Document of

The World Bank

FOR OFFICIL USE ONLY

ReportNo. 9910

PROJECT PERFORMANCE AUDIT REPORT

INDIA

BIHAR RURAL ROADS PROJECT(CREDIT 1072-IN)

SEPTEMBER 23, 1991

Operations Evaluation Department

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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Country Exciange_Rates(Yearly Averages)

1978 US$1.00 - Rupees 8.191979 8.131980 7.861981 8.661982 9.451983 10.101984 11.361985 12.371986 12.611987 12.961988 14.60

ABBREVIATIONS

ANSIS - A.N. Sinha Institute, PatnaARDC - Agricultural Refinance Development CorporationBOR - Back-to-Office ReportDEA - Department of Economic Affairs, 001ERR - Economic Rate of ReturnGOB - Government of BiharGOG - Government of GujaratGOI Government of IndiaICB - International Competitive BiddingIDA - International Development AssociationIRC - Indian Roads CongressOED - Operations Evaluation Department, World Bankp.a. - per annumPCR - Project Completion ReportPPAR - Project Performance Audit ReportPR - President's ReportREO - Rural Engineering Organization, GOBRHD - World Bank Resident Mission, New DelhiSAR - Staff Appraisal ReportSR - Supervision ReportTD - Transportation Department, World Bank

FISCAL YEAR OF THE BORROWER

April 1- March 31

THE WORLD BANK FOR OFFICIAL USE ONLYWashington. D.C. 20433

U.S.A.

Ooce o# DWettnr.CMMealOpraone Evaluimin

September 23, 1991

E1ORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Performance Audit Report on IndiaBihar Rural Roads Project (Credit 1072-IN)

Attached, for information, is a copy of a report entitled "ProjectPerformance Audit Report on India Bihar Rural Roads Project (Credit 1072-IN)"prepared by the Operations Evaluation Department.

Attachment

This document has a restricted distribution and may be used by mecipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorisation.

I1

FOR OFFICIAL USE ONLYPROJECT PERFORMANCE AUDIT REPORT

BIHAR RURAL ROADS PROJECT(Credit 1072-IN)

TABLE OF CONTENTS

Page No.

Preface ........................................................ iBasic Data ..................................................... iiiEvaluation Summary ............................................. v

I. FROM INCEPTION TO BOARD APPROVAL .......................... 1

Project Inception ......................................... 1Identification Mission .................................... 2Further Contacts .......................................... 3Appropriate Construction Methods .......................... 3Project in Suspension ..................................... 4Successive Preparation Missions .......................... 4Project Brief ............................................. 5Further Preparation ....................................... 7Pre-appraisal Mission ..................................... 8Project Appraisal ......................................... 10Project Monitoring ........................................ 11Issues Paper, Decision Memorandum, Negotiations and

Board Approval ...................................... 11

II. FROM BEGINNING OF IMPLEMENTATION TO COMPLETION ............ 12

First Supervision Mission ................................. 12Feedback .................................................. 12Second Supervision Mission ................................ 14Third Supervision Mission ................................. 14Project Monitoring ........................................ 14Fourth Supervision Mission ................................ 15Project Monitoring ........................................ 15Fifth Supervision Mission ................................. 15Project Monitoring ........................................ 15Feedback .................................................. 16Impact Study .............................................. 16Sixth Supervision Mission ................................. 18Reaction at IDA Headquarters .............................. 19Impact Study .............................................. 20Supervision and Request for Arbitration ................... 20Seventh Supervision Mission ............................... 21Eighth Supervision Mission ................................ 22Update .................................................... 22Ninth Supervision Mission ................................. 23First Extension of the Closing Date ....................... 25

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.

TABLE OF CONTENTS (CONT.)PAge No.

Tenth Supervision Mission .................................. 26Eleventh Supervision Mission ............................... 26Twelfth Supervision Mis!Aon ................................ 27Thirteenth Supervision Mission ............................. 29Second Extension of the Closing Date ....................... 29Further Supervision and Credit Closing ..................... 30Preparation of the Project Completion Report ............... 31

III. FINDINGS AND RECOMMENDATIONS .............................. 32

General Findings .......................................... 33Specific Findings - Inception and Preparation ............ 35Specific Findings -- Implementation and Monitoring . 37Specific Findings -- Bank Group Assistance ................ 38Recommendations ........................................... 39

Annex 1

Labor-based Construction and Maintenance Methods:Notes on the Bank's Research Work ......................... 41

PROJECT PERFORMANCE AUDIT REEORT

BIHAR RURAL ROADS-PROJECT(Credit 1072-IN)

. PREFACE

1. This is the Project Performance Audit Report (PPAR) on the BiharRural Roads Project (Credit 1072-IN of SDR 35.0 million, or US$50.0 millionequivalent). praised in March 1980, the project was approved by the Boardin November 19,0. The Credit became effective in January 1981 and theproject was to be completed in March 1985. The Closing Date was extendedtwice (to June 30, 1988) but the account was kept open until March 31, 1989,to clear up commitments entered into up to the time of Credit closure. Thelast disbursement was made on April 18, 1989, and the remaining balance ofabout SDR 98,000 was cancelled. The Transport and Energy Operations Divisionof Country Department IV of the Bank's Asia Regional Office prepared aProject Completion Report (PCR) published on December 29, 1989.

2. An OED mission visited India in December 1990, discussed theproject with Indian authorities, inspected a large number of roads, andgratefully acknowledges the assistance and hospitality it received. OEDprepared the PPAR by studying the project files, the Staff Appraisal Report(SAR), the President's Report (PR), the Credit Agreement, the 1989 PCR,transcripts of the Executive Directors' meeting which considered the project,and published reports on the economy and the country. For the convenience ofthe reader, the PPAR text is preceded by statistical material extracted fromthe PCR.

4. According to standard procedure, OED sent copies of the draft PPARto the Borrower for comments. As of August 5, 1991, no replies had beenreceived.

PROJECT PERFORMANCE AUDIT REPORT

BIAR RURAL ROADS PROJECT(Credit 1072-IN)

BASIC DAT I/

World Bank Regional Unit AOL&Sector TransportSubsector BiWh&ysBorrower Goverement of IndiaExecuting Agency Rural Engineering Organization, 00

Prolect Timetable

Plan Actual

First Mention in Tiles 1/78Appraisal 3/80 3/80Negotiarions 9/80 9180Board Apzroval 11/80 11/80Credit OArement Date 12/80 12/80Effectivencs Date 1/80 1/80Project Completior Date 6/85 6/88Closing Date 6/86 6/88

Expected and Actual Cost. and ExpenditUes

Appraisal Estlmate Actual ExpendituresRes million US$ =illion Re million US$ million

Construction 382.3 45.5 419.4 36.8Equipment & Spares 39.9 4.8 47.0 4.2Supervision 22.2 2.6 23.5 2.1

Total 444.4 52.9 489.9 43.1

Expected and Actual Cumlatie Disersements (USS million)

FY81 FY82 TY83 FY84 FY83 TY86 FY87 FY88 FY89

Estimated 0.7 8.3 18.1 27.9 35.0 - * *Actual 0.4 1.3 10.6 13.3 19.1 22.0 22.6 26.9 28.3

Actual/Est. (2) 57 16 59 48 55 63 65 77 81

Expcted and Actual Economic Rate of Return

Appraisal Etimaces 22ZEstimate at Completions 0%

J./I For much greater detail, please see Part III (Statistical Summary) ofProject Comlation Reort - India: Biha .ural .Roads Pro ect (Credit1072-IN), December 29. 1989. Report Number 8256.

iv

Staff Input (Staff-Weeks)

F78 FY79 FY80 FY81 FY82 FY83 FY84 FY85 F86 FY87 FY88 FY89 TOTAL

Preparation 3.5 14.4 53.2 - - - - - - - - - 71.1Appraisal - - 32.1 11.3 - - - - . - - - 43.4Negotiations * - - 12.3 - * - - - * * - 12.3Supervision - - - 5.5 4.7 4.2 6.3 4.4 11.1 9.9 7.9 - 54.0Completion - - - - 8.7 8.7

GRAND TOTAL 3.5 14.4 85.3 29.1 4.7 .2 6.3 4.4 11.1 9.9 7.9 8.7 189.5

Field Mission Data

Month/ No. of No. of Staff ReportYear Persons Weeks Weeks Date

Identification 1/73 1 1 1.0 3!78Identification 6/78 1 1 1.0 8/78Preparation 9/78 3 1 3.0 10/78Preparation 5/79 1 1 1.0 5/79Preparation 6/79 2 1 2.0 7/79Preparation 8/79 1 1 1.0 9/79Preparation 10/79 1 1 1.0 12/79Preparation 10/79 1 4 4.0 12/79Preparation 10/79 4 2 8.0 12/79

SubTotal 22.0

A,#praisal 3/80 2 3 6.0 4/80

Supervision I 11/80 1 1 1.0 1/81Supervision II 3/81 1 .2 0.2 4/81Supervision III 6/81 1 1 1.0 7/81Supervision IV 10/81 2 .6 1.2 11/81Supervision IV 10/81 1 1 1.0 11/81Supervision V 5/82 1 1 1.0 6/82Supervision VI 11182 1 1 1.0 12/82Supervision VII 3/84 2 .5 1.0 3/84Supervision VIII 3/85 1 1 1.0 4/85Supervision IX 1/86 1 1 1.0 2/86Supervision I 5/86 1 .4 0.4 5/86Supervision XI 8/86 1 1 1.0 8/86Supervision XII 2/87 2 1 2.0 5/87

SubTotal 12.8

Completion 10/88 2 2 4.0 12/88Completion 3/89 1 .4 0.4 5/89

SubTotal 4.4

GRAND TTAL 45.2

v

PROJECT PERFORMANCE AUDIT REPORT

BIHAR RURAL ROADS PROJECT(Credit 1072-IN)

EVALUATION SUMMARY

Introduction

1. The project was appraisal), have either failed oridentified in January 1978. It was show premature deterioration. Onappraised in March 1980, Board many roads there is no motorizedapproval was given in November traffic.1980, and the Credit becameeffective in January 1981. March 4. Actual project cost in1985 was the planned completion dollars is US$45.7 million (asdate. against US$52.9 million estimated

at appraisal) because, duringObiectives implementation, the value of the

Rupee deteriorated vis-a-vis the US2. Project objectives were dollar. Actual project cost inprovision of all-weather access to rupees is R520.6 million (asfarms and villages, and improvement against R444.4 million estimated atof construction and maintenance appraisal).procedures. Project componentsconsisted of construction or 5. Lack of data precluded astrengthening of about 700 km of re-estimation of the economic raterural roads; improvement of of return (ERR) which, atmaintenance of roads administered appraisal, had been estimated atby the Rural Engineering 21%. As constructed, the roadsOrganization (REO) of the will not last sufficiently long toGovernment of Bihar (GOB); and generate enough benefits to justifyprocurement of construction and the investment and the post-maintenance equipment. completion ERR would probably be

negativt.Implemettation Exerience andProiect Results Sustainability

3. Instead of March 1985, 6. The short life of theactual completion took place in K0ads, coupled with tae lack of

- June 1988. Institutional effective maintenance, does notobjectives were not met but bode well for the sustainability ofphysical results in terms of km of project benefits.road built were close to appraisalexpectations. Because of design, Revieworkmanship, and supervisionshortcomings, quality of the 7. Review of the projectfinished works is poor. Mary roads, experience covered two periods:costing about US$50,000 per km (asagainst US$25,000 estimated at

vi

(a) From Inception to Board offers specific lessons on:Approval (paras 1-35), Inception and Preparation;and Implementation and Monitoring; and

(b) From Beginning of Bank Group Assistance.Implementation tocompletion (paras 36- 10. Specific Findings -- Inception104). &nL?reation (paras 123-129)

The review revealed some wider (a) Rural road projects aretopics and the Audit reathed the to improve ruralfollowing conclusions and transport, not just torecommendations. bu4ld roads.

(b) Project design must beGeneral Findings (paras 110-122) attuned to realities of

time and place.8. From beginning to end, a (c) Project design must takedivergence persisted between what advantage of localGOB wanted and what IDA advocated. expertise.GOB was preoccupied with short-term (d) A distinction must beemployment, IDA with long-term drawn between physicaldevelopment, and the two and institutionalpreoccupations never meshed. Bihar objectives.did get some employment, IDA did (e) Covenants and conditionsdisburse most of a US$35 million must relate tocredit, but the roads are failing achievements which anand no institutional strengthening Executing Agency istook place. GOB and IDA never came empowered to accomplish.together because of socio-political (f) S t a f f t r a i n i n gconditions in Bihar, because is th institutionalproject design was inappropriate, objective deserving theand because IDA was unwilling to greatest attention.allocate sufficient resources to (g) Large numbers of civilsupervision. Furthermore, during engineers must be givenproject implementation, GOI the opportunity for on-demonstrated lack of enthusiasm for the-job training intechnical assistance. labor-intensive works.

Beyond that, proper9. There has not been a incentives must befollow-on operation to take developed to keepadvantage of the experience gained experienced engineers infrom the Bihar Project. Bihar in labor-intensive wcrkparticular, and India in general, sites.needs to improve rural transportbecause, for many years to come, 11. SRecifig Eindin&s --agriculture will provide a Inlementation and Konitorinzlivelihood for hundreds of millions (paras 130-133)and better access to rural areas isa precondition for a more (a) Implementation isproductive agricultural sector. IDA facilitated when targetscan help by facilitating provision and responsibilities areof needed infrastructure, precise and explicit.encouraging staff training, and (b) Flexibility in adjustingstrengthening of local both target outputs andinstitutions. The Bihar Project Closing Dates is

vii

desirable but must not be Z"omendations (para 139)abused.

(c) Experience with exi-ante 12. Thn Audit recommends theand ex-Rost evaluation of following:individual roads suggeststhat 5-10 km segments are (a) By, say, end 1991, Banktoo short for ERR Management discusses withanalyses. It might be GOI the latter'spreferable to concentrate intentions regardingon least-cost solutions strengthening of ruralfor construction and transport over the nextmaintenance and leave it 10 years.at that.

(d) Experience with (b) If GOI decides to modifymonitoring road impact its policy towardsupon the rural, socio- technical assistance, theeconom'z environment Bank Group ought tosuggests it is present GOI, by Junemethodologically 1992, with tentativedifficult and financially estimates for assistanceexpensive. needed to improve rural

transport in a number ofSpecific Findings -- Bank States to be identified

GrouR AssistAnce (paras 134-138) by GO(

(e) The Bihar Project took (c) If GOI agrees that thetoo long. When it was Bank ought to perform thefinished, there was no role of coordinator forfollow-up operation to financial and technicalmake use of the assistance, the Bankexperience gained. Group ought to rresent

(f) GO! must decide whether GO!, by December 1992,'or not India needs with a detailed plan forforeign techniques and interventions to improvetechnical assistance for rural transport in theplanning and implementing States specified by GOI.programs to strengthenrural transport.Depending on what GO!decides, the Bank Groupwill have to reconsiderits own plans for futuresupport.

(g) If the Bank Group is toget seriously involved instrengthening ruraltransport, appropriatestaff time allocationswill have to be made.

PROJECT PERFORMANCE AUDIT REPORT

ID.A&IAR RURAL ROADS PROJECT

(Credit 1072-IN)

I. FROM INCEPTION TO BOARD APPROVAL

January 1978 - November 1980

Project Inception

1. In January 1978, Government of Bihar (GOB) officials discussedwith an IDA officer a possible road project. GOB objectives were modest(improve some rural roads to facilitate organization of milk cooperatives),and GOB asked that a road component for Bihar be added to the NationalDairy Project, under preparation at the time. The IDA officer tespondedthat the project was too advanced, too complex, and too focussed on milkwhereas Bihar needed a road network for a variety of goods. GOB wastherefore urged to prepare a separate project.

2. IDA knew that Bihar roads were in such poor condition thattransportation virtually ceased during the rainy season.l/ Since theBank Group had a number of ongoing ano proposed agricultural schemes,2/IDA felt that a rural roads project could complement them. GOB did notobject to IDA's approach.

3. 'aring January-February 1978, GOB reflected on what it hadundertaken to deliver: a proposal for a roads project that would supportdevelopment financed through a number of other IDA-financed schemes. GOBwas unfamiliar with IDA's project preparation procedures and took up thematter with the Government of India (GOI) in Delhi. GOB said it wanted IDAto assist with project preparation, preferably by assigning some of itsstaff to work with GOB officers in Patna.

4. GOI's policy was to resist technical assistance. However, Biharinsisted and GOI acquiesced. A March 2, 1978, telex from the Bank'sResident Mission in New Delhi (RMD) urged IDA Headquarters to send areconnaissance mission because both GOI and GOB wanted to identify andprepare a project with IDA staff assistance.

5. It was a significant request but IDA was not geared to respond.A March 8, 1978, internal note concedes that a reconnaissance mission wouldbe desirable but staff was not available. Instead, copies of recentappraisal reports were sent to GOB as models.

1/1 Reference was also made to the May 1977 Eastern States FoodgrainReview - Bihar which stated that "better marketing facilities andfeeder roads at village and intermediate levels are needed to improvethe efficiency of distributing fbam inputs and marketing farmoutputs."

1/ Including the ongoing Bihar Agricultural Credit. Bihar AgriculturalMarkets, Bihar Agricultural Research and Extension. as well as theproposed Second National Seed and National Dairy projects.

2

6. GOB, supported by GOI, eventually proposed a rural roads projectcovering the construction, strengthening or improvement of about 12,700 kmof village rotads over a three-year period at an estimated cost of US$335million. Clearly, scope as well as cost were too large and IDA had toreact formally.

Identification Mission

7. An IDA officer visited India between June 16-21 to discuss theGOB proposal. His August 2, 1978, Project Brief showed that a project inBihar would be easy neither to plan nor to implement.2/ GOB hadprepared an unrealistically large project, counterpart funds would be hardto come by, maintenance would be problematic, qualified staff was in shortsupply, bureaucratic procedures would delay land acquisition andprocurement, the Rural Engineering Organization (REO) of GOB could notsupervise properly the works, and beneficiaries were too poor to buyvehicles.

1/ The size of the project was way out of proportion in relation to pastexpenditures. It was doubtful whether GOB could provide the neededcounterpart funds for construction or maintenance, whether GOB hadthe technical capability to undertake the extra maintenance work, andit was unclear how much work would be done by force account and howmuch by contract. Engineers needed to be trained. Stone was inshort supply. Equipment requirements and ownership had to bereviewed. Development of the contracting industry had to beinvestigated.

Agricultural development, necessary to justify road investments.created problems of coordination. Benefits from increasedagricultural production depended on other inputs, principallyirrigation. The project ought to complement ongoing IDA and GOBagricultural projects. Road development should therefore concentratein north Bihar where population pressure was greatest, soils mostfertile, and groundwater most plentiful.

There was no experienced planning staff in Bihar. An economist wasneeded to help with route selection. In addition, IDA ought tosupply one development economist for three months to train REO staffin simple techniques of rcute appraisal. Contract documents had tobe reviewed because they encompassed local practices which IDA mightconsider unacceptable. Major delays ought to be anticipated with landacquisition and procurement.

Project supervision was bound to create difficulties. REO did nothave the experience to undertake supervision to the standards thatIDA expected, and GOI objected on principle to the employment ofconsultants on the grounds that sufficient expertise exists in India.

Most of the benefits would not reach smaller farmers who are too poorto buy their own vehicles.

3

8. It would have seemed that what was really called for was aproject focussed on staff training and inst'tution-building in REO.However, on August 9, 1978, IDA wrote to GOB stressing the need tointegrate the proposed project with other IDA-financed initiatives.

Further Contacts

9. Meanwhile, GOB began to see the project as more than a means toimprove rural roads. An October 12, 1978, memorandum (written after aSeptember visit to Bihar by an IDA officer) said that GOB's interest in theproject was related to forthcoming State elections. A project of this sizeand visibility would demonstrate the incumbent government's commitment tojob creation and general improvement of the economic lot of the ruralpopulation.

10. The memorandum went on to say that REO would be responsible forproject preparation, assisted by the Rural Development Department.However, while both agencies had technically competent staff, politicalexpediency was likely to influence project design, unless the involvementof outside sources of financing served as a moderating influence onpolitical pressures.

11. GOB was itself aware of the need for such a moderating influenceand, once again, asked IDA for technical assistance (four experts: in ruralplanning, highway engineering, economics and agronomy) to assist in projectpreparation. The GOB request was mentioned by the IDA officer to theDepartment of Economic Affairs (DEA), Ministry of Finance, GOI. So far,GOI had tried to accommodate GOB. This time, DEA appeared cool and, a fewweeks later, IDA was formally informed that GOI would reconsider theproject in the context of its overall investment priorities. Even so, GOIstated that continued IDA involvement in project preparation on a technicalassistance basis would be welcomed.

12. This was another opportunity for IDA to establish a substantivepresence in Bihar but the October 12, 1978, memorandum recommendedotherwise: since GOI was changing its investment priorities, IDA shouldwait for GOI to finalize and clarify its intentions before activelyparticipating in further preparation of the Bihar Project.Nevertheless, since project preparation would be required irrespective of..he source of finance, IDA should communicate to GOI its endorsement inprinciple of the approach outlined in the Aide Memoire left behind in Biharby the September 1978 IDA mission, and emphasize the importance of an earlystart on project preparation.A/

Ayororiate Construction Methods

13. The October 12, 1978 memorandum provoked an October 18, 1978,note from the Bank's Transportation Department (TD).

A/ Project preparation based on this Aide Memoire presupposed thepresence of IDA experts in Bihar. How preparation could proceedwithout them was not elaborated upon in the October 12, 1978,memorandum.

4

14. TD said that the memorandum suggested that IDA finance roadconstruction equipment and training of operators and mechanics. TDconceded that equipment did have a place in a labor-abundant economy butinsisted that, in a rural roads project for India, equipment ought to be aminor component. The Bank's research on labor-based construction andmaintenance methods had shown that these were technically and economicallyjustified for most aspects of civil construction in India.5/

15. This finding had been documented in several publications.Furthermore, it had been the topic of extensive discussions at the December1976 meeting of the Indian Roads Congress.J/ Consequently, TD felt thatIDA-financed civil construction pr-jects in India (other than very largeand technically complex works) should aim to work with (and hopefully toimprove somewhat) the labor-intensive methods currently in use. Ratherthan equipment procurement, the most important component ought to be worktraining for foremen and supervisors.

Proiect in Suspension

16. TD suggestions were reasonable but came at an inopportune time.On October 19, 1978, IDA wrote to GOI acknowledging that the project hadbeen dropped from the pipeline at GOI request.

17. The file does not explain what prompted the GOI request, nordoes it explain what led GOI to revive the project in early 1979. On April5, 1979, the project was back in the pipeline and the RMD suggested afollow-up mission.

Successive Preparation Missions

18. The May 9, 1979, follow-up Mission Report describes the revivalof the project. Total estimated cost had been reduced to US$50 millionequivalent and the proposed IDA contribution to US$25 million equivalent.Project preparation was to start on June 1, 1979 and be completed byFebruary 25, 1980. Appraisal would be in March 1980. At GOI request,technical assistance for project preparation was dropped. Consequently,increased IDA supervision of project preparation would be required.

19. The next Mission took place in June 7-10, 1979. It left behindan extraordinarily detailed Aide Memoire but did not discuss anticipatedtraffic. Also, it made no reference to labor-based construction methods

I/ At the time, the 3ank was engaged in a 10-year program to explore thefeasibility of substituting unskilled labor for mechanical equipmentin the civil engineering process. A brief summary is attached asAnnex 1: Labor-based Construction and Maintenance Methods - Notes onthe Bank's Research Work.

g/ Please see: Indian Roads Congress. 37th Annual Session. Bhopal.December 1976. Panel Discussion on: Scope for the substitution oflabour and equipment in civil construction and some asiects of theuse of labour-intensive methods for road construction (New Delhi.February 1978).

5

and did not take into account TD concerns (expressed in October 1978) thattraditional labor-based construction techniques had to be improved.

20. Neglect of this last point is puzzling because the August 3,1979 Back-to-Office Report (BOR) lists outstanding issues in detailz/ andrefers explicitly to GOB concern that labor-based construction methods beutilized to the maximum extent possible.

Project Brief

21. The August 7, 1979 Project Brief noted that:

(a) REO estimated Rs 10,000 per km per year for rural roadmaintenance. This was significantly higher than the amountallocated even for national highways. Current expenditures forrural roads were about Rs 1,000 per km.

(b) REO estimated an economic rate of return (ERR) of 40%+ for theproject as a whole, not counting costs to provide irrigation andother necessary inputs to achieve full agricultural benefits.As there was only partial irrigation in most areas, ERR wasunrealistically high.

(c) There were major constraints to the achievement of parallelinvestments: electrical power was a bottleneck; diesel pumpswere expensive; credit facilities were faulty; better extensionservices and improved marketing facilities were needed;transport costs between farm and market were high.

(d) The revised project from GOB consisted of 2,816 roads (totalling19,242 km) in the three parts of the State. A possible US$50million Credit would be divided at US$25 million for NorthBihar, $15 million for South Bihar and $10 million forChotanagpur/Santhal. This money would be enough for about 1,000km in all. Preliminary selection out of the REO proposal hadyielded about 260 roads with a combined total of about 1400 km,

L/ Outstanding issues included:EmloyMent - GOB expressed concern about rural underemployment.REO would have to use casual labor to the maximum, especially inearthworks. Further. GOB felt it might be possible to providelabor under GOI's "Food for Work" Program, thereby reducingdirect costs of the project to Bihar.

Non-cooperation by other Departments with REO in Bihar.

Lack of expertise in the Proiect Preparation Cell - completelack of any agricultural or economic expertise.

Shortage of eauipment - little available for good quality work.

Provision of a consultant - to help with project preparation,monitoring, teaching. etc.

Project Supervision - IDA would have to decide in what mannerthis can best be done, given India's dislike of consultants.

6

about 50% more than could be financed. Final route selectionwould be the task of a second round. There was still noeconomist to assist with final selection of roads.

22. The Project Brief went on to identify eight main issuesL/ butemphasized three:

ProJect Supervision -- REO cannot supervise up to IDA standards. Asystem ought to be set up, using Bihar as an example, which wouldeventually allow GOI to prepare and administer similar road projectsunder IDA program lending. Establishing such a system would requiremore attention than can be given by normal supervision missions. GOIobjects to the employment of consultants on the grounds thatsufficient expertise exists in India. Therefore, increasedsupervision ought to be provided by stationing either in New Delhi orin Patna IDA staff to supervise the project.

Coordination of develoRMent -- Accrual of full benefits fromincreased agricultural development depends on.a number of otherinputs. This complicates supervision: progress in activities outsidethe project would also have to be systematically observed.

Farm-to-market transport -- More transport means are needed toencourage competition among transporters. It would be advisable toincrease the number of privately owned small motorized or non-motorized vehicles (rickshaws, auto-rickshaws, etc.) but farmers areshort of cash. The purchase of small vehicles ought to be financedunder the project.

23. The emphasis on supervision underscores the concern of earlierIDA mission that REO could not perform this task adequately. Earliermissions had also emphasized that project benefits would depend on"parallel investments" and that this would complicate project monitoring.What emerges for the first time is the explicit concern that farmers couldnot afford mechanized vehicles to take advantage of the improved roads.

Here was a serious question: if rickshaws were principal means oftransport, did Bihar need roads costing $27,000 per km?

The record contains no indication that the question was ever asked.

These were:Provision of local counterpart funds;Future rural road maintenance;Constraints of manpower and materials;Development of the local construction industry;International conMetitive bidding;Project supervision;Coordination of development; andFarm-to-market transport.

7

Further PreRaration

24. An IDA mission visited Bihar in August 1979. It reported thatthe economist had still not been recruited, that a consultant would be morenecessary than ever, and that coordination among GOB agencies wasimperfect. The September 13, 1979, BOR recommends financing small freightvehicles for farm-to-market transport ("appropriate vehicles"), a popularnotion in the Bank TD 2/ at the time.

25. The September BOR was followed by an October 4, 1979 note onrural vehicles. On November 7, 1979, TOR were written for a BritishConsultant to look into suitable transport means for the Bihar ruralpopulation. The Consultant concluded that the answer was better bullockcarts. 12/ This conclusion sprang from well-known facts, and It ispuzzling that facts had not so far received the attention theydeserved.

26. The Consultant found that the Agricultural Refinance DevelopmentCorporation (ARDC) was in a position to refinance bullock carts andtractors and made the following observations:

Animal-drawn carts played an important role in Bihar's rural economybecause of their farming and transport functions. Therefore, improvedanimal-drawn carts ought to be a complementary investment to theroads financed under the project

The demand for carts in Bihar was not adequately met by currentlyavailable institutional financing.

2/1 See, "Appropriate Technology in Rural Development: Vehicles Designedtor On and Off Farm Operations", Rural Development Unit.Transportation Department. World Bank. October 1978.

.1./ Please see the December 18. 1979. BOR of the Consultant's November1979 mission.

IJ/ Animal-drawn carts were the most common means of transport in ruralBihar. being used for hauling freight over distances of up to 10-15km. In 1972 Bihar had 780.000 carts. In the whole of India therewere 16 million carts pulled by 70 million bullocks. For apopulation of about 600 million, this worked out to 1 to 37. whereasthe ratio in Bihar was 1 to 72. By 1978. the number had grown to850,000. most of them bullock carts with a few horse carts and camelcarts. The average life of a cart was about 10 years, so annualreplacement needs for Bihar were about 85,000 carts.

There were two types of carts: the conventional (carrying capacity of0.7-1.0 ton) and pneumatic tire carts (about 10-15 percent of thefleet) with a carrying capacity of 2.0-2.5 tons which, in addition tobetter harnesses, drawbars and yokes that allowed greater efficiencyin haulage, did less damage to surfaced roads than conventional cartswith steel-rimmed wheels because the load, though heavier, was betterdistributed over the contact surface.

8

Since 1978, local banks had been encouraged by ARDC to finance cartsand would need continued support by ARDC.

The Bank's association with ARDC through several projects had beensatisfactory. ARDC would take responsibility in the preparation andappraisal of the proposed project component.

The Consultant concluded by noting that a decision by GOI was expected inJanuary concerning their support for this component.12/

Once again, the question arises: if carts were the most appropriatetransport means for the rural areas of Bihar, why did the projectwant to finance paved roads?

The record does not indicate that this question received any attention.

Pre-apraisal Mission

27. The December 20, 1979 Preappraisal Mission BOR reported thatroute selection was proceeding satisfactorily. The idea to assist thelocal construction industry was abandoned.11/ There was as yet noorganiiation for maintenance of REO roads. Funds voted were used mainly inpiecemeal repairs by local contractors whose work standards were often poordue to the absence of essential equipment and effective supervision.

12/ On January 31. 1980, the Bank brought to the attention of the GOI thebenefits of rubber-tired carts and suggested that the project includean appropriate component.

j.1/ For the following reasons:Interviews with contractors (said the BOR). showed that thepresent system under which contractors hire equipment fromGovernment for use on works operated reasonably satisfactorily.Contractors had no serious complaints about any failure on thepart of Government to repair or maintain plant, and ifGovernment did not do repairs, they were done by local firms.Contractors said that although in principle they would like toown their plant and equipment, in practice they preferred thepresent system where continuity of work and lack of financialliquidity was not a problem. They felt that any technicaladvice they need on work methods or operations would be providedby the Government engineer supervising the works. They wouldprobably not use the services of an adviser for fear theiraffairs would become common knowledge.

Although the existing system had its disadvantages (the BOR wenton), it might be premature to plan greater independence forcontractors at this stage. It was therefore proposed tointroduce a measure of quality control on works plus limitedmechanization where present methods were unsatisfactory.Contract control and procedures were laid down in detail inofficial codes which, if adhered to, should be satisfactory toIDA.

9

28. Contradictions in the BOR (which at one point said thatsupervision was adequate and at another that it was not), were noticed irIDA Headquirters. Indeed, this BOR raised questions in late December 1979about the goodness of a project whose maintenance and design aspects (aswell as the pavement life of its roads), were put in doubt.

29. In a January 3, 1980, memorandum IDA staff responded thatmaintenance was indeed an issue. However (the staff said), and regardlessof any covenants or conditions that might be attached to the CreditAgreement, there was little IDA could do to ensure that maintenance wouldbe either funded or carried out correctly. In view of subsequent problems,two paragraphs (one on design standards and the second on quality control)from the January 3, 1980, note deserve to be quoted in full:

"The design standards are such that will, I think, ensure that thegreat aijority of the road lengths, if well constructed, will surviveto serve traffic reasonably well through the analysis period of tenyears, even with poor maintenance. W/ Nearly all routes will besurfaced, which is required by poor soils and lack of materialsrather than anticipated traffic volusies. To this extent, roads areoverdesigned for their traffic load. Roads will be raised to beabove normal flood levels but, as was pointed out in the originalproject brief, it is very difficult to forecast and to design for thevery large flows of monsoon flood water moving towards the Ganges. Itmust, I feel, be accepted that a proportion of the roads we constructwill fail or be destroyed due to flooding. The design will attemptto keep this proportion minimal but in designing for normal floods,the abnormal flood is always a possibility next year."

"To ensure survival of the average road for ten years, some form oftechnical audit will be necessary during construction. CO are notenthusiastic about providing this as they have enough trouble trying.to ensure that national routes constructed by States are correctlybuilt. Neither was the use of consultants, even domestic, a popularidea when discussed with CO on my last mission. The GOB regulationsdefine the duties of the engineer very precisely, but given theprevailing standards of contractors in Bihar and the practices intheir use, I feel that to ask the engineer to act as his own auditoris to ask too much. The GOB audit regulations require a thorough andindependent financial audit of works carried out by departments,which would include the operations of REO, but the Audit Department

14J~ The point is that roads were not well constructed. Para 4 of theMarch 16, 1980 Aide Memoire on Project Appraisal reads as follows:

" In discussions with REO. it was confirmed that the IndianRoads Congress Manual on Route Location. Design. Constructionand Maintenance of Rural Roads (1979) was being followed indesign, and that their 1980 edition Specifications for Road andBridge Works would apply for construction. These appear to besatisfactory and appropriate, although on field inspectionsthere appeared to be some cases where work in progress on roadsplanned for rehabilitation would result in substandard design,or would have to be replaced early in its life."

10

is not concerned with technicai performance. I suggest that wepersuade the GOB to include technical personnel in the AuditDepartment in order to check on the technical, as vell as financialperformance cO REO under the -roject.

Proiect ADoraisal

30. Appraisal was comprehensive.15/ Two aspects might havecaused some apprehension but, at the time, they did not.

First, GO insisted that the cart component be excluded from theproject.

Eecon , the Appraisal Mission indicated that, as part of projectmonitoring, and in addition to normal engineering progress reports,the effects of rural road improvements on their areas of influenceshould be closely followed during implementation.j&/

31. In the Audit's view, the deletion of the cart component was amistake which -- given the evidence that carts were the predominant mode ofrural transport -- IDA should not have agreed to. Insistence upon "impactmonitoring" raised a different set of problems. Tried and true impactmonitoring techniques had not yet been developed -- as, indeed, they havenot been developed down to this day -- and the decision to engage in"monitoring" was reached without sufficient evidence that GOI and GOB weregenuinely interested in the exercise.

*jg/ Please see the March 16. 1980 Aide Memoire on:

(a) Route selection and design.(b) Financing advance purchase of materials for construction.(c) Review of procurement recommendations,(d) Specifications and general conditions of contraet for works.(e) Hire charges for equipment used by contractors,(f) Connection of project roads with the all-weather road network.(g) Technical audit of works.(h) Pavement design for project roads.(i) Food-for-Work Program.(j) Complementary investments and services,(k) Tax element of the project,(1) Non-project program of the REO.(m) Future rural road maintenance program, and(n) Training.

.L/ Periodic monitoring of such effects would theoretically have thefollowing benefits:

(a) verification of the assumptions made during projectpreparation and appraisal for the economic analysis of theroads; and

(b) collection of information to be used in the economicanalysis of future rural road projects, whether financed byIDA as follow-up projects or by other sources.

11

Project Monitoring

32. Iy March 1980, IDA preparation missions had been visiting Biharfor two years and were familiar with the prevailing constraints. Bihar wasthe second poorest State of the Indian Union. It was not endowed with stafftrained in transport economics, civil works quality control, agriculturaleconomics, and cost accounting. Even so, the Appraisal Mission felt thatmonitoring indicators ought to include at least the following items:

(a) progress of roadworks(b) actual costs and unit costs of construction(c) traffic counts on a sample of project roads, including non-

motorized vehicles(d) agricultural data within the areas of influence on a sample of

project roads before and after the project, including such itemsas area under cultivation, cropping patterns, utilization ofagricultural inputs, yields, external services, marketing, andcredit facilities

(e) transport charges and crop movements in a sample of districtsbefore and after the project; and

(f) impact of the provision of plant and equipment on the localcontracting industry and their reaction to stricter standards ofquality control.

33. Aware that the plethora of indicators, and the data processingthey would require, represented a formidable task, the Appraisal Missionsuggested that GOB might wish to consider whether it wished REO toundertake the work in its entirety, or whether it should seek assistancefrom other branches of government, from universities, or from researchinstitutions.

Issues Paer. Decision Memorandum. Negotiations and Board Approval

34. The April 1, 1980, Issues Paper describes the proposed US$25.0credit in terms identical to that of the March 16 Aide Memoire. Neitherthe Issues Paper, nor the May 1, 1980, Decision Memorandum, contain anyreference either to the project's political dimensions, or to theemployment aspects, or to the peculiar geomorphological features of Bihar,or to the fact that most of the traffic consisted of non-motorizedvehicles.

35. The September 15, 1980, transmittal note from IDA staff to theRegional Vice President recommended an increase of the credit amount toUS$35.0 million. Negotiations were completed in October 1980.1/ Theproject was approved by the Board on November 11, 1980. The effectivenessdate was set at January 15, 1981, project completion was planned for March1985, and the Closing Date was set at June 30, 1986.

11/ Please see. Summary of Negotiations dated October 20. 1980.

12

II. FROM BEGINNING OF IMPLEMENTATION TO COMPLETION

January 1981 - June 1988

36. All preparation missions declared that the nature of theproject, GOI unwillingness to accept consultants, and insufficient staffingin REO made it imperative that IDA supervision be unusually frequent andintensive. The Audit agrees and, in this section, will devote particularattention to the frequency, intensity, and thoroughness of supervision.

First Supervision Mission

37. This took place from November 28 through December 2, 1980,1/and the Mission found no major problems. Design work was progressing and afirst-year construction program had been proposed by GOB. Prequalificationof contractors had been delayed by review of documents by GOB legalauthorities, but the hope persisted that construction work could commenceby April or May 1981. No mention in the report of any concern for theemployment-generation aspects of the project. Project monitoring aspectswere expanded: the Supervision Mission handed to GOB draft Terms ofReference for a proposed study of rural transport worldwide, to be carriedout and financed by the World Bank. Monitoring of the Bihar Project was toprovide inputs for this study. A January 29, 1981, letter from IDA to GOBconfirmed this.

Feedback

38. A February 10, 1981, letter to IDA from an Indian importer ofroad construction equipment shows how the project was viewed locally.

"We have got honour to state that we are sole distributorsof the equipments of ... in India.

In endeavour to fulfill your mission, I thr- undersigned,contacted ... (a Senior Officer) of Rural EngineeringOrganization of Bihar, to sell ... machines, who told me thatMotor graders and berm levellers are useless in roadconstruction. Although he needs some road rollers but he is notinterested In the cost incurred for its purchase and bank with

though (our) roadrollers are much cheaper than Indiancounterparts with far better quality.

The (Senior Officer's) special remark was that the fundswas allocated by IDA for providing jobs for rural unemployedfolk and that road construction is secondary matter.

However I am of the viev that road roller alone withoutmotor graders and bermlevellers can't help making levelledroads. IDA should keep eyes on competitive prices of theconstruction machines purchased against their finance.

I feel that inspite of best engineers working in IndianCentral Road Research Institute for road development our roadengineering is not doing well, for short of resources, one of

I!/ BOR and Full Report dated January 12, 1981. Performance Rating: 1(Problem Free).

13

the reasons, resulting in avoidable excess use of exhausting andsoaring priced petroleum products, thus deteriorating oureconomy. A good levelled surface road saves fuel consumption upto 65%, nullifies wear and tear of vehicles, so reducing latersdown time and saving road's own damage due to lateral thrust ofvehicle wheels.

No doubt assistance granted by IDA is developing ruralroads is admirable (but) our economy compels us to let thethings going in usual ways as told by ... (the Senior Officer),REO of Bihar, India.

Vieving the above facts USSR, Japan, etc. Instead ofsupplying funds and let authorities decide its use insist tosend construction machines and advisers needed for the projectfinanced. I request you to adopt similar attitudes.

I therefore request you to review your grant if you reallywish to help our roads and our economy as estimated in your newsrelease."

39. What the letter said was that GOB considered the project as ameans for creating jobs and that quality of roadworks was irrelevant. Thiswas in complete opposition to the letter and the spirit of the CreditAgreement which assumed that quality roadworks would be the major outcomeof the project. Good quality roads were why equipment-based techniques hadbeen espoused in the first place. Nevertheless, the letter was now sayingthat the wrong equipment was being procured.

40. The March 4, 1981, IDA response said that responsibility forexecution of IDA projects and therefore for the award and administration ofcontracts, rests with the Borrower. Procedures to be followed forprocurement of services or equipment had been discussed with GOB and wereincorporated in a legal agreement between GOB and the Bank. The next IDAmission to visit Bihar would discuss with GOB the points raised in theletter.

41. This provoked a counter-response dated March 13, 1981, whichreads in part:

"Thank you for your reply regarding above subject.In fact we really believe in latest technology and more

over we are having latest and most sophisticated machines forconstruction of good roads which is your mission in case ofBihar lural Roads.

Unfortunately our relations with (country of manufacture)became sore in pastdays, our engineers are afraid ... for thereasons of embargo of spare parts supply, which would causemachines stop for want of spare parts.

Moreover we are here in India making Road Rollers of oldtechnology which has much troubles in operation and maintenance.

In the interest of both countries ... we need latestmachines ... and want to get rid of troublesome equipments.

Local bidding in the case of Bihar would never make fulfillyour mission of Roads for rural economy.

We therefore hope that you would help us to materialiseyour mission."

14

42. The record does not contain an IDA response to this second letterand Supervision Mission Reports contain no indication that the issues raised(employment is.more important than roads; local competitive bidding does notwork) were ever discussed with GOB authorities.

Second Supervision Mission

43. This lasted 24 hours (from Maich 17 to March 18, 1981).1J/Again, no major problems were identified. Government procedural difficultieshad delayed progress with prequalification of contractors, but the mission wasassured final GOB approval would be given within a few days. A next missionwas planned for mid-June and the hope was expressed that arrangements could bediscussed at that time for project monitoring and the possible use of the A.N.Sinha Institute of Social Studies (ANSIS) to assist with this work.

Third Supervision Mission

44. This took place from June 22 through June 27, 1981.aQ/ Again,no major problems were identified. The need for Cabinet approval topublication of REO prequalification procedures had caused some delay. Futureprogress would depend on the abilities of local contractors and on goodsupervision by REO. The mission noted that REO had more non-project work thanhad been anticipated, and REO staff numbers allocated to supervision of theIDA project ought to be kept under scrutiny. Bids had been requested foreight roads in the first year's program. Some equipment had been received andwas in use. The necessary complementary investment had been or was beingprovided for twelve roads included in the first year's program, and a programfor the construction or improvement of a further 62 roads had been agreed,subject to the required complementary investments being made.

Project Monitoring

45. In June 24-26, 1981, the Bank's Regional Transport Advisor visitedPatna to investigate possible use of data from Bihar in the Bank's world-widestudy of the impact of rural road improvements. He met with senior officialsof ANSIS to discuss the Institute's possible participation. The July 9, 1981,Supervision Mission Report (Annex 1, para 10) noted that any such study wouldbe in addition to the requirements for project monitoring as laid out in Annex2 of the SAR, although some of the data would be common.Z1/

j2/ BOR and Full Report dated April 14, 1981. Performance Rating: 1(Problem Free).

ZO/ BOR and Full Report dated July 9. 1981. Performance Rating: 1(Problem Free).

21/ An August 28. 1981 letter from IDA to GOB acknowledges GOB assistanceto the Regional Transport Adviser's visit to Patna but notes thatdata complexities would require a further visit by an IDA RuralTransport Specialist. The letter gives the impression that datagathering was now a matter exclusively concerned with the BiharProject. Similar sentiments were expressed in an August 31. 1981letter from the Regional Transport Adviser to the Chief Engineer(Roads) of the Ministry of Shipping and Transport in Delhi.

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Fourth Supervision Mission

46. Tlis took place between October 14-17, 1981.221/ Again, nomajor problems were identified. Cabinet approval had been given toprequalification procedures and steps had been taken to speed up award ofthe first batch of contracts. Much of the second year program of work hadbeen approved and bidding was to commence shortly. REO had not givenconsideration to revisions of the equipment procurement schedule, as wasrequested by the June 1981 mission, and they were again asked to do so assoon as the results of bidding became reasonably certain. All applicableCredit Covenants had been fulfilled.

Proiect Monitorinz

47. A Rural Transport Specialist from the Bank's TD accompanied theOctober Supervision Mission and in a meeting at ANSIS, where requirementsof project monitoring were discussed, explained what his Department wouldrequire for their Study. Annex 4 of the Supervision Mission's BOR consistsof draft Terms of Reference for Evaluation of the Effects of the Project.

48. This document does not mention any connection between themonitoring mechanism proposed for Bihar and the Bank's worldwide study.However, the proposed extent of data collection was so vast that questionscould be raised as to whether GOB needed such a level of detail. Thepresumption seemed to be that ANSIS would do work for the project but thedetailed information would be useful to the Bank in its world-wide study.If so, the matter of who would pay for what was left open.

Fifth Supervision Mission

49. This took place between May 31 and June 4, 1982.2_/ Again,no major problems, although para 4 of the BOR notes that both GOB and GOIexpressed concern over the apparent lack of progress in civil works.Contracts had been let for a total value of about US$13 million, andfurther works had been approved for bidding. Some of the equipment hadarrived, other was awaited and REO had been asked to submit a list ofadditional items needed which could be financed out of savings in theoriginal list. All applicable Credit Covenants had been fulfilled.

Project Monitorinj

50. In the summer of 1982, a draft proposal, partly for TD purposes,was received in IDA Headquarters from ANSIS. It covered project monitoringand collection of other data (specified in the draft TOR left behind by theOctober 1981 mission). The ANSIS proposal contained ,a preliminary costestimate of about US$100,000 over a five-year period which would include aPilot Survey for six months; "Before the Project Surveys" for twelve

L2/ BOR and Full Report dated November 5, 1981. Performance Rating: 1(Problem Free).

L3/ BOR and Full Report dated June 15. 1982. Performance Rating: 1(Problem Free).

16

months commencing in mid-1983; and "After the Project Surveys" starting in1985 or 1986, with the Final Report in 1987.

51. IDA Headquarters felt that the ANSIS proposal needed drasticreorientation and communicated its recommendations to GOB in a September13, 1982, letter. The letter does not make any reference to the splitbetween items of interest to the Project and items of interest to theworld-wide study of TD.

Feedback

52. While exchanges on impact methodology continued, a letter inHindi arrived at IDA Headquarters in early September 1982. In translation,it reads as follows:

Sir:It is known that the World Bank has approved a road constructionfrom Bushahr to Khijirpura. It is not known how this road wasapproved. There is no Norm/Criteria to approve it and thepublic vill not be benefitted from it. The funds spent will bea waste and that is not the purpose of the World Bank.Therefore, it is requested that instead of this road a road fromNayagaon to Khijirpura be approved for construction. The roadmeets all norms and criterion and public will be benefitted bythis road.

(Signed by 25 people)

53. IDA responded on September 28, 1982, that roads were selected onthe basis of an analysis agreed between IDA and GOB but that, sometimes,circumstances change and routes are re-analyzed before construction begins.Data were not available in Washington on the two roads in question but thematter would be taken up during the next supervision mission.

54. On the same day, IDA wrote to the Chief Engineer of GOBmentioning the contents of the letter and asking that the relative meritsof the two roads be discussed during the next supervision mission scheduledfor November 1982. The record contains no indication that the matter wasever discussed in the field.

Imact Study

55. A Bank Sociologist visited Patna between October 25 and Nivember5, 1982.2A/ The BOR noted two main objectives of the monitoringexercise: (a) assess the validity of the assumptions made in the originaleconomic analysis; and (b) determine the economic, social and cultural

Z_4/ Please see India: Bihar Rural Roads Proect Supervision Mission_-Back to Office and Full Report dated November 11, 1982. Despite thetitle, this was not a supervision mission but a continuation ofdiscussions between TD. GOB, and ANSIS on the design of a monitoringmechanism that would eventually allow measurement of the impact thatthe Bihar Project had upon the rural ecrnomy.

17

effects of road improvements in rural areas of India.25/ For the twoobjectives to be met, the Impact Study would have:

(a) to validate *:en key assumptions made during project preparation;(b) to determine thirteen economic effects, and(c) to determine twelve socio-cultural effects.

Furthermore, the design of such a study would have to pay particularattention to (a) Sample design, (b) Traffic surveys, (c) Key informantInterviews, and (d) Household Interviews.

56. The November 11, 1982, BOR includes observations aboutconditions in Bihar:

Throughout September and October, there was a strike by JuniorEngineers, and little prospect for an early resolution of theirgrievances. This, combined with religious holidays broughtcontruction work virtually to a standstill on road and irrigationprojects. If the strike was to continue, it would jeopardizecompletion of the first year's program (para 3).

REO did not have anyone who could contribute much to the building ofinstitutional capacity for economic planning and analysis (para 4).

Supply of electricity was irregular and uncertain in Patna, whichwould have a deleterious effect on the ANSIS data processingequipment. There was a severe drought underway and theineffectiveness of measures designed to combat its effects suggestedthat the project's production targets would not be met (para 8).

Road improvements would likely be followed by a multitude ofcommercial activities based in small roadside stalls, services suchas barber shops and bicycle repair, and "a brisk business in human-powered porterage" (para 9).

Annex 1. Attachment A (para 8) of the November 11. 1982 BOR suggests,in terms that may not be thoroughly transparent, how this could bedone. The last sentence of the following extract is especiallychallenging.

"This task (i.e., determination of economic, social and culturaleffects of road improvements upon rural areas) covers a broadrange of topics, some of which have been set forth in the SinhaInstitute proposal. Others are suggested here as a result ofthe finding (sic) of rural road impact studies carried out inother parts of the developing world, including Mexico, Kenya,Thailand. Philippines, Korea, Senegal, Upper Volta andMadagascar. In all cases the research hypotheses take the formof statements that a statistically significant difference willexist between the amount of change that can be measured in agiven parameter before and after the project in a projectinfluence area and the change that can be measured in the sameparameter over the same time period in a control zone which didnot receive a road access improvement."

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57. The implications of "brisk business in human-powered porterage"do not seem have been adequately grasped.

The Impact Study was to gauge the effect of a program building roadsat a cost of US$27,000 per km.It seemed that road improvements would lead to an increase ofrickshaw traffic.Would rickshaw traffic ever justify such high construction costs?

Surprisingly, this inconsistency between high quality infrastructure andlow quality transport means continued to escape notice.

58. On the other hand, the cost of the proposed research receivedample attention in the BOR. Para 17 says that the amount allocated in theSAR for "impact studies" was about US$10,500. The detailed cost estimatefor the proposed research was about ten times that (US$96,000).Discussions in the field between the Sociologist and the IDA SupervisingEngineer revealed that savings in equipment procurement could be used topay for the additional costs of the research. Still, this would not covereverything. The BOR noted that TD had an interest in certain specificresearch topics which would be identified as a result on work on ruralmobility and rural transport services. Data which could be used to addressthese topics would be collected in the context of the Bihar study.However, given that research was ongoing, data requirements were stillunknown. Consequently, they could not be inserted in the terms ofreference for the Bihar Impact Study. Therefore, for ANSIS to address theas yet unspecified topics, ANSIS vould require support from one or moreconsultants.

59. In sum, planning for both the TD i search and for the BiharImpact Study had hardly begun. Nevertheless, the BOR concluded that "ifthe Study was executed as planned, it would make a real contribution to thestate of the art in rural roads assessment, not only in India butworldwide."

Sixth SuRervision Mission

60. The mission took place in November 1982, and the December 22,1982, Supervision Report gave the project a rating of 1 (No MajorProblems). Contracts had been awarded for about 570 I of roads; GOB hadso far performed well in selecting routes and awarding contracts for theirconstruction; future progress would depend on the performance of localcontractors and on the supervisory ability of REO, both of which showedroom for improvement.2,/

61. Paras 11-15 of Annex 1 of the same Report (Aide Memoire of theNovember 1982 IDA Highway Mission), offer a less positive account. Themission visited three roads under construction in North Bihar and observedthe following:

I/ Section 6: Summary of Project Status, Trend and Major Problems.

19

(a) there was no setting out of center line and levels;(b) no batter pegs were placed before the start of the earthworks;(c) shoulders and widening were not being done in accordance with

the specifications, ane neither was compaction;(d) borrow pits were incorrectly sited and too close to the foot of

the embankment;(e) stone stockpiled on site was found to be dirty, poorly graded

and/or too flaky; there was no inf-rmation available on testresults, apart from grading in one case.

62. The Mission noted that the amount of testing done on materialsand for compaction was far less than that recommended by Indian RoadsCongress (IRC) standards. This, in spite of the fact that three out of thefour mobile laboratories provided under the project were on these threejobs. The Mission made the pointed remark that engineers in charge ofworks should realize it is a misuse of funds if contractors are paid forwork done which is not in accord with the contract and specifications.

63. In addition, the Mission noted that in some cases contracts hadbeen let before any effective action was taken to acquire the necessaryland, which led to piecemeal construction around standing crops andencroaching buildings. On one road, the Mission was unable to reconcilethe work on site with the drawings. Levels were uncertain and conflictingopinions were expressed on maximum flood levels. In view of theseobservations, it is curious that the Mission gave the project a rating of 1(No Major Problems).

Reaction at IDA Headauarters

64. The inconsistency was spotted in IDA Headquarters and Managementexpressed surprise27/ at the high rating.

65. The supervising officer conceded on January 12, 1983, that therating was too high. He then said that ensuring reasonable work standardshad been a concern all along, given India's aversion to consultants, evenIndian consultants. To get around the problem, IDA considered having GOIrun checks but GOI were against becoming involved. A requirement wastherefore included in the Project Agreement that the Technical Examiner'sCell would check at least ten percent of the works.

66. In the light of subsequent problems with quality control, thepenultimate paragraph of the January 12, 1983, note deserves to be quotedin full:

" The scattered nature of the work, the aversion toconsultants, and the radical changes IDA expected in testing,work methods, and supervision, coupled with the standard oflocal contractors available and the general administration ofBihar, all made close supervision by IDA very important. REOengineers in the project cell appreciate this and expect

17/ The document referred to above, which commented on the December 22.1982 Supervision Report, is missing from the files.

20

continuing supervision. Hence, the recent apparent trend inreduction of field supervision by the Bank is very disturbingand I fear that this project in particular, and others ingeneral, will suffer as a result. I feel the only effective wayto get results on projects such as this one is for Bank staff toarrive as unexpectedly as possible on construction sites and forthem to ask lots of detailed questions on operations. This istime consuming, frustrating, and very wearing on Bank staff.However, the marginal cost to the Bank is minimal, and if suchsupervision does not take place, even the limited improvementswe can now expect will certainly not take place. "

As events would show, this strong suggestion for very frequent, and veryintensive supervision, went unheeded.

Impact StudyZ

67. Meanwhile, the Bank was distancing itself from the world-wideImpact Study that had been mentioned to the Bihar authorities during theDecember 1980 Supervision Mission, and had been elaborated upon during theOctober 1982 mission.

68. A March 7, 1983, letter from the Bank to the Commissioner forHighway Construction in GOB regretted that the TD review of the state ofthe art in rural road impact studies was not yet ready for distribution.It also regretted that Bank resources did not permit sending a Bank staffmember or consultant to participate in the training program conducted byANSIS for interviewers.

Supervision and Request for Arbitration

69. As already noted, the January 1983 suggestion for more intensivesupervision was not followed up. Indeed, the October 28, 1983, Hand-overnotes by the supervising officer reveal that no supervision took placebetween November 1982 and October 1983. Then, on November 23, 1983, anIndian supplier wrote IDA asking for the supervising officer's arbitrationin a dispute with REO over the purchase of asphalt mixers financed underthe project.

70. The supplier wrote that REO had accepted the IDA officer as anarbitrator, and he attached full documentation to back up his complaints.This was a striking demonstration of faith in the integrity of the IDAofficer (who had retired) and, in the Audit's opinion, IDA ought to haveimmediately retained him in a consultancy capacity and dispatched him toIndia to arbitrate.

71. Unfortunately, IDA did not choose te- do this. Instead, it sentto REO the documentation received from the supplier. What prompted this isnot clear because REO had been given copies before it accepted the formerIDA officer as arbitrator.

21

Seventh Sunervision Mission

72. This took place between March 19 and 21, 1984, one and a halfyears since the last one. Problems with law and order allowed the Missionto inspect only two roads and even this had to be done under police escort.The Mission consisted of two engineers (one from IDA Headquarters and onefrom RMD), who filed two separate reports. In his March 29, 1984, BOR theRMD engineer noted the following:

Cost of roadworks -- All roads are being black-topped with 20 mmpremix carpet ... The cost of construction is about Rs.0.55 to 0.6million per km, quite high compared to the average of Rs. 0.394million per km on roadworks in progress under irrigation projects(para 8).

Supervision, Land acquisition -- Works are scattered and coordinationand monitoring are difficult. Difficulties in land acquisition leadto unsatisfactory road alignments are not ideal... Quality of twoworks inspected was very good 28/ (para 9).

Eauipment utilization -- During field inspection a lot of machinerysuch as scrapers, hot mix plants, trucks, etc. was seen lying idlealong the national highway. Even though 3.5 years have passed sincethe start of the project, important items of machinery have not beenprocured... It is also surprising that though a lot of earthwork andasphalting work is involved, water tankers, trucks, tractor trailersand stone crushers are not included in the list of the machineryrequired under the project (para 10).

73. In his April 25, 1984, Supervision Report the IDA HeadquartersEngineer noted (para 2 of the covering memorandum) that the project wasgoing well, with no major problems, and he gave it a rating of 1. Section6 (Summary of Project Status, Trend and Major Problems) notes thefollowing:

Output -- The project is progressing well and will achieve a total ofabout 680 km. 400 km were completed by March 31, 1984, and a further172 km are under construction...

Staf - In the areas visited, site staff appeared keen andcompetent; test results were produced whenever asked and cost recordswere also available...

L8J This statement is immediately qualified in the sentences that follow:u However in respect of RCC culvert form finish should be aimedat. For hume pipe culverts, costly NP1 pipes are being usedwhereas cheaper NP2 pipes would have been adequate on most ofthe rural roads. Presently no good stuff is being used forconstruction of road berms, however on busy routes provision forhard side shoulders would be necessary."

22

Beneficiaries -- The Mission received many positive unsolicitedcomments on the impact of the road in the villages recently connectedto the highway...

Socio-economic impact -- The "baseline" survey and a "before andafter" rural impact study by the ANSIS is complete and a report onthis phase has been presented ...

Eighth Supervision Mission

74. The eighth Supervision Report (April 26, 1985) by the IDAHeadquarters Engineer noted that the project was progressing satisfactorilyand gave it a 1 rating. With unit costs available from three years ofoperations involving contracts for 654 km of roads, it seemed likely thatthe project would achieve its target of about 700 km. In the view of theSupervising Officer, because of strikes and climatic and politicaldisturbances, an extension of the closing date (June 30, 1986) might berequired.

75. These positive conclusions are mitigated by para 3 of the AideMemoire left in Patna at the end of the Mission's March 25-29 visit. Theparagraph begins by saying that the general standard of work appearedsatisfactory; it was clear that correct amount of supervision was beinggiven to the works, and that quality control test results were alwaysavailable when requested. But then, it says that the mission did observemany instances of settlement and pavement failure adjacent to crossdrainage works resulting from a failure to compact material adjacent to thepipe.

76. Para 5 of the same Aide Memoire touches upon further points.Another general observation (it says) concerns alignment, embankment widthand land acquisition. A black-topped road tends to stay where it is firstbuilt and serves as an anchor for future development. In the mission'sview, it is a short-sighted policy to accept a sub-standard alignment toavoid land acquisition, in the hope that it can be improved later.Furthermore, it is not -echnically feasible to widen earthworks builtoriginally with 1:1 siae slopes in order to restrict the borrow area, andthen flatten the slopes later. The wedge of soil added cannot be properlycompacted. Embankments must be set out to the full width dictated by thespecified side slope and compacted in one operation.

77. Even more disturbingly, para 6 of the same Aide Memoire notesthat maintenance leaves much to be desired: some project roads had beenextensively damaged by monsoon rain and flood, possibly because of poordesign of cross-drainage works; potholes were noted to be already formingon one of the brand new roads; none of the new roads were in regularmaintenance; some older REO roads were in very poor condition; themaintenance grant was very low.

Ilada.tSg

78. The file contains a Supervision Update (dated December 3, 1985).The IDA Headquarters Engineer stopped in Delhi on his way to Sri Lanka andwas visited by the Chief Engineer of the South REO, Patna, who gave him a

23

verbal briefing on the project, plus a set of tables showing the physicaland financial status of the project at June 30, 1985. On the basis ofthis, the IDA Headquarters Engineer completed a Form 590, noted that theproject was going well (Section 3: Project Status) aad gave it a rating of1 (No major problems). A possible reason for the generous treatment isthat, at the time, the IDA Headquarters Engineer was deeply into thepreparation of a rural roads project for Gujarat and could not afford thetime to deal in any great detail with the Bihar Project.2_/

Ninth Supervision Mission

79. There was no field visit between March 1985 and January 1986.The ninth Supervision Mission took place from January 13 to January 22,1986. It was conducted by the RMD Engineer and his :eport (dated February12, 1986) notes that the project "is not doing quite well". Specifically,of 657 km under contract, 484 were completed by end December 1985. In thefirst nine months of FY86 work progress was characterized as "very poorindeed". Out of Rs. 55 million allocated during FY86, only Rs. 11.3 werespent in the first nine months. REO was burdened with additional workloadof RS 550 million (against an original workload of Rs.350 million) and thisreduced the priority attached to the IDA project which represented only 6%of the REO's new work program. The Aide Memoire left by the Mission inPatna made a number of points:

Planning -- Approval of an additional road program (which had beenpromised more than a year earlier) would be delayed further (para 2).

Land acquisition and quality of work -- There was a general tendencyto avoid land acquisition to meet the minimum standards of 10 m inbuilt-up areas and 12 m in open areas; non availability of sufficientland has been a major handicap or excuse for not building up theearthwork from the bottom up; when earthwork is undertaken it isrushed through and important aspects like breaking up of clods,removing vegetation, compacting, etc. are all conveniently forgotten;due to limited land-widths, side slopes are often inadequate; (para4).

Monitoring -- Failures were observed in the planning and monitoringof important works; there have been considerable delays in completingmany works; even though contractors achieved very little progressduring the contract period, no penalties are enforced and extensionsare freely granted (para 6).

CoMpagtion -- The Mission observed that inadequate attention wasgiven to compaction, resulting in failing of edges and loosely packedstrips at the end of the carriageway (para 7).

2_9/ cf. the December 23. 1985, telex from the IDA Headquarters Engineerto the Engineer in the RMD.

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Ancillary works -- In sandy and silty regions, road embankments havebeen constructed with the local soils but without any adequateprotective-measures; for want of prompt repairs, eroded roadembinkments have become quite dangerous (para 8).

Field supervision -- Field officers frequently do not preparedetailed working drawings for each site and blindly follow the typedrawings, wasting valuable resources (para 10).

Major works -- A three-span causeway with raft foundations is underconstruction on the second kilometer of the Manganj Road. Theconstruction is either improperly done or has been badly damaged inthe rainy season (para 12).

Easipment -- The Mission tried to collect information aboutperformance of road rollers but was disappointed to see that the logbooks are not properly maintained. Utilization is also far fromsatisfactory and outputs are low. Due to the strong opposition ofelected representatives for removal of rollers from their zones manymachines are idling for lack of work. The current rules andindifferent attitude of the mechanical organization further preventprompt repairs (para 14). In spite of 115 rollers procured under theproject, the Mission observed some of the road works suffering fromthe lack of rollers (para 15).

Maintenance -- The expected increase of the maintenance grant has notcome to the REO but gone to the highways department. Maintenance ingeneral continues to be disastrous as the meager grants are not usedaccording to priority... the field engineers are less and lessworried about the timely completion of the IDA project or themaintenance responsibilities... Though GOB has agreed to send theirmaintenance staff for special training courses run by the CentralRoad Research Institute in Delhi, no progress has been made in thisconnection (para 16).

Selection of new routes -- Though the March 1985 IDA Mission agreedto take up additional works totalling about 92 km, the GOB has notyet finalized the work program (para 18).

Progress of work and time extension -- The March 1985 Mission washopeful about performance during the current year. Actualperformance is far from satisfactory. It would be very ambitious toexpect full completion of the additional work by June 1987, the endof the one-year extension currently under consideration (para 19).

Impact Study -- The ANSIS has completed fieldwork and hopes toprepare a draft report by April 1986. The current delay in preparing

25

the draft report is due to extension of fieldwork and computerization(para 23).I/

80. In view of the above comments, it is surprising that the Missiongave the project a rating of 2 (Moderate Problems). At any event, theReport caused some consternation in IDA Headquarters which had been underthe impression that the project was proceeding well and was now obliged toreconsider this impression. IV

First Extension of the Closing Date

81. All the above imperfections notwithstanding, IDA staff decidedthat the Closing Date ought to be extended to June 30, 1987 and sorecommended to IDA Management on April 9, 1986. Justifications included:

(a) that the GOB had been asked to immediately restore priority tothe project works;

(b) that all of the 654 km under the ongoing contracts were nowexpected to be completed within a one-year extension;

(c) that all but US$1.7 million of the credit proceeds would beutilized by the extended closing date; and

(d) that enough IDA and GOB funds would be available for projectcompletion.

82. The April 9, 1986, recommendation noted (para 6) that GOB was incompliance with covenants, although maintenance of existing rural roads hadonly marginally improved and random technical audits were of poor quality.However, the need for improvement in these areas had been stressed insuccessive supervision missions and would continue to be monitored closely.

83. The Audit has been unable to determine on what evidence theconclusion was reached that maintenance had improved at all. On the

1_/ Please see the February 18, 1986, note from the Bank to REO on theBaseline Survey. The note reveals that the Bank was aware that only5% of total traffic movements were those of motorized vehicles; 65%were non-motorized vehicles and 30% pedestrians. The followingstatement is then made:

" This underscores the need to study the cost savingsaccruing to non-motorized vehicles in order to designand evaluate suitable road improvements. Anothertopic for future study would be the extent to whichpeople shift from non-motorized vehicles to motorizedvehicles once a pucca (i.e., paved) road is opened."

It seems that the December 1979 Consultant's report recommendingbetter carts had been completely forgotten.

21/ On March 3, 1986. Washington summarized the contents of theSupervision Report in a telex to the IDA Headquarters Engineer, whowas on mission in Sri Lanka and India. He replied on March 10. 1986.that the situation had markedly deteriorated since March 1985 andthat he agreed with the findings of the RMD Engineer.

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contrary, supervision missions had repeatedly p,,inted out that maintenancewas deteriorating.

Tenth Supervision Mission

84. This took place on May 22 and 23, 1986. It was conducted by theRMD Engineer and, in comparison with his January Aide Memoire, his BOR(dated May 28, 1986) is subdued. Under Section 3 (Project Status), theSupervision Summary (dated July 11, 1986) notes the following as majorproblems:

(a) Works are likely to be disrupted when new administrativedivisions are established in Bihar, and project roads aretransferred from an old division to a new one;

(b) As a result of (a), procurement for additional roadworks may notproceed as planned;

(c) Encroachment on completed roads may pose a serious threat totraffic;

(d) Cement and bitumen shortages may affect timely completion ofroadworks;

(e) Results of the technical audit, of the Socio-economic Study, andaudited certificates for Statements of Expenditure are notforthcoming from GOB.

Based on the above, the RMD Engineer gave the project a 2 rating (ModerateProblems).

Eleventh Supervision Mission

85. The RMD Engineer visited Bihar from August 4 to 9, 1986, toreview progress. His BOR made the following points:

Scope of works and ossible new extension -- Credit proceeds containan estimated unallocated balance of about Rs. 115. Work in hand andcommitments amount to about Rs. 72.5 million. "It would thereforeappear inevitable to permit GOB to take up some additional road worksin the form of extensions or missing links and roads left out fromthe main and reserved lists. This may involve further extensionbeyond June 1987." (para 4).

Monitoring -- GOB has failed to submit the reports of the technicalaudit according to the dates promised (2 by February 1986 and 3 byApril 1986) (para 7).

Costs and finances -- "Cost of some works, according to theadministrative sanctions, is not proportionate to their length orscope of work ... " (para 8). "Some cases of expendituresdisproportionate to the actual work done were also pointed out ... "

(para 9). "The WB Cell reported that a huge amount of expenditure(about Rs. 7.5 million) is locked up in the form of cash securitydeducted from the contractors' bills (para 10).

Quality of work -- in some cases, land acquisition has not beencompleted and roads continue to be constructed on substandard

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alignments. Even marginal improvements which could be possiblewithin the available land width are not attempted. Attempts are notmade to build the formations to full widths before laying the roadsurface. Riding quality of the finished surface, including propercamber and super elevation, require improvement (para 12).

86. By December 1986, supervision had been effectively assumed bythe RMD Engineer.UZ/ In theory, supervision responsibility still restedwith the IDA Headquarters Engineer but, in the Audit's opinion, it wouldhave been difficult for him, even under the best circumstances, to fulfillhis duties adequately, given the workload he carried. 2/ Still, in themonths that followed, the two engineers did arrange to visit Bihartogether, although operational decisions continued to be dealt with largelyfrom the RMD.

Twelfth Supervision Mission

87. This was conducted in February 1987 J-/ by the RMD and theIDA Headquarters Engineer together. The Aide Memoire, prepared by theMission in the field, raises some disturbing issues:

Timing -- The mission arrived at an embarrassing time for REO: theyhad been informed by GOB that the mission had been cancelled and, inaddition, all Government officers of Grades III and IV throughoutBihar were on strike. Offices were closed and picketed by strikers.This made access to files, documents, drawings and contractsimpossible ... (para 2).

Works progress -- The Mission informed GOB that the Credit wouldformally close on June 30, 1987, but ongoing works could continueafter that period if necessary, provided all disbursementcertificates were received in Washington before December 24, 1987(para 3).

A2/ cf. letters dated December 23 and December 30, 1986. from RMD toChief Engineer, REO, Patna.

23/ Consider the January 8. 1987. Terms of Reference issued to the IDAHeadquarters Engineer. Between January 25 and March 2. he had tovisit Pakistan (to receive the PCR for the Third Highway Project andto discuss the forthcoming negotiations of the proposed FourthHighway Project); Sri Lanka (to discuss the PCR on the First RoadsProject, and to conduct a full review of the implementation status ofthe Second Roads Project; and India (to discuss the start-up of theGujarat Rural Roads Project, and to review implementation andoutstanding issues related to the Bihar Rural Roads Project).

34/ There is a discrepancy in the file concerning the precise dates. The(undated) Aide Memoire left at Bihar by the two engineers, saysFebruary 17-20. The May 14. 1987. BOR on the Supervision Mission.says February 15-23.

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Construction -- The Mission visited four roads... In one area, the20 mm road surface was gone ... suggesting insufficient thickness,poor sweeping prior to surfacing, or pocketn of badly mixed material.Stretches of two roads were found to have been completely washed outby the September 1986 floods due to inadequate waterway (in oneinstance grossly inadequate) and too high an embankment (para 4).The major point of poor construction practice observed is in themanner of bringing up the earthworks. As emphasized in previous aidememoirs, the toe line of the embankment must be set out by theengineer, and rolling must take place across the full width, right upto the shoulder level. Clods must be broken up and the materialc<mpactei ... The prevalent practice of placing dry clods loosely onthe side slopes after construction of the pavement crust is badpractice and a flagrant waste of money (para 5),

Maintenance -- The Mission was very disappointed by the maintenancesituation. The assistant engineers questioned stated, quiteunequivocally, that they had received no maintenance funds for eitherthe previous or the current fiscal years, and had no permanent

organization or planning procedure to carry out any maintenance work.The state of other REO and PWD roads seen on the field visitsuggested that maintenance was generally poor (para 6).

Audit of Statements of Expenditure (SOEs) -- GOI and GOB have beenrequested to give audit certificates for the expenditures claimedagainst SOEs since the beginning of the project. These have not beenreceived even within the grace period of 90 days starting fromOctober 2, 1986. IDA would stop reimbursing against SOEs and wouldresume after the audit certificates has been received (para 8).

Technical audit -- IDA has repeatedly requested to receive technicalaudits on the quantity and quality and quantity of work done. Nonehave been received so far (para 9).

Credit closure and Project Completion Report (PCR) -- The CreditAgreement requires the Borrower to prepare a PCR and the Missionsuggested that an immediate start be made. The latest date forreceipt of this report in Washington is October 30, 1987 (para 10).

Impact StUfy -- The Mission visited ANSIS to discuss progress oftheir report. ANSIS staff said that the report would be ready byApril 1987 and that operators for computer entry of the data had beena cause for delay (para 11).

88. The May 14, 1987 Supervision Report gives the project a 2 rating(Moderate Problems). Three months had passed since the February Mission,but disbursements were still suspended pending receipt of the auditreports. The Supervision Report notes the following:

Project Status -- Out of 658 km in the first batch of contracts, 560km are complete and earthworks are complete on the balance.Contracts for a further 78 km have been let. Maintenance of projectroads and of REO roads generally is poor (Section 3).

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Action Prooosed -- Next mission will concentrate on ascertaininglikely final physical and financial status of projects ensuringcorrect cross-section and compaction of earthworks, reinstatement offlood-damaged roads, and pursuit of technical audits (Section 5).

Thirteenth Sugervision Mission

89. This was conducted without a field visit. Instead, during abrief visit to Delhi,15/ en route to Ahmedabad, the IDA HeadquartersEngineer, toge1zher with the RMD Engineer, met with REO's Chief Engineer whobriefed them on progress. The strike by non-gazetted officers had ended,audit certificates had been received, and disbursements could resume.

90. The REO Chief Engineer argued that in order to speed upcompletion of the work program of 736 km, REO proposed to do the workdepartmentally, i.e., by force account through petty contractors. In thisway, commitments could be made by June 30, 1987, the date of Creditclosure. The two IDA engineers approved this approach. The REO ChiefEngineer also said that a program of maintenance had also begun and wouldbe completed by the end of the year with equipment and materials purchasedbefore Credit closure. He also noted that a report entitled Socio-EconomicConditions And Mobility Patterns in some Road Influence Areas* ImpactSurvey had been received from ANSIS.

91. On the basis of tha above, the June 19, 1987, BOR gave theproject a 2 rating (Moderate Problems). Section 5 (Action Proposed) of theImplementation Summary states that the next mission would concentrate onascertaining likely final physical and financial status of project;ensuring correct cross-section and compaction of earthworks; pursuit oftechnical audits, remaining SOE audit and PCR. It is possible (the BORwent on) that not all work begun would be completed by December 24, 1987, -

but materials and equipment will have been purchased. The Credit wouldclose officially on June 30, 1987.

Second Extension of the Closing Date

92. The Credit should have been closed on June 30, 1987, and thefile contains no explanation why it was not. About one month after thescheduled Closing Date, there was a July 28, 1987, telex from RMD toHeadquarters saying that GOB and DEA would be requesting an additional one-year extension.

93. On September 1, 1987, an internal IDA memorandum recommendedthat an extension be granted until June 30, 1988. The foilowing reasonswere advanced:

Back&roun -- At the time of the last closing date extension (April1986), progress of works had been deteriorating. "This was largelydue to the transfer of responsibility for the project from theState's Road construction department to the Rural DevelopmentDepartment, which had a heavy workload of village road construction

/ No date shown on the Supervision Report.

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provided for under various central government poverty alleviationprogramsw"

Current status -- Since then, various measures had been adopted torestore progress to previous levels... However, despite the renewedvigor of implementation over the past year, it has not been possibleto complete the project as scheduled due to a strike of the GOB non-gazetted officers which, from early January, effectively halted allwork for about two months and, more recently, due to floods in Bihar,which has been inundated after prolonged rains. The resultingflooding has put a stop to all works and has damaged some embankmentsunder construction. A total of 736 km of rural roads has beensanctioned, of which 590 km are completed to blacktop. A further 100km had earthworks completed before the flooding, but some of thislength has been damaged. Equipment to facilitate road maintenanceand force-account construction is now on order and a crashmaintenance program costing Rs 18.6 million to correct previouslynoted deficiencies is underway.

Borrower performance and commitment -- GOB is in compliance with allproject covenants. Maintenance of existing rural roads has beenpoor, but serious efforts are being made to improve the standard ofwork. However, the frequency and quality of technical audits needimprovement, an issue that is being pursued by supervision missions.GOB is clearly concerned that this project, which has a highpolitical visibility, should be completed as planned and withoutfurther hindrance. However, to do so, some 6-12 months of additionaltime is needed to allow for the receipt and payment for equipment onorder, the repair of flood damage, and the completion of thesanctioned civil works. GOI has requested a second extension of theClosing Date of one year to June 30, 1987, which this memorandumsupports. The Department's Country Operations Division, LoanAdministration, and Legal Departments also concur with this request.

94. The Audit notes that strikes and floods are presented as majorfactors for delay. Also, it notes the delicate handling of numerousaspects (planning, quality of work, maintenance, monitoring), on whichsuccessive Supervision Missions had made harsh comments.

95. The speed with which the one-year extension was processed isremarkable. On the very day when the memorandum recommending approval waswritten (September 1, 1987), IDA telexed GOI and GOB that the extension hadbeen granted.

Further Supervision and Credit Closinjg

96. Despite the statements in the Twelfth and Thirteenth SupervisionReports that "the next mission will look into work procedures, maintenance,etc.", and the flat statement in the September 1, 1987, memorandum that"the frequency and quality of technical audits will be pursued bySupervision Missions", there were no further supervision missions at all.

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97. The Credit was closed on June 30, 1988, and the GOB authoritieswere given until December 31, 1988, to clear up commitments entered into upto the time of Credit closure.16/

98. On November 8, 1988, GOI telexed IDA to state, on behalf of GOB,that in view of the continuing strike of non-gazetted officers, filing ofreimbursement claims could not be completed on time. GOB thereforerequested that the project account be kept open until March 1, 1989, forprocessing reimbursements on commitments made up to June 30, 1988.

99. On November 17, 1989, IDA concurred but noted that no furtherextension would be possible and that any undisbursed balance as of March31, 1989, would have to be cancelled. The final payment was made on April18, 1989, and the remaining balance of SDR 97,970.41 was cancelled.IZ/

Preparation of the Project Completion Report

100. In February 1987, the Twelfth Supervision Mission had brought toGOB's attention that the Credit Agreement required the Borrower to preparea PCR and that if manpower or other constraints made this difficult, thetask could be entrusted to a consultant who could be paid out of Creditfunds. GOB did not act on the suggestion.

101. On September 26, 1988, IDA issued TOR to one of its economiststo proceed to India and carry out the field research necessary for PCRpreparation. On October 12, 1988, IDA Headquarters telexed GOB to spellout the nature and extent of data that ought to be collected before the IDAMission arrived.

102. Accompanied by an IDA Headquarters Engineer and by the RMDEngineer who had supervised the project, the IDA Economist visited Biharbetween October 24 and November 4, 1988. By the time of the IDA Mission'sarrival, the Borrower PCR ought to have been well advanced.3/ However,on arrival, the IDA Missian was handed copies of a "draft" Borrower PCRwhich consisted of some Faragraphs of the SAR, with no analysis. The

16/ Memorandum of July 12, 1988.

az/ IDA letter dated May 18, 1989 to DEA.

2_/ Detailed guidelines for the preparation of PCRs had been handed overto the REO by the RMD Engineer in March 1987. Explicit instructionswere included in Annex 2 of the project's Staff Appraisal Report.

In December 1990, the Audit Mission was given a copy of ProjectComDletion Report of Bihar Rural Roads Project (Credit 1072-IN).This undated document was prepared by World Bank Project Cell, RuralEngineering Organization. Rural Development Department. GOB. Patna.but was never formally submitted to IDA. The Audit studied thedocument but found in it no evidence that contradicts, or modifies.the findings of the PCR.

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Impact Survey which was to have been done of a 10% sample of representativeroads had not been done.I/

103. The Mission encountered what previous Supervision Missions hadrepeatedly encountered too (a strike by non-gazetted officers) but was notdeterred from travelling extensively throughout Bihar and visiting a numberof roads built under the project. Given that the impact survey had beencontracted, the Mission offered the possibility of postponing the date forsubmission of the Borrower PCR from December 30, 1988 (as required by theCredit Agreement) to March 31, 1989. No Borrower PCR was submitted by thattime.

104. IDA prepared a draft PCR and sent it to the Borrower with therequest to prepare Part II (Project Review from Borrower's Perspective).The Borrower did not prepare Part II. The PCR prepared by IDA was publishedin December 1989.

III, FINDINGS AND CONCLUSIONS

105. The project was identified in January 1978. It was appraised inMarch 1980, Board approval was given in November 1980, the Credit becameeffective in January 1981, and the project was planned to be completed inMarch 1985. Project objectives were provision of all-weather access tofarms and villages, and improvement of construction and maintenanceprocedures. Project components consisted of construction or strengtheningof about 700 km of rural roads; improvement of maintenance on REO-administered roads; and procurement of road construction and maintenanceequipment.

106. Institutional objectives were not met but physical results interms of kilometers of road constructed were close to appraisalexpectations. Because of design, workmanship, and supervisionshortcomings, quality of the finished works is not what it should havebeen. Many roads, costing about US$50,000 per km (as against US$25,000estimated at appraisal), have either failed or show prematuredeterioration. On many roads there is no motorized traffic. Actualproject cost in dollars is US$45.7 million (as against US$52.9 millionestimated at appraisal) because, over the period of implementation, thevalue of the Rupee deteriorated vis-a-vis the US dollar. Actual project

39/ A contract to carry out the survey had recently been signed withANSIS but funds had not been appropriated and ANSIS had not been ableto commence designing the survey and training the surveyors.

The December 1990 Audit Mission was given a copy of the completedsurvey report: Socio-Economic Conditions and Mobility Pattern inSome Road Influence Areas: Supplementary Impact SurveX - 1989 (A.N.Sinha Institute of Social Studies. Patna. 1990). Study of thisdocument did not lead to conclusions suggesting that the projectbuilt roads with a positive economic rate of return; that maintenanceprocedures have been strengthened; and that sustainability of theproject benefits is assured.

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cost in rupees is R520.6 million (as against R444.4 million estimated at

appraisal)

107. Instead of March 1985, actual completion took place in June1988. Lack of data precluded a re-estimation of the economic rate ofreturn (ERR) which, at appraisal, had been estimated at 21%. Asconstructed, the roads will not last sufficiently long to generate enoughbenefits to justify the investment and the post-completion the ERR wouldprobably be negative. The short life of the roads, coupled with the lackof an effective maintenance system, does not bode well for thesustainability of project benefits.

108. Preparatory work for this PPAR included study of the record andinterviews with IDA staff in Washington. A December 1990 OED mission toIndia inspected roads and discussed the project with GOI and GOB officials.Neither the written record, nor field inspections, nor interviews suggestedthat the project was a success. IDA officers familiar with the BiharProject and GOI officials in Delhi recommended, for comparison andperspective, a visit to the State of Gujarat where an IDA-supported ruralroads project, conceptually similar to that of Bihar, is underway. AO/The Government of Gujarat (GOG) was kind enough to receive the OED Missionand to offer an extensive briefing (including field visits) on its project.

109. Study of the record, interviews, and field inspections haveshown that the PCR account on the Bihar Project is fair and accurate inevery particular. In the following paragraphs, the Audit proposes tocomment on some wider topics revealed by the Bihar experience.

General Findings

110. With about 70 million inhabitants, Bihar is the second mostpopulous State in India. It is also the poorest: about 70% of the peoplelive below the poverty line. Furthermore, it has about 95,000 km of roads(75% unpaved), and most of the goods traffic moves on carts.

ill. Being so poor, Bihar is preoccupied with employment creation.Traditionally, what can be built by hand, must. Roadwork is a familiarsource of employment but quality of the finished product leaves much to bedesired. It therefore seems that the project should have been moreresponsive to suggestions from IDA Headquarters that efforts be made toimprove the efficiency of traditional construction and maintenancetechniques.

112. Bihar was not endowed either -ith trained civil servants to planprojects according to IDA guidelines, or with experienced engineers tosupervise them, or with small contractors who could do quality work. Ittherefore seems that the project should have given more attention to stafftraining, institution-building, and strengthening of small contractors.

AO/ Guiarat Rural Roads-Proeat (Credit 1757-IN, US$119.6 million. 1987).

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113. A REO that knows how to set priorities, engineers who know howto superviser and contractors who can use unskilled labor efficiently,cannot be developed overnight. IDA knew that building up a capacity forplanning and implementing rural development projects is a long-termproposition. It therefore seems that the project should have have beendesigned as the first of a series and that it should have been followed bya second operation to take advantage of the experience gained under thefirst.

114. From the identification phase onwards, all IDA missions keptrepeating this was a project that demanded unusually intensive, unusuallyfrequent supervision. However, IDA officers were burdened with preparationof other operations and could not devote sufficient attention to the BiharProject.

115. From the beginning, letters from India told IDA thatbeneficiaries distrusted the local authorities. Also from the beginning,GOB staff wanted an IDA presence during project preparation to minimizepolitical influence on road selection and on allocation of equipment todifferent districts. All this notwithstanding, IDA refrained from gettinginvolved.

116. From the beginning, IDA knew that GOB would be hard pressed tosupervise physical execution of the works and that it was so short ofplanning staff it could not retain an economist at the project preparationphase. All this notwithstanding, much emphasis was placed on a detailedsocio-economic monitoring system, even though IDA itself had not decidedwhat data it wanted, and even though GOB and GOI never showed much interestin the research.

117. From beginning to end, a divergence persisted between what Biharwanted and what IDA advocated. GOB was preoccupied with short-termemployment, IDA with long-term development, and the two preoccupationsnever meshed. IDA felt that building roads merely to create jobs iswasteful. It is wiser to identify and build roads which would supportrural development; to see to it that "parallel investments" (inagriculture, in credit facilities, etc.) are efficiently implemented; andto ensure that, once built, new roads are properly maintained.

118. Bihar did get some employment out of the project, but that wasall. IDA did disburse most of a US$35 million credit but the roads arefailing and no institutional strengthening took place. The precedingsection of this PPAR documented in detail how the project was prepared andimplemented. The evidence suggests three explanations why GOB and IDAnever really came together. First, because of socio-political conditionsin Bihar. Second, because project design was inappropriate. Third,because IDA was unwilling to allocate sufficient resources to supervision.

119. At least once a year, throughout project implementation, GOBcame to a stop because of strikes and civil disturbances. This affectedthe pace of works as well as the spirit and attitudes of the civil service.IDA officers responsible for supervision found it hard to perform theirduties. Sometimes they could not get to Patna and REO officers had to flyto Delhi to brief them. When IDA officers did go to Patna, they sometimes

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could not.get into picketed Government offices. Extensive site visits wereoften impracticable and, on one occasion, IDA officers went to the fieldwith a police escort.

120. On the other hand, even if socio-political conditions had beenideal, project design would still be inappropriate. Although most of theBihar traffic is pedestrian, bicycle, or cart,A1/ the projectconcentrated on construction of paved roads, and although civil works aremostly done by hand, the project relied on equipment-based methods.Furthermore, the resources allocated by IDA for project supervision wereinadequate. The first supervising officer recommended unexpected, frequentand intensive visits. Instead, there was a period when IDA did not send asupervision mission for almost eighteen months. Staff discontinuities dueto reassignment or retirement, changes in the leading program, the upheavalof the 1987 Bank Reorganization, may explain, but not excuse, the reducedpresence of IDA staff during a period when the project was regarded as animportant intervention in Bihar and as a possible model for replication inother parts of India.

121. But why did the thought of replication arise in the firstinstance? Do Indian rural areas really need better road access? Theanswer is yes. The latest estimatesAZ/ show that India had a populationof 814 million in 1988. This is expected to grow to 1,010 million in theyear 2000 and, eventually, to 1,766 million of "stationarypopulation".O./ For many years to come, agriculture will provide alivelihood for hundreds of millions and the need for better access to ruralareas will remain enormous. IDA can help by facilitating provision ofneeded infrastructure, encouraging staff training, and strengthening oflocal institutions. The Bihar Project offers specific lessons which can begrouped under three headings: Inception and Preparation; Implementation andMonitoring; and Bank Group Assistance.

Specific Findings -- Inception and Preparation

122. Rural road proiects are to Lmprove rural transort. not Just tobuild roads.

The elements of rural transport are infrastructure, fleet, and users. Ifthe fleet is inadequate, the best infrastructure is of little use. Also,

AJ/ Please see. Socio-Economic Conditions and Mobility Pattern in SomeRoad Influence Areas: Supplementary Impact Survey -- 1989 (A.N. SinhaInstitute of Social Studies, Patna. 1990). and, in particular,Chapter V: Mobility Pattern of Household Population. pp.52 ff.

A2/ Please see Volume I. Economic Development Data, in India: Trends.Issues and Options (World Bank. Asia Region. India CountryDepartment. Country Operations Division. Washington. D.C., May 1.1990)

AQ/ "Stationary Population" is the projected population level when zeropopulation growth is achieved; i.e., when the birth rate is constantand equal to the death rate and the age structure is stable.

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if most users live close to subsistence, they cannot afford to pay for agood infrastrOcture and an adequate fleet. Quality of infrastructure,fleet adequacy, and uper ability to pay must develop in tandem. This meansthat developing rural transport will take far longer than the five or sixyears of the average construction project.

123. Project design must be attuned to realities of time and place.

When most of the traffic moves on carts, paved roads are dispensable. Whenmuch of the project area is inundated during the monsoon, bridges and rivercrossings are more important than roads. When unskilled labor is widely(and inefficiently) used in civil works, the emphasis must be on moreefficient use of labor, rather than on equipment-intensive techniques.

124. Project design must take advantage of local expertise.

Executing Agencies may be unfamiliar with plann'ng and supervisiontechniques to make the local administration work better. On the otherhand, they are familiar with why the local administration works poorly.This knowledge must be factored into project design, and the time envisagedfor implementation expanded accordingly.

125. A distinction must be drawn between physical and institutionalobjectives.

Physical objectives can be expressed in terms of investment: kilometers ofroad, number of bridges, etc. Institutional objectives (staff training,modification of cumbersome administrative procedures, development of localcontracting capacity, etc.) are essentially qualitative and can be achievedonly in the long run. It is relatively easy to meet physical objectives.It is not so easy for a project that spans 4-5 years to meet institutionalgoals that require decades if not generations.

126. Covenants and conditions must relate to achievements which anExecuting Agency is empovered to acccmplish.

Physical objectives can be spelled out with relative precision, and theiraccomplishment can be within the power of the Executing Agency. It is notthe same with institutional objectives which can be met only when a numberof Agencies collaborate. Clear covenants, aimed at specific Agencies, wouldgo a long way to promote achievement of complex, and long-terminstitutional objectives.

127. Staff training is the institutional obiective deserving thegreatest attention.

India does not respond well to suggestions that its staff needs exposure tobetter technical methods. The impression is widespread that the country isamply endowed with highly qualified personnel. At least in the case ofrural road construction and maintenance, the impression is not correct.Specifically, technical staff need massive training so that they will beable to plan and supervise labor-based construction operations whoseresults would be competitive (in terms of both quality and cost) to workdone by equipment-intensive methods.

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128. Massive training must be accomanied by modification of career

At present, there is a strong feeling among engineers that becominginvolved in labor-based operations will earn them neither professional norsocial status. Hence, civil engineers are unwilling to go through therigors of acquiring on-the-job experience, an indispensable element for theformation of senior staff needed to plan and supervise effectively labor-intensive works. But availability of experienced staff is not, by itself,sufficient. Unless proper incentives are put in place, top-quality staffwill avoid working in labor-based rural roads projects.

Specific Findings -- Implementation and Monitoring

129. Implementation is facilitated when targets and responsibilitiesare precise and explicit.

Good preparation spells out the volume of physical work, the time it willtake to do it, and who is responsible for getting it done. Often, theExecuting Agency says it can do a job without considering what has to bedone by other Agencies. The Bihar Project has shown that land acquisitionmay inhibit implementation of an otherwise simple roadbuilding job becausethe Executing Agency failed to take into account how well other Agencieswould cooperate.

130. Flexibility in adjusting targets and Closing Dates is desirablebut must not be abused.

In the course of implementation, obstacles are bound to emerge: floods,budget cuts, problems with staffing and procurement. Appropriateadjustment of targets ought to be made with a minimum of fuss.AA/ But,by the same token, if implementation suffers because of consistently poorperformance of the Executing Agency, extension of the Closing Date must bedenied.

AJ/ The Gujarat Rural Roads Project offers a good example of appropriateflexibility.

In early 1991, GOG felt that its plans to improve the ruralnetwork under the ongoing Rural Roads Project in seven Districtscould accommodate (thanks to savings realized because some worksdone by other Agencies, as well as because of favorable foreignexchange variations) the most urgently needed works in five orsix additional Districts. The actual volume of extra work woulddepend on the volume of available Credit funds. To follow up onthis, GOG proposed to prepare a new Rural Roads Project intendedto cover the balance of works in the five or six Districtsmentioned above. and to initiate work in the remaining Districtsof the State.

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131. There are two t=pes of oroect monitoring. The first deals with

ex-post evaluation of individual roads.

Experience from Bihar (but, also, from Kenya, Kalawi and Benin) suggeststhat 5-10 km roads are too short for ERR analyses. It might be preferableto concentrate on least-cost solutions for construction and maintenance andleave it at that.Aj/

132. The second type of .rolect monitoring deals with road impactupon the rural economy.

kxperience from Bihar suggests this is methodologically difficult andfinancially expensive. Only when the Borrower is keenly interested insocio-economic and anthropological research, should future projects devoteresources in amassing further information.

Seific Findinzs -- Bank Group Assistance

133. The Bihar Prolect took too lome. When it was finished. therewas no follow-up o2eration to make use of the exerience gaed.

From identification to completion the Bihar Project took ten years to build700 km of roads. There has been no follow-on operation where lessons ofexperience might have been applied with respect to project design, choiceof technology, and intensity of supervision. India-wide, population growthdemands agricultural development which, in turn, demands that ruraltransport be improved at a faster pace and at a much expanded scale. Theproblem is that there are not enough domestic resources, and that currentadministrative practices are not geared for smooth acceleration.

134. GO! is faced with a choice rogarding-technical assistance.Depending on what 90! decides. the Bank Grouo will have toreconsider its own .lans for future suport.

Either GOI will continue to insist that Indian administrative and technicalservices have no need of foreign techniques, or it will acknowledge thatexperience from abroad can be useful. Whichever the direction,GO's posture ought to determine the Bank's posture. If GOI remainsattached to its current position, the Bank Group ought to reconsiderwhether it should continue with interventions like the unsuccessful Biharand the apparently more successful Gujarat Projects.

LS/ The Audit wishes to point out (because it underscores the importanceof training) that agreeing on what constitutes the least-costsolution is not easy. IDA and Indian engineers have differentperceptions of good finished quality and a meeting of minds has notyet occurred.

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135. 001. GOB. and the Bank Grou may have to reconsider theirrespective stances regarding ways and means to strengthen rural'transport

Assuming that 001 subscribes to the proposition that better rural transportis a prerequisite for accelerated agricultural development, the Auditbelieves that GOI, GOB, and the Bank Group must reconsider their respectivestances.

GOI ought to modify its policy regarding technical assistance.

GOB specifically (and other States in general) ought to think less interms of immediate gains and more in terms of long-run development.

The Bank Group ought to reconsider its current practices for stafftime allocations.

136. If these three conditions are met, the Bank Group will be in aposition to play a more substantive role in strengthening ruraltransport.

In the first place, large financial resources will be required to improverural transport, even in a small number of States. In fact, they willexceed whatever resources GOI, the States and the Bank Group will be ableto mobilize. Hence, co-financing will be indispensable and the Bank is themost experienced multilateral development agency in this domain.

In the second place, the flow of technical assistance for the modernizationof administrative machines (and, especially, the mobilization of resourcesfor staff training) is something complicated, and expensive enough todeserve the most careful planning. Again, the Bank possesses a comparativeadvantage which could be of value to India.

137. If the Bank Group is to get seriously involved in strengtheningrural transport in India. aorooriate staff time allocationswill have to be made-

Thorough co-financing arrangements and technical assistance planning willbe time-consuming. Without a clear understanding of the direction GOIproposes to follow, it is not possible to say exactly how much time, andwhat kind of staff the Bank Group will have to allocate for preparation.One thing is certain: current allocations are barely sufficient foradequate monitoring even of simple operations such as the Gujarat RuralRoads Project.

Recommendations

138. In order to clarify how things stand and where they might go,the Audit recommends the following:

* (a) By, say, end 1991, Bank Management discusses with GOI thelatter's intentions regarding strengthening of rural transportover the next 10 years.

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(b) If GOI decides to modify its policy towards technicalassistance, the Bank Group ought to present GOI, by June 1992,with tentative estimates for assistance needed to improve ruraltransport in a number of States to be identified by GOI.

(c) If GOI agrees that the Bank ought to perform the role ofcoordinator for financial and technical assistance, the BankGroup ought to present GOI, by December 1992, with a detailedplan for interventions to improve rural transport in the Statesspecified by GOI.

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ANNEX 1

LABOR-BASED CONSTRUCTION AND MAINTENANCE METHODS

NOTES ON THE BANK'S RESEARCH WORK

1. In the late 1960s, rapid population growth threatened that manydeveloping countries would soon be confronted with rural-urban migrations,decreased standards of living, and political instability. The scope forindustrial job creation was limited and, at the same time, agriculturaloutput and social facilities in the rural areas had to cater for anincreasing number of people. This would not be easy. Rural areas were notproperly equipped, and what infrastructure did exist could not easilysupport additional numbers. Building roads, irrigation works and othernecessary facilities would be expensive and though local currency was notabundant, foreign exchange was truly scarce since most developing countriesdid not generate enough exports. No matter how large they might be, aidflows could not possibly cover the enormous cost of purchasing andoperating the mechanical equipment that would be needed to improveinfrastructure. Still, infrastructure had to be built up before ruraleconomies could feed and employ more people.j/

-2. Such were the demographic and economic reasons which promptedthe Bank to explore the technical and financial feasibility of "moreappropriate" construction methods. The starting point was a supposition:

Assume a country with a lot of labor and little capital. Assume thatit needs to build and maintain civil works in rural areas. Assumefurther that construction and maintenance methods must rely more onunskilled labor and less on mechanical equipment. Can the finalproduct be competitive in terms of cost, speed of completion,technical quality, and public acceptability?

3. The supposition did not suggest to abolish but merely to reducedependence on equipment. Even so, and despite the potential advantages oflabor-based methods (employment generation; income distribution; greaterreliance on domestic resources; reduction of foreign exchange expenditurefor the purchase of machinery, spares and fuel), four considerationsdiscouraged their adoption:

j/ For a realistic evaluation of the potential of public works to absorbunemployment, construct needed physical facilities, and improve theliving standards of low-income groups. please see Burki, S.J.0Davies. D.G., Hook. R.H.. and Thomas, J.W., Public Works Programs inDeveloping Countries: A Comparative Analysis (IBRD Staff WorkingPaper No 224. Washington. D.C.. 976).

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(a) as traditionally practiced, labor-based methods were notefficient; they did not make the best use of workers theyemployed cnd, consequently, were not financially competitivewith equipment-based methods. To make them competitive muchwould have to be done differently in terms of project planningand management, local manufacture of better tools, adoption ofincentive payment systems, etc. However, all such changes wouldadversely affect established sinecures;

(b) political and technical leaders in many developing countriesfelt offended by the suggestion that they ought to sponsor"backward" methods;

(c) compared with equipment-based methods, labor-based techniqueswere more management-intensive, and the one skill that is reallyscarce in the Third World is management; and

(d) it was easier for developing countries to get aid funds for anequipment-based construction program than for a labor-based one.

4. In 1971, the Bank launched The Study of Labor and CapitalSubstitution in Civil Engineering Construction in order to develop anddisseminate nonstruction and maintenance methods that would be moreappropriate for tne resource endowment of Third World countries.2/ Overa ten-year period, this Study encompassed research, experimentation,physical construction and monitoring of rural works in Asia, Africa, LatinAmerica and the Caribbean.j/

5. One finding that emerged fairly quickly was that labor-basedmethods may be technically and economically feasible and still not besuccessfully implemented. Efficient large-scale application of suchmethods demands administrative and organizational arrangements enjoying thefull support of a country's technical and political leadership. Actualconstruction work in a variety of terrain and labor supply conditionspermits a real-life feasibility test. Equally important, they help create

2/ That the Study objectives reflected concerns widely shared in thedevelopment community is evident from the fact that the Study wasfinanced by the Governments of Canada. Denmark. Finland. the FederalRepublic of Germany. Japan. Norway, Sweden. the United Kingdom andthe United States, as well as by the Bank.

1./ Technical conclusions from fieldwork were published between January1975 and June 1976 in 26 Memoranda whose topics range fromcomparisons of qlternative designs for wheelbarrows to aggregateproductfin. Research and implementation work are described in ThUStudy of Labor and Capital Substitution: Report on the Bank-SponsoredSeminars in Washington. Cologne. Copenhagen. London and Tokyn(Washington, September 1978). The final outcome of the Bank's workhas been summarized in Labor-based Construction Programs: A Planningand Management Handbook (World Bank. Oxford University Press, 1983).

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the institutional and management stricture for an eventual expansion tofull-scale programs. "Demonstration' projects supported by the Bankincluded road and irrigation works iv Kenya, Honduras, Chad, Lesotho,Benin,./ the Dominican Republic, and Mia lvi.V

&/ For a detailed review of IDA-assisted labor-based operations inBenin, see the PPAR on Benin - First and Second Feeder Roads-Proiects(OED Report No. 6105 of March 21, 1986).

j/ A full description of the demonstration project is given in Appendix4 (Malavi: Action plan for a labor-based pilot project) of L4hor-based Construction Programs: A Planning and Management Handbook.op.cit. For a detailed review of IDA-assisted labor based operationsin Malawi, see the PPAR on Malawi - Fourth Highway Project (OEDReport No. 7568 of December 30. 1988).