India - Second National Highway Project

Doanamu of -e World Bamk - V 34V 7c> -I FM OMCALUsE ONLY MICROFICHE COPY Report No. P- 5503-IN Type: (Pi BENTCHIKOU/ X81469 / / AS4TE lqot No P-5503-IN MBO=RANDUM AND RECOMDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK. FOR RECONSTRUCTION AND DEVOPMENT AND THE INTERNATION DEVELOPEN ASSOCIATION TO THE -EECUTIVE DIRECTORS ON A PROPOSED LOAN In AN ANDUNT EQUIVALENT TO US$153 MILLION AND ON A PROPOSED CREDIT OF SDR 116.2 MILLION TO INDIA FOR A SECOND NATIONAL HIGHWAY PROJECT APRIL 14, 1992 T.s do.meu bas a restrided dsributio and may be used by reipie only in te peformwce of :wir offiWi duts Its contes may o oedwise be dslosed without World Banc authodation.  (as of July 1991) Currency Unit - Rupee (Rs) -R 1.00 Pase 100 US$1.00 - Rs 25.95 1 meter (a) - 3.281 feet (ft) I square meter (in2) . 10.764 square feet (ft2) 1 cubic meter (m2) - 35.315 cubic feet (fts) 1 kilometer (km) - 0.621 mile (mi) 1 square kilometer (km2) - 0.386 square mile (mi2) 1 metric ton - 2,205 pounds (lbs) AEMMUyVlhAONS -ANDA GOI - Government of India MOST - Ministry of Surface Transport PND - Public Works Department VFN/RUC - Vehicle Fleet Modernization/Road User Charges April 1 - March 31 . .  FOR OMCAL USE ONLY SECOND NATIONAL HIGHWAY PROJECT Loan/Credit and Project Summary Borrower: India, acting by its President Beneficiares: The States of Haryana, Madhya Pradesh, Maharashtra, Orissa, Punjab and West Bengal, and the Government of India's (GOI) Ministry of Surface Transport (MOST). Amount: IBRD: US$153.0 million equivalent IDA: SDR 116.2 million (US$153 million equivalent) Terms: IBRD: Twenty years, including a 5-year grace period, at the Bank's standard variable Interest rate. IDA: Standard, with 35 years maturity. Financlng Plan: Local Foreign Total (US$ million) 0OI 79.3 - 79.3 IBRD 65.8 87.2 153.0 IDA OA 87.2 153.0 TOTAL 210.9 174.4 385.3 Economic Rate of Return: ERR for subprojects range from 37% to 62%. ERR exceeds 40% for the overall project. Staff Aimraisal Report: Report No. 9135-IN IBRD No. 23764 This document has a sticted distrbution and may be usod by nripients only in the perfomance of their offlcial dutbsu Its contents may not otherwise be disclosed without World Dank authorition.  I RANWI AND TIOD OF THZ PRESIDZNT OF THE INTERNATIONAL DaN FOR RCONSTRUCTION AND DZVEWPNENT AID T7B INTERNATIONAL DEVEIMPIE ASSOCIATION TO THE EECUTIVl DIRECTORS ON A PROPOSED LQW/CREDIT TO INDIA FOR A SECOND NATIONA RIOAY UCT 1. The following memorandum and recomendation on a proposed lo&a to India of US$153 aillion and development credit of SDR 116.2 million (US$153 million equivalent) In 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 will be used to finance the Second National Highway Pro- ject. 2. ackorund. Historically, India has relied on its extensive rall- way network to meet most of its transport needs. However, over the last few years, it has bpsw.e evident that road transport is rapidly outgrowing the obsolete road network, and national highways have become the primary transport network of the country. To avoid slo ing down the economy, modern, improved trunk roads are required. 3. Althougb Indian railways still have a dominant position in the long distance hauling of bulk commodities, the share of road transport has increased considerably since the 1950s. The Planning Commission's Steering Committee on Perspective Transport Development has estimated that by the year 2000, traffic on the railways will have doubled, while traffic on the roads nay have increased three-or fourfold. The growing importance of road trans- port is now recognixed in India and recently the Government has been providing more resources for highways. 4. Road transport is expanding at about 10% annually, and demand has outstrippec -.apacity on many of the country's trunk highways. More than 30% of road freight is carried over the 36,689 km national highway network, which represents only about 2% of the country's total network (about 1.6 million km). For all this intensive traffic, the national highway network has major deficiencies. Nearly one-quarter of its length is single-lane roads (3.5 m pavement); 22,500 are two-lane roads that need a second carriageway; over 16,000 km require pavemenc strengthening; and more than 1,700 bridges are structurally deficient and need rebuilding. To rectify these deficiencies, about Rs 113,000 million (US$6,000 million) is needed (1988 prices). The last (Seventh) Five Year Plan (1985/90) allocated Rs 15,500 million (about US$970.0 million) to the national highways. This amount was insufficient to meet even the most urgent needs. S. In recent years, road users have contributed to General Revenues more than three times the Government's outlay on roads. Still, given the fiscal constraints in the country, road expenditures are not likely to in- crease dramatically unless road-user funds currently channeled to other uses can be reallocated. Yet, even if there were a significant increase in funding for roads, the limited capacity of the contracting industry, coupled with the  2 Government of India's shortcomings in managing contracts, are serious limita- tions to quickly overcoming the network's shortages. This is exacerbated by the lack of lnterest of foreign contractors in Indian road works. These fund- ing and physical liaitations make it imperative to improve network management and the programing and planning of highway works. 6. The efficiency of the road transport industry is further compro- mised by the obsolete vehicle fleet. To protect the local automotive Indus- try, imports of vehicles are severely restrlcted. As a result, domestically produced vehicles are technologically obsolete; they are fuel inefficient, unnecessarily damaging to roads, unsafe by modern standards, and polluting. They also are insufficient in number and capacity, and expensive by interna- tional standards. 7. There is much concern ln the Bank about the need to modernize the fleet of commercial vehicles and encourage the use of multi-axle trucks. The Vehicle Fleet Modernization/Road User Charges study carried out under the first National Highways Project (Loan 2534-IN) offered several conclusions pertaining to these concerns. First, It concluded that the efficiency of the road transport industry is as inhibited by lack of competition in the manufac- ture of trucks as by regulatory constraints which perpetuate the use of an outdated fleet. See-ond, the study noted that the failure to enforce axle load limits has favored the use of inappropriate vehicles. Third, the structure of road user charges inequitably distributes the burden of road damage among different types of vehicles. Fourth, the infrastructure itself is Inadequate. 8. Agreement has been reached with the Government on the naed to Implement the recommendations of the above study. However, the Government has been slow in putting together an Action Plan. An Inter-ministerial Committee was set up by the Ministry of Surface Transport (MOST) to assess the conclu- sions of the study, and the Committee, in turn appointed two Working Groups to draft specific implementable actions (one on taxation and financial issues, the other on issues dealing witi the vehicle fleet). MOST is now preparing a draft Action Plan which will be sent to the Bank for comments. 9. . esson from Previous Four earlier projects in the subsector had difficulties resulting from the Government's limited imple- mentation capacity and weak management. Government staff showed an ineffec- tive managerial capacity to handle the larger, more complex works and have been slow in taking corrective actions. Therefore, the proposed project has been designed around a new, improved mmangerial structure for contract manage- ment in which international consultants would play a major role in works su- pervision. 10. Rationale for Bank Involvement. The proposed project is consis- tent with the Bank's strategy of promoting increased public sector efficiency and will directly support India's transformation towards a more market orient- ed economy by facilitating the provision and reducing the costs of the trans- port services. The Bank has had a long involvement in India's transport sec- tor and more recently in the highway subsector. Although progress to date has been slow in the highway subsector, considerable experience has been gained. This experience points to the need to make even bolder attempts to introduce modern technologies, methods and organization arrangements in order to address  -3- the enormous backlog of highway construction needs. The Bank, because of its extensive international transportation experience and previous work ln India, is in a unique position to successfully assist with the transformation in highway technology, construction industry and management of construction pro- grams. 11. Prolect Objectives. The objectives of the project are to modern- ize key sections of the national highway network and to promote the use of improved road engineering and construction standards , network management, and contract management. The proposed project would improve the business environ- ment for the road construction lndustry. It would provide for larger con- tracts, strict prequalification requirements, and supervision of contract exe- cution by qualified international consultants using a new contract management framework. 12. Proiect Descrintion. Costs and 1inFancI. The proposed project includes: (a) modernization of six road sections (civil works to widen them to four lanes and supervision) totalling about 290 km of heavily trafficked and congested national highways in six states (Haryana, Madhya Pradesh, Maharash- tra, Orissa, Punjab, and West Bengal) (US$352.7 million); (b) equipment for monitoring and managing the national highway networks (US$1.5 million); (c) institutional strengthening (US$7.0 million); (d) studies to prepare follow-up projects (US$6.0 million); and (e) reconstruction of six bridges in the state of Orissa damaged or destroyed by a cyclone (US$18.1 million). The project will be implemented by MOST, using state PWDs as agents to manage the sub- projects within each state. Their implementation capacity will be strengthened through the adoption of a contract management framework which integrates a streamlined decision making structure in the state PUDs and in MOST with supervision of works by international consultants. In addition, institutional strengthening of MOST and state PWDs would comprise: (i) train- ing for engineers and field staff in various aspects of highway planning and programming, management and administration of contracts and network manage- ment; and (ii) technical assistance to MOST. The latter includes assistance in: (1) developing a detailed training program and assisting in its implemen- tation and monitoring; (2) developing improved technical guidelines and manu- als; (3) ensuring technical consistency among subprojects; and (4) identifying road sections for a follow-up project, monitoring and coordinating the prepa- ration of corresponding pre-investment studies. 13. The proposed project would be carried out over a period of eight and a half years. It has an estimated cost of US$385.3 million, of which the IBRD would finance US$153 million and the IDA would finance SDR 116.2 million (US$153 million equivalent); this would cover about 90% of project cost net of taxes. The total foreign exchange required is US$174.4 million, or 45% of total project costs. Of thc total financing required, GOI would finance US$79.3 million including all taxes and duties estimated at US$46.6 million. Schedule A presents the cost estimates and financing Plan for the project. Schedule B presents the arrangements for procurement and disbursements. Schedule C provides a timetable of key project processing events, and Schedule D depicts the status of Bank Group operations in India. A map (IBRD 23764) of  - 4 - the project areas is attached. A Staff Appralsal Report, No. 9135-IN dated April 14, 1991, is being distributed separately. 14. ReusittieF adl jXLMl. x . Uith the exception of the Indore bypass, the civil works lie within the road reserve that has served the sam purpose for centuries, and more specifically within the existing right-of-way. However, some limited land acquisition and resettlement will be necessary. The Bank bas reviewed the land acquisition and resettlement procedures being used by the state Public Works Departments (PWDs). The review showad that these procedures were acceptable and have already been completed in most cas- es; about 650 households were affected. This does not Include people who were encroaching on the right-of-way and who have been evicteO on short notice. The states have furnished detailed land acquisition and iisettlement informa- tion on households which are yet to be displaced or lose land, and on house- holds which have received compensation and are still residing in the project vicinity. The Bank's requirement is that families affected should at least maintain their pre-project standard of living. The Governments of all six states have taken such necessary actions which are considered satisfactory to the Bank. 15. The project has numerous environmental benefits brought about by Improved cross-sections, flatter side slopes and the addition of paved shoul- ders including: reduced congestion, improved access!.bility, improved economic growth, reduced damage and soil erosion, and improved vehicula. and pedestrian safety. One potentially adverse impact is the unstructured development that may be induced by road improvements and by the new bypass. 16. Agud Actions. At negotiations, agreements were reached on the Government's commitment to prepare, by December 31, 1992, and thereafter im- plement, an Action Plan (para. 8) based on the VFN/RUC study and on the Bank's report on Policy Issues on Road Transportation in India; agreement was also reached on the features of the Contract Nanagement Framework, including the systematic use of international consultants for road work supervision. Under- standings were reached on the phased introduction of the international stan- dard cross-section in two of twelve four-laning projects to be sanctioned in the 1991-92 budget; the training program; the role of the consultants and of the short term experts; the role of the technical assistance team in pre-investment reviews; the preparation of pre-investment studies, detailed engineering and bidding documents for a follow-up project; and on the princi- ple of providing MOST certification and granting equipment import licenses to contractors within two months of their request. Agreements on sample bidding documents for civil works and on letter of invitation and draft contract for supervision consultancy were conditions for Board presentation which have already been satisfied. 17. Bfits. The project's main benefits will be savings in vehicle operating costs, reduced congestion, and increased speeds. These benefits in turn will reduce travel costs and generate time savings. The direct benefits of the project have been quantified by means of the Hlghway Design and Mainte- nance Model (H1DM). This is a Bank-developed computational tool now in use in man countries, including India. The competitiveness of the trucking industry  / 5- in India it expected to ensure that project benefits, which will accrue ini- tially to truckers, are eventually passed on to consumers. Lower transport costs should manifest themselves in lower distribution costs and eventually in lower and/or more competitive market prices. The ERR of individual sub- projects ranges from 370 to 62%. The ERR exceeds 40% for the overall project. 18. The proposed project will also yield consSderable institutional benefits, especially to the Government. The project will promote the use of better, more modern, equipment-intensive road construction techniques. It also will employ consultants to supervise the civil works within a new con- tract management framework. These technical and institutional innovations will contribute to improving the quality and durability of roadworks and the efficiency of their execution. In addition, under the proposed project, man- agement of NOST's investment program will be improved by streamlining the decision making structure in the state PWDs and in MOST. These actions are expected to generate lifetime cost savings rather than one-time benefits. 19. liaks. Procurement delinnn- and implementation problems are the major risks of the project and could prevent it from producing the expected benefits. These problems would result from inadequate contractor capabilities or inadequate project management and supervision. To minimize these risks, the size of the project was reduced from eleven to six subprojects, as a smal- ler project is more manageable and would allow for a smoother introduction of the technical innovations incorporated in it. The contract packaging and slicing, the rather detailed implementation schedule, and the contract manage- ment framework introduced in the project all were designed to reduce implemen- tation problems and thus, the risk of delays. 20. Rcommqndatlons. I am satisfied that the proposed loan and credit would comply with the Articles of Agreement of the Bank and the Association respectively and I recommend that the Executive Directors approve the proposed loan and credit. Louis T. Preston President Attachments Washington, D.C. April 14, 1992  INDIA