Project Number: 49228-003 MFF Number: 0098 September 2019

India: Rajasthan State Highway Investment Program (Tranche 2) Distribution of this document is restricted until it has been approved by Management. Following such approval, ABD will disclose the document to the public in accordance with ADB’s Access to Information Policy.

Periodic Financing Request Report

CURRENCY EQUIVALENTS (as of 31 July 2019)

Currency unit – India rupee/s (₹)

₹1.00 = $0.01450 $1.00 = ₹68.8532

ABBREVIATIONS

ADB – Asian Development Bank EIRR

EMP – –

economic internal rate of return environmental management plan

EPC – engineering, procurement, and construction FFA

IEE – –

framework financing agreement initial environmental examination

km – kilometer km2 – square kilometer MDR – major district road MFF – multitranche financing facility PMC – project management consultant PPMS – project performance monitoring system PPP – public–private partnership RPWD – Rajasthan Public Works Department SHDP

STI – –

state highway development program sexually transmitted infection

NOTES

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

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

Vice-President Shixin Chen, Operations 1 Director General Hun Kim, South Asia Department (SARD) Director Ravi Peri, Transport and Communications Division, SARD Team leader Yang Lu, Transport Specialist, SARD Team members Arlene Ayson, Senior Operations Assistant, SARD

Arun Bajaj, Senior Project Officer (Transport), SARD Andri Heriawan, Transport Specialist, SARD Maria Laureen Laurito, Senior Social Development Officer, SARD Yanying Li, Counsel, Office of the General Counsel (OGC)

Maria Iris Millendez-Bombay, Associate Safeguards Officer (Environment), SARD Vankina Sri Rekha, Principal Counsel, OGC Yukiko Sakurai, Senior Financial Management Specialist, SARD

Karma Yangzom, Senior Environment Specialist, SARD Peer reviewer David Fay, Unit Head, Project Administration, Pacific 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

TRANCHE AT A GLANCE

MAP

I. BACKGROUND 1

II. ASSESSMENT OF MULTITRANCHE FINANCING FACILITY IMPLEMENTATION 2

III. PERIODIC FINANCING REQUEST 4

A. Impact and Outcome 4

B. Outputs 4

C. Summary Cost Estimates and Financing Plan 4

D. Implementation Arrangements 5

E. Project Readiness 6

IV. DUE DILIGENCE 6

A. Technical 6

B. Economic and Financial 7

C. Governance 7

D. Poverty, Social, and Gender 8

E. Safeguards 9

F. Summary of Risk Assessment and Risk Management Plan 10

V. ASSURANCES 10

VI. THE PRESIDENT’S DECISION 10

APPENDIXES 1. Design and Monitoring Framework for Project 2 2. Loan Agreement 3. Project Agreement 4. Project Administration Manual for Project 2 5. Updated Contribution to the ADB Results Framework 6. Economic and Financial Analyses of Project 2 7. Updated Summary of Poverty Reduction and Social Strategy 8. Social Due Diligence Report 9. Resettlement Plans 10. Environmental Due Diligence Report 11. Updated Environmental Assessment and Review Framework 12. Initial Environmental Examination Report 13. Climate Change Assessment Report 14. Updated Risk Assessment and Risk Management Plan

Project Classification Information Status: Complete

TRANCHE AT A GLANCE

Source: Asian Development Bank 09082019175249953102This document must only be generated in eOps. Generated Date: 09-Aug-2019 17:54:22 PM

1. Basic Data Project Number: 49228-003Project Name Rajasthan State Highway Investment Program

(Tranche 2)Department/Division SARD/SATC

Country India Executing Agency Government of RajasthanBorrower India.

2. Sector Subsector(s) ADB Financing ($ million)Transport Road transport (non-urban) 190.00

Total 190.00

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

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

Environmentally sustainable growth (ESG)

Global and regional transboundary environmental concerns

Climate Change impact on the Project

Medium

ADB Financing

Adaptation ($ million) 14.10.

4. Drivers of Change Components Gender Equity and MainstreamingGovernance and capacity development (GCD)

Institutional development

Private sector development (PSD)

Public sector goods and services essential for private sector development

Some gender elements (SGE)

.

5. Poverty and SDG Targeting Location ImpactGeographic TargetingHousehold TargetingGeneral Intervention on PovertySDG Targeting

NoNoNo

Yes

Rural High Urban Medium

SDG Goals SDG9, SDG13.

6. Risk Categorization: Complex.

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

8. Financing

Modality and Sources Amount ($ million)

ADB 190.00

Sovereign MFF-Tranche (Regular Loan): Ordinary capital resources 190.00

Cofinancing 0.00

None 0.00

Counterpart 189.24

Government 123.09

Others 66.15

Total 379.24

Currency of ADB Financing: USD

.

Bhinmal

Pantheri

Posana

Jeevana

Sojat Road

NH12Laxmipura

Dora

Dabi

Ranaji Ka Guda Mining

BeawarMasuda

Goyla

Arai

Sarwar

Sadulshahar

Sangaria

Chaiyan

Bidasar

Sri Dungargarh

Kalu

Mangliawas

Padukalan

Losal

Salasar

Ratangarh

SiwanaSamdari

BalesarGovindgarh

AlniyawasPisangan

Tahla

Nagaur

Bhi Lwara

Sawai Madhopur

Bikaner

Dhaulpur

Bharatpur

Jodhpur

Udaipur

Ajmer

Kota

Barmer

Jaisalmer

Gangan Agar

Hanumangarh

Churu

Jhunjhunu

Alwar

Karauli

Nokha Jaswantgarh Ganeri

Singhana

Buhana

Chala

Ajeetgarh

Dausa

Jalore

Sirohi

Rajsamand

Pali

Dungarpur

Banswara

Bundi

Jhalawar

Baran

Chittor Garh

Tonk

Sikar

JAIPUR

DELHI

G U J A R A T

M A D H Y AP R A D E S H

UTTAR PRADESH

PUNJAB

HARYANA

R A J A S T H A NR A J A S T H A N

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

Boundaries are not necessarily authoritative.

Project Road Tranche 2

Project Road Tranche 1

National Capital

State Capital

City/Town

National Highway

Other Roads

State or Union Territory Boundary

0 50 100

Kilometers

N

I N D I A

RAJASTHAN STATE HIGHWAY INVESTMENT PROGRAM TRANCHE

190980 ABV

I. BACKGROUND

1. Multitranche financing facility. India and the Asian Development Bank (ADB) signed the framework financing agreement (FFA) for the Rajasthan State Highway Investment Program on 16 March 2017. The ADB Board of Directors approved the multitranche financing facility (MFF) for $500 million equivalent from its ordinary capital resources to finance the investment program on 23 May 2017. The availability period of the MFF is up to 30 September 2024, and the last financing tranche is expected to be executed no later than 31 December 2022. The executing agency is the Government of Rajasthan through its Public Works Department and the implementing agency is the Rajasthan Public Works Department (RPWD).1 2. Sector road map. Rajasthan is the largest state in India, covering an area of 342,239 square kilometers (km2). It has a population of about 68.5 million, 75% of whom live in rural areas; for their livelihoods they depend primarily on agriculture and agro-based industries, mining and mineral processing, tourism, and handicraft and cottage industries.2 The potential for growth in these industries in Rajasthan is strong, but has not been realized because of poor connectivity to socioeconomic centers and social services. Road density in Rajasthan is around 63.61 kilometers (km) per 100 km2, which is significantly lower than the national average of 166.47 km per 100 km2. The number of vehicles registered in the state has increased significantly—from 10.07 million in 2013 to 14.9 million in 2017—at an average annual growth rate of 8.2%.3 To facilitate Rajasthan’s development through inclusive economic growth and poverty reduction, the Government of Rajasthan aims to provide a safe, sound, environment-friendly, and sustainable state-of-the-art road infrastructure network through its State Highway Development Program (SHDP). 4 To achieve this objective, the SHDP needs to address four key challenges: (i) insufficient state budget for capital investment in road construction; (ii) an inadequate road maintenance program; (iii) weak road safety management; and (iv) inadequate capacity of the RPWD, in particular with regard to road asset management and road safety. 3. Policy framework. India’s Three-Year Action Agenda, 2017–2018 to 2019–2020 aims to enhance transport connectivity that facilitates efficient movement of people and goods in an accessible, affordable, safe, and environmentally sustainable manner.5 Aligned with this agenda, the SHDP plans to upgrade about 20,000 km of state highways and major district roads (MDRs) to two-lane or intermediate-lane standards using public–private partnership (PPP) models.6 In 2015, the state legislature enacted the Rajasthan State Highways Act, which empowers the state government through the RPWD to develop and operate state highways with provisions for access control, traffic regulation, and toll collection.

4. The investment program, designed as an integral part of the SHDP, aims to improve the performance of the state’s road transport subsector to facilitate the movement of people and goods in a more efficient, safe, and sustainable manner. The investment program has been prepared to address the key challenges (see para. 2) by constructing or rehabilitating about 2,000

1 ADB. 2017. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche

Financing Facility to India for the Rajasthan State Highway Investment Program. Manila. 2 Government of India, Office of the Registrar and Census Commissioner. 2011. Census of India 2011. Delhi. 3 Government of Rajasthan, Transport Portal. Statistical Abstract 2016–2017. 4 Government of Rajasthan. 2014. Conference on Public–Private Partnership: Rajasthan State Highways

Development Programme. Delhi. 5 Government of India, NITI Aayog. 2017. Three-Year Action Agenda, 2017–2018 to 2019–2020. Delhi. 6 While the PPP viability gap funding model will transfer to the private sector concessionaire the risk of recovering the

capital investment from toll revenue, the PPP annuity model keeps the risk in the public sector. The annuity model defers the payment of a portion of construction and maintenance costs to the concession period as annuity payments, which will be made in compliance with performance metrics.

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km of state highways and MDRs to two-lane or intermediate-lane standards, and by strengthening the RPWD’s capacity on road asset management, road safety, and project management. 5. Alignment with ADB’s Strategy 2030. The investment program is estimated to cost about $1,275 billion, and incorporates ADB’s Strategy 2030 operational priorities: (i) addressing remaining poverty and reducing inequalities, (ii) accelerating progress in gender equality, (iii) tackling climate change, (iv) promoting rural development, and (v) strengthening governance and institutional capacity.7 ADB financing will enhance the stability of the contract regime through provisions regarding procurement requirements in loan and project agreements, incorporating private sector participation, and ensuring good governance during project implementation, particularly on procurement and safeguards. 6. Tranches. The initial design of the investment program was as a two-tranche MFF. The first tranche for $220 million was approved on 30 May 2017. Tranche 1 was designed to finance the upgrading of about 1,000 km of state highways and MDRs and the capacity building of the PPP Division of the RPWD on business processes covering road asset management, road safety, and project management. Tranche 1 also supports the PPP Division of the RPWD to develop a project performance monitoring system (PPMS) for the entire investment program. The loan was signed on 3 July 2017, declared effective on 6 November 2017, and will close on 30 September 2022.8 7. To expedite the achievement of the state’s development targets while taking project readiness into consideration, the RPWD has advanced the preparation of constructing or rehabilitating a total of 754 km of state highways and MDRs to be financed under tranche 2. The project roads have been selected in accordance with the criteria stipulated in the FFA. The second periodic financing request for $190 million was submitted to ADB on 17 June 2019. In addition to the road upgrading, tranche 2 will continue supporting capacity building of RPWD’s PPP Division, particularly on safeguards implementation and monitoring and road safety. Tranche 2 is included in ADB’s country operations business plan for India, 2019–2021.9

II. ASSESSMENT OF MULTITRANCHE FINANCING FACILITY IMPLEMENTATION

8. Progress on the road map and policy framework. The SHDP is being implemented by the RPWD under viability gap funding, annuity-based PPP concessions, and engineering, procurement, and construction (EPC) contracts, with funding support from the state government, the private sector, and multilateral development banks. As of 31 May 2019, the construction has been substantially completed for 10 roads totaling about 628 km, while for another 15 roads totaling about 1,003 km the construction is on-going. The MFF contributes to the success of the sector development road map by financing mainly the civil works under annuity-based PPP concessions and EPC contracts. In 2017, the Government of India introduced its Three-Year Action Agenda: 2017–2018 to 2019–2020 as the key development policy at the national level (footnote 5). The new development policy continues to promote the enhancement of transport connectivity, and thus impact and outcome of the MFF remain relevant. 9. Physical component. Tranche 1 covers the upgrading of 16 roads totaling about 1,000 km. Civil works were procured through three annuity-based packages and one EPC package. As of 30 June 2019, all packages had been awarded and the overall physical progress stood at 92% 7 ADB. 2018. Strategy 2030: Achieving a Prosperous, Inclusive, Resilient, and Sustainable Asia and the Pacific. Manila. 8 ADB. 2017. Periodic Financing Request Report: India: Rajasthan State Highway Investment Program Tranche 1.

Manila. 9 ADB. 2018. Country Operations Business Plan, India, 2019–2021. Manila.

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(package-wise progress is summarized in Table 1). Three out of the four packages have been substantially completed, while one is delayed because of implementation issues. Package 3 started commercial operation in September 2018. For package 1, the concessionaire is taking actions to expedite the progress. The package is targeted to be completed in March 2020. Despite the delay in package 1, tranche 1 is on track to meet the target outputs by the loan closing date. As of 10 September 2019 (37.7% elapsed implementation period), the cumulative contract award is $166.1 million (76% of the loan amount), and $140.9 million (64% of the loan amount) has been disbursed.

Table 1: Progress Summary by Package

Package Amount ($ million) Start Date

Contract Type

Construction Period (month)

Physical Progress

(%) 1 48.7 5 August 2017 Annuity 24 69 2 50.4 25 August 2017 Annuity 24 99 3 132.8 4 September 2017 Annuity 24 99 4 47.3 24 August 2017 EPC 24 97

EPC = engineering, procurement, and construction. Source: Asian Development Bank estimates.

10. Nonphysical component. A project management consultant (PMC) was mobilized in November 2017 to support the capacity building of RPWD’s PPP Division by streamlining the business process and developing a PPMS. Road safety audits have been conducted for all project roads under tranche 1. Trainings have been organized on road safety audits, financial management, and safeguards implementation. Development of the road asset management system is targeted to be completed by May 2020. For the PPMS, key indicators, system architecture, software, and hardware requirements have been proposed. System development is currently ongoing, with completion targeted for the fourth quarter of 2019. In general, the progress of the nonphysical component is on track to meet the target outputs by the loan closing date. 11. Safeguard implementation. Monitoring activities and due diligence have been conducted in accordance with the resettlement framework, indigenous peoples planning framework, environmental assessment and review framework, and individual environmental management plans (EMPs). Social due diligence has noted that some road expansion had proceeded prior to the completion of compensation payments. Corrective measures have been implemented by RPWD by depositing the compensation to the competent authority for land acquisition for further transfer to affected persons. Environmental due diligence found the overall implementation of the EMP and environmental monitoring plan (EMoP) satisfactory but with following issues identified: (i) operation of construction plants with pending statutory permits, (ii) inadequate arrangements for environment safeguards monitoring, and (iii) a need for better enforcement of environmental requirements. Measures have been taken by RPWD which secured about 97% permits, while the permit for one camp is to be secured by October 2019. 12. Lessons. To minimize the likelihood of these issues recurring (para. 11), subsequent tranches will facilitate smooth safeguards implementation by: (i) strengthening the requirements with respect to environmental safeguards in the concession agreement, (ii) increasing the input of the environment specialist in the teams of the authority engineer and independent engineer, (iii) engaging a consultant to monitor social safeguards implementation, and (iv) recruiting retired revenue officers and inspectors to expedite the land acquisition and resettlement process. 13. Compliance with undertakings and loan covenants. The Government of India and the Government of Rajasthan are complying with all undertakings set forth in schedules 1, 3, 5, and

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6 of the FFA; and with loan covenants attached to tranche 1. The audited project financial statement for fiscal year 2018 was submitted on time and disclosed on the ADB website. 14. Tranche sequencing. The government will propose a third tranche amounting to $90 million to cover the improvement of about 500 km of state highways and MDRs. Despite the sequencing of MFF financing through three tranches, rather than two, the overall impact, outcome, outputs, and implementation arrangements of the investment program will remain unchanged, and will be achieved within the original MFF availability period.

III. PERIODIC FINANCING REQUEST A. Impact and Outcome 15. Project 2 is aligned with the following impact: good quality connectivity provided in all areas, aligned with India’s Three-Year Action Agenda: 2017–2018 to 2019–2020 (footnote 5). Project 2 will have the following outcome: efficiency and safety of transport on the state highways of Rajasthan improved.10 B. Outputs 16. Output 1: State highways and major district roads improved. About 754 km of state highways and MDRs in Rajasthan will be constructed, rehabilitated, operated, and maintained. The project roads will be constructed or rehabilitated to two-lane or intermediate-lane standards and will incorporate road safety and climate change adaption features. 17. Output 2: Capacity of the Rajasthan Public Works Department enhanced. Project management capacity of RPWD's PPP Division, in particular on safeguards implementation, monitoring, and road safety, will be further enhanced. Consultants will be recruited to support capacity-building. C. Summary Cost Estimates and Financing Plan 18. Project 2 is estimated to cost $379.24 million (Table 2). Detailed cost estimates by expenditure category and by financier are included in the project administration manual (PAM) (Appendix 4).

Table 2: Summary Cost Estimates ($ million)

Item Amounta

A. Base Costb 1. Road improvement 307.75 2. Capacity building 5.25 Subtotal (A) 313.00 B. Contingenciesc 45.80 C. Financial Charges During Implementationd 20.44 Total (A+B+C) 379.24 a Includes taxes and duties of $28.90 million. Such amount does not represent an excessive share of the project

cost. The Asian Development Bank will finance taxes and duties of $20.32 million through loan resources. The government will finance taxes and duties of $4.06 million through cash contribution. The private sector will finance taxes and duties of $4.52 million.

10 The design and monitoring framework is in Appendix 1.

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b In mid-2019 prices as of April 2019. c Physical contingencies computed at 3% for civil works (including associated consulting services cost). Price

contingencies computed at about 1.5% on foreign exchange costs and 5% on local currency costs; includes provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate.

d Includes interest and commitment charges. Interest during construction for the ordinary capital resources (OCR) 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.

19. The government has requested a loan in an amount of $190 million from ADB’s ordinary capital resources to help finance part of 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; 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 the maturity premium payable to ADB is 0.10% per year. 20. The summary financing plan is in Table 3. ADB will finance the expenditures in relation to part of the civil works cost during construction and capacity building on project management, in particular on safeguards implementation and monitoring. The government will finance utility works; social mitigation; project management; and all other consulting service costs, including independent engineers, authority engineers, and road safety experts; and operation and maintenance. The government will also finance any shortfall, if required. Private sector investment of about $66.15 million will be appropriately structured under the design-build-operate and maintenance-transfer model. Financing from the private sector will be predicated on future contractual payments from the state government, in the nature of annuity payments, and subject to meeting specified performance standards.11

Table 3: Summary Financing Plan Amount

($ million) Share of Total

(%) Source

Asian Development Bank Ordinary capital resources (regular loan) 190.00 50.10

Private Sector 66.15 17.40 Government 123.09 32.50

Total 379.24 100.00 Source: Asian Development Bank estimates.

21. Climate adaptation is estimated to cost $16.39 million. ADB will finance 86% of adaptation costs. Details are in the climate change assessment report.12 D. Implementation Arrangements 22. The implementation arrangements are summarized in Table 4 and described in detail in the PAM.

11 For annuity-based contracts, 50% of the project capital cost is paid by the government to the concessionaire during

the construction period. The remaining 50%, along with interest, is disbursed as annuity payments in 20 biannual installments spread over a period of 10 years, commencing from the commercial operation date.

12 The climate change assessment report is in Appendix 13.

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Table 4: Implementation Arrangements for Project 2 Aspects Arrangements

Implementation period October 2019–March 2024

Estimated completion date 31 March 2024 Estimated closing date 30 September 2024 Management

(i) Oversight body Empowered Committee for Road Projects, Government of Rajasthan

(ii) Executing agency Government of Rajasthan through the RPWD

(iii) Key implementing agency RPWD (iv) Implementation unit Public–Private Partnership Division of the RPWD, 38 staff

Procurement International competitive bidding

6 contracts About $204.68 million

Consulting services Project implementation consultant (quality- and cost-based selection 80:20)

1 contract $0.70 million

External monitor (individual consultant selection)

1 contract $0.15 million

Retroactive financing and/or advance contracting

Retroactive financing and advance contracting will be used for civil works and consulting services financed by this tranche.

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

ADB = Asian Development Bank, RPWD = Public Works Department of the Government of Rajasthan. Source: Asian Development Bank.

E. Project Readiness

23. Readiness of project 2 is high. Under advance contracting, as of 15 August 2019, three out of six civil works packages are at an advanced stage of procurement. The PMC recruited under tranche 1 will support project implementation and monitoring of tranche 2.13 Over 80% of the total road length is free of encumbrances and ready for construction. Forest clearance is currently under process for only three roads under one annuity-based contract, which is expected to be ready before the contract award.

IV. DUE DILIGENCE

A. Technical 24. The engineering designs are optimized for economy, construction efficiency, and road safety, following applicable international and national design standards. The construction method will use proven technology and standard materials compatible with local conditions. Project 2 includes the following civil works contracts: (i) two annuity-based PPP concessions, including construction and a 10-year commercial operation period; and (ii) four EPC contracts for construction and 5 years of performance-based maintenance. A dedicated road safety consultant will be engaged for each concession or contract to undertake road safety audits during the design, construction, and maintenance stages. Climate risks of the project roads have been assessed and addressed in the EMP.

13 A project implementation consultant will be engaged after the contract of the PMC expires.

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B. Economic and Financial 25. Economic analysis for tranche 2 was carried out by comparing the societal cost of transportation with and without the project, considering the benefits of improved levels of service on the project road sections. The project benefits will include reduced vehicle operating costs, travel time, accidents, and congestion at some of the built-up areas that will be provided with bypasses. The economic internal rate of return (EIRR) (taking into consideration vehicle operating cost and travel time savings) is estimated at 18.4%, indicating that the investment is viable in social cost–benefit terms. The EIRR for individual road sections ranges from 13.0% to 29.1%. A sensitivity analysis testing the effects of possible unfavorable scenarios resulting from changes in the key parameters that determine the project costs and benefits indicated that the economic viability remained satisfactory, with an EIRR of 13.1% or above. 26. During 2013 to 2018 the state government has consistently used its budget well by fully executing the approved budget for maintenance, but there is a risk that the improved roads will not achieve the full economic benefit because of insufficient funding for full routine and periodic maintenance. Countermeasures are being implemented to mitigate this risk, including developing the road asset management system and PPMS, signing agreements with concessionaires or contractors for maintenance over extended (5-year and 10-year) periods, starting toll collection on project roads to enhance the budgetary position of the Government of Rajasthan, and ensuring proper maintenance and counterpart funding through the provisions in the loan agreement. C. Governance 27. Financial management. The financial management assessment and financial management action plan were reviewed and updated for tranche 2. The PPP Division has dedicated financial management staff who are already familiar with ADB’s procedures to manage tranches 1 and 2. For tranche 1, no major disbursement issues were identified, and audited project financial statements were submitted on a timely basis with unqualified opinions. Based on the assessment, limited resources for the internal and external audit function was identified as one of the major financial management risks. It is concluded that the overall pre-mitigation financial management risk of the implementing agency is moderate. The Government of Rajasthan has agreed to implement an updated action plan to address the deficiencies. The Finance Department and RPWD agreed to form a committee of RPWD staff and officers from Accountant General, Rajasthan to conduct internal audit of ADB projects. For external auditing, RPWD agreed to engage a private auditing firm to ensure that external audits will be conducted in a timely manner in case the agreed government arrangement is not implemented on time. A financial management specialist has been recruited to further strengthen RPWD’s financial management capacity. 28. Procurement and anticorruption. The high risk rating of the project is mainly attributed to the high financial capacity required for the bidders of annuity-based contracts. The civil works will be procured through annuity-based PPP concessions or EPC contracts, and will be undertaken following ADB’s Procurement Guidelines (2015, as amended from time to time). Consultants will be recruited following ADB’s Guidelines on the Use of Consultants (2013, as amended from time to time). Annuity-based PPP concessions and EPC contracts financed by ADB will use a procurement process and bidding documents that follow ADB policies and will include a policy statement on avoiding corrupt practices. The bidding documents, concession agreements, and contract agreements developed by the Government of India may be used as appropriate and with necessary revisions on eligibility, safeguards, anticorruption, and other factors to meet ADB procurement requirements. The government will publish information relating to tranche 2 on RPWD’s website, including business opportunities and information on the

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procurement of works and consulting services. The capacity development component under tranche 1 will continue supporting the RPWD to improve its business process and PPMS, which will also help enhance good governance. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the government and the RPWD. The specific policy requirements and supplementary measures are described in the PAM. D. Poverty, Social, and Gender 29. The project roads under tranche 2 spread across rural areas of Rajasthan which are characterized by traditional farming and a lack of reliable road connectivity, which limits access to health and education institutions, commercial facilities, and government agencies. The surveyed households along the project roads indicated that poor road conditions prevent safe and reliable travel, especially at night and during bad weather. These communities indicated that benefits likely to accrue from the enhanced road connectivity include (i) improved access to health and education facilities, (ii) faster access to marketplaces, (iii) increased job opportunities, and (iv) better public and private transport options. An efficient road network connecting villages, towns, and cities will provide stronger links between rural communities and urban hubs. The improvements are expected to improve the socioeconomic situation and significantly reduce poverty in the beneficiary districts and the state. Tranche 2 roads will pass through 122 villages in 14 districts, where about 26 million people reside. 30. Gender and development. The project is categorized as “Some gender elements”. Except for those in very poor households, rural women in project areas rarely engage in formal employment and/or waged labor. The project will improve connectivity and provide women with better access to health services, higher levels of education, economic opportunities, and social interaction. Land acquisition and resettlement will affect 22 households headed by women. Special attention will be given to these households to ensure that their situation is the same as or better than pre-project levels. For the project roads, gender elements include (i) constructing (a) more than 200 bus stop shelters in locations that will be finalized after community consultations; (b) 2 km of raised sidewalk; and (c) more than 70 km of hard shoulder that will benefit pedestrians, especially the elderly, women, and children; (ii) integrating into the road design safety features for the elderly, women, children, and people with disabilities, such as proper signage and marked crossings throughout the alignment; (iii) promoting road safety and safe mobility campaigns in affected communities (with a target audience of 50% women); (iv) conducting awareness-building sessions for (a) sexually transmitted infections (STIs), including HIV; (b) basic health and hygiene; and (c) human trafficking in project-affected villages (with a target audience of 50% women); and (v) encouraging civil works contractors to engage women as wage laborers and ensure equal pay for equal work. The contracts include provisions to ensure compliance with all applicable labor laws, including not employing children or forced labor for construction, encouraging increased employment of women and local poor people, and paying men and women the same wages for work of equal value. 31. Sexually transmitted infections, including HIV and trafficking. Key efforts on awareness-building, prevention, and treatment are being undertaken by the health department and the Rajasthan AIDS Control Society in states, districts, and blocks to address STIs (including HIV). Government initiatives and mitigating measures are in place to address the health risks and impacts associated with infrastructure development in the project area. The poverty and social assessment indicated that the project will not increase the incidence of STIs (including HIV), as all improved roads will be along the existing corridor. The RPWD will ensure that civil works contractors conduct awareness programs on STIs (including HIV), human trafficking, and child labor at construction campsites and workplaces. All contracts will have clauses concerning these

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initiatives, and the state government will monitor compliance during implementation. The nongovernment organizations will conduct awareness-raising activities on STIs (including HIV), basic hygiene, and human trafficking in villages along the project roads. E. Safeguards 32. In compliance with ADB’s Safeguard Policy Statement (2009), the project’s safeguard categories are as follows.14 33. Environment (category B). An environmental assessment and review framework to guide screening, environmental assessment, and monitoring of subprojects has been prepared and updated to include the authority and independent engineers and clarify roles in the institutional arrangement.15 The scope of works for roads under tranche 2 is limited to widening of existing roads to mainly two lanes with granular shoulder. None of the roads pass through or are located near any environmentally sensitive areas. Anticipated environmental impacts under tranche 2 entail typical road construction-related issues such as the generation of dust, noise, exhaust, and waste from construction and worker camps; water contamination; restrictions on animal movement; and occupational health and safety hazards. To minimize adverse impacts on the movements of animals (e.g., the chinkara and nilgai) and road users, particularly in the Thar Desert, the road design includes signboards and pipes turned into box culverts with vegetation camouflage to serve as underpasses. A consolidated initial environmental examination has been prepared for all roads with road-specific environmental monitoring and management plans and has been disclosed on the ADB and RPWD websites. 16 Meaningful consultations with key environmental agencies and roadside communities were conducted during project preparation, and all concerns of the affected persons and stakeholders were incorporated in the initial environmental examination and EMP. An integrated social and environmental grievance redress mechanism has been formed to receive and address feedback and complaints from affected parties during the construction and operation stages. 34. Involuntary resettlement (category A). A resettlement framework guides the screening and preparation of subprojects. 17 The engineering design was optimized to minimize land acquisition. Eleven resettlement plans corresponding to the number of project roads have been prepared following India’s Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation, and Resettlement Act, 2013 and ADB's Safeguard Policy Statement, and have been disclosed on ADB’s website.18 About 107 hectares of private land will be acquired, which will affect 645 private structures. In total, 2,295 households comprising 13,334 people will be impacted; of which 799 households will experience economic displacement and 1,496 households physical displacement. Displaced households will be entitled to replacement compensation, shifting cost, and other income restoration assistance for the loss of land and structures. Impacts have been thoroughly assessed and commensurate measures are proposed in the resettlement plans. The RPWD is experienced in implementing projects funded by multilateral development banks and has committed to providing resources for timely resettlement plans implementation. The RPWD will engage (i) nongovernment organizations to assist with resettlement plan implementations, (ii) a PMC with a social safeguard specialist to support the implementing agency, and (iii) an external expert to verify the outcome of resettlement plan implementation.

14 ADB. Safeguard Categories. 15 The updated environmental assessment and review framework is in Appendix 11. 16 The initial environmental examination report is in Appendix 12. 17 Resettlement Framework, accessible from the list of linked documents in Appendix 2 of the report and

recommendation of the President (footnote 1, above). 18 The resettlement plans are in Appendix 9.

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35. Indigenous peoples (category C). Due diligence has confirmed that there are no indigenous peoples groups in the project area within the meaning of ADB’s Safeguard Policy Statement. F. Summary of Risk Assessment and Risk Management Plan 36. Significant risks and mitigating measures are summarized in Table 5 and described in detail in the risk assessment and risk management plan.19

Table 5: Summary of Risks and Mitigating Measures Risks Mitigation Measures

Improved roads will not achieve the full economic benefit due to insufficient funding for full routine and periodic maintenance.

The road asset management system and project performance monitoring system are being developed. An extended period (i.e., 10 and 5 years) of maintenance is included in the concession and contract agreements. Toll collection on project roads is expected to enhance the budgetary position of the GOR. Proper maintenance and fund provision are ensured in the draft loan agreement.

Implementation delay caused by prolonged land acquisition and resettlement process.

Resettlement plans have been prepared for all project roads under the second tranche. The RPWD has initiated the preparation work of land acquisition and resettlement in April 2018 to complete the process in a timely manner and in accordance with the related concession provisions or contract agreements. NGOs are being hired to assist the resettlement plan implementation. Revenue officers and inspectors will be recruited as consultants/contractors to coordinate with the Revenue Department, prepare required documents, and facilitate the land acquisition procedure.

Source: Asian Development Bank.

V. ASSURANCES

37. The Government of India and the Government of Rajasthan have assured ADB that implementation of the project shall conform to all applicable ADB policies including those concerning anticorruption measures, safeguards, gender, procurement, consulting services, and disbursement as described in detail in the PAM and loan documents. 38. The Government of India and the Government of Rajasthan have agreed with ADB on certain covenants for the project, which are set forth in the loan and project agreements.

VI. THE PRESIDENT’S DECISION

39. On the basis of the approval by ADB’s Board of Directors for the provision of loans under the multitranche financing facility in an aggregate principal amount not exceeding $500,000,000 to India for the Rajasthan State Highway Investment Program, the President has approved the tranche as described in para. 19 and such other terms and conditions as are substantially in accordance with those set forth in the draft loan and project agreements.

19 The updated risk assessment and risk management plan is in Appendix 14.

Appendix 1 11

DESIGN AND MONITORING FRAMEWORK FOR PROJECT 2

Impact the Project is Aligned with Good quality connectivity in all areas provided (Three-Year Action Agenda: 2017–2018 to 2019–2020)a

Results Chain Performance Indicators with

Targets and Baselines

Data Sources and Reporting

Mechanisms Risks Outcome By 2025: Efficiency and safety of transport on the state highways of Rajasthan improved

a. Use of the project roads averaging 2.762 million vehicle-km per day (2018 baseline: 1.961 million) (RFI A)b

a. RPWD database Improved road will not achieve the full economic benefit due to insufficient funding for full routine and periodic maintenance

b. Road safety audit mainstreamed in the business process of the RPWD’s PPP division (2019 baseline: Not mainstreamed)

b. Operation manuals of the RPWD PPP division

Outputs By 2024: 1. State highways and MDRs improved

1a. 754 km of the state highways and MDRs in Rajasthan improved and maintained under performance-based contracts (2019 baseline: 0) (RFI B)b

1–2. RPWD project progress reports

Limited interest of the construction industry in the works Implementation delay caused by prolonged land acquisition and resettlement process

1b. At least 200 gender-friendly bus shelters constructedc (2019 baseline: 0) 1c. At least 70 km of hard shoulder constructedd (2019 baseline: 0)

2. Capacity of the RPWD enhanced

By 2024: 2a. Project implementation manual prepared (2019 baseline: Not applicable) 2b. Safeguards manual prepared (2019 baseline: Not applicable) 2c. At least 80% of relevant staff in PPP Division reported improved knowledge on project implementation and safeguards monitoring (2019 baseline: Not applicable)

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Key Activities with Milestones 1. State highways and MDRs improved 1.1 Recruit all independent engineers and road safety consultants by Q2 2020. 1.2 Procure all civil works by Q2 2020. 1.3 Implement and complete all civil works by Q4 2023. 2. Capacity of the RPWD enhanced 2.1 Recruit the project implementation consultant by Q2 2022. 2.2 Prepare the project implementation and safeguards manual by Q4 2023. Inputs Asian Development Bank: $190.00 million (loan) Private sector: $66.15 million (to be underpinned by appropriate support from the Government of Rajasthan) Government of Rajasthan: $123.09 million Assumptions for Partner Financing Not applicable km = kilometer, MDR = major district road, PPP = public–private partnership, Q = quarter, RPWD = Public Works Department of the Government of Rajasthan. a Government of India, NITI Aayog. 2017. Three-Year Action Agenda, 2017–2018 to 2019–2020. Delhi. The Three-

Year Action Agenda succeeds the Twelfth Five-Year Plan. Contribution to the ADB Results Framework: b RFI A Roads built or upgraded-Provincial, district, and rural roads (kilometers). Target: Use of the project roads

averaging 2.762 million vehicle-km per day. RFI B Use of roads built or upgraded (average daily vehicle-kilometers in the first full year of operation). Target: 754 km of the state highways and MDRs in Rajasthan improved and maintained under performance-based contracts.

c. Locations will be finalized after community consultations. d The hard shoulder will benefit pedestrians, especially the elderly, women, and children. Source: Asian Development Bank.