Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No: 29742-IN

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT IN THE AMOUNT OF SDR 206 MILLION

(USS300 MILLION EQUIVALENT)

AND PROPOSED LOAN IN THE AMOUNT OF US$ 100 MILLION

TO THE

GOVERNMENT OF INDIA

FOR A

RURAL ROADS PROJECT

August 16,2004

Energy and Infrastructure Unit India Country Management Unit South Asia Regional Office

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

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ADB ARCS C A A A CAO CAS CBO CPAR CQ DEA DS ECOP EMP EOP ERR ESA

ESMF

FM FMR FMS GO1 HP HQ IBRD

I C B ICR IDA IRC IT M&E MERR

CURRENCY EQUIVALENTS (Exchange Rate Effective July 15, 2004)

Currency Unit = Rupee (Rs.)

US$l.OO = Rs. 45

1 Crore (Cr.) = 10,000,000

Rs.l.OO = US$0.22

1 lakh = 100,000

FISCAL YEAR April 1 - March 31

ABBREVIATIONS AND ACRONYMS Asian Development Bank Audit Reports Compliance System Controller o f Aid, Accounts and Audit Chief Accounts Officer Country Assistance Strategy Community Based Organization Country Procurement Assessment Review Selection Based on Consultants' Qualification Department o f Economic Affairs Deputy Secretary Environmental Codes o f Practice Environmental Management Plan End o f Project Economic Rate o f Return Environment and Social Assessment

Environment and Social Management Frame work Financial Management Financial Monitoring Reports Financial Management System Government o f India Himachal Pradesh Headquarters International Bank for Reconstruction and Development International Competitive Bidding Implementation Completion Report International Development Association Indian Road Congress Information Technology Monitoring & Evaluation Modif ied Economic Rate o f R e m

MORTH MORD M o U MTR NBF N C B NGO N P V NRRDA O M OMMS PCI P I U PMGSY PRI

P W D

QBS QCBS QPR RDD REO R E S R M S

R&R SBD SFB SOM SRRDA up voc

Ministry o f Road Transport & Highways Ministry o f Rural Development Memorandum o f Understanding Mid-Term Review N o n Bank Financed National Competitive Bidding N o n Government Organization Net Present Value National Rural Road Development Agency Operational Manual On-line Monitoring & Management System Pavement Condition Index Program Implementation Unit Pradhan Mantri Gram Sadak Yojana Panchayat Raj Institution (3 tiers o f local government) Public Works Department

Quality based Selection Quality and Cost Based Selection Quarterly Progress Report Rural Development Departments Rural Engineering Organization o f Jharkhand Rural Engineering Services o f Uttar Pradesh Road Management System

Resettlement & Rehabilitation Standard Bidding Document Selection under a Fixed Budget Supplemental Operations Manual State Road Rural Road Development Agency Uttar Pradesh Vehicle Operating Costs

Vice President: Praful C. Pate1 Country Director: Michael F. Carter,

Sector Director: Vincent Gouame Piers A. Vickers Task Team Leader:

FOR OFFICIAL USE ONLY

INDIA R u r a l Roads Project

CONTENTS

Page STRATEGIC CONTEXT AND RATIONALE ..................................................................... 1

1 . . Country and sector issues .................................................................................................. 1

2 . Rationale for Bank involvement ....................................................................................... 2

3 . Higher level objectives to which the project contributes .................................................. 3 PROJECT DESCRIPTION ..................................................................................................... 4

1 . 2 . Program objective and Phases .......................................................................................... 4

3 . Project development objective and key indicators ............................................................ 5 4 . 5 . Lessons learned and reflected in the project design .......................................................... 5 6 . Alternatives considered and reasons for rejection ............................................................ 6

A .

B . Lending instrument ........................................................................................................... 4

Project components ........................................................................................................... 5

C . IMPLEMENTATION ............................................................................................................. 6

Partnership arrangements (if applicable) .......................................................................... 6

Monitoring and evaluation o f outcomeshesults ................................................................ 8 4 . Sustainability ..................................................................................................................... 8

5 . Critical r isks and possible controversial aspects ............................................................... 9

6 . Loadcredit conditions and covenants ............................................................................. 10

D . APPRAISAL SUMMARY ................................................................................................... 11

1 . Economic and financial analyses .................................................................................... 11 2 . Technical ......................................................................................................................... 12

3 . Fiduciary ......................................................................................................................... 12

4 . Social ............................................................................................................................... 13 5 . Environment .................................................................................................................... 14

6 . Safeguard policies ........................................................................................................... 16

7 . Policy Exceptions and Readiness .................................................................................... 16

Th is document has a restr icted d is t r ibut ion and may b e used by recipients on ly in the performance o f the i r of f ic ia l duties . I t s contents may n o t be otherwise disclosed wi thout W o r l d Bank author izat ion .

1 . 2 . Institutional and implementation arrangements ................................................................ 7

3 . . . .

Annex 1: Country and Sector Background ................................................................................... 17

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies .......................... 23

Annex 3: Results Framework and Monitoring .............................................................................. 24

Annex 4: Detailed Project Description ......................................................................................... 29

Annex 5: Project Costs .................................................................................................................. 32

Annex 6: Implementation Arrangements ...................................................................................... 33

Annex 7: Financial Management and Disbursement Arrangements ............................................ 35

Annex 8: Procurement .................................................................................................................. 41

Annex 9: Economic and Financial Analysis ................................................................................. 46

Annex 10: Safeguard Policy Issues ............................................................................................... 57

Annex 1 1 : Project Preparation and Supervision ........................................................................... 59

Annex 12: Documents in the Project Fi le ..................................................................................... 61

Annex 13: Statement o f Loans and Credits .................................................................................. 62

Annex 14: Country at a Glance ..................................................................................................... 67

INDIA

RURAL ROADS PROJECT

PROJECT APPRAISAL DOCUMENT

SOUTH ASIA REGION

SASE1

Date: August 16,2004 Team Leader: Piers A. Vickers Country Director: Michael F. Carter Sectors: Roads and highways (100%) Sector Director: Vincent Gouame Themes: Rural services and infrastructure (P) Project ID: PO77977 Environmental screening category: A - Full

Assessment Lending Instrument: Specific Investment Loan Safeguard screening category: S2 - Limited

impact

Project Financing Data [XI Loan [XI Credit [ ] Grant [ ] Guarantee [ ] Other:

For Loans/Credits/Others: Total Bank financing (uS$m.): 400.00 Proposed terms: Loan - VSL, 20 years to maturity, five years grace Credit - Standard Credit, 35 years to matwity,lO years grace

INTERNATIONAL BANK FOR 70.40 29.60 100.00 RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT 211.20 88.80 300.00 ASSOCIATION

Sub Total: 330.08 1 18.40 448.48 PARTICIPATING STATES 237.44 0.00 237.44

Total 567.52 11 8.40 685.92 Borrower: GOVERNMENT OF INDIA

Responsible Agencies: Mr. S. Vijay Kumar, Joint Secretary, Ministry o f Rural Development, Government o f India, Fax No. 91 11 2309 7029 Mr. S. Negi, Principal Secretary, Public Works Department (PWD), Government o f Himachal Pradesh, Shimla, India Fax No. 91 177 262 1907 Mr. U.P. Singh, Secretary, Rural Development Department, Government o f Jharkhand, Ranchi, Fax No. 91 651 240 3245 Mr. H.L. Mina, Secretary, PWD, Government o f Rajasthan, Jaipur, India Fax No. 91 141 222 7635 Mr. A.K. Gupta, Principal Secretary, Rural Development Department, Government o f Uttar Pradesh, Lucknow, India Fax No. 91 522 223 9283

Expected effectiveness date: Expected closing date: March 31,2010

Does the project depart f rom the CAS in content or other significant respects?

December 3 1 , 2004

,vpc rK, Nn

Does theproject require any exceptions from Bank policies? Re$ PAD D. 7 Have these been approved by Bank management? I s approval for any policy exception sought from the Board? Does the project include any critical risks rated “substantial” or “high”? Re$ PAD C.5 Does the project meet the Regional criteria for readiness for implementation? Re$ PAD D. 7 Project development objective Re$ PAD B.2, Technical Annex 3

[XI [XI

N o N o N o

N o

[XIYes

The project development objective i s to achieve broader and more sustainable access to markets and social services by the rural population in participating districts.

Project description - Re$ PAD B.4, Technical Annex 4 The project has three components:

1. New Connection and Upgrading. Construction and improvement o f about 9,900 km o f rural roads that form part o f the core rural road network in participating districts, including necessary environmental and social management measures, Resettlement and Rehabilitation (R&R) o f any project affected persons, and technical review o f rural road agency designs and supervision;

2. Maintenance of Core Network. Annual implementation o f periodic and routine maintenance programs o f the remaining core rural network (about 100,000 km) in participating districts; and

3. Institutional Development. Technical assistance and goods to: (a) participating rural road agencies to help them plan, procure, supervise and report on their maintenance programs, including environmental and social management; (b) local contractors for training in planning, technical and environmental areas; and (c) to the MORD to further strengthen its capacity in program management, particularly in the areas o f environmental, social, financial and procurement management as we l l as poverty impact assessment.

Which safeguard policies are triggered, if any? Re$ PAD D.6, Technical Annex 10 Environmental Assessment Natural Habitats Cultural Property Involuntary Resettlement Indigenous Peoples Forests

Significant, non-standard conditions, if any, for: Re$ PAD C.6, Page 10

Board presentation: None

Loadcredit effectiveness: None

Covenants applicable to project implementation: See para C6, Page 10

A. STRATEGIC CONTEXT AND RATIONALE

1. Country and sector issues

An estimated 300,000 habitations out o f the 825,000 habitations’ in India are without al l weather road access. While some states have relatively high reported levels o f connectivity, the rural population o f ten states - Assam, Bihar, Chattisgarh, Himachal Pradesh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh and West Bengal - suffer from poor physical access due to lack o f al l weather roads. This constrains economic activities in rural areas and prevents the rural population, who constitute the majority o f India’s poor, f rom being f i l ly integrated into the economy and accessing essential services.

Rural road management requires adequate planning, survey and design, good coordination between multiple hnding streams and an efficient decision making process. Although there has been substantial investment over the years, an adequate rural road network has s t i l l not been achieved.

Current l o w levels o f access are partly a result o f a lack o f adequate maintenance on the existing large rural road network o f approximately 2.7 mi l l ion km. More resources are often steered towards new construction rather than for preserving existing roads. The l i t t le money that i s allocated for maintenance has often been poorly utilized due to an absence o f proper planning and implementation and lack o f the application o f a core network policy. As a result o f poor maintenance practices, the development outcomes from the substantial rural road investments in the past have been far less than expected.

Progress in decentralization o f rural road management has also been slow. The responsibility for managing rural road networks typically overlap or i s divided between several agencies - Public Works Departments, Rural Development Departments, Forest, Irrigation and various other Agriculture Departments as wel l as local government bodies. This reality is often not in tune with the decentralization pol icy o f the country. Constitutionally, the management o f rural roads was entrusted to the Panchayat Raj Institutions (PRIs), the three tiers o f local governing bodies, after the passing o f the 73rd Amendment to the Constitution in 19922. State governments should enact state level legislation to ensure implementation o f the decentralization policy. Yet, almost al l state governments retain ownership o f the majori ty or al l o f the l o w volume roads in their states and their field staff report to officials in state capitals rather than to those locally appointed or elected. This leads to diffused accountability for the condition o f the rural road network.

The rural road sector also suffers from relatively low levels o f technical capacity in many areas due to poor human resource management and often weak career prospects as a result o f overstaffing, frequent transfers and lack o f specialization. As a result, many rural road agency f ield engineers need to upgrade their technical and contract management s k i l l s and more specialized staff such as for procurement, environment and social management need to be

A habitation i s defined under the Program as a cluster o f population, l iv ing in an area, the location o f which does not change over time. The population o f a l l habitations within a radius o f 500 meters (1.5 km o f path distance in case o f hill areas) i s added together for the purpose o f determining population size. The cluster approach enables provision o f connectivity to a larger number o f habitations, particularly in hilly or mountainous areas. ’ The three tiers of local government are the district, sub-district (block) and village levels.

inducted into agencies. L o w levels of technical capacity hinder the ability o f road agencies to absorb new investment funds as wel l as prevent better maintenance.

Central Government Strategy. To address the poor rural accessibility in a more systematic way, the Prime Minister’s Rural Road Program (Pradhan Mantri Gram Sadak Yojana, PMGSY) was announced in late 2000. The PMGSY sought to achieve al l weather access to every habitation with a population greater than 1,000 by the end o f 2003, and al l habitations of greater than 500 people (250 people in hill states and tribal areas) by the end o f 2007. The Ministry o f Rural Development (MORD) has been tasked with designing the program strategy and overseeing actual implementation by states and district bodies. The PMGSY seeks not only to contribute to increased levels of connectivity but to significantly improve the planning and management o f rural roads3.

Whi le not meeting its ambitious first phase targets, the PMGSY has made good progress in its first three years o f implementation. Of the 64,800 habitations o f population 1,000 and above unconnected as o f December 2000 which were planned to be connected by the end of 2003, works o n 22,100 are either completed or close to completion. The program has also finded the works for connecting another 24,300 habitations with populations o f less than 1,000. The program has not been able to meet the target as defined in the pol icy statement mainly due to the shortfall in the availability o f funds as wel l as the implementing capacity constraints o f road agencies and contractors. Moreover, there remains a challenge to develop an effective government strategy in addressing the issue o f inadequate maintenance on rural roads. Some indicators o f PMGSY implementation perfonnance in four states are shown in Table 2 o f Annex 1.

Funding Gap. The most recent estimate suggest that the total investment required to meet the PMGSY targets i s o f the order o f Rs.1,300 bi l l ion (US$28.9 billion). In 1999, a one rupee cess (2.2 U S cents) on every liter o f diesel and petrol sold was imposed by the Government o f India This was further increased by a ha l f rupee in FY 2003-04. In 2000, a Central Road Fund (CRF) Act was promulgated to direct the resources obtained through this cess to the improvement o f national and state highways as we l l as rural roads. By law, 50 percent of the diesel cess i s directed towards rural road development, a s u m amounting currently to about Rs.3 1,500 m i l l i on (US$700 million) per year, about one third o f total CRF revenues. W h i l e the timeframe for completion o f the PMGSY is currently being re-evaluated in the light o f the latest estimate of the total requirement, any reasonable timefi-ame will require substantially more funds than available through the cess. The MORD is therefore seeking domestic and external borrowing to deliver the program.

2. Rationale for Bank involvement

The Bank has had a constructive dialogue with the MORD in the development and refinement o f the PMGSY since its inception, including in the areas o f the adoption o f a core network approach to concentrate resources, quality management processes, road design, procurement and financial management procedures and the beginnings o f a real national debate on rural road maintenance.

See guidelines available at www.rmgsy.nic.in

2

At present, the allocation process o f the PMGSY is driven largely by the need to meet the Program’s connectivity targets in as equitable a way as possible. Allocations and disbursements to states are based on investment need, plus a loose mechanism that seeks to link funding to indicators o f performance under the PMGSY. PMGSY guidelines do state that specification and enforcement o f a satisfactory mechanism to promote funding and other assistance for the proper maintenance o f PMGSY assets i s key to the program. The guidelines also speak o f maintenance o f the entire core rural roads network. However, no corresponding mechanism for linking PMGSY funds to implementation o f maintenance o f the whole core rural roads network exists. Yet, sound overall rural road management i s essential if the PMGSY targets are to be met. For example, States may find themselves building new roads only marginally faster than existing roads deteriorate due to lack o f maintenance. A s a centrally sponsored scheme, the Government o f India (GOI) has yet to find a means to effectively link the substantial increase in resource transfer presented by the PMGSY to encourage better asset management. The Bank, as an independent external financier with a reputation for insisting on sound asset management, can introduce through the project the notion o f partly linking PMGSY grants to sound management o n al l the core rural road network.

The project seeks to facilitate sector planning and management reforms in participating states. In addition, the approach being proposed under this project o f collaborating with the MORD at a national level rather than merely working at the state level provides the additional opportunity for scaling up reforms across the country. By demonstrating the value o f sector reforms in pi lot states or districts in a partnership with the GOI, the likelihood that similar reforms are implemented as a result o f GOI‘s own funding through PMGSY i s greatly enhanced.

Finally, the GO1 has set itself ambitious connectivity targets that require substantial additional resources if they are to be met on time. The Bank, both through IDA and as needed through IBRD, has the financial capacity to contribute to the public investment in this huge public good.

3. Higher level objectives to which the project contributes

The PMGSY i s one o f the key investments la id out in the transport chapter o f the GOI’s Tenth Plan4. This highlights the importance o f reducing the disparities in physical access in rural areas, the need to shift management responsibilities to local government as well as adequately fund rural road maintenance, and identifies the likelihood that external borrowing will be required to deliver the program to time.

The project is consistent with the Bank Group Country Assistance Strategy (CAS, Report No. 21852-IN) discussed by the Executive Directors o n December 5, 2001 and the new CAS i s due to be discussed on August 26, 2004. The project will strengthen the enabling environment for development and poverty reduction by accelerating rural growth. The proposed project i s expected to contribute to the CAS objective for poverty reduction in India through two channels, First, the proposed rural road improvements will contribute to the development o f economic activity in project areas by enhancing mobi l i ty and thus providing more opportunities for employment, trade, specialization and growth within the rural economy. Second, improved rural roads wil l provide better physical access to basic services and thereby increase the quality o f l i fe of the poor in the project influenced areas.

See l iM,:i~w~w.plan~iit iscommiss~on.nic,i~’~lanslplanrel~five~~l Oth’volunie2iv2 ch8,,,-3 .pdf

3

This project i s being proposed as the f i rst in a series o f credits/loans to support the Government o f India's program o f total rural connectivity over the next five to seven years.

B. PROJECT DESCRIPTION

1. Lending instrument

A Specific Investment Loan (SIL)/Credit has been chosen for this first investment in the PMGSY. The rationale for this choice i s that while as an ongoing GO1 program the PMGSY offers the opportunity for a Sector Wide Approach (SWAP), there are some remaining procedural differences between Bank and GO1 financed road sub-projects that are currently being reduced with the expectation o f full harmonization in the future. Moreover, the desire by al l parties to focus on the least connected states and districts requires a focusing o f resources that can be achieved through a SIL. Other instruments may be explored for subsequent Bank funding o f the Program.

For the IBRD portion o f the Loan, the Borrower has chosen the financial terms on the basis o f their expectations o f future exchange and interest rate changes.

Given the large shortfall in the current PMGSY financial plan, the size o f financial support has been determined principally by state implementing agency capacity to disburse funds effectively and efficiently taking into account the l ikely funding flows that GO1 will make available to these states over the project period.

2. Program objective and Phases

The PMGSY i s a 100% centrally sponsored scheme implemented by state agencies under the overall supervision o f the Ministry o f Rural Development that seeks to achieve al l weather access to every habitation with a population greater than 500 people in plain areas and a population greater than 250 people in hill, desert and tribal areas. The estimated cost o f the program is about Rs. 1,330 b i l l ion (US$28.8 billion). The PMGSY has been running for three years and has so far connected about 35,000 habitations across the country. Details on the management, planning and implementation o f the program are available on line5.

This project is being proposed as the f i rst in several credits/loans to the Government o f India to support the implementation o f the PMGSY. This first project will provide funds, additional to existing Government o f India transfers, to 60% o f the districts in four o f the most poorly connected states - Himachal Pradesh, Jharkhand, Rajasthan and Uttar Pradesh. The scope o f the project may be expanded to cover additional districts at the request o f the Government o f India and in agreement with the Bank, subject to satisfactory performance in implementation. The scope o f the project may also be expanded to cover additional poorly connected states (e.g. Bihar).

Subsequent lending may be in the form o f a SWAP subject to a agreements being reached in a number o f pol icy and operational areas between the Government o f India, recipient states and the Bank as outlined in Annex 1.

See 1ittp:iiwww.pniesv.nic.in

4

3. Project development objective and key indicators

The project development objective is to achieve broader and more sustainable access to markets and social services by the rural population in participating districts.

The indicators that wil l be used to measure performance in achieving the development objective are (see Annex 3):

(i) percentage o f eligible habitations in project areas with al l weather access to social services and markets;

(ii) percentage o f through routes in the core rural road network in participating districts in fair or better condition; and

(iii) level o f stakeholder satisfaction with rural road network in participating districts.

Baseline data for the f i rst two indicators have been collected and for the remaining one efforts are under way to collect data.

4. Project components

The table below shows the project components and associated financial estimates. Annexes 4 and 5 provide further details on each major component.

4.5 4. Incremental operating costs for new construction

I 0.2 1 430.9 I 386.9 I 96.7 1 43.0 I 88.7 I 1.0 1. New connection and I upgrading

0.0 0.0 4.0 8.3 0.4 0.2

_ - - I I I I I I I

2. Maintenance o f core network1 236.0 I 0.0 I 0.0 I 0.0 I 0.0 I 236.0 I 99.4

5. Front end fee

Total.

I 3. Institutional development I 13.6 I 12.1 I 3.0 I 1.5 I 3.0 I 0.0 1 0.0

1 .o 1 .o 0.2 0.0 0.0 0.0 0.0 685.9 400.0 100.0 48.5 100.0 237.4 100.0 P

5. Lessons learned and reflected in the project design

The project design has benefited from experience gained from previously Bank financed projects as wel l as progress in implementing the PMGSY to date. The fol lowing key lessons are reflected in the project design: (i) state government commitment to adequately fund and undertake rural road maintenance i s essential for sustainability; (ii) focused investments over a manageable area are more effective and create more impact than thinly spread investments over a lager area; (iii) there i s considerable scope for reducing construction costs through adopting optimal design standards and promoting the use o f local materials specially for l o w trafficked rural roads; (iv) independent monitoring o f quality o f road designs and construction i s effective in enhancing the quality o f construction; (v) a reliable and comprehensive data-base is essential for making sound investment decisions and promoting improved management o f rural roads; and (vi) capacity building and training o f implementing agency staff in al l aspects o f rural road management i s crucial for project implementation.

5

6. Alternatives considered and reasons for rejection

Alternative project areas - selection of states and districts. Four states - Himachal Pradesh, Jharkhand, Rajasthan and Uttar Pradesh - have been identified by the GO1 and Bank as recipient states based on their l ow levels of connectivity for inclusion under the loan. However, other states may also receive funding, provided they subscribe to the preparation and implementation process prescribed for this project. To focus resources, Bank funding will be limited to a maximum of the most poorly connected 60% o f districts.

Alternative mechanisms to impose incentives on states to reform. The GO1 and Bank are keen to see that Bank financial support acts as a lever or catalyst for state reform o f the rural road sector. A port ion of the loadcredit i s to be allocated between states on the basis o f performance. The structure o f this mechanism i s shown in Annex 4. The MORD has stated i t s intention that the Bank funds will be entirely incremental to GO1 funds. In other words, GO1 funding for these states, over the project period, wil l remain in the same proportion as currently made available and Bank funds will not replace GO1 funds.

Alternative types of rural road works. The PMGSY guidelines state that the intention o f the program i s to focus on achieving broader connectivity o f the rural population through primarily new rural road construction. Upgradation (widening andor changing the surface type) of existing roads (eligible under PMGSY) and rehabilitation (rebuilding to original design standard which is not eligible under PMGSY), although at times critical to the utility o f new village connections and with higher rates o f return, are accorded lower priori ty in the current guidelines. However, core rural road networks in each district have been prepared and endorsed by state governments. Whi le Bank funds, along with GO1 funds, will focus on new construction and upgrading, State funds for rehabilitation and maintenance are programmed to complement these transfers such that a whole o f core network approach i s achieved.

Alternative implementation arrangements have been considered in designing the project. The existing arrangements as applied on the PMGSY will be largely used for the Bank financed project, with two major changes. First i s the introduction o f a strengthened independent review o f key aspects o f the sub-project cycle. This is to be achieved through commissioning by each state o f multi-disciplinary teams o f independent technical examiners to monitor a l l technical, financial and safeguard aspects o f sub- project screening, design and supervision. Second, technical assistance i s to be provided to these four states to help prepare and implement complementary state funded rehabilitation and maintenance programs.

Alternative implementation arrangements.

C. IMPLEMENTATION

1. Partnership arrangements (if applicable)

At the end o f 2003, the Asian Development Bank (ADB) committed US$400 mi l l ion o f support to the PMGSY in two o f the most poorly connected states (Chattisgarh and Madhya Pradesh). ADB intends to support the PMGSY in up to a further three o f the least connected states, probably during 2005. The financing by both ADB and as proposed under this Bank project are essentially parallel funding streams although implementation arrangements for GOI, ADB and Bank financed roads are substantially the same.

6

2. Institutional and implementation arrangements

There will be four main implementing agencies for this project consisting o f the State Rural Road Development Agencies (SRRDAs) o f the four states working through their respective government departments (Public Works Department o f Himachal Pradesh, Rural Engineering Organization o f Jharkhand, Public Works Department o f Rajasthan, Public Works Department o f Uttar Pradesh and Rural Engineering Service Department o f Uttar Pradesh). In addition, the National Rural Road Development Agency (NRRDA) will also implement some small consulting and training activities. The detailed implementation arrangements are set down in an Operational Manual for the PMGSY as a whole as wel l as a Supplemental Operations Manual for Bank funded activities. More detail i s available in Annex 6.

At the central level, the MORD is responsible for overall oversight and coordination o f the PMGSY and al l components o f this project. The M O R D team i s headed by a Joint Secretary with a small number o f largely non technical support staff. In 2002, the MORD established NRRDA as a registered society. The purpose o f the NRRDA i s to monitor progress and to act as a repository o f technical expertise and has increased its staffing more recently to reflect the increasing workload under the program. The M O R D has constituted a Inter-ministerial Empowered Committee, chaired by the Secretary MORD, to sanction state sub-project proposals.

At the State level, the agencies noted in Table 1 in Annex 6 are responsible for various aspects o f the PMGSY. The nodal departments play a coordinating role only and provide secretarial support to state level Empowered Committees, chaired by respective Chief Secretaries. The SRRDAs as the implementing agencies are responsible, t h o u g h the f ield divisions o f respective road agencies, for preparing, procuring and supervising PMGSY works which are to be undertaken through competitive tendering to private contractors. State Technical Agencies (STAs) are responsible for vetting project reports. Each implementing agency has created specific Program Implementation Units (PIUs) in each district to implement the PMGSY program and the same units wil l be responsible for the Bank f inded sub-projects. The SRRDAs will be responsible for procuring and managing consultants to undertake independent technical review o f works under this component.

Maintenance Component. The same agencies will be responsible for implementing the maintenance component through both force account for routine works (in HP, Rajasthan, Jharkhand and UP) and the private sector for periodic works.

Institutional Development Component. All central and state implementing agencies wil l be involved in this component. Consultants will be selected by state implementing agencies to support the development o f state and district capacity to manage and finance maintenance programs. The NRRDA will hire consultants as necessary to fulfil specific research, monitoring or other technical needs.

Funds Flow. The PMGSY guidelines o f January 2003 set out the financial and funds flow arrangements for the program which will also be applicable to Bank funds. The PMGSY is budgeted as a single line i tem o n the MORD’s Plan account. Funds from the MORD to States flow through regular banking channels outside the treasury system o f the concemed state government. Funds are released in two more or less equal installments per year and after the f i rs t tranche, utilization certificates are submitted by the State for releasing subsequent tranches. A

New Construction Component.

7

state level autonomous agency (SRRDA) has been set up in each state that will hold, account and report for the funds released under the program.

3. Monitoring and evaluation of outcomedresults

The MORD has already put in place the basic structure for a solid monitoring framework based on continuous project implementing unit reporting o f key physical and financial data captured and disseminated through a web-based On-line Monitoring and Management System (OMMS). This i s available for public viewing online (www.pmgsy.pra). The system adds considerably to transparency in the program and the quality o f the data i s fairly robust. This project will add one additional layer to this monitoring and evaluation system that seeks to demonstrate the impact o n poverty that the program i s achieving.

4. Sustainability

The main measure o f sustainability o f the project investment i s whether the rural roads financed under the project remain al l weather roads and with a satisfactory riding quality for the duration o f their design lives o f ten years - this will be dependent on their design, construction and maintenance. Furthermore, for rural accessibility to increase in the project areas overall, the maintenance component o n the existing core rural road network needs to be implemented satisfactorily.

The physical sustainability o f project investments will be ensured through: (i) sound design and construction according to appropriate standards; and (ii) motivating the establishment and use o f effective maintenance regimes. Technical monitoring consultants wil l oversee compliance to specification during design and supervision. The GO1 and Bank funded contracts under PMGSY include a five year maintenance program to be implemented by the contractor who carried out the main contract and this i s to be financed by the respective state. A portion o f Bank funding for PMGSY i s contingent on adequate state and local implementation o f an agreed maintenance regime o n their core networks in project areas. Technical assistance at national, state and district levels will seek to build capacity in critical areas.

At the national level, there are many indications that the GO1 and MORD are committed to the efficient and effective implementation o f the PMGSY o n schedule:

a imposition o f a new cesses o n fuel to raise resources for the PMGSY in 1999 and 2003 and subsequent expenditure o f about $2.2 billion to date on delivering the PMGSY over the last four years; about 33,000 separate road links with value o f about Rs.13,500 mi l l ion are under implementation o f which about 13,500 road links are complete totalling approximately 20,000 km o f roads with a further 30,000 km under construction; preparation and use o f detailed planning guidelines and a Rural Roads Manual, with a focus o n a core rural road network approach to help prioritize al l forms o f spending o n rural roads; enforcement o f a three tier quality supervision and monitoring mechanisms; application o f standard procurement procedures and financial management system; substantial progress with establishing an OMMS with nine modules covering all aspects o f the PMGSY and available to the general public through the web; and

e

a

a a

e

8

e release o f PMGSY funds to states has at least partly been determined by state performance.

These actions have meant that the PMGSY has already introduced a much higher standard o f technical and financial management into parts o f the sector. Moreover, recently the MORD has increasingly shown commitment to use the PMGSY where possible to address the problem o f rural road maintenance. The MORD has hosted three regional maintenance workshops to help prepare a generic rural road maintenance pol icy for adaptation and endorsement by states and are now considering ways in which the PMGSY funds can influence states to take maintenance more seriously.

Risk

The fol lowing indications o f commitment have been demonstrated at the state level:

0 each state has a dedicated project team at HQ to look after the PMGSY including the Bank funded portion;

e all four State Governments endorsed a Project Preparation and Implementation Framework in early 2003 that sets down the basic objective, elements and performance monitoring mechanisms for the provision o f Bank funds to the PMGSY; and State Governments have approved State level maintenance action plans that seek to address in a comprehensive manner the current deficiencies in policy and practice and find ways to adequately finance maintenance.

Critical risks and possible controversial aspects

e

5.

Risk Mit igat ion Risk Rating after

Mit igat ion

Enforce mechanism that l i n k s Bank f inding for new construction to State funding for maintenance.

~

T o Development Objective States and local governments do not allocate sufficient resources to maintain longer network either because States' fiscal situation deteriorates or for other reasons. Absence o f implementation o f measures to enhance human resource management in areas o f transfers, s k i l l s specialization and personal accountability in rural road agencies. Significant environmental damage or negative social impacts during or after construction due to poor implementation o f Environmental

S

Social Monitoring Framework (ESMF). GO1 and Bank funds for PMGSY crowd out and displace state and district funding and implementation capacity for rural roads. GO1 commitment to PMGSY declines.

Include t e c h c a l assistance to help rural road agencies to undertake institutional reform. Link with other Bank initiatives at State level where available.

S

Proper monitoring and enforcement o f safeguard management measures. Establish standing coordination committees between key departments. Careful monitoring o f a l l funding flows to sector. Agreement wi th GO1 and States on level o f additionality brought by Bank funds. Potentially high impact but low probability risk. Bank can revert to worlung directly with interested States in sector.

M

M

M

9

Risk

T o Component Results Irregular or insufficient f low o f project funds.

Rural road agency staff design road works

Industry/supply side constraints, particularly if

Delayed or improper procurement by rural

poorly or use standards that are not cost effective or environmentally sound.

GO1 funding increases substantially.

road agencies.

6. Loadcredit conditions and covenants

LOANKREDIT

The Borrower shall:

Risk Mitigation Risk Rating after

Mitigation

M Design and implement sound FMS and

Training o f staff. Independent technical

Training o f contractors and wel l considered

Training o f staff. Enforcement o f usual Bank

disbursement procedures. Dedication o f adequate and trained staff for FM at state level.

review o f designs. M

S

M contract packaging and qualification criteria.

remedies where necessary.

Implementation

Overall Risk Rating

- 0 Ensure that the Project i s implemented in accordance with the Supplemental Operations

Manual.

M

Utilization of Funds 0 Allocate funds between participating states for (i) phase 1 o f the project on the basis o f

the criteria adopted for the PMGSY as a whole and (ii) phase 2 o f the project on the basis o f the weightages, performance indicators, targets, and verified achievements thereof as agreed with the Bank.

Monitoring, review and reporting 0

a

0

Maintain adequate staffing for management and monitoring o f the project. Provide to the Bank Quarterly Progress Reports within 45 days o f the end o f each calendar quarter. Make public three times during the project a poverty impact report, using a terms o f reference acceptable to the Bank, the f i rs t such report being the baseline by March 2005, the second such report by March 2007 and the last report by March 2010.

PROJECT

Participating states shall:

10

Accounts 0 (a) Maintain throughout the project period: (i) a finance manager with experience and

qualifications acceptable to the Bank in each participating SRRDA; and (ii) accountants within each PIU receiving Bank funds; and (b) install by September 30, 2005 and thereafter maintain in each PIU receiving Bank funds a computerized financial management system.

Management e

0

Maintain a state level Standing Committee to oversee implementation and make policy decisions; SRRDAs to receive and administer funds. Ensure that the SRRDAs and PIUs have adequate and experienced staff.

Monitoring, review and reporting 0

0

Create and maintain a separate budget line i tem or l ine items for rural road maintenance that allows for the monitoring o f the rural road maintenance component. Make public: (i) annual asset condition reports, and (ii) annual maintenance plans for the core rural road network for every participating district, with content and methodology satisfactory to the Bank - first reports by February 28, 2005 and every February thereafter.

Implementation 0

0

Implement the project in accordance with the Supplemental Operations Manual. Implement the annual rural road maintenance plans in participating districts.

D. APPRAISAL SUMMARY

1. Economic and financial analyses

The P M G S Y program does not apply any specific economic criteria in the selection o f roads. However, the program does mandate a broad prioritization by habitation size through the application o f a comprehensive priority l i s t in each district. Investments in the program are then taken purely in order o f this l ist so the more populated communities and therefore those roads more l ikely to generate traffic, get connected first. T o strengthen the appraisal o f this aspect o f the PMGSY, the Bank undertook a study to estimate the economic benefits o f providing al l weather access roads to different villages in the four selected States to determine the appropriate level o f design standard (investment) which would be expected to have acceptable economic returns. The approach used in the selection o f roads and their design standard, to be funded through this loan, is therefore a mix o f the economic analysis and cost effectiveness criteria. On the basis o f the analysis, the median economic rate o f return for individual sub-projects is around 28% (17% if the modified economic rate o f return i s applied using 12% as both the cost of capital and the reinvestment rate). More detail is available in Annex 9.

Financial Sustainability. The PMGSY program i s a fully GO1 sponsored scheme so its financial sustainability depends on the willingness and ability o f GO1 to raise and allocate funds to effect its delivery. Current estimates suggest that the total investment required to meet the targets is about US$29 billion, or several U S b i l l ion per year if i t i s to be delivered in any

11

reasonable timeframe. These are substantial resource requirements and are unlikely to be feasible for the immediate future. The GO1 expects to fund a significant port ion o f this through a dedicated levy on diesel which raises about US$700 mi l l ion per year, other transfers from the consolidated f h d as wel l donor assistance, including this and subsequent Bank funded projects. The MORD is taking steps to find ways to lower the unit costs o f new roads and thereby reduce the overall program cost. Nevertheless, there i s st i l l a need to use borrowing to spread the costs of this investment over a longer timeframe.

Fiscal Impact. During a five year routine maintenance period, which includes the constructioddefects liability period, State governments are contractually committed to fund the maintenance o f project roads. The incremental fiscal impact on the State governments o f the new roads financed under this project are modest in themselves (see Table 8 in Annex 9). However, in aggregate the fiscal impact o f the PMGSY i s quite large, and th is project seeks to help find ways to more reliably and effectively finance the upkeep o f state core rural road networks.

2. Technical

Project Selection. PMGSY guidelines require preparation o f core network plans, which ensure one all-weather road connection f rom each habitation to nearby market centres. The roads under PMGSY are to be selected from these core network plans. All the proposed recipient states have prepared core network plans including a prioritized l i s t defining relative priori ty for constructiodupgrading o f each road under the core network. Road improvements funded under this project will form part o f the core network.

Road Designs. Most of the rural roads under the project involve upgrading o f existing earthen-tracks to single lane rural roads with or without a thin bitumen surface depending upon the traffic and climatic conditions. Some upgrading o f existing rural roads i s also involved. PMGSY guidelines specify the use o f the Indian Roads Congress Manual for Rural Roads (IRC SP 20) for the design o f a l l rural roads. Bank funded roads will fol low SP 20.

Maintenance Management. Each o f the participating states have established some form of computerized database for the core network and prepared a maintenance plan defining the routine, periodic, and special maintenance requirements for the core network roads in participating districts. Technical assistance will further enhance this database, link i t to a simple maintenance management system and will help introduce proper procedures to plan, program, budget, prioritize, design, and execute maintenance works.

3. Fiduciary

Current Procurement Procedures for PMGSY. Currently, PMGSY works are being procured by al l states using a largely standardized procurement and bidding document process established by the MORD for application o n the program. Road works are being tendered by executing officers of designated implementing agencies at a district level through competitive bidding in packages of roughly Rs.1 Cr. to Rs.5 Cr. (US$200,000 to US$1 million) with provision for package and slice. The packages typically include several roads which may be geographically dispersed.

12

The use o f a standard bidding document (SBD) for works under the PMGSY as a whole i s being required by the MORD. The standard bidding document in use on the PMGSY has many o f the same provisions as the Bank's N C B standard bidding document for works in India, called the W2. However, there are some differences. Accordingly, the MORD has prepared a second version o f its standard bidding document that more closely matches the W2 and will be used for Bank financed works. This may be revised after some experience in procurement and implementation. Procurement arrangements are shown in Annex 8 and have been laid out in a procurement plan prepared by the Borrower and agreed with the Bank.

Procurement Capacity. Institutional capacities vary somewhat across the states. The five implementing agencies included under this project have demonstrated adequate capacity to procure l ow value N C B works contracts. However, their staff, plus the staff at the NRRDA, are less familiar with the procurement o f larger service contracts as envisaged under the project. Accordingly some staff f rom each o f the implementing agencies have attended procurement training. Separate training o n contract administration wil l be provided under the technical assistance and technical examiner consultancies. Overall, procurement capacity i s satisfactory given the nature o f work.

In the past, the proposed recipient road agencies have been using their traditional accounting systems which primarily focus on book keeping, and not particularly on financial management. The FM procedures are being updated to make them more effective as a management tool under the program as a whole. FM arrangements under the Bank project are h l ly mainstreamed and centered around the PMGSY's existing arrangements wherein recently created societies (SRRDAs) receive project funds, incur project expenditures, account for them and provide financial reports to stakeholders. Additional staffing i s being provided at both HQ and district implementing units. The PMGSY Operational Manual and a Supplemental Operations Manual for Bank funded projects set down the FM arrangements.

Financial Management System. The M O R D plans to ensure implementation by States of an upgraded Financial Management System for PMGSY in phases starting with a manual system and thereafter graduating to a computerized system. The pace o f implementation o f the computerized F M S has been slower than the MORD had anticipated for a variety o f reasons including lack o f a reliable web connection. Overall, this project i s expected to have a financial management system which should be able to adequately account for project resources and expenditures and which will be upgraded to a computerized system during the first year o f the project (see Annex 7 for more detail).

Financial Management (FM) Capacity.

4. Social

Impact on people and land. The findings o f an Environment and Social Assessment (ESA) conducted in al l Participating States indicate that the PMGSY has caused limited negative impacts on people to date, largely restricted to modest loss o f land f rom widening o f existing tracks. By and large people have been only marginally affected due to improvement in the design. No evidence has been found o f people being displaced under the scheme as construction has been restricted to the available width in settlements. Similar l o w impacts are expected for the remainder o f the program, part o f which i s to be funded by the Bank. See Annex 10 for more detail on social issues.

13

Management of Risk. An Environment and Social Management Framework (ESMF) prepared for this project provides overall guidance for the integration o f social issues at each stage o f the project cycle. A safeguard instrument, a state specific Resettlement and Participatory Framework (R&PF), has been prepared to address the diverse nature o f socio- economic and legal conditions in each state. The objective o f these frameworks i s to establish systems for communities to participate in the decision making process o f planning, implementing and monitoring sub-projects that directly benefit them. Any necessary transfer o f land and implementation of mitigation measures wil l be completed before initiation o f c iv i l works. Independent technical examiners wil l review the sub-projects on a sample basis to ensure compliance o f the framework.

Opportunities for community planning. The participation o f stakeholders i s envisaged at different levels, i.e. Center, State, district, block and village level to involve various government departments (revenue) and Panchayati Raj Institutions (PRI), including the project affected people. The objective o f this broad participation i s to enhance the overall design o f the sub- projects as w e l l as establish realistic roles and responsibilities through the screening and consultative framework developed for the project. The process has been applied to selected sub- projects to be implemented in the first year o f the project and designs were accordingly finalized.

Monitoring. The framework includes specific monitoring indicators for outputs and performance o f social issues. A safeguard specialist o f the technical examiner team will periodically monitor the progress o f implementation. In addition, PIUs will be responsible for regular monitoring and preparation o f quarterly progress reports.

Planned social development outcomes. The project aims to achieve: (i) greater social inclusion due to improved physical access to markets and services; (ii) increased equity between areas by focusing on less wel l served states and districts; (iii) making rural road agencies more accountable to their local constituents; (iv) mitigation o f any potential adverse impacts arising out of the project; (v) improved participation o f members o f the PRIs in the decision making process with the implementation o f state specific Panchayati Raj Act and Panchayati Raj (Scheduled Area Act); and (vii) greater transparency through implementation o f the Right to Information Ac t 2002.

5. Environment

Environmental Issues. The following are the l ikely environmental issues during the construction phase: (i) material management such as borrow area and quarry operation; (ii) location and operation o f hot-mix plants and constructiodlabor camps; (iii) disposal o f debris and bituminous waste; and (iv) embankmenthlope stability. These can become significant in the project if not addressed appropriately at various stages. In addition, some roads may traverse through forests or other protected or ecologically sensitive areas to provide connectivity to interior villages and habitations. Stability o f cut slopes for new or widened roads and the disposal of debris are a key concern in hilly areas such as those in Himachal Pradesh, parts of Jharkhand and Rajasthan.

Assessment Approach. A survey was carried out in a sample o f districts o f the four states to: (i) assess the current standards o f environment assessments being carried out in PMGSY sub-projects; (ii) assess the policies and operational procedures to address, mitigate and manage environment issues and identify areas that need modificatiodstrengthening; (iii)

14

recommend process enhancements in the preparation (planning and design), and (iv) recommend environmental capacity augmentation. Based on this, an Environmental and Social Management Framework (ESMF) was developed. The ESMF comprises of: (i) a screening and consultation framework; (ii) standard Environmental Codes o f Practice (ECOPs); (iii) a resettlement pol icy framework; and (iv) a tribal development strategy. The ESMF has been integrated into the project operations to help mitigate adverse impacts, enhance positive ones and comply with the Bank’s policies and GO1 regulatory requirements. The ECOPs aim to standardize the environment management approach within the implementing agencies.

Environment Management. The ESMF helps to minimize the need for sub-project level E A s and Environmental Management Plans (EMPs) by mainstreaming environment issues in the selection, planning and design o f sub projects. The screening framework in the ESMF determines the magnitude o f environmental and social issues at the sub-project level with respect to the location and sensitivity o f the sub-project, the application o f the Bank’s Safeguards Policies and GO1 and State level regulatory requirements. The application o f the ECOPs will help to mitigate adverse impacts and enhance positive ones. The ECOPs have been developed for construction camps and site operations; tree plantation and roadside vegetation; erosion control and slope stability; quarry development, operation and rehabilitation; drainage and flood prevention; protection o f ‘chance find’ cultural properties; waste management and site redevelopment; additional measures for roads through forest areas, wi ldl i fe and natural habitats, swamps, hi l ls and undulated terrain, sand dunes or lakes.

Implementation Arrangements. Implementation o f the ECOPs will be the responsibility of officers o f the executing agencies in each state under the overall co-ordination and monitoring of the SRRDA. The Supplemental Operations Manual integrates the ECOPs into project operations. T o implement measures beyond the jurisdiction o f the executing agencies, such as land acquisition, plantation along the road sides, mining for stone, sand and gravel, Memoranda of Understanding are being signed between the executing agencies and relevant l ine agencies, as necessary. Specific responsibilities o f these line agencies have been indicated in the ESMF, depending o n technical capacity or jurisdiction.

Participation. The ESA was carried out in a participatory manner involving al l stakeholders including affected communities, staff o f executing agencies and l ine departments. The Screening and Consultation Framework (part o f the ESMF) was prepared on the basis o f these consultations. It includes an information dissemination strategy, collaborative and participatory mechanisms between communities and 1ocaVproj ect authorities, a mechanism for ensuring continued consultation, and a strategy for local oversight o f the project. Workshops were also held with the technical officers in each State to discuss the content and utility o f ECOPs.

Monitoring and Evaluation. The ECOPs includes environmental monitoring indicators to measure environmental performance. Institutional arrangements and budgeting have also been indicated. Independent Technical Examiners will report on environmental performance.

Disclosure. The MORD disclosed the draft ESMF through i t s web site and issued press notifications inviting public comments on the ESMF during March 2004. The final version was placed on the website in July. In August 2004, the States disclosed a Hindi version o f the ESMF summary in project areas through local public offices.

15

6. Safeguard policies

Safeguard Policies Triggered by the Project Yes N o Environmental Assessment (OPBP/GP 4.01) [XI [ I Natural Habitats (OPBP 4.04) [XI [I Pest Management (OP 4.09) [I [XI Cultural Property (OPN 1 1.03, being revised as OP 4.11) [ I Involuntary Resettlement (OP/BP 4.12) [XI [I Indigenous Peoples (OD 4.20, being revised as OP 4.10) [I Forests (OP/BP 4.36) [XI [I Safety o f Dams (OPBP 4.37) [ I [XI Projects in Disputed Areas (OP/BP/GP 7.60)* [I [XI Projects on International Waterways (OP/BP/GP 7.50) [ I [XI

[XI

[XI

OP 4.01, 4.04, 4.36, 11.03. The Environmental safeguard category o f the project is A. An environment assessment has been undertaken and a suitable management instrument prepared with provision for additional site specific management plans (EMPs) to be prepared and remedial measures applied in sensitive areas as necessary. The ESMF and any EMPs are to be implemented on sub-projects by the executing agencies. Technical Examiners wil l monitor compliance by state executing agencies and contractors to the provisions o f the ESMF.

OP 4.12 and OD 4.20. The Social safeguard category o f the project i s S2. The R&R and the consultative framework have been prepared to address safeguard concerns at preparation and implementation o f sub-projects. Independent Technical Examiners shall ensure compliance with the consultative framework.

7. Policy Exceptions and Readiness N o pol icy exceptions are being sought. The project provides additional funding to an

ongoing established program already h c t i o n i n g satisfactorily. Preparation o f sub-projects o f value equal to about one third o f the Loadcredi t are substantially advanced and tendering o f this amount i s expected before the time o f effectiveness. Procurement o f key consultancies is underway in al l states.

* By supporting the proposedproject, the Bank does not intend to prejudice the$nal determination of the parties' claims on the disputed areas

16

Annex 1: Country and Sector Background

INDIA: Rural Roads Project

Total No. of Habitations

MAIN SECTOR ISSUES

Total No. of Total No. o f Unconnected Habitations Habitations connected to date

under P M G S Y

Low Levels of All Weather Motorized Rural Access. An estimated 300,000 habitations (about 40 percent o f the 825,000 habitations in the country) are without a l l weather road access. While some states have relatively high levels o f reported connectivity (e.g. Haryana, Punjab), ten states (Assam, Bihar, Chattisgarh, Himachal Pradesh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh and West Bengal), have poor access to al l weather roads. This constrains economic activities in rural areas, and prevents the poor from being hl ly integrated into the structure o f the country's economy and accessing essential services. Table 1 provides an indication of the scale o f the problem faced by the four states proposed for Bank financing.

I 1 2 3 4 Himachal Pradesh 16,997 11,332 487

Jharkhand Raiasthan

31,125 18,116 329 6,352 40,567 20,728 2,28 1 6,502

Total No. of eligible Habitations

remaining to be connected under

P M G S Y

Uttar Pradesh 141,534 66,553

5 2,546

2,405 21,750

17

assets has yet to develop. Local political incentives means more resources are steered towards new construction rather than for preserving existing roads. The l i t t le money that i s allocated for maintenance is poor ly utilized due to an absence o f proper planning, including a failure to focus o n the core network, and inefficiently delivered works. National government agencies have so far not paid enough attention to this problem, seeing it as constitutionally outside their mandate. The majority o f the rural road network in the country i s under the nominal ownership o f state PWDs or Rural Development Departments (RDDs), whose staff generally do not have a large incentive to prioritize maintenance. Thus, there is a critical need to recast the organizational and incentive structures to promote adequate maintenance o f the rural road network. A s a result o f poor maintenance, the development outcomes from the substantial rural road investments in the past have been far less than expected. Given the size o f the PMGSY resource transfer, i t represents an excellent opportunity to start addressing this complex problem.

Slow progress in decentralization and low capacity in many rural road agencies. The ownership and classification of rural roads is poorly defined among key sector agencies. The responsibility for managing rural road networks typically overlap or i s divided between several agencies - Public Works Departments, Rural Development Departments, Forest, Irrigation and various other Agriculture Departments as wel l as local bodies. This reality i s not in tune with the decentralization pol icy o f the country. Constitutionally, the management o f rural roads was entrusted to PRIs or three tiers o f local governing bodies after the passing o f the 73rd Amendment to the Constitution in 19926. The 1 lth Schedule to this Amendment provides a list of public services that are supposed to be delegated to PRIs, including rural roads. State governments are supposed to enact state level legislation to ensure implementation o f the decentralization policy. Yet, almost al l state governments retain ownership o f the majority or al l of the l o w volume roads in their states, their f ield staff report only to officials in state capitals rather than to those locally appointed or elected and resource use remains at the state level only. Maharashtra and Karnataka are exceptions and have, o n paper if not in practice, transferred rural roads to the PRIs. The views o f district or other local government bodies are often not h l l y considered in the planning process and they have a limited role in monitoring service delivery despite their being the most effected by poor service outcomes.

The rural road sector also suffers f rom l o w levels o f technical capacity in many areas due to poor human resource management and often weak career prospects as a result o f overstaffing, frequent transfers and lack o f specialization. A s a result, many rural road agency f ield engineers need to upgrade their technical and contract management sk i l ls and more specialized ski l ls such as for procurement, environment and social management need to be inducted into agencies. L o w levels of technical capacity and a poor incentive structure hinder the ability o f road agencies to absorb the PMGSY funds as wel l as prevent better maintenance.

CENTRAL GOVERNMENT STRATEGY

Project Approach. To address the poor rural accessibility in a more systematic way, the Prime Minister’s Rural Road Program (Pradhan Mantri Gram Sadak Yojana, PMGSY) was announced in late 2000. The PMGSY originally sought to achieve a l l weather access to every habitation with a population greater than 1000 by 2003, and al l habitations o f greater than 500 people by the end o f the 10th Plan, 2007. However, o f the 64,791 unconnected habitation o f

The three tiers o f local government are the district, sub-district (block) and village levels.

18

population 1000 and above, works o n only 22,116 are either completed or under completion under the program. The program has also funded the works for connecting another 24,339 habitation with population of less than 1,000. Overall, the program has not been able to meet the target as defined in the pol icy statement mainly due to l imited availability o f funds as wel l as capacity constraints of road agencies and contractors. The MORD has been tasked with designing the program strategy and overseeing actual implementation by states and district bodies.

The main elements o f the GO1 strategy, as provided for by the published PMGSY guidelines available o n the web at http://www.pmgsy.nic.in/ are:

e focus o n new connectivity, although upgrading o f existing roads i s funded in certain circumstances ;

broad prioritization o f GO1 funds by preparation and use o f core rural road networks and comprehensive new connectivity priority list, together designed to connect by a single link larger communities prior to smaller communities;

raising o f substantial new resources through the Central Road Fund which gathers revenue o n a national fuel cess and redistributes the proceeds to undertake, inter alia, new constructiodupgrading o f rural roads;

rigorous and transparent monitoring o f the proceeds o f PMGSY funding;

higher design standards and quality assurance procedures; and

requirement for States to identify suitable PRIs (three tiers o f local government) with funding responsibility for undertaking maintenance.

Over the last three years the MORD and many states have had considerable success in implementing many parts o f the PMGSY strategy. Indicators o f PMGSY performance in four states is shown in Table 2. Nevertheless, there remains a challenge to develop an effective central government strategy in addressing the issue o f inadequate maintenance o n rural roads.

Table 2: Indicators o f PMGSY Performance in Proiect States

e

e

e

e

e

Indicator Share o f works rated as good or better (median for al l states i s 82%) Roads constructed Km constructed % works started that are complete (median for al l states i s 36%) Habitations connected

Himachal Pradesh Jharkhand Rajasthan Uttar Pradesh 97 90 99 87

233 164 2,225 3,136 878 947 8,347 5,214 62 45 26 46

487 329 2,28 1 2,405

I G g . difference between estimated and -2.2% -8.26% -3.4% actual value o f tenders

77% I % o f districts where internet connectivity i s 83% I 100% I 100% I available % o f districts where PMGSY data i s entered 100% 1 100% 1 100% 1 online

Source: www.pmgsy.org as o f July 2004 and State implementing agencies.

19

Funding Gap. Current estimates suggest that the total investment required to meet these targets i s o f the order of Rs. 1,330 bi l l ion (US$28 billion). In 1999, a one rupee cess on every litre o f diesel and petrol sold was imposed by GO1 and in 2000, a Central Road Fund Act was promulgated to direct the resources obtained through this cess to the improvement o f national and state highways as wel l as rural roads. By law, 50 percent o f the diesel cess i s directed towards rural road development, a s u m amounting currently to about Rs. 3,150 Cr.(US$700 million) per year. The cess was raised by one hal f o f a rupee in 2003. To date, allocations for the PMGSY are being made to states on the basis o f a formula as follows: 75% weighting for number o f unconnected habitations in the state as a percentage o f the country's total unconnected habitations (i.e. connectivity backlog) and 25% weighting for the number o f connected habitations in the state as a percentage o f the country's total connected habitation, with a caveat that a l l states are to receive at least Rs.20 Cr per year. Given current estimates, there i s a large shortfall between the annual need to meet the PMGSY targets and available resources. The MORD is proposing to use domestic and external borrowing to deliver the program.

Even assuming that the PMGSY meets its target, those living in approximately 170,000 smaller habitations, or about 50 mi l l ion people, wil l remain unconnected.

SECTOR ISSUES TO BE ADDRESSED UNDER THE PROJECT

Improving Maintenance and Asset Management. The first sector issue to be addressed under the project i s to seek satisfactory levels o f rural road maintenance in the project areas as a minimum. Indeed, if the projects fails to make headway on this aspect, there i s a risk that the Bank funding m a y compound the problem by adding to the stock o f rural roads to be maintained. The improved maintenance practices being sought are:

0

0

0

0

state and local resource mobilization for rural road maintenance;

timely preparation, procurement and implementation o f maintenance programs;

implementation o f plans to effectively address existing maintenance backlogs;

the effective involvement o f road users and local bodies in planning and monitoring rural road network performance;

establishment and actual use o f simple maintenance management systems for preparing and monitoring the implementation o f annual maintenance plans at a local level; and

use o f the private sector and more modern techniques for delivery o f maintenance works,

The project seeks to provide motivation on state and local governments as wel l as road agencies participating in the project to plan, resource and efficiently implement adequate maintenance programs on their core rural road networks. The key element in this i s the employment o f a financial mechanism, supported by a suitable disbursement and legal framework for Bank funds, that rewards better maintenance (see Annex 4).

The project will build on the GOI's strategy for addressing the current l o w levels o f connectivity by bringing more resources to the most poorly connected states and districts. The project will work within the existing framework o f the PMGSY as much as possible rather than establish any parallel structure so as to enhance efficiency in the delivery o f the program. The ambitious target for connectivity that the GO1 has

0

0

Improving Rural AccessibiZity.

20

set i tself requires a longer term commitment from external agencies. The project will be the first in a series o f Bank instruments to provide financial support over the medium t e r m to the PMGSY.

Support Decentralization. Insofar as greater decentralization can contribute to better rural road management by making the impact o f costs and benefits o f actions less remote from decision makers, the proposed project will seek to support capacity development at the local level o f government wherever feasible, most particularly at a district level. The appropriate fields for capacity development will depend on the level o f decentralization already attained in any particular state - f rom actual funding, planning and implementation o f maintenance in those states that are already quite decentralized to more modest reforms such as greater oversight o f state agency engineers, enhanced coordination between stakeholders and better published maintenance plans and results.

Capacity Building of Existing Rural Road Agencies. The project will also assist the MORD to build capacity within the rural road sector, although the majority o f PMGSY investment in th is area will not fa l l under this project. The project will support, however, wherever necessary the training o f staff, development o f technical manuals and guidelines as well as greater use o f IT in management decisions in four states. The most important areas for such support will be in the areas o f maintenance planning and implementation, environmenthocial management and poverty impact assessment.

Potential for Expansion of Bank Support to PMGSY

Under this Project. The scope o f the Project may be expanded to cover additional districts at the request o f the Government o f Lndia and in agreement with the Bank, subject to satisfactory performance in implementation o f the Project. The scope o f the project may also be expanded to cover additional poorly connected state (e.g. Bihar).

Follow on Projects. Fol low o n projects can be made available to the PMGSY for use in any or al l the “core state^"^, including the four already covered, provided that:

At national level

e Agreement on increased proportion o f Bank funds to be allocated between states on the basis o f performance in maintenance o f core rural road networks; and

More cost effective design and specifications are applied in Participating States e

At state level

e

e

Endorsement o f Project Preparation and Implementation Framework, if not already done;

Endorsement o f state level maintenance action plan, preparation o f district maintenance plans for whole state and adequate budgetary provision for their delivery if not already done;

Allocation o f PMGSY funds between districts primarily on the basis o f investment need as determined by the core networks and comprehensive district priori ty lists;

e

The ten states that require the most expected investment under the program.

21

a Further harmonization o f procurement procedure and bidding document for al l PMGSY works in the state;

Satisfactory operation o f the computerized on l ine Financial Management System as envisaged under the PMGSY guidelines, timely delivery o f audit reports and response to deficiencies if identified, timely preparation o f Financial Monitoring Reports;

Endorsement o f application o f an agreed ESMF, as revised for all PMGSY works in the state;

SRRDA functioning properly, enforcing proper application o f relevant guidelines o n f ield agencies and undertaking performance monitoring; and

a Satisfactory implementation o f al l aspects (safeguards, fiduciary, technical and disbursements) o f ongoing Bank funded project, if applicable.

a

e

a

22

Sector Issue Project Latest Supervision (PSR) Ratings

(Bank Financed Projects only) I

Bank Financed - closed and ongoing

S

Implementation Progress (E')

Provide al l weather roads in Rural Areas

U

Gujarat Rural Roads Project (closed)

~~

Provision o f all-weather access to farms and villages; improvement o f construction and maintenance procedures

S

Rural Roads Project, Bihar (closed)

Project component to support rural in frastructure

Improve the quality o f l ike o f the rural population through provision o f basic all- weather roads

Assam Rural & Agriculture Support Project

Andhra Pradesh Economic Restructuring Project

S

Upgrading farm to market roads

Improve Rural Roads and Markets to increase income o f small farmers .

UP Sodic Lands 11 Project

Diversified Agriculture S

S

Support Project

Project Component to support rural infrastructure

ADB - ongoing

ADB - planned

Integrated Watershed Development Project I1

Rural Road Development Project (support to PMGSY in Madhya Pradesh and Chattisgarh)

Rural Road Development Project (support to PMGSY in Assam, West Bengal, Orissa)

S

Development Objective

(DO) H S

U

S

S

S

23

Annex 3: Results Framework and Monitoring INDIA: Rural Roads Project

PDO Broader and more sustainable access to markets and services by rural population in participating districts

Intermediate Res One per Component

Component One: Provision o f a l l weather access to al l eligible habitations in participating districts

Component Two: Maintenance o f core rural road networks in participating districts

Component Three: Improved management and enhanced financing by state and local governments o f rural road networks in participating districts

me Indicator 1. % o f habitations wi th al l weather access to social services and markets

2. % o f through routes in core rural road network in participating districts in fair or better condition (PCI52)

3. Level o f road user satisfaction wi th rural road network

Component One: 1.1 No o f kilometers o f roads upgraded 1.2 % o f works out o f compliance 1.3 100% delivery o f eligible benefits to project affected persons

Component Two : 2.1 No. o f kilometers o f rural roads subject to routine maintenance 2.2 No. o f kilometers o f rural roads subject to periodic renewals

Component Three: 3.1 % o f actual vs. reqd. maintenance funding for core rural road networks 3.2 % variance between budget and actual expenditure on maintenance o f core rural road networks 3.3 % o f periodic works on core rural road networks prioritized using maintenance management system 3.4 Publication o f rural road performance and rural road expenditure information

Use of Outcome Information YR1-YR5: To determine if the project development objective i s being satisfied

YR2: Feed into strategy for adopting a Sector wide approach in the rural roads sector

YR4-YR5: To determine if strategy needs to be modified for further support to program and replication in other states

ing

Component One: YR1-YR5: L o w levels might flag either procurement problems, poor project management, inadequate rehabilitation to PAF’s

Component Two: YR1-YR5: To determine effective delivery o f the component and identify inadequate attention by the states to asset preservation

Component Three: YR1-YR5: To determine effectiveness o f the program in establishmg institutional capacity to develop and implement further programs in the sector

YR1-YR2: For comparison across the states and determining the allocation o f the performance based component in phase-I1

* PCI i s Pavement Condition Index. This i s a five point scale established to categorize roads based on visual parameters, r iding comfort or normal driving speed indicators. 5 i s very good and 1 i s very poor. The M O R D issued in April 30, 2004 a Circular to al l States on the use o f the PCI in managing maintenance. See website for more details (hth,:i!~ww-.ptn~s~.nic.in/circular.asp?CuirrentPa~e-2&crid=).

24

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Annex 4: Detailed Project Description

INDIA: Rural Roads Project

1. New Construction and Upgrading of Core Rura l Road Networks (US$430.91 million) Civil Works (USs422.66 million). This includes new construction and upgrading o f the

core rural road network in four states to provide all-weather road access to habitations in identified project districts comprising up to 60% o f al l districts in the states, or 78 in all. The component is proposed to be implemented in four tranches over f ive years using N C B procedures generally in packages o f Rs. 1-5 Cr. in l ine with existing PMGSY practice. Tranche I will commence from effectiveness and subsequent tranches annually thereafter in line with current PMGSY practice. However, ,there may be some overlap in implementation o f each tranche depending upon the capacity o f the state agency and the local construction industry concemed. Details o f works for which Detailed Project Reports (DPRs) have already been prepared as shown in Table 1 below.

Table 1 : Works for which Detailed Project Reports are Substantially Ready in Four States

The c iv i l works are to be divided into two phases - a fixed allocation phase and a performance based phase as indicated in Figure 1 overleaf.

Technical Examination Services (USS7.26 million). Consultants will be commissioned by each state to undertake independent technical examination o f Bank fimded works. The specific objectives o f the services are - for Bank funded rural road sub projects in the State - to verify: (i) proper application o f environmental, social and techno-economic screening procedures for the selection o f rural road sub-projects; (ii) detailed design i s in compliance with agreed technical standards as we l l as stipulated environmental and social management measures; (iii) the quality o f bidding documents i s satisfactory and that procurement i s undertaken in conformity with agreed procedures; (iv) compliance o f actual works with contract conditions and quality assurance procedures as we l l as agreed environmental and social management measures; and (v) expenditures under the Credit/Loan have been made for the purpose intended (financial review). One firm will be hired to oversee the first two tranches o f works in each state and then a separate firm for the remaining two tranches.

29

Figure 1 : Proposed Funding Allocation System

States Tranche Tranche 11 Tranche Total fixed Tranche IV I III component (Performance

based) min max

The total loan amount i s approx 11% o f PMGSY requirements in the 4 states. The total loan amount will be divided into two components: a fixed and a performance based component.

I

Target

Actual vs. required maintenance

The-f ixed component shall be 70% o f the total loan amount.

HP JH RA UP

I

I

expenditure 589 589 588 1,766 272 1,745 462 462 463 1,387 206 1,420 Refer to i tem 3.1 in

1,345 1,345 1,346 4,036 742 3,182 Annex 3 for each 1,808 1,808 1,807 5,423 1,099 3,765 State

-------------------------------------------------------------. The fixed component will be allocated between the 4 states on the basis of the average o f (GO1 allocation + value o f projects cleared in the last year) in each state. For 2004, this works out to the following: HP: 14%; JH: 11%; RA:32%; UP:43%

A relative performance index (RPI) for Tranche-I i s determined for each state based on the indicator and preset targets for each state.

Actual maintenance expenditure as % o f requirement of core rural road network in the state.

The RPI can have three values (l=under par; 2=par; 3=above par) The RPI i s weighted by the total investment requirement o f the state to arrive at the percentages for allocating the perforrnance-based component

The fured component allocated to each state is divided into 2-3 tranches o f procurement based on the level o f preparation and the size o f the fixed phase o f the loan. The ceilings per state would be val id for three years after which if any state i s unable to procure works to that value, it will be reallocated to other states capable of utilizing the funds effectively.

.............................................................

The performance based component would remain as a single tranche

30

Implementation of Compensatory Forestry and Resettlement (US$l. 00 million). Wherever roads require compensatory afforestation to meet the provisions o f any Forest Department clearance, State governments will deposit finds to undertake th is afforestation prior to the clearance becoming effective. Under current PMGSY policy and practice, the state implementing agency concerned i s to deposit funds for afforestation with the local forest offices, Assistance to eligible project affected persons wil l be made through ongoing state public programs or through community mobilization.

2. Periodic and Routine Maintenance of Core Rura l Road Network in Project Areas (US$235.00 million)

This component i s to be undertaken in every district where the Bank i s providing additional investment concurrently with the four tranches o f new construction works. The works (US$235.00 million, NBF) would be prepared and supervised by the same implementing agencies undertaking PMGSY works and wil l be implemented through a mixture o f force account for routine works (in HP, Rajasthan and UP) and contract for periodic works. The size o f the component was determined after discussion with Participating states and i s roughly equivalent to a per km cost o f Rs.2OY000/year on average and works to be conducted on all the core rural road network o f 100,000 km in all in these 78 districts. All districts that are seeking Bank funding in the first tranches have prepared and made public an annual maintenance plan.

3. Institutional Development (US$13.56 million)

National Level (USSO. 96 million). There are two institutional development sub components at the national level. First, a poverty impact and rural road user satisfaction monitoring system i s to be put in place. This i s to be achieved through hiring a single technical support agency to prepare the methodology and manage the system on behalf o f the MORD (US$0.2 million). The actual data collection, to be undertaken three times during the project period, will be carried out by separate f i r m s covering one or more states each (USS0.56 million). Second, technical assistance and training i s to be made available to the MORD and the National Quality Monitors to build capacity in various areas (US$0.20 million)

There are three sub-components to the state level institutional development inputs. First, t e c h c a l assistance consultants are to be commissioned by each state (US$4.24 million) with a view to: (i) develop and establish in use a simple Road Management System (RMS) in HQ and in district field offices; (ii) prepare annual maintenance programs and support the implementation by the road agency o f these programs, including through the use o f performance based contracting, on the core road network; (iii) recommend and help implement on a pilot basis a framework for transferring ownership o f non core rural roads to PFUs; and (iv) transfer sk i l ls and procedures to an adequate number o f staff in the road agency to sustain the use o f the R M S and continuing implementation o f maintenance. Second, various goods are to be procured by each State - material and quality control testing equipment, IT and associated office equipment - for use by the implementing agencies (US$4.72 million). Third, each state wil l undertake training needs analysis and implement training o f their staff within the main rural road agency plus the local contracting industry (US$3.54 million).

4.

State Level (US$12.60 million).

Incremental Operating Costs (US$4.45 million)

To be financed by the GO1 and States.

31

Annex 5: Project Costs INDIA: Rural Roads Project

Local Foreign Total us$ million us$ million us$ million

1. New construction and upgrading o f about 9,900 346.05 62.23 408.38

Project Cost By Component andor Activity

km o f rural roads 2. Maintenance o f about 100,000 km o f rural roads 177.96 44.49 222.45 3. Technical Assistance for institutional 8.61 4.17 12.78

strengthening 4. Incremental operating costs 4.45 0 4.45

Total Baseline Cost 537.07 110.98 648.06 Physical Contingencies 9.05 2.08 11.13 Price Contingencies 21.4 4.33 25.73

Total Project Costs' 567.52 117.40 684.92 Interest during construction

Front-end Feeg 1 .oo 1 .oo Total Financing Required 567.52 118.40 685.92

'Identifiable taxes and duties are approximately US$70.00 million, and the total project cost, net o f taxes, i s US$615.92 million. Therefore, the share o f project cost net o f taxes i s 65%.

On August 3, 2004, the Bank Executive Directors, approved a 50 basis point waiver o f the front-end fee for al l IBRD loans (other than SSALs) to be presented to the Board in FY05. As t h s project i s scheduled to be presented to the Board on 23 September 2004, and assuming that it i s presented to the Board as planned or before July 1,2005, the front-end fee payable for the Project will be an amount equal to "0.5% o f the loan."

32

Annex 6: Implementation Arrangements

INDIA: Rural Roads Project

National Rural Road Development Agency (NRRDA). The NRRDA provides technical and monitoring support to the MORD. The staffing o f the NRRDA is being gradually increased, including through the use o f short term singleton consultants. The NRRDA is working satisfactorily in i ts role.

Himachal Pradesh. The GOHP has created the HP Gram Sadak Development Agency (HPGSDA) to receive and administer al l PMGSY funds. The Public Works Department i s the implementing agency for PMGSY and t h s agency wil l also look after the maintenance component. The Executive Engineers of the PIUs have been designated as signing authorities for payments f rom the HPGSDA. The 34 existing field divisions in the six districts proposed for Bank funding should have the capacity to absorb an increased f low o f PMGSY funds as we l l as implement the maintenance component.

Jharkhand. The Jharkhand State Rural Road Development Agency (JSRRDA) has been created to receive and administer al l PMGSY funds as we l l as oversee the implementation o f the PMGSY. The regular f ield divisions o f the Rural Engineering Organization (REO) o f the Rural Development Department are actually implementing the PMGSY. The REO will be the implementing agency for the maintenance component also. The Government o f Jharkhand i s considering turning the JSRRDA into a fully fledged implementing agency, through hiring and deputation o f about 150 officers, taken both from within the existing state road departments and from other public and private sector entities, and then outsourcing the design and supervision o f works. This arrangement is unlikely to happen during the first year o f the Bank supported program but may materialise thereafter. At present, the REO only outsources the geotechnical investigation and survey o f PMGSY roads.

Rajasthan. The GOR has established the Rajasthan Rural Road Development Agency (RRRDA) to receive and administer al l PMGSY funds. I t i s not envisaged that this agency will have any technical capacity o f its own but act purely as a shell organisation for accounting purposes. The PWD is the implementing agency for the PMGSY in Rajasthan. There are 80 divisions that are working part time to implement the PMGSY, under the control o f 32 district PIUs headed by Superintending Engineers or Executive Engineers. For the maintenance component, the Agricultural Marketing Board, which also owns about 13,000 ktn o f rural roads, as wel l as the PWD will be the implementing agencies. Adequate coordination mechanisms exists between these two entities to plan and implement a comprehensive approach to management o f the core rural road networks. The implementation capacity in Rajasthan i s adequate to implement both works components.

Uttar Pradesh. The GOUP has created the UP Rural Road Development Agency (UPRDA) to oversee implementation o f the PMGSY. In early 2004, the GOUP announced its intention to implement an integrated approach to rural road management, for which the UPRRDA is expected to play an important role. The PWD and the Rural Engineering Service (RES) of the Rural Development Department are the implementing agencies for PMGSY in UP. Each has established dedicated division level PIUs in each district. For this project, works in 15 districts will be implemented by RES and 20 by the PWD. These agencies are generally outsourcing the geotechnical investigations and some o f the survey work required during design.

33

There i s a wide variation in the amount o f funds going to each district (range from Rs.28 to Rs.6 Cr. per district in the coming phase o f GO1 funded work) as allocations are now largely being made on the basis o f investment need. Additional divisions are expected to be mobilized as necessary so that the GOUP’s own norms on workload (max Rs.10 Cr. per division per year) are not violated. The maintenance component wil l largely be implemented by the PWD as the agency that owns the majority o f the core rural road network. Other agencies that wil l implement part o f the maintenance component are RES, local government and the Sugar Cane Board. The SRRDA will play an important role in helping to coordinate and monitor the maintenance component.

Table 1 indicates the various agencies involved in implementing the PMGSY at the state level.

Himachal Pradesh I Jharkhand Table 1 : Agencies

Rai asthan State Nodal Department

23 field divisions o f Rural Engineering Organization

Bir la Inst i tute o f Technology, Ranchi

Implementing Agency Project Implementing Units

80 field divisions of PWD

Malaviya Nat. Institute of Technology, Jaipur; MBM Engineering College, Jodhpur; BITS, Pilani; Kota Engineering College, Kota

State Technical Agency

Dept.

Agency 60 field divisions o f PWD

National Inst i tute o f Technology, Hamirpur

Uttar Pradesh Rural Development

Dept. UP SRRDA

40 f ield divisions o f PWD & 30 field divisions o f Rural Engineering Services MNNIT Engineering College, Allahabad; KNIT, Sultanpur; Harcourt Butler Tech. Institute, Kanpur; IT-BHU, Varanasi; IIT Roorkee

34

Annex 7: Financial Management and Disbursement Arrangements

INDIA: Rural Roads Project

Weaknesses

Staffing: Staffing for finance function needs further strengthening, especially for newly created SRRDAs.

Summary Assessment

adequately account for project resources and expenditures.

Strengths and Weaknesses

The project i s expected to have a financial management system which should be able to

Mitigation

Appointment and placement o f Controller (finance) at the State level.

Strengths. The project has the following strengths in the area o f financial management:

two out o f the four participating States have participated in the State Infiastructure Technical Assistance (Ln. 4114-IN) since April, 1999 and have some exposure to the Bank’s disbursement procedures and financial reporting requirements;

a budgeting and accounting system has been established o n the basis o f PWD’s accounting rules and is operational for PMGSY as a whole with an on-line computerized system under implementation in phases (as a part o f OMMS); staff are trained to carry out basic accounting functions at a l l levels including divisionsPIUs under the PWD system;

a system o f periodic financial reporting from the divisions to the state i s operational; and financial management arrangements are documented as part o f the Program Operational Manual (OM) as we l l as a Supplemental Operations Manual (SOM) which lay down the accounting policies, procedures and processes, operation o f the project financial management system and the reporting arrangements.

An existing accounting system which primarily focuses o n book keeping,

A computerized and integrated F M S i s being developed under the PMGSY project, in phases, as a part o f the

and not particularly on financial management.

online management and monitoring system and undergoing compliance testing. FM arrangements set down in OM and SOM which focus o n financial

I 1 reporting and monitoring.

Implementing Entity. At the central level, technical inputs for the scheme are provided by the NRRDA and budgets and funds f low would be handled by MORD. FM arrangements under the Bank project are fully mainstreamed and centered around the PMGSY’s existing arrangements wherein the newly created societies (SRRDAs) receive the project funds, incur project expenditures, account for them and provide financial reports to stakeholders. All states wishing to access funds fiom the PMGSY from April 1, 2004 had to establish SRRDAs, bank accounts and payment and fimds f low procedures, as we l l as interim systems for accounting, reporting and auditing. The SRRDAs in the case o f the Bank financed project, will be technically

35

supported by the PWD in Himachal Pradesh and Rajasthan, the Rural Engineering Organization in Jharkhand and the Rural Engineering Services Department and PWD in Uttar Pradesh to execute the work of preparing, procuring and supervising works contracts.

The Bank project wil l finance 60% o f the districts in each o f the States, through program implementing units (PIUs) established under the PMGSY scheme. These PIUs, though housed in PWDKESREiO, would serve as an extension o f SRRDAs in implementing the program. They are h l l y accountable and responsible to SRRDAs for book-keeping. accounting and reporting purposes. These PIUs have been undertaking this function under the existing PMGSY scheme since 2001-02.

Budget. The project will be budgeted on the expenditure side at the Union (center) level, as PMGSY works under an identifiable budget head i tem o f the MORD. It will be sufficiently detailed to capture the various types o f works proposed under the centrally sponsored scheme. A budget i tem will also be established on the receipts side at Union (center) for the Wor ld Bank Loadcredi t under the project for the participating States. Suitable budget provisions have been made starting f rom FY2004-05 on both sides. At the State level, adequate allocations will be provided for periodic and routine maintenance expenditure o f the core rural roads (not Bank financed) under their regular budget heads (e.g. Major Head - “3054”). Progress against th i s component will be captured in the quarterly FMRs. The annual budget o f PMGSY will be based o n the annual work program o f the participating states and will fol low the usual budgetary preparation process for a centrally sponsored scheme.

Funds Flow. The MORD, under guidelines for PMGSY issued in January 2003, has set out the financial and funds f low arrangements for the overall scheme which will also be applicable to the Bank financed project. These stipulate that the funds from the Center (MORD) to States will f low through regular banking channels outside the treasury system o f the concerned State Government. Funds will be released in two installments during a year in roughly equal tranches; after the first tranche, utilization certificates (along with a certificate f rom the Bank manager) will be submitted by the State for releasing the subsequent tranches.

A State level autonomous agency (society) has been set up in each state that holds, accounts and reports for the funds released under the program. These agencies have established separate bank accounts for the PMGSY with a scheduled commercial bank at the State level which has intemet/other media connectivity and provide for cheque encashment facilities at a l l PIUs across the State. Two separate Bank accounts have been established at the State level - one for program works and the other for the administrative expenses (not Bank funded). Funds to PIUs will be transferred only in respect o f the administrative expenses. In respect o f program works, cheque books will be issued to PIUs and authorized persons allowed to issue cheques to contractors under pre funding limits and arrangements entered into with the selected Banks. For control purposes, the Bank i s also i n fomed o f the authorized persons for issuing cheques, details in respect o f payees and the amounts of the contracts (contractors). T o arrange for swift and timely payments, facilities l ike on-par facility, electronic clearing scheme, courier system and pre-funding limits are proposed to be provided by the banks. A s a result o f th i s unique feature, actual funds are not required to be transferred to PIU level. This will enhance intemal control over fund flows. Moreover, the preparation o f accounts for the SRRDAs will be expedited as the monthly bank statement will facilitate preparation o f books o f accounts at the State level. Administrative h n d s will be transferred to the PIUS’ bank accounts o n the basis o f criteria la id down in the guidelines.

36

Staffing. The MORD provides suitable staff to ensure the budgetary provisions and smooth and timely flow of funds. A qualified officer o f NRRDA is responsible for over seeing day-to-day operation of the financial management system and for establishment o f the agreed financial management arrangements, providing timely financial reports to stakeholders including the Bank, and providing overall guidance in respect of the financial management issues for the project. The finance team at the State level (SRRDA) i s to be headed by a Financial Controller who shall preferably be a professional accountant or an officer f i om State accounts services o f a minimum rank of a senior Accounts Officer supported by at-least 1 Accountant and 2 Accounts Clerks. At the PIU level (district), the accounts and finance team will comprise generally o f one divisional accountant, and 1 clerk. They wil l be responsible for maintaining the cash book, other registers/documents, as required under the OM and SOM, and making the necessary data enties in the FM module o f the OMMS.

Training. This i s being provided to project staff as per a training calendar developed by the MORD. The project will ensure that sufficient training is provided to finance staff at the State level and districts for maintaining books o f accounts and discharging other FM functions as envisaged under the OM and SOM. Two rounds o f training have been provided for the proposed FM module under OMMS. The training plan includes training o n Bank disbursement procedures and financial reporting requirements.

Accounting Policies and Procedures & Internal Control. As per PMGSY guidelines, books o f accounts will be maintained using a cash based double entry system o f accounting for the entire scheme. At the PIU level, books o f accounts are based o n existing PWD requirements which have been revised to meet double entry requirements. At the State level (SRRDA) proper double entry books will be maintained which will account for a l l State level expenditures under the scheme. A Chart o f Accounts based o n existing PWD codes has been designed under the PMGSY Scheme and has been included in the OM and SOM. The accounting policies and practices and internal control procedures, also based on existing PWD requirements, for the scheme are captured in the OM, S O M and the PMGSY guidelines. These guidelines also lay down the formats o f the books o f accounts, financial reports and other M I S reports that wil l be required under the Scheme. A s the books under the PWD system were not maintained under self-balancing (double entry) system, specific revisions to the books o f accounts, chart o f accounts and formsheports have been prescribed under PMGSY which i s considered adequate to meet the requirements o f the project.

The information from the PIUs will f low to the State level agency o n a monthly basis in pre-agreed formats for proper accounting and book keeping where a self balancing ledger and double entry based books o f accounts are to be maintained init ial ly manually, and thereafter o n the computerized FM system as a part o f OMMS. Regular bank reconciliation will be carried out at SRRDA and PIU as la id out in PMGSY guidelines. A subsidiary Chart o f Accounts has been developed for the PMGSY to enable data to be captured and classified by expenditure center, budget heads, project components, activities and disbursement categories.

Financial Management System. PMGSY guidelines envisage rollout o f an on-line computerized financial management and accounting system as a part o f the OMMS. A specialized external agency (C-DAC) has been employed to develop, implement and r o l l out the OMMS. The proposed system includes a Financial Management (Receipts & Payments) module. Although the OMMS started i ts r o l l out in December 2002 al l over India, implementation

37

progress has been slower than anticipated as problems were encountered by the districts/states and as a result, it i s proposed that a gradual transition be now made.

Implementation and ro l l out o f the payment/financial management module for the PMGSY Scheme, under the OMMS, i s being done in phases with the computerized Financial Management System being established at first at the SRRDA level. The books o f accounts o f the PIUs will be maintained on a manual basis initially, using prescribed formats. This i s considered adequate to report on the usage o f project resources at the start o f the project. The monthly reports from the PIUs will be consolidated at an SRRDA level by feeding them into the FM system to generate the books o f accounts and the required financial statements. This system will thereafter be upgraded by implementing the system at PIUs and integrating it wi th SRRDA by September 30, 2005 (dated covenant). As reliable connectivity i s s t i l l a problem for many remote regions, database transfers from PIUs to SRRDA will take place on a periodic basis through phone linehtemet rather than requiring dedicated connectivity.

In the case o f Bank financed states, it i s expected that Rajasthan will be the f i rs t to move towards implementation o f fully computerized system by September 30, 2004, followed by HP, Jharkhand and UP. The Financial Management System (FMS) will help in accurately recording and timely reporting on the expenditures incurred under the project along with physical and procurement related progress. The software for the FM module (comprising o f receipt and payment module) including the chart o f accounts i s undergoing compliance testing. Separate accounts for the administrative expenses will be maintained by the PIUs on an imprest basis and monthly reports (including cash flow and balance sheet in the prescribed format) will be provided to the SRRDA for consolidation. Maintenance Support: CDAC will be providing support and i s planning to provide training in the module's use. Ro l l out and satisfactory functioning o f the FM module i s critical to funds flow, reporting and accounting and auditing under the project.

EZigibZe Expenses for the Project. The GO1 currently provides funds in advance for PMGSY on a 100% grant basis. GO1 usually funds the costs o f project survey/design, civil works, goods and limited incremental operating costs for new roads and upgradation o f existing roads. I t partially funds the costs of: (i) survey and design by providing Rs.10,000 per km to be reimbursed through the GO1 to State transfer for expenditure incurred on works contracts; and (ii) field supervision by providing about 1% o f the works costs to pay for travel and other miscellaneous expenses incurred by executing agency staff during sub-proj ect planning, survey, design and supervision. The Bank project wil l fund the cost o f the c iv i l works, goods (essentially quality control equipment and computers) technical assistance and services. The actual expenses will be recorded and reported by the participating SRRDAs. In addition, the Bank would also fund limited technical assistance (poverty impact tracking studies) at the NRRDA level.

Financial Reporting. Financial Monitoring Reports (FMR), designed in consonance with the proposed project components, to track financial and physical progress o f the project have been agreed with MORD and the States. The format will meet the needs and requirements of: (i) MORD and NRRDA; (ii) State PWDs and the Project Management; and (iii) donors including the Bank. The FMRs also include reporting on the proposed maintenance component, funds for which flow usually through the State budget. Information in th is respect will be collated in the agreed format by the concerned SRRDAs f iom various sources (PWD, RES,

38

Implementing Agency

4 participating States (SRRDA) and NRRDA

4 participating States

DEN GO1

The audit covenants o f loans which share the same implementing agencies as this project have been complied with till date. Under the Indian constitution, C&AG would also have a right to conduct performance audits o f SRRDAs, if they receive more than Rs.2.5 mill ion (US$55,000) annually. These reports could be made available to the Bank on request. Incentive for financial accountability: Under the PMGSY, it i s envisaged that funds for the October quarter would be transferred to the States only after receipt o f a duly audited financial statements o f the previous year ending March 3 1.

Audit Auditors

Entity Project Audit

State “Annual Finance Accountsyy certified by C A G

Special Account C.&A.G.

Private C A firm

C. &A. G.

39

The audits for the non-bank funded maintenance component o f the project will be evidenced through mainstreamed accounts o f the State government as a whole ("State Finance Accounts" & "Audit Report for the State issued by CAG"). This is usually conducted within a period o f 12 months fiom the end o f the fiscal year (as allowed under the applicable statute in this respect).

Internal audit cum financial review. As a part o f the internal control framework for the Bank financed works, a technical examiner team, to be employed to monitor a l l Bank funded works on the project includes a chartered accountant, under agreed terms o f reference. This accountant will conduct periodic financial review o f the project to assess the operation o f the project financial management system, including review o f internal control mechanisms, books o f accounts, registers and other records and effectiveness o f the procurement process.

Disbursement Arrangements. Disbursements from the loadcredit would be made in the traditional system (replenishment and reimbursement with full documentation and against statement o f expenditure). The claims/ SOEs wil l be prepared by the SRRDA for each o f the State and forwarded to NRRDA for consolidation o n a monthly basis. The consolidated claim would then be forwarded to the office o f the Controller o f Aid, Accounts & Audit (CAAA) in the Ministry o f Finance. C A A A will validate the claims, draw down the special account if required and forward i t to the Bank for further processing.

Retroactivefinancing. A provision has been made for retroactive financing up to US$30 million. This covers eligible expenditures procured in accordance with Bank guidelines and implemented in accordance with other relevant operational policies. Retroactive financing will finance the relevant project expenditures incurred before the date o f signing but after 1 April 2004.

Impact of Procurement Arrangements. As the bulk o f the procurement for the project i s expected to be handled by the PIUs, adequately trained finance staff at PIU are required to coordinate with the procurement staff to ensure smooth implementation and adequate financial accountability o f the project.

Superuision Plan. The project will require intensive supervision in the init ial stages especially for ensuring successful implementation o f the computerized Project Financial Management System in the project implementing entities. The other focus area during the supervision will be on meeting the training needs o f the project finance personnel. FM supervision will be undertaken at the same time as the main supervision missions to the extent feasible.

40

Annex 8: Procurement INDIA: Rural Roads Project

A. Institutional Capacity

Institutional capacities vary somewhat across the proposed states. PMGSY executing agencies at the district level typically have adequate number o f engineers with experience o f procuring works through local competitive bidding procedures. All the implementing agencies - bar the Rural Engineering Services in Uttar Pradesh (up) and the M O R D - have several staff who have experience with Bank procurement procedures from prior Bank funded projects. The state level implementing agencies included under this project have demonstrated adequate capacity to procure low value NCB works contracts. However, their staff, plus the staff at the MORD, are less familiar with the procurement o f larger service contracts as envisaged under the project. Accordingly a number o f staff from each o f the implementing agencies have attended procurement training. Separate training on contract administration will be provided under the technical assistance and technical examiner consultancies.

Country Procurement Assessment Review (CPAR) - This has been undertaken in Uttar Pradesh during 2001 and the Bank i s currently following up with the State how best to implement the recommendations.

The proposed prior review thresholds indicated in this annex were derived after assessing the implementing agencies’ capacity to carry out project procurement as per World Bank Procurement Guidelines.

B. Procurement Methods

All Goods and Works financed under the Loadcredit will be procured in accordance with the World Bank’s Guidelines for Procurement, January 1995, revised January and August 1996, September 1997, January 1999 and May 2004. Consulting services to be funded through the Bank’s Loadcredit shall be procured in accordance with the World Bank’s Guidelines for the Selection and Employment o f Consultants by the World Bank Borrowers, January 1997, revised September 1997, January 1999, May 2002 and May 2004. All goods and services wil l be procured using India-specific Model Standard Pre-qualification and Bidding Documents for Bank funded projects. The model N C B bidding document for works as agreed with the GO1 Task Force in 1997 has been modified to more closely match the requirements o f the program but may be reviewed after the f irst round o f tendering. Procurement arrangements are summarized in Tables A and Al, and are briefly described below.

B1 Works [US$686 million] National Competitive Bidding CNCB): US$423 mill ion equivalent including contingencies

Works relating to rural road construction and upgrading will be procured under this category, Works will be tendered by executing officers o f designated implementing agencies at the district level through competitive bidding in packages normally o f Rs.10 to 50 mill ion (US$220,000 to US$1.1 million). Packages typically will include several roads which may be geographically dispersed. The model standard bidding document has been modified, the more significant changes being as follows: (i) limit o f subcontracting to 25%; (ii) inclusion o f a five

41

year routine maintenance period to be paid for by the States; (iii) provision for an altemative authority to make payments; and (iv) restrictions on employment o f retired Gazetted officers o f the concemed state.

Force Account and Local Competitive Bidding Procedures: US$263 mill ion eauivalent

financed), State agencies will use force account and their own competitive bidding procedures. For implementation of the annual routine and periodic maintenance programs (not Bank

B2. Goods [US$4.72 million equivalent]

Goods and equipment - including computer hardware and software, office and laboratory equipment will be procured following NCB procedures for packages below US$200,000 equivalent (total US$2.22 million). Small value off-the-shelf items individually costing US$30,000 equivalent per contract or less (total US$2.50 million) may be procured following Nationalhternational Shopping procedures in accordance with World Bank Procurement Guidelines.

B4. Services [US$l6.10 million equivalent including contingencies]

Consultancy services will be procured according to Table A1 below.

B5. Other non-Bankfinanced components [US$4.45 million equivalent including contingencies]

These are incremental operating cost amounting to US$4.45 mill ion (not Bank financed).

C. Procurement Planning

the Project's Procurement Plan agreed at Negotiations. Procurement o f all works packages will follow arrangements outlined in accordance with

D. Pr ior Review o f Procurement Decisions by the Bank [Refer Table B]

e

e

0

All N C B civ i l works contracts valued at US$ 1.5 mill ion equivalent and above;

All N C B goods contracts valued at US$200,000 equivalent and above;

15% o f all N C B civ i l works contracts in each tranche o f works submitted to the Bank; and

Consultant contracts with an estimated value o f US$lOO,OOO equivalent and above for firms, and US$50,000 equivalent and above for individuals.

e

E. NCB Provisions

All NCB contracts shall be awarded in accordance with the provisions o f Paragraphs 3.3 and 3.4 o f the Guidelines for Procurement under IBRD Loans and IDA Credits published by the Bank as revised (the Guidelines). In this regard, all N C B contracts to be financed from the proceeds o f the Loan shall follow the following procedures, or as otherwise revised from time to time after agreement between the Borrower and Bank:

(i) Only the model bidding documents for N C B agreed with the GO1 Task Force, and as amended for th is project only, shall be used for bidding;

42

(ii)

(iii)

(iv)

(v)

(vi)

(vii)

(viii)

F.

0

0

G.

Invitations to bid shall be advertised in at least one widely circulated national daily newspaper, at least 30 days prior to the deadline for the submission o f bids;

N o special preference will be accorded to any bidder either for price or for other terms and conditions when competing with foreign bidders, state-owned enterprises, small- scale enterprises or enterprises fkom any given State;

Except with the prior concurrence o f the Bank, there shall be no negotiation o f price with the bidders, even with the lowest evaluated bidder;

Extension o f bid validity shall not be allowed without the prior concurrence o f the Bank (i) for the first request for extension if it i s longer than eight weeks; and (ii) for al l subsequent requests for extension irrespective o f the period (such concurrence will be considered by Bank only in cases o f Force Majeure and circumstances beyond the control o f the Purchaser/Employer);

Re-bidding shall not be carried out without the prior concurrence o f the Bank. The system o f rejecting bids outside a pre-determined margin or - bracket - o f prices shall not be used in the project;

Rate contracts entered into by Directorate General o f Supplies & Disposals, will not be acceptable as a substitute for N C B procedures. Such contracts will be acceptable however for any procurement under National Shopping procedures; and

Two or three envelop system will not be used.

Procurement Information

Procurement information will be collected and recorded as follows:

prompt reporting o f contract award information by the project management units for the respective components; and

reporting o f data as provided for in the On-line Monitoring and Management System. (www .pmas y.nic.in)

Proposed Procurement Arrangements - Thresholds and Frequency of Supervision

The project elements, their estimated costs, and proposed methods o f procurement are summarized in Table A. Thresholds are given in Table B. Figures in parenthesis are the respective amounts to be financed by the Bank.

43

Table A: Project Costs by Procurement Arrangements (US$ mil l ion equivalent)

Procurement Method'

Expenditure Category I C B N C B OtheJ? N.B.F. Total Cost 1. Works 0.00

(0.00) 2. Goods 0.00

(0.00) 3. Services 0.00

(0.00) 4. Operating costs 0.00

(0.00) 5. Front End Fee (0.00)

Total 0.00

422.66 (3 8 0.3 9)

0.00

0.00

0.00

(0.00)

(0.00)

(0.00) (0.00)

422.66

1 .oo

4.72

16.08 (14.84)

0.00

(0.00)

(3.77)

(0.00) (1 .OO) 22.80

236.00

0.00

0.00

4.45

(0.00)

(0.00)

(0.00)

(0.00) (0.00)

240.45

659.66 (3 80.3 9)

4.72

16.08 (14.84)

4.45

(3.77)

(0.00) (1 .OO)

685.92 (0.00) (3 80.3 9) (1 9.6 1) (0.00) (400.00)

'Figures in parentheses are the amounts to be fmanced by the LodCred i t . Al l costs include contingencies.

'Includes civ i l works and goods to be procured through national shopping, consulting services, services o f contracted s t a f f o f the project management office, training, technical assistance services, and incremental operating costs related to managing the project.

Table A1 : Consultant Selection Arrangements (US$ million equivalent)

Selection Method

Total

A. Firms 0.00 0.00 13.11 0.00 0.00 2.97 0.00 16.08 (0.00) (0.00) (1 1.87) (0.00) (0.00) (2.97) (0.00) (0.00)

B. Individuals 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)

QCBS QBS SFB LCS CQ Other N.B.F. Consultant Services Expenditure Category

Total 0.00 0.00 13.11 0.00 0.00 2.97 0.00 16.08 (0.00) (0.00) (1 1.87) (0.00) (0.00) (2.97) (0.00) (14.84)

44

Table B: Thresholds for Procurement Methods and Prior Review

Contracts Subject to Prior Review

(US$ millions)

Expenditure Contract Value Threshold Procurement Category (US$ thousands) Method

1. Works

2. Goods 3. Services

15% o f all contracts All >1.5 mill ion

>200,000 100,000 f i r m s

N C B About 300

N C B None anticipated FBS 12

(57.0)

50,000 individuals (9.3) Total value o f contracts subiect to Drior review 66.3

Overall Procurement Risk Assessment: Average

Frequency of procurement supervision missions proposed. One every 6 months (includes special procurement supervision for post-review/audits) to be conducted along with main supervision mission wherever feasible.

Table C: Allocation o f Loadcredit Proceeds

~~~~ ~ ~

Expenditure Category Amount in U S $ mil l ion Financing Percentage

3.77 Works 380.39 90% Goods Services 11.87 90% o f gross expenditure

80% for al l items procured locally at gross cost -

Training and tax exempt services 2.97 100% Total Proiect Costs 399.00

Interest during construction Front-end Fee" 1 .o 100%

Use of statements of expenditures (SOEs). Disbursement will be made from the Loadcredit on the basis o f statements o f expenditure for (a) c iv i l works for contracts not exceeding US$1,500,000; (b) goods for contracts not exceeding US$200,000; (c) consultants for contracts not exceeding US$lOO,OOO for f i rms and US$50,000 for individuals; and (d) training.

Special Account. A Special Account will be maintained in the Reserve Bank o f India and will be operated by the Department o f Economic Affairs (DEA) o f GO1 with an authorized allocation o f US$30 million. This wil l be operated in accordance with the Bank's operational policies.

lo On August 3,2004, the Bank Executive Directors, approved a 50 basis point waiver o f the front-end fee for al l IBRD loans (other than SSALs) to be presented to the Board in FY05. As this project i s scheduled to be presented to the Board on 23 September 2004, and assuming that it i s presented to the Board as planned or before July 1,2005, the front-end fee payable for the Project will be an amount equal to "0.5% o f the loan."

45

Annex 9: Economic and Financial Analysis

INDIA: Rural Roads Project

Introduction

There i s a high incidence of poverty in the rural areas o f India and about 70% o f the Indian population live in villages”. Consequently, to make substantial reductions in overall poverty levels, assistance has to focus primarily on rural areas. Major economic and social development o f rural areas can only take place if the people in the villages have year round access to social and economic institutions and opportunities. In India, over 40 percent o f villages are s t i l l not connected by all-weather roads. In view o f the importance o f village access to reduce poverty, extensive rural roads works are being undertaken under the PMGSY. The PMGSY program i s not based on the prioritization o f roads on economic criteria nor has it prescribed specific design standards based on estimated traffic levels. To indicate the potential economic and social benefits o f the program, and thus to th is CrediVLoan, the Bank undertook a study to estimate the likely impact o f providing all weather access roads to different villages in the four selected States: Uttar Pradesh, Rajasthan, Himachal Pradesh, and Jharkhand. The study was also designed to determine the appropriate road design standards (investment) in relation to the potential traffic and acceptable economic returns.

The Impact o f All Weather Road Access

The economic and social benefit analysis was based on cross-sectional comparison o f connected and unconnected villages. The pairs o f connected and unconnected village were selected to ensure that the paired villages had a similar resource endowment and were similar distances from the main road leading to a market. A total o f 40 villages, five pairs o f villages in each State, were selected. Detailed surveys were undertaken in each village to determine production, agricultural output and consumer commodity prices, social indicators and levels o f traffic generated by the villages.

Almost without exception, productiodcapita i s higher in connected villages, a higher proportion o f the crops i s exported fkom the village and the prices received for the exported production are higher (the extent o f the price differential i s dependent on the State and the commodity). The data illustrate the very wide diversity o f conditions in the rural areas o f India, but, taking all the villages together, the average per capita production in the connected villages i s about Rs.2400 (US$53) higher than in the unconnected villages12.

The more common term “village” i s used in t h s Annex rather than the t e r m “habitation” as defined under the PMGSY (see footnote on page 1) l2 The direction o f causality may be rather ambiguous - villages with higher production and marketable surpluses might previously have had priority in road construction.

46

(a) Table 1 : Agricultural Prices and Production: Production Rs ./capita

Crop Exports Impact o f Connection (% Production) on Crop Prices (Rs./ton)

Prices Rs./unit

Veg oil/lt Kerosenellt Sugarkg Saltikg

Br ickdl000 Cementhag

D etergend0.5 k g

Just as the prices for tradable agricultural commodities are lower in unconnected villages, the prices o f imported consumer goods are higher. For l o w valuehulk commodities l ike bricks and cement, prices are generally more than 10 percent higher in the unconnected villages.

(c) Table 3: Socio-Economic Access:

Uttar Pradesh Raj asthan Himachal Pradesh

Road NoRoad Road NoRoad Road NoRoad

47.4 53.2 54.2 59.0 42.4 44.0 16.2 16.6 13.8 15.4 14.9 16.3 14.4 15.4 14.5 15.4 16.0 17.1 2.3 2.4 5.1 6.3 5.6 6.0

9.05 9.45 5.0 5 .o 17.7 19.1 1530 1730 1290 1430 2450 3025 129 139 134 152 152 170

matriculate % health visit % mortality % electricity %

Uttar Pradesh

Road NoRoad

11.8 2.6 29.2 11.4 3.9 4.8 3.2 1.8

Raj asthan Jharkhand Himachal Pradesh

Road NoRoad Road NoRoad Road NoRoad

8.6 15.0 5.2 3.8 24.8 7.4 31.0 11.6 n.a. n.a. 34.6 16.2 1.6 1.1 8.0 9.0 1.7 1.6 2.6 5.8 2.4 0.6 20.8 12.8

47

Though there are exceptions (particularly in Raj asthan) villages with all-weather road access have populations with higher education and much higher access to health services (not always reflected in the mortality statistics). In general, the populations o f connected villages also have rather greater access to electricity though rates in all very villages are low, with the partial exception o f Himachal Pradesh.

(d) Transport Mobility

The transport surveys in the study were restricted to vehicles (including non-motorized) and did not count pedestrians or those riding animals; thus only a partial view o f travel patterns was obtained. I t might be logical to expect no motorized transport to villages without roads but, in reality, most o f the villages in Uttar Pradesh, Rajasthan and Jharkhand have some measure o f road access, through earth tracks, for some part o f the year. In such “unconnected” villages, there may be relatively high generation o f vehicle trips, but the trips are confined to tractors and light vehicles; buses and trucks operate only to villages connected by all-weather roads. The transport potential o f buses and trucks are a multiple o f the other vehicles recorded.

Table 4: Vehicle Generation Rates: Rural Villages

* Non motorized transport: bicycles in Jharkhand, carts in Rajasthan

The very low vehicle generation rates for unconnected villages in Himachal Pradesh are more representative o f villages with l i t t le effective motorized access. The high generation rates for connected villages i s rather misleading as the roads normally connect several villages and thus the vehicle rates for “connected villages” reflect the cumulative generation o f traffic from several villages.

(e) Overall Impact o f All-Weather Access The provision o f all-weather access can have very substantial impacts on the social and

economic development prospects o f rural areas. Access to markets i s improved, competition among traders often increases, the prices o f agricultural inputs and consumer goods fall, access to outside employment improves, better access may facilitate the development o f educational and medical services within the village and help to retain trained personnel, and access to social

48

facilities outside the village i s improved. Roads, particularly paved roads, encourage the establishment o f regular public transport services to villages. Whl le all-weather access i s not the panacea for rural development, i t i s generally a necessary condition for sustained economic and social development.

Economic Appraisal Methodology:

Most o f the candidate roads are designed to provide reliable all-weather motorized access to previously inaccessible (at least during part o f the year) villages. Therefore, economic analysis based solely on measuring the reduction in Vehicle Operating Costs (VOC) o f existing vehicles i s unlikely to measure h l ly the benefits o f improving accessibility due to:

0 There may be very l i t t le vehicular traffic - people have to walk and carry goods to the nearest road;

An all-weather road, with improved pavement conditions, often results in a substantial change in the composition o f traffic - from tractors to buses and trucks;

The intensity o f agricultural production may increase in response to higher prices/lower input costs and a higher proportion of crops may be sold outside the village;

The pattern o f cropping may change to take advantage o f cheaper and more reliable access to markets; and

Substantial benefits may be generated by better access to social infrastructure and improved mobility through the establishment o f regular public transport.

The economic analysis o f rural roads i s much more complex than the analysis o f upgrading existing all-weather roads, requiring a more multi-dimensional approach. However, the size o f individual rural road projects i s generally too small to justifjr the cost o f detailed analysis and a more basic, generalized approach has normally to be undertaken.

The appraisal methodology used for this project utilizes the parameters o f difference between the connected and unconnected villages surveyed. The approach i s broad and provides a generic analysis for roads o f different length and standard, serving villages o f different population size, with different levels o f agricultural potential. Experience elsewhere suggests that some roads will generate much greater benefits than those estimated, while other roads may have very l i t t le impact. Development i s dependent on many factors o f which all-weather access i s only one. In some villages other constraints, such as land tenure or water availability, may prove more significant than the lack o f motorized access. Given that the higher and lower performing projects offset each other, i t i s not cost-effective to undertake detailed investigations for road improvements with individual costs o f US$lOO,OOO or less.

The economic analysis assumes a project l i f e o f 15 years with no residual value. The costs include the initial construction cost and subsequent maintenance costs, including the periodic resurfacing o f the road. The benefits include the additional agricultural production expected, reduced VOCs and the travel time savings o f vehicle passengers. Given the data available, assumptions had to be made for each o f the main parameters in the analysis.

0

a

a

a

49

Main Assumptions

(a) Benefits

Agriculture produce surplus. After the provision o f physical access, the rural community can more easily market the surplus produced within the village and get better prices for i ts products. Moreover, the improvement in road conditions results in direct access by trucks and reduced crop handling; this allows farmers to market more time and condition sensitive crops. The surveys demonstrate that connected villages have significantly higher agricultural production values than unconnected villages. Changes in production and cropping patterns take time to develop, and other constraints may allow only partial adjustment by farmers in previously unconnected villages. A conservative approach is adopted: with a road connection the valuekapita o f agricultural production in the previously unconnected villages increases but only to 60 percent o f the present production differential between connected and unconnected villages. The agricultural adjustment process i s assumed to be equally spread over 5 years.

Traffic and its growth. I t i s assumed that when villages are connected with an all- weather road, their vehicle generation patterns will change to approximate those found in the presently connected villages. The average o f the vehicle generatiodper capita patterns o f connectedunconnected villages in Uttar Pradesh, Jharkhand and Rajasthan were applied to all roads. The vehicle generation patterns in Himachal Pradesh were excluded as the roads typically serve several villages. This method allows for changes in the number o f vehicles, but more importantly for changes in the composition o f vehicles. Traffic i s assumed to grow at 5 percent annually, a low rate in comparison with recent traffic growth in India. No attempt i s made to differentiate between “normal” and “generated” traffic and to apply different values to the flows. Much o f the “generated” traffic may simply be people and cargo transferring from foot to vehicles and thus, while the vehicle t i p may be generated, the travel i s not.

Vehicle operating costs. The savings in the vehicle operating costs (VOC) for each vehicle type were estimated using the SP: 30 o f Indian Road Congress, Manual on Economic Analysis o f Highway Projects for different type o f roads. The model provides the VOC for both motorized and non-motorized vehicles. The unit savings for most vehicle types ranged from 30 percent to 50 percent o f the VOC when compared with travel on an earthen road.

Value oftime. There has been l i t t le research on the value o f time for people traveling on minor rural roads. In order to estimate the benefits o f savings in time for the user o f village roads, the value o f time for the passenger was assumed to be hal f o f the unit value determined for the passengers using major roads. The average value used was Rs.6.7 per hour (US$0.15).

(b) Costs

Construction costs. The costs o f construction for black-top roads vary very considerably between the States, depending upon both the terrain and the haul distances for materials. Average construction costs in UP and Jharkhand are substantially higher than in either HP or Rajasthan:

50

Table 5: Financial Construction Costs Paved Roads R s . h

I Range No. o f Roads Average 1 Uttar Pradesh 204 2,280,000 1,389,000 - 3,486,000

Raj asthan

Himachal Pradesh

The financial costs were converted into economic costs by using a conversion factor o f 0.9.

582 1,488,000 967,000 - 2,225,000

93 1,305,000 935,000 - 2,203,000

Maintenance costs. The maintenance costs for the different surface varies with the cost o f materials and the damage resulting from both weather and traffic. For black-top roads, it i s assumed that the road would require resurfacing every eighth year, at a'cost o f Rs.200,000/km, and that annual maintenance during the intervening periods would average RsS,OOO/km. For gravel roads, re-gravelling i s required every fifth year, at a cost o f Rs.lOO,OOO/km. The maintenance costs in the in the intervening four years would average Rs.7,500/km. Again, the financial costs are converted into economic costs using the conversion factor o f 0.9.

Jharkhand

Results of Economic Analysis

35 2,283,000 2,012,000 - 2 , s 1,000

The economic model was applied to district groups o f roads in the four States, covering over 900 sub-projects representing a total o f about 40% o f the loadcredit value. Both the economic rates o f return and modified economic rates o f return (assumes that the returns f iom the investment only yield the opportunity cost o f capital, both at 12%) were calculated. The analysis indicated a relatively wide spread in the economic results but the average rates o f return are acceptable:

Modified ERR

Mean 32.9% 19.4%

Median 28.5% 17.1%

Over 70% of roads have rates o f return in the range 15% - 20%.

51

PMGSY: Modified Economic Rates of Return

60 I

~

Uttar Pradesh

Raj asthan

Himachal Pradesh

Jharkhand

Total

0.0 - 9.9 10.0 - 14.9 15.0 - 19.9 20.0 - 24.9 25.0 - 29.9 30+ MERR (%)

No. o f ERR Modified NPVK Roads ERR'

204 51% 25% 3.13

582 25% 17% 0.70

93 40% 21% 2.00

35 28% 18% 1.93

914 33% 19% 1.53

The results o f the economic analysis for the individual states are shown in Table 6:

Table 6: PMGSY: Economic Rates o f Return

The likely economic returns from connecting villages with all-weather paved roads vary considerably, depending on construction costs, the distance from the existing all-weather road, the size o f village and the production differential. Rates o f return are high in Uttar Pradesh, despite the high construction costs, because o f the large production differential, relatively short length o f sample roads (2.5 km) and relatively high populations served. The economic rates o f return for roads in Rajasthan may be somewhat underestimated as more than one village may be served by each road (these data were available for the other States).

The returns on the roads in Himachal Pradesh are high, reflecting the relatively low construction costs and the large numbers o f villages connected by each road (an average o f three villageshoad); in reality, the impact may be even higher. Unlike in the other States, villages in Himachal Pradesh without roads are really without any motorized access. This i s reflected in the very low vehicle trip generation rates detailed previously, Table 4. In Himachal Pradesh, no road

l3 Assumes 12% cost o f capital and reinvestment rate

52

really does mean no motorized access and the shi f t in travel patterns would not be from one type o f vehicle to another, but from walking to motorized transport. The impact o f shifting from foot to motorized transport i s normally several times that from improving road conditions or changing the category o f vehicle.

The Choice o f Road Standard

The economic rates o f return detailed in Table 6 are based on the construction o f a black- top road which has been adopted by GO1 as the de facto standard for PMGSY. The traffic flows on most o f the rural roads in th is program wil l be very low and it can certainly be argued that there are more cost-effective standards for low volume rural roads. Incremental economic analysis on the additional capital cost o f paved rather than all-weather gravel roads indicates very low rates o f return. Higher economic returns might conceptually be generated by downgrading the design standard, reducing the construction c o s t s h and connecting more villages with the same total level o f investment.

The proposed paved rural roads, however, yield substantial economic returns which are sufficient to justify the investment, when compared with the do-nothing situation. The issue o f appropriate standards for rural roads will form an important part o f the dialogue between the Bank and GO1 during the implementation o f the Project. At the outset, i t has to be recognized that unpaved roads are not very popular in India. Most o f the states do not have sufficient experience in design, construction, and maintenance o f unpaved roads to the standards used in many other countries. Most o f the unpaved roads in India are constructed under employment generation programs or under stage construction approach where sufficient funds for construction up to a sealed standard are not available. Adequate design, construction quality, and material specifications are often not enforced. The general lack o f maintenance also results in the poor performance of gravel roads. Some states l ike Uttar Pradesh have no gravel in most parts. I t i s therefore understandable that rural communities often have a very high preference for paved rather than unpaved roads in India. Although the IRC SP20 does recommend the use o f gravel roads for low traffic conditions most states usually ignore th is option.

Recently, some states have shown interest in construction o f gravel roads under PMGSY. Some gravel roads have already been constructed under ongoing Bank funded projects and shown reasonable performance. There i s increasing awareness amongst the states and the NRRDA that graveVunpaved roads could be a cost-effective solution especially for low-traffic conditions. IRC SP 20 i s currently undergoing revision and the revised manual may put more emphasis on the use o f gravel roads or other low-cost solutions especially for low traffic conditions.

The current choice o f paved roads can be attributed to the lack o f sufficient experience with constructing and maintaining unpaved roads to an acceptable level o f serviceability. However, the revised IRC manual as well as improvements in maintenance h d i n g and planning as agreed under the project may allow less capital intensive road improvements and thus allow faster implementation o f the PMGSY objective o f 100% connectivity. In some States, this may mean gravel roads; in other States, without gravel resources, the use o f brick surfaced pavements may be more appropriate at a lower cost alternative to paved roads.

53

Sensitivity Analysis

Individual +125% Joint( 1) +75% Joint(2) +50%

Population served, production increases and construction costs are the key variables that can substantially affect the rates o f return. The switching values, which reduce economic returns to 12%, for these key variables have been calculated for average projects in each o f the States, Table 7.

-90% -55% -40% -20% -25%

Table 7: PMGSY: Switching Values

Taken individually, very substantial changes are required in the key variables to reduce the ERR to marginal levels. Taking all States together, the rates o f return can be considered robust to plausible changes in the individual parameters. The large number o f very small road projects within the Project adds to the robustness o f the overall economic returns through diversifying sub-proj ect risks; increases in construction cost, or reduced production increases on some roads will be offset by reduced costs and increased production on others.

Distribution of Benefits

The provision o f all-weather road access has a pervasive impact, affecting not only production and facilities within the village but also improved access to economic and social opportunities outside the village. All the village population should benefit f iom improved access to educational and health facilities and lower prices for basic consume goods. The expected increase in the value o f agricultural production will benefit farmers and may increase the demand for labor, thus improving wage rates for landless laborers. Overall, the project should reduce the levels o f poverty and social deprivation in the previously unconnected villages. The districts selected for implementing the Project are amongst the poorest districts in the States.

54

Financial Analysis

The PMGSY program i s a centrally sponsored scheme, fully funded by central government resources. Current estimates suggest that the total investment required to meet the 2007 targets i s about Rs. 1,330 bil l ion (US$29 billion). This substantial resource requirement i s expected to be funded partly through dedicated fuel levies and donor assistance, including this and subsequent Bank fbnded projects. In 1999, a one-rupee levy per l i ter o f diesel and petrol sold was imposed by the GO1 and in 2000, a Central Road Fund Act was promulgated to direct the resources obtained through this levy to the improvement o f national and state highways as well as rural roads. This was raised to Rs.1.50 (US3.3 cents) per l i ter in 2003. By law, 50 percent o f the diesel levy i s directed towards rural road development, a sum currently amounting to about US800 mill ion per year, which i s far short o f the resource requirements to achieve the PMGSY targets.

An analysis o f unit costs for road construction from the PMGSY web site shows that the average unit costs for PMGSY roads to date in Jharkhand (US$41,000/km) and Uttar Pradesh (US$43,000/km) are high compared to Himachal Pradesh (US$29,000/km), Raj asthan (US$25,000/km), and Madhya Pradesh (US$29,000/km). Most o f the roads are designed with bitumen surface irrespective o f the level o f traffic. Greater focus on reducing unit costs will substantially reduce the overall funding requirements o f PMGSY as a whole. The Indian Roads Congress and NRRDA are considering ways to reduce the unit costs and to adopt optimal design standards for rural roads. Currently, IRC i s revising the IRC SP 20 to ensure, amongst other things, cost-effective road designs, rational criteria for selecting pavement surface type for different traffic and terrain conditions, use o f alternative materials, and to include design o f gravel roads.

NRRDA i s also preparing standard specifications for roads and bridge works for rural roads and a standard data book for cost-estimation to address the specific needs for rural roads, economize rural roads construction, and to introduce alternative material specifications. These specifications will be used for the construction o f project rural road works when finalized. NRRDA i s also in the process o f preparing detailed guidelines for project preparations, a construction manual for performing various construction operations in the field.

There i s some evidence to suggest that some state governments are reducing their own outlay or borrowing for rural roads as a response to the substantial grant funds being provided by the centre. Whi le this might be a concern if maintenance funds were being reduced (there i s no evidence o f th is as yet), if new construction i s being limited to PMGSY funded works this might be a positive outcome - given the substantially improved planning and execution procedures being employed on the program that imply an increase in the overall quality o f public spending in the sector.

Fiscal Impact

Whi le the investment burden on states and districts will be minimal, the project will create a maintenance obligation and added resource requirement to maintain the expanded rural road network. The rural roads constructed by this project will be maintained by state or local government rural road agencies. Typically, almost all road maintenance funding comes f iom state budgets and local government contributes little. Whatever local funding there i s available for rural roads tends to be used for new construction and upgradation rather than maintenance.

55

The incremental fiscal impact on the State governments o f the new roads financed under the project are modest in themselves (see Table 8 below). During a five year routine maintenance period following the constructioddefects liability period, State govemments are contractually committed to funding the maintenance of project roads. The costs o f this commitment are shown below which assumes that each state receives an allocation fiom the loadcredit in the same proportion as GO1 guidelines. Depending on the final allocation and tendered rates, the actual commitment could be rather more or less than th is in each State.

Required per state noms* Actual

Estimated current backlog Actual as % o f Required

Table 8: Estimated Financial Commitment from States for Routine Maintenance o f Project Roads (2003

Himachal Jharkhand Raj asthan Uttar Pradesh Pradesh**

205 280 23 1 480 156 140 61 100 76% 50% 26% 21% 300 1,200 268 1,500

The fiscal impact o f the PMGSY program as a whole i s more pronounced and, once complete, will be approximately ten times the commitment as shown in the table above. Independent reviews o f the funding and management o f maintenance o f rural roads in all four states, has demonstrated, inter alia the limited funding that i s being available by state governments for this activity. The actual and required allocations for rural road maintenance for the four states are shown in Table 9 below. Note that Rajasthan undertook a backlog reduction program in 2002 and 2003 through Plan funds and borrowing totaling Rs. 600 Cr (US$133 million) which perfonned renewals on about 20,000 km out o f the 30,000 km o f estimated backlog at the time.

56

Annex 10: Safeguard Policy Issues

INDIA: Rural Roads Project

Social Policy Issues

Land. The Environment and Social Management Framework (ESMF) - including Environment Codes of Practice and a R&PF - was prepared on the basis o f an ESA carried out in a participatory manner involving all stakeholders including affected communities, staff o f executing agencies and l ine departments.

The findings of the ESA of the ongoing PMGSY program indicate that in all the four states, construction has been carried out along existing tracks that are marked in the Revenue records (revenue tracks). The land available along existing tracks varies from 4 to 6 meters. Additional strips o f land o f about 2-3 meters are often required, except inside settlement boundaries, for construction. Farmers have often encroached on existing revenue tracks. However, during construction people willingly surrender any encroached area. For any land required beyond the revenue track, land has been donated. By and large, people have been marginally affected due to improvement in the design. No one has been displaced as the upgradation has been restricted to the available width in settlements. The process o f identifying and quantifylng the social impacts f iom the construction o f roads funded under the project will be phased over the project period. A total o f 836 roads have been identified in all the four states that will be upgraded during the first year to 18 months o f the project. The impact assessments have been undertaken and necessary measures incorporated in detailed project reports (DPR) prior to finalization. The R&PF provides for a checklist to collect information on the socio- economic condition o f project affected people which will be completed and included in the DPR.

Mitigation Plans. To understand and assess the issues relating to land requirement, displacement, resettlement, and environment implications, the MORD commissioned a study to assess existing social and environmental conditions in Project States and also to prepare an ESMF with associated safeguard instruments i.e. R&PF and ECOPs to mitigate adverse impacts if they occur. The purpose o f th is R&PF i s to formalize the support that has until now been only informally provided - e.g. provision o f alternate land in some cases. Options for support to vulnerable people include: (i) extension o f ongoing government's specific program for rural poverty alleviation; (ii) alternate land, if available; (iii) cash assistance donated by all members of the beneficiaries/Gram Sabha; and (iv) opportunities for employment during the construction period. Annual review o f the functioning o f the fiamework will be carried out and it will be modified, if necessary.

Transfer of land to the respective department. The process o f transfer o f land required for the minor alignments varies f iom state to state: (i) in Himachal Pradesh, affidavits will be used for transfer o f land from the land owner to the state government, and in addition gift deeds will be prepared by affected persons; (ii) in Jharkhand, affidavits will be provided; and (iii) in Uttar Pradesh and Rajasthan, Memorandum o f Understanding will be signed between affected persons and concerned departments. The R&PF provides the formats which will be completed along with proof o f land ownership and land will be made available before contractors are mobilized for smooth construction.

57

SI. Item No.

l4 Not including any land

Unit Rate Qty Cost Assumption (No.) Po. )

58

Annex 11: Project Preparation and Supervision

Planned

INDIA : Rural Roads Project

Actual

Key institutions responsible for preparation of the project:

Ministry o f Rura l Development, K r i s h i Bhawan, N e w De lh i National Rura l Road Development Agency, N e w De lh i Government o f Himachal Pradesh, Public Works Department, Shimla Government o f Jharkhand, Rural Engineering Organization, Ranchi Government o f Rajasthan, Public Works Department, Jaipur Government of Uttar Pradesh, Public Works Department, Rural Engineering Services, Lucknow

Bank staff and consultants who worked on the project included: Name Ti t le unit Alok Na th Bansal Sr. Transport Planner SASEI Aniruddha Pat i l Project Analyst SASEI Ashok Kumar Sr. Rura l Roads Specialist SASRD B inyam Reja Transport Economist TUDTR Gaurav Joshi Consultant SASES Gladys Stevens Program Assistant SASEI Guang Chen Sector Manager SASEI Jayashree Shahria Program Assistant SASRD

Manoj Jain Sr. Financial Management Specialist S A R F M Mohan Gopalakrishnan Financial Management Specialist S A R F M Monica Femandes Program Assistant SASES Mr idu la Singh Social Development Specialist SASES N. S. Srinivas Program Assistant SASEI Piers Vickers Task Leader SASEI Raj Soopramanien Sr. Counsel L E G M S Simon Thomas Sr. Transport Economist SASEI Sonia Chand Sandhu Sr. Environment Specialist SASES Tapas Paul Sr. Environment Specialist SASES Terje Wolden Sr. Transport Specialist SASEI Venkat Rao Bayana Consultant SASES

K i ran Ranjan Baral Sr. Procurement Off icer SARPS

59

Bank h d s expended to date on project preparation :

1. Bank resources: 2. Trust fimds: 3. Total:

US$280,000 US$O US$280,000

Estimated Approval and Supervision costs:

1. Remaining costs to approval: us$20,000 2. Estimated annual supervision cost: US$140,000

60

Annex 12: Documents in the Project File

INDIA: Rural Roads Project

Bank Staff Assessments

Identification Mission Aide Memoire Second Preparation Mission Aide Memoire Third Preparation Mission Aide Memoire Fourth Preparation Mission Aide Memoire Appraisal Mission Aide-Memoire

Other

Current Environment and Social Conditions Report Environment and Social Management Framework Economic analysis of PMGSY roads in four states Fiduciary Review o f PMGSY Maintenance Assessment Report - Himachal Pradesh Maintenance Assessment Report - Jharkhand Maintenance Assessment Report - Rajasthan Maintenance Assessment Report - Uttar Pradesh Procurement Plan Study o n the Institutional Arrangement for the PMGSY Standard Bidding Document for PMGSY, Version 2 Supplemental Operations Manual

July 2002 December 2002 April 2003 September 2003 March 2004

January 2004 August 2004 October 2003 June 2003 May 2003 April 2003 August 2003 August 2003 August 2004 August 2003 April 2004 August 2004

61

Annex 13: Statement of Loans and Credits

INDIA: Rural Roads Project Difference between expected and actual

disbursements Original Amount in US$ Millions

Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d

Disease Surveillance 0.00 68.00 0.00 0.00 0.00 68.00 0.00 0.00 PO73651 2005 PO78550 2004 PO50655 2004 PO55459 2004 PO82510 2004 PO73369 2004 PO73776 2004 PO79865 2004 PO72123 2003

PO71272 2003 PO67606 2003 PO50649 2003 PO73094 2003 PO75056 2003

PO76467 2003 PO69889 2002 PO40610 2002 PO50668 2002

PO50647 2002

PO50653 2002 PO71033 2002 PO72539 2002 PO74018 2002

PO38334 2001 PO59242 2001 PO55455 2001 PO55454 2001 PO50658 2001 PO71244 2001

PO35173 2001 PO67543 2001 PO10566 2001 PO70421 2001 PO67216 2001 PO50657 2000

PO09972 2000

Uttaranchal Watershed Rajasthan Health Systems ELEMENTARY EDUCATION Kamataka U W S Improvement MAHAR RWSS ALLAHABAD BYPASS GEF Biosafety Project TechEngg Quality Improvement Project AP RURAL POV REDUCTION UP ROADS TN ROADS AP COMM FOREST MANG Food & Drugs Capacity Building Project Chatt DRPP MIZORAM ROADS RAJ WSRP MUMBAI URBAN TRANSPORT PROJECT UTTAR PRADESH WATER SECTOR RESTRUCTURING KARNATAKA RWSS 11 KARN TANK MGMT KERALA STATE TRANSPORT

Gujarat Emergency Earthquake Reconstruct RAJ POWER I MP DPIP RAJ DPEP I1 KERALA RWSS TECHN EDUC 111 Grand Trunk Road Improvement Project POWERGRID I1

LEPROSY I1 GUJARAT HWYS KARNHWYS KAR WSHD DEVELOPMENT UP Health Systems Development Project NATIONAL HIGHWAYS III

0.00 0.00 0.00

39.50 0.00

240.00 0.00 0.00

0.00 488.00 348.00

0.00 0.00

0.00 0.00 0.00

463.00

0.00

0.00 0.00

255.00 0.00

180.00 0.00 0.00 0.00 0.00

589.00

450.00 0.00

381.00 360.00

0.00 0.00

516.00

70.00 89.00

500.00 0.00

181.00 0.00 0.00

250.00

150.03 0.00 0.00

108.00 54.03

112.56 60.00

140.00 79.00

149.20

151.60 98.90 0.00

442.80

0.00 110.10 74.40 65.50 64.90 0.00

0.00 30.00 0.00 0.00

100.40 110.00

0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00

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

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

0.00 0.00 0.00

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

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

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

0.00 0.00 0.00

68.53 89.76

487.40 39.50

182.70 240.00

0.90 263.37

148.09 463.23 344.52 116.47 56.66

117.44 58.34

149.56 510.31

159.94

163.80 109.52 229.87 362.59

107.92 104.85 60.05 61.01 54.28

494.2 1

274.65 8.45

283.29 302.80 108.01 95.89

385.38

0.00 0.00 0.00 0.00 0.33 0.00 0.00 5.80

10.33 3 1.37 -3.48 5.61 0.00

0.18 2.74

25.18 37.09

49.72

16.20 9.15

-0.13 259.22

69.76 31.70 3.79

16.38 19.70

199.88

106.12 2.25

147.62 67.80 38.55 30.39

198.04

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00

0.00

0.00 0.00 0.00 0.00

0.00 0.00 0.00

-7.36 0.00 0.00

-4.66 0.00

-6.86 0.00 0.00 0.00

0.00

Difference between expected and actual

disbursements Original Amount in US$ Millions

Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd PROJECT

PO50667 2000 PO59501 2000 PO67330 2000

PO55456 2000

PO10505 2000 PO35172 2000

PO45049 2000 PO49770 2000 PO41264 1999 PO45050 1999 PO45051 1999 PO50637 1999 PO50646 1999 PO50651 1999 PO35827 1998 PO10561 1998 PO35824 1998 PO10496 1998 PO49477 1998 PO38021 1998 PO49385 1998 PO35158 1997 PO10473 1997 PO10531 1997 PO09995 1997 PO10511 1997 PO44449 1997

PO43728 1997 PO09584 1997 PO36062 1997 PO10529 1996 PO35170 1996 PO10485 1996 PO10480 1996 PO35825 1996 PO10522 1995 PO10461 1995 PO10476 1995

UP DPEP 111 IN-TA for Econ Reform Project IMMUNIZATION STRENGTHENING PROJECT IN-Telecommunications Sector Reform TA RAJASTHAN DPIP Up POWER SECTOR RESTRUCTURING PROJECT AP DPIP REN EGY I1 WTRSHD MGMT HILLS 11 RAJASTHAN DPEP 2ND NATL HIV/AIDS CO TN URBAN DEV II UP SODIC LANDS I1 MAHARASH HEALTH SYS WOMEN & CHILD DEVLPM NATL AGR TECHNOLOGY DIV AGRC SUPPORT ORISSA HEALTH SYS KERALA FORESTRY DPEP III (BMAR)

AP ECON RESTRUCTURIN AP IRRIGATION 111 TUBERCULOSIS CONTROL REPRODUCTIVE HEALTH1 STATE HIGHWAYS I(AP) MALARIA CONTROL RURAL WOMEN'S DEVELOPMENT ENV CAPACITY BLDG TA ECODEVELOPMENT ECODEVELOPMENT ORISSA WRCP ORISSA POWER SECTOR HYDROLOGY PROJECT BOMBAY SEW DISPOSAL STATE HEALTH SYS I1 ASSAM RURAL INFRA M A D R A S WAT SUP I1 TAMIL NADU WRCP

0.00 0.00 0.00

62.00

0.00 150.00

0.00 80.00 85.00 0.00 0.00

105.00 0.00 0.00 0.00

96.80 79.90 0.00 0.00 0.00

301.30 175.00

0.00 0.00

350.00 0.00 0.00

0.00 0.00 0.00 0.00

350.00 0.00

167.00 0.00 0.00

275.80 0.00

182.40 45.00

142.60

0.00

100.48 0.00

111.00 50.00 50.00 85.70

191.00 0.00

194.10 134.00 300.00 100.00 50.00 76.40 39.00

152.00 241.90 150.00 142.40 248.30

0.00 164.80 19.50

50.00 0.00

28.00 290.90

0.00 142.00 25.00

350.00 126.00

0.00 282.90

0.00 0.00 0.00

0.00

0.00 0.00

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

0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00

0.00

0.00 0.00

0.00 0.00

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

0.00 0.00 0.00

0.00 0.00

20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00

0.00

0.00 0.00

0.00 0.00 0.00 0.00

0.00

0.00 0.00

16.96 0.00 0.00 0.00

0.00 0.00 0.00 0.00

45.00 0.00 0.00 0.00

46.50 6.72

0.94 2.34 5.86 0.00

95.00 19.64 22.00 0.00 0.00

189.30 0.00 25.01

67.60 38.89 31.44

48.81

90.92 25.92

83.03 111.88 46.78 48.36 79.56 25.42 93.14 76.27

179.39 62.77 24.31 56.68 12.42 99.97

167.23 53.30 73.58 69.58 49.81 48.86 6.06

5.90 0.96 2.95

50.09 46.58

7.82 9.27

33.21 17.14 6.63

21.32

54.50 11.51 24.96

45.49

53.11 17.25

19.98 49.14 40.30 70.80 49.84 16.32 71.84 79.29

136.33 67.79 26.07 44.26 12.01 94.88

166.93 105.78 82.19 65.11 49.81 96.63 13.95

1 1.49 4.65

10.53 74.39

141.58 48.75 33.39 70.18 33.93

195.93 85.97

0.00 0.00 0.00

0.00

0.00 0.00

0.00

7.70 0.00 0.00 0.00 0.00 0.00 0.00 0.00

-10.69 19.67 0.00 0.00

-4.07 0.00

29.1 1 77.98 65.15

-204.19 8.15

-4.28

0.00 0.00 5.53

39.50 20.09 25.10 7.20 0.00

30.80 4.80

54.86

Total: 6,587.30 6,456.80 0.00 21.00 475.27 8,150.24 3,658.15 153.53

63

INDIA STATEMENT OF IFC’s

Held and Disbursed Portfolio In Millions o f U S Dollars

Committed Disbursed

IFC IFC

FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.

2003

2003 2001 1997 1995

2001 2001 1995198

1997 1997100 1995 2001103

2000/02 0 1998 1990 2002 1981/86/89192/94 2000 1989190194

1987/88/90/93

1989 1996 2002 199 1/93/96/01 2001

1997 1988 1997

2002 1989 2002 2003

1994 1992193

1997 2001 2003

2001 1984191 010 1

NewPath

Niko Resources

Orchid

Owens Coming

Prism Cement

RCML

RTL

Rain Calcining

SAPL

SREI Sara Fund

Spryance

Sundaram Home

TCFC Finance Ltd

TC W/ICICI

TDICI-VECAUS I1 TELCO

TISCO

Tanflora Park

Tata Electric

Titan Industries

UCAL

United Riceland

Usha Martin

VARUN

Vysya Bank

W N

WTI

Walden-Mgt India

Webdunia

AEC

ATL

Alok

Ambuja Cement

Arvind Mills

Asian Electronic

BTVL Balrampur

Basix Ltd.

Bihar Sponge

CCIL

0.00 30.00

0.00 16.24

11.25 0.00 0.00 0.00 0.00 9.50 0.00 0.00 10.90 0.00 0.00 0.00 50.00 0.00 0.00 0.00 0.00

0.00 9.38 21.00 0.00 0.00

0.00 0.00

0.00 0.00

1.09 21.36 17.50

0.00 0.00

0.00 0.00

15.26

0.00 0.00

9.00

10.00 0.00 6.08

0.00 5.02 1.97

0.45 0.00 0.07

0.00 5.94 1 .oo 0.00 0.00

5.59 0.15

0.00 0.00 0.51 0.00

0.32 0.34 0.00 3.60 0.26

3.66 2.05 0.20

0.02 2.00 0.00

0.00 0.00 4.94

3.39 5.50

20.00

0.00 0.98 0.05 0.00

0.00 0.00

10.00 0.00 0.00 0.00 0.00

0.00 0.00

5.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00

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

0.00

0.00 0.00

0.00 6.00 0.00

0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 15.00

0.00 0.00 0.00

0.00 0.00

0.00

0.00 0.00

10.54

0.00 20.00 0.00

16.24 11.25

0.00 0.00

0.00 0.00 9.50

0.00 0.00

10.90

0.00 0.00

0.00 50.00

0.00

0.00 0.00

0.00 0.00 9.38

15.00 0.00

0.00 0.00

0.00 0.00

0.00 1.09

15.68

0.00 0.00

0.00 0.00

0.00 15.26 0.00 0.00 9.00

4.50 0.00

6.08 0.00

5.02 1.97 0.45 0.00

0.07 0.00 5.94 1 .oo 0.00 0.00

5.59 0.15 0.00 0.00 0.00 0.00 0.32 0.34

0.00 3.60 0.26

3.66 2.05 0.20 0.02 0.67

0.00 0.00 0.00 4.94

3.39 5.50

20.00 0.00 0.98 0.05 0.00

0.00

0.00 0.00

0.00 0.00 0.00

0.00 0.00 0.00

5.00 0.00 0.00 0.00 0.00

0.00

0.00 0.00

0.00

0.00 0.00

0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00 0.00

0.00

0.00 0.00

0.00 6.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

11.56 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00

10.54

Committed Disbursed

IFC IFC

FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.

1997 1990/92/96 2002

1995197 2003 2003 1997 0 1995

2001 1994197

0194/9810010 1 1994 0178191103 1990

1998 0/95/00

1998 2001 1990193194198

1992195 2000

1996 1985190194

2001 0193196 0

1996 1992 1992

1992 1992194197

2001 2003

2001 1981190193

2001 . 2002

2003 2001 2003 1996/99100 1992196197

CEAT

CESC

COSMO Centurion Bank

Dataquest

Dewan

EEPL

EXB-STG

GE Capital

GTF Fact

GVK

Global Trust

Gujarat Ambuja

HDFC

HOEL

IAAF

ICICI-SPIC Fine

IDFC

IIEL IL & FS

IL&FS VC

IndAsia Fund

India Direct Fnd

India Lease

Indian Seamless

Indo Rama

Indo Rama (IRTL)

Indus I1 Indus VC Mgt Co

Indus VCF

Info Tech Fund

Ispat Industries

Jetair

L&T

LeamingUniverse

M&M MIECL

MMFSL

MSSL MahInfra

Max Healthcare

Moser Baer

NICCO-UCO

19.60

0.00 10.00

0.50 0.00

13.08 0.00 0.31 0.00 0.00 0.00 0.00 0.00

100.00 0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00 10.50 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 50.00 0.00 0.00 0.00 10.69 0.00

0.00 19.63

28.69 0.00

0.00 0.00 0.00 0.00 1.50

0.00 0.03 0.00 4.39 2.39 0.00

0.00 0.00 0.00 0.00 2.04 2.79

15.46

3.15 3.12

0.60 15.00

7.22 0.30

0.00 0.04

1.92 4.08 0.01

0.60 0.62 0.00

0.00 0.00 0.00 0.47

1.63 0.00 2.28

10.00 0.00

14.80 0.13

0.00 0.00 0.00 0.00 0.50 0.00 0.00 0.00 0.00 0.00 0.00

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

15.00 0.00 0.00 0.00

0.00 7.63 0.00

0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00

19.60 0.00

10.00

0.50 0.00 0.00

0.00 0.31 0.00

0.00 0.00

0.00 0.00

100.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00 6.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00

0.00 50.00 0.00

0.00 0.00

10.69 0.00 0.00

0.00 28.69

0.00

0.00 0.00 0.00 0.00 1.50 0.00

0.03 0.00 4.39 2.39 0.00

0.00 0.00 0.00

0.00 1.87 2.79

15.46 2.06 3.12

0.60 0.61

6.68 0.30

0.00 0.04

1.92 4.08 0.01 0.60 0.62 0.00 0.00 0.00 0.00

0.47 1.15 0.00 0.00

0.21 0.00

14.80

0.13

0.00

0.00 0.00

0.00 0.50 0.00

0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

15.00

0.00 0.00 0.00 0.00 7.63 0.00

0.00 0.00 0.00

0.00

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

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

Totalportfilio: 485.48 178.66 38.13 31.54 409.09 142.58 28.13 28.10

65

~

FY Approval Company

Approvals Pending Commitment

Loan Equity Quasi Partic.

2000 2003

2004 2003

2002 2001

2003 2003 2003 2002 2004 2001

APCL

BHF CIFCO

Dataquest Mgmt.

Escorts Telecom

GI Wind Farms HDFC - Loan Niko Resources

SPL

TELCO 1 UFJL

Vvsva Bank

0.01 0.01

0.02 0.00 0.03

0.01

0.00 0.01 0.01

0.02 0.02 0.00

0.00 0.00 0.00 0.00 0.02 0.00 0.00 0.00 0.00

0.00 0.00 0.00

0.00 0.01 0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00 0.03

0.00 0.05 0.00

0.01 0.00

0.00 0.00

~

Total pending commitment: 0.14 0.02 0.01 0.09

66

Annex 14: Country at a Glance

INDIA: Rural Roads Project

POVERTY and SOCiAL

2002 Population. mid-year (millions) GNI per capita (Atlas method, US$) GNI (Atlas method, US$ billions)

Average annual growth, 1996-02

Population (%I Labor force (%)

Most recent estimate (latest year available, 1996-02) Poverty (% of population below national poverty line) Urban population (% of total POpUlatiOn) Life expectancy at birth (years) infant mortality (per f.000 live births) Chiid malnutrition (% of children under 51 Access to an improved water source I% ofpopulation) Illiteracy (% of population age f5+) Gross primary enrollment I% of school-age population)

Male Female

KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982

GDP (US$ billions) Gross domestic investmentlGDP Exports of goods and serviceslGDP Gross domestic savingslGDP Gross national savingslGDP

Current account balancelGDP Interest paymentslGDP Total debffGDP Total debt servicelexports Present value of debffGDP Present value of debtlexports

194.8 21.7 6.1

18.3 19.2

-2.0 0.4

14.1 13.6

1982-92 1992-02 (average annual growth) GDP 5.6 6.0 GDP per capita 3.4 4.2 Exports of goods and services 6.9 13.5

India

1,048.3 470

494.8

1.7 2.2

29 28 63 68

78 41

102 Ill 92

I992

244.2 23.8 9.0

21.8 21.8

-1.6 1.4

37.0 28.0

2001

5.2 3.5 7.1

South Asia

1,401 460 640

I .8 2.3

28 63 71

84 44 97

IO8 89

2001

478.5 22.3 13.5 21.7 23.7

0.1 0.8

20.4 11.7 14.2 84.7

2002

4.6 3.0

21.8

Low- income

2,495 430

1,072

1.9 2.3

30 59 81

76 37 95

103 87

2002

510.2 22.8 15.2 22.5 24.6

0.6 0.7

20.6 13.9

2002-06

6.2 4.7 7.9

Development diamond'

Life expectancy

T GNI Gross per +u - primaty capita enrollment

I

Access to improved water source

Economic ratios.

Trade

Investment Domestic savings

Indebtedness

s l t w India Low-income group

STRUCTURE of the ECONOMY

(% of GDP) Agriculture Industry

Services

Private consumption General government consumption Imports of goods and services

Manufacturing

(average annual growth) Agriculture Industry

Services

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

Manufacturing

1982 I992

35.9 30.9 25.8 26.7 16.2 16.2 38.3 42.3

69.9 65.8 10.7 11.2 8.4 9.8

1982-92 1992-02

3.1 2.5 6.7 6.2 6.5 6.6 6.8 8.2

5.3 5.0 6.1 7.1 5.7 7.2 5.7 12.0

2001 2002

25.0 22.7 25.7 26.8 15.3 15.6 49.4 50.7

65.9 65.0 12.5 12.5 14.1 15.6

2001 2002

6.5 -5.2 3.4 6.4 3.6 8.2 6.8 7.1

6.2 -0.8 3.0 3.1 1.6 9.5 4.0 8.1

Growth of investment and GDP (%) 1 5

0 I 10

Note: 2002 data are preliminary estimates. * The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will

be incomplete.

67

PRICES and GOVERNMENT FINANCE

Domestic prices (% change) Consumer prices Implicit GDP deflator

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

TRADE

(US$ millions) Total exports (fob)

Marine products Ores and minerals Manufactures

Total imports (cif) Food Fuel and energy Capital goods

Export price index (1995=1001 Import price index (1995=100) Terms of trade (1995=100)

BALANCE of PAYMENTS

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

Net income Net current transfers

Current account balance

Financing items (net) Changes in net reserves

Memo: Reserves including gold (US$ millions) Conversion rate (DEC, /ocal/US$j

EXTERNAL DEBT and RESOURCE FLOWS

(US$ millions) Total debt outstanding and disbursed

IBRD IDA

Total debt service IBRD IDA

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

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

1982 1992

6.7 12.6 7.7 8.8

_. 18.7

-7.2 -3.2

1982 1992

9,490 18,869 377 602 445 738

5,109 14,039 16,468 24,316 1,071 507 5,957 6,100 2,662 4,532

94 95 125 96 75 99

1982 1992

12,377 23,599 18,352 27,917 -5,975 -4,318

-335 -3,423 2,510 3,852

-3,800 -3,889

3,101 4,692 699 -803

4,896 9,832 9.7 30.6

1982 1992

27,546 90,264 1,395 9,326 6,983 15,438

2,054 7,697 172 1,395 72 267

394 363 1,352 2,543 1,180 1,563

0 313 0 244

1,889 2,678 1,397 1,954

98 834 1,300 1,119

146 828 1,153 292

2001

3.1 3.9

17.5

-10.5 -8.1

2001

44,915 1,237 1,262

33,370 57,618

2,043 14,000 9,882

90 93 97

2001

65,580 73,706 -8,126

-3,601 12,125

398

11,359 -1 1,757

54,106 47.7

2001

97,516 7,015

20,402

9,327 1,372

569

384 365

-1,569 4,741 1,951

2,190 2,089 1,467

622 474 148

2002

4.3 3.5

19.1 -7.4

-10.9

2002

52,512 1,381 1,900

38,353 65,422 2,368

17,640 12,746

101 100 101

2002

77,475 83,620 -6,145

-4,882 14,807

3,727

13,682 -16,980

75,428 48.4

2002

105,210 5,141

21,642

13,042 3,029

637

410

-1,861 3,611

944

-3,657

1,523 1,465 3,196

-1,730 470

-2,200

Inflation (%) 1

1 ' 97 98 99 do 01 bl "-GDP deflator -CPI

Export and import levels (US$ mill.)

~80,000

96 97 98 99 00 01 02

I Exports 4 Imports

Current account balance to GDP (%) I

G: 4,093 A: 5,141

21,642

D 2,715 F 51,061

0,558

A - IBRD B - IDA D -Other multilateral F - Private C - IMF

E - Bilateral

G - Short-term

Development Economics 7/30/04

68