OFFICIAL USE ONLYR2003-0198/1

November 18, 2003

Streamlined ProcedureFor meeting of

Board: Tuesday, December 9, 2003

FROM: Vice President and Corporate Secretary

Thailand: Highways Management Project

Project Appraisal Document

Attached is the Project Appraisal Document regarding a proposed loan to the Kingdom of

Thailand for a Highways Management Project (R2003-0198). This project will be taken up at a

meeting of the Executive Directors on Tuesday, December 9, 2003 under the Streamlined

Procedure.

Distribution:

Executive Directors and AlternatesPresidentBank Group Senior ManagementVice Presidents, Bank, IFC and MIGADirectors and Department Heads, Bank, IFC and MIGA

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

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Document of The World Bank

Report No: 24525-TH

FOR OFFICIAL USE ONLY

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

IN THE AMOUNT OF US$84.29 MILLION

TO THE

KINGDOM OF THAILAND

FOR A

HIGHWAYS MANAGEMENT PROJECT

October 27,2003

Transport Sector Unit East Asia and Pacific Region

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

AIT - ADB - APL - ARDP - ASEAN - BOB - CAS - CDP-C -

CDP-G -

D O H - EIA -

EMP - EOP - ESSF -

ERTA - FMRs - GRSP - HDM -

ICB - IEE - m - ISA - JBIC - LAS - MOF - M O T -

CURRENCY E Q U I V A L E N T S

(Exchange Rate Effective September 5,2003)

Currency Unit = Thai Baht (B)

US$0.02 = Baht 1.00

F ISCAL YEAR

Baht41.08 = US$l.OO

October 1 -- September 30

A B B R E V I A T I O N S AND A C R O N Y M S

Asian Institute o f Technology Asian Development Bank Adaptable Program Loan Accelerated Rural Development Program Association o f South-East Asian Nations Bureau o f Budget Country Assistance Strategy Country Development Partnership- Competitiveness Country Development Partnership- Governance Department o f Highways Environmental Impact Assessment Environmental Management Plan End o f Project Environmental and Social Safeguards Framework Expressway and Rapid Transit Authority Financial Monitoring Reports Global Road Safety Partnership Highway Development and Management Model International Competitive Bidding Init ial Environment Examination Intemal Rate o f Retum Initial Social Assessment Japan Bank for International Cooperation Loan Accounting Section Ministry o f Finance Ministry o f Transport

MOTC - MRTA - NCB - NESDB -

NPV - OAG - OCMLT -

OPGES -

OSEGS -

PIP P IU PPIAF -

PPP PSMRP - PSOS - RFP ROW - RTG - SBD - SIL SME - SOE - TA TOR - VPD -

- -

-

-

-

-

Ministry o f Transport and Communications Metropolitan Rapid Transit Authority National Competitive Bidding National Economic & Social Development Board Net Present Value Office o f Auditor General Office o f the Commission for the Management o f Land Traffic Operational Policy Guidelines on Environmental and Social Aspects Office o f State Enterprises and Government Securities Project Implementation Plan Project Implementation Unit Public Private Infrastructure Advisory Facility Public-Private Partnership Public Sector Management Reform Plan Public Sector Obligations Request for Proposal Right-of-way Royal Thai Govemment Standard Bidding Document Specific Investment Loan Small and Medium Size Enterprise State-Owned Enterprise Technical Assistance Terms o f Reference Vehicles Per Day

Vice President: Jemal-ud-din Kassum

Sector Director: Task Team Leader:

Country Director: I a n C. Porter ' Jitendra N. Bajpai

Imogene R. Jensen

FOR OF'FICLAL USE ONLY

THAILAND HIGHWAYS MANAGEMENT PROJECT

CONTENTS

A. Project Development Objective

1. Project development objective 2. Key performance indicators

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2. Ma in sector issues and Government strategy 3. Sector issues to be addressed by the project and strategic choices

C. Project Description Summary

1. Project components 2. Key policy and institutional reforms supported by the project 3 , Benefits and target population 4. Institutional and implementation arrangements

D. Project Rationale

1. Project alternatives considered and reasons for rejection 2. Major related projects fmanced by the Bank and/or other development agencies 3. Lessons learned and reflected in the project design 4. Indications o f borrower commitment and ownership 5. Value added o f Bank support in t h i s project

E. Summary Project Analysis

1. Economic 2. Financial 3. Technical 4. Institutional 5. Environmental 6. Social 7. Safeguard Policies

Page

2 2

2 3 6

7 9

10 10

11 12 13 13 13

14 15 15 15 17 19 21

This document has a restricted distr ibution and may be used by recipients only in the performance of their official duties. I t s contents may not be otherwise disclosed lwithout Wor ld Bank authorization. I

F. Sustainability and Risks

1. Sustainability 2. Critical r isks 3. Possible controversial aspects

G. Ma in Loan Conditions

1. Effectiveness Condition 2. Other

H. Readiness for Implementation

I. Compliance with Bank Policies

Annexes

Annex 1: Annex 2: Annex 3: Annex 4: Annex 5: Annex 6:

Annex 7: Annex 8: Annex 9:

Project Design Summary Detailed Project Description Estimated Project Costs Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary Financial Summary for Revenue-Earning Project Entities, or Financial Summary (A) Procurement Arrangements (B) Financial Management and Disbursement Arrangements Project Processing Schedule Documents in the Project File Statement o f Loans and Credits

Annex 10: Country at a Glance Annex 1 1 : Impacts Assessment and Proposed Mitigations Annex 12: Map IBRD 32122

21 22 23

23 23

24

24

25 29 30 31 38 39 46 53 54 55 57 59 64

THAILAND Highways Management Project

Project Appraisal Document East Asia and Pacific Region

EASTR

Date: October 27,2003 Sector Director: Jitendra N. Bajpai Country Director: Ian C. Porter Project ID: PO75173 Lending Instrument: Specific Investment Loan (SI,)

T e a m Leader: Imogene R. Jensen Sector(s): Roads and highways (80%), Sub-national government administration (20%) Theme(s): Rural services and infrastructure (P), Other trade and integration (P), Public expenditure, financial management and procurement (S), Small and medium enterprise support (S)

Project Financing Data ~

[XI Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other: For LoanslCreditslOthers: Loan Currency: United States Dollar Amount (US$m): 84.29 mil l ion Borrower Rationale for Choice of Loan Terms Available on File: Proposed Terms (IBRD): Variable-Spread Loan (VSL) Grace period (years): 5 Commitment fee: 314 o f 1% per annum on the principal

Yes

Years to maturity: 17 Front end fee (FEF) on Bank loan: 1.00% Payment for FEF: Borrower to Pay from Own Resources amount o f the Loan not withdrawn

Borrower: KINGDOM OF THAILAND Responsible agency: DEPARTMENT OF HIGHWAYS Address: Sri Ayutthaya Road

Bangkok 10400, Thailand Contact Person: Mr. Terdsak Sedthamanop, Director General Tel: (66-2) 245-5501 Fax: (66-2) 245-8335 Email: -

25.80 I 26.50 I 17.49 I 9.50 1 Cumulative1 5.00 I 30.80 I 57.30 I 74.79 I 84.29 I

I - .. I

Project implementation period: Four years Expected effectiveness date: 04/26/2004 Expected closing date: 06/30/2008

PLIPIO m m M UIM 21xI

A. Project Development Objective

1. Project development objective: (see Annex 1)

management o f the road network. The project will: The development objective o f the project i s to enhance the efficiency, productive use, and

(a) support the commercialization o f the road sector by introducing better business principles and increased private sector participation in the delivery and management o f roads;

(b) strengthen the operations o f the Department o f Highways (DOH) through improved use o f information technology and computerization;

(c) help preserve road assets through sustainable maintenance programs including long-term performance based contracts; and

(d) improve competition and transparency in the award o f contracts by using e-procurement.

Furthermore, the project w i l l reduce traffic accidents and fatalities on national highways and decentralize the implementation o f periodic maintenance to the districts.

2. Key performance indicators: (see Annex 1)

The key performance indicators for the development objective would comprise the following:

(a)

(b)

(c)

(d)

Reduction, in real terms, o f average unit costikm o f maintenance;

Increase (or reversed decline) in asset value o f the road network;

Reduction in vehicle operating costs; and

Establishment o f a national road database, updated annually, and used for planning, programming, budgeting, and monitoring o f highway investments and maintenance expenditure.

Sixteen additional performance indicators to monitor output from each component have been established. The DOH, with the help o f the project coordinator and the various institutional strengthening consultants, will establish the baseline values for the above indicators, as appropriate, in the early part o f project implementation.

B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: Report No. 25077-TH Date of latest CAS discussionTJanuary 22, 2003

The development objective o f the project, in l ine with the overall policy o f the government and the Country Assistance Strategy (CAS) o f the Bank, i s to support the government in stimulating and sustaining economic growth and reducing poverty. The CAS goal o f stimulating economic growth through enhanced competitiveness i s supported through: (i) upgrading the quality o f the road infrastructure and reducing transport costs; and (ii) expanding the role o f the private sector-particularly small and medium-sized enterprises-in road asset maintenance, management, and operation. The CAS goal o f improving governance and public sector performance i s supported through: (i) modernizing DOH’S planning and

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management information systems; (ii) adopting e-procurement methods and internet-based advertising, which will ensure greater competition, transparency, and accountability; (iii) introducing more stringent financial management systems; and (iv) piloting long-term road maintenance performance-based contracts wi th the private sector. The project would also align with the Bank-assisted program o f public sector reform being undertaken by the government, which aims at improving public sector management through: (i) improved performance-based resource management; (ii) better service delivery; (iii) greater transparency and accountability; (iv) de-concentration o f operations; and (v) sound regulation for private sector involvement.

2. M a i n sector issues and Government strategy:

the Bank, both through project-related activities and more recently through the Country Development Partnerships (CDPs). These partnerships form a basis for policy advice, capacity building support, and technical assistance in key reform areas. Transport issues have emerged most prominently in the CDPs for Competitiveness and Governance. The CDP-Competitiveness (CDP-C) addresses issues of private sector participation in infrastructure, divestiture o f State-Owned Enterprises (SOEs), establishment o f appropriate regulatory frameworks and strengthening o f the business environment through better technology and systems. The CDP-Governance (CDP-G) focuses on improvements in service delivery and greater accountability and transparency. The key issues in the transport sector can be grouped under three headings as follows: (i) sustainable road and transport sector management; (ii) improvement o f the competitive landscape; and (iii) road safety.

A number of issues has emerged from the ongoing engagement between the Thai Government and

I. Sustainable road and transport sector management

GovernancelPublic Sector Reform. On October 1,2002, the Government embarked on the restructuring o f the Ministry of Transport and Communications (MOTC) as part o f the overall Public Sector Management Reform Plan (PSMRJ?) approved by the Cabinet in May 1999. This plan seeks to improve public sector governance in central agencies and line ministries, and to enhance the efficiency, effectiveness, and transparency o f public resource management and service delivery. Public sector organizations are, to the extent possible, to outsource their key functions to the private sector, thereby reducing the size o f the civi l service over time. The Government's plan for the transport sector i s firstly, to remedy the fragmentation and duplication of responsibilities by: (i) separating communications from transport to form part o f a new ministry; and (ii) bringing the Accelerated Rural Development Program (ARDP), the Expressway and Rapid Transit Authority (ERTA) and the Metropolitan Rapid Transit Authority (MRTA) from the Ministry o f Interior, and the Office o f the Commission for the Management o f Land Traffic (OCMLT) from the Office o f the Prime Minister, into a new Ministry o f Transport (MOT). Afier this initial realignment, plans for other aspects o f the reform program, including introduction o f performance management, alternative means o f service delivery, and legislative and regulatory reform, will ensue. As the process o f institutional change unfolds, the CDP framework could provide a means for the Bank to provide assistance if and when requested in areas such as clarification o f institutional roles and responsibilities and building o f relevant capacities.

Department of Highways. I t i s envisioned that changes w i l l be needed to update the planning, implementation, and management practices o f the DOH. Currently the D O H i s overstaffed, with about 19,000 permanent staff (including civi l servants) on i ts payroll plus 20,000 temporary staff (laborers). Nearly 75 percent of the routine maintenance and some emergency repairs are carried out by force account. A system needs to be put in place for programming annual works on the basis o f rational planning and economic criteria. The D O H could hrther benefit from developments in information technology,

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internet-based procurement, and road asset management systems being adopted elsewhere in the country and in the world. Efficiency gains derived from a better way o f doing business could reduce the shortage o f funding for maintenance and ensure that the available resources are used optimally.

Road Maintenance. Thailand has a network o f about 52,000 km o f national and trunk roads under the jurisdiction o f the DOH, o f which about 150 km are multi-lane motonvays, 2,000 k m s are four-lane divided highways and the remaining are two-lane highways. The network i s in relatively good condition, with an asset value that may be estimated at between US$40-50 billion. Annual budget allocations for routine maintenance meet the estimated requirements. However in recent years, particularly since the fiscal crisis o f 1997, allocations for periodic maintenance o f the national road network have been under-funded by about 23 percent. As a result, there i s a significant backlog o f critically needed periodic maintenance. If the backlog i s not addressed, the asset value o f the national road network w i l l decrease rapidly and the total cost to the economy, including higher vehicle operating costs, w i l l be three to s i x times the savings in the maintenance expenditures.

Road Financing. Road user charges comprise part o f total government revenue, and as such there i s no direct link between what users pay and expenditures on roads. Current allocations to the road sector are insufficient to fund both the proper maintenance o f the network and the provision o f additional capacity to cope with continued motorization growth. There i s an urgent need to put maintenance funding on a sustainable basis, spend maintenance resources effectively, and increase private sector funding o f road transport facilities and infrastructure. The Ministry o f Finance (MOF), through support from the Public Private Infrastructure Advisory Facility (PPIAF), i s undertaking a study to propose a restructured framework for the provision o f Public Sector Obligations (PSOs) compatible with future liberalized commercial market structures. The study wi l l further design a subsidy instrument to ensure that future deliveries o f PSOs are output-based and consistent wi th the Royal Thai Government’s (RTG) priorities and the needs o f local communities.

Public-Private Partnerships (PPP). Most o f the problems in connection with the implementation of public-private highway projects in Thailand derive from the absence o f a sector-specific legal and regulatory framework that addresses the sector’s needs as well as the role o f all public and private parties involved. The following elements w i l l be introduced and developed to facilitate implementation o f such partnerships: (i) an appropriate structure o f privately financed deals, including the level o f dependence on tolls and the extent o f support from the public sector (including risk sharing), to avoid the pitfalls o f poorly structured concession agreements; (ii) innovative mechanisms for providing well targeted and easy to monitor public sector support; (iii) appropriate incentive structures for private sector participation on roads with lesser traffic volumes; (iv) appropriate concession and contractual agreements that are largely performance-based rather than quantity- and specifications-based; and (v) adequate legal and regulatory framework for private-public partnership in infrastructure.

Privatization o f SOEs. Following the adoption o f the 1998 Master Plan for the Reform o f SOEs, a series o f transport sector restructuring studies was undertaken in 2000 and 2001. The objective o f these studies was to outline the future directions for market and regulatory frameworks and the restructuring, corporatization, and privatization o f the state enterprises and other public operating entities within aviation, maritime and land transport. In so doing, the studies recommend a separation o f policy, regulatory, and operational responsibilities from the many (at least 27) different agencies involved in the various sub-sectors and modes.

The Office o f State Enterprises and Government Securities (OSEGS) within MOF has already received substantial support from the CDP-C for the restructuring o f SOEs, several o f which are in the

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transport sector. Restructuring and reduction o f the Government’s share o f ownership in several transport sector enterprises i s either in hand or soon to be implemented. One o f the early projects to support this exercise was a review o f the regulatory needs for the restructured and privatized or partially privatized transport sector agencies. The next step, an analysis o f the advantages and disadvantages o f establishing a single regulatory agency for the transport sector or separate regulators for each transport mode or restructured agency, has been highlighted as an area for possible Bank support through the CDP framework.

11. Improving the Competitive Landscape

Trade and Logistics. Thailand i s facing increasing competition both in its major export products and in most o f i t s major export markets, and w i l l need to reduce its logistics costs to retain and increase i t s relative competitive advantages. Road transport accounts for about 94 percent o f domestic freight transport, and except for a negligible volume by air, inland waterways carry about two thirds o f the remainder (4 percent o f the total). The share o f railways i s only 2 percent o f the total. For many non-industrial and textile export products, access and logistics costs from inland Thailand to i t s deep-water ports are o f a similar order o f magnitude as maritime costs to their final destination country. A large part o f this cost i s made up o f road freight. The national strategy to increase competitiveness o f both domestic and international trade by reducing transport costs thus needs to focus on road freight, particularly along key corridors linking Thailand with neighboring countries.

The lack o f adequate land transport l i n k s i s a significant constraint to trade with neighboring countries. The cost o f land transport i s high, cross-border road and rai l connections between Malaysia and Thailand are inadequate, and highway congestion i s a growing problem. Southern Thai exporters are negatively affected by poor road access, inadequate facilities, and a trade imbalance in Songkhla port. A major road service problem i s the lack o f sufficient through-trucking between Thailand and Malaysia. Many new initiatives are underway, some funded by other international and bilateral agencies, to improve land border crossings. The Government i s also providing greater incentives to the private sector to invest in concessioned ports. Other logistics-related constraints to trade are being addressed by the Government, supported by regional and international agencies, including the simplification o f the tariff structures and a reduction in the multiple import and export licenses for some product categories that are issued by various govemment agencies. Some o f these licenses can presently only be obtained in Bangkok.

An important part o f Thailand’s strategy to increase exports and reduce its trade deficit i s to reduce logistics costs. Part o f the reduction w i l l come from improved transport l i nks to neighboring countries. This w i l l enable Thailand to take advantage o f the expansion o f ASEAN and i ts tariff reduction strategy. Through i t s geographical location, Thailand stands to gain significantly from these ASEAN strategies, and the rehabilitation o f highways in the principal trade corridors w i l l help to ensure that low transport access costs complement this advantage. Similar reductions in land access costs to Thailand’s own deep-water ports and simplification o f trade facilitation procedures will further contribute to trade expansion.

Access to Remote Areas of the Country. High domestic transport costs inhibit access o f the more remote parts o f Thailand, in particular the northeast and northwest regions, to the major national areas of consumption around Bangkok. Most export industries are s t i l l concentrated in the Bangkok region, largely because the cost o f transport to and from other regions i s too high. The continuing relative attractiveness o f the Bangkok area has many implications, among them the migration o f population from the rest o f the country, growing income disparities between Bangkok and other regions, and increasing environmental and social problems. Given the continuing congestion and cost o f operating in the Bangkok

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area, improvements in transport infrastructure and services beyond Bangkok could help in attracting export oriented industries to other parts o f the country.

111. Road Safety

High Incidence of Road Accidents and Fatalities. According to a study carried out by the Transport Research Laboratory (UK), data from 1996 indicate that about 20,000 people die and over 100,000 are injured annually in road accidents in Thailand. According to official statistics, the accident rate i s about 12 deaths per 10,000 vehicles, which i s about six times the rate in developed countries. About 30 percent o f these accidents occur on national highways and trunk roads. Increased efforts by the D O H and M O T C have reduced the number o f accidents and fatalities in the last few years, but lack o f reliable data, especially due to under-reporting, continues to be a problem. Much remains to be done, not only through elimination o f hazardous locations on existing national highways, but also through better enforcement o f traffic regulations, greater driver awareness and better behavior, driver training, and improvements in emergency health services. The Government has given i t s approval for Thailand to be a beneficiary country under the Global Road Safety Partnership (GRSP) program, which promotes the role o f the private sector in enhancing road safety. Furthermore, a Committee to implement the National Road Safety Action Plan has been constituted under the direction o f the National Road Safety Council set up by the Prime Minister. Many provincial governments have taken the lead in the fight against road accidents using local resources to back up traffic safety initiatives.

3. Sector issues to be addressed by the project and strategic choices:

Road Maintenance. The project w i l l help to reduce the backlog o f periodic maintenance and stem further degradation o f the network and loss o f asset value. The project w i l l further enhance the planning and programming capability o f the D O H such that future investments w i l l be based on economic evaluation and priority ranking, which should result in better value for money. Sub-project selection criteria for the 700 km o f national highways to receive periodic maintenance have been designed to help ensure that the more remote and poor regions benefit from the program.

Private Sector Involvement. The project will promote private sector involvement in periodic and routine maintenance, pilot more cost-effective ways o f performing road maintenance activities, and chart new ways to improve public and private partnering in road concessions, with or without private funding. Through deconcentration o f the maintenance component, the project w i l l help build the capacity o f the provinces to implement and manage maintenance activities. This in turn w i l l benefit small- and medium-sized enterprises, creating sustainable job opportunities and stimulating the general economy. The pilot program o f long-term performance-based maintenance contracts wi th the private sector, if successful and replicated, will facilitate a reduction o f maintenance by force account and hence, reduction o f permanent staff in the DOH.

Information Technology. The D O H has been slow to adopt modem information technology to enhance i ts effectiveness. In collaboration with the ADB, the DOH i s in the process o f acquiring computers for al l i t s major departments, including provincial offices, and connecting them into a local area network. The ADB/DOH program w i l l also facilitate development o f a management information system, an independent D O H web-site, electronic mail and documentation system, etc. The project w i l l support enhancements to this system by developing and adopting a centralized road database to be used to improve the planning and monitoring functions, a maintenance management system, a bridge management system and an internet-based procurement system.

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Trade Stimulation. Improved road quality w i l l significantly reduce vehicle operating costs, and given adequate competition in the trucking industry, w i l l also reduce costs to users including those involved in domestic and international trade. The project w i l l upgrade portions o f the national road network that give access to new and improved border facilities and concessioned ports, so that access costs are reduced and their trade stimulating potential can be realized. For example, widening o f the Nokhom Kham Soi - Lueng Nok Tha section in the northeast w i l l improve traffic between Thailand and Laos and through to the port o f Danang in Vietnam. I t w i l l improve access to Ubon Ratchathani, the largest city in the southern part o f the Northeastern region, as well as to the ports on the east coast o f Mataphut (industrial estate) and Laem Chabang. The project w i l l also assist with the maintenance and upgrading o f portions o f the national network used for domestic trade, in particular from the Northeast and Northwest regions, to the major areas o f consumption around Bangkok. Economic growth in the remote regions o f Thailand w i l l be facilitated by the lower access costs that w i l l result from the project.

Road Safety. The project w i l l enhance road safety at critical locations with a view to reducing the number o f accidents, property damage, injuries and fatalities. I t w i l l also strengthen partnerships wi th the private sector to create an Accident Research Center within the facilities o f the Asian Institute o f Technology (AIT), and continue to increase public awareness, improve driver behavior and enhance medical services in collaboration with the GRSP.

C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown):

Highway Rehabilitation and Maintenance: This component comprises:

(a) periodic maintenance o f about 700 km o f priority national highways;

(b) three long-term (5 year) pilot contracts for performance-based maintenance o f about 900 km o f national highways;

(c) supervision o f periodic maintenance and road safety improvements; and

(d) the study, design, and supervision o f performance-based maintenance.

Periodic maintenance w i l l include overlays, minor rehabilitation, concrete pavement repairs, etc., on priority national and trunk roads, largely located in the poorer North and Northeastern regions o f the country, thereby contributing to poverty reduction through job creation. Implementation w i l l be decentralized to the districts with contracts let out to the private sector under National Competitive Bidding (NCB) procedures. The contracts for the pilot program o f performance-based maintenance wil l be packaged into three lots o f about 300 km each in the Central, Northeastem and Southern regions, respectively. Each lot w i l l comprise a potential 10 km requiring rehabilitation, and 15-20 percent per annum requiring periodic maintenance works, followed by routine maintenance for five years on the 300 km. The contractor w i l l be required also to monitor axle loads and right-of-way encroachment, ensure road safety, and regulate traffic. Supervision o f periodic maintenance works will be combined with supervision o f road safety and w i l l include financial and technical audits. The supervision w i l l be carried out by independent consultants and course correction and gradual scaling up o f the pilot program w i l l be undertaken as appropriate.

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Highway Upgrading and Intersection Improvement: This component comprises:

(a) widening o f three selected sections (73 km total) o f priority national highways from two to four lanes;

(b) construction o f three overpasses at critical intersections; and

(c) supervision o f the widening and overpass projects.

Two o f the three road sections selected for widening are in the Northeastem region and one in the Southern region. Average annual daily traffic flows on the sections to be widened range from 9,800 vehicles per day (vpd) to 15,800 vpd. Traffic flows on the planned overpasses range from 12,000 vpd to 70,500 vpd.

Road Safety Improvement: This component comprises:

(a) improvement o f 10 hazardous locations; and

(b) support for implementation o f the road safety action .plan in collaboration with the GRSP

Improvement o f hazardous locations w i l l be achieved through minor interventions such as provision o f guard rails at 10 locations, improving traffic flow, channelization and signalization o f intersections at 42 selected locations and provision o f pedestrian crossings and bridges at 14 locations. Support for the road safety action plan w i l l include financing o f selected activities from the agreed National Road Safety Action Plan, particularly enhancing public awareness through campaigns via television, radio, newspapers and magazines, educational campaigns at schools; the carrying out o f a baseline survey and monitoring o f the results o f the above campaigns by independent experts; and the undertaking o f a study to evaluate the cost o f traffic accidents and their economic impact. In parallel, the Project w i l l support, in collaboration wi th the private sector, the establishment and operation o f a Road Accident Research Center within the facilities o f the AIT. This Center w i l l benefit from the free technical assistance o f Volvo experts for a period o f 2-3 years under a GRSP program.

Institutional Strengthening: This component consists of:

development o f a centralized road database, road asset maintenance and management system and a bridge management system;

development o f a framework for and a case study on public-private partnerships (PPP) in highways;

technical assistance (TA) for project coordination;

extemal audit; and

introduction o f e-procurement.

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1. Highway Rehabilitation and Maintenance-periodic maintenance o f about 700 km, pilot program o f long term performance-based maintenance o f about 900 km, and supervision o f works.

2. Highway Upgrading and Intersection Improvement- widening o f sections (total o f 73 km) o f highways to four lanes, construction o f overpasses at three critical intersections and supervision o f works.

3. Road Safety Improvement-improvement o f hazardous locations and support for the National Road Safety Action Plan.

79.68

50.32

11.50

54.4

34.4

7.9

4. Institutional Strengthening 4.05 2.8 Total Project Costs I 145.55 I 99.4

Front-end fee 0.84 0.6 Total Financing Required 146.39 100.0

45.26

28.52

6.88

3.63 84.29 0.00

84.29

53.7

33.8

8.2

4.3 100.0

0.0 100.0

2. Key policy and institutional reforms supported by the project:

The project w i l l support the Government's policy o f increasing the role o f the private sector in provision o f infrastructure services, promoting decentralization, increasing competition and emphasizing use o f information technology to enhance the efficiency o f public sector institutions. Accordingly, the project will support the following policy and institutional reforms to be undertaken by DOH:

Increase the fraction o f periodic and routine maintenance outsourced to the private sector;

Improve competition and transparency in the award o f contracts through the use of e-procurement methods, and web-based advertisement and tendering information;

Improve planning, programming, budgeting, and monitoring o f highway investments and maintenance expenditures by employing computerized road database, road maintenance and bridge management systems, and management information systems (partly supported by ADB);

Introduce long-term performance-based maintenance contracts wi th the private sector to enhance efficiency, promote innovation, and reduce permanent staf f in the DOH;

Promote public-private partnerships in financing and managing highways through adoption o f a wel l articulated regulatory framework and guidelines for public-private partnership in line with the overall restructuring o f the M O T and D O H dnven by the Cabinet and the MOF; and

Enhance the capacity o f DOH'S Traffic Division to improve road safety using a multi-sectoral approach, which also involves developing partnerships with the private sector.

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3. Benefits and target population:

Component

Highway rehabilitation and maintenance

Major benefits expected from the project include:

(a) greater efficiency in the use o f public resources in terms o f greater output per unit cost;

(b) greater participation o f the private sector in delivery and management o f road infrastructure and services;

(c) employment o f a large number o f small- and medium-sized enterprises for road maintenance and rehabilitation, thereby stimulating the general economy;

(d) reduction in transport costs and travel times;

(e) reduction in road accidents and loss o f property and life;

(f) greater effectiveness in planning, implementing, and monitoring investments; and

(g) increased accessibility to markets, resources, jobs, education, and health services.

Implementing Authority

Bureau o f Highway Maintenance Management

The target population includes users o f the national highways and trunk roads, including those involved in regional and intemational trade; cities and towns directly served by the project roads, especially in the economically weaker Northeastem region; and small- and medium-sized enterprises engaged in road construction and maintenance.

Highway upgrading and intersection improvement

4. Institutional and implementation arrangements:

Loan Control Division and relevant Construction Bureaus

The D O H wi l l be responsible for the implementation o f the project. The project components will be implemented by various divisions as indicated in the table below.

Road safety

Centralized road database, road maintenance, and bridge management systems

Bureau o f Traffic Safety in collaboration wi th GRSP and District Engineers in provinces

Computer Division in collaboration with Bureau o f Maintenance Management and Planning Bureau

Environmental and social assessment, and monitoring activities

Joint team from Environmental Unit and Land Acquisition Bureau

The Deputy Director General for Engineering, nominated by the Director General DOH, will be in charge o f the project. H e w i l l be assisted by a Project Coordinator, to be hired on contract under the Project, to coordinate the day-to-day activities and prepare the integrated quarterly progress reports.

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Financial Management Arrangements

The Loan Accounting Section, a section within the Loan Control Division o f the DOH, wi l l be responsible for overall accounting and financial activities o f the proposed project. The responsibilities include preparation o f consolidated project financial statements and Financial Monitoring Reports (FMRs), and ensuring the smooth f low o f funds to the respective project activities. The accounting system will be computerized to adapt to the decentralized environment. A Special Account will be set up and operated at a commercial bank upon terms and conditions acceptable to the Bank. The Bank funds, in U S dollar, w i l l flow from central level to Bureau level in Thai Baht, and wi l l be based on the estimated project expenditures for the coming month (30 days advance). The fimd w i l l be managed by the Bureau financial officers, who w i l l handle the payments for the project activities that have been decentralized to provincial level. The payment o f each invoice billed by a contractor at provincial level w i l l be made by two cheques:

0 one from the Government counterpart fund (45 percent) handled by the Provincial Finance Department.

one from the Bank fund (55 percent) handled by the Bureau's financial officer. 0

The relevant DOH staff w i l l be trained to use the upgraded accounting and financial system. Bureau and District financial officers w i l l be trained to prepare the monthly reports summarizing total inflows and outflows (cash receipts and payments made to the contractors). The annual financial statements w i l l be audited by an independent auditor and submitted to the Bank not later than six months after the end o f each Government fiscal year. The FMRs wi l l be submitted to the Bank within 45 days o f the end o f each quarter after project effectiveness.

D. Project Rationale 1. Project alternatives considered and reasons for rejection:

* Maintenance versus New Construction. Past Bank financed highway projects in Thailand have largely focused on expanding the national highway network and increasing capacity through widening o f existing two-lane roads to multi-lane facilities. The ADB and JBIC have similarly been actively engaged in helping Thailand to expand the capacity o f i t s national highway network. Continued motorization and traffic growth, especially within and around the Bangkok Metropolitan Area, s t i l l warrant, but at a lesser pace than before, upgrading to four lanes to avoid traffic congestion. However, periodic maintenance has been lagging behind since the financial crisis. There i s now a significant maintenance backlog that needs urgent attention. At the same time, the D O H needs to modernize i t s practices in maintenance planning, implementation and management so as to increase i ts efficiency while attracting private sector participation. For these reasons, the focus o f the project i s largely on maintenance as opposed to expansion o f capacity.

National Highways and Trunk Roads Versus Motorways. The D O H i s also responsible for managing a network o f motorways. Since such motorways carry a high volume o f traffic and have controlled access, they are well suited for financing and operation by the private sector. Bank support thus focuses only on non-controlled access national highways and trunk roads under this project. However, enhancing DOH'S capacity to prepare and manage privately financed motorways (or those financed under public-private partnerships) i s included under the institutional strengthening component o f the project in l ine wi th the overall sector restructuring being undertaken by the Government.

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Specific Investment Loan (SIL) Versus Adaptable Program Loan (APL). A SIL i s considered more appropriate for this project than an APL because the major physical investments and their implementation timetables have been well defined by the Borrower. The Government has specifically requested urgent assistance in injecting capital resources into the economy through small- and medium-sized road construction enterprises.

Sector Issue

2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned).

Project

To support Thailand's public sector reform program to improve public

management, decentralization, and accountability. %her development agencies JBIC

JBIC

JBIC

JBIC

ADB

ADB

P/DO Ratings: HS (Highly Satisfactory), S

sector management, human resources

Bank-financed To meet the continued rapid growth in bransport demand resulting from sustained economic growth, and to address critical issues associated with transport-related environmental pollution and traffic safety.

Public Sector Reform (completed)

Loan: 45 15-TH Loan Amount: $400.0 m Approval Date: 10/14/1999

Regional Road Improvement Project I1

Regional Road Improvement Project I11

Traffic Planning and Management Sector Loan

BKK-Chonburi Highway Construction PJ. 1 1

Regional Road (Sector) Project

Second Regional Roads Sector Project

(Satisfactory), U (Unsatisfactory), t

To assist the Government in improving the efficiency and safety o f the country's road subsector and in mitigating i t s environmental impact.

Highway V (completed) Loan: 3968-TH Loan Amount: $150.0 m Approval Date: 12/21/1995

Highway IV (completed) Loan: 3446-TH Loan Amount: $177.5 m Approval Date: 3/19/1992

Latest SI ervision (PSR)

(Bank-finance Implementation

Progress (IP)

S

S

S

1 (Highly Unsati!

rtings wojects only)

Development Objective (DO)

S

S

S

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3. Lessons learned and reflected in the project design:

Ownership and Commitment. The primary lesson that emerges from past projects in Thailand i s that the expected project outcomes are unlikely to materialize in the absence o f strong ownership and commitment. This project was designed and prepared by the executing agency and enjoys i ts full support.

Cross-sector Issues and Conflicts of Interest. Implementation o f action plans involving various agencies, such as the Road Safety Action Plan, has proven much more complicated than anticipated and has given rise to conflicts o f interest among some agencies. The DOH wi l l be the single executing agency for the project.

Budget Allocation, Adequate Staffing and Procurement Procedures. Inadequate operating budgets, insufficient numbers o f qualified staff, and differences between national and Bank procurement regulations have al l been factors undermining the smooth implementation o f past projects. Outsourcing o f operations, the appointment o f a Government project preparation team, which in turn will implement the project, and the early resolution o f potential procurement differences w i l l help to ensure expeditious project implementation.

Support from World Bank Field Office. The field office has played a significant role in improving the coordination with and performance o f executing agencies, especially in the area o f procurement. This w i l l be continued under the new project.

4. Indications of borrower commitment and ownership:

Borrower commitment i s demonstrated as follows:

(a) the project i s an integral part o f the DOH'S program for the next five years approved by the Government;

(b) all designs for the widening and overpass component and the draft bidding document and pre-registration o f qualified contractors for the periodic maintenance component have already been prepared and are under review by the Bank;

(c) the project design summary as shown in Annex 1 was developed in a workshop held wi th key officials o f the DOH, MOF, and Bureau o f Budget (BOB); and

(d) public consultation meetings were organized by the D O H in the provinces to discuss various engineering designs and incorporate the public view.

5. Value added o f Bank support in this project:

Performance-based Contracting. The Bank has, in recent years, accumulated knowledge and experience that may be u s e h l to clients interested in using performance-based maintenance contracts. The private sector in Thailand i s wel l developed and capable o f carrying out area-wide rehabilitation and maintenance o f roads under long te rm (5-7 years) performance-based contracts. Experience gained in Latin America (Brazil, Argentina, Chile), USA (Virginia, Oregon, Washington DC), Spain, New Zealand, United Kingdom, and recently in Africa (Chad), suggests that maintenance costs may be reduced by about 15-20 percent.

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Innovation. Along with performance-based contracting for maintenance, the Bank w i l l play a facilitating role in a number o f other activities to be carried out by the private sector, such as incidence management (e.g., road crashes) and axle load monitoring and control.

Modernizing Road Data Collection and Strengthening the Planning and Maintenance Management Functions. The D O H uses outdated methods for data collection and road maintenance planning and prioritization. Data collection and analysis can be performed more efficiently through the private sector, and the investment planning function can be strengthened by employing new methods.

E-Procurement. The Bank, in collaboration with the private sector, w i l l promote adoption o f internet-based procurement procedures in a step-by-step manner to modernize and make more efficient and transparent the DOH’S procurement functions.

Improving Road Safety: The Bank w i l l continue i t s support for the implementation o f the Road Safety Action Plan developed under previous highway projects, and seek to enhance the involvement o f the GRSP and the private sector in selected high impact operations.

E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (see Annex 4): 0 Cost benefit NPV=US$1090 million; ERR = 59 % (see Annex 4) 0 Cost effectiveness 0 Other (specify)

The project’s main benefits w i l l be the savings made by road users on vehicle operating costs, passenger time costs, accident costs, and the preservation o f the D O H road network in an efficient and sustainable manner. N e t benefits were analyzed using the most recent version o f the Highway Development and Management (HDM-4) model, which simulates highway l i f e cycle and vehicle operation conditions and costs for multiple road design and maintenance alternatives. An economic analysis was done for the civi l works programs under the project, consisting o f

(i) highway rehabilitation and maintenance program (56 percent o f civi l works) composed o f periodic maintenance civi l works and long-term performance-based maintenance civi l works;

(ii) highway upgrading program (27 percent o f c iv i l works); and

(iii) intersection improvement program (10 percent o f civi l works).

The net present value (NPV) o f the periodic maintenance civi l works i s THB 32,095 million, wi th an internal rate o f return (IRR) o f 64 percent. The N P V o f the performance-based civi l works i s THB 9,444 million, wi th an IRR o f 63 percent. The N P V o f the highway upgrading program i s THB 1,262 million, with an IRR o f 23 percent; and the N P V o f the intersection improvement program i s THB 5,124 million, wi th an IRR o f 72 percent. The overall project N P V i s THB 47,925 mil l ion (US$1,090 million) wi th an overall IRR o f 59 percent.

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2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4)

As there were no revenue earning enterprises associated with this project, a financial analysis was not undertaken.

Fiscal Impact:

The project represents 5.6 percent o f the government's total expenditure on roads and 0.14 percent o f government-wide expenditures by year. Given the focus on maintenance and some upgrading, the recurrent cost implications are expected to be minimal. Reducing the backlog o f periodic maintenance will have a positive effect in future years by reducing the amount o f costly rehabilitation required. Similarly, widespread adoption o f performance-based contracts, to be piloted under the project, in place o f conventional works measurement, should reduce the cost o f maintaining the network in the future. Over t ime this should also enable a reduction in permanent staf f within the Ministry. The project will further help to enhance the efficiency o f use o f fimds by introducing modern road maintenance and bridge management systems. Overall the fiscal impact o f the project w i l l be small, but positive.

3. Technical:

The D O H i s an experienced road organization. This project has been designed to help the DOH become more efficient through upgrading i t s road database, modernizing i ts road maintenance management and bridge management systems, allowing for broader implementation o f i t s road safety action plan, and introducing performance-based contracted maintenance. The technical step imparted by the project f i t s DOH'S capacity and supports timely incremental improvements.

4. Institutional:

4.1 Executing agencies:

The DOH will be responsible for implementation o f the project.

4.2 Project management:

Each individual component w i l l be implemented by the relevant division o f the DOH. However, implementation o f the periodic maintenance component w i l l be decentralized. The risk o f problems arising from lack o f coordination among various implementation uni ts w i l l be minimized by the hiring o f a Project Coordinator who w i l l assist D O H on a full-time basis.

4.3 Procurement issues:

Procurement Procedures. The government has approved the use o f World Bank guidelines and the mandated Standard Bidding Documents (SBD) for International Competitive Bidding (ICB), thereby ruling out any conflict wi th local procedures.

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In the case o f NCB, the Bank has reviewed and accepted local procedures with some modifications. These include:

(a) mandatory advertising in national newspaper;

(b) adequate t ime for bidding (national regulations provide for 14 working days instead o f a minimum o f 30 days);

(c) no negotiation o f the selected bid price except through a reduction o f scope and/or reallocation o f risk and responsibility when rebidding i s to be avoided; and

(d) disallowance o f two-envelope bid opening for complex procurements.

W h i l e negotiating the Social Investment Project in 1998, the Bank used a side letter to address the modifications required in the Thai Regulations for NCB. These modifications have been incorporated into the sample bidding documents for N C B issued by the Government, and the same have been cleared by the Bank and incorporated into the Loan Agreement.

Public Procurement Improvement. The D O H has agreed with the Bank’s proposal to participate in internet-based procurement procedures under the umbrella o f the public procurement reform program. U s e o f the intemet w i l l enhance transparency by making it easier to access procurement information, such as the advertisement o f bid invitation, bid prices obtained, and the result o f bid evaluation.

4.4 Financial management issues:

Assessment of the Financial Management System. Based on a financial management capacity assessment undertaken during pre-appraisal at central level in April 2002 and sub-national level in June 2002, during appraisal at central level in July 2002 and updated in August 2003, it was found necessary to upgrade the financial management system to one that would meet the requirements o f a decentralized environment. As the project activities w i l l be spread across divisions within the DOH and sub-national level, the Project Coordinator to be hired under the project will facilitate operational aspects including gathering information from all uni ts required by the Loan Accounting Section to produce the Financial Monitoring Reports (FMRs) for the Bank.

Deficiencies found in the previous project pertaining to the accounting system and auditing fimction, notably the incomplete and unacceptable format o f the project financial statements, w i l l be addressed by:

(a) engaging a consulting firm to computerize the project accounting system using ACCPAC accounting software, develop the project financial management manual, and assist the D O H in month-end closing tasks and preparation o f project financial reports for the first 6-12 months; and

(b) hiring an independent extemal auditor in place o f the State Audit Office.

Training w i l l be provided to relevant financial staff at both central and sub-national levels. The format o f FMRs was designed and agreed with the Loan Accounting Section.

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Flow of funds. The D O H wi l l open a Special Account, denominated in US dollar, in a commercial bank acceptable to the Bank at the central level, to operate the project finds received from the Bank. The Bank funds in U S dollar w i l l flow from the Special Account to sub-national levels in Thai Baht, and the amount w i l l be based on the projected expenditures o f the coming month confirmed by the financial officer o f each Bureau. The finds wi l l be managed by the Bureau financial officers, who w i l l handle the payments to contractors for the project activities at the provincial level. The traditional disbursement method will be used: replenishment from the Special Account based on the Summary Sheet supported by full documentation and against Statements o f Expenditures (SOE), and direct payments from the loan account.

Audit Arrangement. An independent external auditor acceptable to the Bank w i l l be hired to conduct the audit o f the annual financial statements in accordance with the terms o f reference acceptable to the Bank. The cost o f the extemal audit w i l l be financed from the loan.

5. Environmental: 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from t h i s analysis.

Environmental Category: B (Partial Assessment)

Environment: The environmental impacts associated with the project include vegetation clearing, dust and noise during construction, and vehicular emissions and noise due to increased traffic flow. These impacts can be mitigated through adaptive engineering design, and effective control and supervision o f the contractor. They are not expected to be irreversible.

During the project preparation phase, the DOH carried out an initial assessment o f the potential negative impacts o f the proposed project on the environment, including public consultation meetings. An Initial Environmental Evaluation (IEE) report was prepared for each o f the six subprojects proposed under the Highway Upgrading and Intersection Improvement component and an Environmental Management Plan (EMP) was prepared for the project. The six IEE and public consultation reports and the project EMP were formally submitted to the Bank on July 11,2002. As the DOH gave i ts no objection for the Bank to disclose this information to the general public, these reports were submitted to the Bank’s information center on July 19,2002.

The reports were reviewed and found to be satisfactory. The IEE report presents a description o f the subprojects, location and environmental background o f the sites, identification o f potential negative impacts and the required mitigation measures. Given the similar nature o f the impacts o f these subprojects, the EMP and the monitoring arrangements w i l l be applied to al l the subprojects. The main features o f the EMP are discussed in Section 5.2.

The DOH also prepared an Environmental and Social Safeguards Framework (ESSF) to be applied to the subprojects and the civi l works to be carried out under the Highway Rehabilitation and Maintenance component and Road Safety Improvement component. This ESSF i s intended to avoid any unexpected serious impacts that might occur during the implementation o f the project. I t describes the:

(a) objectives, strategies, and assumptions o f the ESSF;

(b) screening process for each subproject;

(c) basic requirements for public consultation; and

(d) mitigation requirements to be included in the bidding and contract documents, including monitoring the performance o f the contractors.

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The ESSF also includes the Social Safeguards Framework (see Section 6.1 below), and i s considered adequate for the simple nature o f the proposed civi l works.

Natural Habitats and Cultural Property: The IEEs and the site visits made by Bank experts confirmed that no protected areas or cultural property w i l l be affected by the subprojects proposed to be carried out under the Highway Upgrading and Intersection Improvement component. The ESSF i s designed to ensure that the subprojects/activities to be carried out under the Highway Rehabilitation and Maintenance component w i l l undergo the environmental screening and monitoring so that appropriate actions can be undertaken if any protected areas or cultural property are involved.

5.2 What are the main features o f the EMP and are they adequate?

The EMP proposal to mitigate the potential negative impacts o f the six subprojects, to be implemented under the Highway Upgrading and Intersection Improvement component, was developed through close consultation with the Bank's environmental specialist located in the field. The DOH confirmed that due attention was given to problems o f flooding, instability o f embankments, and degrading o f local aesthetic values. D O H has also ensured that al l activities are to be carried out within the right o f way. Given the locations o f the subprojects and the main concerns expressed by the local public during the consultative meetings (Le., lack o f information, safety and inconvenience to road users, floods and drainage, and duration o f construction), it was agreed that the EMP should ensure that the:

(a) contractors inform the local public and avoid or control pollution at their sources,

(b) DOH carries out close supervision o f the contractor's environmental performance, and

(c) D O H puts on record, for future use, monitoring arrangements o f the contractors during the contractor pre-qualification process for new projects.

Hence, the EMP contains two sets o f action plans--one to be carried out by the D O H staff and the other to be carried out by the contractors, and monitoring agencies whose regular supervision will provide the basis to assess the performance o f both contractors, and D O H staff. The action plan to be carried out by the contractors i s included in the bidding and contract documents. The cost o f mitigation measures, which includes the cost o f monitoring the environmental quality during the execution o f the contracts on an 'as-needed' basis, i s part o f the project cost. The supervision engineer i s also required to report and monitor compliance with the contractual requirements related to the environment. More details on the EMP are presented in Annex 11. Given the locations and nature o f the subprojects, the EMP i s considered adequate.

5.3 For Category A and B projects, timeline and status o f EA: Date o f receipt o f final draft: June 21,2002

5.4 H o w have stakeholders been consulted at the stage o f (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms o f consultation that were used and which groups were consulted?

The local authority and local public (head o f villagers and roadside residents) were consulted through presentations, discussions, dissemination o f relevant materials (publications and pamphlets) and questionnaires. The meeting was carried out under the leadership o f the Environment Group and the district engineers wi th close cooperation o f Design Engineers responsible for the subprojects. Clarifications on relevant issues and concerns were made during the meeting and the conclusion was considered satisfactory. A report summarizing the findings was submitted to the Bank (see Section 5.1).

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5.5 What mechanisms have been established to monitor and evaluate the impact o f the project on the environment? D o the indicators reflect the objectives and results o f the EMP?

carry out periodic supervision and monitoring. The field engineer w i l l closely supervise and monitor the environmental performance o f the contractors on a routine basis. The results w i l l be recorded and sent to the Bank twice a year. The performance o f a contractor w i l l be assessed by the DOH during the pre-qualification o f new projects. The Bank's environmental and social specialists located in the field will supervise and monitor these performances periodically, and the results will be reported as part o f the project supervision reports. The monitoring indicators and the forms have been developed and included in the IEE report. The EMP focuses on actions to be carried out by the contractors and DOH staff, and the monitoring indicators reflect the objectives and results o f the EMP.

The DOH Environment Group w i l l provide training to field engineers and contractors and also

Bank Supervision: Field visits w i l l be made by the Bank environmental andor social specialists

(a) evaluate adequacy o f the implementation and compliance o f the proposed EMP;

(b) assist DOH in establishing clear operational policies and procedures to address the environmental and social issues; and

(c) assist DOH in building i t s capacity to carry out social assessment and public consultation.

in close cooperation with D O H staff. The main objectives w i l l be to:

The EMP and ESSF are expected to improve as the project progresses.

6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes.

The proposed widening o f three road sections and construction o f overpasses on three road junctions will only be carried out within the established rights o f way (ROW) and on land owned by the DOH. There will be no resettlement in the subprojects to be carried out under the Highway Upgrading and Intersection Improvement and the Road Safety components. N o impact on ethnic minorities and indigenous people i s foreseen in the Northeastern, Central and Southern regions, where the subprojects are located. The initial social assessment carried out together with the IEE c o n f i e d that the project w i l l not result in any adverse impacts on indigenous people or any ethnic minorities, or loss o f business or incomes. I t also confirmed that there w i l l be no need for acquisition o f private assets. There are, however, several temporary structures within the ROW that may be temporarily affected during the construction phase o f the project. The ESSF (Section 5.1) will ensure compliance with the safeguard policies on Indigenous Peoples and Involuntary Resettlement in case any adverse impact i s identified during implementation. The framework conforms to the objectives and principles o f the Bank's OP 4.12. The mechanisms to implement the framework w i l l be further elaborated in the Operational Guidelines to address any possible social impacts on people, particularly on vulnerable groups, and facilitate the framework implementation. In case any adverse impacts on people are identified, including any impact on ethnic minorities and indigenous people, the DOH will carry out the necessary studies and prepare the appropriate documents in accordance with the provisions o f the ESSF and the Bank's guidelines.

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6.2 Participatory Approach: How are key stakeholders participating in the project?

the EMP (Sections 5.1 and 5.4). The D O H wi l l require the contractor to maintain close consultation wi th the local authorities and local public on the construction plan and schedule, and to execute the EMP properly. To facilitate effective public participation, the D O H wi l l be encouraged to work closely wi th local communities and conduct regular meetings to get feedback on project-related issues. During implementation o f the project, the Public Participation Framework will be prepared and a number o f relevant activities will be carried out to promote and integrate the concept o f public participation into D O H practices. Results from these activities w i l l be reported periodically as part o f the Bank supervision report.

6.3 H o w does the project involve consultations or collaboration with NGOs or other civi l society organizations?

Although significant social impacts are not anticipated during the course o f the project, consultation wi th NGOs and other civic organizations active in the project area would be an important aspect o f the Public Participation Framework. The D O H wi l l also be encouraged to apply the framework to their own procedures whenever appropriate. Collaboration wi th local or national NGOs on the community-based road safety campaign i s also foreseen.

6.4 What institutional arrangements have been provided to ensure the project achieves i t s social development outcomes?

Capacity Building: Under the project, an effort to increase DOH capacity to deal with the social and environmental issues, initiated under the previous highway sector loan, w i l l be continued in l ine with the recent D O H policy to improve D O H services to the public. Given the complex nature o f the social and environmental issues, the lessons learned from the previous technical assistance and the lack o f social assessment capacity within DOH, it was agreed that priority w i l l be given to increasing DOH capacity to carry out social assessment, promote public participation, and improve DOH'S overall service performance. A draft action plan for the capacity building o f DOH on the environment and social aspects, including key monitoring indicators, has been developed and focuses on four priority areas:

Participation of, and consultation with, local stakeholders was carried out during the preparation o f

(i) ensuring effective execution o f the mitigation measures during construction;

(ii) mainstreaming environment and social concerns into D O H operational procedures;

(iii) strengthening the Environmental Group's capacity to carry out social assessments and public

(iv) building up the capacity o f the regional offices to address the local environmental and social

The main activities to be implemented under the action plan include: (i) ensuring inclusion o f the

consultation through case studies, training, and consulting services; and

issues.

environmental requirements into the bidding documents; (ii) routine monitoring o f the contractors' compliance; (iii) periodic monitoring and reporting to the Bank; (iv) setting up o f a high-level committee to take a leadership role in mainstreaming the environmental and social concerns into D O H operational procedures; and (v) executing a number o f pilot studies. Training and technical assistance w i l l be provided by national specialists. Progress and achievement o f the action plan w i l l be monitored and included as part o f the EMP monitoring report, which w i l l be submitted to the Bank bi-annually.

The draft action plan and the detailed work plan and schedule w i l l be prepared and submitted to the Bank within six months after the project effectiveness date. The TORS for the activities must be satisfactory to the Bank.

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6.5 H o w will the project monitor performance in terms o f social development outcomes?

Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) Natural Habitats (OP 4.04, BP 4.04, GP 4.04) Forestry (OP 4.36, GP 4.36) Pest Management (OP 4.09) Cultural Property (OPN 11.03) Indigenous Peoples (OD 4.20) Involuntary Resettlement (OPIBP 4.12) Safety of Dams (OP 4.37, BP 4.37) Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60)*

The project w i l l create job opportunities for local communities during the construction phase. The Bank, together with DOH, w i l l cany out regular supervision to ensure compliance o f the Social Safeguard Policy, and to assist D O H in building i t s capacity to address social issues and carry out public participation and consultation activities.

0 Yes 0 N o 0 Yes 0 N o 0 Yes 0 No 0 Yes 0 N o 0 Yes 0 No 0 Yes 0 No 0 Yes 0 N o 0 Yes 0 No 0 Yes 0 N o 0 Yes 0 No

7. Safeguard Policies:

7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.

Although the project i s not expected to cause any adverse social impacts, the ESSF, which incorporates relevant mitigation measures, and Social Safeguard Framework w i l l be applied in case such impacts are identified during the implementation phase. The D O H wi l l routinely monitor and document the contractors' performance and submit bi-annual reports to the Bank. Bank supervision, comprising an environmental and/or social specialist, w i l l be carried out periodically (see Section 5.5).

F. Sustainability and Risks 1. Sustainability:

The benefits o f the project are likely to be sustained over time as the traffic volumes increase. However, key factors w i l l be the allocation o f adequate h d s to maintain the national highway network, and the capacity o f the D O H to manage performance-based maintenance and the increased role o f the private sector in periodic and routine maintenance. The BOB has indicated i ts commitment to finance maintenance expenditures that have been derived using appropriate planning and evaluation methods and based on a more accurate road database (one o f the objectives under the project). Furthermore, as a matter o f principle, the D O H i s planning to reduce investments in new construction and give greater emphasis to maintenance and rehabilitation. This shift w i l l be sustainable if private investors come forth to finance provision o f additional capacity when and where needed. This in tum wi l l require that the ongoing sector restructuring and reform o f regulation be achieved, and the DOH play an enabling role.

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2. Critical R i s k s (reflecting the failure o f critical assumptions found in the fourth column o f Annex 1):

Risk rom Outputs to Objective Government does not allocate the budget in a balanced manner (between capital and recurrent) and at a sustainable level.

Driver safety behavior does not improve.

Government does not scale up the approach and implement the results obtained in the pilot program o f long-term performance based contracts.

Newly improved capacity o f project roads, and improvements at hazardous locations are not managed well through sound traffic operations and control o f ribbon development.

Traffic and axle load regulations are enforced.

rom Components to Outputs Government contracting policies not adjusted or improved.

ADB Information Technology project with D O H not completed on a timely and satisfactory basis.

)vera11 Risk Rating isk Rating - H (High Risk), S (Substantial Rir

Risk Rating

M

M

M

N

H

M

M

M ), M (Modest Risk),

Risk Mitiaation Measure

Increased participation o f the private sector (particularly under long term performance based contracts), realistic estimates backed by better planning and economic justification, and enhanced implementation capacity o f D O H i s expected to give greater credence to annual requests by DOH.

Greater public awareness campaigns and improved driver training programs combined with stricter enforcement o f traffic regulations to be advanced in collaboration wi th the GRSP and the private sector.

Success o f the pilot program with resultant efficiency gains and long-term implications for staff reduction, which w i l l be monitored and documented; t h i s w i l l strengthen the argument in favor o f performance-based maintenance.

Enhanced institutional capacity at the provincial level, better maintenance management practices using long-term contracts with the private sector, and stricter enforcement o f the right-of-way control by DOH.

Inclusion o f axle load control in long-term performance-based contracts wi th the private sector.

Advance preparation, up-front agreement o f procedures, web-based communication, and employment o f independent and qualified consultants.

Closer coordination with ADB and flexibility in the TOR o f the consultants for development o f the road database and the bridge and road maintenance management systems.

Vegligible or Low Risk)

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3. Possible Controversial Aspects:

If the concept o f long term (5-7 years) performance-based maintenance contracts wi th the private sector proves successful and the government expands the program to cover a significant portion o f the network, then the government w i l l have to make allowance in its multi-year budget plans for the committed expenditure. The issue has been raised that th is could lead to some constraints on annual budget allocation and pose a risk due to the contingent liabilities under the long-term contracts in the event o f a fiscal shock. However, this risk i s small, since the liabilities are expected to be significantly less than the amount o f funds normally allocated for maintenance.

G. Main Loan Conditions 1. Effectiveness Condition

1. The Borrower shall establish a financial management system adequate to reflect the operations, resources and expenditures related to the Project, including records, accounts, and financial statements in a format acceptable to the Bank.

2. The Borrower shall prepare and thereafter adopt a Financial Management Manual, satisfactory to the Bank, containing detailed procedures regarding financial management, including flow o f funds, intemal controls and disbursement procedures.

2. Other [classify according to covenant types used in the Legal Agreements.]

Schedule 5 - Implementation Program:

1. The Borrower shall appoint not later than March 3 1,2004, and thereafter maintain during the execution o f the Project, a Project Coordinator responsible for the management, coordination and supervision o f the Project. Such Project Coordinator to have responsibilities, qualifications, terms o f reference and experience satisfactory to the Bank.

2. The Borrower shall, not later than March 1,2004, prepare on the basis o f guidelines acceptable to the Bank and thereafter implement during the execution o f the Project, a detailed action plan for the capacity building program o f D O H on the environment and social safeguards.

Article IV, Section 4.03:

3. The Borrower shall, not later than June 30,2004, retain independent auditors acceptable to the Bank, to audit the records, accounts and financial statements o f the Project and the records and accounts for the Special Account and the Project Account for each fiscal year, in accordance with auditing standards acceptable to the Bank.

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H. Readiness for Implementation @ J , a) The engineerkg design documents for lhe first year's aclrjvities are compl~k and. ready for the s h r i

0 I. 12) Not ~ppljcable. o f project impl~menlrl~ion~

7 2 JJte procurement documcnls for tha fiml. ycar's aclivjties are complclr- and ready for llic ,s?art. of

!Zl 3. The Projccr 1mplomentai.ion Plan has bccn appraised and found la be realist.ic and of satisfactmy

n 4.. Tlic followjng jtems m lacking nnd are dimussad under low condjticlns (Sectinn G);

projeci imp1 nmenld on.

qua l i t y .

1. Compliance with Bank PolDcles &I J . 73.k projcct complies witli a l l appljcshle Badc policjm fi 2. The foIIowing exceptions to Rank policies are recommended fm appnival. The project complies with

a l l othcr applicable Benlc policies.

Ten C. Porter Country Director

Jmgedt R. Jensen Team Leader

Improved economic zompetitiveness and recovery.

roject Development ibjective:

, Enhance the efficiency, productive use, and management o f the road network.

Annex 1: Project Design Summary THAILAND: Highways Management Project

Sector Indicators:

Increased economic growth (nation-wide, in northeast).

Increased export revenues.

N e w business starts; Increased investment; Increased employment.

Outcome I Impact Indicators:

1) Average unit cos tkm o f maintenance reduced in real terms by 10 percent by end o f project (EOP).

2) Asset value o f the road network increased by 0.2 percent by EOP (or decline reversed).

3) Reduced vehicle operating costs by 10-15 percent on target roads.

4) National road database established, updated annually, and used for planning programming, budgeting, and monitoring o f highway investments and maintenance expenditure.

Data Collection Strategy

iectorl country reports:

Government reports.

Bank country economic reports.

'roject reports:

Annual integrated project management and performance reports.

Implementation Completion Report.

Critical Assumptions from Goal to Bank Mission)

Government remains committed to the reform agenda.

from Objective to Goal)

Government budget allocations for road maintenance continue at sustainable levels identif ied by project. Risk level: M

Enabling conditions established at national level for S M E development (access to credit, legal framework, business promotion, et al). Risk level: N

A S E A N tar i f f reduction program drives increase in cross border commerce. Risk level: M

Reduced congestion, improved facilities and through-trucking are incentives for increased export trade. Risk level: N

Reduced logistics costs wi l l stimulate trade growth. RiskLevel : N

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Output from each Component:

1. National road periodic maintenance program implemented and contracts outsourced to SME's.

2. Targeted highways upgraded and intersections improved.

3. Road Safety & Public Awareness Program implemented.

Iutput Indicators:

.l Average roughness o f target roads less than 3.5 IRI.

.2 Periodic maintenance o f 700 km o f project roads completed using conven- tional contracting methods with SME's.

.3 Pilot long-term performance-based management and maintenance programs successfully carried out on 900 km o f roads.

!.l 73 km o f pr ior i ty national highways widened to four lanes as per specifications.

!.2 Three overpasses constructed at critical locations as per specifications.

!.3 Average travel t ime reduced on widened sections by 20-30 percent

l.4 Average delays reduced at improved intersections by 60 percent.

1.1 10 hazardous locations improved as per specifications.

3.2 Number o f fatalities reduced by 80 percent at improved locations.

'roject reports:

Annual maintenance reports.

Annual surveys o f travel t ime and delays.

Annual accident reports.

'rom Outputs to Objective)

Budget allocation (balance o f capital & recurrent) established at sustainable levels. R isk level: M

Government i s committed to scaling up the approach identif ied in the p i lo t and wi l l implement results. R isk level: M

N e w l y improved capacity o f project roads, and improvements at intersections and hazardous locations are managed we l l through sound traffic operations and control o f r ibbon development. Risk level: N

Improved driver awareness, driver training wi l l improve driver safety behaviors. RiskLevel : M

Traff ic and axle load regulations are enforced. RiskLevel : H

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Planning, programming, execution and monitoring capability strengthened in a business-oriented DOH.

'roject Components I iub-components:

. Highway Rehabilitation and Maintenance.

!. Highway Upgrading and Intersection Improvement.

.3 Road safety awareness campaigns carried out.

.4 Accident Research Center established at AIT in collaboration with GRSP.

1 Modern centralized road database, road maintenance management system and bridge management system implemented and operational.

2 Web-based procurement, business-oriented performance based contracting system established and operational by end o f project.

.3 Framework and case study for PPP in highways developed and results adopted by DOH.

.4 Social and environmental assessment methods in use at DOH.

nputs: (budget for each :omponent)

$79.68 mi l l ion ($45.26 m loan)

$50.32 mi l l ion ($28.52 m loan)

2uarterly integrated project nanagement and :rformance reports.

'roject reports:

Quarterly integrated project management and performance reports.

Quarterly integrated project management and performance reports.

from Components to )utputs)

Government contracting policies adjusted. Risk level: M

Adequate counterpart funds allocated in a t imely fashion. Risk level: N

Competitive and reasonable bids received for p i lo t performance-base contracts. Risk level: N

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5. Road Safety & Public Awareness.

$. Institutional strengthening.

$1 1.50 mi l l ion ($6.88 m loan)

$4.05 mi l l ion ($3.63 m loan)

Quarterly integrated project management and performance reports.

Quarterly integrated project management and performance reports.

ADB Information Technology project w i th DOH completed on a time. Risk level: M

Suitable counterpart staff available and assigned to consultants on a full time basis. Risk level: M

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Annex 2: Detailed Project Description THAILAND: Highways Management Project

Further details are provided in Costab tables placed in the project files. By Component:

Project Component 1 - US$AILNDnillion

(a) Periodic maintenance o f about 700 km o f priority national highways;

(b) Three long term (5 years) pilot contracts for performance-based maintenance o f about 900 km o f national highways;

(c) Supervision o f periodic maintenance, road safety improvements, and roadside amenities; and

(d) The study, design, and supervision o f performance-based maintenance.

Project Component 2 - US$igLhwmillion

(a) Widening o f three selected sections (73 km) o f priority national highways from two to four lanes, including: Route 410 (A. Si Chon - A. Tha Sala); Route 212 (A. Ni Khom Kham Sroi - A. Loeng N o k Tha); and Route 201 (B. Nong Bua Khok - Chaiya Phum);

(b) Construction o f three overpasses at critical intersections, including: Junction Rt. No. 2 and Udon Thani Bypass; Junction Rt. No. 304 and Rt. No. 3202; and Crossing o f railway track at Ban Pong; and

Supervision o f the widening and overpass projects. (c)

Project Component 3 - US$ aaLig million

(a) Improvement o f hazardous locations through provision o f guard rails in about 10 locations; signalization o f about 42 intersections; and provision o f pedestrian crossings and bridges in about 14 locations; and

(b) support for implementation o f the Road Safety Action Plan in collaboration with the Global Road Safety Partnership (GRSP), including development o f an accident research program; a study o f traffic accident costs; awareness campaigns for school students and road users; and establishment o f a road accidents research center within the Asian Institute o f Technology.

Project Component 4 - US$yLgi million

Institutional Strengthening:

(a) Development o f a centralized road database, road maintenance and management system, and a bridge management system;

(b) Development o f a framework for and a case study in public-private partnership (PPP) in highways;

(c) Technical assistance (TA) for project coordination; and

(d) Extemal audit.

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Annex 3: Estimated Project Costs THAILAND: Highways Management Project

Project Cost By Component Local

US $million 1. Highway Rehabilitation and Maintenance 2. Highway Upgrading and Intersection Improvement 3, Road Safety Improvement 4. Institutional Strengthening Total Baseline Cost

Physical Contingencies Price Contingencies

1 Total Project Costs

Total Financing Required Front-end fee

41.84 28.70

6.05 0.77

77.36 2.08 3.98

83.42 62.13 145.55

0.84 0.84 83.42 62.97 146.39

30.58 I 72.42

Project Cost By Category

19.13 4.99 3.08

57.78 1.38 2.97

Local Foreign Total US $million US $million US $million

47.83 11.04 3.85

135.14 3.46 6.95

54.24 7.81 0.08 0.00

135.60 9.85 0.10 0.00

1 Total Project Costs

Front-end fee

Works Services Non-Bank Financing

83 -42 62.13 145.55 0.84 0.84

81.36 2.04 0.02 0.00

I Total Financing Required I 83.42 I 62.97 I 146.39 I I Identifiable taxes and duties are 0 (US$m) and the total project cost, net o f taxes, is 146.39 (USSm). Therefore, the project cost sharing ratio is 57.58% o f

total project cost net o f taxes.

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Annex 4: Cost Benefit Analysis Summary THAILAND: Highways Management Project

Program Periodic Maintenance Performance Based Maintenance Highway Upgrading Intersection Improvement Total

costs Benefits N P V IRR

2,002 34,097 32,095 64% 1,020 10,464 9,444 63%

574 1,836 1,262 23% 275 5,399 5,124 72%

3.871 5 1.796 47.925 59%

(Mi l l ion Baht) (Mi l l ion Baht) (Mi l l ion Baht) (%l

Summary o f Benefits and Costs:

The project's main benefits are the savings to be made by road users on vehicle operating costs, passenger t ime costs and accident costs, and the preservation o f the D O H road network in an efficient and sustainable manner. An economic analysis was done for the following civi l works: (i) highway rehabilitation and maintenance program (56 percent o f civi l works) composed o f periodic maintenance civi l works and long-term performance-based maintenance civi l works; (ii) highway upgrading program (27 percent o f civi l works); and (iii) intersection improvement program (10 percent o f civi l works). The N P V o f the periodic maintenance civi l works i s THB 32,095 mil l ion with an internal rate o f return (IRR) of 64 percent, and the N P V o f the performance-based civi l works i s THB 9,444 mil l ion wi th an IRR o f 63 percent. The N P V o f the highway upgrading program i s THB 1,262 mil l ion wi th an IRR o f 23 percent, and the N P V o f the intersection improvement program i s THB 5,124 mil l ion wi th an IRR o f 72 percent. The overall N P V i s THB 47,925 mil l ion (US$1,090 million) with an overall IRR o f 59 percent.

Main Assumptions:

N e t benefits were analyzed using the most recent version o f the HDM-4, which simulates highway l i f e cycle and vehicle operation conditions and costs for multiple road design and maintenance alternatives. The discount rate was set to 12 percent and the evaluation period to 20 years. The DOH estimated maintenance and rehabilitation costs in financial and economic terms (net o f taxes), economic costs being on average 80 percent o f financial costs; and defined vehicle fleet characteristics and unit costs for seven vehicle classes, including motorcycles. The following table presents: (i) economic unit user costs inputs for HDM-4, which were obtained from the study named "Strengthening o f DOH'S Management and Updating o f the Long-term Strategic Investment Plan" dated September 2001; (ii) typical road user costs at different roughness levels, in Baht per vehicle-km; and (iii) typical traffic composition for the roads under the highway rehabilitation and maintenance program.

- 3 1 -

New Vehicle (Bahtheh) New Tire (Bahtkire)

O i l (Bahuliter) Fuel (BahtAiter)

Maint. Labor (Baht/hour) Crew Wages (Bahthour) Annual Interest (YO) Work Time (Bahtlhour) Leisure Time (Bahthour)

The traffic growth rate was set, based on past trends, to vary per vehicle type from 3 percent (buses) to 6 percent (cars) up to 2007, and from 3 percent to 5 percent after 2007. The value o f passenger time was based on an average monthly income o f THB 18,000 for car passengers and THB 9,000 for bus and motorcycle passengers. The following table presents the estimated unit costs per accident, which includes the loss o f economic output, medical costs, vehicle repair costs, police and administration costs, and indirect costs.

Light Heavy Medium Heavy Artic. Car Bus Bus Truck Truck Truck Motorcycle

Economic Unit Costs Inputs for HDM-4 374664 761687 3461889 735102 1202128 167411 1 38500

1728 1923439 7 2643437 4482 9 400 10.0 10.0 10.1 10.1 10.1 10.1 10.0 45.0 45.0 45.0 45.0 45.0 45.0 45 .O 60.0 60.0 60.0 60.0 60.0 60.0 0.0 0.0 38.9 90.1 75.2 75.2 82.2 0.0

12.0 12.0 12.0 12.0 12.0 12.0 12.0 90.0 45.0 45.0 0.0 0.0 0.0 45.0 22.5 22.5 22.5 0.0 0.0 0.0 22.5

Accident Cost (Bahuaccident) Fatal I Severe Injury I Minor Injury I Damage Only

3.206.601 I 243.854 I 31.866 I 12.995

Roughness = 2 IRI Roughness = 3 IRI Roughness = 4 IRI Roughness = 5 IRI Roughness = 6 IRI Roughness = 7 IRI Roughness = 8 IRI

Network Rehabilitation and Maintenance Needs

4.53 14.53 40.92 6.95 10.96 15.91 1.32 4.55 14.59 41.06 6.99 11.05 16.05 1.33 4.64 14.85 41.96 7.24 11.59 16.74 1.34 4.74 15.33 43.19 7.50 12.12 17.23 1.36 4.87 16.12 45.33 7.76 12.53 17.49 1.38 5.04 17.21 48.74 8.03 12.87 17.90 1.42 5.26 18.53 53.31 8.34 13.25 18.49 1.47

The periodic maintenance civi l works and the performance-based maintenance civi l works are part of the investments o f DOH's Four-Year Rehabilitation and Maintenance Plan for 2003-2006. The overall maintenance and rehabilitation needs o f the D O H network (49,984 km) were evaluated by the Bank using the HDM-4 model and network condition and traffic data provided by DOH. An analysis o f the current bituminous network (95 percent o f the network) condition indicates that 5 1 percent o f the network i s in good condition, 47 percent in fair condition (requiring seals or thin overlays), and 2 percent in poor condition (requiring thick overlays or reconstruction). The table below presents the current condition and traffic distribution o f the DOH network.

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Traffic Range Road Condition Range (Roughness, IRI) (vehlday) 3 3 to 4 4 to 5 5 to 6 6 to 8 >= 8 1 to 200 161 93 143 77

Total Percent 474 1%

201 to 500 501 to 1000 1001 to2000 2001 to 4000 4001 to6000 6001 to 10000

1,638 5,191 12% 9,731 22%

10,541 24 %

3,945 43,697

290 792 362 163 11 21 1,659 2,371 993 92 77 4,040 4,472 952 252 14 5,445 4,060 1,005 21 2 8 3,808 2,050 117 12 9 4,449 1,587 134 10 3

The HDM-4 model was used to evaluate a series o f maintenance and rehabilitation alternatives for each road class, and to establish the maintenance and rehabilitation program that would minimize total costs (road agency plus road user costs) over a 20-year evaluation period. Data on bituminous network o f 43,697 km indicate that an estimated amount o f THB 6.8 bi l l ion per year i s needed for periodic maintenance and another THB 2.3 billion per year for routine maintenance. The maintenance needs for concrete roads are roughly estimated to be THB 1.8 bi l l ion per year. Extrapolated results for the overall network indicate a requirement o f THB 12.8 bi l l ion per year for the overall maintenance and rehabilitation. The graph below presents the bituminous network NPV for different levels o f periodic expenditures per year.

s MnMeeojmc Meo

350 .

> 10001

Percent Total

2,552 1,293 88 9 2 22,404 16,717 3,794 636 114 31

51% 38% 9% 1% 0% 0%

. -

345 -

.P 340 - m C - - .- E 335 - 2 z + 330 - 0

P 325 - z 320 -

3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 Ee oMjdlmF RemdMoeOReoBe2 oR,MlMjjmB 3c.

.

The HDM-4 evaluations indicate that implementing the 'without budget constraints' program gives the following results: (i) the proportion o f the bituminous network length in good condition (IRR3.5) increases from 5 1 percent in 2002 to around 75 percent in 2006; (ii) the proportion o f the bituminous network utilization (vehiclekm) in good condition (IRK3.5) increases from 60 percent in 2002 to around 83 percent in 2006; and (iii) the average bituminous network roughness remains at the current level o f around 3.0 IRI. The graphs below present the estimated future network condition.

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Je cBj opPCedc3Plj mdMjM 7EeonemcJ’ PaePJe cBjopPv(.

100%

90%

80%

70%

+ 60% 1 50%

40%

30%

20%

10%

0% 2002 2003 2004 2005 2006

1UGood (IRI c 3.5) BFair (3.5 c IRI c 5.5) UPoor (IRI > 5.5)]

Je cBj opP)cItlh&Mjn8ljmdMjm 7Eememcq P c3eBe cBjop Phe3MnW(.

100%

90%

80%

70%

60% 1 50%

40%

30%

20%

10%

0% 2002 2003 2004 2005 2006

10 Good (IRI c 3.5) Fair (3.5 c IRI c 5.5) 0 Poor (IRI z 5.5) 1

Without the proposed rehabilitation and maintenance works, the average bituminous network roughness increases to around 4.0 IRI in 2006, and the proportion o f the bituminous network length in poor condition ( IRb5.5) increases from 2 percent in 2002 to around 18 percent in 2006.

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Highway Rehabilitation and Maintenance Program

Traffic

The proposed sections, to be financed by the Bank, to be rehabilitated or to receive periodic maintenance during the duration o f the project were evaluated using the HDM-4 model, by analyzing a matrix o f representative road classes, with available data for road, vehicle fleet, and road works characteristics and costs. A total o f 155 candidate road sections were identified for the periodic maintenance civ i l works component, o f which 198 are asphalt concrete roads and 57 are concrete roads, totaling 1,661 km two-lane equivalent roads and an investment o f THB 3,142 million. The periodic maintenance civ i l works distribution by traffic and roughness i s given in the table below.

Roughness (IRI) 1 < 3 3 t o 4 4 t o 5 5 t o 6 > 6

37.2 53.8 73.5 119.4 2.4 16.0 30.6 92.5 49.4 11.8 30.5 222.4 26.3 46.1 78.9 164.9 35.1

193.6 226.4 150.3 354.6 693.6 547.5 49.3 16.0 21% 42% 33% 3% 1%

(AADT) 501 to 1000 1001 to 2000 2001 to 4000 400 1 to 6000

Total Percenl 37.2 2%

265.1 16% 184.4 11% 279.1 17% 325.0 20% 570.2 34%

1661.0 100% 100%

Total

Type Bituminous Bituminous Bituminous Concrete Concrete

Type Asphalt Seal Coating Asphalt Overlay Asphalt Pavement Rehabilitation Asphalt Overlay Concrete Pavement Rehabilitation

The average periodic maintenance civil works unit costs are given in the table below.

Periodic Maintenance C iv i l Works Average Unit Costs Surface !Work I Unit Cost

(Baht/m2) + 315 1791

4651 49 1

The economic evaluation considered a "without project" alternative that includes routine maintenance, patching and reconstruction o f the road when the roughness reaches 8.0 IRI, and a "with project" alternative that includes periodic maintenance or rehabilitation work done at the beginning o f the evaluation period followed by a maintenance policy that includes routine maintenance, patching and overlays, when the roughness reaches 4.0 IRI. The N P V o f the proposed periodic maintenance civi l works program i s THB 32,095 mil l ion wi th an overall IRR o f 64 percent. The distribution o f the resulting rates o f re tum i s given in the table below.

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IRR Distribution IRR I

Sections

20 - 40 40 - 80 80 - 100

100 I Total I 155

The economic evaluation o f the performance-based maintenance civil works component, in which the specific road sections to be part o f the contracts have not yet been defined, consisted o f evaluating, as a first approximation, three representative road classes per contract, characterizing a typical performance-based contract in terms o f scope o f road works, road condition, and traffic. The resulting estimated N P V o f the performance-based maintenance program i s THB 9,444 mil l ion with an overall IRR o f 63 percent.

Highway Upgrading Program

The highway upgrading program benefits were evaluated using HDM-4 in terms o f savings in vehicle operating costs, time costs and accident costs. The "without project" case considers rehabilitating the road without widening, and the "with project" case considers rehabilitating the current roadway and constructing two additional lanes. The table below presents the main characteristics and corresponding results for the three proposed widening projects.

Highway Upgrading Projects Length Cost 2002 Traffic IRR N P V

Route Project (km) (MBaht) (AADT) (%) (MBaht) 401 A. Si Chon - A. Tha Sala 20 410 15,774 34 732 2 12 A. Ni Khom Kham Sroi - A. Loeng N o k Tha 21 450 15,607 22 324 201 B. Nong Bua Khok - Chaiya Phum 32 750 9,799 16 206 Total 73 1.610 23 1.262

The highway upgrading projects have an average construction cost o f THB 22 mil l ion per km. All projects yielded an IRR OF greater than 12 percent, even under the sensitivity scenario o f increasing the construction costs by 20 percent and reducing the benefits by 20 percent. The N P V o f the program i s THB 1,262 mil l ion wi th an overall IRR o f 23 percent.

Intersection Improvement Program

The intersection improvement program benefits were evaluated in terms o f savings in time costs and accident costs, computed on an Excel worksheet based on estimated delay t imes per vehicle wi th and without the project. The "without project" case considers maintaining the current intersection layout and the "with project" case considers constructing an overpass. The table below presents the main characteristics and corresponding results for the three proposed overpass projects.

- 36 -

Intersection Improvement Projects Cost 2000 Traffic IRR NPV

Routes Overpass Project (M Baht) (AADT) (%) (MBaht) 2/22 Jct N o 2 and Udon Thani Bypass 150 12,144/11,091 15 41 30413202 Jct Rt No. 304 and 3202 (km 8) 200 116,731121,175 116 3,766

Base Costs Program Case +20%

Performance Based Maintenance 63% 57% Periodic Maintenance 64% 60%

Highway Upgrading 23% 21% Intersection Improvement 72% 66% Total 59% 54%

323 Bam Phong crossing o f railway track 250 70,5324117, 329 56 1,317 Tntnl 600 72 5.124

Benefits Costs + 20% -20% Benefi ts-20%

55% 50% 21% 19% 65% 59% 53% 49%

58% 54%

The intersection improvement projects have an average construction cost o f THB 200 million. All projects yielded an IRR o f greater than 12 percent, even under the sensitivity scenario o f increasing the construction costs by 20 percent and reducing the benefits by 20 percent. The N P V o f the program i s THB 5,124 mil l ion wi th an overall IRR o f 72 percent.

Cost Program Multiplier Periodic Maintenance 17.0 Performance Based Maintenance 10.3 Highway Upgrading 3.2

Total 13.4 Intersection Improvement 19.6

Sensitivity analysis / Switching values of critical items:

Benef i ts Mult ipl ier

0.1 0.1 0.3 0.1 0.1

The table below presents the results o f the sensitivity analysis on costs and benefits, which show that al l programs yielded an IRR o f greater than 12 percent, even under the sensitivity scenario o f increasing the construction costs by 20 percent and reducing the benefits by 20 percent.

The table below presents the results o f the switching values analysis, presenting the multipliers on costs or benefits that yield an NPV equal to zero. For the overall project, costs have to be multiplied by 13 or benefits by 0.1 to yield an N P V equal to zero, which shows that the economic justification o f the project i s robust.

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Annex 5: Financial Summary THAILAND: Highways Management Project

Years Ending December 31

I Year1 I year2 I year3 I year4 I Year5 I Year6 I Year7 Total Financing Required

Project Costs Investment Costs 0.0 48.9 59.9 28.0 8.8 0.0 0.0 Recurrent Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total Project Costs 0.0 48.9 59.9 28.0 8.8 0.0 0.0 Front-end fee 0.8 0.0 0.0 0.0 0.0 0.0 0.0

Total Financing 0.8 48.9 59.9 28.0 8.8 0.0 0.0

Financing IBRDllDA 0.0 28.2 34.7 6.4 5 .O 0.0 0.0 Government 0.8 20.7 25.2 1.6 3.8 0.0 0.0

Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 User FeeslBeneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 0.8 48.9 59.9 28.0 8.8 0.0 0.0

Main assumptions:

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Annex 6(A): Procurement Arrangements THAILAND: Highways Management Project

Procurement

Procurement o f al l works and goods to be financed under the Project w i l l follow the “Guidelines for Procurement under I B R D Loans and I D A Credits” dated January 1995 and revised in January and August 1996, September 1997, and January 1999.

Consultant services financed under the Credit w i l l be procured in accordance with provisions stipulated in the Loan Agreement and the “Guidelines for Selection and Employment of Consultants by World Bank Borrowers” published by the Bank in January 1997 and revised in September 1997, January 1999 and M a y 2002 (Consultant Guidelines).

Standard Bidding Documents

The Bank’s standard bidding documents (SBD) for works, standard evaluation reports and standard request for proposals (RFP) for consulting services will be used in the Project.

Summary o f Procurement Assessment Capacity

World Bank procurement accredited staff carried out an assessment o f the procurement capabilities o f the Project’s implementing agencies and implementing units. The draft assessment report was discussed and agreed with the implementing agencies during May-June 2002. The final report i s available in the project files. The main findings and course o f actions are as follows:

Overall capacity o f the implementing u n i t s involved with procurement i s “good” and the associated risks are “average”.

Procurement o f civi l works for four-lane widening, overpasses, the TA for supervision o f road widening and overpasses, and TA for financial management and extemal audit will be undertaken by the Loan & Fund Control Division. The Bureau o f Planning w i l l be responsible for most o f the consulting services, Le., Centralized Road Database and Road Asset and Bridge Management System, Framework and Case Study o f Public-Private Partnership in Highways, and Project Coordinator. Both uni ts have benefited from direct technical assistance by experienced foreign consultants from past projects financed by the Bank. Their capacity i s good and they represent an average risk. Since similar technical assistance i s planned under this project, their performance i s expected to remain good.

- 39 -

Procurement o f long-term performance-based maintenance, the T A for the study, design, and supervision o f performance-based maintenance and supervision o f periodic maintenance, and road safety w i l l be performed by Bureau o f Highway Maintenance Management and Bureau o f Safety. Neither unit i s familiar with Bank procurement procedures. Therefore, the Loan and Fund Control Division w i l l advise and support the two units. A Project Implementation Plan (PIP) has been prepared and adopted to assist the D O H in the implementation o f procurement as per the Bank's procedures. In addition, procurement training programs, focusing on the selection o f consultants, were held by the World Bank Office, Bangkok, in August and September 2002. Additional procurement training w i l l be conducted on an 'as needed' basis during project implementation.

In accordance with the Government's decentralization policy, procurement activities for small works such as periodic maintenance and improvement o f hazardous locations w i l l be undertaken, under NCB procedures, by the Regional Bureaus. Although the Regional Bureaus have handled N C B for small works for more than 15 years, they have limited experience with the Bank's procurement procedures. However, the risk associated with the implementing agency's lack o f experience with the Bank's procurement procedures i s considered acceptable, based on the experience gained by the Government and the Bank in the implementation o f N C B procurement under the Social Investment Project (Ln. 4373-TH, 1998) in Thailand. The procedures and documents from the Social Investment Project are being adopted, with appropriate modification, for this Project. Furthermore, to mitigate the risk, al l procurement activities carried out by regional bureaus w i l l be monitored and supervised directly by the Bureau o f Highway Maintenance Management and the Bureau o f Safety.

The DOH has agreed that N C B documents used in the Bank-financed Social Investment Project will be used as a basis for developing the NCB documents for this project. The N C B document w i l l be in the local language, for ease o f comprehension by the contracting industry and the local supervisory staff.

Thailand's national laws and regulations are mostly consistent with the Bank's procurement guidelines except for the following items relating to NCB and consulting services, which are addressed in the Loan Agreement:

Each N C B procurement shall be advertised in the borrower's national press and posted on the Borrower's e-procurement website, and bidders will be given no less than 30 days to prepare their bids;

Foreign suppliers and contractors from eligible countries shall be allowed to participate in bidding for contracts under the project, without being compelled to associate with local f m s ;

Explicit bid evaluation criteria shall be clearly stated in al l bidding documents;

Contracts shall be awarded to the lowest evaluated responsive bidder at the quoted bid price and contract terms;

Contractors shall not be required to accept additional work under an existing contract until they have agreed on the applicable rates; and

Prior registration, licensing andor other governmental authorizations or approvals shall not be required for participation in bidding competitions for works contracts.

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Mitigation measures to address risks include:

(a) use o f the Bank's standard bidding documents for works, standard evaluation reports and standard request for proposals for consulting services;

(b) easy access to the Bank procurement officers based in Bangkok;

(c) experienced s ta f f o f the Bureau o f Highway Maintenance Management and the Bureau o f Safety w i l l direct and monitor al l procurement activities carried out by the regional bureaus and provincial offices;

(d) the N C B document successfully used in the Bank-financed Social Investment Project will be used as a basis for the documents but customized for this project; and

(e) the provisions and requirements to ensure consistency in procurement procedures between Government Rules and the Bank's procedures are reflected in the Loan Agreement.

Procurement methods (Table A)

1. Procurement of Civil Works: estimated at US$ l35 .6 million, including contingencies.

International Competitive Bidding (ICB) : Procurement o f civi l works for widening o f three selected sections (73 km) o f priority national highways to four lanes, construction o f three overpasses at critical intersections and three long-term performance-based maintenance contracts (900 km) for a total amount o f US$72.6 mil l ion w i l l be procured through I C B procedures. All I C B procurement documents, subject to the prior review threshold, w i l l be submitted to the Bank for i t s no objection.

Pre-qualification: Civi l works competing for widening o f roads to four lanes and construction o f three overpasses under ICB wi l l be pre-qualified. Invitations for pre-qualification w i l l be issued in accordance with the Bank's guidelines.

National Competitive Bidding (NCB): Procurement activities for periodic maintenance, and improvement o f hazardous locations w i l l be performed through N C B procedures at the regional and provincial levels for the following reasons:

(a) small value o f contracts;

(b) geographically dispersed works and local availability o f qualified contractors; and

(c) unlikelihood o f contracts attracting foreign competition. However, foreign contractors will not be excluded from participating in NCB.

The civi l works w i l l be undertaken by the fifteen DOH Regional Bureaus. These offices have more than 15 years o f experience in handling procurement under government N C B procedures for periodic maintenance and improvement o f hazardous locations using government budget, but limited experience and knowledge o f the Bank's guidelines. However, the Government NCB procurement regulation and the Bank procurement guidelines are largely consistent. The conclusion o f this assessment indicates that there i s procurement capacity at the provincial level to handle N C B procedures that are acceptable to the Bank. In order to minimize the risk, all NCB procurement activities carried out by the regional offices for periodic maintenance and improvement o f hazardous locations w i l l be monitored directly by the Bureau o f Highway Maintenance Management. Procurement activities for improvement o f hazardous locations w i l l be monitored directly by the Bureau o f Safety.

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Procurement o f civil works for periodic maintenance and improvement o f hazardous locations wi th an estimated cost not exceeding US$2 mil l ion per contract, w i l l be procured through NCB. More than fifty (50) contracts, valued at between US$200,000 to US$1 million, w i l l be awarded among fifteen regional bureaus. The procurement documentation for N C B will be prepared and submitted to the Bank. The aggregate amount for this procedure will be US$63 million.

2. Consulting services: estimated at US$9.95 million, including contingencies,

Quality and Cost-Based Selection (QCBS): The consultants’ assignments for consulting f m s for the following will be procured through the Bank‘s QCBS procedures, for a total amount o f US$4.5 million:

(a) supervision o f periodic maintenance, and road safety improvements;

(b) supervision o f widening o f highways, and construction o f overpasses; and

(c) development of centralized road database, road asset, and bridge management system.

Quality-Based Selection (QBS): Services that are: (a) complex and highly specialized; (b) have high downstream impacts; and (c) may be carried out in substantially different ways, may be procured under contracts awarded in accordance with the provisions o f paragraphs 3.1 through 3.4 o f the Consultant Guidelines. The total estimated cost of services procured under QBS procedures i s US$4.8 million. The major contracts that fall in this category are:

(a) study, design, and supervision o f performance-based maintenance US$2.4 million;

(b) project coordination US$0.6 million;

(c) road safety action plan consisting o f educational campaign on road safety $0.18 million, TV campaign on Traffic Safety and Regulations including demonstration projects US$0.40 million, campaign through radio, magazines, newspapers, and billboards US$0.20 million, baseline monitoring and impact evaluation surveys US$O. 12 million, traffic accident costs and economic evaluation study $0.25 million; and

(d) framework and case study o f PPP in highways for a total amount o f US$0.65 million.

Selection Based on Consultants ’ Qualijications (SBCQ): SBCQ procedures w i l l be used to select the consultants for financial management and external audit. The estimated contract amount o f both these services i s less than US$lOO,OOO. Consultants wi th the most appropriate qualifications and references may be selected from a shortlist based on requested expression o f interest from qualified f i rms , al l in accordance with paragraph 3.7 o f the Guidelines. The aggregate amount o f these contracts procured through SBCQ procedures i s US$0.20 million.

Single Source Selection: This method w i l l be used for the procurement o f services related to the accident research program by the Asian Institute o f Technology (AIT). Estimated to cost $350,000 equivalent, with the Bank‘s prior agreement, a contract may be procured in accordance with the provisions o f paragraphs 3.8 through 3.11 o f the Consultant Guidelines. The aggregate amount through this single source selection i s US$0.35 million.

Advance Procurement

Procurement documentation i s being prepared to facilitate advance procurement and hiring o f contractors and consultants. The advance procurement i s being done in accordance with the Bank’s procurement procedures.

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Table A: Project Costs by Procurement Arrangements (US$ million equivalent)

3. Services (0.00) (0.00) (0.00) (0.00) (0.00) 0.00 0.00 9.85 0.00 9.85

4. Miscellaneous

5. Front-end fee

(0.00) (0.00) (9.06) (0.00) (9.06) 0.00 0.00 0.00 0.10 0.10

(0.00) (0.00) (0.00) (0.00) (0.00) 0.00 0.00 0.00 0.84 0.84

Total

Figures in parentheses are the amounts to be financed by the Bank Loan. All costs include contingencies.

2/ Includes c iv i l works and goods to be procured through national shopping, consulting services, services o f contracted staff o f the project management office, training, technical assistance services, and incremental operating costs related to: (i) managing the project, and (ii) re-lending project funds to local govemment units.

(0.00) (0.00) (0.00) (0.00) (0.00) 72.60 63.00 9.85 0.94 146.39

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Table A I : Consultant Selection Arrangements (optional) (US$ million equivalent)

I\ Including contingencies

Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc. N.B.F. = Not Bank-financed Figures in parentheses are the amounts to be financed by the Bank Loan.

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Prior review thresholds (Table B)

The following works/contracts w i l l be subject to Bank's prior review:

0 All civi l works related to widening o f highway sections, construction o f overpasses and long-term performance-based maintenance contracts procured under ICB procedures estimated to cost more than US$2 million. This would cover about 59 percent o f the combined value for works. The first contract procured by each Regional office for procurement o f periodic maintenance and improving hazardous locations under NCB procedures. All consultant contracts over US$lOO,OOO and single-source selection. The first contract under SBCQ method.

0

0

3. Services a. Firms

Prior review includes: complete draft bidding document, including invitation, bid evaluation report, and draft contract document. All other contracts and procurement financed under statement o f expenditures shall be subject to post review.

Table B: Thresholds for Procurement Methods and Prior Review'

n.a. QCBSIQBS All > $0.1 (9.30) <= 100 SBCQ First contract (0.10)

$350 sss All (0.35)

1. Works a. Four lane widening, overpasses, and long term maintenance b. periodic maintenance,

> 2,000

improvement of

roadside amenities hazardous locations, and <= 2,000

ICB

NCB

All (72.6)

First contract procured by each Regional office (6)

I I I

Total value of contracts subject to prior review: $88.35 mil l ion (60.7 percent) o f categories Works and Services

One every six months during the first three years and for the years thereafter, every 12 months (includes special procurement supervision for post-review/audits)

Overall Procurement Risk Assessment: Average Frequency o f procurement supervision missions proposed:

"Thresholds generally differ by country and project. Consult "Assessment of Agency's Capacity to Implement Procurement'' and contact the Regional Procurement Adviser for guidance.

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Annex 6(B): Financial Management and Disbursement Arrangements THAILAND: Highways Management Project

Financial Management

1. Summary of the Financial Management Assessment

Risk Analysis: A review o f the Financial Management System o f the proposed project was carried out by Bank staff during pre-appraisal at central level in April 2002, at sub-national level in June 2002, during appraisal at central level in July 2002, and updated in August 2003. The assessment concluded that the project w i l l meet the minimum Bank financial management requirements, subject to the following measures being implemented

(a) strengthening o f internal controls and accounting procedures to cope with decentralization through designing, reporting and monitoring features to track and verify the use o f the project proceeds and flow o f funds at sub-national level;

(b) engaging a consulting firm to set up the computerized accounting system, develop the project financial management manual, and assist the DOH in month-end closing tasks and preparation o f the project financial reports for the first 6-12 months; and

(c) hiring an external auditor to carry out the audit o f the annual financial statements o f the project.

Country Issues: The Country Financial Accountability Assessment (CFAA) for Thailand has not been prepared to date. Rather, the financial management assessment was conducted according to a phased approach based on priorities and risks. In the private sector, the related reform was implemented under the Economic and Financial Adjustment Loans I and 11, while the reform in the public sector, largely on the budgetary process, was supported through the Public Sector Reform Loan.

Based on a review o f some project implementation uni ts (PIUs), and the Bank’s recent economic monitor analysis, the deficiencies in financial accountability at country level can be identified as follows:

(a) weakness in public expenditure management;

(b) limited capacity to carry out public audits by the State Audit Institution; and

(c) inadequate mechanisms to monitor the uses o f public resources to cope with decentralization.

The key areas o f weakness in public expenditure management in Thailand are lack o f timely audited accounts, ineffective monitoring and evaluation o f spending, lack o f management o f contingent liabilities, and lack o f l i ne agency flexibility and accountability. The Office o f Auditor General (OAG) has an inadequate number o f staff (currently about 2,200 staff). As such, the OAG has limited ability to ensure that proper controls and monitoring arrangements are in place to prevent the misuse o f the resources, particularly under decentralization to local governments.

At portfolio level, the key issues and weaknesses regarding Bank-fimded projects can be summarized as follows: (i) inconsistent and inadequate financial management standards, procedures and software in PIUs; (ii) lack of qualified accounting staff in PIUs; (iii) inadequate capability to prepare financial statements in accordance with acceptable standards and formats; and (iv) delayed audits.

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The overall fiduciary risk in Thailand i s considered to be moderate despite the existence o f an independent audit institution and controls involving many pre-approval and checking processes within the government financial management system. These r isks are considered ‘manageable’ as a result o f the various risk-mitigation measures to be taken. An external private audit firm w i l l be appointed as an independent auditor o f the project. Computerization w i l l help to reduce long lead times. These aspects w i l l be monitored closely as part o f project supervision.

Implementing Entity: The proposed Project w i l l be implemented by the DOH, the implementing agency responsible for several previous Bank-financed Highway Sector Projects. However, the project structure will be different, as the project activities will be spread across divisions within DOH and sub-national level. The project activities, including periodic maintenance and improvement o f hazardous locations, w i l l be decentralized to provincial level and wi l l be under the overall guidance o f the Bureau o f Maintenance Management. A Project Coordinator w i l l be hired to facilitate the technical aspects and w i l l also be responsible for gathering, from al l units, the information needed by the Loan Accounting Section to produce the Financial Monitoring Reports (FMRs) as required by the Bank, such as key performance indicators, etc. The TOR o f Consultants’ Service for Project Coordination w i l l incorporate this important task.

Flow of Funds: The D O H has prepared a fund arrangement (for both the Bank and counterpart finds). The estimated counterpart fund portion for the first year shall be incorporated in the country budget for the year 2004. The D O H will, at central level, open a Special Account denominated in U S dollars at a commercial bank acceptable to the Bank to operate the project finds received from the Bank. Payment shall be made via the Special Account for activities carried out at central level and for small contracts or payments wi th a value less than minimum application size. Payments for large value contracts w i l l be made directly by the Bank (direct payment). The Bank find in US dollars will f low from central level to Bureau level in Thai Baht, and will be based on the projected expenditures o f the coming month (30 days advance), confirmed by the financial officer o f each Bureau. A conversion account w i l l be opened at each participating Bureau (15 participating Bureaus). Each Bureau covers several provinces. The fund w i l l be managed by financial officers, who w i l l handle the payments made to the contractors for the decentralized project activities. Supporting documents (such as official receipt, supplier’s invoice duly authorized by the designated officers, and relevant contracts) shall be retained at the participating Bureaus where the payments are made, while the report summarizing total payments made during the month shall be prepared and sent to the Loan Accounting Section for replenishment to the Special Account on a revolving fund basis.

Although the proposed arrangement provides flexibility and efficiency in f low o f fund, internal control and accounting procedures need to be strengthened to address risks inherent in a decentralized environment. Simple but necessary reporting and monitoring features need to be built into the system to track and verify the use o f the project proceeds and flow o f finds at each level where the project w i l l operate. Such control procedures w i l l be documented in the Project Financial Management Manual.

method. Government counterpart funds will be channeled through the normal Government disbursement

Each billed invoice from a contractor at provincial level w i l l be paid by two cheques:

one from the Government counterpart fund (45 percent) handled by Provincial Finance Department within three working days upon receipt o f the approved payment voucher from the Bureau’s or District’s financial officer.

another one from the Bank find (55 percent) handled by Bureau’s financial officer upon receipt o f the approved payment voucher from the Bureau’s or District’s financial officer.

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Accounting Organization and Staffing: The Loan Accounting Section (LAS), a section within the Loan Control Division o f DOH, w i l l carry out the responsibilities for overall accounting and financial reporting activities o f the Project. This section i s o f the same accounting unit and s ta f f (except for the section head who i s newly appointed) responsible for carrying out the financial arrangement o f the previous Bank-financed highway projects. The L A S consists o f a section head newly appointed in June 2003 and 10 accounting staff, At the provincial levels, there are four accounting staff who are responsible for al l accounting, payment processing, and treasury functions.

The L A S w i l l be responsible for ensuring that the Bank's guidelines and procedures with respect to disbursements, auditing and overall financial management are followed. This includes maintaining the Project's books o f accounts, making payments from the Special Account, monitoring overall project disbursements, coordinating with the M O F on annual counterpart fund requirements, preparing and submitting withdrawal applications to the Bank, consolidating the financial information to produce the quarterly FMRs, preparing annual Financial Statements and having them audited by an independent external auditor.

Accounting Policies and Procedures: The DOH i s responsible for establishing an accounting system including chart o f accounts, books o f entries, and general ledger and transactions recording procedures capable o f providing sufficient financial information for producing annual statutory reports and FMRs. Accounting policies w i l l be in accordance with international accounting standards applicable to project accounting.

Hardware and accounting software w i l l be procured to facilitate the production o f required reports. The L A S has tried to computerize the accounting system using an off-the-shelf accounting software package named Quick-Books, but the package's limitations make it unsuitable for the Project. Therefore another off-the-shelf accounting software package, ACCPAC, i s being considered. A consulting firm wi l l be engaged to computerize the accounting system using ACCPAC, help develop the Project Financial Management Manual, and assist the DOH in month-end closing tasks and preparation o f the Project financial reports for the first 6-12 months. The accounting system w i l l be designed to capture transactions classified by project components, activities and disbursement categories, and also to keep track o f the project's progress. Adequate training should be provided by Project Effectiveness to staff:

at central level to operate the ACCPAC accounting software; and

at provincial level to prepare the monthly cash inflows and outflows report.

0

Planning and Budgeting: The Bureau o f Planning w i l l be responsible for combining the budget prepared by each division to form the overall project budget. Such planning and budgeting would ensure that financial resources are available for Project implementation.

Payments: Disbursement from the Bank will be made based on the traditional system (replenishment from the Special Account based on the Summary Sheet supported by full documentation and against Statements o f Expenditures (SOE) and direct payments from the loan account). The D O H shall prepare the Withdrawal Application approved by the designated authorized officers prior to submission to the Bank. The payment to the contractors at provincial level w i l l be made by the Bureau's financial officer. The payment vouchers with supporting documents w i l l be prepared by the Bureau or District financial officers and be forwarded to one o f the following to process the payment:

- 4 % -

0 one at Provincial Finance Department for the Government counterpart fund portion (45 percent).

one at the respective Bureau for the Bank loan portion (55 percent). 0

A t the end o f the month, the report summarizing the total inflows and outflows (cash receipts and payments) will be prepared by each participating Bureau and submitted to the LAS. The L A S financial staff w i l l gather the transactions from all provinces, input into the system and process the replenishment to the Special Account on a revolving fund basis. Funds w i l l then be transferred to the Bureau equal to the estimated project expenditures for the coming month minus the remaining balance o f the fund at the end o f the month (30 days advance). The exchange rate used to convert the disbursed transactions w i l l be the exchange rate prevailing at the date the fimd i s withdrawn from the Special Account to deposit to the converting account at that particular Bureau. A control sheet w i l l be prepared at central level for each Bureau for the exchange rates.

The documentation supporting SOE disbursements w i l l be retained by the PIU during the l i fe o f the Project and until one year after the receipt o f the audit report for the last year in which the last disbursement was made.

Reporting and Monitoring: The financial reports will comprise annual financial statements and quarterly FMRs. The set o f FMRs w i l l include: (i) Discussion o f Project Progress; (ii) Statement o f Receipts and Payments; (iii) Uses o f Funds by Project Activities; (iv) Output Monitoring (Physical Progress) Report; and (v) Procurement Status Report. The chart o f accounts and the reporting modules o f the accounting package w i l l be customized to facilitate the reporting requirements. The Financial Monitoring Report Manual, with sample report formats, has been discussed with L A S to ensure clear understanding o f the reporting requirements. W h i l e financial reports and procurement status reports clearly recognize the input data, the physical progress reports require the use o f output data to measure development effectiveness. Identification o f output measures w i l l involve measuring the outcomes to assess the overall project development effectiveness. The formats o f FMRs have been designed, discussed, and agreed with the head o f LAS.

The L A S w i l l be responsible for submitting the FMRs to the Bank within 45 days after the end o f each quarter, starting from the first quarter following the f i rst Project disbursement. Additional output monitoring reports and key performance indicators may be identified and developed to meet project needs, if needed, during implementation.

Project Financial Management Manual: A Project Financial Management Manual will be developed by the consulting firm implementing the ACCPAC accounting software, to be used as a guide for staff and as a tool for training. The manual shall describe f low o f funds, authorities and delegation o f responsibilities o f the project staff, internal controls, financial and accounting policies and procedures, budgeting preparation procedures, and transactions f low as well as disbursement procedures. The final version o f the manual will be ready by Project Effectiveness.

Financial Management Action Plan: In order to meet the Bank's minimum financial management requirements, several arrangements and remedial actions have been identified and have been or are being taken. The following actions were discussed and agreed during the negotiations to ensure that an appropriate project financial system w i l l be in place before Project Effectiveness.

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Action

software, and chart o f accounts capable o f producing annual financial statements and FMRs satisfactory to the Bank.

2. Develop a Project Financial Management Manual describing overall financial management, f low o f fund, authorities and delegation o f responsibilities o f project staff, internal controls as well as disbursement procedures satisfactory to the Bank. 0 Final version

3. Provide training to:

1. Put in place a project accounting system, including hardware,

0 relevant D O H staff in the automated project accounting system and the Bank's project financial reports.

0 relevant Bureau and District staff in preparation o f the monthly report summarizing total inflows and outflows (cash receipts and payments made to the contractors).

4. Engage the consulting firm implementing ACCPAC accounting software to provide assistance and training in month-end closing tasks, and preparation o f the project financial reports for the firs 6- 12 months.

5. Appoint an independent external auditor acceptable to the Bank to carry out the audit ofproject financial statements in accordance with terms o f reference satisfactorv to the Bank.

Responsibility PIU/Consultant

PIU/Consultant

PIU/Consultant

P IU

PIU

Completed by Effectiveness

Effectiveness

Effectiveness

Effectiveness

June 30,2004

2. Audit Arrangements

The D O H i s responsible for ensuring that the annual financial statements are audited in accordance with standards on auditing, acceptable to the Bank. In previous projects implemented by the D O H and audited by the State Audit Office, there were problems with the completeness o f information provided and the formats o f the project financial statements. The audited financial statements also were not submitted to the Bank on time by the State Audit Office, as the due date coincided with the Government's end o f fiscal year accounts. To avoid this situation in this Project, the Government has agreed that an independent external auditor, acceptable to the Bank, w i l l be appointed to conduct the audit o f the project financial statements according to international auditing standards. The cost o f the external audit fee w i l l be financed from the Loan. The Audit TOR has been revised to ensure that the Management Letter w i l l be provided.

The auditor will be required to express an opinion on: (i) the project financial statements; and (ii) the adequacy o f the accounting and internal control systems to monitor expenditures and other financial transactions and ensure safe custody o f project-financed assets. In addition, the auditor will be required to determine: (i) the accountability o f the Special Account; and (ii) the adequacy o f the supporting documents and the eligibility o f the withdrawals based on SOEs. The audit report shall be submitted to the Bank no later than s i x months after the end o f each Government fiscal year.

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3. Disbursement Arrangements

Works

Disbursement f rom the Bank will be made based on the traditional system (replenishment f rom the Special Account based on the Summary Sheet supported by full documentation and against statements o f expenditures; and direct payments f rom the Loan account).

73.23 55 percent

Allocation of loan proceeds (Table C)

Services

The Loan will be disbursed against the disbursement categories shown in Table C. I t is expected that the proceeds will be disbursed over a period o f four years.

9.05 92 Dercent

Table C: Allocation of Loan Proceeds

Total Project Costs with Bank Financing

Front-end fee

84.29

I Unallocated I 2.01 I I

Use of statements of expenditures (SOEs):

Some o f the loan proceeds are expected to be disbursed o n the basis o f statements o f expenditures as follows: (i) works costing less than US$2 m i l l i on equivalent each; and (ii) service contracts for f i rms costing less than U S $ 100,000 equivalent each.

Disbursement for services and goods exceeding the above l imits will be made in accordance with the respective procurement guidelines and provisions in the Loan Agreement against submission o f full documentation and signed contracts.

The documentation supporting statement o f expenditures disbursements will be retained by the PIU during the l i fe o f the project and until one year after the receipt o f the audit report for the last year in which the last disbursement was made. These documents will be made available for review by the auditors and Bank supervision missions. The statement o f expenditures documents will be audited by an independent auditor acceptable to the Bank.

Should the auditors or the Bank supervision missions discover that the disbursements made are not justif ied by supporting documents, o r are ineligible, the Bank will have the right to withhold fbrther deposits to the Special Account. The Bank may exercise this right until the Borrower has refunded the amount involved o r (if the Bank agrees) has submitted evidence o f other eligible expenditures that offset the ineligible amount.

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Special account:

operate a Special Account at a commercial bank under terms and conditions satisfactory to the Bank. The account will be denominated in US dollar with an authorized allocation o f ~ $ 7 . 0 million. The Special Account w i l l be replenished on a monthly basis to assure the liquidity o f funds or when the balance i s drawn down by 20 percent o f the initial deposit, whichever comes first. All replenishment applications will be accompanied by reconciled bank statements from the depository bank showing al l transactions in the Special Account. The Special Account w i l l be audited annually by an independent auditor acceptable to the Bank.

To facilitate timely project implementation and loan disbursement, the DOH will establish and

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Annex 7: Project Processing Schedule THAILAND: Highways Management Project

Project Schedule Planned Actual Time taken to prepare the project (months) 10 22

~

Negotiations

Planned Date of Effectiveness

1 First Bank mission (identification) I 06/15/2001 I 0611 51200 1 I

1012 112002 0911 712003 04/26/2004

1 Appraisal mission departure I 0712 5 12 002 I 07/25/2002 I

Prepared by: Alain Labeau, updated by Imogene Jensen*

* Subsequent to the completion o f project negotiations and signing o f the Agreed Minutes o f Negotiation on October 3,2002, the project was put on hold pending approval by the Thai Council o f Ministers and was subsequently approved on June 24,2003, with a reduced in scope and loan amount &om US$lOO mil l ion to US$84.29 million. The project was re-negotiated on September 17,2003.

Preparation assistance:

Boonsri Praserwaree Kim

Bank staff who worked on the project included: Name

Imogene Jensen Alain Labeau Ani1 S. Bhandari Denis Robitaille Behdad Nowroozi Manida Unkulvasapaul Nipa Siribuddhamas Pramod Agrawal Mariana Montiel Rosa Muleta Boonsri Praserwaree Kim Sirirat Sirijaratwong Cuong Duc Dang Chinnakom Chantra Benedictus Eijbergen Kannathee Danaisawat Rodrigo Archondo-Calla0

Speciality Team Leader Former Team Leader Advisor Regional Procurement Adviser Senior Financial Management Specialist Senior Environment Specialist Financial Management Specialist Resettlement, Social Issues Senior Counsel Finance Officer, Disbursement Program Assistant, HQ Program Assistant, WBOB Economics, Operations Officer Procurement Specialist Sr. Transport Specialist, Road Safety Financial Management Specialist Economic Analysis, Road Maintenance Management

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Annex 8: Documents in the Project File* THAILAND: Highways Management Project

A. Project Implementation Plan

"Thailand Highway Management Project - Project Implementation Plan." Thailand, Department o f Highways, June 2002.

Rvsd Procure Plan 9-1 6-2002. PipHDM-DOH08 Sept 2002.~

B. Bank Staff Assessments

Procurement Capacity Assessment Signe

C. Other

Table 1 - Co ts by Financier! Table 2 - Expendi ccounts by Financie

Table3 - Disbursements Projection:

Table4 - Procurement Arrangement: Table 5 - Annual Disbursement by Componet

Table 6 - Allocation of Loan Proceed:

*Including electronic files

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Annex 9: Statement of Loans and Credits THAILAND: Highways Management Project

27-Oct-2003 Difference between expected

and actual disbursements' Original Amount in US$ Millions

Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'd P 0 6 9 0 2 7 2001 TH-BUILDING CHILLER REPLACEMENT PROJ 0.00 0.00 2.50 0.00 1.42 2.50 0.00 PO56269 1999 TH-SOCIAL INVESTMENT PROJ I 300.00 0.00 0.00 45.18 4.60 49.78 0.00 PO42268 1997 TH-Distr. Autom 8 Relia 100.00 0.00 0.00 0.00 19.47 19.47 19.47 PO04805 1997 TH-UNIVERSITY SCIENCE 8 ENG. EDUC 143.40 0.00 0.00 14.00 11.40 25.40 0.00 PO04791 1996 TH-SEC EDUC QUALITY IMPROV 81.90 0.00 0.00 18.88 22.75 41.63 0.00

Total: 625.30 0.00 2.50 78.06 59.65 138.79 19.47

- 55 -

THAILAND STATEMENT OF IFC's

Held and Disbursed Portfolio June 30 - 2003

In Mill ions US Dollars

Committed Disbursed IFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 199 1193196198 1995196198 0193 1993 1994 2001 1987196198 1992 1990 1993194 0 1993194195 2001 2000 1996 1987

Ayudhya Leasing BTSC Bumrungrad Central Hotel Dhana Siam Fitch Thailand HMC Polymers Krung Thai IBJ Siam Asahi Star Petroleum TFB-Ladprao TUNTEX TelecomAsia Thai Equity Furd Thai Petrochem UPOIC

0.00 30.00 0.00 0.00 4.32 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

49.10 0.00

0.92 0.00 0.00 0.00 1.14 0.00

13.95 0.00 0.00 0.00 0.00 0.11 0.00 0.00 0.35 0.00 6.37 0.00 0.00 0.00 0.33 0.00 0.00 0.00 0.00 26.79

37.46 0.00 0.00 49.83 1.08 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

391.46 0.00

0.00 30.00 0.00 0.00 4.32 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

49.10 0.00

0.92 0.00 1.14

13.95 0.00 0.00 0.00 0.35 6.37 0.00 0.33 0.00 0.00 5.65 0.00 1 .08

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.11 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

26.79 0.00 0.00 0.00

49.83 391.46 0.00 0.00

Total Portfolio: 83.42 61.60 76.73 391.46 83.42 29.79 76.73 391.46

Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic 2001 Alusiam 0.01 0.00 0.00 0.00 2002 Fabrinet 0.01 0.00 0.00 0.00 2003 Thai MMF 0.04 0.00 0.00 0.00

Total Pending Commitment: 0.06 0.00 0.00 0.00

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Annex I O : Country at a Glance THAILAND: Highways Management Project

13.1 9.9 11.6 11.2

E- %SIX bP2ndPU-149C x32hO2md

-GDI - O I G D P

Wggw Population, mid-year (millionsJ GNI per capita (Atlas method, US$) GNI (Atlas method, US$ billions)

9Weo25ePZmnS20P5pBc36PalI N y w

Population (%J Labor force (%J

KjO d'oen~mcEOc~2cePD2ceOPte ZoR WZMOZGO~~R~II~W

Poverty (% of population below national poverty line) Urban population (%of total population) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Chiid malnutrition (%of children under5) Access to an improved water source (% ofpopulation) Illiteracy (% ofpopulation age 15+) Gross primary enrollment (% ofschool-age population)

Male Female

KEY ECONOMIC RATIOS and LONG-TERM TRENDS a1 Dw

wgW wga wBW

GDP (US$ bll/lons) Gross domestic investmenVGDP Exports of goods and services/GDP Gross domestic savings/GDP Gross national savings/GDP

Current account baiance/GDP Interest payments/GDP Total debVGDP Total debt servicelexporks Present value of debVGDP Present value of debffexports

Foj Bc39 P&jocOPhdP@j o c m .

36.6 26.5 22.9 24.8 23.8

-2.7 2.0

33.4 19.3

alDwulw all w-gw (average annual growth) GDP 8.8 2.5

61.6 1,980 122.0

0.7 1.1

20 69 24

64 4

95 97 93

a1 I w

111.5 40.0 37.0 36.0 34.3

-5.7 1.7

37.5 13.6

1.9 1.2

East 90MW E2nMM

1,838 950

1,740

1 .o 1.2

38 69 33 15 76 13

106 105 106

w w

115.3 23.9 66.1 30.4 29.3

5.4 2.3

58.3 25.0 57.9 82.1

Wggw

5.2

Lower- (MddOeu Mmde

2,411 1,390 3,352

1 .o 1.2

49 69 30 11 81 13

111 111 110

wE3w

126.4 23.8 64.8 31.1

1.7 46.8

WggwyN

3.7 4.5 3.1 GDP per capita 7.1 1.8

Uxl) l x )Is PjPdePsl -J -Kb

I% of GDP) Agriculture Industry

Services

Private consumption General government consumption Imports of goods and services

Manufacturing

(average annual growth) Agriculture Industry

Services

Private consumption General government consumption Gross domestic investment Imports of goods and services

Manufacturing

YeWOjR(e mEle(i nrl:

Life expectancy

7

GNI Gross per primary capita enrollment

L

Access to imDroved water source

Thailand Lower-middle-income orouv

-

snj nj ( hiTtZdlJ):

Trade

Investment Domestic savings

1

Indebtedness

Thailand Lower-middle-ncome oroun

-

20

0 18.5 12.3 8.5 29.5 38.1 42.0 21.3 27.5 33.3 .. -20 51.9 49.6 49.5 " 4 0

I 11.6 3.5 4.5 11.8 4.8 5.0 8.4 2.0 2.5

7.3 2.9 2.2 4.9 4.0 4.0 2.9

13.2 -7.0 1.7 5.1 -Exports &Imports 16.2 2.6 -5.5 11.3

* The diamonds show four key indicators in the country (in bold) compared with its lncome-group average. If data are missing, the diamond will be incomplete.

- 57 -

E141s UPZdPF-% slJ Ks Jx R4J9 Jls

Domestic prlces (% change) Consumer prices Implicit GDP deflator

Government finance (% of GDP, includes current grants) Current revenue Current budget balance Overall SUrDlUSIdefiCIt

x19Y s

(US$ millions) Total exports (fob)

Rice Rubber Manufactures

Total imports (ci9 Food Fuel and energy Capital goods

Export price index (1995=100) Import price index (1995=100) Terms of trade (1995=100)

,9C 9Jls FJ PE9bKsJxU

(US$ millions) Exports of goods and services imports of goods and services Resource balance

Net income Net current transfers

Current account balance

Financing items (net) Changes in net reserves

Memo: Reserves including goid IUS$ millions) Conversion rate (DEC, iocai/US$)

s zx SI J9 CPYs,x BndPls U- )I 1s C-;U

(US$ millions) Total debt outstanding and disbursed

iBRD IDA

Total debt service IBRD i DA

Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment Portfolio equity

World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers

a1 Dw a1 Iw

5.2 4.2 5.1 4.5

13.8 17.7 -1.0 6.7 -5.9 2.6

a l Dw a1 Iw

6.835 32,095 979 1,432 413 1,144

.. 24,976 8,549 40,679

321 1,976 2,642 3,298

.. 16,773

al Dw al Iw

6,552 41,387 9,223 46,628 -672 -5,241

-514 -1,706 183 646

-1,003 -6,303

922 9,332 81 -3,029

2,652 21,182 23.0 25.4

al Dw al Iw

12,235 41,704 1,270 1,898

70 106

1,940 5,895 124 814

0 2

64 161 656 -282 664 2,168 191 2,113

0 455

616 369 389 177

35 646 353 -470 89 170

264 -639

w m

1.7 2.2

15.1 1.1

-2.6

wkw

63,190 1,585 1,325

55,532 61,847 2,067 7,130

29,457

w w

76,215 69,216

1,802

-1,357 600

6,227

-4,910 -1,317

33,048 44.4

w€w

67,211 2,998

86

20,314 449

4

44 -156

-6,893 3,820

18

0 365 263 102 190 -88

Wggw

0.7

Wggw

Wggw

43.0

wkzsw

59,212 2,346

83

19,859 991

4

0 -4,102 -3,099

0 0

0 104 803

-699 192

-89 1

I -GDPdeflator - 0 - C P I 1

sfR j &ndP(+Lj ocBeWe@B)UqqMOOL.

/80,000 7

I Exports 4 Imports

Thailand

&

I S ooenP2nnj SncPQCQrmePcjA YEPX.

i5 T

l j ( Rj U-@hfj PwgwPdGcPJUq P(M0L

A 2,346 B 83

C 391

I F: 28,818

A - IBRD B - IDA D . Other multilateral F ~ Private

E - Bilateral

- 58 -

Additional Annex I 1 : Impacts Assessment and Proposed Mitigations THAILAND: Highways Management Project

A. Introduction

1. approval o f an Environmental Impact Assessment (EIA) for all new highway projects and rehabilitation projects that go through protected areas. Given the nature o f activities to be camed out under the Highway Management Project (HMP), an EL4 preparation and approval i s not required. However the DOH, through the Environment Group (DOWEG), carried out an initial assessment o f the potential negative impacts (environment and social) o f six subprojects to comply with the safeguard policy and clearances for Bank fmancing. Results o f the assessment, including the consultation with local public and the proposed mitigation measures, were officially submitted to the Bank before appraisal. The final Environmental Management Plan (EMP) was prepared and submitted to the Bank after detailed discussion during appraisal. These reports are available for public review at D O H and i t s 15 regional offices. The main findings o f the impact assessment are summarized below.

Environmental Assessment Requirements. The national environmental law (1 992) requires

B. Scope o f the Project

2. There are four components under the project:

(a) Highway Rehabilitation and Maintenance,

(b) Highway Upgrading and Intersection Improvement,

(c) Road Safety Improvement, and

(d) Institutional Strengthening o f the DOH.

The first component includes small civil works related to overlay and periodic maintenance. Under the second component, there are three subprojects involving widening o f existing roads and upgrading o f three intersections, o f which some background i s given below. The third component involves a number o f small civi l works to improve black spots.

3. The three widening subprojects are: Route 201 (31 km), Route 212 (22 km), and Route 401 (22 km). All o f these will be widened to divided four-lane highways, except in some urban areas where undivided four lanes will be constructed. Routes 201 and 212 are located on flat land, with some rolling terrain, in the Northeastern region, where the major land uses are agriculture (rice paddy fields and cassava or sugar cane plantations) and rural settlements. Route 401 i s located in the coastal area o f the Southem region and the major land uses here again are agriculture baddy fields, rubber and coconut plantations), and rural settlements. The other three subprojects involve improvement o f intersections (Udon Thani, Ram Indra, and Ban Pong) located in the Central and the Northeastem parts o f the country. The Ram Indra intersection i s in an urban area located in the eastem part o f Bangkok where traffic congestion poses a serious problem. The Ban Pong intersection i s located in Ratchaburi province, about 100 km away from Bangkok to the west, and Udon Thani i s located in the northeastern part o f the country. There are no protected areas, archeological and historic sites, or any sensitive ecological areas located near these subproject sites. All the civi l works w i l l be carried out within the existing right o f ways (ROW) o f 15-20 meters.

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C. Environmental and Social Impacts

4. I t i s anticipated that the civi l works to be camed out under the first and third components will be limited to activities typically defined as routine and periodic maintenance (such as resurfacing and bridge repairs, flood repairs or emergency maintenance, regular upkeep o f safety features and road signs, etc.) and small rehabilitation works to strengthenhestore a road, repair structural defects, including small changedimprovements, wideningkhanges in alignment, and small construction o f drainage and footpaths. An Environmental and Social Safeguards Framework (ESSF) has been established to ensure that the Bank's safeguard policy and procedures w i l l be considered throughout the implementation o f the project. Although not expected, if land acquisition were required, the Bank would be informed and the Social Safeguard Framework followed.

5. The initial assessment o f the s i x subprojects to be carried out under the second component concluded that the project i s important for the socioeconomic development o f the region and w i l l create positive impacts on the environment, land values, quality o f life, and transportation efficiency. The subprojects will not involve any land acquisition or relocation o f people. However, a few temporary shops (selling agricultural products) are located in a small area o f the ROW. The impacts during construction would include clearing o f vegetation, increased levels of dust, noise, traffic flow, and accidents to road users, and a level o f inconvenience to local communities. During operation, the impacts would include problems with road safety, aidnoise pollution due to traffic, and possible obstruction o f drainage. Results from consultation meetings suggested that the local authorities and communities are concerned with road safety issues and contractor performance, including inconvenience and flood problems. The EMP will be applied to mitigate these potential impacts during project implementation.

D. Proposed Mitigation Measures

6. requirements to be carried out by the contractors, and (iii) a set o f monitoring records. During the screening process, due attention has been given to ensure compliance with the Bank's policy on protected areas (OP 4.04), cultural property (OP 4.1 l), indigenous peoples (OD 4.20), and involuntary resettlement (OP 4.12). During the execution o f civi l works, the contractors w i l l be required to reduce the potential negative impacts and to maintain a close relationship and consultation with the local community. The ESSF identifies specific requirements to ensure that the contractors will: (i) properly manage construction material, chemicals, equipment, and facilities; and (ii) effectively reduce the impacts on public convenience and safety. These requirements have been included in the bidding documents and their compliance w i l l be monitored systematically by the DOH. Key specific requirements include, but are not limited to:

Safeguard Framework. The ESSF comprises: (i) a screening process, (ii) a set o f minimum

Prohibition o f overloaded trucks, spillage o f materials, and dumping o f wastes;

Proper placement o f construction material and location o f concrete mixing plants or asphalt plants;

Removal o f the construction facilities and materials immediately upon completion o f the works and restoration o f the areas to their original condition or improvement, if agreed with the local authority or community;

e

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Provision o f safe movement and adequate waming signs and light signals andor barricades, including temporary entrances as needed to avoid disruption and inconvenience o f residents and businesses; informing the local authority and community in advance if night work i s required and providing full-scale safety signs and signals;

Informing the local authority and public o f any open surfaces left without further construction, and providing al l necessary measures to ensure safety o f road users and reducing dust; and

Ensuring proper management o f camp site and workers in case a construction camp i s required.

0

7. The EMP. The EMP i s designed to mitigate adverse impacts resulting from the execution o f the six subprojects under the second component. I t identifies activities to be carried out by the contractors and DOH during construction and operation phases. The contractor w i l l be required to adopt good practices and reduce the negative impacts from: (i) equipment and construction materials; and (ii) construction camp and facilities, The safety o f road users, community convenience and specific requirements have been included in the bidding documents. The D O H wi l l systematically monitor compliance and prepare a bi-annual report for the Bank. Key specific requirements include, but are not limited to:

(a) Management of construction material, equipment, and transportation: Locate the borrow pits and quarries 500 m from settlement areas and 100 m from water bodies; cover trucks carrying fill, aggregate or other materials; reduce dust from construction and blasting; select reasonable route and time for transportation; prohibit overloaded trucks; maintain close consultation with local authority and community; maintain good condition o f roads used for material transport and clean up any spillages; safely contain al l the above-ground storage tank, engine fuel, and liquid chemicals; check for safety and efficiency o f all equipment and machinery used on site; equip al l noisy equipment and machinery with noise reducer; properly handle or dispose o f waste generated from maintenance o f construction equipment and machinery.

(b) Location and Management of Construction camp and facility: Locate al l construction facilities, such as warehouses, asphalt plant, concrete mixing plant, construction camps and storage areas, at least 500 m from communities and 100 m from water bodies and within the service area o f electricity and water supply; comply wi th other government regulations (occupational health, environmental quality standards, protected areas, etc.); regularly clean the concrete batching plant sites, properly contadtreat wastewater from the facilities; properly dispose o f garbage; remove construction facilities and material immediately upon completion o f construction and restore the area to i t s original condition; and establisWmaintain proper l iv ing conditions for workers.

(c) Public convenience and safety: Maintain the free movement o f two-way traffic over or around sections o f road undergoing construction or exposed to the haul o f materials or aggregates; consult closely with local authority and community; make all necessary arrangements wi th the landowners for permission to build andor use and maintain such roads; construct and maintain temporary detour roads and ensure that all necessary safety signs and barricades are provided; prohibit night-time work; provide and maintain adequate warning signs and comply with DOH road safety standards; establish traffic management; and provide appropriate personal protective equipment to workers.

- 6 1 -

(d) General practices and monitoring: Operate drilling, piling, heavy equipment, and trucks only during daylight hours; carry out mixing and batching o f dry and dusty materials in enclosed areas; no surface area to remain open for more than two days without further construction activity; clean up any spill and repair any damage. Operate al l plandequipment located within 200 m o f settlement or residences only in daylight. Periodically clean drainage channels; and maintain close consultation with local authority and local public on the detailed execution plan.

8. the environmental mitigation requirements above in the bidding and contract documents as appropriate; and (ii) monitor and record performance o f the contractors using the monitoring template established by DOH/EG. During the operatiodmaintenance phase, engineers or contractors who carry out the maintenance work w i l l conduct regular cleaning o f highway drainage system to ensure appropriate function, and if flood problems occur, investigate and take action to facilitate correction in a timely manner. The engineers/contractors w i l l regularly inspect traffic lights, warning signs, and erected barricades and ensure that these facilities or systems are functionalleffective and sufficient, including maintaining good conditions o f highway by regular maintenance.

During preparation and construction o f the subprojects, the D O H staff i s required to: (i) include

E. Institutional Arrangements and Capacity Building

9. Under the project, assistance to increase the DOH'S capacity to deal wi th social and environmental issues, which was initiated under the previous highway sector loan, w i l l be continued. During appraisal, a draft Operational Policy Guidelines on Environmental and Social Aspects (OPGES) and a draft TOR for technical assistance to be carried out under the project were developed and discussed. The OPGES identifies the following policy objectives and guidelines to improve the performance o f the D O H in four

carry out construction, rehabilitation, and maintenance o f roads and highways with minimum impact to local community and environment;

consult and coordinate with local authority and community and promote participation and information dissemination;

comply with govemment regulations related to protection o f natural resources, environmental quality, and road safety, and

demonstrate DOH commitment on the three objectives above and report the performance to the government and the public on an annual basis.

To achieve these objectives, a high-level committee w i l l be established to oversee implementation and ensure effective cooperation among concemed units. Other activities w i l l include establishing and implementing the technical guidelines andor code o f good practice, improving transparency and efficiency o f land acquisition and the compensation process, ensuring good performance o f contractors, delegating authority to regional offices, and continue the strengthening o f the D O H through training.

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10. environment and social aspects, including key monitoring indicators, has been developed focusing on four priority areas:

In line wi th the OPGES, a draft action plan for building capacity within the DOH to handle

(a) ensuring effective execution of the mitigation measures during construction;

(b) mainstreaming environmental and social concerns into the DOH operational procedures;

(c) strengthening the Environmental Group's capacity to carry out the social assessments and public consultation through case studies, training, and consulting services; and

(d) building the capacity o f the regional offices to address local environmental and social issues.

The main activities to be implemented under the action plan wi l l include, but not be limited to: (a) ensuring inclusion o f the environmental requirements in the bidding documents; (b) routine monitoring o f the contractor compliance; (c) periodic monitoring and reporting to the Bank; (d) setting up o f a high-level committee to take a leadership role in incorporating environmental and social concerns into DOH operational procedures; and (f) executing a number of pilot studies. Training and technical assistance w i l l be provided by national specialists. Progress and achievement o f the action plan w i l l be monitored and included as part o f the EMP monitoring report that w i l l be submitted to the Bank on a six-month basis.

The draft action plan was confirmed by the DOH during re-negotiation o f the project in September 2003, and the detailed work plan and schedule w i l l be prepared and submitted to the Bank within s i x months after the Project effectiveness date. The TORS for the activities must be satisfactory to the Bank.

- 6 3 -

Additional Annex 12: [Annex Title] THAILAND: Highways Management Project

Map IBRD 32122 tha32122.pdf

- 64 -