Report and Recommendation of the President to the Board of Directors

Project Number: 52002-001 March 2019

Proposed Loan India: Chhattisgarh Road Connectivity Project Distribution of this document is restricted until it has been approved by the Board of Directors. Following such approval, ADB will disclose the document to the public in accordance with ADB's Access to Information Policy.

CURRENCY EQUIVALENTS (as of 22 March 2019)

Currency unit – Indian rupees (₹)

₹1.00 = $0.01455 $1.00 = ₹68.7413

ABBREVIATIONS

ADB – Asian Development Bank CGPWD – Chhattisgarh Public Works Department CSC – construction supervision consultant EIRR – economic internal rate of return IEE – initial environmental examination km – kilometer km2 − square kilometer MDR – major district road NITI − National Institution for Transforming India PIU − project implementation unit PMC – project management consultant TA − technical assistance

NOTES

(i) The fiscal year (FY) of the Government of India and its agencies ends on 31 March. “FY” before a calendar year denotes the year in which the fiscal year ends, e.g., FY2019 ends on 31 March 2019.

(ii) In this report, "$" refers to United States dollars.

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

Vice-President Shixin Chen, Operations 1 Director General Hun Kim, South Asia Department (SARD) Director Ravi Peri, Transport and Communications Division, SARD Team leader Andri Heriawan, Transport Specialist, SARD Team members Iris Millendez-Bombay, Associate Safeguards Officer (Environment), SARD

Sin Wai Chong, Transport Specialist, SARD Merdinia Dequilla, Associate Project Analyst, SARD

Andrew Gutierrez, Senior Project Officer, SARD Laureen Laurito, Senior Social Development Officer (Safeguards), SARD Cheska Llamas, Operations Assistant, SARD

Yang Lu, Transport Specialist, SARD Roshan Ouseph, Counsel, Office of General Counsel Prabhasha Sahu, Senior Project Officer (Transport), SARD Yukiko Sakurai, Senior Financial Management Specialist, SARD Karma Yangzom, Senior Environmental Specialist, SARD

Peer reviewer Thomas Herz, Transport Specialist, Central and West Asia Department

CONTENTS Page

PROJECT AT A GLANCE

MAP

I. THE PROPOSAL 1

II. THE PROJECT 1

A. Rationale 1 B. Impact and Outcome 3 C. Outputs 4 D. Summary Cost Estimates and Financing Plan 5 E. Implementation Arrangements 6

III. DUE DILIGENCE 6

A. Technical 6 B. Economic and Financial 6 C. Governance 7 D. Poverty, Social, and Gender 8 E. Safeguards 8 F. Summary of Risk Assessment and Risk Management Plan 10

IV. ASSURANCES 10

V. RECOMMENDATION 10

APPENDIXES

1. Design and Monitoring Framework 11

2. List of Linked Documents 13

Project Classification Information Status: Complete

PROJECT AT A GLANCE

Source: Asian Development BankThis document must only be generated in eOps. 21112018102203418757 Generated Date: 21-Nov-2018 10:22:07 AM

1. Basic Data Project Number: 52002-001Project Name Chhattisgarh Road Connectivity Project Department

/DivisionSARD/SATC

Country India Executing Agency Public Works Department-Govt of Chhattisgarh

Borrower Government of India

2. Sector Subsector(s) ADB Financing ($ million)Transport Road transport (non-urban) 350.00

Total 350.00

3. Strategic Agenda Subcomponents Climate Change Information Inclusive economic growth (IEG)

Pillar 2: Access to economic opportunities, including jobs, made more inclusive

Environmentally sustainable growth (ESG)

Global and regional transboundary environmental concerns

Climate Change impact on the Project

Medium

ADB Financing

Adaptation ($ million) 30.31

4. Drivers of Change Components Gender Equity and MainstreamingPrivate sector development (PSD)

Public sector goods and services essential for private sector development

Some gender elements (SGE)

5. Poverty and SDG Targeting Location ImpactGeographic TargetingHousehold TargetingSDG Targeting

NoNoYes

Rural High

SDG Goals SDG9

6. Risk Categorization: Complex.

7. Safeguard Categorization Environment: B Involuntary Resettlement: A Indigenous Peoples: B.

8. Financing

Modality and Sources Amount ($ million)

ADB 350.00

Sovereign Project (Regular Loan): Ordinary capital resources 350.00

Cofinancing 0.00

None 0.00

Counterpart 171.69

Government 171.69

Total 521.69

Currency of ADB Financing: USD

Balod

Balodabazar

Balrampur

Jagdalpur

Bemetara

Bijapur

Bilaspur

Dantewada

Dhamtari

Durg

Gariyaband

Janjagir Champa

Jashpur

Kawardha

Kanker

Kondagaon

Korba

Baikunthpur

Mahasamund

Mungeli

Narayanpur

Raigarh

Rajnandgaon

Sukma

Surajpur Ambikapur

Raipur

M A D H Y A

P R A D E S H

UTTAR

PRADESH

JHARKHAND

ODISHA

TELANGANA

MAHARASHTRA

CHHATTISGARHCHHATTISGARH

ANDHRA PRADESH

0 25 50 75 100

Kilometers (km)

N

This map was produced by the cartography unit of the Asian Development Bank. The boundaries, colors, denominations, and any other information shown on this map do not imply, on the part of the Asian Development Bank, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries, colors, denominations, or information.

123456789

10111213141516171819202122232425

Raipur–DhamtariGariyabandGariyabandMahasamundRaipur–Balodabazar–MahasamundMahasamundBalodabazarRajnandgaon–DurgRajnandgaonBalodRajnandgaonRajnandgaonBalodBalodDhamtariDhamtariDhamtariBilaspurRaigarhRaigarhMungeliJanjagir ChampaKorbaRaigarhJanjagir Champa

54.6843.1637.7042.6243.9339.9929.6727.7139.1723.5623.4226.9627.1935.5231.8866.7237.8025.9648.1232.3024.9931.4821.4822.9230.12

NO. DISTRICT LENGTH (km)

Project Road

Road

State Capital

City/Town

District Boundary

State or Union Territory Boundary

Boundaries are not necessarily authoritative.

INDIA

CHHATTISGARH ROAD CONNECTIVITY PROJECT

190214 ABV

I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed loan to India for the Chhattisgarh Road Connectivity Project.

2. The project will rehabilitate and upgrade at least 850 kilometers (km) of state highways and major district roads (MDR) in Chhattisgarh to improve connectivity and access to basic services and livelihood opportunities. The physical works will involve upgrading the state highways and MDRs to two-lane or four-lane width with hard shoulder along built-up areas. For investment in the physical infrastructure to be efficient and sustainable, the project will provide support to the executing agency in road maintenance and safety.

II. THE PROJECT

A. Rationale

3. Socioeconomic context. Chhattisgarh is a state in east–central India that was constituted in 2000. The state covers an area of 137,898 square kilometers (km2), of which about 96% is rural. It has a population of about 25.5 million, 77% of whom live in rural areas, indicating a population density of about 150 people per km2. The literacy rate is about 71%, which is slightly below the country’s average of 74%.1 Chhattisgarh is rich in natural resources and a major producer of minerals, notably coal and iron ore, which significantly contribute to the production of steel and electricity in the country. The state has a large forest area (44% of the territory) and agriculture base, which support the tribal economy and many small-scale industries. The state’s gross domestic product (at constant prices) has increased from ₹1.58 trillion in fiscal year (FY) 2012 to ₹2.24 trillion in FY2017, with a compound annual growth rate of 5.98%.2

4. Despite the good economic growth experienced in 2012–2017, poverty remains a key issue. The 2011 census suggested that about 38% of the state’s population lives below the poverty line, which is among the highest in India. The state government has recognized the unbalanced distribution of socioeconomic benefits and poor access to livelihood opportunities in the state. Improving transport connectivity is an important factor in addressing these issues.

5. Sector context. The movement of people and goods in Chhattisgarh relies heavily on roads, particularly in rural areas. The total length of the road network in the state is 74,434 km. This includes national highways (3,169 km), state highways (4,438 km), and district roads (25,569 km), which account for most long-distance and goods vehicle trips.3 The Chhattisgarh Public Works Department (CGPWD) manages these roads. Habitations in the rural areas of Chhattisgarh are connected to these major road networks through all-weather rural roads and village roads, totaling about 35,000 km. The Panchayat and Rural Development Department manages these rural roads.4 Other agencies or government bodies manage the rest of the network, which are urban and project-specific roads.

111 Government of India, National Institution for Transforming India (NITI Aayog). State Statistics: Literacy Rate

(accessed 2 February 2019). 2 Government of India, Ministry of Statistics and Programme Implementation. State domestic product and other

aggregates, 2011–2012 series (accessed 2 February 2019). 3 Government of Chhattisgarh, Public Works Department. 2017. Administrative Report. Raipur. 4 11As of 31 December 2017, about 9,200 rural habitations in Chhattisgarh had been connected to the core road network

under the prime minister’s rural road program.

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6. The state of Chhattisgarh lacks an adequate road network to efficiently support mobility across areas with natural resources, social services, industrial centers, and economic development zones. As of FY2016, road density in Chhattisgarh was only 72.1 km per 100 km2, which is below the national average of 139.1 km per 100 km2.5 About 70% of the state highways have only single or intermediate lanes, whereas most of the major and other district roads are single lanes. In contrast, the number of registered vehicles has doubled, from 2.1 million in 2009 to 4.8 million in 2016, with an average growth rate of 12%.6 Most of these roads need widening and strengthening to cater to increasing traffic demand, especially by larger goods vehicles.

7. Contribution to Sustainable Development Goals 2030. In the absence of a safe and efficient road network, the objective of socioeconomic development such as reducing poverty and isolation of disadvantaged groups in Chhattisgarh will not be achieved. To guide the development of the road transport subsector, the state government, through the CGPWD, has established a strategy that will contribute to the country’s objective of achieving the Sustainable Development Goals.7 The strategy includes three key initiatives in the road transport subsector: (i) connecting the state capital to all district headquarters through four-lane roads, (ii) connecting the district headquarters to all block headquarters through two-lane roads, and (iii) connecting all block headquarters to village councils through all-weather roads. The improved road network will facilitate better access to economic centers and livelihood opportunities, education, and health facilities, and contribute to private sector development. To achieve these targets, the CGPWD needs to upgrade about 2,806 km of national highways, 2,675 km of state highways, and 16,134 km of other state roads. In line with this development plan, by 2020, the CGPWD plans to upgrade 1,393 km of national highways under the National Highway Development Project with an estimated cost of $1.6 billion.8 The CGPWD also plans to upgrade 4,100 km of state highways, major district roads, and other roads with a budget provision of $1.7 billion from loans, mineral development plans, and regular state funding.

8. Road maintenance. The CGPWD is responsible for planning, performing, and monitoring overall road maintenance activities. Road maintenance is funded through regular state budget allocations. The CGPWD still follows conventional practice in road maintenance, which is based on regular inspection by the CGPWD staff. The staffing capacity of the CGPWD will eventually constrain this practice as the number of roads to be maintained increases. With the increasing responsibility to maintain more roads, as well as to sustain the service performance and safety levels of the existing roads at an acceptable level, there is an urgent need to improve the efficiency and effectiveness of the road maintenance practices of the CGPWD. This includes adopting a performance-based maintenance approach, through which payment for maintenance is released to the contractor based on achievement of an agreed level of services.

9. Road safety. Road safety issues have contributed to poor mobility in Chhattisgarh. In 2017, 13,563 accidents occurred in the state, of which 3,379 occurred on state highways.9 Even though the overall number of accidents has declined to 13,580 in 2016, the severity index has increased from 28.8 to 30.5 in the same period.10 Land use changes such as unplanned developments along the roads, which lead to increased roadside activities and illegal crossings,

5 Government of Bihar, Finance Department. 2018. Economic Survey, 2017–2018. Patna. 6 Government of India, Ministry of Statistics and Programme Implementation. 2018. Statistical Year Book India 2018:

Number of Motor Vehicles Registered in India (Taxed and Tax-Exempted). New Delhi. 7 Government of India, Chhattisgarh Public Works Department. Inputs for Sustainable Development Goals submitted

to NITI Aayog. Unpublished. NITI Aayog oversees the implementation of Sustainable Development Goals by the states.

8 1The National Highway Development Project is funded by the central government’s resources. 9 Government of India, Ministry of Road Transport and Highways. 2018. Road Accidents in India–2017. New Delhi. 10 Severity index represents the number of fatalities per 100 accidents.

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blocking of the drivers’ line of sight, and establishment of substandard road intersections, contribute to the number of accidents. Motorcycles and goods vehicles are the two highest contributors to road accidents. Even though the CGPWD has adopted an acceptable standard for road design, preventive measures to reduce the number of accidents need to be strengthened through adequate investment in road safety measures, ensured through an auditing mechanism, and sustained with adequate maintenance. Additionally, an increase in road safety awareness among the communities affected by the roads is necessary, especially for the elderly, women, children, and persons with disabilities.

10. Lessons from previous ADB assistance. The Asian Development Bank (ADB) has been supporting the state of Chhattisgarh’s road transport subsector through two loans, both using the sector lending modality. The first loan, closed in 2012, was for $180 million and covered the improvement of about 1,700 km of state highways.11 The inadequate experience of the CGPWD in planning and formulating projects of similar size and complexity, and external factors such as delay in obtaining environmental clearances and security threats in certain areas, slowed the implementation of the first loan. Despite the delay, the project has substantially improved access to social services such as primary health care centers, schools, colleges, and markets, and provided good support for rapid socioeconomic development in the project area. Even though the first loan was rated less than successful on account of efficiency, the project impact was rated significant.12 The technical assistance (TA) attached to the first loan assisted the CGPWD in institutional reform and strengthened its capacity in terms of road operation monitoring, financial management, and human resources planning. The TA has significantly improved the effectiveness and efficiency of the state road transport subsector management system. ADB approved the second loan for $300 million in December 2012 to cover an additional 916 km of state highways. ADB prepared the loan through regular consultations with the CGPWD, which had gained experience from the implementation of the first loan.13 Despite slight delays because of design and safeguards issues, the second loan is on track to meet the intended project outputs. The TA attached to the second loan further enhanced the CGPWD’s capacity for project planning, procurement, and project and contract management, and developed a database on road assets. The previous two projects offer lessons on implementing road development projects in the state. To minimize the likelihood of the same issues recurring, the project team identified the following measures: (i) propose the project as a stand-alone project loan, whereby ADB confirmed due diligence for all project roads at the project preparatory stage; (ii) mobilize consultants to carry out an independent review of the engineering design, and measures to address design issues have been incorporated; and (iii) a project management consultant (PMC) will provide technical support to the CGPWD, including safeguards.

B. Impact and Outcome

11. The project is aligned with the following impact: mobility and accessibility in India improved.14 The project will have the following outcome: road connectivity and safety in Chhattisgarh improved.15

11 ADB. 2003. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical

Assistance Grant to India for the Chhattisgarh State Roads Development Sector Project. Manila. 12 Independent Evaluation Department. 2015. Validation Report: Chhattisgarh State Roads Development Sector

Project in India. Manila: ADB. 13 ADB. 2012. Report and Recommendation of the President to the Board of Directors: Proposed Loan to India for the

Chhattisgarh State Road Sector Project. Manila. 14 Government of India, NITI Aayog. 2017. India: Three Year Action Agenda, 2017–2018 to 2019–2020. New Delhi. 15 The design and monitoring framework is in Appendix 1.

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C. Outputs

12. Output 1: State highways and major district roads improved. The project will rehabilitate or upgrade two state highways and 23 MDRs with a total length of at least 850 km in Chhattisgarh. The selected roads will be rehabilitated or upgraded from single- or intermediate-lane width to two- or four-lane width with hard shoulder in built-up areas. The project roads will include bus stops in villages and built-up areas, which are accessible to the elderly, women, children, and persons with disabilities, and street lighting for security and road safety, especially at accident black spots. The project will introduce, for the first time, the provision of 5-year performance-based maintenance in each civil works contract to facilitate the sustainability of the physical investment. As per the current arrangement, the state government budget will finance road maintenance under the 5-year maintenance contract.

13. Output 2: Institutional capacity for road safety and maintenance of state highways and major district roads strengthened. The project will assist the CGPWD to manage the road maintenance activities through the development of a road maintenance program and application of the manual for road maintenance, which was developed under ADB-financed TA projects.16 The road maintenance program will identify roads to be maintained to an acceptable service level in each year based on expected road utilization, physical condition and historical maintenance data. The project will also introduce road safety audit, to be performed at design, construction, and operation stages, and provide institutional support to mainstream road safety in the CGPWD’s operations. Road safety awareness sessions will also be carried out for students and members of communities along the proposed roads. Additionally, the project will promote the strengthening of the CGPWD’s financial management system.

14. Finance plus and value added by ADB assistance. The project will continue ADB’s assistance in the road transport subsector in Chhattisgarh.17 The project team integrated ADB’s Strategy 2030 operational priorities in the project design: (i) reducing poverty and inequality, (ii) accelerating progress in gender equality, (iii) tackling climate change, (iv) promoting rural development, and (v) strengthening governance and institutional capacity.18 The project is also consistent with the strategic objectives set out in the country partnership strategy on the provision of inclusive infrastructure networks and services (pillar 2).19 Under ADB assistance, the CGPWD will introduce innovative features such as (i) 5-year performance-based maintenance in civil works contracts to improve the current practice in road maintenance and to strengthen its effort to retain the designed service level of the road network; (ii) road safety audit at the design, construction, and operational stages to help address increasing road safety risks from increased traffic volumes and higher average vehicle speeds; (iii) use of solar energy for street lighting; and (iv) installation of run-off water harvesting facilities in villages passed by the project roads.

15. Climate change adaptation. Climate risks in the form of floods resulting from extreme rainfall events and increased maximum temperatures exist in Chhattisgarh. Direct spillage from large rivers or floods caused by high intensity and short duration rainfall events will also cause, among others, overtopping and the washing away of roads, damage to culverts, and slope failures. Increase in maximum temperatures may also cause damage to the pavement and bridge joints. Climate change adaptation measures that have been incorporated in the project include

16 ADB. 2012. Technical Assistance to India for Institutional Strengthening of Chhattisgarh Public Works Department.

Manila; and ADB. 2012. Technical Assistance to India for Advanced Project Preparedness for Poverty Reduction–Institutional Strengthening of Chhattisgarh Public Works Department. Manila.

17 There is no other donor agency currently supporting the state’s road subsector. 18 ADB. 2018. Strategy 2030: Achieving a Prosperous, Inclusive, Resilient, and Sustainable Asia and the Pacific. Manila. 19

1ADB. 2017. Country Partnership Strategy: India, 2018–2022—Accelerating Inclusive Economic Transformation. Manila.

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increased road embankment height, increased dimension of drainage structures, and increased thickness and quality of bitumen.

D. Summary Cost Estimates and Financing Plan

16. The project is estimated to cost $521.69 million (Table 1).

17. Detailed cost estimates by expenditure category and by financier are included in the project administration manual.20 Civil works, equipment, and consulting services are the major expenditure items under the project.

Table 1: Summary Cost Estimates ($ million)

Item Amounta A. Base Costb 1. State highways and major district roads improved 440.81 2. Institutional capacity for road safety and maintenance of state highways and major

district roads strengthened 4.68

Subtotal (A) 445.50 B. Contingenciesc 39.68 C. Financial Charges During Implementationd 36.51

Total (A+B+C) 521.69 a Numbers may not sum precisely because of rounding. Includes taxes and duties of $74.01 million funded by the

government and the Asian Development Bank (ADB). The ADB share does not represent an excessive share of the project cost.

b In mid-2018 prices as of 22 October 2018. c Physical contingencies computed at 3.50% for civil works. Price contingencies computed at an average of 1.55% on

foreign exchange costs and 5.00% on local currency costs; this includes provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate.

d Includes interest and commitment charges. Interest during construction for the ordinary capital resources loan has been computed at the 5-year United States dollar fixed swap rate plus an effective contractual spread of 0.50%. Commitment charges for the ordinary capital resources loan are 0.15% per year to be charged on the undisbursed loan amount.

Source: Asian Development Bank estimates.

18. The government has requested a regular loan of $350 million from ADB’s ordinary capital resources to help finance the project. The loan will have a 20-year term, including a grace period of 5 years; an annual interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility; a commitment charge of 0.15% per year; and such other terms and conditions set forth in the draft loan and project agreements. Based on the straight-line method, the average maturity is 12.75 years, and there is no maturity premium payable to ADB.

19. The summary financing plan is in Table 2. ADB will finance the expenditures in relation to civil works and consulting services. The government has agreed to make counterpart funds available to meet additional costs arising from unforeseen circumstances, such as price escalation or design changes.

20. Climate adaptation is estimated to cost about $35.66 million. ADB will finance 85% of adaptation costs. Details are in the climate change assessment.21

20 Project Administration Manual (accessible from the list of linked documents in Appendix 2). 21 Climate Change Assessment (accessible from the list of linked documents in Appendix 2).

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Table 2: Summary Financing Plan

Source Amount

($ million) Share of Total

(%) Asian Development Bank

Ordinary capital resources (regular loan) 350.00 67.09 Government 171.69 32.91

Total 521.69 100.00 Source: Asian Development Bank.

E. Implementation Arrangements

21. The implementation arrangements are summarized in Table 3 and described in detail in the project administration manual (footnote 20).

Table 3: Implementation Arrangements Aspects Arrangements Implementation period May 2019–June 2024 Estimated completion date 30 June 2024 Estimated loan closing date 31 December 2024 Management

(i) Executing agency Chhattisgarh Public Works Department (ii) Implementation unita Raipur (25 staff) and field offices in Raipur district (9 staff), Bilaspur district

(9 staff), Balodabazar district (6 staff), and Rajnandgaon district (9 staff) Procurement Open competitive

bidding (national advertisement)

25 contracts $350.31 million

Consulting services Quality- and cost-based selection; full technical proposal

7,346 person-months $18.51 million

Retroactive financing and advance contracting

Works and consulting services, for eligible expenditures incurred within 12 months prior to the loan signing, up to 20% of the loan amount

Disbursement The loan proceeds will be disbursed following ADB’s Loan Disbursement Handbook (2017, as amended from time to time) and detailed arrangements agreed between the government and ADB.

ADB = Asian Development Bank. a Excluding support staff. Source: Asian Development Bank.

III. DUE DILIGENCE

A. Technical

22. The CGPWD has prepared and approved the engineering design of the proposed project roads during the project preparatory stage. The CGPWD selected the roads based on (i) linkage to national highways, other state highways, MDRs, and key economic centers as described in para. 7; (ii) level of utilization, reflected by the annual average daily traffic; and (iii) minimized environmental and social impacts. The engineering design follows applicable criteria in line with Indian Roads Congress regulations and is optimized for cost efficiency while meeting the increasing travel demand. The design has also considered climate change adaptation and road safety aspects. The project team has conducted an independent review of the engineering design, and recommended improvements that have been addressed in the final design.

B. Economic and Financial

23. Economic viability. The project team conducted the economic evaluation of the project in accordance with ADB guidelines by comparing life cycle economic costs and benefits in with- and without-project scenarios, using a 9.0% discount rate and the economic internal rate of return

7

(EIRR) as decision criteria. The highway development model 4 (HDM-4) was used to estimate road agency and road user costs based on input data on traffic, road geometry, pavement condition, and improvement and maintenance costs. Project benefits include savings associated with vehicle operating costs, travel time, carbon dioxide emissions, and road accidents (unquantified). The EIRR of the project is estimated at 18.1%. Sensitivity analysis demonstrated the robustness of the economic viability of the project under adverse changes in costs and benefits, with an EIRR of 13.1% under the most sensitive scenario involving a 20% increase in capital costs and 20% decrease in benefits.

24. Financial sustainability. The project will not generate revenue. The CGPWD will conduct road maintenance with regular budget allocations in each financial year. The annual budget for maintenance expenditures increased from ₹5.68 billion in FY2013 to ₹5.99 billion in FY2018. The average annual incremental recurrent costs of the project are estimated at 8.6% of the maintenance budget. Even though the maintenance budget seems to increase by 1.1% in nominal terms, it shows reductions in real terms. This suggests a substantial risk in project sustainability as the number of roads maintained by the CGPWD increases. To help mitigate the sustainability risk, the PMC will also support the CGPWD in preparing a road maintenance program based on the database of road assets developed under the previous loan, which will facilitate more accurate estimation of the annual maintenance budget. Additionally, all civil works contracts will include 5 years of performance-based maintenance after construction, which will facilitate maintenance in the initial operating phase.

C. Governance

25. Institutional. The CGPWD will implement the project through a project implementation unit (PIU) dedicated for ADB projects, situated in the state capital Raipur. Because of the large project coverage, four field offices have been established to support the PIU operation. The PIU and the field offices have gained adequate experience in road projects from the previous ADB projects and strengthened staff capacity to prepare and implement the project. The PMC will support the PIU in the areas of road safety, road maintenance, and safeguard monitoring.

26. Financial management. The financial management risk is moderate, mainly because of the absence of a formal internal auditing function within the PIU. Although the disbursement mechanism adopted by the PIU has included a systematic controlling and checking mechanism performed by finance and account staff with adequate experience in project financial management, the absence of an internal auditing mechanism suggests a substantial risk. To mitigate this risk, the PMC will perform the internal audit for the project, prepare a financial management manual and conduct training for the CGPWD staff on financial management. Other key actions to mitigate the financial management risks are submission of a quarterly progress report with physical and financial progress with variance analysis and the corresponding disbursement figures, and timely resolution of audit observations. The PIU submitted audited project financial statements for the ongoing Chhattisgarh State Road Sector Project for FY2017 on time with unqualified audit opinion.22

27. Procurement of civil works. The procurement risk level is medium. The procurement of civil works and consulting services financed by the ADB loan is being done in accordance with ADB’s Procurement Policy (2017, as amended from time to time) and Procurement Regulations for ADB Borrowers (2017, as amended from time to time). The procurement of civil works follows open competitive bidding with national advertisement using an e-procurement system approved by ADB. The PIU has gained experience in the procurement of civil works and consultant

22 ADB. India: Chhattisgarh State Road Sector Project.

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recruitment from the previous ADB projects. Under advance contracting, the procurement of 25 civil works packages and recruitment of four consulting service packages are ongoing.

28. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the government and the CGPWD. The specific policy requirements and supplementary measures are described in the project administration manual (footnote 20).

D. Poverty, Social, and Gender

29. Poverty. Despite abundant natural resources, about 38% of the state’s total population was estimated to live below the poverty line in 2011, with a literacy rate of about 71%, indicating a significant imbalance in access to economic and livelihood opportunities. Improved roads will help the poor to integrate into the structure of the local economy and to benefit from nonfarm employment, diversified agricultural production, and trading activities. The improved roads will enable better access to basic services such as health care and education, and also improve the quality of life of the poor in affected communities.

30. Gender. The project is categorized some gender elements. The CGPWD conducted focus group discussions with women from different socioeconomic groups in the project-influence area. The assessment highlights several key project benefits that the all-weather roads will bring to the communities. These include increased childbirth safety, reduced maternal and prenatal deaths and mortality of children, and increased enrollment of girls in schools and universities. Additionally, the project will (i) raise awareness among community members and contractors’ personnel on sexually transmitted infections including HIV/AIDS, health and hygiene, and human trafficking; (ii) consider specific needs of vulnerable users, including the elderly, women, children, and disabled persons in the design and modification of roads; (iii) ensure women’s participation in road safety awareness campaigns; and (iv) target women in livelihood training programs.

31. HIV and AIDS. India’s National AIDS Control Organization estimates the number of persons living with HIV in India at 2.21 million in 2017, and adult HIV prevalence at 0.3%. According to the National AIDS Control Organization, HIV infection is typically concentrated among the poor and marginalized groups (including high-risk groups such as sex workers, drug users, migrant laborers, and truck drivers). However, Chhattisgarh is a low-prevalence state and it is among the states where the rate of new cases declined in 2017. Based on the poverty and social assessment, there is a low risk that the project will increase HIV/AIDS incidence. Contractors will carry out HIV/AIDS awareness for their laborers at work sites and this will be monitored by the construction supervision consultants (CSC) during project implementation.

32. Labor. Provisions in the bidding documents for the civil works contractors, among others, (i) ensure that all applicable labor laws are complied with, including the prohibition against employing children in construction; (ii) encourage the employment of the poor and affected communities; and (iii) ensure that wages for men and women are equal for work of equal value.

E. Safeguards

33. In compliance with ADB’s Safeguard Policy Statement (2009), the project’s safeguard categories are as follows.23

34. Environment (category B). No significant, irreversible environmental impacts are anticipated and none of the roads are located inside or near protected or environmentally sensitive areas. The CGPWD prepared an initial environmental examination (IEE) for each road in 23 ADB. Safeguard Categories.

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accordance with the ADB Safeguard Policy Statement (2009) and disclosed these on the ADB website. Anticipated environmental impacts from the project entail typical road construction-related issues such as acquisition of forest land; removal of trees; generation of dust, noise, exhaust, and waste from construction and worker camps; water contamination; occupational health and safety issues; slope failures; erosion; and siltation. Increased noise and air pollution as a result of increased traffic volumes can be expected during the operation stage but will be minimal, and based on projections, are not expected to go beyond the National Ambient Air Quality and International Finance Corporation standards. Mitigation measures to address all these have been included in the environmental management plan (EMP), which is part of the bid documents and will be required to be implemented by the contractor. The CGPWD conducted meaningful consultations with the affected persons and other key stakeholders such as the forestry officials while preparing the IEE. Concerns of affected persons and stakeholders will continue to be addressed during project implementation through the grievance redress mechanism proposed in the IEE.

35. Involuntary resettlement (category A). The project was developed with a view of avoiding or minimizing land acquisition and restriction of access by adopting the most feasible technical design. Roads will be widened from single or intermediate lane to two- or four-lane width within the existing right-of-way, except where minor realignment is required to reduce delay or to improve safety. The CGPWD will acquire about 55.5 hectares of private land for the project by direct purchase based on the provisions of the national law, state policy, and the ADB Safeguard Policy Statement. Should negotiations fail, land and assets will be acquired using eminent domain in accordance with the same law and policies. The CGPWD has prepared 25 resettlement plans for all project roads based on full census surveys using detailed design specifications. According to the surveys, 10,613 households (48,598 persons) will experience impacts on land, structures, and/or livelihood; 402 nontitled households (1,859 persons), who are mostly kiosk owners, will be fully affected; and 1,292 titled households (5,725 persons) will lose greater than 10% of their land by the roadside. Compensation rates at replacement cost for the loss of land and structures, shifting assistance, income restoration assistance, and support for vulnerable groups are provided in the resettlement plans. The CGPWD conducted meaningful consultations with displaced persons and disclosed information through the ADB website. Grievance redress mechanisms will be established at each field office to respond to affected persons’ concerns. The CGPWD has worked with ADB in the previous projects and is experienced in planning and implementing involuntary resettlement safeguards. An external monitor, third party validators, and an implementation nongovernment organization will be engaged to support the CGPWD.

36. Indigenous peoples (category B). Scheduled tribes account for 30.6% of the total population of Chhattisgarh. Except for the forest-dwelling tribes, scheduled tribes and local nontribal populations live in the same communities and interact freely with each other. The social impact assessments undertaken to prepare project roads suggest that road connectivity will not impact scheduled tribes differently or increase their vulnerability as indigenous peoples. However, the assessments indicate that in eight project roads, the 1,013 scheduled tribe households potentially to be affected by limited involuntary resettlement impacts are in areas designated by the Constitution of India as scheduled tribe areas. Therefore, for such roads, the CGPWD has prepared combined resettlement and indigenous peoples plans. Meaningful consultations were conducted with affected scheduled tribe households to (i) seek their views on the project and its benefits; (ii) determine involuntary resettlement impacts; and (iii) develop appropriate measures to mitigate losses, including additional allowances provided under the law.

37. The deputy general manager of the PIU will be the nodal officer for environmental and social safeguards: he will be responsible for the overall management of safeguards under the

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project, supported by an environment officer and a resettlement officer. An assistant project manager who will also serve as the safeguards focal point at the site level will support each project manager, who leads a field office. The PMC will provide project implementation support including safeguards implementation to the PIU. Three CSCs will supervise and manage the construction works, including safeguards implementation. The civil works contractors will be responsible for implementing the environmental management plan and will include environment, health, and safety officers in their team. The CGPWD will organize an initial coordination or training workshop to clarify the roles and responsibilities of each party for complying with environmental safeguard requirements. Hands-on training will be conducted by the CSC or ADB as necessary during project implementation.

F. Summary of Risk Assessment and Risk Management Plan

38. Significant risks and mitigating measures are summarized in Table 4 and described in detail in the risk assessment and risk management plan.24

Table 4: Summary of Risks and Mitigating Measures

Risks Mitigation Measures Insufficient funding for road maintenance reduces project sustainability

The CGPWD has committed the funding for road maintenance in the annual state budget. The project, through the PMC, will support the CGPWD in preparing an annual road maintenance program based on the road asset database established under the previous loan, which will improve budget estimation and utilization.

CGPWD = Chhattisgarh Public Works Department, PMC = project management consultant. Source: Asian Development Bank.

IV. ASSURANCES

39. The Government of India and the state government, through the CGPWD, have assured ADB that implementation of the project shall conform to all applicable ADB policies, including those concerning anticorruption measures, safeguards, gender, procurement, consulting services, and disbursement as described in detail in the project administration manual and loan documents.

40. The Government of India and the state government, through the CGPWD, have agreed with ADB on certain covenants for the project, which are set forth in the draft loan agreement and project agreement.

V. RECOMMENDATION

41. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve the loan of $350,000,000 to India for the Chhattisgarh Road Connectivity Project, from ADB’s ordinary capital resources, in regular terms, with interest to be determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility; for a term of 20 years, including a grace period of 5 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft loan and project agreements presented to the Board.

Takehiko Nakao President

29 March 2019

24 Risk Assessment and Risk Management Plan (accessible from the list of linked documents in Appendix 2).

Appendix 1 11

DESIGN AND MONITORING FRAMEWORK Impact the Project is Aligned with Mobility and accessibility in India improved (India: Three Year Action Agenda, 2017–2018 to 2019–2020)a

Results Chain

Performance Indicators with

Targets and Baselines

Data Sources and Reporting

Mechanisms Risks Outcome By 2025: Road connectivity and safety in Chhattisgarh improved

a. Use of roads rehabilitated or upgraded increased to 2.47 million average vehicle-km per day (2018 baseline: 1.83 million average vehicle-km per day) (RFI 1) b. Average number of persons severely injured or killed per year in road accidents on the project roads reduced by 5% (2018 baseline: 97 persons)

a. CGPWD annual reports or surveys b. Local police and/or hospital records

Extreme weather conditions beyond projections cause significant damage to the project roads

Outputs By 2024: 1. State highways and major district roads improved

1. At least 850 km of state highways and major district roads rehabilitated or upgraded (2018 baseline: 0)

1. CGPWD progress reports

Excessive delay in obtaining forest clearance for eight roads delays project completion

(RFI 2)

2. Institutional capacity for road safety and maintenance of state highways and major district roads strengthened

By 2024: 2a. Annual road maintenance program prepared and approved by the CGPWD (2018 baseline: not prepared)

2a. PMC’s progress reports

2b. Road safety audits conducted in 100% of built roads (2018 baseline: 0% roads) 2c. At least 10 (3 women, 7 men) CGPWD staff reported increased knowledge in road safety audit (2018 baseline: 0)

2b.–2c. PMC’s annual road safety audit report

12 Appendix 1

Results Chain

Performance Indicators with

Targets and Baselines

Data Sources and Reporting

Mechanisms Risks 2d. Students of at least

100 schools and members of at least 50 rural communities along the project roads reported increased awareness of road safety (30% of participants are women) (2018 baseline: 0)

2d. PMC’s annual road safety awareness report

2e. At least 10 (3

women, 7 men) CGPWD staff reported increased knowledge in road maintenance (2018 baseline: 0)

2e.–2f. PMC’s progress report

2f. At least 10 CGPWD staff reported increased knowledge in project financial management (2018 baseline: 0)

Key Activities with Milestones

1. State highways and major district roads improved 1.1 Mobilize the CSCs by February 2019 1.2 Mobilize the PMC by February 2019 1.3 Procure all civil works by June 2021 and complete all construction activities by June 2024

2. Institutional capacity for road safety and maintenance of state highways and major district roads strengthened

2.1 Road safety audit at design stage completed by the PMC by April 2019 2.2 Road safety awareness program implemented by June 2024 2.3 Road maintenance program prepared by February 2020 and approved by the CGPWD by March 2020 2.4 Road safety audit at construction stage completed by December 2024 2.5 Financial management training conducted by December 2019 2.6 Initiatives to strengthen the internal control environment of CGPWD identified by December 2020

Inputs ADB: $350.00 million (loan) Government: $171.69 million

Assumptions for Partner Financing Not applicable ADB = Asian Development Bank, CGPWD = Chhattisgarh Public Works Department, CSC = construction supervision consultant, km = kilometer, PMC = project management consultant, RFI = results framework indicator. Contribution to the ADB Results Framework: RFI 1: Use of roads built or upgraded. Target: 2.47 million average daily vehicle-kilometers in the first full year of operation. RFI 2: Roads, built or upgraded – provincial, district, and rural roads. Target: 850 kilometers. a Government of India, National Institution for Transforming India Aayog. 2017. India: Three Year Action Agenda, 2017–2018 to 2019–2020. New Delhi.

Source: Asian Development Bank.

Appendix 2 13

LIST OF LINKED DOCUMENTS http://www.adb.org/Documents/RRPs/?id=52002-001-3

1. Loan Agreement

2. Project Agreement

3. Sector Assessment (Summary): Road Transport

4. Project Administration Manual

5. Contribution to the ADB Results Framework

6. Development Coordination

7. Economic and Financial Analysis

8. Country Economic Indicators

9. Summary Poverty Reduction and Social Strategy

10. Risk Assessment and Risk Management Plan

11. Climate Change Assessment

12. List of Initial Environmental Examination Reports

13. List of Resettlement Plans

14. List of Combined Resettlement and Indigenous Peoples Plans