Document of The World Bank IMPLEMENTATION COMPLETION AND RESULTS REPORT ( IDA ) ON A CREDIT IN THE AMOUNT OF US$ 11.6 MILLION (SDR 8.

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank IMPLEMENTATION COMPLETION AND RESULTS REPORT ( IDA ) ON A CREDIT IN THE AMOUNT OF US$ 11.6 MILLION (SDR 8.5 MILLION) TO Bhutan FOR RURAL ACCESS PROJECT November 29, 2006 South Asia Sustainable Development Department Bhutan Country Unit Report No:ICR 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 Group authorization. ICR27

2 CURRENCY EQUIVALENTS ( Exchange Rate Effective 11/29/2006 ) Currency Unit = Nu Nu 1.00 = US$ 0.02 US$ 1.00 = Nu Fiscal Year July 1 - June 30 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CDB Construction Development Board DADM Department of Aid and Debt Management DCA Development Credit Agreement DOR Department of Roads EA Environmental Assessment EFRC Environmentally Friendly Road Construction EMP Environmental Management Plan ERR Economic Rate of Return FY Fiscal Year ICR Implementation Completion and Results Report IDA International Development Association IDD Investigation and Development Division ISR Implementation Status Report M&E Monitoring and Evaluation MOWHS Ministry of Works and Human Settlement NBAD National Budget and Aid Coordination Division NEDA National Economic & Development Authority PAD Project Appraisal Document PDO Project Development Objective PMR Project Management Report PMU Project Management Unit PPD Policy and Planning Division QAG Quality Assessment Group QER Quality at Entry Assessment RAP Rural Access Project RGOB Royal Government of Bhutan RSMP Road Sector Master Plan SA Social Assessment

3 SBD SNV TA Standard bidding document Netherlands Development Organization Technical Assistance Vice President: Praful C. Patel Country Director: Alastair J. McKechnie Sector Manager: Guang Zhe Chen Project Team Leader: Binyam Reja

4 Bhutan RURAL ACCESS PROJECT CONTENTS 1. Basic Information Key Dates Ratings Summary Sector and Theme Codes Bank Staff Project Context, Development Objectives and Design Key Factors Affecting Implementation and Outcomes Assessment of Outcomes Assessment of Risk to Development Outcome Assessment of Bank and Borrower Performance Lessons Learned Comments on Issues Raised by Borrower/Implementing Agencies/Partners Annex 1. Results Framework Analysis Annex 2. Restructuring (if any) Annex 3. Project Costs and Financing Annex 4. Outputs by Component Annex 5. Economic and Financial Analysis (including assumptions in the analysis).. 28 Annex 6. Bank Lending and Implementation Support/Supervision Processes Annex 7. Detailed Ratings of Bank and Borrower Performance Annex 8. Beneficiary Survey Results (if any) Annex 9. Stakeholder Workshop Report and Results (if any) Annex 10. Summary of Borrower's ICR and/or Comments on Draft ICR Annex 11. Comments of Cofinanciers and Other Partners/Stakeholders Annex 12. List of Supporting Documents MAP... 67

5 1. Basic Information Country: Bhutan Project Name: RURAL ACCESS PROJECT Project ID: P L/C/TF Number(s): IDA ICR Date: 12/21/2006 ICR Type: Core ICR Lending Instrument: SIL Borrower: KINGDOM OF BHUTAN Original Total Commitment: XDR 8.5M Disbursed Amount: XDR 7.5M Environmental Category:B Implementing Agencies Ministry of Communications Cofinanciers and Other External Partners Netherlands Development Organization (SNV Buthan) 2. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 02/08/1999 Effectiveness: 05/24/ /24/2000 Appraisal: 06/28/1999 Restructuring(s): Approval: 12/21/1999 Mid-term Review: 02/14/ /17/2003 Closing: 04/30/ /30/ Ratings Summary 3.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Bank Performance: Borrower Performance: Satisfactory Low or Negligible Satisfactory Satisfactory 3.2 Quality at Entry and Implementation Performance Indicators Implementation Performance Indicators QAG Assessments (if any) Rating: Potential Problem Project at any Highly No Quality at Entry (QEA): time (Yes/No): Satisfactory Problem Project at any time (Yes/No): No Quality of Supervision (QSA): None DO rating before Closing/Inactive status: Satisfactory 1

6 4. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration Roads and highways Original Priority Actual Priority Theme Code (Primary/Secondary) Participation and civic engagement Secondary Secondary Rural policies and institutions Secondary Secondary Rural services and infrastructure Primary Primary 5. Bank Staff Positions At ICR At Approval Vice President: Praful C. Patel Mieko Nishimizu Country Director: Alastair J. McKechnie John W. Wall Sector Manager: Guang Zhe Chen Frannie A. Leautier Project Team Leader: Binyam Reja Thampil Pankaj ICR Team Leader: Surendra Govinda Joshi ICR Primary Author: Natalya Stankevich 2

7 6. Project Context, Development Objectives and Design (this section is descriptive, taken from other documents, e.g., PAD/ISR, not evaluative) 6.1 Context at Appraisal (brief summary of country macroeconomic and structural/sector background, rationale for Bank assistance) Bhutan 's difficult terrain makes the provision of physical and social infrastructure services an expensive and difficult proposition. Bhutan 's development strategy is guided by the Vision Statement of Royal Government of Bhutan (RGOB) articulated in "Bhutan 2020: A Vision for Peace, Prosperity and Happiness," which puts human happiness, not only economic growth, at the center of the nation's development. Hydropower development and export of power is the main means for financing social and economic infrastructure development. In recent years, Bhutan has been able to develop roads, power supply, telecommunications, and water supply to serve a growing share of its population, and improve the population's access to education and health services. Preserving the cultural heritage, country's forest cover, and its rich biodiversity is at the center of Bhutan 's development strategy. The country has a well-developed communitybased participatory planning system, which is the basis to select regional priorities for development, including rural roads. Road accessibility. According to Bhutan 's Population and Housing Census of 2005, 21 percent of rural households live within one to four hours of walking distance from the nearest all-season road, and another 21 percent live within more than four hours and up to three days. Mule transport costs about US$3 per ton per km compared to US$ 0.1 per ton per km by road. The long distance prevents farmers from crop diversification and growing of marketable cash crops, causes damage to perishable crops taken to the market and poor availability of extension services etc., impeding farming output and income. Poor road links reduce access to medical facilities, resulting in more deaths and more sick days out of work. Most important, poor road access leads to low school enrollment and lack of upgrading of school facilities in inaccessible areas, since all construction materials have to be carried on expensive mule-hauls and some construction equipment cannot be so transported. Rural access improvement is critical for the sustainable development of the agricultural economy, connecting the scattered rural communities with the main stream of the national life and improving the quality of life. Management of the Road Sector. Road infrastructure in Bhutan is the responsibility of the Department of Roads (DOR) in the Ministry of Works Human Settlement (MOWHS). The network under DOR management includes some 3,433 km (i.e., 1,579 km of national highways, 459 km of districts roads, 1,270 km of feeder roads and 125 km of urban roads). DANTAK, a border road organization of the Government of India, oversees 595 km of roads which will be gradually transferred to DOR. 571 km of forest roads and 389 km of farm roads are under the responsibility of the Departments of Forest and Ministry of Agriculture. In addition, local and farm roads, and mule tracks are managed by local government agencies. 3

8 6.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The project development objective (PDO) was to improve the access of rural communities to markets, schools, health centers and other economic and social infrastructure in order to improve the quality of life and productivity of rural communities. The project was also aimed to help strengthen institutional capacity for implementing environmentally friendly approaches to improve rural access, community involvement in rural roads selection and management, and improved infrastructure maintenance. The PDO was to be achieved by financing sustainable maintenance and rehabilitation of feeder roads and construction of economically justifiable feeder roads, subject to the adoption of environmentally sustainable construction and maintenance practices. The PDO was to be monitored by the following indicators: A. Average travel time and transport costs in project areas (to be reduced by a minimum 50%) B. Reduced distance to health and education services; C. Higher enrollment of in primary and junior schools in the corridor of impact; D. Improved road maintenance system through involvement of local communities; E. Dzongkhag (district) rural access master plans prepared using participatory processes and endorsed by people's representatives; F. Wider acceptance of environmental safeguards in construction and maintenance practices. A socioeconomic impact monitoring study was included in the design of the project to assess the achievement of the above outcome indicators, as well as other more indirect impacts of the project on beneficiary groups. The impact study included a baseline survey before project implementation, and two repeat surveys on the same households and communities during and after project works were carried out. 6.3 Revised PDO and Key Indicators (as approved by original approving authority), and reasons/justification The Project Development Objectives and Key Indicators were not revised. 6.4 Main Beneficiaries, original and revised (briefly describe the "primary target group" identified in the PAD and as captured in the PDO, as well as any other individuals and organizations expected to benefit from the project) The primary beneficiaries of the project were the isolated rural communities living in five dzonkhags (districts): Zhemgang, Lhuentse, Trasi Yangtse, Trashigang, and Mongar. 4

9 According to the baseline survey, the project was to benefit 3400 households living in 39 villages of the above districts, and to bring these households within less than half a day walk to the nearest road head. This would in turn help households to be connected with public transport services and have easier access to markets, health and education services. The project had a direct impact on improving agricultural productivity, which in turn supported the diversification of cash crops and increased profitability and income from agriculture. The secondary beneficiaries of the project were the Department of Roads (DOR) headquarter and field staff, and the incipient construction and consulting industry in Bhutan. The institutional strengthening component included training and capacity development program for the introduction and adoption of Environmentally Friendly Road Construction (EFRC) methods in road construction and maintenance. All key stakeholders, including senior policy makers, DOR staff, contractors and consultations, were provided with extensive training on the EFRC concept and its application in road construction and maintenance. 6.5 Original Components (as approved) The project had the following components: Component 1: Construction of New Priority Feeder Roads of 122 km length (Estimated Total Cost: US$12.5 million). Civil works were to be executed following EFRC methods. Component 2: Office and Transport Equipment for DOR (US$0.3 million). This included survey equipment, office equipment and vehicles to provide logistic support for project monitoring and supervision. Component 3: Project management assistance, training and technical assistance (US$1.5 million). These inputs were expected to assist during the introduction and dissemination of environmentally friendly design and implementation practices for rural road construction and maintenance, for institutional capacity building of both public and private sectors (including community contracting), and for project implementation support. All project roads were selected from the priority list included in the Eighth Five-Year Plan, which was prepared through community participation and consultation. Although the project was not a "poverty targeted" operation, the candidate roads were located in some of the poorest areas in the country and served areas with poor road access. Support for the introduction and adoption of EFRC method was to be provided by the Netherlands Development Organization (SNV) Technical Assistance (TA) program, funded from the Government of Netherlands under the Integrated Sustainable Development Program. In addition, SNV TA program provided support for piloting community contracting for the maintenance of the first 15 km of the Dakpai-Buli road. 5

10 6.6 Revised Components None of the project components was revised. 6.7 Other significant changes (in design, scope and scale, implementation arrangements and schedule, and funding allocations) There were some changes in the selection of candidate roads. Three small candidate roads tentatively identified at appraisal were dropped because of severe geological problems and unstable slope in some sections of the project areas. Instead, the Yadi Shershong road (7 km) in Mongar Dzongkhag was selected from the road priority list of the Eighth Five-Year Plan. After the changes in candidate roads, the total road length constructed came to 129 km against the appraised length of 122 km. This change was allowed under the provision of the Development Credit Agreement. In addition, the heavy monsoon in 2004 caused landslides, which required remedial works to remove material as well as stabilize slopes to prevent future rock fall. A detailed geo-technical investigation was carried out to develop remedial measures. The study and the remedial works were financed from the savings of the project, which largely came due to the depreciation of the US Dollar against the SDR. With IDA's concurrence, the Credit savings enabled DOR to also procure additional traffic safety barriers for the project roads to improve their safety aspect and additional equipment for the newlyestablished Investigation and Development Division, which explains the increase in the final expenditures of the equipment component. The Credit closing date was extended by 14 months from April 30, 2005 to June 30, 2006 to accommodate delays in the construction works and implementing remedial geotechnical measures recommended by the geotechnical investigation. 7. Key Factors Affecting Implementation and Outcomes 7.1 Project Preparation, Design and Quality at Entry (including whether lessons of earlier operations were taken into account, risks and their mitigations identified, and adequacy of participatory processes, as applicable) Project Design and Flexibility. This was the first road project financed by the Bank in Bhutan. Therefore, the project design was kept simple and focused, and took into account the unique set of circumstances in Bhutan, including its small country size, good governance, and well-known commitment by the government to preserve the environment and the country& 8217;s cultural heritage. In addition, the project design took into account the lack of public sector experience in contract management and the private sector& 8217;s infant stage in road construction and consultancy. The IDA Guidelines were to be applied with appropriate flexibility to make the project design simple and fit into the unique circumstances of the country. Risks and Mitigation Measures. All risks were properly identified and mitigation 6

11 measures developed. The main risk identified during appraisal was related to lack of prior experience and familiarity with the new concept, which could have been an impediment to successful introduction and implementation of EFRC in road construction and maintenance. To mitigate this risk, the project developed EFRC-related procedures and guidelines, including Environmental Code of Practice, and provided for close monitoring and evaluation of contract clauses and Environmental Management Plan. RGOB and DOR showed exceptionally high commitment to the EFRC method and mainstreamed it within the country's environmental guidelines and policies (see Section 7.4) Participatory process. The project design reflected RGOB& 8217;s established practices to involve communities in planning, implementation and management of development projects. The identification of the project roads was preceded by a decentralized planning exercise involving communities at geog (block) and dzongkhag (district) levels. The Social and Environmental Assessments were also useful to inform the communities about the project and its impacts (favorable and adverse) and solicit their views on mitigation measures, suggestions and roles they could play. The Borrower followed good participatory procedures in compensating project affected persons and published norms for deciding on compensation, including land-for-land, cash-for-land, or combined options. Quality at Entry. A Quality at Entry Assessment (QEA) of the project carried out by Quality Assurance Group (QAG) in March 2000 rated QEA as "Highly Satisfactory" citing the strengths of government ownership, unique and participatory manner of project participation, inclusion of many elements of the best practice in its social, environmental, and economic evaluations. The ICR broadly concurs with the QAG assessment. The project had very clear objectives, an innovative approach and a simple design. However, it could have had a higher degree of readiness before credit negotiation, including having detailed engineering designs prepared in advance of the start of first-year works. In addition, the project could have benefited from detailed geotechnical investigation and better identification of geological risks associated with the fragile terrain along some of the roads financed. These could have helped avoid delays and geological problems identified during project implementation. 7.2 Implementation (including any project changes/restructuring, mid-term review, Project at Risk status, and actions taken, as applicable) Project implementation was satisfactory, with very little disruption. The strong ownership by DOR and RGOB ensured effective project implementation. There were, however, some unavoidable issues related to the fact this project was the first major road project funded by IDA in Bhutan. Four factors that adversely affected project implementation are: Weak Contractor Capacity. The project was the first major roads project executed by contractors. Prior to this project, most road works were carried out by 7

12 DANTAK (a border road organization of the Government of India) or using the force account arrangements. Because of their infant stage, most of the contractors faced technical capacity constraints and lacked proper construction management skills and experience in resources planning. As a result, some contractors had fallen behind schedule and required contract time extensions. During project implementation, a Construction Industry Capacity Assessment was carried out in close consultation with the Bhutan Construction Development Board and the Construction Association of Bhutan to identify the weaknesses of the contracting industry and develop a set of recommendations and an action plan. DOR has started implementing the study recommendations to enhance the technical capacity and organization of the local contractors. Vertically Disintegrated System of Contracting. At the initial implementation stage, DOR followed a vertically disintegrated system of contracting, whereby four separate contracts were awarded for opening the road, building structures, surfacing and bioengineering to different contractors on the same stretch of the road. The main reasons for choosing this system were (i) technical considerations due to uncertainty of future construction requirements and (ii) weak capacity of the emerging local construction industry. However, this system did not enable the contractors to use resources efficiently and resulted in the PMU incurring high transaction costs to administer a large number of contracts of small sizes. Later this system was changed to a more conventional integrated contracting system, whereby all works were awarded in one package for the same stretch of the road. Geotechnical Problems in Project Roads. During the heavy monsoon rains of 2004, a number of landslides and geological problems surfaced in some sections of the project roads. This required extensive mitigation measures that could have been much less extensive if better up-front geo-technical investigations had taken place and reflected in the design. The international consultant hired by DOR prepared detailed recommendations, including engineering designs and cost estimates, for mitigation of the landslides and other geo-technical problems. Local contractors were hired to execute these works. Ineffective structure of the implementation arrangements. The project site engineers reported to the Executive Engineers of the respective field offices, but the Executive Engineers were not part of the project management team and did not report to the Project Manager in Thimphu. These resulted in poor communication between HQ and field staff, and diluted the responsibility and accountability arrangements for quality assurance and implementation progress. During the early period of the project implementation, the PMU had very little 8

13 field presence, feeling that supervision of works rested only with field offices. However, during the latter part of the project implementation, the PMU staff were adequately empowered by DOR and made numerous site visits, which helped to expedite project implementation and compliance with the quality assurance provisions. 7.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The primary monitoring and evaluation system was well established for the project. It was primarily focused on the use of the socio-economic impact monitoring study, which included a baseline survey and two repeat surveys during the project implementation of the project. In addition, the project had monitoring indicators for outputs and inputs. However, the outcome indicators proposed in the PAD were not fully measurable, and the socio-economic monitoring study was adjusted to focus the surveys on the indicators that are measurable, and whose impacts could be attributed to the project. The results of the socio-economic impact monitoring study are summarized in Annex Safeguard and Fiduciary Compliance (focusing on issues and their resolution, as applicable) Safeguard compliance is rated satisfactory. Environmental aspects. The project was Category B for environmental safeguard requirements. During project preparation a comprehensive Environmental Assessment (EA) was prepared for the Lhuntse-Dungkhar road and was taken as a model for the remainder of the project roads. Prior to undertaking any civil works, DOR, with the help from SNV TA program, carried out EA and developed Environmental Management Plans (EMP). In addition, DOR developed Environmental Code of Practice (ECOP) for managing environmental impacts for road construction design and implementation. Given the good track record in environment impact management, Bhutan has been selected as a pilot country to adopt the country system for environment management. A Bank team has completed its gap assessment, and has recommended to use Bhutan's own environment policies and procedures for the proposed Second Rural Access Project. Social aspects. A Social Assessment (SA) was carried out as part of the project preparation using participatory and survey methodologies in the project areas of Zhemgang, Lhuentse, Trashi Yangtse and Trashigang Dzonkhags. The SA indicated an enthusiastic and overwhelming positive response from the communities for the project. A Resettlement Action Plan was prepared for the Dakpai-Buli road as a model study and all other project roads were required to develop a similar plan. By the closure of the project, all social mitigation measures including land acquisition and resettlement were completed in accordance with the agreed Resettlement Action Plan. 9

14 Fiduciary compliance is rated moderately satisfactory. Disbursement. Similar to other projects in the Bhutan lending portfolio, credit disbursement was slow and lagged behind physical completion. The delays were in part due to the de-concentrated nature of the project implementation arrangements, wherein DOR field offices did not adequately follow through with the submission of claims. There was a lack of effective communication among RGOB specialists on financial management and procurement, delays in certification of works by the project site engineers and delays in the submission of claims by contractors. Replenishment of the Special Account was sometimes affected by the Department of Aid and Debt Management's (DADM) delays in submitting disbursement claims because the field project implementation units often provided DADM with inadequate or incorrect information. Accountants at the project sites faced capacity constraints to handle project reporting requirements. The Bank's disbursement staff often traveled to Bhutan to provide training to RGOB and DOR staff on Bank disbursement procedures and requirement. With respect to audit compliance, the project did establish a good track record for submitting quarterly Financial Management Reports (FMRs) on a timely basis. Audit reports generally did not include significant auditor observations. As of September 30, 2006, the disbursements stood at SDR 7,926,092.42against the original credit of SDR 8.5 million or 94 percent. The undisbursed balance of SDR 573, is cancelled effective November 24, Procurement. Procurement of works, goods and services was carried out in accordance with Bank guidelines. The bidding process was arranged in a competitive and transparent manner. Since the local construction industry was in its infant stage, the qualification criteria set by the Bank were higher than the industry was capable of meeting in order to qualify for the bidding. As a result, some qualification requirements had to be relaxed to attract bids from local contractors, and the Bank provided a number of exceptions in issuing no objection letters for the award of contracts. DOR's procurement capacity improved significantly during the implementation of the project. DOR staff handled procurement tasks efficiently and proved proficient in preparing tenders and evaluation of bids. However, the procurement procedures, which require multiple reviews and approval at the highest level, even for small size contracts, caused significant delays in contract evaluation and award. RGOB is currently reviewing the various thresholds for contract review and approval. 7.5 Post-completion Operation/Next Phase (including transition arrangement to post-completion operation of investments financed by present operation, Operation & Maintenance arrangements, sustaining reforms and institutional capacity, and next phase/follow-up operation, if applicable) Maintenance of the newly built feeder roads. Maintenance and operation of completed road is handled by the National Workforce under DOR's force account and the pilot community contracting for the first 15 km of the Dakpai-Buli road. The follow-up project will support community contracting on the two RAP road corridors - Gomkora- 10

15 Tomzanhangtsen and Bartsam-Ramjar - where communities have sufficient labor willing and able to work in road maintenance. The only difference in this contracting model in the follow-up project will be that the communities will have to register as petty contractors to have the same rights and obligations as other private contractors.therefore, the maintenance of completed roads will continue to be carried out under the National Work Force and through community contracting. Follow-up operation. Considering the positive economic and social impacts of the RAP, RGOB has requested the Bank to support a follow-up project. The proposed Second Rural Access Project is currently under preparation and will be processed as a 'repeater' following a more streamlined procedure. The proposed RAP II will have the same objectives as RAP I, and will expand rural access improvements in three additional dzongkhags, which are ranked as high priority in the Road Master Plan of RAP II, which is expected to be approved by the Board in FY07, will follow EFRC approach and continue the capacity development program for DOR and the local construction industry. 8. Assessment of Outcomes 8.1 Relevance of Objectives, Design and Implementation (to current country and global priorities, and Bank assistance strategy) The project's relevance is rated highly satisfactory. The project remains highly relevant to RGOB's current Ninth Five-Year Plan (FYP) and the IDA Country Assistance Strategy (CAS) for Bhutan for (endorsed by the Board in November 2005). Both RGOB's Ninth FYP and the CAS make improving rural accessibility a defining development issue and give high priority to support improvements in rural road expansions. The RAP is also in line with RGOB's policy to preserve the environment and promote private sector development. The project development objectives are also aligned with global priorities, including the Millennium Development Goals related to poverty eradication, access to education and health services, and environmental sustainability. 8.2 Achievement of Project Development Objectives (including brief discussion of causal linkages between outputs and outcomes, with details on outputs in Annex 4) The achievement of the PDO is rated highly satisfactory. The project achieved its objectives to improve access, and in doing so, improved the quality of life of the rural communities and productivity of the agricultural sector. The Socioeconomic Impact Monitoring Study has documented many of the project's achievements and results, and the study's main findings are summarized in Annex 5 and highlighted below. (A) Improved access of previously isolated rural communities to markets, schools, health centers and other economic and social infrastructure (Achieved). Shift from head loading and animal transport to motorized transport. Access to 11

16 economic and social services centers has become easier, faster and cheaper for residents of 39 villages in the five project dzongkhags. 3,771 households (compared to 3,400 projected at appraisal) are in half a day walk to the nearest roads compared to 1-3 days before the road was open. Motorized transport services (by taxi, truck or bus) are available on most of the roads. The Department of Transportation and Safety in the Ministry of Communication has started providing scheduled bus services on the Dakpai- Buli road (five times a week) and planed to do the same in other project roads, where the private sector is currently providing services. Most beneficiaries now use motorized transport services, rather than portering or animal transport for transport of goods and supplies to the markets. The modal shift has resulted in preventing damage and loss of farmers' produce during transportation. Porters and animal transport can lead to up to 50 percent loss or damage. Significant reduction in travel time and transport costs. Travel time to reach hospitals and markets has been reduced by 76 percent (versus 50 percent as set at appraisal), on average, and transport costs has declined by 75 percent (versus 50 percent as set at appraisal). The travel time to school in the neighboring villages has declined from more than six hours to around one hour. While RGOB gives priority to increasing access to basic education in remote areas, largely through the establishment of new community schools, the construction of new roads is important as a means of supporting increased enrollment, particularly at the post-primary levels of education when children are older and can travel more independently. This is particularly the case for girl students who way be less inclined to continue their studies if they require boarding facilities. Reduced distance to economic and social services. Many shops (e.g., 12 shops in Buli, one shop in Gomphu) have been opened in the project areas and households do not need to travel outside their village to purchase some essential commodities. Rural credit services have also come to the project villages. Representatives of the rural credit agency make monthly visits to the villages to collect and process credit requests. (B) Improved quality of life of the rural communities (Achieved). Improvement in social services. Medical supplies and food rations are now delivered on time right to the door of the basic health units and schools. Ambulances easily reach villages to transport sick patients to the hospitals. Most of the schools in the project villages are either renovating or expanding their facilities. Three have been upgraded from primary to junior high schools, two more are to be upgraded and a few new schools are to be built in the project areas. Improvement in the quality of housing. With availability of motorized transport service to bring construction materials, many beneficiaries have started renovating their houses and improving sanitary conditions, including replacement of banana leaf roofs with corrugated galvanized iron (CGI) sheets and installation of water standpipes and latrines. Reduction in prices for consumption commodities in villages accessible by roads. Prices for consumption commodities have been significantly reduced in the villages 12

17 connected by roads. Residents of connected villages pay 4-14 percent more than in the town, where they used to go before the project, while residents of control villages (not connected by roads) pay percent more than in town. (C) Improvement in the productivity of the rural communities (Achieved). The improved access to markets has created an incentive for villagers to invest in upgrading their tools and improvement of agricultural outputs. Many of the beneficiaries have applied for farmer's credit and started approaching the Renewable Natural Resources (RNR/agriculture extension) centers more frequently for professional agricultural advice. According to the socio-economic impact monitoring study, visits to the RNR centers have more than doubled in the project areas since the roads were opened. Diversification of crops. Most of the farmers have diversified their agricultural products from mostly cereal and rice to high-valued vegetables (e.g., broccoli, cauliflower), cash crops (e.g. chili pepper, potato) and fruit (e.g., walnut, orange). Some farmers have reduced land areas under cereal and expanded orchards and new cash crops, which are in higher demand in neighboring markets. Most farmers have increased the number of fruit trees and introduced new seeds (e.g., orange, pear, peach, walnut, and apple). Increase in income from the sale of agricultural and farm produce. With the improved road access, farmers are able to take their harvest and produce to markets in a shorter period of time and without damaging their products while traveling. This has enabled farmers to increase the volume of their products and earn higher revenues from the sale of their produce. According to the socioeconomic impact monitoring study, project beneficiaries have enjoyed 64 percent increase in income from the sale of agricultural produce. Revenues have increased by more than 100 percent, particularly from the sale of maize and different sorts of vegetables. In addition, sales of newly introduced cash crops (e.g. chilli, potato) have also significantly contributed to increases in farmers' incomes. Revenues from the sale of butter have increased 29 and 60 percent, respectively, in the Yadi-Shershong and Gomphu road corridors; revenues from the sale of cheese have increased by 43 and 140 percent, respectively, in the same corridors. (D) Wider acceptance of environmental safeguards in construction and maintenance practices (Achieved). This project has succeeded in raising considerable awareness regarding the need to adopt environmentally sustainable construction practices. Many important generic outputs have been generated to promote EFRC, such as Environmental Codes of Practice (ECOPS) and EFRC guidelines, standard bidding documents, etc., which have found a wider application in road development projects in Bhutan. The National Environmental Commission has now mandated EFRC application in all road projects under the responsibilities of different agencies, including DOR, Ministries of Forestry and Agriculture, and dzongkhag administrations. 13

18 (E) Involvement of local communities in road planning and maintenance activities (Partially Achieved). As the planning process in Bhutan is organized from bottom to top, local communities were involved in identifying priority feeder roads, which were later included in the National Transport Master Plan. The RAP piloted a community contract on the first 15 km of the Dakpai-Buli road. The pilot was successful and the contract was renewed for another year. Although DOR plans a scaling-up of the community contracting module on other roads, this may be difficult because of the shortage of labor in the countryside. (See Annex 4 for Outputs by Components and Annex 5 for more details on Outcomes of the Project.) 8.3 Efficiency (Net Present Value/Economic Rate of Return, cost effectiveness, e.g., unit rate norms, least cost, and comparisons; and Financial Rate of Return) Efficiency in achieving the project objectives in terms of economic rate of return is highly satisfactory. The ICR followed the PAD methodology in calculating the economic rate of return and investment per capita for all project roads. The PAD established a cost-effectiveness threshold of US$ 560 per beneficiary corresponding to an ERR of 12 percent for economic viability of the project roads. The ICR analysis determined that the actual average investment per beneficiary in all the project roads was much lower - at US$365, which means that the delivered ERR was higher than the ERR estimated at appraisal. The per beneficiary investment in the roads ranged from US$210 up to US$ 603. The Lhuentse-Dungkhar road had the highest investment per beneficiary (US$603) due to escalation of costs and additional civil works which were undertaken as a result of the geological and geotechnical problems caused by the heavy monsoon season in However, per beneficiary investment in the Lhuentse-Dungkhar road was still above the norm suggested for exceptional cases in the PAD: US$650 corresponding to ERR of 10 percent. Length, Latest Estimate Number of Investment per km Nu US$ Beneficiaries* beneficiary, US$** Civil Works ,802,736 12,569, , Construction of Dakpal ,411,717 2,803, Buli Road 7, Construction of Lhuentse ,612,168 4,700, Dungkhar Road 7, Construction of other ,167,019 3,023, feeder roads 14, Construction of Trashi ,611,833 2,041, Yangste Road 4, Notes: * The number of beneficiaries is equal to the number of residents from the project affected villages plus 10% to include other beneficiaries who directly benefited from trade or visits to the newly accessible areas. This is in accordance with the PAD methodology. ** Exchange rate: US$1=Nu Justification of Overall Outcome Rating 14

19 (combining relevance, achievement of PDOs, and efficiency) Rating: Satisfactory The overall outcome is rated satisfactory given the high relevance and efficiency of the project, and achievement of the project objectives. The project remains highly relevant to the RGOB's and the CAS development priorities for improving rural access. Achievement of the project was successful: all targets were either met or exceeded, and secondary impacts, as established by the monitoring study, were substantial and include: (i) diversification of the rural economy; (ii) increase in agricultural productivity and farmers' incomes; (iii) reduction in prices for consumption commodities; and (iv) improvement in the welfare of the rural beneficiaries. The project was highly efficient, as the actual investment per beneficiary of US$365 was significantly lower than the projected US$ Overarching Themes, Other Outcomes and Impacts (if any, where not previously covered or to amplify discussion above) (a) Poverty Impacts, Gender Aspects, and Social Development Poverty Impacts, Gender Aspects, and Social Development are rated satisfactory. See Annex 5, Socioeconomic Impact Monitoring Study. (b) Institutional Change/Strengthening (particularly with reference to impacts on longer-term capacity and institutional development) Strengthened institutional capacity of the DOR in EFRC implementation, contract management and road infrastructure maintenance (Achieved). The institutional component helped DOR and its field offices in the five dzongkhags build and strengthen their capacity to implement EFRC to improve rural access, promote community involvement in rural road selection and management, and ensure sustainable rural road maintenance in road projects. The new Investigation and Development Division consisting of Environmental and Geotechnical Units was established with the responsibilities of development of standard specifications and quality assurance requirements, field investigations for the compliance with the standards, geotechnical investigation and support and environmental safeguard aspects. Training programs, including post-graduate studies, short-term courses, study tours and local workshops, were organized and delivered to train DOR staff in contract and construction management, procurement, financial management, and environmentally friendly construction methods. (c) Other Unintended Outcomes and Impacts (positive or negative, if any) None. 8.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 15

20 (optional for Core ICR, required for ILI, details in annexes) The socio-economic monitoring study conducted beneficiary surveys at three stage of the project life: during preparation, implementation and after completion. Brief findings of these beneficiary surveys are provided in Section 8.2 and more details are given in Annex Assessment of Risk to Development Outcome Rating: Low or Negligible The risk to the development outcome is assessed as low. Risk to the conditions of the new roads is low as the roads were built following the EFRC methods and mitigation measures recommended by the geotechnical studies were implemented to minimize landslide hazards. Routine maintenance, which is one of the top priorities of RGOB, is regularly executed through the National Workforce and community contractors on the entire road network and is funded from the budget specially designed for this purpose. The monsoon damage restoration budget is also available to address damage to roads stemming from the annual monsoon rains. With the support and commitment of RGOB to EFRC, the institutional capacity of DOR and other road agencies continues to be strengthened to mainstream environmentally sustainable approach in the construction of roads, including forest and farm roads. However, DOR needs to improve its technical and resource capacities in order to enforce quality assurance in future road projects. Risk to the sustainability of the community-based road maintenance contracting is moderate. Communities increasingly are experiencing a shortage of labor as they have to contribute to the implementation of many development activities being implemented at the community level many of which have been made possible through increased access using new roads. 10. Assessment of Bank and Borrower Performance (relating to design, implementation and outcome issues) 10.1 Bank (a) Bank Performance in Ensuring Quality at Entry (i.e., performance through lending phase) Rating: Satisfactory IDA's performance at the identification and preparation stage is rated satisfactory. Since the project was IDA's first rural access project in Bhutan, the team conducted rigorous preparations. The project design took into consideration not only lessons from rural road projects supported by the Bank in other countries, but also the unique set of circumstances in Bhutan, and RGOB's environmental and rural infrastructure policies and commitment to the preservation of the natural and cultural environment. While the project design was simple and realistic, a more rigorous geo-technical risk analysis could have been carried out before effectiveness. This would have led to implementing geological works at the start of the civil works, and delays in works completion on some of the road stretches could have been avoided. 16

21 (b) Quality of Supervision (including of fiduciary and safeguards policies) Rating: Satisfactory IDA's performance during the project supervision is rated satisfactory. The team acted proactively in identifying problems that hindered project implementation and developing solutions. Such a proactive approach as well as close collaboration with the other parties concerned (Borrower, implementing agency, partner ( SNV) and contractors) allowed for the prompt addressing of delays in works, improved progress and quality of work, and the introduction and use of a geotechnical study as a pre-requisite for the start of road construction. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory The overall performance of IDA is rated satisfactory, considering the above assessment with the outcome ratings given in Section Borrower (a) Government Performance Rating: Satisfactory The Borrower's performance during the preparation and implementation is rated satisfactory. The project development objectives were in close alignment with the priorities of RGOB. The Government's ownership of and commitment to the project was strong. The Borrower promoted the establishment of an environment to foster growth and increased capacity of the private construction sector, and supported the adoption of the EFRC methods as a mandatory requirement for road construction in its environmental policy. Senior officials of the Ministry made frequent site visits to oversee the progress of work. (b) Implementing Agency or Agencies Performance Rating: Satisfactory Implementing Agency Ministry of Communications Performance The performance of the implementing agency - the Department of Roads - is rated satisfactory. DOR management and staff implemented the project professionally and with high quality standards. Despite the fact that many of the approaches in the project were new, including EFRC and contracting, DOR made significant strides to mainstream these approaches in their work procedures. DOR engineers were sufficiently competent to address technical issues. Environmental management capacity continues to improve with the establishment of the Investigation and Development Division together with its 17

22 Environmental and Geotechnical Units. Earlier lax supervision by the PMU staff was later rectified by frequent site visits and proactive supervision by DOR staff. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory The overall performance of the Borrower is rated satisfactory, considering the above assessment with the outcome rating given in Section Lessons Learned (both project-specific and of wide general application) Development of the rural road network in Bhutan is an expensive, but unavoidable, undertaking needed to facilitate economic development and poverty reduction. The scarce and scattered population and mountainous terrain in Bhutan make investments in feeder roads an expensive and costly proposition. However, the socio-economic impact monitoring study of the RAP has revealed significant positive impacts on much of the previously isolated rural population. Roads are crucial for boosting the rural economy and improving the welfare of rural populations. Road access facilitates other development programs and services. Thus, such a costly investment is unavoidable in order to achieve the country's poverty reduction goals The Bank and development partners can play an effective catalytic role in mainstreaming environmentally sustainable road construction approaches if there is demonstrated commitment of government. The success of EFRC introduction and implementation in the RAP is due, in part, to RGOB's demonstrated commitment to environmental protection and stringent policies which were in place when the project started. The Country Systems Assessment conducted by the Bank recognized the comprehensiveness of RGOB's environmental policies, and concluded that they would be used to support the effective use of environmental safeguards in future Bank-supported projects Geotechnical surveys (hazard spots assessments) should be carried out prior to the start of construction. Geological surveys should be a prerequisite for each road construction project in a mountainous country impacted by annual monsoon rains. It is important to identify potential geological problems prior to the start of construction to avoid costly remedial efforts later. Mitigation measures and other recommendations suggested by the geotechnical survey should be fully integrated in the detailed design of future roads A project should have a sufficient level of readiness for implementation before being negotiated. At the onset, RAP suffered from a relatively low level of readiness, as not all roads to be financed under the project had been fully designed by the time of negotiations and subsequent Credit effectiveness. 18

23 11.5. Quality assurance requires establishment of accountability mechanisms and empowerment for decision-making. Responsibilities and roles should be clearly defined and reporting linkages precisely determined and established between all concerned parties (e.g., DOR Head Office, field offices, PMU and project site engineers). In particular, de-concentrated implementation arrangements, as used in RAP, require that project site engineers are empowered to make project-related decisions on site A vertically disintegrated system of contracting proved to be inefficient. The PMU started with cumbersome contracting and awarded four separate contracts (opening of the road, building of the structures, surfacing, and bioengineering) for the same stretch of road. However, this resulted in increase in transaction costs to manage multiple contracts and inefficient use of resources by contractors working on the same stretch. In subsequent civil works, DOR decided to drop this approach and use an integrated contracting system Project-related financial and accounting systems should strive to use country systems when feasible. For accounting and reporting on project expenditures, DOR was required to use a computerized financial management system designed to meet the Bank's financial reporting requirements. However, its application was impeded by several major problems, including the absence of IT support in the country, a lack of system connection between DOR Headquarters and field offices, and frequent power outages. Later, RGOB developed and introduced its own accounting system, which has required a second level of data entry and additional tasks for DOR accountants. The follow-up RAP-II will use RGOB's system, which has been reconciled with that of the Bank. 12. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies DOR has prepared and submitted the implementation completion report on the RAP to IDA team (enclosed in Annex 10). The Implementing Agency's ratings of almost all aspects are one level above the World Bank ICR's ratings. As this was the first rural road project implemented by DOR with the financial support of the World Bank, the implementing agency analyzed the project outcomes and experience from the historical progression point of view, while the Bank ICR team compared it with its experience in other transport projects and other countries. The Borrower's comments received on the ICR generally concur with the ICR team's findings. (b) Cofinanciers Not applicable. 19

24 (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) The SNV, that provided TA to the project, has prepared and submitted its input for the ICR (enclosed in Annex 11). It did not rate the project outcome, the performances of the Bank and Borrower/Implementing Agency. Overall, the SNV considers the project experience positive as "the cooperation between the Department of Roads, SNV and the World Bank has been very fruitful". 20

25 Annex 1. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The project development objective (PDO) was to improve the access of rural communities to markets, schools, health centers and other economic and social infrastructure in order to improve the quality of life and productivity of rural communities. The project was also aimed to help strengthen institutional capacity for implementing environmentally friendly approaches to improve rural access, community involvement in rural roads selection and management, and improved infrastructure maintenance. The PDO was to be achieved by financing sustainable maintenance and rehabilitation of feeder roads and construction of economically justifiable feeder roads, subject to the adoption of environmentally sustainable construction and maintenance practices. The PDO was to be monitored by the following indicators: A. Average travel time and transport costs in project areas (to be reduced by a minimum 50%) B. Reduced distance to health and education services; C. Higher enrollment of in primary and junior schools in the corridor of impact; D. Improved road maintenance system through involvement of local communities; E. Dzongkhag (district) rural access master plans prepared using participatory processes and endorsed by people's representatives; F. Wider acceptance of environmental safeguards in construction and maintenance practices. A socioeconomic impact monitoring study was included in the design of the project to assess the achievement of the above outcome indicators, as well as other more indirect impacts of the project on beneficiary groups. The impact study included a baseline survey before project implementation, and two repeat surveys on the same households and communities during and after project works were carried out. Revised Project Development Objectives (as approved by original approving authority) The Project Development Objectives and Key Indicators were not revised. (a) PDO Indicator(s) Indicator Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Indicator 1 : Increase in the number of people within half-day walk to a motorable road. Value (quantitative Beneficiary households 3400 beneficiary Beneficiary households households are Not applicable. 3,188 beneficiary households. 21

26 or are within 1 to 3 days of within half-day walk Qualitative) walking to the nearest road head. to motorable road by EOP. Date achieved 05/01/ /30/ /01/ /30/2006 Comments (incl. % achievement) Indicator 2 : Value (quantitative or Qualitative) The target is achieved for 94%. Additional 583 households have been provided with access of a slightly more than half a day walk to the all-season roads. Increase use of motorized transport, resulting in reduction in transport cost and travel time to key social and economic centers. Portaging and animal 50-75% reduction 50% reduction in transport only -- very Not in transport costs transport costs and high transport costs and applicable. and 75% reduction travel time. travel time. in travel time. Date achieved 05/01/ /30/ /01/ /30/2006 Comments The transport cost reduction target is achieved for 125%. The travel time (incl. % reduction target is achieved for 150%. achievement) (b) Intermediate Outcome Indicator(s) Indicator Baseline Value Original Target Values (from approval documents) Indicator 1 : Construction of 129 km of feeder roads. Value (quantitative Adding 122 km of feeder roads to the 122 km of feeder or Qualitative) Bhutan road network. roads. Formally Revised Target Values Not applicable. Actual Value Achieved at Completion or Target Years 129 km. Date achieved 05/01/ /30/ /01/ /30/2006 Comments (incl. % The target is achieved for 108%. achievement) Capacity development for environment-friendly road construction (EFRC) Indicator 2 : method. Wider acceptance and Wider acceptance of Value EFRC-method not adoption of EFRC and adoption of EFRC (quantitative Not used in road method as RGOB method as RGOB or applicable. construction. policy for all road policy for all road Qualitative) construction. construction. Date achieved 05/01/ /30/ /01/ /30/2006 Comments (incl. % achievement) The target is achieved for 90%, because the EFRC method is adopted as the RGOB policy, and the country is starting mainstreaming it in other road projects, including farm and forest roads. 22

27 Annex 2. Restructuring (if any) Not Applicable 23

28 Annex 3. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Components Appraisal Estimate (USD M) Actual/Latest Estimate (USD M) Percentage of Appraisal Feeder Road Construction Office & Transport Equipment Project Management Assistance & Training & Institutional Strengthening & Studies Incremental Operating Costs Total Baseline Cost Physical Contingencies 0.00 Price Contingencies 0.00 Total Project Costs Project Preparation Facility (PPF) Front-end fee IBRD Total Financing Required (b) Financing Source of Funds Type of Cofinancing Appraisal Estimate (USD M) Actual/Latest Estimate (USD M) Percentage of Appraisal Borrower INTERNATIONAL DEVELOPMENT ASSOCIATION NETHERLANDS: NETHERLANDS DEVELOPMENT ASSOCIATION (c) Disbursement Profile 24

29 25