India - Rural Roads Project

Updated Project Information Document (PID) Project Name INDIA - Rural Roads Project Region South Asia Regional Office Sector Roads and highways (100%) Theme Rural services and infrastructure (P) Project P077977 Borrower(s) GOVERNMENT OF INDIA Implementing Agency(ies) STATE RURAL ROAD DEVELOPMENT AGENCIES Public Works Department, Himachal Pradesh, Uttar Pradesh and Rajasthan Rural Engineering Services of Uttar Pradesh Rural Engineering Organization, Jharkhand Address: See www.pmgsy.org for contact details Contact Person: Project Directors (i) Mr R Chauhan HP, (ii) Mr NP Sharma, Jharkhand (iii) Mr Sahani, UP (iv) Mr S Singhvi, Rajasthan Tel: Fax: Email: (i) ceshppwd@sancharnet.in (ii) rddjharkhand@yahoo.com (iv) rajpwdfamine@rediffmail.com Environment Category A (Full Assessment) Date PID Prepared February 17, 2004 Auth Appr/Negs Date April 19, 2004 Bank Approval Date August 19, 2004 1. Country and Sector Background Main Sector Issues Low Levels of All Weather Motorized Rural Access. An estimated 330,000 habitations (about 40 percent of the 825,000 habitations in the country) are without all weather road access. While some states have relatively high levels of reported connectivity (e.g Haryana, Punjab), ten states (Assam, Bihar, Chattisgarh, Himachal Pradesh, Jharkand, 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 fully integrated into the structure of the country's economy and accessing essential services. Poorly planned and highly politicized investment. In the past, rural road planning has been plagued by irrational selection of road links, alignment and structural design, poor coordination between multiple funding streams and political interference in the decision making process. There have been no clear mechanisms for optimizing resource allocation among competing economic and social needs, and there has been an absence of a conducive framework for road use, management, and ownership of rural roads. Funds flowing from different sources (national, state, local, and donors) have not been coordinated properly and prioritized according to needs. While there has been substantial investment over the years, an adequate rural road network has still not been achieved. Moreover, in the absence of reliable data, it is difficult to estimate how much levels of rural connectivity have changed as a result of all the past investment. With the introduction of the PMGSY program, the Government of India (GOI) is seeking a radical departure from the past in terms of enforcing the use of more rational and transparent planning and design tools as well as helping to streamline funding flows for the sector. Inadequate maintenance and rural road asset management. Current low levels of access are partly a result of inadequate past investment but more importantly they are a result of a lack of adequate maintenance on the existing huge rural road network of approximately 2.7 million km. This continues to threaten the long-term sustainability of further investment, including the investment under the PMGSY, in  2 PID the rural road sector. The little money that is allocated for maintenance is poorly utilized due to an absence of sensible planning, including a failure to focus on the core network, and inefficiently delivered works. As a result of poor maintenance, the development outcomes from the substantial rural road investments in the past have been far less than expected. Given the size of the PMGSY resource transfer, it represents an excellent opportunity for addressing this complex problem. Decentralization. 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 local bodies. This reality often contradicts the decentralization policy of the country. The views of district or other local government bodies are often not fully considered in the planning process and they have a limited role in monitoring service delivery despite their being the most effected by poor service outcomes. Low capacity in many rural road agencies. The rural road sector also suffers from low levels of technical capacity in many areas due to poor human resource management and often depressed career prospects as a result of overstaffing, frequent transfers and lack of specialization. As a result, many rural 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 of road agencies to absorb the PMGSY funds as well as prevent better maintenance. Central Government Strategy Project Approach. To address the poor rural accessibility in a more systematic way, the Prime Minister's Rural Road Program (Pradhan Mantri Gram Sadak Jojana, PMGSY) was announced in late 2000. The PMGSY seeks 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 of the 10th Plan, 2007. The Ministry of Rural Development (MORD) has been tasked with designing the program strategy and overseeing actual implementation by states and district bodies. The main elements of the GOI strategy, as provided for by the published PMGSY guidelines available on the web at http://www.pmgsy.org/citizens/en/. Funding Gap. Current estimates suggest that the total investment required to meet these targets by 2007 is of the order of Rs. 60,000 Crore (US$12.5 billion, or US$1.7 billion per year). In 1999, a one rupee cess on every litre of diesel and petrol sold was imposed by GOI and in 2000, a Central Road Fund Act was promulgated to direct the resources obtained through this cess to the improvement of national and state highways as well as rural roads. By law, 50 percent of the diesel cess is directed towards rural road development, a sum amounting currently to about Rs.3,150 Cr.(US$700 million) per year. Given current estimates, there is a large shortfall between the annual need to meet the PMGSY targets and available resources. The MORD is using domestic and external borrowing to deliver the program to time. Even assuming that the PMGSY meets the 2007 target, those living in appoximately 170,000 smaller habitations, or about 50 million people, will remain unconnected. 2. Objectives The project development objective is to achieve broader and more sustainable access to markets and social services by the rural population in project areas. The project is being proposed as the first in several credits/loans to the Government of India to support the  3 PID implementation of the Prime Minister's Rural Road Program (Pradhan Mantri Gram Sadak Jojana, PMGSY). This first project will provide funds, additonal to existing Government of India transfers, to half the districts in at least four of the most poorly connected states - Himachal Pradesh, Jharkhand, Rajathan and Uttar Pradesh. The PMGSY is a 100% centrally sponsored scheme implemented by state agencies that seeks to achieve all weather access to every habitation with a population greater than 500 people by the end of the 10th Plan, 2007. The PMGSY has been running for three years and has so far connected about 35,000 habitations across the country. 3. Rationale for Bank's Involvement The Bank has had a very constructive dialogue with the MORD in the development and refinement of the PMGSY since its inception. The Bank has added value to the PMGSY program through this dialogue by providing itself or facilitating from others technical advice in a variety of areas. The most significant areas of advice are the adoption of a core network approach to concentrate resources, quality management processes, road design, standardization of procurement procedures/ bidding documents and the beginnings of a real national debate on rural road maintenance. At present, the allocation process of the PMGSY is driven very largely by meeting the program's connectivity targets in as equitable a way as possible. Poor performance in implementing the PMGSY roads at state level is penalized by non disbursement and reallocation to other states, although there is not a formal process for doing this. However, poor performance in managing the core rural road network more generally is not penalized nor good management rewarded. Yet, sound overall rural road management is essential if the PMGSY targets are to be met: states may find themselves building new roads only marginally faster than existing roads disintegrate due to lack of maintenance. As a centrally sponsored scheme, the GOI has yet to find a means of using the opportunity of the substantial increase in resource transfer presented by the PMGSY to instill any financial discipline for the sector as a whole or encourage better asset management. As an independent external financier with a reputation for insisting on sound asset management, the project can introduce the notion of linking, at least in part, PMGSY grants to sound management on all the core rural road network. The project seeks to deliver reform in participating states. In addition, the approach being proposed under this project of 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 of sector reforms in pilot states or districts in a partnership with the GOI, the likelihood that similar reforms are brought about through GOI's own funding for PMGSY is greatly enhanced. Furthermore, the MORD is the lead agency in facilitating the GOI's strategy for decentralization of service delivery and its involvement in the project would add greater support to the project's decentralization objectives. Finally of course, the GOI 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 necessary through IBRD, has the financial capacity to contribute to the public investment in this huge public good. 4. Description The project has three components: 1. New construction and upgradation of about 8,800 km of rural roads, including independent technical review services of design and supervision 2. Periodic and routine maintenance on about 100,000 km of core rural roads (not Bank financed) 3. Technical assistance and goods to (i) state and local government to enhance maintenance management and financing of rural roads and (ii) MORD to enhance program management of environment, social, financial management, procurement and M&E of the PMGSY  4 PID 5. Financing Source (Total ( US$m)) BORROWER ($264.12) IBRD ($164.38) IDA ($164.38) Total Project Cost: $592.88 6. Implementation The project is to be implemented over an estimated five year period through the existing rural road agencies in four states - the PWD in Himachal Pradesh and Rajasthan, the Rural Engineering Organization in Jharkhand and the Rural Engineering Services Department and PWD in Uttar Pradesh. Each state has a management team posted in HQ to oversee the PMGSY and project implementing units in each district. In addition, some aspects of the Technical Assistance component will be implemented by the National Rural Road Development Agency. These agencies have already demonstrated their capacity to satisfactorily plan, procure and implement earlier phases of GOI funded PMGSY works. During appraisal, their capacity to manage the additional requirements of the proposed Bank funding to the program will be assessed and a timeline agreed for any remedial measures. Financial Management The financial management system for the PMGSY as a whole is currently being revised. The revision, amongst other things, should meet Bank requirements once implemented. Funds Flow All the funds for the PMGSY program, including as necessary counterpart funding, are to be included in the Government of India's budget, established specially for the PMGSY. The PMGSY has a standardized funds flow arrangement being put in place, outside of the State Treasury system, that will be followed for Bank funds also. Audit. The project will be audited by a private firms of chartered accountants appointed for each state, acceptable to the Bank as independent auditors, under terms of reference approved by Bank. As the Bank prefers to receive a consolidated audit report, alternatives will be explored during appraisal for such a report. Internal audit will take two forms (i) included as part of the technical examiner services and (ii) the usual arrangements employed by state implementing agencies themselves. FM Staffing. Adequate finance and accounts staff are being put in place at national, state and PIU levels as the FMS is being revised. Requisite training and capacity building at various levels of implementation is still to be finalized. However, some training is already being undertaken and any remaining necessary skills development will be completed by negotiations. Operational Manual. A program wide Operational Manual dated September 2003 (OM) has been prepared by the Borrower. A copy of the current Operational Manual is available at www.pmgsy.nic.in/omin.asp. A revised version of the Manual, including Bank specific requirements as necessary, is being prepared. The final content of these revised sections will be agreed during appraisal. Thereafter, application of the procedures laid down in the OM will be a legally binding constraint on all parties accessing Bank financing under the project. Summary. Assessment to date suggests that the current arrangements for procurement, financial and project management under the PMGSY program appear to be functioning satisfactorily. Moreover, the MORD is taken action to ensure that these arrangements are being improved over time.  5 PID 7. Sustainability The main measure of sustainability of the project investment is whether the rural roads financed under the project remain all weather roads and with a satisfactory riding quality for the duration of their design lives of ten years - this will be dependent on their design, construction and maintenance. Furthermore, for rural accessibility to increase in the project areas overall, the maintenance component on the existing core rural road network needs to be implemented satisfactorily. The physical sustainability of project investments will be ensured through (i) sound design and construction according to appropriate standards and (ii) motivating the establishment and use of effective maintenance regimes. Technical monitoring consultants will oversee compliance to specification during design and supervision. GOI and Bank funded contracts under PMGSY include a five year maintenance program to be implemented by the contractor who carried out the main contract and this is to be financed by the respective state. A significant portion of Bank funding for PMGSY is to be linked to performance contingent on adequate state and local implementation of an enhanced maintenance regime. Technical assistance at national, state and district levels will seek to build capacity in critical areas. States have agreed to implement institutional reform programs in rural road agencies. 8. Lessons learned from past operations in the country/sector The following key lessons learnt from various projects in the sector are reflected in the project design (i) state government commitment to adequately fund and undertake rural road maintenance is essential for sustainability of rural roads, (ii) focused investments over a manageable area are more effective and create more impact than thinly spreaded investments over a lager area, (iii) comprehensive master plans providing all-weather access to all the villages/habitations in a district are necessary to rationalize investment decisions and selection criteria for upgrading rural roads, (iv) there is considerable scope for economizing construction costs through adopting optimal design standards and promoting the use of local materials specially for low trafficked rural roads, (v) independent monitoring of quality of road designs and construction is very effective for enhancing the quality of construction and avoiding cost over-runs for rural roads, (vi) there is a tendency to consider design aspects of rural roads to be relatively simple