Documentof The World Bank FOROFFICIAL USEONLY ReportNo: 29742-IN PROJECTAPPRAISAL DOCUMENT ONA PROPOSEDCREDIT INTHEAMOUNT OFSDR206MILLION (USS300 MILLION EQUIVALENT) AND PROPOSEDLOAN IN THEAMOUNT OFUS$ 100MILLION TO THE GOVERNMENT OF INDIA FOR A RURALROADS 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 performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective July 15, 2004) CurrencyUnit = Rupee(Rs.) Rs.l.OO = US$0.22 US$l.OO = Rs.45 1lakh = 100,000 1Crore (Cr.) = 10,000,000 FISCALYEAR April 1 - March31 ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank MORTH Ministry o fRoad Transport & Highways ARCS AuditReports Compliance System MORD MinistryofRuralDevelopment C A A A Controller o fAid, Accounts andAudit M o U Memorandum o fUnderstanding CAO ChiefAccounts Officer MTR Mid-TermReview CAS Country Assistance Strategy NBF NonBank Financed CBO CommunityBasedOrganization NCB NationalCompetitive Bidding CPAR Country Procurement Assessment Review NGO NonGovernment Organization CQ SelectionBased on Consultants' Qualification N P V Net Present Value DEA Department o f Economic Affairs NRRDA NationalRural RoadDevelopment Agency DS Deputy Secretary O M OperationalManual ECOP Environmental Codes o fPractice OMMS On-line Monitoring & Management System EMP Environmental Management Plan PCI Pavement Condition Index EOP EndofProject PIU ProgramImplementation Unit ERR Economic Rate o fReturn PMGSY Pradhan Mantri Gram Sadak Yojana ESA Environment and Social Assessment PRI Panchayat Raj Institution (3 tiers o f local government) ESMF Environment and Social Management PWD Public Works Department Framework FM Financial Management QBS Quality based Selection FMR Financial Monitoring Reports QCBS Quality and Cost Based Selection FMS Financial Management System QPR Quarterly Progress Report GO1 Government o f India RDD Rural Development Departments HP HimachalPradesh REO Rural Engineering Organization o f Jharkhand HQ Headquarters RES Rural Engineering Services o f Uttar Pradesh IBRD International Bankfor Reconstruction and R M S Road Management System Development ICB International Competitive Bidding R&R Resettlement & Rehabilitation ICR ImplementationCompletion Report SBD Standard Bidding Document IDA International Development Association SFB Selectionunder a FixedBudget IRC IndianRoad Congress SOM Supplemental Operations Manual IT InformationTechnology SRRDA State RoadRural RoadDevelopment Agency M&E Monitoring & Evaluation up Uttar Pradesh MERR ModifiedEconomic Rate ofR e m voc Vehicle Operating Costs Vice President: Praful C. Pate1 Country Director: Michael F. Carter, Sector Director: Vincent Gouame Task Team Leader: Piers A. Vickers FOROFFICIAL USEONLY INDIA RuralRoads Project CONTENTS A. STRATEGIC CONTEXT AND RATIONALE ..................................................................... Page 1 1.. Country andsector issues.................................................................................................. 1 2. Rationale for Bank involvement ....................................................................................... 2 3. Higher level objectives to which the project contributes.................................................. 3 B. PROJECTDESCRIPTION..................................................................................................... 4 1. Lendinginstrument ........................................................................................................... 4 2. Programobjective andPhases.......................................................................................... 4 3. Project development objective andkey indicators............................................................ 5 4. Project components........................................................................................................... 5 5. Lessons learned andreflected inthe project design.......................................................... 5 6. Alternatives considered and reasons for rejection............................................................ 6 C. IMPLEMENTATION............................................................................................................. 6 1. Partnership arrangements (ifapplicable) .......................................................................... 6 2. Institutional andimplementation arrangements................................................................ 7 3. Monitoring and evaluationof outcomeshesults................................................................ 8 4. Sustainability..................................................................................................................... . . . 8 5. Critical risks 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. Safeguardpolicies........................................................................................................... 16 7. Policy Exceptions and Readiness.................................................................................... 16 This document has a restricted distribution and may be used by recipients only in the performance of their official duties Its contents may not be otherwise disclosed . without World Bank authorization . Annex 1: Country and Sector Background................................................................................... 17 Annex 2: Major RelatedProjects Financedbythe Bank and/or other Agencies.......................... 23 Annex 3: Results Framework andMonitoring.............................................................................. 24 Annex 4: DetailedProject Description......................................................................................... 29 Annex 5: Project Costs.................................................................................................................. 32 Annex 6: Implementation Arrangements...................................................................................... 33 Annex 7: Financial Management andDisbursement Arrangements ............................................ 35 Annex 8: Procurement .................................................................................................................. 41 Annex 9: Economic and Financial Analysis ................................................................................. 46 Annex 10: Safeguard PolicyIssues............................................................................................... 57 Annex 11:Project Preparationand Supervision........................................................................... 59 Annex 12:Documents inthe Project File..................................................................................... 61 Annex 13: Statement o f Loans andCredits .................................................................................. 62 Annex 14: Country at a Glance..................................................................................................... 67 INDIA RURALROADS PROJECT PROJECT APPRAISAL DOCUMENT SOUTHASIA REGION SASE1 Date: August 16,2004 Team Leader: Piers A. Vickers Country Director: MichaelF. Carter Sectors: Roads andhighways (100%) Sector Director: Vincent Gouame Themes: Rural services andinfrastructure (P) Project ID: PO77977 Environmental screening category: A -Full Assessment LendingInstrument: Specific InvestmentLoan Safeguardscreeningcategory: S2 - Limited impact Project Financing Data [XILoan [XI Credit [ ] Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Total Bank financing (uS$m.): 400.00 Proposedterms: Loan-VSL, 20 years to maturity, five years grace Credit - StandardCredit, 35 years to matwity,lO years grace INTERNATIONAL BANKFOR 70.40 29.60 100.00 RECONSTRUCTIONAND DEVELOPMENT INTERNATIONAL DEVELOPMENT 211.20 88.80 300.00 ASSOCIATION Sub Total: 330.08 118.40 448.48 PARTICIPATING STATES 237.44 0.00 237.44 Total 567.52 118.40 685.92 Borrower: GOVERNMENT OF INDIA ResponsibleAgencies: Mr.S. Vijay Kumar,Joint Secretary, MinistryofRuralDevelopment, Government o fIndia, FaxNo. 91 112309 7029 Mr.S.Negi, Principal Secretary, PublicWorks Department (PWD), GovernmentofHimachal Pradesh, Shimla, India FaxNo. 91 177262 1907 Mr.U.P. Singh, Secretary, RuralDevelopmentDepartment, GovernmentofJharkhand,Ranchi, FaxNo. 91 651 240 3245 Mr.H.L.Mina, Secretary, PWD, Government ofRajasthan, Jaipur, India Fax No. 91 141222 7635 Mr.A.K.Gupta, PrincipalSecretary, RuralDevelopmentDepartment, Government ofUttar Pradesh, Lucknow, India Fax No. 91 522 223 9283 Expected effectiveness date: December 31,2004 Expected closing date: March 31,2010 Does the project depart from the CAS incontent or other significant respects? ,vpc rK, Nn Does theproject require any exceptions from Bankpolicies? Re$ PAD D.7 o Have these been approved by Bankmanagement? [XIN [XIN o I s approval for any policy exception sought from the Board? N o Does the project include any critical risks rated"substantial" or "high"? Re$ PAD C.5 N o Does the project meet the Regional criteria for readiness for implementation? Re$ PAD D.7 [XIYes Project development objective Re$ PAD B.2, TechnicalAnnex 3 The project development objective i s to achieve broader andmore sustainable access to markets andsocial services bythe rural populationinparticipating districts. Project description - Re$ PAD B.4, TechnicalAnnex 4 The project has three components: 1. New Connection and Upgrading. Construction andimprovement o f about 9,900 kmo f rural roads that form part o fthe core rural roadnetwork inparticipating districts, including necessary environmentaland social management measures, Resettlement and Rehabilitation (R&R) o f anyproject affected persons, and technical review o f rural road agency designs and supervision; 2. Maintenance of Core Network. Annual implementation o fperiodic androutine maintenance programs of 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 andreport on their maintenance programs, including environmental and social management; (b) local contractors for training inplanning, technical and environmental areas; and (c) to the MORD to further strengthen its capacity inprogrammanagement, particularly inthe areas o f environmental, social, financial andprocurement management as well as poverty impact assessment. Which safeguard policies are triggered, ifany? Re$ PAD D.6, TechnicalAnnex 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 Boardpresentation: None Loadcredit effectiveness: None Covenants applicable to project implementation: See para C6, Page 10 A. STRATEGIC CONTEXT AND RATIONALE 1. Country andsectorissues An estimated 300,000 habitations out o f the 825,000 habitations' inIndia are without all weather road access. While some states have relatively highreported levels of 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 of all weather roads. This constrains economic activities in rural areas and prevents the rural population, who constitute the majority o f India's poor, from being filly integratedinto 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 still not been achieved. Current low levels of access are partly a result of a lack o f adequate maintenance on the existing large rural road network o f approximately 2.7 million km. More resources are often steered towards new construction rather than for preserving existing roads. The little money that is 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 havebeen 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 well as local government bodies. This reality is often not intune with the decentralization policy 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 all state governments retain ownership o f the majority or all o f the low volume roads intheir 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 roadnetwork. The rural road sector also suffers from relatively low levels o f technical capacity inmany 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 field engineers need to upgrade their technical and contract management skills and more specialized staff such as for procurement, environment and social management need to be A habitation is definedunder the Program as a cluster o fpopulation, living inan area, the location of which does not change over time. The population o f all habitations within a radius o f 500 meters (1.5 km of path distance in case o f hill areas) i s added together for the purpose o f determining population size. The cluster approach enables provisiono f connectivity to a larger number ofhabitations, particularly inhilly or mountainous areas. 'Thethree 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 well 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 all weather access to every habitation with a population greater than 1,000 by the end of 2003, and all habitations of greater than 500 people (250 people in hill states and tribal areas) by the end o f 2007. The Ministryof Rural Development (MORD) has been tasked with designingthe program strategy andoverseeing actual implementationby 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. While not meeting its ambitious first phase targets, the PMGSY has made good progress in its first three years of implementation. Of the 64,800 habitations of population 1,000 and above unconnected as o f December 2000 which were planned to be connected by the end of 2003, works on 22,100 are either completedor close to completion. The programhas 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 inthe policy statement mainly due to the shortfall in the availability o f funds as well 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 implementationperfonnance infour states are shown inTable 2 of 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 of Rs.1,300 billion (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 half rupee in FY 2003-04. In 2000, a CentralRoad Fund(CRF) Act was promulgatedto direct the resources obtained through this cess to the improvement o f national and state highways as well as rural roads. By law, 50 percent of the diesel cess i s directed towards rural road development, a sum amounting currently to about Rs.3 1,500 million (US$700 million) per year, about one third o f total CRF revenues. While the timeframe for completion o f the PMGSY is currently beingre-evaluated inthe light of 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 of the PMGSY since its inception, including in the areas of 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 ruralroad maintenance. See guidelines available at www.rmgsy.nic.in 2 At present, the allocationprocess o fthePMGSY is driven largely bythe needto 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. As 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 on all the core rural roadnetwork. The project seeks to facilitate sector planning and management reforms inparticipating 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 pilot states or districts in a partnership with the GOI, the likelihood that similar reforms are implemented as a result o f GOI`s own fundingthrough PMGSY is 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 laid out inthe transport chapter o f the GOI's Tenth Plan4. This highlightsthe importance o f reducing the disparities inphysical access inrural 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 requiredto 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 on December 5, 2001 and the new CAS is 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 inIndia through two channels, First, the proposed rural road improvements will contribute to the development o f economic activity in project areas by enhancing mobility and thus providing more opportunities for employment, trade, specialization and growth within the rural economy. Second, improvedrural roads will providebetter physical access to basic services and thereby increase the quality o f life of the poor inthe project influenced areas. See liM,:i~w~w.plan~iitiscommiss~on.nic,i~'~lanslplanrel~five~~l Oth'volunie2iv2 ch8,,,-3.pdf 3 This project is being proposed as the first 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. PROJECTDESCRIPTION 1. Lendinginstrument A Specific Investment Loan (SIL)/Credit has been chosen for this first investment inthe PMGSY. The rationale for this choice is that while as an ongoing GO1program 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 inthe future. Moreover, the desire by all 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 ftheir expectations o f future exchange andinterest rate changes. Given the large shortfall in the current PMGSY financial plan, the size o f financial support has been determinedprincipally by state implementing agency capacity to disburse funds effectively and efficiently taking into account the likely funding flows that GO1 will make available to these states over the project period. 2. Programobjectiveand Phases The PMGSY is a 100%centrally sponsored scheme implementedby state agencies under the overall supervision o f the Ministry o f Rural Development that seeks to achieve all 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 billion (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, planningandimplementation o fthe program are available on line5. This project is being proposed as the first 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 of the most poorly connected states - Himachal Pradesh, Jharkhand, Rajasthan and UttarPradesh. 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 inthe form o f a SWAP subject to a agreements being reached in a number of policy and operational areas between the Government of India, recipient states andthe Bankas outlined inAnnex 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 marketsandsocial services bytheruralpopulationinparticipatingdistricts. The indicators that will be used to measure performance in achieving the development objective are (see Annex 3): (i) percentage of eligible habitations inproject areaswith all weather access to social services andmarkets; (ii) percentageofthroughroutesinthecoreruralroadnetworkinparticipatingdistrictsin fair or better condition; and (iii) levelofstakeholdersatisfactionwithruralroadnetworkinparticipatingdistricts. Baseline data for the first 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 eachmajor component. I1. New connection and 1 I I 1 I I upgrading 430.9 386.9 96.7 43.0 88.7 1.0 _ - - II II II II II 0.2 I I I I I I II I I2. Maintenance o f core network1 236.0 0.0 0.0 0.0 0.0 236.0 99.4 3. Institutional development I 13.6 12.1 3.0 1.5 3.0 0.0 1 0.0 4. Incremental operating costs for new construction 4.5 0.0 0.0 4.0 8.3 0.4 0.2 5. Front end fee 1.o 1.o 0.2 0.0 0.0 0.0 0.0 P Total. 685.9 400.0 100.0 48.5 100.0 237.4 100.0 5. Lessons learned and reflected inthe project design The project design has benefited from experience gained from previously Bank financed projects as well as progress inimplementing the PMGSY to date. The following key lessons are reflected in the project design: (i) state government commitment to adequately fund and undertake rural road maintenance is essential for sustainability; (ii) investments over a focused manageable area are more effective and create more impact thanthinly spread investments over a lager area; (iii) is considerable scope for reducing construction costs through adopting there optimal design standards and promoting the use o f local materials specially for low trafficked rural roads; (iv) independent monitoring o f quality o f road designs and construction i s effective inenhancing the quality of construction; (v) a reliable and comprehensive data-base is essential for makingsound investment decisions andpromoting improved management o f rural roads; and (vi) capacity building and training o f implementing agency staff in all aspects of rural road management i s crucial for project implementation. 5 6. Alternatives consideredandreasonsfor rejection Alternative project areas - selection of states and districts. Four states - Himachal Pradesh, Jharkhand, Rajasthan andUttar Pradesh - have beenidentifiedby the GO1and Bank as recipient states based on their low 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 limitedto a maximumof the mostpoorlyconnected 60% o fdistricts. Alternative mechanismsto impose incentiveson states to reform. The GO1andBankare keento see that Bankfinancial support acts as a lever or catalyst for state reform o f the rural road sector. A portion 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 its intention that the Bank funds will be entirely incremental to GO1funds. Inother words, GO1funding for these states, over the project period, will remain in the same proportion as currently made available andBankfunds willnotreplace GO1funds. 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 primarilynew 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 priority in the current guidelines. However, core rural road networks in each district have been prepared and endorsed by state governments. While Bankfunds, along with GO1funds, will focus onnew 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. 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 is 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 all technical, financial and safeguard aspects o f sub- project screening, design and supervision. Second, technical assistance is to be provided to these four states to help prepare and implement complementary state funded rehabilitation and maintenance programs. C. IMPLEMENTATION 1. Partnershiparrangements(if applicable) At the end o f 2003, the Asian Development Bank (ADB) committed US$400 million 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 andBankfinancedroads are substantiallythe same. 6 2. Institutionalandimplementationarrangements 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 well as a Supplemental Operations Manual for Bank funded activities. More detail i s available inAnnex 6. At the central level, the MORD is responsible for overall oversight and coordination o f the PMGSY and all components o f this project. The MORD team is headedby a Joint Secretary with a small number o f largely non technical support staff. In 2002, the MORD established NRRDAas a registered society. The purpose o fthe NRRDAis to monitor progress andto act as a repository o f technical expertise and has increased its staffing more recently to reflect the increasing workload under the program. The MORD has constituted a Inter-ministerial EmpoweredCommittee, chairedbythe Secretary MORD, to sanction state sub-project proposals. New Construction Component. 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, though the field 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 will be responsible for the Bank finded sub-projects. The SRRDAs will be responsible for procuring and managing consultants to undertake independent technical review o fworks 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, JharkhandandUP)andthe private sector for periodic works. Institutional Development Component. All central and state implementingagencies will 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 NRRDAwill 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 item on 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 intwo more or less equal installments per year and after the first tranche, utilization certificates are submitted by the State for releasing subsequent tranches. A 7 state level autonomous agency (SRRDA) has been set up ineach 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 inplace 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 on 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 all weather roads and with a satisfactory ridingquality for the duration o f their design lives o f ten years - this will be dependent on their design, construction andmaintenance. Furthermore, for rural accessibility to increase inthe project areas overall, the maintenance component on 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 will oversee compliance to specification duringdesign and supervision. The GO1and 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 Bankfunding for PMGSY is contingent on adequate state andlocal implementation o f an agreed maintenance regime on their core networks in project areas. Technical assistance at national, state and district levels will seek to buildcapacity incritical areas. At the national level, there are manyindications that the GO1andMORD are committed to the efficient andeffective implementationo f the PMGSY on schedule: a imposition o f a new cesses on fuel to raise resources for the PMGSY in 1999 and 2003 and subsequent expenditure o f about $2.2 billion to date on deliveringthe PMGSY over the last four years; e about 33,000 separate road links with value o f about Rs.13,500 million are under implementation o f which about 13,500 road links are complete totalling approximately 20,000 kmo froads with a further 30,000 kmunder construction; a preparation and use o f detailed planning guidelines and a Rural Roads Manual, with a focus on a core rural road network approach to help prioritize all forms o f spending on rural roads; a enforcement o f a three tier quality supervision and monitoring mechanisms; a applicationo f standard procurement procedures and financial management system; e substantial progress with establishing an OMMS with nine modules covering all aspects ofthe PMGSY andavailable to the general public through the web; and 8 e release of 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 of 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 policy for adaptation and endorsement by states and are now considering ways inwhich the PMGSY funds can influence states to take maintenance more seriously. The following indications of commitment havebeen demonstrated at the state level: 0 each state has a dedicated project team at HQto look after the PMGSY including the Bank fundedportion; 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 fBank funds to the PMGSY; and e 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. 5. Critical risks and possible controversialaspects Risk RiskMitigation RiskRating after Mitigation ~ To Development Objective States and local governments do not allocate Enforce mechanismthat links Bank finding S sufficient resources to maintain longer network for new construction to State funding for either because States' fiscal situation maintenance. deteriorates or for other reasons. Absence o f implementation o f measuresto Include t e c h c a l assistance to helprural road S enhance humanresource management inareas agencies to undertake institutional reform. o f transfers, skills specialization andpersonal Linkwithother Bank initiatives at Statelevel accountability inruralroad agencies. where available. Significant environmental damage or negative Proper monitoring and enforcement o f M social impacts during or after construction due safeguard management measures. Establish to poor implementation o f Environmental standingcoordination committees betweenkey Social MonitoringFramework (ESMF). departments. GO1andBank funds for PMGSY crowd out Careful monitoring o f all funding flows to M and displace state and district funding and sector. Agreement with GO1and States on implementation capacity for ruralroads. level o f additionality brought by Bank funds. GO1commitment to PMGSY declines. Potentially highimpact but low probability M risk. Bankcanrevert to worlung directly with interested States insector. 9 Risk RiskMitigation RiskRating after Mitigation T o Component Results Irregular or insufficient flow o f project funds. Designandimplementsound FMSand M disbursement procedures. Dedication o f adequate and trained staff for FMat state level. Ruralroad agency staff design roadworks Training of staff. Independenttechnical M poorly or use standards that are not cost review ofdesigns. effective or environmentally sound. Industry/supplyside constraints, particularly if Training ofcontractors andwell considered S GO1fundingincreases substantially. contract packaging and qualification criteria. Delayed or improper procurementby rural Training o f staff. Enforcement o fusual Bank M road agencies. remedies where necessary. Overall RiskRating M 6. Loadcreditconditionsandcovenants LOANKREDIT The Borrower shall: Implementation - 0 Ensure that the Project i s implemented in accordance with the Supplemental Operations Manual. Utilization of Funds 0 Allocate funds between participating states for (i) 1 of the project on the basis of phase the criteria adopted for the PMGSY as a whole and (ii) 2 o f the project on the basis phase o f the weightages, performance indicators, targets, and verified achievements thereof as agreed with the Bank. Monitoring, review and reporting 0 Maintain adequate staffing for management andmonitoring of the project. a Provide to the Bank Quarterly Progress Reports within 45 days of the end of each calendar quarter. 0 Make public three times during the project a poverty impact report, using a terms o f reference acceptable to the Bank, the first such report being the baseline by March 2005, the second suchreport byMarch 2007 andthe last report byMarch 2010. PROJECT Participating states shall: 10 Accounts 0 (a) Maintain throughout the project period: (i) finance manager with experience and a 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 Maintain a state level Standing Committee to oversee implementation and make policy decisions; SRRDAs to receive and administer funds. 0 Ensurethat the SRRDAs andPIUs have adequate and experienced staff. Monitoring, review and reporting 0 Create and maintain a separate budget line item or line items for rural road maintenance that allows for the monitoring ofthe rural roadmaintenance component. 0 Make public: (i) annual asset condition reports, and (ii) maintenance plans for the annual 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 Implement the project inaccordance with the Supplemental OperationsManual. 0 Implement the annual ruralroadmaintenance plans inparticipating districts. D. APPRAISAL SUMMARY 1. Economic and financial analyses The PMGSY 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 list ineach district. Investments inthe program are then taken purely in order of this list so the more populated communities and therefore those roads more likely to generate traffic, get connected first. To strengthen the appraisal of this aspect of the PMGSY, the Bank undertook a study to estimate the economic benefits of providing all weather access roads to different villages inthe 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 is applied using 12% as both the cost of capital andthe reinvestment rate). More detail is available inAnnex 9. Financial Sustainability. The PMGSY program is a fully GO1sponsored scheme so its financial sustainability depends on the willingness and ability o f GO1to 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 billion per year if it is to be delivered in any 11 reasonable timeframe. These are substantial resource requirements and are unlikely to be feasible for the immediate future. The GO1expects to fund a significant portiono fthis through a dedicated levy on diesel which raises about US$700 million per year, other transfers from the consolidated fhd as well 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 still 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 this 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 from 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 list defining relative priority for constructiodupgrading o f each road under the core network. Road improvements funded under this project will form part o fthe 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 is also involved. PMGSY guidelines specify the use o f the IndianRoads Congress Manual for Rural Roads (IRC SP 20) for the design o f all rural roads. Bank funded roads will follow 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 it 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 all states using a largely standardized procurement and bidding document process established by the MORD for application on 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 of a standard bidding document (SBD) for works under the PMGSY as a whole is being required by the MORD. The standard bidding document in use on the PMGSY has many o fthe same provisions as the Bank's NCB standardbiddingdocument for works inIndia, called the W2. However, there are some differences. Accordingly, the MORD has prepared a second version of 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 procurementplanprepared bythe Borrower and agreedwith 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 low 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 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. Overall, procurement capacity is satisfactory given the nature of work. Financial Management (FM) Capacity. In the past, the proposed recipient road agencies have been using their traditional accounting systems which primarily focus on book keeping, andnot particularly on financial management. The FMprocedures are beingupdated to make them more effective as a management tool under the program as a whole. FM arrangements under the Bank project are hlly mainstreamed and centered around the PMGSY's existing arrangements wherein recently created societies (SRRDAs) receive project funds, incur project expenditures, account for them andprovide financial reports to stakeholders. Additional staffing i s being provided at both HQand 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 MORD 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 FMS has been slower than the MORD had anticipated for a variety o f reasons including lack of a reliable web connection. Overall, this project is 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). 4. Social Impact on people and land. The findings of an Environment and Social Assessment (ESA) conducted in all Participating States indicate that the PMGSY has caused limitednegative impacts on people to date, largely restricted to modest loss o f land from 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 displacedunder the scheme as construction has been restricted to the available width in settlements. Similar low impacts are expected for the remainder o fthe program, part o f which is 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 inthe decisionmakingprocess o fplanning, implementing and monitoring sub-projects that directly benefit them. Any necessary transfer o f land and implementation of mitigation measures will be completed before initiation o f civil works. Independent technical examiners will review the sub-projects on a sample basis to ensure compliance o f the framework. Opportunitiesfor communityplanning. The participation of stakeholders is 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 well 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 inthe first year o f the project anddesigns 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. Inaddition, PIUs will be responsible for regular monitoring andpreparation of quarterly progress reports. Planned social development outcomes. The project aims to achieve: (i) social greater inclusion due to improved physical access to markets and services; (ii) increased equity between areas by focusing on less well served states and districts; (iii) makingrural 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 Act 2002. 5. Environment Environmental Issues. The following are the likely environmental issues during the construction phase: (i)material management such as borrow area and quarry operation; (ii) location and operation of hot-mix plants and constructiodlabor camps; (iii) disposal of debris andbituminous waste; and(iv) embankmenthlope stability. These canbecome significant inthe project if not addressed appropriately at various stages. Inaddition, 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 inhilly areas such as those in Himachal Pradesh, parts of JharkhandandRajasthan. 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) the policies and operational procedures to address, mitigate and assess manage environment issues and identify areas that need modificatiodstrengthening; (iii) 14 recommendprocess enhancements inthe preparation(planningand 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) resettlement policy a 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 withinthe implementing agencies. Environment Management. The ESMF helps to minimize the need for sub-project level EAs and Environmental Management Plans (EMPs) by mainstreaming environment issues inthe 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, wildlife and natural habitats, swamps, hills and undulatedterrain, sand dunes or lakes. Implementation Arrangements. Implementation o f the ECOPs will be the responsibility of officers o f the executing agencies ineach state under the overall co-ordination and monitoring of the SRRDA. The Supplemental Operations Manual integrates the ECOPs into project operations. To implement measures beyond the jurisdiction o f the executing agencies, such as landacquisition, plantation along the road sides, miningfor stone, sand and gravel, Memoranda of Understanding are being signed between the executing agencies and relevant line agencies, as necessary. Specific responsibilities o f these line agencies have been indicated in the ESMF, depending on technical capacity orjurisdiction. Participation. The ESA was carried out in a participatory manner involving all stakeholders including affected communities, staff o f executing agencies and line 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 1ocaVproject 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 andbudgetinghave also been indicated. Independent Technical Examiners will report on environmentalperformance. Disclosure. The MORD disclosed the draft ESMF through its web site and issued press notifications invitingpublic comments on the ESMF during March 2004. The final version was placed on the website inJuly. InAugust 2004, the States disclosed a Hindiversion o fthe ESMF summary inproject 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 11.03, being revised as OP 4.11) [XI [ I Involuntary Resettlement (OP/BP 4.12) [XI [I Indigenous Peoples (OD 4.20, being revised as OP 4.10) [XI [I Forests (OP/BP 4.36) [XI [I Safety o f Dams (OPBP 4.37) [ I [XI Projects inDisputed Areas (OP/BP/GP 7.60)* [I [XI Projects on InternationalWaterways (OP/BP/GP 7.50) [ I [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 will monitor compliance by state executing agencies and contractors to the provisions of the ESMF. OP 4.12 and OD 4.20. The Social safeguard category o fthe project is S2. The R&R and the consultative framework have been prepared to address safeguard concerns at preparation and implementation of sub-projects. Independent Technical Examiners shall ensure compliance with the consultative framework. 7. Policy Exceptions and Readiness N o policy 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 of sub-projects o f value equal to about one third o f the Loadcredit are substantially advanced andtendering o fthis amount is expected before the time o f effectiveness. Procurement o f key consultancies is underway inall states. * By supporting theproposedproject, the Bank does not intend toprejudice the$nal determination of theparties' claimson the disputed areas 16 Annex 1:CountryandSector Background INDIA: RuralRoads Project MAINSECTORISSUES Low Levels of All Weather Motorized Rural Access. An estimated 300,000 habitations (about 40 percent of the 825,000 habitations inthe country) are without all weather road access. While some states have relatively highlevels o f reportedconnectivity (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 all weather roads. This constrains economic activities in rural areas, and prevents the poor from being hlly integrated into the structure o f the country's economy and accessing essential services. Table 1provides an indication of the scale o f the problem faced bythe four states proposed for Bank financing. Total No. of Total No. of Total No. of Total No. of eligible Habitations Unconnected Habitations Habitations Habitations connected to date remaining to be under PMGSY connected under PMGSY I 1 2 3 4 5 HimachalPradesh 16,997 11,332 487 2,546 Jharkhand 31,125 18,116 329 6,352 Raiasthan 40,567 20,728 2,28 1 6,502 Uttar Pradesh 141,534 66,553 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 little money that i s allocated for maintenance is poorly utilized due to an absence o f proper planning, including a failure to focus on the core network, and inefficiently delivered works. National government agencies have so far not paid enough attentionto this problem, seeing it as constitutionally outside their mandate. The majority o f the rural road network in the country is 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 needto recast the organizational and incentive structures to promote adequate maintenance o f the rural road network. As a result o f poor maintenance, the development outcomes from the substantial rural road investments inthe past have been far less than expected. Given the size o f the PMGSY resource transfer, it 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 is divided between several agencies - Public Works Departments, Rural Development Departments, Forest, Irrigation and various other Agriculture Departments as well as localbodies. This reality i s not intune with the decentralization policy 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 1lth 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 decentralizationpolicy. Yet, almost all state governments retain ownership of the majority or all of the low volume roads in their states, their field 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, on paper ifnot inpractice, transferred rural roads to the PRIs. The views o f district or other local government bodies are often not hlly considered in the planningprocess and they have a limited role in monitoring service delivery despite their being the most effectedbypoor service outcomes. The rural road sector also suffers from low levels o f technical capacity inmany areas due to poor humanresource management and often weak career prospects as a result o f overstaffing, frequent transfers and lack o f specialization. As a result, manyrural road agency field engineers need to upgrade their technical and contract management skills and more specialized skills such as for procurement, environment and social management need to be inducted into agencies. Low levels of technical capacity and a poor incentive structure hinder the ability o f road agencies to absorb the PMGSY funds as well as prevent better maintenance. CENTRALGOVERNMENTSTRATEGY Project Approach. To address the poor rural accessibility ina 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 all weather access to every habitation with a population greater than 1000 by 2003, and all habitations of greater than 500 people by the end o f the 10thPlan, 2007. However, o f the 64,791 unconnected habitation o f The three tiers oflocalgovernment are the district, sub-district (block) andvillage levels. 18 population 1000 and above, works on 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 inthe policy statement mainly due to limitedavailability o f funds as well 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 on the web at http://www.pmgsy.nic.in/are: e focus on new connectivity, although upgrading o f existing roads i s funded in certain circumstances; e broad prioritization o f GO1funds by preparation and use of core rural road networks and comprehensive new connectivity priority list, together designed to connect by a single linklarger communitiesprior to smaller communities; e raising o f substantial new resources through the Central Road Fund which gathers revenue on a national fuel cess andredistributes the proceeds to undertake, inter alia, new constructiodupgrading o f rural roads; e rigorous andtransparent monitoring o fthe proceeds o fPMGSY funding; e higher design standards andquality assuranceprocedures; and e requirement for States to identify suitable PRIs (three tiers o f local government) with fundingresponsibility for undertakingmaintenance. 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 inaddressing the issue o finadequate maintenance on ruralroads. Table 2: Indicators o fPMGSY PerformanceinProiect States Indicator Himachal Pradesh Jharkhand Rajasthan Uttar Pradesh Share o fworks rated as good or better 97 90 99 87 (median for all states is 82%) Roads constructed 233 164 2,225 3,136 Kmconstructed 878 947 8,347 5,214 % works startedthat are complete (median 62 45 26 46 for all states i s 36%) Habitations connected 487 329 2,28 1 2,405 Gg. differencebetweenestimated and -2.2% -8.26% -3.4% actual value o ftenders I % ofdistricts where internet connectivity is 83% 100% 100% available 77% I % ofdistricts where PMGSY data is entered 100% I1 100% I1 100% I1 online Source: www.pmgsy.org as o fJuly 2004 and State implementing agencies. 19 Funding Gap. Current estimates suggest that the total investment required to meet these targets is o f the order of Rs. 1,330 billion (US$28 billion). In 1999, a one rupee cess on every litre of diesel and petrol sold was imposed by GO1and 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 well as rural roads. By law, 50 percent o f the diesel cess is directed towards rural road development, a sum amounting currently to about Rs. 3,150 Cr.(US$700 million) per year. The cess was raised by one half 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 unconnectedhabitations inthe 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 inthe state as a percentage o f the country's total connected habitation, with a caveat that all 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 isproposingto use domestic andexternal borrowingto deliver the program. Even assuming that the PMGSY meets its target, those living in approximately 170,000 smaller habitations, or about 50 millionpeople, will remain unconnected. SECTORISSUESTO BEADDRESSEDUNDERTHE 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 inthe project areas as a minimum. Indeed, if the projects fails to make headway on this aspect, there is a risk that the Bankfundingmay compoundthe problembyadding to the stock ofrural roads to bemaintained. The improved maintenance practices being sought are: 0 state and local resource mobilization for rural roadmaintenance; 0 timely preparation, procurement andimplementation o fmaintenance programs; 0 implementation o fplans to effectively address existing maintenance backlogs; 0 the effective involvement o f road users and local bodies inplanningand monitoringrural road network performance; 0 establishment and actual use o f simple maintenance management systems for preparing andmonitoringthe implementationo fannual maintenance plans at a local level; and 0 use o f the private sector andmore moderntechniques for delivery ofmaintenance works, The project seeks to provide motivation on state and local governments as well 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 is 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). Improving Rural AccessibiZity. The project will build on the GOI's strategy for addressing the current low levels o f connectivity by bringingmore 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 inthe delivery o f the program. The ambitious target for connectivity that the GO1has 20 set itselfrequires a longer term commitment from external agencies. The project will be the first in a series of Bank instruments to provide financial support over the medium term 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 of 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 - from actual funding, planningandimplementation of maintenance inthose 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 andresults. 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 this area will not fall 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 inmanagement decisions in four states. The most important areas for such support will be in the areas o f maintenance planning and implementation, environmenthocial management andpoverty 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 inimplementation o f the Project. The scope o f the project may also be expanded to cover additionalpoorly connected state (e.g. Bihar). Follow on Projects. Follow on projects can be made available to the PMGSY for use in any or all 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 ofperformance inmaintenance o f core ruralroadnetworks; and e More cost effective design and specifications are applied inParticipating States At state level e Endorsement o f Project Preparationand Implementation Framework, ifnot already done; e 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; e Allocation o f PMGSY funds between districts primarily on the basis o f investment need as determined bythe core networks and comprehensive district priority lists; The ten states that require the most expected investment under the program. 21 a Further harmonization o f procurement procedure and bidding document for all PMGSY works inthe state; a Satisfactory operation o f the computerized on line Financial Management System as envisaged under the PMGSY guidelines, timely delivery o f audit reports andresponse to deficiencies ifidentified, timely preparationo f Financial MonitoringReports; e Endorsement o f application o f an agreed ESMF, as revised for all PMGSY works inthe state; a SRRDA functioning properly, enforcingproper application o frelevant guidelines on field agencies and undertakingperformance monitoring; and a Satisfactory implementation o f all aspects (safeguards, fiduciary, technical and disbursements) o f ongoing Bank funded project, ifapplicable. 22 Sector Issue Project Latest Supervision (PSR) Ratings (Bank FinancedProjectsonly) I BankFinanced -closedand ongoing Implementation Development Progress (E') Objective (DO) Provide all weather roads inRural Areas Gujarat Rural Roads S H S Project (closed) ~~ Provisiono f all-weather access to farms RuralRoads Project, Bihar U U and villages; improvement o f construction (closed) and maintenance procedures Improve the quality of like o f the rural Andhra PradeshEconomic S S population through provision o fbasic all- Restructuring Project weather roads Projectcomponent to support rural Assam Rural & S S infrastructure Agriculture Support Project Upgradingfarmto market roads UP Sodic Lands11Project S S ImproveRuralRoads andMarkets to DiversifiedAgriculture S increaseincome of small farmers . Support Project Project Component to support rural Integrated Watershed S infrastructure Development Project I1 ADB - ongoing RuralRoadDevelopment Project (support to PMGSY inMadhya PradeshandChattisgarh) ADB -planned Rural RoadDevelopment Project (support to PMGSY inAssam, West Bengal, Orissa) 23 Annex 3: ResultsFrameworkandMonitoring INDIA: RuralRoadsProject PDO meIndicator Use ofOutcomeInformation Broader andmore sustainable access 1.%o fhabitations with all weather YR1-YR5:To determine ifthe to markets and services byrural access to social services andmarkets project development objective is population inparticipating districts being satisfied 2. % o fthroughroutes incore rural roadnetwork inparticipating YR2:Feedinto strategy for adopting districts infair or better condition a Sector wide approach inthe rural (PCI52) roads sector 3. Level o froaduser satisfaction YR4-YR5: To determine ifstrategy with rural roadnetwork needsto be modified for further support to programand replication inother states IntermediateRes ing Oneper Component ComponentOne: ComponentOne: ComponentOne: Provision o f all weather access to all 1.1No ofkilometers ofroads YR1-YR5: Low levels mightflag eligible habitations inparticipating upgraded either procurementproblems, poor districts 1.2% ofworks out ofcompliance project management, inadequate 1.3 100%delivery o feligible rehabilitationto PAF's benefits to project affectedpersons ComponentTwo: ComponentTwo : Component Two: Maintenance o f core ruralroad 2.1No. o fkilometers o fruralroads YR1-YR5: To determine effective networks inparticipating districts subject to routine maintenance delivery o fthe component and 2.2 No. o fkilometers o frural roads identifyinadequate attentionbythe subject to periodic renewals states to asset preservation Component Three: ComponentThree: ComponentThree: Improvedmanagement and 3.1% ofactual vs. reqd. YR1-YR5: To determine enhanced financing by state and maintenance funding for core rural effectiveness o fthe programin local governments o frural road roadnetworks establishmg institutional capacity to networks inparticipating districts 3.2 % variance betweenbudgetand develop and implement further actual expenditure on maintenance programs inthe sector o f core rural roadnetworks 3.3 % o fperiodic works on core YR1-YR2: For comparisonacross ruralroadnetworks prioritizedusing the states and determining the maintenance management system allocation o f the performance based 3.4 Publication o fruralroad component inphase-I1 performance and ruralroad expenditure information *PCI i s Pavement Condition Index. This is a five point scale established to categorize roads based on visual parameters, riding comfort or normal driving speed indicators. 5 is very good and 1i s very poor. The MORD issued inApril 30, 2004 a Circular to all States on the use of the PCI inmanaging maintenance. See website for more details (hth,:i!~ww-.ptn~s~.nic.in/circular.asp?CuirrentPa~e-2&crid=). 24 0 h 0 x 428i? Pe 82 G 5 e 3 d 2: BE I .e0 B r .fQ '5bc E PP I ca 4a f + PbeS+ P j% 0 I- 0 I- .-c .r L c IC, 5 E W 'c s 3 0 0 rc \D IC, b 2b 0 E: 0 O I- 0 IC, i- IC, IC, cU a e E .A 0 N m m D 0 d IC, 0 -- 5 I Q b 8 L .- E 0 4 - 0 P w 3 0 0 N W 0 m IC, 0 f! V 8 2 I 3 0 0 \o 0 3 0 d vl n vl 0 "l d 2 m 3 0 "l d - n vl Y hl E: m vl 0 x 3 83 -e (I J C ..i 2 (+ C a 3Ca - x "m 5L 5 ..e (I 3 VI n 0 0 \o VI 2 F L E \o n C .r e f 0 3 0 \o n VI r + Eab 3 VI 0 Y VI VI 3 d 5+ b 0 VI 0 0 m m 8 v) 5 t 0 0 v) ib d N m b 4 3 3 N r---I-- - 6 0 x 8 6 32e imM8e ie E2 ;a 2 2E dE h 73 f? > VI 3 N d VI -0 0 0 N N d 3 m m v1 v, w N 0 m 3 2 I .I P - 0 GP v , 2 0t-4 + I 3 I r Annex 4: Detailed Project Description INDIA: RuralRoads Project 1. New Construction and Upgrading of Core Rural Road Networks (US$430.91 million) Civil Works (USs422.66 million). This includes new construction and upgrading o fthe core rural road network in four states to provide all-weather road access to habitations in identified project districts comprising up to 60% of all districts in the states, or 78 in all. The component is proposed to be implemented in four tranches over five years using N C B procedures generally inpackages o f Rs.1-5 Cr. inline 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 inTable 1below. Table 1: Works for which DetailedProject Reports are Substantially ReadyinFour States The civil works are to be divided into two phases - a fixed allocation phase and a performance basedphase as indicated inFigure 1overleaf. 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 of the services are - for Bank funded rural road sub projects inthe State - to verify: (i)proper application o f environmental, social and techno-economic screening procedures for the selection of rural road sub-projects; (ii) detailed design is in compliance with agreed technical standards as well 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 assuranceprocedures as well as agreed environmental and social management measures; and (v) expenditures under the Credit/Loan have beenmade for the purpose intended (financial review). One firm will be hired to oversee the first two tranches o f works in each state andthen a separate firm for the remaining two tranches. 29 Figure1:ProposedFundingAllocation System The total loan amount is approx 11% o f PMGSY requirements inthe 4 states. The total loan amount will be divided into two I components: a fixed and a performance based component. The-fixed component shall be 70% o f the total loan amount. -------------------------------------------------------------. The fixed component will be allocatedbetweenthe 4 states on the basis of the average o f (GO1allocation + value of 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% I I A relative performance index (RPI) for Tranche-I is determined for each state based onthe indicator andpreset targets for each state. Actual maintenance expenditure as % o f requirement ofcore ruralroadnetwork inthe state. The RPI can have three values (l=under par; 2=par; 3=above par) The RPI is 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 dividedinto 2-3 tranches o f procurement based on the level o f preparationandthe size o f the fixed phase o fthe loan. The ceilings per state wouldbe valid for three years after which ifany stateisunableto procureworks to that value, itwill be reallocatedto other states capable of utilizingthe funds effectively. The performance based component would remain as a single tranche States Tranche Tranche 11 Tranche Total fixed Tranche IV Target I III component (Performance based) min max Actual vs. required maintenance expenditure HP 589 589 588 1,766 272 1,745 JH 462 462 463 1,387 206 1,420 Refer to item3.1 in RA 1,345 1,345 1,346 4,036 742 3,182 Annex 3 for each UP 1,808 1,808 1,807 5,423 1,099 3,765 State 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 this afforestation prior to the clearance becoming effective. Under current PMGSY policy and practice, the state implementingagency concernedi s to deposit funds for afforestation with the local forest offices, Assistance to eligible project affected persons will be made through ongoing state public programs or throughcommunity mobilization. 2. Periodic and Routine Maintenance of Core Rural Road Network in Project Areas (US$235.00 million) This component is to be undertaken in every district where the Bank i s providing additional investment concurrently with the four tranches of new construction works. The works (US$235.00 million, NBF) would be prepared and supervised by the same implementing agencies undertaking PMGSY works and will be implemented through a mixture of force account for routine works (inHP, 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/yearon 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 Bankfundinginthe first trancheshavepreparedandmadepublic anannual maintenanceplan. 3. InstitutionalDevelopment (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 inplace. 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 separatefirms covering one or more states each(USS0.56 million). Second, technical assistance and training is to be made available to the MORD and the National Quality Monitors to buildcapacity invarious areas (US$0.20 million) State Level (US$12.60 million). There are three sub-components to the state level institutional development inputs. First, techcal assistance consultants are to be commissioned by each state (US$4.24 million) with a view to: (i) and establish inuse a simple Road develop Management System (RMS) inHQand 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 skills and procedures to an adequate number o f staff inthe road agency to sustain the use of the RMS and continuing implementation of 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 will undertake training needs analysis and implement training o f their staff within the mainruralroadagencyplusthe localcontracting industry(US$3.54 million). 4. Incremental Operating Costs (US$4.45 million) To be financedbythe GO1and States. 31 Annex 5: Project Costs INDIA: RuralRoads Project Project Cost By Component andor Activity us$Local Foreign million us$ million us$Total million 1.Newconstruction andupgrading of about 9,900 346.05 62.23 408.38 kmofruralroads 2. Maintenance o f about 100,000 kmofruralroads 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-endFeeg 1.oo 1.oo Total Financing Required 567.52 118.40 685.92 'Identifiable taxes and duties are approximately US$70.00 million, andthe totalproject cost, net o f taxes, is US$615.92 million. Therefore, the share o f project cost net o f taxes is 65%. On August 3, 2004, the Bank Executive Directors, approved a 50 basis point waiver o f the front-end fee for all IBRDloans (other than SSALs) to be presented to the Board inFY05. As t h s project is scheduled to bepresented to the Board on 23 September 2004, and assuming that it is presented to the Boardas 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: ImplementationArrangements INDIA: RuralRoadsProject National Rural Road DevelopmentAgency (NRRDA). The NRRDA provides technical andmonitoring support to the MORD. The staffing o fthe NRRDAis being gradually increased, including through the use o f short term singleton consultants. The NRRDA is working satisfactorily inits role. Himachal Pradesh. The GOHP has created the HP Gram Sadak Development Agency (HPGSDA) to receive and administer all PMGSY funds. The Public Works Department i s the implementing agency for PMGSY and t h s agency will also look after the maintenance component. The Executive Engineers of the PIUs have been designated as signing authorities for payments from the HPGSDA. The 34 existing field divisions inthe six districts proposed for Bank funding should have the capacity to absorb an increased flow of PMGSY funds as well as implement the maintenance component. Jharkhand. The JharkhandState Rural RoadDevelopment Agency (JSRRDA) has been created to receive and administer all PMGSY funds as well as oversee the implementation o f the PMGSY. The regular field 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 is 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 fPMGSY roads. Rajasthan. The GOR has established the Rajasthan Rural Road Development Agency (RRRDA) to receive and administer all PMGSY funds. It is 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 ktno f rural roads, as well 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 is adequateto implement bothworks components. Uttar Pradesh. The GOUP has created the UP Rural Road Development Agency (UPRDA) to oversee implementation o f the PMGSY. Inearly 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 inUP. Each has established dedicated division level PIUs ineach 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 is a wide variation inthe amount of funds going to eachdistrict (range from Rs.28to Rs.6 Cr. per district in the coming phase of GO1 funded work) as allocations are now largely being made on the basis of investment need. Additional divisions are expected to be mobilized as necessaryso that the GOUP's ownnorms on workload (max Rs.10 Cr. per division per year) are not violated. The maintenance component will largely be implemented by the PWD as the agency that owns the majority of the core rural road network. Other agencies that will implement part of 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 1indicates the various agencies involvedinimplementingthe PMGSYat the state level. Table 1: Agencies State HimachalPradesh I Jharkhand Raiasthan UttarPradesh NodalDepartment RuralDevelopment Dept. Dept. Implementing UP SRRDA Agency Agency Project 60 field divisions of 23 field divisions of 80 field divisions of 40 field divisions of ImplementingUnits PWD Rural Engineering PWD PWD & 30 field Organization divisions o fRural Engineering Services State Technical NationalInstitute of Birla Institute of Malaviya Nat. MNNITEngineering Agency Technology, Technology, Ranchi Institute of College, Allahabad; Hamirpur Technology, Jaipur; KNIT, Sultanpur; MBMEngineering Harcourt Butler College, Jodhpur; Tech. Institute, BITS, Pilani; Kota Kanpur; IT-BHU, Engineering College, Varanasi; IIT Kota Roorkee 34 Annex 7: FinancialManagementandDisbursementArrangements INDIA: RuralRoadsProject SummaryAssessment The project i s expected to have a financial management system which should be able to adequately account for project resources and expenditures. Strengths andWeaknesses Strengths.The project has the following strengths inthe 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'sdisbursement procedures andfinancialreportingrequirements; a budgeting and accounting system has been established on the basis o f PWD's accounting rules and is operational for PMGSY as a whole with an on-line computerized system under implementation inphases (as a part o f OMMS); staff are trained to carry out basic accounting functions at all levels including divisionsPIUs under the PWD system; a system o fperiodic financial reporting from the divisions to the state is operational; and financial management arrangements are documented as part o f the Program Operational Manual (OM) as well as a Supplemental Operations Manual (SOM) which lay down the accounting policies, procedures and processes, operation o f the project financial management system andthe reporting arrangements. Weaknesses Mitigation Staffing: Staffing for finance function Appointment andplacement o f Controller (finance) at needs further strengthening, especially the State level. for newly created SRRDAs. An existing accounting system which A computerizedandintegratedFMS isbeing developed primarilyfocuses onbookkeeping, under the PMGSYproject, inphases, as a part of the andnotparticularly on financial online management andmonitoring system and management. undergoing compliance testing. FMarrangements set I 1 reporting down inOM and SOMwhich focus on financial andmonitoring. Implementing Entity. At the central level, technical inputs for the scheme are provided by the NRRDA and budgets and funds flow 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 flow procedures, as well as interim systems for accounting, reporting and auditing. The SRRDAs inthe case o f the Bank financed project, will be technically 35 supported by the PWD inHimachal 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 Bankproject will finance 60% o f the districts ineach o f the States, throughprogram implementing units (PIUs) established under the PMGSY scheme. These PIUs, though housed in PWDKESREiO, would serve as an extension of SRRDAs in implementing the program. They are hlly accountable and responsible to SRRDAs for book-keeping. accounting and reporting purposes. These PIUs have beenundertaking 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 item o f the MORD. It will be sufficiently detailed to capture the various types o fworks proposedunder the centrally sponsored scheme. A budget item will also be established on the receipts side at Union (center) for the World Bank Loadcredit under the project for the participating States. Suitable budget provisions have been made starting from 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 this component will be captured inthe quarterly FMRs. The annual budget o f PMGSY will be based on the annual work program o f the participating states and will follow the usual budgetary preparationprocess for a centrally sponsored scheme. Funds Flow. The MORD, under guidelines for PMGSY issuedinJanuary 2003, has set out the financial and funds flow 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 Stateswill flow through regular bankingchannels 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 from the Bank manager) will be submitted bythe State for releasingthe 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 all PIUs across the State. Two separateBank 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. Inrespect 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 is also infomed o f the authorized persons for issuing cheques, details inrespect of payees and the amounts of the contracts (contractors). To arrange for swift and timely payments, facilities like on-par facility, electronic clearing scheme, courier system and pre-funding limits are proposed to be provided by the banks. As a result o f this unique feature, actual funds are not required to be transferred to PIU level. This will enhance intemal control over fundflows. Moreover, the preparationo 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 hnds will be transferred to the PIUS'bank accounts on the basis o f criteria laid down inthe 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 of the agreed financial management arrangements, providing timely financial reports to stakeholders including the Bank, and providing overall guidance inrespect of the financial management issues for the project. The finance team at the State level (SRRDA) is to be headed by a Financial Controller who shall preferably be a professional accountant or an officer fiom State accounts services o f a minimumrank of a senior Accounts Officer supported by at-least 1Accountant and 2 Accounts Clerks. At the PIUlevel (district), the accounts and finance team will comprise generally o f one divisional accountant, and 1clerk. They will be responsible for maintainingthe cash book, other registers/documents, as required under the OM and SOM, andmakingthe necessary data enties inthe FMmodule ofthe OMMS. Training. This is 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 FMfunctions as envisaged under the OM and SOM. Two rounds o ftraining have beenprovided for the proposed FMmoduleunder OMMS. The training planincludestraining onBankdisbursement procedures andfinancial reportingrequirements. 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 PIUlevel, books o f accounts are based on existing PWD requirements which have beenrevised to meet double entry requirements. At the State level (SRRDA) proper double entry books will be maintained which will account for all State level expenditures under the scheme. A Chart o f Accounts based on 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, SOM 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 will be required under the Scheme. As 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 beenprescribed under PMGSY which is considered adequate to meet the requirements o fthe project. The information from the PIUs will flow to the State level agency on 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 initially manually, and thereafter on the computerized FM system as a part o f OMMS. Regular bank reconciliation will be carried out at SRRDA and PIU as laid out inPMGSY 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 roll out the OMMS. The proposedsystem includes a Financial Management (Receipts & Payments) module. Although the OMMS started its roll out in December 2002 all over India, implementation 37 progress has been slower than anticipated as problems were encountered by the districts/states andas aresult, it i s proposedthat a gradual transitionbenowmade. Implementation and roll out of the payment/financial management module for the PMGSY Scheme, under the OMMS, is being done in phases with the computerized Financial Management System beingestablishedat first at the SRRDA level. The books o f accounts ofthe PIUs will bemaintained on amanual basis initially, usingprescribed 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 systemto generatethe books of accountsandthe requiredfinancial statements. This system will thereafter be upgraded by implementing the system at PIUs and integrating it with SRRDA by September 30, 2005 (dated covenant). As reliable connectivity is still a problem for many remote regions, database transfers from PIUs to SRRDA will take place on a periodic basis throughphone linehtemet rather thanrequiringdedicatedconnectivity. Inthe case ofBankfinanced states, itis expectedthat Rajasthanwill bethe first to move towards implementation o f fully computerized system by September 30, 2004, followed by HP, JharkhandandUP. The FinancialManagement System(FMS) will help inaccurately 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 of receipt and payment module) including the chart o f accounts is undergoing compliance testing. Separate accounts for the administrative expenseswill 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 is planning to provide training in the module's use. Roll out and satisfactory functioning o f the FM module i s critical to funds flow, reporting and accounting and auditing underthe 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 limitedincremental operating costs for new roads and upgradation of existing roads. Itpartially funds the costs of: (i) survey and design by providing Rs.10,000 per km to be reimbursedthrough the GO1to State transfer for expenditure incurred on works contracts; and (ii) supervisionbyprovidingabout 1%oftheworkscoststopayfortravelandother field miscellaneous expenses incurredby executing agency staff during sub-project planning, survey, design and supervision. The Bank project will fund the cost o f the civil 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 NRRDAlevel. Financial Reporting. Financial Monitoring Reports (FMR), designed in consonance with the proposed project components, to track financial and physical progress of the project have been agreedwith MORD and the States. The format will meet the needs andrequirements of: (i) and NRRDA; (ii) PWDs and the Project Management; and (iii) MORD State 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 this respect will be collated in the agreed format by the concerned SRRDAs fiom various sources (PWD, RES, 38 ImplementingAgency Audit Auditors 4 participatingStates (SRRDA) and EntityProject Audit Private CA firm NRRDA 4 participatingStates State"Annual Finance C.&A.G. Accountsyycertifiedby CAG DENGO1 Special Account C.&A.G. The audit covenants o f loans which share the same implementingagencies as this project havebeen compliedwith till date. Under the Indianconstitution, C&AG would also have a right to conduct performance audits of SRRDAs, if they receive more than Rs.2.5 million (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 betransferred to the States only after receipt of a duly audited financial statements o fthe previous year endingMarch 31. 39 The audits for the non-bank funded maintenance component o f the project will be evidenced through mainstreamed accounts of 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 cumfinancial review. As a part o f the internal control framework for the Bank financed works, a technical examiner team, to be employed to monitor all 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 of the project financial management system, including review o f internal control mechanisms, books of accounts, registers andother records and effectiveness ofthe procurementprocess. Disbursement Arrangements. Disbursements from the loadcredit would be made inthe traditional system (replenishment and reimbursement with full documentation and against statement o f expenditure). The claims/ SOEs will be prepared by the SRRDA for each o f the State and forwarded to NRRDA for consolidation on a monthly basis. The consolidated claim would then be forwarded to the office o fthe Controller o f Aid, Accounts & Audit (CAAA) inthe Ministry o f Finance. C A A A will validate the claims, draw down the special account ifrequired andforward it to theBankfor further processing. Retroactivefinancing. A provision has beenmade 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 is 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 fthe project. Superuision Plan. The project will require intensive supervision in the initial 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: RuralRoadsProject A. InstitutionalCapacity 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 procuringworks through local competitive biddingprocedures. All the implementingagencies - bar the Rural Engineering Services inUttar Pradesh (up) and the MORD - 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 of larger service contracts as envisagedunder the project. Accordingly a number o f staff from each of the implementing agencies have attended procurement training. Separate training on contract administration will be provided under the technical assistanceandtechnical examinerconsultancies. 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 implementthe recommendations. The proposedprior reviewthresholds indicated inthis annex were derived after assessing the implementing agencies' capacity to carry out project procurement as per World Bank Procurement Guidelines. B. ProcurementMethods 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 fundedthrough 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 andMay 2004. All goods and services will be procured using India-specific Model Standard Pre-qualification and Bidding Documents for Bank funded projects. The model NCB 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 first round of tendering. Procurement arrangements are summarized inTables A andAl, andare briefly describedbelow. B1 Works[US$686 million] NationalCompetitive BiddingCNCB): US$423 million equivalent includingcontingencies Works relating to rural road construction and upgrading will be procured under this category, Works will be tendered by executing officers of designated implementingagencies at the district level through competitive bidding in packages normally o f Rs.10 to 50 million (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 of subcontracting to 25%; (ii) inclusion of 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 of retired Gazettedofficers of the concemed state. Force Account andLocal Competitive BiddingProcedures: US$263million eauivalent For implementation of the annual routine and periodic maintenance programs (not Bank financed), State agencieswill use force account andtheir own competitive biddingprocedures. 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 serviceswill beprocured according to Table A1below. B5. Other non-Bankfinanced components[US$4.45 million equivalent including contingencies] These are incremental operating cost amounting to US$4.45 million (not Bankfinanced). C. Procurement Planning Procurement of all works packages will follow arrangementsoutlined inaccordancewith the Project's Procurement Planagreed at Negotiations. D. Prior Review of Procurement Decisions by the Bank [Refer Table B] e AllNCB civilworks contractsvalued at US$1.5 million equivalent andabove; e AllNCB goods contracts valued atUS$200,000 equivalent andabove; 0 15% o f all NCB civil works contracts in each tranche o f works submitted to the Bank; and e Consultant contracts with an estimated value o f US$lOO,OOO equivalent and above for firms, andUS$50,000 equivalent and above for individuals. E. NCBProvisions All NCB contracts shall be awardedinaccordancewiththeprovisions ofParagraphs3.3 and 3.4 of the Guidelines for Procurement under IBRD Loans and IDA Credits published by the Bank as revised (the Guidelines). In this regard, all NCB contracts to be financed from the proceeds of the Loan shall follow the following procedures, or as otherwise revised from time to time after agreementbetweenthe Borrower andBank: (i) Onlythemodelbiddingdocumentsfor NCBagreedwiththeGO1TaskForce,andas amendedfor this project only, shall beusedfor bidding; 42 (ii) Invitationstobidshallbeadvertisedinatleastonewidelycirculatednationaldaily newspaper, at least 30 days prior to the deadline for the submission o fbids; (iii)Nospecialpreferencewillbeaccordedtoanybiddereitherforpriceorforotherterms and conditions when competing with foreign bidders, state-owned enterprises, small- scale enterprises or enterprises fkom any given State; (iv) Except with the prior concurrence o f the Bank, there shall be no negotiation o fprice with the bidders, even with the lowest evaluated bidder; (v) Extension o f bid validity shall not be allowed without the prior concurrence o f the Bank (i) thefirstrequestforextensionifitislongerthaneightweeks; and(ii) all for for 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); (vi) Re-bidding shall not be carried out without the prior concurrence o f the Bank. The system o f rejectingbids outside a pre-determinedmarginor - bracket - o f prices shall not be used inthe project; (vii) 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 anyprocurement under National Shopping procedures; and (viii) Two or three envelop system will not be used. F. ProcurementInformation Procurement information will be collected andrecordedas follows: 0 prompt reporting o f contract award information by the project management units for the respective components; and 0 reporting o f data as provided for inthe On-line MonitoringandManagement System. (www.pmasy.nic.in) G. ProposedProcurementArrangements Thresholds andFrequencyof Supervision - The project elements, their estimated costs, andproposedmethods o fprocurement are summarizedinTable A. Thresholds are given inTable B. Figures inparenthesis are the respective amounts to be financed bythe Bank. 43 Table A: Project Costs byProcurement Arrangements (US$ million equivalent) Procurement Method' Expenditure Category I C B N C B OtheJ? N.B.F. Total Cost 1.Works 0.00 422.66 1.oo 236.00 659.66 (0.00) (380.39) (0.00) (0.00) (380.39) 2. Goods 0.00 0.00 4.72 0.00 4.72 (0.00) (0.00) (3.77) (0.00) (3.77) 3. Services 0.00 0.00 16.08 0.00 16.08 (0.00) (0.00) (14.84) (0.00) (14.84) 4. Operatingcosts 0.00 0.00 0.00 4.45 4.45 (0.00) (0.00) (0.00) (0.00) (0.00) 5. Front EndFee (0.00) (0.00) (1.OO) (0.00) (1.OO) Total 0.00 422.66 22.80 240.45 685.92 (0.00) (3 80.39) (19.61) (0.00) (400.00) 'Figures inparenthesesare the amounts to be fmanced by the LodCredit. All costs include contingencies. 'Includes civil works and goods to be procuredthrough national shopping, consulting services, services o f contracted staff o fthe project management office, training, technical assistanceservices, and incremental operating costs relatedto managing the project. Table A1: Consultant Selection Arrangements (US$ millionequivalent) Selection Method Consultant Services Total Expenditure Category QCBS QBS SFB LCS CQ Other N.B.F. A. Firms 0.00 0.00 13.11 0.00 0.00 2.97 0.00 16.08 (0.00) (0.00) (11.87) (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) Total 0.00 0.00 13.11 0.00 0.00 2.97 0.00 16.08 (0.00) (0.00) (11.87) (0.00) (0.00) (2.97) (0.00) (14.84) 44 Table B: Thresholds for ProcurementMethods andPrior Review Expenditure ContractValue Threshold Procurement ContractsSubjectto Category (US$ thousands) Method Prior Review (US$ millions) 1.Works 15% of all contracts NCB About 300 All>1.5 million (57.0) 2. Goods >200,000 NCB None anticipated 3. Services 100,000 firms FBS 12 50,000 individuals (9.3) Total value of contracts subiect to Drior review 66.3 OverallProcurementRiskAssessment: 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 missionwherever feasible. Table C: Allocation o fLoadcredit Proceeds ~~~~ ~ ~ Expenditure Category Amount inUS$ million Financing Percentage Works 380.39 90% Goods 3.77 80% for all items procuredlocally at gross cost Services 11.87 90% o f gross expenditure - 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) civil works for contracts not exceeding US$1,500,000; (b) goods for contracts not exceeding US$200,000; (c) consultants for contractsnot exceeding US$lOO,OOO for firms andUS$50,000 for individuals; and(d) training. Special Account. A Special Account will be maintained in the Reserve Bank o f India andwill be operated by the Department of Economic Affairs (DEA) of GO1with an authorized allocation o f US$30 million. This will be operated in accordance with the Bank's operational policies. loOnAugust 3,2004, the BankExecutive Directors, approveda 50 basis point waiver o fthe front-end fee for all IBRDloans (other than SSALs) to bepresentedto the BoardinFY05. As this project is scheduled to bepresented to the Board on 23 September 2004, and assuming that it i s presented to the Board as plannedor before July 1,2005, the front-end fee payable for the Project will be an amount equal to "0.5% o fthe loan." 45 Annex 9: Economic and Financial Analysis INDIA: RuralRoads Project Introduction There i s a high incidence of poverty in the rural areas of India and about 70% o f the Indianpopulation 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 andopportunities. InIndia, over 40 percent o fvillages are still not connected by all-weather roads. In view of the importance o f village access to reduce poverty, extensive rural roads works are being undertaken under the PMGSY. The PMGSY program is not based on the prioritization of 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 this CrediVLoan, the Bank undertook a study to estimate the likely impact of providing all weather access roads to different villages in the four selected States: Uttar Pradesh, Rajasthan, HimachalPradesh, and Jharkhand. The study was also designed to determine the appropriate road design standards (investment) inrelationto the potential traffic andacceptable economic returns. The Impact of 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 of 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 generatedbythe 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 inthe rural areas o f India, but, takingallthe villages together, the averageper capitaproductioninthe connectedvillages is about Rs.2400 (US$53) higher thaninthe unconnected villages12. The more common term "village" is usedint h s Annex rather than the term "habitation" as defined under the PMGSY (see footnote onpage 1) l2The direction o f causality maybe rather ambiguous -villages withhigher productionand marketable surpluses mightpreviously havehadpriority inroadconstruction. 46 (a) Table 1: Agricultural Prices andProduction: Production Crop Exports Impact of Connection Rs./capita (% Production) on Crop Prices (Rs./ton) Uttar Pradesh Rajasthan Himachal Pradesh Prices Rs./unit Road NoRoad Road NoRoad Road NoRoad Veg oil/lt 47.4 53.2 54.2 59.0 42.4 44.0 Kerosenellt 16.2 16.6 13.8 15.4 14.9 16.3 Sugarkg 14.4 15.4 14.5 15.4 16.0 17.1 Saltikg 2.3 2.4 5.1 6.3 5.6 6.0 Detergend0.5kg 9.05 9.45 5.0 5.o 17.7 19.1 Brickdl000 1530 1730 1290 1430 2450 3025 Cementhag 129 139 134 152 152 170 Just as the prices for tradable agricultural commodities are lower inunconnectedvillages, the prices of imported consumer goods are higher. For low valuehulk commodities like bricks andcement, prices are generally more than 10percent higher inthe unconnectedvillages. (c) Table 3: Socio-Economic Access: Uttar Pradesh Rajasthan Jharkhand Himachal Pradesh Road NoRoad Road NoRoad Road NoRoad Road NoRoad matriculate % 11.8 2.6 8.6 15.0 5.2 3.8 24.8 7.4 health visit % 29.2 11.4 31.0 11.6 n.a. n.a. 34.6 16.2 mortality % 3.9 4.8 1.6 1.1 8.0 9.0 1.7 1.6 electricity % 3.2 1.8 2.6 5.8 2.4 0.6 20.8 12.8 47 Though there are exceptions (particularly in Rajasthan) villages with all-weather road access have populations with higher education and much higher access to health services (not always reflectedinthe mortality statistics). Ingeneral, the populations of connectedvillages also have rather greater access to electricity though rates inall very villages are low, with the partial exception ofHimachalPradesh. (d) TransportMobility The transport surveys inthe study were restricted to vehicles (including non-motorized) and didnot count pedestrians or those riding animals; thus only a partialview of travel patterns was obtained. It might be logicalto expect no motorizedtransport to villages without roads but, inreality, most ofthe villages inUttarPradesh, RajasthanandJharkhandhave some measureof road access, through earth tracks, for some part of the year. In such "unconnected" villages, there may be relatively highgeneration 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 ofbuses andtrucks are a multipleo fthe other vehicles recorded. Table 4: Vehicle GenerationRates:RuralVillages * Nonmotorized transport:bicycles inJharkhand,carts inRajasthan The very low vehicle generation rates for unconnected villages inHimachal Pradesh are more representative of villages with little effective motorized access. The highgeneration 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 of traffic from severalvillages. (e) OverallImpactofAll-Weather Access The provision of all-weather access can have very substantial impacts on the social and economic development prospects of rural areas. Access to markets i s improved, competition among traders often increases, the prices of 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 fregular public transport services to villages. Whlle all-weather access is not the panacea for rural development, it i s generally a necessary condition for sustained economic and social development. Economic AppraisalMethodology: Most o f the candidateroads are designed to provide reliable all-weather motorized access to previously inaccessible (at least during part of the year) villages. Therefore, economic analysis based solely on measuring the reduction inVehicle Operating Costs (VOC) of existing vehicles is unlikelyto measurehlly the benefits o fimprovingaccessibility due to: 0 There may be very little vehicular traffic - people have to walk and carry goods to the nearestroad; 0 An all-weather road, with improved pavement conditions, often results in a substantial change inthe composition o ftraffic -from tractors to buses andtrucks; a The intensity of agricultural productionmay increase inresponse to higher prices/lower inputcosts andahigher proportionof cropsmaybesoldoutside the village; a The pattern of cropping may change to take advantage of cheaper and more reliable access to markets; and a Substantial benefits may be generated by better access to social infrastructure and improvedmobility through the establishment o fregular 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 approachhas normallyto be undertaken. The appraisal methodology used for this project utilizes the parameters of 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 little impact. Development is 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, it i s not cost-effective to undertake detailed investigations for roadimprovements with individual costs o fUS$lOO,OOO or less. The economic analysis assumes a project life o f 15 years with no residual value. The costs include the initial construction cost and subsequent maintenance costs, including the periodic resurfacing of the road. The benefits include the additional agricultural production expected, reduced VOCs and the travel time savings of vehicle passengers. Given the data available, assumptionshadto bemade for eacho fthe mainparametersinthe analysis. 49 MainAssumptions (a) Benefits Agriculture produce surplus. After the provision of physical access, the rural community can more easily market the surplus produced within the village and get better prices for its products. Moreover, the improvement inroadconditions results indirect 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 inproductionand 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 increasesbut only to 60 percent of the present production differential between connected and unconnected villages. The agricultural adjustment processi s assumedto be equally spread over 5 years. Traffic and its growth. It 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 of the vehicle generatiodper capita patterns of connectedunconnected villages in Uttar Pradesh, Jharkhand and Rajasthan were applied to all roads. The vehicle generation patterns inHimachalPradeshwere excluded as the roadstypically serve several villages. This method allows for changes in the number o f vehicles, but more importantly for changes inthe composition of vehicles. Traffic i s assumedto 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 andto apply different values to the flows. Much of the "generated" traffic may simply be people and cargo transferring from foot to vehicles andthus, while the vehicle tip maybe 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 of Indian Road Congress, Manual on Economic Analysis of Highway Projects for different type of 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 fthe VOC when comparedwith travel on an earthen road. Value oftime. There hasbeen little researchon 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 of village roads, the value oftime for the passengerwas assumedto behalfo fthe unit value determined for the passengers usingmajor roads. The averagevalue usedwas Rs.6.7 perhour (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 CostsPavedRoadsR s . h I No. o fRoads Average Range 1 UttarPradesh 204 2,280,000 1,389,000 -3,486,000 Rajasthan 582 1,488,000 967,000 -2,225,000 HimachalPradesh 93 1,305,000 935,000 -2,203,000 Jharkhand 35 2,283,000 2,012,000 -2,s 1,000 The financial costs were converted into economic costs by using a conversion factor o f 0.9. 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 interveningperiods 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 usingthe conversion factor o f 0.9. Resultsof Economic Analysis The economic model was applied to district groups of roads inthe four States, covering over 900 sub-projects representing a total o f about 40% of the loadcredit value. Both the economic rates o f return and modified economic rates of return (assumes that the returns fiom the investment only yield the opportunity cost o f capital, both at 12%) were calculated. The analysis indicated a relatively wide spread inthe economic results but the average rates of return are acceptable: ModifiedERR Mean 32.9% 19.4% Median 28.5% 17.1% Over 70% of roadshave ratesofreturninthe range 15%- 20%. 51 PMGSY: Modified EconomicRates of Return 60 I 0.0 9.9 - 10.0 14.9 - 15.0 - 19.9 20.0 - 24.9 25.0 - 29.9 30+ MERR (%) Theresults ofthe economic analysis for the individualstates are shown inTable 6: Table 6: PMGSY: Economic Rateso fReturn No. o f ERR Modified NPVK ~ Roads ERR' UttarPradesh 204 51% 25% 3.13 Rajasthan 582 25% 17% 0.70 HimachalPradesh 93 40% 21% 2.00 Jharkhand 35 28% 18% 1.93 Total 914 33% 19% 1.53 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 lengthof sample roads (2.5 km) and relatively highpopulations served. The economic rates of return for roads inRajasthan may be somewhat underestimated as more than one village may be servedby eachroad (these datawere available for the other States). The returns on the roads in Himachal Pradesh are high, reflecting the relatively low construction costs andthe largenumbers o f villages connectedby eachroad (an average of three villageshoad); inreality, the impact may be even higher. Unlike inthe other States, villages in HimachalPradeshwithout roads are really without any motorizedaccess. This i s reflected inthe very low vehicle trip generation rates detailed previously, Table 4. InHimachalPradesh, no road l3Assumes 12%cost ofcapital andreinvestment rate 52 really does mean no motorizedaccess andthe shift intravel patterns would not be from one type of vehicle to another, but from walking to motorized transport. The impact o f shifting from foot to motorized transport i s normally severaltimes that from improvingroadconditions or changing the category o f vehicle. The Choice ofRoadStandard The economic rates of returndetailed inTable 6 are basedon the construction of a black- top road which has been adoptedby GO1as the de facto standardfor PMGSY. The traffic flows on most o f the rural roads in this program will 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 fpavedrather than all-weather gravel roads indicates very low rates o f return. Higher economic returns might conceptually be generatedby downgrading the design standard, reducing the construction c o s t s h and connecting more villages with the same total level o finvestment. 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 GO1duringthe implementation of the Project. At the outset, it 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 inthe poorperformance of gravel roads. Some states likeUttarPradeshhave no gravel inmost parts. It is therefore understandable that rural communities often have a very highpreference for pavedrather than unpavedroads inIndia. Although the IRC SP20 does recommendthe use o f gravel roads for low traffic conditions most states usually ignore this option. Recently, some states have shown interest inconstruction 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 is 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 of serviceability. However, the revisedIRC manual as well as improvements inmaintenance hding andplanning 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. Insome States, this may meangravel roads; inother States, without gravel resources, the use o fbrick surfacedpavements may bemore appropriate at a lower cost alternative to pavedroads. 53 SensitivityAnalysis Population served, production increases and construction costs are the key variables that can substantially affect the rates ofreturn. 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. Table 7: PMGSY: SwitchingValues Individual +125% -90% -55% Joint( 1) +75% -40% Joint(2) +50% -20% -25% Taken individually, very substantial changes are required inthe key variables to reduce the ERR to marginal levels. Taking all States together, the rates of 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-project risks; increasesinconstruction cost, or reduced productionincreases on some roads will be offset byreduced costs andincreasedproductionon others. DistributionofBenefits 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 fiom improved access to educational and health facilities and lower prices for basic consume goods. The expected increaseinthe value o f agricultural productionwill benefit farmers andmay increasethe 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 selectedfor implementingthe Project are amongst the poorest districts inthe States. 54 FinancialAnalysis 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 is about Rs. 1,330 billion (US$29 billion). This substantial resource requirement is expected to be funded partly through dedicated fuel levies and donor assistance, including this and subsequent Bank fbndedprojects. In 1999, a one-rupee levy per liter of diesel and petrol sold was imposed by the GO1and in 2000, a Central Road FundAct 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 liter in 2003. By law, 50 percent o fthe diesel levy i s directed towards rural roaddevelopment, a sum currently amounting to about US800 million per year, which is far short of the resource requirements to achieve the PMGSYtargets. An analysis ofunit 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), Rajasthan (US$25,000/km), and Madhya Pradesh (US$29,000/km). Most o f the roads are designed with bitumen surface irrespective of the level of traffic. Greater focus on reducing unit costs will substantially reduce the overall funding requirements o f PMGSY as a whole. The IndianRoads Congress andNRRDA are considering ways to reduce the unit costs andto adopt optimal design standards for rural roads. Currently, IRC is 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 is 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 is also in the process of preparing detailed guidelines for project preparations, a construction manual for performingvarious construction operations inthe field. There is some evidence to suggest that some state governments are reducing their own outlay or borrowingfor ruralroads as a responseto the substantial grant funds beingprovidedby the centre. While this might be a concern ifmaintenance funds were beingreduced (there is no evidence o f this as yet), ifnew construction is beinglimitedto PMGSY fundedworks this might be a positive outcome - given the substantially improved planning and execution procedures being employed on the program that imply an increase inthe overall quality o f public spending inthe sector. FiscalImpact While the investment burden on states and districts will be minimal, the project will create a maintenance obligation and added resource requirement to maintainthe 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 fiom state budgets and local government contributes little. Whatever local funding there i s available for ruralroads tends to beused for new construction andupgradationrather thanmaintenance. 55 The incremental fiscal impact on the State governments of 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 of 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 tenderedrates, the actual commitment couldberather more or less thanthis ineach State. Table 8: EstimatedFinancialCommitmentfrom States for RoutineMaintenance of Project Roads(2003 The fiscal impact o f the PMGSY program as a whole is 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 of 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 andrequiredallocations for rural roadmaintenance for the four states are shown inTable 9 below. Note that Rajasthan undertook a backlogreduction 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. Himachal Jharkhand Rajasthan UttarPradesh Pradesh** Requiredper state noms* 205 280 231 480 Actual 156 140 61 100 Actual as % o fRequired 76% 50% 26% 21% Estimatedcurrent backlog 300 1,200 268 1,500 56 Annex 10: Safeguard Policy Issues INDIA: RuralRoads Project SocialPolicy Issues Environment Codes of Practice and aR&PF - was preparedon the basis of an ESA carried out in Land. The Environment and Social Management Framework (ESMF) - including a participatory manner involving all stakeholders including affected communities, staff of executing agencies andline 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 insettlements. The process of identifying and quantifylngthe social impacts fiom the construction of roads funded under the project will bephasedover the project period. A total o f 836 roads have beenidentifiedinall 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 fproject affected people which will be completed andincludedinthe 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 ESMFwith associatedsafeguardinstruments i.e. R&PF andECOPs to mitigate adverseimpacts iftheyoccur. The purpose of this R&PF is to formalize the support that has untilnow been only informally provided - e.g. provision o f alternate landinsome cases. Options for support to vulnerable people include: (i) extension of ongoing government's specific program for rural poverty alleviation; (ii) alternate land, if available; (iii) assistance donated by all members cash 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, ifnecessary. Transfer of land to the respective department. The process o f transfer o f landrequired for the minor alignments varies fiom state to state: (i) Himachal Pradesh, affidavits will be in usedfor transfer of landfrom the landowner to the state government, and inadditiongift deeds will be prepared by affected persons; (ii) Jharkhand, affidavits will be provided; and (iii) in in Uttar Pradesh and Rajasthan, Memorandum o f Understandingwill 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 Unit Rate Qty Cost Assumption No. (No.) Po.) l4 Not includingany land 58 Annex 11:ProjectPreparationandSupervision INDIA : RuralRoadsProject Planned Actual Key institutionsresponsiblefor preparationof the project: Ministry of RuralDevelopment, Krishi Bhawan, N e w Delhi NationalRuralRoad Development Agency, New Delhi Government ofHimachal Pradesh, Public Works Department, Shimla Government of Jharkhand, Rural Engineering Organization, Ranchi Government o f Rajasthan, Public Works Department, Jaipur Government of Uttar Pradesh, Public Works Department, Rural Engineering Services, Lucknow Bankstaffandconsultantswho workedonthe projectincluded: Name Title unit Alok NathBansal Sr. Transport Planner SASEI Aniruddha Patil Project Analyst SASEI Ashok Kumar Sr. RuralRoads Specialist SASRD BinyamReja Transport Economist TUDTR Gaurav Joshi Consultant SASES Gladys Stevens ProgramAssistant SASEI Guang Chen Sector Manager SASEI Jayashree Shahria ProgramAssistant SASRD Kiran RanjanBaral Sr. Procurement Officer SARPS Manoj Jain Sr. FinancialManagement Specialist SARFM Mohan Gopalakrishnan Financial Management Specialist SARFM Monica Femandes ProgramAssistant SASES Mridula Singh Social Development Specialist SASES N.S. Srinivas ProgramAssistant SASEI Piers Vickers Task Leader SASEI Raj Soopramanien Sr. Counsel LEGMS 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 59 Bankh d s expendedto dateonproject preparation : 1. Bankresources: US$280,000 2. Trust fimds: US$O 3. Total: US$280,000 Estimated Approval and Supervision costs: 1. Remainingcosts to approval: us$20,000 2. Estimatedannual supervisioncost: US$140,000 60 Annex 12: Documentsinthe ProjectFile INDIA: RuralRoadsProject Bank StaffAssessments Identification MissionAide Memoire July2002 Second PreparationMissionAide Memoire December 2002 ThirdPreparationMissionAide Memoire April 2003 FourthPreparationMissionAide Memoire September 2003 Appraisal MissionAide-Memoire March2004 Other Current Environment and Social Conditions Report January2004 Environment and Social Management Framework August 2004 Economic analysis of PMGSY roads infour states October 2003 Fiduciary Review ofPMGSY June 2003 Maintenance Assessment Report May2003 Maintenance Assessment Report - Jharkhand - Himachal Pradesh April2003 Maintenance Assessment Report - Rajasthan August 2003 Maintenance Assessment Report - UttarPradesh August 2003 Procurement Plan August 2004 Studyonthe Institutional Arrangement for the PMGSY August 2003 Standard BiddingDocument for PMGSY, Version 2 April 2004 Supplemental Operations Manual August 2004 61 Annex 13: StatementofLoansandCredits INDIA: RuralRoadsProject Differencebetween expectedand actual Original Amount inUS$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm.Rev'd PO73651 2005 Disease Surveillance 0.00 68.00 0.00 0.00 0.00 68.00 0.00 0.00 PO78550 2004 Uttaranchal Watershed 0.00 70.00 0.00 0.00 0.00 68.53 0.00 0.00 PO50655 2004 RajasthanHealth Systems 0.00 89.00 0.00 0.00 0.00 89.76 0.00 0.00 PO55459 2004 ELEMENTARY EDUCATION 0.00 500.00 0.00 0.00 0.00 487.40 0.00 0.00 PO82510 2004 KamatakaUWS Improvement 39.50 0.00 0.00 0.00 0.00 39.50 0.00 0.00 PO73369 2004 MAHARRWSS 0.00 181.00 0.00 0.00 0.00 182.70 0.33 0.00 PO73776 2004 ALLAHABADBYPASS 240.00 0.00 0.00 0.00 0.00 240.00 0.00 0.00 PO79865 2004 GEFBiosafetyProject 0.00 0.00 0.00 1.00 0.00 0.90 0.00 0.00 PO72123 2003 TechEngg Quality Improvement 0.00 250.00 0.00 0.00 0.00 263.37 5.80 0.00 Project PO71272 2003 AP RURAL POV REDUCTION 0.00 150.03 0.00 0.00 0.00 148.09 10.33 0.00 PO67606 2003 UP ROADS 488.00 0.00 0.00 0.00 0.00 463.23 31.37 0.00 PO50649 2003 TNROADS 348.00 0.00 0.00 0.00 0.00 344.52 -3.48 0.00 PO73094 2003 AP COMMFORESTMANG 0.00 108.00 0.00 0.00 0.00 116.47 5.61 0.00 PO75056 2003 Food& Drugs CapacityBuilding 0.00 54.03 0.00 0.00 0.00 56.66 0.00 0.00 Project PO76467 2003 Chatt DRPP 0.00 112.56 0.00 0.00 0.00 117.44 0.18 0.00 PO69889 2002 MIZORAMROADS 0.00 60.00 0.00 0.00 0.00 58.34 2.74 0.00 PO40610 2002 RAJ WSRP 0.00 140.00 0.00 0.00 0.00 149.56 25.18 0.00 PO50668 2002 MUMBAIURBAN TRANSPORT 463.00 79.00 0.00 0.00 0.00 510.31 37.09 0.00 PROJECT PO50647 2002 UTTAR PRADESHWATER 0.00 149.20 0.00 0.00 0.00 159.94 49.72 0.00 SECTORRESTRUCTURING PO50653 2002 KARNATAKA RWSS 11 0.00 151.60 0.00 0.00 0.00 163.80 16.20 0.00 PO71033 2002 KARNTANK MGMT 0.00 98.90 0.00 0.00 0.00 109.52 9.15 0.00 PO72539 2002 KERALA STATE TRANSPORT 255.00 0.00 0.00 0.00 0.00 229.87 -0.13 0.00 PO74018 2002 GujaratEmergencyEarthquake 0.00 442.80 0.00 0.00 0.00 362.59 259.22 0.00 Reconstruct PO38334 2001 RAJPOWERI 180.00 0.00 0.00 0.00 0.00 107.92 69.76 0.00 PO59242 2001 MP DPIP 0.00 110.10 0.00 0.00 0.00 104.85 31.70 0.00 PO55455 2001 RAJDPEP I1 0.00 74.40 0.00 0.00 0.00 60.05 3.79 0.00 PO55454 2001 KERALA RWSS 0.00 65.50 0.00 0.00 0.00 61.01 16.38 -7.36 PO50658 2001 TECHN EDUC 111 0.00 64.90 0.00 0.00 0.00 54.28 19.70 0.00 PO71244 2001 GrandTrunk RoadImprovement 589.00 0.00 0.00 0.00 0.00 494.2 1 199.88 0.00 Project PO35173 2001 POWERGRID I1 450.00 0.00 0.00 0.00 0.00 274.65 106.12 -4.66 PO67543 2001 LEPROSY I1 0.00 30.00 0.00 0.00 0.00 8.45 2.25 0.00 PO10566 2001 GUJARAT HWYS 381.00 0.00 0.00 0.00 0.00 283.29 147.62 -6.86 PO70421 2001 KARNHWYS 360.00 0.00 0.00 0.00 0.00 302.80 67.80 0.00 PO67216 2001 KARWSHD DEVELOPMENT 0.00 100.40 0.00 0.00 0.00 108.01 38.55 0.00 PO50657 2000 UP HealthSystems Development 0.00 110.00 0.00 0.00 0.00 95.89 30.39 0.00 Project PO09972 2000 NATIONALHIGHWAYS III 516.00 0.00 0.00 0.00 0.00 385.38 198.04 0.00 Differencebetween expectedandactual OriginalAmount inUS$Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm.Rev'd PROJECT PO50667 2000 UPDPEP 111 0.00 182.40 0.00 0.00 0.00 67.60 54.50 0.00 PO59501 2000 IN-TA for EconReformProject 0.00 45.00 0.00 0.00 0.00 38.89 11.51 0.00 PO67330 2000 IMMUNIZATION 0.00 142.60 0.00 0.00 0.00 31.44 24.96 0.00 STRENGTHENINGPROJECT PO55456 2000 IN-Telecommunications Sector 62.00 0.00 0.00 0.00 0.00 48.81 45.49 0.00 ReformTA PO10505 2000 RAJASTHANDPIP 0.00 100.48 0.00 0.00 0.00 90.92 53.11 0.00 PO35172 2000 UpPOWERSECTOR 150.00 0.00 0.00 0.00 0.00 25.92 17.25 0.00 RESTRUCTURINGPROJECT PO45049 2000 AP DPIP 0.00 111.00 0.00 0.00 0.00 83.03 19.98 0.00 PO49770 2000 RENEGY I1 80.00 50.00 0.00 0.00 0.00 111.88 49.14 7.70 PO41264 1999 WTRSHD MGMTHILLS11 85.00 50.00 0.00 0.00 0.00 46.78 40.30 0.00 PO45050 1999 RAJASTHANDPEP 0.00 85.70 0.00 0.00 0.00 48.36 70.80 0.00 PO45051 1999 2ND NATL HIV/AIDS CO 0.00 191.00 0.00 0.00 0.00 79.56 49.84 0.00 PO50637 1999 TNURBANDEV II 105.00 0.00 0.00 0.00 0.00 25.42 16.32 0.00 PO50646 1999 UPSODICLANDSI1 0.00 194.10 0.00 0.00 0.00 93.14 71.84 0.00 PO50651 1999 MAHARASHHEALTH SYS 0.00 134.00 0.00 0.00 16.96 76.27 79.29 0.00 PO35827 1998 WOMEN & CHILDDEVLPM 0.00 300.00 0.00 0.00 0.00 179.39 136.33 0.00 PO10561 1998 NATL AGR TECHNOLOGY 96.80 100.00 0.00 0.00 0.00 62.77 67.79 -10.69 PO35824 1998 DIVAGRC SUPPORT 79.90 50.00 0.00 0.00 0.00 24.31 26.07 19.67 PO10496 1998 ORISSA HEALTH SYS 0.00 76.40 0.00 0.00 0.00 56.68 44.26 0.00 PO49477 1998 KERALA FORESTRY 0.00 39.00 0.00 0.00 0.00 12.42 12.01 0.00 PO38021 1998 DPEP III(BMAR) 0.00 152.00 0.00 0.00 0.00 99.97 94.88 -4.07 PO49385 1998 AP ECONRESTRUCTURIN 301.30 241.90 0.00 0.00 0.00 167.23 166.93 0.00 PO35158 1997 AP IRRIGATION111 175.00 150.00 0.00 0.00 45.00 53.30 105.78 29.11 PO10473 1997 TUBERCULOSIS CONTROL 0.00 142.40 0.00 0.00 0.00 73.58 82.19 77.98 PO10531 1997 REPRODUCTIVEHEALTH1 0.00 248.30 0.00 0.00 0.00 69.58 65.11 65.15 PO09995 1997 STATE HIGHWAYS I(AP) 350.00 0.00 0.00 0.00 0.00 49.81 49.81 -204.19 PO10511 1997 MALARIACONTROL 0.00 164.80 0.00 0.00 46.50 48.86 96.63 8.15 PO44449 1997 RURAL WOMEN'S 0.00 19.50 0.00 0.00 6.72 6.06 13.95 -4.28 DEVELOPMENT PO43728 1997 ENV CAPACITY BLDG TA 0.00 50.00 0.00 0.00 0.94 5.90 11.49 0.00 PO09584 1997 ECODEVELOPMENT 0.00 0.00 0.00 0.00 2.34 0.96 4.65 0.00 PO36062 1997 ECODEVELOPMENT 0.00 28.00 0.00 20.00 5.86 2.95 10.53 5.53 PO10529 1996 ORISSA WRCP 0.00 290.90 0.00 0.00 0.00 50.09 74.39 39.50 PO35170 1996 ORISSA POWER SECTOR 350.00 0.00 0.00 0.00 95.00 46.58 141.58 20.09 PO10485 1996 HYDROLOGY PROJECT 0.00 142.00 0.00 0.00 19.64 7.82 48.75 25.10 PO10480 1996 BOMBAY SEW DISPOSAL 167.00 25.00 0.00 0.00 22.00 9.27 33.39 7.20 PO35825 1996 STATEHEALTHSYS I1 0.00 350.00 0.00 0.00 0.00 33.21 70.18 0.00 PO10522 1995 ASSAM RURAL INFRA 0.00 126.00 0.00 0.00 0.00 17.14 33.93 30.80 PO10461 1995 M A D R A S WAT SUP I1 275.80 0.00 0.00 0.00 189.30 6.63 195.93 4.80 PO10476 1995 TAMIL NADUWRCP 0.00 282.90 0.00 0.00 25.01 21.32 85.97 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 HeldandDisbursedPortfolio InMillionsofUSDollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2003 NewPath 0.00 10.00 0.00 0.00 0.00 4.50 0.00 0.00 2003 Niko Resources 30.00 0.00 0.00 0.00 20.00 0.00 0.00 0.00 2001 Orchid 0.00 6.08 10.00 0.00 0.00 6.08 0.00 0.00 1997 Owens Coming 16.24 0.00 0.00 0.00 16.24 0.00 0.00 0.00 1995 PrismCement 11.25 5.02 0.00 6.00 11.25 5.02 0.00 6.00 2001 RCML 0.00 1.97 0.00 0.00 0.00 1.97 0.00 0.00 2001 RTL 0.00 0.45 0.00 0.00 0.00 0.45 0.00 0.00 1995198 RainCalcining 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1997 SAPL 0.00 0.07 0.00 0.00 0.00 0.07 0.00 0.00 1997100 SREI 9.50 0.00 5.00 0.00 9.50 0.00 5.00 0.00 1995 SaraFund 0.00 5.94 0.00 0.00 0.00 5.94 0.00 0.00 2001103 Spryance 0.00 1.oo 0.00 0.00 0.00 1.oo 0.00 0.00 2000/02 SundaramHome 10.90 0.00 0.00 0.00 10.90 0.00 0.00 0.00 0 TCFC FinanceLtd 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1998 TCW/ICICI 0.00 5.59 0.00 0.00 0.00 5.59 0.00 0.00 1990 TDICI-VECAUS I1 0.00 0.15 0.00 0.00 0.00 0.15 0.00 0.00 2002 TELCO 50.00 0.00 0.00 0.00 50.00 0.00 0.00 0.00 1981/86/89192/94TISCO 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2000 Tanflora Park 0.00 0.51 0.00 0.00 0.00 0.00 0.00 0.00 1989190194 TataElectric 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1987/88/90/93 Titan Industries 0.00 0.32 0.00 0.00 0.00 0.32 0.00 0.00 1989 UCAL 0.00 0.34 0.00 0.00 0.00 0.34 0.00 0.00 1996 United Riceland 9.38 0.00 0.00 0.00 9.38 0.00 0.00 0.00 2002 UshaMartin 21.00 3.60 0.00 0.00 15.00 3.60 0.00 0.00 1991/93/96/01 VARUN 0.00 0.26 0.00 0.00 0.00 0.26 0.00 0.00 2001 Vysya Bank 0.00 3.66 0.00 0.00 0.00 3.66 0.00 0.00 1997 W N 0.00 2.05 0.00 0.00 0.00 2.05 0.00 0.00 1988 WTI 0.00 0.20 0.00 0.00 0.00 0.20 0.00 0.00 1997 Walden-Mgt India 0.00 0.02 0.00 0.00 0.00 0.02 0.00 0.00 2002 Webdunia 0.00 2.00 0.00 0.00 0.00 0.67 0.00 0.00 1989 AEC 1.09 0.00 0.00 0.00 1.09 0.00 0.00 0.00 2002 ATL 21.36 0.00 0.00 15.00 15.68 0.00 0.00 11.56 2003 Alok 17.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1994 AmbujaCement 0.00 4.94 0.00 0.00 0.00 4.94 0.00 0.00 1992193 Arvind Mills 0.00 3.39 0.00 0.00 0.00 3.39 0.00 0.00 1997 Asian Electronic 0.00 5.50 0.00 0.00 0.00 5.50 0.00 0.00 2001 BTVL 0.00 20.00 0.00 0.00 0.00 20.00 0.00 0.00 2003 Balrampur 15.26 0.00 0.00 0.00 15.26 0.00 0.00 0.00 2001 BasixLtd. 0.00 0.98 0.00 0.00 0.00 0.98 0.00 0.00 1984191 Bihar Sponge 0.00 0.05 0.00 0.00 0.00 0.05 0.00 0.00 0101 CCIL 9.00 0.00 0.00 10.54 9.00 0.00 0.00 10.54 Committed Disbursed IFC IFC FYApproval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 1997 CEAT 19.60 0.00 0.00 0.00 19.60 0.00 0.00 0.00 1990/92/96 CESC 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 COSMO 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 1995197 CenturionBank 0.50 0.00 0.00 0.00 0.50 0.00 0.00 0.00 2003 Dataquest 0.00 1.50 0.50 0.00 0.00 1.50 0.50 0.00 2003 Dewan 13.08 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1997 EEPL 0.00 0.03 0.00 0.00 0.00 0.03 0.00 0.00 0 EXB-STG 0.31 0.00 0.00 0.00 0.31 0.00 0.00 0.00 1995 GE Capital 0.00 4.39 0.00 0.00 0.00 4.39 0.00 0.00 2001 GTF Fact 0.00 2.39 0.00 0.00 0.00 2.39 0.00 0.00 1994197 GVK 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0194/98100101 Global Trust 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1994 GujaratAmbuja 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0178191103 HDFC 100.00 0.00 0.00 0.00 100.00 0.00 0.00 0.00 1990 HOEL 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1998 IAAF 0.00 2.04 0.00 0.00 0.00 1.87 0.00 0.00 0/95/00 ICICI-SPIC Fine 0.00 2.79 0.00 0.00 0.00 2.79 0.00 0.00 1998 IDFC 0.00 15.46 0.00 0.00 0.00 15.46 0.00 0.00 2001 IIEL 0.00 3.15 0.00 0.00 0.00 2.06 0.00 0.00 1990193194198 IL& FS 0.00 3.12 0.00 0.00 0.00 3.12 0.00 0.00 1992195 IL&FS VC 0.00 0.60 0.00 0.00 0.00 0.60 0.00 0.00 2000 IndAsia Fund 0.00 15.00 0.00 0.00 0.00 0.61 0.00 0.00 1996 India Direct Fnd 0.00 7.22 0.00 0.00 0.00 6.68 0.00 0.00 1985190194 India Lease 0.00 0.30 0.00 0.00 0.00 0.30 0.00 0.00 2001 Indian Seamless 10.50 0.00 0.00 0.00 6.00 0.00 0.00 0.00 0193196 Indo Rama 0.00 0.04 0.00 0.00 0.00 0.04 0.00 0.00 0 IndoRama(IRTL) 0.00 1.92 0.00 0.00 0.00 1.92 0.00 0.00 1996 IndusI1 0.00 4.08 0.00 0.00 0.00 4.08 0.00 0.00 1992 IndusVC MgtCo 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00 1992 IndusVCF 0.00 0.60 0.00 0.00 0.00 0.60 0.00 0.00 1992 Info TechFund 0.00 0.62 0.00 0.00 0.00 0.62 0.00 0.00 1992194197 IspatIndustries 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2001 Jetair 0.00 0.00 15.00 0.00 0.00 0.00 15.00 0.00 2003 L&T 50.00 0.00 0.00 0.00 50.00 0.00 0.00 0.00 2001 LeamingUniverse 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1981190193 M&M 0.00 0.47 0.00 0.00 0.00 0.47 0.00 0.00 2001 MIECL 0.00 1.63 0.00 0.00 0.00 1.15 0.00 0.00 . 2002 MMFSL 10.69 0.00 7.63 0.00 10.69 0.00 7.63 0.00 2003 MSSL 0.00 2.28 0.00 0.00 0.00 0.00 0.00 0.00 2001 MahInfra 0.00 10.00 0.00 0.00 0.00 0.21 0.00 0.00 2003 Max Healthcare 19.63 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1996/99100 Moser Baer 28.69 14.80 0.00 0.00 28.69 14.80 0.00 0.00 1992196197 NICCO-UCO 0.00 0.13 0.00 0.00 0.00 0.13 0.00 0.00 Totalportfilio: 485.48 178.66 38.13 31.54 409.09 142.58 28.13 28.10 65 ~ Approvals PendingCommitment FY Approval Company Loan Equity Quasi Partic. 2000 APCL 0.01 0.00 0.00 0.00 2003 BHF 0.01 0.00 0.01 0.00 2004 CIFCO 0.02 0.00 0.00 0.00 2003 DataquestMgmt. 0.00 0.00 0.00 0.00 2002 EscortsTelecom 0.03 0.02 0.00 0.03 2001 GIWind Farms 0.01 0.00 0.00 0.00 2003 HDFC Loan - 0.00 0.00 0.00 0.05 2003 Niko Resources 0.01 0.00 0.00 0.00 2003 SPL 0.01 0.00 0.00 0.01 2002 TELCO1 0.02 0.00 0.00 0.00 2004 UFJL 0.02 0.00 0.00 0.00 2001 Vvsva Bank 0.00 0.00 0.00 0.00 ~ Totalpendingcommitment: 0.14 0.02 0.01 0.09 66 Annex 14: Countryat a Glance INDIA: RuralRoadsProject POVERTY and SOCiAL South Low- India Asia income Developmentdiamond' 2002 - Population. mid-year (millions) 1,048.3 1,401 2,495 Life expectancy GNI per capita (Atlas method, US$) 470 460 430 GNI (Atlas method, US$billions) 494.8 640 1,072 Average annual growth, 1996-02 T Population (%I 1.7 I.8 1.9 Labor force (%) 2.2 2.3 2.3 GNI Gross per +u primaty Most recent estimate (latest year available, 1996-02) capita enrollment Poverty (% of population below nationalpovertyline) 29 Urban population (% oftotalPOpUlatiOn) 28 28 30 Life expectancy at birth (years) 63 63 59 I infant mortality (per f.000 live births) 68 71 81 Chiid malnutrition (% of children under 51 Access to improved water source Access to an improved water source I%ofpopulation) 78 84 76 Illiteracy (% of population age f5+) 41 44 37 Gross primary enrollment I%of school-age population) 102 97 95 Male Ill IO8 103 Female 92 89 87 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982 I992 2001 2002 Economic ratios. GDP (US$ billions) 194.8 244.2 478.5 510.2 Gross domestic investmentlGDP 21.7 23.8 22.3 22.8 Exports of goods and serviceslGDP 6.1 9.0 13.5 15.2 Trade Gross domestic savingslGDP 18.3 21.8 21.7 22.5 Gross national savingslGDP 19.2 21.8 23.7 24.6 Current account balancelGDP -2.0 -1.6 0.1 0.6 Domestic Interest paymentslGDP 0.4 1.4 0.8 0.7 savings Investment Total debffGDP 14.1 37.0 20.4 20.6 Total debt servicelexports 13.6 28.0 11.7 13.9 Present value of debffGDP 14.2 Present value of debtlexports 84.7 Indebtedness 1982-92 1992-02 2001 2002 2002-06 (average annual growth) GDP 5.6 6.0 5.2 4.6 6.2 GDP per capita 3.4 4.2 3.5 3.0 4.7 s l t w India Low-income group Exports of goods and services 6.9 13.5 7.1 21.8 7.9 STRUCTURE of the ECONOMY I 1982 I992 2001 2002 Growth of investment and GDP (%) (% of GDP) 1 10 Agriculture 35.9 30.9 25.0 22.7 Industry 25.8 26.7 25.7 26.8 Manufacturing 16.2 16.2 15.3 15.6 5 Services 38.3 42.3 49.4 50.7 0 Private consumption 69.9 65.8 65.9 65.0 General government consumption 10.7 11.2 12.5 12.5 Imports of goods and services 8.4 9.8 14.1 15.6 1982-92 1992-02 2001 2002 (average annual growth) Agriculture 3.1 2.5 6.5 -5.2 Industry 6.7 6.2 3.4 6.4 Manufacturing 6.5 6.6 3.6 8.2 Services 6.8 8.2 6.8 7.1 Private consumption 5.3 5.0 6.2 -0.8 General government consumption 6.1 7.1 3.0 3.1 Gross domestic investment 5.7 7.2 1.6 9.5 Imports of goods and services 5.7 12.0 4.0 8.1 Note: 2002 data are preliminaryestimates. * 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 1982 1992 2001 2002 Inflation (%) Domestic prices 1 (% change) Consumer prices 6.7 12.6 3.1 4.3 1 Implicit GDP deflator 7.7 8.8 3.9 3.5 Government finance (% of GDP, includes current grants) Current revenue _. 18.7 17.5 19.1 ' 97 98 99 do 01 bl Current budget balance -3.2 -8.1 -7.4 "-GDP deflator -CPI Overall surplus/deficit -7.2 -10.5 -10.9 TRADE 1982 1992 2001 2002 (US$ millions) Export and import levels (US$ mill.) Total exports (fob) 9,490 18,869 44,915 52,512 ~80,000 Marine products 377 602 1,237 1,381 Ores and minerals 445 738 1,262 1,900 Manufactures 5,109 14,039 33,370 38,353 Total imports (cif) 16,468 24,316 57,618 65,422 Food 1,071 507 2,043 2,368 Fuel and energy 5,957 6,100 14,000 17,640 Capital goods 2,662 4,532 9,882 12,746 96 97 98 99 00 01 02 Export price index (1995=1001 94 95 90 101 Import price index (1995=100) 125 96 93 100 I 4Imports Exports Terms of trade (1995=100) 75 99 97 101 BALANCE of PAYMENTS 1982 1992 2001 2002 Current account balance to GDP (%) (US$ millions) I Exports of goods and services 12,377 23,599 65,580 77,475 imports of goods and services 18,352 27,917 73,706 83,620 Resource balance -5,975 -4,318 -8,126 -6,145 Net income -335 -3,423 -3,601 -4,882 Net current transfers 2,510 3,852 12,125 14,807 Current account balance -3,800 -3,889 398 3,727 Financing items (net) 3,101 4,692 11,359 13,682 Changes in net reserves 699 -803 -11,757 -16,980 Memo: Reserves including gold (US$ millions) 4,896 9,832 54,106 75,428 Conversion rate (DEC, /ocal/US$j 9.7 30.6 47.7 48.4 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US$ millions) Total debt outstanding and disbursed 27,546 90,264 97,516 105,210 IBRD 1,395 9,326 7,015 5,141 G: 4,093 A: 5,141 IDA 6,983 15,438 20,402 21,642 Total debt service 2,054 7,697 9,327 13,042 21,642 IBRD 172 1,395 1,372 3,029 IDA 72 267 569 637 Composition of net resource flows D 2,715 Official grants 394 363 384 410 Official creditors 1,352 2,543 365 -3,657 F 51,061 Private creditors 1,180 1,563 -1,569 -1,861 Foreign direct investment 0 313 4,741 3,611 0,558 Porlfolio equity 0 244 1,951 944 World Bank program Commitments 1,889 2,678 2,190 1,523 A IBRD - E Bilateral - Disbursements 1,397 1,954 2,089 1,465 B IDA D -Othermultilateral F Private Principal repayments 98 834 1,467 3,196 C IMF -- G Short-term -- Netflows 1,300 1,119 622 -1,730 Interest payments 146 828 474 470 Nettransfers 1,153 292 148 -2,200 Development Economics 7/30/04 68