Report and Recommendation of the President to the Board of Directors

Project Number: 52298-001 March 2020

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

CURRENCY EQUIVALENTS (as of 13 March 2020)

Currency unit – Indian rupee/s (₹)

₹1.00 = $0.01343 $1.00 = ₹74.4395

ABBREVIATIONS

ADB – Asian Development Bank CRN – core road network EIRR – economic internal rate of return HDI – human development index IEE – initial environmental examination km – kilometer MPWD – Maharashtra Public Works Department PAM – project administration manual PIU – project implementation unit PMS – project management services PMU – project management unit

NOTES

(i) The fiscal year (FY) of the Government of India ends on 31 March. “FY” before a calendar year denotes the year in which the fiscal year ends, e.g., FY2020 ends on 31 March 2020.

(ii) In this report, “$” refers to United States dollars. Vice-President Shixin Chen, Operations 1 Deputy Director General Diwesh Sharan, Officer-in-Charge, South Asia Department (SARD) Director Ravi Peri, Transport and Communications Division, SARD Team leader Kirsty Rowan Marcus, Transport Specialist, SARD Team members Melinda Agudo, Operations Assistant, SARD Chandra Arora, Senior Procurement Officer, India Resident Mission

(INRM), SARD Iris Bombay, Safeguards Officer (Environment), SARD Merdinia Dequilla, Associate Project Analyst, SARD

Sajid Raza Khan, Financial Management Specialist, SARD Laureen Laurito, Social Development Specialist, SARD Douglas Perkins, Principal Counsel, Office of the General Counsel

Prabhasha Sahu, Senior Project Officer (Transport), INRM, SARD Dinesh Shiwakoti, Procurement Specialist, Portfolio and Financial Management Department

Karma Yangzom, Senior Environment Specialist, SARD Peer reviewers Oyunchimeg Erdene, Principal Transport Specialist, Central and

West Asia Department 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

PROJECT AT A GLANCE

MAP

I. THE PROPOSAL 1

II. THE PROJECT 1

A. Rationale 1 B. Project Description 3 C. Value Added by ADB 4 D. Summary Cost Estimates and Financing Plan 4 E. Implementation Arrangements 6

III. DUE DILIGENCE 7

A. Technical 7 B. Economic Viability 7 C. Sustainability 7 D. Governance 8 E. Poverty, Social, and Gender 8 F. Safeguards 9 G. Summary of Risk Assessment and Risk Management Plan 11

IV. ASSURANCES AND CONDITIONS 11

V. RECOMMENDATION 11

APPENDIXES

1. Design and Monitoring Framework 12

2. List of Linked Documents 15

Project Classification Information Status: Complete

PROJECT AT A GLANCE

Source: Asian Development BankThis document must only be generated in eOps. 12032020173738714960 Generated Date: 24-Mar-2020 13:34:13 PM

1. Basic Data Project Number: 52298-001Project Name Maharashtra State Road Improvement

Project Department/Division SARD/SATC

Country India Executing Agency Public Works Departmentof the Government of Maharashtra

Borrower India

Country Economic Indicators

https://www.adb.org/Documents/LinkedDocs/?id=52298-001-CEI

Portfolio at a Glance https://www.adb.org/Documents/LinkedDocs/?id=52298-001-PortAtaGlance

2. Sector Subsector(s) ADB Financing ($ million)Transport Road transport (non-urban) 177.00

Total 177.00

3. Operational Priorities Climate Change InformationAddressing remaining poverty and reducing inequalities

Accelerating progress in gender equality

Tackling climate change, building climate and disaster resilience, and enhancing environmental sustainabilityPromoting rural development and food security

Strengthening governance and institutional capacity

Climate Change impact on the Project

Medium

ADB Financing

Adaptation ($ million) 12.76

Sustainable Development Goals Gender Equity and MainstreamingSDG 5.5SDG 9.1SDG 13.a

Effective gender mainstreaming (EGM)

Poverty TargetingGeneral Intervention on Poverty

4. Risk Categorization: Low.

5. Safeguard Categorization Environment: B Involuntary Resettlement: B Indigenous Peoples: C

.

6. Financing

Modality and Sources Amount ($ million)

ADB 177.00

Sovereign Project (Regular Loan): Ordinary capital resources 177.00

Cofinancing 0.00

None 0.00

Counterpart 78.99

Government 78.99

Total 255.99

Currency of ADB Financing: US Dollar

EPC �b

EPC �a

EPC �a

EPC �b

EPC �

EPC �

EPC �

EPC �

EPC �a

EPC �aEPC �b

EPC �b

EPC �

219.02

16.68

6.99

7.19

15.62

29.00

19.50

26.92

38.35

12.33

15.07

4.45

26.92

Estimated Value ($million)

Total 451.45

EPC8b Amrava� 40.80

EPC8a Amrava� 15.08

EPC7b Amarava� 17.55

EPC7a Akola and Amarava� 24.00

EPC6 Amrava� and Yavatmal 64.65

EPC5 Washim and Yavatmal 56.05

EPC4 Solapur 50.54

EPC3 Solapur 61.90

EPC2b Ratnagiri 23.70

EPC2a Ratnagiri 28.10

EPC1b Ratnagiri 10.35

EPC1a Ratnagiri 23.50

Package Number Length(kilometer)

District/s

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MDR��

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SH��

SH��

SH���

SH���

SH���

MDR��

SH���

Road

SH��EPC9 Solapur 35.23

N

0 75 150

Kilometers

This map was produced by the cartography unit of the Asian Development Bank.

The boundaries, colors, denominations, and any other information shown on this

map do not imply, on the part of the Asian Development Bank, any judgment on the

legal status of any territory, or any endorsement or acceptance of such boundaries,

colors, denominations, or information.

Mumbai Suburban

Ahmadnagar

Aurangabad

Osmanabad

Chandrapur

Sindhudurg

Gadchiroli

Nandurbar

Parbhani

Kolhapur

Gondiya

Buldana

Wardha

Raigarh

Nanded

Jalgaon

Palghar

Nagpur

Nasik

Hingoli

Satara

Thane

Sangli

Dhule

Jalna

Pune

Latur

Bid

Bhandara

Yavatmal

Ratnagiri

Amravati

Washim

Solapur

Akola

Mumbai

G U J A R A T

MADHYA PRADESH

CHHATTISGARH

GOA

TELANGANA

KARNATAKA

M A H A R A S H T R A

��-���� ABV

MAHARASHTRA STATE ROAD IMPROVEMENT PROJECTINDIA

Project Road

Road

State Capital

City/Town

District Boundary

State or Union Territory Boundary

Engineering, Procurement, and Construction

Boundaries are not necessarily authoritative.

EPC =

I. THE PROPOSAL 1. I submit for your approval the following report and recommendation on a proposed loan to India for the Maharashtra State Road Improvement Project. 2. Project summary. The Government of India requested assistance from the Asian Development Bank (ADB) to support the improvement of state highways and major district roads in Maharashtra. The project will upgrade and maintain about 450 kilometers (km) of state roads forming part of the core road network (CRN) in Maharashtra, which will enhance transport accessibility and efficiency, and improve the sustainability of the road network, in line with the state’s Road Development Plan 2001–2021.1 It will involve upgrading of state roads to two-lane standard and performance-based maintenance contracts to maintain the improved road assets for 5 years after construction. It also includes initiatives to build institutional capacity within the Maharashtra Public Works Department (MPWD), the project executing agency, focusing on strengthened sustainability and road safety practices.

II. THE PROJECT A. Rationale 3. State context. The state of Maharashtra is located in central and western India and borders the states of Andhra Pradesh, Chhattisgarh, Goa, Gujarat, Karnataka, and Madhya Pradesh. With an area of about 0.3 million square km (9.4% of India’s total), it is India’s third-largest state. It is also India’s second-most populous state, with 122.9 million people,2 which is forecast to increase to 125.7 million by 2031.3 The major cities are Amravati, Aurangabad, Kolhapur, Mumbai, Nagpur, Nasik, Pune, Ratnagiri, Sangli, Solapur, and Thane. 4. Road transport context. Maharashtra’s extensive road network totals about 303,350 km, and includes national highways (12,275 km), state highways (34,450 km), and district roads (110,750 km). The state’s economic growth has generated significant passenger and freight traffic demand. There were 31.4 million registered vehicles in Maharashtra in 2018, having increased at a compound annual growth rate of 9% since 2001.4 The average annual daily traffic on the state highways is currently 8,000 equivalent passenger car units per day, and traffic volumes are expected to continue to grow at a compound annual growth rate of about 5%. The MPWD is the main institution responsible for development and maintenance of national highways, state highways, major district roads, and bridges in Maharashtra. Other district roads and rural roads are managed by the Rural Roads Department.5 5. Development need. The key development challenge for Maharashtra is translating the state’s economic growth into more balanced development throughout the state’s rural areas. The Human Development Index (HDI) and per capita income levels vary greatly across the districts in the state; rural areas away from Mumbai, Nagpur, Pune, and Thane are experiencing slow economic growth, which is reflected by lower relative HDI and per capita income values.

1 Government of Maharashtra, Public Works Department. 2012. Road Development Plan 2002-2021 . Mumbai. 2 Government of Maharashtra. 2019. Government of Maharashtra Desk Diary 2019. Mumbai. 3 Government of India, Ministry of Finance, Department of Economic Affairs. 2019. Economic Survey 2018-19 Volume

1. New Delhi. 4 Government of Maharashtra. 2019. Directorate of Economics and Statistics. 2019. Economic Survey of Maharashtra.

Mumbai. 5 Further details on the road transport subsector in Maharashtra are in the Sector Assessment (Summary): Transport

(Road Transport [Nonurban]) (accessible from the list of linked documents in Appendix 2).

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Economic inequality in rural districts has increased.6 Most of Maharashtra’s population resides in rural areas (54%), where the agriculture sector is the dominant source of employment and livelihoods; 62% of employed women work in agricultural occupations, compared with 31% of employed men.7 The agriculture sector is facing repeated droughts, with the sector’s share of gross state value added steadily declining, and was estimated to have grown by just 0.4% in 2019 (footnote 4). In contrast, the contributions made by the industrial and service sectors to the state’s economy are expanding. Growth and development outside of the state’s major urban centers must be promoted by connecting agricultural and industrial areas to markets and connecting rural areas to second-tier cities and towns. This will provide opportunities for livelihood outside of the agriculture sector, particularly for women. 6. Road transport needs and issues. Road transport is critical to accessibility, mobility, and connectivity of rural communities in Maharashtra, particularly for accessing markets, employment opportunities, and services beyond the agriculture sector. The core development problem is that roads connecting rural areas and urban centers are congested, unsafe, and of poor quality. This problem is caused by the inadequate carrying capacity of the state highway and major district road network; deteriorating road assets; and poor planning and implementation for road safety. Nearly 80% of state highways and major district roads in Maharashtra are either single-lane or intermediate-lane standard, while 68% of state highways are in average to very poor condition with a roughness index of 3,000 according to the Indian Road Congress standard, highlighting the need for better road asset maintenance planning. 8 In 2018, Maharashtra reported 35,717 road accidents (7.6% of India’s total), including 13,261 fatalities (8.8% of India’s total), an 8.1% increase in the number of fatalities in comparison to 2017.9 This project will help the government address the need for (i) increased road capacity; (ii) improved road asset management planning; and (iii) better road safety, especially for women and other vulnerable groups. 7. Government’s plans for road transport. The Government of Maharashtra, through the MPWD, is implementing a road network development plan, with the objectives of improving state roads connecting industrial, tourist, religious, and district headquarters to two-lane roads; connecting villages with all-weather roads; and expanding the overall length of Maharashtra’s road network to 336,994 km (footnote 1). In 2016, the MPWD undertook a review to identify a CRN of roughly 18,000 km of state highways and major district roads for development in phases. Based on the CRN review, about 450 km of high-priority roads were identified. 8. Alignment with strategic objectives. This lending proposal aligns with ADB’s country partnership strategy, 2018–2022 for India, which emphasizes boosting economic competitiveness to create more and better jobs; providing inclusive access to infrastructure networks and services; addressing climate change and increasing climate resilience; and building greater institutional capacities.10 The project contributes to ADB’s Strategy 2030 operational priorities by (i) addressing remaining poverty and reducing inequalities; (ii) accelerating progress in gender equality; (iii) tackling climate change, building climate and disaster resilience, and enhancing environmental sustainability; (iv) promoting rural development and food security; and (v) strengthening governance and institutional capacity. It is also included in ADB’s country

6 Sector Assessment (Summary): Transport (Road Transport [Nonurban]) (accessible from the list of linked documents

in Appendix 2). 7 Government of India, Ministry of Health and Family Welfare. 2017. India National Family Health Survey (NFHS-4

2015-2016). New Delhi. 8 Intermediate road width is 5.5 meters and single-lane road width is 3.75 meters. 9 Government of India, Ministry of Road Transport and Highways. 2019. Road Accidents in India 2018. New Delhi. 10 ADB. 2017. Country Partnership Strategy India, 2018–2022—Accelerating Inclusive Economic Transformation.

Manila.

3

operations business plan, 2020–2022 for India.11 9. Lessons from previous ADB assistance in the road transport subsector. Lessons from previous road transport projects, such as the Chhattisgarh Road Connectivity Project and Rajasthan State Highway Investment Program, and sector assessments in India highlight the need for (i) a longer-term maintenance planning horizon, (ii) stronger attention to road safety, (iii) better monitoring of project outcomes and impacts, and (iv) analysis of the needs of the executing agency to ensure realistic project implementation timeframes.12 This project’s design is informed by these lessons. With support from a project management services (PMS) consultant, the new executing agency’s capacity for road maintenance planning and road safety auditing will be improved, and a project performance monitoring system will be developed and implemented. The PMS consultant will provide capacity support to the MPWD throughout project implementation in social, gender, and environmental safeguards implementation, as well as financial management. ADB has also provided a series of focused safeguards and gender training workshops to the executing agency during due diligence. B. Project Description 10. The project is aligned with the following impact: connectivity between industrial areas, agricultural areas, administrative headquarters, and economic centers of Maharashtra enhanced (footnote 1). The project will have the following outcome: transport accessibility, efficiency, sustainability, and safety of the CRN in Maharashtra improved.13 11. Output 1: State highways and major district roads of the CRN upgraded and maintained. The project will (i) upgrade about 25 km of major district roads and 425 km of state highways with climate change adaptation features; (ii) commence road maintenance using performance-based contracts for 450 km of roads; and (iii) install road safety features friendly to the elderly, women, children, and people with disabilities at appropriate locations. 12. Output 2: Capacity in road safety and maintenance increased. The loan will finance (i) development and adoption of a maintenance planning methodology for the project roads and other CRN roads; (ii) piloting and establishment of a systematic approach to road safety audits for 200 km of state highways; (iii) training in climate change adaptation and disaster-resilient features applicable to road design for MPWD project staff, including women staff; (iv) training in road safety auditing, for MWD project staff, including for women staff; and (v) increased road safety awareness among contractors’ personnel, including women personnel.

13. Roads selected for ADB assistance. This project aims to upgrade priority roads that form part of the CRN—11 state highways and 2 major district roads to benefit 7 districts in Maharashtra. Roads were prioritized systematically using criteria that include (i) population served; (ii) connectivity to national highways, other state highways and interstate roads, sea ports, airports, and major rail hubs; (iii) connectivity to industrial areas, enterprise clusters, and agricultural areas; (iv) existing traffic volumes; (v) existing road width; (vi) economic internal rate of return (EIRR); and (vii) land, environment, and social impacts. The state roads selected will improve accessibility and safety in districts with relatively lower HDI scores (Amravati, Osmanabad, Washim, Yavatmal), as well as areas with heavy reliance on the agriculture sector

11 ADB. 2019. Country Operations Business Plan: India, 2020–2022. Manila. 12 ADB. 2019. Report and Recommendation of the President to the Board of Directors: Proposed Chhattisgarh Road

Connectivity Project. Manila; ADB. 2017 Report and Recommendation of the President to the Board of Directors: Proposed Rajasthan State Highway Investment Program Manila.

13 The design and monitoring framework is in Appendix 1.

4

for employment. 14. In Ratnagiri, the targeted road upgrades to state highways and one major district road will improve access to the national highways from Mumbai to Goa and Mumbai to Kolhapur, which connect to the neighboring state of Karnataka. Access will also be enhanced to markets for horticulture products as well as to new employment opportunities in the tourism and new power generation projects. In northern Akola and eastern Amravati, upgrades to the selected state highways and major district road will improve connectivity between rural areas and administrative headquarters and the major strategic national highway from Mumbai to Kolkata via Nagpur, as well as to national highways connecting to the adjacent state of Madhya Pradesh. In Yavatmal, connectivity will be enhanced to the national highway connecting Washim to the Mumbai–Kolkata strategic national highway and to the state of Telangana to the south. In Solapur, the upgrades to two state highways will enhance connectivity between industrial areas and the national highway from Solapur to Pune, as well as to national highways connecting to Telangana. Overall, the selected road improvements will enhance employment opportunities and help reduce poverty in rural areas of Maharashtra by providing more efficient and safe connections to important administrative headquarters (Amravati, Ratnagiri, and Solapur) and the state’s major economic centers (Mumbai, Nagpur, Nashik, and Pune). Additional priority roads forming part of the CRN in Maharashtra are planned as a subsequent project for ADB’s assistance. C. Value Added by ADB 15. ADB has extensive experience in road transport projects across India at the national and state levels. This project is the first proposed ADB financing for the development of state highways and major district roads in Maharashtra and complements ADB’s ongoing assistance in Maharashtra to improve 2,100 km of rural roads.14 ADB is currently coordinating with the Government of India, through the Ministry of Road Transport and Highways, to strengthen road safety through a state road incentive program. That program excludes infrastructure components and focuses on institutional aspects, accident response and monitoring systems, vehicle fitness and awareness campaigns. This project’s scope complements the state road incentive program through infrastructure improvements relating to road safety. Through this project, road maintenance planning and road safety within the new executing agency will be updated to include latest best practices and formalized through systematic methodologies. All civil works contracts encourage private sector involvement by including 5-year performance-based maintenance obligations to improve asset quality and service levels. An overall road maintenance strategy and plan will be defined for the project roads once the 5-year performance-based maintenance period is over. A tool kit and road safety audit framework will be developed alongside hands-on training in road safety auditing. Knowledge-sharing events will benefit officials, contractors, consultants, MPWD staff, and other stakeholders. The project will also implement women-specific initiatives such as health camps at different communities along the project roads. Bus shelters will include solar lighting, empowerment messages for women, and helpline numbers for women-specific schemes. D. Summary Cost Estimates and Financing Plan 16. The project is estimated to cost $255,990,000 (Table 1). 17. Detailed cost estimates by expenditure category and by financier are included in the

14 ADB. 2019. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical

Assistance Grant to India for Maharashtra Rural Connectivity Improvement Project. Manila.

5

project administration manual (PAM).15 Civil works and consulting services are the major expenditure items under the project.

Table 1: Summary Cost Estimates ($ million)

Item Amounta A. Base Costb 1. State highways and major district roads of the core road network upgraded

and maintained 211.55

2. Capacity in road safety and maintenance increased 7.68 Subtotal (A) 219.23 B. Contingenciesc 24.96 C. Financial Charges During Implementationd 11.80 Total (A+B+C) 255.99 a Includes taxes and duties of $37.3 million funded by the government and the Asian Development Bank. The Asian

Development Bank share does not represent an excessive share of the project cost. b Prices as of October 2019. c Physical contingencies are computed at 5.0% for civil works. Price contingencies computed at average cost

escalation factor of 4.0% on base costs. d Includes interest and commitment charges. Interest during construction for the ordinary capital resources loan has

been computed at the 5-year United States dollar fixed swap rate plus an effective contractual spread of 0.50% and maturity premium of 0.10%. Commitment charges for the ordinary capital resources loan are 0.15% per year to be charged on the undisbursed loan amount.

Source: Asian Development Bank estimates.

18. The government has requested a regular loan of $177,000,000 from ADB’s ordinary capital resources to help finance the project. The loan will have a 25-year term, including a grace period of 5 years; an annual interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility; a commitment charge of 0.15% per year (the interest and other charges during construction to be capitalized in the loan); and such other terms and conditions set forth in the draft loan and project agreements. Based on the straight-line method, the average maturity is 15.25 years, and there is a 0.10% maturity premium payable to ADB. 19. The summary financing plan is in Table 2. ADB will finance the expenditures in relation to civil works and consulting services. The government has agreed to make counterpart funds available to meet additional costs arising from unforeseen circumstances, such as price escalation or design changes.

Table 2: Summary Financing Plan

Source Amount ($ million)

Share of Total (%)

Asian Development Bank Ordinary capital resources (regular loan) 177.00 69.10

Governmenta 78.99 30.90 Total 255.99 100.00

a The Government of Maharashtra will fund the 5-year performance-based maintenance contracts. Source: Asian Development Bank.

20. Climate adaptation and finance. The climate change impact on the project is assessed as medium. A climate risk and vulnerability assessment indicated an increased risk of extreme temperatures and increased rainfall because of climate change.16 High temperatures and heat

15 Project Administration Manual (accessible from the list of linked documents in Appendix 2). 16 Climate Change Assessment (accessible from the list of linked documents in Appendix 2).

6

waves impact road pavement integrity, causing surface failures, including cracking, raveling, potholes, and ruts. The pavement design has adopted the use of viscosity-graded VG-30 paving bitumen in lieu of the earlier grade used in most state roads in India. This heavier duty bitumen pavement will tolerate significant traffic loads and distress induced by higher temperatures. Extreme rainfall is projected to increase in all districts of Maharashtra, with the greatest increases in the northern areas. Drainage will be resized and improved to cope with higher flooding frequency and to provide higher discharge capacities. Roads will also be raised by about 0.3 meters. Road embankments will be raised in critical sections to prevent water stagnation and flooding impacts. Climate change adaptation measures are estimated to cost about $16.79 million. ADB will finance 76.0% of adaptation costs. E. Implementation Arrangements 21. The project will be implemented by the MPWD through the project management unit (PMU) and project implementation unit (PIU) field offices for civil works contract packages. The MPWD will also engage consulting firms to be the authority engineers for the works contracts, and a PMS consultant to support project implementation. The implementation arrangements are summarized in Table 3 and described in detail in the PAM (footnote 15).

Table 3: Implementation Arrangements Aspects Arrangements Implementation period April 2020–December 2024 Estimated completion date 31 December 2024 Estimated loan closing date 30 June 2025 Management

(i) Executing agency Government of Maharashtra, Public Works Department (ii) Key implementing agency Project management unit in the Public Works Department,

Government of Maharashtra (iii) Implementation unit Project implementation unit in the Public Works Department,

Government of Maharashtra, about 45 staffa Procurement Open competitive

bidding (nationally advertised)

Nine contracts $183.31 million

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

Three contracts for authority engineer and project management services 2,545 person-months

$9.57 million

Retroactive financing and/or advance contracting

Retroactive financing of eligible works and consulting services expenditures, incurred before loan effectiveness but within 12 months prior to loan signing, up to 20% of the loan amount; advance contracting for recruitment of consultants and procurement of civil works.

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

ADB = Asian Development Bank. Note: The performance-based maintenance contracts will commence during the implementation period and extend beyond the estimated loan closing date. The Government of Maharashtra will fund these maintenance activities. a Excluding administrative support staff. Source: Asian Development Bank.

7

III. DUE DILIGENCE A. Technical 22. The project was assessed as technically viable. The MPWD prepared and approved the engineering design of the proposed project roads during project preparation. The engineering design follows applicable criteria in line with Indian Roads Congress regulations and also incorporates several climate change adaptation and road safety aspects. The project team conducted an independent review of the engineering design, and all recommended improvements have subsequently been addressed in the design. B. Economic Viability 23. The project is economically viable. Economic evaluation of the project was undertaken in accordance with ADB guidelines by comparing life cycle economic costs and benefits in with-project and without-project scenarios, against an assumed hurdle rate of 9% as decision criteria.17 The Highway Development Model 4 (HDM-4) was used to estimate road agency and road user costs based on input data on traffic, road geometry, pavement condition, and improvement and maintenance costs. Project benefits include savings associated with vehicle operating costs and travel times. Additional benefits derived from better safety and quality of maintenance works have not been included in the quantitative analysis and would improve the economic viability of the project. The EIRR of the project is estimated at 16.5%, not including the benefits of reduced road accidents. Sensitivity analysis demonstrated the robustness of the economic viability of the project under adverse changes in costs and benefits, with an EIRR of 11.3% under the most sensitive scenario involving (i) a 10% increase in capital costs, (ii) a delay of 1 year in opening the project roads, (iii) a 15% decrease in traffic demand, and (iv) a decrease of 10% in time values of passengers.18 C. Sustainability 24. The project will not generate revenue. Once the 5-year performance-based maintenance period is over, the MPWD will assume responsibility for maintenance through regular budget allocations in each financial year. Financial sustainability analysis demonstrated that the MPWD’s annual budget allocation for maintenance increased from ₹17.46 billion in fiscal year (FY) 2015 to about ₹18.00 billion in FY2020, although portions of the road network still require maintenance and rehabilitation. The project’s recurrent costs will not place an excessive burden on the MPWD to maintain the project roads in the future. The total estimated cost of maintaining the project roads is ₹1.09 billion in constant prices over the 20-year asset life. The annual recurrent cost for routine maintenance is estimated at ₹54.17 million in constant prices, while periodic maintenance will only be required in 2034 at an estimated cost of ₹7.41 million in constant prices. The project’s estimated annual recurrent costs are estimated at about 0.3% of the MPWD’s overall maintenance budget allocation for FY2020. 25. The MPWD has committed to prioritizing the allocation of maintenance funding for the project roads. However, road maintenance funding must be sustainable, and therefore the project sustainability risk is high. Capacity development under output 2 of this project (para. 12) will assist the MPWD in developing a methodology to help sustain road assets at desirable levels; improve policies and procedures; and increase project sustainability.

17 Asian Development Bank. 2017. Guidelines for the Economic Analysis of Projects. Manila. 18 Economic and Financial Analysis (accessible from the list of linked documents in Appendix 2).

8

D. Governance 26. Institutional. The MPWD will implement the project through a PMU dedicated to ADB projects, situated in the state capital Mumbai. Because the project covers a large geographic area, four field offices have been established under a PIU to support the PMU operation. The PMU and the field offices have sufficient staff capacity to prepare and implement the project. The PMS consultant will support the PMU in the areas of asset management, road safety, reporting, financial management, and safeguard monitoring. 27. Financial management. The assessed premitigation financial management risk is moderate, mainly because the MPWD and the PMU have not previously implemented ADB-supported projects and the PMU lacks an internal audit function. The risk will be mitigated through appropriate measures, such as engagement of a chartered accounting firm to perform internal audit of the project on a semiannual basis, and recruitment of specialist staff to prepare a financial management manual and to provide training. 28. Procurement of civil works. The procurement risk level is medium. The assessment concluded that the executing agency has significant experience in contract management and the procurement of civil works and consultant recruitment under national and Government of Maharashtra procurement regulations. However, the executing agency is new to ADB’s procurement policies and regulations. Capacity-building sessions for procurement have already been provided. Under advance contracting, the procurement of nine civil works packages and recruitment of consulting services are at advanced stages. The procurement of civil works and consulting services financed by the ADB loan is in accordance with the ADB Procurement Policy (2017, as amended from time to time) and Procurement Regulations for ADB Borrowers (2017, as amended from time to time), and all procurement has been conducted under prior review. The e-procurement system was assessed by ADB as part of due diligence and found to be satisfactory. Value for money has been optimized using multiple contract bidding to ensure least-cost combinations for civil works packages and 5-year performance-based maintenance contracts to ensure quality of work. The procurement strategy considered location in packaging both civil works and consulting services packages.

29. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the government and the MPWD. The specific policy requirements and supplementary measures are described in the PAM (footnote 15). E. Poverty, Social, and Gender 30. Poverty. The average poverty level in Maharashtra is lower than the national rate as a result of relatively higher average income levels in the four main urban centers: Mumbai, Nagpur, Pune, and Thane. However, there is wide income disparity within Maharashtra, which the project will help address by improving connectivity, facilitating access to services, and accelerating economic growth. The project will improve state highways and major district roads in rural areas; beneficiaries, including the poor, will benefit from improved access to basic services and living environments. The project will also improve livelihoods and trade opportunities for the nonurban population. The project preparatory phase involved consultations with local communities—both women and men—living along the proposed project roads. Community members were supportive of the project and expressed that the improved roads will enhance mobility between commercial centers, which would increase economic and employment opportunities. Local communities also expressed their belief that improved connectivity would contribute to reducing poverty.

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31. Gender. The project is categorized effective gender mainstreaming. There are several gender-related advantages to improved road infrastructure, including improved access to health and education services, increased income opportunities, affordable and reliable transportation facilities promoting safe mobility, better implementation of government outreach programs, and reduced time poverty. A gender action plan has been prepared detailing activities with indicators and targets, responsible agencies, and timeframes to ensure effective implementation, monitoring, and reporting of gender action plan activities. The gender action plan outlines activities to (i) enhance women’s economic and human development opportunities; (ii) build institutional gender capacities through gender training for staff, consultants, and contractors; (iii) strengthen the technical and management capacities of women staff in climate adaptation and resilience features applicable to road design and road safety auditing; (iv) create space for women’s participation in decision-making and leadership; (v) reduce time poverty; and (vi) promote gender-responsive infrastructure by ensuring that road and bus shelter design includes features responsive to the needs of the elderly, women, children, and the differently abled. This component will include a pilot initiative of additional design features, such as solar lights and information on women-specific schemes, empowerment messages for women, and helpline numbers in select bus shelters. 32. Labor. The bidding documents for the civil works contractors include provisions to (i) ensure that all applicable labor laws are complied with, including the prohibition against employing children in construction; (ii) encourage employment of the poor and inhabitants of affected communities; and (iii) ensure that wages for men and women are equal for work of equal value. F. Safeguards 33. In compliance with ADB’s Safeguard Policy Statement (2009), the project’s safeguard categories are as follows.19 34. Environment (category B). All road works will follow existing alignments, except for a few improvements in road geometry in some portions. No significant, irreversible environmental impacts are anticipated. Two roads—State Highway 204 (Barshi–Solapur) and State Highway 68A (Korti–Awati portion)—pass through portions of the Great Indian Bustard Sanctuary.20 The biodiversity assessment established that the sanctuary is not a critical habitat for, nor will the road improvement impact, the endangered birds.21 Mitigation measures were proposed in the initial environmental examination (IEE) for the observed movement of wildlife, such as black bucks and other small mammals along these roads. No other roads pass through or are near any protected or environmentally sensitive areas. The MPWD prepared an IEE in accordance with ADB’s Safeguard Policy Statement (2009), which is on the ADB website. The MPWD will not allow road construction to commence without obtaining the necessary permits and clearances. Anticipated environmental impacts from the project entail typical road construction-related issues, such as acquisition of forest land; removal of trees; generation of dust, noise, exhaust, and waste from construction and worker camps; water contamination; occupational health and safety issues; slope failures; erosion; and siltation. There will be minimal noise and air pollution as a result of increased traffic volumes, and levels will not exceed the National Ambient Air Quality and International Finance Corporation standards, except in some built-up locations where the baseline

19 ADB. Safeguard Categories. 20 The Great Indian Bustard Sanctuary (formerly Jawaharlal Nehru Bustard Sanctuary) is identified as an Important

Bird and Biodiversity Area by BirdLife International, although noted as unsuitable habitat for the Great Indian Bustard. 21 As assessed based on the International Finance Corporation’s Guidance Note 6 on Biodiversity Conservation and

Sustainable Management of Living Natural Resources updated in 2019, and ADB’s Safeguard Policy Statement.

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already exceeds the Indian noise standard. The improvement works in these locations are anticipated to reduce noise by improving road surface conditions and reducing traffic congestion. Vibration during construction and implementation is also unlikely to negatively affect sensitive receptors along the road. Mitigation measures to address environmental impacts have been included in the road-specific environmental management plans, which are part of the bid documents. The MPWD conducted meaningful consultations with the affected persons and other key stakeholders (e.g., forestry officials) while preparing the IEE. Concerns of affected persons and stakeholders have been considered and will continue to be addressed during project implementation through the grievance redress mechanism. 35. Involuntary resettlement (category B). The project will entail only limited involuntary resettlement because of minor land acquisition and some encroachment in built-up areas. Works will be restricted to rights-of-way already owned by the executing agency, except in Pusad, Yavatmal district, where 216 square meters of barren land will be required for geometric improvements to the road design. The MPWD will acquire the land owned by one person by direct purchase based on the provisions of national law, state policy, and ADB’s Safeguard Policy Statement. Should negotiations fail, land and assets will be acquired using eminent domain in accordance with the same law and policies. The MPWD has prepared a resettlement plan for each of the nine project roads based on full census surveys using detailed design specifications. The resettlement plans adequately assess the scope of involuntary resettlement, and the proposed mitigation measures are commensurate with the known risks and impacts. According to the surveys, 380 households (1,772 persons) will experience impacts on land, structures, and/or livelihoods. This includes one titled landowner and 379 nontitled households, which mostly own kiosks that will be shifted back, but remain in situ. The most sensitive subproject is in Yavatmal District, where 40 nontitled households (190 persons) will experience loss of greater than 10% of productive assets.22 Compensation rates at replacement cost, shifting assistance, income-restoration assistance, and support for vulnerable groups are provided in the resettlement plans. The MPWD conducted meaningful consultations with displaced persons. The resettlement plans are disclosed in village council offices and the ADB website. Grievance redress committees at each field office will address affected persons’ concerns. An implementation nongovernment organization will be engaged to support the MPWD. 36. Indigenous peoples (category C). The social impact assessments undertaken to prepare the project roads for rehabilitation suggest that no indigenous peoples’ communities within the meaning of ADB’s Safeguard Policy Statement will be affected by the project. 37. Safeguards implementation. The PMU includes nodal officers for environmental and social safeguards. The PMU nodal officers will be responsible for the overall management of safeguards under the project, supported by PIU officers, who will serve as the safeguards focal points at the site level. The PMS consultant will provide project implementation support, including safeguards implementation to the PMU. Two authority engineers will supervise and manage the construction works, including safeguards implementation. The civil works contractors will be responsible for implementing the environmental management plan and will include environment, health, and safety officers in their team. The MPWD will organize an initial coordination or training workshop to clarify the roles and responsibilities of each party for complying with environmental and social safeguard requirements. Hands-on training will be conducted by the authority

22 The subproject will improve the Shrirampur–Vaijapur–Risod–Washim–Pusad–Mahagaon–Fulsawangi–Mandvi Road

(SH51) under Package EPC5. The census indicates that 19 kiosks and 11 residential structures owned by 33 households will be fully affected. The affected persons will not be required to relocate because all structures will be reconstructed in situ.

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engineers or ADB as necessary during project implementation. G. Summary of Risk Assessment and Risk Management Plan 38. Significant risks and mitigating measures are summarized in Table 4 and described in detail in the risk assessment and risk management plan.23

Table 4: Summary of Risks and Mitigating Measures Risks Mitigation Measures Insufficient funding for maintenance reduces project sustainability

Civil works contracts include 5-year performance-based maintenance under the responsibility of the contractors. The project roads have been designed for 15-year durability thereafter. The Maharashtra Public Works Department has committed to allocating maintenance funding. The project will also provide support for capacity building in road maintenance planning, and thereby improve sustainability.

Lack of experience of executing agency results in implementation delays during initial phases

Additional support from Asian Development Bank staff, staff consultants, and consultants under the project is required to successfully implement the project. The project implementation schedule includes sufficient time for capacity building and support for the executing agency. The project management unit is taking advance actions to ensure implementation readiness. The project will provide implementation support through the project management services consultant.

Source: Asian Development Bank.

IV. ASSURANCES AND CONDITIONS 39. The government and the MPWD have assured ADB that implementation of the project shall conform to all applicable ADB requirements, including those concerning anticorruption measures, safeguards, gender, procurement, consulting services, financial management, and disbursement as described in detail in the PAM and loan documents. 40. The government and the MPWD have agreed with ADB on certain covenants for the project, which are set forth in the draft loan and project agreements.

V. RECOMMENDATION 41. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve the loan of $177,000,000 to India for the Maharashtra State Road Improvement Project, from ADB’s ordinary capital resources, in regular terms, with interest to be determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility; for a term of 25 years, including a grace period of 5 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft loan agreement presented to the Board.

Masatsugu Asakawa President

27 March 2020

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

12 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Impact the Project is Aligned with

Connectivity between industrial areas, agricultural areas, administrative headquarters, and economic centers of Maharashtra enhanced (Road Development Plan 2001–2021)a

Results Chain Performance Indicators with

Targets and Baselines

Data Sources and Reporting

Mechanisms Risks Outcome By 2025: Transport accessibility, efficiency, sustainability and safety of the CRN in Maharashtra improved

a. Average daily vehicle-km traveled on project roads in the first full year of operation increased to 3.5 million average vehicle-km per day (2019 baseline: 2.9 million average vehicle-km per day)

b. Average travel time on project roads reduced by at least 15% for motorized transport (2019 baseline: 1.8 minutes per km for motorized transport)

a–e. Post-implementation surveys endorsed by MPWD

Significant downturn in the state economy may reduce the traffic on project

roads.

c. Vehicle operating cost (economic) on project roads reduced by 10% for both cars and heavy vehicles (2019 baseline: ₹7.13 per km for cars and ₹23.95 per km for heavy vehicles).

d. At least 450 km of state roads maintained at roughness index of 2,000 India Road Congress standard (2019 baseline: Roughness index of 3,000 India Road Congress standard)

e. Average number of fatalities per year in road accidents on the project roads reduced by at least 5% (2019 baseline: 29 fatalities)

Outputs 1. State highways and major district roads of the CRN upgraded and maintained

By 2024: 1a. About 25 km of major district roads and 425 km of state highways upgraded with climate change adaptation features (2019 baseline: 0) (TI 1.3.1)

1b. Roads maintenance commenced using 5-year performance-based maintenance contracts for 450 km of roads (2019 baseline: Not applicable)

1a–c. Progress reports endorsed by MPWD

Increase in prices of construction materials beyond projections may affect the total length of roads to be constructed.

Appendix 1 13

Results Chain Performance Indicators with

Targets and Baselines

Data Sources and Reporting

Mechanisms Risks 1c. Road safety features friendly to elderly people, women, children, and people with disabilities installed at 50 appropriate locationsb (2019 baseline: 0) (TI 2.4.1)

2. Capacity in road safety and maintenance increased

By 2024: 2a. Maintenance planning methodology for the project roads and other MPWD CRN roads developed and adopted

(2019 baseline: Not applicable)

2b. Systemized approach for road safety audits and engineering interventions in road designs in MPWD established and piloted for 200km of state highways

(2019 baseline: Not applicable)

2c. At least 100 eligible MPWD project staff, including all women project staff, reported increased knowledge in climate change and disaster resilient features applicable to road design (2019 baseline: Not applicable). (TI 2.5.2)

2a. Annual maintenance program of MPWD

2b. Post-implementation progress report endorsed by MPWD

2c–e. Post-implementation surveys by trainer or subject-matter expert, endorsed by MPWD

Insufficient funding for road maintenance reduces project’s sustainability.

2d. At least 50 eligible MPWD project staff, including all women project staff, reported increased knowledge in technical capacity on road safety auditing (2019 baseline: Not applicable)

2e. At least 80% contractors’ personnel, including all women personnel, report increased awareness in road safety (2019 baseline: Not applicable)

Key Activities with Milestones

1. State highways and major district roads of the core road network upgraded and maintained 1.1 Procure civil works by Q1 2020 and complete construction by Q4 2023. 1.2 Award and mobilize authority engineer by Q1 2020. 2. Capacity in road safety and maintenance increased 2.1 Recruit consultants for road asset management program by Q3 2020. 2.2 Complete training for road safety and sexually transmitted infections by Q4 2020. 2.3 Deliver training on climate change and disaster-resilient features applicable to road design by Q1 2021. 2.4 Complete and pilot road safety audits by Q1 2023. 2.5 Deliver capacity building in road safety auditing by Q2 2023. 2.6 Commence road maintenance activities by Q4 2023. Inputs

Asian Development Bank: $177 million (loan)

14 Appendix 1

Government: $78.99 million

Assumptions for Partner Financing

Not applicable

CRN = core road network, km = kilometer, MPWD = Maharashtra Public Works Department, Q = quarter, TI = tracking indicator. Note: Contribution to the ADB Results Framework:

TI 1.3.1: Infrastructure assets established or improved (25 km of major district roads and 425 km of state highways) TI 2.4.1: Time-saving or gender-responsive infrastructure assets and/or services established or improved (50

locations) TI 2.5.2: Gender-inclusive climate and disaster resilience capacity development initiatives implemented (20 women)

a Government of Maharashtra, Public Works Department. 2012. Road Development Plan 2001–2021. Mumbai. b Road safety features include geometric improvements, safety and crash barriers, improved drainage, pavement

markings, well-marked crossings, safety signage, and pedestrian walkways. Source: Asian Development Bank.

Appendix 2 15

LIST OF LINKED DOCUMENTS http://www.adb.org/Documents/RRPs/?id=52298-001-3

1. Loan Agreement

2. Project Agreement

3. Sector Assessment (Summary):Transport (Road Transport [Nonurban])

4. Project Administration Manual

5. Economic and Financial Analysis

6. Summary Poverty Reduction and Social Strategy

7. Risk Assessment and Risk Management Plan

8. Climate Change Assessment

9. Gender Action Plan

10. Initial Environmental Examination

11. Resettlement Plan: NH 66 to Kante Tulasani Devrukh Road 12. Resettlement Plan: Dabhole-Shiposhi–Korle-Vatul Road

13. Resettlement Plan: Barshi–Solapur Akkalkot Dudhani Aland to State Border Road 14. Resettlement Plan: Daund Karmala Paranda Barshi Osmanabad Road 15. Resettlement Plan: Wasim-Pusad Road

16. Resettlement Plan: Riddhipur-Tiswa-Anjansingi–Dhamangaon-Devao-Yavatmal Road 17. Resettlement Plan: Walgaon-Dariyapur-Akot Road and Dariyapur-Amla to

Runmochan Asara Road 18. Resettlement Plan: Amravati–Chandur Railway Station to Talegaon Road and

Riddhipur to Teosa Road 19. Resettlement Plan: Daud-Karmala-Paranda-Barshi-Osmanabad Road