Bangladesh: Road Maintenance and Improvement Project

Performance Evaluation Report Bangladesh: Road Maintenance and Improvement Project Independent Evaluation

Performance Evaluation Report December 2014 Bangladesh: Road Maintenance and Improvement Project This document is being disclosed to the public in accordance with ADB's Public Communications Policy 2011. Reference Number: PPE BAN 2014-16 Project Number: 33243 Loan Numbers: 1789/1790 Independent Evaluation: PE-775

NOTES (i) (ii) In this report, $ refers to US dollars. For an explanation of rating descriptions used in ADB evaluation reports, see ADB. 2006. Guidelines for Preparing Performance Evaluation Reports for Public Sector Operations. Manila. Director General Director Team leader Team members V. Thomas, Independent Evaluation Department (IED) Bob Finlayson, Independent Evaluation Division 2, IED E. Kwon, Principal Evaluation Specialist, IED F. De Guzman, Senior Evaluation Officer, IED M. Fortu, Senior Evaluation Assistant, IED The guidelines formally adopted by the Independent Evaluation Department on avoiding conflict of interest in its independent evaluations were observed in the preparation of this report. To the knowledge of the management of the Independent Evaluation Department, there were no conflicts of interest of the persons preparing, reviewing, or approving this report. In preparing any evaluation report, or by making any designation of or reference to a particular territory or geographic area in this document, the Independent Evaluation Department does not intend to make any judgment as to the legal or other status of any territory or area.

Abbreviations AADT - average annual daily traffic ADB - Asian Development Bank ADF - Asian Development Fund ADP - annual development plan CIC - corridor improvement component CPAR - Chittagong Port access road DMF - design and monitoring framework EIRR - economic internal rate of return FGD - focus group discussion FIRR - financial internal rate of return FY - fiscal year GDP - gross domestic product ha - hectare HDM - highway development and management IED - Independent Evaluation Department IEM - independent evaluation mission IRI - international roughness index KII - key informant interview km - kilometer LARP - land acquisition and resettlement plan LGED - local government engineering department MVO - Motor Vehicles Ordinance OCR - ordinary capital resources PCR - project completion report PPER - project performance evaluation report PPP - public private partnership RHD - Roads and Highways Department RMC - road maintenance component SDR - special drawing rights VOC - vehicle operating cost Currency Equivalents Currency Unit taka (Tk) At Appraisal At Program Completion At Evaluation (October 2000) (April 2009) (February 2013) P1.00 = $0.0186 $0.0140 $0.0127 $1.00 = Tk 53.75 Tk 71.23 Tk 78.35

Contents Acknowledgement Basic Data Executive Summary v vii ix Chapter 1: Introduction 1 A. Project Scope 1 B. Evaluation Purpose and Process 1 Chapter 2: Design and Implementation 2 A. Background 2 B. Rationale 3 C. Outcomes and Outputs 4 D. Project Risks and Mitigation Arrangements 5 E. Cost, Financing, and Executing Arrangements 6 F. Project Outputs 8 Chapter 3: Performance Assessment 11 A. Overall Assessment 11 B. Relevance 11 C. Effectiveness 13 D. Efficiency 14 E. Sustainability 15 F. Development Impacts 16 G. ADB Performance 18 H. Borrower and Executing Agency Performance 18 Chapter 4: Issues, Lessons, and Follow-Up Actions 19 APPENDIXES 1. Design Summary 22 2. Implementation 24 3. Covenants 25 4. Policies 29 5. Economic Reevaluation 32 6. Financial Reevaluation 41 7. Socioeconomic Reevaluation 44

Acknowledgement The guidelines formally adopted by the Independent Evaluation Department (IED) on avoiding conflict of interest in its independent evaluation were observed in the preparation of this report. Mr. Joselito Supangco, Mr. Ahmed Faruque, and Mr. Nazrul Islam assisted the IED PPER team with field evaluation, project-related documents, data and information, and the socioeconomic field survey. To the knowledge of the management of IED, there were no conflicts of interest of the persons preparing, reviewing, or approving this report.

Basic Data Bangladesh: Road Maintenance and Improvement Project As per ADB Key Project Data Loan Documents Actual ($ million) 1789 and 1790 1789 and 1790 Total project cost 160.20 117.77 Foreign exchange cost 75.60 48.13 Local currency cost 84.60 69.64 ADB loan amount utilized 67.60 ADB loan amount cancelled 37.27 Key Dates Fact-finding 24 Feb 15 Mar 2000 Appraisal 9 22 June 2000 Loan negotiations 16 18 October 2000 Board approval 29 November 2000 Loan agreement 18 December 2000 Loan effectiveness 18 March 2001 10 September 2001 Number of extensions 3 2 First disbursement 20 Dec 2001 10 Sep 2001 Project completion Mar 2004 Mar 2004 Jun 2007 Sep 2008 Loan closing 30 Jun 2005 30 Jun 2005 15 Apr 2009 18 Jun 2008 Months (effectiveness to completion) 57 57 99 81 Borrower: Bangladesh Executing Agency: Roads and Highways Department Mission Data Type of Mission No. of Missions No. of Person-Days Fact-finding 1 100 Appraisal 1 140 Inception 1 30 Special loan administration 1 64 Road sector implementation issues 1 9 Environmental compliance review 1 4 Special project administration 1 2 Review 12 230 Project completion 1 6 Independent evaluation 1 12 ADB = Asian Development Bank.

Executive Summary This project performance evaluation report (PPER) evaluates the Road Maintenance and Improvement Project in the People s Republic of Bangladesh to assess its performance and highlight its lessons. The Project The project was developed in response to the Government of Bangladesh s focus on the country s five major road corridors. Developing and maintaining an effective road network was a key theme in Bangladesh s Fifth Five-Year Plan, 1997 2002. Expanding the capacity of the Dhaka Chittagong Corridor was necessary to establish efficient transport between the country s capital and its main port. Improving the road network was expected to lead to significant economic growth and poverty reduction in the southeast region. The project was designed to develop physical infrastructure and introduce specific policy and institutional reforms in the road subsector. Project objectives were to (i) improve transport efficiency on existing roads nationwide by strengthening the governance of road maintenance and conducting priority periodic maintenance works; (ii) improve transport efficiency on the strategic Southeast Road Corridor by upgrading road conditions and increasing capacity; and (iii) increase private sector participation in the delivery of road infrastructure by establishing an enabling policy and legal environment and by implementing a toll road demonstration project. The project was comprised of a corridor improvement component (CIC) and a road maintenance component (RMC). Each component had investment and policy outputs. For the CIC, the outputs consisted of constructing of 111 kilometer (km) sections of road along the Southeast Road Corridor, and establishing a policy and legal framework for toll-funded private sector operation and maintenance, and a legal framework for controlled access highways. For the RMC, the outputs consisted of adopting and implementing a policy framework for road maintenance, and periodically maintaining an estimated 250 400 km of roads for each of the 3 years from fiscal year (FY) 2002/03 to FY2004/05. The Asian Development Bank (ADB) approved the project in November 2000. Its total cost was estimated at $160.2 million. ADB approved total funding of $94 million equivalent, comprised of $72 million equivalent from the Asian Development Fund (ADF) (Loan 1789) and $22 million from ordinary capital resources (OCR) (Loan 1790). The two loans became effective in September 2001, with a 6-month delay from the original target date for loan effectiveness. The project was completed in April 2009, about four years after the targeted completion date of June 2005. The actual project cost was $117.77 million, which was 74% of the original estimated cost. ADB had to cancel loan amounts totaling $37.27 million, representing 24% of the loan approved, which the PPER reported were derived mainly from construction cost savings. The CIC component s achievements were as follows: (i) a total of 113.25 km of road was constructed on the Southeast Road Corridor, exceeding the target of 111 km,

x Bangladesh: Road Maintenance and Improvement Project and (ii) a legal framework was provided and environment outputs were enabled to support private sector participation in roads. The RMC component achieved the following: (i) sealing and overlay of a total of 369.5 km of road, which was about 30% of the original target; and (ii) a policy framework for road maintenance, which was partially achieved. The 4-year overrun was due to: (i) delays in the contract award for the RMC subprojects due to changes in procurement arrangements envisaged at appraisal, (ii) delays in government approval for the interim operation and maintenance contract of the Chittagong Port access road (CPAR), (iii) slow progress in implementing the contract for the feasibility study and detailed design for the Dhaka Chittagong Highway, and (iv) delays in the approval of the feasibility study by the Government Purchase Committee. The executing agency was the Road and Highway Department (RHD) of the Ministry of Communications. Procurement was implemented through eleven packages, comprising nine packages for civil works and one package each for construction supervision and the feasibility study. Assessment The project s objective was to resolve problems of inadequate road infrastructure and road maintenance. These issues were resulting in chronic congestion (i.e., traffic growth outstripping capacity on strategic corridors) that was putting strains on many road sections, shortening their economic life. The poor condition of the road network made road transport services expensive and unreliable. These, in turn, reduced the mobility of labor and goods and services, constraining economic development potential and impeding poverty reduction efforts. As a result, there was an urgent need to upgrade the existing road network and expand the capacity of the Southeast Road Corridor, the country s main highway, focusing on the Dhaka Chittagong Corridor. This corridor links Dhaka to the country s main port, Chittagong. The rehabilitation was expected to spur economic growth and employment opportunities in Bangladesh. The project was expected to improve the transport network connecting urban and rural areas in order to stimulate nonfarm activities and attract private investment in the rural areas. Setting up effective maintenance systems and promoting private sector participation in roads were vital to supporting reforms to improve transport system efficiency by increasing the sustainability of investments. ADB s support for transport infrastructure in Bangladesh focused on upgrading road infrastructure and improving the enabling environment for private sector participation in the road subsector. ADB s assistance was designed to reduce the road maintenance backlog by establishing a special road maintenance fund. These initiatives were designed to improve road conditions and provide sustainable funding sources to meet periodic road maintenance requirements. Transport infrastructure in the project areas was generally improved in the CIC through the completion of civil works and the passage of key policy measures, especially those pertaining to financing road maintenance. The actual road length for which periodic maintenance works were completed under the RMC fell short of what was envisaged at appraisal. The likelihood that this shortfall will be addressed has increased following the recent approval of the Road Fund Board Act. This legislation will provide the legal basis for delivering a stream of public sector sourced revenues to fund road maintenance. Despite these reforms, there is no evidence that this funding

Executive Summary xi will be forthcoming, or that it will be sufficient to meet asset management requirements. The project is rated less than successful. In terms of the specific evaluation criteria, the project was rated relevant, less than effective, efficient, and less than likely sustainable: (i) (ii) (iii) (iv) Relevance: relevant. The project s objectives and design were closely aligned with the government s development strategies and ADB s country strategy in Bangladesh. It had strong economic development and poverty reduction elements. The project design for the CIC provided the necessary capacity for the sections of the Dhaka Chittagong Highway that were subject to high traffic volumes. The project included the construction of bypasses, the piloting of private sector maintenance of roads, and the policy formulation and implementation needed to address high-priority road maintenance activities and their funding. Offsetting this result, only 30% of the RMC maintenance component was implemented, and 24% of the total loan amount was cancelled, raising questions about the relevance of the original design. The project design did not adequately reflect the differences in timelines for constructing infrastructure, relative to developing new institutional capacity. Effectiveness: less than effective. It is difficult to evaluate the project s effectiveness due to the absence of any baseline data that could be used to determine the level of benefits accruing to beneficiaries. The CIC achieved its intended outputs road construction, reforms to the policy and legal framework for tollfunded private sector operation and maintenance, and the legal framework for developing controlled access highways. In comparison, the RMC outputs were only partially achieved, with two of the five project components being fully achieved and three partially achieved. The partially achieved components were: (i) the road length covered for periodic maintenance was less than forecast; (ii) the budget for periodic maintenance continued to be combined with the annual road development budget, making it difficult to confirm the availability of maintenance funds; and (iii) sources of finance of the road fund are still not secured. Efficiency: efficient. The delayed implementation process undermined the project s efficiency: the project had a time overrun of 108%, taking eight years rather than the original estimate of four years to reach completion. There are also concerns about lack of funding for maintenance. Nevertheless, the re-estimated economic internal rates of return at 17.1% and 17.4% for the CIC and RMC, respectively, confirm the project s economic viability. Sustainability: less than likely sustainable. Project sustainability relies on adequate maintenance practices and funding. The sections improved under the CIC and RMC are receiving some maintenance from the RHD, but it is unclear how sustainable this maintenance will be, given uncertainties about road funding. On 25 June 2012, the government enacted the Motor Vehicles Axle Load Control Regulations, which ban

xii Bangladesh: Road Maintenance and Improvement Project overloaded vehicles from the country s road network. Strict enforcement of the regulations would strengthen the sustainability of the project roads, but this effect has not yet been demonstrated by this project. In July 2013 Parliament passed the Road Maintenance Fund Board Bill, providing for the creation of a fund for proper maintenance, repair, and renovation of roads under the RHD. Offsetting these developments, the PPER noted that sources of the Road Fund Board Act, approved in 2013, have yet to be secured, and that 70% of the maintenance component under the loan was not implemented, indicating that the government has limited commitment to maintenance. There is no evidence that funding is being provided at a level that reflects asset sustainability levels. This uncertainty undermines the probability that the project s outputs under the RMC will be adequately maintained over the project s economic lifetime. (v) Impact: Projected institutional reforms, such as sustainable maintenance funding for roads, were not achieved. The project s socioeconomic impacts include shortened travel time to nearby cities, towns, and growth centers; diversified income sources as a result of increased economic opportunities; expanded trade and businesses; improved access to social services; and more social interactions within as well as outside communities. Offsetting this result, the project did not gather any baseline data that could be used to assess impacts, and it is difficult to attribute the project s benefits to the country s economic growth at that time. Unrealistic economic benefit forecasts presented in the RRP are unlikely to be realized. The views expressed by the local population, representatives of local councils, and various government agencies did not identify any major environmental or resettlement problems. Issues, Lessons, and Follow-up Actions Time dimension of reform process. Implementing policy reforms entails a complex and long-term process of change. The legislation and policy measures that were enacted required fundamental changes to the roles of several concerned institutions. These types of reforms can take longer than anticipated, adding uncertainty to the realization of actual outputs and outcomes. The full extent of reforms, especially to institutional arrangements, may extend well beyond the usual administrative life of a project loan. Also, performance targets during the operating period can entail time lags that require a longer time frame than the development period of the loan to be fully measured. Baseline data collection is a priority. At appraisal and during implementation, greater attention should have been given to the design and monitoring framework, especially in establishing measurable indicators and their baseline values, and target values with a realistic time frame to achieve these goals. Higher priority should have been given to ensure that baseline data were collected prior to project implementation, and updated during project implementation and at completion. The absence of baseline data has made this independent evaluation of the project difficult. ADB should closely monitor the CPAR, especially the development of vehicle parking facilities by the private sector and the periodic adjustment of tolls to cope with the increased costs of toll road operations and maintenance. The government should

Executive Summary xiii carefully consider lessons from the implementation of this pilot public private partnership to ensure that future projects are not only attractive to the private sector, but beneficial to users as well. Project design and risk analysis. The mitigation measures identified in the RRP to address project risks were largely unsuccessful, and the project was subject to long time delays, problems with land acquisition and procurement, shortfalls in demand, and insufficient funding for maintenance. Despite advance procurement actions, enactment of legislation for maintenance, and establishment of controlled access arrangements for the CPAR, the expected results were not achieved. In part, the problem appears to be attributable to weaknesses in the project design, in which the feasibility study and detailed design were not completed until 9 March 2008, seven years after loan approval. A greater level of upfront efforts in project preparation, particularly in the areas of preparing credible traffic forecasts and identifying road alignments, could pay large dividends. Similarly, credible solutions can be developed upfront before finalization of the loan to address perennial issues such as delays in land acquisition and procurement. Road Maintenance Fund. The adequacy of funding for the Road Maintenance Fund is a critical risk for the CIC that needs to be monitored.

CHAPTER 1 Introduction 1. This chapter describes the scope of the project, the purpose of this project performance evaluation report (PPER), and the process taken to prepare it. A. Project Scope 2. The Road Maintenance and Improvement Project was approved by the Board of the Asian Development Bank (ADB) in November 2000 and was developed in response to the Government of Bangladesh s focus on the development of the country s five major road corridors. Constructing and maintaining an effective road network was a key theme in road infrastructure development in Bangladesh in its Fifth Five-Year Plan, 1997 2002. Expanding the capacity of the Dhaka Chittagong Corridor, which was one of the five corridors, was necessary to establish efficient transport between the country s capital and its main port. Improvement of the road network under the project was expected to lead to significant economic growth throughout the southeast region and contribute to poverty reduction. The project was designed to introduce specific policy and institutional reforms in the road subsector to support improvements in road maintenance, and enable a greater level of participation by the private sector. 3. The project was completed in April 2009, about four years after the targeted completion date of June 2005. The project completion report (PCR) was prepared in December 2009 and it rated the project successful. The project was rated highly relevant, effective, efficient, and less likely to be sustainable. 1 B. Evaluation Purpose and Process 4. The purpose of this evaluation is to prepare an independent PPER, which has been scheduled for about 5 years after the project s completion. This interval provides adequate time to assess progress in achieving the project s effectiveness, efficiency, and sustainability objectives. The schedule provided sufficient time to assess the impact of the improvements to the roads under the project. The timing of the preparation of the PPER should enable key lessons to be identified for successful implementation of similar road projects in the country. The independent evaluation mission (IEM) that was fielded to prepare this PPER was conducted in December 2012. As part of the preparation of the PPER, an independent socioeconomic team was fielded between October 2012 and February 2013 to assess the project s socioeconomic impacts. The project was designed to introduce specific policy and institutional reforms to support improvements in road maintenance, and enable a greater level of participation by the private sector 1 ADB. 2009. Project Completion Report: Bangladesh: Road Maintenance and Improvement Project (Loans 1789 and 1790). Manila.

CHAPTER 2 Design and Implementation 5. This chapter reviews the project background, rationale, outcomes and outputs, and resource and financing assumptions underlying the project design; project risks and mitigation arrangements identified in the loan documents; and the actual implementation program. The chapter compares the projected performance of the original design with its actual performance. A. Background 6. Bangladesh s road network was in poor condition at the time of project preparation. This poor condition was largely due to inadequate maintenance and resulted in expensive and unreliable transport services, which, in turn, constrained movements of labor, goods, and services. Increasing numbers of vehicles, inadequate road safety measures, and weak discipline and enforcement of traffic regulations led to a high level of road accidents. Maintenance activities suffered, since total spending on periodic maintenance fell short of the required level for asset sustainability, and was insufficient to address the maintenance backlog. 7. Insufficient maintenance and rehabilitation of Bangladesh s road network resulted in chronic congestion, with traffic growth outstripping capacity on strategic corridors. In particular, the capacity of the Southeast Road Corridor from the country s capital (Dhaka) to its main port (Chittagong) needed expansion to promote economic growth and employment opportunities. Also, there was a need to put in place a transparent and effective maintenance system and enhance private sector participation in road infrastructure. These conditions were considered critical impediments to poverty reduction efforts. 8. Against this background, the government sought to accelerate infrastructure development by focusing on the country s major road corridors. In 1999, the government asked ADB to improve the Southeast Road Corridor between Dhaka and Chittagong, which is the country s most important highway. Expanding this corridor s capacity was considered vital to accommodate rapid growth in traffic and improve transport efficiency between the country s capital city and its main port. This corridor serves a large proportion of the country s population in both urban and rural areas. 9. The government also asked for ADB assistance the following year, 2000, to help reduce the road maintenance backlog and institutionalize a special road maintenance fund. A third private sector component was added to the project as expanded private sector participation was needed to improve economic efficiency and reduce the required amount of public financing for road infrastructure. The project was based on various feasibility studies and reports on the environment, land acquisition and resettlement, and poverty reduction impacts. The proposed project design underpinning the loan was formulated in consultation with the government and its development partners.

Design and Implementation 3 B. Rationale 10. The project, through a combination of investment and policy elements, was designed to expand road capacity and upgrade road maintenance to achieve improvements in transport efficiency. By focusing on the country s strategic highway, it aimed to accelerate economic development and poverty reduction. A key project priority was the development of a system for periodic road maintenance. Road maintenance is essential to achieve transport efficiency. Easing the huge backlog on road maintenance was preferable to further increasing the capacity of road infrastructure. However, these objectives would have more chance of success if the assistance provided a suitable policy and legal framework to encourage greater private sector participation. A key project priority was the development of a system for periodic road maintenance 1. Need for Road Capacity Expansion 11. The demand for road transport increased rapidly in the 1990s, at an annual rate of 8% for passengers and 7% for freight. Between 1989 and 1997, modal share for roads rose from 57% to 75% for passenger traffic, and from 59% to 65% for freight. Over the same period, the vehicle fleet grew at an annual rate of 8%. In 2006, road transport accounted for 88% of passenger kilometers (km) and 80% of freight-ton km, compared to 1998 levels of 72% and 65%, respectively. 2 Traffic growth on the major corridors outstripped capacity, resulting in congestion and reduced transport efficiency. Inefficient and unreliable road transport and a poorly developed road network limited mobility of goods and services, thereby constraining economic development. 12. The Dhaka Chittagong Corridor, which had the strategic sections with the highest traffic levels and greatest importance to the economy, urgently needed to expand capacity to respond to the country s increasing demand for transport infrastructure. The corridor served the majority of freight and passenger traffic. At appraisal, the traffic flow was more than 10,000 vehicles per day, with a high proportion of trucks and buses. The corridor s capacity needed to be expanded to accommodate the traffic growth of over 7 8% per annum that was occurring at that time. 2. Road Maintenance and Funding 13. The road network administered by the Roads and Highways Department (RHD) consisted of about 20,850 km of roads in 1999. 3 A substantial amount of money was being spent every year for repairs and maintenance of these roads. However, funding for maintenance remained insufficient, resulting in many roads not reaching their economic life. Unless periodic maintenance is undertaken regularly, roads will rapidly deteriorate and rehabilitation expenses can become very high. Periodic maintenance practices were inadequate due to a lack of strategic planning, financing, and execution. 14. Adequacy of funding for road maintenance was a critical issue. 4 The government financed road maintenance from the revenue budget and the annual 2 Bangladesh Sixth Five-Year Plan FY2011 2015 Accelerating Growth and Reducing Poverty. Planning Commission, Ministry of Planning Government of the People s Republic of Bangladesh. July 2011. 3 HDM Circle. Maintenance and Rehabilitation Needs Report of 2012 2013 for RHD Paved Roads. Roads and Highways Department. 4 Road sector revenues were collected through (i) fuel taxes; (ii) customs, excise duties, and sales taxes on vehicle acquisition, spare parts, and tires; (iii) registration and annual vehicle license fees and other fees

4 Bangladesh: Road Maintenance and Improvement Project The project s outcomes were to: (i) improve transport efficiency on the strategic Southeast Road Corridor; (ii) increase private sector in road; and (iii) improve transport efficiency on existing roads nationwide development plan (ADP). The RHD of the Ministry of Communications regularly used project funding in the ADP to supplement its budget for periodic maintenance. Periodic maintenance work financed from the revenue budget and ADP fell short of the amount required to meet the sustainable level stated in the Annual Road Maintenance Plan (ARMP) and reduce the maintenance backlog. As a result, the government was using available funds to improve capacity by rehabilitating the existing road network, rather than expanding the road network to meet increases in demand. 15. The maintenance backlog was gradually increasing, as the available funds could not meet the 13 16% growth in demand. To reduce the backlog, the government needed to access additional sources of external and domestic funding for maintenance. In order to do so, the government needed to implement several measures, including the following: (i) a policy commitment to prepare road maintenance and periodic maintenance budgets using the Highway Development and Management (HDM-4) model under the ARMP; (ii) transparent budgeting to enable monitoring of periodic maintenance expenditure; (iii) setting the periodic maintenance budget at the level required for asset sustainability; (iv) funding the periodic maintenance budget on a permanent basis from domestic sources; and (v) adequately resourcing the maintenance directorate. ADB s assistance to address the backlog was based on the need for the government to improve road conditions and develop sustainable sources of funding from the public and private sectors to finance the maintenance backlog and meet periodic road maintenance requirements. 3. Private Sector Participation Policy 16. Private sector participation in the road sector was limited to supplying goods, materials, equipment, and consulting services. Private contractors were engaged in toll collection, and were only permitted to provide routine maintenance. Collected toll revenues could not be used to maintain related road assets, or be set at levels that generated an economic return on investment. 17. As a result, the private sector had not invested in roads, or participated in their operation. With persistent traffic growth on the strategic road corridors, toll roads needed to be made more commercially attractive to private investors to encourage them to invest in the sector. Other constraints were the lack of both a policy and legal framework to provide clarity and establish confidence among potential investors that they would generate a return on their investment, and private sector experience working in the road sector in Bangladesh. In 2005, the government approved a policy framework for public private partnerships (PPPs). 5 Private sector investment in roads offered opportunities to complement the government s meager resources for road investments. C. Outcomes and Outputs 18. The project s main objectives and outcomes were to: (i) improve transport efficiency on the strategic Southeast Road Corridor by upgrading road conditions and increasing capacity; (ii) increase private sector participation in the delivery of road infrastructure by establishing an enabling policy and legal environment and implementing a toll road project; and (iii) improve transport efficiency on existing roads related to drivers licenses and route permits percent; and (iv) tolls and charges on ferries and selected bridges. 5 Prime Minister s Office, Government of the People s Republic of Bangladesh. 2004. Bangladesh: Private Sector Infrastructure Guidelines. Dhaka.

Design and Implementation 5 nationwide by strengthening the governance of road maintenance and by conducting prioritized sections for periodic maintenance works, targeting areas with a high incidence of poverty. The project framework indicated that the expected impacts were enhanced economic growth and reduced poverty in the project areas; the expected outcome was improved transport efficiency. 19. The project had two components: (i) the corridor improvement component (CIC); (ii) and the road maintenance component (RMC). Each of these components had investment and policy elements. The CIC was designed to improve sections of the Southeast Road Corridor, establish the policy and legal framework for increased private sector involvement in the road subsector, and implement a toll road demonstration project for the Chittagong Port access road (CPAR). The RMC was designed to address the policy, planning, implementation, and financing requirements for establishing adequate maintenance of the RHD road network. 20. The project had the following intended outputs. For the CIC, the outputs were construction of an 111-km section of road along the Southeast Road Corridor, and a legal framework and enabling environment for private sector participation in roads, which included establishment of a policy and legal framework for toll-funded private sector operation and maintenance, and setting up a legal framework for controlled access highways. 6 For the RMC, the outputs were the adoption and implementation of a policy framework for road maintenance, and periodic maintenance of an estimated 250 400 km for each of the 3 years from fiscal year (FY) 2002/03 to FY2004/05. D. Project Risks and Mitigation Arrangements 21. The report and recommendation of the President (RRP) primarily focused on risks associated with the CIC. The main risk identified in the RRP was the level of sustainability of the benefit streams from the CIC investment due to inadequate maintenance and truck overloading. The RRP indicated that this risk factor would be addressed by incorporating a project component that would secure a government budget for road maintenance and undertaking policy dialogue to improve axle-load control. The RRP recognized there were risks that the maintenance policy framework would not be implemented and funding for maintenance would not be secured. The RRP noted that, based on previous experience, more direct means of cost recovery needed to be devised, including toll collection and creation of funds reserved for road maintenance. Traffic volumes were identified as a risk for the CIC if the government did not include adequate provision for controlling access, or if new port developments led to a significant shift in traffic levels and patterns. The former risk would be addressed through the policy component of the RMC and by having a private concessionaire operate and maintain the CPAR. The latter risk was addressed by a provision in the loan agreement to strengthen controlled access arrangements under the Highways Act and the Motor Vehicles Ordinance (MVO). The government had agreed to amend the MVO within 18 months of loan effectiveness, to strengthen its provisions in enforcing controlled access. The loan agreement provided for suspension of loan withdrawals if legal provision for access control was removed. The CIC was to improve the Southeast Road Corridor, establish the policy and legal framework for private sector involvement in road, and implement the tolled Chittagong Port access road The RMC was to adopt and implement a policy framework for road maintenance, and periodically maintain about 250 400 km for each of the 3 years 22. The RRP highlighted the need to pay careful attention to project formulation and design, including acquiring the right-of-way, and providing sufficient resources for 6 The CIC comprised three parts: (i) overlay and widening of the Chandina, Comilla, and Feni bypasses (52km); (ii) upgrading and widening of the Feni Chittagong section, including construction of local bypasses (47 km); and (iii) construction of the Chittagong Port access road, an access-controlled toll road (12 km).

6 Bangladesh: Road Maintenance and Improvement Project feasibility studies and design. The approach to implementation must take account of the capacity of road sector institutions and the private contracting industry. The RRP highlighted the need to provide adequate attention to the social and environmental aspects of road projects. The project was classified as environmental Category A due to the need for a new alignment under a subcomponent of the CIC. No details were provided in the RRP on social safeguards. The government prepared an environmental impact study (EIA), which was approved by the Department of Environment in June 2000, following a public hearing at the project site. The principal adverse social impact identified was the loss of land due to the need for land acquisition and resettlement under the CIC. ADB-financed surveys sought to address these impacts in accordance with the government s procedures and ADB s Policy on Involuntary Resettlement. At appraisal, the government prepared a summary land acquisition and resettlement plan (LARP). It was estimated that under the CIC component, about 58.6 hectares (ha) of land would be required and a total of 8,229 people would be affected. The risk of implementation delays was addressed by (i) completing detailed engineering prior to appraisal, (ii) taking advance action for procurement, (iii) preparing the LARP and EIA by consulting with stakeholders, and (iv) providing sufficient resources for supervision consulting services. E. Cost, Financing, and Executing Arrangements 1. Costs and Financing 23. Initial project preparation was financed through a project preparatory technical assistance project at a total cost to ADB of $250,000, equivalent to 0.2% of the estimated project cost. 7 At appraisal, the project s total cost was estimated at $160.2 million equivalent, of which the foreign exchange cost was $75.6 million, and the local currency cost was $84.6 million equivalent. At completion, the project s actual cost was $117.77 million equivalent, which was 27% lower than the appraisal estimates. Within this total, the actual cost for the CIC was $68.61 million equivalent, compared to the appraisal estimate of $100.83 million equivalent, an underspending of 31%. For the RMC, the actual cost was $26.8 million equivalent, compared to the estimate of $36.0 million equivalent at appraisal, an underspending of 26%. Offsetting these results, land costs increased from an estimate of $6.1 million to an actual cost of $9.6 million. 24. ADB financed about 60% of estimated project costs, totaling $94.0 million equivalent, of which $22.0 million was sourced from the ordinary capital resources and $72.0 million equivalent was sourced from the Asian Development Fund (ADF). 8 The loan was denominated in a mix of US dollars and special drawing rights (SDR). As a result of the contract cost savings and deferral of maintenance under the RMC, the government requested four partial cancellations from the ADF loan, totaling 32% of the original loan amount, which ADB approved. 9 7 ADB. 1996. Technical Assistance to the People s Republic of Bangladesh for the Third Road Improvement Project (TA 2678-BAN, piggy-backed to Loan 1478-BAN). Manila. 8 This amount was equivalent to SDR 55,660,000. 9 The PCR indicated that loan cancellation amounted to $31,360,929.61 million equivalent. Following the last disbursement of the ADF loan, ADB canceled the remaining balance of $1,358,171.49 equivalent on loan closing, reducing the ADF loan amount to $51,513,601 equivalent. Following the last disbursement of the OCR loan, ADB canceled the remaining balance of $5,904,928.72, reducing the loan amount to $16,095,071.28.

Design and Implementation 7 2. Project Scheduling and Implementation 25. The project was approved on 29 November 2000 and it became effective on 10 September 2001. The targeted loan closing date was 30 June 2005 for both the ADF and ordinary capital resources (OCR) loans. ADB approved the reallocation of a portion of the ADF loan to the further preparation of the feasibility study and detailed design of the Dhaka Chittagong Expressway. The feasibility study and detailed design were completed on 9 March 2008, 7 years after loan approval. The government requested an extension for loan closing five times, which ADB approved: three for the ADF loan and two for the OCR loan. The project was originally scheduled to be implemented over 4.0 years, including preconstruction activities. In practice, construction took about 7.4 years (89 months), an overrun from the plan by about 43 months (108%). 26. The main causes of the delays were: (i) protracted implementation of land acquisition and resettlement of affected people; (ii) protracted government approval procedures for the recruitment of construction engineering firms, and an interim operation and maintenance contract for the CPAR; and (iii) the time taken to prepare the feasibility study and detailed design for the Dhaka Chittagong Expressway. 10 A total of 17.8 ha of land affecting 2,366 persons was acquired for the CIC, which was substantially less than the 58.6 ha and 8,229 people originally estimated in the RRP. In terms of procurement, a total of eleven packages, comprising nine civil works, and one each for construction supervision and feasibility study and detailed design, were competitively tendered over a time frame of about 2.5 years from issuing expressions of interest to awarding the contract. Details are presented in Appendix 2. 27. The RHD was the executing agency for the project. The Office of ADB Projects in the RHD was headed by a full-time additional chief engineer who was the project director and reported to the RHD chief engineer. For the CIC, a full-time superintending engineer was assigned as an additional project director and chief resettlement officer, reporting to the project director. The superintendent was supported by an executive engineer and three RHD project managers responsible for day-to-day implementation. For the RMC, an additional chief engineer from the RHD was assigned as the project director for the contracts under the first-year cycle and was responsible for overseeing the selection of subprojects, procurement, monitoring, and reporting for the second- and third-year cycles. 11 Executive engineers, as project managers of the subprojects, were responsible for overall implementation, administration, and financial management of subprojects. The project was originally scheduled to be implemented over 4 years, including preconstruction activities, but construction took about 7.4 years The delays were due to protracted implementation of land acquisition, government approval procedures, and preparation of the feasibility study 28. At appraisal, it was expected that supervision consultants would be engaged for a total of 1,058 person-months over a 42-month period. This figure was comprised of 178 person-months of international consulting services and 880 person-months of national consulting services. The consultants were mobilized in October 2001. Due to delays in project implementation, the project required additional consulting services. The actual consulting services amounted to 1,381 person-months, an increase of about 30%. This increase was comprised of 222 person-months for international experts and 1,159.1 person-months for national experts, over a 66-month period. 12 The 10 The feasibility study and conceptual design for a four-lane Dhaka Chittagong access-controlled expressway, were prepared with funding from an ADB project completed in 2008. The study s progress was slower than anticipated and the approval by the Government Purchase Committee for the feasibility study of the Dhaka Chittagong Expressway was also significantly delayed. 11 Contract administration and other day-to-day implementation activities were delegated to RHD zonal offices, headed by the zonal additional chief engineer, who was supported by superintending engineers, executive engineers, and other staff members. 12 Supervision consultants services were extended for RMC contracts, CIC contract 4, and the time overrun of CIC contracts 2 4. These were undertaken by the consultants with no additional costs.

8 Bangladesh: Road Maintenance and Improvement Project A total length of 113.2 km was improved, slightly more than the 111 km planned at appraisal engagement of consultants followed ADB s Guidelines on the Use of Consultants (2010, as amended from time to time). 29. The loan agreement had 27 covenants, of which, 17 covenants pertained to sector policies and the balance related to implementation arrangements. One of these implementation covenants concerned environmental mitigation, two pertained to resettlement, one concerned financial matters, and six were related to project performance monitoring, implementation, and financial auditing. A total of 23 covenants were complied with and four covenants were partly complied with. Sector covenants 1 and 2 on sustainable road maintenance funding and covenant 6 on performance audits were partly complied with. 13 Of particular note, the road maintenance fund has not been established and is still under review by the Ministry of Finance, there is no time-bound action plan to implement such a mechanism, and no performance monitoring arrangements have been defined or agreed. Further details are presented in Appendixes 3 and 4. F. Project Outputs 1. Project Outputs of the Corridor Improvement Component 30. Output indicators presented in the project framework were: (i) road construction, (ii) a policy and legal framework for toll-funded private sector operation and maintenance, and (iii) a legal framework for controlled access highways. The PPER mission confirmed that all three output indicators were fully achieved. 31. Road construction: A total length of 113.2 km was improved, slightly more than the 111.0 km planned at appraisal. These covered the overlay and widening of the Chandina, Comilla, and Feni bypasses (51.8 km); upgrading and widening of the Feni Chittagong section (47.9 km); construction of the CPAR (13.6 km) as a pilot for PPP; and detailed design of an ensuing road sector loan (Table 1). Table 1: Corridor Improvement Actual Costs by Subproject Contract Length Amount Number Road Section (km) ($ million) 1 Overlay and widening of Chandina, Comilla, and Feni bypasses 51.8 19.15 2 Upgrading and widening of Feni Chittagong section 1 25.4 30.85 3 Upgrading and widening of Feni Chittagong section 2 22.5 4 Construction of Chittagong Port access road (new) 13.6 18.81 km = kilometer. Source: ADB. 2009. Project Completion Report. 32. Policy and legal framework for toll-funded private sector operation and maintenance: The government s policy on private sector participation was approved in March 2005, which resulted in a private concessionaire taking control of the toll collection and routine maintenance of the CPAR. The draft contract prepared by the consultant was approved in February 2006. Due to the delayed selection of the concessionaire, the civil works contractor undertook a 1-year interim contract on toll collection and operation and maintenance of the CPAR. A private concessionaire, Monico ATT Consortium, took over after completion of the interim contract in October 2008 and is the current toll road operator. 13 This required an enactment of a new law and up to the time of the IED field visit was still undergoing final revisions by the Ministry of Communications.

Design and Implementation 9 33. Legal framework for controlled-access highways: The government introduced the rules under the Highway Act of 1925 to provide a legal provision for access control and a regulation under the MVO of 1983. This regulation was designed to enforce access control primarily at the CPAR to prevent slow-moving vehicles and pedestrians from using the highway, control roadside development, and give the RHD or a private concessionaire the authority to manage the highway. The provisions were fully implemented. 2. Project Outputs of the Road Maintenance Component 34. The output indicators presented in the project framework for the RMC were: (i) a policy framework for road maintenance adopted and implemented covering the national land transport policy; (ii) maintenance selection system; (iii) budgeting and human resources; (iv) sustainable financing sources for maintenance; and (v) sealing and overlay of priority roads within annual road maintenance plans. Of these, the first two indicators were fully achieved and three were partially achieved. The national land transport policy was adopted and implemented and a road maintenance selection system was developed and used. 35. Adoption and Implementation of the National Land Transport Policy: The government approved the national land transport policy on 24 April 2004. This redirected the RHD s major undertaking toward road maintenance from capital projects, and established and approved a clear distinction of responsibility for road maintenance between the RHD and the local government engineering department (LGED). The RHD was responsible for the maintenance of the primary and regional roads and a limited number of feeder roads, while the LGED was responsible for the maintenance of rural and feeder roads. The RHD was further tasked to utilize a system to prioritize road maintenance using the HDM-4 model. The government then decided to merge this policy with the existing shipping policy, add policy issues related to air transport, and prepare a comprehensive multimodal transport policy. The national land transport policy was adopted and implemented and a road maintenance selection system was developed and used, but others were only partially achieved 36. Maintenance selection system: To optimally disburse maintenance funds to the road network, the RHD has employed the HDM-4 model to select and prioritize maintenance works since FY1999 2000. A report of road maintenance and rehabilitation work is prepared every year to assess whether or not the 5-year investment plan met the acceptable levels of service provision for the RHD road network. 37. Maintenance Budgeting: A periodic maintenance budget still has to be separated from the road development plan. ADB agreed with the government that the RHD be given a budget exclusively for periodic maintenance to be included in the ADP expenditures related to periodic maintenance for roads under the jurisdiction of the RHD. The government initiated a proposal to establish a separate maintenance budget in 2003, which was undertaken for FY2004. The government now provides a nondevelopment revenue budget in the ADP for the maintenance of roads, bridges, and highways. All non-maintenance works continue to be carried out under the RHD s annual road maintenance budget. 38. Maintenance financing: The government agreed to review the funding mechanisms of the ARMP from domestic sources and prepare and implement a timebound action plan to meet the annual maintenance costs of all roads under the RHD to an acceptable standard. The Road Fund Board Act is expected to help improve road