Document ofThe World Bank

Report No: 17790-BD

PROJECT APPRAISAL DOCUMENT

ONA

PROPOSED INTERIM TRUST FUND CREDIT

IN THE AMOUNT OF SDR 203.4 MILLION EQUIVALENT

TO THE

PEOPLE'S REPUBLIC OF BANGLADESH

FORA

THIRD ROAD REHABILITATION AND MAINTENANCE PROJECT

JUNE 26, 1998

Infrastructure Sector UnitBangladesh Country UnitSouth Asia Region

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CURRENCY EQUIVALENTS(Exchange Rate Effective April 30, 1998)

Currency Unit = TakaUS$1= Taka46.0

FISCAL YEAR

July I - June 30

ABBREVIATIONS AND ACRONYMS

ACE - Additional Chief EngineerADB - Asian Development BankBRTA - Bangladesh Road Transport AuthontyCARTS - Costing and Assessment of Regional Transport SystemsCAS - Country Assistance StrategyDFID, UK - Department for International Development, United KingdomECNEC - Executive Comnmittee of the National Econi CouncilEIA - Environmental Impact AssessmentEIRR - Economic Internal Rate of ReturnEOP - End of ProjectFRA - Feeder Road Type AFRB - Feeder Road Type BGOB - Government of the People's Republic of BangladeshHDM - Highway Design and MaintenanceICB - International Competitive BiddingICR - Implementation Completion ReportlX - Institutional Development Component

IDA - International Development AssociationIGP - Inspector General of PoliceXIRC - Institutional Review CommitteeITF - Interim Trust FundLGD - Local Government Division (of the MLGRDC)LGED - Local Government Engineering DepartnentMIS - Management Information SystemMLGRDC - Ministry of Local Govermnent, Rural Development & CooperativesMOC - Ministry of CommunicationsMOF - Ministry of FinanceMORA - Ministry of Horne AffairsNCB - National Competitive BiddingODA - Overseas Development Administration, United KingdomOECF - Overseas Economic Cooperation FundOPD - Office of Project DirectorPD - Project DirectorPSC - Project Steering CommitteePMMS - Pavement Maintenance Management System

RAP Resettlement Action PlanRBEMS - Road and Bridge Econornic Modeling SystemRHD - Roads and Highways DepartmentRMP - Road Master PlanRRD - Roads and Railways Division (Ministry of Communications)RRMIMP - Rural Roads and Markets Inprovement and Maintenance ProjectSES - Socio-economic SurveyVOC - Vehicle operating cost

Vice President: Mieko NishinmizuCountry Director: Pierre Landell-MillsSector Manager: Frannie HumnplickTask Leaders: Arun Baneree/Stein Lundebye

BANGLADESHThird Road Rehabilitation and Maintenance Project

CONTENTS

A. Project Development Objective ...................................................... 3

1. Project development objectives and key performance indicators ..................................................3

B. Strategic Context ...................................................... .3

1. Sector-related CAS goal supported by the project ....................................................... . . 32. Main sector issues and Govemrn ent strategy ....................................................... 43. Sector issues to be addressed by the project and strategic choices ...............................................5

C. Project Description Summary ..................................................... .5

1. Project coponents ....................................................... 52. Key policy and instittional reforms supported by the project .....................................................63. Benefits and target population ........................................................ 64. Institutional and implementation arrangements ....................................................... 7

D. Project Rationak ..... .............................................. .. .... 9

1. Project alternatives considered and reasons for rejection ........................................................ 92. Major related projects financed by the Bank and/or other development agencies ............. ............ 103. Lessons earned and reflected in proposed project design ...................................................... 104. Indications of borrower commitment and ownership ...................................................... 115. Value added of Bank support in this project ...................................................... 11

E. Summary Project Analyses ....................................................... 12

1. Economic (supported by Annex 4) ....................................................... 122. Financial Assessmat ...................................................... 133. TechnicalAssessment ...................................................... 144. Institutional Assessient ...................................................... 155. Social ...................................................... 166. Environme Assessment ...................................................... 177. Participatory approach ....................................................... 17

F. Sustainability andRi ........................................................ ....

1. Sustainability ....................................................... 182. Critical risks ...................................................... 193. Possible Controversial Aspects ...................................................... 20

G. Main ITF Credit Condition ...................................... 20

1. Effectiveness c o ndi ts ....................................... 202. Other ........................................ 21

H. Readiness for Implementation ...................................... 21

I. Compliance with Bank Policies . ........................... 22

Annexes

Annex 1 Project Design Summary ...................................... 23Annex 2 Detailed Project Description ...................................... 26Annex 3 Estimated Project Costs ...................................... 28Annex 4 Cost-Benefit Analysis Summary ...................................... 30Annex 5 Financial Summary ...................................... 34Annex 6 Procurment and Disbursement Arrangements ...................................... 35Table A: Project Costs by Procurement Arrangements ...................................... 37Table B: Thresholds for Procurement Methods and Prior Review ............................................ 38Table C: Allocation of Loan Proceeds ............................................ 39Table D: Contract Packaging and Procurement Method ....................................... 39

Annex 7 Project Processing Budget and Schedule ............................................ 40Annex 8 Documents in Project File ............................................ 41Annex 9 Statement of Loans and Credits ............................................ 43Annex 10 County at a Glance ............................................ 45

Maps IBRD 29311 and 29365

BANGLADESHThird Road Rehabilitation and Maintenance Project

Project Appraisal Document

South Asia RegionBangladesh

Date: June 26,1998 Task Leaders: Arun Banerjee/Stein LundebyeCountry Director: Pierre Landell-Mills Sector Manager: Framnie Humplick

Project ID: Sector: Transport Program Objective Category:BD-PA-37294Lendingnstumt: Specific Investment Loan Program of Targete Intervention: [xl Yes [ I No

Project Financing Data Loan LI Credit [ Guarantee [x] Other [ITF]as administered by

For Loans/Credits/Others: IDA (Administrator)

Amount (US$m/SDRm): SDR 203.4 millionProposed terms: [x] Multicurrency [ ] Single currency, specify

Grace period (years): 10 I Standard Variable [ ] Fixed [ LIBOR-basedYears to maturity: 40Commitnent fee: 0.5%

Service charge: 0.75%

Financing plan (US$m):Source Local Foreign Total

Govenment 232.7* 232.7CofinanciersIBRD - -ITF 273.0 273.0DFID, UK - 22.8 22.8

Total 232.7* 295.8 528.5

Borrower: Government of the People's Republic of BangladeshGuarantor: N/AResponsible agency(ies): Roads and Highways Departments Ministry of Commnications

Estimated disbursements (Bank FY(USSM): 1999 2000 2001 2002 2003Annual 48.0 86.0 86.0 40.0 13.0

Cumulative 48.0 134.0 220.0 260.0 273.0

For Guarantees: [ Partial credit [ Partial risk

Proposed coverage:Project sponsor:Nature of underlying financing:

Terms offinancing:

OSD PAD Form: July 30, 1997

Bangladeh Third Roed Rehab an wid Maitnac Pag 2

Principa amount (US$)Final maturity

Amorization profileFinancing available without guarantee?: [ Yes ( NoIf yes, estimated cost or matrity:Estimated financing cost or naurity with guarantee:

Project implementation period: 5 yrs Expected effectiveness date: 09/30/1998 Expected closing date: 12/31/2003

*The Government of Italy has indicated interest to provide about US$30-40 million for funding a portion of the Dhaka-Syihet Road cmponent (See secfion C. 1 for further details).

_Dadsh Thkd Road RehabltilSon and uw Pap 3

A: Project Development Objective

1. Project development objecthe and key performance indicators (see Annex 1):

The projects overall objective is to reduce the total cost of road transport on Banigladesh's mosttraveled roads. These objectives would be achieved by: (i) providng and improving critical road links('bottlenecks') in the overall trsport system i.e. new road link Nalka-Hatikamrul-Bonpara Road;rehabilitabon of Dhaka-Sylhet Road; improvement of the Feeder Roads 'A' network, and widening ofcritical narrow bridges on the national and regional road network in Northwest and Southwest regions ofBangladesh; (ii) improving the institutional capacity of the Roads and Highways Depamnt (RHD) inroad maintenance ad improved financdal management; (iii) improving road safety by developing theinstitutional capacity in RHD to identify hazardous locations and to design and implement physicalmeasures to reduce road accidents at these locations while at the same time improving police capacity forbetter enforcamet of traffic rules and regulations; (iv) promoting private sector development (i.e. mediumsized contrac ) through contating out FRA road works now undertaken by smaller and lesssophisticated contators; and (v) wherever conditions permit, use labor-intensive methods for roadconstruction and maintenance to create employment and reduce poverty.

B: Strategk Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (see Annex 1):

CAS document number: 17453-BD dated March 6, 1998.

Te latest CAS for Bagladesh states that improved physical infastructure and related services area prerequisite for both ineratonal competitiveness and growth of agricultural and rural imnomes. Itencourages projects that promote growth through macro-economic stabilization, that involves private sectorinitiative and participation, and assists in human resource development and capacity building. The nationalroad network in Baladesh has covered the country adequately, but suffers fromn backlog of roadrehabilitain, lack of proper maintenance and poor quality of feeder roads. Furthermore, weakmanagement of road maintenance and planning by the Roads and Highways Dpartt (RHD) needs to beaddressed. Continued efforts are needed to improve maintenance of the national and rural road network;encourage greater participation by local communities in project selection; increase resource mobilization;adopt national standards; and strengthen local medium size contractors. The Bank's support to Bangladeshin this area recognizes that feeder road improvement and rehabilitation and maintenance of national roadswill give rise to increase in the output and marketing of agricultural products, contribute to povertyreduction through job creation, and spur private sector investment through a strengthened infrastructure.

One of the objectives of RRMP-III is to reduce transport costs and inefficiencies. This is in linewith the outcome of the 1998 CAS stakeholder consultations which underlined the importance of theprovision and maintenance of adequate infiastructure to facilitate economic growth. In Bangladesh thisinevitably means removing critical bottlenecks in the overall transport system through systemicimprovements in the key link roads, provision of missing structures and sustainable maintenance of roadsfor the efficient transport of agricultural, industrial, import and export goods. Investments proposed inRRMP-M will help establish a sustainable mechanism for the improvement of a safe roads network, and itssustainable maintenance through an effective maintenance unit at RHD; and continue with past effortsained at developing a viable and stable local construction industry to assist with the development andmaintenance of infrastructure.

Thid Rtd Rhu mNg Mml n Pag 4

2. Main sector issues and Governnent strategy:

iplementing the Road Master Plan: The government finalized a Road Master Plan in1991 for the national and regional road network which includes both construction of new roadsand improving existing national and regional links. Over the years various multilateral andbilateral donors have been assisting the GOB to implement this plan and most of this work iscomplete except for minor segments (Nalka-Bonpara-Hatikamrul Road).

hming the Fder Roads: Bangladesh's economy largely depens on agriculture sector. Thereare about 15000 kam of Feeder Road Type A cocting distict hdqurters (hana) with arial roads,and 18,000 kn of Feeder Road Type B (connecting Growth Center Markets), most of which are in poorcondition. LGED has already started improving FRBs under several donor financed projects. So far RHDhas improved only 3000 km of FRAs with GOB financing leaving 12000 km of FRAs still to be improved.GOB has, with assistance from IDA under RRMP-II prepared a Plan to improve the Feeder Road Anetwork and is seeking donor assistance to implement this plan in a phased manner.

Imroving Mainnce Capacity: The government's ability to carfy out an effective andsustainable maintenance of the road network is hampered by inadequate staff experience and the absence ofa maintenance nmnagem unit at the HQ level at RHD. Under the ongoing IDA financed RRMP-Hproject under which the DFID, U.K. is supporting a major Institutional Development Component (IDC-2valued at about US$10 million), a HDM unit has been established to carry out traffic and road conditionsurveys for planing RHD's maintenance program; reorganized RHD in Dhaka and prepared plans for theoverall RHD anizatin to improve the maintnance function. Under the proposed RRMP-ElI thegovernment has obtained DFID support to continue and augment these activities.

b=mviW Financial ageAm62 : At the moment, RHD has an inadequate financial managementsystem which needs improvement. Given the large investments in the sector and the major reorganizationenvisaged in RHD, GOB is seeldng IDA and DFID support to undertake a comprehensive strengtming ofRHD's financial managent capacity.

imroving Road Safety. Axle Load Control and Traffic Management: Bangladesh continues tohave one of the worst road safety records in the world with 39 deaths per 10,000 vehicles in 1995. Thispoor perfornce is attributed to increased use of old vehicles; poor vehicle and driver registration andlicensing procedures; high traffic growth; lack of enforcement; and predominance of slow moving vehiclesalong built-up areas on national highways. Comprehensive road safety work has already been startedunder the ongoing RRMP-II, i.e. development of a strategic road safety action plan, implementation ofcomputenzed road accident recording and analysis system, where road safety awareness is bemg createdthrough workshops and seminars. Under this program, a National Road Safety Council has beenestablishAd; and a National Road Safety Strategy has been formulated. ADB's Second Road ImprovementProject has also undertake a major initative in improving the road safety siuaion. Under RRMP-lI,implementation of the strategic national road safety action plan has been included to further improve theroad safety situation in Bangladesh. GOB's success in the expansion of the national and regional roadnetwork combined with increased economic development, has led to substanial growth in heavy vehiculartraffic. This in turn has resulted in serious overloading which poses a threat to the integity of thesubstanti invesnents made by the GOB. A comprehensive axle load control progam has, therefore,been prepared under IDC-2 to address the situation and GOB has sought DFID/IDA assistance for itsimplementation. As the road network and traffic have increased, the need for improved trfficmeasures (i.e. standardized traffic signs and road markings, equipment for traffic management and trainingof police) has been idefied by the National Road Safety Strategic Action Plan as requiring seriousattention. The GOB has given priority to these efforts and is seeldng assistance for their impla.

Thid Road RehIo'In arid II Pap 5

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

The proposd project is large and constitutes a substantial porton of GOB's planned invmin the road cor in the net 4-5 years. Technical Assistance under on-going IDA/DFID projects haveundetake numerous activities to address most of the pendg institutional issues. As such, in addition tothe major physical components, the GOB and the cofinanciers have agreed to use this project as the mainvehie fir addressig the man sector issues identified by the GOB (see para. 2 above). The visionunderlying the proposed projeoct therefore, fully supports the GOB's aims and objectivs for the sector.Under the physical components, the project will assist in: (i) completing the rmaing missing link in thenaional road network (N-H-B Road); (ii) srengt and upgrade the Dhaka-Sylh:t Road which is part ofthe Trans-Asian Highway network (iii) provide fimds to improve about 500 kan of the highest priorityFeeder Roads A in Westem Bangadesh, and (iv) provide funding for rehabilitation, penodic maintenanceand to remove bottnecks on major natonal and regional roads in Western Bangladesh, some of whichhave been rehabilitaed under pmrious IDA funded projects. As to the institutional issues, a micro-reorganiion of RHD was carried out as part of project preparation and a comprehensive RHDReorganization Plan was prepared by GOB, to be implemented during the course of the proposed project.A major thrust of the reorganization plan is to convert RHD from a "construction" oriented organization toan "asset mainea" organizaton. Development of a new financial management system has alreadystarted which will be implented during the course of the project. Similarly, issues related to road safety,axle load control and traffic management have been studied under the on-going project and action plans toaddress these sues have been prepared and agreed with the GOB with active participation of theconcerned stakehoders. Impl of these action plans are an integal part of the proposed project.

C: Project Description Summary

1. Project components (see Annex 2for a detailed description and Annex 3for a detailed costbreakdown):

CostInl_ %of 1ELCat Cing e Total financinga IF-

(USSM) (US SM) financingNalka-HatikuCrul-Bonpara Road 1 72.9 13.79 43.80 16.04Feeder Roads A Improvwment 1 96.0 18.16 57.60 21.10Dhaka-Sylhet Road Rehabilitation 1 178.5 33.77 107.10 39.23Narrow Bridges and Culwvrts 1 11.6 2.19 -Road Safety 1 11.6 2.19 11.60 4.25Maintenance of Roads 1 70.9 13.42 14.20 5.20Equipment 3 8.4 1.59 8.40 3.08Technical Assistance 2 41.6 7.87 30.30 11.10Resettlement and Land Acquisition I 37.0 7.00 - _

Total 528.5 100.00 273.0 100.00

The total project cost of US$528.5 is presently planned to be financed as follows: IDA US$273 million;DFID, UK. - US$22.8 million and GOB - US$232.2 million. The Italian Govt. has expressed interest inproviding about US$3040 million towardsfinancing a portion of the Dhaka-ylhet Road which willhelp reduce the GOB's contribution. Thefinancing is expected to be secured during 1998.

Third Road R.hMbIIon an Musmmno Pop.6

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

(a) RHD's mstal capacity will be enhanced considerably through the proposed DFIDfinancig to be provided under the IDC-3, focusing on implementg the agreed reorganization of RHD,and in particular, on maintenance, road safety and financial management issues. Specifically, the IDC-3will: (i) provide assistance to RHD in implementing its rvised organizational structure as designed andagreed under IDC-2; (u) continue to assist and improve the capacity of the HDM Cell in preparing annualplans for periodic and routine maitnance; (in) develop the capacity of RHD's Resettlement andEnvironm t Unit; (iv) assist the development of a rvsed accountig and financial management sysem,pilot its instaa in the projec area, train new staff in its operation and following successful experience,replicate it in the remaining RHD operations; (v) assist RHD's newly created Road Safety EngineeringUnit to implement the ITF financed physical components for improvement of black spots and introductionof traffic calmng measures, and in procurement and installation of related equipment; (vi) prepare a planfor traffic police training and assist the Inspector General of Police to implement this plan; and (vii) assistRHD in impleentg the agreed reconmmndations of the studies carried out under IDC-2 for rationalizngRHD's existing ferry operatons and its equipment and workshops operations.

(b) Three boal Project Advisors will transfer skills to RHD staff in the fields of: (i) procurementof civil works contracts and project management; (ii) environmental management and resettlementactivities; and (iii) financal management. Contract delivery will be further improved by the developmentof skills in the use of prequalification of contractors, competitive bidding and work supervision.

(c) Opportunity for increased involvement of the private sector will result from regular availabilityof high standard civil works contractors in upgrading and maintenance of major national and regional roadsas well as feeder roads. At the same time, the quality and capacity of the private sector will be enhancedthrough increased work opportunities and improved supervision.

(d) A National Road Safety Strategic Action Plan (NSSAP) has been developed under RRMP-IIproject. This proect will provide for the establishment and sustained operation of a Secretariat for theNational Road Safety Council and support the implementation of the various road safety reconmendatonsin the NSSAP.

3. Benefits and target population:

The investments identified for 1TF financing are a part of a network-wide investment program to beundertakn under the Road Master Plan (RMP), which was prepared with IDA assistance. Theseinvestments are expected to yield substantal benefits, mainly in terms of vehicle operating cost savingsresulting from improved road conditions. Infrastructure cost savings would also arise as a result of timelyinvestments which will prevent further road deterioration to a point where full reconstruction would berequired. Since many of the selected roads are located in regions of good agricultural potential and/or serveas major inmport-export corridors, most of the vehicle operating cost savings would directly accrue to truckoperators and to agricultural-related transport service providers. Most of these savings are expected to bepassed on to the consumers.

The likely economic impacts, benefits and beneficiaries of the project are: (i) lower freight andpassenger transport costs, with resulting benefits in fares, the price of goods, marketing of products and thereduction of transport bottlenecks affecting economic development. This will have direct benefits for thetraveling public, agricultuzal and industial producers, consumers and local communities having improvedaccess to health and education services. The impact on poverty reduction will be indirect - from passing onof savings in transport cost to the farmers through higher farm-gate prices; (ii) more effective managenentand sustnab maintenance of government's road assets, including better utilization of existing traffic

Third Road R.habIItion uWd M.Mmnmn Pag 7

capaciy, improved traffic safey, improved value-for-moey of government expenditure on roads, andbetter connectionaccess from rurwal feeder roads to national and regional roads; (iii) steady flow of fiuldsover a five year period for high standard civil works and maintenae contracts, enabling local constructindustry to develop firther and modernize their plant and equipment; and (iv) improved physicalenvironent along project roads and improved attention by government to enviromntal and socialimpacts of road works. Roadside coununities and non-motorized road users are expected to benefit fromimproved shoulders, tree planting and new drainage facilities.

4. Institutional and implementation arrangements:

Ex i Agecs RHD under the Secretary, Roads and Railways Division (RRD) of the Minisby ofCommuncatons will have the overall responsibility for project implementato. The project will beprimarily managed and implemented by the road agency RHD and its various sectons and zonal (regional)offices under the Chief Engineer. The road safety components, excluding civil works, will be implementedby the Bangdesh Road Transport Authority (BRTA) and the traffic police training cmponet wil beimplemnted by the Office of the Inspector General of Bangladesh Police (IGP).

Project Coordinaton: RHD will establish an Office of the Project Director (OPD) for RRMP-L, whichfor the impltion of new construction and rehabilitation works will be staffed by a Project Directr(PD), two Rsettlment Officers, two Deputy Chief Resettlemnt Officers and one Executive Engineer, fiveProject Managers (PM), three Resettlement Officers and supported by the HDM Cell of RHD. The PDwill also be supported by three local advisors: (i) highway engineering and project mnagement specialist(ii) resettlement/nvironmental advisor and (iii) financial management advisor. The appointnt of thethree local advisors will be a condition of ITF Credit effectiveness. For the execution of the improvementsof Feeder Roads A, reconstuction of narrow bridges and the annual periodic maintenance program, the PDwill be supported by the zonal offices headed by the respective Additional Chief Engineers (ACE) and thePlanning an Maintenance Wing of RHD. RHD program coordination, including the coordination of TAand the multi-donor support and interests and sector policies will be coordinated with the Minity ofConununication (MOC), Ministry of Finance (MOF) and the Planning Commission. Civil Works contractswill be awarded through inteatonal and national compeiive bidding, as appropriate, in accordance withthe provision of the IDA Guidelines for Procurement under IBRD Loans and IDA Credits, January 1995,revised January and August 1996. All associated supervision, as well as technical assistance coltantservices will be awarded in accordance with IDA Guidelinesfor Selection and Employment of Consultantsby World Bank Borrowers, January 1997, rewsed September 1997.

Project O ih (poliy guidance. etc.): A Project Steering Committee (PSC), chaired by the Secretary,Roads and Railways Division (RRD) of MOC will coordinate project imple ton. The existingInstituonal Review Conunittee (IRC) will monitor the progress of the institutional development componentof the project. The civil works program for the main roads will be managed by the RHD, with othercampnents of the project managed by relevant government agencies such as Bangladesh Road TransportAuthority (BRTA) for road safety and Inspector General of Bangladesh Police for traffic police taining.For all components, private sector contractors (local and foreign) and cosultans Oocal and foreign) areexpected to be used to the fullest extaent. The GOB, through MOC, will develop a project implemframwork to be agred with the Adminitor, detailing project objectives and major outputs, a projectimplementation scheule and resources plan, a component procurement plan, a proect implementationmanagement structure and a project monitoring and evaluation plan with verifiable perfonnance idicators.RHD will be responsible for reviewing the plans for road construction, rehabilitation and maintenancedeveloped by the implementing agencies, and developing plans for raising the necessary local resources.The plans will be finalized under the overall supervision and guidance of the Secretary, RRD beforesubmission to the Association for agreement.

Th*d Read Rb widn Mnd _ mpa ageS

During t first two years of the project implemenation, three supervision missions will berequired annuay, fillowed by two such missions during each of the last three years of te project. Eachmission will usually be staffed by a Highway Engieer, a construction/pavement expert a procurementexpert, and another specialist such as economist and/or institutional specialist, environmenta/resettlementspecialist, trainig expert or road safety specialist. Missions will review the progress in implmentation ofthe physical conponents and the institutional and policy development measures under the project, andagree on remedial actions, if necessary. The mission reviews will be guided by agreed targets. Supervisionof the project between missions will be assisted by Transport Specialist in the World Bank Dhaka Office.One of the supervision missions will be carried out in the last quarter of each implementation year to assessprogress during the year and reviw the work program and budgeting allocations for the following year. Aproject launch workshop will be held within two months of Board approval of the project and a mid-termreview involving relevant Borrower agencies and the Association will be carried out in October, 2000.

Accouting. financial renoring and auditing arrangements: A review of the financial managementcapability of the implementing agency (RHD) has been undertaken, and it was found to be inadequate tomeet the financial managenBt requirements under Bank's operational policies OP 10.02, dated August 6,1997. Therefore, the new project will include provisions for appointment of a locally hired FinancialManagement Advisor (FMA) under the Technical Assistance component of the project. The accounting forall Special Account tansaction and for all other project-related accounts will be maintained in accordancewith the World Bank "Financial Accounting, Reporting and Auditing Handbook" (January 1995).Alhough the project is not covered by LACI, in anticipation that LACI might become mnatory for allBank projects during the implementation period of this project and to provide efficient financialmanagement information in accordance with OP 10.02, RHD will establish and maintain a computerizedproject financial management system for the project which will show actual versus budgeted expendituresand generate the Schedule of Withdrawal of Proceeds and Statement of Expenditure forms, including allthe LACI fonrs of reporting, required for IDA processing of withdrawals fromn the credit. Auditing will becarried out in accordance with the IDA Guidelines for SOE, against which loan disbursemnts will bemade. The project accounts will be audited annually in accordance with standards of auditing acceptableto the Administrator, by accredited private auditors appointed by RHID. The OPD will have a full-timedeicated finance and accounts professional to work as a FMA, who will be responsible for financialaccounting, reporting, submission of withdrawal requests to the Administrator and GOB. The FinancialAdvisor will be a qualified accountant and experienced finance professional and will be assisted by full-time accounts assistants.

Monitoring and evaluation anents: The OPD, assisted by the consultants, will prepare quarterlyprogress reports in accordance with the format described in the Project Implementation Plan. Thesereports will cover: (i) physical progress achieved against agreed implemetation and disbursementschedules and key performance indicators, including number of contracts awarded, kilometers of roads andnumber of bridges under contact or completed, (ii) issues and problem areas, reconmendig actions andcomm _entig on progress in resolving previous reconmendati, and (iii) work programs and costestimates for the coming quarter and for the total project. Specific monitoring of the institutional aspects,road safety, envronmental and resettlement aspects of the project will be included in the implementationplan and quarterly reports. These reports will be forwarded to the Administrator and the relevantauthorites associatod with the project within one month after the end of each quarter. The main purpose ofthese reports will be to provide managers with tmely and updated information on implementation of projectcmponents, highting issues and problem areas, recommending actions and cmmenting on progress inresolving previous reco ns. A mid-terrn review will be held 24 months after the date ofcommen ent to review procrmet and implementaton progress against agreed schedules andimplemtaton capacity. RHD will also, within 6 months of the closing of the project, prepare an

Third Road RehmbIIMon and MalMnan Pop 9

Implementation Completion Report for submission to the Administrator. During negotiations, agreemntwill be sought with the Government that they will : (i) prepare quarterly progress reports to be sent to theAdminisr witin one month after the end of each quarter, and (ii) prepare an InplentaonCompletion Report (ICR) in accordance with the Association Guidelines.

D: Project Rationale1. Project alternatives considered and reasons for rejection:

(i) Searate investments for national and regional roads and feeder roads (FRAs and FRBs): SnceRHD is rosibl for constructia and maintenance of national and regional roads and FRAs, and LGEDhas similar responsibilies for FRBs and rural roads, it was felt appropriate to consider parallel butseparate opaons for these two agencies in order to avoid complexities related to institutional overlap.Other donor agencies are also following the same approach. However, sectoral issues conmmon to both theagencies, e.g. inegting the development and maintenance stategies, technical specifications, financialmanagement, environmenal mitigation and resettlement policies are being handled in an uniform manner.

(ii) Program approach for road development: Although program approach is not being followed intotahlity for projects undertaken so far, nevertheless adherence to the Road Master Plan (carried out byGOB in 1990 with IDA assistance) in formulating projects indirectly underscores the program approach.IDA's involvement in road sector for the last decade has resulted in an informal program approach throughsuccessive road projects like RRMP-I, RRMP-II, and now RRMP-Ell. ADB, the other major donor agencyfinancing road development has also followed IDA's strategy in financing successive Road ImprovanentProjects (RIPs). IDA, ADB and other donor agencies are working hand in hand to develop the road sectorin Bangladesh. Under the proposed RRMP-III, something similar to a program approach is being folkowedfor the improvement of FRAs in the Northwest and Southwest of Bangladesh to maximize the benefits ofalready completed national and regional road projects under IDA financing. It is expected that IDA, ADBand other donor agencies will finance a series of FRA Improvement Projects in Bangladesh over the nextdecade.

(iii) Selection of specific road sections for the project began with the Road Master Plan (RMP) toprovide an overall assessmnt of the existing road conditions and traffic botdenecks on the national andregional road network, forecast of expected traffic growth with associated deterioration of this roadnetwork, and an asses_ment of road investment needs. This provided a basis for agreement betwen GOBand IDA on identification of high priority roads using the HDM model to determine roads to be eitherrehabilitated or for receivig periodic maintenance treatment as a "holding" operation beforere;ost1cto. GOB undertook feasibility studies of the various secions of the project roads, includingreview of potental enviromental and resettlement impacts.

The widening and strengthening component of the project focuses on one of the busiest nationalroads (Dhaka-Sylhet Road) which is experiencing substantial bottlenecks. This road forms part of theAsian Highway through Bangladesh. Technical alternatives that were evaluated during the feasibility of thisroad included strengthening of existing pavements without widening, widening the cariageway to fitexisting formation widths, widening the pavement and shoulders to increase capacity. in addition to majorroute diversions, several smaller by-passes at highly congested townships were evaluated as options torelieve congestion and minimize disruption to roadside development. Altematives not yielding economicrates of return equal to or greater than the opportunity cost of capital (12%) were rejected.

In the case of Feeder Roads A, other criteria such as geographic distribution, regional intgraton,access to social amenities and markets, connection to main road network, etc., were also considered in the

Third Road R_ohlikeIn and Malbar_e Pap 10

upgrding opto and periodic maintenance options on some roads so as to cover a larger area of FRAs,yielding overall net benefits.

Varitons to the overall scale and timing of the project were considered, and the final size of theproject was detemined to match GOB's implementation capacity and conunitnent to ownership byincreased budgetary provisions and or onal changes of RHD. If the project is not implemented, theBangladesh economy will conue to be hampered by inadequate road infrastructure in certain regions ofthe country, and potential improvements in sector efficiency will not be achieved.

2. Major related projects financed by the IDA and/or other development agencies (completed, ongoingand planned):

Over the last decade the IDA, other bilateral and multilateral aid agencies provided a total of aboutUS1200 million to finance road projects in Bangladesh. This aid was mainly used for rehabilitation ofnational, regional and feeder roads; and construction of several major bridges. The main road projectsfunded by different donor agencies over the last decade are given below:

Sector issue Project Latest Supervision (Form 590)Raigs

__(IDA-financed projects only)Implmentai n DevelopmentProgress (IP) Objective (DO)

IDA-financeRoad Rehabilitation & Maint. Project Cr. 1827-BD S SRural Roads & Markets Improvement Cr. 1940-BD S S2nd Rural Roads & Markets & Improv. Cr. 2927-BD (Ongoing) S S2nd Road Rehab. & Maint. Project Cr. 2638-BD (Ongoing) HS HS

Other development agenciesJamnna Multipurpose Bridge IDA/ADB/OECF HS S

(Ongoing)Road Improvement Project ADBBridge Improv. & Maint. Project ODA (DFID, U.K.)Meghna Bridges OECFFive Major Bridges ChinaDinajpur-Panchagr Road ItalyDhaka-Aricha Road DenmarkP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfacory), HU (Highly Unsory)

3. Lessons learned and reflected in the project design:

Past experience in projects undertaken by RHD and financed by the Associatio, shows that theprojects suffered from: (i) poor quality of projects at entry; (ii) weak institutional capacity in projectmanagement and adminis (iii) delays in procurement decisions; (iv) delays in handing over worksites to contros; (v) lack of road safety initiative; and (vi) lack of sustainability in mantainig thecapital investent completed under past projects. As a result of the experience gained the followingmeasures have been inrporated in the design and implementation of this project: (a) engineering, social,envirmntl and institutioral aspects of the project are comprehensively prepared, reviewed, discussedand agree with the clent before starting implementation of the project; (b) any required sbtrengtening ofbasic instituinal capacities for effective project management, is implemented early in the life of the project

Third Road Rehabilion and Mairifnero Pae 11

(i.e. estalishmet of Office of Project Director, highway maintenance unit in RHD, mini-reorganization ofRHD were conions of ngtiions and appointment of experts in engmeeri& finance andenvromne / _ra anat to support the OPD, and appoinatent of all supervision consutants, etc. arecondions of credit effctiveness); (c) procurement capabilities strengthened with first year's con ts forNHB road under the project ready for award as soon as the ITF Credit is approved; (d) the RsettlentAction Plan (RAP) for NHB road has been finaized and approved by the Governnment and IDA and roadright-of-way is secured for substntial part of the project prior to the award of coats; for Dhaka-SylhetRoad and FRA, the entiment policy matix has been approved, and sice the detailed design of theseproject cmponents has not been finalzed, the socio-economic surveys of the PAPs for these roads will becarried out in a phased manmer; (e) inter-agency coordination is ensured by establishing and empowering aProject Steering Committee (PSC) of high level officials from all GOB organizations related to the project;(f) commtmnt received from GOB to provide adequate funds for maintenance throughout the life of theproject to eniure road network asset sustainability; (g) encourage the development of competitive andskilled local contactors and consulting firms through effective packaging of contrcs, improved projectmanagement and better contract administration; and (h) improved legislation for axle load control of heavyvehicles have been proposed, axle load control equipment procured, institutional fiamework established andtrning providd to axle load control personnel.

4. Indications of borrower commitment and ownership:

GOB has taken initiative under the ongoing IDA financed RRMP-I in completing the detaileddesign and tender documents for the Nalka-Bonpara-Hatikamrul Road, updating the feasibility andcompkting the detailed design of Dhaka-Sylhet Road, completing the pre-investnent study of Feeder Roads'A' and final design and tender documents for the first-year package of 250 km of roads. GOB hasrecommended the appointment of the supervision consultants for Nalka-Bonpara-Hafikamrul Road and theAdminisra has approved this appointment pending nTF approval of the Credit. The appointment ofcosltants for the supervision of Dhaka-Sylhet Road and Feeder Roads 'A' copnents of the project isexpected to be in place before the ITF Credit is declared effective.. The consultants for the preparation andimplementatin of Resetement Action Plan (RAP) have also been appointed and the draft plan has beencompleted. Environmental Impact Assessment (EIA) studies have been carried out for each of the threemajor componet of the project (Nalka-Bonpara road, Dhaka-Sylhet Road and Feeder Roads A). Aconsoidatd ETA report for these components has been completed. GOB has also implemented the 'micro-reorganizaion' proposed by the Institutional Development Component (IDC) consultants under RRMP-IIproject, to improve the organiion structure of RHD before credit negotiation.

GOB has embraced the project preparation and implementation framework designed to enhance theRHD's absorptive capacity by outsourcing most of the engineering design and supervision functions for theproject, and implementation of civil works by contractors of proven experience from overseas or from otherprevious road contrcs for RHD under donor funded projects. RHD will implement major detailedinsiutional reform recommendations and action plans being developed by the IDC consultants for theongoing RRMP-II project during the project period.

5. Value added of Bank support in this project:

(i) The World Bank has supported the development of the Bangladesh road sector since 1981 andhas mantained a policy dialogue on key issues in the development and maintenance of the sector; (ui) TheWorld Bank was the major donor intrumental in focusing GOB's attention on the need to increasematenance fiding to the level required for a sustainable road network; and (iii) GOB values IDA'sworldwide experience in infrstructure modernization and safety issues, not only in terms of sector specificissues, but also on overall coordination of such programs.

Third Road Rhabltdla and l _hmnewco Pap 12

In general, the Assoiato is well placed to respond to the opporunities and challenges faced bythe infiasu sector by: (a) providing and catalyzing the critcal long4term capital needed to supportaccelerated grvwt (b) using the leveage of its lending volume and its advisory capacity to accelerate theinstutioa and poicy reirm process, and (c) assuring that social and environmental concerns are fullyreflectd in the growth process.

Based on previous successfil road sector project experience in Bangladesh, the Association hasassisted GOB to develop a modern approach (using HDM-model) to improve road investent, managementand financing which is reflected in the project design and implementation. Furthermore, since theAssociation has been involved in the preparation and implementation of several road projects inBangladeh, a true partrship between GOB and the Association has evolved so that both parties havelearned valuabl lessons from past experience which are reflected in the preparation of this project. TheAssociation will emphasize best pracice in road construction, rehabilitation, maintenance and managementby sporting the employment of highly qualified consultants and NGOs to carry out: (a) appropriatedesign and supervision of construction and maintenance works; (b) procurement; and (c) social andenvironiental activities.

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

1. Economic (supported by Annex 4):

[x] Cost-Benefit Analysis: NPV=US$11,344 million; ERRsDhaka-Sylhet Road : 30%Nalka-Hatikamnrul-Bonpara Road :15%Feeder Roads - Type A :27%Narow Bridges :10-50%Maintenance of Natl. & Reg. Roads : 75%

The economic analysis of the project is based on consultant reports, which cover the pre-feasibilitystudies and designs for rehabilitation, widening and reconstruction of the roads and bridges & structures.For Dhaka-Sylhet road, six route options were considered and the cheapest and shortest route was selected.EIRR of this comonet was 30%. Furthermore, while it is recognized that railroad and inland watertransport could provide alternative modal choices to the Dhaka-Sylhet Road, it is difficult to carry outnaningful analysis of these modes given the uncertainty in both the timing and cost of these altenatives.Instead, sensitivity analysis of "decreased benefits" has been carried out which still shows the ERR to berobust. For Nalka-Hatikarul-Bonpara Road, six options in two contexts, i.e. with and without JamunaBridge, were considered and Option 1 (57.5 kIn) was selected, since it is cheapest, straighter andenvonmenlly sound compared to other options. EIRR of this component was 15%. For Feeder Roads"A", the fill schedule of 11,010 km was screened. All roads were ranked to provide an initialprioritization. The resultant zonal spread of the priority roads was checked against the populations servedto determine whether an equitable result had been achieved, and certain adjustments were made. EIRR ofthis componet was 27%. For narrow bridges, 43 (out of 88 candidates) were initially selected, as theirElRRs were 12% and above (up to 50%). 10 more marginal bridges were later selected, although theirElRRs were 10-1 1/o, since they were evaluated as part of packages and the EIRRs of each of thesepacages exceeded 12%.

h1aintenance Cxgmpgn: The total length of national and regional roads to be maitined byRHD is about 8,000 km. For these roads to be maintained to an acceptable standard, the pavement willrequire asphalt surfice treatnent and asphalt overlays to protect the considerable investmets made by the

Third Road RdiahlbNilon and MeWduirdnae Pup 13

GOB. The roads that have been improved duing the last 10 years and the data from recent roadinventories and conition surveys show that at least 500 kn of roads will annually require periodicmantan (about 300 kn of suface treatment and about 200 kn of overlays). The cost and benefitanalysis under "with" and "without project cases was applied to assess the economic benefits of thed;fferent treaunent opos, taking into account savings in vehicle operatng costs, travel time, and futuremaineance costs. The overall EIRR of the maintenance componet is 75%.

Otbler C& b:g= Other components include road safety, equipmet and technical assistance(TA) for policy support, institutional development and project preparation and imp .Impleentationof the specially designed and separate "road safey" component would involveimprovement and/or redesigning the intersections or road sections (particularly those which are identfied asblack spots or hazardous locations, etc.). It would facilitate smooth and faster travel and reduce thenumber of accidents for both passenger and freight vehicles and thus, minimize the offseting effects ofimproved road standards and expected higher travel speeds. Equipment items, namely, for axle loadcontrol, rfledoized traffic signs, reflectorized thermoplastic road markings, and traig equipment willbe procued to improve usage and maintenance of the roads and better management of the traffic system.

Benefits of supervision consultancies will be achieved through improved quality and timelycompleto of works and these benefits are included in the above evaluation. Other insbtoaldevelopment components, particularly technical assistance and trainmg, are necessary to ensure smoothimplementation of the project and sustainable future maintenance. In addition, institutional strngteingwill lad to improved efficiency in road administration through more effective plannin, budgeting andmanagement, all of which will be beneficial to road users in terms of reduced transport costs.

2. Financial Assessment

The total cost of the project is estimated at US$528.5 million, to be spent over 5 years starting withfiscal year 1999. Of this cost, about US$457.5 million can be classified as development costs and there_m ningUS$71 million as maintenance costs. The cost of the project is expected to be financed asfollows: IDA - USS273 million (52%); DFID, UK - US$22.8 million (4%/o); and GOB the remainingUS$232.2 (44%). The Italian Govenmnent has expressed interest in providing about US$3040 milliontowards the cost of the Dhaka-Sylhet Road. Agreement with the Italian Govt. is expected to be finalizedduring 1998 and, once secured, will reduce the GOB contribution.

GOB's actual expenditures during the last five years and its projected budgetary allocations forRHD during the next five years is as follows:

Fiscal Year Routine Periodic Development Total Of WhichMaint. Maint. Costs Funded by Aid

-(Taka Million)1993/94 (Actual) 865 1250 11190 13305 83391994/95 (Acual) 842 1457 12875 15174 88401995/96 (Actual) 942 1472 8218 10632 52401996/97 (Actual) 981 1173 10623 12777 58651997/98 (Budget) 1044 1620 11276 13940 84461998/99 (Proj.) 1124 1800 12403 15327 92901999/2000 (Proj.) 1211 1980 13635 16826 102212000/01 (Proj.) 1306 2200 15009 18515 112432001/02 (Proj.) 1407 2496 16509 20412 123672002/03 (Proj.) 1519 2833 18161 22513 13604

Third Road R.hablO WA M.Wanao Pag 14

GOB's overall allocabons for the RHD have grown steadily over the last few years, andparticularly so for maintenance. This is consistent with the growth in vehicular traffic over the same yearsand the inportance GOB has given to the road sector. According to the assessment carried out in theBagladesh Transport Sector Study (1995) the present level of maintenance fuing for RHD is adequate.Another positve feure has been the fiact that all routine maintenance is fimded entirely from GOB's ownfunds and GOB's share of funding for periodic maintea has also increased to about 80%. In thefutre, GOB intends to maian these trends in maintenance cost funding, with project aid being usedalmost exclusively for development costs. In the two previous IDA financed road projects, GOB hasallocated all the necessary coterpart funds in a timely fashion and this is expected to continue.

The development cost element of the IDA financed project (US$457.5 million or Taka 21045million) which will be impl_mted over the 4 year period FY 1999 - 2002 constitutes about 37% ofRHD's planned budgetary allocation for development over the same period. The periodic maintenancecomponet of the project is estimated to cost US$71 million (Taka 3266 million). Based on the age andcondition of RHD's present road network, about 500 km of roads would annually require periodicmaintenance (about 300 km surface treatment and about 200 km of overlays) all over Bangladesh. TheIDA project will finance about 200 km of periodic maintenance annually for a total of 1000 kn over thefive year period FYs 1999 - 2003. RHD's projected allocation for routine maintenance during those 5years is Tk. 11309 million and the IDA financed project will utilize only about 29% of the overallalbocation. Given the relatively modest claim that the project would make on RHD's projected allcaionfor both road development and maintnance, the project will not crowd out other vital investments.

GOB's overall financing plan for the road sector (for both development and maintenance costs) forthe next 5 year assumes that about 40% of the overall costs will be covered from GOB's own sources andthe remainig 60% will be financed from external aid. The financing plan for this project, particularly oncethe Italian funds are secured, will be consistent with this planning parameter. GOB's record of providingsufficient countrpart fmud in a timely fashion has been highly satisfactory and the Bank's assessment isthat the project is affordable in the context of the country's overall budget.

3. Technical Assessment:

The implementation of the main components of the project do not require complex design orconstruction techniques and are well within the capability of the implementation agency -and the privatesector. Design, technical specifications and procurement documents have been prepared under the guidanceof experienced intemational consultants working in close coordination with local consultants. Bid packageswill be suitably sized and pre-qualification criteria prescribed so as to be of interest to well-qualifiedcontractors, and construction supervision will be the responsibility of consultants to ensure adherence toquality and timely completion of the project.

The maintenance practices presently followed by RHD need improvements as the agency movesfrom a road construction organization and becomes more of a maintenance oriented organization. Atpreset, maintance works are mosdy carried out by labor intensive methods and need improvementthrough inrducti of new mainenance techniques. The project builds upon RHD's current practice ofcontractig out mntenance works to the private sector, and on reorganizng the structure of RHD byestablishing a mantenance unit within RHD, and also includes technical assistance for development andimplementation of a financial management systems and road safety activities. It is anticipated that by theyear 2000, the mainuteance works will be progressively contracted out to the private sector.

Third Rood R.h.bIIISiIon and alm Pap 1S

4. Insfitutional Assessment:

a. Exacing Agemci: RH is responsible for the management of the main road network,including costuctin and maitenance of national roads, regional roads, and feeder roads Type A (FRA).RHD has 12 Additional Chief Enginrs reporting to the Chief Engineer who in turn is responsible to theSecretary, Roads and Railways Division (RRD) of the Minstry of Communicabons. RHD enploysapproximately 7,000 "regular" staff (including about 600 engineers and other professionals) and a firther11,000 temporary staff. Regular staff salaries are paid from the Department's annual approved budget.RHD field operations are divided geographically into 7 "zones" with about 17 sub-regional divisions("circls"). Furthermore, there are units for Planning and Developnt, Mechanical, Bridges and 2 unitsfor foreign aided projects (IDA & ADB).

RHD is essentially a field based organization focused on construcion, rehabilitation andmaintenance activities, with a relatively small HQ staff focusing on overall planning, budgeting, policymaking and donor coordination functions. The functioning of RHD and its work culture has changedconsiderably over the last decade and the senior management of RHD and the GOB realize that it has toevolve much fiuter. The DFID financed IDC-2 played a major role in the evolution of RHD. Under theIDC-2 the following activities were undertaken: (i) in recognition of RHD's urgent need to upgrade theskills of its staff, a training institute was established where almost 5000 staff have received training locallyand another 125 received training abroad; (ii) to strengthen the maitenance function of the RHD, a HDMCell was created and 5 members were trained abroad to staff this Cell who prepared the mainancecomponent of the proposed RRMP-I.; (iii) a Planning Unit was set up in the RRD to follow-up andmonitor the various activities of RHD and based on the experience contibute to the formulation of moreappropriate policies to be adopted by the GOB in the road sector; (iv) assisted in the fonnulation andimplementation of the micro-reorganization and the formulation of an overall reorganization plan of RHDwhere the strategy is to amphasize issues of strategic management and increase private sector parficipationin the road sector, i.e. more use of local contractors for maintenance activities an consultants; (v) iniiatedthe developmeat of an improved accunting and financial management system for RHD; (vi) prepared thestudies and developed action plans for road safety, axle load control and traffic management, with activeparticipation of concerned stakeholders; and (vii) prepared proposals for rationalizing RHD's ferryoperations and its equipment and workshop operations (a range of options have been suggested startingfron outright privaization to management contracts).

The institutional strategy being pursued under the proposed RRMP-3 is to continue with the workstted under RRMP-2. This strategy is underscored by the fact that the GOB has provided and is planningto provide RHD with very substantal resources for the development and maintenance of the road networkin Bangladesh. It is essential, therefore, that RHD develops institutionally in a manner which will enable itto ensure that its growming assets are maintained efficiently. With maintenance becoming RHD's principalfocus, the vision for RHD's institutional development over the project period is as follows: (i) the HDMCell in RHD is continuously strngthened enabling it to plan all of RHD's maintenance activities; (ii) theAccounting and Financial Magmet System being developed under the previous project has beeimplemented and institutionalized in RHD thus making it more accountable; (iii) the action plan on axleload control has been fully implemented to prevent early damage of the road network and reduce economiclosses; (iv) the physical road safety measures developed under the previous project has been fillyimplemented to save human lives and reduce loss of property and road safety audit procedures fillyinstituonalized within RH); (v) traffic police training center established and e initial batch of officerstrained in modem enforcemet techniques; (vi) the Environment and Resettlement Unit established underthe eaier project would be fully staffed and enabled to filfill their oversight responsibilities on all RHD'senvironment and resettlemnt related activities; (vii) RHD's ferry, equipment and workshop operationsfully rationalized. DFID have agreed to provide continuing support for RHD's institutional development

Thid Road RehmbiIWJn and MulMwwho pop 16

under the RRMP-11. Armnt between GOB and DFID to finance the institutinal developmentcomponant is a condition for ITF Credit effectiveness.

b. Project Manat: Project implementation will be the responsibility of the RHD withoversight by the Project Steerng Committee. A Office of Project Director (OPD) has been establishedwithin RHD, headed by an Additional Chief Engineer (ACE) designated as Project Director (PD) tomanage the project. The OPD will be responsible for planning, budgeting, procurement, implemntatin,coordination, management and monitoring of the project components. The PD will be assisted by threelocal technical advisors for implementation and coordination of the project, in particular: (i) projectmanagemet; (ii) resettlement and environmental aspects; and (iii) financial management. The PD underthe guidance of the Chief Eqnpneer will be responsible for appointing and maintaining suitable staff in theOPD during the life of the project. The OPD will also be staffed by high quality staff from within the RHDas well as specialists from other govemment departments as needed.

A project organization chart has been developed for the project under which it is proposed toappoit seveal Project Directors for major phases of the work. For each contact or a combination ofcontracts within the project, a Project Manager from RHD will be appointed. In addin, S iEngineers assised by Executive Engineers in the respective zones will also assist the PD in cdinion,management and monitoring of the project.

For the Instiutnal Development Component, the Additional Chief Engineer/Planning andDevelopment (RHD) will be responsible for managing the institutional reform process and theimplementation of the reform activities agreed with Administrator and DFID.

5. Social:

Civil works in three components of the project involves acquisition of private and public lands andother assets. This will cause a general reduction in earning capacity of the displacees and, to some etent,homestead loss and impact on groups and local communities. It has been demined that a satisfactoryRsettlement Action Plan (RAP) in compliance with the OD 4.30 on Involuntary Resettlement is requiredto adequately mitigate these impacts. An overall resettlement framework has therefore been developed forthe project, containing principls of cmpensation and other entitment policies for different impactcategories, rehabilitation programs, implementation mechanisms; procedures for local consultation andparticipation, informatin campaign and grievance redress procedures, and monitoring and evaluationmechanisms.

This approach has been developed based on detailed socio-economic sudies of the poteniallyaffected people under the Nalka-Hatikamrul- Bonpara (N-H-B) road, completd in October 1997. Thsnew road is likely to require land acquisition of approximaely 287 hectares from 3,187 plots in the districtsof Sirajgo and Natore. This will displace some 2,966 households, comprising of 16,190 peopleh fromtheir properties. The project-wide Restemnt Action Plan covers all components, and it has been agreedthat impac categoies, support canisms, and institutional measures will be common across the project.For the oter two comonents ()haka-Sylhet Road, and Feeder Road A), pending alignment finalizationand, hc, the deaed SESs, the RAP contains estimates based on extrapolation of the availableinformtion. The exact mnmbers of the affected people in the different impact categories will be appededto the d ta as they become available.

Third Rod R N WIn ad Ml_enmno Pap 17

The compensation and entitlement policies developed are based on the following principles:

* Wherevr possible, the engineering design process will incorporate measures to avoid or nimzesocial, including resetement, and environmental impacts;

* Unavoidable impacts shall be mitigated and the compensation for private lands and other propertiesshall be paid at their current market price and/or replacement value;

* Displacees from the homesteads shall be relocated and be assisted in the process of relocation;* Rehabilitation programs shall be undertaken to avert deterioration of living standards of the PAPs;* Particular support shall be given to socially and economically vulnerable groups;* Inpacts on groups and communities, particularly the vulnerable ones, shall be mitigated; and* Affected people shall be involved in decision-making through consultation mechanisms.

The project consultants for the different components have coordinated among themselves toprepare the basic Resettement Action Plan for the project as a whole and the component-specific details.The final Resettmet Action Plan for the NHB road was completed in April 1998.

It is noted that institutional capacity to successfully implement resettlement programs is weak in. Land acquisition requires utmost cooperation of district land administrat nd several other

Guovernment agencies that are often not adequately responsive. Tbis adds an extra dimension of risk tooverall project implementation due to delays in land acquisition and the consequent increases costs.Careful attention will be given to this issue during implementation and adequate resources have beenallocated to supervision and additional assistance to the local institutions carrying out this part of theproject.

6. Environmental Assessment: Environmental Category [x] A []B [] C

The project has an environmental rating "A" and Environmental Assessments (EAs) for thedifferent components of the project were undertaken by RHD Consultants as per the guidelines of Bank'sOperational Directive OD 4.01. For the Nalka-Hatikamrul-Bonpara Road and the Dhaka-Sylhet Road, acomplete Envirnental Impact Assessments (EIAs), including Environmental Management Plans (EMPs),have been prepared, which meets Association requirements. The EIA for the Dhaka-Sylhet Road hasidentified increased risk of ponding at certain sections of the highway. This issue wil be further studiedand mitigation plans prepared before bidding documents are issued for those sections. For the FeederRoads "A", the roads that will undergo improvement have been identified. A sectoral EIA has beenprepared which concluded that there are no potential environmental impacts.

Since implementation of the EMPs is critical, the project proposes to strengthen the newly createdEnviro t and Rettlement Unit of the Roads and Highways Dqeprent. The TA will also containprovisions to support the RHD, involve local NGOs, and provide specific technical support to rehabilitateand reclain borrow pits for agricultural use or for use as fish ponds.

7. Participatory approach [key stakeholders, how involved, and what they have influenced; fparticipatory approach not used, describe why not applicable]:

The main afieted groups are those people and communities living along the road corridors,parclarly those losing land or whose livelihoods may be threatened in other ways. For those affectednegatiwvely, an entidtemet fiamework containing different compensation and support mechanisms has beendeveloped (see section 5, above). This framework has been developed in consultation with affected groupsand cmmunte, using a variety of social assessment tools including focus group meetings.

Third Rad RehabNkII oan ard Ml_tnm P is

It is worth noting at a particularly innovative approach to detnrining degree of vulnerability forthe affitd populatin has been developed for this project, based on different criteria such as poverty,landessnss, gender issues, demographic factors, and other dimensions. Appropriate support mechansmsfor these different groups have been developed, and will be implemented with the help of local NGOs andcommunity based organizations.

F: Sustaiuability and Risks

1. Sustainability:

The project will enhance the capacity of the RHD to plan, finance and implement road and bridgereabilitatin and nmintenance and therefore ensure sustainability by: (i) increasing the efficiency ofconstruction and maintenance through better design and supervision of roads and bridge works; (ii)involving loal conactors for construction, rehabilitation and aintenance; and (iu) inproveenvironmental management and mitigation of social impacts.

Successful project implementation should lead to Borrower appreciation of the benefits fromimproved roads and bridges as well as institutional reform, which, in tum should contribute to projectsustinability.

Improved sustainability of roadworks also requires more effective nunagent of maintenancepractices on the ground to ensure timely preservation of assets and value-for-money for works undertaken.Tbese are being addressed through assistance for srengthned road management procedures, which gobeyond office planning tools to address decision-making, quality control and accountability practices.Sustainability of the institutional impacts of the project will be strengthened by demonsated success ofimproved contracting, consulting and maintenance management procedures and the resetement andenvironment action plans, by the involvement of a wide number of RHD staff in project implntat andtaining. The advantages of project-related measures such as the Project Steering Conmittec (PSC), theInstitutonal Rsview Comittce (IRC) (which was already established for the ongoing RRMP-II project),the Office of Project Director (OPD), introduction of road manant system and establishment of newFinancial Management System, are expected to be carried through to other GOB programs beyond the lifeof the project.

Third Read RehabIIkIsn aW nd MMma Page 19

2. Critical Rlsks (rflecting assumpions in thefourth column of Annex 1):

Risk Risk Rating Risk Mnia Measure

Annex 1. cell from Outnuts t Objective"

Unsable stuation in the tanspoat sector low Establish public consultativemmittee for road users and buid

conssus thugh participatoryprocesses including worshopsemunars with participants frompublic and private sector.

Police is not enfrcing the traffic regulations modest Institutional srergting of trafficpolice and provision of enforcementequipment and devices & training.Incentive scheme for goodenforcement.

RHD staff will not use new skdlls modest Administator will ensure trainingprogram is well developed, andcriteria for selection of tainees iswell spelld out. RHD to report oneffectiveness of training aftercompletion of training.

RHD will not use mtenance funds allocated modest Better tring of RHD maitancefor physical works efficiendy staff and installation of maintenance

management system.No timely impl of institutional modest Ownerslhip through participation inreforms their developmental provision of well

targeted training of RHD staff underIDC 3 componet. The progress willbe monitored at mid-term review.

Annex 1. cell "from Cmoents to Outputs"

No timely prouremet decisions and contract modest Comprehensive and qualityim pltation preparation at entry, Project Steering

Committee in place, stegthenedproject management capacitythrough the institutionaldevelopment component and theLocal Technical Advisors.

Third Road R_Ion and lPagea0

Risk Risk Rating Risk Minimization Measure

Land acquisition and RAP are not implmeted medium Initiate land acquisition at an earlyas per IDA guidelines, and infficient trined stage prior to contract award andRHD staff for resettlet i ation improve compensation payment

procedures to PAPs. Immediateaction to appot tained staff inRHD and DC offices, adeWatemonitoring and supervisionaffangenent will reduce this risk.

No timely and adequate co rpart funding low Government coaniunent andprovided by GOB agreement on annual budget

requir ts through annual reviewby IDA, linked to sustainable fundsprovkied through road user charges.

Contactors and consultants are not performing modest Adequate supervision arangementaccording to contrcual agreements and selection of international/local

consultants, and provision ofworkshops and training courses forRHD project staff, and strengthningof RHD management skills.

No consensus by RHD staff in the need to modest Ownership of reforms through staffrestutr the organization participation in the development of

reorganizatoal plans developedunder the project.

Overall Risk Rating modest

Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)

3. Possible Controversial Aspects:

The Association has suggested that improvements should be made in the road financing system,particularly by increasing the taxes paid by operators of heavy vehicles towards financing the cost ofrehabilitation and maintenance of roads. GOB has agreed that heavy vehicles should pay higher road usertaxes since considerable damage to the road network is caused by these overloaded vehicles. A concem ofthe GOB is that substantial increases in road user taxes will be strongly opposed by the road transportindustry. The degree of potential controversy is rated as moderate.

G: Main 1TF Credit Conditions

1. Effectiveness Condiions:

(a) signing of agreement with DFID (U.K.);(b) appointment of Highway Engineering and Project Management Specialist,

Rcsettleinet/environmental Advisor and Financial Management Advisor for the project;and

(c) award of two consultancy contracts for supervision of construction of the Dhaka-SylhetRoad and for FRA hnprovements.

Third Road Rehmbisn w 1 Mouewio Pop 21

2. Other [class(f according to covenant types used in the Legal Agreements.]:

(a) OPD will prepare within one month after the end of each quarter, quarterly reports onimplemneatationperformance indicators, and proposed acion plans for the project, whichwill be mviewed by the PSC and the Administrator;

(b) By March 31 each year, GOB will joindy review with the Administ its expenditure onmaintenane in the curent year and its proposed budget for the next year. GOB willensure that fimding of the maintenance of RHD roads (comprising national roads, regonalroads and FRAs) is systemcally increased from ithe currat level;

(c) By December 31 each year, RHD will report on the proporios of the national andregional road network classified as being in good, fair, and poor condition, on the proposedmaintenance, rehabilitation and construction spending for the forthcoming year as well ason the actual for the previous year;

(d) By October 31, 2000, RHD will undertake jointly with the Administrator and DFID a mid-term review of project implementation and if necessary, take action to modify projectactivities and scope as appropriate;

(e) Borrower wilL within 12 months of the effectiveness of the loan, increase, and untilcompletion of the project, maintain the Project Account with a minimum balance throughquarterly replments, equivalent to US$25 million or such amount as may be agreedby the Administrator from time to time.

H. Readiness for Implementation

[x] The enawneering design documents, including RAP and environmental impact asssment have beencompleted for the Nalka-Bonpara Road; bids for this component have been received and evaluated for fourcivil works contracts and these contracts are expected to be awarded prior to ITF approval.

[xl The engineering design documents for the Dhaka-Sylhet Road and the first year's activities of theFeeder Roads "A" component are ready for the start of project implementation.

[x] The Project Implemntation Plan and RHD's Reorganization Plan have been reviewed and found to berealistic and of satisfactory quality.

[x] The appointment of the supervision consultants for Nalka-Bonpara Road has been finalized. However,the appointmnts of consulants for Dhaka-Sylhet Road and Feeder Road 'A' are expected to be awardedprior to effectiveness of the ITF credit.

Thid Road R _habo and _Ma Pap 22

L Compliace with Bank Policies

The prjct complis with all applicable Bank Group policies.

[sinat]Task Leaders: Arun Banerje/Stein Lundebye (SASIN)

[signatureJSector Manager: Frannie HuIplick (SASIN)

[signature] r=Country Director: Pierre Landell-Mills (SACBD)

Berolecsh Third Road RANt ad M _Pam 23

Annex 1Bangladesh Third Road Rehabilitation and Maintenance Project

Project Design Summary

Narrative Summary Key Performance Monitoring and Evaluation Critical AssumptionsIndicators

Sector-related CAS Goal: (Goal to Bank Mission)1. Reducing bottlenecks in 1. Completion of the national 1. Physical works and 1. GOB confinues to providethe road transport system by road nework and improving adequacy of budgetary adequate financial resources.(i) providing missing links; 500 kn of FRAs; timely allocations monitored 2.GOB continues to(ii)improving mintenan; provision of counterpart through progress reports and undertake agreed(iii) strengthen relevant GOB funds; and reorganization of during supervision. institutional refonns.agencies; and (iv) improving RHD carried as per agreedroad safety. plan (EOP).

Project Developient (Objective to Goal)Objective:1. Efficient and safe main 2.1. Accident rates reduced 2.1. Annual road accident 1. Other projects ained atroad system established and (road fatality per 10,000 statistics. economic growth developedoperational vehicles) 28% by EOP. successfully.

2.2 Vehicle operating costs 2.2. Road condition andreduced by 20% (roughness) traffic survey by RHD. 2. Commodities remainby EOP competitive.2.3. ERR on new 2.3. VOC module - subinvestments increased. component of HDM.2.4. Reduction in the 2.4. Annual statistics byproporion of core network RHD.in poor condition frorn 40%to 10% by EOP.

Outputs (Outputs to Objective)A. Physical Developments:Al. Priority roads and 1.1. NHB road (501an) 1.1. 1. Monthly Progress 1. Stable situation inbridges upgraded constructed by 05/2001 Reports. transport sector.

1.2. Feeder Road A (500km) 1.2.1. Monthly Progress 2. Police is enforcing trafficimproved by EOP. Reports. regulations.1.3. DS road (220hn) 1.3.1. Monthly Progress 3. RHD Staffuse new skills.rehabilitated by EOP. Reports. 4. RHD uses maintenance1.4. Narrow bridges (50 1.4.1. Monthly Progress funds allocated for physicalNo.) widened by EOP. Reports. works in an efficient way.

A2. Previously. constructed 2.1. 1000 kn of completed 2.1.1. Annual reports from 5. Timely implemntation ofroads maintained. roads maintained by EOP. RHD. institutional reforms.

A3. Accident black-spot 3.1. Black-spot alignments 3.1.1. Special reports byareas improved. (30 No.) improved by EOP. RHD.

A4. Weigh bridges installed 4.1. Weigh bridges (15 No.)and operational. instlled and operational by 4. 1.1. Annual reports by

EOP. RHD.4.2. Reduction in 30% of

Banldeh Third Road R c_Wton and MWrAnone Peg. 24

axle load violations by EOP.

B. InstitutionalStrengthening:BI. RHD managment 1.1. New RHD management 1.1.1 Annual reports onstrCture and skls structure impkmented IDC.improved. 1.2. 50No.staffin

maintenance operationtrained.

C Private Sector:C1. Private sectorparticipation increased. 1.1. 10 No. of new

contractors for maintenaeestablished by EOP.

1.2. Local consultingassignments for maintenanceworks increased 50% byEOP.

Project Comonents Inputs: (budget for each (Cmpoents to Outputs)[See Anex 2 for prect cmponnt)description]

A. Physical Developments: A.i.i. 770 km of roads A.1. PIU progress reports. 1. Procurement decisionsA. 1.1. Construct new road, completed by EOP. and contracts implementedrebabilitate existing main A. 1.2. Consultants timely.and feeder roads appointed, designs 2. Land acquisition and RAP

corVpleted, works implemented timely as percontracted, and supervision IDA guidelines, and RHDin place. staffed adequately to handle

resettlement issues.A.1.2.1. 50 No. bridges and A.2. PlUprogress reports. 3. Timely and adequate

A. 1.2. Widen narrow culverts widened by EOP. counferpart fundingbridges and culverts. A. 1.2.2. Consultants provided.

appointed, structures to be 4. Contractors andwidened selected, design consultants performprepared, works contracted according to contractualand supervision in place. agreements.

5. Consensus by variousGOB ministries in the need

A.2. 1. 1000 km of roads A.2. PIU progress reports. to restructure RHD.A.2. Maintain previously maiained by EOP.constructed roads (RRMP-1 A.2.2. Consultants& RRMP-2) appointed, roads to be

maintained selected, designprepared, works contractedand supervision in place.

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A.3. 1.30 No. accident A.3. PIU progress reports.A.3. Inprove accident black- black-spot locationsspot areas. improved by EOP.

A.3.2. Consultantsappointed, black-spotlocations selected, designprepared, works contractedand supervision in place byEOP.

A.4.1. Equipment procured A.4. PIU progress reports.A.4. Purchase equipment for for weigh bridges, roadaxle load controL road safety safety, and police traing byand police training. EOP.

A.4.2. Consultantsappointed, design preparedand works contracted andsupervision in place.

B. Technical Assistance: B. 1.1. Consultants appointed B. 1. IDC reports to RHD.B. 1. Provide technical to assist RHD for policyassistance for Policy support relating to axle loadsupport, Instunl control, and rationalizationDevelopment and Project of RHD plant, equipmentPreparation and and ferry operations.Inplementation Support.

B. 1.2.1. Consultantsappointed to assist RHD forInstitutional Strgthening ofRHD.B. 1.2.2. New structure forRHD implemented inaccordance with previousstudy, by EOP.

B.1.3.1. Consultantsappointed fordesign/supervision servicesof related contracts andstudies.B. 1.3.2. Training providedto RHD and local staff byend 2001.

Bngldsh ThiRd Road R*AIItdln an MuMm Pa 26

Annex 2Bangladesh Third Road Rehabilitation and Maintenance Project

Detailed Project Description

Project Component 1 - Civil Works - US$441.5 million (total cost of component)

(a) Constrcton of Nalka-Hatikamrul-Bonpara Road (US$72.9 million): This icludes several categonesof civil works including site preparation, carthworks, pavement, culverts and bridges. This 54.75 kan of roadwill provide link with the westem approach of Jamuna Bridge from Nalka Bridge to connect NationalHighway NS at Haikrul (4.25 km of reconstruction of existing road) and N5 to Bonpara (50.5 km on acompletely new alignment).

(b) Rehabilitation of Feeder Road 'A' (F;RA) in Northwest and Southwest Regions of Bangladesh(US$96.0 million): This includes several categories of civil works including site preparation, earthworks,pavement, culverts and small bridges to improve about 500 km of existing feeder roads, which provideaccess from the national and regional roads to connect with Feeder Roads 'B' (FRB) at Thana centers.These 500 km of FRAs have been identified as ones with the highest priority in the north-westem and south-westem regions of Bangladesh from a FRA Improvement Master Plan prepared under the IDA financedSecond Road Rehabilitation and Maintenance Project (RRMP-II).

(c) Rehabilitation of Dhaka-Sylhet Road (US$178.5 million): This includes several categories of civilworks including site preparation, earthworks, pavement, culverts and bridges to rehabilitate the existing 250km of National Highway N2 from Katchpur to Sylhet, which links with the Indian border at Tamnabil.

(d) Reconstruction of narrow bridges on periodic maintenance contract roads (TJS$11.6 million): Thisitem includes several categories of civil works including site preparation, earthworks, piling, structuralconcrete and masonry works for the rehabilitation/reconstruction of about 1000 meters of existing culvertsand small bridges and widening of the approach roads to some of these bridges and culverts on regionalroads, where periodic maintenance work has been completed under IDA financed RRMP-I and RRMP-II.This component is proposed to be financed by DFID (U.K.) due to their on-going involvement with RHD'ssmall bridge construction program.

(e) Maintenance of National and Regional roads in the Project Area (US$70.9 million): This includesseveral categories of civil works including site preparation, bituminous pavement works (i.e. seal coat,surface dressing, bitumen carpet, etc.) for the repair and maintenance of about 1000 km of national andregional roads, based on priority determined by HDM.

(t) Road Safety (US$11.6 million): The main focus of this item includes improvement of accident black-spot areas, traffic calming around built-up areas, provision of reflectorized road markings and traffic signson national and regional highways completed under RRMP-I and RRMP-II.

(g) Land acquisition and resettlement, and relocation of utilities (US$37.0 million): This item includesland acquisition and resetement of affected persons along the right-of-way required for the roadwayconstruction and improvements, and also for the rehabilitation of any utilities within the right-of-way. Thisitem will be fully financed by the GOB.

1agladmh Third Road RohabilIan and Mni_wm Pop 27

Project Component 2 - Equipment -USS8.4 million (total cost of componet)

(a) Axle load control equipment (US$2.4 million): This item includes the procurement of axle lad controlequipt and its inslation at selcted locations of the road network.

(b) Reflectorized traffic signs and thermoplastic road markings (US$2.4 million): This item includes theprocurement and isllation of reflectorized traffic signs at critical locations of the road network and theprovision of reflectorized thermoplastic road markings on newly constructed and rehabilitated roads toimprove the road safety situation Bangladesh.

(c) Police training equipment (US$3.6 million): This item includes the procurement of an assortment ofequipnent for the training of the police force in improving the enforcement of traffic mles and rglatins.

Project Component 3 - Technical Assistance - US$41.6 million (total cost of component)

(a) Policy support (US$0.l million): This item consists of: (i) carrying out an Axle Load ControlM _anagent Study and based on its recommendation implement an axle load control program, includigUraing program for weigh bridge operation; and (ii) carrying out a Study for the ratioaliz of RHD's

plant, equipment and ferry operations. The recommendations of these two sxdies will be implmnedduring the project period. The studies will be financed by DFID.

(b) Institutional Development Support (US$l1.L million): This item, financed by DFID, would be a followup to the existing technical assistance being provided to RHD under the on-going IDA financed RRMP-II.Under this item long term technical assistance will be provided to RHD to continue with the organilimprovements within RBD to strengthen its capacity for improved maintenance and road safety; improveRHD's financial management systems; and provide the necessary technical assistance to strengthen theNational Traffic Police Training Center.

(c) Project Preparation and Implementation (UJS$30.2 million): This wiNl consist of consultancyassistance for: (i) supervision of construction of Nalka-Hatikamnul-Bonpara road; (ii) supervision ofconstruction of Dhaka-Sylhet road; (iii) supervision of construction of FRA roads and preparation of designand tender documents for Years 2, 3 and 4 FRA improvement programs; (iv) supervision of implentationof road safety components and axle load control measures; and (v) preparation of the Dhaka Bypass Projectand follow-up project.

(d) Training (TJS$0.2 million): For taining of project staff.

kngmdgltThird Rea Rehabm ud M _andeIance Pop 26

Annex 3Bangladesh Third Road Rehabilit