Road Improvement Projects3.amazonaws.com/zanran_storage/ President L. Jin, Operations 1 Director General K. Senga, South Asia Department Director K. Higuchi, Transport and Communications

Completion Report

Project Number: 32288 Loan Number: 1763 (SF) July 2007

Bhutan: Road Improvement Project

CURRENCY EQUIVALENTS

Currency Unit – ngultrum (Nu)

At Appraisal At Project Completion (15 August 2000) (7 January 2007)

Nu1.00 = $0.023 $ 0.022 $1.00 = Nu44.20 Nu44.30

ABBREVIATIONS

ADB – Asian Development Bank DOR – Department of Roads EA – executing agency EIRR – economic internal rate of return EW – East–West (Highway) IRI – international roughness indicator km – kilometer MOWHS – Ministry of Works and Human Settlement NEC – National Environment Commission PM – periodic maintenance PMO – project management office SDR – special drawing rights SP – slope protection TA – technical assistance VOC – vehicle operating cost

NOTES

(i) The fiscal year (FY) of the Government ends on 30 June. “FY” before a calendar year denotes the year in which the fiscal year ends, e.g., FY2007 begins on 1 July 2006 and ends on 30 June 2007.

(ii) In this report, “$” refers to US dollars.

Vice President L. Jin, Operations 1 Director General K. Senga, South Asia Department Director K. Higuchi, Transport and Communications Division,

South Asia Department Team leader M. Subroto, Transport Specialist, Transport and Communications

Division, South Asia Department Team members C. San Miguel, National Officer, Transport and Communications Division,

South Asia Department V. F. Oteyza, Assistant Project Analyst, Transport and Communications

Division, South Asia Department

CONTENTS

Page

BASIC DATA i

MAP vi

I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 1

A. Relevance of Design and Formulation 1 B. Project Outputs 2 C. Project Costs 3 D. Disbursements 3 E. Project Schedule 3 F. Implementation Arrangements 4 G. Conditions and Covenants 5 H. Related Technical Assistance 5 I. Consultant Recruitment and Procurement 5 J. Performance of Consultants, Contractors, and Suppliers 6 K. Performance of the Borrower and the Executing Agency 6 L. Performance of the Asian Development Bank 6

III. EVALUATION OF PERFORMANCE 7 A. Relevance 7 B. Effectiveness in Achieving Outcome 7 C. Efficiency in Achieving Outcome and Outputs 7 D. Preliminary Assessment of Sustainability 8 E. Impact 8

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 9 A. Overall Assessment 9 B. Lessons Learned 9 C. Recommendations 10

APPENDIXES 1. Design and Monitoring Framework 12 2. Civil Works Contract Packages 15 3. Project Costs and Financing Plan 16 4. Breakdown of Annual Disbursements 17 5. Chronology of Main Events 18 6. Implementation Schedule 24 7. Status of Compliance with Loan Covenants 25 8. Technical Assistance Completion Report 30 9. Economic Analysis 32 10. Socioeconomic Survey Result Relevant to Poverty Reduction 36 11. Overall Project Rating 38

BASIC DATA A. Loan Identification 1. Country 2. Loan Number 3. Project Title 4. Borrower 5. Executing Agency 6. Amount of Loan At Appraisal At Closing 7. Project Completion Report Number

Bhutan 1763-BHU(SF) Road Improvement Project Royal Government of Bhutan Department of Roads, Ministry of Works and Human Settlement SDR7,310,000.00 SDR7,263,387.31 __

B. Loan Data 1. Appraisal – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness – In Loan Agreement – Actual – Number of Extensions 6. Closing Date – In Loan Agreement – Actual – Number of Extensions 7. Terms of Loan – Interest Rate – Maturity (number of years) – Grace Period (number of years) 8. Terms of Relending (if any) – Interest Rate – Maturity (number of years) – Grace Period (number of years) – Second-Step Borrower

21 May 2000 1 June 2000 11 August 2000 14 August 2000 3 October 2000 6 November 2000 5 February 2001 23 November 2000 not applicable 30 June 2005 8 August 2006 2 1% during grace period; 1.5% thereafter 32 8 none

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9. Disbursements a. Dates Initial Disbursement

25 May 2001

Final Disbursement

30 May 2006

Time Interval

60 months

Effective Date

23 November 2000

Original Closing Date

30 June 2005

Time Interval

55 months

b. Amount1 ($ million) Category or Subloan

Original

Allocation

Last Revised

Allocation

Amount

Canceled

Net Amount

Available

Amount

Disbursed

Undisbursed

Balance 1a 5.837 7.573 0.0 7.573 7.573 1b 0.496 0.338 0.0 0.338 0.338 2 0.428 0.984 0.0 0.984 0.984 3 1.069 1.359 0.0 1.359 1.359 4 0.194 0.170 0.0 0.170 0.170 5 1.313 0.000 0.0 0.000 0.000 Total 9.336 10.425 0.0 10.425 10.425

c. Amount (SDR/$ million)

Category or

Subloan

Original

Allocation (SDR)

Last Revised

Allocation (SDR)

Amount

Canceled (SDR)

Net Amount

Available ($)

Amount

Disbursed ($)

Undisbursed

Balance 1a 4.569 4.929 (0.360) 7.573 7.573 1b 0.388 0.222 0.166 0.338 0.338 2 0.335 0.909 (0.574) 0.984 0.984 3 0.838 1.098 (0.260) 1.359 1.359 4 0.152 0.152 0.000 0.170 0.170 5 1.028 0.000 1.028 0.000 0.000

Total 7.310 7.310 0.000 10.424 10.424

10. Local Costs (Financed) - Amount ($) 457,318 - Percentage of Local Costs 10.68% - Percentage of Total Cost 3.21% C. Project Data

1. Project Cost ($ million)

Cost Appraisal Estimate Actual Foreign Currency Cost 8.70 9.97 Local Currency Cost 4.10 4.28 Total 12.80 14.25

1 Figures in this table and in succeeding tables may not sum to the totals given because of rounding off.

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2. Financing Plan ($ million)

Cost Appraisal Estimate Actual Foreign Local Total Foreign Local TotalImplementation Costs Borrower-Financed 0.00 3.20 3.20 0.00 3.83 3.83 ADB-Financed 8.50 0.90 9.40 9.80 0.46 10.26 Other External Financing 0.00 0.00 0.00 0.00 0.00 0.00 Total 8.50 4.10 12.60 9.80 4.28 14.08Interest Charge Borrower-Financed 0.00 0.00 0.00 0.00 0.00 0.00 ADB-Financed 0.20 0.00 0.20 0.17 0.00 0.17 Other External Financing 0.00 0.00 0.00 0.00 0.00 0.00 Total 0.20 0.00 0.20 0.17 0.00 0.17ADB = Asian Development Bank.

3. Cost Breakdown by Project Component ($ million)

Component Appraisal Estimate Actual Foreign Local Total Foreign Local Total Civil Works: Periodic Maintenance 6.80 3.30 10.10 7.22 4.07 11.29 Slope Improvement 0.40 0.40 0.80 0.24 0.21 0.45 Equipment 0.50 0.00 0.50 0.98 0.00 0.98 Consulting Services 0.80 0.40 1.20 1.36 0.00 1.36 Interest Charge 0.20 0.00 0.20 0.17 0.00 0.17

Total 8.70 4.10 12.80 9.97 4.28 14.25

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4. Project Schedule

Item Appraisal Estimate Actual Date of Contract with Consultants January 2001 5 April 2001Completion of Engineering Designs Civil Works Contract Date of Award Jun 2001 Phase 1

PM1: 22 Nov 2002 PM4: 22 Nov 2002 PM6: 22 Nov 2002 PM7: 22 Nov 2002

Phase 2 PM2: 27 Jun 2003

PM3A: 17 Jun 2003 PM3B: 9 May 2003

PM5: 1 May 2003 Slope Protection

SP1: 24 Nov 2003 SP2: 24 Nov 2003

Completion of Work Phase 1 PM1: Aug 2002 PM4: Jan 2003 PM7: Jan 2003PM8: Oct 2002 PM9: Aug 2002

Phase 2 PM2: Sep 2004 PM3: Sep 2004 PM5: Jan 2004 PM6: Jul 2004

Slope Protection SP1: Mar 2004 SP2: Mar 2004

Phase 1 PM1: 30 Nov 2004 PM4: 30 Nov 2004 PM6: 13 Apr 2005

PM7: 5 Apr 2005

Phase 2 PM2: 15 Jun 2005

PM3A: 15 Jun 2005 PM3B: 15 Jun 2005

Slope Protection

SP1: 30 Jun 2004 SP2: 30 Jun 2004

Equipment and Supplies Feb–Apr 2001 Oct 2001–1 Feb 2006Dates First Procurement Jun 2001 11 Oct 2001 Last Procurement Dec 2002 1 Feb 2006 Completion of Equipment Installation NA NAStart of Operations NA NA Completion of Tests and Commissioning Beginning of Start-Up Other Milestones NA NAPM = periodic maintenance, NA= not applicable, SP = slope protection.

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5. Project Performance Report Ratings

Rating Implementation Period

Development Objectives

Implementation Progress

From 31 October 2000 to 31 December 2000 S S From 31 January 2001 to 31 May 2001 S HS From 30 June 2001 to 30 April 2002 S S From 31 May 2002 to 30 June 2002 S PS From 31 July 2002 to 8 August 2006 S S HS = highly satisfactory, S = satisfactory, PS = partly satisfactory. D. Data on Asian Development Bank Missions

Name of Mission

Date

No. of Persons

No. of Person-Days

Specialization of Members

Fact-Finding 8–23 March 2000 4 16 a, b, c, d Appraisal 21 May–1 June 2000 4 12 a, b, c, d, f Inception 2–10 May 2001 2 9 a, e Review 1 2–9 April 2002 1 8 a Midterm Review 30 June–4 July 2003 1 5 a Review 2 21–28 May 2004 3 3 a, e, f Project Completion Review 12–28 April 2007 4 17 a, c, e, f a = engineer, b = counsel, c = economist, d = social specialist, e = analyst, f = others. Note: The Project Completion Review Mission comprised Meriaty Subroto, Transport Specialist and Mission Leader; Cesar San Miguel, National Officer; Marcus Napud, Consultant; and Vivien F. Oteyza, Assistant Project Analyst.

National Capital

District Capital

City/Town

Pass

East West National Highway

Proposed Project Feeder Road

Road Network Project (RNP) (BHU-2187)

Realignment

National Highway

District Boundary

International Boundary

Boundaries are not necessarily authoritative.

B H U T A N

ROAD NETWORK

Kilometers

0 10 20 30 40

N

07

-15

62

RM

27 00'No 27 00'No

28 00'No

89 30'Eo

91 00'Eo

91 00'Eo

28 00'No

89 30'Eo

THIMPHU

DorokhaDungna

KharbandiPagli

Tala

Mirchim

Raidak

Ho Mathola

Phibsoo

Dagapela

Lamidanga

SarpangLalai

Gomphu

Panbang Nganglam

Mangdichu

Phongme

Bartsham

Tashiyangphu

Tshelingore

Khodakpo

Kangpara

Bhangtar

Dalim

DiafamSamrang

Chazam Riju

Yang'nyerDrametse

Lingmithang

Chaskar

Tang

Tangmachhu

Mukhangkhar

Changkhada

DuksumSimtokha

Tekizam

Pubjikha

Nobding

Damthang

Chhuzom

Begana

Tangco Chari

Lobesa

Thinlegang

Tashithang

She'ngana

Drugyel Dzong

Phuen-tsholing

Pasakha

Sipsu

Tendru

Garbagtang

Autsho

Bongo

Bjena

Kungarapten

Wangduegang

Kurjey

Kalikhola

GASA

PUNAKHA

H A

THIMPHU

PARO

SAMTSE

CHHUKHA

DAGANA

SARPANG

LHUENTSE

TRASHIGANG

YANGTSE

BUMTHANG

MONGAR

SAMDRUP JONGKHAR

ZHEMGANG

PEMAGATSHEL

WANGDUE-PHODRANG

TRONGSA

TSIRANG

I N D I A

I N D I A

PEOPLE'S REPUBLICOF CHINA

Gasa

Samdrup Jongkhar

Trashigang

Damphu

Gelephu

Lhuentse

Pemagatshel

Zhemgang

Trongsa

Mongar

Jakar

Trashi-Yangtse

Paro

Ha

Samtse

ChhukhaDaga

Punakha

Wangdue-phodrang

Korila2998m

Thrumsingla3780m

Sheytangla3596m

Yutongla3425m

Pelela3390m

Dochula3116m

I. PROJECT DESCRIPTION

1. Bhutan’s extreme geographic conditions and mountainous terrain pose challenges in the provision of transport links and their necessary maintenance. The national road network needs continuous improvement and protection as bad roads make journeys longer and more difficult. The East–West (EW) Highway, which connects Trashigang in the east to Thimphu in the west, is the only means of transport between the two important cities and is therefore of strategic value to Bhutan. Traffic from a number of other urban centers north and south of the route, including Wangdue Phodrang, Trongsa, Jakar, and Mongar, also converges on the highway. 2. The Road Improvement Project (the Project) was aimed at (i) improving the EW Highway through resurfacing, construction of line drainage, and slope protection; (ii) promoting private sector participation and assisting in the development of domestic contracting and consulting by introducing a pilot contractor and equipment leasing scheme; (iii) reducing poverty by increasing employment opportunities for the poor and improving access to health, education, and other social services; and (iv) strengthening governance by providing institutional support to the Department of Roads (DOR). 3. The Project as appraised 1 had the following components: (i) resurfacing of about 380 kilometers (km) of the EW Highway 2 through mechanized but environmentally sound methods, and installation of the related drainage; (ii) slope stabilization to preserve the national highway network; (iii) a pilot contractor and equipment leasing scheme for domestic contractors; and (iv) consulting services for the design and supervision of civil works and for institutional support. The design and monitoring framework is in Appendix 1.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

4. The Asian Development Bank’s (ADB’s) strategy3 in the road sector is consistent with the overall areas of emphasis and objectives of the 8th Five-Year Plan (FY1997– FY2002)4 of the Royal Government of Bhutan. ADB’s strategic objectives are to (i) integrate the domestic market; (ii) improve access to local, regional, and international markets; (iii) increase employment opportunities and incomes, especially in rural areas, and reduce poverty; (iv) stimulate private sector activity, especially in rural areas; and (v) develop public-private partnerships in planning, managing, and implementing the construction and maintenance of the national road network. The Project was therefore designed to maximize the sustainability of the road sector in Bhutan by (i) building the capacity and clearly defining the responsibility of DOR, (ii) introducing simple planning procedures for maintenance and improvement works, (iii) devising adequate cost recovery mechanisms, and (iv) contracting out maintenance works to the private sector. The Project was relevant at appraisal and after completion.

1 ADB. 2000. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the

Kingdom of Bhutan for the Road Improvement Project. Manila. 2 Although Trashigang is only 193 km directly west of Thimphu, the road winds through circuitous and mountainous

terrain for 546 km. The road elevation varies from 600 to nearly 4,000 meters above sea level. 3 See footnote 1. 4 The emphasis is on upgrading and maintaining existing roads rather than building new ones.

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5. The Project was focused mainly on improving the EW Highway, the only link between the rural, mountainous east and the fast-growing western part of the country, where the capital and the international airport are located. The whole country was expected to benefit from greater accessibility and from lower road maintenance cost and vehicle operating cost (VOC). In particular, better connectivity and accessibility would promote the socioeconomic and political development of the country’s rural areas—a priority of the Government. B. Project Outputs

6. The following table compares the project outputs estimated during appraisal with the completed works under the Project.

Project Outputs: Estimated and Actual

Quantity Cost

($ million) Description Appraisal Completed Ratioa Appraisalb Completed Ratioa

1. Civil Works 1A. Periodic Maintenance 371.2 km 328.3 kmc 0.88 10.10 11.29 1.12

1B. Slope Protection 0.80 0.45 0.56

2. Equipment 0.50 0.98 1.97 3. Consulting Services 384.0 pm 557.5 pm 1.45 1.20 1.36 1.13

Total 12.60 14.08 1.12 km = kilometer, pm = person-month. a Completed/Actual. b Includes physical and price contingencies. c Includes resurfacing of 20 km of road near the original project area, with the amount saved from the periodic

maintenance (PM) contract packages PM2, PM3B, and PM4. 7. The completed works for Part 1A (periodic maintenance [PM]) were only 88% of the target because two packages (PM8 [Km 482.5 to Km 525] and PM9 [Km 525 to Km 546]) were dropped. The Ministry of Works and Human Settlement (MOWHS, formerly the Ministry of Communication) wanted to widen this 64 km section and so decided to defer its resurfacing, to be financed from other sources. The volume of works for Part 1B (slope protection) was not estimated during appraisal, but from the cost figures, only 56% of the target was achieved. The low achievement was a result of the decision to drop some road sections (along the Trongsa–Gelephu Highway and the Wangdue Phodrang–Sarpang Highway) because their distance from the EW Highway was foreseen to hamper supervision. (Details of the civil works contract packages, appraised and actual, are given in Appendix 2.) The equipment procured (Part 2) cost 197% more than the appraisal target. The procurement was based on an updated list of equipment prepared by DOR and the construction supervision consultants during the ADB loan inception mission (2–10 May 2001). The equipment on the updated list amounted to $0.6 million, compared with $0.5 at appraisal. With the approval of ADB, loan savings realized in the latter part of the implementation period were used to purchase metal crash barriers ($0.37 million) to protect passengers and vehicles on the EW Highway. For Part 3 (consulting services), after the loan closing date was extended because of delay in the physical implementation of the Project, the Government and ADB agreed to extend the services of the consultants to cover the extended period.

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C. Project Costs

8. The actual final cost of the Project was $14.25 million, compared with $12.80 million estimated during appraisal. The cost total comprised $9.97 million in foreign currency cost (compared with $8.70 million estimated at appraisal), and $4.28 million equivalent in local currency cost (versus $4.10 million at appraisal). (Appendix 3 gives a detailed comparison of the project cost at appraisal and at completion.) Although the road length coverage was reduced, the actual cost of civil works, at $11.74 million, was higher than the appraisal estimate of $10.90 million mainly because of the increased deterioration of the road between appraisal and implementation (the final report on the project preparatory technical assistance was completed in May 2000, while the first contract was awarded on 22 November 2002). The technical design of the civil works component cost more than the appraisal estimate. The actual cost of equipment was $0.98 million, compared with the appraisal estimate of $0.50 million (see paragraph 7). Consulting services cost $1.36 million, compared with the $1.20 million estimated at appraisal. The difference was due mainly to the additional person-months given to the team leader and site inspector to allow them to stay on in the Project until the major civil works were completed.5 9. At appraisal $9.60 million (75% of the project cost) was to be financed by ADB to cover all $8.70 million of the estimated foreign currency costs and $0.9 million (22%) of the estimated local currency costs. The remaining $3.20 million in local currency cost was to be financed by the Government. The actual utilization of the ADB loan was $10.43 million—all of the foreign currency costs ($9.97 million) and 11% ($0.46 million) of the local currency costs. The Government financed $3.83 million (27%) of the project cost. D. Disbursements

10. Of the approved loan of $9.60 million (SDR7.31 million), $10.43 million (SDR7.26 million) was disbursed, for a 99.3% loan utilization rate. An imprest fund of $0.25 million was initially set up for the Project but proved to be insufficient during implementation and was increased to $0.77 million in November 2002 and then to $1.04 million in September 2004. The imprest fund was very useful in expediting disbursement. The loan balance of about $0.07 million after physical completion was canceled. Appendix 4 shows the actual annual disbursement during the implementation period. No estimate of annual disbursement was prepared during appraisal.6 E. Project Schedule

11. The loan was approved on 3 October 2000, signed on 6 November 2000, and took effect on 23 November 2000. Appendix 5 gives a chronology of the major events during the

5 The team leader was originally allocated 27 person-months over the project period of 47 months. To this total,

12.5 person-months were later added, and then, as the contractors could not complete the works according to the original schedule and project implementation was extended to June 2005, 3 person-months more were added to the team leader’s participation in the Project.

6 The figures shown in Appendix 4 were projected annually during the implementation period, and not during appraisal.

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implementation of the Project. At appraisal, the Project was to be implemented from June 20017 (start of physical works) to December 2004 (completion of physical works). However, the actual physical implementation started only in December 2002 and was completed in June 2005. The contract award for Phase 1 (PM1, PM4, PM6, and PM 7) was delayed by 17 months, and that for Phase 2 (PM2, PM3A, PM3B, and PM 5) by 6 months. During detailed design, it was decided to include roadside drains. The drains proved to be effective in protecting the road pavement from water saturation, but the additional survey work needed to identify the location of the drains further delayed the completion of the bid documents. 12. The progress of construction was slow for the following reasons: (i) inadequate site management by all the contractors at the start because of lack of experience in road pavement works and poor capacity to plan and sequence construction activities;8 (ii) insufficient supply of aggregates because of difficulties in the establishment and approval of quarry sites in the project area;9 (iii) limited availability of construction facilities and equipment since most of the contractors had to hire these from the DOR and other contractors;10 (iv) frequent turnover of trained contractors’ staff in the initial stages. The consultants later asked the contractor to identify key personnel who could train new staff and to retain these key personnel at all costs. Two requests from the Government to extend the loan closing date were approved by ADB. Appendix 6 compares the actual implementation schedule with the schedule at appraisal. F. Implementation Arrangements

13. The DOR was the Executing Agency. The DOR, which is headed by a director, is under the MOWHS. A project management office (PMO) was established in the DOR before loan negotiations. The PMO was responsible for coordinating, implementing, and monitoring the Project. A full-time project manager headed the PMO and was supported by adequate and competent technical and administrative personnel. The project manager was given enough authority to implement project-related decisions effectively. 14. The DOR seconded assistant engineers and junior engineers as site inspectors and counterpart staff for each package. They assisted the resident engineer (domestic consultant) in performing his duties. Each resident engineer handled two packages. As the work progressed, the seconded DOR staff showed considerable improvement in outlook, exposure, and understanding of the new construction techniques and the planning and quality control of works. Their confidence in handling the Project was considerably enhanced and broadened. However, since the resident engineers were consultants and the site inspectors were seconded from DOR, in some areas there was lack of coordination in the implementation of project activities.

7 Advance action for the recruitment of consultants was agreed during appraisal, and DOR issued the invitation for

proposals in August 2000. 8 The Project design included on-the-job training of DOR staff and contractors. The training improved the capacity of

contractors and enabled them to produce a better output. 9 The Department of Geology and Mines required a detailed topographic survey and mining plan for each proposed

quarry site. After that, clearance was also required from the Department of Forests, the dzongkhag (district) administration, and finally the National Environment Commission Secretariat.

10 The Project design included the purchase of equipment to be leased out to contractors.

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G. Conditions and Covenants

15. Appendix 7 shows the status of compliance with the loan covenants. All the covenants were fully met at the time of the Project Completion Review Mission, particularly those relating to environmental concerns during implementation. The National Environment Commission (NEC) approved and periodically monitored all quarry sites to ensure that the contractors fulfilled all the environmental requirements. 16. The Project did not encounter any indigenous peoples issue during implementation because the road surface improvements that were its sole activity were made only within the existing alignment. No indigenous peoples were affected; therefore, no related assessment was required. H. Related Technical Assistance

17. A technical assistance (TA) grant of $954,000 for road planning and management strengthening,11 piggybacked to this loan, was completed in June 2002. The objectives of the TA project were to: (i) prepare the Road Sector Master Plan; (ii) improve the capacity of the Policy and Planning Division (PPD) and DOR to plan and secure sustainable financing for the national road network and road maintenance programs, including a comprehensive database of the road asset inventory; (iii) train PPD and DOR staff to use appropriate planning tools; and (iv) draft the proposed Road Act. The Government was quite pleased with the report and used it in preparing the 9th Five-Year Plan (FY2002–FY2007). The TA project was rated a success. The technical completion report is in Appendix 8. I. Consultant Recruitment and Procurement

18. Consultants were hired according to ADB’s Guidelines on the Use of Consultants and other procedures acceptable to ADB. At appraisal, 384 person-months of consulting inputs (38 international and 346 domestic) were planned. The consulting contract was signed on 5 April 2001. The team leader was mobilized on 2 May 2001 rather than on January 2001 as originally scheduled—a delay of 4 months. The delay was due partly to slow internal processing by the EA, and partly to delays in approval by ADB and in the scheduling of contract negotiations. By the end of the Project, 557.5 person-months (53.5 international and 504 domestic) had been used. 19. Procurement conformed to ADB’s Guidelines for Procurement and other procedures acceptable to ADB. Construction equipment was procured through international shopping while materials testing equipment was procured through direct purchase. All civil works contracts were awarded on the basis of local competitive bidding. The procurement procedure used was the single-stage, single-envelope system with prequalification of contractors. The prequalification was open to all contractors. To boost the domestic contractor industry, the international contractors were required to associate with domestic contractors. Only 15 of the 45 registered class A local contractors and two international contractors associated with the local contractors applied for prequalification. Since very few contractors passed the prequalification requirements, the DOR tender committee relaxed the scoring system to allow more contractors to participate. This delayed the prequalification exercise by about 9 months. Only nine of the 15

11 TA 3470-BHU: Road Planning and Management Strengthening was approved in July 2000.

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prequalified contractors qualified to receive the tender documents. Six of those nine were awarded periodic maintenance contracts. The procurement was done in two phases: the first-phase packages (PM1, PM4, PM6, and PM7) were awarded in 22 November 2002 and the second-phase packages (PM2, PM3A, PM3B, and PM5) were awarded in May–June 2003. J. Performance of Consultants, Contractors, and Suppliers

20. The performance of the consultants was disappointing at the start, particularly in construction supervision. 12 The terms of reference of the construction and supervision consultants required them to conduct on-the-job training in both construction methods and project management for DOR staff, the domestic consultant engineers, and the contractors, but there was very little progress in this regard. This deficiency was corrected through dialogue and meetings between the Borrower, the consultants, and ADB. 21. The on-the-job training of DOR staff and contractors addressed the problem of inadequate site management by all contractors at the start, which was largely due to inexperience in road pavement works and poor construction planning. Output improved as a result. K. Performance of the Borrower and the Executing Agency

22. The performance of the Borrower and the EA was satisfactory from the start. The PMO,13 established before the appraisal, was fully staffed and functioning at the time of the ADB Loan Inception Mission. The PMO was proactive and implementation issues were speedily resolved. L. Performance of the Asian Development Bank

23. ADB provided essential support and assistance in supervising the implementation of the Project, disbursed funds on time, and regularly fielded missions to review the progress of the Project. In all, ADB fielded four missions including the loan inception mission and the midterm review mission. After the mission in mid-2004 and until physical completion in June 2005, no ADB mission was fielded to review the Project. However, ADB missions for other projects discussed some Project issues with the EA at the end of 2004 and in mid-2005. 24. Overall, ADB was flexible and agreed to several adjustments to overcome problems and facilitate implementation in response to changed circumstances. It approved requests to (i) drop packages PM8 and PM9, (ii) extend the loan closing date by 13 months, and (iii) extend the participation of the consulting team.

12 According to the Back-to-Office Report of the Loan Review Mission of 21–28 May 2004. 13 The project management setup for the previous ADB Loan 1265-BHU: East-West Highway Maintenance (SF) was

used in the Project and in the subsequent project preparatory TA project (TA 3107-BHU: Preparing the Road Transport Network Project).

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III. EVALUATION OF PERFORMANCE

A. Relevance

25. The proposed outcome of the Project was consistent with the country’s development priorities described in both the 8th Five-Year Plan (1997–2002) and the 9th Five-Year Plan (2003–2008). It was also consistent with ADB’s country and sector strategy (see para. 4). The design of the Project was based on adequate sector analysis and lessons learned from the previous project. The Project is therefore considered timely and relevant. Improving the roads that connect the rural areas to the EW Highway would increase the relevance of the highway. B. Effectiveness in Achieving Outcome

26. The Project is considered effective in achieving its outcome. A survey of the road surface conducted by the construction supervision consultants revealed that the international roughness indicator (IRI) along the EW Highway ranged from 9.3 to 16.9 before the Project and from 7.4 to 9.4 after its completion. Of the total road length of 328.3 km that was resurfaced, 34% had an IRI reduction of 19–20%, 38% had, a 24% reduction, 9% a 33% reduction, and 19% a 42–44% reduction. VOC was therefore reduced by 19–38%. 14 In 2005, after the completion of Phase 1 packages, the estimated annual savings in VOC were about Nu73 million and the annual road maintenance cost savings were about Nu18 million. 27. During the field visits of the mission and in interviews with road users and stakeholders (teachers, taxi and truck drivers, shop owners, hotel and restaurant owners, traders, health workers, government employees, etc.), the rural population showed great appreciation for the improvements in the EW Highway. Rural life improved with greater accessibility and connectivity. The Project increased livelihood opportunities, strengthened confidence in the future, and made people more willing to invest. The presence of a well-maintained road and the resulting connectivity of rural areas not only reduced VOC and decreased travel time, but also indirectly facilitated the broader improvement of other aspects of life such as education, health, service delivery,15 and social relationships. These benefits of the improved road were evident after the Project. C. Efficiency in Achieving Outcome and Outputs

28. The economic reevaluation showed that the Project, after completion, was economically viable.16 The economic internal rate of return (EIRR) was estimated at 19%,17 compared with 32% at appraisal. VOC and travel time were reduced after the roads were improved. The prices of commodities in some areas were lower after Project completion due to the increase in volume and variety of supply. More areas became accessible to traders and government workers. Reduction in VOC, savings from reduced travel time, and reduction in road maintenance costs were the benefits quantified in the analysis. Although the above factors indicate a highly efficient 14 A 9–10% reduction in the IRI would mean a 12–16% reduction in the VOC. 15 Government employees interviewed expressed their appreciation for the improved road, which speeded up travel

between the eastern and western parts of Bhutan. 16 The economic opportunity cost of capital was assumed at 12% for Bhutan. 17 The lower EIRR was due to the increased capital costs (46%) brought about mainly by the further deterioration of

the road between appraisal and implementation (the final PPTA report was completed in May 2000, the first contract was awarded in November 2002, and implementation began in early 2003).

8

project, the 13-month extension in the loan closing date (from 30 June 2005 to 8 August 2006) that resulted from the delay in the physical implementation of the civil works components is worth taking into account, as part of the overall assessment. Therefore, the Project is rated efficient. Appendix 9 shows the detailed economic analysis. D. Preliminary Assessment of Sustainability

29. Project sustainability as a whole is rated likely provided the routine maintenance budget is increased.18 DOR’s routine maintenance budget for the national highway is currently (2007) Nu60,000 per km per year.19 Although this amount does not cover the entire requirement, it shows the Government’s commitment to increase the fund continuously. 30. The Project was the second ADB loan to the country that was intended for the improvement and resurfacing of the EW Highway. The first one, Loan 1265-BHU: East–West Highway Maintenance Project, approved in 1993 and completed in 1997, was designed to support urgent periodic maintenance work for about 259 km of road length along the highway. Some road sections covered by the first loan project 5 years earlier were again resurfaced under the Project as the bituminous surface had already deteriorated. The EW Highway is expected to be in passable condition for 5–7 years after the Project, and with proper and adequate road maintenance including resealing of the bituminous surface on the fifth year, the service life of the road could be extended up to 9–10 years. E. Impact

31. The positive impacts of the Project are summarized as follows: (i) faster transport of farm produce and therefore less spoilage;20 (ii) experience in new construction techniques gained by DOR and the contractor; (iii) lower prices of commodities in some areas21 because of greater supply and variety; and (iv) faster and more convenient travel between the western and eastern parts of Bhutan, allowing family members working far from home to return home more often, and parents to pay more frequent visits to their children in boarding school. 22 Appendix 10 shows the results of the socioeconomic survey that are relevant to poverty reduction. On the other hand, the increase in the number of people coming to the eastern part of the country has also increased waste in the area. The local administration must address this matter to protect the environment.

18 The issue of the Road Maintenance fund is also a policy issue that is included in the regular ADB dialogue with the

Government. As stated in paras. 38 and 39, the Government agrees that sufficient road maintenance fund is necessary and has committed to consider providing DOR with enough funds for road maintenance (through the Ministry of Finance).

19 The maintenance funds increased by an average of 12% yearly over the past 6 years. 20 The crops can be sold at a higher price in Phuentsholing and Samdrup Jonkhar (cities near India) since their

quality is maintained. 21 Mostly in Phuentsholing and Samdrup Jonkhar. 22 Several parents would pool their resources and hire a vehicle to visit their children in boarding school.

9

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

32. Overall, the Project was implemented as conceived and is rated successful, on the basis of the weighted evaluation of each component according to its total cost. The details are presented in quantitative terms in Appendix 11. In summary, the Project was relevant to the development objectives of the Government and ADB, and achieved the outputs envisaged at appraisal. Project effectiveness, efficiency, and sustainability were all rated favorably. B. Lessons Learned

33. The main lessons to be learned from the implementation of the Project are the following:

(i) Procurement of civil works. The procurement procedure used was the single-stage, single-envelope system with prequalification of contractors. The scoring system had to be relaxed because very few contractors met the prequalification criteria; procurement was delayed as a result.

(ii) Approval of quarry sites. The approval of the quarry sites involved several

government offices, such as the Department of Geology and Mines, NEC, the concerned dzongkhag (district government), and the Department of Forestry. The 4–9 months it took to obtain the permits further delayed implementation.

(iii) Transfer of technology (work construction techniques, testing, and quality

control) to local contractors, subcontractors, and DOR engineers. Road-building capability drastically improved among the contractors who took part in the Project. The quality of work was low at the start but improved as implementation progressed through continuous monitoring and guidance by the construction supervision consultants and DOR. The six class A contractors who were awarded the periodic maintenance contracts learned the proper method of carrying out double bituminous surface treatment (DBST) works; constructing gabion, retaining wall, and drainage structures; and strengthening the subbase and base course. In addition, DOR is now using the L-drain design in other roads.

(iv) Secondment of DOR staff. For each periodic maintenance contract, DOR

seconded assistant engineers and junior engineers to act as site inspectors working under the construction supervision consultants. This arrangement showed DOR’s strong ownership and commitment to the Project resulting in its successful implementation and in the strengthened capacity of DOR in road maintenance and project management.

10

C. Recommendations

1. Project-Related

34. Procurement of civil works. The contractors in the country are too few to warrant a prequalification exercise. In the future, procurement should follow either single-stage, one-envelope bidding without prequalification or single-stage, two-envelope bidding. 23 However, since the construction industry in the country is expected to develop after implementation of a series of infrastructure projects, an assessment of the capability of local contractors during project preparation is encouraged to determine the appropriate qualification criteria to be used in the procurement, to avoid midway changes in the procedures that could eventually delay project implementation. Where possible, depending on the type of improvement designed, the availability of local contractors, and the geographic location of projects, a combination of international and national competitive bidding may be used to improve the timeliness of project completion and expose local contractors to new technologies through association with foreign contractors. 35. Approval of quarry sites. To avoid unnecessary delay, the EA should already secure the approval of quarry sites during detailed design. The EA can advance the payment of fees for the required permit and be reimbursed by the contractor after the contract is awarded.

36. Road safety measures. Cautionary and mandatory signs, centerline markings, and parapets are not enough. More safety facilities should be installed in critical sections along the whole stretch of the Project and a more vigorous information campaign should be conducted to promote road safety. In areas that have roadside quarries or are otherwise prone to landslides, warning signs should be placed. The plans for the provision of cautionary and mandatory signs and guardrails should be implemented. The initiative now under way to provide necessary safety measures, such as smoothening blind and sharp curves, and providing two-way and separate lanes in some road sections, as well as guardrails and signs, should be continued. 37. Inter-agency Coordination for Road Safety. Closer working relationships should be developed between DOR/MOWHS and the Road Safety and Transport Authority (RSTA)/Ministry of Information and Communication especially in the matter of road safety and road user awareness. Workshops under TA 4658 (Road Safety Audit and Asset Management) should be attended by RSTA staff in Thimphu and the knowledge they gain should be transferred to district RSTA staff. 38. Road maintenance funds. Funds for routine and periodic maintenance of roads (currently Nu60,000 per km per year for the EW Highway) should be increased. The Government should ensure adequate funding for maintenance of the road network, including programming for resealing of the bituminous surface in the fifth or sixth year of completion of the EW Highway, to refurbish the surface treatment and extend the service life of the road for another 5 years.24 39. Immediate repair works. Potholes should be covered and, if necessary, DBST resealed in the PM3A and PM3B road sections that are now in the liability period. Similarly, in other sections, all potholes should be immediately repaired. Portland cement concrete pavement, 23 The ongoing Loan No. 2187-BHU: Road Network Project adopts a single-stage, two-envelope system. 24 The Ministry of Finance (MOF) agrees that the sustainability of the EW Highway is crucial to the realization of the

benefits. The necessary budget requirements have to be justified and submitted by the DOR for MOF consideration.

11

which was tested with satisfactory results after 2 years along Sheytangla Pass and other sections could be used to repair damage along Trumshingla Pass. Road inspectors should be appointed to monitor and check the proper use and safety of the road (e.g., by preventing people from tending cattle along the road, placing timber in roadside drains, or blocking drainage canals to divert water for irrigation).

40. Covenants. The existing loan covenants should be maintained in future similar projects.

41. Additional Assistance. The capacity of DOR and contractors in project management and construction techniques should be further improved. 42. Timing of the Project Performance Evaluation Report. It is suggested that the project performance evaluation be carried out in mid-2008.

2. General

43. Livelihood development. Regular dialogue should be established between DOR and the government agency that deals with small and medium enterprise and livelihood development. Rural road improvements should be selected and prioritized with a view to developing more livelihood opportunities in the areas.

44. Coordination between government agencies. During project preparation, the government agencies that will be involved in implementation should be identified and the level and type of their involvement should be assessed in detail.

12 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Summary

Appraisal Targets

Project

Achievements

Monitoring Mechanisms

Key Issues and

Recommendations Impact A well-planned, accessible, safe, and reliable road network that is designed, built, and maintained in a technically correct, environment-friendly, and cost-effective manner

Satisfaction of highway users with the road network improves as a result of better and safer roads Road user costs on the road network decrease annually Road condition–related accidents on road network decrease annually

EW Highway road users are satisfied with the improved roads Road user costs (VOC) decreased after project completion Road condition–related accidents decrease on the road network (other accidents increase because of faster driving speed)

Road user satisfaction surveys Road user cost surveys Road accident statisticsa Interview with stakeholders during PCR Mission

Road maintenance budget should be increased Maintenance of roads should be done annually Road safety facilities should be installed; road safety information campaign should be conducted

Outcome Condition of project road surfaces and features improved to an acceptable standard through construction techniques that ensure an acceptable condition for at least 6 years Governance improved through strengthened DOR capacity to manage road improvement contracts Capacity of private sector road contractors to carry out periodic

IRI < 5.0 on all project roads Road user costs reduced by 25% after project completion Passenger fares and freight rates reduced Periodic maintenance contracts defined, tendered, and completed on time and within budget, and implemented by private sector

IRI for the eight packages range from 7.42 to 9.42 (before the Project, it ranged from 9.3 to 16.9) VOC was reduced between 19% and 38% in the eight packages Freight rates were reduced. Periodic maintenance

Inventories and surveys of road condition Interviews with stakeholders during PCR Mission. Construction supervision consultant’s report, ADB LFIS

Routine maintenance of roads should be faithfully done and adequately funded while periodic maintenance should be privatized

a According to the Social Assessment and Project Performance Benefit Evaluation, the number of accidents along the EW Highway has increased, from 23 in 2002

to 29 in 2004.

Appendix 1 13

Design Summary

Appraisal Targets

Project

Achievements


Key Issues and

Recommendations maintenance strengthened Works done according to international quality standards Poverty reduced through the provision of employment opportunities for the poor and better access to health, education, and other social services

contracts were completed with delays and 13% above budget

Outputs Final design and bidding documents for 1st-tranche periodic maintenance work on the East–West Highway 180 km of 1st-tranche periodic maintenance work completed on the East–West Highway Final design and bidding documents prepared for 200 km of remaining periodic maintenance work on East–West Highway Additional slope stability works completed on the East–West Highway and the north–south routes 200 km of remaining periodic maintenance work completed on the East–West Highway Functional, sustainable plant-hire operation in place DOR personnel familiar with modern road construction design, contracting, and supervision

Design and contract documents for 1st-tranche packages are completed by loan effectiveness 1st-tranche periodic maintenance contracts awarded, with work starting by month 8 of project period and completed by month 26 Design and contract documents for additional slope stability improvement contract packages completed by month 12 of project period Design and contract documents for 2nd tranche of periodic maintenance contract packages completed by month 18 of project period 2nd tranche of periodic maintenance contracts awarded and work began by month 24 of project period and completed by month 44 Plant available for hire by new

Design and contract documents for 1st-tranche packages were completed by August 2001 1st-tranche periodic maintenance contracts awarded, with work starting by month 26 of project period and completed by month 49 Design and contract documents for additional slope stability improvement contract packages were completed by month 26 of project period Design and contract documents for 2nd tranche of periodic maintenance contract packages were completed by month 30 of project period 2nd tranche of periodic

Design and contract documentation Contractor and DOR work completion reports Consultant work supervision reports Consultant project reports (inception, quarterly, final) Loan disbursement reports Tripartite meetings between Government, ADB, and consultants Project completion report

As delayed approval of quarry sites caused delays in project completion, in future projects, approval of quarry sites should be secured during the design phase

14 Appendix 1

Design Summary

Appraisal Targets

Project

Achievements


Key Issues and

Recommendations techniques Main road contractors familiar with modern contracting procedures and fully mechanized techniques for periodic road maintenance New road contractors familiar with road maintenance contracting and operations

contractors by month 12 of project period

maintenance contracts were awarded and work started by month 31 of project period and completed by month 56 Plant available for hire by new contractors by month 12 of project period

Inputs Nine periodic maintenance civil works contract packages and additional slope stability improvement contract packages Road design and construction supervision consulting services to supervise or fast-track contracts, design, the tendering and implementation of the remaining civil works contracts, and work of pilot contractors Equipment and materials for plant-hire scheme Pilot contractor development package

Resources $10.90 million for periodic maintenance and slope stability contract packages $1.20 million for construction supervision consultant. $0.50 for road construction and materials testing equipment $9.6 million total external financing $3.2 million counterpart Government funding

Resources $11.74 million for periodic maintenance and slope stability contract packages $1.36 million for construction supervision consultant $0.98 for road construction and materials testing equipment $10.43 million total external financing $3.83 million counterpart Government funding

ADB LFIS

ADB= Asian Development Bank, DOR= Department of Roads, EW= East-West Highway, IRI= international roughness indicator, LFIS = loan financial information system, PCR= project completion report, VOC= vehicle operating cost.

Appendix 2 15

Package No. Description Procurement Length Estimated Planned Package No. Description Procurement Length Actual CompletionMode Contract Completion Mode Contract Date

Amount Date Amount($) ($)

Phase IPM-1 Km 11 – Km 40 LCB 29.0 0.48 Aug 2002 PM-1 Km 11 – Km 40 LCB 29 0.87 30 Nov 2004PM-2 Km 40 – Km 94 LCB 54.0 1.48 Sep 2004 PM-4 Km 225 – Km 263ª LCB 37 0.97 30 Dec 2004PM-3 Km 181 – Km 225 LCB 44.0 1.35 Sep 2004 PM-6 Km 376 – Km 420.3 LCB 44.3 1.55 13 Apr 2005PM-4 Km 225 – Km 257 LCB 32.0 0.91 Jan 2003 PM-7 Km 434.5 – Km 482.5 LCB 48 1.78 28 Apr 2005PM-5 Km 319 – Km 376 LCB 57.0 1.12 Jan 2004 Subtotal 158.3 5.17PM-6 Km 376 – Km 427.7 LCB 43.7 1.34 Jul 2004 Phase IIPM-7 Km 434.5 – Km 482.5 LCB 48.0 0.93 Jan 2003 PM-2 Km 40 – Km 104ª LCB 64 1.64 15 Jun 2005PM-8 Km 482.5 – Km 525 LCB 42.5 0.65 Oct 2002 PM-3A Km 176 – Km 200.5ª LCB 24.5 1.25 15 Jun 2005PM-9 Km 525 – Km 546 LCB 21.0 0.29 Aug 2002 PM-3B Km 200.5 – Km 225 LCB 24.5 1.37 15 Jun 2005

Total 371.2 8.55 PM-5 Km 319 – Km 376 LCB 57 1.86 15 Jun 2005Subtotal 170 6.12

SP-1 Additional Slope LCB 55 0.68 Mar 2004 328.3 11.29SP-2 Protection works LCB 125

Total 180 0.68 SlopeSP-1 Km 3 – 36 LCB 33 0.22 30 Jun 2004SP-2 Km 125 – 179 LCB 59 0.23 30 Jun 2004

Total Slope Protection 92 0.45

ª Additional surfacing coverage using savings from the respective contract packages:PM-2 10 km after Km 94PM-3B 5 km before KM 81 (PM-3A)PM-4 5 km after Km 257

Since this additional surfacing are adjcent to the original packages, it is included in the original scope of the IEE.

Sources: Asian Development Bank. 2000. Report and Recommendation to the President to the Board of Directors on a Proposed Loan to the Kingdom of Bhutan for the Road Improvement Project. Manila. Louis Berger International, Inc., in association with Gyeltshen Consultancy. 2005. Draft Final Report . Thimpu. Project Completion Report Mission discussions.

As Appraised

Total Phase I and Phase II

Actual

CIVIL WORKS CONTRACT PACKAGESAppraised and Actual

16 Appendix 3

PROJECT COST AND FINANCING PLAN

Foreign Local Foreign LocalItem Exchange Currency Total Exchange Currency TotalA. Base Cost 1 Civil Works 6.10 3.10 9.20 7.45 4.28 11.74 1A. Periodic Maintenance 7.22 4.07 11.29 1B. Slope Protection 0.24 0.21 0.45 2 Equipment 0.40 - 0.40 0.98 - 0.98 3 Consulting Services 0.70 0.40 1.10 1.36 - 1.36

Subtotal (A) 7.20 3.50 10.70 9.80 4.28 14.08B. Contingencies 1 Physical 0.70 0.30 1.00 - - - 2 Price 0.60 0.30 0.90 - - -

Subtotal (B) 1.30 0.60 1.90 - - -Total Base Cost (A + B) 8.50 4.10 12.60 9.80 4.28 14.08

C. Interest Charge 0.20 - 0.20 0.17 - 0.17Total Project Cost 8.70 4.10 12.80 9.97 4.28 14.25

Sources: Asian Development Bank. 2000. Report and Recommendation to the President to the Board of Directors on a Proposed Loan to the Kingdom of Bhutan for the Road Improvement Project . Manila. Loan Financial Information System, Asian Development Bank.

Foreign Local Foreign LocalItem Exchange Currency Total Exchange Currency Total

Asian Development Bank 8.70 0.90 9.60 9.97 0.46 10.43 Government - 3.20 3.20 - 3.83 3.83

Total 8.70 4.10 12.80 9.97 4.28 14.25Sources: Asian Development Bank. 2000. Report and Recommendation to the President to the Board of Directors on a Proposed Loan to the Kingdom of Bhutan for the Road Improvement Project . Manila. Loan Financial Information System, Asian Development Bank.

Appraisal Actual

Table A2.1 Project Costs($ million)

Table A2.2 Financing Plan($ million)

Appraisal Actual

Appendix 4 17

Year Projected Actual2001 0.100 0.5682002 2.050 1.7202003 4.144 2.8622004 8.344 6.4712005 12.544 9.6302006 12.944 10.425Source: Asian Development Bank estimates.

Source: Asian Development Bank estimates.

'($ million)

CUMULATIVE ANNUAL DISBURSEMENTS

Table A4: Projected and Actual Disbursements'($ million)

Figure A4: Disbursement Details

0.100

2.050

4.144

8.344

12.544 12.944

0.568

1.720

2.862

6.471

9.63010.425

0.000

2.000

4.000

6.000

8.000

10.000

12.000

14.000

2001 2002 2003 2004 2005 2006

ProjectedActual

18 Appendix 5

CHRONOLOGY OF MAIN EVENTS

Year Date Event 2000 Mar Project published in ADB Business Opportunities

8–23 Mar Fact-Finding Mission

16 May Management Review Meeting (MRM)

21 May–1 Jun Appraisal Mission

Advance action for recruitment of consultants for design, supervision, and institutional support approved

25 Jul Staff Review Committee (SRC) Meeting 11–14 Aug Loan negotiations 16 Aug CSC approved proposed shortlist, TOR, draft letter of invitation, evaluation

criteria and draft consultant’s contract 3 Oct Loan approval 6 Nov Loan signing in Bhutan 14 Nov Legal opinion submitted

23 Nov Loan declared effective

26 Dec DOR submits evaluation report for the consultants’ technical proposals for the design and supervision of the Project

2001 2 Feb CSC met to review and approve Borrower’s evaluation of technical

proposals 7 Feb DOR was informed that an ADB representative will join contract

negotiations with first-ranked firm in Bhutan 1–5 Mar Contract negotiations with first-ranked firm 12 Mar DOR submitted draft negotiated contract to ADB for review and approval 2 Apr ADB approved draft consultancy contract 17 Apr Receipt of the signed consultant’s contract with Louis Berger Group Inc.

Appendix 5 19

Year Date Event 1 May Consultants mobilized 3–10 May Inception Mission 15 May Procurement of office equipment approved 7 Aug Consultant’s final inception report of 25 July 2001 received 8 Aug ADB approved DOR’s request to hire additional helpers to assist the

consultants in laboratory testing 11 Sep DOR requested ADB approval of draft prequalification (PQ) documents for

fast-track civil works packages (PM1, PM4, PM7, PM8, PM9) 2 Oct ADB’s comments on draft PQ documents for contractors were sent to DOR 5 Oct DOR sent revised PQ documents 19 Oct Evaluation criteria for prequalification for the fast-track packages submitted

by DOR 30 Oct Draft bidding documents for the supply of laboratory equipment and

construction equipment along with the draft invitation for bids sent for ADB approval

30 Oct Further ADB comments regarding the revised draft prequalification

documents for civil works and the evaluation criteria sent to DOR 15 Nov DOR is advised to comply with the mode of procurement (direct purchase

[DP]) stipulated in the Loan Agreement and confirmed by the project administration memorandum (PAM) in the procurement of the laboratory equipment

27 Nov ADB sent its comments and recommendations on the prequalification

evaluation of contractors 30 Nov DOR submitted final prequalification documents and evaluation criteria 6 Dec ADB approved evaluation criteria for prequalification of contractors subject

to one minor change regarding value of work 6 Dec ADB gave approval to proceed with the procurement process for

construction equipment using international shopping

12 Dec Invitation to bid for the supply and delivery of construction equipment and spare parts issued

20 Appendix 5

Year Date Event 2002 31 Jan ADB approved award of contract for laboratory testing equipment, Lots 1

and 2, to lowest-evaluated responsive bidder 7 Feb ADB sent its comments to DOR regarding the draft bidding documents for

fast-track packages 1, 4, 7, 8 and 9 2–9 Apr Review Mission 5 Jun ADB approved procurement of Kurimoto crusher through imprest account 6 Jun Consultants’ interim report on pavements submitted DOR requested ADB approval to include additional civil works to complete

the road safety improvement works initiated by DOR on sections of the EW Highway

9 Jul DOR submitted standard designs for improving drainage 16 Jul ADB approved design standards for roadside drains for a variety of field

conditions 2 Aug Final draft bidding documents for fast-track packages 1, 4, 6, and 7

approved by ADB

25 Sep DOR submitted bid evaluation report for Phase 1 Packages PM1, PM4, PM6, and PM-7

9 Oct ADB approved award of contracts for the supply and delivery of

construction equipment for Lots 1A, 1B, 2A, and 2B ADB comments on the bid evaluation report for civil works packages PM1,

PM4, PM6, and PM7 requesting IMLTC to reconsider its decision in favor of the recommendation of award in the evaluation report

4 Nov MOF requested ADB approval for increase in imprest fund ceiling

8 Nov ADB approved increase in imprest fund ceiling from $253,700 to

$765,665.09

ADB approved evaluation report and award of contracts for Phase 1 packages PM1, PM4, PM6, and PM7; contract signed

Draft bidding documents for civil works under Phase II package PM2 approved

Appendix 5 21

Year Date Event 2003 9 Jan ADB approved prequalification of contractors for Phase II civil works

contracts

3 Feb DOR submitted final bidding documents for contract PM3B (contract package PM3 was divided into PM3A and PM3B)

18 Feb ADB raised no objection to bidding documents for contract PM3B but

advises DOR that any deviations in implementation arrangements should have prior ADB approval

20 Mar DOR submitted bid evaluation report for contract PM5 and recommends

award of contract to second-lowest bidder 9 Apr ADB requested DOR to submit qualification assessment made by

consultant and details of assessment of first- and second-lowest bidders for contract PM5

10 Apr DOR submitted required documents to ADB for review before award of contract (package PM5)

DOR submitted bid evaluation report for contract PM3B

21 Apr ADB approved award of contract PM3B

22 Apr ADB recommended award of Phase II civil works contract PM5 to lowest-evaluated bidder

7 May DOR submitted bid evaluation report for contract PM3A and recommends

award of contract to second-lowest-evaluated bidder

13 Mar DOR was requested to suggest to IMLTC that it reconsider its decision to reject the lowest bidder’s bid as non-responsive and award contract to lowest-priced bidder

28 Mar ADB proposed lowering its financing percentage for civil works from 70% to

65% to cover civil works cost overruns 21–28 May Review Mission Jun Award of Phase II civil works contract PM2 approved 30 Jun– Midterm Review Mission 4 Jul 8 Jul DOR submitted draft social assessment and project performance

monitoring system baseline study report

22 Appendix 5

Year Date Event 16 Jul DOR submitted renewed environment clearance for East–West road

widening and improvement 3 Aug DOR submitted request for recruitment of surface dressing expert and team

leader 14 Aug Reduction of ADB financing percentage for civil works from 70% to 65%

approved by Director, SATC 21 Aug DOR requested extension of services of design and supervision

consultant’s team leader 3 Sep ADB approved extension of design and supervision of consulting services

as well as the domestic consultants 9 Sep DOR submitted final bidding documents for slope protection works

contracts SP1 and SP2

20 Oct DOR issued variation order for extension of consulting services 27 Oct Bid evaluation report for slope protection works contracts SP1 and SP2

submitted to ADB

11 Nov ADB approved award of contracts for SP1 and SP2 to lowest-evaluated substantially responsive bidders

2004 23 Mar Audited project accounts and financial statements forwarded through

Controller’s Department

21 Apr Final report on social assessment and project performance monitoring system baseline study submitted

1 Sep DOR requested increase in imprest fund ceiling from $765,665.09 to

$1,037,219 to speed up construction 24 Sep ADB approved increase in imprest fund ceiling

16 Dec DOR requested extension of services of domestic consultants 20 Dec DOR requested extension of project completion date by 6 months and loan

closing date by 3 months

Appendix 5 23

Year Date Event 2005 27 Jan ADB approved DOR’s request for extension of term of domestic consultants

26 Apr DOR proposed to use surplus loan proceeds to procure equipment and software

5 May Borrower requested ADB approval for extension of loan closing date by

6 months, from 30 June 2005 to 31 December 2005

30 May ADB approved extension of loan closing date to 31 December 2005 31 May Minor change in scope and reallocation of loan proceeds requested

14 Jul ADB approved extension of supervision consulting service for supply of goods and project completion report for civil works until 30 Sept 2005

26 Jul ADB approved procurement of REI-HEADS software and ROMDAS

software and hardware in place of MOSS software 11 Oct DOR submitted bid evaluation report for survey equipment (total stations,

digital cameras, laptops, generators)

13 Oct ADB approved award of contracts to lowest-price and lowest evaluated responsive bidders for procurement of survey equipment

6 Dec DOR, through Department of Aid and Debt Management of Ministry of

Finance, requested ADB approval to use surplus loan proceeds for crash barriers along the project roads under the loan

16 Dec ADB approved minor change in scope, use of surplus loan proceeds for

procurement of crash barriers, and extension of loan closing date by 2 months, from 30 Dec 2005 to 28 February 2006

19 Dec DOR was advised of ADB approval of extension of loan closing date and

use of surplus loan proceeds 2006 9 Jan DOR submitted bid evaluation report for supply of crash barriers

17 Jan ADB approved contract award for supply of materials (crash barriers) to

second-lowest-priced and lowest-evaluated responsive bidder 15 Feb ADB approved procurement of one laptop computer by repeat order 8 Aug Remaining balance of SDR46,612.69 canceled from loan proceeds

ADB= Asian Development Bank, CSC= consulting services committee, DP= direct purchase, DOR= Department of Roads, IMLTC= Inter Ministerial Level Tender Committee, MOF= Ministry of Finance, MRM= management review meeting, PAM= project administration memorandum, PM= periodic maintenance, PQ = prequalification, SATC= South Asia Transport and Communications Division, SDR= special drawing rights, TOR= terms of reference.

24 Appendix 6

IMPLEMENTATION SCHEDULE

Project Component 2000 2001 2002 2003Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Design and SupervisionAdvance Recruitment

DesignPM1,4 and 7PM2PM3A and 3BPM5

Construction Supervision

Equipment ProcurementEquipment for the Mechanical Cell

and Survey Equipment

Prequalification, BiddingEvaluation and Contract AwardsPeriodic Maintenance Contracts

Package 1

Package 2

Package 3A

Package 3B

Package 4

Package 5

Package 6

Package 7

Package 8 .

Package 9

Slope Protection

OriginalActual

Packages 8 and 9 ommited

Sources: Asian Development Bank. 2000. Report and Recommendation to the President to the Board of Directors on a Proposed Loan to the Kingdom of Bhutan for the Road Improvement Project . Manila. Louis Berger International, Inc., in association with Gyeltshen Consultancy. 2005. Draft Final Report . Thimpu.

Material Testing Equipment and

Civil Works

20052004

Appendix 7 25

STATUS OF COMPLIANCE WITH LOAN COVENANTS

No.

Covenant

Reference in Loan

Agreement

Status of

Compliance 1

The Borrower shall ensure that the Project Management Office (PMO) established under the Project is responsible for coordination, implementation and monitoring of the Project. The Borrower shall also ensure that the PMO is headed by a full-time Project Manager and that the Project Manager is supported by adequate and competent technical and administrative personnel.

Schedule 6, paragraph 1

Complied with.

2 The Borrower shall ensure that the Project Manager is delegated with sufficient authority to enable effective decision- making on project implementation matters.


Complied with.

3 The Borrower shall provide DOR with adequate budgetary allocations for timely implementation of the Project.


Complied with.

4 Within 2 years after the effective date, the Borrower shall plan its road sector investments and asset management activities based on the Road Sector Master Plan, which shall be developed under the TA and agreed with the Bank.


Complied with.

5 Within 1 year after the effective date, DOR shall, with the assistance of the consultants provided under the Project, implement a pilot contractor and equipment leasing scheme, under arrangements satisfactory to the Bank, for domestic contractors to participate in the project by (a) providing assistance in civil works contract management and (b) leasing equipment owned by DOR’s Mechanical Division to domestic contractors.


Complied with.

6 Based on the outcome of the study under the TA and in consultation with the Bank, the Borrower shall, within 3 years after the effective date, levy user charges to recover the costs incurred in maintaining the national road network.


Complied with. Registration fees of vehicles were increased in 2005.

7 The Borrower shall use the draft legislation on the proposed Road Act prepared under the TA as a basis for enactment of the proposed Road Act. Within 3 years after the effective date, the Borrower shall (a) consult with the Bank on any major changes made to the draft legislation on the proposed Road Act before presenting the draft legislation to the Cabinet and the National Assembly; and (b) enact and make effective the proposed Road Act.


Complied with.

26 Appendix 7

No.

Covenant

Reference in Loan

Agreement

Status of

Compliance 8 DOR shall ensure that the environmental impacts of the project

are minimized by carrying out the recommendations specified in the Initial Environmental Examination and as agreed with the Bank.


Complied with.

9 The Borrower shall ensure that arrangements, satisfactory to the Bank, are made for release of DOR staff to participate in the Project as domestic consultants independent of DOR, together with domestic consultants from the private sector.


Complied with.

10 During project implementation, DOR, with the assistance of the consultants provided under the Project, shall carry out project performance monitoring system (PPMS) activities, under arrangements satisfactory to the Bank, to ensure efficient management of project activities and maximization of project benefits. DOR shall use the performance indicators agreed upon between the Borrower and the Bank to carry out the PPMS activities.


Complied with.

11 Upon completion of the Project the Borrower shall ensure that all periodic maintenance works on the national highway network are tendered out to the private sector.


Complied with.

12 During and after project implementation, the Borrower shall prepare annual plans on the national road network taking account physical measurements, maintenance standards, and traffic volume.


Complied with.

13 The Borrower and the Bank shall jointly carry out a midterm review of the project during the second year of project implementation or at any other time as may be agreed upon by the parties.


Complied with.

14 DOR will not award any civil works contract under the Project until after it has obtained the necessary environmental clearance related to that contract from the National Environment Commission.


Complied with.

15 The Borrower shall cause the Project to be carried out with due diligence and efficiency and in conformity with sound administrative, financial, engineering, environmental, and road transport practices.

Section 4.01 Complied with.

16 The Borrower shall make available, promptly as needed, the funds, facilities, services, land, and other resources which are required, in addition to the proceeds of the loan, for the carrying out of the Project and for the operation and maintenance of the project facilities.


17 In the carrying out of the Project, the Borrower shall cause competent and qualified consultants and contractors, acceptable to the Borrower and the Bank, to be employed to an extent and upon terms and conditions satisfactory to the Borrower and the Bank.

Section 4.03 (a)

Complied with.

Appendix 7 27

No.

Covenant

Reference in Loan

Agreement

Status of

Compliance 18 The Borrower shall cause the Project to be carried out in

accordance with plans, design standards, specifications, work schedules and construction methods acceptable to the Borrower and the Bank. The Borrower shall furnish, or cause to be furnished, to the Bank, promptly after their preparation, such plans, design standards, specifications and work schedules, and any material modifications subsequently made therein, in such detail as the Bank shall reasonably request.

Section 4.03 (b)

Complied with.

19 The Borrower shall ensure that the activities of its departments and agencies with respect to the carrying out of the Project and operation of the Project facilities are conducted and coordinated in accordance with sound administrative policies and procedures.


20 The Borrower shall make arrangements satisfactory to the Bank for insurance of the Project facilities to such extent and against such risks and in such amounts as shall be consistent with sound practice.

Section 4.05 (a)

Complied with.

21 Without limiting the generality of the foregoing, the Borrower undertakes to insure, or cause to be insured, the goods to be imported for the Project and to be financed out of the proceeds of the Loan against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable to replace or repair such goods.

Section 4.05 (b)

Complied with.

22 The Borrower shall maintain or cause to be maintained, records and accounts adequate to identify the goods, services, and other items of expenditure financed out of the proceeds of the Loan, to disclose the use thereof in the Project, to record the progress of the Project (including the cost thereof) and to reflect, in accordance with consistently maintained sound accounting principles, the operations and financial condition of DOR and other agencies of the Borrower responsible for the carrying out of the Project and operation of the Project facilities, or any part thereof.

Section 4.06 (a)

Complied with.

28 Appendix 7

No.

Covenant

Reference in Loan

Agreement

Status of

Compliance 23 The Borrower shall (i) maintain, or cause to be maintained,

separate accounts for the Project; (ii) have such accounts and related financial statements audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to the Bank; (iii) to furnish to the Bank, as soon as available but in any event not later than 9 months after the end of each related fiscal year, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors’ opinion on the use of the Loan proceeds and compliance with the covenants of this Loan Agreement as well as on the use of the procedures for imprest account issued under the Project), all in the English language; and (iv) furnish to the Bank such other information concerning such accounts.

Section 4.06 (b)

Complied with.

24 The Borrower shall enable the Bank, upon the Bank’s request, to discuss the Borrower’s financial statements for the Project and its financial affairs related to the Project from time to time with the Borrower’s auditors, and shall authorize and require any representative of such auditors to participate in any such discussions requested by the Bank, provided that any such discussion shall be conducted only in the presence of an authorized officer of the Borrower unless the Borrower shall otherwise agree.

Section 4.06 (c)

Complied with.

25 The Borrower shall furnish, or cause to be furnished, to the Bank all such reports and information as the Bank shall reasonably request concerning (i) the Loan, and the expenditure of the proceeds and maintenance of the service thereof; (ii) the goods, services and other items of expenditure financed out of the proceeds of the Loan; (iii) the Project; (iv) the administration, operations and financial condition of DPR and any other agencies of the Borrower responsible for the carrying out of the Project and operation of the Project facilities, or any part thereof; (v) financial and economic conditions in the territory of the Borrower and the international balance-of-payments position of the Borrower; and (vi) any other matters relating to the purposes of the Loan.

Section 4.07 (a)

Complied with.

26 Without limiting the generality of the foregoing, the Borrower shall furnish, or cause to be furnished, to the Bank quarterly reports on the carrying out of the Project and on the operation and management of the Project facilities. Such reports shall be submitted in such form and in such detail and within such a period as the Bank shall reasonably request, and shall indicate, among other things, progress made and problems encountered during the quarter under review, steps taken or proposed to be taken to remedy these problems, and proposed program of activities and expected progress during the following quarter.

Section 4.07 (b)

Complied with.

Appendix 7 29

No.

Covenant

Reference in Loan

Agreement

Status of

Compliance 27 Promptly after physical completion of the Project, but in any

event not later than 3 months thereafter or such later date as may be agreed, the Borrower shall prepare and furnish to the Bank a report, in such form and in such detail as the Bank shall reasonably request, on the execution and initial operation of the Project, including its cost, the performance by the Borrower of its obligations under this Loan Agreement and the accomplishment of the purposes of the Loan.

Section 4.07 (c)

Complied with.

28 The Borrower shall enable the Bank’s representatives to inspect the Project, the goods financed out of the proceeds of the loan, and any relevant records and documents.


29 The Borrower shall ensure that the Project facilities are operated, maintained, and repaired in accordance with sound administrative, financial, engineering, environmental, and maintenance and operational practices.


30 It is the mutual intention of the Borrower and the Bank that no other external debt owed a creditor other than the Bank shall have any priority over the Loan by way of a lien on the assets of the Borrower. To that end, the Borrower undertakes (i) that, except as the Bank may otherwise agree, if any lien shall be created on any assets of the Borrower as security for any external debt, such lien will ipso facto equally and ratably secure the payment of the principal of, and interest charge and any other charge on, the Loan; and (ii) that the Borrower, in creating or permitting the creation of any such lien, will make express provision to that effect. The provisions of paragraph (a) of this Section shall not apply to (i) any lien created on property, at the time of purchase thereof, solely as security for payment of the purchase price of such property; or (ii) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than 1 year after its date. The term “assets of the Borrower” as used in paragraph (a) of this section includes assets of any political subdivision or any agency of the Borrower, assets held by the Royal Monetary Authority of Bhutan and any other institution performing the functions of a central bank for the Borrower.

Section 4.10 (a–c)

Complied with.

DOR= Department of Roads; PMO= Project Management Office; PPMS= project performance management system; TA= technical assistance.

30 Appendix 8

Appendix 8 31

32 Appendix 9

ECONOMIC ANALYSIS 1. The economic benefits of the Project were evident on the basis of site visits, interviews with stakeholders, and the survey conducted by the construction supervision consultants before and after project completion. They are summarized as follows.

(i) Reduced vehicle operating costs. The road roughness survey conducted before and after project completion shows that the international roughness indicator (IRI) improved by 19–44 % in the packages implemented. Interviews with taxi and bus drivers and operators revealed that fuel consumption and vehicle maintenance costs were less after the road resurfacing. Below is a comparison of the IRI before and after project completion.

Table A9.1: International Roughness Indicator Before and After the Project

Package No.

Location (Km old)

Road Length

(km) IRI (m/km)

Start End December

2002 July 2005 % Reduced PM 1 11 40 29.0 10.1 7.64 24% PM 2 40 94 64.0 10.6 8.61 19% PM 3A 181 200.5 19.5 16.9 9.42 44% PM 3B 200.5 225 29.5 12.2 8.17 33% PM 4 225 257 37.0 10.1 7.68 24% PM 5 319 376 57.0 10.8 8.17 24% PM 6 376 420.3 44.3 12.8 7.42 42% PM 7 434.5 482.5 48.0 9.3 7.48 20%

Total 328.3 IRI = international roughness indicator. Note: PM2 includes 10 km of road surfacing, PM3B includes 5 km, and PM4 includes another 5 km outside the location of the package and funded by loan savings. Source: Louis Berger International, Inc. and Gyeltshen Consultancy. 2005. Final Completion Report. Thimpu.

The level of IRI and the corresponding vehicle operating costs are shown in Table A9.2 below.

Appendix 9 33

Table A9.2: Vehicle Operating Costsa

IRI

(m/km) VOC (Nu/km)

Light Bus Truck 2 4.9 7.8 9.4 3 5.1 8.0 9.8 4 5.3 8.3 10.2 5 5.6 8.6 10.7 6 6.0 9.0 11.3 7 6.4 9.4 11.9 8 7.0 9.8 12.7 9 7.9 10.4 13.5 10 9.0 11.0 14.5 11 10.8 11.7 15.7

IRI = international roughness indicator, VOC = vehicle operating cost. a World Bank’s HDM III model adjusted to local

conditions (RRP Bhutan Road Improvement Project). The input data were based on end-1999 prices. In the EIRR computation, the VOC were adjusted to end-2006 prices.

Source: ADB. 2000. Report and Recommendation of the President to the Board of the President to the Board of Directors on a Proposed Loan to the Kingdom of Bhutan for Road Improvement Project. Manila.

(ii) Reduced travel time. Interviews with stakeholders showed that travel time from

Thimphu to Trashigang (distance is about 551 km) was reduced by about 25%. Before the Project, total travel time (excluding stops) was about 20 hours. Since travel at night is quite difficult, travelers would normally stop in the towns along the road and stay overnight in hotels, inns or with relatives. The whole journey would then be about 2–3 days. For traders and businessmen, staying overnight in hotels or inns would entail additional costs that are normally passed on to consumers by way of higher prices. After the Project, the travel time was reduced to about 15 hours. If a traveler leaves early in the morning, the whole journey could take only 1 day.

(iii) Increased economic activity. The improvement of the road brought benefits to

the people especially in the rural areas. Farm produce can now be transported between towns and villages with much ease. Before the Project, some drivers and operators would refuse to transport farm products and other commodities since the road was bad and carrying heavy loads could damage their vehicles.1

(iv) Increased traffic. Before the Project, vehicles that could traverse the EW Highway,

especially in the high-altitude passes, were limited to medium to heavy vehicles and four-wheel-drive utility vehicles. With the improvement of the road surface, smaller cars, and not just four-wheel-drive sport utility vehicles, can now travel

1 The typical damage to vehicles experienced is worn-out shock absorbers or punctured tires.

34 Appendix 9

from Thimphu to Trashigang with ease. Rural people and businesspeople have become more mobile. According to the Road Safety and Transport Authority (RSTA) records, there has been a significant increase in the number of small cars (1 liter and lower engine displacement) purchased. The number of small cars traveling between Thimphu and Trashigang has also increased significantly.

(v) Reduced maintenance costs of EW Highway. With the newly resurfaced roads,

road maintenance funds for at least the next 2 years after the Project can be used for other road improvement expenditure. During the site visits, several road widening and drain construction activities were observed especially in road sections not covered by the Project. From interviews with several district engineers, savings from budget allocations for road maintenance were used to finance these activities.

2. A conservative approach has been taken in the recalculation of the economic benefits of the Project. Quantifiable benefits include savings in vehicle operating cost (VOC), savings due to reduced travel time, and reductions in road maintenance costs. Other benefits (increased economic activity), although substantial, were not quantified. VOC was based on the values derived from the Highway Design and Maintenance Standards Model (HDM) model during the project preparatory technical assistance.2 The value of time was calculated by using average daily wages of economically active passengers. Road maintenance cost was based on the annual budget of the Government. Traffic counts were obtained from the Project Completion Report (PCR) prepared by the construction and supervision consultants and from Department of Roads (DOR) district office records. Benefits and costs were calculated for the “with” and “without” project scenarios. 3. The basic assumptions used in the economic analysis were as follows: (i) a daily wage rate of Nu200; (ii) 50% of passengers are economically active; (iii) benefits and costs are expressed in domestic price numeraire; (iv) annual growth in traffic volume of 9% from 2007 to 2010, 8% from 2011 to 2015, 7% from 2016 to 2020, and 5% from 2021 to 2025; and (v) a standard conversion factor of 0.90.3 The average daily traffic is shown in Table A9.3.

Table A9.3: Traffic Count

18 Nov 02 4 Oct 04 Package No. Location Light Heavy 10-Wheeler Light Heavy 10-WheelerPM 1 Chazam 34 37 7 125 50 26PM 2 Mongar No data 140 49 27PM 3A & PM 3B Lingmithang 73 29 30 98 45 39PM 4 Ura 40 22 11 63 24 14PM 4 & PM 5 Nangor 47 55 8 90 72 19PM 5 Trongsa 81 43 16 93 60 20PM 6 Rukubji No data 81 44 15PM 7 Rabuna 249 81 38 395 121 47Source: Louis Berger International, Inc. and Gyeltshen Consultancy. 2005. Final Completion Report. Thimpu. 4. The economic internal rate of return (EIRR) of the Project is estimated at 19%. The detailed economic analysis is shown in Table A9.4.

2 ADB. 2000. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the

Kingdom of Bhutan for the Road Improvement Project. Manila. 3 ADB. 2004. ERD Technical Note Series No.11. Manila.

Appendix 9 35

Table A9.4: Economic Internal Rate of Return (Nu million)

Benefits

Year Capital Cost VOC

(Normal Traffic)

VOC (Generated

Traffic)

Time Savings

Road Maintenance Cost Savings

Total

Net Benefits

2001 36.87 17.73 17.73 (19.14) 2002 73.45 17.73 17.73 (55.72) 2003 71.95 17.73 17.73 (54.22) 2004 218.84 17.73 17.73 (201.12) 2005 181.90 71.50 1.43 7.09 17.73 97.75 (84.15) 2006 42.83 77.94 1.56 7.73 17.73 104.95 62.12 2007 84.95 1.70 8.42 17.73 112.80 112.80 2008 92.60 1.85 9.18 - 103.63 103.63 2009 100.93 2.02 10.00 - 112.95 112.95 2010 110.01 2.20 10.90 - 123.12 123.12 2011 118.82 2.38 11.78 - 132.97 132.97 2012 115.49 2.31 12.33 - 130.13 130.13 2013 112.26 2.25 12.89 - 127.39 127.39 2014 109.11 2.18 13.46 - 124.75 124.75 2015 106.06 2.12 14.03 - 122.21 122.21 2016 102.13 2.04 14.46 - 118.64 118.64 2017 98.35 1.97 14.89 - 115.21 115.21 2018 94.72 1.89 15.29 - 111.90 111.90 2019 91.21 1.82 15.67 - 108.70 108.70 2020 87.84 1.76 16.02 - 105.61 105.61 2021 83.00 1.66 16.03 - 100.69 100.69 2022 78.44 1.57 15.99 - 96.00 96.00 2023 74.13 1.48 15.90 - 91.51 91.51 2024 70.05 1.40 15.75 - 87.20 87.20 2025 66.20 1.32 15.54 - 83.06 83.06

EIRR 19.4% ( ) = negative. Constant end-2006 prices. Source: Consultant’s estimates.

36 Appendix 10

SOCIOECONOMIC SURVEY RESULT RELEVANT TO POVERTY REDUCTION 1. A socioeconomic survey1 was conducted in June 2002 to establish benchmark data before the start of project implementation, and another in May–June 2005 to establish socioeconomic data after Project completion. In the 2002 survey, 15 villages from all the six districts (Thimphu, Wangdue Phodrang, Trongsa, Bumthang, Mongar, and Trashigang) along the East–West (EW) Highway were randomly selected. In each village, three households2 from different income categories were selected on the basis of visual observation of the quality of the house and discussions with the gup (village head). The methods used in the first survey were replicated as much as possible in the second socioeconomic survey by visiting the same districts, villages, and households. In both surveys, structured and semi-structured questionnaires were used. The survey results relevant to poverty reduction are discussed in the succeeding sections. 2. The most common cash crop of farmers living near the EW Highway is potato, which is grown by about 51% of the farmers. Other crops include apple, rice, maize, wheat, and a variety of vegetables. With the improvement of the EW Highway, crops can now be transported faster to neighboring towns. Because of shorter travel time, the crops stay fresh until they reach their destination. Crops can then be sold at a higher price especially in Phuentsholing and Samdrup Jonkhar. Table A10.1 shows the prices of crops before and after the Project.

Table A10.1: Change in Price of Agricultural Crops (Nu)

Average Price (Nu)ª Crops

2002 2005 Difference % Change

potato 4.50 7.50 3.00 67 lettuce 4.00 5.00 1.00 25 radish 4.00 5.00 1.00 25 cabbage 6.75 7.00 0.25 4 milk 12.50 15.00 2.50 20 cheese 6.50 12.50 6.00 92 butter 170.00 175.00 5.00 3 ª price per unit (e.g., piece, bundle, box, etc.) Source: Louis Berger International, Inc. and Gyeltshen Consultancy. 2005. Social Assessment and Project Performance Benefit Evaluation. Thimpu.

3. Except in the districts of Mongar and Trashigang, the number of tourists that visited the districts along the EW Highway in 2004 increased from the 2001 level. Table A10.2 shows the difference in the number of tourist arrivals from 2001 to 2004.

1 Louis Berger International, Inc. in association with Gyeltshen Consultancy. 2005. Social Assessment and Project

Performance Benefit Evaluation. Thimpu. 2 Forty-five households were surveyed.

Appendix 10 37

Table A10.2: Tourists Arrivals in the Six Districts

District

Difference between

2001 and 2004 (person)

Thimpu 403 Wangdue Phodrang 600 Trongsa 12 Bumthang 347 Mongar (58) Trashigang (61)

( ) = negative. Source: Louis Berger International, Inc. and Gyeltshen Consultancy. 2005. Social Assessment and Project Performance Benefit Evaluation. Thimpu. 4. The level of income of the respondents from various sources, before and after the Project, also increased except in the sale of dairy products.3 The overall increase from six sources was about 7%, as shown in Table A10.3.

Table A10.3: Income Earned from Various Sources (Nu ‘000)

Source of Income

2002

2005

Difference

% Change

potato 395.52 423.50 27.98 7 business (shop) 113.55 254.00 140.45 124 dairy 54.24 46.20 (8.04) (15) rice 34.63 40.00 5.38 16 vegetable 3.25 10.75 7.50 231 transport (truck) 34.17 40.00 5.83 17 Total 2,637.35 2,819.45 179.10 7

( ) = negative. Source: Louis Berger International, Inc. and Gyeltshen Consultancy. 2005. Social Assessment and Project Performance Benefit Evaluation. Thimpu.

3 One household (respondent) sold 16 cattle after 2002. This could have reduced the total income from dairy

products.

38 Appendix 11

OVERALL PROJECT RATING

Table A11.1: Project Rating, by Component

Component Assessment Rating(0–3)

Weight (%)

Weighted Rating

1. Civil Works Relevance highly relevant 3 0.20 0.60 Effectiveness effective 2 0.25 0.50 Efficiency efficient 2 0.20 0.40 Sustainability likely 2 0.20 0.40 Institutional Development moderate 2 0.15 0.30 Provisional Rating S 2.20 2. Equipment Relevance highly relevant 3 0.20 0.60 Effectiveness effective 2 0.25 0.50 Efficiency efficient 2 0.20 0.40 Sustainability most likely 3 0.20 0.60 Institutional Development moderate 2 0.15 0.30 Provisional Rating S 2.40 3. Consulting Services Relevance relevant 2 0.20 0.40 Effectiveness less effective 1 0.25 0.25 Efficiency less efficient 1 0.20 0.20 Sustainability likely 2 0.20 0.40 Institutional Development little 1 0.15 0.15 Provisional Rating PS 1.40

Appendix 11 39

Table A11.2: Overall Project Rating

Component Weighted

Rating % of

Total CostWeighted Average

1. Civil Works 2.2 83.5 1.84 2. Equipment 2.4 6.9 0.17 3. Consulting Services 1.4 9.6 0.13 Provisional Rating S 2.14

Table A11.3: Rating of Each Component, by Criterion Component Relevance Effectiveness Efficiency Sustainability Institutional1. Civil Works 3 2 2 2 2 2. Equipment 2 2 2 3 2 3. Consulting Services 2 2 1 2 2 Overall Rating 2.00 2.00 2.00 2.00 2.00 Assessment relevant effective efficient likely moderate

Overall Rating: HS = highly successful 2.5 < HS ≤ 3.0 S = successful 1.6 ≤ S ≤ 2.5 PS = partially successful 0.6 ≤ PS < 1.6 U = unsuccessful < 0.6

Ratings: Relevance: 3 = highly relevant, 2 = relevant, 1 = partly relevant, 0 = irrelevant. Efficacy: 3 = highly efficacious, 2 = efficacious, 1 = less efficacious, 0 = inefficacious. Efficiency: 3 = highly efficient, 2 = efficient, 1 = less efficient, 0 = inefficient. Sustainability: 3 = most likely, 2 = likely, 1 = less likely, 0 = unlikely. Institutional Development and Other Impact: 3 = substantial, 2 = moderate, 1 = little, 0 = negligible.

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