Document of The World Bank Report No: 21739-MOG PROJECT APPRAISAL DOCUMENT ONA PROPOSED CREDIT IN THE AMOUNT OF SDR 26.4 MILLION (US$34 MILLION) TO MONGOLIA FOR A TRANSPORT DEVELOPMENT PROJECT February 28, 2001 Transport Sector Unit East Asia and Pacific Region CURRENCY EQUIVALENTS (Exchange Rate Effective February 2001) Currency Unit = Mongolian Tugriks (MNT) 1099 MNT = US$1.00 US$1.00 = 0.0009099 FISCAL YEAR January December ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank CAS Country Assistance Strategy CFAA Country Financial Accountability Assessment DoR Department of Roads DoRT Department of Road Transport EA Environmental Assessment EMP Environment Management Plan ERR Economic Rate of Retum ICB Intemational Competitive Bidding MIS Management Information System MoENR Ministry of Environment and Natural Resources MoFE Ministry of Finance and Economy MoI Ministry of Infrastructure MoJ Ministry of Justice MR Mongolian Railways NCB National Competitive Bidding NDF Nordic Development Fund NGO Non-governmental Organization NPV Net Present Value OIS Operations Information System PIU Project Implementation Unit PMR Project Management Report RDP II Second Roads Development Project TRP Transport Rehabilitation Project VIS Vehicle Inspection System Vice President: Mr. Jemal-ud-din Kassum Country Manager/Director: Mr. Ian Porter, Acting Country Director Sector Manager/Director: Mr. Jitendra Bajpai Task Team Leader/Task Manager: Mr. Robin Carruthers MONGOLIA TRANSPORT DEVELOPMENT CONTENTS A. Project Development Objective Page 1. Project development objective 2 2. Key performance indicators 2 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2 2. Main sector issues and Government strategy 3 3. Sector issues to be addressed by the project and strategic choices 6 C. Project Description Summary 1. Project components 8 2. Key policy and institutional reforrns supported by the project 10 3. Benefits and target population 10 4. Institutional and implementation arrangements 10 D. Project Rationale 1. Project alternatives considered and reasons for rejection 11 2. Major related projects financed by the Bank and other development agencies 13 3. Lessons learned and reflected in proposed project design 13 4. Indications of borrower commitment and ownership 14 5. Value added of Bank support in this project 14 E. Summary Project Analysis 1. Economic 15 2. Financial 15 3. Technical 15 4. Institutional 16 5. Environmental 17 6. Social 18 7. Safeguard Policies 20 F. Sustainability and Risks 1. Sustainability 20 2. Critical risks 21 3. Possible controversial aspects 22 G. Main Credit Conditions 1. Effectiveness Condition 22 2. Other 22 H. Readiness for Implementation 23 l. Compliance with Bank Policies 23 Annexes Annex 1: Project Design Summary 24 Annex 2: Detailed Project Description 27 Annex 3: Estimated Project Costs 33 Annex 4: Cost Benefit Analysis Summary 34 Annex 5: Financial Summary for Revenue-Earning Project Entities 38 Annex 6: Procurement and Disbursement Arrangements 39 Annex 7: Project Processing Schedule 47 Annex 8: Documents in the Project File 48 Annex 9: Statement of Loans and Credits 50 Annex 10: Country at a Glance 52 MAP(S) IBRD 31271 MONGOLIA Transport Development Project Appraisal Document East Asia and Pacific Region Transport Sector Unit Date: February 28, 2001 Team Leader: Robin C. Carruthers Country Manager/Director: Ian Porter Acting Country Sector Manager/Director: Jitendra N. Bajpai Director Project ID: P056200 Sector(s): TH - Highways Lending Instrument: Specific Investment Loan (SIL) Theme(s): Poverty Targeted Intervention: N Project Financing Data [ ] Loan pq Credit [ Grant [ Guarantee [ Other: For LoanslCredits/Others: Amount (US$m): $34.00 Proposed Terms: Standard Credit Grace period (years): Years to maturity: Commitment fee: Service charge: % Financing Plan: Source Local Foreign Total BORROWER 8.84 0.00 8.84 IDA 0.00 34.00 34.00 NORDIC DEVELOPMENT FUND 0.00 6.70 6.70 Total: 8.84 40.70 49.54 Borrower: MONGOLIA Responsible agency: Ministry of Infrastructure Address: Ministry of Infrastructure Contact Person: Mr. Byamba Jigjid, Minister Tel: 976-11-326222 Fax: 976-11-310612 Email: Address: Department of Transport, Road, Information, Communication and Tourism Policy and Coordination Contact Person: Dr. Javchig Sereeter, General Director Tel: 976-11- 326119 Fax: 976-11-310503 Email: Sereeter@mid.pris.gov.mn Estimated disbursements ( Bank FY/US$M): FY 2001 2002 1 2003 2004 2005 Annual 7.23 17.07 16.81 | 6.14 2.29 Cumulative 7.23 24.30 41.11 47.25 49.54 Project implementation period: February 2001-June 30th, 2005 Expected effectiveness date: Expected closing date: 12/31/2005 OCS PAD F- R. M..h. 2000 A. Project Development Objective 1. Project development objective: (see Annex 1) The project aims to improve the accessibility of the isolated and remote central and western regions of Mongolia - which include about 36% of the national territory and about 27% of the population - increase transport capacity for rail-borne export trade, and reduce the number of fatalities resulting from road accidents. To meet these objectives the project will help to keep the two access roads to the region open all through the year, implement a Financial Accounting System (FAS) for the railways and initiate a system of annual vehicle inspections. 2. Key performance indicators: (see Annex 1) The principal outcome/impact indicators for monitoring progress towards achievement of these objectives are: a. The number of days each year when the towns of western Mongolia are accessible by road; b. The number of road fatalities attributable to vehicle condition; b. The proportion of the earth and gravel road networks receiving routine and periodic maintenance; and d. The volume of international and transit transport B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: IDA/R98-38 Date of latest CAS discussion: 06/02/1998 This project would support the CAS objectives to: (a) develop infrastructure to support private sector growth and market development, contribute to increased foreign investment and global integration; and (b) and promote equity in development through direct poverty alleviation assistance to ensure continued support for the most vulnerable groups. Among the vulnerable groups are the populations resident in the regions of the country most remote from Ulaanbaatar and its services, and it is these that would benefit most from the proposed project. The CAS states that in provincial (aimag) centers, 48 percent of population are officially poor, and social services have degenerated, job opportunities are limited and growth prospects are constrained by weak infrastructure, remote location and highly dispersed populations. Upgrading of the mostly earth roads to all-weather status would provide rural communities with minimum access to social services, facilitate domestic marketing and distribution, and mitigate further damage to fragile pasture lands from erosion by vehicles. More and better maintained transport infrastructure is essential to facilitate increased private enterprise and trade, and to tackle poverty and regional inequities. Substantial investment will be needed in transport infrastructure, given Mongolia's landlocked status and limited internal surface network, together with greatly improved transport services to seaports in China and Russia to facilitate an increase in exports. As well as supporting the CAS, the project is consistent with the IDA 1999 Transport Strategy and its 1998 Rural Development Strategy, and complements actions being taken under the on-going Transport Rehabilitation Project, the Poverty Alleviation for Vulnerable Groups Project and the proposed Sustainable Livelihoods project, by putting a high priority on reducing the isolation of remote regions and integrating them into the national economy. -2- 2. Main sector issues and Government strategy: Analyses of the performance of the transport sector have been made under a previous IDA Transport Rehabilitation Project and two Asian Development Bank (ADB) Highway Projects. These have identified the following transport sector issues. Funding and management of road maintenance. With less than 13% of its national road network and 3% of its total road network paved, Mongolia needs to allocate more than the usual share of its GDP to maintaining its network of mostly earth roads, but has until recently failed to pay adequate attention to maintenance. Its allocation ofjust 0.2% of GDP to road maintenance during the 1990s was an even smaller percentage of its GDP than the inadequate amounts of other countries at a similar state of economic and political development (Cambodia and Vietnam both allocated more than 0.6%). Present road network (kms) Paved Gravel Formed Sub-total Earth Total Road tvte Earth Tracks State 1,245 1,344 1,391 3,980 0 3,980 Roads Other 343 480 516 1,339 7,055 8,394 Roads I_I I I I I_I Source: Bank estimates based on Department of Roads (DoR) data Many of the formed earth and gravel roads are now in such poor condition that drivers avoid them, preferring to create alternative tracks across the steppes, and in doing so degrade valuable pasture land. The neglect of timely maintenance of the few paved roads is now evident in an high incidence of severe localized deterioration, sometimes making the roads impassable. These poorly maintained roads combine with even lower standards of vehicle maintenance to produce on of the world's highest rates of road fatalities (measured as fatalities per motorized vehicle). The UK's Transport Research Laboratory, working within the IDA Transport Rehabilitation Project, has estimated that about U$12.5 million is needed each year for road maintenance (estimates made by the ADB are slightly higher), once the past neglect has been overcome. That in itself will need a further U$20 million. However the average expenditure on road maintenance in each of the last three years has been less than U$1 million. Estimated necessary andjustifiable expenditure on road maintenance (U$m peryear) Paved Gravel Earth Total Road tvye State 6.8 2.1 1.0 9.9 Roads Other 1.8 0.6 0.2 2.6 Roads I _I_I_I Total 8.6 2.7 1.2 12.5 Source: Bank estimates, based on TRL data -3 - In a vast and under-populated country (1.53 people per kmi, the lowest national figure in the world) with a sparse road network and few motorized vehicles, balancing the few available financial resources between expanding the network and maintaining what little already exists involves many difficult choices. Management of the recently reconstituted Road Fund, which is required to provide funding for both new construction and maintenance, is the forum where those choices will now be made. Given that most of the finance for new road construction comes through loans, credits and donations, the Road Fund is largely used as the source for counterpart funding, leaving inadequate funds for maintenance (although most economic evaluations give a higher ranking to maintenance than to expansion). Unless a substantial share of the new finance available to the Road Fund is allocated to routine and periodic maintenance, future annual maintenance costs will be even higher than the U$12.5 million indicated. However, the government finds it difficult to dedicate funds to road maintenance when there is a severe lack of paved roads throughout the country (only 1,600 kms of paved roads, 20% of which are in urban areas, in area comparable to that of France, Spain, Italy and the UK combined). Extemal funding for new construction projects could be drastically reduced if donors see that their investments are not being adequately maintained, and therefore are not sustainable. Institutional weaknesses. Although the road sector institutions have received technical support from IDA's on-going Transport Rehabilitation Project and two ADB Highway Projects, there has been little support for institutional management or for road transport activities. The agencies' strategic planning and project selection and prioritization procedures are little developed and they lack modem analytical and information tools which would allow their resources to be managed efficiently. They have little experience of implementing competitive bidding procedures or in supervision of consultants and contractors. Through ADB, JICA and Kuwait Fund supported projects, the Roads Department is now gaining experience of ICB procedures, and in the last three years, has added NCB procedure experience through the on-going IDA Transport Rehabilitation Project. The bidding documents from this project are being used on the IDA-financed Ulaanbaatar Services Improvement Project, and will serve as a model for future bidding and contract documentation, replacing the previous ad hoc and inconsistent documents. Road maintenance industry. Until 1995, when the previous road maintenance units of the Department of Roads were converted into publicly owned contracting companies, all road maintenance was undertaken by force account. Subsequent progress under the overall privatization policy of the Government has been slower than expected, in part hindered by the drastic scaling down of the industry's operations. The companies have not yet developed much commercial management expertise. The quality of their output, together with that of local engineering consultants in the road sector is further reduced through: (a) weak institutional procurement procedures; (b) inappropriate controls on unit costs and payment delays; and (c) inadequate and ineffective quality control, supervision, contract management and enforcement. Lack of competition and high cost of road transport services. While there is adequate competition on the two main transport corridors leading out of Ulaanbaatar, the low population density makes it difficult to sustain competing services on other routes, resulting in a lack of competition, high costs and unreliable services for both freight and passenger transport. This makes it unattractive for traders to visit remote regions unless they are adequately compensated, which as well as high prices, results in traders taking advantage of the monopoly to sell inferior quality goods (such as time-expired medical supplies). High accident rates and increasing vehicle induced air pollution. The Department of Road Transport (DoRT) estimated that more than a quarter of road accidents are directly attributable to the condition of the vehicles, and in a further quarter it is a contributory factor. The fatality rate is about 37 per 10,000 -4 - vehicles (about double what would be expected for a country of similar income) and of these about a quarter are pedestrians (the severe climatic conditions result in few cyclists or other non-motorized vehicle users). The proportion of accidents attributable to vehicle condition is much higher than in most other countries at a comparable stage of development, and is partly attributable to the lack of a vehicle maintenance industry and a lack of spare parts and the means to pay for them. While the project will not address the lack of parts directly, by introducing voluntary testing one year in advance of the complusory system, it will give an opportunity for a maintenance industry and parts supply system to develop. If the proposed Vehicle Inspection System (VIS) halves the accidents attributable to vehicle condition, it could save up to 50 lives each year. In the last few years a large number of used vehicles have been imported to Mongolia from Eastern Europe and Korea, many of them having failed the emissions tests in their home country. As well as being of doubtful safety and reliability standards, these vehicles make an increasing contribution to mobile source air pollution in Ulaanbaatar and other urban areas. While procedures and equipment that will allow the regular and reliable monitoring of air quality are only now being introduced, the partial monitoring undertaken for the last few years indicates a consistently high and increasing level of SO2, NO2 and particulates (recording of CO or CO2 levels will only start later this year). Government strategy The Ministry of Infrastructure (MoI) and the IDA produced a transport strategy (Taming the Tyrannies of Distance and Isolation) in 1998. This highlighted the need for better planning of investments in the sector, and a higher allocation of funding for maintenance. An outline investment strategy indicated that investment in transport of about 3% of GDP would be needed to sustain the proposed economic growth rate of about 4%, and that of this investment about 68% would need to be on roads, of which about 45% should be on routine maintenance (i.e., road maintenance requires about 0.9% of GDP). New investment should be aimed at increasing the accessibility of isolated communities and in reducing the impact of Mongolia's distance from ports and world markets on the prospects for economic growth. Emphasis should be placed on establishing one East-West corridor linking seven regional capitals with the capital city and on one North-South corridor, linking the capital with both China and Russia. The strategy of the then government was that IDA would concentrate its investment assistance on the former, while the ADB and donors would concentrate on the latter and that the finances of the Road Fund would be restructured and focused on maintenance, with national budget revenues contributing to new construction and counterpart funding of foreign loans. The need for a comprehensive, multi-annual road maintenance plan was recognized to ensure that the new roads were adequately maintained, and thenecessary finance could be resourced and then used efficiently. The new government puts a high priority on stimulating economic growth and therefore puts an emphasis on both new construction and maintenance. With competition already being the paradigm for delivery of transport services, the strategy recognizes that the low level of demand for most transport services places a heavy responsibility on a regulating agency to ensure adequate competition. In the many instances where competition is not feasible, negative concessioning should be used to ensure provision of minimum acceptable standards of accessibility. The few remaining publicly owned transport services should be sold (MIAT airline), or totally (urban buses) or partially concessioned (railways). The scarcity of qualified professionals (in a total population of less than 3 million) means that regulatory resources should be concentrated in a single agency. The strategy placed a strong emphasis on addressing the high level of road fatalities and proposed the rapid implementation of a VIS to reduce the number of accidents attributable to poor vehicle maintenance. It also - 5 - proposed that the VIS deal with emerging problem of vehicle emissions contributing to a degradation of air quality, and encouraging a culture of care for the enviromnent among motorists. In respect of human resources, the strategy recognized that in an emerging competitive economy, acquiring marketing and management skills through experience can be a slow process, so external support should be sought for training in these areas. A particular need was recognized in the road construction and maintenance industry, as well as in the management of transport enterprises, such as urban buses and inter-urban freight and passenger services. 3. Sector issues to be addressed by the project and strategic choices: The ADB has taken the lead among the lenders and donors to the transport sector in Mongolia, and is strongly supported by IDA. The ADB Second Roads Development Project (RDP II) addresses several of the issues identified in the sector strategy, and was designed on an assumption of continuing IDA support in following up on these and in addressing other sector issues. Funding and management of road maintenance A new Roads Act, passed by the Congress (Hural) in June 1999, restructured the Road Fund with a view to increasing its financial resources and improving its allocation procedures. A condition of the RDII Project is that a Road Board be established by June 2001, including representatives of operators and users, to advise the Road Fund management of users perceptions of priorities for expenditure. This will be the start of a broader development of the Road Fund, giving it more specific objectives, allowing for direct private participation in its management, and providing it with more secure funding. The new objectives indicate a priority for maintenance funding over that for new construction, the reverse of what has happened until now, with less than 10% of the 1999 budget being allocated to maintenance. ADB technical assistance has already resulted in recommendations for implementing the Road Board and increasing road user charges to provide the Fund with more resources. However, maintenance funding cannot be used faster than contractors ability to train staff and utilize equipment, either through purchase or lease. Lack of maintenance activity in the last decade has left the industry lacking in both equipment and trained workers. The new funding sources are expected to provide about U$10 million per year for maintenance within about five years. Techncial assistance to be provided under the Road Maintenance component of the project will supplement that of ADB, particularly in providing the analytical tools for planning road maintenance. A Road Equipment Pool, has already been established with technical support from the ADB. The equipment in the pool includes that for paved roads procured under the ADB Roads Development Project and some that was provided under the IDA Transport Rehabilitation Project, but is mostly outdated Russian equipment that can no longer be maintained or operated with confidence. The project will add sufficient equipment to the Pool for the maintenance of earth and gravel roads compatible with the planned budgets for 2001 and 2002. By that time, the industry should be re-established and sufficiently financially viable to fund its own equipment. The project will also provide technical assistance for the preparation and implementation of a road maintenance plan identified in the strategy. Contracting experience in road construction and maintenance The practical bidding experience of contractors will be expanded by the large number of contracts to be bid under both the ADB and proposed IDA projects. It will be constructive for the first experiences of fornal - 6 - civil works procurement through bidding to be through contracts funded by international agencies, so that strict enforcement of procedures can be learned from the outset and not imposed later on already established and accepted inappropriate procedures. The ADB RDP II will finance paving of the first section of the road from Ulaanbaatar towards the Chinese border. In implementing the relevant civil works contracts, the ICB procurement procedures and manuals prepared under the on-going IDA project will be used, and both the ICB and NCB procedures will be applied during the proposed project. They will be supplemented by use of an Environmental Management Plan, also prepared during project preparation, which outlines the environmental and social protection procedures to be followed by civil works contractors, and will be applied strictly during project execution. Institutional strengthening The Swedish Roads Department (SwedeRoad) has recently signed an agreement with the Departnent of Roads (DoR) to provide a training course on the procurement and management of civil works contracts. Some components of the course will be oriented to the contractors, to help them understand how to bid for contracts and what contractual obligations (including environmental) they must satisfy. The project will supplement this training with a structured management training program that will include: Business Procedures, Investment Planning and Project Prioritization, Transport Economics, Traffic Engineering, Road Safety and Environmental Engineering. Mongolian Railways (MR) has been struggling with its efforts to change from a production to a service oriented transport operator. Most external support has been for upgrading physical assets (Japanese grants for a fiber optics communication system and European Union investment in the border facilities with China and part of an IDA Credit for traction and rolling stock), and only IDA has addressed its management problems. A Cost Accounting System (CAS) was designed and implemented and a Business Plan was developed by MR working with consultants (both in 1997), a Restructuring Plan was completed in 1998, and the first elements of a Management Information System (MIS) were installed late in 2000. Earlier railway management found it difficult to grasp the extent of the major structural changes that these Plans and Systems would require. The serious attempts now being made to implement them are being frustrated by a lack of reliable and timely FAS that allows it to see the profitability or otherwise of specific services. T'he project will provide an FAS that will largely resolve this impediment while at the same time providing essential information to be used in a possible concessioning of railway services. Road Safety and Air Quality Implementation of a Vehicle Testing System (VIS) is expected to make a significant contribution to reducing Mongolia's high incidence of road accidents and particularly the high fatality rate by removing badly maintained and unsafe vehicles from the fleet. Full compulsory testing of all motorized vehicles will be implemented once a vehicle maintenance industry has been established. In the meantime, voluntary testing, supplemented by compulsory testing of vehicles identified by the police as potentially unsafe or exceeding emission standards, will be implemented. A better understanding of the causes of road accidents will come from the proposed new accident reporting system and analyses of the data obtained, while a public awareness campaign will address what is believed to be the leading cause of accidents - driver behavior. The VIS will comprise three fixed testing stations in Ulaanbaatar (providing a total of twelve testing lines) and fixed or mobile systems for use in the rest of the country. Close collaboration has been established between the DoRT (responsible for carrying out the tests), the Traffic Police (responsible for maintaining vehicle records) and the Ministry of Environment and Natural Resources (MoENR). All three agencies are represented in the Project Implementation Unit (PIU). The project will provide for a review - 7- and recommendations for upgrading the accident reporting system, for a statistical analysis of the data it provides, and the implementation of proposals for addressing the major contributory factors identified by that analysis. C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): The structure of the proposed project is based on the recommendations of the Transport Strategy (Taming the Tyrannies of Distance and Isolation, Report No. 18242-MOG). The project follows-up on three components of the on-going Transport Rehabilitation Project (TRP, C-2615-MOG) ) and is complementary to the ADB's RDP II. Reconstruction and improvements of roads The proposed Transport Development Project will include civil works on three roads: i) reconstruction of the paved road from Erdenesant to Arvaikheer (215 km out of the total road length of about 240 km). Technical and economic assessments were made of alternative classes of rehabilitation for 26 sections of the road, and the alternatives and sections with the highest weighted economic rate of return were selected for improvement; ii) upgrading to an all-weather gravel surface of eighteen short sections of the earth road from Arvaikheer to Khovd (93 km out of the total road length of about 1,040 kin); and iii) nine additional short section improvements of the Kharkhorin to Tosontsengel road (86 km out of the total road length of about 480 km), also with all-weather gravel surface. Construction will be supervised by staff from the DoR, supplemented by one foreign civil engineer for each of the three roads. Technical Assistance and Training Program A start was made on increasing the technical capacity of the DoR through extensive training and technical assistance under the TRP and the ADB Road Development Project (RDP). This is being supplemented under the on-going ADB RDII Project through technical assistance related to the Road Fund and Road Board and implementation plans for a road maintenance equipment pool, to be privately managed within five years. The government of Sweden has recently given a grant for training staff of the DoR in the management of contracts. These initiatives will be supported by the project, through training in management and planning techniques, including co-sponsoring visits to other transition countries that have already established advisory Road Boards. Road Safetv/Implementation of a system of registration and inspection of road vehicles. The project will provide technical assistance to design and implement a revised accident reporting system, and provide for an analysis of its first two years' results. It will include procurement of a VIS with a capacity for about 100,000 tests per year (there are presently about 82,000 motorized vehicles. - 8- Road Maintenance Technical assistance will be provided for the preparation of a three-year rolling road maintenance plan. This will be based on an inventory (including road condition) of the road network that is being developed under ADB technical assistance. In the first stage of development it will be a spreadsheet based plan, but later evolution will be to a database model. The desirable characteristics of the final model have already been proposed under the ADB technical assistance. The capacity of the road maintenance industry has declined precipitously in recent years as the road maintenance budget has fallen to a level that cannot sustain its fixed costs. Increases in the capacity to use any increase in the road maintenance budget will depend on expanding the physical, managerial and financial capacity of road maintenance companies. To increase the ability of the industry to use the budget for maintenance of gravel and earth roads, the project will provide six additional sets of equipment(each set comprising a grader, a pneumatic tired roller and a backhoe loader). This equipment will become part of a pool that will be managed by a leasing company that is presently wholly owned, but will be privatized as its financial stability improves. Railways' Financial Accounting System Technical assistance will be provided to Mongolian Railways for implementation of an off-the-shelf comprehensive FAS, which when used together with the components of the MIS already in place, will give MR the ability to deternine the costs and revenues of individual services, to design more efficient operating methods, to make better use of its financial resources and allocate its staff, traction and rolling stock to services in a more efficient way than is possible at present. All this will in turn allow MR to transport more freight, particularly high revenue earning transit and export traffic, and thereby facilitate economic growth while at the same time improving its financial performance. Indicative Bank- % of Component Sector Costs % of fina Bank- l = _ _ . ~~~~~~~~~(US$M) Total (US flncin 1. Reconstruction and improvements 38.20 77.1 30.98 91.1 of roads 2. Technical Assistance, Training 2.37 4.8 0.41 1.2 Program 3. Road Safety/Vehicle Inspection 6.20 12.5 0.82 2.4 System 4. Road Maintenance 2.31 4.7 1.33 3.9 5. Railway Financial Accounting 0.46 0.9 0.46 1.4 System (FAS) Total Project Costs 49.54 100.0 34.00 100.0 Total Financing Required 49.54 100.0 34.00 100.0 -9- 2. Key policy and institutional reforms supported by the project: The ADB has been involved in the road sector since 1995 and has been instrumental in institutional strengthening of DoR and improving cost recovery practices and road funding. The on-going IDA TRP has supported this effort through training and policy analyses in the road sector and managerial technical assistance to Ulaanbaatar Municipality and Mongolian Railways. With the approval of the RDP II, the ADB continues to strengthen the sector reform agenda, maintaining a policy dialogue on: (i) expanding sector policy and strengthening the regulatory framework; (ii) strengthening road sector institutions; (iii) encouraging privatization of road maintenanc; and (iv) putting road funding on a sustainable basis based on cost recovery. Since the ADB has a much larger institutional program in the transport sector than the IDA, the role of the IDA is supportive and complementary to that of the ADB. The role of IDA will be to provide managerial training, particularly to strengthen the ability of the DoR and DoRT to select contractors, monitor their performance and supervise their activities. Compliance with an Environmental Mitigation Manual for civil works contractors will become a requirement of all roads sector contracts. 3. Benefits and target population: Benefits: The principal benefits would be making central and western Mongolia accessible by road throughout the year, and reducing transport costs and delivery times for products of the region and consumnables of its residents. This will facilitate expansion of local production into the national economy, make trading more profitable and reduce the cost of living. In addition, the region will get improved accessibility to health, education and social services in Ulaanbaatar. The project will preserve the substantial investment in the paved road between Erdenesant and Arvaikheer and improve road safety by helping to keep badly maintained vehicles off the roads. The severe winter conditions make the effects of a mechanical failure of a vehicle in rural Mongolia potentially life threatening, so the benefits of improved mechanical condition of vehicles will be greater than elsewhere. Target Population: The principal beneficiaries of the project comprise the population of the central and western regions living within about 100 km of the roads to be improved. This population is about 30% of the total that lives outside of the national capital. About 60% of people killed and injured in road accidents in Mongolia are either children or pedestrians (often both) and these would form a large target population to benefit from the project. 4. Institutional and implementation arrangements: The implementation period for the project will be four and a half years, from mid-2001 to end 2005. Civil work on two of the roads will start in mid-2001 and continue for three years, while work on the third road (Arvaikheer to Khovd) will start in April 2002 and be completed within three years. The VIS will start on a voluntary basis before April 2002 and on a permanent basis one year later. The accident reporting system will be reviewed during 2001, any changes implemented by April 2002 and the analysis of results completed two years later. Design of the FAS for the railways will be completed by April 2002 and its implementation and testing by April 2004. The project will be cofinanced (in parallel) by a grant of SDR 5.5 million from the Nordic Development Fund (NDF). This will be used for procurement of equipment for the VISs, construction supervision of the civil works contracts and the technical training of staff of the DoR and DoRT. The road reconstruction and improvement and the road maintenance components of the project would be implemented by the DoR, the road safety and vehicle inspection system component respectively by the - 1 0 - Ministry of Justice (MoJ) and the DoRT, while the Mol would be responsible for implementing the other components. Both DoR and DoRT are within the MoI, which would have responsibility for overall direction of the project. The DoRT and MoJ have clearly defined responsibilities with respect to road accidents, with the MoJ being responsible for all regulations other than those for bus service licenses which are managed by the DoRT, which is also responsible for physical infrastructure for vehicles, including VISs. An agreement has been reached by which the police (responsible to the MoJ) have the power to stop vehicles suspected of non-compliance with safety or environmental standards, and order them to go directly to an inspection station. If they fail the test, the vehicle will be immobilized and the driver liable to prosecution. The Mol has gained familiarity with Bank project implementation requirements through the TRP. Financial management (FM) and disbursements will be handled by the PIU. While the staff of the PIU includes those who gained experience of IDA procurement during the TRP, the FM functions need further strengthening to fully comply with IDA minimum requirements. A financial management assessment was carried out during pre-appraisal and an action plan to improve FM was agreed upon. PIU has already implemented these actions. Detailed FM arrangements are given in Annex 6. IDA will review the effectiveness of the FM systems installed and the staff capability during a planned Country Financial Accountability Assessment in the spring of 2001 and will provide further assistance during supervision. The World Bank Offices in Mongolia and China have staff that will be available to advise those of the PIU as necessary. Disbursement arrangements will follow standard procedures for IDA projects in Mongolia. Annual audits, conducted in accordance with standards acceptable to IDA, will be carried out by an independent auditor acceptable to IDA and will be funded through the proceeds of the Credit. D. Project Rationale 1. Project alternatives considered and reasons for rejection: There are several ways in which the transport sector could address the issues highlighted in the CAS. Discussions with the Government during the preparation of the recent Transport Strategy for Mongolia ( Taming the Tyrannies of Distance and Isolation) led to one in which the ADB would concentrate on issues of international connectivity and the IDA on issues of accessibility within the country. The resulting ADB RDII Project is now financing construction of the first stage of a paved road from Ulaanbaatar to the border with China. The IDA could contribute to addressing intemal isolation by funding better access to the poorer areas within Ulaanbaatar, to the northern region on the border with Russia, improving accessibility to the Eastern aimags (Donod, Suhbaatar and Domogovi, to the Central region (Arhangai, Ovorhangai and Zavhan airnags), the Western region (Bayanhongor, Govi-Altai and Khovd airnags) or to the southern region on the border with China. A new urban development plan for Ulaanbaatar is still under preparation with Japanese technical assistance, so it is considered premature for the IDA to fund large-scale investments in urban areas. Growth in the economy of the Eastern aimags will depend largely on mineral and oil extraction, and the transport needs for this should be mostly funded by the mining and oil development companies. Southern Mongolia is not so susceptible to interruptions to its transport services as are the Central and Western regions, so it is these where IDA can make the greatest contribution to reducing the impacts of geographical isolation. The first part of the existing paved road from Erdenesant to Arvaikheer provides access to the whole central and western region of Mongolia. This vital road was built between forty and fifty years ago and has received no significant maintenance since, other than spot patching of the most deteriorated sections. The harsh weather conditions would limit the life of a road pavement to about fifteen years, even with adequate maintenance. It has a relatively high traffic volume (close to 400 veh/day), sufficient to give an economic - 11 - justification to its rehabilitation. For each section of this road, a technical assessment and economic evaluation was made of alternative classes of rehabilitation, and that with the highest economic rate of return selected for each section. The road beyond Arvaikheer is mostly an improved earth condition, that fails to give all-weather access to the large towns along its route (Bayanhongor, Altai and Khovd). When the surface of the earth road deteriorates, vehicles simply take another path across the steppe, resulting in a series of earth tracks which at times take up a width of 500 meters. This seriously degrades the capacity of the land for sustaining livestock, mostly goats, sheep, horses and camels. Parts of the road are closed for up to three months of the year, making winter access to the region uncertain and unreliable. Although the traffic levels are high enough to justify a low-cost paved road (single surface treatment), a much greater length of all-weather gravel road can be provided for the same cost. An initial economic assessment indicated this to be a better alternative under a tight budget constraint. To reinforce this conclusion, the formation and surface width of the proposed gravel road have been minimized (consistent with safety standards). The on-going IDA TRP had funded upgrading of some short sections of the earth road between Kharkhorin and Tosontsengel, a route that provides access to a region of Mongolia that has a relatively high population density. The improved sections are open for most of the year and have average travel speeds for small trucks of close to 60 km/hr compared with 20 km/hr or less on the unimproved sections. The worst of the remaining sections were considered for inclusion in this project, to be upgraded to the same standards as those already improved (this is the same standard as for the Arvaikheer to Khovd road) although the traffic volumes on some sections are sufficient to justify providing a paved surface. As for the Arvaikheer to Khovd road, an initial economic assessment showed that under a severe budget constraint it was better to upgrade a greater length of road to a lower standard than a shorter length to a higher standard. This conclusion was conditional on the upgraded gravel road being adequately maintained. For this reason, the project includes funding for preparation of a road maintenance plan and for the procurement of sufficient equipment to ensure that the plan can be implemented. For improvements to the roads included in the project to be of benefit to populations away from the population centers along the road, similar improvements will be needed in the access tracks leading to these roads. These tracks are mostly unimproved, many with only rudimentary stone foundations for crossing rivers. An additional component of the project was originally included to provide funding to support locally generated resources (labor and materials) for improving these access tracks. However, it was decided that these would be more effectively managed and funded through the proposed Sustainable Livelihoods Project. This will include a local infrastructure component and allow the local communities to decide for themselves what road improvements, if any, they consider justified. - 12- 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). . ,Latst Supe.rlslon Sector Issue Projct (PSR) Ratings ._______ _Bank-financed projects only) Implementation Development Bank-financed Progress (IP) Objective (DO) Infrastructure (Transport) Mongolia Transport S S Rehabilitation Project Infrastructure (Energy) Mongolia Coal Project S S Infrastructure (Urban) Ulaanbaatar Services U S Improvement Project Infrastructure (Transport) Chad Third Transport Sector Project Other development agencies Asian Development Bank Road Development Project Second Road Development Project (1998) Power Rehabilitation Project (1994) Energy Conservation Project (1996) Heat Efficiency Project (1997) IPIDO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: The biggest problem experienced in infrastructure projects supported by IDA and other donors in Mongolia has been delays in implementation, generally caused by inexperience or management deficiencies in the implementing agencies. Implementation of the on-going TRP is about half-year behind the original schedule, in part due to inexperience in competitive bidding processes and a lack of understanding by contractors of their contractual obligations. Most of the civil works contractors expected to bid for contracts under the project will have learned from their experiences on the TRP. They will also benefit from the training being provided by SwedeRoad. The DoR will be better placed to manage the contracts following their training under the technical assistance component. In addition, the institutional arrangements for project implementation have been kept as simple as possible, by the early establishment of a PIU with staff experienced in project implementation, as the focal point for all project related activities, from project inception, through preparation and implementation, and focusing on two primary implementing agencies (the Departrnent of Roads and the Department of Road Transport). In compliance with the conclusion of the Country Portfolio Performance Review of June, 1999, the PIU has been established in advance of project implementation, so that training can be given before project startup. Implementation of the early stages of the on-going TRP was hampered by a lack of clarity of responsibilities with the ADB, which was implementing its own Roads Development Project at the same time. Coordination between IDA and ADB has significantly improved since that time, and the new projects - 13- of each of the agencies have been prepared in close collaboration. ADB is now taking the lead in the roads sub-sector in Mongolia, with the IDA playing a significant but supporting role. 4. Indications of borrower commitment and ownership: Commitment of government, ministries and their agencies to, and ownership of, the project is very high, evidenced by their strong commitment to the on-going TRP, the understandings on priorities for the transport sector agreed between the Govermment and IDA during the joint preparation of the sector strategy, and the timely and efficient preparation of the project at a time of political uncertainty and macro-economic instability. The Mol has firmnly supported the project since its inception, and values IDA's continued involvement in the transport sector. DoR contracted local consultants to undertake the Feasibility Studies (FS) and Environmental Impact Studies (EIS) of the three roads with its own funding and all the study reports were produced on time to a standard acceptable to IDA. Excellent coordination between the four Ministries (Finance, Infrastructure, Environment and Natural Resources and Justice) has facilitated preparation of the project and laid a sound framework for its implementation. 5. Value added of Bank support in this project: The main value-added of Bank support is in reinforcing the awareness of the benefits of low-cost infrastructure interventions, and of an efficient allocation of scarce resources between competing demands for maintenance and upgrading. Dialogue during project identification, including joint preparation of the transport strategy between the Govemment and IDA, has increased the former's awareness of the potential advantages of building and maintaining gravel rather than paved roads when there is a severe budget constraint, and of the economic and social importance of providing better access to the isolated regions of the country. The first change has in large part been influenced by the success of the gravel road component of the on-going project and in part the greater assurance of funds for routine road maintenance following restructuring of the Road Fund. The second change has also in part come from an appreciation of the development advantages of increased accessibility from the roads included in the on-going project. Moreover, the proposed new project will: (i) support the ADB efforts to restructure the Road Fund by giving users some influence over its resource allocation, and thereby help reinforce a maintenance culture in the DoR. It will provide resources needed to upgrade roads beyond the Government's own capacity, expand the country's infrastructure and reduce the isolation of its remote regions, an essential condition for their social and economic growth and consequent poverty reduction; (ii) provide technical assistance in engineering design, construction supervision, and project management; (iii) help increase potential donors awareness of the benefits of short-section upgrading to gravel roads and of keeping them in good condition; and (iv) continue to expose road transport institutions to modem technology, and connect them to sources that will permit them to link up to new technological developments in their fields as they evolve. The ADB welcomes the support of the IDA in its efforts at reform in road transport and, by increasing the pressure for implementation of its changes in the management of road infrastructure, supplements its own value added. E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4): * Cost benefit NPV=US$74.6 mnillion; ERR = 36.1 % (see Annex 4) O Cost effectiveness O Other (specify) - 14- Cost benefit analysis was used in the economic evaluation of components making up 94% of the total project costs. No evaluation was made of the technical assistance and training component of the project. The methodology used in estimating project costs and benefits and in determining project viability of the civil works components followed the guidelines and principles of the World Bank's Highway Design and Maintenance Standards Model (HDM III) and Roads Economic Decision Model (RED). The former was used for the evaluation of alternatives for rehabilitation of the paved road and the latter for evaluation of the upgrading of earth roads. With only enough funding in the Credit for a small part of the total length of about 2,300 km of road in the two corridors with earth roads to the central and west of Mongolia, particular attention was paid to the prior selection of short sections to be subjected to full economic evaluation. A subjective multi-criteria assessment method was used that took account of the number of days of closure, accident records, terrain and micro-climate and maintenance history, together with a technical assessment of the present condition of the road and present volume of traffic. This method was used to identify about 600 km of potential short term improvements (averaging about 15 km in length). The final criteria for selection was the economic rate of return (based on the RED model) under a budget constraint. Probability analysis was used in sensitivity testing of the final evaluation results For the rehabilitation of the paved road from Erdenesant to Arvaikheer, six possible levels of upgrading were evaluated for each of 26 sections of the 226 km of road. When the budget constraint was applied, it was found better to concentrate resources on 215 km of road, and to leave the two sections of road totaling 11 km unimproved. These sections are to the west of Arvaikheer and have much lower traffic volumes than the other sections. 2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4) No revenue earning agencies affected. Fiscal Impact: There will be minimum fiscal impact arising from lower taxes from fuel consumption, given that transport operations will be more efficient. These will not amount to more than 0.05% of the total fiscal revenue from this source, and will be partially offset by an under-estimated increase from the tax on fuel consumed by generated traffic. 3. Technical: During project preparation, DoR hired an experienced international consultant to help assess the condition of the existing road, and design the evaluation method. The project does not include any component that is beyond the capability of the executing agencies. The feasibility studies, economic evaluation, final design and preparation for bidding documents were all undertaken by local consultants with international advice. All draft reports, documents and designs were reviewed by IDA staff and their comments taken into account in producing the final versions. A review of unit costs led to a revision in some of the design details of the paved road sections. The bidding documents for the paved road contract allows the bidder to offer altemative designs to achieve the same or better engineering outcome. - 15 - 4. Institutional: 4.1 Executing agencies: The main executing agency is the Mol, assisted by the PIU which will coordinate all project activities. Other ministries involved in the project (Environment and Natural Resources and Justice) will have representation in the PIU. The three civil works components will be implemented by the DoR and the VIS by the DoRT, while the Road Safety component will be implemented by the Ministry of Justice. Both principal agencies -DoR and DoRT- are within the MoI, which would have responsibility for overall direction of the project. The implementation period would be about 4-1/2 years from 2001 through 2005. The Mol has gained some familiarity with Bank project implementation requirements through its current implementation of the roads component of the on-going TRP scheduled to close in September 2001. The proposed project would therefore provide a continuation of the institutional assistance of the IDA to the Mol, and build upon the institutional capacity already created. 4.2 Project management: Since the project involves several implementing agencies, it will require a capable PIU with a broad institutional representation. The Mol has prepared terms of reference for the principal staff of the PIU, while the technical staff of the PIU of the on-going TRP will provide continuity. The full-time staff of the PIU will be supported by part-time staff seconded from the implementing agencies and supporting ministries. The PIU of the on-going TRP has performed well and will provide a bridge for development of the new PIlU. 4.3 Procurement issues: Through implementing the ongoing TRP, the technical staff of the current PIlU have accumulated six years experience of IDA procurement guidelines and procedures, and these will form part of the new PIU. The procurement process has generally been handled satisfactorily. However, continued training is needed to meet the increasing level of application of IDA standards and guidelines, and ensuring their compatibility with the newly enacted Mongolian procurement law requirements. Despite this, the risk of non-compliance with IDA guidelines in the proposed project is rated as average. The risk will also be mitigated by the assistance, guidance and inputs from the World Bank offices in Mongolia and China, and regular workshops with IDA procurement and disbursement staff. 4.4 Financial management issues: Financial management will be the responsibility of the PIU, which will be supported by part-time members from the Finance Division of the DoR and the Policy Coordination and Implementation Department of the Mol and the Treasury Division of the Ministry of Finance and Economy (MoFE). Financial management improvement program which includes sound intemal control framework, a computerized accounting system and budgeting and reporting system have been put in place. As the PIU has not carried out a fully integrated FM under the TRP, close supervision of the effectiveness the above activities will be required to minimize any risks. A Country Financial Accountability Assessment is planned to improve overall FM of the public sector in Mongolia. These improvements would lead to potential certification of future projects as being suitable for PMR-based disbursement. These further developments will be implemented through the proposed Financial Sector Adjustment Credit. For details see Annex 6. 5. Environmental: Environmental Category: B (Partial Assessment) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. - 16 - The Environmental Assessment and Environment Management Plan (EMP) for the three project roads was prepared by a Mongolian Environmental Consulting Company with previous experience of international projects. According to the environmental assessment, the project road and stretches proposed for rehabilitation do not pass through any protected areas. Except for the 215 km Erdenesent-Aravaikheer Road which will be strengthened and where necessary rehabilitated with black top overlay, only selected sections (nine varying in length from 1.2 km to 22.3 km (total 82.9 km) along the Kharkhorin-Tosontsengel road and eighteen sections varying in length from 2 km to 13.5 km (total 92.7 km ) along the Arvaikheer-Khovd road) will be improved and rehabilitated to a good quality gravel surface. The improvements and rehabilitation will be carried out within the right-of-way of the existing roads, with one minor exception where the road will use one of the alternative multi-tracks to reduce the gradient. Thus the environmental assessment did not identify any impacts of significance. Instead the major impacts are construction related and associated with potential impacts on water quality during culvert/bridge rehabilitation, borrow materials extraction, transport, noise, dust generation, smoke from asphalt mixing plants, and impacts from construction/maintenance camps. All the above impacts are temporary, localized and reversible and will be mitigated during the implementation of the project. The road link which adjoins the Special Protected Area of the Bogdkhaan Mountain is 3.5 km away from the mountain and outside the 3.0 km protection zone within which construction is prohibited. A major significant positive environmental impact resulting from the project will be the reduction of multi tracking along the rehabilitated sections and the resultant rehabilitation of the multi track areas for grazing. The project also includes setting up of vehicle inspection stations in Ulaanbaatar and elsewhere, to implement inspection and maintenance of private cars and commercial light and heavy duty vehicles. These will either be three full mobile stations, that will periodically visit each aimag, or a larger number of simplified stations to be established in each aimag. As part of the safety inspections to be carried out at these stations, compliance with the present vehicle emissions standards will be assessed and recorded, and an analysis of the results will be made by the MoENR as part of its review of the current standards. The equipment to be provided to the testing stations will be capable of monitoring standards at least equivalent to those current in Europe. On October 28, 2000, the EA reports (in English and Mongol) were delivered and disclosed in aimags and settlements along the project roads and the availability of the reports was advertised in the local news papers. 5.2 What are the main features of the EMP and are they adequate? The EMP outlines the procedures, organization and instructions to project personnel to effectively implement and monitor environmental protection measures for routine and unplanned events associated with the proposed site development work. The EMP describes environmental concerns and protection procedures for anticipated field activities and provide guidance on responding to unplanned events. It discusses field staff organization, and stresses the importance of notification to, and meetings with, concerned parties prior to the commencement of construction and outlines responsibilities and duties of Environmental Inspectors. The EMP further outlines environmental concerns and provides protection procedures associated with fuel and waste handling, fires, vegetation clearing, grubbing, stripping and soil salvage, excavation, embankment and grading, drainage and erosion control, clean up and reclamation, access roads, heritage resource and wildlife encounters and personnel training. Supervision of civil works contracts by staff of the DoR will be supplemented by that of three overseas supervising engineers (one for each road), financed by the NDF. The Project includes additional training in the supervision of the environmental mitigation measures (included as line items in the civil works contracts) for DoR supervising - 17 - engineers and in the execution of these measures for civil works contractors. These procedures if implemented properly are considered adequate for the type of road rehabilitation envisaged by the project. 5.3 For Category A and B projects, timeline and status of EA: Date of receipt of final draft: October 30, 2000 The proposed project is classified as a Category B project as there is no new road construction and all rehabilitation work is anticipated to be completed within the right-of-way, with the one exception that uses an altemative existing multi-track, and the disturbance is expected to be minimal, localized and reversible. The draft EA reports for the Erdenesant to Arvaikheer and Kharkhorin to Tosontsengel roads were received, reviewed and commented on by the Bank in April 2000. The draft EA report for the Arvaikheer to Khovd was received and reviewed in June 2000. The final consolidated draft EA report was received, reviewed and sent to the Bank's Infoshop on October 30, 2000. 5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? Long stretches of the proposed project roads pass through very sparsely populated areas. However, a sample of the population living close to the roads to be improved was interviewed as part of the environmental and social assessment process. Consultations were carried out by holding meetings, and polling the residents living in the settlements along the proposed road sections. All participants were positive about the impact of rehabilitation of the roads and looked forward to the completion of the project. Dust, noise, safety and impacts of gravel extraction on land use were identified as concems by some respondents. Rehabilitation of the used land and protection of the environment were cited as concems by others. The communities were briefed by the Consultants and the Mongolian DoR staff about the EA/EMP reports at the time of the consultation. The final draft EMP has been disclosed in all affected communities. 5.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environment? Do the indicators reflect the objectives and results of the EMP? To ensure that the proposed mitigation measures will be properly implemented, restoration/remediation of quarries, borrow areas, work camps, multi tracks and related activities is built into the design and included in the contract specifications as line items. The estimated cost of implementing the remediation measures is given in the EA report. The project also provides for training of contractors' staff, road inspectors, supervising engineers, local environmental rangers and inspectors, etc. to sensitize them to the environmental problems and to train them to supervise/monitor environmental issues. Monitoring and supervision will be carried out by the MoENR, environmental consultants, staff of the DoR and will be supplemented by that of three overseas supervising engineers (one for each road), financed by the NDF. The Project includes additional training in the supervision of the environmental mitigation measures (included as line items in the civil works contracts) for DoR supervising engineers and in the execution of these measures for civil works contractors. The Bank too will supervise the project on regular basis. Proper restoration of the borrow areas and multi tracks will be used as indicators of the successful implementation of the EMP. 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. The project is not expected to generate any significant adverse social impacts. No land acquisition or physical or economic resettlement will be required. With one exception, all road improvements would occur within an existing right-of-way. The one exception, the realignment of a 6.5 km section of the Tsagaan pass - 18 - on the Kharkhorin to Tosontsengel road, does not involve any private land or any physical or economic resettlement and uses an existing multi-track to reduce the present gradient of 15% to just under 9%. Additionally, road improvements have been screened to ensure that the project does not impede livestock movement or access to resources. Vehicle monitoring stations to be opened in Ulaanbaatar will be sited on government property or placed on lots obtained through voluntary transactions. The project does not affect any ethnic minorities. 6.2 Participatory Approach: How are key stakeholders participating in the project? The key and initial beneficiaries from improvements to roads are vehicle operators, and for commercial vehicles the people who contract them, and for buses, the people who travel on them. The Mol has committed to creating a Roads Board, with participation by representatives of road users, that will advise it the preferred allocation of its resources from a users perspective. This initiative is supported by the project and will help finance a trip by senior administrators and two members of the Great Hural to Eastem Europe, to see how other countries have implemented similar Road Boards. This study tour will supplement a similar one already made to other countries in East Asia, funded by the ADB under its RDII project. 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? There are few civil society organizations directly involved with the few people negatively impacted by the project. Before project identification, consultations were held with a Non-governmental Organization (NGO) involved in providing medical services to aimags in the central and westem aimags, to determine how the project would impact on their activities. It was agreed that contact would be maintained throughout implementation, to ensure that the anticipated positive impacts were being achieved. Another civil society active in promoting small-scale industry in rural Mongolia was identified and consulted as part of the process of project identification. Since this organization anticipates that the project will support its own activities, it will remain in contact with the DoR during implementation. 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? The project does not have a direct social development objective, nevertheless it is expected to have significant development impact after the implementation period. These will come about more through the functioning of a market economy than through institutional intervention. However, capable regulatory institutions will be needed to ensure efficient market functioning in the transport sector, particularly in remote areas where monopoly supply of transport services is prevalent. While the existing institutional arrangements are working well, a proposal for a review of the regulatory efficiency of all public utilities, including transport, is now under preparation. In addition, the ADB is undertaking an analysis of the economic and social impact of road developments in Mongolia, and this will provide evidence of any additional institutional restructuring that might be necessary as the economy evolves. 6.5 How will the project monitor performance in terms of social development outcomes? Social development changes are measured in the Living Standards Assessments and will be further reviewed in the course of preparation and implementation of the Poverty Reduction Strategy, the Interim version of which is now being prepared. A more extensive baseline survey will be carried out within the first year of the project, to better understand the specific accessibility issues of potential beneficiaries of the road and to help define appropriate indicators to monitor the impact of the project on them. - 19 - 7. Safeguard Policies: 7.1 Do any of the following safeguard policies apply to the project? ____ -olicy App00 S =.00L ;i*cab..il .; ity ,, Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) * Yes 0 No Natural habitats (OP 4.04, BP 4.04, GP 4.04) 0 Yes @ No Forestry (OP 4.36, GP 4.36) 0 Yes * No Pest Management (OP 4.09) 0 Yes * No Cultural Property (OPN 11.03) 0 Yes * No Indigenous Peoples (OD 4.20) 0 Yes 0 No Involuntary Resettlement (OD 4.30) 0 Yes * No Safety of Dams (OP 4.37, BP 4.37) 0 Yes 0 No Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) 0 Yes * No Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60) 0 Yes * No 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. Regular half-yearly environmental monitoring and supervision reports will be provided by the Client to the IDA. The IDA will supervise the project at least once each year, usually at towards the end of the construction season. The proposed environmnental training will sensitize contractors' and the supervising staff to environmental issues and the ways to deal with them. Restoration/remediation works are included as separate items in the civil works contracts and if the work is not carried out properly, payment could be withheld from the contractor and utilized to complete the work. F. Sustainability and Risks 1. Sustainability: Improving accessibility is just one of several necessary conditions to create an environment for growth. The principal risk to sustainability of the benefits of the project is that other conditions needed to stimulate economic growth in the westem aimags will not be created. Most significantly, the marketing system for agricultural products (cashmere, wool, meat and milk) need to be revised. For exports to be increased, particularly of lamb to the Middle East), transport links between Mongolia and deep water ports need to be improved. The ADB is already funding paving of the road to the Chinese border; the Mongolian Minister of Infrastructure is seeking agreements that Mongolian and Chinese trucks will be able to enter each others national territory avoiding the need to change vehicles at the border and China Railways will significantly reduce its tariffs for moving containers to and from Mongolia. Under the on-going China Container Logistics Project, inter-port competition has been introduced in Tianjin (the port that serves Mongolian extemal trade), and this should improve the quality of service to Mongolian exporters. - 20 - 2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1): Risk Risk Rating Risk Mitigation Measure From Outputs to Objective Insufficient and untimely allocation of M The financial viability of the Road Fund, which counterpart funds will finance these improvements, is being addressed under a parallel ADB project. Newly reconstructed and improved roads M The improved Road Fund will meet the road are not maintained maintenance funding requirements, the project includes equipment for maintenance of gravel roads and technical assistance for road maintenance planning The continued use of small trucks will N Other road developments will increase incentives reduce the potential benefits of the road to use larger trucks. Intense competition in the improvements road transport industry already provides strong efficiency incentives. From Components to Outputs PIU perform unsuccessfully M Experienced PIU staff will be put in place Review performance of PIU and supervision with Mol and MoF during annual supervision Quality of construction will not comply M Selection of competent contractor will reduce with required standards this risk and adequate construction supervision arrangements will reduce this risk. Delays in preparation, implementation, M Mol and Bank will follow-up project closely and procurement and disbursement carefully and provide timely advice and support. Material and human resources not M DOR, MID and the provincial governments available in timely manner strong support and commitment to the project will ensure the availability. Training program will not prove M Approved criteria for selection of trainees. successful and managers will not apply English language training is given to trainees new skills before training abroad. Provide trainees with opportunity to apply acquired skills and tie promotions/salary increases to effective training. - 21 - WB resources are not adequate for M Allocate budget according to actual needs. supervision, and there is no continuity of staff Overall Risk Rating M Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk) 3. Possible Controversial Aspects: None is foreseen. G. Main Loan Conditions 1. Effectiveness Condition 1. The Borrower shall establish (and thereafter maintain) a Project Implementation Unit within its Ministry of Infrastructure. The Unit should be staffed at a minimum by a Manager, a procurement officer, a disbursement officer and an accountant, all with qualifications and experience satisfactory to the Association. They should be retained under terms of reference and contracting arrangements approved by the Association, and assigned with such powers, responsibilities, staffing and funds as shall be necessary to undertake the day-to-day implementation of the Project. 2. The Borrower shall contract from the Nordic Development Fund (NDF) a credit in an amount of five and one-half million Special Drawing Rights (SDR 5,500,000) (the NDF Credit) to assist in financing the Project. 2. Other [classify according to covenant types used in the Legal Agreements.] 1. The Borrower shall implement the works and activities under the Project in accordance with the Environmental Management Plan. 2. The Ministry of Infrastructure shall employ the services of consultants with qualifications, experience and terms of reference satisfactory to the Bank to assist in preparing the comprehensive FAS, and, thereafter, shall take all such action as shall be necessary to ensure that the Mongolian Railways adopts and implements such FAS, taking into account the comments of the Association thereto, if any. 3. The Ministry of Infrastructure shall take all necessary actions to ensure that Mongolian Railways develop a comprehensive Financial Accounting System, and, promptly thereafter, adopt and implement such financial accounting system, taking into account the comments of the Association thereto, if any. 4. The Borrower shall: (a) maintain policies and procedures adequate to enable it to monitor and evaluate each year during implementation of the project, the performance indicators indicated in Annex 1 and included in the - 22 - Supplemental Letter, regarding the carrying out of the Project and the achievement of its objectives; (b) prepare, under terms of reference satisfactory to the Association, and furnish to the Association, on or about October 31 each during exceution of the Project, a report integrating the results of the monitoring and evaluation activities performed pursuant to paragraph (a) above, and setting out the measures recommended to ensure the efficient carrying out of the Project and the achievement of its objectives during the coming year; and (c) review with the Association, by November 30 each year during implementation of the Proejct, or such later date as the Association shall request, the reports referred to in paragraph (b) above, and thereafter take all measures required to ensure the efficient completion of the Project and the achievement of its objectives, taking into account the conclusions and recommendations of the said report and the Association's views on the matter. H. Readiness for Implementation 1 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. O] 1. b) Not applicable. 1 2. The procurement documents for the first year's activities are complete and ready for the start of project implementation. Z 3. The Project hmplementation Plan has been appraised and found to be realistic and of satisfactory quality. El 4. The following items are lacking and are discussed under loan conditions (Section G): 1. Compliance with Bank Policies 1 1. This project complies with all applicable Bank policies. E 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. Robin C. arm ers Jitendra N. Bajpai Ian Porter Acting Country Director Team Leader Sector Manager Country Manager - 23 - Annex 1: Project Design Summary MONGOLIA: Transport Development :Hierrc o#4^f Objectve Iiator Mntol &; ~aut Io rftical As;u o Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission) Develop infrastructure to % of population in six Country economic reports Continued Government support private sector aimags in poverty (as commitment to economic growth and market defined in the Participatory policies development and improve Living Standards Review) the living conditions of the poor Project Development Outcome / Impact Project reports: (from Objective to Goal) Objective: Indicators: Improve the accessibility of Increased number of days of Annual traffic counts and Macroeconomics and the isolated and remote road access to Khovd Department of Road political conditions will central and western regions Arvaikheer Bayanhongor, statistics. remain stable. of Mongolia. Altai, Tosontsengel and Erdenesant. Length of earth and gravel Budget and physical roads receiving one and two Department of Roads capacity for road maintenance interventions statistics maintenance is increased in (gradings) increased each annual increments year to reach at least 1,500km and 500km respectively by 2004 Reduce the nurnber of Reduce proportion of Police accident data Continued coordination fatalities resulting from annual road fatalities between DoRT and MoJ. road accidents. attributable to vehicle condition Increase transport capacity Increased volume of Mongolian Railways Other transport links for for rail-borne export trade. international and transit rail statistics. international trade will be traffic. improved. -24 - Hierarchy of Objtes indicators Monitoring & Evaluation Critical A*umptlons Output from each Output Indicators: Project reports: (from Outputs to Objective) Component: 1. Road from Erdenesant to At least 215 km of the road Project progress reports. Sufficient and timely Arvaikheer is reconstructed reconstructed by end 2004 allocation of counterpart and short sections of the and at least 179 km of earth funds. road between Arvaikheer roads upgraded to gravel by and Khovd and between end 2004. Erdendesant and Tosonsengel are improved. 2. Human Resources and At least 200 man-months of Adequate skills and staff Training Program in the training of DOR and DORT resources to implement the road sector with particular staff completed by end project. attention to project 2003. management and supervision. 3. Road safety is improved Reduce national proportion Improvements to other earth and road vehicle registration of annual road fatalities roads will increase and inspection system is attributable to vehicle incentives to use larger operational. condition by 33% over five trucks. years. In the six aimags, reduced by 50%. At least 3 stationary and 3 other vehicle testing stations are operational by end 2003. At least 40,000 vehicles tested during 2003 and 60,000 during 2004. 4. Newly reconstructed Gravel roads included in the roads are adequately project receive at least one maintained. regrading in 2003, 2004 and 2005. 5. Railway Financial Agreement of restructuring Project management Accounting System is Railway financing system reports. functional. by 2004 - 25 - 0~ ~ ~ ~ ~~~Idtr .oRvn &0 0auai0 10 00.g o j $) i > 0 i:Critical; Assumptons Project Components I Inputs: (budget for each Project reports: (from Components to Sub-components: component) Outputs) Component 1. US$38.20m Project progress reports. Adequate quality of Reconstruction and Disbursement reports engineering design. improvements of roads. Quality of construction in accordance with pre-established criteria. WB resources are available for supervision and there is continuity of staff. Component 2. Technical US$2.37m Material and human Assistance and Training resources available in a Program. timely manner. Component 3. Road US$6.20m No delays in preparation SafetyNehicle Inspection and implementation. System. Component 4. Road US$2.31m Adequate skills and staff Maintenance. resources to implement the project. Component 5. Railway US$0.46m Financial Accounting System. TOTAL US$49.54m -26 - Annex 2: Detailed Project Description MONGOLIA: Transport Development By Component: Project Component I - US$38.20 million Reconstruction and improvements of roads In 1995, almost 9% of the population of western aimags of Mongolia were categorized as being in absolute poverty, and the latest Participatory Living Standards Assessment (PLSA, 2000, page 2) confirms that while the overall poverty headcount has changed little since then, it has increased slightly in the aimag centers and the income differentials between the poor and the poorest have increased. A present there are no all-weather roads serving this vast region. There are three roads leading to western Mongolia, one in the north leading through Moron to Ulaangoom, near the union of Mongolia with Russia and China, one in the center, passing through the most mountainous and wettest region of Mongolia, and the third in the south, passing close to the northern border of the Gobi desert and connecting the aimag (regional) capitals of Arvaikheer, Bayanhongor, Altai and Khovd. MONGOLIA RUSSIA Transport D:evelopmenq - pro~rnd paved roa Imprvoci ravdIn aarh bmproved aith maid The project would reduce one of the strongest barriers preventing its people, and particular the herdsmen, from entering the developing market economy, and thereby helping alleviate the chronic poverty of the region. At the same time the project will increase accessibility to social services, particularly those related to health and education, which are available in the aimag capitals and Ulaanbaatar. Access to medical services for rural communities is complicated by poor road infrastructure, lack of transportation and high cost of fuel. Since medical staff in many rural areas either have only one vehicle at their disposal (or in some cases none at all), they are unable to visit patients even in an emergency. hin cases of emergency, family and friends of the patient have to find a vehicle and pay for the cost of trasportation. High cost of fuel exacerbates the problem. Due to poor quality of local medical services, patients in a serious condition or those needing a special analysis or treatment have to travel to their aimag center and/or Ulaanbaatar, which is costly and troublesome and in some cases, fatal for a patient (PLSA 2000, page 91). - 27 - Until these regions are accessible by roads that are open for most of the year, they will remain isolated from the developing market economy, and their populations will be denied reasonable access to health, social and educational services. A third objective is to build on the achievements of the on-going TRP in road planning and maintenance and railway restructuring, while at the same time supporting the reforms being implemented under the ADB funded RDP II. Accessibility of western and central regions The incidence of poverty in Mongolia has increased substantially since the introduction of a democratic political system and a market economy, and this has been accompanied by a worsening of most indicators of social well-being. Nearly 800,00 people live below the national poverty line of $17 per month and 140,000 are destitute with an income of less than $10 per month. For a sustainable increase in their income and improvement in their life-style, better access to markets and social services is necessary. Respondents in the PLSA 2000 consistently commented that access to transport services was an important component of their concept of social well-being, (often described as having enough food throughout the year, and depending on the context and location, having a sustainable herd size with adequate pasture and water, good harvests, being gainfully employed, timely payment of wages, salaries, pensions and allowances, ownership of tools and implements necessary for their trade, and having access to information, markets and transport facilities. There were some differences in well-being criteria mentioned by the groups in different locations. Participants in rural centers stressed herd size and access to pasture and water sources, as well as ownership of and/or access to means of transport. "Living in distant rural areas impacts our livelihood negatively, because it causes high prices offuel and consumer goods and low price of livestock and livestock products ". With the collapse of the centralized trade network, trade agents have been replaced by independent traders. Herding households complain that they receive poor terms of trade from these traders, whose own profit margins are squeezed by the high cost of transportation and poor infrastructure. This is particularly true in those parts of the country more remote from markets, where prices for consumer goods were found to be higher in rural centers than in aimag centers and higher in aimag centers than in Ulaanbaatar. Moreover, these traveling traders do not reach all rural areas, very remote districts, are left out, "Since our sum is 1, 670 km from Ulaanbaatar, and our fuel price is the highest in the country, traveling traders do not come here. " The major determinant of terms of trade outside of Ulaanbaatar is the price of fuel. With generally poor infrastructure, geographical location and distance from markets have come to shape livelihood opportunities much more strongly than they ever did prior to economic transition. Fuel price increases were emphasized by all rural communities, especially in the more remote aimags, as placing a major strain on household livelihoods, given the consequences in higher consumer prices and lower producer prices. Whereas a liter of fuel in Ulaanbaatar would cost 350 T (November, 2000), it would cost a third as much again (around 470 T) in a remote sum center (PLSA 2000, page 50). - 28 - While there are no regional income statistics, secondary indicators such as employment rates and numbers of unemployed, together with social indicators of the impact of poverty indicate that it is more widespread in the western than in the eastern regions. The economically active population in the six aimags is only between 20% and 48% of the total, while the unemployment rate is between 17% and 38%. In all aimags, those who are able to afford it will travel to the aimag center to sell their livestock produce and buy consumer goods. Better-off households travel instead to Ulaanbaatar. Poorer families without vehicles and who cannot meet the cost of transport must accept the poorer terms of trade available locally. This inequality in access to markets, is exacerbated by the common practice of traveling traders to visit only wealthier households with large stocks of cashmere, while skipping poorer households with less to sell. Access to markets has become one of the strongest determinants of livelihood security and well-being. As a result, one of the chief adaptive strategies to avoid the impact of inaccessibility has been migration of rural households to aimag centers, and of aimag center households to Ulaanbaatar and other large cities. Others have invested in motorcycles, Russian jeeps and trucks as means to increase their returns from trading, now a widespread adjunct to herding income, and for some households it has totally replaced herding. Trading has become the livelihood strategy of choice for people in virtually all communities trying to better their lives, and the benefits of trading depend even more than those of herding on good accessibility. At present, lack of road access means that only the highest value and most durable agricultural products can sustain the high transport costs to the principal markets in the aimag and national capitals. A recent assessment of the potential for development of livestock industries in Mongolia highlighted the impact of inadequate transport access as inhibiting income growth and forcing herdsmen to focus on producing non-perishable products. Improved road access to markets would give herdsmen a stronger negotiating position with wholesalers, and allow them to keep a higher proportion of the final value of their products ("Some Mechanisms Interfering in Market Chains of Mongolian Livestock Industries", International Symposium on Nomads and the use ofpastures Today, Ulaanbaatar, December, 1999). In addition, the substantial losses of grazing land through the multiple tracking that occurs when earth roads become impassable will be reduced. Upgrading these sections of road so that they are passable for most of the year would reduce the need for multiple-tracking and allow about 8,000 ha of land either side of the road to return to its previous condition and support grazing. Improved accessibility to health, education and social services in Ulaanbaatar will reduce some of the impacts of poverty in these areas. Of the 22 aimags (regions) excluding Ulaanbaatar, the six with the highest level of absolute poverty and which accounted for half the population in this condition in 1995, are in the these regions and would be served by the roads included in the project (Annex 2, Poverty Alleviation for Vulnerable Groups Project, SAR, Report 13963-MOG, Amy, 1995). There are no paved or gravel roads connecting the central and western regions to the rest of the country, and the earth roads are largely unimproved and impassable for long periods of time. While the roads in the rest of the country are no better, the drier climate, softer terrain, easier ground conditions and different economic base (they are more dependent on mineral extraction than herding) make the lack of roads relatively less critical for stimulating their economies. Until these regions are accessible by roads that are open for most of the year, they will remain isolated from the developing market economy, and their populations will be denied reasonable access to health, social and educational services. This objective will be addressed by improvements to three roads leading to the central and western regions. One road (Kharkhorin to Tosontsengel) is already benefiting from limited improvements being made under - 29 - the on-going IDA TRP, while the second (Arvaikheer to Khovd) connects five aimag capital towns to a paved road leading to Ulaanbaatar. The third road included in the project is the western part of that paved road (Erdenesant to Arvaikheer), which would receive its first major maintenance in almost forty years. Weak bridges, such as these between Kharhorin and Tosontsengel, limit the size of vehicles that can reach the Central and Western regions The bad condition of the existing paved road Multiple tracking of difjicult sections of road between Erdenesant and Arvaikheer makes transit (caused by vehicles that deviate from the slow and dangerous. Rehabilitation now will avoid main track) causes severe damage to scarce more costly reconstruction later. grazing land. The proposed project will include the works for three roads: i) the reconstruction of the paved road from Erdenesant to Arvaikheer ( 177 km- ou-t of the total road length of about 240 kin). Technical and economic assessments were made for altemative classes of rehabilitation for 26 sections of the road, and the altematives and sections with the highest weighted ERR were selected for improvement;, ii) eighteen short section upgradings of the earth road from Arvaikheer to Khovd (93 km out of the total road length of about 1040 kIan) to provide an all-weather gravel surface; and - 30 - iii) nine additional short section improvements of the road from Kharkorin to Tosontsengel (86 km out of the total road length of about 450 km), with an all-weather gravel surface. For these roads, objective criteria including accident records, terrain and micro-climate and maintenance history were combined with a technical and economic evaluation to provide an overall assessment of the advantages of each type of improvement for each section (averaging about 15 km in length). The base criteria for selection was the ERR, but the other objective factors were used in final choice. Project Component 2 - US$2.37 million Technical Assistance and Training Program Since independence, road planning and maintenance have been given a low priority relative to new construction. This is reflected in the poor quality of road infrastructure throughout the country. A start was made on increasing the technical capacity of the DoR through extensive training and technical assistance under the TRP. A Road Fund was established in 1998, but it lacks adequate funding for the many calls made on its resources and has not yet developed the necessary management skills to adequately perform its tasks. The DoR, the government agency responsible for managing the Road Fund, gives a higher priority to funding the construction of new roads than to maintaining existing ones. The lack of activity in road maintenance has resulted in a weak private sector capability and absence of financial reserves to purchase equipment. The on-going ADB highways project has provided technical assistance in restructuring the Road Fund and creating an advisory Road Board with representation from major road users. The same TA has provided an implementation plan for establishing a road maintenance equipment pool, to be privately managed within five years. The Road Board initiative will be supported by the proposed project through further technical assistance and training, including co-sponsoring visits to other transition countries that have already established similar Road Boards. The government of Sweden has recently given a grant for training staff of the DoR in the management of contracts. This will be supplemented by further training provided under the proposed project in professional and management skills. An Environmental Guidebook for civil works contractors, to be used in road infrastructure contracts and those in other sectors of the economy will be prepared. Project Component 3 - US$ 6.20 million Road Safet/Irnplementation of a system of registration and inspection of road vehicles. Mongolia has one of the world's highest road accident rates, whether measured as fatalities per vehicle or per person. At about 70 fatalities per 10,000 vehicles, the rate is three times higher than those of China and India, but about 20% less than that of Bangladesh (Asia Development Bank statistics). Until now little has been done to reduce this high loss of life, and a start will be made with this project. There has not yet been a detailed study of the causes of road accidents in Mongolia, and this will be included in the project. While inappropriate driver behavior is almost certainly the major cause, poor vehicle maintenance combined with bad road conditions are also important. While the three road infrastructure imnprovements will make some reduction in the accident rate, the major contribution of the project would be through a VIS. The system will address the mechanical condition and emissions quality of the vehicles tested. This will be supported by the design and implementation of a more comprehensive accident reporting system and, based on an analysis of the data collected, preparation of a public awareness campaign. In addition, the urban areas have an abysmal air quality, and while this is mostly attributable to the fixed source emissions (from coal-burning power stations without adequate filter systems), as these are brought under control, rapid motorization with heavily-polluting vehicles could soon result in these mobile sources - 31 - becoming significant contributors to the poor air quality. The public transport component of the TRP made a start in addressing this issue by funding new buses to replace most of the previous highly-polluting buses, and providing vehicle inspection facilities for public transport vehicles, both in Ulaanbaatar. The proposed project will supplement these facilities with additional testing lines for trucks and light vehicles (including mobile test stations for use outside Ulaanbaatar), so that within about three years there will be capacity for annual tests of all motorized vehicles in Mongolia. Project Component 4 - US$2.31 million Road Maintenance The project will provide sufficient maintenance equipment to ensure that the earth and gravel networks can be adequately maintained, the equipment to become part of the pool. Most of the equipment presently used for maintenance of these roads is between 15 and 20 years old and difficult to maintain. Given the short season for maintaining roads, time lost waiting for equipment to be repaired results in a loss of output that is impossible to recover. Replacing this obsolete equipment with more reliable components will help ensure that with the increased maintenance budget, the maintenance tasks can be carried out Project Component 5 - US$0.46 million Railway Financial Accounting System. The railways play an essential role in Mongolia's extemal trade by providing the only transport link to deep water ports in China and Russia. Technical assistance was provided to Mongolian Railways under the TRP, and this now needs to be supplemented by furither assistance to make the new management tools more effective. In particular, the railways still lacks a comprehensive FAS, which when used together with the components of the MIS already in place (and the fiber optic communications system provided under a grant from Japan), will facilitate better use of financial and physical resources. The resulting higher utilization of assets should avoid the need for procurement of additional traction and rolling stock in the medium term, while allowing the railways to transport the increasing volumes of export and transit traffic. The TRP provided substantial technical assistance to help Mongolian railways adapt from a state-directed organization to one that responded to commercial incentives and pressures. To help it better plan and manage its resources, a partial MIS was provided. This will be supplemented by the FAS to be implemented under the project. - 32 - Annex 3: Estimated Project Costs MONGOLIA: Transport Development Local Foreign Total Project Cost By Component US $million US $million US $million Component 1. Road Upgrading 4.70 27.73 32.43 Component 2. Technical Assistance and Training Program 1.25 0.96 2.21 Component 3. Road Safety 1.34 4.40 5.74 Component 4. Road Maintenance 0.22 1.94 2.16 Component 5. Railway Financial Accounting System 0.04 0.40 0.44 Total Baseline Cost 7.55 35.43 42.98 Physical Contingencies 0.45 2.68 3.13 Price Contingencies 0.84 2.59 3.43 Total Project Costs 8.84 40.70 49.54 Total Financing Required 8.84 40.70 49.54 Local Foreign Total Project Cost By Category US $million US $million US $million Goods 0.47 4.74 5.21 Works 5.53 31.56 37.09 Services and Training 1.58 4.01 5.59 Incremental Operating Costs 1.26 0.39 1.65 Total Project Costs 8.84 40.70 49.54 Total Financing Required 8.84 40.70 49.54 Identifiable taxes and duties are 0 (US$m) and the total project cost, net oftaxes, is 49.54 (US$m). Therefore, the project cost sharing ratio is 68.63% of total project cost net of taxes. - 33 - Annex 4: Cost Benefit Analysis Summary MONGOLIA: Transport Development [For projects with benefits that are measured in monetary terms] Present Value of Flows Fiscal ImpOct Economic Financial Atalysis I Analysis ____:_____ Taxes Subsidies Benefits: U$119.64m U$118.13 -U$11.51m Costs: U$45.07m U$45.57m U$0.50m Net Benefits: U$74.57m U$164.70m -U$11.01m IRR: 36.1% 45.5% If the difference between the present value of financial and economic flows is large and cannot be explained by taxes and subsidies, a brief explanation of the difference is warranted, e.g. "The value of financial benefits is less than that of economic benefits because of controls on electricity tariffs." Summary of Benefits and Costs: Proiect component IRR% NPV Erdenesant to Arvai'Aieer 29.3% U$ 23.5m Arvaikheer to Khovd 48.9% U$ 36.6m Kharkhorin to Tosontsengel 32.4% U$ 17.8m Vehicle Inspection System 19.6% U$ 2.1m Road Maintenance E uivment 57.9% U$ 4.3m Total 36.1% U$ 74.6m Main Assumptions: The economic evaluation included all the physical sub-components of the project, civil works, the Vehicle Inspection System and the Road Maintenance Equipment. The evaluation of the three roads sub-components was made using standard evaluation models developed by the World Bank. For the reconstruction of the Erdenedsant to Arvaikheer road, the HDM III model was used (HDM IV was not available in Mongolia until late September 2000). Evaluation of the two roads with proposed short-section upgrades to a gravel surface was made using the Roads Economic Decision Model (RED). This is now widely used in decision-making process for the development and maintenance of low-volume roads. It uses a consumer surplus framework, and takes account of the special characteristics - 34 - of low-volume roads, such as the high unreliability of the model inputs, particularly the traffic and condition of unpaved roads, the importance of vehicle speeds for model validation, the need for a comprehensive analysis of generated and induced traffic. The version of RED used, computed benefits for basic and generated traffic (there was no induced traffic as there are no feasible alternative routes) and takes into account changes in road length, condition, geometry, type, accidents, and days per year when the passage of vehicles is disrupted by a highly deteriorated road condition or weather or a combination of the two. Evaluation of the VIS was made using data on road accidents in Ulaanbaatar. The only benefits taken into account were those of reduced number of injuries to pedestrians and motorists (there are negligible cyclists or users of non-motorized vehicles, given the severe climate) and reduced damage to vehicles. No attempt was made to value the savings in fatalities that would occur, although this was estimated to be in the order of 10 or more per year (out of a current total of more than 400). The benefits from increased availability of road maintenance equipment (graders and supporting equipment) were measured from the impact of better maintenance of gravel and earth roads on vehicle operating costs. All evaluations took some account of the projected increase in road transport expected in the next twenty years or so. Mongolia's motorization rate has been increasing at more than 20% per year for the last three years, and is now about 30 vehicles per 1,000 people. The most probable limiting factor on continued rapid growth is traffic congestion in the urban areas. Increase in traffic levels of the three roads included in the project has reflected the historic motorization growth, and has averaged more than 18% over the last six years. There are presently few large trucks in Mongolia as there are few paved roads (about 1,100km) on which they could operate. On the three roads included in the project, the traffic mix is about 15% of 12 ton trucks, 40% of 8 ton trucks, 20% minibuses and 20% jeeps and other four wheel drive vehicles. There are few cars, but an increasing number of motor-cycles that now make up about 5% of the total traffic. The projected growth rates used in the economic evaluation were 12% per year for the period 1999 to 2004 (with a slightly lower rate for trucks than for cars, buses and motor cycles), 6% for 2005 to 2010 and 4% thereafter. Sensitivity analysis / Switching values of critical items: The high Net Present Values (NPV) and Internal Rates of Return of the major project components indicates that the switching values to produce an unacceptable economic evaluation result are quite extreme. For the civil works projects, which account for about 85% of the total net present value of the project, the investmnent costs would have to increase by over 300% or the benefits reduce to less than 10% of those estimated (or some combination of these events) for an unacceptable economic outcome to occur. An additional switching value test was made on the assumed value of travel time savings included in the estimate of benefits. Unlike projects on congested roads, the proportion of total benefits derived from savings in travel time would be low, about 15%. The assumed values of time would have to be reduced to about 20% of the basic values for the overall evaluation of these sub-components to be unacceptable. - 35 - Switching value as % of Variable basic value Roads component: Investment cost 320% Roads component: User benefits 9% Roads components: Value of travel time 22% Roads component: Vehicle operating costs 18% Vehicle Inspection System: Investment cost 60% Vehicle Inspection System: Benefits 75% Road Maintenance Equipment: Investment Cost 296% Road Maintenance Equipment: Benefits 40% There has been much recent debate about the validity of vehicle operating cost savings when the condition of a road is improved, and since the benefits attributable to this source comprise about 70% of the total, a switching value test was made. This showed that these savings would have to be reduced to about 20% of their assumed value to bring about an unacceptable result. The evaluation of these sub-components includes assumptions about the growth of traffic on the three roads. If the traffic growth is assumed to be zero, and remain unchanged from the present (year 2000 level), all three sub-projects would still have acceptable economic outcomes, with an average ERR of about 32% and an NPV of more than U$30m. None of these results is plausible, so the switching test analysis of the civil works components indicates that the economic evaluation is robust to plausible variations in these four key variables. For the Vehicle Inspection System, the switching value analysis also gives a clear conclusion. An increase in the investment cost of 60% or a reduction in the benefits to 75% of those estimated would reduce the ERR to 12% and the NPV to zero. The road maintenance equipment component also has a robust economic evaluation, with the switching values needed to bring about an unacceptable result being a 300% increase in the investment cost, or a reduction in benefits to 40% of their best estimate values. Probability analysis As with any project with a long-term development potential, the assessment of benefits is subject to a wide range of uncertainty. A probability analysis using Monte Carlo simulation was used to assess the combined impact of uncertainty in several of the parameters used in the evaluation. Each variable is described by its mean, its type of probability distribution and the relevant parameters of that distribution. Cost variables were assumed to be positively skewed (more likely to have a cost above the best estimate value than below it, while parameters contributing to the benefits were assumed to be negatively skewed, i.e., to produce a benefit of less rather than more than the best estimate value. The outcome is the result of multiple simulations of the evaluation, with the values for each variable being drawn at random from within their assumed distribution. The resulting distribution shows a mean value of U$119.8 million for the NPV of the project with a standard deviation of U$9.8 million and less than zero probability of a value less than U$90.8 million. - 36 - Distribution of simulation resultsfor the Net Present Value of the Project Forecast: Outcome 500 Trials Frequency Chart 0 Outliers 038 Ks19 029 - 1~~~~~~~~~~~~4.25 - ooo~~~~~~~~~~~~~~~~~~~~~~~~~~J 3,.010 4.70 90.00 105.00 120.00 135.00 150.00 - 37 - Annex 5: Financial Summary MONGOLIA: Transport Development No revenue earning agencies affected. - 38 - Annex 6: Procurement and Disbursement Arrangements MONGOLIA: Transport Development Project Procurement 1. The procurement capacity of the PIU, was assessed in the course of a mission to Mongolia in November 2000. A report of this assessment are in Project Files. Mongolian National Competitive Bidding (NCB) procedures for works have been reviewed by the Bank and found some deviations in the intemal procurement procedures, such as conditions for foreign participation, local preferences, inadequate qualification requirements and evaluation criteria, bracketing and award criteria. The Implementing Agency is fully aware and committed to strict compliance with the Bank's procurement procedures/policies for Bank-financed contracts. In case there are any discrepancies between local policy and bank's requirement, the bank policies and guidelines will prevail. They shall pay particular attention to ensure that the following procedures are followed: a. all Invitations to Bid shall be advertised in a newspaper of national circulation; b. qualification requirements of bidders and method of evaluating the qualifications of each bidder shall be specified in detail in the bidding documents; c. the bidding documents will specify in detail the appropriate evaluation criteria; d. no bid may be rejected solely on the basis that the bid price falls outside any standard contract estimate or margin or bracketing; and e. each contract shall be awarded to the lowest evaluated bidder, that is to say, the bidder who meets appropriate standards of capability and resources and whose bid has been determined: (i) to be substantially responsive to the bidding documents; and (ii) to offer the lowest evaluated price. The winning bidder shall not be required, as condition of award, to undertake responsibilities for work not stipulated in the bidding documents or otherwise to modify the bid originally submitted. 2. Implementation arrangements. The Project Implementation Unit will be responsible for all procurement under the project. The PIU will coordinate the procurement processing work, relying on technical inputs from staff in different departments, construction supervision and local consultants. An assessment of the PIU capacity to implement procurement was completed prior to and during project appraisal. The report is available in the project file. 3. Through implementing of the ongoing TRP, the PIU has accumulated six years of experience with World Bank procurement guidelines and procedures. The procurement process has generally been handled satisfactorily. However, improvement is needed in following the issuing of new Bank gLudelines and the requirements of the newly enacted procurement law, including those for procurement planning. The risk of non-compliance with World Bank guidelines is rated as average. The risk will also be mitigated by the assistance, guidance and inputs from the World Bank Office in Mongolia and the World Bank Office in China. In addition, training and coaching of PIU staff, and close IDA supervision of procurement processing are critical for this project. 4. A side letter addressing specific measures regarding NCB procedures will be signed together with the Development Credit Agreement. - 39 - 5. IDA will finance goods and civil works according to World Bank Guidelines for Procurement under IBRD Loans and IDA Credits dated January 1995 and revised January and August 1996, September 1997, and January 1999. The borrower will be required to use the World Bank Standard Bidding Documents (SBD) for Goods and Works, other Bank SBDs as appropriate to the specific project needs; and the World Bank Standard Forn of Contracts for Consultant Services. A price preference of 7.5% for works contracts will apply in bid evaluation only to domestic firms and joint ventures thereof, with no more than 10% sub contracting to foreign firms. Joint Ventures between foreign and domestic firms do not qualify for domestic preference. Consultants will be selected following the Guidelines for the Selection and Employment of Consultants by World Bank Borrowers dated January 1997, and revised in September 1997 and January 1999, using Standard Request for Proposals dated July 1997 and revised in April 1998 and January 1999. 6. Civil Works: Aggregate value US$37.11 including contingencies a. Intemational Competitive Bidding (ICB): Aggregate value US$14.25 million including contingencies A rehabilitation contract for paving of Erdensant-Arvaikheer road, amounting to about $14.25 million including contingencies, will be procured through ICB acceptable to IDA. b. NCB: aggregate value US$22.86 million including contingencies All other civil works contracts will be procured through NCB acceptable to IDA. NCB procedures are appropriate for Gravel Roads Rehabilitation Contracts as they are geographically isolated locations of the construction sites (up to 400 km from the nearest paved road) and the short 5-month construction season (which will require mobilization and re-mobilization of construction sites at least once during the execution of each contract) mean that the project is unlikely to attract foreign competition for contracts of less than one million dollars. However, foreign contractors will not be excluded from participating. About 12 contracts will be initiated in the first year of the project on the Kharkhorin-Tosontsengel road (with an average size of about US$0.66 million) and 17 contracts will be implemented in a second year on the Arvaikheer-Khovd road (with an average size of about US$0.58 million). No prequalification exercise is envisaged for the project. 7. Goods: Aggregate value US$5.54 million including contingencies ICB procedures in accordance with Section II of the Guidelines would be used to procure road maintenance equipment totaling about $2.33 million. All vehicles and office equipment (computers, printers, faxes, photocopier, office supply goods) totaling about $0.06 million, will be procured through the United Nations Inter-Agency Procurement Service Office (IAPSO). If these are not available through IAPSO, shopping procedures will be used in accordance with Articles 3.5 and 3.6 of the Bank's Guidelines, and will not exceed US$15,000 per contract or sum to more than US$60,000. Equipment for the VIS totaling about US$3.21 million will be financed by NDF and purchased in accordance with NDF procurement rules. -40 - 8. Consultant Services and Training: Aggregate value US$6.72 million (include US$4.0 financed by NDF) including contingencies The Railways FAS will need to be closely integrated with the other components of the MIS implemented during the on-going TRP. For this reason, and taking into account the satisfactory implementation of these components, consulting services for designing, implementing and testing the FAS (arnounting to about US$0.46 million including contingencies) would be procured using Direct contracting following Articles 3.8, 3.11 of the Giudelines. Construction Supervision services (US$2.11 million) will be financed by NDF and will follow the NDF procurement requirements. Training, workshops and study tours (US$1.56 million) will be financed by NDF and will follow the corresponding NDF procurement requirements. All other consulting assignments amounting to about US$0.60 million including contingencies financed by IDA under the project will be based on Selection of Individual Consultants based on consultant qualifications. Auditing services (amounting about US$0.06 million including contingencies) will be financed by IDA. Because of their routine nature, non-complexity and small size, these services will be procured using the Least-Cost Selection Method. 9. Incremental Operating Costs: about US$0.17 million Incremental operating costs including contingencies related to PIU for vehicle operation, office supplies and project-related travel expenses, excluding Government officials' salaries, would be financed by IDA on a declining basis; 60% during 2001 and 2002, 50% during 2003 and 40% during 2004 and 2005, and procured according to normal business principles. -41 - Procurement methods (Table A) Table Al: Project Costs by Procurement Arrangements (in US$ million excluding Contingencies) 1, Works Works (A. 1&A.3) 14.25 14.25 (12.52) (12.52) Works (A.2) 22.86 22.86 (19.05) (19.05) 2. Goods 2.05 3.49 5.54 (2.05) (0.00) (2.05) 3. Services 1.81 3.13 4.95 includes Training (0.27) (0.00) (0.27) 4. Miscellaneous 0.17 1.77 1.95 (Project Implementation Unit Expenses) (0.12) (0.00) (0.12) Total 16.30 22.86 1.81 1.77 49.54 (14.57) (19.05) (0.39) (0.00) (34.00) Notes: I. Figures in parenthesis are the amounts financed by IDA credit. All costs include contingencies. 2. Others include goods through the United Nations Inter-Agency Procurement Service Office (IAPSO), consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to managing the project. Table A2: Consultant Selection Arrangements (in US$ million excluding Contingencies) A. Firms 1.35 0.00 0.00 0.06 0.00 0.00 2.90 4.31 (0.12) (0.00) (0.00) (0.06) (0.00) (0.00) (0.00) (0.18) B. Individuals 1.27 0.00 0.00 0.00 0.00 0.00 0.00 1.27 (0.39) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.39) Total 2.61 0.00 0.00 0.06 0.00 0.00 2.90 5.58 (0.51) (0.00) (0.00) (0.06) (0.00) (0.00) (0.00) (0.58) - 42 - Prior review thresholds (Table B) 1. Works. All civil works contracts estimated to cost more than US$500,000 would be subject to IDA's prior review. 2. Goods. Procurement of road maintenance equipment under IDA will be subject to prior review. Vehicle inspection equipment will be procured following the NDF procurement requirements and NDF will request IDA's review and comments. Vehicles and the goods (computers, printers, faxes, photocopier, office supply goods) procured through IAPSO will not be subject to prior review. 3. Services. Procurement activities related to the selection of consulting firms for contracts estimated to cost $100,000 or more, and for individual consultants for contracts estimated at or over US$50,000, will be subject to IDA prior review. Expenditures on training activities, workshops and study tours will also be subject to IDA prior review. NDF will request IDA's review and comments on technical aspects of procurement of consultants services financed by NDF. Table B: Thresholds for Procurement Methods and Prior Review Contract Value Contracts Subject to Threshold Procurement Prior Review Expenditure Category (US$ thousands) Method (US$ minions) 1. Works > than $1,000 ICB $36.19 than $250 ICB $1.84 3. Services QCBS $0.25 $100 QC $50 individuals 4. Miscellaneous 5. Miscellaneous 6. Miscellaneous Total value of contracts subject to prior review: $38.28 million Overall Procurement Risk Assessment Average Frequency of procurement supervision missions proposed: One every 6 months (includes special procurement supervision for post-review/audits) Thresholds generally differ by country and project. Consult OD 11.04 "Review of Procurement Documentation" and contact the Regional Procurement Adviser for guidance. -43 - Disbursement Allocation of credit proceeds (Table C) ~~~~~ WV A. Civil Works 28.70 88% B. Goods 1.25 100% C. Consultant's Services& Training 0.57 100% D. Incremental Operating Costs a) Audit of project accounts 0.03 b) Operating expenses 0.05 60% in 2001and 2002; 50% in 2003; 40% in 2004 and 2005 Total Project Costs 30.60 Unallocated 3.40 Total 34.00 Use of statements of expenditures (SOEs): Table C presents the allocation of credit proceeds. Disbursement procedures will follow standard IDA procedures for projects in Mongolia. For civil works estimated to cost the equivalent of US$500,000 or less, contracts for goods estimated to cost the equivalent of US$50,000 or less, individual consultant's contracts to cost the estimated equivalent of US$50,000 or less, and training expenditures, withdrawal applications will be supported by Statement of Expenditures (SOEs). For civil works contracts estimated to cost the equivalent of US$500,000 or more, goods contracts estimated to cost the equivalent of US$50,000 or more, and individual consultant's contracts estimated to cost the equivalent of US$50,000 or more, withdrawal applications would be supported by full documentation and signed contracts. Special account: To expedite disbursements for the proposed activity, Mol has requested the Bank to authorize the establishment of a Special Account (SA). The SA will be opened in a bank acceptable to the Association with an authorized allocation of US$500,000 and the initial deposit is US$200,000 until the amount disbursed and committed equals SDR 3.0 million. Financial Management Assessment A financial management assessment was carried out by a Bank consultant which was reviewed by a Bank Financial Management Specialist. The objective of the assessment was to determine whether the project has in place an adequate financial management system as required under Bank guidelines. Mol which is the ministry responsible for implementation is also the implementating agency for the TRP (Cr. 2615-MOG). The financial management of this project was the responsibility of the PIU within the Policy Coordination - 44 - and Implementation Department of MoI. The financial duties of the PIU cover: (i) review of all invoices for the payment of contractors, equipment suppliers and service providers approved by supervising engineers and forwarded by the implementing agencies; and (ii) the preparation of withdrawal applications, replenishment requests and payment orders under the Special Account (SA). In accordance with national procedures, the actual payment of approved invoices and signing of withdrawal applications are handled by the Finance Division of the Roads Department of Mol and the Treasury Division of the MoF. The PIU does not maintain project accounts incorporating IDA and national contributions and as a result does not have a complete picture of the project financial progress. In addition, the 1998 Audit Report prepared by external auditor for the TRP did not include sufficient comments, findings and recommendations on internal controls or on the financial management system, although the auditor gave clean opinion on the faimess and reliability of the financial statements. The financial management arrangements described below addresses these issues to ensure that the FM system in place for the proposed project will meet the Bank's minimum standards. Accounting and Reporting Arrangements The PIU has already established a computerized accounting system to record and report expenditures of the Project. The system is currently in use in the Finance Division of the Roads Department and staff are familiar with the system. The PIU has designated the current Project Accountant under the Transport Rehabilitation Project to be responsible for: (i) preparation of the annual project budget by obtaining inputs from the implementing agencies; (ii) ensuring that all requests for payments from the SA are routed through the PIU and properly 4uthorized; (iii) recording of all expenditures in the project accounting system. The expenditures should include those of IDA, the government and NDF; (iv) preparation of withdrawal applications; (v) preparation of PMRs; and (vi) coordinating financial management of the project between fimance divisions of implementing agencies (DoR and DoRT of Mol, Mongolia Railways and the MoJ) and the MoF. As the PIU will not handle any cash or payment transactions, initially only a Project Accountant will be employed. However, IDA will review during the first principal supervision mission to review the performance of the PIU and recommend additional staff as required. The internal control framework within the PIU includes an accounting manual (prepared by ADB under their Capacity Building Project in accounting TA No.2993), segregation of duties as to procurement, payment authorization and payment transactions and sound budgeting and periodic financial reporting. In addition, adequate procedures to record and safeguard assets will also be introduced. IDA supervision missions will review the control framework regularly and require independent auditors comment and make recommendations as part of the annual audit. The above financial management arrangements have been put in place for the on-going TRP. IDA plans to conduct a Country Financial Accountability Assessment (CFAA) in the current year in Mongolia. An FMS review of the financial management system at the PCO will be undertaken during the planned CFAA. As the financial management systems that will be used for this project has been put in place recently and staff have to gain experience with the system, the project is not considered eligible for PMR-based disbursements. Traditional disbursements methods will be used. -45 - Project Management Reports (PMR) The PMRs to be submitted to IDA have been agreed and will include the following: 1. Project Sources and Uses of Funds (Form 1 A) 2. Uses of Funds by Project activity (Form 1 B) 3. Special Account Statement (Form 1 E) 4. Output Monitoring Report (Form 2 A) 5. Procurement Process monitoring (Goods and Works) (Form 3 A) 6. Procurement Process Monitoring (Consultant's' Services) (Form 3 B) 7. Contract Expenditure Report (Goods and Works) (Form 3 C) 8. Contract Expenditure Report (Consultants' Services) (Report 3 D) The formats for the above Reports have been agreed with PCO and have been confirmed at negotiations. Audit The Borrower will appoint an independent auditor acceptable to IDA. The audit will be conducted in accordance with auditing standards acceptable to IDA and under terms of reference acceptable to IDA. The auditor will be responsible for the annual audit of project financial statements, and provide an opinion on the (i) project accounts; (ii) transactions on special accounts; and (iii) statement of expenditures and the eligibility of the expenses withdrawn on the basis of SOEs. The auditor will also provide a management letter. The audited financial statements together with the audit report shall be submitted to IDA within six months of the end of the project fiscal year. Retroactive Financing The severe weather conditions in central and westem Mongolia limit the period when civil works can be undertaken to about five months (May to September). So that works can be completed within two years, and avoid the additional costs of having to close down and reopen construction sites for a third year, they need to start as soon as the weather permits. As it is unlikely that the Credit can be effective before that time, and to avoid extending the civil works into a third year, civil works will be eligible for retroactive financing. In addition, the VIS, which is designed to save lives through a reduction in road accidents, should be implemented as quickly as possible. Since the civil works for these stations need to be competed before the equipment can be installed, these will also be eligible for retroactive financing. The total Credit amount eligible for retroactive financing will be U$3.4 million. -46 - Annex 7: Project Processing Schedule MONGOLIA: Transport Development Project Schedule Planned Actual Time taken to prepare the project (months) 14 First Bank mission (identification) 12/04/99 Appraisal mission departure 10/29/2000 Negotiations 02/13/2001 02/13/2001 Planned Date of Effectiveness 09/30/2001 Prepared by: Ministry of Infrastructure and Ministry of Justice Preparation assistance: Nordic Development Fund Bank staff who worked on the project included: Name Speciality Robin Carruthers Task Team Leader Hoi-Chan Nguyen Legal Rosa Muleta Disbursement Anil Somani Environment Alla Weinstein Engineering R. I. Gopalkrishnan Procurement Wijaya Wickrema Financial Management Specialist Johanngeorg H. Renkewitz Financial Management Consultant Anders Bonde Peer Reviewer Robin Mearns Peer Reviewer Saraswathi Sundaram Program Assistant -47 - Annex 8: Documents in the Project File* MONGOLIA: Transport Development A. Project Implementation Plan Project Implementation Plan Departments of Roads and Road Transport, Ulaanbaatar November, 2000 B. Bank Staff Assessments C. Other Feasibility study of Erdenesant to Arvaiheer Road (Link 1) Department of Roads, Ulaanbaatar March, 20000 Feasibility Study of Kharkhorin to Tosontsengel Road (Link 2) Department of Roads, Ulaanbaatar March, 20000 Feasibility Study of Arvaiheer - Khovd Road (Link 3) Department of Roads, Ulaanbaatar March, 20000 Feasibility Study of a Vehicle Inspection System Department of Road Transport, Ulaanbaatar, April, 2000 Environmental Assessment of Erdenesant to Arvaiheer Road Departments of Roads and Road Transport, Ulaanbaatar January, 2000 Environmental Assessment of Kharkhorin to Tosontsengel Road Departments of Roads and Road Transport, Ulaanbaatar March, 2000 Environmental Assessment of Arvaiheer - Khovd Road Departments of Roads and Road Transport, Ulaanbaatar April, 2000 Summary Environmental Assessment and Management Plan Departments of Roads and Road Transport, Ulaanbaatar October, 2000 -48 - Policy Support in the Roads Sector (Draft) Asian Development Bank and Department of Roads August, 2000 Volume I Executive Summary Volume II Financial Accounting and Management Information Systems Volume III Road Fund Management Volume IV Road Sector Privatization and Private Sector Participation Volume V Equipment Leasing Company Volume VI HDM IV Implementation *Including electronic files -49 - Annex 9: Statement of Loans and Credits MONGOLIA: Transport Development Feb-2001 Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA Cancel. Undisb. Orig Fmm Rev'd P068071 2000 Mongotia Fin Sector Adjustment Credit 0.00 32.00 0.00 31.59 12.00 0.00 P049789 1999 MN-PRIV.SEC. DEVTCR 0.00 12.00 0.00 8.83 1.88 0.00 P051855 1998 MN-Fiscal Technical Assistance Project 0.00 5.00 0.00 4.09 3.70 0.00 P036052 1998 ULMNBMTAR SERV.IMP 0.00 16.70 0.00 8.56 4.29 -0.18 P047683 1997 BANK.ENT,LEG,TA(BELT 0.00 2.00 0.00 0.52 0.54 0.00 P035697 1996 MONGOLIA COAL PROJ. 0.00 35.00 0.00 2.08 3.93 0.00 P004342 1994 TRANSPORT REHABILITA 0.00 30.00 0.00 0.84 0.55 -1.29 Total: 0.00 132.70 0.00 56.50 26.89 -1.47 - 50 - MONGOLIA STATEMENT OF IFC's Held and Disbursed Portfolio Feb-2001 In Millions US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1997 SEF G&M Leather 1.05 0.20 0.00 0.00 1.05 0.20 0.00 0.00 Total Portfolio: 1.05 0.20 0.00 0.00 1.05 0.20 0.00 0.00 Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic Total Pending Commitment: 0.00 0.00 0.00 0.00 - 51 - Annex 10: Country at a Glance MONGOLIA: Transport Development East POVERTY and SOCIAL Asia & Low- MotongolI Pacific income Development diamond' 1999 Population. mid-year (millions) 2.6 1.837 2,417 Life expectancy GNP per capita (Atlas method, US$1 350 1.000 410 GNP (Atlas method, USS billions) 0;92 1,833 988 T Averago annual growth. 1993-99 Population (%) 1.8 1.2 1.9 GNP Grs Labor foroe (%J 2.8 1.3 2.3 Per primary Most recent estimate (latest year available, 1993-99) capita enrollment Poverty (% of Population below national poverty line) 36 Urban poDulation (% of total population) 63 34 31 Life exoectancy at birth (vears) 66 69 60 Infant mortalitv (oer 1. 00 live births) 50 35 77 Child malnutrition (% of children under 5) 9 22 43 Access to safe water Access to improved water source (I% of poPulation) .. 84 64 Illiteracy (% of population aee t5+) 38 15 39 Gross primary enrollment (% of school-a.e population) 88 119 96 -Mongolia Male 86 121 102 . -- Low-income group Female 91 121 86 . KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1979 1989 1998 1999 .l._ Economic ratios' GOP (IS$ billions) . .. 1.0 0.9 Gross domestic investment/GOP 46.0 25.8 Trade Exports of aoods and services/GDP . 215 49.6 Gross domestic savinqs/GDP . 21,3 20.0 . Gross national savinqs/GDP .. 10.2 15.2 Current account balancefGOP . .. -12.4 Domestic In Interest pavments/GDP .. . 0.7 10 Do Investment Total debt/GDP .. . 709 Savings Total debt service/exDorts .. .. 6.3 Present value of debtlGDP . .. 46.2 Present value of debtlexports .. * 87.4A Indebtedness 1979-.9 1989-99 1998 1999 1999-0t (averaoe annual growth) GDP 6.0 -01 3.5 2.7 -Mongolia GNP Per capita 3.2 .1.7 1.9 1.2 .. Low-income group Exports of goods and services .. ....... STRUCTURE of the ECONOMY 1979 1 989 1998 1999 Growth rates of output and Investment (%) (% of GDP) Aqriculture .. 15.5 32.8 Industrv .. 38.8 27.6 .. Manufacturinq . . Services * 45.7 39.6 .. o f s ss * 4 95 96 97 98 99 Private consumption .. 48.7 62.5 .. s General government consumption .. 30.0 17.5 5 - GDP Imports of goods and services .. 46.3 55.4 1979-89 1989-99 1998 1999 (average annual growth) Agriculture 1.5 2.0 3.1 Industry 7.1 -2.7 3.3 Manufacturing .. Services 6.7 0.1 3.8 Private consumption General government consumption .. Gross domestic investment .. Imports of goods and services . . Gross national product 6.3 0.2 3.6 2.7 Note: 1999 data are preliminary estimates. This table was Produced from the Development Economics central database. The diamonds show four key indicators in the countrv fin bold) compared with its income-qroup averaoe. If data are missing, the diamond will - 52 - Mongolia PRICES and GOVERNMENT FINANCE 1979 1989 1998 1999 Inflation (%) ('A change) Consumer prices .. .. 9.5 .. 200 Implicit GDP deflator .. 0.0 11.5 2.8 Govemment finance (% of GDP, includes current grants) o I I I . I Current revenue .. 48.5 274 .. 94 95 96 97 98 99 Current budget balance .. 2.3 2.0 .. -G DP deflator CPI Overall surplus/defidt .. -16.8 -11.7 TRADE (US$ millions) 1979 1989 1998 1999 Export and import levels (US$ millions) Total exports (fob) - 722 462 .. t00 Copper .. 281 125 Meat .. 131 .. . 40li Ii Manufactures .. .. 0 Total imports (ci) .. 963 582 Foo . . 8120 Fuel and energy . .. 91 Capital goods . 195 .. 2 93 94 99 96 97 99 9 Export prce index (1995=100) .. Import pnce index (1995=100) .. .. .. .. U Exports a Imports Terms of trade (1995=100) .. BALANCE of PAYMENTS 1979 1989 1998 1999 Current account balance to GDP ratio (%) (US$ millions) Exports of goods and services .. 832 540 .. T Imports of goods and services .. 2,016 672 .. Resource balance .. -1,184 -132 Net income - -49 0 Net current transfers .. ° 3s. l I Current account balance .. -1,233 -129 .. 10 Financng items (net) .. 1,250 100 . l Changes in net reserves .. -18 29 . 5 Memo: Reserves including qold (US$ millions) .. .. 103 Conversion rate (DEC, local/US$) .. .. 840.8 1,021.9 EXTERNAL DEBT and RESOURCE FLOWS 1979 1989 1998 1999 (US$ millions) Composition of total debt, 1998 (USS millions) Total debt outstanding and disbursed .. .. 739 IBRD .. .. 0 0 G: 57 1 IDA .. .. 118 130 F:a 26 Total debt service .. .. 35 .. IBRD .. . 0 0 c 48 IDA .. .. I 1 - Composition of net resource flows Official grants .. .. 54 E:249 Official creditors .. 74 *- Private creditors .. .. -12 Foreign direct investment * - 19 0- :241 Portfolio equity .. .. 0 World Bank program Commitments .. .. 5 12 A- IBRD E - Bilateral Disbursements .. .. 17 14 B - IDA D - Other multilateral F -Pnvate Principal repayments .. .. 0 0 C - IMF G-Short-term Netflows .. .. 17 14 Interest payments .. .. I 1 Net transfers .. .. 16 13 Note: This table was produced from the Development Economics central database. 09/13/00 - 53 - IBRD 31271 88' 92' 96, 1wI OA I59' 112' 116' ,20 .5- s2 '2 - r.~~~~~~~~~~~~.h | , --. ; ~~~~~~~ U SSIA N F ED E RATIO N -V.-. 1 '~~~~~~~~~~~~~~~~B *1n 'V-~~~~~/' 31 .y - ls \'( s- t -- 4 I /*1 -.'N \ C' / - - - - - - - - - 0 ' - - D Darn :-sB.ruu Urt:. ! t w ~~~~~~~- * iH;j?Jt> 48'~ ~ ~ .B " ?"> . ?MJdlOV r \* _ 0 _ / 0 /t1,, ,, '1 ~ ~ g 't ' ' = j#SJi2,)si / \._ I, S." ''~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~'~x" M,~~~~~~~~~~~~~~~~~~~~~~~~~~½ . ,M0 \f-6 , 6M dogsk - MONGOLIA 4 ' ..44 TRANSPORT DEVELOPMENT PROJECT TOWNS BENEFT-ING FROM PROJECT PAVED ROADS -'- ' REHABILITATION OF PAVED ROAD G-RAVEL ROADS ' . / f UPGRADING OF EARTH TO GRAVEL ROAD - IMPROVED EARTH ROADS "' STRICTLY PROHIBITED AREAS ----- EARTH ROADS - ,r ' , - NATIONAL PARKS I RAILROADS '_ o 2040 NATURE RESERVES RIVERS 1 , I I I I i 4 NATIONAL HISTORIC MONUMENTS * SELECTEDTOWNS PALOMETRS AIMAG (PROVINCE) CAPITALS o. roi4dSy0.Aw OooU,,,oITh. ,h.b,~do. ,2ood~4.4oo N NATIONAL CAPITAL C H I N A 6., d-- _- LTF .I ALMAG (PROVINCE) BOUNDARIES 92' '' INTERNATIONALBOUNDARIES I00' 10140' 8' 112 116 i MARCH 2001