Document of The World Bank FOR OFFICIAL USE ONLY Report No: 57081-IN PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 636.3 MILLION (US$1,000 MILLION EQUIVALENT) AND A PROPOSED LOAN IN THE AMOUNT OF US$500 MILLION TO THE REPUBLIC OF INDIA FOR THE PMGSY RURAL ROADS PROJECT November 26, 2010 Transport Unit Sustainable Development Unit South Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. INDIA: PMGSY RURAL ROADS PROJECT CURRENCY EQUIVALENTS (Exchange Rate Effective October 29, 2010) Currency Unit = Rupee (Rs.) Rs.1.00 = US$0.02 US$1.00 = Rs. 44.5 1 lakh = 100,000 1 Crore (Cr.) = 10,000,000 FISCAL YEAR April 1 ­ March 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy NRRDA National Rural Roads Development Agency DEA Department of Economic Affairs OMMAS On-line Monitoring Management and Accounting System DLI Disbursement Linked Indicators PAC Performance Audit Consultants DPR Detailed Project Report PAPs Project Affected Populations ECoP Environmental Codes of Practice PCI Pavement Condition Index EEP Eligible Expenditure Program PCMM Procurement and Contract Management Manual ESMF Environment and Social PIU Program Implementation Unit Management Frameworks FC Finance Commission PMC Project Management Consultants GAAP Governance Accountability and PMGSY Pradhan Mantri Gram Sadak Yojana Action Plan GIS Geographic Information System PRI Panchayat Raj Institution GoI Government of India PWD Public Works Department ILO International Labour Organization QCBS Quality and Cost Based Selection IRC Indian Road Congress R&P Receipts and Payments ISR Implementation Status and Result RES Rural Engineering Services Report IUFR Interim Unaudited Financial Reports RRP I Rural Roads Project I MIS Management Information System SMF Social Management Framework MMS Maintenance Management System SQM State Quality Monitors MoRD Ministry of Rural Development SRRDA State Road Rural Roads Development Agency MORTH Ministry of Road Transport and STA State Technical Agency Highways NCB National Competitive Bidding TA Technical Assistance NPV Net Present Value VF Vulnerability Framework NQM National Quality Monitors Vice President : Isabel M. Guerrero Country Director : N. Roberto Zagha Sector Director : John Henry Stein Sector Manager : Michel Audigé Task Team Leader : Simon Ellis/Ashok Kumar INDIA: PMGSY RURAL ROADS PROJECT Table of Contents I. Strategic Context ..................................................................................................................... 1 A. Country Context ............................................................................................................... 1 B. Sectoral and Institutional Context .................................................................................... 1 C. Higher Level Objectives to which the Project Contributes .............................................. 6 II. Project Development Objectives............................................................................................. 6 A. Project Development Objective ....................................................................................... 6 1. Project Beneficiaries ..................................................................................................... 7 2. Project Development Objective (PDO) Level Results Indicators ................................ 7 B. Project Description ........................................................................................................... 7 1. Component A: Program support to PMGSY (US$1,440 million) ............................... 8 2. Component B: Institutional Strengthening (US$60 million)........................................ 8 C. Project Financing.............................................................................................................. 9 1. Lending Instrument....................................................................................................... 9 2. Project Financing Table .............................................................................................. 10 D. Lessons Learned and Reflected in the Project Design ................................................... 10 III. Implementation .................................................................................................................. 11 A. Institutional and Implementation Arrangements ............................................................ 11 B. Results Monitoring and Evaluation ................................................................................ 12 C. Implementation Support Strategy................................................................................... 12 D. Sustainability .................................................................................................................. 13 IV. Key Risks ........................................................................................................................... 14 V. Appraisal Summary .............................................................................................................. 15 A. Economic and Financial Analysis .................................................................................. 15 B. Technical ........................................................................................................................ 15 C. Financial Management ................................................................................................... 16 D. Procurement ................................................................................................................... 18 E. Social .............................................................................................................................. 20 F. Environment....................................................................................................................... 21 Annex 1: Results Framework and Monitoring.............................................................................. 23 Annex 2: Detailed Project Description ........................................................................................ 27 Annex 3: Implementation Arrangements ..................................................................................... 38 Annex 4: Operational Risk Assessment Framework (ORAF) ...................................................... 64 Annex 5: Implementation Support Plan ........................................................................................ 70 Annex 6: Team Composition ........................................................................................................ 73 Annex 7: Economic and Financial Analysis ................................................................................. 74 Annex 8: Governance and Accountability Action Plan ................................................................ 84 iii PAD DATA SHEET INDIA: PMGSY RURAL ROADS PROJECT PROJECT APPRAISAL DOCUMENT South Asia Region SASSD Date: November 26, 2010 Sector(s): Roads and highways (100%) Country Director: N. Roberto Zagha Theme(s): Rural services and infrastructure (P) Sector Director: John H. Stein EA Category: A Sector Manager: Michel Audigé Team Leader(s): Simon Ellis/Ashok Kumar Project ID: P124639 Lending Instrument: Specific Investment Credit/Loan Project Financing Data: [X] Loan [X] Credit [ ] Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Total Bank financing (US$m.): 1,500.00 Proposed terms: IDA Credit on Regular and Hard terms, 35 years to maturity, 10 years grace IBRD Flexible Loan with a variable spread option, final maturity of 18 years including grace period of 5 years Financing Plan (US$m) Source Local Foreign Total BORROWER/RECIPIENT 0.00 0.00 0.00 International Bank for Reconstruction and 500.00 0.00 500.00 Development International Development Association 570.60 50.00 620.60 (IDA) ­ Regular Terms International Development Association 379.40 0.00 379.4 (IDA) ­ Hard Terms Total: 1,450.00 50.00 1,500.00 Borrower: Government of India Responsible Agency: Ministry of Rural Development, India National Rural Roads Development Agency, India Contact Person: Mr. Prabha Kant Katare, Director (Projects) Telephone No.: 011-41000472 Fax No.: 011-41000475 Email: pkkatare@nic.in iv Estimated Disbursements (Bank FY/US$ m) FY 11 12 13 14 15 16 Annual 150 200 300 400 300 150 Cumulative 150 350 650 1050 1350 1500 Project Implementation Period: Start March 30, 2011 End: November 30, 2015 Expected effectiveness date: March 30, 2011 Expected closing date: November 30, 2015 Does the project depart from the CAS in content or other significant Yes x No respects? If yes, please explain: Does the project require any exceptions from Bank policies? Yes x No Have these been approved/endorsed (as appropriate by Bank management? Yes No Is approval for any policy exception sought from the Board? Yes No If yes, please explain: Does the project meet the Regional criteria for readiness for implementation? x Yes No If no, please explain: Project Development Objective The project development objective is to support the strengthening of the systems and processes of the national PMGSY rural roads program for the expansion and maintenance of all-season rural access roads, resulting in enhanced road connectivity to economic opportunities and social services for beneficiary communities in the participating states. Project description The project is structured around two components: Component A: PMGSY program financing (US$1,440 million). Contributes to the finance of civil works expenditures in the seven participating states associated with providing new all weather access to unconnected habitations and upgrading key through and important link routes in rural areas. The project will strengthen implementation efficiency and the sustainability of program roads through improved maintenance Component B: Institutional strengthening (US$60 million). Supports a technical assistance program designed to strengthen the capacity of relevant agencies to implement the program. v Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) x Yes No Natural Habitats (OP/BP 4.04) x Yes No Forests (OP/BP 4.36) x Yes No Pest Management (OP 4.09) Yes x No Physical Cultural Resources (OP/BP 4.11) x Yes No Indigenous Peoples (OP/BP 4.10) x Yes No Involuntary Resettlement (OP/BP 4.12) x Yes No Safety of Dams (OP/BP 4.37) Yes x No Projects on International Waters (OP/BP 7.50) Yes x No Projects in Disputed Areas (OP/BP 7.60) Yes x No Conditions and Legal Covenants: Financing Description of Condition/Covenant Date Due Agreement Reference The Recipient through NRRDA, shall, not later than Audit reports six (6) months after the effectiveness of this due June 1st Agreement, engage an independent performance and auditor under terms of reference with qualifications December 1st and experience acceptable to the Association, to each year carry out performance audits for Part A of the Project. The said independent performance auditor will certify the status of meeting the conditions of disbursement. Each Participating State and SRRDA shall carry out On-going its Respective Parts of the Project in accordance with the Environmental and Social Management Framework, the Environmental Codes of Practice, the Social Management Framework, and the Vulnerability Framework. The Recipient shall ensure that the Project is carried On-going out in accordance with the provisions of the Anti- Corruption Guidelines and the GAAP. NRRDA shall produce interim-unaudited financial Every six reports of the project on June 1st and December 1st of months each year to support disbursements for eligible starting in expenditures under the credit. June 2011 vi I. Strategic Context A. Country Context 1. In the past few years, India has emerged as one of the world's fastest growing economies. Since 1990, its economic growth rate has more than doubled, rising from 1.9 percent per capita during 1961-1990 to 4.6 percent in 1991-2008. In 2008-09, real per capita income stood at US$1,040, more than double the 1993-94 level. Rapid growth has contributed to reducing poverty but at a slower rate than in other countries. Agricultural growth has been volatile, decelerating and averaging about 2.5 percent per capita over the last decade, well below the 4 percent target set by the government, and less than one third of the rates of growth in services and manufacturing. There has been limited progress on reducing the dependence of the work force on agriculture and creating enough non-farm opportunities to absorb surplus labor in rural areas. For those in agriculture there has been an inability to benefit from increased growth in the rest of the economy and the opportunities for agricultural diversification and the move up the value chain that this brings. Weaknesses in basic rural infrastructure ­ from roads to electrification ­ have constrained poverty reduction and agricultural growth and limited opportunities for the 60 percent of the population dependent on agriculture and related activities. 2. Evidence from India, and elsewhere in the region, indicates that good infrastructure and particularly a good road network can generate multiple benefits in the rural economy in both the commercial and social spheres. Surveys in support of this project have demonstrated that improved roads brings an intensification in agriculture which facilitates economies of scale in transport costs, reduces post harvest losses by reducing handlings and lowers the aggregate middle men margin. This effect not only offers the prospects of lower urban food cost, but can transform agricultural production. In particular access to roads, and cheaper and more efficient access to market, enables diversification into higher value farming enterprises. The evidence also suggests that roads bring improvements in human development outcomes through better access to schools and health facilities. The benefits include better attendance rates at school by both teachers and pupils, greater interest in secondary education, and lower rates of morbidity and mortality. However, these benefits have proved elusive to much of rural India because of both lack of access to about 39 percent (as of the last census in 2000) of the India's 855,000 habitations (or 300 million people) and the poor condition of most parts of the existing rural roads network (roughly 2.7 million km). These inaccessible habitations are mostly concentrated in lagging states and hill areas. B. Sectoral and Institutional Context 3. Rural Roads Sector. Consequently, "empowering" rural India through the strategic provision of all-season road access has emerged as one of the key priorities for the Government of India (GoI). The Eleventh Five Year Plan (2007-2012), and the tenth plan before it, recognizes that rural connectivity is a key component of rural development and poverty alleviation in India, making rural accessibility one of 27 indicators in the Eleventh Five Year Plan. The Plan aims to provide all-weather road connections to all villages with a population of 1,000 and above (500 and above in hilly and tribal areas) by 2009, and all significant villages by 2015. 1 4. The main mechanism for the achieving these targets has been the GoI sponsored Pradhan Mantri Gram Sadak Yojana (PMGSY), the Prime Minister's Rural Roads Program, which was established in late 2000 to address the problem of poor rural accessibility in a more systematic way. The PMGSY originally sought to provide all-season road access for every community with a population greater than 1,000 by 2003, and all villages with population greater than 500 by the end of the Tenth Five Year Plan in 2007. Although the PMGSY has only achieved 52 percent of its initial targets - mainly due to limited implementation capacity - its achievements have been significant. The length of the new and improved rural road network under the program to date has reached 274,000 km and as a result 70,500 habitations have been connected. Implementation capacity has also greatly enhanced over time, with about 52,400 km completed in the last full year, compared to just 15,500 km at the beginning of the program. As a result of these achievements the PMGSY has been identified as one of India's 60 success stories since its independence according to a survey conducted by "India Today". 5. Total expenditure to date on the program has been US$14.6 billion and it is estimated that a further US$40 billion will be required to complete the program by 2020. In terms of financing, the only funding source identified was 50 percent of the levy on diesel when the program was conceived. Today, allocations from the levy meet just about a quarter of the US$4.8 billion current annual requirement. The balance has mainly been met by direct budget support (27 percent for the year 2009-2010) and loans from the National Bank for Agriculture and Rural Development (NABARD), which to date have totalled about US$4.8 billion. The Asian Development Bank (ADB) and World Bank also provided support to the program (estimated at seven percent for 2009-2010). 6. The program is facing increasing funding constraints and there is currently a US$10 billion gap between those sub-projects that have already been sanctioned and available resources. The situation is being exacerbated by the loan from NABARD, which in the coming years will require in excess of US$1 billion annually to service. New sanctions are now being prioritised to mostly cover new connectivity and special cases. 7. Establishing new connectivity is also going to become more difficult as many of the easier habitations have already been connected. Increasingly, the new roads will be serving communities in more remote and difficult terrain requiring special considerations with respect to planning and program implementation. There will also have to be a greater emphasis on the states that have lagged in implementation performance. The connectivity that has already been created will also require much more attention in terms of its long term maintenance. All new roads built under the program have a five-year maintenance contract built in, but there are now over 100,000 km of roads that are older than five years. The responsibility for maintenance rests with state governments. However, in many states there is still a lack of clarity over the long term arrangements for the management and ownership of the network, sustainable and reliable finance for maintenance, and the organization setup for effective execution of maintenance activities. This project will address the twin priorities of improving the effectiveness of program delivery and ensuring the sustainable maintenance of the assets created from the program. 8. Ensuring effective program delivery of infrastructure. The main strength of the PMGSY program has been its ability to develop a strong national focus for rural roads 2 development through the National Rural Roads Development Agency (NRRDA). The NRRDA has developed a common set of operating procedures that are applied nationwide through the dedicated State Rural Roads Development Agencies (SRRDAs) and their Program Implementation Units (PIUs). These operating procedures are set out in a series of PMGSY manuals covering overall operations, technical design, quality control and accounting. There is a systematic planning process in place which has included the prioritization of a 1.5 million km core rural road network, of which about 750,000 km are eligible for new connectivity and upgrading under the PMGSY program. The prioritization, linked to the size of habitations and access to markets, has limited the political interference in sub-project selection. The program has also developed a web-based On-line Monitoring Management and Accounting System (OMMAS) which is accessible to the public. 9. Although the design of the program is basically sound there are a number of areas where enhancements could be made particularly with respect to greater compliance with existing procedures. There is a wide variation in implementation capacity under the program which affects both the speed in which habitations are connected and, perhaps more critically, the quality of the works. The smaller upland states have the most severe capacity constraints and as a result some have only connected 20 percent of habitations. The difficult terrain in these states, compounded by the weak capacity of the construction industry, also leads to lower quality of works and higher costs. Building capacity in these areas, and throughout the program, is a key area of focus for the program. 10. One of the main concerns is that unit costs of construction have been increasing and that current design approaches may not be optimum, particularly as smaller and more remote villages are connected. Most roads are built with a bituminized surface but the Indian Roads Congress (IRC) is working on developing a wider range of design standards and technologies. Efforts will be made to use international best practices with respect to pavement design, surfacing standards and use of local and marginal materials. This could lead to a significantly more effective use of resources. The costs of construction are also affected by the effectiveness and level of competition in the procurement process. The rapid increase in the size of the program has not been matched by an increase in the supply of qualified contractors. As a result there has been a significant amount of rebidding, single responses to tenders and long delays in the award of tenders. The introduction of e-procurement has brought significant improvements to the procurement process, but there are still requirements for improved procurement planning and initiatives to address supply side constraints. 11. The Asian Development Bank (ADB) is currently supporting an improved planning process for rural roads sub-projects through the introduction of a new template for the Detailed Project Report (DPR). The improved DPRs will give much greater emphasis to analysis of alternatives, social and environmental issues, road safety, and preparation of cost estimates. In addition, although a core network has been prioritized, more could be done to link with the broader rural development agenda including connectivity of rural roads to higher order roads, improved transport services and overall agricultural supply chains. The use of road management and geographic information systems (GIS) is increasing and should facilitate improved area wide planning. 3 12. Maintenance and management of the network. Maintenance is one of the main challenges yet to be overcome under PMGSY implementation nearly ten years since its inception. Under the program, contractors are required to maintain the roads built for five years after completion of investment. The states are expected to provide funding both for the initial five-year maintenance contract and the subsequent road maintenance activities. Efforts have been made to ensure regular maintenance, but the results are far from adequate. A PMGSY audit of maintenance activities estimated that only 30 percent of maintenance requirements are met for the network as a whole and even under the five-year maintenance contracts, surveys reveal that only 25 percent of roads are fully maintained with 30 percent not receiving maintenance at all. 13. The Twelfth Finance Commission1 sent the first signal that government wanted to place far greater emphasis on maintenance. The commission recommended that central government should provide grants to states amounting to US$3.3 billion over the plan period (2005-2010) to supplement the states own maintenance expenditures. The intention was good but lack of monitoring has made it impossible to assess whether these resources were used for their intended purpose. 14. The Thirteenth Finance Commission (FC) has been more specific and agreed to provide maintenance funds for the core rural roads network including for PMGSY roads that have come out of their initial five-year maintenance contracts. The FC will provide grants-in-aid for roads maintenance to the extent of 50 percent of the requirement assessed for non-PMGSY roads on the core rural roads network and 90 percent of the requirement assessed for PMGSY roads for four years starting 2011-2012. The total amount of grants works out to US$4.4 billion. 15. This is a substantial increase in funding for most states and the challenge now is how these funds can be effectively utilized. The PMGSY program was set up as a capital works program and the institutional arrangements have served it well. However, in many states the long-term institutional arrangements for maintenance and management of the network are still to be fully defined. The PMGSY guidelines acknowledge the critical importance of the institutional framework for effective maintenance and call for the ultimate devolution of PMGSY roads management and ownership to local governments and the Panchayati Raj Institutions (PRIs). However, the guidelines also recognize that PRIs lack the managerial, financial and technical capacity commensurate to this new responsibility and ascribe interim maintenance responsibilities to the Project Implementation Units (PIU) under the SRRDA. Although the PIUs are better equipped with technical resources they still lack the specific skills and procedures to effectively manage the maintenance of the network. 16. While some states have reasonable institutional arrangements for maintenance in place, including some under this project, in general more of an overarching strategy is required to cover institutional arrangements, finance and management of the entire state road networks, including 1 Under Article 280 of the Constitution the Finance Commission is required to make recommendations to President in respect of: 1. The distribution of net proceeds of taxes to be shared between the Centre and the States, and the allocation between the States, the respective share of such proceeds. 2. The principles which should govern the grants-in-aid by the Center to States out of the Consolidated Fund of India. 3. The measures needed to augment the Consolidated fund of a State to supplement the resources of the Panchayats and the Municipalities in the state on the basis of the recommendations made by the State Finance Commission. 4. Any other matter referred to it by the President in the interests of sound finance. 4 all rural roads and not just PMGSY roads. In many states, the current multiplicity of agencies and schemes involved in construction and maintenance leads to a lack of clarity on who owns the network and therefore who is responsible for its maintenance. The lack of road inventory and condition data also creates problems in that no one is really sure of the size of the maintainable network, its extent of deterioration and demand for maintenance. National programs, such as PMGSY, are governed by program objectives and procedures that often run parallel to State level implementation procedures, with the result that subsequent network management arrangements are not addressed. 17. The objective of transferring full responsibilities for management of the rural roads network to PRIs in most states is a long-term objective. Significant capacity building and resource transfer will have to happen for this to take place. Many routine maintenance functions can be carried out at the PRI/community level but will need technical expertise, equipment and finance from outside. In the meantime greater attention needs to be placed with the existing Public Works Departments (PWD) and Rural Engineering Service (RES) to improve maintenance functions. It will also be important for partnerships to be developed between PWD/RES and the PRI/local communities to gradually build capacity. 18. Given the significant employment opportunities available to rural people for the maintenance of rural infrastructure projects, consideration is being given to international models for mobilizing and organizing community labor. One possible model is the formation of community level petty contractors which have been found to be effective when combined with support from PWD/RES. The government has a number of other rural development programs that are aimed at reducing rural poverty by creating off-farm employment opportunities either through self-employment or through guaranteed labor schemes. There is interest within the rural roads sector in developing links with these programs and particularly with the National Rural Employment Guarantee Scheme (NREGS). At the moment, NREGS mostly provides employment for the creation of new assets but discussions are on-going on whether the scope of the scheme could be broadened to include maintenance activities. If this were the case, there would be the double advantage of employment generation while at the same time maintaining productive assets. 19. Analytical underpinnings for the operation. There is a substantial analytical underpinning to the rural roads sector in India chiefly carried out by GoI, the World Bank and the International Labour Organization (ILO). These include GoI's Working Group on Rural Roads for the Eleventh Plan and the "Rural Roads Vision: 2025" supported by the World Bank. These high level strategic documents have been supported by numerous more detailed studies covering policy, funding, institutional development, contractor capacity, maintenance and technical design issues. The ILO has produced a variety of maintenance assessments, manuals and guides designed to strengthen the capacity of local government and communities to manage infrastructure works. Given their experience the ILO will partner with the NRRDA to deliver technical assistance in these areas and to support the gradual transfer of PMGSY rural roads to local government control. 5 C. Higher Level Objectives to which the Project Contributes 20. Supporting the Country Assistance Strategy. The proposed project is fully aligned with the Country Assistance Strategy (CAS) for FY09-12. The overarching objective of the CAS is to help the GoI achieve the long-term vision encapsulated in the Eleventh Plan of a country free of poverty and exclusion. The first pillar is focused, among other areas, on removing infrastructure constraints to growth in rural areas. The proposed project is expected to contribute to one of the CAS's objectives of making growth inclusive through support to sustained improvements in road connectivity and removal of infrastructure constraints to growth in rural areas. The operation is also expected to contribute to the second and third pillars of the CAS by focusing on improved management of environmental aspects in PMGSY implementation, and enhancing the development effectiveness of public spending through improved demand-side accountability mechanisms, including beneficiary and civil society involvement. Given that the majority of funds under the PMGSY program are allocated to poorer states, it will also contribute towards the CAS objective of supporting lagging states. 21. This operation will also continue the long engagement the World Bank has had in the rural roads sector in India both through stand-alone rural roads projects and where rural roads have been financed as components under rural development projects. PMGSY is one of the key programs in the transport program of the GoI's Tenth and Eleventh Plans. The Plans highlight the importance that GoI gives to reducing disparities in physical access, encouraging economic and social development in rural areas, and adequately funding rural road maintenance. The Bank has been involved with the PMGSY program since its inception and contributed to many of its operating procedures and sector approaches such as the definition of the core network, maintenance management principles and capacity building. The first rural roads project supporting the PMGSY program (RRP I - US$400 m) is currently under implementation in the states of Himachal Pradesh, Jharkhand, Rajasthan, and Uttar Pradesh. Excluding Himachal Pradesh all are classified as low income lagging states. 22. This operation will build on previous experience in the sector, the strong design of the program, and transition to a more broad based support of PMGSY with a greater focus on overall program results and less on individual transactions. Compared with previous projects, the present project focuses on strengthening the overall systems and processes of the PMGSY program, and on the effective application of those systems and processes in a set of participating states. The participating states are a mixture of low income lagging states (Rajasthan, Uttar Pradesh and Jharkhand), small special category upland states (Himachal Pradesh, Uttarakhand and Meghalaya) and a middle income state (Punjab). At the program and participating state level the twin objectives of the project are to improve the effectiveness of program delivery and ensure the sustainable maintenance of the assets created from the program. II. Project Development Objectives A. Project Development Objective 23. The project development objective is to support the strengthening of the systems and processes of the national PMGSY rural roads program for the expansion and maintenance of all- 6 season rural access roads, resulting in enhanced road connectivity to economic opportunities and social services for beneficiary communities in the participating states. 1. Project Beneficiaries 24. The project is expected to provide all season access to economic opportunities and social services to 6.1 million people in the habitations to be connected and many more in the project states. Those people will have improved access to rural transport services and benefit from the consequent reductions in travel time and cost. In addition, the construction and maintenance of roads will create an estimated 300 million person-days of employment for rural people. 2. Project Development Objective (PDO) Level Results Indicators 25. The PDO will be measured based on the increase in the share of rural population with access to an all-season road, an increase in the share of PMGSY rural roads with Pavement Condition Index of 2.0 or above, and the percentage reduction in travel time by beneficiaries. B. Project Description 26. The proposed project is a US$1.5 billion Specific Investment Credit/Loan that uses a programmatic approach to support implementation of the PMGSY program over a five-year period in participating states. The participating states are Jharkhand, Himachal Pradesh, Rajasthan, Meghalaya, Uttarakhand, Uttar Pradesh and Punjab. 27. The project is structured around two components: (i) Component A ­ PMGSY program financing (US$1,440 million) contributes to the finance of civil works expenditures in the seven participating states associated with providing new all-weather access to unconnected habitations and upgrading key through and important link routes in rural areas. The project will strengthen implementation efficiency and the sustainability of program roads through improved maintenance; and (ii) Component B ­ Institutional strengthening (US$60 million) supports a technical assistance program designed to strengthen the capacity of relevant agencies to implement the program. As such, the project has two priority objectives: (i) Enhancing operations of the PMGSY to provide more cost effective, efficient and transparent delivery of infrastructure. (ii) Sustainable preservation of infrastructure assets through improved policies, institutions, systems and implementation mechanisms. 28. The project will aim to enhance the effectiveness of the PMGSY program through improvements in its overall systems and processes. The project will use a results based methodology to keep the client and the Bank engaged around an agreed set of results rather than the individual transactions leading to those results. As such, there is a movement from input monitoring to output performance monitoring. 29. The agreed results under the program have been formulated as a series of Disbursement Linked Indicators (DLI) which will be the basis for disbursement of funds during the project life. 7 Performance against these indicators will determine the extent to which disbursements will be made at the end of each time period. In other words, the disbursements are performance linked. 1. Component A: Program support to PMGSY (US$1,440 million) 30. Component A of the project will support the effective implementation and maintenance of the PMGSY program in the participating states. Over the five-year project period, it is estimated that 8,200 habitations will be connected through the construction of 24,200 km of new all-weather access and upgrading of rural through and link routes. The roads will predominantly be built using a bitumen surface and will include all necessary bridges and cross drainage works to maintain year round connectivity. The participating states have currently connected 60 percent of their PMGSY eligible habitations. By the end of the project period this is targeted to have increased to 91 percent with the goal of promoting greater social inclusion of vulnerable groups. The project will reimburse eligible civil works expenditures associated with this program once a set of agreed DLIs have been met. Disbursements will be triggered based on three DLIs as follows: (i) Increasing the extent of habitation connectivity; (ii) Improving the effectiveness of public expenditures through cost-effective and socially and environmentally responsible provision of all weather access to habitations. The second results area will be measured in terms of performance in planning, procurement, quality control and monitoring and evaluation; and (iii) Effective execution of maintenance works on the core rural roads network. 2. Component B: Institutional Strengthening (US$60 million) 31. The project will have a substantial Technical Assistance (TA) component designed to support the institutional strengthening, organizational effectiveness and individual skills development to complement achievement of the DLI matrix and the program outcomes defined above. The program will comprise the following main elements: 32. Sub Component B1: Research and development (US$11.9 million): Consultant services to support system-wide improvements for the PMGSY program based on international best practice. Key areas will include development of improved program documentation; maintenance management systems and advice; improved M&E; improved technical design standards; broader based planning techniques and project coordination and reporting support to NRRDA. 33. Sub Component B2: Independent means of verification (US$6.7 million): Consultant services to provide independent verification of results under the program which will include support for performance audits on all aspects of project implementation, citizens monitoring and grievance redress, Financial Management (FM) audits and outcome monitoring surveys. 34. Sub Component B3: State Level Project Institutional Support (US$ 22.6 million: Consultant services to provide State level project management support in the implementation of their program to meet state level DLIs and execute their works in compliance with agreed 8 procedures and standards. Consultants will also support state level maintenance management activities and NRRDA to coordinate state level activities. 35. Sub Component B4: Equipment (US$ 7.8 million): Equipment and office infrastructure support including IT related equipment to facilitate (i) use of modern surveys and investigation equipment and design tools, (ii) quality assurance equipment, and (iii) use of modern IT tools and software. 36. Sub Component B5: Training for Skills Development (US$11.0 million): Training for skills development to support a long-term capacity building program which institutionalizes training programs within local training institutions and provides resources for both demand led and supply driven training activities including international training, study tours, workshops, and counterpart training. C. Project Financing 1. Lending Instrument 37. The proposed project is a US$1,500 million Specific Investment Credit/Loan that uses a programmatic approach to support the implementation of the PMGSY rural roads program disbursed against results. The project will work in the following way: First, credit disbursements will be made against civil works expenditures in the participating states with each associated budget line referred to as an Eligible Expenditure Program (EEP). Disbursements will be made on a six monthly basis. Second, the amount of credit disbursements will be based on the achievement of pre-specified results, referred to as disbursement-linked indicators (DLIs), of which there are three and have been determined in partnership with the Government. As currently structured, the total disbursement amount is divided across the total number of DLIs in a given percentage with 50 percent of funds allocated to DLI-1 on enhancing connectivity; 20 percent of funds allocated to DLI-2 on effectiveness of public expenditures; and 30 percent of funds allocated to DLI-3 on execution of maintenance activities. Third, a technical assistance (TA) component is also included in the Project, which finances essential capacity building and is specifically tailored to support the meeting of the DLIs. 38. The DLIs reflect the priority areas of the PMGSY program. They include a mixture of intermediate outcomes, implementation performance or institutional change indicators that build incrementally over the life of the project. The DLIs focus on the twin objectives of the project which are to improve effectiveness in program delivery and improve sustainability of program outcomes through better maintenance. The results represented in the DLIs are critical to achieving the Project's development objectives (Annex 1 includes the full list of DLIs). The achievement of DLIs ensures disbursement under the credit/loan and detailed disbursement rules have been developed for each of the DLIs (see annex 3). However, if DLIs for a particular year are not met, or only partially met, then the project will withhold disbursements in accordance with an agreed formula for each DLI. If in subsequent years these DLIs are met then any withheld disbursements will be made. At the mid-term review of the project, progress made in achieving the DLIs will be assessed. If it determined that modifications are required to the performance targets set, then these will be made at this stage. 9 39. The EEPs supported by the Project will be effective from January 1, 2011. From this date all sub-projects in the participating states will be planned, procured and constructed in accordance with agreed procedures which meet Bank safeguard, procurement and financial management policy and standards. 2. Project Financing Table Component and/or Activity Total (US$ million) Component A: Program support to PMGSY Indicative2 state eligible expenditure programs (2011-2015) of which: 1,706 - Rajasthan 443 - Uttar Pradesh 200 - Jharkhand 223 - Uttarakhand 276 - Himachal Pradesh 215 - Meghalaya 238 - Punjab 111 Total IDA/IBRD financing to state eligible expenditure programs 1,440 Component B: Institutional Strengthening 60 Sub-component B1: Research and Development 11.9 Sub-component B2: Independent Verification 6.7 Sub-component B3: Project Management Consultants 22.6 Sub-component B4: Equipment 7.8 Sub-component B5: Training for Skills Development 11.0 Total IDA/IBRD financing 1,500 D. Lessons Learned and Reflected in the Project Design 40. The project design has benefited from experience gained during implementation of the on-going Rural Roads Project, as well as previous Bank-supported projects that either financed rural roads as part of stand-alone state projects or as part of larger rural development initiatives. The main lessons emerging from the various interventions are as follows: 41. Ring-fencing of Bank funds limits the benefits of Bank involvement in large programs such as PMGSY, where the Bank's contribution is small relative to the overall size of the program. The benefits of Bank assistance are likely to be increased by supporting the development of existing systems. Key to this is the need to agree on a common set of equivalent standards for fiduciary and safeguard requirements that will apply to both program and Bank funds. This will allow the move away from a transaction orientated approach to a systems approach. 42. One of the central problems of all rural road projects is the subsequent maintenance of the assets. The conventional project approach, while addressing this through technical assistance, has no way to reward good practice in this regard. Inevitably these difficult issues take a second 2 The state eligible expenditure programs are indicative, the financing allocations, and/or the number of states, may change over project period depending on performance of participating states and other requirements of the program. 10 place to the primary need to implement, supervise and disburse against multiple civil works contracts. The results-based approach allows disbursements to be withheld for failure to implement systems for maintenance. 43. In terms of implementation of the program, there is a wide variation in capacity of the states to implement effectively. Some flexibility is required to tailor the technical assistance program to the needs of each state. In some areas a light touch is required, in others a much more intensive program of support is required. The terms of reference for the Project Management Consultants (PMCs) proposed in this design will be tailored to individual state requirements. To support the development of capacity there is a need to institutionalize training activities within existing national and state institutions. 44. The size and disbursed nature of many rural road projects makes the effective supervision of activities very difficult. It is possible to visit only a small percentage of the total investments. In line with the overall systems approach being proposed for the project this has to apply to Bank implementation support as well. The Bank will rely on existing PMGSY systems supported by strengthened M&E systems, better systems for independent verification and the ability to target particular areas of concern. III. Implementation A. Institutional and Implementation Arrangements 45. Project implementation arrangements maintain and build on the institutional arrangements already in place for the PMGSY. The Ministry of Rural Development (MoRD) is responsible for the overall oversight, coordination and sanctioning of sub-project requests under PMGSY. As its technical agency, the NRRDA will be responsible for the implementation of the project including the day-to-day management and monitoring of PMGSY and providing overall strategic guidance and a central source of technical expertise. NRRDA will implement the project with the support of the participating states and their respective SRRDAs and Program Implementation Units (PIUs) at the district level. The SRRDAs are each headed by a Chief Executive Officer who is the state program director responsible for the overall coordination of implementation, including planning, management, consultant selection and civil works procurement. The Chief Executive Officer is supported by experienced personnel at state headquarters and in the district PIUs. Wherever required, private consultants will be used to assist the implementing agencies to prepare engineering designs, supervise the construction, undertake independent audits and implement various institutional development initiatives. Most of the road construction works will be implemented by local contractors already familiar with the PMGSY. 46. The PMGSY program has a well defined institutional and implementation framework that is detailed in a series of guidelines covering planning, procurement, environmental and social issues, technical standards and accounting. The program maintains close ties with various supporting institutions and as part of the technical assistance component of this project these partnerships will be strengthened further. NRRDA plans to use the National Institute of Training for Highway Engineers (NITHE) for coordination of state level training programs; the Indian 11 Roads Congress (IRC) for revisions to rural roads standards and specifications and they have also set up a working group to prepare the procurement and contract management manual; the ILO for developing improved maintenance guidance and support to local government and communities for the management and execution of maintenance works and; the Public Affairs Centre for third party monitoring of project outcomes through citizen monitoring on a sample basis. B. Results Monitoring and Evaluation 47. The On-line Management, Monitoring and Accounting System (OMMAS), a custom- designed monitoring and evaluation system developed and operated by NRRDA, will be used for results monitoring for the PMGSY Rural Roads Project. The OMMAS contains detailed information on core network parameters; the projects funded under the PMGSY and the status of their procurement, physical and financial progress, and other indicators. The PIUs regularly enter key physical progress, financial and other data in the OMMAS, which is in the public domain (www.pmgsyonline.nic.in). The OMMAS adds considerably to the transparency and management of PMGSY. The quality of the OMMAS data is fairly robust, notwithstanding some data gaps. The project will support further enhancements to the OMMAS to produce customized performance reporting at the national, state and district levels, incorporating improved safeguards monitoring information and vulnerability-disaggregated data (including gender) as well as data derived from third party monitoring. The project will also provide training and technical assistance to ensure that the data entered in OMMAS meets minimum standards of reliability, quality and timeliness. 48. To measure program outcomes, the Ministry of Rural Development (MoRD) has developed a detailed methodology for periodic poverty impact assessments and road user satisfaction surveys, based on a comprehensive study under the RRPI. The methodology has been modified based on recommendations made by the Bank, and will be used for regular monitoring of rural roads impacts and road user satisfaction in the participating states. C. Implementation Support Strategy 49. Given the size and geographical spread of the project, the Bank implementation support strategy is to move away from transaction-based support and focus instead on system-based support for the entire PMGSY program. The Bank will rely on the program oversight arrangements under PMGSY to ensure satisfactory implementation of the project including compliance with fiduciary and safeguard requirements. The main elements of the oversight systems are: (i) The OMMAS will form the basis for all reporting under the program including physical and financial progress. Customized reports will be produced at national, state and district levels. As noted above, the OMMAS is a computerized web-based database which is publically accessible and as such reports can be downloaded at any time; (ii) The quality of road construction works will be monitored and reported through the PMGSY's three-tier Quality Control System (QCS). The responsible Executive Engineer and the PIU constituting the first tier; State Quality Monitors appointed by a state-level 12 independent agency constituting the second tier; and senior technical personnel as National Quality Monitors (NQM) appointed by the NRRDA constituting the third tier.; (iii) Project Management Consultants (PMC) will be appointed in each participating state to provide the field based day-to-day capacity support to ensure that the necessary systems and skills are in place to comply with PMGSY procedures. The PMCs will report semi- annually on key issues related to program implementation; and (iv) Performance Audit Consultants (PACs) will be funded by the Project to review a random sample of ten percent of contracts every six months to provide an independent evaluation of compliance with all aspects of project implementation. The PACs will identify the extent to which actions are required to rectify identified deficiencies. The PACs will also identify serious issues of non-compliance which may trigger Bank remedies, including the possibility of cancelling funds from the Credit in proportion to the extent of problematic contracts identified. 50. The Bank will undertake regular semi-annual implementation support missions jointly with the MoRD, NRRDA, state officials and specialist consultants (as needed). The OMMAS, QCS, PMC, and PAC reports (as outlined above) will form the basis for the agenda of Bank implementation support missions .to enable the Bank to focus on areas of concern beyond a confirmation of the status of project implementation. Each Bank mission will conclude with an Action Plan agreed with NRRDA management, based on the mission's findings, recommendations of the concerned government agencies, PMCs and PACs; the following Bank mission will review progress achieved on the agreed Action Plan. D. Sustainability 51. The Bank's Transport Business Strategy3 defines sustainability in transport systems as having financial, economic, operational, environmental and social dimensions. 52. The financial sustainability of the project will be assured both by a continued commitment from government to fund new connectivity under PMGSY and a commitment from government and the states to fund on-going maintenance. Despite some recent pressures on finance, the central government remains highly committed to funding the program. In addition, after years of severe budget constraints the FC has recommended central grant-in-aid of US$4.4 billion over a five-year period to cover the backlog in maintenance activities. In September 2010, MoRD also issued a Circular linking the release of further funds under the program to the States provision of adequate finance to cover the five-year maintenance contracts. The project will support the states to develop secure long term financing for maintenance. 53. The project has been judged as economically viable and that benefits are likely to increase over time. However, the sustainability of economic benefits will be compromised if construction quality is poor, if adequate maintenance is not undertaken leading to premature failure of roads and if sufficient investments are not made to the district road networks that are a key element in connecting rural people to economic opportunities and social services. 3 World Bank. "Transport Business Strategy for 2008-2012: Safe, Clean and Affordable... Transport for Development." 2008. Washington, D.C. 13 54. With increased funding levels for maintenance, at least in the short term, the operational sustainability of the project investments will only be assured if the necessary road maintenance policies, strong institutions, effective planning and management systems, and innovative ways to execute maintenance works are in place. State governments have approved state-level maintenance action plans that seek to address the current deficiencies in policy and practice and the project will support their effective implementation. 55. The environmental sustainability will be achieved through applying the concepts of the smart green infrastructure approach4. It will be implemented in four stages: (i) screening to ensure comprehensive identification of all possible impacts on sensitive areas, (ii) transect walks with communities to address their environmental concerns, (iii) greater contractors' awareness to promote environmental friendly engineering, and (iv) enforcement of environmental management plans (EMPs) by trained supervision engineers. 56. Social sustainability will be assured by building stakeholder ownership, through enhanced participation by project affected populations (PAPs) in project design, implementation, monitoring and evaluation. The Vulnerability Framework (VF) and Social Management Framework (SMF) will foster compliance with national legislations and the Bank's OP 4.10 and OP 4.12, and address both vulnerability-related exclusion and negative impacts from additional land requirements during implementation. Trained citizen teams will monitor construction using simplified tools, while report cards and social audit will enable stakeholder participation to identify gaps as well as remedies. IV. Key Risks 57. The overall risk to achieving the PDO is rated at Medium-L5. An Operational Risk Assessment Framework (ORAF) prepared for the project (refer to Annex 4) summarizes risks to achievement of the PDO and outlines proposed actions to be undertaken by the MoRD, NRDDA and States to mitigate key project risks and improve project implementation efficiency. 58. The overall design of PMGSY is sound and the World Bank has been supporting the program through the on-going RRP I project and ISR ratings have been satisfactory. The main project risks relate to the long-term sustainability of the investments due to inadequate maintenance and constraints to good governance in some states affecting both the procurement process and implementation quality. The project will provide a TA to address capacity constraints and support policy and institutional strengthening to ensure long-term maintenance of the PMGSY and other rural roads. 59. A Governance and Accountability Action Plan (GAAP) has been prepared to improve the overall risk management, enhance efficiency and development impact and ensure allocated 4 Quintero, J. et al. "Smart Green Infrastructure in Tiger Range Countries: A Multi-Level Approach." 2009. Washington, D.C.: World Bank. http://www.globaltigerinitiative.org/download/GTI-Smart-Green-Infrastructure- Technical-Paper.pdf 5 A medium driven by likelihood (Medium-L) rating indicates a risk that will have a low impact even if there is a high likelihood that it will happen. 14 resources are spent for the intended purpose and directed to the beneficiaries. Please refer to Annex 7. V. Appraisal Summary A. Economic and Financial Analysis 60. The economic analysis has focused on assessing the benefits for the overall program in three domains. First, improved connections to markets should result in villagers facing more favorable prices for inputs and outputs. Second, by reducing the time spent travelling to and from school, an all-weather road should improve the attendance, not only of pupils, but also of their teachers, thus promoting the formation of human capital. Third, by likewise improving the villagers' access to timely treatment, especially in the event of accidents and bouts of acute sickness, the connectivity should lower mortality and morbidity. Assessments conducted to support this analysis suggest that the education and health benefits from improved roads access are substantial and roughly equal the commercial benefits from the road. The total benefits from new road provision are closely correlated with the number of people served by those roads. 61. To understand the cost side of the analysis the characteristics of access being provided in each state was assessed. As would be expected the costs of providing access to habitations varies greatly with the small upland states requiring longer and more costly roads compared to the larger more densely populated states where habitations can be reached by shorter distance and less costly roads. However, on average habitations are linked by a 3.4 km road at a cost of $211,000. Routine maintenance costs have been set at one percent of construction costs per annum and periodic maintenance at 35 percent over a ten-year period. 62. Given the size of the project and the many thousands of habitation connections being made it would be impossible to undertake an individual link analysis. Instead, for each state, a range of parameters for both the benefits and costs were analyzed through a "Monte Carlo" simulation. This simulation provided a distribution of Net Present Values (NPVs) to reflect the likely returns based on the characteristics of the state. This distribution by definition also provided a very good sensitivity analysis on the results. The analysis showed a range of results with some states (mainly the small upland states) not passing the viability test at the given discount rate and others easily surpassing it. However, the results show that the overall project is socially profitable at a discount rate of ten percent. The NPV is US$210 million at 2010 prices and the IRR is 12.2 percent. B. Technical 63. Project selection. The roads for funding under the PMGSY are selected from a core network established for the entire country and agreed with key stakeholders, including local communities and local governments. The core network connects each habitation to nearby market centres where communities go for marketing, health, education, and social welfare. Comprehensive priority lists have been prepared for (i) new connectivity based on population of the habitations, and (ii) upgrading of existing roads based on road condition. New connectivity is given priority over upgrading. The SRRDAs select the road works for funding under various 15 Phases of the PMGSY using these priority lists in consultation with local governments and public representatives. All PMGSY roads including those considered for eligible expenditures under the project will be selected from these priority lists. 64. Road designs. Most of the works under the project involve converting existing earth tracks and other roads to single-lane rural roads with a thin bitumen surface, except in hill states where formation cutting and widening might be involved. Some roads also require widening to intermediate lane standards where traffic volumes are high. In hilly areas the roads are typically built in two stages: Stage I comprises formation cutting, protection structures, drainage, and a sub-base, while Stage II converts this to a "black top road" by providing additional pavement layers. All PMGSY roads are designed using the technical standards specified in the Rural Roads Manual, technical specifications, and other documents published by the IRC. All the engineering designs are scrutinized by the designated state technical agencies ­ mostly engineering universities in the respective states. Current designs use a granular sub-base, a water bound macadam base, followed by a premix carpet. The unit costs vary from US$55,000 to US$150,000 per km depending upon the haulage distance, terrain, and the need of protection works and drainage structures. The NRRDA has already started pilot projects to introduce new technologies and local materials, and modifications of current technical documents to introduce cost-effectiveness. The World Bank will continue its dialogue with the MoRD to develop cost- effective design standards for rural roads by using international engineering practices and latest research. The project will also support development and implementation of optimal and innovative standards for design, construction, and maintenance of rural roads, including bridges, as well as pilots on the use of soil stabilization and of local materials. The pilots will be expanded once successful. 65. Maintenance management. Each of the participating states has established some form of computerized database for the core network but there are differences between states in terms of its regular updating and maintenance planning, execution and finance. Technical assistance will further enhance this database, link it to a simple asset management system (AMS) and will help introduce proper procedures to plan, program, budget, prioritize, design, and execute maintenance works. C. Financial Management 66. A customized financial management system has been designed for PMGSY, which essentially combines the features of traditional works department accounting practices with a double entry accounting system to prepare monthly and annual financial statements. The system is documented in three separate Accounts Manuals ­ Program Fund, Administrative Fund and Maintenance Fund. The system is designed in a manner that adapts itself to both, manual accounting as well as the web-based online computerized Receipts and Payments (R&P) module of the OMMAS. For a variety of reasons, including the lack of reliable web connections in some districts, implementation of the computerized R&P module of the OMMAS has been slower than the MoRD had anticipated. Until the computerized Financial Management System (FMS) becomes fully operational, accounting and reporting systems remain manual. Largely on account of the scale of operations, these manual systems are onerous and require substantive dedicated staff resources. An assessment of the PMGSY financial management arrangements indicates that 16 while the fiduciary framework and the accounting systems are robust and satisfactory, implementation experience with RRPI has shown considerable weaknesses in financial management performance at the state level. Of the 29 states, 15 states have not yet entered any data in the Receipts and Payments (R&P) module of OMMAS. Data entry remains at various stages in the participating states, with only three states (Uttar Pradesh, Himachal Pradesh, and Rajasthan) showing completed entries on September 30, 2010. 67. Weaknesses with respect to delays in bank reconciliations, inadequate controls over fund authorization, stale bank guarantees, non settlement of advances etc. have been noted by successive Bank missions as well as internal and external audit reports. While the states have continued to take several remedial measures to address the weaknesses, the results have been variable across the states. In order to enhance the quality of external audits revised guidelines for selection of Chartered Accountant (CA) firms have been prepared; the selection of auditors will follow quality and cost based method. 68. Financial management arrangements at NRRDA level are, by and large, considered adequate. NRRDA uses TALLY an "off-the-shelf" accounting system and does not use the OMMAS. NRRDA has an important role in supervising the day-to-day operation of the PMGSY financial management system and for establishment of the financial management arrangements, providing timely financial reports to stakeholders including the World Bank and providing overall guidance in respect of the financial management issues for the project. The current staffing structure at NRRDA, however, only allows a fairly limited level of oversight and supervision. NRRDA's oversight on the financial management arrangements at the state level is presently limited to review of the annual audit reports, trouble shooting on OMMAS and providing training on an "as required" basis. 69. Notwithstanding the weaknesses, the financial management arrangements for PMGSY have a number of strengths: A budgeting and accounting system has been established on the basis of Public Works Department (PWD) accounting rules and is operational for PMGSY as a whole with an online computerized system under implementation in parts (as a part of OMMAS); Staff are trained to carry out basic accounting functions at all levels including divisions/PIUs under the PWD system; A system of periodic financial reporting from the divisions to the state is operational; and Financial management arrangements are well documented as part of the Program Accounts and Operational Manual as well as a Supplemental Operations Manual (SOM) which lay down the accounting policies, procedures and processes, operation of the project financial management system and the reporting arrangements. 70. Based on the lessons from implementation experience of RRP I and understanding of the strengths and weaknesses and the risk profile, the fiduciary framework for Component A (Program Support to PMGSY), has been defined on the following broad principles: (a) For each participating state, expenditures reported from the Receipts and Payments (R&P) module of OMMAS will only be considered as "eligible" for financing under PMGSY Rural Roads Project. 17 Data entry in R&P module of OMMAS completed up to last calendar quarter will be considered as the mandatory minimum entry level requirement for each state; (b) PMCs will provide financial management support to states to meet this requirement; (c) Independent verification processes through performance audits will be established to verify and validate the achievement of DLIs and (d) NRRDA/MoRD's own oversight and monitoring mechanisms for PMGSY which includes the OMMAS, internal and external audit arrangements etc.. For Component B (Institutional Strengthening Component), a more traditional approach with respect to financial management arrangements, wherein identified expenditures at both state/s and NRRDA will be financed against semi-annual interim financial reports. D. Procurement 71. Procurement for the project will be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD loans and IDA credits" dated May 2004, revised October 2006, revised May 2010 and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers, May 2004, revised October 2006, revised May 2010 (Consultant Guidelines)". All procurement of civil works under Component A will be carried out through National Competitive Bidding (NCB). The PMGSY procurement systems have evolved and strengthened since 2003. The procurement procedures under PMGSY have been extensively reviewed and suitable modifications will be reflected in the Procurement and Contract Management Manual (PCCM), Model Bidding Documents, and eProcurement System. Based on extensive discussions between Bank and NRRDA, a draft Model Bidding Document for Civil Works is in an advanced stage and is expected to be agreed upon by December 6, 2010.. The PMGSY is also drafting a Procurement and Contract Management Manual (PCMM) that describes in detail the agreed procurement procedures, processes and rules6. The PCMM will be rolled out initially to the participating states and subsequently for the rest of the PMGSY program. All procurement under the project will be through a standardized e-procurement system. Through this system, the current 2-envelope system has been modified and termed as bid in two parts, first one being the technical qualification part to determine eligibility and qualification of bidders, and the second one being technical-financial part of the bid to be opened in a timely fashion of those bidders qualified in the first part. The tender notice will mention date and time of on-line opening of the qualification and technical-financial parts of the bid for such bidders who qualify under Part 1 of the procurement process. . The date of opening of financial bids shall not be later than 15 working days from the date of opening of qualification part of the bids. The project will use e- Procurement (e-GP) system in all participating states. 72. The e-procurement system is already in use in five of the seven participating states Rajasthan, Uttar Pradesh, Himachal Pradesh, Uttarakhand, Meghalaya, Punjab and Jharkhand. The states of Uttarakhand and Meghalaya are also planning to implement the system and will undertake procurement only after a satisfactory e-procurement system is in place. The currently used e-procurement system has been reviewed and will beacceptable to the Bank subject to the implementation of an agreed set of enhancements to be reflected in the next periodic software update, by December 15, 2010. A detailed Action Plan which has been shared with NRRDA, is under implementation. The e-procurement system is expected to substantially enhance the 6 The PCMM will be finalized in agreement with the Bank by March 2011. 18 integrity and transparency of the proposed procurement process, after implementation of the Action Plan. Any subsequent system modification will be shared with the Bank for its review. 73. A procurement capacity assessment has also been undertaken in the seven participating states which show some variability in procurement performance. Some states perform well and others have still to strengthen their capacity. The overall procurement risk for the project has been rated as substantial. 74. These standardized arrangements have followed a long dialogue on the harmonization of procurement arrangements. The Bank support for the PMGSY Program started in 2004 with a Loan/Credit of US$400 million under RRPI. In that project procurement was conducted in accordance with the Bank Procurement Guidelines and used Bank procurement documentation. In those states which included Bank financing two separate procurement tracks existed that created confusion for both the implementation agencies and the construction industry. A review conducted by NRRDA concluded that the procurement procedures under the PMGSY own financed program compared favorably to those under World Bank. In order to meet the fast growing needs for the implementation of the extensive PMGSY Program and the fact that there is no country-wide procurement framework in place, the Bank, in agreement with the government, undertook a follow-up study of the procurement arrangements under the two procurement tracks in order to develop a common procurement approach. 75. The review highlighted that in the early stages of PMGSY Program implementation, irrespective of procedures used, the Program faced a number of challenges including a rapidly increasing size of the program but a limited construction industry capacity; outdated cost estimates which lacked detail and the flexibility to respond to fluctuating market forces; distortions to the bidding process caused by effective bid ceilings with respect to engineers estimate; poor systems for procurement particularly regarding the receipt and filing of bid documents; and consequently high levels of rebidding and extended periods of time for award of contracts. There were also a number of procedural issues, now resolved, that did not comply with the Bank guidelines including the practice of negotiating with the lowest priced bidder, the use of the two envelop system, and the practice of allowing bidders to quote a percentage rate of the overall cost estimate. That said the current PMGSY procurement procedures have evolved positively over time and responded effectively to the needs of the fast growing program. Based on the lessons learnt from RRP I, the on-going PMGSY program and the findings from the Bank's procurement report, a number of areas were highlighted which needed strengthening for agreement on a common procurement approach and which are being addressed through this project: Strengthening procurement system in the Rural Roads Subsector through introduction of a PCMM, harmonized Bidding Documents, E-Procurement system and enhanced Procurement Plans; Strengthening implementation capacity through training programs designed to improve procurement knowledge and the implementation of procurement procedures; Optimizing contract packaging based on updated cost estimates and construction industry situation; Enhancing competition through better information disclosure, contractor outreach programs, and better phasing of procurement cycles; and 19 Ensuring transparency of procurement process through a neutral dispute resolution system, establishing a formal complaint mechanism, and an independent technical and quality monitoring/review system. As a measure to enhance the competitive environment the qualification criteria has been reviewed and modified appropriately to strike a balance between risk and competition. For states having less developed construction sector capacity a more relaxed qualification criteria has been agreed that will be reviewed on an annual basis. E. Social 76. Social impacts. The project is expected to have positive social impacts in terms of improving access of communities living along the road corridors to social services and economic opportunities through provision and maintenance of all-season roads. However, the project also entails some potential adverse social impacts such as the loss of land, heavier traffic and increased speeds, which is to be minimized or mitigated in a structured and transparent manner. The expected social outcomes of the project are decreased vulnerability from: (i) strengthened social capital from enhanced habitation connectivity; (ii) increased access to employment, education and other social services; and (iii) improved road safety. 77. Construction of rural roads is proposed along the existing tracks in general, and restricted to the width as available in the Revenue Records. However, where available width is too small, additional land may be required for construction of the road, potentially triggering OP 4.12. In such cases the most common outcome is the loss of small strips of agricultural land and in some cases losses of entire or substantial parts of land holdings and even structures. Land acquisition is not financed under the PMGSY Program but provided for by the states through voluntary donations, a system that was followed under the RRP I as well. But in this PMGSY Rural Roads project, Punjab and Uttarakhand, the newly participating states, have instituted land purchase, thus expanding the land transfer modalities beyond voluntary donation. The land donation experience during RRP I has shown that the agreed procedures are not always fully followed or documented. 78. Management of Social Issues and Risks. To improve the overall safeguard management and ensure compliance with OP 4.12 and OP 4.10, exclusive operational documents ­ the SMF and the VF - have been prepared for the PMGSY Rural Roads Project, supplementing the Environment and Social Management Framework (ESMF) - adopted under RRPI. The SMF clarifies the gaps relating to land donation and provides guidelines for land transfer by purchase or donation and in the case where involuntary resettlement is required to avoid harm to the project affected populations (PAPs). Additionally, a VF has been developed to address vulnerability resulting from social identity, notably gender, scheduled caste and scheduled tribe. The goal of the VF is to support compliance with OP 4.10 and help promote equitable distribution of project benefits among the Scheduled Tribes and Scheduled Caste populations. Where Scheduled Tribes represent over ten percent of a participating village, the VF will require holding a free, prior and informed consultation with Schedule Tribes to seek their broad support for the project as required by OP 4.10. 20 79. In an effort to mainstream these principles into the PMGSY program the existing Operations Manual is being updated accordingly. While implementation of the original ESMF under RRP I has provided reasonable experience to NRRDA and to some of the selected states, annual reviews of the functioning of the SMF and VF within the PMGSY Program will improve understanding of their efficacy in supporting compliance with OP 4.12 and OP 4.10 respectively, and enable modification where necessary. 80. Stakeholder Participation. Stakeholder participation is central to design and implementation. Participation has been incorporated in planning road alignments, mainly through transect walks and systematic consultations, while citizen monitoring and community contracts for road maintenance will give beneficiaries a place in sub-project implementation stage. Participatory monitoring through Citizen Monitoring and Social Audits, local committees using pro-forma checklist, and grievance redress mechanisms, on the other hand, will help strengthen the quality of construction and improve outcomes. F. Environment 81. Key Environmental Impacts. The cumulative direct, indirect and induced adverse impacts resulting from the development of rural roads network through a program of the scale of PMGSY can cause significant damage to environment, if not addressed appropriately. Deficiencies in planning and design of sub-projects can affect natural drainage pattern while inadequate slope stabilization provisions and improper disposal of construction wastes (including earth cuts) in hilly terrain can cause landslips/slides, soil erosion, siltation of water bodies and degradation of scenic value. The stability of cut slopes for new and/or widened roads and the disposal of debris/spoils are key concerns in hilly states like Himachal Pradesh, Uttarakhand and Meghalaya. New connectivity by providing roads in remote locations also has a potential to affect critical natural habitats such as protected areas, wildlife corridors, wetlands and forests. States like Himachal Pradesh, Jharkhand, Meghalaya and Uttarakhand have a significant percentage of their geographical area under forest cover and therefore need more robust planning and design of sub-projects to avoid, minimize and manage adverse environmental impacts. 82. Environment Management. An ESMF has been developed for avoiding, minimizing and mitigating the potential identified environmental issues. Using the findings from the diagnostic review on environmental and social aspects conducted by the Bank's task team as part of the project preparation and the experience gained from the on-going World Bank funded RRPI, the ESMF of RRPI has been modified/updated for use in this project. An Environmental Codes of Practice (ECoPs), covering 20 codes has also been prepared to serve as a systematic guide on policies, procedures and provisions, which are being/will be integrated into the sub-project cycle to ensure that environmental aspects are systematically identified and addressed at the sub- project level. The integration of ESMF/ECoPs into the project's operational cycle will help in achieving compliance with the Bank's Safeguard Policies and regulatory requirements of GoI/States. These instruments seek to standardize the environment management approach across a large number but similar kind of small scale rural road development works spread across a wide geographical area. 21 83. However, critical environmental issues such as adverse impacts on natural habitats, which may result on account of improper selection, planning/design and construction activities, will be avoided and/or appropriately mitigated (as the case may be) by using results from the Environment Screening Exercise. Screening will be done to determine the likelihood of any possible direct impact/s on natural habitats in the context of possible selection/design/ construction of a sub-project in such area/s. The core rural road network would be screened not only for the officially demarcated protected areas (such as National Parks and Sanctuaries), but also for areas outside these boundaries that are considered critical for certain species of fauna (tigers and elephants, for instance). This will provide an early warning, using which appropriate decisions can be made early-on in the sub-project development cycle. In such cases, which are likely to be very few (about 1 to 2 percent of the total number of sub-projects), specific guidance on selection, design, mitigation and/or management measures (as applicable in the context of a sub-project) will be provided under the project. These critical areas have been studied and mapped by the Wildlife Institute of India (WII) and maps are particularly well developed for the 17 tiger range states, which include states such as Uttarakhand, Uttar Pradesh, Rajasthan and Meghalaya included in this project. The NRRDA and the participating SRRDAs will undertake this exercise in collaboration with the WII/MoEF. 84. Mainstreaming Environment Management in PMGSY. For mainstreaming and enhancing the environmental management dimension in PMGSY, with an aim to improve program delivery in terms of time, cost and quality, some key initiatives will be undertaken and supported under the project. These include: (a) integration of environmental aspects in the Operations Manual of PMGSY; (b) strengthening of DPR Template to mainstream environmental features/issues as part of the planning and engineering/design process; (c) mainstreaming environmental dimensions in the Book of Technical Specifications for Rural Roads; (d) integration of environment, health and safety requirements in the Model Bidding Document to strengthen compliance during the construction stage; and (e) TA and training support on the management of key environmental issues in the rural roads development program. Once the technical standards and manuals have been drafted, extensive national level feedback from all concerned key stakeholders will be obtained prior to their finalization. Till such time that the environment and social provisions are properly integrated in the technical documents and appropriately rolled-out, the ESMF/ECoPs will be put to use in their current form. 22 Annex 1: Results Framework and Monitoring INDIA: PMGSY RURAL ROADS PROJECT Results Framework Project Development Objective (PDO): The project development objective is to support the strengthening of the systems and processes of the national PMGSY rural roads program for the expansion and maintenance of all-season rural access roads, resulting in enhanced road connectivity to economic opportunities and social services for beneficiary communities in the participating states. PDO Level Unit of Baseline Cumulative Target Values** Frequen- Data Responsi- Description Results Measure cy Source/ bility for (indicator FY12 FY13 FY14 FY15 Core Indicators* Methodo- Data definition logy Collection etc.) Indicator One: The proportion 67% of rural Every two GIS analysis NRRDA Baseline Share of Rural of rural population years and Global represents best Population population in in gridded estimate. with Access to the project area, participating population Improved an All Season living within states have database measures will 70% 72% Road7 two kilometers all season be available of an all season access once rural road. road networks are better mapped. Indicator Two: The percentage Three states8 Every SRRDA SRRDA Objective to Condition of of roads in the have a road year once reports have core PMGSY network at a management systems rural roads On roads. pre-specified system. In have been network under average On average PCI level (PCI these states, put in active 50% of 55% of >2) between place for maintenance network network 12% and accurate with the with with PCI>2 80% of the measurem majority of the PCI>2 roads have ent network in PCI levels > good or fair 2. condition Indicator Percentage To be Socio- Consultant Surveys will Three: reduction in determined economic reports be undertaken Percentage travel time by before surveys during reduction in beneficiaries to construction implementatio travel time by the closest starts. n to determine beneficiaries. agricultural reductions in market and travel time. district hospital 8 Rajasthan, Himachal Pradesh and Uttar Pradesh have road management systems that are basically functioning although in need of updating. 23 Disbursement Linked Indicators Results Unit of Baseline Target Values** Protocol Indicators* Measure FY 11 FY 12 FY 13 FY14 YR 15 DLI-1: Number of Habitation connected is Extent of habitations Cumulative: defined as a habitation habitation connected: 26300 (60%) connected by a road connectivity constructed to all-weather achieved. Annual: 1300 1800 4200 4100 1800 standards, including bridges and necessary cross drainage Cumulative: 27600 (64%) 29400 (68%) 33600 (77%) 37700 (87%) 39500 (91%) works. Habitation is considered connected when (i) physical completion certificate for the road is signed by SRRDA and (ii) photographs of the key features of the road (especially start/end points) are entered in the OMMAS. In meeting these targets the length of road built will also be monitored. DLI-2: 1. Improved The planning NRRDA issues NRRDA issues Any four States NRRDA/ At least 80% of NRRDA's improved Effectiveness of planning process largely revised a revised base planning MoRD issues all works planning systems--, public procedures focuses on program wide program wide decisions on a revised book of completely fulfill including a revised DPR expenditures successfully engineering and guidance on Operational web-based GIS specifications the revised DPR template, OM, GIS based ensured through introduced and does not DPR Manual (OM) utilizing (i) for rural roads checklist planning, and revised cost-effective implemented adequately preparation through a current ("the red requirements, in technical specifications-- for and socially and address through a formal attribute data in book") based all participating adoption and use by the environmentally economic, social formal PMGSY OMMAS and on (i) national/ States. states. The revised DPR responsible and PMGSY circular per (ii) agreed international contains a checklist elements planning and environmental circular per agreed format. spatial data sets best practice required to improve overall implementation concerns. agreed DPR in the GIS and (ii) results planning especially in the of PMGSY format. database, from field areas of engineering designs, including an trials. safety audits, cost inventory of all estimation, least cost life- road classes cycle analysis, and social and sensitive and environment analysis natural habitats. Boxes that are shaded in grey relate to activities that will support program wide systems improvements as well as systems in the participating states. Some of these activities relate to the revision of key guidelines such as the OM and PCMM that are also a requirement for the start of the Bank supported project. Where these activities appear in later years it is to give NRRDA sufficient time to fully consult all states and other stakeholder on the contents of these guidelines. 24 Results Unit of Baseline Target Values** Protocol Indicators* Measure FY 11 FY 12 FY 13 FY14 YR 15 2. Improved Outcomes from NRRDA issues States 70% of 80% of 90% of contracts The program aims to capacity to procurement a program wide implement contracts in contracts in in each strengthen state-level implement vary but Procurement contractor each each participating procurement systems effective typically and Contract outreach participating participating State should have through introduction of e- procurement competition is Management programs, State should State should been awarded, procurement, a procurement limited, time to Manual which will have been have been within 45 days and contract management contract award through a include, inter awarded, awarded, (excluding the manual, contractor outreach is long and formal alia, bidder within 45 days within 45 days cases where no and capacity building of rebidding PMGSY conferences, (excluding the (excluding the bids are received implementing agencies. It is frequent circular and contractor cases where no cases where no or all bids are expected that these provides training, and bids are bids are non-responsive) initiatives will increase training in its formalization received or all received or all from bid participation in tendering, use to all of complaint bids are non- bids are non- submission, in increase transparency, reduce Participating handling and responsive) responsive) compliance with time to award contracts and States. resolution from bid from bid bidding reduce the amount of mechanisms submission, in submission, in documents and in rebidding. compliance compliance line with with bidding with bidding procedures set documents and documents and out in PCMM. in line with in line with procedures set procedures set out in PCMM. out in PCMM. 3. Improved The 3 tier quality Participating Participating Any three 90% of all 95% of all works Implementation of the Quality of Built control system States publicly States appoint participating works rated as rated as activities planned for the first Infrastructure not fully disclose SQM dedicated and States satisfactory by satisfactory by three years are expected to implemented in summary fully functional functional NQM NQM contribute to improvement of all states with the reports with PMGSY chief Citizen overall quality of works. The percentage of photos on Technical monitoring program will implement completed works PMGSY web Officer/ State programs in stronger quality control rated as site Quality place on a pilot guidelines and better enforce satisfactory Coordinator basis the current 3 tier quality ranging from and fully control system. 63% to 99% implement 1st and 2nd tier quality control system 25 Results Unit of Baseline Target Values** Protocol Indicators* Measure FY 11 FY 12 FY 13 FY14 YR 15 4. Effective use Comprehensive Review of NRRDA issues Participating Participating Participating The program is improving of OMMAS as OMMAS in OMMAS is formats of States generate States generate States generate the reliability and timeliness MIS for place but data completed by management OMMAS OMMAS OMMAS of information in OMMAS decision has gaps and is May 2011 reports at management management management to support effective decision making outdated. report is issued national, state reports in the reports in the reports in the making, public information Outputs are not and follow-up and district agreed output agreed output agreed output and monitoring of program readily useable actions on level through a formats based formats based formats based on outcomes. Each state would particularly at recommendatio formal circular. on at most one on at most one at most one produce periodic progress district level. ns State/district month old data. month old data. month old data. reports covering main implemented level format are performance areas including by each formally safeguard monitoring for participating adopted by the compliance and State. states. disaggregated data on vulnerability and gender. DLI-3: Effective Percentage of Level of Participating Participating Participating As identified in As identified in The project will help execution of improved maintained States States to have a States have the maintenance the maintenance establish management maintenance PMGSY network varies implement the current road provided management management systems to ensure that FC works network under from 0% to tracking condition adequate funds system of all the system of all the funds are well spent and active routine 100% mechanism inventory in for participating participating accounted for and that the and periodic established by place and has maintenance in states: a) 60% of states: a) 75% of PMGSY circular on maintenance NRRDA to issued a road their budgets in the maintainable the maintainable maintenance funding is contracts monitor receipt maintenance line with core rural roads core rural roads implemented. The project and policy, circular issued network is network is under will support a gradual expenditure of including by MoRD. under formal formal routine increase in the level of active FC detailed routine maintenance routine and periodic maintenance guidelines for maintenance arrangement; maintenance of the rural grants maintenance arrangement; and roads network. management. and b) 70% of the In meeting these targets the b) 60% of the identified length of road maintained identified network for will also be monitored. network for periodic periodic maintenance maintenance under signed under signed contract. contract. 26 Annex 2: Detailed Project Description INDIA: PMGSY RURAL ROADS PROJECT 1. The proposed project is a US$1.5 billion Specific Investment Credit/Loan that uses a programmatic approach to support implementation of the PMGSY program over a five-year period in participating states. The participating states are Jharkhand, Himachal Pradesh, Rajasthan, Meghalaya, Uttarakhand, Uttar Pradesh and Punjab. 2. The project is structured around two components: (i) Component A ­ PMGSY program financing (US$1,440 million) contributes to the finance of civil works expenditures in the seven participating states associated with providing new all-weather access to unconnected habitations and upgrading key through and important link routes in rural areas. The project will strengthen implementation efficiency and the sustainability of program roads through improved maintenance; and (ii) Component B ­ Institutional strengthening (US$60 million) supports a technical assistance program designed to strengthen the capacity of relevant agencies to implement the program. As such the project has two priority objectives: (i) Enhancing operations of the PMGSY to provide more cost effective, efficient and transparent delivery of infrastructure. (ii) Sustainable preservation of infrastructure assets through improved policies, institutions, systems and implementation mechanisms. 3. The project will aim to enhance the effectiveness of the PMGSY program through improvements in its overall policy-framework and systems. The project will use a results based methodology to keep the client and the Bank engaged around an agreed set of results rather than the individual transactions leading to those results. As such, there is a movement from input monitoring to output performance monitoring. 4. The agreed results under the program have been formulated as a series of Disbursement Linked Indicators (DLIs) which will be the basis for disbursement of funds during the project life. Performance against these indicators will determine the extent to which disbursements will be made at the end of each time period. In other words, the disbursements are performance linked. There are three key dimensions to the proposed instrument: The project will reimburse eligible civil works expenses associated with PMGSY program in participating states; These reimbursements will be made semi annually based on achievement of a set of three disbursement-linked indicators (DLIs) that have been determined in partnership with NRRDA and participating states; The project also has a substantial TA component designed to complement achievement of the DLI matrix that will disburse against presentation of interim financial reports. 27 Component A: Program support to PMGSY (US$1,440 million) 5. Component A of the project will support the effective implementation of the PMGSY program in the participating states. The project will support the provision of all-weather access to PMGSY eligible habitations in the participating states. Over the five-year project period it is estimated that 8,200 habitations will be connected through the construction of 24,200 km of new all weather access and upgrading of rural through and link routes. The roads will be predominantly built using a bitumen surface and will include all necessary bridges and cross drainage works to maintain year round connectivity. The project will reimburse eligible expenditures up to US$1,440 million in the participating states. Table 2.1 provides the detail of the eligible expenditure program (EEP) in each of the states. Against these EEP the project will disburse funds according to the achievement of three results areas or DLIs. Two will be associated with enhancing the operations of PMGSY and one with the sustainable preservation of assets. 6. Increasing the extent of habitation connectivity (DLI-1): The participating states have currently connected 60 percent of their PMGSY eligible habitations but there is a range in performance from 97 percent connectivity in Punjab to 19 percent connectivity in Uttarakhand. The project will give particular attention to those states that are lagging in their connectivity targets which are predominantly the small, highland special category states. The target for the end of the project is to have an average of 91 percent connectivity in the participating states. 7. Increasing the effectiveness of public expenditures (DLI-2): Given the size of public expenditure on PMGSY it is important that resources used for rural connectivity are used efficiently, cost effectively and giving due attention to social and environmental issues. It is also important that program funds can be fully accounted for and program outcomes measured. The program is continuously evolving in this regard but there are four areas which will provide a particular focus for this project: Improved planning to ensure that outcomes are maximized with the optimum use of resources while minimizing social and environmental impact; Enhancing procurement efficiency to maximize value for money through a fair and transparent process; Strengthening quality control systems through effective supervision of works and third party monitoring of program outcomes; and Improved use of OMMAS as a Management Information System to support decision making at the district, state and national levels of the program. 28 Table 2.1: Status of PMGSY connectivity and review of project Eligible Expenditure Programs (EEPs) Low income large states Low income small upland states Middle (lagging states) (Special category states) Income Rajasthan Uttar Jharkhand Uttara- Himachal Meghalaya Punjab Participating Total Pradesh khand Pradesh states total country Progress to date PMGSY habitations connected 10398 10986 2068 474 1813 139 406 26284 70380 PMGSY total eligible 14350 13973 7770 2439 3751 756 433 43472 136464 Percent of total connected 72% 79% 27% 19% 48% 18% 94% 60% 52% Total length constructed (Km) 46659 38490 5367 2977 8937 881 4273 107584 274400 Expenditure (US$ m) 1613 1981 325 153 321 36 292 4721 14587 On-going works Habitations to be connected 452 157 3207 417 569 50 12 4864 Length to be built (Km) 4214 3052 6079 1731 3229 219 225 18749 Expected expenditure (US$ m) 368 254 339 118 216 34 56 1386 First phase EEPs Habitations to be connected 883 597 889 125 311 83 0 2888 Total length to be built (Km) 2794 937 1663 981 1034 262 499 8170 1st Phase EEP (US$ m) 143 78 90 76 82 38 52 559 Future phase EEPs Habitations to be connected 1851 933 1320 331 508 432 5375 Total length to be built (Km) 5857 1464 2470 2597 1690 1363 563 16004 Future phase EEP (US$ m) 300 122 133 200 133 200 59 1148 Total project EEPs Total Habitations connected 2734 1530 2209 456 819 515 0 8263 Target Habitations connected (%) 95% 91% 96% 55% 85% 93% 97% 91% Total length to be built (Km) 8651 2401 4133 3578 2724 1625 1062 24174 All phases EEP (US$ m) 443 200 223 276 215 238 111 1706 29 8. Improved planning of rural road sub-projects: Detailed Project Reports (DPR) are prepared for every sub-project in the states work program. The DPRs should cover all aspects of the planning process including the detailed road designs, planning criteria, road safety, consultation process with communities and the likely social and environmental impacts along with their mitigation measures. The DPRs to date have focused more on the engineering aspects of the project and less emphasis has been given to other planning criteria. The PMGSY program is revising the DPR template with support from the Asian Development Bank (ADB) designed to give better structure to the planning process. The project will support the roll out of the new DPR template and provide the necessary technical assistance for its effective application. The expected results will be that improved planning procedures have been successfully introduced and implemented leading eventually to higher quality DPRs and compliance with agreed planning procedures. 9. The project will also support with the preparation of new Operations Manual that will guide the planning process, extended use of geographic information systems (GIS) planning tools including for environmental screening and revision to the existing engineering design standards. The latter will support the adoption of more cost effective technologies and try to mainstream "green infrastructure" techniques in road design. Attention is being given to the use of local (marginal) materials, alternative surfacing options and engineering solutions for hilly terrain. 10. Improving the effectiveness of the procurement process: The procurement process under the program has developed over time and served the program well in responding to a rapidly growing program. However, the growth in the program has not been matched by the supply of contractors in some states or by the capacity to procure in a timely and efficient manner. The result in some states has been limited competition, significant amounts of rebidding and extended periods to award contracts. Effective procurement practices are required to ensure competition is fair and procurement leads to value for money. The project will support with: (i) program wide introduction of a Procurement and Contract Management Manual (PCMM); (ii) roll out of e-procurement to all participating states; (iii) improved training of PIU staff in contract management; and (iv) the implementation of contractor outreach programs to encourage informed participation in PMGSY. Results in improved capacity to undertake procurement activities will be evidenced through a reduction in the time taken from receipt of bids to final contract award. 11. Improved quality of built infrastructure: The program has a three tier quality management system including national, state and project level quality monitors. The project will help to strengthen these functions and also seek a gradual improvement in the overall quality of the built infrastructure as reported by these agencies. Through improved planning, contract management and quality control it is expected that quality of roads will gradually improve. To strengthen the quality function, the states will appoint a PMGSY chief technical officer and fully implement their project (1st tier) and state (2nd tier) quality control functions. The project will also support the programs attempts for greater stakeholder involvement in quality control. This will include disclosure of state quality monitors summary reports with photos on the internet and the piloting of citizens monitoring. Quality of roads is reported each year in the PMGSY annual report, by the end of the project the target is for 95 percent of roads in each state to be in satisfactory condition. 30 12. Effective use of OMMAS as MIS for decision making: The Online monitoring and management system (OMMAS) is a robust data management system designed for the PMGSY. The OMMAS already contains a number of management reporting formats but delays in the input of data and inaccuracies in certain reporting fields has reduced the utility of OMMAS to inform decision making on the program. The project will help in the development of key management reports at the National (NRRDA), State (SRRDA) and PIU level including safeguard compliance and disaggregated data on vulnerability and gender sensitive inclusion. It will also support in state level training of the system to facilitate more timely and accurate data input, which should include that from citizen based monitoring systems. The project will also support a program of outcomes monitoring to better understand the impacts of the investments on rural people. Results will be evidenced through the availability of management reports generated by OMMAS and that data input should be with at most one month lag. 13. Technical assistance support: The results areas outlined above will be supported by the following technical assistance activities financed under Component B of the project: State level project management consultants Training for skills development Program performance audits Implementation support for roll out of citizens monitoring and grievance redress Consultants to prepare project manuals and other documentation Research and development work leading to improved planning tools including GIS systems and technical design standards Support with enhancement to OMMAS 14. Effective execution of Maintenance works (DLI-3): The PMGSY program started construction activities almost nine years ago, there are approximately 100,000 km of road that have finished their five year maintenance contracts and the first roads are now due for periodic maintenance activities. The Government is becoming increasingly concerned over the long term maintenance of these assets and the Thirteenth Finance Commission has provided central grant funds to remove some of the backlog periodic maintenance in return for increased state level funding of routine maintenance. However, to effectively utilize these funds there is a requirement for an overarching strategy for delivery of maintenance activities and to more closely monitor the use of funds allocated for maintenance activities. The existing five year maintenance contracts within the PMGSY program also need to work more effectively. 15. The FC will provide grants-in-aid for roads maintenance to the extent of 50 percent of the requirement assessed for non-PMGSY roads on the core rural roads network and 90 percent of the requirement assessed for PMGSY roads for four years starting 2011-12. The total amount of grants works out to US$4.4 billion as set out in Table 2.2. Much of these funds will be used for backlog periodic maintenance and long term routine maintenance activities. To complement this, the PMGSY program has recently issued a circular which links the future sanctioning of new road links to the adequate provision of state maintenance funds for the first five years of routine maintenance activities. A key result from the project will be to establish a sound management system and effective implementation arrangements which ensures that these funds are utilized in an efficient and timely manner. Part of this will be to establish a system for tracking maintenance budgets and expenditure to ensure that funds are being used for the intended purpose. 31 Table 2.2: Grants-in-aid for maintenance of Roads and bridges on the Core Rural Roads Network (US$ million) No State 2011-12 2012-13 2013-14 2014-15 Total 2011-15 1 Himachal Pradesh 20 23 26 29 97 2 Jharkhand 17 18 19 21 74 3 Meghalaya 5 5 6 6 22 4 Rajasthan 67 78 91 99 335 5 Uttar Pradesh 140 150 163 177 629 6 Uttarakhand 16 17 19 21 73 7 Punjab 29 31 34 36 130 Total all states 969 1,051 1,150 1,259 4,430 16. A lack of reliable data on the network and actual costs of maintenance makes an accurate assessment of funding requirements and appropriate road maintenance planning difficult. One of the first priorities is to collect road inventory and road condition data for the core network of rural roads. The data collected need only be very simple but this can form the basis for developing priorities. Some States already have simple Maintenance Management Systems (MMS) but the project will help those who do not to develop systems. At the same time, it is important to establish reliable maintenance cost norms taking into consideration all factors which influence costs of maintenance works. On this basis, it is expected that all States will be able to produce maintenance plans that set out budgets and maintenance tasks by road. These plans should be disclosed to provide community oversight over the effective use of maintenance funds. 17. Historically much of the maintenance works have been executed by force account units or departments within PWD using gang labor to undertake basic maintenance activities. Inefficiencies in their operations have meant that the force account units are now in the process of being disbanded but alternative arrangements have not been fully implemented. There is now a growing need to formalize mechanisms for the execution of maintenance activities and it is likely to require, particularly in the short term, a partnership between state level PWDs, the PRIs and rural communities. The project will seek to pilot a range of options including strengthening PWD/PRI departments, private maintenance contracts including performance based/area wide contracts, formalizing contracts with local communities, forming micro-enterprises and developing links with the National Rural Employment Guarantee Scheme (NREGS). The force account units still account for a significant portion of some State maintenance budgets. While they continue to exist, it is important that this resource is effectively utilized. The systems and procedures introduced for maintenance by community involvement can to a large extent also be applied to the force account units. Results in this area will be evidenced through the percentage of the PMGSY network under active routine and periodic maintenance activities. 18. The project will support improved execution of maintenance activities in four main areas: Financing framework ­ ensuring sufficient finance for maintenance both from Federal grants to States and increased State level finance Policy and institutional framework ­ developing an overarching strategy for the management of rural roads, strengthening the institutions responsible for execution of that strategy and introducing community involvement. 32 Maintenance management systems ­ ensuring the availability of basic network data, availability of systems to prioritize maintenance expenditures and the ability to create and disclose maintenance plans Execution of maintenance works ­ developing mechanisms for the implementation of works including the use of community labor, micro enterprises, private contracting, performance/area wide maintenance contracts and strengthening existing public sector execution ­ in a manner that adequately includes vulnerable groups. 19. Technical assistance support: The results areas outlined above will be supported by the following technical assistance activities supported through component B of the project: Partnership with ILO to promote good maintenance practise, prepare maintenance manuals and standard contract documents, institutional strengthening of PRIs. Studies including for maintenance expenditure tracking, maintenance policy State level maintenance support contracts to including road condition and inventory surveys Training for skills development Component B: Institutional Strengthening (US$60 million) 20. The project will have a substantial Technical Assistance (TA) component designed to support the institutional strengthening (sub-components B1 and B2), organizational effectiveness (sub-components B3 and B4) and individual skills development (sub- component B5) to complement achievement of the DLI matrix and the program outcomes defined above. The detail of the individual consultancy assignments is included in Table 2.3. 21. The Technical Assistance component will be implemented by NRRDA and the participating states. It will be demand driven to meet the needs of training, the enhancement of the requisite systems and procedures, the development of manuals and guidelines, equipment support, pilot projects, study tours, seminars and workshops and additional support required by the NRRDA and the participating states. These strategic objectives will be addressed through five sub-components: 22. Sub Component B1: Research and development (US$11.9 million) - This sub- component is designed to strengthen the central role of NRRDA in providing standards, guidance and systems to support states effectively implement their transport plans and meet their results agenda. Much of the work will focus on further developing existing national guidance and standards and then providing the necessary materials and training support to disseminate the information. The TA will be managed by NRRDA but working groups with relevant experts will be formed to address specific technical issues and recommend options. The objective will be to bring in best practice both from within India and Internationally. The following are the main areas indentified: 23. Sub-component B1(i) Maintenance management (US$5.8 million) ­ will finance a partnership with ILO to develop simple maintenance management systems; standard maintenance contracts including performance based and community based; demonstration of these methods; improved maintenance manuals with clearly formulated policies and strategies. This sub-component will have a significant emphasis on demonstration works with training of local trainers to roll out the introduced system in the participating states. In 33 addition, the ILO assistance will provide a senior maintenance adviser who will work with NRRDA on policy issues and coordination of the various maintenance related technical assistance components. 24. Sub-component B1(ii) Cost effective road design (US$2.0 million) ­ in partnership with IRC and other institutions will finance research and trials for alternative technologies including cost effective surfacing and pavement options, appropriate hill road designs, green infrastructure techniques and improved guidelines on road safety. The results will be reflected through revisions of existing technical manuals and guidelines for rural roads. In addition support will be provided to improve layout and presentation of these manuals as well as preparing relating training material, videos and e-learning modules. 25. Sub-component B1(iii) Support to development of OMMAS and GIS (US$3.0 million) ­ will provide consultancy support in a variety of areas including improvements to the On- Line Management and Monitoring System (OMMAS), establishing computerized databases for core rural road network through development of web-based Geographical Information Systems (GIS) linked to road condition inventories; development of social and environmental screening using GIS; and improved socio-economic prioritization of road construction works. Similar to the OMMAS module reporting on the road construction works, this component will also support the development of an on-line reporting module on rural road maintenance works thereby establishing a comprehensive planning, management and reporting system covering both construction and maintenance works. 26. Sub-component B1(iv) Support for key program studies and preparation of Guidelines (US$1.2 million) ­ will provide consultancy support to undertake key studies including on agricultural supply chain management, provision of transport services and updates and dissemination of key program documents such as the Operations Manual and Procurement and Contract Management Manual. 27. Sub Component B2: Independent means of verification (US$6.7 million) - This component will finance consultant services to provide independent verification of results under the program and would support the role out of performance audits on all aspects of project implementation and citizens' scorecards. 28. Sub-component B2(i) Performance audits (US$4.0 million) - Services to undertake integrated post review of implementation performance under PMGSY including status in achieving project DLIs and the fiduciary, safeguards and technical aspects of project implementation. The reviews will provide independent verification of state performance, increase fiduciary and safeguard oversight but also provide useful lesson learning opportunities. The performance audits will be undertaken every six months. 29. Sub-component B2(ii) Citizen monitoring and grievance redress (US$0.5 million) - The project will support citizen monitoring of roads construction and post-construction audits, by a combination of trained cadres supervised by an independent NGO (Public Affairs Center) and local committees using pro-forma checklists, complemented by a grievance redress mechanism. This will be conducted on a sample of PMGSY roads. Subsequently the citizen monitoring program will be rolled-out to 100 districts under the Program. In addition to the above, this component will also support redress of grievances related to land transfer/land acquisition. It is proposed that a local facilitator who is resident of the Districts 34 will be hired and remunerated by the independent NGO who will support the grievant through the process. 30. Sub-component B2(iii) Independent FM audits (US$1.4 million) - Services to undertake independent financial audits in each of the participating states and NRRDA. 31. Sub-component B2(iv) Outcome monitoring (US$0.8 million) - Services to support an Indian research institute or university to undertake socio-economic impact assessments of the PMGSY rural roads program. 32. Sub Component B3: State Level Project Institutional Support (US$22.6 million) - This component will provide technical assistance teams in each of the participating states. These teams would work with the SRRDA in the enhancement of the existing systems and procedures and providing capacity support where required. In addition it would provide support at the SRRDA level, the PIU level and to contractors in introducing implementation procedures including for improved planning, procurement, contract management, and maintenance management. 33. Sub-component B3(i) Project Management Consultants (US$16.5 million) - There will be seven state level PMC consultancies tailored to the specific needs of the participating states. In the states where implementation progress has been slow the services will be focused on implementation support and capacity development. For the other states the services will be tailored more towards systems improvement and introduction of new and innovative approaches. The state level PMC will coordinate closely with NRRDA to ensure consistency and compliance in application of new procedures. The PMC will work with the SRRDA, its PIU's, PRI's where appropriate and contractors in supporting effective implementation of the program. This sub-component will also support project management consultants for NRRDA to facilitate the coordination of the various state level initiatives. 34. Sub-component B3(ii) Support for maintenance management (US$6.1 million) ­ Will provide consultancy support to states in developing maintenance management systems, conducting road inventories, executing maintenance systems, expenditure tracking surveys and maintenance policy formulation. 35. Sub Component B4: Equipment (US$7.8 million) - Equipment will be provided to support the NRRDA and the participating states to improve their infrastructure for surveys and investigations, quality assurance, project implementation, and training, computing capacity and to introduce new technologies. 36. Sub Component B5: Training for Skills Development (US$10.9 million) - This component will support the individual skills development of public and private sector staff supporting the rural roads sector including staff working for SRRDA, PWD, RES, PRI, consultants and contractors. Training programs will be developed based on needs assessments and annual training plans submitted by the States. The majority of training will be provided through state level training institutes and NITHE. The development of modern curriculum and course material for these institutes will be supported along with training for the trainers. Training by the state level training institutes will be complemented by inter-state and international knowledge transfer. 35 37. To be effective, institutional and capacity development support should be provided to States in a way that responds to demand as well as the training identified through the needs assessments. To achieve this, the states will be encouraged to identify their own training priorities which will be submitted to NRRDA as part of the annual planning cycle. The training is expected to cover four main areas: Training to institutionalize NRRDA systems ­ planning and budgeting techniques, design and construction standards, engineering best practise, M&E and maintenance management. Training on core business processes ­ procurement, financial management, environmental and social safeguards and management. Training to support the private sector ­ focus will be on contractors (e.g. business/contract management, technical skills and maintenance contracts) and consultants (e.g. feasibility studies, site supervision, quality control). Training to support community participation ­ to facilitate the participation of local communities in planning decisions, monitoring of works and participation in maintenance activities. 36 Table 2.3: Institutional Strengthening Plan Program Concerns/gaps Activities to be supported How implemented Project component Institutional Improved program systems, Preparation and/or revision of program manuals including Operational Manual (OM) and Short term individual B1 policies, standards and training procurement and contract management manual, studies on transport service provision contracts materials R&D activities leading to revision of technical design standards for better use of marginal Long term QCBS contract B1 materials, surfacing options, design of hill roads and inclusion of environmental best practice Consultant support to improve state training schools including curriculum development, Long term QCBS contract B5 pedagogy, and development of course material (written, audio-visual, case studies). Develop a training framework which would estimate Training needs amongst others. Improved mechanisms for Development of simple MMS, model maintenance contracts, preparation of maintenance Long term contract with B1 maintenance manuals, advice on policy and strategy, including for funding. Ownership related issues ILO including road act review and modifications. Promotion of contracting Development of policy and support strategies to promote the small scale contracting Long term contract with B1 industry industry ILO Improved means of verifying Consultant services for performance audits, Long term QCBS B2 program implementation citizen monitoring Contract with PAC B2 progress and outcomes Impact studies on program outcomes Local university B1 Audit of current OMMAS, development of standard reporting formats to support decision QCBS medium term B1 making, improved guidance to states on use of system contract Organizational Improved Fiduciary and Project Management Consultants (PMC) consultants at each state to provide implementation 7 state level QCBS B3 safeguards systems support and implement agreed program procedures. Project and contract management and contracts implementation quality control inputs in terms of tools and techniques to be provided to the SRRDA Project/contract management (Implementing Agency (IA)) Improved equipment for Goods and Services B4 communications, reporting Equipment, goods, software to effectively implement program at SRRDA level ­ computers, (G&S) contracts maintenance management, MMS, quality control equipment B4 training Equipment needed for state level training institutes G&S contracts Individual Individual skills development Training budgets at SRRDA level for demand driven training activities(using TNA) Training B5 Training budgets at NRRDA level for supply driven training and to support study tours, Training B5 inter-state knowledge exchange, international best practice Train the trainers Individual consultants B5 37 Annex 3: Implementation Arrangements INDIA: PMGSY RURAL ROADS PROJECT A. Project Administration Mechanisms 1. Overall Implementation Strategy. PMGSY has been under implementation for the last 10 years. It has a well defined implementation framework in its operational manual which is functional in all the participating states. The project will use the existing implementation arrangements used in PMGSY and will provide support where required to strengthen these arrangements. 2. The MoRD has overall responsibility for overseeing PMGSY implementation and will be the line Ministry responsible for this project. The NRRDA, a technical agency created under MoRD to monitor PMGSY progress and act as the central source of technical expertise will have overall responsibility for the implementation of the project through the respective State Rural Roads Development Agencies (SRRDAs), designated nodal departments and implementing agencies for the PMGSY in each participating state. The NRRDA has designated a Project Director who will be responsible for the overall coordination and implementation of the project. He will be supported by other Directors and staff of the NRRDA who will take charge of procurement, management of social and environmental aspects, technical standards, technical assistance, OMMAS, and implementation of GAAP. The financial management will be the responsibility of the Financial Controller of the NRRDA. 3. The day to day implementation of project activities will be undertaken in accordance with PMGSY guidelines that have been adopted by the states. In some situations these guidelines will be augmented by interim project specific manuals and the project will support in revision of manuals where necessary. Table 3.1 provides an overview of the main guidelines: Table 3.1: Program manuals covering implementation of project Purpose Agreed manuals for start of During project implementation implementation Overall program PMGSY Operational Manual Revision of OM will be DLI guidelines (OM) Social and ESMF will be a supplementary ESMF requirements merged into Environmental manual to OM revised OM Procurement Project PCMM and Model Program PCMM will be DLI Bidding Document (MBD) Financial PMGSY financial manuals - management Engineering design PMGSY technical design Revisions will be supported through manuals TA Monitoring and OMMAS system supported by Improved implementation supported Evaluation PMGSY manuals through TA 38 B. Implementation Arrangements by Project Components 4. Component A: Program support to PMGSY. This component will be implemented by NRRDA through their designated SRRDAs in the participating states. The Nodal departments and implementing agencies for the participating states is detailed in Table 3.2. The implementing agencies are responsible for planning, preparing, procuring and supervising the PMGSY works. The technical work is delegated to the PIUs. The works are awarded by competitive tender to private contractors. The SRRDAs will be responsible for procuring and managing consultants to undertake design and construction supervision and/or independent technical reviews, depending on the individual state. State Technical Agencies (STAs) are responsible for vetting project reports and monitoring the quality of works. Design consultants will be engaged to prepare engineering designs as required. Supervision consultants will be engaged to supervise the construction works in the participating states having inadequate in-house capacity. National and state quality monitors will undertake regular supervision of the quality of works. This will be complemented by quality monitoring of construction by trained Citizen Monitoring and Audit teams. A summary of the implementation arrangements is given in Table 3.3. Table 3.2: Implementing Agencies in the Participating States State Nodal Department for Implementing Agencies PIUs (no.) Districts SRRDA (no.) Jharkhand Rural Development Rural Works Department and 3 35 22 central agencies Himachal Public Works Public Works Department 54 12 Pradesh Department Rajasthan Public Works Public Works Department 33 32 Department Uttar Rural Development Public Works Department and 106 70 Pradesh Rural Engineering Services Uttarakhand Rural Development Public Works Department 14 13 Meghalaya Public Works Public Works Department 8 7 Department Punjab Public Works Public Works Department and 14 17 Department Mandi Boards 5. There is a wide variation in the capacity of the states and as such the project will finance Project Management Consultants (PMC) in each of the states to support high quality and timely implementation. The services of the PMC will be tailored to the needs of the states with light touch approach in the stronger states and a more intensive engagement in the weaker states. The PMC consultants will also focus on supporting the states meet their DLIs. The project will also finance consultants to support with development and/or implementation of the necessary systems and procedures to undertake effective maintenance activities. 39 Table 3.3: Summary of Implementation Arrangements under PMGSY National State District/Local Planning MoRD: Overall policy guidance and SRRDA: Scrutiny of core network, PIUs: Collection of core network data; approval of proposals from states coordination with districts Identification of project proposals NRRDA: Scrutiny of core network Empowered Committee: Approval of Local Governments and Communities: and project proposals from states project proposals Finalization and approval of project proposals Design NRRDA: Scrutiny of engineering SRRDA: Scrutiny of engineering PIUs: Preparation of engineering designs designs; Support to introduce designs and bid documents prepared by including ESMF documents new/improved design standards, PIUs: guidance to field staff in Local communities: finalization of Indian Roads Congress: Improved preparing ESMF documents alignment and design through community technical documents STAs: Scrutiny of Engineering Designs consultation Consultants: support to prepare engineering designs and their scrutiny Procurement and contract management NRRDA: Finalization of model SRRDA: training of field engineers in Preparation of bid documents, invitation bidding documents; preparation of procurement and contract management; and evaluation of bids, and award of procurement and contract guidance in resolving procurement and works, resolving contract management management manual contract management issues issues. Construction NRRDA: Monitoring of progress; SRRDA: Monitoring of progress and PIU: Implementation of construction coordination of the NQM inspections ensuring compliance to observations of program and construction supervision and monitoring compliance to their SQM observations SQMs: Regular Contractors: Implementation of contacts. observations quality inspections Local Governments and Communities: NQM: Regular quality inspections Senior Management: Regular Quality inspections and social audits; inspections of works to review quality support to resolve any construction and compliance to contract conditions related issues MLAs: Quality inspections Maintenance NRRDA: Monitoring of 5 yr Establishing maintenance policies, PIUs: Collection of data for MMS, maintenance under PMGSY development of MMS, introduce preparation of annual maintenance contracts; Tracking of FC grants for innovative maintenance contracting programs, supervise works and report rural road maintenance arrangements, improve supervision, outputs Support to states to implement work methods and reporting; Local communities involved in maintenance component Monitoring works consultants: assist implementation of routine maintenance establishing MMS and operationalize contracts innovative maintenance procedures Monitoring NRRDA: To further operationalize SRRDA: support to PIUs to establish PIUS: Maintaining the OMMAS data- OMMAS to use it to produce reliable data-base in OMMAS; produce base; producing annual road condition customize management reports customized management reports from and district performance reports, MoRD/NRRDA: Regular monitoring OMMAS, including achievement of Local Communities: Social audits by NRRDA including achievement DLIs of DLIs Project Management Consultants: Review of Program Implementation Social and Environmental Aspects NRRDA: Guidance to states in SRRDA: Review of safeguard PIUs: Preparation of ESMF documents; management of social and documents: Implementation of risk implementation of early warning system environmental issues mitigation framework for ESMF for environmentally sensitive locations; integration of ESMF during design and construction Financial Management NRRDA: To monitor R&P module SRRDA: Data entry in the OMMAS; PIUs: Data-entry in the OMMAS: of OMMAS; organize independent audits; submit maintaining FM documents; FM reviews: submit disbursement audit reports to Bank; ensure Bank claims reconciliation statements 40 6. To ensure independent verification of the outcomes from project implementation the project will also support various third party monitoring activities. The first element will be the piloting of citizen monitoring to give the opportunity for beneficiary communities to provide feedback to the project. As the project will be reimbursing already incurred expenditures, the project will only be able to confirm compliance with procedures on an ex-post basis. To support this ex-post review the project will appoint independent consultants to undertake a performance audit of a random ten percent of the works to ensure compliance with project requirements. For contracts where there is serious non-compliance, and in situations where the Bank would normally impose remedies, there is a possibility of cancellation of funds corresponding to the proportion of funds in non-compliance. 7. Component B: Institutional Strengthening. All activities under the institutional strengthening component of the project will be undertake in accordance with World Bank procurement guidelines and implemented either through the NRRDA or respective SRRDAs. The objective of this component is both to build the necessary capacity to undertake the project activities but to support system wide reform to PMGSY and the rural roads sector more broadly. 8. To support these objectives the program maintains close ties with various supporting institutions and as part of the technical assistance component of this project these partnerships will be strengthened further. NRRDA plans to use the National Institute for Training of Highway Engineers (NITHE) and other training institutions for coordination of state level training programs; the Indian Roads Congress (IRC) for revisions to rural roads standards and specifications and they have also set up a working group to prepare the procurement and contract management manual; the ILO for developing improved maintenance guidance and support to local government and communities for the management and execution of maintenance works and; the Public Affairs Centre for third party monitoring of project outcomes through citizen monitoring. Table 3.4 gives a summary of the implementation arrangements. Table 3.4: Implementation arrangements for Institutional Strengthening Component Institutional strengthening Implementing Agency Execution arrangements sub-component B1: Research and Development NRRDA IRC, ILO, consultant support B2: Independent means of NRRDA Public Affairs Centre, NGOs, verification consultant support B3: Project Management SRRDAs Consultant support Consultants B4: Equipment SRRDAs Equipment suppliers B5: Training NRRDA and SRRDAs NITHE, state training institutions C. Financial Management, Disbursements and Procurement 1. Financial Management 9. Fiduciary Framework for Component A: Program support to PMGSY. The implementation arrangements for Component A will follow a programmatic approach, wherein 41 World Bank funds will be used to reimburse the eligible expenditures of participating states at the State level. Consequently, the fiduciary arrangements for the project have been designed to seek fiduciary assurance from a combination of the following processes and will be applicable uniformly: For each participating state, expenditures reported from the Receipts and Payments (R&P) module of OMMAS will only be considered as `eligible' for financing under PMGSY Rural Roads Project. Data entry in R&P module of OMMAS completed up to last calendar quarter will be considered as the mandatory minimum entry level requirement for each state; Project Management Consultants engaged by each state will provide financial management support to states to meet this requirement; Independent verification processes through performance audits will be established to verify and validate the achievement of DLI indicators; and NRRDA/MoRD's own oversight and monitoring mechanisms for PMGSY which includes the OMMAS, internal and external audit arrangements etc. Other components of the project will invest in strengthening the GoI/NRRDAs oversight ability through (a) systems development support; (b) hands on support; (c) formal training; (d) support to enhance timeliness and quality of external audit; (e) exposure visits and (f) improve quality of internal audit function. 10. Fiduciary Framework for Component B ­ Institutional Strengthening Component. Under this component, NRRDA and various state implementing agencies will hire consultants and procure goods and other services, as necessary, to fulfil specific technical assistance, research, monitoring and other needs. This component will follow a more traditional approach with respect to financial management arrangements, wherein identified expenditures at both state/s and NRRDA will be financed against semi-annual interim financial reports. Description of Financial Management Arrangements 11. Implementing entity. NRRDA and MoRD play important roles in the implementation of PMGSY. While technical inputs for the scheme are provided by the NRRDA, budget allocations and funds flow are handled by MoRD. Financial management (FM) arrangements under the World Bank project are fully mainstreamed into the PMGSY's existing arrangements wherein the state level societies (SRRDAs) receive the project funds, incur project expenditures, account for them and provide financial reports to stakeholders. Each of the SRRDAs work through its district/division level PIUs established under the PMGSY scheme. These PIUs, though housed in PWD/RES, serve as branches of SRRDAs in implementing the program. They are fully accountable and responsible to SRRDAs for fund flows, accounting and financial reporting purposes. 12. Budget. The PMGSY Rural Roads Project will be budgeted on the expenditure side at the Union (center) level, as PMGSY works under an identifiable budget head item of the MoRD. It will be sufficiently detailed to capture the various types of works proposed under the centrally sponsored scheme. A budget item will also be established on the receipts side at the Union (center) for the World Bank Loan/Credit under the project. 42 13. Funds Flow. The standard fund flow arrangements established by MoRD for PMGSY and documented in the Accounts Manuals will also be applicable to the World Bank financed project. These procedures stipulate that the funds from the Center (MoRD) to SRRDAs at the state level will flow through commercial banking channels outside the treasury system of the concerned state government. Funds are typically released in two installments or more during a year; after the first tranche, utilization certificates (along with a certificate from the Bank manager) is required to be submitted by the state for releasing the subsequent tranches. 14. A state level autonomous agency (registered as societies) has been set up in each state that hold, account and report for the funds released under the program. Two separate bank accounts have been established at the state level ­ one for program works and the other for the administrative expenses at the state level. Fund flows between the SRRDA and its constituent PIUs do not entail physical transfer of funds and have been replaced with a flow of authorization (sanctions) to the various implementing units, copied in parallel to the bank. Cheque books are issued by the selected nodal bank to each PIU and the authorized signatories issue cheques to contractors under pre defined package wise limits. For control purposes, the nodal bank is also informed of the details in respect of payees and the amounts of the contracts (contractors). As per the requirements of the Tripartite agreement signed between NRRDA, SRRDA and the selected nodal bank, the bank provides facilities of at par clearance of all cheques, deposit of funds at all branches, furnish bank statements (authorization/PIU wise) etc. 15. Staffing. The MoRD provides suitable staff to ensure the budgetary provisions and smooth and timely flow of funds. A qualified officer of NRRDA is responsible for overseeing day-to-day operation of the financial management system and for establishment of the agreed financial management arrangements, providing timely financial reports to stakeholders including the World Bank, and providing overall guidance in respect of the financial management issues for the project. The finance team at the state level (SRRDA) is typically headed by a Financial Controller who is a professional accountant or an officer from state accounts services of a minimum rank of a senior Accounts Officer supported by at-least one Accountant and two Accounts Clerks. At the PIU level (district), the accounts and finance team comprise generally of one divisional accountant, and one clerk. They are responsible for maintaining the primary and subsidiary records, as required under the Accounts and Operational Manual and Supplementary Operational Manual, and making the necessary data entries in the FM module of the OMMAS. 16. Training. NRRDA continues to provide training to SRRDA (and PIU) staff on an "as required" and ongoing basis. The program is designed to train the finance staff at the state level and districts to maintain the primary and subsidiary accounting records and discharging other FM functions as envisaged under the Operational Manual (OM) and Supplemental Operations Manual (SOM). 17. Several rounds of training on R&P module of OMMAS have been provided to SRRDA and the PIU staff through National Informative Center (NIC) state offices. In a review of the operation of the OMMAS, MoRD and NRRDA have agreed on the following next steps: (a) undertake a training needs assessment for all states; (b) carry out an assessment of the hardware availability and the requirement in all the PIUs/SRRDAs; (c) undertake an assessment of the 43 staffing availability with an objective of installing a full team at each state for the implementation of OMMAS; and (d) placing a Centre for Development of Advanced Computing team in Delhi/NRRDA for coordination, implementation and support. 18. Accounting Policies and Procedures and Internal Control. As per PMGSY guidelines books of accounts are maintained using cash based double entry system of accounting. At the PIU level, books of accounts are based on existing PWD requirements which have been revised to meet double entry requirements. At the state level (SRRDA) proper double entry books are maintained which account for all state level expenditures under the scheme. A Chart of Accounts based on existing PWD codes has been designed and has been included in the Accounts Manuals. The accounting policies and practices and internal control procedures, also based on existing PWD requirements, for the scheme are documented in the Accounts Manual/s. These guidelines also lay down the formats of the books of accounts, financial reports and other MIS reports that will be required under the Scheme. As the books under the PWD system were not maintained under self-balancing (double entry) system, specific revisions to the books of accounts, chart of accounts and forms/reports have been prescribed under PMGSY which is considered adequate to meet the requirements of the project. 19. The information from the PIUs flow to SRRDA on a monthly basis, in agreed formats. Regular bank reconciliation is to be carried out at SRRDA and PIU as laid out in PMGSY guidelines. 20. Computerized Online Financial Management System. The Receipt and Payment module of the on-line computerized financial management and accounting system as a part of the OMMAS has been rolled out across all the states. Implementation of the accounting module however, still remains a major challenge in a majority of the states. In order to enhance the level of oversight and provide hand holding support to the states in the implementation of OMMAS, NRRDA has initiated the process of extending the contract with the Center for Development of Advance Computing (CDAC). The extended contract will require CDAC to place a dedicated team in NRRDA. 21. Financial reporting for Component A. Interim Unaudited Financial Reports (IUFR) will be prepared by NRRDA, which will be a compilation of expenditures reported by the participating states in the R&P module of OMMAS. These reports are available on the PMGSY website in public domain (see http://www.omms.nic.in/Aspnet/Citizens/STL/16RNP/ StateAccountMonitoringLocalization.aspx?fund=P). 22. Financial reporting for the Institutional Strengthening Component. For this component, NRRDA would compile semi-annual Interim Financial Reports, incorporating expenditures at NRRDA as well as the participating states. The expenditures at the state level will be based on financial reports generated from the R&P module of OMMAS. 23. Accounts Manual (Program, Administrative and Maintenance Funds). Based on the funds flow arrangement and the OMMAS as prescribed under PMGSY, NRRDA has developed three separate manuals (also available on the PMGSY website) to document the budgeting, 44 accounting, internal controls, audit (internal and external) arrangements. The manual serves as a guide to all the finance staff at the MoRD, state level agencies and the PIUs. 24. External audit. SRRDAs have been set up as societies under the Societies Registration Act, which requires statutory audit by a firm of chartered accountants. Under the project, this entity audit will provide fiduciary assurance for the use of World Bank funds as well. For this purpose, the audit report will be accompanied by project financial statements for the state level PMGSY program, in the format agreed for each implementing agency (NRRDA and the participating states). The audit shall be conducted by an acceptable independent firm of private chartered accountants under terms of reference acceptable to the Bank. Given the concerns about the independence of the auditors and the quality of the audit reports, it has been agreed that (a) selection of audit firms will be done on a competitive basis, following Bank's procurement guidelines; and (b) procedures and criteria have been established for SRRDAs to select audit firms having requisite quality and size. The following audit reports will be tracked in the Audit Reports Compliance System (ARCS). Table 3.5: Audit Reports to be tracked through ARCS Implementing Agency Audit Auditors Participating states SRRDA Entity /Project Audit Private Chartered and NRRDA Accountant (CA) firm DEA/ GoI Special Account C&AG 25. Delays in submission of audit reports, poor quality of audit reports in RRP I have resulted in the World Bank applying the remedial measures available under the audit covenants of the Credit agreements and suspension of SOE based disbursements. 26. The project financial auditors will as part of their annual audit, certify the reconciliation of the audited EEPs with the EEPs as reported in the IUFRs. If the amounts of actual EEP expenditures after audit are different from the expenditures reported in the IUFRs for the same reporting periods, adjustments may be required for the differences. These differences in the amounts eligible for withdrawal will be reported in the following IUFR, and consequential adjustments made in the application for withdrawal in the subsequent six month period. 27. Under the Indian constitution, the Comptroller and Auditor General (C&AG) would also have a right to conduct performance audits of SRRDAs, if they receive more than Rs.2.5 million (US$55,000) annually. These reports are available on C&AG's website in the public domain. 28. Internal audit: Each State will engage chartered accountant (CA) firms to conduct periodic internal audit. The TORs for the internal audits and processes for selection of the CA firms will be agreed with the Bank. 2. Disbursements 29. The project will reimburse eligible expenditures incurred under the nationally sponsored PMGSY rural roads program in the participating states. Eligible expenditures (EE) are defined 45 as the cost of civil works under the PMGSY rural roads program in participating states planned, procured and implemented in line with agreed procedures acceptable to the Bank as set out in the PMGSY guidelines. The project will only consider costs that have been incurred on contracts signed after January 1, 2011. 30. Disbursements will be made twice a year in June (for October ­ March) and December (for April - September) with the last disbursement occurring in November 2015. The November disbursement will be made based on the presentation of financial reports generated by the R&P module of OMMAS detailing the eligible expenditures under the program. After effectiveness of the project an advance will be made based on a flexible ceiling derived from expenditure forecasts. 31. In the design of DLI based disbursement, it is envisaged that disbursements will be linked to the satisfactory achievement of the agreed indicators, as assessed on a semi-annual basis by the performance auditors. Each of the indicators will have an associated score which will determine the percentage of funds that will be disbursed against the `eligible expenditures'. The determination of amount that can be withdrawn in any reporting period should be made on a cumulative-to-date basis. Where DLIs are not fully met, the shortfall in achievements may be carried forward into the next reporting period and disbursed when the associated DLI target is met. Where DLIs exceed targets and EEP expenditure has been reported, the value of the excess achievement may be withdrawn provided the cumulative amount allocated to the specific DLI is not exceeded. 32. The application of DLIs 1 and 2 will be mostly based on the aggregate results across seven states. Some DLIs will be awarded based on actions taken by NRRDA alone, some will be based on the number of states that achieve a particular target and some will be based on a cumulative numeric target across all seven states. Table 3.6: Scores Associated with DLI and Basis for Disbursement Calculation DLI-1: Habitation connectivity Proportion of total disbursements Total maximum amount that can be disbursed for this DLI 1 will be 50% of actual expenditure incurred under the Eligible Expenditure Program (EEP) on a cumulative basis up to $720 million. Disbursement rule The percentage of funds to be disbursed each period will be equal to the percentage of new connectivity achieved in the reporting period relative to the annual target, up to a maximum of 100%. Disbursed amount six monthly will be derived from applying this % targets achieved to actual EEP expenditure reported for the period, adjusted on a cumulative basis. DLI-2: Effective use of public expenditures Proportion of total disbursements Total maximum amount that can be disbursed for this DLI 2 will be a 20% of actual expenditure incurred under the Eligible Expenditure Program (EEP) on a cumulative basis up to $288 million. Disbursement rules FY11 FY12 FY13 FY14 FY15 Part 1: Improved Planning Disburse Disburse Disburse $3.6 Disburse Disburse $14.4 mil. $14.4 mil. mil. for each $14.4 mil. $14.4 mil. when DLI when DLI State meeting when DLI when DLI 46 target met by target met by target, up to a target met by target met for NRRDA NRRDA max of 4 NRRDA States in States aggregate Part 2: Improved Procurement Disburse Disburse $2.0 Disburse $2.0 Disburse $2.0 Disburse $2.0 $14.4 mil. mil. for each mil. for each mil. for each mil. for each when DLI participating participating participating participating target met by State meeting State meeting State meeting State meeting NRRDA DLI target. DLI target. DLI target. DLI target. Part 3: Quality of Built Infrastructure Disburse $2.1 Disburse $2.9 Disburse $4.8 Disburse $2.1 Disburse $2.1 mil. for each mil. for each mil. for each mil. for each mil. for each State meeting State meeting State meeting State meeting State meeting target. target, up to a target, up to a target. target. maximum of maximum of 5 States. 3 States. Part 4: Effective use of OMMAS Disburse Disburse Disburse $2.1 Disburse $2.1 Disburse $2.1 $14.4 mil. $14.4 mil. mil. for each million for million for when DLI when DLI State meeting each State each State target met by target met by target. meeting meeting NRRDA. NRRDA. target. target. DLI-3: Effective Execution of Maintenance Proportion of total disbursements Total maximum amount that can be disbursed for this DLI 2 will be a 30% of actual expenditure incurred under the Eligible Expenditure Program (EEP) on a cumulative basis up to a maximum of $432 million. Disbursement rules FY11 FY12 FY13 FY14 FY15 Disburse $12.4 Disburse $12.4 Disburse $12.4 Disburse $12.4 Disburse $12.4 mil. for each mil. for each mil. for each mil. for each mil. for each State meeting State meeting State meeting State meeting State meeting target. target. target. target. target. 33. Disbursement arrangements for the Institutional Strengthening Component. An initial advance based on a fixed ceiling would be deposited into the segregated designated account maintained in US dollars at Reserve of Bank of India, Mumbai by CAA&A, and the GoI. Withdrawals from the Designated Account will be on receipt of semi-annual withdrawal applications from NRRDA and to the extent of reported expenditures during the quarter. Fresh advances into the designated account would be based on the expenditures reported in the semi- annual Interim Financial Reports (IFRs), thereby replenishing the Designated Account to the original ceiling. The interim unaudited financial reports would provide information on eligible expenditures made in the previous quarter and forecasts of expenditures anticipated for the next two quarters. 3. Procurement 34. The Project comprises of two components. Component A: Program support to PMGSY, comprises of procurement of works contracts under the PMGSY program in the participating states and Component B: Institutional Strengthening under the project aims at procurement of consulting services and goods. 47 35. Procurement for the project will be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD loans and IDA credits" dated May 2004, revised October 2006, revised May 2010 and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers, May 2004, revised October 2006, revised May 2010 (Consultant Guidelines)". All civil works contracts under Component A will be procured using National Competitive Bidding (NCB). The PMGSY procurement systems have evolved and strengthened since 2003. The procurement procedures under PMGSY have been extensively reviewed and suitable modifications will be reflected in the Procurement and Contract Management Manual (PCCM), Model Bidding Documents, and e-Procurement System. Based on extensive discussions between Bank and NRRDA, a draft Model Bidding Document for Civil Works is in an advanced stage and is expected to be agreed upon by December 6, 2010. The PMGSY is also drafting a Procurement and Contract Management Manual (PCMM) that describes in detail the agreed procurement procedures, processes and rules9. The PCMM will be rolled out initially to the participating states and subsequently for the rest of the PMGSY program. All procurement under the project will be through a standardized e-procurement system. Through this system, the current 2-envelope system has been modified and termed as bid in two parts, first one being the technical qualification part to determine eligibility and qualification of bidders, and the second one being technical-financial part of the bid to be opened in a timely fashion of those bidders qualified in the first part. The tender notice will mention date and time of on-line opening of the qualification and technical-financial parts of the bid for such bidders who qualify under Part 1 of the procurement process. The date of opening of financial bids shall not be later than 15 working days from the date of opening of qualification part of the bids. 36. The project will use e-Procurement (e-GP) system in all participating states. The e- procurement system is already in use in five of the seven participating states Rajasthan, Uttar Pradesh, Himachal Pradesh, Uttarakhand, Meghalaya, Punjab and Jharkhand. The states of Uttarakhand and Meghalaya are also planning to implement the system and will undertake procurement only after a satisfactory e-procurement system is in place. The currently used e- procurement system has been reviewed and will be acceptable to the Bank subject to the implementation of an agreed set of enhancements to be reflected in the next periodic software update, by December 15, 2010. A detailed Action Plan which has been shared with NRRDA, is under implementation. The e-procurement system is expected to substantially enhance the integrity and transparency of the proposed procurement process, after implementation of the Action Plan. Any subsequent system modification will be shared with the Bank for review. The NRRDA is currently implementing these enhancements in the e-procurement system. 37. A procurement capacity assessment has also been undertaken in the seven participating states which show some variability in procurement performance. Some states perform well and others have still to strengthen their capacity. The overall procurement risk for the project has been rated as substantial. 38. As per current planning, no international competitive bidding (ICB) contract is envisaged. However, whenever the mode of procurement is ICB, Bank's Procurement Guidelines will be applicable and Bank standard bidding documents (SBD) will be used. 9 The PCMM will be finalized in agreement with the Bank by March 2011. 48 Procurement Arrangements for Component A (Works Contracts) 39. Works procured under the PMGSY Program may comprise of rural roads construction in suitable packages of about Rs. 1 Crore to Rs 15 Crore (US$200,000 to US$4 million). The packages typically include several roads which are geographically dispersed in each state. The contracts will be planned according to the size of roads and the relative capacity of the construction industry in that area. The practices prevalent using government funds in the different states have been at variance with good procurement practice. For example, multiple venues for receipt of bids, different practice in terms of period for submission and opening of bids, and authority for award of contract. However, as stated above, the procurement procedures for the rural roads subsector, both under the Bank Credit and the government funding, will be uniform. NRRDA will ensure that each participating state under the Project will abide by such procedures. Further, the procurement under the Project in all participating states will be carried out through the E-Procurement system which has been reviewed by the Bank experts and found to be generally acceptable with some process modifications to further safeguard the procurement process. Under this system, the two-envelop system used recently in the government conventional procurement process will be replaced through a bidding process in two parts: the first part containing the technical qualification criteria and the second part with opening of technical/financial bids, with opening of bids on predetermined date, of bidders found qualified in the first part. This process has been accepted by the Bank, subject to the following safeguards: Contracts shall be procured based on bids submitted through acceptable e-procurement system in compliance with agreed procedures and documents; Holding a period of at least five working days after the announcement of eligibility and qualification results for any complaint to be addressed; Declaration of mis-procurement due to the unjustified rejection of bids based on non- material reasons with the provision of bidding documents, including rejection of bids in the qualification evaluation part; and Achieving satisfactory performance against the procurement DLIs The project will use e-Procurement (e-GP) system in all participating states. The e-procurement system is already in use in five of the seven participating states Rajasthan, Uttar Pradesh, Himachal Pradesh, Uttarakhand, Meghalaya, Punjab and Jharkhand. The states of Uttarakhand and Meghalaya are also planning to implement the system and will undertake procurement only after a satisfactory e-procurement system is in place. 40. Procurement Capacity: The institutional capacity in procurement varies considerably between the states. The implementing agency in Rajasthan has demonstrated adequate capacity to procure relatively low value NCB works contracts under previous PMGSY/World Bank programs. Three more states (Himachal Pradesh, Uttar Pradesh and Jharkhand) under the previous project have demonstrated less adequate capacity in undertaking efficient procurement. The remaining three states (Meghalaya, Punjab and Uttarakhand) are new to Bank funding under the PMGSY program. As per Bank policy Bank has carried out assessment of procurement risk in the project using P-RAMS and the procurement risk has been rated as substantial. The staff of implementing agencies will need to strengthen their procurement skills along the harmonized procedures under the Project. Therefore, building up the procurement and contract management 49 capacity of the implementing agencies will start as soon as the PCMM is finalized and agreed with the Bank. The procurement plan includes consulting assignments for this activity under the Institutional Building Component of the Project. 41. Monitoring and Supervision of Procurement: The role of the Performance Audit Consultants (PAC) shall be one of the main important activities under the Project. The audit will be carried out by an external consulting firm, in accordance with agreed ToR, every six months with a representative sample of contracts during the period under consideration selected for review. The main objective of the PAC is to ensure a full compliance of the contracts with the Procurement and Contract Management Manual as well as with the Model Bidding Documents for civil works contracts. The Bank will review performance of the E-procurement System on an annual basis. The Borrower is undertaking an independent Third Party System Security Audit and will share the report with the Bank. In line with NRRDA procedures audits will also be undertaken when there are core changes to the program; in addition the e-procurement system is also protected by regular monitoring of the cyber security system of the National Informatics Center. Based on the results of these reports NRRDA will take corrective actions. Bank will conduct ex-post review of contracts on an annual basis for the contracts under post review category. 42. Reporting Requirements: Reporting for the project in agreed formats will be done through OMMAS. Each participating state will submit a quarterly progress report to NRRDA, who shall analyze the reports and prepare a consolidated summary report containing important information on the progress of each state. NRRDA shall design suitable format for such reports in the form of tables of contracts for each state providing details on name of contract, estimated cost, contracted cost, date of invitation, date of opening, number of bids received, number of bids considered responsive, date of award of contract etc. The progress report shall also contain information on contracts awarded within 45 days of bid submission, 60 days of bid submission, percentage of contracts awarded in the first call, the implementation status and the number of conferences carried out to build capacity of bidders. 43. Remedies: The information received through the PAC and Bank's Implementation Support missions shall be analyzed by NRRDA and an action plan to remedy the situation and take corrective measures shall be prepared and agreed with the Bank. NRRDA shall follow up with the participating states for implementation of the action plan. Table 3.7: Perceived Risks and Mitigation Measures Perceived Risk Time Framework Mitigation Measures Fiduciary Risk During project Procurement will be in accordance with the Procurement and relating to main implementation Contract Management Manual and the Model Bidding Documents for principles of Bank period civil works Contracts; Procurement Well experienced procurement staff/consultants shall be positioned in Guidelines each state to comply with the agreed procurement procedures and process; Procurement/technical staff in each State will undergo training program conducted by NRRDA/Bank/Consultants; and The proposed review process will ensure meeting the fiduciary requirements of the Project. Procurement During project Each state shall retain a full and complete record of procurement 50 Accountability Risk implementation documentation of each contract as required in the Procurement and period Contract Management Manual during the Project implementation period and up to two years after the closing of the Project Procurement During project The Procurement and Contract Management Manual shall contain Transparency implementation details on the Procurement Information Disclosure and Complaint period Mechanism system; the E-Procurement system will have public access to procurement information 44. Methods of Procurement: The following methods of procurement and value thresholds applicable to them and prior/post review shall be used for procurement under the project. CIVIL WORKS Expenditure Value threshold per Procurement Contracts subject to prior / post review Category contract method Civil works Each greater than National First contract in each state and all contracts contracts US$50,000 or Competitive estimated to cost more than US$5,000,000 equivalent Bidding equivalent (each) shall be subject to prior review. All other contracts will be subject to post review by the Bank. GOODS Expenditure Value threshold per Procurement method Contracts subject to prior / Category contract post review Goods/ Each greater than International Competitive Bidding All contracts Equipment/ US$300,000 or equivalent Machines Each less than National Competitive Bidding First contract from each state US$300,000 equivalent subject to prior review by the and greater than Bank. All others subject to US$50,000 or equivalent. post review. Each below US$50,000 Shopping procedure with at least All Post review. or equivalent three quotations from qualified bidders. Procurement through Director General Supplies and Disposals (DGS&D) rate contract will be considered equivalent to shopping procedure. Each below US$10,000 or Direct Contracting All prior review equivalent CONSULTANCY SERVICES: Expenditure Value threshold per Procurement method Contracts subject to prior / post Category contract review Consultancy Each greater than - Quality and Cost Based All Prior review contracts US$200,000 or (QCBS) method of selection. including equivalent - REOI to be published in selection of UNDB online. training Each less than - Quality and Cost Based All single source selection of institutes by US$200,000 or (QCBS) consultants with estimated cost of SRRDA/ equivalent - Consultant Qualification more than US$30,000 equivalent per NRRDA (CQS) contract will be subject to prior - Least Cost Method (LCS) review. All other contracts will be 51 Expenditure Value threshold per Procurement method Contracts subject to prior / post Category contract review - Fixed Budget Selection(FBS) subject to post review with ToR - Single Source Selection subject to prior review by the Bank Individual Through comparison of All cases subject to post review but consultants each with qualifications of at least three with ToR subject to prior review by a cost less than candidates. the Bank. US$30,000 or equivalent Single source selection All contracts for single source selection will be subject to prior review 45. The short list for consultancies estimated to cost US$500,000 equivalent or less may comprise entirely of national consultants in terms of paragraph 2.7 of Consultant Guidelines. Procurement Plan: Procurement arrangements have been laid out in a procurement plan for first 18 months of the project, prepared by the Borrower and agreed with the Bank. 46. For each contract to be financed by the Bank, the different procurement methods or consultant selection methods, estimated costs, prior review requirements and time frame have been agreed between the NRRDA and the Bank in the Procurement Plan. The procurement Plan will be updated annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. The following consultancies will be included in the procurement plan. S. Package Description of Services Estimated Method Prior Proposals to # No. Cost in of review / be received by US$ Selection Post the Project Million Review Authorities RR2-1 Selection of consultancy firm to provide 4.0 QCBS Prior 30-May-11 Performance Audit services 1 RR2-2 Selection of Consultancy Firm to provide 1.5 QCBS Prior 30-May-11 Project Management Services for Himachal Pradesh. 2 RR2-3 Selection of Consultancy Firm to provide 1.0 QCBS Prior 30-May-11 Project Management Services for Punjab 3 RR2-4 Selection of Consultancy Firm to provide 3.0 QCBS Prior 30-June-11 Project Management Services for Jharkhand 4 RR2-5 Selection of Consultancy Firm to provide 2.5 QCBS Prior 30-June-11 Project Management Services for Meghalaya 5 RR2-6 Selection of Consultancy Firm to provide 2.0 QCBS Prior 30-June-11 Project Management Services for Rajasthan 6 RR2-7 Selection of Consultancy Firm to provide 3.0 QCBS Prior 30-June-11 Project Management Services for Uttar Pradesh 52 S. Package Description of Services Estimated Method Prior Proposals to # No. Cost in of review / be received by US$ Selection Post the Project Million Review Authorities 7 RR2-8 Selection of Consultancy Firm to provide 2.0 QCBS Prior 30-June-11 Project Management Services for Uttarakhand 47. Frequency of Procurement Supervision: Given the large volumes, geographical spread and general risks involved, semi-annual supervision missions are recommended. In addition, the Bank will also carry out an annual ex post procurement review of the procurement falling under the post review threshold (if considered necessary on the basis of PAC reports) 48. Requirements for Hiring of Govt. Institutions: Government owned enterprises or institutions in India may be hired for unique and exceptional nature if their participation is considered critical to project implementation. In such cases the conditions given in clauses 1.11 (b) and (c) of Consultant Guidelines shall be satisfied and each such case will be subject to prior review by the Bank. 49. Hiring of UN Agency: It may be necessary in the interests of the project to hire some specialized UN Agencies on single source basis, in accordance with paragraph 3.15 of consultant guidelines, to provide technical assistance for maintenance management, small contractor development and community development. One of the consultancies may cost about US$5.8 million. The project will provide proper justification in each case for obtaining Bank's No Objection. 50. Selection of NGOs: Under the project it is essential to conduct citizen monitoring and it is recommended to hire an NGO on single source basis for providing consultancy services to conduct citizen monitoring of project roads. The estimated cost is likely to be US$300,000. The project will provide proper justification in each case for obtaining Bank's No Objection. D. Environmental and Social (including safeguards) 1. Environment Issues and Management 51. Key Environmental Impacts. The cumulative direct, indirect and induced adverse impacts resulting from the development of rural roads network through a program of the scale of PMGSY can cause significant damage to environment, if not addressed appropriately. While deficiencies in planning and design of sub-projects can lead to insufficient arrangements to conserve natural drainage pattern, inadequate slope stabilization provisions and improper disposal of construction wastes (including earth cuts) in hilly terrain can cause landslips/slides, soil erosion, siltation of water bodies and degradation of scenic value. The stability of cut slopes for new and/or widened roads and the disposal of debris/spoils are key concerns in hilly states like Himachal Pradesh, Uttarakhand and Meghalaya. Provision of new connectivity in remote locations also has a potential to affect critical natural habitats such as protected areas, wildlife 53 corridors, wetlands and forests. States like Himachal Pradesh, Jharkhand, Meghalaya and Uttarakhand have a significant percentage of their geographical area under forest cover and therefore need more robust planning and design of sub-projects to avoid, minimize and manage adverse environmental impacts. 52. In addition, the uptake of land, particularly fertile farmland for road construction/ widening; felling of trees; impact on local water bodies; improper management of materials and their sources (such as aggregates, sand, earth and water); increased traffic (in case of upgrading and through-routes) causing safety concerns for both road-users and road-side residents; occupational health related risks faced by construction workers and construction-stage nuisances such as dust and noise require attention. In villages close to urban centers, new commercial and public activities may lead to an increase in the pressure on the local resources. Potential long- term impacts could include changes in land use pattern (from agriculture to real estate or other non-farming purposes) and occupations of the people. 53. On the positive side, the strengthening of human capital from enhanced habitation connectivity, increased access to employment, education and other social services are some of the benefits anticipated from the program/project. It may also contribute towards reducing outward migration from the rural areas, as has been noted during RRP I implementation. 54. Environment Management Approach. For the World Bank financed first Rural Roads Project (RRP I), which is under implementation since 2005, an Environmental and Social Management Framework (ESMF) was prepared. It included two other supporting volumes: an Environmental Codes of Practice (ECoPs) and Resettlement and Participatory Framework (RPF). The ESMF was also revised in 2008 for the proposed Rural Roads Project II (RRP II), which was later dropped. The ESMF prepared for RRP I was introduced as a supplement to the Operations Manual and was used exclusively for Bank financed contracts. 55. The said ESMF for RRP I has been further revised/modified for this project (keeping in mind the issues and context of the participating states, particularly the new states like Punjab and Meghalaya) for avoiding, minimizing, mitigating and managing the identified environmental issues, which are likely to arise during the planning/design and implementation of sub-project level activities. 56. Environment and Social Management Framework: The ESMF for this project has been prepared using the following steps: (i) review of environmental and social conditions and issues in the participating states in context of the project/program interventions; (ii) consultations with stakeholders; and (iii) field/practical experience gained from implementation of the on-going Bank financed RRP I. Combining the findings from the said steps and using recommendations from the diagnostic review (gap analysis) for environmental and social aspects conducted by the Bank's task team as part of the project preparation, the ESMF document of RRP I has been modified/updated for use in this project. 57. The ESMF serves as a comprehensive and a systematic guide covering policies, procedures and provisions, which are being/will be integrated with the over-all project cycle to ensure that the environmental aspects are systematically identified and addressed at the sub- 54 project level. The use and integration of ESMF/ECoPs into the project's operational cycle will help in avoiding and mitigating adverse environmental impacts. It will also help in enhancing positive impacts and facilitate in achieving compliance with the Bank's Safeguard Policies and regulatory requirements of GoI/States. The approach ensures effective environmental management in a scenario where multiple sub-projects are located in different parts across the seven participating states and minimizes the need for carrying out a sub-project level environmental assessment (EA) and preparation of Environmental Management Plan (EMP). The ESMF/ECoPs seek to standardize the environment management approach across a large number but similar kind of small scale rural road development works spread across a wide geographical area. 58. Appropriate guidance has been developed to enhance positive impacts and to avoid, minimize and mitigate adverse impacts through `environmental codes of practice'. These activity-specific codes address planning/design, construction and operation-stage issues associated with: (a) site preparation; (b) construction camps and plant sites; (c) borrow and quarry areas; (d) water management; (e) slope stability and erosion control (including introduction of bio-engineering practices); (f) waste management; (g) drainage; (h) public and worker's health and safety; (i) cultural properties (including handling of `chance-find'); and (j) tree plantation. In addition, specific codes have been developed to provide guidance on environmental audit (covering pre-construction, construction and operation stages) and public consultation. The ECoPs have been revised in the light of the experience gained from RRP 1, feedback from key stakeholders and the need for more attention to environmental issues connected with road construction in hilly areas. 59. In general, the proposed sub-project roads follow established/existing tracks, especially in case of plain areas. However, this is usually not the case in hilly areas, where the availability of land, minimization of cut-and-fill as well as maximum permissible gradient norm requires creation of a new alignment. Therefore, sub-project preparation, particularly in case of roads in hilly terrain or for roads traversing or passing close to critical natural habitats, will include an analysis of alternatives prior to the final selection of the alignment. Alternatives will also be explored in cases where alignment adjustments are required in plain areas to avoid and/or minimize impact on structures, water bodies, cultural/religious properties or other such features that are locally considered important. More so, to incorporate and address possible impacts on the environment into project design, mechanisms like the transect walk (capturing various natural, physical and social environment elements on a strip plan) and local level consultation will serve as a vital input for preparation of Detailed Project Reports (DPRs). This improves DPR quality by requiring a more rigorous and technical solution approach to resolve environmental issues as part of the sub-project design itself. 60. However, critical environmental issues such as adverse impacts on natural habitats, which may result on account of improper selection, planning/design and construction activities, will be avoided and/or appropriately mitigated (as the case may be) by using results from the Environment Screening Exercise. Screening will be done to determine the likelihood of any possible direct impact/s on natural habitats in the context of possible selection/design/ construction of a sub-project in such area/s. The core rural road network would be screened not only for the officially demarcated protected areas (such as National Parks and Sanctuaries), but 55 also for areas outside these boundaries that are considered critical for certain species of fauna (tigers and elephants, for instance). This will provide an early warning, using which appropriate decisions can be made early-on in the sub-project development cycle. In such cases, which are likely to be very few (about 1 to 2 percent of the total number of sub-projects), specific guidance on selection, design, mitigation and/or management measures (as applicable in the context of a sub-project) will be provided under the project. These critical areas have been studied and mapped by the Wildlife Institute of India (WII) and maps are particularly well developed for the 17 tiger range states, which include states such as Uttarakhand, Uttar Pradesh, Rajasthan and Meghalaya included in this project. NRDDA has collaborated with WII for helping the participating states in conducting this screening exercise. For the works proposed under Tranche 1, the states have conducted/are conducting, a manual exercise (non-GIS based) with help from their concerned Department of Forests to achieve this objective till a complete system is developed and put into use (some states don't have GIS or even Autocad maps of the core road network, which will be needed by WII to conduct this exercise). 61. Budget. The budgetary provisions for the implementation of environmental management measures are being summarised in the table below: S No Budget Item Budget Provision DPR preparation ( In house/hiring Included as part of NRRDA budget provisions for preparation of 1. of specialists, transect walk and DPRs. (States to ensure that environmental aspects are consultation) considered/integrated during DPR preparation) The Bills of Quantity (BOQs) in the works contracts for Implementation of Environmental implementation of project roads to include necessary budgetary 2. Management Measures. provisions in the form of pay items and/or incidentals to the pay items. The compensatory afforestation requirements would be applicable to specific roads where forest land will be diverted for road construction. In all such areas, the actual budget for 3. Compensatory Afforestation. implementation would be known when forestry clearance proposals of a sub-project are processed by the Dept. Of Forests/MoEF. These costs will be borne by respective states. Capacity Building for Environmental officers/ specialists The budgetary provisions for training and capacity building 4. at national, state, and PIU level, programs are budgeted under the Technical Assistance and including SRRDAs, STAs, TEs, Training component head. and contractors. 62. Monitoring and Reporting. The PIUs will be responsible for supervision and monitoring of the environmental management measures. The PIUs will further report to the concerned SRRDA on a monthly basis towards the progress of implementation. In addition, the Project Management Consultant (PMC) will have an Environment Safeguard Specialist responsible for reviewing actual implementation of the ESMF/ECoPs provisions. The ESMF/ECoPs provide comprehensive checklists to `supervise/audit' the management of relevant environmental issues during the various phases of the project: (i) DPR preparation, (ii) pre-construction, (iii) construction, and (iv) post-construction, which will be used for the purpose of site supervision and reporting. The Nodal Environment and Social Officer at NRRDA will provide a more 56 strategic oversight on environment management aspects of the project as a whole. An environmental supervision protocol has been prepared and included in the ESMF/ECoPs to particularly guide the field engineers in monitoring and reporting on the environment, health and safety aspects. 2. Social Management and Safeguards 63. Benefits: The social benefits from a rural road project are specific and accrue mainly to the villages targeted under the program. The impoverishment risks and social adversities for rural roads projects are generally minimal because of low land intake. Social assessments to date indicate accrual of net gains to the people affected, from better access to their agricultural fields, higher land values, enhanced productivity aided in part by enhanced participation of female workers in agricultural and other productive activities. Rural communities reported elevation in social status from connectivity to the main road network, and from the road as an important community asset. 64. Social Issues: Construction in PMGSY roads is proposed along the existing tracks and restricted to the width as available in the Revenue Records. However, in instances where available width is too small, additional land may be required for constructing the road. In such cases the most common result is the loss of small strips of agriculture land and in few cases losses of entire or substantial parts of land holdings and even structures, triggering OP 4.12. Land acquisition is not financed under the PMGSY but provided for by the states - mostly through voluntary donations. However, the newly participating states of Punjab and Uttarakhand instituted purchase of the land instead, thus mitigating possible adverse impacts from voluntary donations. The land donation experience during RRPI has shown that the agreed procedures are not always fully followed or documented. 65. Social Management: To improve the overall safeguard management and ensure the compliance with OP 4.12 and OP 4.10 in the PMGSY Rural Roads Project, exclusive operational documents ­ the SMF and VF - have been prepared, supplementing the ESMF- adopted under the RRP I. The SMF provides for information sharing, stakeholder participation in design, implementation and monitoring, grievance redress, technical capacity development, and entitlement remedies for project affected populations (PAPs). It also clarifies the gaps in land donation processes and provides guidelines for all land transfers, to help mitigate adverse impacts on the project and PAPs. The VF ensures that the development process generated by the Project fully addresses the needs of the vulnerable populations and enables measures to promote distributional equity among the PAPs in a culturally sensitive manner. It underscores the importance of participatory approaches, including information sharing, consultation and collaboration, as a way to give voice to, and strengthen the capabilities of PAPs - especially vulnerable groups, to influence the project's outcomes. These should ensure compliance with national legislation and the Bank's OP 4.10 and OP 4.12, and lay the ground rules for participatory, inclusive and equitable connectivity of rural habitations. 66. While implementation of the original ESMF under RRPI has provided reasonable experience to NRRDA as well as to some of the proposed project states, annual reviews of the functioning of the two Frameworks within PMGSY Rural Roads Project will be undertaken to 57 upfront understand their effectiveness in terms of compliance with OP 4.12 and OP 4.10 and modify the same, as found necessary. 67. Grievance redress: Grievance redress will be achieved through informal and formal mechanisms. Community concerns will generally be addressed during the project preparation stage through information dissemination, the transect walk and community consultations. A formal 3-tier Grievance Redress Mechanism (GRM) will operate at the Panchayat and District levels, at judicial level through the courts of law. The petitioner may access the Panchayat level GRM committee on any grounds related to the preparation or implementation of the Project. If the grievance is not satisfactorily addressed (within 15 days) the petitioner can approach the District level, and if no satisfactory resolution is reached the petitioner can appeal to the court of law. At all stages the petitioner may be assisted by an independent NGO or a social worker as appropriate or necessary; and the petitioner is exempted from all administrative and legal fees incurred in pursuit to grievance redress. Key criteria for the effectiveness of the GRM are: accessibility; predictability of the rules and procedures; transparency; fairness and impartiality; and credibility. The Grievance Redress Committees (GRCs) will support both sub-project social goals, and contribute to broader Program effectiveness and outcomes, through purposeful use of lessons learned. A description of the Grievance Redress Mechanism (GRM) is elaborated in the SMF. 68. Results indicators for longer term action: Results indicators for social dimensions for the longer term should include: Inclusive habitation connectivity Incorporation of social standards in DPRs Linking of road works with NREGA and other rural employment programs Compliance of land transfers with SMF and VF requirements 69. Budget. An indicative budget outline to implement the social aspects of the ESMF (SMF/VF) is presented below: DPR preparation cost on social aspects (to include in DPR budget preparation) Display material (SMF brochures / pamphlets on PMGSY) Coordination costs for transect walk Conducting Census Survey (cost of forms) Public Consultations Legal expenses for transfer/acquisition of land/assets per KM (including mutation) Mid and end term Social Evaluation by NRRDA Citizen monitoring through road users' score cards Consultant services and capacity building of stakeholders to support grievance redress. 70. Monitoring: Monitoring of the social component will be undertaken by designated Social and Environmental Specialists through the Social Development Executives in the PMCs, and, through the National and State Quality Monitors - through observation and review of progress 58 reports. Data will, where possible, be disaggregated to reflect the situation of vulnerable population. The monitoring reports from these actions will be submitted to the Bank periodically, and communicated to the Gram Panchayats. Third party quality monitoring will include independently facilitated Citizen Monitoring and Audit Teams using simplified instruments that have been successfully piloted, complemented by pro-forma checklists used by local committees to track implementation targets, in addition to grievance redress mechanisms. These provisions will facilitate vital beneficiary feedback which will help improve performance and results. 3. Environment and Social Management ­ Common Elements 71. Stakeholder Consultation. The consultation process for the project included a range of formal and informal discussions, interviews and meetings and targeted stakeholders such as local residents; farmers, road-side communities; local bodies like village Panchayats; local NGOs; and selected government departments such as Public Works and Forests. The public consultation for the project has been designed in a way that: (i) affected people are included in the decision making process; (ii) public awareness and information sharing on project alternatives and benefits are promoted; and (iii) views on designs and solutions from the communities are solicited. 72. The preparation and revision of ESMF has been carried out in a participatory manner involving the key stakeholders, including the affected communities, staff of the executing agencies, consultants, contractors, NGOs and officials from line departments (such as Dept. of Forests). The Environment and Social Management Framework (including the ECoPs and SMF/VF) of the present project, is in fact a modified/revised version, which is being used for the on-going Bank funded Rural Roads Project (RRP I). Feedback and inputs have been obtained from a range of stakeholders both through formal and informal means on various occasions and levels since the effectiveness of RRP I in 2005 in four of the seven participating states, (namely Himachal Pradesh, Jharkhand, Rajasthan and Uttar Pradesh). The design of ESMF for the present project also benefits from the substantial and meaningful consultation that was carried out in Uttarakhand, during 2006 to 2008 for the preparation of Rural Roads Project II (now dropped). 73. In addition to state level consultations, national level workshop has also been organized by NRRDA for this project. The revision/modification of ESMF has been based on inputs and feedback received during various workshops/interactions in the participating states, involving various government departments, NGOs and representatives of local government. The documents have also been disclosed at the NRRDA website and are available at SRRDA and PIU level in the participating states. 74. In ESMF, the stakeholder participation is central to design and implementation of project/sub-projects. While, design endorses measures for stakeholder participation in planning road alignments, implementation phase proposes piloting community contracts for road maintenance and facilitating citizen monitoring. 75. Further, the ESMF provides a mechanism for ensuring continued consultation, particularly at the sub-project level, through the life of the project. The safeguard documents 59 (ESMF/ECoPs/SMF/VF) provide specific guidance on public consultation and disclosure requirements that will continue through the project's operational cycle as part of preparation, design and implementation of each individual sub-project. Stakeholder consultation mechanisms are central to the design and implementation of sub-projects and provide for information sharing, consultation and collaboration measures. It provides procedures for dissemination of information and consultation with communities and the affected people in particular through various stages of the sub-project cycle. 76. Disclosure. The NRRDA has disclosed the drafts of ESMF (including ECoPs, SMF and VF) through its website and in SRRDAs of all the participating states in August 2010. These documents are also available at the Project Implementation Unit level in the participating states. 77. Institutional Arrangements for ESMF implementation. The implementation of the ESMF/ECoPs/SMF/VF will be the responsibility of officers of the executing agencies (Project Implementation Units) in each state under the overall co-ordination and monitoring of the National Rural Roads Development Agency (NRRDA) at the central level and the State Rural Roads Development Agencies (SRRDAs) at state level. 78. A Nodal Environment and Social Officer at the NRRDA level has been designated, with responsibility to over-see and co-ordinate various aspects related to environment and social management as envisaged under the project. At the SRRDA level, separate environment and social officers have been designated/appointed in the participating states to oversee the implementation of environmental and social aspects and advise the Project Director on the said issues. The Environmental and Social Officer at SRRDA will provide support to all concerned units (Project Implementation Units - PIUs), including capacity building of the concerned staff to ensure that all significant environmental and social safeguard issues are given due consideration during project preparation, implementation and operation. 79. Each Project Implementation Unit will have also have a designated engineer to oversee environment and social inputs during preparation and implementation. The SRRDA's environment officer will be assisted by Safeguard Specialists (one each for environment and social aspects) of the PMC in over-seeing the application and implementation of the safeguards measures in planning, design, construction and monitoring of the road works towards confirming compliance with agreed procedures and standards. Training will be provided by the NRRDA to these officers to ensure their familiarity with the provisions of the safeguard instruments. 80. All the Detailed Project Reports (DPRs) prepared by the PIUs will be certified by the Nodal Environment and Social and Officer at the SRRDA for their compliance with the provisions of ESMF/ECoPs/SMF/VF. The implementation of mitigation measures suggested in SMF/VF, will be completed before the start of civil works. The Performance Audit Consultants (PAC) will undertake a sample review of contracts under the project to monitor performance on application of agreed safeguard procedures. 81. Capacity Building. In recognition of the need and importance of capacity building, NRRDA will utilize the services of National Institute for Training of Highway Engineers (NITHE) and other institutions for conducting regular training and capacity building programs 60 for the participating states involving SRRDAs and PIUs. The Technical Assistance and Training sub-component under the project will be utilized for developing systematic curriculum, training materials and for imparting core and specialized training modules to the engineers and contractors. 82. Mainstreaming Environmental and Social Management Aspects in PMGSY. To mainstream and enhance the environmental and social management dimensions in PMGSY, a few recommendations were made in the diagnostic study (gap analysis) carried out by the task team. These recommendations aimed at improving program delivery in terms of time, cost and quality by introducing/strengthening environment and social sustainability elements in the PMGSY. These also help in better aligning the said program with national policies and regulations related to environment. Some of these key initiatives agreed with MoRD, NRRDA and the participating states include: a) Integration of Environmental Aspects in the Operations Manual: The Operations Manual (OM) of PMGSY (a key document that lays out the detailed procedures) will be modified to better reflect the environmental and social management procedures governing the program. b) Strengthening of Detailed Project Report Template (DPRs): The template for DPR, (a key document used for sub-project preparation) which is currently being prepared by NRRDA, will better reflect environmental and social features/ issues as well as other key planning and engineering/design requirements. c) Mainstreaming Environmental Dimensions in the Technical Standards: The Indian Roads Congress is currently updating Book of Specifications for rural roads. It has been agreed that engineering best practice to avoid and mitigate environmental impacts/issues will be introduced/strengthened in the said book. The project will finance consultant services to support this activity. d) Integration of EHS requirements in the Model Bidding Document. Inappropriate construction practices can cause adverse environmental, health and safety (EHS) impacts, especially from the improper scheduling of works, unsafe handling of hazardous materials and haphazard dumping of construction wastes (including earth cuts in hills). To ensure improved environmental management during the construction stage, a section clearly specifying preventive and mitigation measures to be taken by the contractor has been introduced in the Model Bidding Document (MBD). Compliance with these specifications will be supervised as part of project technical supervision. An environmental supervision protocol included in the ECoPs will be utilized by the SRRDA/PMC/PIU engineers to monitor compliance of the MBD requirements by the contractors. e) Capacity Building. The existing weak implementation capacity can affect environmental and social outcomes despite safeguard provisions. This dearth in capacity will be addressed through enhanced technical assistance and training, and sharing of environmental and social lessons from similar program. Technical assistance component (TA) and training on the management of key environmental issues in the rural roads development program, such as planning, design and/or construction of roads in ecologically sensitive areas; drainage design and management; slopes and debris 61 management in hilly terrain and materials management, will be provided to the engineers and contractors. This initiative under the project also seeks to help NRDDA and its associated training agencies in developing appropriate and user-friendly training material for use both during and after the project duration. Capacity building for effective implementation of social aspects in PMGSY will be tailored to the needs of different audiences. Training will incorporate global best practices in gender and vulnerability inclusion, safeguard compliance, road safety and grievance redressal in rural road program. Moreover, groups undertaking participatory monitoring will be trained in generating and disaggregating data to better understand the program's impact on vulnerable groups including women. 83. Once the technical standards, manuals and templates have been drafted, extensive national level feedback from all concerned key stakeholders will be obtained prior to the finalization of the draft document/s. Till such time that the environment and social provisions are properly integrated in the technical documents and appropriately rolled-out with adequate training support, the ESMF (including ECoPs, SMF and VF) will be used for the project. E. Monitoring and Evaluation 84. OMMAS. The NRRDA already has a well functioning OMMAS, which contains detailed information on the core network; projects funded under the PMGSY status of their procurement, physical and financial progress, and other parameters. The PIUs regularly enter key physical and financial data that is captured and disseminated through the OMMAS for public viewing (www.pmgsy.org). The OMMAS adds considerably to the transparency and management of PMGSY. The quality of the data is fairly robust, notwithstanding some data gaps. The project will support further enhancements in the current OMMAS to (i) produce quarterly progress reports to regularly track technical, procurement, financial, and other information in an integrated way throughout the project cycle, (ii) monitor progress in achieving the DLI, (iii) produce annual performance reports of the districts and states containing road network condition, and performance and achievements of the implementing agency in implementing the PMGSY and on maintenance management, and (iv) operationalize its complaint handling and other module. 85. Poverty Impact Assessments and Road User Satisfaction Surveys. The MoRD has already developed a detailed methodology to undertake regular poverty impact assessment and road user satisfaction surveys through a comprehensive study under the RRPI. The MoRD has further modified the methodology based on the suggestions made by the World Bank. The methodology will be used for regular monitoring of rural roads impacts and road user satisfaction in the participating states. 86. Performance Audit Consultants. Independent consultants will undertake detailed audits of about ten percent of PMGSY contracts in each participating state on semi-annual basis to monitor the overall implementation of the PMGSY framework and agreed procedures under the project. The review will include technical, procurement, financial management, management of social and environmental aspects, contract management, GAAP, quality of project preparation and engineering supervision. The consultants will also review the overall functioning of the 62 STAs, NQMs, SQMs, performance of contractors, functioning of SRRDAs and PIUs, involvement of local communities, OMMAS, monitoring and evaluation, and other aspects related to PMGSY implementation. The objective of the review will be to collect feed-back information on implementation of the project and evolve recommendations to further enhance implementation of the PMGSY. The review will also identify good practice examples and significant experiences gained in participating states which can be adopted by others. The findings of the audit will be jointly discussed by the World Bank, MoRD, NRRDA, and respective SRRDAs in each supervision mission. An action plan will be agreed based on the findings of the audit for further implementation under the project. The review consultants will have consultations and discussions with various stake-holders while making their assessment and evolve recommendations. 87. Social Audit. The project also supports a pilot sample social audit by the local communities supported by the institutional strengthening component of the project. 63 Annex 4: Operational Risk Assessment Framework (ORAF) INDIA: PMGSY RURAL ROADS PROJECT Project Development Objective(s) Description: The project development objective is to support the strengthening of the systems and processes of the national PMGSY rural roads program for the expansion and maintenance of all-season rural access roads, resulting in enhanced road connectivity to economic opportunities and social services for beneficiary communities in the participating states. Key Results Indicators: 1. Share of Rural Population with Access to an All Season Road 2. Share of PMGSY rural roads with Pavement Condition Index of 2.0 or above 3. Percentage reduction in travel time by beneficiaries. Timing for Risk ORAF Risk Levels Risk Description Proposed Mitigation Measures Mitigation: Rating Prep/Impl I. Project Stakeholder Risks 1. Stakeholder Medium-I - Funding gap from the Borrower's Risks side to support the full - Continued high-level dialogue with MoRD on implementation of the PMGSY. This development of the strategy to ensure sustainable funding will have a significant impact on the for the entire PMGSY program achievement of ambitious goals of - Development of the communication strategy (together with the entire program outreach materials in local languages) to get project affected X X communities more interested in monitoring activities Low - Lack of communities' interest and - Greater involvement of local communities during participation in social auditing and implementation of works and their subsequent maintenance monitoring of project implementation through Transect walks and social audit in lagging states II. Operating Environment Risks 1. Country Risk Medium-I Main country-level governance - Continued high level dialogue with government and risks include: stakeholders on reform programs/measures including in - Fragmented administrative particular the focus on high quality human resource X X structures, incomplete development and management decentralization process and weak - Continued monitoring of the political economy and 64 Timing for Risk ORAF Risk Levels Risk Description Proposed Mitigation Measures Mitigation: Rating Prep/Impl coordination particularly at the local political developments at the center and state level and level resulting in poor planning and identification of opportunities to strengthen the governance implementation of service delivery framework building on the GoI's and state governments' schemes respective reform agendas. - Pursuing policy dialogue and - Capacity constraint within advocacy on governance, institutional development and government with weak Human public sector Resources (HR) management at the intermediate and lower levels which Government-led initiatives: are responsible for service delivery - Existing law enforcement agencies and integrity and patronage based decisions on mechanisms (Central Vigilance Commission, Central postings and transfers Bureau of Investigation, Comptroller and Auditor General, - Gaps in monitoring and evaluation state ombudsman, Public Information Commission, etc.) systems (for both expenditure - Recommendations on governance and accountability from management and outcomes) to the Second Administrative Reforms Commission and other assess outcomes and value for public institutions (such as circulars on procurement from money the Central Vigilance Committee (CVC)) - A wealth of reforms and initiatives are being introduced or piloted at the Systemic corruption risks include: state and local level (social audits, e-procurement, etc.) - Procurement and contract management remain an area of Bank-led initiatives: vulnerability and institutional - Assessing the vulnerability to fraud and corruption in capacity in this area remains limited project design and implementation - Direct theft of public/project - Mobilizing all existing country integrity mechanisms money remains a risk and gaps (vigilance, judicial, grievance redressal, internal and financial management and external audits, public information) and institutions and monitoring and evaluation systems mitigating their possible shortcomings makes assessment of leakage - Mainstreaming demand-side governance mechanisms difficult (third party oversight, citizens' reports, social audits, etc.) - Supporting business process re-engineering, particularly: e-governance solutions to make citizen-provider interface more efficient 2. Institutional Medium-I - Weak technical capacity of - Supporting analytical work on assessment of the technical Risk (sector and implementing agencies and capacity of sector agencies and contractors and promote multi-sector contractors in some states implementation of the recommendations through projects X X Level) - Low competition due to - Strengthening capacity of state agencies to develop inadequate supply of contractors necessary policy, institutional, funding and execution - Poor planning, monitoring and capacity to deliver maintenance (through Bank TA) 65 Timing for Risk ORAF Risk Levels Risk Description Proposed Mitigation Measures Mitigation: Rating Prep/Impl evaluation systems at both the state - Supporting analytical work during project design to and district level that affects specifically look at broader institutional and governance detecting and rectifying issues at the sector that can impact project outcomes implementation problems at earlier - Supporting the development of robust monitoring and stages evaluation criteria and systems at the project level - Loss of assets due to insufficient - Making it mandatory for states to collect and report maintenance, despite PMGSY pavement condition inventory data on all PMGSY roads and contracts including 5-year making fund release contingent upon maintaining the maintenance, but still roughly 70% network at threshold pavement condition of the PMGSY roads receiving some sort of maintenance and 30% not receiving maintenance at all III. Implementing Agency Risks (including FM and PR Risks) 3. Capacity Risk Substantial - Delays in project implementation - Establishment of dedicated procurement and contract due to complex business processes management units at SRRDAs and procurement monitoring and fragmented administration, and unit in NRRDA low procurement and contract - Training and capacity building of contractors and management capacity of implementing agency staff to enhance contract management implementing agencies increasingly capacity and procedures located in lagging states - Preparation of Procurement and Contract Management - Low value for money under Bank Manual describing in detail procedures contracts, due to low contract - Establishment of an acceptable e-procurement system and management and procurement its assessment by the Bank capacity of implementing agencies - Performance audits covering all aspects of project - Possible discrepancies in project implementation by independent external consultants X financial reporting, due to - Enhancing transparency in procurement by publishing the continuing low quality of data Information for Bidders (IFBs) and details of contract inputs in the OMMAS system awards on the PMGSY website - Making the accounting module of OMMAS fully functional - Release of funds contingent upon input of updated summary of monthly financial and physical progress in OMMAS online - Implementation of e-GP in all the participating states through a procurement system duly agreed with the Bank - Adherence to agreed business standards of awarding the contracts within 45 days of receipt of bids 66 Timing for Risk ORAF Risk Levels Risk Description Proposed Mitigation Measures Mitigation: Rating Prep/Impl 4. Governance Low - Uncertainties and inconsistencies - (see more in Annex 8: GAAP) Risk in function, resources and capacity - Development of state maintenance management systems allocation between all public and promote effective mechanisms for the execution of institutions involved in maintenance activities implementation - Ensuring all project related documents disclosed in - Lack of adequate accessibility to accordance with RTI Act including complaint handling disclosed project information by mechanisms, compliance with ESMF provisions and general public. Despite the enforced contacts of designated officer for implementation on the implementation of Right to project website, at Public Information Centers close to Information (RTI) Act, there have project roads and billboards at project sites for citizen X X been cases when either insufficient monitoring information has been provided on - Providing the general public with a wide variety of means projects or general public has not to access project information and to submit its feedback been provided adequate (radio, txt messages, bill boards, etc.) accessibility to the project - Development and roll-over of a web-based document information management system containing soft copies of key documents including photos of some specified stages of works 5. Fraud and Medium-I - Risk of misappropriation of funds - Facilitating introduction of e-Tendering / e-Procurement Corruption Risk as a result of lack of compliance (under Bank TA) with established financial and - Disseminating records of public opening of bids for all internal controls contracts in all phases on the project website within 5 -Collusion among contractors due to working days of contract award the under supply of contractors in - Making fully operational the complaint handling module the rural road sector and/or of OMMAS submission of forged documents by - Carrying out Performance Audits by independent external contractors to win contracts auditors hired by NRRDA X - Collusion between officials and - Developing and deploying mechanisms (under Bank TA) contractors to have payments made for early identification of indicators of fraudulent and for incomplete and/or substandard corrupt practices work and resulting from poor project design and contract management 67 Timing for Risk ORAF Risk Levels Risk Description Proposed Mitigation Measures Mitigation: Rating Prep/Impl IV. Project Risks 6. Design Risk Medium-I - The Bank will be reducing prior - the project will focus on building PMGSY systems review of transactions under the supported by state level technical assistance to promote best project and the results incentives practice at the state level. structure may not be strong enough - Applying a social management framework (SMF) and to promote better practice at the state-specific resettlement and consultative framework state level. (R&CF) for communities to participate in the decision making process of planning, implementing and monitoring - Adverse impacts on community sub projects X due to improper selection of - PMC will support SRRDA in review of detailed project alignment, poor design that does not report (DPR) and compliance with operational guidelines address community concerns, including agreed ESMF/ECOPs provision and verify and/or elite capture of consultation compliance with due process of public consultation based on process community feedback and report every quarter - Poor quality of engineering design - Strengthening and rationalizing capacity of state technical agencies (STAs) to improve DPR review quality 7. Social and Medium-I Risk of non-compliance with - Strengthening capacity of state agencies to implement Environmental SMF/VF and ESMF/ECOPs SMF/VF and ESMF/ECOPs provisions (Under Bank TA) Risk provisions, in particular difficulties - Verifying through supervision consultants/PIUs in implementation of environmental implementation of agreed SMF/VF and ESMF/ECOPs safeguards in hilly areas/ sensitive provisions before clearing Interim Payment Certificates protected areas and with the (IPCs) and completion certificates voluntary donation of land - Enhancing the use of the complaint handling module of X OMMAS - Developing and using a grievance redressal system to track monitoring of complaints 8. Delivery Medium-I Poor quality of construction as a - Enforcing use of Three-tier Quality Monitoring system Quality Risk result of non-compliance to contract instituted by NRRDA conditions and technical - Carrying out regular inspections by the senior officers of specifications leading to low service the road agency (Chief Engineer (CE) and Superintending X life of assets created. This is Engineers(SE)), SRRDAs and WB teams especially a critical issue in the - Focusing on improvement of quality of engineering lagging states designs, field investigations, safeguard aspects to avoid subsequent variations during execution 68 Timing for Risk ORAF Risk Levels Risk Description Proposed Mitigation Measures Mitigation: Rating Prep/Impl - Carrying out strict monitoring of NQM reports/observation strictly to ensure compliance and close follow-up of remedial actions and increasing in coverage and frequency of NQM visits in case of poor performance - Making funds release contingent upon maintaining the network at an agreed threshold Overall risk rating Comments The risk of Medium-L is associated with all mitigations measures developed and undertaken. The identified risks have substantial- Medium-L high chance of occurrence, but if they do occur, their impact will be low-moderate on the PDO. Ratings: Low = Low impact/low likelihood; Medium-L = Low-Moderate Impact/Substantial-High Likelihood; Medium-I = Substantial-High Impact/Low- Moderate Likelihood; High = High impact/high likelihood 69 Annex 5: Implementation Support Plan INDIA: PMGSY RURAL ROADS PROJECT A. Overall Strategy and Approach 1. Given the size and geographical spread of the project, the Bank implementation support strategy is to move away from transaction-based support and focus instead on system-based support for the entire PMGSY program. The Bank will rely heavily on the inbuilt oversight arrangements under PMGSY to ensure satisfactory implementation of the project including compliance to the agreed fiduciary and safeguard procedures. The main elements to these oversight systems are as follows: (i) The On-line Monitoring Management and Accounting System (OMMAS) will form the basis for all reporting under the program including physical and financial progress. Customized reports will be produced at national, state and district levels. The OMMAS is a computerized web-based monitoring database which is publically accessible and as such reports can be downloaded at any time; (ii) The quality of road construction works will be monitored and reported through the PMGSY three-tier Quality Control System (QCS). The concerned Executive Engineer and the Program Implementation Unit constituting the first tier, State Quality Monitors appointed by a state-level independent agency constituting the second tier, and senior technical personnel as National Quality Monitors (NQM) appointed by the NRRDA constituting a third one; (iii) Project Management Consultants (PMC) will be appointed in each participating state to provide the field based day-to-day capacity support to ensure that the necessary systems and skills are in place to comply with PMGSY procedures. The PMC consultants will report every six months identifying key issue related to implementation; and (iv) The project will appoint Performance Audit Consultants (PACs) to review a random sample of ten percent of contracts every six months to provide an independent evaluation of progress towards meeting the DLIs and compliance to all aspects of implementation. The PAC will identify the extent to which actions are required to rectify identified deficiencies. The PAC will also identify serious issues of non-compliance where the Bank may have to exercise remedies. B. Implementation Support Plan 2. Most of the Bank team members will be based in the India country office to ensure timely, efficient and effective implementation support to the client. The co-TTL, based in the country office, will provide day-to-day implementation support for all project components as well as coordination with the client and among the Bank team members. Task team leadership will be transferred to the country office by the second year of project implementation. However, international experts either from or outside the Bank will be used to provide advice on a few areas of focus where international experience is of critical importance to build the client's capacity in the respective areas. The focus of implementation support and professional skills required for that support are detailed in Table 5.1. 70 Table 5.1: The main focus of implementation support and mix of skills required is summarized below. Frequency Skills Staff Area of focus of field Comments needed Weeks visits HQ based 1 per year staff ­ 1st yr Team leadership TTL 20 per state CO based staff Day-to-day implementation support coordination, DLIs Transport 1 per year CO based 16 monitoring, overall project reporting Specialist per state staff Institutional 1 per year International Institutional Strengthening, GAAP and OMMAS 8 Specialist per state expert10 Policy issues, institutional frameworks and information Road 1 per year International management systems for rural road maintenance and asset Maintenance 8 per state expert management Engineer Review of procurement documents, technical designs (of 1 per roads and bridges), design standards, hill roads, revision of Road Local 3x16 quarter per Procurement and Contract Management Manual, quality Engineers experts state assurance, overall contract management capacity Advice for NRRDAs, SRRDAs, and training institutions on Training International 6 As needed development and provision of trainings on various subjects Specialist expert Social 1 per year CO based Overall social safeguards monitoring and reporting Development 12 per state staff Specialist 1 per Review of social safeguards implementation in compliance Social Local 2x6 quarter per with the ESMF Consultant experts state Overall environmental safeguards monitoring and reporting, Environment 1 per year CO based 12 compliance with ESMF/ Specialist per state staff Review of environmental safeguards implementation in 1 per Environment Local compliance with the ESMF and ECOP in environmentally 2x6 quarter per Consultant experts sensitive locations state Financial management, disbursement and reporting, FM 1 per year CO based 8 accounting module of OMMAS Specialist per state staff Procurement review of bidding documents, procedures, Procurement 1 per year CO based procurement training, revision of Procurement and Contract 8 Specialist per state staff Management Manual International Poverty impact study and road user satisfaction surveys Economist 6 As needed expert C. Communication and Reporting 3. The project communication and reporting arrangements have been set up to achieve strong partnership and support experience sharing between the Bank team, government agencies and consultants. These arrangements will enable regular and open interaction between all concerned parties and help identify what is working and the areas where more intensive support will be required. The ultimate goal of these arrangements is to learn from implementation experience and immediately apply lessons learnt to enhance the PMGSY systems, policies and 10 International expert is defined as either WB staff with international experience or international consultant. 71 procedures. Specifically, the parties involved in the project communication will focus on (i) assessment of compliance to agreed procedures and identification of weaknesses and performance shortfalls, (ii) identification of good practices which could be scaled-up, (iii) identification of areas and opportunities to further improve efficiency of PMGSY and project implementation, and (iv) development of recommendations. 4. The information flow to the Bank team will be arranged through four major channels: (i) reports generated through OMMAS at the national, state and district level, (ii) semi-annual reports from the PMCs, (iii) semi-annual reports from PACs, and (iv) on-line discussion through the project portal (SharePoint site). The on-line SharePoint has been created to support the day- to-day communication between the Bank team members based in HQ and country office, NRRDA and all participating states. This tool is expected to strengthen partnership between the Bank and implementing agencies as it will enable them to share experiences in all participating states, openly discussing project-related problems and jointly looking for solutions. It will also help the Bank project team to identify critical issues requiring immediate attention. Figure 5.1: Communication Flow to the WB team 7 PMCs PAC Phone/ OMMAS Network WB D. Bank Implementation Support Visits 5. All these reports will inform the agenda for each visit of the Bank project team. This approach will enable the Bank to focus implementation support on key areas of concern. During each visit an Action Plan will be agreed based on the mission's own findings, recommendations from the PMC/PAC, and other reports. Each visit will review the progress made on the agreed Acton Plan in the previous visit. 6. A comprehensive mid-term review is planned for mid-FY 13 to review progress in achieving the DLIs. Given the inherent risks associated with results ­based disbursements, this review will be used to assess the realism of the DLIs and, if necessary, adjustments will be made to DLI targets through a formal project restructuring exercise. A similar review will be conducted 6 months before project closing to assess progress towards achieving the DLIs and, if needed, the project will be restructured as needed in accordance with Bank policies. In the event the DLIs are achieved ahead of schedule, the project implementation period will be shortened and disbursements accelerated; in case of delays in achieving DLIs, either the project implementation period could be extended or the project size and associated DLIs scaled down to reflect absorptive capacity constraints. 72 Annex 6: Team Composition INDIA: PMGSY RURAL ROADS PROJECT Simon Ellis Task Team Leader SASDT Ashok Kumar Co Task Team Leader SASDT Anna Pinto Hebert Senior Operations Officer SACIN Aradhna Mathur Environmental Specialist, Consultant SASDT Asif Faiz Rural Roads Specialist, Consultant SASDT Bjorn Johannessen Rural Roads Specialist, Consultant SASDT Prof. Clive Bell Economist, Consultant SASDT Dhirendra Kumar Procurement Specialist SARPS D. P. Gupta Rural Roads Specialist, Consultant SASDT Durga Prasad Institutional Specialist, Consultant SACIN Fernanda Ruiz Nunez Economist SASDT Geoff Edmonds Rural Roads Specialist, Consultant SASDT Gizella Diaz Program Assistant SASDT Harbaksh Sethi Procurement Specialist, Consultant SASDT Jeff Thindwa Senior Social Development Specialist SASDS Joseph Fagan e-Procurement Consultant SASDT Juan Quintero Senior Environmental Specialist SASDE Krishnan Srinivasan Procurement, Consultant SASDT Kumudni Choudhary Program Assistant SASDT Manvinder Mamak Senior Financial Management Specialist SARFM Mei Wang Senior Counsel LEGES Natalya Stankevich Governance Specialist SASDT Neha Vyas Environmental Specialist SASDI Nicole Nguyen Wynands Junior Professional Associate SASDT Peter O'Neill Lead Infrastructure Spec./Peer Reviewer TWITR P. K. Lauria Engineer, Consultant SASDT Radia Benamghar Operations Analyst SASDT Rajiv Sondhi Sr. Finance Officer CTRFC Roland Lomme Governance Advisor SACIN Santhadevi Meenakshy Safeguards Specialist (Consultant) SASDT Susanne Van Dillen Economist, Consultant SASDT Venkata Rao Bayana Social Specialist, Consultant SASDS William Paterson Consultant / Peer Reviewer EASNS 73 Annex 7: Economic and Financial Analysis INDIA: PMGSY RURAL ROADS PROJECT A. Introduction 1. In 2000, the Government of India (GoI) launched the PMGSY program to provide all- weather road access to all of India's habitations with populations exceeding 500 persons (250 in hilly and desert areas) by 2015. At that time, about 170,000 habitations were eligible; at present, about 40 percent of the roads are completed. The aim of the program is to draw India's villages into the mainstream. First, with improved connections to markets, villagers should face more favorable prices for inputs and outputs, which will raise their incomes and sharpen the incentives for them to cultivate more intensively, pursue new activities and invest in new methods. Second, by reducing the time spent travelling to and from school (and in the rainy season, by making the trip actually possible), an all-weather road should improve the attendance rate, not only of students, but also of their teachers, thus promoting the formation of human capital and the growth of productivity over the long run. Third, by likewise improving the villagers' access to timely treatment, especially in the event of accidents and bouts of acute sickness, the connection should lower mortality and morbidity. Improvements in these domains will, if realized, reduce poverty and increase productivity in the short and the long run. 2. Three big questions arise. What has already been spent represents sunk costs. How are the resulting benefits best sustained and even enhanced? Is a continuation of PMGSY according to past practice socially profitable? If a stop is out of the question, how can we improve on past practice? 3. This Annex is primarily concerned with the second and third questions, but there will be some closing remarks on the first. The salient elements of an economic evaluation of this program are as follows: a) The feeder roads must be constructed, and thereafter maintained, to some desired engineering standard. This public investment activity also involves making choices among alternative techniques of construction (machines vs. labour), sequences of connections, tendering processes and financing. b) Upon completion, a feeder road will reduce transportation costs and otherwise enlarge villagers' economic opportunities. Farmers may respond by changing their cropping patterns and techniques, as well as what and how much they market. These decisions depend on the village wage rate, which is itself endogenous. Local labourers can commute more easily to work in other connected villages and towns ­ and outside labourers can also compete more easily for local jobs. All villagers will also enjoy better access to various services provided elsewhere, often in towns. Of central importance here are schools and health facilities. c) All these changes need to be valued. One can, in principle at least, compute the equivalent variation (EV), which is the lump-sum payment such that villagers would be indifferent 74 between having the more favorable environment with the feeder road and going without it but receiving the payment instead. In an economy distorted by taxes, subsidies and market imperfections, this is not the end of the story. For shadow prices (SPs) will then diverge from market prices and it is at SPs that the road's social profitability must be evaluated. In this connection, it will be argued that the social discount rate is at most ten percent. d) Each feeder road forms part of a network, which is potentially subject to so-called `technological' externalities. Connecting one village to the nearest secondary or main road will typically lower the costs of connecting other nearby villages to the same, depending on the sequence chosen. Yet extending the network in this way is virtually certain to increase the volume of traffic on the main roads, and hence to increase not only wear and tear, but also the number of accidents thereon. Since much of the additional traffic will have a town as its destination, congestion and pollution will increase, too. It follows that the effects of the whole program are not simply additive in those of its individual (project) components, and in the absence of corrective taxation, some of the potential benefits may be dissipated. e) There remain the so-called `pecuniary' externalities. Connecting one or two villages to the main road is unlikely to have a measurable effect on the prices of goods ruling in the nearest towns; but connecting many may have significant repercussions. The prices farmers receive may actually rise if larger marketed volumes promote market efficiency. It is also possible that some technologies for producing other urban goods exhibit decreasing unit costs, partly in the form of so-called agglomeration economies. Since it is very unlikely that these potential increasing returns can be fully exploited through international trade, the larger volumes of urban transactions that are generated by new connections will make these technologies more profitable. PMGSY is so large that these pecuniary effects cannot be ignored a priori. Any attempt at a full-blown analysis of such an investment program would, therefore, be a formidable undertaking, and as such some fairly drastic simplifications are unavoidable. The approach adopted here is to begin by treating each PMGSY road as an isolated element in a wider system, so that, at the first stage, the loan program involves just a bundle of such unrelated elements, each with its own particular characteristics and catchment villages. At the second stage, the effects of the bundle on the wider system are taken up, albeit largely qualitatively. It will be argued that these external and spillover effects probably yield some net additional benefits, but of very uncertain magnitude. f) Taking each road by itself, the central problem is to estimate the benefits it generates for the villagers in its catchment area. The classical, direct approach is to establish (or forecast) the levels of traffic with and without the road, together with the associated reductions in trip-costs. There are two drawbacks to this approach when applied to poor, backward areas. First, village resources may not be fully employed and the changes in the prices of goods bought and sold may be large, so that the road induces a reallocation so great as to cast doubt on estimates derived in this way. Second, the lion's share of the benefits arising in the domains of education and health is likely to be missed, so that arriving at an estimate of these benefits by other means is essential. To deal with the first, an alternative approach is employed, in which the change in real village income serves as the measure of the benefits generated in the `commercial' domain of village life. To deal with the second, methods are 75 employed that attempt to capture the benefits in education and health more fully by explicitly incorporating the formation of human capital. 4. Turning to the larger setting, India's system of public finances has a potentially decisive influence on the program's social profitability. First, PMGSY contains no provisions for road maintenance beyond the first five years following construction. Thereafter, maintenance becomes the responsibility of the State in question. Since the States are in a parlous fiscal condition, there could well be a dramatic fall in the quality of these roads, and hence the benefits they generate, if no system of secure, long-term financing is put into place. Second, since PMGSY roads are part of a wider network, their social profitability depends on the condition of that network. It is well-known that the condition of district roads and state highways is often unsatisfactory and sometimes deplorable, so that the larger fiscal question arises here, too. Much of past investment in PMGSY will be wasted, and further investments will be markedly less profitable, if the wider policy framework is deficient. 5. In this connection, it is important to draw a distinction between PMGSY as a whole and the particular component thereof which is to be undertaken as part of this project. For the project aims not only to finance the construction of some 24,000 km all-weather rural roads, but also to develop a system for maintaining them in good condition over the long haul. To the extent that it succeeds in the latter, the lessons learned can be applied with advantage to the rest of PMGSY, especially to past investments, which now represent sunk costs and whose ability to generate benefits in the future is increasingly threatened by inadequate maintenance. B. Shadow Prices 6. For the purpose of the analysis, there are three elements to Shadow Prices (SPs) that have been considered: the social discount rate, the premium on public income relative to private income, and the cost at SPs of building and maintaining a representative rural feeder road. 7. The social discount rate has been set at a rate of ten percent which is the test rate adopted by the planning commission and the upper range of suggested by economic theory in India11. 8. The premium on public income has been set at zero because where poor communities are concerned the government should be indifferent between making a transfer to them and keeping the money for other purposes. The only exception is Punjab, whose general population enjoys comparative affluence and wherein the Project will involve much upgrading of existing roads rather than the construction of new ones. In this state, it is arguable that private benefits should be discounted somewhat (see below). 9. Constructing and maintaining roads in India is pretty labour-intensive, so there are good grounds for adjusting the corresponding costs at market prices. Theory and empirical estimates in various developing countries suggest that the so-called conversion factor, for such construction work is typically 0.8 to 0.85. 11 See Bell, C. (2010b), `Estimating the Social Profitability of PMGSY: A Bumpy Ride', mimeo, University of Heidelberg, August for more details. 76 C. The Cost of Construction and Maintenance 10. At the aggregate level the project will directly fund 24,000km of road and connect 7,500 habitations at a cost of US$1.44 billion. For a `representative' link (or feeder road) in the project the average cost will be US$211,000 assuming an average cost per km of US$61,820 and an average link-length of 3.41 km. It is assumed that routine maintenance costs will average one percent of construction costs per annum and that periodic maintenance costs will be 35 percent over a ten year period. Given a conversion factor of 0.825 and discount rate of ten percent the present value of the new road and subsequent maintenance is US$217,200. 11. To any estimate of the present value there corresponds a constant flow of annual benefits over the lifetime of the project following completion such that it just breaks even at the chosen discount rate. This yields a figure of $23,180. Since such roads are effectively pure public goods when viewed as isolated elements, their social profitability depends heavily on the number of beneficiaries. A `representative' household must enjoy a certain benefit per year for 30 years for the project to pass muster at the chosen social discount rate. 12. With the hurdle's height thus established, we now investigate whether the project will clear it. First, however, we must address the fact that there is not only great variation across states as shown in Table 7.1, but also that the cost estimates themselves are subject to much uncertainty. Table 7.2 sets out the estimated ranges of values of key variables and parameters, based on discussions with specialists in this field. These will come into play in Section E, wherein we estimate not only the expected values of the links' social profitability in the various states, but also the associated confidence intervals. 13. Table 7.1 reports some summary statistics of PMGSY in each participating state over the period 2005-06 to 2008-09. Hilly states (Himachal Pradesh, Meghalaya and Uttarakhand) have, on average, longer links, which serve, on average, more habitations; but the density of habitations along their links is lower, as is the average size of habitations so served. All else being equal, longer links, higher construction costs per km and lower population densities all work against social profitability ­ and they make themselves felt (see Section 5). Punjab is an apparent exception: here, the projects take the form of upgrading rather than new construction; but dense populations come to the rescue. The set of links to be constructed under the project should have broadly similar features. Table 7.1: Salient features of connections in the participating States, 2005-06 to 2008-09 State Link-averages Total habitations connected, grouped by population size Length Hab. per Hab. per Households 1000 + 500 ­ 250 ­ 0 ­ 250 (km.) link km. per link 999 499 HP 5.73 2.20 0.38 209 169 607 847 973 JH 4.47 2.45 0.55 509 800 489 435 369 MG 5.10 1.47 0.29 168 5 76 57 21 PB 12.71 9.62 0.76 2,469 1,553 868 428 226 RJ 3.35 1.08 0.32 210 2,625 5,867 2,025 265 UP 1.86 1.47 0.79 360 3,928 3186 911 679 UK 8.70 2.04 0.23 286 98 184 136 160 HP = Himachal Pradesh; JH = Jharkhand; MG = Meghalaya; PB = Punjab; RJ = Rajasthan; UP = Uttar Pradesh; UK = Uttarakhand. Source: http//: omms.nic.in; author's interpolations and calculations. 77 Table 7.2: Estimated numerical ranges of the cost parameters in the participating States State Minimum Maximum Minimum Maximum Minimum Maximum Minimum Maximum cost per km cost per km cost of cost of cost of cost of salvage salvage mainte- mainte- resurface- resurface- value (%) value (%) nance per nance per ing every ing every annum annum 10 years 10 years HP 28.69 34.81 0.0084 0.0105 0.306 0.383 0.23 0.27 JH 24.97 31.17 0.0077 0.0096 0.321 0.399 0.23 0.27 MG 50.32 57.01 0.0064 0.0079 0.175 0.219 0.23 0.27 PB 38.43 41.43 0.0062 0.0078 0.208 0.261 0.23 0.27 RJ 20.81 22.01 0.0115 0.0144 0.308 0.384 0.23 0.27 UP 17.74 38.81 0.0135 0.0169 0.451 0.563 0.23 0.27 UK 26.69 34.81 0.0122 0.0152 0.335 0.418 0.23 0.27 HP = Himachal Pradesh; JH = Jharkhand; MG = Meghalaya; PB = Punjab; RJ = Rajasthan; UP = Uttar Pradesh; UK = Uttarakhand. The conversion factor K is assumed to be uniformly distributed on the interval [0.8, 0.85]. D. Estimating the Benefits 14. The participating states vary greatly in their levels of economic and social development. Jharkhand is poor and backward, most of its villages are but little commercialized, and traffic volumes are low. Punjab has the highest state domestic product per head in the whole Union, its agriculture is highly commercialized, rural traffic is heavy, and its social indicators are now well above average. A new all-weather road in the former is therefore unlikely to generate the sort of commercial benefits flowing from one in Punjab; but such roads may also be valued quite differently by their respective beneficiaries. These forms of heterogeneity demand careful treatment. 15. Viewing the individual feeder road in isolation from the rest of the network, each road affects only those who live within its catchment area. The villagers enjoy benefits in three broad spheres, namely, `commercial', education and health, which are taken up seriatim. The first lends itself much more readily to estimation than the other two; but even in the commercial sphere, there are considerable uncertainties. 16. Indeed, it turns out that the empirical basis for estimating the main effects is wanting. The only available sources that provide reasonably reliable primary evidence are field-notes on a tour of Assam, Himachal Pradesh and Assam (Bell, 2009a), a special re-survey of 240 households drawn from 30 villages in Orissa's uplands (Bell, 2010b), and materials on agricultural marketing provided by Grahame Dixie. A useful secondary source is Khandker et al. (2009), which yields estimates of certain effects of rural roads in Bangladesh. The secondary literature is otherwise disappointingly thin for present purposes. 1. Commercial 17. A household is endowed with labour, land and other assets, which it supplies to productive activities, either in the household's own enterprises or those run by others. A new all- weather road will raise export prices and reduce import prices. Hence, income (and welfare) will rise, even if households stick to their old plans. In fact, households will normally respond to 78 these new opportunities in various ways: by changing cropping patterns and farming techniques; by switching into livestock activities; by choosing new marketing channels; and by taking up non-farm business and employment. 18. Be that as it may, the village is treated here as a small open economy. Transactions between villagers, whether in the form of tenancy, or labour services, draught animals, or animal feed usually simply net out; so that the resulting sum is just the village's domestic product plus any net factor income from its dealings with the rest of the economy, that is to say, gross village income (analogously to gross national income). Any changes in the aggregate production plan involve mainly changes in the purchases of inputs that the village cannot supply itself, such as artificial fertilizers, pesticides, motor fuel, certified seeds and the like, with an allowance for the costs of additional credit when needed. 19. For example, a community in Himachal Pradesh enjoys a good standard of living and is heavily commercialized, the principal crop being apples. A stretch of some 12 km of all-weather road was completed under PMGSY in the middle of 2009, at a cost of about Rs 30 million. It serves five villages, whose combined population is about 2000 persons, living in some 350 or so households. Only ten percent have no orchard; the rest own, on average, about 400 trees, which yield about 500 boxes of 25 kg each in a normal year. Before the road was constructed, there was just a kutcha track, which truckers were rarely prepared to enter, and portage (usually by Nepali workers) over footpaths was arduous, often exceeding 1.5 km. In 2008, the average cost was Rs 20 a box; in the 2009 season, thanks to the road, it fell to seven Rupees a box. Even so, the road is almost surely socially unprofitable at the discount rate of ten percent, unless it generates substantial benefits of other kinds. 20. The benefits, if (bare) profitability is to be achieved, needs to be just over one half of the savings in transporting the current main crop. This sum is not beyond the realms of the possible; but in the light of the modest volume of trade in other commodities and the fact that the villagers already enjoyed good access to education and health facilities before the road was constructed, it seems rather doubtful that help from this quarter would ensure profitability at the test rate of ten percent. 21. Orissa's impoverished uplands provide the second example ­ and a stark contrast. Six PMGSY roads, all recently constructed and typically costing Rs 20 to 30 million, serve a typical catchment area of about 1,200 households. To arrive at an estimate of the benefit per household, suppose that the `commercial' benefit is 11 percent of household consumption12. Average household consumption in a sample of 240 households drawn from 30 villages in this region in 2001 was about Rs 15,000 a year, thereby implying a commercial benefit of about Rs 2,250 in 2008 prices. Scaling up by the effective number of households in the catchment area, we obtain an aggregate annual benefit in the commercial sphere alone of Rs 2.70 million. Therefore, the present value of the commercial benefits is Rs 25.30 million. 22. With the benefits in the spheres of education and health still to come into the reckoning, there is every prospect that this group of roads will indeed pass at the test rate of ten percent. Why is this so when that serving the commercialized community in Himachal Pradesh probably 12 See Khandker et al. [2009] 79 fails? The answer lies substantially in the numbers of their respective beneficiaries: for pure public goods, the more the merrier. 2. Education 23. It is tempting, perhaps, to pursue the same line of argument in the spheres of education and health by employing the savings in commuting to school and getting to a physician or clinic, with the consequent reduction in morbidity. Yet this would err heavily on the low side. The long- term effects on human capital formation, and hence productivity, are not properly taken into account; and the reductions in pain and suffering associated with morbidity and in mortality are not considered at all, to say nothing of death's role in directly destroying human capital. To deal with human capital formation and mortality (but not pain and suffering), the household model has been extended into an overlapping generation (OLG) form to cover long-term dynamic effects. 24. There is much evidence from other parts of the world that the provision of all-weather roads improves school attendance and reduces drop-out rates. Eleven of the 30 villages comprising the Orissa Survey have such a road, eight of them since mid-2005. No effect on normal attendance or drop-out rates could be found, but there are substantial (and statistically significant) annual savings of time: six equivalent days per child in normal commuting and ten days in involuntary absences due to bad weather. The latter is especially important, because teachers also often fail to turn up, which is highly disruptive. Illustrative calculations using the OLG-model suggest that the value of these 16 days to the household is about three percent of the annual opportunity cost of the child's time plus another one to two percent of the total benefits generated by the road in all three spheres, this latter contribution arising from better attendance by teachers, which enhances the quality of education. 3. Health 25. The Orissa Survey data provide no support for the hypothesis that the provision of a road, in itself, may have affected these villages' disease environments, nor that it affects the so-called burden of disease arising from morbidity, at least in the short run covered by the survey. Yet timelier and better treatment may well have long-term consequences for health and productivity. To give an example, the high fever that usually accompanies a bout of malaria can damage the brain, leaving the individual impaired for life, should he or she survive. This particular hazard is especially acute for children. Timely treatment may not affect the duration of the bout, but it can certainly affect long-term productivity. At all events, the Survey provides strong evidence that an all-weather connection induces villagers to switch from Primary Health Centres (PHCs) to government hospitals, which are usually much more distant, but probably offer better treatment. The switch owes much to an estimated reduction in trip-time of over two hours. This change in behavior indicates that the road is indeed valued in the sphere of health, though sadly not by how much. 26. The Survey data also fail to reveal any reductions in mortality attributable to the presence of an all-weather road (see Table 7.3); but here it must be emphasized that the sample is really too small for such effects, should they exist, to have much chance of manifesting themselves. During the interviews, many villagers seemed to have had no doubts that some deaths had been 80 avoided ­ or would have been, had there been an all-weather road. Without such a road, opinions were expressed in 35 cases of the 39 deaths: 29 would have survived with timely treatment. With a road, nine of the 14 would have survived. Not much of a difference is discernible here. Yet in 23 cases of all the 53 deaths, the unfortunate individual received no treatment at all; and in all but two of these 23 cases, there was no road. It is hard not to draw the conclusion that a road will make a difference over the long run; but a larger sample will be needed to confirm it. Table 7.3: Distribution of deaths by cause, Orissa survey 2006-2009 Cause Malaria Pneum/TB Fever/flu Childbirth Other Total No road 12 8 8 5 6 39 Road 3 3 0 3 5 14 Total 15 11 8 8 11 53 27. Calculations can be done with the OLG model. For each of the first two generations, a ten percent reduction in premature adult mortality rates yields a benefit that is about ten to 12 percent of the total EV stemming from reduced transport costs and morbidity13. 28. To close this section, we take a completely different tack to valuing the benefits in these three domains. Table 7.4 reports how the respondents in the Survey themselves valued their new road, albeit qualitatively. They were asked to rank the three domains according to the size of the corresponding benefits they had enjoyed from the road thus far. The rankings in Table 7.4 suggest that in the respondents' eyes, the benefits in the domains of education and health are roughly as large as those in the commercial domain. This finding plays a vital role in Section E, wherein estimates of the total benefits are needed. Table 7.4: Households' ranking of benefits according to domain Rank 1 2 3 Domain commercial 31 23 17 education 11 20 40 health 29 28 14 total* 71 71 71 *One household out of 72 was lost to attrition. E. Summing and Scaling up 29. Faced with the practical difficulty that there are no available direct estimates, even of the commercial benefits, for the participating states, The following assumptions are made: (i) commercial benefits amount to Rs.2,250 per household with a standard deviation of Rs.1,100; (ii) benefits in the spheres of education and health are valued roughly on a par with the commercial ones; and (iii) to account for the uncertainties in benefits they are uniformly distributed on the interval [0.5, 1.5], and independently of the commercial and education and 13 See Bell, C. (2010a), `Goods, Education and Health: A Combined Model for Evaluating PMGSY', mimeo, University of Heidelberg, May for details 81 health benefits. In view of Punjab's comparative affluence and fairly well-developed amenities the interval is [0.4, 1.2]. 30. Combined with the distributions of the links' characteristics and cost parameters, as summarized in Tables 7.1 and 7.2, the distributions of benefits yield the joint distribution of the present values of the costs and benefits of a link in each state, and hence of their difference, the associated NPV. A full description may be found in Bell (2010c). The final step is to draw repeatedly from each joint distribution of the cost and benefit parameters; to each draw, there corresponds an NPV. Taking 10,000 draws for each state, this `Monte Carlo' procedure will yield, in fairly smooth form, the distribution of the NPV. 31. The sub-`Projects' in the three hilly states do not pass at the test rate of ten percent; but these aggregate expected losses are easily covered by the aggregate expected net returns in the other four states, and the limited (relative) dispersion points to only a modest risk that the actual realisation will turn out, on balance, to be in the red. 32. All the calculations thus far are based on the assumption that a road produces only a once-and-for-all (or `level') effect. It is plausible, however, that in a rapidly growing economy, the inhabitants of a road's catchment area will be better able to exploit the expanding opportunities the larger economy offers than those who do not have such a connection, so that the former will enjoy an additional `growth' effect. It is hard to say how big this might be; but since output per head in the larger economy is growing at six percent a year, it seems worth re- doing the calculations for individual links on the assumption that they induce an extra two percent a year within their respective catchment areas. F. Externalities, Spillovers and other System-wide Effects 33. The individual feeder road is, of course, only an element in a wider network, and viewing it in isolation is but a first step and a provisional simplification. In general, a new feeder road will have effects that ramify through the whole system in ways that are complicated and hard to estimate. 34. First, since the very aim of connecting villages to the mainstream involves increasing the movement of goods and people to centers of activity in the main network, it also involves more wear and tear, congestion, pollution and accidents therein, all of them adverse effects on existing users and hence additional items on the cost side of the ledger. Second, to the extent that there are economies of agglomeration in these centers ­ and there is some evidence that this is indeed a source of decreasing unit costs in many urban activities ­ connecting villages to them will induce benefits external to the local catchments served by the feeders themselves. Third, there is substantial evidence that larger volumes traded are associated with lower marketing margins on agricultural products, so that farmers receive higher prices, but not wholly at the expense of urban consumers. Fourth, inasmuch as a rural road makes life in its catchment area more attractive, it will tend to slow the pace of rural-urban migration, and so relieve the growing pressures on urban infrastructure and amenities. Since the dense populations of cities also promote the pools and propagation of numerous communicable diseases, there are external benefits on this score, too. Fifth, and closely related to the fourth category, if the villages are well-connected, non-farm work can be brought to them, as it was in the putting-out system in 82 Japan's industrialization. It should be noted, however, that such dispersion of activity, should it occur, will reduce the gains from economies of agglomeration. 35. It seems safe to say, however, that using the findings of a purely `local' analysis of a rural feeder road is not obviously heavily biased one way or the other where assessing its social profitability is concerned. The external costs are, perhaps, more tangible and thoroughly researched than the corresponding benefits; but the latter may outweigh the former in this setting. 36. The project also involves another potential externality; for it aims to develop a system under which roads will be maintained well. If successful, the knowledge so gained will be a public good, and the (net) benefits generated by applying this knowledge to other components of PMGSY will be properly attributable to the project. The snag is, of course, that forecasting the extent of such `learning to do better' is hazardous and fraught with temptation. What can be said is that success will yield large benefits, which should be discounted ex ante by a realistic assessment of the probability of achieving them. G. Conclusion 37. The following table reports the estimated expected value of the Net Present Values (NPV) (at shadow prices) and the associated internal rate of return (IRR) for the set of roads to be constructed in each of the participating states under the project. Also reported are the NPV and IRR for the whole program. Table 7.5: Estimated values of expected NPVs and IRRs, by participating States States Share (%) E[NPV]b IRR (%) Himachal Pradesh 13.0 ­ 12.370 3.5 Jharkhand 13.0 10.242 17.6 Meghalaya 14.0 ­ 13.798 2.3 Punjab 7.0 5.941 16.0 Rajasthan 26.0 1.034 10.3 Uttar Pradesh 12.0 28.834 38.8 Uttarakhand 16.0 ­ 10.420 4.3 Total 100.0 9.463 12.2 a: HP = Himachal Pradesh; JH = Jharkhand; MG = Meghalaya; PB = Punjab; RJ = Rajasthan; UP = Uttar Pradesh; UK = Uttarakhand. b: in Rs.109; social discount rate, 10%. 83 Annex 8: Governance and Accountability Action Plan INDIA: PMGSY RURAL ROADS PROJECT 1. The Governance and Accountability Action Plan (GAAP) developed for the proposed PMGSY Rural Roads Project is intended to improve the overall risk management, enhance efficiency and development impact and ensure allocated resources are spent for the intended purpose and directed to the beneficiaries. It aims at (i) mobilizing all existing integrity and accountability mechanisms in the country and good practices at the sector level, (ii) introducing or mainstreaming additional mitigating provisions to address the deficiencies of the local governance framework, resulting notably in poor maintenance. 2. It covers the entire value chain of the project and is informed by the sector experience, extensive discussions with different stakeholders, including the NRRDA, SRRDAs, PIUs, the contractor community and industry experts, beneficiaries/rural communities and stakeholders workshop held in May 2010, as well as by the findings of recently completed studies, e.g. the India Health Sector Detailed Investigation Review (DIR), the Transport Sector GAAP Guidance Note, the India Construction Industry and Design and Construction Review Study, as well as lessons learnt from implementation of GAAPs in several on-going transport projects in India. It also takes into consideration recommendations of the Comptroller and Auditor General (CAG) of India Report on PMGSY and the piloting of social audits for the implementation of PMGSY in Karnataka and Orissa14. I. Mobilizing all existing integrity and accountability mechanisms in the country and mainstreaming good practices at the sector level 3. In principle, several country integrity mechanisms apply in the implementation of public policies in India at the central, state and local levels. The GAAP first ensures that they apply effectively to the whole PMGSY program. In addition, several additional accountability mechanisms are being developed or piloted in certain states or sectors, including within the implementation of PMGSY (such as social audits, local body ombudsman). This GAAP aims at their mobilization across the board. A. Mobilizing all existing integrity and accountability mechanisms in the country 4. The GAAP first calls on all mandatory integrity mechanisms (Right to Information Act, internal and external audits, vigilance and anti-corruption, grievance redressal mechanisms) and makes sure that the relevant institutions (vigilance officers, office of the Comptroller and Auditor General, internal auditors, public information officers, etc.) are effectively discharging their duties during the program implementation. All public institutions involved in program implementation at the central, state and local level are required to abide by their legal obligations in that respect. Considering that several institutions are involved at the local level in the program implementation and that their responsibilities are often overlapping, the discharge of mandatory 14 See Public Affairs Centre, Citizen Monitoring And Audit Of PMGSY Roads: Pilot Phase II Project Completion Report, Submitted to National Rural Roads Development Agency, July 2009, http://www.pacindia.org/publications/PMGSY%20Pilot%20II%20-%20Final%20draft%20report.pdf 84 integrity mechanisms will be attributed at the state level (by the state ombudsman or Lokayukta) based on each state own legal provision and governance framework. 5. Integrity and accountability mechanisms mobilized for procurement and financial management (FM) are detailed in Annexes 3 and 5. In both cases, they ensure compliance with PMGSY Procurement and Contract Management Manual and Accounting Manual and respective WB Guidelines and aim at improving practices based on the country framework. B. Mainstreaming good practices already implemented at the sector level 6. In order to promote consistency between the governance framework applying to PMGSY in different states, the GAAP aims at institutionalizing the good governance and accountability practices developed or piloted in the most advanced ones. To that effect, it rests on cross- fertilization and support from the most experienced implementing agencies to the ones either inexperienced or lacking capacity. This is enshrined in the TA component of the program. 7. Through the PMGSY, the GoI has undertaken a breakthrough in the sector. For the first time in the rural roads sector, nationwide operational guidelines have been adopted in the areas of institutional structures (although they only cover implementation of construction works to the exclusion of maintenance and asset management of the rural road network), planning, and design, on-line reporting systems, procurement, contract management, financial and accounting system and manpower skills. Identified good practices aim at enhancing transparency in the decision making, strengthening planning, harmonizing design tools and rationalizing the institutional framework. They are the following: preparation of District Rural Roads Plan (based on Core and secondary networks) to provide all-weather road connectivity to all habitations; dissemination and regular updating of the information on the PMGSY website; use of on-line module (OMMAS) for progress reporting; citizen monitoring/social audit of PMGSY works in some states; a three-tier Quality Control System to monitor and ensure the quality of road construction works (with the concerned Executive Engineer and the Program Implementation Unit constituting the first tier, State Quality Monitors appointed by a state-level independent agency constituting the second tier, and senior technical personnel as National Quality Monitors appointed by the NRRDA constituting a third one); development of PMGSY operational guidelines, which cover all aspects of the program cycle, including preparation by each block and district of a core network to prioritize the selection of villages, mandatory provision for peoples' participation, adoption of an environmental and social management framework (ESMF), including the `Transect Walk' approach --to walk proposed alignments with local community representatives; successful piloting of the provision of `technical examiner' consultants through the Bank- supported RRP I to provide regular technical assistance and monitoring services for quality assurance, and contract administration for Bank-funded rural road subprojects in participating states; development of design standards for rural roads approved by the Indian Roads Congress; and 85 development of a standard schedule of rates for rural roads, model bidding documents for use in all tenders, and standard instructions for procurement to guard against fraudulent, collusive, restrictive and unfair practices. 8. PMGSY has successfully developed and deployed a number of social accountability mechanisms which help beneficiaries and communities hold government agencies accountable for progress and efficiency in program implementation. However, an evaluation of these mechanisms, including citizen monitoring, social audit and complaint redressal mechanisms, carried out by the Public Affairs Centre in Orissa and Karnataka, concludes that they could still be improved even in the most advanced states. Mainstreaming of these mechanisms will be encouraged in all the project-affected states based on lessons drawn by the Public Affairs Centre. Social audits will be triggered in particular by grievance redressal mechanisms mobilized at the local, state and central levels. II. Rationalizing function and resource allocation at the state level to mitigate the deficiencies in the local governance framework resulting in poor maintenance 9. The decentralization process is still evolving in India, which translates at the local level in an inadequate governance framework for policy implementation and service delivery. Local governance inefficiencies, such as overlapping jurisdiction between levels of government lead to a lack of clarity on function and resource allocation, which undermine maintenance and asset management in the rural road sector. 10. Maintenance is one of the main challenges yet to be overcome in PMGSY implementation, nearly ten years since its inception. Under the program, contractors are required to maintain the new roads for five years after completion of investment. Efforts have been made to ensure regular maintenance, but the results are quite uneven across states. It is estimated that only 30 percent of maintenance needs are met for the network as a whole and even under the five-year maintenance contracts only 25 percent of roads are fully maintained with 30 percent not receiving maintenance at all. 11. The PMGSY guidelines acknowledge the critical importance of the institutional framework for an effective maintenance and asset management of rural roads. Although the ultimate devolution of PMGSY roads management and ownership to local governments - Panchayati Raj Institutions (PRIs) - has been officially sanctioned, in the meanwhile the guidelines ascribe maintenance of the PMGSY roads to the Projects Implementation Units (PIU) "till such time as District Panchayats take over maintenance functions", recognizing that local governments often lack managerial, financial and technical capacity commensurate to this new responsibility. 12. The states are expected to provide funding both for the initial five year maintenance contracts and subsequent road maintenance activities, which are to be managed by their respective SRRDA. State governments are also supposed to "endeavour to develop sustainable sources of funding for maintenance of rural roads". The Thirteenth Finance Commission recommends allocating grants from the budget of the central Government for the maintenance of roads and bridges. While this project was under preparation, MoRD issued a new maintenance policy (under Circular No. 1 of 2010, dated September 9, 2010) "linking releases of program 86 funds to States/UTs contingent upon release of funds by the State Governments to the maintenance fund account of the respective SRRDAs." PMGSY guidelines assign to the SRRDAs the responsibility of estimating the necessary funds for maintenance from the state budgets and enforcing "a prioritisation criteria for allocation of budgeted maintenance funds [to] be developed in consultation with NRRDA, based on the Pavement Condition Index (PCI), giving weightage to conditions like traffic/population [by] liaise[ing] with the executing agencies receiving maintenance funding for rural roads to ensure coordinated application of the prioritisation criteria." 13. Accordingly, the GAAP aims at strengthening the maintenance and asset management institutional framework and system outlined in the PGMSY guidelines by supporting its clarification at the state level. It supposes that coordination between all spheres of government and public institutions involved in maintenance and asset management be formalized based on a clear and practical devolution of functions and resources. The GAAP promotes adequate policies, planning and prioritization as well as a collaborative and effective institutional framework at the state level through the development of state maintenance management systems and the piloting of effective mechanisms for the execution of maintenance activities. In addition, it focuses particularly on straightening the local governance framework, still uneven across states, notably when it comes to the jurisdiction and capacity of local governments15. 14. Project Directors in each SRRDAs will prepare progress reports on the GAAP implementation, including data for alert indicators on identified governance issues and risks. SRRDAs will submit to the NRRDA quarterly progress reports, to be reviewed jointly by the NRRDA and the WB. If any red flags are triggered, enhanced thematic or state specific supervision will be conducted by SRRDAs through specific third party audits, reviews by industry experts, training workshops and joint interim missions by the WB and the NRRDA. Subsequent to this enhanced supervision, in case there is still ground for concern, a detailed inquiry and investigation by the NRRDA, MoRD or the WB will be carried out. If investigations reveal lapses in integrity at any stage of the project cycle, local authorities will take corrective measures and the WB sanctions regime will apply. * * * 15. The main provisions of this GAAP are reflected by the Disbursement Linked Indicators which consequently ensure a close monitoring of its observance. 15 According to the Second Administrative Reform Commission, "despite the constitutional mandate, the growth of self-governing local bodies as the third tier of governance in the country has been uneven, halting and slow". CF its report on Local Governance, 2007. 87 Table 8.1: GAAP Matrix Issues / Risk Mitigating Actions to be taken Agency Early Warning Timeline Responsible Indicators Effectiveness of institutional framework Inconsistent Each beneficiary state to formally commit to the implementation State Continuou Lack of maintenance allocation of of adequate rural road maintenance and asset management governments, sly despite availability resources and funding, policies, procedures and systems based on clear and NRRDA as a of earmarked funds unclear practical devolution of resources and functions between line facilitator delineation of ministries, parastatals and local government functions at the local level Facilitate consultation between stakeholders to that effect, NRRDA between disseminate best practices and to review annually pending issues public pertaining to maintenance including institutional framework, and agencies creation of maintenance management unit at the relevant state involved in level rural road agency rural road maintenance Strengthen internal accountability through carrying out regular SRRDAs, and asset internal audits and random performance audits (by external NRRDA management independent auditors) and improving integrity of data in OMMAS Fraud and Corruption Untested NRRDA jointly with SRRDAs to consolidate annual review of NRRDA, 1st year Lack of disclosure of effectiveness vigilance, public information disclosure, internal controls, SRRDA public information of internal grievance redressal and complaints handling mechanisms at the integrity state levels and suggest improvements for internal integrity Absence of mechanisms mechanisms grievances redressal and complaints NRRDA to strengthen the transparency and effectiveness of NRRDA Annually handling procedures complaint handling module of OMMAS and report annually on and monitoring complaints received and actions taken Annually Understaffing of 88 Issues / Risk Mitigating Actions to be taken Agency Early Warning Timeline Responsible Indicators NRRDA to identify best practices and facilitate their vigilance cells dissemination across states Weakness of internal audits and controls Lack of Encourage greater participation through the contractors outreach SRRDAs Continuou Number of transparency program sly complaints, in rebidding rate procurement Ensure improved procurement capacity of the implementing SRRDAs process and agencies through disclosure of procurement documents (e.g., With Absence of ineffective procurement plan, NITs), application of the revised Procurement immediate systematic follow up contract and Contract Management Manuals, e-Procurement, revised effect on bidders' management MBD and carrying out of performance audits of procurement complaints procedures and practices NRRDA When Absence of Promote cross-support across states and disseminate best needed contractual remedies practices for contractors' non SRRDAs Continuou performance Commit to prosecution of fraud and corruption during bidding sly process and contract implementation as per the country's Unwarranted regulations payment delays (For more details of procurement provisions meant to ensure integrity of the process, see relevant sections in Annexes 3 and 5) Inadequate Make accounting module of OMMAS fully functional NRRDA, Within 1st Discrepancies and unreliable SRRDA year between financial (For more details of financial management arrangements, see disbursements and management relevant sections in Annexes 3 and 5) project progress Inordinate delays in quarterly reporting 89 Issues / Risk Mitigating Actions to be taken Agency Early Warning Timeline Responsible Indicators External/Social Accountability Untested Review the roles and effectiveness of Vigilance and Monitoring NRRDA, Within 1st No grievance effectiveness Committees at the local level for social accountability SRRDA year recorded of Vigilance and Improve the consistency and transparency of grievance redressal Absence of Monitoring mechanism and report annually on grievances received and SRRDAs consistent and Committees at actions taken transparent the local level grievance redressal follow up Insufficient Mainstream citizen oversight through social audits as a NRRDA, Continuou Absence of social citizen monitoring instrument to be triggered by the grievance redressal SRRDA sly audits oversight mechanism 90