India - States' Road Project

Document of The World Bank FOR OFFICIAL USE ONLY CA, / % q q-- IAI Report No. P-4812-IN MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$170 MILLION AND ON A PROPOSED CREDIT OF SDR 62.2 MILLION TO INDIA FOR A STATES' ROAD PROJECT October 3, 1988 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - Rupee (Rs) US$ 1.00 Rs 13.5 US$ 0.0741 - Rs 1.00 US$ 74,074 - Rs 1,000,000 SYSTEM OF WEIGHTS AND MEASURES: METRIC Metric British/US system 1 meter (m) 3.281 feet 1 kilometer (km) 0.621 mile 1 squars kilometer (km2) 0.386 square mile 1 ton-km 0.621 ton-mile 1 passenger-km (pass-km) 0.621 pass-mile ACRONYMS AND ABBREVIATIONS DEA - Department of Economic Affairs (Ministry of Finance) ERR - Economic Rate of Return GDP Gross Domestic Product GOB Government of Bihar GOI Government of India GOM - Government of Maharashtra GOR - Government of Rajasthan GOUP Government of Uttar Pradesh ICB - International Competitive bidding IR - Indian Railways MOST - Ministry of Surface Transport MDR - Major District Road NH - National Highway ODR - Other District Road SH - State Highway Fiscal Year April 1 - March 31  FOR OMCIAL USE ONLY INDIA STATES' ROAD PROJECT Loan/Credit and Project Summarv Borrower: India, acting by its President Beneficiaries: The States of Bihar, Maharashtra, Rajasthan, and Uttar Pradesh *Amount: IBRD US$170 million equivalent IDA SDR 62.2 million (US$80 million equiva'lent) Terms: IBRD: 20 years, including a five-year grace period, at the standard variable interest rate. IDA: Standard, with 35 years' maturity. Financing Plan: GOI US$ 200.2 million IBRD US$ 170.0 million IDA US0 80.0 million TOTAL US$ 450.2 million Economic Rate of Return: 27% Staff ADpraisal Report: Report No. 7258-IN IBRD Nos. 20858, 20900, 20921 This document has a restricted distribution and may be used by recipients only in the performan -e of their official duties. Its contents may not otherwise be disclosed without World Bank authorizat on.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANI FOR RECONSTRUCTION AND DEVELOPMENT AND OF THE INTERNATIONAL DEVELOPMENT ASSOSIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN/CREDIT TO INDIA FOR A STATES' ROAD PROJECT 1. The following memorandum and recommendation on a proposed loan to India of US$170 million and development credit of SDR 62.2 million (US$80 million equivalent) is submitted for approval. The proposed loan would have a term of 20 years, including a five-year grace period, at the standard variable interest rate. The proposed credit would be on standard IDA terms with 35 years' maturity, and would help finance road improvements and institution building. Background 2. India's size and dispersed population has shaped an extensive transport system comprising about 62,000 route-km of rail lines, 1.8 million km of roads, 10 major ports, 14 major airports (six handling international traffic), 6,500 km of pipe-lines, as well as coastal shipping and limited inland water transport. Road and rail dominate domestic transport, accounting for 95% of freight and passenger-km, but with roads' share steadily increasing. Total transport demand over the past 25 years has been growing at an average annual rate of 6%, with higher growth rates for road transport and civil aviation. 3. Although India's transport infrastructure has continued to expand over the years, its development has fallen well behind transport demand. As an indicator of this situation, transport's share of public investment expenditures has declined from nearly 24% under the Second Plan (1957-61) to less than 13% under the current Seventh Plan (1986-90). Despite this overall decline in the sector's share as a whole, investment in the road subsector has grown steadily in real terms, and the Seventh Plan provides for a 50% greater allocation than did the Sixth Plan. The thrust of the transport investment plan is to modernise rail facilities, augment main road capacity, extend the network of lower class roads and increase the capacity of ports to handle bulks and containers, but with transport demand expected to double by the year 2,000, much greater investments and institutional improvements will be needed if this target is to be met. 4. Road transport is presently growing at about 7-10% per year, and this growth is likely to accelerate as a result of recent liberalisation measures. Yet India has not only one of the lowest per capita road densities in the world, but what does exist is inadequate. Of the total 1.8 million km network, the national network (32,000 km) carries about one third of total traffic, but is single-lane for about one quarter of its length. Some 1700 bridges are sub-standard and need to be rebuilt, nearly 22,500 km of two-lane road need a second two-lane carriageway now, and over 16,000 km need strengthening. GOI's Planning Commission estimates that in 1988 prices it would cost US$7.7 billion to rectify presently identifiable  -2- deficiencies. The shortcomings are even greater in the state road system, which, taking only the main road and major district road components, accounts for a length of about 350,000 km. RatLonale for Bank Involvemest 5. The main objectives of Bank involvement in transport are to improve planning and project execution, productivity and resource mobilisatiou., shortcomings which are sector-wide. These issues are being pursued in railways, where the Bank has a long standing relationship, and in ports, but the main thrust of the Bank's future involvement would be to consolidate its re-entry into the road subsector, having regard to the large and growing role of road transport and the need to improve planning processes, the quality of the main roads and the efficiency with which construction and maintenance works are executed. Initially, the effort is focussing on the heavily trafficked national highways and the main roads of the states, where economic returns from road improvements are likely to be highest and where the benefits from introducing international competitive bidding and more appropriate construction technology appear greatest. The issue of resource mobilisation in the subsector is being addressed by a study of Road-User Charges/Vehicle Fleet Nodernisation (RUC/VDI), which is being carried out by consultants under the current National Hiighay Project, and which, among other things, will address such issues as the magnitude and incidence of these charges in the context of India's funding requirements for road expenditures. A draft final report of the study is expected early in 1989 and it will have implications for state-financed as well as the center's national roads. 6. A significant breakthrough was made in 1984 in reaching a rapport with Government of India on the issue of international bidding for road contracts, a difference which has kept the Bank out of the road subsector for nearly 25 years. Since then, the Bank has made two loans in the subsector, one for national roads Loan 2534-IN of 1985), and one for rural roads (Credit 1757-IN of 1987). National roads are centrally funded, and rural roads, which are built to much lower standards and are basically state-funded, are given such substantial assistance from the center by way of poverty alleviation and employment generation programs that they account for nearly 40% of total roads expenditures. By contrast, state roads, many of which are earrying traffic loads equal to the national network, are financed solely from the states' budgets, and receive little, if any, assistance from the center. Moreover, in times of financial stringency, as was the case last year in the drought-afflicted areas, state road expenditures are cut so that funds can be diverted to the relief programs. Proiect Objectives and Design 7. This project, which would be the Bank's first operation in state roads, provides the opportunity to pursue at that level the improvements in planning, project execution and network management being introduced for national highways and rural roads under the two ongoing projects.  -3- 8. The Zollowing criteria were established for selecting states to participate in the project: (a) relative need, in terms of per capita income and per capita road density; (b) likely economic returns from road improvements in the state; (c) need to strengthen the state road authority; and (d) the desirability of demonstrating the efficacy of institutional improvements and more appropriate construction methods under a variety of conditions, in order to promote replication of the project results in other parts of the country. 9. On these criteria, therefore, the states of Bihar, Uttar Pradesh, Rajasthan and Maharashtra were selected. Bihar is the poorest state in the union and has the lowest per capita road density. Natural road-building materials are scarce and sub-grades are poor. Uttar Pradesh is the most populous, also among the poorest, with one of the lowest road densities and poor subgrades. Rajasthan's per capita income is well below the national average, but has one oi the more progressive road administrations, and is representative of construction conditions found in the more arid states. Maharashtra is a relatively wealthy state with per capita income about 30S above the national average, but its maintenance efforts lag those of other states and it has expressed particular interest in improving its roads' administration. Proiect Descrintion 10. The proposed project would comprise: (a) the widening and strengthening of about 2,300 km of mostly single-lane road as follows: (i) in Bihar, two roads totalling about 100 km; (ii) in Maharashtra, seven roads totalling about 670 km; (iii) in Rajasthan, eight roads totalling about 850 km and the widening to four lanes of one state road of 15 km; and (iv) in Uttar Pradesh, four roads totalling 600 km. (b) the construction in Bihar of a major bridge across the Ganges at Bhagalpur together with about 14 km of approach roads; (c) the procurement of equipment to assist the four states in monitoring the condition and usage of their road networks and to promote road safety; and  -4- (d) staff training, technical assistance, and studies and services by consultants which would: (i) assist the PWD supervisory groups in each state by delegating supervision of one or two of the project contracts to consultants; (ii) in all four states, introduce a pavement management system based on parameters of soil type, pavement condition, traffic, and local costs in order to prioritize work programs in accordance with budget; and (iii) in Maharashtra, a management study of PWD to determine a more appropriate organizational structure in keeping with the needs of its road networks. Project Costs and Financing 11. The proposed project will be implemented over a period of about five years at an estimated cost of US$ 450.2 million. The foreign exchange component is estimated to be US$ 127.4 million or 28% of total costs. The cost estimates and financing plan are shown in Schedule A. Procurement and disbursement arrangements are shown in Schedule B. A timetable of key processing events and the status of Bank Group operations in India are shown in Schedules C and D, respectively. Three maps highlighting the project are attached, IBRD Numbers 20858, 20900, and 20921. A Staff Appraisal Report, "States' Road Project," dated October 3, 1988 is also being distributed. Agreed Actions 12. As mentioned earlier, the Road-User Charges/Vehicle Fleet Modernization Study - which is examining the possible need for raising additional revenue from road users as well as the present structure of road user taxation - is expected to be at the stage of draft final report early in 1989. To the extent that recommendations of the Study are within the competence of the States to implement, an understanding was reached that GOI shall assist the states to carry out such recommendations as have been agreed between GOI, the states, and the Bank. In this connection, each state will furnish to the Bank by December 31, 1990 a time-bound action plan for implementing such recommendations and take all necessary steps to carry out this action plan. 13. States normally arrange for supervision of road construction contracts using their own personnel and resources. The supervision teams tend to be unwieldy and not adequately responsive to the requirements of large contracts. The project therefore provides for one or two, or a package, of the project contracts in each state to be supervised by consultants, and during loan negotiations an understanding was reached regarding these arrangements. Each state will appoint such consultants by June 1, 1989.  -5- 14. Although, in all four states, project costs will represent a small proportion of their total capital receipts, during loan negotiations, each state agreed to inform the Bank annually of its road program for the coming year so that it may be seen that new commitments are not being entered into which might threaten the timely availability of counterpart funds for the project, Benefits 15. The road improvements will reduce vehicle operating costs, travel time, and road maintenance costs. The weighted average rate of return for the road improvements is estimated at 32%. The new Bhagalpur Bridge in Bihar will reduce trip lengths in the area of influence by 40-100 km, avoid relatively high cost transshipment by ferries, and stimulate development in the relatively backward region north of the Ganges. It has not been possible to quantify all benefits from the bridge, but the rate of return from those which can be quantified readily is estimated at 20%. The overall rate of return for the road improvements and the bridge, which together account for 97% of total project cost, is estimated to be 30%. Introduction of network management systems will promote improved utilization of the scarce funds available for road improvements and mainterance, but these benefits are not readily quantifiable. Risks 16. From experience with recent projects, the main risk arises from implementation delays. However, this risk is being minimized by having the majority of the project contracts evaluated and ready for award shortly after loan signature, as well as by arranging for the first time for the supervision of some of the project contracts by consultants, which should improve overall implementation of the road components. Recommendation 17. I am satisfied that the proposed loan and credit would comply with the Articles of Agreement of the Bank and the Association respectively, and recommend that the Executive Directors approve the proposed loan and credit. Barber B. Conable Presider,t Attachments Washington D.C. October 3, 1988  -6- SShe&19 A STATES' ROD PROJECT Estimated Costs and Financing Plan Estimated Cost: 1/ USS Million Local Forelga Total Civil Works 216.4 89.8 306.2 Land Acquisition 5.3 - 5.3 Supervision of Construction 28.3 - 28.3 Equipment 0.6 4.1 4.7 Training 0.8 0.8 1.6 Consultant Services 0. _2A M4 Total Baseline Costs 251.9 104.5 356.4 Physical Contingencies 25.2 10.4 35.6 Price Contingencies 45.6 12.4 58,1 Total Project Cost 322.8 127.4 450.2 1/i Includes taxes and duties of about $53.3 million. Finaucing-Plan: Government of India: US$ 200.2 million IBRD: US$ 170.0 million IDi IIUSS 80.0 million Total: US$ 450.2 million  -7- Schedule B INDIA STATES' ROAD PFOJECT Procurement Method anA Disbursments Procurement Method and Disbursements Project Element Procurement Method L