Completion Report - Asian Development Bank · 2014. 9. 29. · Completion Report Project Number:...

Completion Report

Project Number: 36052-013 Loan Numbers: 2103-PAK and 2104-PAK(SF) November 2012

Pakistan: North-West Frontier Province Road Development Sector and Subregional Connectivity Project

CURRENCY EQUIVALENTS

Currency Unit – Pakistan rupee/s (PRe/PRs)

At Appraisal At Project Completion (1 October 2004) (31 December 2010)

PRe1.00 = $0.01689 $0.01111 $1.00 = PRs58.20 PRs89.97

ABBREVIATIONS

ADB – Asian Development Bank ADF – Asian Development Fund C&W – Communication and Works Department CPS – country partnership strategy CSR – composite schedule of rates DSC – design and supervision consultant EIRR – economic internal rate of return FHA – frontier highway authority ICB – international competitive bidding km – kilometer NHA – National Highway Authority of Pakistan NPV – net present value NWFP – North-West Frontier Province PCR – project completion review PMU – project management unit RAMS – road asset management system RAR – rural access road RMU – road maintenance unit SDR – special drawing rights

NOTES

(i) The fiscal year (FY) of the government of Pakistan and the provincial government ends on 30 June. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2010 ends on 30 June 2010.

(ii) In this report, “$” refers to U.S. dollars, “¥” refers to Japanese Yen. Vice-President X. Zhao, Operations 1 Director General K. Gerhaeusser, Central and West Asia Department (CWRD) Director H. Wang, Transport and Communications Division, CWRD Team leader J. Ning, Senior Transport Specialist, CWRD Team member K. Butt, Associate Project Analyst, CWRD

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

CONTENTS

Page

BASIC DATA i

I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 1

A. Relevance of Design and Formulation 1 B. Project Outputs 2 C. Project Costs 4 D. Disbursements 4 E. Project Schedule 5 F. Implementation Arrangements 6 G. Conditions and Covenants 7 H. Related Technical Assistance 7 I. Consultant Recruitment and Procurement 7 J. Performance of Consultants, Contractors, and Suppliers 7 K. Performance of the Borrower and the Executing Agency 8 L. Performance of the Asian Development Bank 8

III. EVALUATION OF PERFORMANCE 9

A. Relevance 9 B. Effectiveness in Achieving Outcome 9 C. Efficiency in Achieving Outcome and Outputs 10 D. Preliminary Assessment of Sustainability 11 E. Impact 11

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 12

A. Overall Assessment 12 B. Lessons 13 C. Recommendations 14

APPENDIXES 1. Project Framework 15 2. Project Cost Estimates 18 3. Disbursement of ADB Loan Proceeds 19 4. Status of Compliance with Loan Covenants 20 5. Provincial Institutional Development Component 30 6. Economic Reevaluation 33

BASIC DATA A. Loan Identification 1. Country 2. Loan Numbers 3. Project Title 4. Borrower 5. Executing Agencies 6. Amount of Loan

7. Project Completion Report Number

Pakistan Loan 2103-PAK and 2104-PAK(SF) North-West Frontier Province Road Development Sector and Subregional Connectivity Project Islamic Republic of Pakistan (i) National Highway Authority (ii) Communication and Works Department of

NWFP (iii) Ministry of Communications (i) Loan 2103: ¥32,870,795,000 from ordinary

capital resources (ii) Loan 2104: SDR3,404,000 from the Asian

Development Fund PCR: PAK 1381

B. Loan Data 1. Appraisal – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness – In Loan Agreement – Actual – Number of Extensions 6. Closing Date – In Loan Agreement – Actual – Number of Extensions 7. Terms of Loan Loan 2103, Ordinary Capital Resources – Interest Rate – Commitment Charges – Maturity (number of years) – Grace Period (number of years) – Front-end Fee Loan 2104, Asian Development Fund – Interest Rate

– Commitment Charges – Maturity (number of years) – Grace Period (number of years)

10 May 2004 21 May 2004 6 October 2004 8 October 2004 18 November 2004 for both loans 10 January 2005 for both loans 90 days after loan agreement signed 18 October 2005 for both loans None 31 December 2010 31 December 2010 None LIBOR-based lending facility 0.75% 25 5 0% 1.0% yearly during grace period 1.5% yearly after grace period 32 8

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8. Terms of Relending (if any)

None

9. Disbursements a. Dates Initial Disbursement

Loan 2103 1 February 2006

Loan 2104

7 December 2006

Final Disbursement

30 September 2011

21 April 2011

Time Interval

69 months

53 months

Effective Date 18 October 2005

Original Closing Date 31 December 2010

Time Interval 63 months

b. Loan 2103, Amount (¥ ’000)

Category or Subloan

Original

Allocation

Last Revised

Allocation

Amount

Canceled

Amount

Disbursed

Undisbursed

Balance 02A – Civil Works (PH) 5,859,480 4,217,390 1,642,090 4,217,390 0 02B – Civil Works (RAR) 7,635,080 6,969,404 665,676 6,969,404 002C – Consulting Services (PR) 1,009,872 656,175 353,697 656,175 003A – Civil Works (NH) 11,585,790 5,781,556 5,804,234 5,781,556 0 03B – Consulting Services (NH) 776,825 248,188 528,637 248,188 0 04A – Civil Works (CBC) 199,755 0 199,755 0 0 04B – Equipment (Equipment) 55,487 0 55,487 0 0 05A – Equipment (RSC) 299,632 0 299,632 0 0 05B – Training (RSC) 33,293 0 33,293 0 0 05C – Capacity Building (RSC) 155,365 0 155,365 0 0 05D – Consulting Services (RSC) 66,585 0 66,585 0 0 06 – Incremental Costs 432,803 134,590 298,213 134,590 0 07 – Interest Charge 1,642,430 873,578 768,852 873,578 0 08 – Unallocated 3,118,398 0 3,118,398 0 0

Total 32,870,795 18,880,881 13,989,914 18,880,881 0 CBC = cross-border component, LIBOR = London interbank offered rate, NH = national highways, PH = provincial highways, PR = provincial roads, RAR = rural access roads, RSC = road safety component. Source: Loan Agreement and Asian Development Bank loan financial information system.

c. Loan 2104, Amount (SDR ’000)

Category or Subloan

Original

Allocation

Last Revised

Allocation

Amount

Canceled

Amount

Disbursed

Undisbursed

Balance 01A – Equipment (RAM) 477 300 177 300 0 01B – Equiment (ALC) 477 338 139 338 0 01C – Equipment (MTF) 68 57 11 57 0 01D – Facility and Training (TICB) 408 0 408 0 0 01E – Consulting Services 1,634 774 860 774 0 01F – Community Participated Maintenance

340 0 340 0 0

Total 3,404 1,469 1,935 1,469 0 ALC = axle-load control, MTF = material testing facility, RAM = road asset management, TICB = training institute and capacity building. Source: Loan Agreement and Asian Development Bank loan financial information system.

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10. Local Costs (Financed) Loan 2103-PAK

- Amount ($ million) 35.9 - Percent of Local Costs 26.4% - Percent of Total Cost 11.9%

Loan 2104-PAK - Amount ($ million) 0.9 - Percent of Local Costs 100.0% - Percent of Total Cost 39.2% C. Project Data

1. Project Cost ($ million) Cost Appraisal Estimate Actual

Foreign Exchange Cost 243.2 165.1 Local Currency Cost 180.4 135.4 Total 423.6 300.5

2. Financing Plan ($ million) Cost Appraisal Estimate Actual Implementation Costs Borrower Financed 122.4 98.6 ADB Financed 286.4 193.2 Total 408.8 291.8

IDC Costs Borrower Financed 0.0 0.0 ADB Financed 14.8 8.7 Total 423.6 300.5

ADB = Asian Development Bank, IDC = interest during construction.

3. Cost Breakup by Project Component ($ million) Component Appraisal Estimate Actual 1. Provincial Policy Reforms and Institutional Strengthening

Component 5.0 2.3 2. Provincial Roads Improvement Component

a. Land Acquisition and Resettlement 1.4 2.1 b. Civil Works i. Provincial Highways 66.0 58.6 ii. Rural Access Roads 86.0 90.9 c. Consulting Services 9.1 6.6 3. Subregional Connectivity Improvement Component a. Land Acquisition and Resettlement 16.7 7.0 b Civil Works i. National Highways 174.0 118.7 ii. Border Crossing Infrastructure 3.0 0 c. Equipment 0.5 0 d. Consulting Services 7.0 3.1

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e. Environmental Mitigation and Management 1.3 1.0 4. Road Safety 6.8 0 5. Incremental Costs 3.9 1.6 6. Contingencies 28.1 0 7. Interest Charges During Construction 14.8 8.7

Total 423.6 300.5

4. Project Schedule

Item Appraisal Estimate Actual Provincial Policy Reforms and Institutional Strengthening Component

Consulting Services – Selection Q2 2004–Q1 2005 Q2 2005–Q4 2006 Consulting Services – Implementation Q2 2005–Q2 2009 Q3 2006–Q4 2010 Provincial Roads Improvement Component

Consulting Services – Selection Q2 2004–Q1 2005 Q2 2005–Q3 2006 Consulting Services – Implementation Q3 2005–Q2 2009 Q3 2006–Q4 2010 Civil Works Contract Date of Award Q1 2006 Q3 2008 Completion of Work Q2 2009 Q4 2010

Rural Access Roads Improvement Component Consulting Services – Selection Q2 2004–Q1 2005 Q4 2004–Q4 2005 Consulting Services – Implementation Q2 2005–Q3 2009 Q4 2005–Q4 2010 Civil Works Contract Date of Award Q2 2005–Q1 2007 Q4 2005–Q1 2010 Completion of Work Q2 2005–Q3 2009 Q2 2006–Q4 2010

National Highway Component Consulting Services – Selection Q2 2004–Q1 2005 Q4 2005–Q4 2006 Consulting Services – Implementation Q1 2005–Q3 2010 Q4 2006–Q4 2010 Civil Works Contract Date of Award and Completion Q3 2005–Q4 2008 Q2 2007–Q4 2010

Cross-Border Facility Q2 2007–Q4 2008 Dropped

5. Project Performance Report Ratings

Loan 2103-PAK Implementation Period

Ratings

Development Objectives

Implementation Progress

November 2004 to June 2005 Satisfactory Satisfactory July 2005 to September 2005 Satisfactory Unsatisfactory October 2005 to December 2006 Satisfactory Satisfactory January 2006 to September 2007 Satisfactory Partly Satisfactory August 2007 to December 2007 Satisfactory Satisfactory January 2008 to February 2008 Satisfactory Unsatisfactory March 2008 to December 2010 Satisfactory Satisfactory Loan 2104-PAK(SF) Implementation Period

Ratings Development

Objectives Implementation

Progress

November 2004 to June 2005 Satisfactory Satisfactory

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July 2005 to September 2005 Satisfactory Unsatisfactory October 2005 to December 2007 Satisfactory Satisfactory January 2008 to February 2008 Satisfactory Unsatisfactory 1 March 2008–30 December 2010 Satisfactory Satisfactory

D. Data on Asian Development Bank Missions

Name of Mission Date No. of Persons

No. of Person-

Days

Specialization of Members

Consultation Mission 19–26 Jan 2004 2 8 a, f Fact-Finding 15–29 Mar 2004 6 77 a, g, h, i, j Inception Mission 1–15 Mar 2005 4 36 a, b, c, d Review Mission 4–11 Oct 2005 1 8 a Review Mission 1–7 Feb 2006 2 10 a, b Review Mission 1–7 Jun 2006 2 12 a, b Review Mission 26 Nov–4 Dec 2006 2 18 a, b Review Mission 6–16 Mar 2008 4 25 a, b, c, e Review Mission 11 Mar 2009 4 4 a, b, e Review Mission 24–31 Mar 2009 2 12 e, c Midterm Review 7 Dec 2009–12 Jan 2010 3 21 e, c Completion Review 10–20 Oct 2012 3 21 a, e, d

a = project specialist, b = social specialist, c = analyst, d = consultant, e = project implementation officer, g = program officer, h = environmental specialist, i = transport specialist, j= director.

I. PROJECT DESCRIPTION

1. The North-West Frontier Province (NWFP) Road Development Sector and Subregional Connectivity Project1 was designed to increase access of the rural population in NWFP2 to social services and markets and reduce poverty by providing a more efficient road network and improving subregional cooperation and trade by facilitating road transport to Afghanistan and the Central Asian countries. At the request of the Government of Pakistan, the Asian Development Bank (ADB) approved a loan for this project on 18 November 2004 of $301.2 million equivalent, including ¥32,870,795,000 ($296.2 million equivalent) from ordinary capital resources, and SDR3,404,000 ($5 million equivalent) from ADB’s Asian Development Fund (ADF).3 2. The project’s objectives were to be achieved through (i) a provincial policy reforms and institutional strengthening component to improve management of the road subsector and build capacity at the provincial and district levels; (ii) a provincial roads improvement component, involving rehabilitation and improvement of 212 kilometers (km) of provincial highways (PH) and about 700 km of rural access roads (RARs) in project districts; (iii) a subregional connectivity improvement component, involving construction and improvement of about 310 km of national highways and border-crossing infrastructure at two border points with Afghanistan; and (iv) a road safety component, involving implementation of a road safety program along selected national highway sections improved under the project, awareness campaigns, and capacity building. 3. To support the sector reform agenda, the project aimed to (i) establish a road asset management system (RAMS), (ii) implement performance-specific maintenance contracts, (iii) involve roadside communities in rural road maintenance on a pilot basis, (iv) improve road safety, (v) control vehicle overloading, and (vi) build the capacity of provincial and district governments in road asset management.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

4. At appraisal, the project’s design was consistent with ADB’s country partnership strategy and the government’s transport sector policy framework and its strategic objectives of sustainable economic growth and poverty reduction in poor and remote areas of the country. The project reflected a change in ADB’s strategy from a sectoral approach with umbrella projects for each province to direct intervention for an integrated approach covering all categories of roads, policy reforms, and capacity development measures. Previously, ADB dealt with central agencies and departments of different provincial governments to implement the projects in various provinces. For this project, ADB dealt with central agencies and one provincial government. Although the project’s scope was limited to one province, it involved six different subcomponents for the same province. The involvement of many implementing agencies warranted sound coordination among different stakeholders during project implementation. However, focusing on one province has improved the project’s overall impact.

1 The PCR mission has visited some of the subproject sites due to security constraints. Its report is based partly on

the completion reports submitted by the executing agencies. 2 North-West Frontier Province was renamed to Khyber Pakhtunkhwa Province in April 2010. 3 ADB. 2004. Report and Recommendation of the President to the Board of Directors on Proposed Loans to the

Islamic Republic of Pakistan for the North-West Frontier Province Road Development Sector and Subregional Connectivity Project. Manila (Loans 2103-PAK and 2104-PAK, approved on 18 November 2004).

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5. The project was designed for better coordination and smooth operation and was based on surveys, studies, and analysis of road-sector challenges faced by the province at appraisal, such as problems of connectivity in hilly and isolated areas, sustainability of sector investments, poor maintenance management practices, outdated planning and operational processes, budgetary constraints, the absence of a policy framework, and limited institutional capacity. The project is still in line with ADB’s country partnership strategy4 and the government’s development objectives, although the scope of work had to be reduced due to (i) high inflation in Pakistan just after project approval; (ii) poor law and order conditions in the project areas; and (iii) unprecedented floods in July 2010. However, the government is committed to complete the remaining scope of work as soon as security conditions are normalized. B. Project Outputs

6. The project outputs consisted of (i) provincial road network improvement of RARs; (ii) provincial road network improvement of PHs; (iii) subregional connectivity improvement; (iv) provincial policy reform and institutional strengthening; (iv) cross-border facilities; and (vi) improvement of road safety measures.

(i) Provincial Road Network Improvement – Rural Access Roads

7. In the original scope of the project, rehabilitation of 700 km of RARs was envisaged. However, the scope was reduced at the contract awarding stage due to exceptional cost increases and high inflation.5 As a result, only 57 RAR civil works contracts totaling 456.7 km could be awarded. Four contracts were terminated during implementation, two due to heavy floods that blocked all possible approaches to the subproject sites, and another two because of poor security conditions at the subproject sites under the force majeure clause. At project completion, all awarded contracts, for a total length of 440.7 km, were rehabilitated, except for those that were terminated. 8. In 2004, an engineering estimate for each subproject was prepared on the basis of the 1999 composite schedule of rates (CSR) plus a 15% premium, but in 2005–2006, due to high inflation, the project steering committee awarded contracts based on the 1999 CSR plus a 90% premium. Later, some contracts were awarded based on the 2008 CSR, which amounted to almost the 1999 CSR plus a 150% premium. After all the core road contracts had been awarded, the provincial government, after discussion with ADB, curtailed the scope of work rather than increase the loan amount. It therefore identified a total of almost 460 km of road improvements that could be accommodated in the available loan amount.

(ii) Provincial Road Network Improvement – Provincial Highways

9. In the original scope of the project, rehabilitation and improvement of 212 km of PHs was targeted, but due to high inflation (para. 8) only nine contracts for 78 km of roads and 10 bridges could be awarded. However, the provincial government awarded three more contracts covering 68 km of roads from their annual development plan. The remaining 66 km of roads could not be awarded due to poor security conditions in the project area, but the provincial government is committed to completing all remaining work once security conditions have improved. All awarded contracts had been completed successfully by the loan closing date. 4 ADB. 2009. Country Partnership Strategy: Pakistan 2009–2013. Manila. 5 Between 2003 and 2010, the costs of construction materials and labor increased by 17% for cement, 210% for

steel, 234% for diesel, 248% for labor, and 320% for bitumen.

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(iii) Subregional Connectivity Improvement

10. At appraisal, rehabilitation and improvement of 310 km of national highways was envisaged. However, due to security concerns in the project areas, only three contracts covering 78 km of roads could be awarded. The overall progress of these civil works contracts was delayed due to poor security conditions and unprecedented flooding in July 2010. By the project completion review (PCR) mission, one contract (ICB 6 -3) was 100% complete and another two contracts (ICB-1, ICB-2) were almost 97% complete. The National Highway Authority of Pakistan (NHA) has made completing the remaining project a priority so that its benefits can be fully realized.

(iv) Provincial Policy Reforms and Institutional Strengthening Component (Loan 2104-PAK)

11. The provincial policy reforms and institutional strengthening component was the sole project component financed by Loan 2104. It was designed to help the Frontier Highway Authority (FHA) in the Communication and Works Department (C&W)7 and district governments strengthen their capacity for project implementation, roads asset management, road maintenance, the environmental and social aspects of road development, and developing a road safety program. 12. This component was successfully implemented through consulting services provided by an association of international and national specialists to fulfill its obligations specified in the terms of reference. By completion, the consultants had conducted 14 workshops on public-private participation in road construction, performance-based contract maintenance, axle-load control studies, uniform traffic control devices, GPS inventory preparation, and road safety in the field for more than 500 C&W and FHA staff; a RAMS had been established in the FHA; a laboratory building had been constructed; one profilometer, four traffic counters, and two portable weigh bridges had been procured for road inventory and traffic surveys and studies; and all recommended software for project management had been procured. 13. The project helped the FHA and district governments (i) achieve efficiency in service delivery through institutional strengthening and capacity building; (ii) improve the sustainability of the network through road asset management, involving planned maintenance and enforced axle-load controls; (iii) supplement provincial resources through the user-pay principle and establishment of a dedicated road maintenance fund; (iv) involve communities in road maintenance; (v) improve road safety; (vi) enhance private sector involvement in financing and constructing roads; and (vii) incorporate environmental and social aspects into planning road infrastructure developments.

(v) Cross-Border Facility

14. ADB and the government realized that the barriers to international and transit trade included cumbersome border-crossings, complicated customs procedures, unnecessary documentation requirements, and poor infrastructure and facilities. It was envisaged at appraisal that border-crossing infrastructure at two border points with Afghanistan would be established. This component was dropped for security reasons at the government’s request and the allocation for this component was cancelled on 7 June 2008. However, the government is

6 International competitive bidding. 7 The C&W was called the Works and Services Department (W&S) at project approval.

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committed to making this cross-border facility component a priority once the security conditions have been normalized.

(vi) Road Safety Component

15. Road safety was one of the components associated with the project that covered capacity building and awareness campaigns along the selected national highway sections. The recruitment of consultants for this component was initiated but the first-ranked consulting firm backed out during the contract negotiations due to bad security conditions in the project area. The executing and implementing agencies were concerned that restarting the recruitment process would consume considerable time and that they might not be able to achieve the project objectives under the prevailing security conditions. The executing agency therefore asked to cancel the allocation for this component. At the request of the borrower, loan proceeds of $5 million from Loan 2103 were canceled on 18 August 2008. C. Project Costs

16. At appraisal, the project was estimated to cost $423.6 million, of which $301.2 million (71%) was ADB financed and $122.4 million (29%) was government financed. The entire foreign exchange cost and nearly one-third of the local cost was to be borne by ADB and two-thirds of the local cost by the government. 17. Due to high inflation in Pakistan during the contract award process, the construction price escalated and the entire scope of the provincial road component could not be awarded. However, at a later stage of project implementation there was an exceptional depreciation8 of the Pakistani rupee exchange rate, resulting in cost savings. Also, due to poor security conditions, three NHA road packages, the cross-border component, and the road safety component were dropped, resulting in loan savings. 18. The project’s major cost component was the civil works component, which accounted for about 82% of the total project cost. The project was completed on 31 December 2010 at a total cost of $300.5 million, including $201.9 million (67%) from ADB loans and $98.6 million (33%) from the government. The civil works scope of the project was reduced due to high inflation and security concerns. In the awarded contracts, there were cost overruns because of exceptional price escalations, changes in design, and damage from the unprecedented floods of July 2010. By the loan closing date, the entire loan amount of Loan 2103 had not been utilized and almost $88 million was canceled during project implementation in four tranches (7 June 2008, 18 August 2008, 14 June 2010, and 29 June 2010); in addition almost $70 million was not utilized and canceled at loan account closing on 30 September 2011. Loan 2104 also was not fully utilized, and $1.9 million was canceled on 14 June 2010 and another $1.0 million at loan account closing on 21 April 2011. A comparison of loan utilization is in Appendix 2. D. Disbursements

19. Overall, $199.5 million was disbursed from Loan 2103 and $2.29 million from Loan 2104 by the loan closing date. The ADB loans were approved on 18 November 2004 and became effective on 18 October 2005, after almost eleven months. The Government of Pakistan delayed the loans effectiveness to avoid the commitment charges. According to the implementation schedule, the first disbursement was planned in the first quarter of 2005. However, due to the

8 At appraisal, $1 = PRs58.2, and at project completion, $1 = PRs89.97.

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delayed loan effectiveness and other initial delays, the first disbursements were made on 1 February 2006 for Loan 2103 and on 7 December 2006 for Loan 2104. Disbursement was slow at first due to delays in contract awards, but with efforts by each stakeholder, including the implementing and executing agencies, contractors, and ADB, it sped up. The annual disbursement trend is in Appendix 3. There were various reasons for the delays in contract awards (part II[E], project schedule, paras. 23 to 25). 20. The institutional arrangements for disbursement were satisfactory. Since there were two different executing agencies involved in project implementation, one person from each agency was authorized to sign the withdrawal application for loan proceeds for each component. The project director for foreign-aid projects was responsible for the RAR component (Loan 2103), the PH component (Loan 2103), and the institutional reforms component (Loan 2104), and the project director of the NHA was responsible for the remaining components. To expedite disbursement, an imprest account was established for the provincial component under Loan 2103 for payment of eligible expenditures up to the Statement of Expenditure (SOE) threshold of $100,000 equivalent. ADB paid any amount above this threshold. No imprest accounts were set up for the NHA and Loan 2104 and all payments were disbursed using a direct payment method. On the whole, the operation and use of imprest accounts under the project’s provincial component was satisfactory and resulted in an efficient and expeditious disbursement process. The use of the SOE procedure was also satisfactory and an ADB loan disbursement mission in August 2010 noted that all expenditures claimed under the SOE procedure were in accordance with ADB procedures. 21. Closure of the loan account was delayed substantially beyond the 90-day grace period because the executing agency did not refund the outstanding imprest account balance to ADB. Upon resolution of the issue relating to cost escalation in August 2011, the provincial government refunded the outstanding imprest account balance. After processing all pending claims relating to cost escalations, the loan account for Loan 2103 was closed on 30 September 2011, and the loan account for Loan 2104 was closed on 21 April 2011. Overall, the executing agencies were satisfied with ADB’s processing time for eligible withdrawal applications. A comparison of the actual disbursement schedule with that envisaged at appraisal is in Appendix 2. E. Project Schedule

22. Almost all of the awarded contracts were concluded before loan closing. Two contracts for the NHA component (ICB-1, ICB-2) could not be completed due to flood damage during the construction phase. By the PCR, physical progress on two NHA contracts was more than 97% complete, while physical progress of civil work on other components was 100% complete. 23. The project suffered from significant start-up delays due to delays in loan effectiveness. According to the envisaged schedule, the project was supposed to roll out in the second quarter of 2004, but the loan did not become effective until 18 October 2005. Later, the project lagged because of (i) poor competition or high bid prices on civil works procurement; (ii) slow progress on relocation of utilities and removal and replanting of trees within the right of way, which had to be implemented by government agencies and departments; (iii) poor security conditions in the project areas; and (iv) a shortage of bitumen and prohibition on the use of explosives for rock blasting. 24. Initially, no contracts could be awarded for the PHs component in three rounds of bidding from May 2006 to May 2007 because high inflation resulted in high bid prices, and poor

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security conditions in the project area resulted in poor participation from the international market. ADB and the executing agency then agreed to split large road packages into smaller contract packages to encourage the participation of local contractors for healthy competition. The fourth invitations for bids for eleven international competitive bidding (ICB) contract packages were issued on 10 December 2007. Bids were received for 10 packages and after evaluation IA submitted nine bid evaluation reports to ADB for approval. One successful bidder for a package in the Hangu-Thall section declined to sign the contract citing force majeure on account of the poor security situation prevailing there. Eventually eight contracts were signed. Notices to commence, ranging from July 2008 to September 2008, were issued for 8 packages for 77 km of roads and 10 bridges, with a completion period of 24 months. 25. There were also some delays in implementation due to social safeguard issues (part IIIE[2]). 26. Notwithstanding the difficulties described, the executing agencies have made great efforts to overcome these difficulties to complete all physical works, consulting services, and procurement of equipment before the project completion date of 31 December 2010. The loan account could therefore be closed on 30 September 2011 for Loan 2103 and on 21 April 2011 for Loan 2104. F. Implementation Arrangements

27. The NHA was the executing agency for the national highways and highway safety components; the Ministry of Communication was responsible for the cross-border facility. The C&W was the executing agency for the provincial road and institutional reforms components, with two implementing agencies: (i) the FHA was responsible for policy reforms and the institutional strengthening component, as well as improvement of PHs; and (ii) the directorate of foreign-aid projects was responsible for the RAR components. The directorate of foreign-aid projects was responsible for financial matters for both the FHA and RAR components. The provincial steering committee, the Ministry of Communication, and the NHA were responsible for monitoring and implementation. 28. The provincial government of NWFP established a project steering committee to provide overall guidance and approvals required for smooth and timely implementation. The committee was chaired by an additional chief secretary from the Planning and Development Department. Other committee members included the Secretary of the C&W; the Managing Director of the FHA; representatives from the Finance, Planning and Development, and local government departments; and project directors. 29. NHA implemented the subregional connectivity improvement component through a general manager and project directors. The task force on trade facilitation under the Ministry of Commerce was supposed to provide guidance on the improvement of border-crossing facilities. However, the component was dropped due to poor security conditions.

30. All project implementation units were established as originally required, with experienced and competent staff familiar with government rules and regulations and ADB procedures. Except for start-up delays, implementation proceeded smoothly despite the poor security conditions and devastating floods of 2010. The commitment of the implementing agencies was invaluable for completing the awarded contracts in such difficult conditions.

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G. Conditions and Covenants

31. The project covenants have mostly been complied with. The government established an adequate organizational structure for project implementation, establishing steering committees, designating executing and implementing agencies, setting up the project management units (PMUs) with sufficient staffing, and providing sufficient counterpart funds. 32. Of 82 covenants for both loans, 72 covenants were fully complied with, 4 covenants were not complied with, 2 were partly complied with, and 4 remained not applicable. A detailed compliance status of covenants is in Appendix 4.

H. Related Technical Assistance

33. No technical assistance was attached to this project. I. Consultant Recruitment and Procurement

34. Consultant recruitment conformed to ADB’s Guidelines on the Use of Consultants by the Asian Development Bank and its Borrowers (2002, as amended from time to time). Five consulting firms were engaged to implement the project: four design and supervision consultants (DSC) for civil works and one to implement the institutional reforms component. All five firms were selected using the quality- and cost-based selection method. One DSC was engaged for the NHA component, one for the FHA component, and two for the RAR component to look after the 57 contracts throughout most districts of NWFP. All consultants’ recruitment were delayed due to late effectiveness. 35. The first-ranked consulting firm for the road safety component backed out during the contract negotiations because of the poor security conditions in the project area. The executing and implementing agencies were concerned that restarting the recruitment process would consume considerable time and might not be able to achieve the project objectives. The executing agency therefore asked to cancel the loan fund for this component. At the request of the borrower loan proceeds of $5 million were canceled on 18 August 2008.

36. The civil works procurement conformed to ADB’s Procurement Guidelines (1999, as amended from time to time). Initially, no contracts could be awarded for the provincial road components, from three rounds of bidding between May 2006 and May 2007, due to either poor bidder participation or high bid prices. ADB and the executing agency therefore agreed to split large road packages into smaller contract packages to encourage the participation of local contractors. The fourth round of bidding met with a relatively good response and eight contracts covering 77 km of roads and 10 bridges, were awarded. Notices to commence were issued to all contractors by September 2008 (see para. 24 for repackaging of PH). Three NHA contracts were started on 16 April 2007 (ICB-3), 15 December 2007 (ICB-1), and 1 April 2008 (ICB-2). The first RAR contract was awarded on 2 June 2006 and the last (57th) was awarded on 21 January 2010. J. Performance of Consultants, Contractors, and Suppliers

37. The performance of consultants on the PHs and institutional reforms components was satisfactory, while the performance of consultants on the NHA components and the RAR component was partly satisfactory.

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38. There were many complaints about the inadequacy and poor quality of the services rendered by the consultants for RARs. Inappropriate design was a major deficiency, requiring changes in design, cost, and scope, along with a need for time extensions during implementation. As proof thereof, it may be noted that there were almost 300 variations in 57 RAR contracts during implementation. Some other lapses in design included omission of traffic signs, markings, safety facilities, and information boards on the roads. None of the roads visited during the PCR mission have information about name, place, direction, distance, or markings of any kind. The formatting of periodic progress reports was very poor and no proper page numbering, referencing, or index was provided. The reports were bulky, with unnecessary details. The directorate of foreign-aid projects has not shortlisted both RAR consultants for their next project. Some design deficiencies were also highlighted in the provincial and national highways components, especially after the 2010 flood necessitated some design changes. 39. In general, the performances of all civil works contractors were satisfactory and were highly appreciated by the implementing agencies and other stakeholders for completing all the contracts under difficult working conditions, which included the deteriorating security conditions, material shortages, restrictions on blasting, a high inflation rate, and delays in escalation payments. The performance of the contractors could be even better if they were given proper support and training in (i) planning and management skills, (ii) proper scheduling of work, and (iii) efficient utilization of machinery and equipment. 40. The performance of all suppliers was generally satisfactory; all the planned equipment was delivered within the stipulated time. Most of the supply contracts were related to road asset management equipment. K. Performance of the Borrower and the Executing Agency

41. The performance of the borrower and the executing agencies was highly satisfactory. The borrower was the Islamic Republic of Pakistan. The executing agencies were NHA and the C&W for NWFP. During implementation, an adequate organizational framework was established for efficient project management. Experienced staff was appointed to PMUs to implement the project. This staff was familiar with government regulations and ADB requirements. Throughout the project the government has provided counterpart funds. NHA and C&W exercised close coordination and regular monitoring of construction progress and quality control. The directorate of foreign-aid projects, in particular, provided excellent support to contractors to deliver quality outputs in the absence of adequate consulting support. The FHA’s commitment is highly appreciated. After three rounds of an unsuccessful bidding process they came up with a solution and implemented the project in very difficult security conditions. FHA made extraordinary efforts to construct the laboratory building and equip it with the required equipment; this laboratory is fully operational now. L. Performance of the Asian Development Bank

42. The overall performance of ADB was satisfactory. The project was initially administered from ADB headquarters in Manila and was transferred to the ADB resident mission in Pakistan in 2008. During implementation, ADB was closely involved in identifying and resolving issues. ADB was unable to field frequent missions, however, due to the poor security conditions in the project area. The midterm review of the project was delayed because security conditions did not allow ADB to field the mission. The midterm review was finally conducted by inviting all the executing and implementing agencies to Pakistan Resident Mission (PRM). Approval of

9

documents at both the processing and implementation stages (procurement of civil works, hiring of consultants) was quick. However, ADB took a long time to decide on the escalation of civil works contracts because of its internal disagreement on extremely high escalation. The executing agencies had serious concerns about this delayed decision, as this delay could affect the project’s progress, but they managed to deal with the contractors at their end. All claims for payment were however, processed without unreasonable delays. In general, the government recognized ADB’s role in providing timely advice on technical and contract administration matters.

III. EVALUATION OF PERFORMANCE

A. Relevance

43. The project was relevant and in line with the government’s strategy for economic growth and poverty reduction through developing highways and RARs in spite of all the problems during implementation. The project’s objectives were consistent with national road transport needs and Pakistan’s infrastructure development priorities, as well as improved performance of the road subsector. 44. The project is a continuation of ADB’s intervention and support to Pakistan’s road network development and improvement and has significantly improved road connectivity in the poorest area of Pakistan as well as the road subsector’s performance. Since joining ADB in 1966, Pakistan has received more than $20.89 billion in loans, of which $2,178.9 million was for the transport sector. ADB helped build or upgrade nearly 1,000 km of roads and highways, benefiting more than 20 million people. Two multitranche financing facilities to support the government’s National Trade Corridor Highway Investment Program and National Highway Development Sector Investment Program improve key sections of the road network, and cope with the transport infrastructure deficit. ADB’s assistance is extremely relevant for the government’s strategy for developing the transport system. 45. All of the project components remained highly relevant at completion. They are consistent with the government’s and ADB’s needs, policies, plans, and programs. One of the project’s four components, the subregional connectivity and improvement of border facilities component, could not be rolled out and was later dropped because of the poor security conditions in the project area. Also, it was not the best time to attempt improvement of border facilities given the warlike conditions across the border, but both ADB and the government still consider this component essential for improving cross-border transport.

B. Effectiveness in Achieving Outcome

46. The project was effective in achieving its outcomes. Despite highly challenging circumstances relating to security, unprecedented floods, and high inflation, all awarded contracts were completed within the loan period and the majority of the project outcomes have been achieved. A total of 176 km of national highways (out of a total 310 km), 146 km9 of provincial roads, 10 bridges (out of a total of 212 km), and 440 km of RARs (out of a total of 700 km) have been rehabilitated. The reconstructed roads have significantly improved connectivity in the project area. Travel time and vehicle operating costs on the completed roads have been significantly reduced. Although the cross-border development component was canceled, the

9 This includes 68 km of provincial roads funded by the provincial annual development plan.

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project is likely to benefit a total of about 761,000 people along the national highways and about 1 million people along the PHs and rural roads. The provincial policy reforms and institutional strengthening component performed well, and significantly improved the road subsector’s performance. Different trainings were conducted, a laboratory building was constructed and equipped with the required machinery, and a RAMS was established. 47. The direct and indirect benefits of road improvements will accrue to users of improved facilities, but, quantitatively, these benefits will be less than envisaged at appraisal because of the reduced scope of work. The initiatives of policy reforms and institutional improvements will have far greater benefits in the long run. C. Efficiency in Achieving Outcome and Outputs

48. The project was less efficient in achieving its intended outcome and outputs given the prevailing facts in the project areas. However, different project components are rated differently. The policy reform and institutional strengthening component will provide more benefits with relatively less investment. The institutional reforms and capacity development component will go a long way in improving the capability and efficiency of road agencies. Such investments have long gestation periods and very high rates of return in the long run. The improvement of national and PHs component will also meet the test of efficiency, in spite of cost increases and delays in implementation. The efficiency of some rural access roads leaves much to be desired; because of the high cost of improvement and low volume of traffic, the cost per vehicle-km is greater than the vehicle operating costs. However, the executing agency explained that the traffic on a few RARs has been reduced significantly due to poor security conditions. Some RARs are farms-to-market roads, and traffic volume increases during the crop seasons. Traffic on some roads would be increased with improvement of the security conditions. 49. Based on the latest project cost estimates and revised traffic forecasts, the PCR mission reevaluated the economic internal rate of return (EIRR), using a similar methodology to that adopted at appraisal. The EIRR of national highways was recalculated at 10.8% for packages ICB-1 and ICB-2 (D. I. Khan to Gambila section of N-55) and 20.7% for package ICB-3. 50. The EIRRs for three selected PHs are 20.5%, 15.2%, and 12.0%, respectively, which are above a discount rate of 12%. The national highways and PHs as a whole are still viable, with a net present value (NPV) of $10.54 million and EIRR of 13.9%. The program remains viable, with either a 20% cost increase or 20% decrease in benefits, but not both together. 51. In the case of rural access roads, economic evaluation of 19 selected roads was carried out, 10 of these have EIRRs higher than 12%, 2 have an EIRR between 9% and 10%, and the remaining 7 have an EIRR less than 10%. The low EIRR on 7 roads is due to seasonal traffic variations or high construction cost. 52. The project is thus considered economically viable. However, the EIRRs for some contracts are lower than those estimated at appraisal, mainly due to low traffic volume and higher unit construction costs. The traffic volume is much lower than projected due to poor security conditions in the project area, and the economic benefit may improve once those conditions are normalized. The increased construction costs, due to high inflation and escalation, were also attributed to low economic return. The sensitivity analysis results show that the project continued to be economically viable for most scenarios. Appendix 6 presents the traffic analysis and economic reevaluation.

11

D. Preliminary Assessment of Sustainability

53. Overall, the project is likely to be sustained. The sustainability of national highways is almost assured as they have a system of maintenance management in place and generate their own maintenance funds. The PHs also have RAMS, for which equipment and software have been procured from this project and whose maintenance budget will be optimized. In the case of RARs, there is a growing realization of the need for proper maintenance of the road network. The provincial government has therefore increased road maintenance funds multifold in the last 3 years. The road maintenance allocation for the last 3 years is shown in Table 1. The agencies dealing with RARs do not maintain a proper basic road inventory with road condition and traffic volume data. Without this information, it is difficult to plan and implement proper maintenance management. However, by establishing some automated road maintenance this sustainability probability can be improved.

Table 1: Rural Roads Maintenance Funds Allocation (in millions) Year/Allocation Pakistan Rupees Equivalent $

2009–2010 1,000 10.5 2010–2011 1,500 15.8 2011–2012 1,870 19.7

54. Overloading of vehicles, especially trucks, is a common problem in Pakistan and a major reason for premature road destruction and failure. To prevent early deterioration of roads, the provincial cabinet has approved and enforced legislation to amend the NWFP Motor Vehicle Ordinance, 1999. To transform the organizational structure of the districts into effective road management organizations, a report on institutional reforms for the FHA and C&W was prepared and submitted to the FHA on 24 January 2008 for review. The institutional reforms pertaining to the FHA were taken up with the PH Council and approved. E. Impact

1. Socioeconomic Impacts

55. The project’s overall impact is positive. Highway and road improvements will have positive socioeconomic and sociocultural impacts. Improved roads and bridges will ensure better access for poor communities to markets, economic centers, social services, and amenities. Culturally accepted trading patterns will be maintained. Enhanced trade, social, and cultural activities will promote deeper interaction among various cultures, communities, and ethnic groups, promoting national integration and social harmony.

2. Land Acquisition and Resettlement

56. In the case of PHs and RARs, the project focused mostly on rehabilitating existing roads to minimize the resettlement and environmental impact. However, some roads were realigned to improve their geometry, and some were widened in consideration of traffic volume. ADB approved two short resettlement plans and one resettlement plan for PH; and 18 short resettlement plans and 39 due diligence reports for RARs, which were approved prior to project approval. At the beginning of project implementation, it was anticipated that non-core roads would not trigger resettlement. Later, however, these roads did trigger resettlement, necessitating the preparation of resettlement plans and due diligence reports, and leading to a delay in contract awards. There were some other delays during implementation which can be attributed to (i) the implementing agency’s lack of understanding of ADB’s involuntary

12

resettlement policy; (ii) a lack of institutional capacity and the resources required for proper resettlement planning and implementation; and (iii) the non-availability of resettlement specialists. Given these factors, the executing agency, with the help of ADB resettlement specialists, managed to finalize the resettlement plans and due diligence reports. 57. ICB-1 and ICB-2 of the NHA component (D. I. Khan to Sarai Gambila section of N55) involved realignment of the carriageway to accommodate bypasses that had resettlement impacts. Initially, the resettlement impacts were envisaged, and ADB cleared the resettlement plan in 2006. However, NHA awarded a contract for a reduced scope of work by removing the two bypasses from the original scope in the approved resettlement plan. Later, NHA, through a variation order, included these two bypasses in the contract but without ADB’s prior approval. ADB advised NHA to provide an updated resettlement plan by incorporating land acquisition and resettlement impacts and a census of the people that would be affected. NHA, on the other hand, maintained that bypasses were part of the original resettlement plan and that there was no need for a new one. After several rounds of discussion between the NHA and ADB, the issue was resolved by adopting an action plan that included updating the resettlement plan and making payments to the people affected by the bypasses. An external monitoring consultant was also engaged to monitor implementation of the resettlement plan together with the action plan and the process of payments to those people who were affected.

3. Environmental Safeguard

58. The initial environmental impact assessment conducted at appraisal covered all environmental parameters and found no significant impacts. However, during implementation, the specifications for roads (national competitive bidding package 16) under the RAR component were modified to save thousands trees on both sides of the road. Instead of widening the road to the designed width of pavement and shoulders, the available space between the tree lines was paved. This provided a 16-foot-wide pavement to serve two-way traffic and avoid edge breaking caused by the narrow road. 59. On a few roads, poor dust control and traffic management had some localized impact on people, crops, and vegetation during construction. Environmental mitigation measures, included in bidding and contract documents, addressed minor issues during project execution. No protected forests or wildlife sanctuaries were affected.

60. An environmental assessment for all RAR subprojects was conducted before implementation and all subprojects were rated as B category. The selected RAR projects, comprised of 57 roads that pass through built-up areas, cultivated fields, hills, forests, and deserts, were monitored by consultants to comply with the environmental management plan. Construction was generally within the existing right of way. Graveyards found along the road were protected as a matter of policy.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

61. Overall, this project was rated successful. The project was relevant, effective, less efficient, and likely to be sustainable. The efficiency of the project suffered from the serious security concerns in the project area and from start-up delays, but later improved. Despite the highly challenging circumstances experienced during implementation, almost all the awarded contracts were completed before loan closing and the majority of the project outcomes

13

anticipated at appraisal have been achieved. The reconstructed highways, provincial roads, and RARs have effectively improved connectivity in the project area. The project was less efficient in achieving its intended outcome and outputs based on its completed components. The provincial policy reforms and institutional strengthening component contributed to road subsector development in NWFP. 62. Nevertheless, due to security constraints, subregional connectivity, improvement of cross-border facilities, and the road safety component could not be implemented. However, the government is committed to undertaking the remaining scope of work as soon as security conditions are normalized. B. Lessons

63. Project Design. The project was comprised of six components, including national highways, PHs, RARs, policy reform and institutional strengthening, border infrastructure, and road safety. Six implementing agencies were engaged to implement these components. For improved coordination and smooth implementation, it would be better to implement projects with only one or two implementing agencies. An evaluation of the project design is discussed in section II(A) in more detail. 64. Project Implementation in an Area with Security Challenges. The security conditions in the project area deteriorated during implementation. ADB needs to consider special arrangements for such projects. For example, direct contracting or lump-sum contracts may be considered for civil works contracts, rather than competitive bidding, in particular, ICB. Project management could be outsourced, as ADB missions were not able to visit sites.

65. Cost Estimates. Cost estimates of subprojects were prepared in 2004 on the basis of the prevailing CSR. However, at the time of contract award there was an exceptionally high inflation. It is important to consider the inflation factor between the project design and contract award periods. Changes in cost estimates are discussed in more detail in para. 8. 66. Procurement and Construction. Several road construction projects were started in all the provinces within a short span of time. This resulted in a sudden increase in the demand for consultants and contractors. Hence, there was inadequate competition among contractors. Undertaking multiple large programs at one time is not good for the executing and implementing agencies and the local construction industry. Shortages will develop, bottlenecks will arise, prices will increase, the cost of production will be high, and equipment will become idle after project completion. It will be more appropriate to conduct a construction section capacity review during appraisal and stagger the works in such a way that machinery, equipment, workers, employers, and employees remain occupied. 67. Price Escalation. The price for construction materials rose sharply during implementation due to the global economic downturn. The delays in project implementation made this problem more serious. The decisions to approve the escalation took a long time due to the extremely high amounts (para. 42). All such decisions need to be made quickly in accordance with the given contract clauses.

68. Consultant Performance. Consultant performance should be critically evaluated and monitored closely during implementation. There were many lapses and deficiencies in the design, necessitating design and cost revisions and price escalation. A proper design review

14

may be considered to avoid these deficiencies for future projects. Future consultants selection should be strictly based on their performance records. C. Recommendations

1. Project Related 69. Selection of RARs for rehabilitation should be made objectively by experienced road planning engineers following the sound prioritization strategy. Further verification and review may be needed through site visits or technical audits. Safety facilities, road signs, direction boards, and road marking should be an essential part of the design and must be included in RAR design and installed before opening the roads to traffic. 70. NHA needs to complete the remaining 3% of works on ICB-1 and ICB-2 as soon as the security conditions improve, so that their full benefits can be realized. NHA should also enforce proper utilization of the carriageway, as only one carriageway is currently being used.

2. General

71. Simplifying Project Design. This project covered several subsectors, which were implemented by different government agencies. This created implementation challenges for ADB and the government. A simplified coordination mechanism, with only one or two implementing agencies, should be designed. 72. Staggered Procurement. Large road construction programs should be staggered over longer periods for continued employment of machinery, equipment, and manpower, and to avoid peaks and troughs in demand for materials. This would provide economy in construction costs.

73. Enhancing ADB Project Supervision. Several missions were unable to visit the project sites due to security constraints, resulting in challenges for ADB’s project administration. ADB needs to enhance project supervision by keeping the same project officer as long as practicable; fielding regular review missions, with all the required expertise; and enhancing effective coordination between the resident mission and ADB headquarters.

Appendix 1 15

PROJECT FRAMEWORK

Design Summary Performance Indicators/Targets Status at Completion

Impact Increase access of rural population to markets and social services in the province, leading to improved livelihoods

The percentage of NWFP province population living below the poverty line decreased from 44% to 33%.

Likely to be achieved: The percentage was 28.2% in 2005/2006. No authentic figures are available for 2010.

Promote subregional cooperation with Afghanistan and CARs

Increase in subregional and transit trade with Afghanistan by 20% annually, and with CARs by 5% annually

Unlikely to be achieved: This component was dropped from the project scope due to poor security conditions in the project area. However, the government is committed to making this component a priority once security conditions are normalized.

Improve governance, including support for the devolution program

Increase in provision of development funds to district governments by 10% annually

Likely to be Achieved: Cumulatively, development funds to the district government have increased more than 40% in the last 3 years.

Outcome Improve the reach, quality, and sustainability of the transport network in NWFP

Increase paved road access to rural population from 41% to 60%

Achieved: More than 70% of provincial roads paved

Improve the transport corridor for landlocked Afghanistan and CARs to provide access to Pakistan ports

Increase percentage of rural population served by public transport from 32% to 50%

Achieved: More than 55% of the rural population served by public transport

Increase percentage of road network (national, provincial, and district) in the provinces in good condition (international roughness index < 5) from 31% to 57%

Achieved:More than 60% of the road network in good condition

Increase international and transit traffic from Afghanistan and the CARs by 8% annually

Not achieved:This component was dropped due to the poor security conditions in the project area.

Outputs Improved provincial road network in NWFP

212 km of provincial highways improved by 2009

Partly achieved: 146 km of provincial highways and 10 bridges rehabilitated, 78 km rehabilitated by this project and 68 km rehabilitated by the government’s annual development plan.

Capable provincial and district road agencies

700 km of RARs improved by 2010

Partly achieved: 440 km of RARs rehabilitated

Improved subregional transport corridor

Over 300 FHA and district government staff trained by 2007

Achieved:Training conducted for more than 500 staff

16 Appendix 1


Efficient cross-border facility RAMS established for 2,100 km of the provincial highway network by 2008

Achieved: A RAMS established in 2010

Road safety improved on national highways in the province

Maintenance allocations for district roads increased from $0.6 million to $ 2.6 million annually.

Achieved: Maintenance allocation was more than $10 million in 2010–2011.

A total of 310 km of national highways improved by 2009

Partly achieved: 176 km completed

Cross-border infrastructure improved/developed at two border points by 2009

Not achieved:This component was dropped due to the poor security conditions in the project area.

Traffic accidents and injuries per year decreased by 5% after 2008.

Not achieved: The road safety component was dropped due to the poor security conditions in the project area.

Activities Implement provincial policy reforms and institutional strengthening component

Started: January 2005 Completed: November 2008


Provincial roads component (i) Provincial highways

Started January 2005 Completed: March 2009

Started: March 2008 Completed: December 2010

(ii) RARs Started: January 2005 Completed: December 2010

Started: April 2006 Completed: December 2010

Subregional connectivity improvement component (i) National highways


Started: April 2007 Completed: December 2010

(ii) Cross-border facilities Started April 2007 Completed: November 2009

Dropped due to the poor security conditions in the project area.

Roads safety component Started: April 2006 Completed: October 2006

Dropped due to the poor security conditions in the project area.

Inputs Project funding $423.6 million (ADB $301.2 million; borrower $122.4 million)

Civil works contracts:

National highways $174.0 million $118.70 million Provincial highways $66.0 million $ 58.60 million RARs $86.0 million $90.88 million Cross-border facilities $3.0 million Dropped due to the poor security

conditions in the project area. Consulting services: National highways, provincial highways, and RARs

$7.0 million $9.1 million


Appendix 1 17


institutional development and capacity building road safety


$2.29 million Dropped due to the poor security conditions in the project area.

ADB = Asian development bank, CAR = Central Asian republic, CPS = country partnership strategy, FHA = Frontier Highway Authority, km = kilometer, NHA = National Highway Authority of Pakistan, NWFP = North-West Frontier Province, RAMS = road asset management system, RAR = rural access road.

18 Appendix 2

Table A 2.1: Cost Estimates

Source: Loan Agreement, Asian Development Bank loan financial information system, and ADB project completion review mission.

Table A 2.2 Financing Plan of Project ($ million)

Appraisal Actual

Source Foreign

Exchange Local

Currency Total Cost %

Foreign Exchange

Local Currency

Total Cost %

ADB 243.2 58.0 301.2 71 165.1 36.8 201.9 67 Government 0.0 122.4 122.4 29 0.0 98.6 98.6 33 Total 243.2 180.4 423.6 100 165.1 135.4 300.5 100

ADB = Asian Development Bank. Source: Loan Agreement, Asian Development Bank loan financial information system, and ADB project completion review mission.

Foreign Exchange

Local Currency Total Cost Foreign

ExchangeLocal

Currency Total Cost

1. Provincial Policy Reforms and Institutional Strengthening Component 2.6 2.4 5.0 1.4 0.9 2.3

2. Provincial Roads Improvement Component 0.0 0.0a. Land Acqusition and Resettlement 0.0 1.4 1.4 0.0 2.1 2.1b. Civil Works 0.0

i. Provincial Highways 39.6 26.4 66.0 34.7 23.9 58.6ii. Rural Access Roads 51.6 34.4 86.0 49.5 41.4 90.9

c. Consulting Services 1.8 7.3 9.1 6.6 6.6

3.Subregional Connectivity Improvement Component 0.0 0.0

a. Land Acqusition and Resettlement 0.0 16.7 16.7 7.0 7.0b. Civil Works

i. National Highways 104.4 69.6 174.0 61.6 57.1 118.7ii. Border Crossing Infrastructure 1.8 1.2 3.0 0.0 0.0 0.0

c. Equipment 0.5 0.0 0.5 0.0 0.0 0.0d. Consulting Services 2.5 4.5 7.0 2.6 0.5 3.1e. Environment mitigation and Management 0.0 1.3 1.3 0.0 1.0 1.0

4. ROAd Safety 4.0 2.8 6.85. Incremental Costs 0.0 3.9 3.9 1.6 1.66. Contingencies 19.7 8.4 28.1 0.07. Interest Charges During Construction 14.8 0.0 14.8 8.7 8.7

Total 243.3 180.3 423.6 165.1 135.4 300.5

Item Decription

Appraisal Estimate ($ million) Actual Expenditure ($ million)

Appendix 3 19

DISBURSEMENT OF ADB LOAN PROCEEDS

Table A3.1 Annual and Cumulative Disbursements of ADB Loan Proceeds

Year Loan 2103-PAK Loan 2104-PAK

Actual Cumulative % of Total Actual Cumulative % of Total 2005 0.0% 0.0% 2006 2.51 2.51 1.3% 0.12 0.12 0.1% 2007 13.17 15.68 6.6% 0.51 0.62 0.3% 2008 38.70 54.38 19.4% 0.13 0.76 0.1% 2009 51.87 106.25 26.0% 0.36 1.12 0.2% 2010 55.99 162.25 28.1% 0.04 1.16 0.0% 2011 37.34 199.58 18.7% 1.13 2.29 0.6% Total 199.58 2.29

Source: Asian Development Bank loan financial information system.

Figure A 3.1: Annual Disbursement Trend and ADB Loan Proceeds

Figure A 3.2: Cumulative Disbursement Trend and ADB Loan Proceeds

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20 Appendix 4

STATUS OF COMPLIANCE WITH LOAN COVENANTS Loan 2103 Reference Covenant Status

LA Schedule 6, para. 1

I. Subproject Selection: The selection of subprojects for Rural Access Roads by NWFP shall be subject to ADB's concurrence which, in turn, will be based on full compliance of each submitted subproject with the criteria set forth below.

Complied with.


A. Subproject Selection CriteriaPoverty Targeting: The subproject shall have been prioritized based on the district development ranking used by the Borrower's government for determining allocation of its development expenditures. Preference shall be given to roads that improve access of poor communities to schools, health facilities and markets.

Complied with. Preference given to poor communities.


Technical Feasibility: The subproject shall be technically feasible and a detailed report prepared.

Complied with. Consultants prepared technical reports.


Economic Feasibility: Economic analysis of subproject shall be prepared in accordance with ADB's Guidelines for the Economic Analysis of Project and the estimated economic internal rate of return will be at least 12%.

Complied with. Subprojects with more than 12% EIRR were selected.


Social Assessment and Analysis: The subproject shall be socially sound and will minimize the need for land acquisition and include measures to mitigate social impacts, if any. An initial social assessment (ISA) for the subproject shall have been prepared in accordance with ADB's relevant guidelines.

Complied with.


Resettlement: For the proposed subproject roads, land acquisition and resettlement impacts should be avoided, or minimized as much as possible in case it is necessary. If a subproject involves land acquisition or involuntary resettlement, a full resettlement plan (if the number of affected persons is 200 or more) or short resettlement plan (if fewer than 200 persons are affected), acceptable to ADB shall have been prepared in accordance with the resettlement framework agreed between the Government and ADB and in accordance ADB's Guidelines on Involuntary Resettlement.

Complied with.


Indigenous People: If any indigenous people, such as tribes or settlers, as per ADB's definition, are likely to be affected significantly by a subproject, an indigenous peoples plan should be prepared in accordance with ADB's Policy on Indigenous Peoples.

Not applicable. There were no indigenous people in the project area.

LA, Schedule 6, para. 8

Environmental Considerations: Each proposed subproject road shall have been screened for its environmental impacts in compliance with the requirements of the Borrower's government and ADB and shall not cause any major adverse impact on the environment. Subproject roads passing through environmentally sensitive areas shall be avoided. ADB shall have received and reviewed the initial environmental examination, if any, prepared for a proposed road. All necessary approvals and clearances shall have been obtained for the subproject from the federal and provincial governments and related agencies.

Complied with.


Counterpart Funding: NWFP shall ensure that sufficient counterpart funding is allocated to implement all relevant subprojects in a timely and efficient manner in accordance with the overall implementation schedule.

Complied with.


Government Approvals: For each subproject, all necessary NWFP approvals shall have been obtained.

Complied with.


District Commitment: Each of the relevant districts of the NWFP shall have confirmed, in a manner acceptable to ADB, its commitment to the proposed subproject road, including but not limited to the provision of budgetary allocations for rehabilitation and operation and maintenance for the road. ADB acknowledges that a written certificate to this effect from the DCO shall be acceptable for the said purpose.

Complied with.

Appendix 4 21

Reference Covenant StatusLA, Schedule 6, para. 12

B. Approval Process for SubprojectsAll subprojects shall be required to comply with ADB's policies and guidelines, and satisfy ADB's procedures for subproject preparation with respect to technical, operational, economic, social, indigenous people, resettlement and other requirements. NWFP will ensure that sufficient counterpart funding will be available. The aforementioned requirements were applied for the six core subproject provincial roads during project preparation and were found to be technically feasible, economically viable, socially responsible and environmentally sound. For additional subprojects, these requirements shall be met during project implementation.

Complied with.


During the early stages of project implementation, C&W shall, with assistance of the institutional and management consultants, prepare a consolidated report for one or more subprojects covering all the stipulated Project requirements, which shall be sent to ADB for review as to its compliance with the agreed upon criteria and concurrence. Upon ADB's concurrence, PMU shall proceed with further subproject preparation, procurement and subproject implementation.

Complied with.

II. Special Arrangements for Implementation of Rural Access Roads LA, Schedule 6, para. 14

A. Allocation of Roads to DistrictsThe criteria for selection of rural access roads financed under the Project shall be based on (i) connectivity represented by road density, (ii) population representing needs and economic activity, and (iii) poverty based on district ranking.

Complied with.


B. Selection of Rural Access RoadsThe Project Management Unit under C&W shall solicit recommendation of priority roads from each district. The length of recommended roads shall be at least twice the allocable length of such roads.

Complied with.


C&W shall forward the recommendations from the districts to the Chief Minister's Selection Committee (CMSC) for selection of roads in accordance with their respective allocation for inclusion under the Project.

Complied with.


The project consultants under C&W shall undertake preparation of subproject proposal for each of the selected roads. The subproject proposal shall include all relevant assessments required under the selection process set forth here.

Complied with.


The subproject proposals shall be presented by C&W to the project Steering Committee (PSC) which upon its review and determination of the subproject's conformity with the eligibility criteria will endorse the recommended roads for Project financing.

Complied with.


C. Involvement of District in CMSC and PSCTo facilities direct involvement of districts in the final selection of the rural access roads to be financed under the project, at least five District Coordination Officers (DCOs) shall be selected as members of each of CMSC and PSC.

Complied with.


D. Endorsement for Project FinancingC&W shall present subproject proposals to PSC for its review and to ensure that the selected roads meet the eligibility criteria. PSC will then consider endorsing the proposed roads for project financing.

Complied with.


E. Eligibility Criteria for DistrictsIn order to be eligible for proposing roads to be financed from the Project, the districts will need to demonstrate that they have an ongoing road maintenance program that they have the required capacity. The following indicators shall be used to assess a district's eligibility:

Complied with.

i) Allocation of adequate resources for road maintenance in the previous years;

Complied with.

ii) Expenditure of at least 75% of funds received for road maintenance and construction;

iii) Meeting at least the minimum reasonable requirement for staff for the subject road network.

22 Appendix 4


F. Implementation C&W shall engage consultants for design, preparation of bidding documents and procurement support and construction supervision.

Complied with.


Bidding documents for the selected roads shall be distributed to the districts for advertising.

Not complied with. Notice-inviting tenders were advertised in the leading national newspapers in both English and Urdu.


Bids shall be evaluated by a Committee comprising the Project Director, the Executive District Officer (W&S) and a consultant nominated by C&W.

Complied with. The bids were evaluated by the committee formed by the C&W.


Civil works contracts shall be awarded by the DGs having jurisdiction over the subject roads. Construction will be supervised by consultants designated by the PMU. The DG shall designate appropriate technical staff for monitoring and documenting the quality of road improvement works and final inspection of the completed works prior to issuance of the contract completion certificate.

Complied with. The evaluated bids were approved by the competent forum and for subsequent award by Project Director, Foreign Aided Projects.


G. Determination of District CapacityWithin 15 months of the date of signing of this Loan Agreement

Complied with. The capacity was evaluated and the provincial government decided that the projects should be managed and supervised by the central project directorate.


H. Flow of Loan Funds ADB shall advance funds to the Imprest Account established by C&W in accordance with procedures established by the Borrower and accepted by ADB. In the case of districts determined to have sufficient capacity through the evaluation carried out pursuant to paragraph 26 above, the eligible amount of the proceeds of the Loan shall be made available to the districts as specific purpose grants for road network improvement and connectivity, and shall be disbursed as follows.

Partly complied with. Due to the district governments’ weak capacity, a central imprest account for ADB’s share and an assignment account for the government’s share were established in Peshawar. District accounts were not opened.

i) Based on quarterly estimates, funds shall be advanced by C&W to the second generation imprest accounts established at the district level;

Not applicable. The districts’ imprest accounts were not opened and the funds were not advanced to the districts.

ii) Payment to the relevant contractors shall be made by the DGs based on invoices approved by the consultant designated by C&W; and

Complied with. PD FAP made payments to the relevant based on invoices approved by the consultants.

iii) DGs shall report expenditures to C&W on a monthly basis. Not applicable. Imprest accounts were not opened at the DG level.


In the case of all other districts, C&W shall directly disburse funds against invoices from contractors upon written authorization of payment by the responsible district engineer and the assigned consultant.

Not applicable. Imprest accounts were not opened at the DG level.

Appendix 4 23

Reference Covenant Status III. Execution of the Project LA, Schedule 6, para. 29

A. Implementation ArrangementsProject Executing Agencies: C&W shall be the Project Executing Agency for part B of the project as described in Schedule 2 hereto. Complied with. LA,

Schedule 6, para. 30

The National Highway Authority (NHA) shall be the Project Executing Agency for Part B of the project as described in Schedule 2 hereto.


The Ministry of Communications (MOC) of the Borrower shall be the Project Executing Agency for Part C of the Project as described in Schedule 1 hereto.

Complied with.

LA Schedule 6, para 32

Implementation Agencies: Improvement of rural access roads shall be undertaken by the existing Project Management Unit (PMU) in C&W and the relevant DGs. Project directors in FHA, PMU, NHA and MOC shall have overall implementation responsibility. Steering committees (whose composition will be agreed with ADB prior to their constitution) at the level of provincial government, NHA and MOC will be responsible for monitoring implementation of the Project.

Complied with.


Project Management: The Borrower, in order to ensure integrity, continuity, transparency, efficiency, and good management, shall cause NHA and, through NWFP, C&W, to consult with ADB on all matters relating to management of the Project.

Complied with.


The Borrower shall cause each of the NHA and C&W to recruit the Project directors on an open and competitive process through which the candidates who demonstrate the best relevant capabilities are recruited. The appointment of no Project director shall be terminated or terms of such appointment altered in any material way until the third anniversary of such appointment unless a determination of gross dereliction of duty or such other serious misconduct is made through due process.

Not complied with. NHA and C&W did not select a project director through an open competitive process.


Environment Management: The Borrower shall cause each of NHA and C&W to ensure that all environmental mitigation measures identified in the environmental impact assessment (EIA) report for the national highway and initial environmental examination (IEE) report for the provincial highway and rural access roads are incorporated into the Project design and implemented during project construction and maintenance, in accordance with the Government's and ADB's environmental guidelines as set forth in Environmental Assessment Guidelines and the environmental management and monitoring plan agreed to with ADB.

Complied with. Necessary provisions were included in the civil works contracts.


The Borrower shall cause NHA and C&W to carry out design and construction following sound environmental practices including (i) appropriate selection of quarry and borrow sites and their subsequent rehabilitation after use, (ii) proper disposal of spoils and construction materials, (iii) use of appropriate environmental design and construction techniques which ensure slope stability and drainage, and (iv) minimization of construction impacts such as dust, diversion of stream flow and increased turbulence, and equipment noise.

Complied with.


The Borrower shall ensure that no funds from the Project are directed to any subproject that involves a road near protected or sensitive areas (e.g., nature reserves, parks, conservation areas, biodiversity reserves, or cultural and historical sites.

Complied with. No such situation was found during implementation.


The Borrower shall cause each of NHA and C&W (through NWFP) to ensure that the environmental management and monitoring plan (EMP) prepared as a part of EIA is appropriately implemented. Each NHA and C&W shall also be required to submit at least a semiannual report to ADB on implementation of the EMP as a part of the Project implementation report.

Complied with.


The Borrower shall cause each of NHA and C&W to ensure that no civil works contracts are granted prior to obtaining a no-objection certificate from the Pakistan Environmental Protection Agency (EPA) for the national highways, or from NWFP Provincial EPA for the provincial highways and the rural access roads.

Complied with.

24 Appendix 4

Reference Covenant StatusLA Schedule 6, para 40

In the event of changes to the engineering design of any part of the Project, the Borrower shall cause NHA to evaluate whether the changes would impact upon the EIA report, including the EMP. To the extent changes are required to be made to the EIA, NHA shall seek prior concurrence of ADB to such proposed changes.

Complied with.


The Borrower shall cause C&W to ensure that the follow-up subprojects of rural access roads shall be selected and appraised in accordance with the recommendations set forth in the relevant IIE report.

Complied with.


Health Risks: The Borrower shall cause each of NHA and C&W to ensure that the civil works contracts include a requirement to conduct an information and education campaign on communicable diseases, including but not limited to sexually transmitted diseases and HIV/AIDS for construction workers as part of the health and safety program at campsites during the construction period. NHA and C&W shall also ensure that the civil works contracts include provisions on health, safety and security, sanitation and appropriate working conditions, including accommodation, accidental death, dismemberment and disability benefits, and safe drinking water for construction workers at campsites at standards acceptable to ADB during the construction period. The Borrower shall also require each of NHA and C&W to provide a detailed report on how each of the provisions herein is implemented by the civil works contractors.

Complied with. Doctors sent to the sites to conduct seminars, organize lectures on HIV/AIDs.


Resettlement: The Borrower shall ensure that NHA and the NWFP (through C&W) implement their land acquisition and resettlement activities under their respective project components in accordance with all applicable laws and regulation of the Borrower and in accordance with ADB's Involuntary Resettlement Policy (1995) and the Resettlement Framework as well as the agreed Project's particular resettlement plans that include but are not limited to:

Complied with.

i) Land and rights-of-way shall be acquired in a lawful and timely manner;

ii) Compensation shall be provided at replacement cost together with any entitlements as stipulated in the resettlement plan, with ADB's policy to prevail in the case of any difference with the Borrower's or NWFP's laws and regulations. For avoidance of doubt, under each subproject as applicable, each of NHA and C&W shall settle land acquisition and resettlement compensation issues through (a) payment of full compensation/replacement value for land to titleholders 30 days prior to possession, (b) payment of full compensation/replacement value to title holders for structures and other immovable assets 90 days prior to possession, (c) payment of full replacement value of structures of whatever type to affected informal settlers/roadside squatters/vendors, (d) payment of full compensation for acquired land to legal titleholders, and (e) payment of all other benefits that may be due under the terms of the particular resettlement plans;

iii) Counterpart funds and disbursements shall be provided promptly to affected people, with agreed compensation provided to them before any land is taken possession of for the purposes of the Project or civil works contracts are awarded, and the Project shall not use any emergency provisions that allow land to be taken in advance of payment;

iv) NHA and C&W shall guarantee to meet any unforeseen financial requirements for compliance with resettlement matters that are in excess of budget estimates;

v) NHA and C&W shall implement the Project with adequate supervision, monitoring, and reporting. NHA and C&W will submit progress and completion reports on land acquisition and resettlement that will be included under the financial audit statements for each subproject. Resettlement fund disbursements and other expenditures shall be audited annually by an independent, non-governmental auditor acceptable to ADB;

vi) Each of NAH and C&W shall appoint within three months of the date of

i) Complied with. ii) Complied with. iii) Complied with. iv) Complied with. v) Complied with. vi) Complied with. vii) Complied with. viii) Complied with. ix) Complied with. x) Complied with. xi) Complied with. xii) Complied with.

Appendix 4 25

Reference Covenant Statusloan effectiveness a local panel of independent experts experienced in resettlement monitoring and evaluation consisting of three people. The experts will provide monitoring reports to ADB every six months throughout the period of Project implementation.

vii) Resettlement fund disbursements and expenditures shall be audited annually;

viii) Adequate information dissemination and consultation with affected people shall be carried out;

ix) Consultations and grievances related to the Project shall be documented;

x) Resettlement plans shall be updated if the scope of the Project is changed and forwarded to ADB for review and approval;

xi) Each NHA and C&W shall develop linkages with national HIV/AIDS prevention or control programs in a timely manner so that the HIV/AIDS prevention activities required under the Project are properly carried out; and

xii) All progress shall be regularly reported to ADB. LA, Schedule 6, para. 44

C&W shall prepare settlement plans for non-core projects in accordance with resettlement framework agreed between ADB and the Borrower and shall disclose the resettlement plans to all affected persons and stakeholders prior to award of civil works contracts.

Complied with.


To avoid fraudulent claims for compensation under the resettlement plans, the Borrower shall cause each of NHA and C&W to issue photo identifications to all eligible, including non-titled but affected persons within two months of approval of the relevant subproject.

Complied with.


The Borrower shall cause each of NHA and C&W to revise the resettlement plans agreed with each of NHA and C&W on the basis of information contained in the detailed designs of civil works to be undertaken under the Project. Such revised resettlement plans shall be subject to ADB approval prior to award of any relevant civil works contracts.

Complied with.


The Borrower shall cause each of NHA and C&W to make public disclosure of all resettlement plans in a manner, form and language that is accessible in a timely manner to all concerned people, particularly those who may be affected by these plans prior to the execution of the contemplated land acquisition and resettlement activities. In addition, such plans shall also be posted on the ADB website.

Complied with.


The Borrower shall cause C&W and NHA to form Resettlement Advisory Committee (RAC) and Grievance Redress Committee (GRC) following loan negotiations to hear any grievances or other complaints relating to resettlement or any other issues arising out of the implementation of the Project. Grievance Redress committees shall be formed in accordance with the resettlement plans and resettlement framework to resolve land acquisition and resettlement disputes.

Complied with.


To facilitate timely and effective implementation and monitoring of the resettlement plan, NHA and C&W shall engage Non-Government Organizations to be selected in consultation with ADB to assist in the monitoring effort.

Partly complied with. Due to security reasons, the NGOs were reluctant to work in the area. The task was assigned to External Monitoring Agencies.


Trafficking: The Borrower shall ensure that each of NHA and C&W enact measures satisfactory to ADB to prevent, monitor, detect, and arrest illegal trafficking of women and children and illegal movement of plants, wildlife, contrabands and other illicit goods. A summary of actions taken on each of the enumerated matters shall be provided to ADB upon request.

Complied with.


Labor Laws: NHA and C&W will ensure that the civil works contractors comply with all applicable labor laws and regulations, and do not employ child labor in the construction activities. NHA and C&W will provide equal opportunities for women in road construction activities, as well as require contractors to not differentiate wages between men and women for work of equal value. A reputable non-government organization may be appointed to

Complied with.

26 Appendix 4

Reference Covenant Statusindependently monitor and report on such matters.


Anticorruption: MOC, NHA and C&W acknowledge that ADB, consistent with its commitment to good governance, accountability and transparency, reserves the right to undertake, in consultation with Borrower, directly, or through its agents, investigation of any possible financial or management impropriety in the conduct of the Project. The Borrower shall fully cooperate and shall ensure that each of NWFP and C&W fully cooperate with any such investigation and extend all necessary assistance, including access to al relevant books and records as well as engagement by NHA or C&W of independent experts, that may be needed for satisfactory completion of such investigations. The Borrower further acknowledges that all costs related to such investigations will be borne by the Project.

Complied with.


Road Maintenance: The Borrower shall cause each of NHA and NWFP to maintain the roads improved under the Project to design standards and in accordance with sound maintenance practices. The Borrower shall cause NHA and NWFP to ensure that appropriate road maintenance procedures and annual maintenance plans are prepared for the improved national highways and provincial roads, on the basis of modern, agreed-upon maintenance standards, traffic volumes, and assessment of needs.

Complied with.


FHA shall (i) award at least four maintenance contracts (covering at least 400 km in total) to the private sector within 24 months of the date of loan effectiveness; (ii) award at least three performance-specific maintenance contracts (covering at least 150 km) to the private sector within 24 months of the date of loan effectiveness; (iii) conduct a study on road user charges and suitable sources and mechanisms for increased funding for road maintenance and consult with ADB on implementation of recommended measures; and (iv) NWFP shall disburse to the districts annual road maintenance funds in the amount of PRs150 million to prevent further deterioration of the network, and PRs500 million for five years to bring the network to a maintainable condition.

Not complied with. Maintenance contracts could not be awarded to the private sector.


Institutional Strengthening: The Borrower shall cause NWFP through FHA and C&W to undertake a comprehensive capacity building program consisting of, but not limited to, training and advisory services aimed at enhancing the managerial, technical, road maintenance and monitoring capacities of the staff responsible at the district level for implementation of the Project and maintenance of district road networks. Targets for orientation, training and assessment shall be set within six months of the date of loan effectiveness and progress shall be periodically reviewed with ADB.

Complies with.


Midterm Review: Two years from the date of loan effectiveness, a comprehensive midterm review shall be undertaken jointly by ADB, C&W and NHA to review all aspects of Project implementation, including procurement financing and scheduling matters.

Complied with. Due to bad security conditions in the project area, the mission could not be fielded and ADB conducted the midterm review mission in PRM.

LA, Section 2.09(a)

Audited Financial Reports: NFWP and NHA shall (i) maintain separate account for the Project; (i) have such accounts and related financial statements (balance sheet, statement of income and expenses, and related statements) audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB; and (iii) furnish to ADB, promptly after their preparation but in any event not later than six (6) months after the close of the fiscal year to which they relate, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors' opinion on the use of the Loan proceeds and compliance with the covenants of the Loan Agreement as well as on the use of the procedures for imprest account/statement of expenditures), all in the English language. NWFP shall furnish to ADB such further information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time

Complied with.

Appendix 4 27

Reference Covenant Statusreasonably request.

LA, Section 2.09(b)

NHA shall enable ADB, upon ADB's request, to discuss NHA's financial statements and its financial affairs from time to time with NHA's auditors, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB, provided that any such discussion shall be conducted only in the presence of an authorized officer of NHA shall otherwise agree.

Complied with.


Consultants: The services of consultants shall be utilized in the carrying out of the Project, particularly with regard to (a) detailed engineering and construction supervision/contract administration for national highways; (b) design and construction supervision for provincial highways and rural access roads; and (c) road safety. The terms of reference of the consultants shall be determined by agreement between ADB and each of C&W, NHA and MOC.

Complied with.


After the conclusion of negotiations but before signing of the contract, the contract as negotiated shall be furnished to ADB for approval. Promptly after the contract is signed, ADB shall be furnished with three copies of the signed contract. If any substantial amendment of the contract is proposed after its execution, the proposed changes shall be submitted to ADB for prior approval.

Complied with.

PA, Section 2.08

Progress Reports: Without limiting the generality of the foregoing, NWFP shall furnish to ADB quarterly reports on the execution of the Project and on the operation and management of the project facilities. Such reports shall be submitted in such form and in such detail and within such a period as ADB shall reasonably request, and shall indicate, among other things, progress made and problems encountered during the quarter under review, steps taken or proposed to be taken to remedy these problems, and proposed program of activities and expected progress during the following quarter.

Complied with.

Loan 2104 Reference Covenant Status


III. Execution of the Project: A. Implementation Arrangements Project Executing Agencies: C&W shall be the Project Executing Agency for the Project as described in Schedule 1 hereto.

Complied with.


Implementation Agencies: the Frontier Highway Authority (FHA), operating under C&W, shall be the implementing agency for the Project. The Project director in FHA shall have overall implementation responsibility. A Steering Committee (whose composition shall be agreed with ADB prior to its constitution) at the level of provincial government shall be responsible for monitoring the implementation of the Project.

Complied with.


Project Management: The Borrower, in order to ensure integrity, continuity, transparency, efficiency, and good management, shall cause C&W, through NWFP, to consult with ADB on all matters relating to management of the Project.

Complied with.


The Borrower shall cause each of the NHA and C&W to recruit the Project directors on an open and competitive process through which the candidates who demonstrate the best relevant capabilities are recruited. The appointment of no Project director shall be terminated or terms of such appointment altered in any material way until the third anniversary of such appointment unless a determination of gross dereliction of duty or such other serious misconduct is made through due process.

Complied with.


Trafficking: The Borrower shall ensure that C&W enacts measures satisfactory to ADB to prevent, monitor, detect, and arrest illegal trafficking of women and children and illegal movement of plants, wildlife, contrabands and other illicit goods. A summary of actions taken on each of the enumerated matters shall be provided to ADB upon request.

Complied with.

LA, Schedule 6, para.6(a)

Anticorruption: The Borrower acknowledges that ADB, consistent with its commitment to good governance, accountability and transparency, reserves the right to undertake, in consultation with the Borrower, directly, or through its agents, investigation of any possible financial or management

Complied with.

28 Appendix 4

Reference Covenant Statusimpropriety in the conduct of the Project. The Borrower shall fully cooperate and shall ensure that each of NWFP and C&W fully cooperate with any such investigation and extend all necessary assistance, including access to all relevant books and records as ell as engagement by NHA or C&W of independent experts, that may be needed for satisfactory completion of such investigations. The Borrower further acknowledges that all costs related to such investigations will be borne by the Project.

LA, Schedule 6, para. 6(b)

The Borrower shall ensure that within 6 months of the date of loan effectiveness, C&W, in consultation with representatives of the civil society nominated by ADB, will prepare an anticorruption strategy acceptable to ADB, which will be implemented during the remaining project implementation period to safeguard the integrity of project transactions. The adopted anticorruption strategy shall be publicized through all major local media.

Complied with.


The Borrower shall ensure that an annual performance audit of the Project is carried out by an independent auditor acceptable to ADB.

Complied with.

LA, Schedule 6, para.7

Institutional Strengthening: The borrower shall cause NWFP through FHA and C&W to undertake a comprehensive capacity building program consisting of, but not limited to, training and advisory services aimed at enhancing the managerial, technical, road maintenance and monitoring capacities of the staff responsible at the district level for implementation of the Project and maintenance of district road networks. Targets for orientation, training and assessment shall be set within six months of the date of loan effectiveness and progress shall be periodically reviewed with ADB.

Complied with.


The Borrower shall cause FHA to establish a Road Safety, Environment and Social Assessment Cell (RESAC) within its own organization and provide a core staff that shall include at least four experienced experts to deal with issues, including road safety, resettlement planning and management, poverty reduction monitoring, labor practices, general analysis, and environment. The Borrower shall also cause FHA to pilot test a road safety improvement mechanism modeled after the experience of the Federal Highway Police.

Not complied with. The establishment of the cell was deferred by the Chief Minister and the FHA was directed to seek help from the provincial EPA in such matters.


Midterm Review: Two years from the date of loan effectiveness, a comprehensive midterm review shall be undertaken jointly by ADB, C&W and NHA to review all aspects of Project implementation, including procurement financing and scheduling matters.

Complied with. Delayed due to bad security conditions in the project area.

PA, Section 2.09, Article II

Audit Financial Reports: NWFP shall (i) maintain separate accounts for the Project; (ii) have such accounts and related financial statements (balance sheet, statement of income and expenses, and related statements) audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB; and (iii) furnish to ADB, promptly after their preparation but in any event not later than six months after the close of the fiscal year to which they relate, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors' opinion on the use of the Loan proceeds and compliance with the covenants of the Loan Agreement as well as on the use of the procedures for imprest/statement of expenditures), all in the English language. NWFP shall furnish to ADB such further information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request.

Complied with.

PA, Section 2.09, Article II

NHA shall enable ADB, upon ADB's request, to discuss NHA's financial statements and its financial affairs from time to time with NHA's auditors, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB, provided that any such discussion shall be conducted only in the presence of an authorized officer of NHA shall otherwise agree.

Complied with. ADB has not made such a request.

Appendix 4 29


Consultants: The services of consultants shall be utilized in the carrying out of the Project, particularly with regard to policy reform, institutional strengthening and reforms, road asset management capacity building and project management. The terms of reference of the consultants shall be as determined by agreement between ADB and C&W.

Complied with.


After the conclusion of negotiations but before signing of the contract, the contract as negotiated shall be furnished to ADB for approval. Promptly after the contract is signed, ADB shall be furnished with three copies of the signed contract. If any substantial amendment of the contract is proposed after its execution, the proposed changes shall be submitted to ADB for prior approval.

Complied with.

PA, Section 2.07(b)

Progress Reports: Without limiting the generality of the foregoing, NWFP shall furnish to ADB quarterly reports on the execution of the project and on the operation and management of the project facilities. Such reports shall be submitted in such form and in such detail and within such a period as ADB shall reasonably request, and shall indicate, among other things, progress made and problems encountered during the quarter under review, steps taken or proposed to be taken to remedy these problems, and proposed program of activities and expected progress during the following quarter.

Complied with.

30 Appendix 5

PROVINCIAL INSTITUTIONAL DEVELOPMENT COMPONENT

A. Introduction 1. The provincial policy reforms and institutional strengthening component was one of the key project components financed by Loan 2104. It was designed to help the Frontier Highway Authority (FHA), the Communication and Works Department (C&W), and district governments strengthen capacity for project implementation, roads asset management, road maintenance, and environmental and social aspects of road development, and to develop a road safety program. 2. A group of national and international consultants, led by Sheladia Associates Inc., (U.S.), was selected through the quality- and cost-based selection method to provide consultancy services for this project. The team of consultants mobilized on 13 October 2006, initiating project activities, and finished its work in December 2010. A project completion report has already been submitted to ADB. The main activities and achievements are as follows. B. Road Maintenance Enhancement and Sustainability

3. A preliminary report, entitled “Preliminary Report on the Establishment of Road Maintenance Fund for North-West Frontier Province,” has been prepared. The report describes the rationale for setting up the fund and its proposed modus operandi and concludes with pre- and post-establishment action plans. Appended to the report is a draft act that was sent to the FHA to be put up before the Provincial Assembly. A draft summary for the Chief Minister has been prepared and is under process of approval by the Provincial Cabinet. 4. To resolve the problems associated with road maintenance, the FHA got approval from the Chief Minister of the North-West Frontier Province (NWFP) to establish a road maintenance unit (RMU), headed by a deputy director and assisted by four assistant directors and other necessary staff provided. 5. The FHA asked ADB to finance the construction of an RMU building as the existing facility had been taken over by the C&W, and building a new one from its own resources was beyond its capacity, although government land was available. ADB agreed to the request. 6. The new RMU building consists of lecture halls, soil testing laboratories, offices, a bitumen testing laboratory, and garages for vehicles and equipment. The RMU has two weigh-in-motion, axle-load controls; traffic counting machines; a road profilometer; the latest bitumen and soil testing equipment; and state of the art office equipment. The most recent editions of various road construction and maintenance-related software and manuals were also handed over to the RMU. C. Axle-Load Control

7. Overloading of vehicles, especially trucks, is a common problem in Pakistan and a major reason for premature road destruction and failure. The National Highway Authority is implementing an axle-load control scheme for the national highway network. In a similar manner, to prevent early deterioration of the provincial road network and reduce overloading of vehicles, portable weigh stations have been procured and handed over to the RMU. These are already in use. Capacity and enforcement of rules are being strengthened through training of FHA and other staff, including the provincial police.

Appendix 5 31

8. Legislation to amend the existing NWFP Motor Vehicle Ordinance, 1999, has already been approved by the Provincial Cabinet and enforced.

D. Road Safety

9. In the NWFP, accidents are caused by reckless driving, jam-packed vehicles, poorly-trained drivers, vehicles that have outlived their useful life and lack modern safety features, and non-implementation of traffic rules by the authorities concerned. According to the statistics, 87% of traffic accidents occurred due to negligent drivers, speeding, overloading, and passing incorrectly. To train officials of the FHA and C&W, four seminars were conducted and a draft report on road safety was submitted to the FHA. The provincial government has approved the road safety action plan for implementation. E. Environmental and Social Assessment

10. The FHA lacks capacity and staff experienced in environmental and social assessment. There is a great need to strengthen monitoring of civil works contract compliance with labor laws, specifically those addressing gender inequality and child labor. To strengthen the FHA’s institutional capacity for environment and social assessment of road projects, draft environmental guidelines and an initial environmental examination for the Jehangira–Swabi road were prepared. The resettlement specialist collected internal monitoring data for various PHs and RARs. The environmental specialist proposed the establishment of an environmental and social cell within the FHA to monitor road projects. The establishment of this cell was included in the agenda of the Frontier Highways Council for approval by the Chief Minister of the NWFP. The proposal was deferred, however, and the FHA was directed to seek the help of the provincial Environmental Protection Agency in such matters. F. Staff Assessment and Institutional Reforms

11. The devolution of district roads resulted in fragmentation of the C&W. The structure and resources of the district administrations need to be reviewed to ensure they are appropriate to the new requirements. To transform the organizational structure of the districts into effective and modem road management organizations, a report on institutional reforms for the FHA and C&W was prepared and submitted to the FHA for review on 24 January 2008. The institutional reforms pertaining to the FHA were taken up by the Provincial Highway Council and approved. G. Private Sector Participation

12. The opportunities for private sector participation in road infrastructure projects have been fewer in the NWFP than elsewhere in Pakistan due to its remoteness and relatively low traffic volumes. To increase private sector participation wherever feasible in the FHA's road maintenance operations and road rehabilitation program, it was proposed that the FHA investigate the use of performance-specified maintenance contracts, including the possibility of these being supported by toll revenue. However, following ADB approval, the activity was wrapped up due to the non-availability of an expatriate expert. H. Project Management and Assistance

13. The activity was undertaken in April 2008. The reports for RARs were submitted to the client for comments and implementation. The environmental part was completed and submitted

32 Appendix 5

to ADB. For the social part the consultants reviewed the resettlement plans prepared by the supervision consultants. The resettlement specialist (local) also held field visits to verify action on the resettlement plan for the RARs. The internal monitoring agency report for RAR was submitted to the client. I. Budgetary and Financial Control

14. Assistance was provided and was made available at the request of the client as and when required. J. Training Program

15. Training programs were key activities of the provincial policy reforms and institutional strengthening component. The objective of the activity was to strengthen and build the capacity of FHA and C&W staff, which required a comprehensive training program. 16. The consultant’s team assessed the training needs and potential training programs for different categories. Courses were conducted for three different levels of FHA and C&W officials. Apart from the training needs at the FHA, C&W field offices were also given a revised training plan. Need-based training and capacity building activities for FHA and C&W staff were conducted, especially in the areas of resettlement, environment, and management. Economic analysis training was held twice, due to its importance, followed by project management and Highway Development and Management Model (HDM-4) trainings in February 2007 and February 2008.

Appendix 6 33

ECONOMIC REEVALUATION A. General

1. The project underwent an economic reevaluation, using methodology similar to that at appraisal and updated data. The analysis considered road agency and user costs with and without the project. In the “without project” case, it was assumed that the original state of the road would be retained and minimum necessary maintenance would be carried out. In the “with project” case, the roads were reconstructed so that vehicles could drive at faster speeds with lower operating costs and less travel time. Economic benefits were calculated by comparing road agency and road user costs “with project” and “without project” over the life of the project, and a net present value (NPV) and economic internal rate of return (EIRR) were computed. B. Traffic Analysis

2. The latest traffic data collected during the project completion report mission and obtained from reports were adjusted to the project’s start year (2008) and forecasts were made using a common growth rate of 5% per annum. The latest traffic estimates available for the 19 selected RARs were obtained. Accordingly, economic analysis has been carried out for these 19 selected roads only. For the national highways, traffic reported in 2011 was 32–45% less than in 2004. This may be due to the poor security conditions or to flood damage. However, 2011 traffic data were discarded and 2004 data were raised to 2008 levels for purposes of economic analysis. The latest traffic data available for the provincial highways, which related to 2004, were adjusted to 2008 levels as well.

Table A6.1 – Traffic Data Used for Economic Analysis

No Road Animal Cart

Motor Cycle Car Van Bus Truck

2X1 Truck 3X1

Truck >3X1 Total

National Highways 1 ICB-1 & 2 – D. I.

Khan Sarai Gambila 18 38 861 1,211 424 1,063 803 164 4,564

2 ICB-3 – Dara Adamkhel Badaber

68 258 1,670 1,847 320 1,010 693 217 6,015

Provincial Highways 3 ICB-7 – Jehangira

Swabi 189 267 1,125 1,526 118 898 106 43 4,083

4 ICB-9 – Hangu Thall 72 166 1,475 1,611 52 324 53 16 3,697 5 ICB-12 – Tamirgarh

Munda 105 174 636 863 50 280 68 0 2,071

ICB = international competitive bidding. Source: Asian Development Bank estimate in 2004.

C. Cost and Benefit

3. The project’s costs comprised capital and maintenance costs. The tender costs of roads in this project were far higher than the appraisal costs. As a result, the scope of the project was reduced to less than half the length of roads originally proposed. Of the national highways, there was only one that was completed at the appraisal cost (ICB-3). The cost of completion of the other national highway project (ICB-1 and ICB-2) was about 60% above the appraisal cost. For the provincial highways, the final completion cost was 150%–250% from their appraisal cost. The completion costs for the RARs were, on average, 60% above the appraisal cost. Maintenance costs included patching potholes, sealing cracks, edge repair and resurfacing, when required, and routine maintenance. The maintenance costs were provided in responsive form and were activated by the model when conditions called for them. Only rates of

34 Appendix 6

maintenance operations were provided in the model. Maintenance costs of RARs, which were evaluated manually, were ignored to simplify the analysis. Economic costs were taken at 85% of financial costs and remaining 15% was considered as recovery cost of flood damages on ICB-1 and ICB-2, and therefore not included in the economic analysis. 4. The project’s benefits are provided by differences in road agency and user costs with and without project. The benefits to road users included savings in vehicle operating costs and the value of time, for passengers and crew, of existing, diverted, and generated traffic. Benefits to the road agency included savings in maintenance costs of existing roads. Savings in vehicle operating costs depended on road conditions, particularly their roughness level, vehicle prices, and other inputs. The main assumptions are given below.

i. National and Provincial Highways. The existing roads are narrow, two-lane (6–6.5 meter), surface-treated roads. The maintenance policy will be pavement surface treatment when International Roughness Index (IRI) = 8, reducing it to 6. The maintenance policy after construction provides for resurfacing as and when IRI = 5, reducing it to 3.

ii. Rural Access Roads. The existing roads have 3-meter-wide surface-treated pavement, with untreated 1–2-meter-wide shoulders. The road is poorly maintained: IRI = 8–9. The new road will have a 3.65-meter-wide pavement with 2-meter-wide treated shoulders. The improved road will have an average roughness level of IRI = 4. Traffic in year one should increase by 10% to account for the replacement of animal-drawn vehicles.

iii. Prices. The prices used in analysis are listed in Table A6.2.

Table A6.2 – Prices10 and Economic Costs of Vehicles and Inputs Item Unit Market Price Economic

Cost11 Motorcycle Car Wagon/Pickup Bus Truck 2-Axle Truck Multiple-Axle

PRs ’000 45 1,500 3,350 7,400 5,550 9,000

26 900

2,512 5,550 4,554 6,390

High-Octane Blending Component Premium Diesel

PRs/liter 128

101 113

95

95 95

Value of Time Bus Passenger Motorcycle/Wagon Passenger Car Passenger

PRs/hr Working 40 60

120

Non-working 13 20 40

Patching/Edge Repair Sealing

PRs/m2 290 20

247 17

10 All costs and prices were converted into $ at PRs95 in HDM-4 analysis, as the maximum number of digits available

in the model exceeded numbers in PRs. 11 Gas and diesel prices change every week. The prices in Table A 10.2 are as of the third week of October 2012.

They include a 16% sales tax and an unspecified amount of petroleum duty. Their economic cost has been taken intuitively at PRs 95 per liter.

Appendix 6 35

iv. Other Parameters. Other parameters used in the analysis are:

Project life 20 years, including the construction period, commencing 2008

Construction period 2 years for national and provincial highways 1 year for RARs

Discount rate 12%

D. Economic Reevaluation and Sensitivity

5. The economic evaluation of national and provincial highways was carried out by HDM-4 software, using the above assumptions, prices, and parameters. The model has three submodels: a pavement deterioration model, a vehicle operating cost model, and an economic evaluation model. The pavement deterioration model predicts pavement conditions and estimates vehicle operating costs from year to year over the life of the project. The evaluation model compares costs with and without project and computes such things as the NPV, EIRR, and cost benefit ratios. Vehicle operation costs for RARs were estimated using HDM-4’s vehicle operating cost model, and further computations were made manually on an Excel spreadsheet. The results are explained in Table A6.4. 6. The summary of results for national and provincial highways provided by HDM-4 analysis given in Table A6.3 also shows figures at appraisal for comparison.

Table A6.3 – Summary of Results Showing NPV and EIRR%

No Package No. and Name NPV ($ million) EIRR%

20% Increase in Cost

20% Decrease in

Benefits 1 ICB-1 & 2 – D. I. Khan Sarai Gambila (4.10) 10.8 - - 2 ICB-3 – Dara Adamkhel Badaber 3.90 20.7 17.2 16.3 3 ICB-7 – Jehangira Swabi 9.70 20.5 17.5 16.6 4 ICB-9 – Hangu Thall 2.68 15.2 14.4 11.2 5 ICB-12 – Tamirgarh Munda (0.03) 11.9 9.4 8.4 6 All combined (program analysis) 10.54 13.9 12.5 12.2

EIRR = economic internal rate of return, ICB = international competitive bidding, NPV = net present value.

7. It can be seen from Table A6.3 that ICB-1 and ICB-12 are just at the margin of viability with EIRR of 10.8% and 12.0% respectively. In both cases, low rates of return are due to low volume of traffic in relation to cost of construction. ICB-3, ICB-7, and ICB-9 are well above the cutoff point of 12% and remain viable with 20% increase in costs, or 20% decrease but not both together. As the national highways have become 4-lane divided highways, only half the traffic will use the new carriageway. However, the highways program as a whole is quite viable, with an NPV of $10.54 million and an EIRR of 13.9%. The program remains viable with 20% increase in costs or 20% decrease in benefits, but not both together.

36 Appendix 6

8. The summary of economic analysis for selected rural access roads is given in Table A6.4.

Table A6.4 – Summary of Economic Analysis for Selected Rural Access Roads No. Package No. Length Traffic Cost/Km Cost/Km/Vehicle EIRR 1 7 13.0 1,089 12.42 11.40 29.25 2 9 12.9 437 8.34 19.08 12.62 3 14 24.8 1,756 17.43 9.93 33.88 4 32 10.2 1,119 13.89 12.41 23.19 5 34 7.8 615 12.48 20.29 12.39 6 36 12.2 490 12.72 25.96 14.76 7 39 10.6 622 13.33 21.43 9.84 8 41 9.2 75 9.27 123.60 (3.16) 9 42 9.0 244 10.78 44.18 7.95

10 44 10.7 349 11.35 32.52 8.00 11 44 10.7 349 11.35 32.52 9.18 12 47 11.3 532 11.47 21.56 16.06 13 48 6.3 450 9.79 21.76 12.18 14 49 4.0 338 13.38 39.59 6.86 15 53 12.2 493 20.77 42.13 4.99 16 54 5.6 155 8.04 51.87 3.36 17 55 11.5 381 23.45 61.55 5.33 18 56 4.5 1,744 15.86 9.09 24.50 19 58 6.3 3,843 30.68 7.98 36.19

Weighted Average 10.1 791 14.20 32.00 15.10 EIRR = economic internal rate of return, km = kilometer.

9. Of the 19 selected RARs, 10 have an EIRR higher than the cutoff point of 12%, and 2 are at the margin, with an EIRR of 9%–10%. The remaining 7 have an EIRR < 10%, of which one has a negative rate of return. It has a very low volume of traffic, only 75 vehicles per day. The RARs, as a whole, have a rate of return of 15.1%. The EIRR remains above 12%, with a 20% increase in costs or a 20% decrease in benefits.

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