilitation of road sections included in the first year work program These EMPs were reviewed by the Bank, discussed with the affected communities, and finalized. EMPs for other individual investments will undergo similar procedures later in the project life, once the detailed designs for those road sections are prepared.
79. Prior to issuing of the bidding documents for civil works for each road section, the TPIU will prepare and submit to the Bank for approval: (i) the proposed design and site plan for the works, and the related site-specific EMP; and (ii) the draft contract for the civil works to ensure that the provisions of the site-specific EMP are adequately included in the contract.
H. Other Safeguards Policies Triggered
80. No other safeguards policies are triggered. The project will not finance road improvement in disputed areas.
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Annex 1: Results Framework and Monitoring
.
Country: Armenia
Project Name: LIFELINE ROAD NETWORK IMPROVEMENT PROJECT (P126782)
.
Results Framework
.
Project Development Objectives
.
PDO Statement
The Project Development Objective is to improve access of rural communities to markets and services through upgrading of selected lifeline roads, and to strengthen the capacity of the Ministry of Transport and Communication to manage the lifeline road network.
.
Project Development Objective Indicators
Cumulative Target Values Data Source/ Responsibility for
Indicator Name Core Unit of Measure
Baseline YR1 YR2 YR3 YR4 End
Target Frequency
Methodology
Data Collection
Average speed on lifeline roads in project areas
Kilometers per hour
20.00 25.00 30.00 35.00 40.00 40.00 Annually Supervision consultant's reports
MOTC through TPIU
Development and use of RAMS within MOTC to support decision making on LRN
Text Need for RAMS
RAMS installed
Data on 2000 km transferred
Data on 4000 km transferred
RAMS used by MOTC
Annually Progress Reports
MOTC through ARD and TPIU
Share of rural population with access to an all-season road
Percentage 51.00 53.00 56.00 58.00 60.00 60.00 Annually
Progress Reports
MOTC through TPIU
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Number of rural people with access to an all-season road, disaggregated by gender
Number 600000 632000 668000 690000 710000 710000 Annually Progress Reports
MOTC through TPIU
Users' perception of improved access to markets and services
Number 3.00 4.00 4.00 4.00 4.00 Annually
Social Monitoring and Evaluation Survey
MoTC through TPIU
.
Intermediate Results Indicators
Cumulative Target Values Data Source/ Responsibility for
Indicator Name Core Unit of Measure
Baseline YR1 YR2 YR3 YR4 End
Target Frequency
Methodology
Data Collection
Roads rehabilitated, Rural
Kilometers 0.00 49.00 104.00 136.00 170.00 170.00 Annually Progress reports
MoTC through TPIU
Number of km of lifeline roads fed into RAMS
Kilometers 0.00 0.00 0.00 2000.00 4000.00 4000.00 Y3, Y4 Progress Reports
MOTC through ARD and TPIU
Number of ”Safe Village” projects completed
Number 0.00 0.00 2.00 3.00 4.00 4.00 Annually
Progress Reports
MoTC through TPIU
PBC pilot designed and endorsed by MoTC
Yes/No No No No No Yes Yes Y3, Y4
Progress Reports
MoTC through TPIU
Road Financing Study completed and endorsed by GoA
Yes/No No No No Yes Yes Yes Y3, Y4
Progress Reports
MoTC through TPIU
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Roads in good and fair condition as a share of total classified roads
Percentage 50.00 51.20 52.60 53.40 54.20 54.20 Annually Progress Reports
MOTC through TPIU
Size of the total classified network
Kilometers 4000.00 4000.00 4000.00 4000.00 4000.00 4000.00 Annually Progress Reports
MOTC through TPIU
Pilot for Routine Maintenance through Microenterprises designed, implemented, and evaluated
Text Need to test the concept
Pilot designed
2 microenterprises formed
1-year maintenance completed
2-year maintenance completed
Concept tested and decision taken
Annually
Progress Reports, Stakeholders' Interviews
MOTC through TPIU
Pilot on Rehabilitation and Maintenance Contract designed, implemented, and evaluated
Text Need to test the concept
Pilot designed, contract awarded
Rehabilitation completed
Maintenance on-going
Maintenance completed
Concept tested and decision taken
Annually
Progress Reports, Stakeholders' Interviews
MOTC through TPIU
.
26
Annex 1: Results Framework and Monitoring
.
Country: Armenia
Project Name: LIFELINE ROAD NETWORK IMPROVEMENT PROJECT (P126782)
.
Results Framework
.
Project Development Objective Indicators
Indicator Name Description (indicator definition etc.)
Average speed on lifeline roads in project areas Average speed is expressed in km/hour and is calculated by distance of lifeline road section / time travelled
Development and use of RAMS within MOTC to support decision making on LRN
RAMS - Road Asset Management System; MOTC - Ministry of Transport and Communication; LRN - Lifeline Road Network. This indicator has a supplemental intermediate results indicator "Number of km of lifeline roads fed into RAMS". RAMS will be used for the whole LRN of 4000 km.
Share of rural population with access to an all-season road
Percentage of rural people in the project area who live within 2 kilometers (typically equivalent to a 20-minute walk) of an all-season road. This indicator is also known as Rural Access Index (RAI). An all-season road is motorable all year by the prevailing means of rural transport (often a pick-up or a truck which does not have four-wheel-drive). Predictable interruptions of short duration during inclement weather (e.g. heavy rainfall) are acceptable, particularly on low volume roads. Supplemental Value: Number of rural people with access to an all-season road.
Number of rural people with access to an all-season road Please indicate the absolute number of rural people with access to an all-season road. The data should be disaggregated by gender.
Users' perception of improved access to markets and services
A scale from 1 to 5 will be used to measure users’ perception. User Satisfaction Survey as part of Social Monitoring and Evaluation Survey (users will be interviewed before and after the road sections are rehabilitated). Analysis will include perceptions of men and women. More details on the survey methodology are provided in the Project Operational Manual.
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Intermediate Results Indicators
Indicator Name Description (indicator definition etc.)
Roads rehabilitated, Rural Kilometers of all rural roads reopened to motorized traffic, rehabilitated, or upgraded under the project. Rural roads are roads functionally classified in various countries below Trunk or Primary, Secondary or Link roads, or sometimes Tertiary roads. Such roads are often described as rural access, feeder, market, agricultural, irrigation, forestry or community roads. Typically, rural roads connect small urban centers/towns/settlements of less than 2,000 to 5,000 inhabitants to each other or to higher classes of road, market towns and urban centers. For the purposes of this Project, rural roads are those classified as lifeline roads.
Number of km of lifeline roads fed into RAMS Data on road inventory, condition, and traffic per each kilometer of lifeline road network is collected and then transferred into RAMS.
Number of ”Safe Village” projects completed Unit of measure: cumulative number. Projects completed means both works and road safety campaigns.
PBC pilot designed and endorsed by MoTC PBC – Performance-Based Contract. This pilot intends to introduce the MOTC to the concept of PBC, and build the capacity of MOTC in designing the pilot (including related bidding documents), but the pilot will not be implemented during this Project.
Road Financing Study completed and endorsed by GoA No description provided.
Roads in good and fair condition as a share of total classified roads
Percentage of the total classified road network in the project area that is in good and fair condition depending on the road surface and the level of roughness. Classified roads are the roads that have been included in the roads legislation as public roads. The Supplemental value is the total classified network in the project area. For the purposes of this Project, classified roads are lifeline roads.
Size of the total classified network Classified roads are the roads that have been included in the roads legislation as public roads. For the purposes of this Project, classified roads are lifeline roads.
Pilot for Routine Maintenance through Microenterprises designed, implemented, and evaluated
Routine maintenance through microenterprises is a new concept for Armenia. Once the pilot is implemented, the MOTC will evaluate the pilot results, based on which a decision on the applicability of the concept in Armenia will be taken. The pilot will also encourage and test the role for Armenian women in leading and participating in microenterprises. More information on the pilot will be provided in the Project Operational Manual.
Pilot on Rehabilitation and Maintenance Contract designed, implemented, and evaluated
Rehabilitation and Maintenance Contract is a new concept for Armenia. Once the pilot is implemented, the MOTC will evaluate the results and take a decision on applicability of this concept in Armenia. More information on the pilot is provided in the Project Operational Manual.
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Annex 2: Detailed Project Description
ARMENIA: Lifeline Road Network Improvement Project 1. In 2008, the Government of Armenia (GoA) launched the Lifeline Roads Development Program. The objective of the program was to stimulate economic growth and contribute to poverty reduction by improving a selected network of “lifeline roads”. The GoA defined lifeline roads as those roads that connect rural communities to an interstate road. This new road classification implied the definition of a lifeline network that covers around 4,000 km; of those, around 2,300 km were local roads that were reclassified into republican roads in 2008 (see table below). As a result, under the current classification, 99 percent of republican roads are Lifeline Roads.
Table 1: Road Classification (2004-2009) – Lengths in kilometers 2004 2005 2006 2007 2008 2009 Interstate Republican Local
1,561 1,832 4,236
1,561 1,832 4,122
1,561 1,832 4,111
1,561 1,932 4,122
1,686 1,747 4,271
1,686 4,056 1,962
Total 7,629 7,515 7,504 7,515 7,704 7,704 Table 2: Lifeline Roads Road Type Length (km) Percent Local Republican
28 3,972
1% 99%
Total 3,999 100% 2. Since 2008, 980 km of lifeline roads have been rehabilitated with financing from the ADB (22 percent), the GoA (36 percent), and the World Bank (42 percent).
3. Responsibilities and Condition of the Lifeline Road Network. About 45 percent of the Lifeline Road Network is under the direct responsibility of the MoTC, while 55 percent is under the responsibility of the marzes. About 68 percent of the network is paved, and overall, 50 percent is in good/fair condition (27 percent good and 23 percent fair).
4. The proposed Project is aligned with the priority of the GoA in continuing improving the Lifeline Road Network. The Project Development Objective defined for the LRNIP is to improve access of rural communities to markets and services through upgrading of selected lifeline roads, and to strengthen the capacity of the MoTC to manage the lifeline road network. The Project will be organized around two components. Total cost is estimated at US$56.11 million, of which US$45.00 million are Bank financed, and it will be implemented over a 4-year period.
5. Component 1: Lifeline Road Improvement (Total cost US$52.39 million; Bank: US$41.91 million). This Component will finance the improvement (rehabilitation and/or upgrading) of an estimated 170 km of lifeline roads. The first year program was identified during the project preparation. Around 73 km (7 road segments) will be improved (including a 23 km corridor where a pilot on rehabilitation and maintenance is going to be implemented), at a total estimated cost of around US$20 million. The remaining 98 km will be identified during the
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implementation. Criteria for selection of those roads are presented in Annex 4 of the PAD. Detailed designs for those roads, as well as supervision for all civil works are also included under this Component.
6. Sub-component 1.1: Road Rehabilitation Works (Total Cost US$41.51 million; Bank: US$33.21 million). This sub-component covers the improvement of lifeline roads. The first package or works included almost 50 km. Remaining road segments will be identified during project implementation, based on the selection criteria agreed during the project preparation (three main criteria are used: economic returns, population served, and potential economic development. Each road segment must have an ERR of at least 12 percent). The following table presents details about the 6 road sections included in the first year program (excluding the pilot for rehabilitation and maintenance, which is also part of the first year program).
Table 3: First Year Program Roads Description
No. Marz Road Name Length (Km) Maintenance Responsibility
1 Aragacotn M1-Agarak-Byurakan-Antarut 8.7 ARD 2 Armavir M5-Nor Kesaria-Shenavan-Getashen 5.3 Marz of Armavir
3 Gegharquniq M10-Nerkin Getashen- Verin Getashen-Madina
10.7 Marz of Gegharquniq
4 Kotayq Mayakovski-Nor Gyugh-Kotayk-Kapputan-Zovashen
17.4 Marz of Kotayq
5 Lori M7-Arevashogh 2.5 Marz of Lori 6 Syuniq M12-Kornidzor 5.3 Marz of Syuniq
7. As a result from the improvement of these roads, it is expected that 69.753 inhabitants in 31 communities will benefit from a better access (of which 49.9 percent are female). 8. Sub-component 1.2: Pilot on Rehabilitation and Maintenance Contract (Total cost US$6.76 million; Bank US$5.41 million). This sub-component will finance one pilot where maintenance activities will be added to a rehabilitation contract for a total period of three years after the rehabilitation is completed. One key characteristic in this pilot is to have a critical length. The section chosen is 23.4 km long, while the average length for the first year work program was 10.5 km. The road section is part of the M9-Arteni-Aragats-Getap road in the Aragacotn Marz. The rehabilitation will be undertaken as part of the first year program. A training/seminar will be organized for ARD/TPIU and local contractors on pilot design and implementation issues.
9. Sub-component 1.3: Pilot for Routine Maintenance through Microenterprises (Total cost US$0.17 million; Bank US$0.14 million). Although it is often disregarded or neglected, routine maintenance is at the same time the cheapest and the most cost-effective investment in the road sector. An efficient routine maintenance system is key to cost effective management of road assets, particular for unpaved roads which otherwise tend to deteriorate rapidly. Routine maintenance is more efficiently performed when it is done by local entrepreneurs who can see the benefit of keeping a road in good conditions and received pressure from other users of rural transport. Routine maintenance is labor-intensive and does not require advanced skills. It can generate employment opportunities for the rural poor, including women. In Latin America a
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model to undertake routine maintenance through microenterprises was created in the mid-80s (see Box below).
Box 1: Origin of the microenterprise-based road maintenance concept
The concept of microenterprise-based road maintenance was pioneered by Colombia, where in 1984, the Ministry of Transport and Public Works began experimenting with associative microenterprises. The program has undergone several transformations and is currently carried out by the National Highway Institute (INVIAS), which contracts a total of 319 microenterprises through either direct or competitive bidding for the routine maintenance of 14,157 kilometers of paved roads, which is equivalent to almost the entire paved network. The Colombian experience has serves as a model for the entire Latin American region, and has been replicated in countries as Peru, Uruguay, Nicaragua, Honduras, Ecuador, Bolivia, Guatemala, Costa Rica and Paraguay. Later on, the model was also implemented in China, and is currently under implementation in Nigeria.
10. Microenterprises typically consist of between 10 and 15 workers (usually people living along the road to be maintained), which use labor-based methods and hand tools in carrying out different activities aimed at improving and maintaining the standard of a stretch of road between 15 and 50 km, at an average annual cost of around US$1,000 per kilometer. Performance based contracts are used, in which payments are made based on the achievement of a set of performance indicators, rather than on the amount of inputs, greatly facilitating contract administration and motivating the microenterprise to improve their efficiency and effectiveness. They generally have little capital and most of their earnings go towards paying salaries of the workers. The activities they are responsible for generally include basic cleaning of the roadway, the drainage system, the road reserve and any existing road structures. Minor repairs to the roadway and road structures are sometimes also included. 11. This sub-component will finance the operation of two Microenterprises for Routine Maintenance at least for two years. Pilot contracts will be designed during the first year project implementation. 12. Sub-component 1.4: Supervision and Technical Designs (Total cost US$3.7 million; Bank US$2.96 million). This sub-component will finance detailed design studies and related supervision activities for all rehabilitation works under the Project. The first year works package was defined as part of the Project preparation. The definition of subsequent works packages (and the associated detailed designs) will be done during the Project implementation. Detailed designs for all civil works for Y2, Y3 and Y4 will be done by a single design firm, and the supervision of all civil works for Y2, Y3 and Y4 will be done by a single supervision firm. As agreed during the Negotiations, this sub-component will also finance the independent technical audit of civil works, which will be carried out about three times during the project implementation, tentatively for Y2, Y3, and Y4, but Y1 may also be included. 13. Sub-component 1.5: Road Safety Engineering and Black Spot Improvement (Total cost US$0.25 million; Bank US$0.20 million). This sub-component will cover construction costs associated with the works of four Safe Village schemes on road sections previously rehabilitated (not LRNIP sections), as well as black spot improvements at locations identified by
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the Government. Designs for the black spot improvements will be carried out by consultant(s) appointed under Component 2.
14. Component 2: Project Management and Institutional Strengthening (Total cost: US$3.72 million; Bank: US$2.98 million). This component aims at helping strengthening capabilities within the MoTC on issues related to road assets management, road safety, performance based contracts, road sector financing, sustainability, and social monitoring. It will finance technical assistance, equipment, and operational costs associated with the implementation of the Project. It will also finance studies required for the preparation of potential future investments in the road sector. This component is split into four sub-components, as detailed below. 15. Sub-component 2.1: Project Management and Implementation (including audits) (Total cost US$1.11 million; Bank US$0.887 million)This sub-component will finance operational costs associated with implementing the Project. It also includes the cost of yearly audits of the project accounts to be submitted to the Bank. 16. Sub-component 2.2: Road Asset Management System and Survey Equipment (Total cost US$0.5 million; Bank US$0.4 million). This sub-component will finance the purchase of the Road Asset Management System (including its installation and training) and road survey equipment to be used by the ARD for surveying road condition and traffic. This equipment is fundamental in completing the road survey of the Lifeline Roads Network. It is expected that the system will be fully operational by the end of the implementation period.
17. Sub-component 2.3: Road Safety Technical Assistance (Total cost US$0.25 million; Bank US$0.2). This sub-component will finance the other elements of the road safety activities, such as the design of Black Spot improvement works and training programs for the staff of the Road Safety Engineering Unit to be created within the ARD, road safety education in “Safe Village” schools, and road safety campaigns linked to the LRNIP road sections.
18. Sub-component 2.4: Technical Assistance (Total cost US$1.86 million; Bank US$1.49 million). This sub-component will provide a comprehensive technical assistance package that includes:
• Design of pilots, in particular the one related to the feasibility of PBCs. The objective is to undertake a feasibility study for the rehabilitation and maintenance of a road segment using a performance based approach. The feasibility study will identify one or two road sections, determine the most appropriate contract size, review the capacity of local contractors and recommend activities and design elements to build capacity within the road agency. The feasibility study will also assess key features of such contract, such as the number of years, the performance standards to be used, and assess the optimum financial structure of payment to maximize risk allocation, while ensuring demand from the industry. It will also include several workshops in Yerevan for the Government and local contractors on the characteristics of this kind of contracts and how to prepare/implement them.
• Social monitoring and evaluation study. The study will assess the social impact of the LRNIP and monitor performance of upgrading of selected lifeline roads (including
32
routine maintenance, microenterprise, and efficient management of the road network) and compare implementation performance between them over time. The outcome of the survey would form part of a management information system together with other performance indicators and will be used by the TPIU to respond to community needs and day to day planning and operational management. The result of the survey will be shared with the public and will be used to explain what the Government is doing to address existing problems in the transport sector; and will help address perception issues towards the MOTC and strengthen governance agenda. Overall, the outcome of the survey will provide community focused information about the MOTC’s performance in the construction, maintenance and management of the road network.
• Study for analyzing road sector sustainability. One of the key issues to be addressed in the Transport Sector in Armenia is the one related to sustainability (how to allocate enough resources to the sector in order to have a network in good condition). In order to advance into that direction, the Project includes a TA aimed at developing such financing strategy, and exploring different options based on international best practices. The TA will also include several workshops to facilitate the dialogue with all IFIs (including World Bank, ADB and EIB).
• Training: This component will finance training to MoTC staff and local contractors on the new concepts introduced by the Project. These activities will be designed and implemented in collaboration with other IFIs involved in the road sector in Armenia (ADB and EIB) and financed from the loan proceeds if grants are not available. Identified areas of training include: the design and implementation of multi-year performance based contracts, efficient design standards, planning and contract monitoring for the MoTC and the ARD staff.
• Technical studies and designs for future investments: This component will finance studies required for the preparation of potential future investments in the road sector.
Table 4: Proposed Project Financing by Component
Component Total Cost (mln US$)
IBRD Financing (mln US$)
Percentage of
Financing Component 1: Lifeline Road Improvement
Road Rehabilitation Works 41,510.00 33,208.00 80% Pilot on Rehabilitation and Maintenance Contract 6,760.00 5,408.00 80% Pilot for Routine Maintenance through Microenterprises 170.00 136.00 80% Supervision and Technical Designs 3,700.00 2,960.00 80% Road Safety Engineering and Black Spot Improvement 250.00 200.00 80% SUBTOTAL COMPONENT 1 52,390.00 41,912.00 Component 2: Project Management and Institutional Strengthening Project Management and Implementation (including audits) 1,109.38 887.50 80% Road Asset Management System and Survey Equipment 500.00 400.00 80% Road Safety Technical Assistance 250.00 200.00 80% Technical Studies and Designs for future investments 1,000.00 800.00 80% Technical Assistance 860.00 688.00 80% SUBTOTAL COMPONENT 2 3,719.38 2,975.50 Front-End Fees 112.5 112.50 TOTAL 56,221.88 45,000.00
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Annex 3: Implementation Arrangements
ARMENIA: Lifeline Road Network Improvement Project Project Institutional and Implementation Arrangements Project administration mechanisms 1. The MoTC, as policy making authority for the transport sector, will have the overall responsibility for implementation of the Project and, as for the previous Bank financed LRIP and two additional financings9, will delegate the Project management and day-to-day implementation to the Transport Project Implementation Unit (TPIU). Operational monitoring and supervision of the Project will be carried out by the TPIU, which will work daily with the MoTC to streamline decision-making. The Project will use qualified international consultants for civil works supervision. The Project Operational Manual (POM) describes the institutional and implementation arrangement in details. A first draft of the POM was submitted by the TPIU to the Bank in November 2012. A satisfactory POM is a condition for effectiveness.
2. The TPIU will also be responsible for the implementation of the financial management (FM) function of the Project including planning and budgeting, accounting, financial reporting, external auditing, funds flow, and internal controls. The TPIU is successfully implementing the LRIP , and LRNIP is largely built on the strong implementation experience and structure of the LRIP. No significant weaknesses were identified at the TPIU. Prior to the project implementation the TPIU will update the current FMM to reflect LRNIP’s specific activities and controls.
Financial Management, Disbursements and Procurement Financial Management 3. The financial management arrangements of the TPIU were reviewed and assessed as satisfactory. The LRNIP’s FM assessment was undertaken in July-August 2012. The information available from previous regular FM implementation support (latest in February 2012) of the LRIP was also used. As a result of the assessment, it was established that the TPIU has adequate FM arrangements in place, which are acceptable to the Bank for the implementation of the proposed Project. The overall FM risk for the Project was assessed as Low, with Inherent Risk of the Project before and after mitigation measures rated as Moderate and the Control Risks is rated as Low.
4. The TPIU has acceptable planning and budgeting capacity in place. The project’s plan and budget are prepared in cooperation with the Bank. The director, the financial manager and the procurement specialist are involved in the preparation of the annual budget. The annual
9 Hereinafter, the original project and both additional financings are collectively referred to as the LRIP.
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budget is based on the procurement plan, which is regularly updated by the procurement specialist. The procurement plan and the schedule of activities of the Project are prepared by the chief procurement specialist, who collects the necessary information from the correspondent specialists. Then the director, after agreeing with the Bank, approves the document, based on which the financial manager prepares the annual budget in line with the procurement plan of the project and submits it to the director. The final budgets are submitted to the Ministry of Finance for approval. The prepared budget is classified by categories, components, and sources of funds. All contracts (ongoing and planed) are individually included in the budget. All necessary changes in the procurement plan are reviewed by the director and agreed with the Bank. Any variations from the budget is discussed and agreed by the TPIU, the GoA, and the Bank in advance.
5. The TPIU has experienced and knowledgeable FM staffing. The TPIU financial management staff consists of a financial manager, a chief accountant (appointed recently), and a disbursement specialist. The major responsibilities of the financial manager include budgeting, reporting, managing disbursement operations, while the key responsibilities of the disbursement specialist are preparation of the documentation for Withdrawal Applications (WA) and payments, treasury transactions recording and general accounting. The chief accountant is responsible for statutory reporting (including tax and social payment reporting) to the Government as well as for payroll preparation. The WAs are prepared by the disbursement specialist and are reconciled to the project accounting records by the financial manager. The financial manager is also responsible for filing the WAs in Client Connection.
6. The accounting system of TPIU is maintained according to former accrual basis Accounting Standards of the Republic of Armenian (ASRA). For the reporting purposes modified accrual basis is applied. The current chart of accounts used for LRIP project will be adapted to the LRNIP project’s requirements. The TPIU utilizes 1C accounting package, which is currently in use by a number of Armenian PIUs implementing Bank financed projects. The system is also designed to generate various statements (e.g. SOE) and reports for procurement and management use (the reports are finalized in Excel). The accounting system is found to be adequate and has functionality to generate IFRs. Backups of the accounting data are done on CDs at least once a month.
7. The TPIU’s internal control system was found to be acceptable to the Bank and capable of providing timely information and reporting on the Project. The existing internal controls and procedures of the active project are documented in the FMM, which will be updated to reflect any specific activities and controls of the LRNIP.
8. Project management oriented IFRs will be used for the project monitoring and supervision. The IFRs for the on-going Project were always received on-time and were acceptable to the Bank. The format of IFRs has been confirmed during assessment and includes: (i) Project Sources and Uses of Funds, (ii) Uses of Funds by Project Activity, (iii) Designated Account Statements, (iv) Balance Sheet, and (v) SOE Withdrawal Schedule. The TPIU will be producing a full set of IFRs every calendar semester throughout the life of the project. These financial reports will be submitted to Bank within 45 days of the end of each calendar semester. The first semester IFR will be submitted after the end of the first full semester following the
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initial disbursement. The TPIU also submits monthly and quarterly reports to the GoA by sources of funds showing project financing and expenditures by categories.
9. The audit of the LRNIP will be conducted (i) by independent private auditors acceptable to the Bank, on terms of reference (TOR) acceptable to the Bank and procured by the TPIU, and (ii) according to the International Standards on Auditing (ISA) issued by the International Auditing and Assurance Standards Board of the International Federation of Accountants (IFAC). The TPIU’s current auditing arrangements are satisfactory to the Bank (no issues were raised in the latest audit of the LRIP, and it has thus been agreed that similar audit arrangements will be adopted for the LRNIP, to cover the project financial statements. Particularly, the sample audit TOR agreed with the Bank will be attached to the FMM, and the annual audited project financial statements will be provided to the Bank within six months following the end of each fiscal year, and for the project also at the closing of the Project. If the period from the date of effectiveness of the loan to the end of the borrower’s fiscal year is no more than six months, the first audit report may cover financial statements for the period from effectiveness to the end of the second fiscal year. The Borrower has agreed to disclose the audit reports for the Project within one month of their receipt from the auditors, by posting the reports on the MoTC (www.mtc.am) or the TPIU (www.transportpiu.am) web sites. Following the Bank's formal receipt of these reports from the Borrower, the Bank will make them publicly available according to World Bank Policy on Access to Information. The contract for the audit awarded during the first year of project implementation may be extended from year-to-year with the same auditor, subject to satisfactory performance. The cost of the audit will be financed from the proceeds of the loan.
Disbursements 10. The staff of the TPIU is well aware of the Bank’s disbursement procedures. Disbursements from the Loan Account will follow the traditional method, as outlined in the Disbursement Letter. The MoTC through the TPIU will open and manage the project’s Designated Account (DA) in the Treasury. The project account (PA) will be opened in the Treasury for transfer of Government Counterpart Funding. Project funds will flow from: (a) the Bank, either via DA, which will be replenished on the basis of full documentation or using SOEs, or by using the reimbursement, direct payment method or the Special Commitment; or (b) the Government. Further details are provided in the Disbursement Letter. Both Bank and Government funds will be managed on a day-to-day basis by the TPIU. Withdrawal applications for the replenishments of the DA will be sent to the Bank on a quarterly basis.
11. Statement of Expenditures (SOEs) will be used for contracts valued at less than US$4.0 million equivalent for works, less than US$300,000 equivalent for goods, less than US$100,000 and US$50,000 equivalent for consulting firms and individual consultants, respectively and training, and operating costs. Payments above these limits will be fully documented.
12. Supporting documentation will be required to be submitted to the Bank when requesting funds from the Loan Account under the referenced disbursement methods. The Bank will require either copies of the original documents evidencing eligible expenditures or summary reports of expenditure in such form and substance as the Bank may specify. Records include such documents as invoices and receipts or a statement of expenditure summarizing eligible expenditures paid during a stated period. In all cases the Borrower is required to maintain
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original documents evidencing eligible expenditures and making them available for audit or inspection. These documents should be maintained for at least two years after receipt by IBRD the audit report and for a period required by local legislation. The choice of IBRD Loan financial product was discussed and confirmed at the Negotiations along with the disbursement arrangements. Details can be found in the agreed Minutes of Negotiations, and its Attachments. 13. Retroactive Financing. Project activities (see para 20 below for details) and amount of retroactive financing was discussed and agreed at the Negotiations. An aggregate amount not to exceed US$ 9,000,000 equivalent may be made for payments made prior to the date of loan signing but on or after November 13, 2012 (Project appraisal date), for Eligible Expenditures under Category (1). Table 1: Allocation of Loan Proceeds
Category Amount of Loan Allocated (expressed in USD)
Percentage of Expenditures
financed (inclusive of
Taxes) (1) Goods, works, non-
consulting services, consultants’ services, and operating costs under the Project
$44,887,500 80%
(2) Front-end Fee $112,500 100% Total Amount 45,000,000
Procurement 13. Assessment of the Agency’s Capacity to Implement Procurement. At the country level, a comprehensive analysis of the public procurement system in Armenia, including legal and regulatory framework, institutional capacity, enforcement regime, was carried out during the Country Procurement Assessment Review (CPAR) in 2009. The CPAR was conducted on the basis of four OECD-DAC/World Bank pillars for public procurement. The scores given to the four Pillars show that some progress has been made but much remains to be done to bring the public procurement system to meet the standards and international practices. Armenia has an advanced Public Procurement Law, but institutional aspects require improvement as well as enforcement of the legislation.
14. Responsibility for procurement under the proposed Project will rest with the TPIU under the Ministry of Transport and Communication. The assessment of the TPIU’s capacity to conduct procurement for the proposed LRNIP was carried out in June 2012. Summary of the main findings are: (i) the TPIU has an experience to carry out procurement activities since 2001; (ii) in terms of scope and volume, procurement under the Project is expected to be simple, but specialized; (ii) current procurement specialist will be involved full time. The Procurement Specialist is familiar with Bank's procurement rules, procedures and Guidelines since 2001 as he has been involved in and gained substantial knowledge and experience during the implementation of the preceding Bank financed projects.
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15. Procurement risk assessment. The overall procurement risk for LRNIP is rated as “moderate”. The risk associated with procurement and the mitigation measures were identified in the assessment of TPIU procurement capacity and are summarized in the P-RAMS assessment.
16. Risk Mitigation. The following measures were agreed upon to mitigate the remaining risks and maintain the implementing team’s capacity.
• The Procurement section of the LRNIP OM will be updated by the TPIU to meet specific needs of the new project, which, among other things, will elaborate on the roles and responsibilities in the management and coordination of the procurement process, preparation of terms of reference and technical specifications, evaluation, establishment and appointment of evaluation committees, conflict of interest mitigation measures, record keeping, contract management, complaint handling mechanism, etc;
• The Bank’s Procurement Specialist assigned to the Project will provide the team with a full set of the most recent procurement documents, including but not limited to Procurement and Consultant Guidelines, standard and sample bidding documents, request for proposal, evaluation report forms, etc.;
• The Bank’s Anti-Corruption Guidelines (“Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants”) dated October 15, 2006 and Revised in January 2011 will be used;
• Low participation in the bidding process has been a concern. In order to increase the participation of the bidder's, in addition to the posting on the Bank’s web site and UN DB the Procurement Plans with all its updates and bidding opportunities will be posted on the official public procurement web site (www.procurement.am) and MoTC web site (www.mtc.am) and the copies of the advertisements for civil works contracts will be forwarded to the Union of the Builders of Armenia to ensure broader awareness and catalyze more bids;
• Exercise due diligence in avoiding collusive practices/risks during the bidding process by checking bidding patterns during bid evaluation by comparing unit prices of all bidders against the detailed cost estimates and prices among them;
• As a precondition for multiple contract awards, capability of the bidder, nominated for such awards, should be assessed to confirm that it is sufficient to implement these contracts simultaneously. Such evaluation and award criteria will be disclosed in the bidding documents;
• Bank staff shall conduct an awareness session for the TPIU staff on identification of red flags in the bidding/contract implementation process.
17. Applicable Guidelines. Procurement of goods and works for the LRNIP will be carried out in accordance with the Bank’s Guidelines Procurement under IBRD loans and IDA Credits (January 2011). Consulting services and technical assistance will be selected in accordance with the Guidelines Selection and Employment of Consultants by World Bank Borrowers (January 2011).
18. Summarized Procurement Plan. The Procurement Plan (PP) for the first 18 months of the Project implementation was prepared and submitted to the Bank on October 18, 2012. An updated version was discussed and agreed during the Negotiations and is attached to the agreed Minutes of Negotiations as Attachment 4. It will be updated at least annually or as required to
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reflect the actual project implementation needs. The detailed Procurement Plan, agreed with the Borrower during the Negotiations on December 6, 2012 will be published in the Bank website in accordance with the Guidelines and will be in the project files. Contracts not subject to Bank’s prior review will be post reviewed by the Bank’s procurement specialist assigned to the Project. Post review of contracts will be carried out once per year. A General Procurement Notice (GPN) was published on August 19, 2012 through the Bank’s Operations Portal. Specific Procurement Notices (SPN) will be published for all ICB procurement and Consulting contracts as per Guidelines as the corresponding BD and RFPs/REOI become ready and available.
19. Reference to Project Operational/Procurement Manual. The Procurement Section of the draft Project Operational Manual was updated on November 5, 2012. Additional condition of effectiveness is that the Operational Manual satisfactory to the Bank is adopted by the Borrower, through the MoTC.
20. Retroactive Financing. Activities identified for retroactive financing will include the procurement of the civil works out of the first year program and consultancy services for technical supervision. Procurement of these activities will be done using provisions of applicable Procurement and Consultant Guidelines. The civil work road sections are: (1) M10-Nerkin Getashen-Verin-Getashen-Madina km 0+000 - km10+100 and M12-Kornidzor; (2) Mayakovski-Nor Gyugh-Kotayk-Kaputan-Zovashen km 0+000 - km4+500 and km 7+000 - km 19+800; (3) M1-Agarak-Byurakan-Antarut km 0+000 – km8+650, M5-Nor Kesaria-Shenavan-Getashen km1+900-km6+700 and M7-Arevashogh; and (4) Rehabilitation and Мaintenance of M9-Arteni-Aragats-Getap km 25+940 - km 49+250 road (R&M Pilot project).
21. Documentation. The TPIU will maintain complete records under the proposed Project for each activity, which will include complete procurement documentation for each contract, including bidding documents, RFPs, advertisements, bids received, bid evaluation reports, Bank’s “no-objection” letters/emails, letters of acceptance, contract agreements, bid security, advance payment guarantee, performance security, photocopies of invoices and payments and related correspondence, etc. Contract award information will be published as per the Guidelines’ requirements. Agreed reporting formats will be included in the POM.
22. Procurement of Goods, and Non-Consultant Services: Goods, and Non-Consultant services estimated to cost US$300,000 equivalent and more, will be procured through ICB. Goods, and Non-Consultant services estimated to cost less than US$300,000 may be procured through NCB and less than US$100,000 through Shopping.
23. Procurement of Works: Works contracts estimated to cost US$ 4,000,000 equivalent or more will be procured through ICB. Works contracts estimated to cost less than US$ 4,000,000 may be procured though NCB and less than US$ 100,000 through Shopping. Given that the nature of the civil works to be implemented under the Project is simple, the prequalification of the bidders will not be applied. Bidding Documents for ICB procurement of the civil works for rehabilitation of the road sections included in the first year program (i.e. M1-Agarak-Byurakan-Antarut km 0+000 – km8+650, M5-Nor Kesaria-Shenavan-Getashen km1+900-km6+700 and M7-Arevashogh ; M10-Nerkin Getashen-VerinGetashen-Madina km 0+000 - km10+100 and M12-Kornidzor; Mayakovski-Nor Gyugh-Kotayk-Kaputan-Zovashen km 0+000 - km4+500 and
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km 7+000 - km 19+800; Ð&Ì of M9-Arteni-Aragats-Getap km 25+940 - km 49+250) are under preparation, and will be ready by December 31, 2012.
24. Contracting of Microenterprises for Routine Maintenance of Road Sections (pilot program): The project shall implement a pilot program with two microenterprises in two regions of Armenia. The microenterprises shall be formed by a group of people – between 10 and 15 for a distance of between 20 and 30 km. The estimated cost of each such contract will be less than US$100,000 per year. Microenterprises shall be selected in accordance with the provisions of paragraph 3.19 Community Participation of the Bank's Procurement Guidelines. The form of contract will be performance based and the selection procedures and type of contracts, etc. will be defined in the POM following the completion of a study to define the legal structure, operations manuals and technical operations support.
25. Selection of Consultants: Consulting services under the project will be procured in accordance with the Bank’s Consultant Guidelines mentioned above and by using the standard RFP and contract forms. Consultant selection method will include Quality and Cost Based Selections (QCBS), Quality Based Selections (QBS), Fixed Budget Selection (FBS), Consultant Qualifications (CQS), Least Cost Selection (LCS), Single Source Selection (SSS) and Individual Consultants (IC). Individual Consultants would be selected in accordance with the provisions 5.1 to 5.6 of Section V of the Consultant Guidelines. This method will require comparison of at least three qualified candidates interested and available to undertake the assignment. In agreement with TPIU, consultants hired to senior TPIU staff positions will be subject to World Bank review and approval of TOR, selection criteria, selection process and final award.
26. Short List Comprised Entirely of National Consultants: Short list of consultants for services, estimated to cost less than US$ 100,000 equivalent per contract, may be comprised entirely of national consultants (unless qualified international firms express an interest) in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines.
27. Operating Costs: Operating costs means the reasonable operational costs (which would not have been incurred absent the Project), incurred by the TPIU related to Project implementation, including inter alia, the costs of communication, supplies, printing and publications, vehicle operation and maintenance, office refurbishment, maintenance and utilities, purchase and maintenance of office equipment and furniture and facilities, office property insurance costs, project financial audit expenses, local and international travel and training costs (including accommodations, transportation costs and per diem), bank charges, staff salaries (including associated taxes and charges),) but excluding salaries of civil servants, staff insurance and social benefit package costs, logistics services, and such other expenditures as may be agreed upon by the Bank. These costs would be financed by the Project as per annual budget approved by the Bank prior to initialization of any action and would be procured in accordance with provisions presented in the POM. Operating cost shall not include salaries of civil servants or government employees. 28. Procurement Supervision Plan and Ex-Post Review. Bank procurement specialist will be a member of the project team throughout the project cycle. During project implementation, the designated procurement specialist will join regular Bank supervision missions. The frequency of procurement supervision should be twice a year. In addition to the prior review supervision to
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be carried out by the Bank team, the capacity assessment of the Implementing Agency recommends to review at least 20 percent of the contracts that were not prior reviewed by the Bank. As a minimum one post review report which will include physical inspection of sample contracts, including those subject to prior review, will be prepared each year. Not less than 10 percent of the contracts will be physically inspected.
Table 2: Prior Review Thresholds Category Prior Review Thresholds in US$
Works All ICB and DCs; First 2 NCBs Goods and non Consulting Services All ICB; and all DC; First 2 NCBs Consulting firms All SSS and contracts ≥$100,000 Individual consultants All SSS and contracts ≥$50,000
Environmental and Social (including safeguards) Aspects 29. Environmental Aspects. The LRNIP is classified as environmental Category B according to OP/BP 4.01. It will finance rehabilitation of several priority sections of the existing network of the lifeline roads. Works to be undertaken in various locations will be similar in terms of applied technologies and scope. Their potential environmental risks and measures required for mitigation of these risks are also mostly common for the target sections of roads and are well known upfront. An Environmental Management Framework (EMF) was developed to provide guiding principles for environmental management under the LRNIP, and the checklist for developing site-specific EMPs for small scale road construction and rehabilitation will be used as a simplified tool applicable to individual investments.
30. The LRNIP will support rehabilitation works on the existing roads in the current right-of-way, without tangible widening or re-routing of carriageways. Most of these roads pass through significantly transformed landscape, away from important habitats and biodiversity hotspots. For all roads section the potential environmental issues are expected to be minor and typical for small-scale rehabilitation works on roads, mainly comprising: construction waste management, sourcing of natural construction materials (soil, gravel, sand, and rock), running of small asphalt/concrete plants, and maintaining/servicing construction machinery.
31. Preparation and implementation of the LRNIP includes public consultation on the environmental risks associated with the Project as well as on the proposed ways of their mitigation. The EMF was disclosed in-country on August 28, 2012, discussed in a stakeholder consultation meeting on September 20, 2012, finalized, re-disclosed in-country and posted in the InfoShop on October 18, 2012. Site-specific EMPs for the road sections included in the first year work program were developed, reviewed, approved, disclosed, discussed with the affected local communities, and finalized over the month of October, 2012. Similar procedures will be applied to the site-specific EMPs to be produced for all remaining road sections once detailed designs are available for them and prior to the commencement of civil works in any individual project site. Since the potential environmental impacts will be small to medium scale and to a great extent similar for various sections of roads, EMPs will be developed using the Bank-acknowledged EMP Checklist for Small-Scale Road Construction or Rehabilitation, with mitigation activities included in the respective Bills of Quantities.
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32. The Project will include the financing of a pilot rehabilitation and maintenance contract and two small pilot maintenance contracts using community-based microenterprises. EMPs prepared for all sections of the roads will cover both construction and operation phases, and concurrence with them will be mandatory for contractors engaged through the conventional roads rehabilitation contracts as well as through road maintenance, and road rehabilitation and maintenance pilot contracts.
33. The TPIU is responsible for due application of environmental safeguard policies. Environmental due diligence of the TPIU will ensure: (i) presence of satisfactory site-specific EMPs for all sections of roads under rehabilitation; (ii) presence of the required permits for waste disposal, quarrying, and borrowing, operation of asphalt/concrete plants, etc., as applicable; (iii) proper application of mitigation measures provided in site-specific EMPs in the course of works and upon their completion; and (iv) observance of occupational safety rules as well as safety of traffic and pedestrian movement in and around work sites. For meeting such standards, the MoTC, through the TPIU, will exercise quality control of EMP implementation, guarantee their inclusion in the bidding documents and incorporation into the works contracts, and maintain efficient mechanism of field environmental monitoring of works.
34. The TPIU will be capable of performing these functions through supplementing its institutional capacity for environmental management by hiring an external highly qualified environmental consultant. Such service may also be incorporated into the general technical supervision consultancy.
35. Social development dimensions: Armenia poverty rate is about 36 percent of the total population and its rural areas are particularly vulnerable, lacking basic social amenities like access roads, potable water, health care facilities, with associated social issues including high unemployment, structural and gender concerns. The improvement and maintenance of the lifeline road network in rural areas and other areas have been an important Government and Bank’s strategy in addressing the challenges of rural poverty. The Project will support the provision of social services and livelihood opportunities, create temporary jobs in construction, reduce transport costs and support economic activities in rural Armenia.
36. The Project has made extensive consultation with community representatives, Non-Government Organizations (NGOs), Government and other stakeholders on the project design. The outcome of the consultation is supporting the inclusion of micro-enterprise as an important instrument to develop entrepreneurship (including of women) and improve access to road maintenance. Social accountability will be enhanced through transparent information disclosure of all procurement/bidding documents, contracts awards, and other relevant project documents.
37. The project has also incorporated lessons learned from other similar projects on the importance of community participation. Specifically, the Social Monitoring and Evaluation Survey will be carried out before and after subprojects interventions to assess user’s perception of the construction, maintenance and management of the road network and to provide data that go beyond outputs. Social outcome such as how road improvement is changing women’s lives, particularly in access to schools, health facilities, markets, and enhancing social capital will be monitored.
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38. The initial screening of sub-project activities during project preparation confirmed that there will be no land acquisition or resettlement, as all project physical activities is envisaged to be carried out on existing sites and structures. However, since the Project deals with road safety issues, civil works, and rehabilitation/repairs of road infrastructure, OP4.12 was triggered as a precautionary measure and Resettlement Policy Framework was prepared and publicly disclosed.
Monitoring & Evaluation 39. Project monitoring during the course of implementation will be carried out by the TPIU under the close supervision from the MoTC. The TPIU shall provide the necessary FM reporting inputs, semi-annual management reports, in a format satisfactory to the Bank, covering implementation progress and key issues will be submitted to the Bank one month after the end of each calendar semester. Summary annual report, in a format satisfactory to the Bank, will be submitted to the Bank within 60 days of the end of each project year. The reports will be supplemented by regular implementation support missions by the Bank team and by regular monitoring of the Project implementation. The mid-term review (MTR) is planned for December 2015. The MTR will assess progress towards achieving the Project Development Objective and will pay special attention to the progress on the sustainability roadmap, pilot contracts and institutional strengthening activities under the Project.
Role of Partners 40. The dialogue on sustainability of the road sector would require coordination between IFIs and consistency in policy dialogue. In the road sector, the Bank financing has been focused on the lifeline network, while the ADB is financing the North-South Corridor and the EIB is planning to finance a section of interstate road closely linked with roads sections to be improved by the Project in the first year program. The project preparation included extensive consultation with the ADB and the EIB and an agreement in principle was reached to have a common platform for dialogue and to coordinate technical assistance to support progress towards sustainability of the road sector.
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Annex 4: Economic Analysis
ARMENIA: Lifeline Road Network Improvement Project A. Selection Criteria for the First Year Program 1. The roads proposed for the first year program of the Lifeline Road Network Improvement Project (LRNIP) were selected by the MoTC based on a prioritization study done on January 2012 by the ARD. The ARD conducted a survey of a portion of the Lifeline Road Network, totalling 679 km subdivided into 103 roads, which are in need of rehabilitation or upgrading. The study identified a prioritized list of roads aiming to achieve better access to economic and social infrastructure, and for which rehabilitation would reduce transport costs, promote increase vehicular activities, and facilitate the sustained maintenance of the road network. The ARD collected road inventory, condition and traffic data as well as the population served by each road section.
2. An economic evaluation was performed, using the Highway Development and Management Model (HDM-4), evaluating up to three project-alternatives per road, e.g., reseal, overlay or reconstruction, and ranking road sections by economic priority. The selected roads in the first year program are composed of road sections with high economic impact with a balanced geographical distribution. The table below presents the frequency distribution of the prioritization study roads by total beneficiary population per km and Average Annual Daily Traffic (AADT). When the list is ranked by total beneficiary population per km, the average is 469 persons per km and the AADT is 225 vehicles per day. When the list is ranked by ADDT, the average for the first year program roads is 635 vehicles per day and the average beneficiary population per km is 742 persons per km.
Table 1: Prioritization Study Road Sections Distribution
Total Beneficiary Population(#/km)
Number of Road Sections(#)
Average Annual Daily Traffic, AADT(vpd)
Number of Road Sections(#)
0 – 100 21 0 – 100 25 100 - 200 18 100 – 200 42 200 - 300 10 200 – 300 12 300 - 400 11 300 – 400 9 400 - 500 4 400 – 500 3 500 - 600 5 500 – 600 5 600 - 700 6 600 – 700 2 700 - 800 4 700 – 800 3 800 - 900 4 800 – 900 0
900 – 1000 3 900 – 1000 1 More 11 More 0
B. First Year Program Roads
3. The first year program of road works is comprised of seven road sections located in six marzes. These road sections are bituminous roads in poor to very poor condition that require rehabilitation.
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The table below presents the roads description.
Table 2: First Year Program Roads Description Road
No. Marz Road Name Section Location
Maintenance Responsibility
1 Aragacotn M9-Arteni-Aragats-Getap km25+940 – km49+290 ARD 2 Aragacotn M1-Agarak-Byurakan-Antarut km 0+000 – km 8+650 ARD 3 Armavir M5-Nor Kesaria-Shenavan-Getashen km1+900 – km6+722 Marz of Armavir 4 Gegharquniq M10-Nerkin Getashen- Verin Getashen-Madina km 0+000 – km 10+700 Marz of Gegharquniq 5 Kotayq Mayakovski-Nor Gyugh-Kotayk-Kapputan-
Zovashen km 0+000 – km 4+410 km 6+710 – km 19+700
Marz of Kotayq
6 Lori M7-Arevashogh km 0+000 – km 2+465 Marz of Lori 7 Syuniq M12-Kornidzor km 0+000 – km 5+272 Marz of Syuniq
4. The road sections total 73.2 km and all roads are in poor to very poor condition with roughness higher than 6.5 IRI, m/km. The current AADT varies between 798 to 1,605 vehicles per day, and traffic is composed, on average, of 10 percent trucks and buses, and 90 percent passenger cars and pickup.
The table below presents the basic roads characteristics.
Table 3: First Year Program Roads Characteristics Road No. Length (km) Width (m) Roughness (IRI) Potholes (#/km) Traffic (vpd) Trucks & Buses (%)
1 23.4 8.2 12.6 0.75 1,605 10% 2 8.7 6.5 6.5 0.70 1,545 5% 3 5.3 8.3 11.7 0.64 798 4% 4 10.7 6.1 12.8 1.56 941 12% 5 17.4 7.8 13.8 1.30 1,044 13% 6 2.5 6.5 16.0 0.91 1,072 8% 7 5.3 5.6 12.9 1.10 846 9%
Total 73.2 7.4 12.3 1.02 1,243 10%
5. The project roads serve in total 69,753 persons living in 31 communities, of which 49.9 percent are female. The direct beneficiary population varies from 390 to 2,884 persons per km with an average of 953 persons per km. The project roads connect rural communities to the main road network or nearby located significant populated areas, thus being critically important for the economic development of the rural communities.
Table 4: First Year Program Roads Direct Beneficiary Population Road No. Beneficiary Population (#) Beneficiary Population (#/km)
Male Female Total Male Female Total
1 4,523 4,590 9,113 194 197 390 2 4,255 4,339 8,594 492 502 994 3 2,947 2,888 5,835 554 543 1,097 4 15,659 15,200 30,859 1,463 1,421 2,884 5 4,287 4,406 8,693 246 253 500 6 1,573 1,681 3,254 638 682 1,320 7 1,703 1,702 3,405 323 323 646
Total 34,947 34,806 69,753 478 476 953
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C. Economic Evaluation Assumptions 6. In order to ensure that all project roads generate sufficient economic benefits that warrant investments, a cost-benefit analysis was conducted for the first year program using the HDM-4 model that computes annual road agency and user’s costs for each project alternative over the evaluation period. The quantities of resources consumed and vehicle speeds are calculated first and then multiplied by unit costs to obtain total vehicle operating costs and travel time costs. The resources consumed and vehicle speeds are related to traffic volume and composition, and road surface type, geometric characteristics and roughness.
7. The quantified benefits computed by HDM-4 comprise savings in vehicle operating costs, travel time costs and road maintenance costs due to the road improvements. The following assumptions were applied in the HDM-4 calculation.
• The discount rate is 12 percent and the evaluation period is 20 years; • All the costs are estimated in US$, the exchange rate for 1 US$ is 400 AMD; • A conversion factor of 0.83 is applied to identify economic costs; • The road works will start in 2013 and construction will be completed within one year; • The average daily traffic annual increase rate from 2013 to 2020 is 4.8 percent and after
2020 it is 3.9 percent for passenger vehicles and 4.0 percent and 3.5 percent respectively for goods vehicles, considering that the average annual GDP growth in Armenia from. 2006 to 2010 was 4.4 percent and the GDP growth forecast for Armenia is 4.0 percent per annum from 2013 to 2020;
• No generated traffic is considered to occur after the road improvement; • The “without project” scenario assumes that routine maintenance, pothole patching and
reconstruction, when the road reaches very poor condition, will be conducted over the evaluation period.
8. The table below presents the vehicle fleet economic unit, basic characteristics and the typical traffic composition on the project roads.
Table 5. Vehicle Fleet Economic Unit Costs, Characteristics, and Traffic Composition
Car Light Truck
Medium Truck
Heavy Truck
Articulated Truck
Mini Bus
Medium Bus Large Bus
New Vehicle Cost (US$) 13,000 25,000 35,000 60,000 100,000 25,000 35,000 50,000 New Tire Cost (US$) 75 120 350 350 350 120 200 350 Fuel Cost (US$/liter) 1.2 1.2 1.2 1.2 1.2 0.8 0.8 1.2 Lubricant Cost (US$/liter) 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 Crew Cost (US$/hour) 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 Maintenance Cost (US$/hour) 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 Overhead Cost (US$/year) 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 Interest Rate ( percent) 12 12 12 12 12 12 12 12 Passenger Work Time (US$/hour) 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Passenger Non Work Time (US$/hour) 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Cargo Time (US$/hour) 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
Number of Wheels (#) 4 4 6 10 18 6 6 6 Operating Weight (tons) 1.2 2.0 7.5 13.0 28.0 2.5 6.0 10.0
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Car Light Truck
Medium Truck
Heavy Truck
Articulated Truck
Mini Bus
Medium Bus Large Bus
Stand. Axle Load Equivalent (#) 0.00 0.01 1.25 2.28 4.63 0.04 0.70 0.80 Annual Utilization (km) 25,000 30,000 40,000 86,000 86,000 47,000 70,000 70,000 Annual Utilization (hours) 550 1,300 1,200 2,600 2,050 2,100 1,750 2,500 Service Life (years) 10 8 12 14 14 8 7 12 Number Passengers (#) 2 2 0 0 0 12 25 40 Private Trips ( percent) 90 75 30 10 0 10 10 0 Work Trips ( percent) 75 90 0 0 0 75 90 95
Typical Traffic Composition (%) 85.6% 4.5% 3.4% 1.3% 0.3% 4.3% 0.3% 0.1%
9. The total capital cost for the first year program is estimated at US$20.1 million. The project roads to be rehabilitated will either be reconstructed with an asphalt concrete pavement (48 percent of the total length), reconstructed with a double surface treatment pavement (10 percent), or will receive an asphalt concrete overlay over the existing pavement (42 percent). In all cases the asphalt concrete wearing course has a thickness of 40mm. The table below summarizes the financial construction costs and unit cost per km per road.
Table 6. First Year Program Road Works Road No. Road Work Description
Cost(US$/km)
Cost(US$ Million)
1 AC Overlay km 25+940 –km 32+690, km 34+390 - km 40+690 km, and km 47+490 - km 49+290 & AC on Recycled Base Reconstruction km 32+690 - km 34+390 and km 40+690 - km 47+490 259,846 6.07
2 AC Overlay km 0+000 – km 8+650 311,292 2.69 3 AC Overlay km 1+900 – km 4+150 km &
AC on Recycled Base Reconstruction km 4+150 – km 7+220 297,138 1.58 4 AC on Base Crushed Stone Reconstruction km 0+000 – km
6+800 and km 7+900 – km 10+700 & AC Overlay km 6+800 – km 7+900 267,949 2.87
5 AC Overlay km 0+000 – km 4+000 & AC on Base Crushed Stone Reconstruction km 4+000 – km 4+410 and 6+710 – km 13+000 & DBST on Recycled Base Reconstruction km 13+000 – km 19+700 245,005 4.26
6 AC on Base Crushed Stone Reconstruction km 0+000 – km 2+465 375,639 0.93
7 AC on Base Crushed Stone Reconstruction km 0+000 – km 5+272 323,429 1.71
Total
274,780 20.10
C. Economic Evaluation Results
10. The overall Economic Rate of Return (ERR) of the first year program is 30.2 percent and the Net Present Value (NPV) is US$22.85 million. All roads have ERR above 12 percent, ranging from 16.5 percent to 47.0 percent. The first year program would also improve access for about 69,753 people – or 3.5 people per US$1,000 of investment or US$288 of investment per beneficiary person. The table below summarizes the economic evaluation results.
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Table 7. Economic Evaluation Results Road No.
NPV(US$ Million)
NPV/Investment Ratio ERR(%)
1 10.66 1.76 47.0% 2 6.50 2.42 27.9% 3 0.42 0.27 16.5% 4 0.93 0.32 17.8% 5 3.75 0.88 31.4% 6 0.23 0.24 17.1% 7 0.35 0.20 16.5% Total 22.85 1.14 30.2%
11. Sensitivity analysis shows that all project roads would be economically justified even if construction cost were 15 percent higher or if the annual traffic growth rates were 15 percent lower. The table below shows the results of the sensitivity analysis considering: (i) increasing construction costs by 15 percent, (ii) decreasing annual traffic growth rates by 15 percent, and (iii) increasing construction costs by 15 percent and decreasing annual traffic growth rates by 15 percent. If construction costs were 15 percent higher, the overall ERR would be reduced to 26.9 percent and if the annual traffic growth rates were 15 percent lower, the overall ERR would be reduced to 29.9 percent. Construction costs would have to increase by 161 percent or benefits to decrease by 62 percent for the overall ERR to reach 12 percent.
Table 8. ERR Sensitivity Analysis ( percent)
Road Base A: Costs B:Traffic Growth
C: Combination
Number ERR +15% -15% A & B 1 47.0% 41.5% 46.4% 41.0% 2 27.9% 25.8% 27.7% 25.6% 3 16.5% 14.4% 16.3% 14.2% 4 17.8% 15.6% 17.6% 15.4% 5 31.4% 27.5% 31.0% 27.2% 6 17.1% 14.7% 16.9% 14.5% 7 16.5% 14.3% 16.3% 14.1% Total 30.2% 26.9% 29.9% 26.6%
12. Comparing with the “without project” scenarios, the first year program has a present value of road works higher by US$14.13 million. In contrast, the present value of road user costs decreases by US$36.98 million, resulting in US$22.85 million of project net benefits (NPV) and a Benefit / Cost ratio of 2.6. The table below summarizes the project benefits, and shows that 82 percent of the road user benefits originate from vehicle operating costs savings and 18 from travel time savings. Accounting only for vehicle operating costs savings, the project is still economically justified with a positive NPV (US$16.12 million).
Table 9. Benefits Distribution Increase in Road Work Costs 14.13 Decrease in Road User Costs 36.98 Decrease in Vehicle Operating Costs 30.26 Decrease in Travel Time Costs 6.71 Net Benefits (NPV) 22.85
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D. Selection of Roads for the Program
13. The dominating selection criteria for choosing roads to be included in the rest of the Project will be two: roads produce satisfactory economic returns, are especially cost effective on serving large populations, or a combination of these characteristics. Roads that do not meet either of these criteria will not be selected.
14. The ARD will update the inventory of all lifeline roads with current traffic, population served, condition and last year of rehabilitation/upgrading works of each lifeline road, and with information on the entity in charge of maintenance of each road. For roads in need of rehabilitation or upgrading, the potential economic development impact of the rehabilitation/upgrading works will also be assessed by an expert and traffic forecasts will be updated with conservative assumptions. The condition and traffic data will be measured with sufficient detail to perform a network level economic evaluation using HDM-4 of the entire universe of lifeline roads in need of rehabilitation/upgrading works, comparing a series of project alternatives in terms of pavement type and design. The selection of roads will be based on the evaluation of two main criteria: (i) NPV per investment, and (ii) total population served per US$1,000 of investment of the evaluated project alternative with higher NPV. The evaluation of the potential for economic development impact will complement the decision making process for roads with higher NPV or total population served.
15. The economic viability of the rest of the project will be confirmed based on the same economic evaluation assumptions and methodology employed evaluating the first year program. The economic evaluation will be done with project level condition and traffic data, which will be collected for the selected roads at the design stage, comparing refined project alternatives. Should the ERR for any road in the Project fall below 12 percent, designs would be revised to reduce costs and ensure that all investments supported under the program are economically viable with an ERR higher than 12 percent.
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Annex 5: Road safety in Armenia and previous Bank activities
ARMENIA: Lifeline Road Network Improvement Project 1. Road safety is recognized as a problem by the Government of Armenia and a number of actions have been taken in recent years, often with Bank financial support. A Road Safety Strategy and Action Plan were prepared with consultant input in 2008 and following review and amendments was approved by the Government in April 2009. Subsequent actions have largely focused on its implementation, principally through a grant from the Bank-administered Global Road Safety Facility (GRSF) and under the LRIP.
2. The Secretariat for the National Road Safety Council (NRSC) was established with support from a GRSF grant. This Secretariat operated successfully during 2009-11 and less successfully in 2012 following discussions about alternative institutional arrangement. The Secretariat performs some coordination functions while some road safety activities are directly under the responsibility of line Ministries (including MoTC/ARD). The NRSC is chaired by the Prime Minister and the Minister Transport is a member of the Council.
3. The safety of new roads can be improved substantially through road safety audits. This is supported by the Government, and under the LRIP the Bank supported the development of road safety audit guidelines which adapt international good practice to Armenian conditions. These guidelines have been used successfully to carry out a number of road safety audits on the designs of LRIP road sections. As a consequence the designs were modified and their safety has been improved. Training in the conduct of road safety audits has also been provided and the Bank has urged the government to apply road safety audit as a matter of principle to all major road projects.
4. A ‘Safe Village’ approach has been piloted successfully. One consequence of road improvements is often greatly increased speeds, with consequential increases in crash risk, especially to vulnerable road users (such as pedestrians, children and the elderly) where improved roads pass through villages or small towns. Under the LRIP the village of Gyulagarak was selected as a pilot for a program and a combination of traffic calming measures, footway construction and an education program in the village school has been implemented. The project received enthusiastic support from the local mayor, school headmaster and people in the village and appears to have been successful. The approaches used in the pilot project have been taken on board in the designs for subsequent sections of the Lifeline Road Network where they pass through villages. A further eight ‘safe villages’ have been implemented under the LRIP additional financing.
5. Seat belt wearing has improved dramatically. Although Armenia had a law requiring all drivers and front seat car passengers to wear seat belts since 2007, the law was not enforced and only a small proportion of drivers and passengers were wearing them. On the day the Government formally adopted the Road Safety Strategy and Action Plan, the Prime Minister and the Minister of Transport appeared on TV to give their full support and personally pledge to wear seat belts. Following this announcement, the improvement in wearing seat belt in cities and on highways was noticeable.
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6. Crashes and road deaths have reduced substantially in recent years. Largely as a result of the activities described above, there has been a substantial reduction in the number of road deaths, and road accident rates in Armenia. Table 1 below illustrates this.
Table 1: Road accidents, fatalities and casualties in Armenia, 2008-2011 Accidents Fatalities Casualties
2008 2202 407 3125 2009 2002 325 2753
-9,1% -20,1% -11,9% 2010 1974 294 2670
-1,4% -9,5% -3,0% 2011 2319 327 3354
+17,5% +11,2% +25,6% 7. The reduction between 2008 and 2010 demonstrates that substantial improvements are possible from well-targeted actions. Whilst the changes are small and not too much should be read into a single year’s data, the increase in 2011 illustrates that without continuous efforts the situation can change rapidly. This increase may in part be due to more crashes being reported as a result of the introduction in 2011 of compulsory motor vehicle insurance leading to an increase in reporting of accidents in order to support insurance claims. Despite the overall improvement since 2008 the rate of deaths per capita and per vehicle remain much higher than the best performing countries, thus further improvement is needed. Armenia’s road casualty rate per 100,000 people is 10, compared with the average of 6.0 for the EU member states10, and between 3 and 4 in the best performing countries.
8. The Government’s commitment to road safety was strong in 2009/10 but with limited activities around end-2011/early-2012. During that time, there was uncertainty on the institutional arrangement for road safety coordination and the financing of the secretariat, resulting in limited activities being implemented. Most individual activities are implemented by line Ministries but the coordination of all road safety activities is needed to improve their impact. The situation improved in February 2012 with the approval by the NRSC of a list of activities and confirmation in the short term of the current institutional arrangements. However, a long-term solution, including institutional arrangements and financing of road safety coordination should be agreed and implemented by the Government.
9. The Project will finance specific road safety engineering activities linked to the LRNIP program. It is expected that a further four ‘safe villages’ will be implemented by the LRNIP. Road safety engineering capacity within ARD will be improved through training courses and practical examples of blackspot treatments which will be implemented under the project.
10 6th Road Safety PIN report, ETSC, June 2012
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Annex 6: Operational Risk Assessment Framework (ORAF)
Armenia: LIFELINE ROAD NETWORK IMPROVEMENT PROJECT (P126782)
Project Stakeholder Risks
Stakeholder Risk Rating Moderate
Description: Risk Management:
Lack of financial means for adequate operation and maintenance (O&M) of assets rehabilitated under the Project might impact stakeholders' satisfaction of service provided.
The Government is committed to ensure maintenance activities for the sections improved under LRIP. In addition, the project will pilot rehabilitation contracts with maintenance and microenterprises for basic routine maintenance. The project will also provide the tools to strengthen decision making on resource allocation and the financing study will provide options to Government for ensuring the sustainability of the road sector. The Bank team is also closely working with the PREM team preparing the DPO series and the draft matrix includes measures to support the funding of maintenance activities in the road sector.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Client Not Yet Due Implementation 30-Jun-2017
Implementing Agency (IA) Risks (including Fiduciary Risks)
Capacity Rating Moderate
Description: (i) The project will implement three new concepts: (i) pilot maintenance by microenterprises, (ii) pilot rehabilitation contracts with three-year maintenance contracts, and (iii) feasibility of performance-based contracts with rehabilitation and maintenance. The implementation of these concepts may create challenges for the Ministry of Transport and Communication, the Road Directorate and the local contracting industry. (ii) The TPIU may lack sufficient staff to implement the project and monitor project activities.
Risk Management:
(i) The Bank team will organize during the first year of project implementation a seminar to train the key stakeholders on the concepts that will be introduced. Moreover, the technical assistance on these concepts will include capacity building by consultants. Finally, the Bank team will provide ongoing guidance to MoTC/ARD during project implementation.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Bank Not Yet Due Implementation 30-Jun-2017
Risk Management:
(ii) Project preparation included the assessment of the TPIU capacity to perform the tasks planned during implementation. ARD/MoTC initiated a competitive selection of
52
several positions, including in procurement, financial management and engineering. The current capacity of the TPIU is considered satisfactory.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Client Not Yet Due Implementation Yearly
Governance Rating Moderate
Description: Risk Management:
The Transport PIU had no governance issues or cases related to the World Bank projects or in general.
In pursuing transparency, the TPIU will provide information about public opening of bids, results of evaluation and the award of contract and provisions for bidders to protest on the procurement website of the Government at www.procurement.am.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Client In Progress Implementation 30-Jun-2017
Risk Management:
Mitigation measures identified and established under previous projects remain in place and are closely monitored by the Bank. The Bank has conducted a more in-depth review of all contracts since 2009 as part of the supervision of LRIP and have included measures to increase transparency and competition. These measures include: • Due diligence in avoiding collusive practices/risks during the bidding process by checking bidding patterns during bid evaluation by comparing unit prices of all bidders against the detailed cost estimates and prices among them; • As a precondition for multiple contract awards, capability of the bidder, nominated for such awards, should be assessed to confirm that it is sufficient to implement these contracts simultaneously. Such evaluation and award criteria will be disclosed in the bidding documents; and • The Bank staff shall conduct an awareness session for TPIU staff on identification of red flags in the bidding/contract implementation process.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Bank In Progress Implementation 30-Jun-2017
Project Risks
Design Rating Low
Description: Risk Management:
53
The design of the project may introduce too many new concepts to the road sector in Armenia.
The project is not a repeater but builds on the design and success of the LRIP. The project scope and scale are similar to the ongoing project. The dialogue on efficiency of contracts, sustainability and road safety started during implementation of the ongoing project. The use of more efficient design has been successfully piloted during implementation of LRIP.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Client In Progress Both 30-Jun-2017
Social and Environmental Rating Moderate
Description: Risk Management:
(i) Some providers of civil works may lack sufficiently high corporate standards for environmental performance, which may lead to shortfalls in construction, waste management, and/or restoration of construction and work campsites prior to demobilization. (ii) Inclusion of road safety features in the design of road rehabilitation may result in land acquisition and resettlement.
(i) To date, implementation of the ongoing Lifeline Road Improvement Project (LRIP) has proved that if environmental monitoring is integral to close technical supervision of works, contractors generally follow the EMPs or respond to outstanding issues flagged by supervisors. Site-specific EMPs for the rehabilitation works under the project will be finalized prior to commencement of civil works and the TPIU will be required to maintain arrangements for environmental supervision and reporting in a satisfactory way to the Bank throughout project implementation. (ii) Although no land acquisition and resettlement is expected under the project, the Bank policy has been triggered as a precautionary measure.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Client In Progress Implementation 30-Jun-2017
Program and Donor Rating Low
Description: Risk Management:
Interventions financed by multiple donors may lack coordination.
The Bank team has worked closely with EIB and ADB during preparation and will continue to ensure dialogue among donors through meetings and sharing of information.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Bank In Progress Implementation 30-Jun-2017
Delivery Monitoring and Sustainability Rating Moderate
Description: (i) Investments in the road sector may not be sustainable after the project closes, since limited financial resources
Risk Management:
(i) Government has committed to maintain the roads being improved by the project. The team will monitor the development and preparation of the road financing strategy. Furthermore, efficiency improvement in road maintenance contracts and technical
54
are allocated to the routine maintenance and periodic maintenance is nonexistent, resulting in rapid premature deterioration of road assets. (ii) The involvement of the TPIU in the implementation of other donor financed projects in the road sector, including a parallel financing to LRNIP, may affect LRNIP implementation and monitoring.
design shall continue and be systematically sought. Strengthening the institutional capacity of the government and local contractors would enable the application of these modern principles.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Client In Progress Implementation 30-Jun-2017
Risk Management:
(ii) The counterparts have long experience in implementing Bank-financed projects. The TPIU was the project implementing unit under several closed and on-going projects. To enhance the TPIU’s capacity, additional staff was recruited. The Bank team will monitor closely and if such oversights are identified, will take immediate action of correcting them. There will also be technical supervision, as well as audits to ensure the proper monitoring of activities.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Bank In Progress Implementation 30-Jun-2017
Other (Optional) Rating
Description: Risk Management:
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Other (Optional) Rating
Description: Risk Management:
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Overall Risk
Implementation Risk Rating: Moderate
Comments:
The review discussed the risk ratings for the proposed Project and agreed to rate the Overall Implementation Risk rating as “Moderate”.
55
Annex 7: Implementation Support Plan
ARMENIA: Lifeline Road Network Improvement Project
1. The implementation support strategy was developed considering the risks and mitigation measures identified in the ORAF and targets provision of flexible and efficient implementation support to the client.
• Procurement: The procurement related implementation support will include: (a) timely advice from the country office based procurement officer on various procurement related issues and guidance on the Bank’s Procurement Guidelines; (b) monitoring of procurement progress against the procurement plan.
• Financial Management: The Bank will conduct risk-based financial management
implementation support and supervision mission within a year of the project effectiveness, and then at appropriate intervals. In addition, the regular IFRs and annual project and entity audit reports will be reviewed by the Bank. As required, a Bank-accredited Financial Management Specialist will assist in the implementation support and supervision process.
• Environmental and social safeguards: The Bank’s environmental and social
specialists will provide regular support in strengthening the capacity of the TPIU in tackling safeguards related issues. Additionally, the Bank’s safeguards specialists will closely monitor implementation of the agreed site specific EMP and will provide guidance to the TPIU to address the issues that may arise.
• Various technical aspects: The Bank team will supervise the implementation of the
Project on a daily basis to provide needed support and guidance to the project implementation unit on various aspects of interventions.
Implementation Support Plan 2. The project team will provide timely and effective implementation support through daily supervision since the task team leader and several other team members are based in the region and in the Bank Country Office in Yerevan. The task team will provide the following detailed inputs to support the project implementation:
• Technical inputs: The Bank engineer will support the counterparts to carry out rehabilitation works through regular site visits and review of documentation to ensure the contractors fulfill their contractual obligations.
• Fiduciary requirements and inputs: The financial management and procurement specialists, based in the country office, will provide timely support. The financial management specialist will conduct risk-based FM missions within a year since the project effectiveness, and then at appropriate intervals, while the procurement supervision will be carried out as per Bank’s procurement rules and guidelines.
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• Safeguards: The environmental specialist will closely supervise implementation of the site specific EMPs of the Project. The environmental and social specialist will conduct field visits on an annual basis to monitor implementation of safeguards policies.
• Operation: The TTL of the Project will lead the project team in conducting regular implementation support of the Project and will coordinate with the client and other project team members the provision of timely guidance and support to the client.
Table 1: Resource Estimate
Time Focus Skills Needed Resource Estimate
0-12 months Technical review of the bidding documents
Road engineer 4 SWs
Procurement review of the bidding documents
Sr. Procurement specialist
3 SWs
Financial management and disbursements
Sr. Financial Management Specialist
3 SWs
Environmental supervision Sr. Environmental Specialist
3 SWs
Social supervision Sr. Social Specialist 3 SWs
Support with project supervision and coordination
Sr. Transport Economist 4 SWs
Project implementation monitoring Operations Officer 6 SWs
Task management Sr. Infrastructure Economist
8 SWs
12-48 months Technical review of documents Road Engineer 4 SWs
Environmental supervision Sr. Environmental Specialist
4 SWs
Social supervision Sr. Social development Specialist
2 SWs
Support with project supervision coordination
Infrastructure Economist 4 SWs
Financial management and disbursements
Sr. Financial Management Specialist
6 SWs
Review of procurements Sr. Procurement Specialist
8 SWs
Project implementation monitoring Operations Officer 14 SWs
Task management Sr. Infrastructure Specialist
24 SWs
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Table 2: Skills Mix Required
Skills Needed Number of Staff Weeks
Number of Trips Comments
Task team leader 32 Field trips as required Road engineer 8 Two Transport Economist 8 Two Environmental specialist 6 Four Social specialist 4 Four Operations Officer 20 Field trips as required CO based Procurement specialist 11 Field trips as required CO based Financial management specialist 8 Field trips as required CO based Table 3: Partners
Name Institution/Country Role
European Investment Bank
International Financial Institution
Financing of interstate road with links to lifeline roads improved by LRNIP
Asian Development Bank
International Financial Institution
Financing of North-South Corridor
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Annex 8: Sustainability Roadmap
ARMENIA: Lifeline Road Network Improvement Project 1. The project implementation will provide a platform to an increased policy dialogue, together with other donors, on the broader sustainability of the road sector. A sustainability roadmap, that will provide the base for policy dialogue during the implementation, has been agreed with MoTC. Several elements of the sustainability roadmap will monitor, in the result framework, progress in the following areas: (i) developing a financing plan to ensure sufficient resource to the road sector, (ii) strengthening ARD Road Asset Management System, (iii) mainstreaming the use of efficient design standards, (iv) improving institutional arrangement and coordination of road safety activities, (v) improving ownership of local community of road maintenance, and (vi) improving efficiency of maintenance contracts. 2. Component 2 of the Project will provide the tools to help MoTC improve the sustainability of the road sector. The road financing study will assess the financing needs of the sector, identify sources of financing (including dedicated taxes) and prepare a draft financing plan to ensure sufficient allocation to the road sector. The road asset management system will be strengthened through the purchase and use of a consolidated database on road statistics (condition, traffic, etc.), and additional road survey equipment. The efficiency of road design standards will improve through the introduction of pilot rehabilitation and maintenance contracts and the training of local contractors and the MoTC staff on the use of efficient design standards and multi-year performance based standards. Finally, the introduction of microenterprises will not only increase involvement and ownership of local communities but will provide low cost instruments to marzes on maintenance of roads under their responsibility. Table 1: Sustainability Roadmap
Topic Objective Targets
Achieved already June 2015 March 2017
Resource allocation to the road sector
Allocation of sufficient resources to routine, periodic and winter maintenance for the road sector
Plan to allocate sufficient resources to routine, periodic and winter maintenance approved by GoA
Significant improvement of financing of routine maintenance of network in good and fair condition
Road Asset Management System
Improved investment in the road sector through modern decision making tools
List of all lifeline roads with basic characteristic and responsibility for maintenance available
Database of all Armenian roads updated with detailed characteristics and used for investment financed by project
Decision making tool used for prioritization of investment in the road sector
Efficiency of road design standards
Use of modern design standards to achieve cost efficiency and inclusion of safety features in road improvement
Efficient design standards for all road improvement financed by LRNIP
Efficient design standards for road improvement financed by all IFI active in the roads sub-sector (WB, ABD, EIB) Capacity building of contractors and local
Efficient design standards for all roads with higher traffic and roads financed by all IFI active in the roads sub-sector.
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Topic Objective Targets
Achieved already June 2015 March 2017 consultants on efficient design standards
Coordination and financing of Road Safety activities
Institutional arrangement in place allowing coordination and supporting decision making to address road safety
Sustainable Institutional Arrangement for road safety in place (with staffing and financing)
Ownership of local community in road maintenance
Pilot contract to increase the involvement of community in basic routine maintenance (cleaning, cutting grass, etc)
First pilot Microenterprise created and operating
Second pilot Microenterprise created and operating
Efficiency of Maintenance Contracts
Simple pilot contract to incorporate maintenance on rehabilitated section of lifeline roads
Identification of pilot road section in first year program
Pilot contract procured
Feasibility study to investigate the potential for multi-year performance based contract incorporating rehabilitation, routine, winter and periodic maintenance
Draft ToR received for feasibility study
Feasibility study procured and pilot identified
MoTC endorsement of the study and the pilot
L O R R IL O R R I
ARAGATSOTNARAGATSOTN
A R A R A TA R A R A T
S H I R A KS H I R A K
TAVUSHTAVUSH
G E G H A R K ’ U N I K ’G E G H A R K ’ U N I K ’
S Y U N I K ’S Y U N I K ’
V A Y O T S ’V A Y O T S ’D Z O RD Z O R
YEREVANYEREVAN
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YegegnadzorYegegnadzor
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ArmavirArmavir
GavarGavar
HrazdanHrazdan
AshtarakAshtarak
GyumriGyumriVanadzorVanadzor
IjevanIjevan
AshotskAshotsk
AmasiyaAmasiya
Step'anavanStep'anavan
SpitakSpitak
ToumanianToumanian
NoyemberianNoyemberian
BerdBerd
ArtikArtik
MaralikMaralik
TsakhkahovitTsakhkahovit
AragatsAragats
Verin TalinVerin Talin
OktemberjanOktemberjanEchmiadzinEchmiadzin
YegvardYegvard
Krasnosel'skKrasnosel'sk
AbovianAbovian
VediVedi
VardenisVardenisMartuniMartuni
VaikVaik
SisianSisian
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MegriMegri
TashirTashirAlaverdiAlaverdi
DzoramutDzoramut
AparanAparan
DzhraratDzhrarat
DilijanDilijan
SevanSevanTsakhkadzorTsakhkadzor
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MarkaraMarkara
BagaranBagaran
KarakalaKarakala
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Krasnosel'sk
Abovian
Vedi
VardenisMartuni
Vaik
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Goris
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SevanTsakhkadzor
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Yegegnadzor
Artashat
Armavir
Gavar
Hrazdan
Ashtarak
GyumriVanadzor
Ijevan
YEREVAN
77
55
66
1122
33
44
L O R R I
ARAGATSOTN
A R A R A T
KOTAYK’
YEREVAN
ARMAVIR
S H I R A K
TAVUSH
G E G H A R K ’ U N I K ’
S Y U N I K ’
V A Y O T S ’D Z O R
GEORGIAGEORGIA
T U R K E Y
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OF IRAN
AZERBAIJAN
AZERBAIJAN
Akhurian R.
Araks R.
Araks R.
Araks R.
VorotanR.
LAKESEVAN
To Bagdanovka
To Kars
To Dmanisi
To Shulaveri
To Kazakh
To ShakhtakhtyTo Shusha
To Nakhichevan
To Ordubad
To Zangelan
To Zangelan
48°47°46°45°44°
39°
40°
41°
44° 45° 46° 47° 48°
41°
40°
39°
ARMENIA
No.
1
2
3
4
5
6
7
MARZ
ARAGATSOTN
ARAGATSOTN
ARMAVIR
GEGHARK’UNIK’
KOTAYK’
LORRI
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ROAD SECTION
M9-ARTENI-ARAGATS-GETAP
M1-AGARAK-BYURAKAN-ANTARUT
M5-NOR KESARIA-SHENAVAN-GETASHEN
M10-NERKIN GETASHEN-VERIN GETASHEN-MADINA
MAYAKOVSKI-NOR GYUGH-KOTAYQ-KAPPUTAN-ZOVASHEN
M7-AREVASHOGH
M12-KORNIDZOR
TOTAL
LENGTH (KM)
23.4
8.7
5.3
10.7
17.4
2.5
5.3
73.3
ROAD SECTIONS FOR LRNIP–FIRST YEAR PROGRAM
This map was produced by theMap Design Unit of The World Bank.The boundaries, colors, denominationsand any other information shown onthis map do not imply, on the part ofThe World Bank Group, any judgmenton the legal status of any territory, orany endorsement or acceptance of suchboundaries.
ROADS FINANCED UNDER LRNIP–FIRST YEAR PROGRAM
ROADS FINANCED UNDER THELIFELINE ROAD IMPROVEMENT PROJECT (LRIP)*
*The Project is financing the rehabilitation of about 440 km of Lifeline roads.
A R M E N I A
LIFELINE ROAD NETWORKIMPROVEMENT PROJECT (LRNIP)
DECEMBER 2012
IBRD 39639
40 Miles
60 Kilometers500 10 20 30 40
300 10 20
MAIN TOWNS/VILLAGES
MARZ (PROVINCE) CAPITALS
NATIONAL CAPITAL
MARZ (PROVINCE) BOUNDARIES
INTERNATIONAL BOUNDARIES
PRIMARY ROADS(DUAL CARRIAGEWAYS)
PRIMARY ROADS (OTHER)
RAILROADS
RIVERS
RESERVOIRS