@#&OPS~Doctype~OPS^dynamics@afpidaprcoverpage#doctemplate Report No: PIDIAF0089 Project Information Document (PID) Appraisal Stage | Date Prepared/Updated: 11-Feb-2025 The World Bank Nepal Strategic Road Connectivity and Trade Improvement Project (P170409) – Additional Financing Request 1 @#&OPS~Doctype~OPS^dynamics@afpidaprbasicinformation#doctemplate BASIC DATA A. Product Information Main: Nepal Strategic Road Connectivity and Trade Improvement Project (P170409) Operation ID Product/Financing Instrument P170409 Investment Project Financing (IPF) Beneficiary Country/Countries Geographical Identifier Nepal Nepal Practice Area (Lead) Transport Borrower(s) Implementing Agency Ministry of Industry, Commerce and Supplies, Ministry of Nepal Physical Infrastructure and Transport Additional Financing Request 1 Estimated Appraisal Date Estimated Board Date 12-Feb-2025 31-Mar-2025 Development Objective Original Development Objective (Approved as part of Approval package on 10-Jun-2020) To improve the efficiency and safety of select transport infrastructure, improve the efficiency of cross-border trade, and strengthen capacity for Strategic Road Network management in Nepal. Components Trade Facilitation Regional Road Connectivity Improvement Institutional Strengthening Contingent Emergency Response @#&OPS~Doctype~OPS^dynamics@afpidaprprojectfinancing#doctemplate COSTS & FINANCING (US$, Millions) SUMMARY Last Approved Proposed Page 1 The World Bank Nepal Strategic Road Connectivity and Trade Improvement Project (P170409) – Additional Financing Request 1 Addition Total Total Operation Cost 396.70 200.00 596.70 Total Financing 396.70 200.00 596.70 Of which IBRD/IDA 300.37 200.00 500.37 FINANCING DETAILS Additional World Bank Group Financing Last Approved Financing Total International Development Association (IDA) 300.37 200.00 500.37 IDA Credit 300.37 200.00 500.37 Non-World Bank Group Financing Counterpart Funding 96.32 0.00 96.32 Borrower/Recipient 96.32 0.00 96.32 IDA Resources Credit Grant SML Guarantee Total Nepal 200.00 0.00 0.00 0.00 200.00 National Performance-Based 200.00 0.00 0.00 0.00 200.00 Allocations (PBA) Regional 0.00 0.00 0.00 0.00 0.00 Scale-Up Window 0.00 0.00 0.00 0.00 0.00 (SUW) Total 200.00 0.00 0.00 0.00 200.00 @#&OPS~Doctype~OPS^dynamics@afpidaprenvsocrisk#doctemplate Other Decision (as needed) Page 2 The World Bank Nepal Strategic Road Connectivity and Trade Improvement Project (P170409) – Additional Financing Request 1 B. Introduction and Context Country Context 1. Nepal’s growth rate accelerated to 3.9 percent in FY24, up from 2.0 percent in FY23. Nepal’s growth rate accelerated to 3.9 percent in FY24, up from 2.0 percent in FY23. The services sector was a key driver, fueled by a surge in tourist arrivals that boosted activities in transportation, accommodation, and food services sub-sectors. Increased hydropower production of 452.6 MW, primarily from the private sector, also contributed to growth rebound in FY24. Paddy production, one of the three major cereal crops in terms of area coverage, increased by 4.3 percent further supporting economic growth in FY24. On the demand side, private consumption was bolstered by high remittance inflows, while public investment remained subdued due to persistently low execution of the capital spending budget. 2. Growth accelerated in a lower inflation environment. Average headline inflation moderated to 5.4 percent in FY24, down from 7.7 percent in FY23, falling below the Nepal Rastra Bank (NRB)’s ceiling of 6.5 percent. This decline was primarily driven by a drop in non-food and services inflation. Food and beverage inflation also declined, mainly due to lower ghee and oil prices. However, food prices remained elevated, driven by higher vegetable and cereal inflation. Moreover, in FY24 Nepal benefited from a declining inflation rate in India due to the currency peg arrangement between the two countries. 3. Nepal’s current account balance turned positive in FY24 for the first time in eight years, leading to a significant accumulation of foreign exchange reserves. This was driven by high remittance inflows and lower imports of intermediate goods. However, exports of goods and services increased, primarily due to a boost in services exports supported by a more than 30 percent surge in tourist arrivals. As a result, foreign exchange reserves increased, covering the equivalent of 13 months of imports of goods and services by the end of FY24—well above the policy threshold of 7 months. 4. Nepal faces significant vulnerability to natural hazards and climate change impacts. With a geography spanning from the plains of the Terai to Mount Everest, the variability of natural hazards changes tremendously within Nepal making it one of the most vulnerable countries to climate change in the world. Nepal ranks 139 th out of 182 countries in terms of its exposure, sensitivity, and ability to adapt to the negative impact of climate change.1 The country is ranked as the 20th most multi-hazard-prone country, 4th in the case of climate change-related hazards, 11th in the case of earthquake hazard, and 30th in terms of flood hazards. These complex layers of vulnerabilities highlight the elevated risks to human life, physical investments, and assets the country is facing, especially within the municipalities where populations are growing and where extreme weather events or disasters may have severe consequences. 5. Nepal's fiscal deficit dropped sharply from 5.8 percent of GDP in FY23 to 2.6 percent of GDP in FY24 as spending contracted, while revenue stabilized at its lowest point in eight years . Government spending significantly decreased from 25.2 percent of GDP in FY23 to 21.9 percent in FY24, driven by a reduction in recurrent spending. This decline resulted from lower fiscal transfers to subnational governments and austerity measures targeting recurrent expenditures, mainly on reducing costs related to allowances, fuel, office supplies, and other administrative expenses. Additionally, lower-than-expected revenue collection contributed to reduced capital spending, particularly in construction projects. Conversely, federal government revenue (including grants) remained stagnant at 19.4 percent of GDP, marking an eight-year low in FY24. This stagnation reflected a decline in other revenues, which offset the increase in income tax collection from the gains made by banks, financial institutions, and insurance companies through follow- on public offers, mergers and acquisitions and sale of auction share, as instituted by FY24 budget provisions. Public debt decreased slightly to 42.7 percent of GDP in FY24 from 42.9 percent in FY23, primarily due to the lower fiscal deficit and 1 Nepal Country Climate and Development Report (CCDR), 2022 Page 3 The World Bank Nepal Strategic Road Connectivity and Trade Improvement Project (P170409) – Additional Financing Request 1 higher growth rate. Nepal remains at low risk of debt distress for both external and overall public debt, according to the latest joint IMF-World Bank debt sustainability analysis (June 2024). 6. The financial sector, while under pressure, has maintained its stability . However, it remains vulnerable to institutional and systemic risks, particularly in the cooperative subsector. The monetary tightening measures implemented following the COVID-19 pandemic, combined with the economic slowdown, have strained borrowers' debt- servicing capacity. As a result, the non-performing loans ratio reached a record high of 3.8 percent by the end of FY24. Despite these challenges, the financial sector's stability has been preserved. The banking sector's capital adequacy ratio (CAR) stood at 12.8 percent by the end of FY24, significantly exceeding the regulatory minimum of 11.5 percent (including a countercyclical buffer of 0.5 percent). The government remains committed to strengthening the anti-money laundering/combating the financing of terrorism (AML/CFT) framework. 7. Overall, Nepal’s growth outlook is positive, with growth expected to accelerate to 5.5 percent by FY26 . The services sector is anticipated to remain the main driver of growth in the medium term. Accommodation and food services are expected to benefit from a surge in domestic and international tourism, supported by the government’s initiative to attract 1.6 million international visitors in FY25 through various tourism promotion programs. Additionally, Nepal's industrial sector is projected to grow, driven by significant expansions in electricity and construction, with the government aiming to exceed 11,700 MW of installed electricity capacity by FY29. Furthermore, growth will be bolstered as the private sector benefits from the NRB’s loosening of monetary policy and relaxed regulatory requirements, including eased working capital requirements. 8. Although Nepal’s growth medium-term outlook remains generally positive, it is subject to several downside risks. Increased vulnerabilities in the financial system, such as a rise in non-performing loans, could curtail private sector credit. Policy discontinuity resulting from frequent changes in political administrations, along with the short tenures of officials, might deter investors. Delays in implementing capital expenditure could hinder infrastructure development, negatively impacting growth. Externally, regional instability and trade disruptions could reduce tourism and domestic demand. Natural disasters pose additional risks to sustaining welfare gains. There is also a risk of a growth slowdown in the event of economic shock in migrant-receiving countries. However, Nepal's robust track record of maintaining macroeconomic stability during periods of significant exogenous shocks demonstrates its growing capacity to navigate future macroeconomic risks 9. The economic impact of natural hazard vulnerabilities is significant. Floods and landslides, often triggered by extreme rainfall during the monsoon season, cause extensive damage to infrastructure, agriculture, and homes. The 2017 floods alone affected over 1.7 million people, causing damages estimated at US$585 million. Earthquakes pose an equally severe threat. The 2015 Gorkha earthquake, which had a magnitude of 7.8, resulted in nearly 9,000 deaths, injured over 22,000 people, and caused economic losses amounting to approximately $7 billion, which was about one-third of Nepal’s GDP at the time. Climate change further exacerbates these challenges. Rising temperatures and erratic precipitation patterns are expected to increase the frequency and intensity of natural disasters. Projections indicate that Nepal’s temperature could rise by about 1°C between 2016 and 2045, leading to more severe heatwaves and unpredictable rainfall. This will likely result in more frequent and severe flooding, landslides, and droughts, impacting agriculture, water resources, and overall livelihoods. Socially, the impacts are devastating, particularly for marginalized and impoverished communities who have limited capacity to cope with and recover from disasters. These communities often live in high- risk areas and lack access to resources and infrastructure that could mitigate the impacts of natural hazards. Page 4 The World Bank Nepal Strategic Road Connectivity and Trade Improvement Project (P170409) – Additional Financing Request 1 Sectoral and Institutional Context 10. In 1997, BBIN countries formed the South Asian Growth Quadrangle (SAGQ) to create an enabling environment for accelerating economic growth and overcome infrastructure constraints.2 At the behest of SAGQ, the Asian Development Bank (ADB) launched the South Asia Sub-Regional Economic Cooperation (SASEC) program, with focus on transport, trade and energy. In April 2017, the SASEC Finance Ministers’ Meeting in Delhi adopted the SASEC Operational Plan 2016-25. The Operational Plan is founded on four strategic objectives, viz., (i) enhancing physical connectivity; (ii) following a comprehensive approach to transport and trade facilitation; (iii) enhancing electricity trade; and (iv) promoting synergies between economic corridors being developed in individual SASEC countries and optimizing the development impacts of these investments through improved cross-border links. These objectives are also aligned with BBIN countries attempts to enhance regional co-operation and connectivity under the aegis of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC). 3 11. Nepal’s transport sector operates under a framework shaped by the National Transport Strategy (2007), the 10-year Priority Investment Plan (2016), and the 16th Development Plan (2025-2030). The guiding principles for the road transport sector in Nepal are: (i) promoting economic growth through enhanced regional integration; (ii) expanding the SRN to improve interprovincial connectivity; (iii) leveraging modern technologies and mechanization in the design, construction, operation, and maintenance of roads and bridges, (iv) reducing impacts of natural disasters and climate adversities; (v) improving safety and maintenance, and (vi) reducing access time to the all-weather network on foot in the terai region and in the hills to no more than two to four hours.4 12. Specifically, to enhance regional connectivity, the Plan identified priority projects in all countries in the sub- region covering roads, railways, waterways and airways, which are recognized for their major influence on transport and trade costs between member states. These priorities included four-laning of two roads in Nepal: (a) Nagdhunga-Naubise-Mugling (95 km), improvement with support from the World Bank. This road is part of Asian Highway 42 that connects Nepal to (i) India at Raxaul and the Asian Highway 1 at Barhi (in India) and will thus form a part of the Kathmandu-Birgunj-Kolkata regional trade corridor, and (ii) China at Kodari and also Rasuwa via another road in Nepal. (b) East-West Highway (1,024 km), upgradation from 2 to 4 lane road with support from the ADB and the World Bank. This road is part of Asian Highway 2, which connects Nepal to India (i) via Siliguri on the eastside, and through it to Bangladesh and further to Bhutan (via Asian Highway 48), (ii) via Brahmdevmandi on the west- side, and (iii) through link roads in Nepal connecting to several important border locations in between such as Biratnagar, Birgunj, Bhairahawa, and Nepalgunj. 13. In a similar vein, the Plan identified three trade facilitation priority areas, viz.: (i) customs-related measures covering both land- and sea- based operations; (ii) border and inland facilities, improved logistics, port processes, and automation; and (iii) improvement in the operations of other border agencies, particularly in the implementation of 2 The other aims of SAGQ, a sub-regional initiative under the aegis of the South Asian Association for Regional Cooperation (SAARC), included (i) making optimal use of and further develop the complementarities in the subregion; and (ii) developing economic and institutional linkages and nodal points for facilitation cooperation on policy framework and project implementation. 3 BIMSTEC is a regional platform comprising of BBIN countries and Myanmar, Sri Lanka and Thailand. At their Fourth Summit at Kathmandu, BIMSTEC countries (i) reiterated their resolve to establish seamless multi-modal transportation linkages and smooth, synchronized and simplified transit facilities through the development, expansion and modernization of highways, railways, waterways, sea routes, airways in the region; and (ii) noted with satisfaction the preparation of draft BIMSTEC Master Plan of Transport Connectivity (prepared with support from ADB) and called for its early adoption. 4 Measuring Inequality of Access, Modelling Physical Remoteness in Nepal, World Bank August 2019 Page 5 The World Bank Nepal Strategic Road Connectivity and Trade Improvement Project (P170409) – Additional Financing Request 1 sanitary and phyto-sanitary standards (SPS) and technical barriers to trade (TBT) measures and the integration of all border clearance processes through implementation of national single windows (NSW). 14. Guided by the common goal of increasing sub-regional connectivity and trade, BBIN countries are pursuing several initiatives, collectively, bilaterally or individually. These initiatives are aimed at alleviating soft (transit and trade facilitation) and hard (infrastructure) constraints, both within and across borders. Notable examples of such initiatives include: (i) BBIN Motor Vehicles Agreement (MVA),5 which is intended to ease restrictions on cross-border road transit for vehicles, passengers and cargo, reduce transport costs and foster the development of multimodal transport and transit facilities that in turn is expected to promote greater intra-regional trade; (ii) Nepal and India collaboration on Integrated Check Posts (ICPs) at select locations to upgrade and integrate border controls and customs services;6 (iii) Bangladesh granting Nepal, Bhutan, and India access to the ports of Chittagong and Mongla; and (iv) India’s investments at or near the Nepal border that will have positive spin-offs for Nepal. Many of these efforts of BBIN countries are being supported by the Asian Development Bank (ADB) and the World Bank. 15. Nepal’s regional connectivity and trade challenges, though sizeable and complex, are highly concentrated in geographical terms. This is because more than 95 percent of Nepal’s trade via land is either with India (60 percent of Nepal’s trade) or is routed through India, and passes through three cross-border locations and two regional corridors.7 Of the goods traded via land, nearly 85 percent are routed through three border locations,8 and more than 95 percent relies on the Kathmandu-Birgunj-Kolkata corridor and/or the East-West Highway. 16. The Government of Nepal (GoN) has initiated several measures to alleviate both soft and hard constraints to trade, primarily focusing on regional connectivity. To improve trade facilitation, Nepal has implemented the computerized customs management system ASYCUDA World (Automated System for Customs Data) with support from ADB and is currently implementing a National Single Window (NSW) that developed with support from the World Bank. Working in concert with India, Nepal has gained access to Visakhapatnam port and has piloted the Electronic Cargo Tracking System (ECTS) connecting to Kolkata/Haldia and Visakhapatnam ports.9 Similarly, to alleviate cross-border infrastructure constraints, Nepal has advanced work on establishing Integrated Check Posts (ICPs) and improving other facilities at four major border points, viz., Birgunj, Bhairahawa, Biratnagar, Nepalgunj, and Kakarbhitta. In addition, with World Bank support, GoN improved the Narayanghat-Mugling road on the Kathmandu-Birgunj corridor, developed railway Inland Clearance Depot (ICD) at Birgunj and an ICD at Kathmandu. GoN is also developing cross-border rail links at Jogbani-Biratnagar and Jaynagar-Bardibas, with support from the Government of India. Some of these initiatives are yielding notable positive results10; however, more remains to be done in both trade facilitation and regional connectivity. 17. Trade facilitation. Institutional, regulatory, and infrastructure capacity needs enhancement, especially in the three major cross-cutting areas identified in the Nepal Trade Integration Strategy (NTIS, 2023): (a) Sanitary and phyto- sanitary (SPS) management; (b) Cross border infrastructure and procedures; and (c) Trade-related capacity. Nepal’s export basket is dominated by agricultural products, and this is likely to remain the case in the short and medium term. However, Nepal is unlikely to expand agriculture exports without investments in infrastructure, equipment, and human 5 The MVA has been ratified by Bangladesh, India, and Nepal. Bhutan, which could not ratify the agreement earlier, is reportedly reconsidering its stance. All countries recognize MVA as a landmark for giving momentum to transport facilitation in the sub-region. 6 Two ICPs completed include Birgunj (Nepal) – Raxaul (India) and Biratnagar (Nepal) – Jogbani (India). 7 India accounts for 60 percent of Nepal’s trade and, for India, trade across borders with its neighbors constitutes less than 2 percent of its ov erall trade, but within that, trade with Nepal accounts for 55 percent, followed by Bangladesh (33 percent) and Bhutan (6 percent). 8 viz., Birgunj (50 percent), Bhairahawa (20 percent) and Biratnagar (15 percent). 9 In a similar vein, through its Transit and Transport Agreement with China, it secured access to four Chinese seaports (Tianjin, Shenzhen, Lianyungang and Zhanjiang) and three dry ports (Lanzhou, Lhasa and Xigatse). 10 For example, improving time and cost of transit through opening the Integrated Check Post at Birgunj at the Nepal-India border has been one of the positive factors in helping Nepal move up 16 notches to 94 in Ease of Doing Business 2020 rankings. Page 6 The World Bank Nepal Strategic Road Connectivity and Trade Improvement Project (P170409) – Additional Financing Request 1 resources to certify that its goods achieve the various SPS standards of key regional and global export markets. Existing laboratories are not internationally accredited and therefore Nepal’s trading partners, including India, do not recognize their certifications. This results in traders having to undergo costly and time-consuming round of inspections in accredited labs in India. Currently, samples of Nepalese export products are sent for testing laboratories in India which takes a minimum of nine days, and often 3-4 weeks before the results are received. While the clearance time at key cross border points (Birgunj and Biratnagar) has been reduced with the introduction of integrated check posts, many border crossings remain congested due to inadequate infrastructure, excessive bureaucracy and procedures, and lack of coordination between border agencies. Limited institutional capacity (including trade negotiations capacity) and inter-agency coordination have constrained the government’s ability to implement the 2023 NTIS, as well as its 2016 precursor. 18. Regional connectivity. Nepal’s international trade volumes lack the scale to sustain multiple transit corridors. Therefore, there is a need to establish a primary focus on a few strategic routes. Both the Kathmandu-Birgunj corridor and the East West Highway, the two major transport corridors that carry more than 95 percent of trade in goods via land, are already operating beyond capacity in several sections.11 To alleviate this, in Kathmandu-Birgunj corridor, the Nagdhunga-Naubise-Mugling road (NNM, 95 km) is to be improved to a 2-lane standard with paved shoulders and, in the East West Highway, the Kamala-Dhalkebar-Pathlaiya road (KDP, 130 km) is to be upgraded to a 4-lane standard; other sections of the East West Highway are being upgraded with support from ADB and World Bank.12 In addition to capacity augmentation, it is equally important to ensure that these roads are made climate resilient, safe and sustainable. The NNM road is vulnerable to landslides and KDP road is vulnerable to flooding given it spans multiple rivers/streams (around 70 times in a length of 130 km), and both are highly prone to accidents. After capacity augmentation, these roads are very likely to suffer the risk of not getting adequate attention and funds for maintenance. It is proposed to mitigate these risks on the project roads through (i) integrating adequate engineering solutions to address climate resilience and safety aspects in the design, construction and operation & maintenance phases; (ii) supporting enforcement and post-crash aspects of road safety through the Safe Corridor Demonstration Program (SCDP) involving other key stakeholder departments, viz., Transport, Police and Health; and (iii) including in the works contracts a provision for maintenance for a period of 5 years after construction. 19. Regional spill-over benefits. The proposed interventions are expected to significantly improve the economic potential in the eastern sub-region of South Asia, especially in enhancing trade between Nepal and India as well as Nepal’s trade with Bangladesh and Bhutan. 85 percent of Nepal’s imports enter through India, irrespective of their country of origin. This project will contribute to strengthening weak links in the road network of the BBIN countries, as envisioned in the SASEC Operational Plan. The project corridors interconnect with regional transport routes that carry among the heaviest freight traffic in the sub-region and include the largest border crossings in terms of trade volume and value. Through network effects, the project interventions will enhance the integration of the landlocked or semi-isolated status of Nepal, Bhutan and the Northeastern Region of India with the rest of the sub-region. The increased efficiency in border processing will help reduce the cost of doing business for traders on both sides of the borders. Likewise, the proposed improvements in road segments are expected to benefit these countries in terms of reducing the transportation time, costs and related carbon emissions. Given the trade pattern of Nepal, the larger share of the benefits of reduction in trade costs would be on imports. These benefits are also likely to accrue to the movement of goods from and to Bangladesh and Bhutan, as it is mostly channeled through India at these border crossings and on these transport corridors. The project would strengthen BBIN’s regional coordination which is key to harmonize transit measures. 11 For example, in Kathmandu-Birgunj corridor, the Naubise-Galchhi section with a design capacity to serve traffic of 10,000 PCUs (Passenger Car Units), is already having a traffic volume of 18,000 PCUs, which is expected to increase @5%, minimum. 12 The ADB is supporting upgrading of several sections of the East-West Highway, viz., Kakarvitta-Kamala and Narayanghat-Butwal and included support Pathlaiya-Narayanghat section in pipeline. World Bank ACCESS project undertaking Butwal Gorusinghe-Chanauta section. Page 7 The World Bank Nepal Strategic Road Connectivity and Trade Improvement Project (P170409) – Additional Financing Request 1 C. Proposed Development Objective(s) Original Development Objective To improve the efficiency and safety of select transport infrastructure, improve the efficiency of cross-border trade, and strengthen capacity for Strategic Road Network management in Nepal. Current Development Objective To improve the efficiency and safety of select transport infrastructure, improve the efficiency of cross-border trade, and strengthen capacity for Strategic Road Network management in Nepal. Proposed New Development Objective There is no change proposed to the Development Objective. D. Project Description 20. The project has four components as detailed below with the scope of the Additional Financing (AF) remaining the same as the parent Project. 21. Component 1: Trade Facilitation (Estimated Cost US$41.2 million; IDA financing of US$ 35 million). The objective of this component is to: (i) reduce the time taken for goods transit at selected border crossing points; (ii) improve capacity and efficiency for sanitary and phyto-sanitary (SPS) management at selected locations and for targeted products; and (iii) enhance capacity for managing trade. It comprises three sub-components: (a) Augmentation of physical infrastructure, equipment, inspection and related border transit management systems that are required to absorb increasing traffic and trade volumes at key border crossing points including Birgunj, and Biratnagar. (b) Augmentation of equipment and training, and construction and/or renovation of laboratory buildings at key border locations. (c) Knowledge and capacity building for: (i) continuous improvement of the trade policy environment; (ii) monitoring of trade performance; and (iii) development and implementation, and monitoring and evaluation, of targeted trade promotion measures. (d) Support for implementation, coordination, monitoring and supervision of this Component 1 of the Project. 22. Component 2: Regional Road Connectivity (Estimated Cost US$464.5 million; IDA financing of US$387.975 million). The objective of this component is to improve efficiency, climate resilience and safety of movement of goods and people across two roads within two transport corridors that are key for Nepal’s connectivity and trade with India and other countries. The component comprises three sub-components: (a) Improvement of the existing Nagdhunga-Naubise-Mugling road to two lanes, with one meter paved shoulders. (b) Upgrading of the Kamala-Dhalkebar-Pathlaiya (KDP) road from two lanes to four lanes. Page 8 The World Bank Nepal Strategic Road Connectivity and Trade Improvement Project (P170409) – Additional Financing Request 1 (c) A safe corridor demonstration program (SCDP), with support for road safety improvement initiatives including enforcement and post-crash response, covering a length of about 250 km. (d) Support for implementation, coordination, monitoring and supervision of this Component 2 of the Project. 23. Component 3: Institutional Strengthening (Estimated Cost US$91 million; IDA financing of US$77.4 million). The objective of this component is to improve the capacity for management of the strategic road network in Nepal, with a focus on road safety, road asset management, training and periodic maintenance, as well as support for training of local women in finding skilled employment and livelihoods. This component comprises three sub-components: (a) Support for the National Road Safety Council through, inter alia: (i) establishment of an interim secretariat with seed funding in the form of staffing and equipment; and (ii) support for prioritized activities from the National Road Safety Action Plan (RSAP), including coordinating, monitoring and evaluating measures under the SCDP; monitoring the working of Management Information Systems and equipment service providers; supporting nation-wide roll-out of the web-based Road Accident Information Management System (RAIMS); and supporting training and peer-exchange programs. (b) Capacity enhancement of DoR for improved management of SRN through: (i) development and mainstreaming of the road asset management system; (ii) support for training facilities and training in selected priority areas, including network-level safety assessments, quality, procurement, design of advanced structures, and management of environmental and social risks and impacts; and (iii) support for training of local women to find skilled employment and livelihood opportunities. (c) Support for periodic maintenance of the Core Road Network (CRN). (d) Support for implementation, coordination, monitoring and supervision of this Component 3 of the Project. 24. Component 4: Contingent Emergency Response (Estimated Cost US$0 million; IDA financing of US$0 million). This component will provide immediate response to an eligible crisis or emergency, as needed. In the event of an eligible crisis or emergency, the World Bank to re-allocate project funds to support emergency response and recovery. 25. The AF will be used to fill a financing gap for the construction of the KDP Road. The AF will allocate US$200 million to Component 2(b) upgrading works (with the scope of work remaining the same as under the parent Project). @#&OPS~Doctype~OPS^dynamics@afpidlegalpolicyandscreeningrisk#doctemplate Legal Operational Policies Policies Triggered? Current Projects on International Waterways OP 7.50 No Projects in Disputed Area OP 7.60 No Summary of Screening of Environmental and Social Risks and Impacts Page 9 The World Bank Nepal Strategic Road Connectivity and Trade Improvement Project (P170409) – Additional Financing Request 1 The Environmental and Social Risk remains high. Key potential risks and impacts identified include: (i) effects on biodiversity, natural habitats, critical habitats, and wildlife mobility; (ii) tree cutting along sections of the KDP Road, potentially fragmenting natural forests; (iii) health and safety concerns for workers and communities along road corridors and transport routes; (iv) exposure to noise, dust, vibrations, and air pollution; (v) siltation and sedimentation of nearby waterways; (vi) landslides due to construction activities; (vii) land acquisition along the ROW; (viii) physical and economic displacement; and (ix) increased risks of gender-based violence. The practice of employing workers from outside the project areas may lead to labor influx and associated social issues, posing significant risks. During operation, E&S risks are largely positive, with increased trade, economic activities, and safer roads. The Bank has reviewed and approved all relevant E&S management instruments for the NNM and KDP roads, including ESIA, RAP, IPDP, Biodiversity Management Plan, Cumulative Impact Assessment, SEP, LMP and GBV action Plan. Additional E&S staffing is needed in the DoR Project Coordination Unit to support monitoring as the NNM and KDP works will soon operate simultaneously. E. Implementation Institutional and Implementation Arrangements 26. The Project is implemented by the Ministry of Physical Infrastructure and Transport (MoPIT) and the Ministry of Industry, Commerce & Supplies (MoICS). MoPIT chairs the Project Steering Committee (PSC) and exercises an oversight role. MoICS is implementing the Trade Facilities Component, through a Project Coordination Unit (PCU), in coordination with the agencies responsible for implementing various sub-activities, viz.: the Nepal Intermodal Transport Development Board (NITDB) under MoICS; Department of Customs (DoC, under the Ministry of Finance); and the Department of Food Technology and Quality Control (DFTQC), Plant Quarantine and Pesticide Management Centre (PQPMC), and Department of Livestock Services (DoLS), under the Ministry of Agriculture and Livestock Development. MoPIT is implementing the Regional Road Connectivity and Institutional Strengthening Components, through the PCU in the Development Cooperation Implementation Division (DCID), under the Department of Roads (DoR), in coordination with designated units in the agencies responsible for implementing various sub-activities, viz., National Road Safety Council (NRSC), the Department of Transport Management (DoTM), and Planning and Maintenance Branches of DoR. @#&OPS~Doctype~OPS^dynamics@afpidisdscontactpoint#doctemplate CONTACT POINT World Bank Deepak Man Singh Shrestha Senior Transport Specialist Page 10 The World Bank Nepal Strategic Road Connectivity and Trade Improvement Project (P170409) – Additional Financing Request 1 Borrower/Client/Recipient Nepal The Secretary Secretary info@mof.gov.np Implementing Agencies Ministry of Industry, Commerce and Supplies The Secretary Secretary info@moics.gov.np Ministry of Physical Infrastructure and Transport The Secretary Secretary info@mopit.gov.np FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects @#&OPS~Doctype~OPS^dynamics@afpidapproval#doctemplate APPROVAL Task Team Leader(s): Deepak Man Singh Shrestha Approved By Practice Manager/Manager: Fei Deng 28-Jan-2025 Country Director: David N. Sislen 11-Feb-2025 Page 11