ASIAN DEVELOPMENT BANK RRP: 31304 BAN

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

TO THE

BOARD OF DIRECTORS

ON A

PROPOSED LOAN

TO THE

PEOPLE’S REPUBLIC OF BANGLADESH

FOR THE

RURAL INFRASTRUCTURE IMPROVEMENT PROJECT

November 2002

CURRENCY EQUIVALENTS (as of 6 November 2002)

Currency Unit – taka (Tk)

Tk1.00 = $0.0174 $1.00 = Tk 57.60

(i) The exchange rate of the taka is pegged to a basket of currencies with the US dollar as

the intervention currency. (ii) In this report, a rate of $1.00 = Tk57.6 was used. This was the rate prevailing at the time

of appraisal.

ABBREVIATIONS

ADB – Asian Development Bank DOE – Department of Environment EIA – environmental impact assessment EIRR – economic internal rate of return FRA – feeder road type A FRB – feeder road type B GAP – gender action plan GDP – gross domestic product GTZ – Gesellschaft für Technische Zusammenarbeit HDM-4 – highway design and maintenance model version 4 ICB – international competitive bidding IEE – initial environmental examination KfW – Kreditanstalt für Wiederaufbau km – kilometer km2 – square kilometer LGD – Local Government Division LGED – Local Government Engineering Department m – meter MLGRDC – Ministry of Local Government, Rural Development and

Cooperatives NGO – nongovernment organization PMO – project management office PPMS – project performance management system RHD – Roads and Highways Department RIDP-I – Rural Infrastructure Development Project RIDP-II – Second Rural Infrastructure Development Project RIDP-III – Third Rural Infrastructure Development Project RR-1 – rural road type 1 RR-2 – rural road type 2 RR-3 – rural road type 3 SIEE – summary initial environmental examination TA – technical assistance SOE – statement of expenditure VOC – vehicle operating cost

NOTES

(i) The fiscal year (FY) of the Government ends on 30 June. FY before a calendar year

denotes the year in which the fiscal year ends, e.g., FY2000 ends on 30 June 2000.

(ii) In this report, "$" refers to US dollars.

This report was prepared by a team consisting of: B. Fawcett (Team Leader), C. Bunchandranon, R. Jayewardene, R. Khan, F. Sultana, C. Vandenabeele, and J. Zhang

CONTENTS

Page

LOAN AND PROJECT SUMMARY iii

MAP vii

I. THE PROPOSAL 1

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 1

III. THE PROPOSED PROJECT 4 A. Objective 4 B. Components and Outputs 4 C. Special Features 7 D. Cost Estimates 8 E. Financing Plan 8 F. Implementation Arrangements 9

IV. PROJECT BENEFITS, IMPACTS, AND RISKS 13 A. Economic Impacts 13 B. Poverty Reduction Impacts 14 C. Social Impacts 14 D. Resettlement 14 E. Gender and Development Issues 15 F. Environmental Impacts 15 G. Risks 16

V. ASSURANCES 16 A. Specific Assurances 16 B. Conditions for Loan Effectiveness 20

VI. RECOMMENDATION 20

APPENDIXES 1. Externally Financed Rural Infrastructure Projects 21 2. Sector Analysis 23 3. Project Framework 25 4. Cost Estimates and Financing Plan 30 5. Implementation Schedule 32 6. Contract Packages 33 7. Outline Terms of Reference for Consulting Services 34 8. Summary Economic Analysis 37 9. Summary Poverty Reduction and Social Strategy 42 10. Resettlement Framework 47 11. Summary Gender Action Plan 52 12. Summary Initial Environmental Examination 54

SUPPLEMENTARY APPENDIXES (available on request) A. Subproject Selection and Prioritization Criteria B. Detailed Terms of Reference for Consulting Services C. Initial Environmental Examination (IEE) and Short IEEs for Three Core Subprojects D. Strengthening Local Governance and LGED Capacity E. Poverty Reduction Impact F. Resettlement Plans for Three Core Subprojects G. Detailed Cost Estimates H. Sector Analysis I. Detailed Gender Action Plan

LOAN AND PROJECT SUMMARY Borrower The People’s Republic of Bangladesh Classification Poverty: Poverty intervention

Thematic: Economic growth, gender and development Environment Assessment

Category B. An initial environmental examination (IEE) was undertaken, and the summary is a core appendix.

Project Description The Project will reduce rural poverty in 16 districts of southwest

Bangladesh. To achieve this objective, the Project will increase economic opportunities for the rural poor through participatory improvement of sustainable rural infrastructure, social and gender development, and improved local governance in the project area. The impact on poverty reduction will be achieved by (i) targeting poor areas; (ii) closely involving the poor and other stakeholders in prioritizing and planning subprojects for project assistance, and in maintaining rural infrastructure, while at the same time building their capacity; and (iii) indirect assistance in developing economic opportunities through partnership arrangements.

Rationale Efficient rural transport and supporting infrastructure, in particular

improved access, are essential for poverty reduction and economic development in Bangladesh. Past efforts in this area were undertaken with external assistance, including that from the Asian Development Bank (ADB). The Project will build on the experience and lessons learned from the previous projects to provide needed rural infrastructure improvement. The project area covers the 16 districts of Khulna and Barisal divisions, which were selected because of the poverty level and the poor state of development of the road infrastructure. Improving the rural roads and supporting infrastructure will provide the rural population with effective communication and transport to markets and distribution centers. These improvements will lay the foundation for better economic opportunities and assist in reducing poverty. Another priority is continued reform and strengthening of the Local Government Engineering Department (LGED) and capacity building for agencies in the districts and the union councils to enable them to plan, manage, operate, and maintain their local infrastructure. Private sector stakeholders such as bus operators, traders, and rickshaw drivers will be consulted on rural transport needs. The Project will use the information for planning, managing, and constructing infrastructure. Local participation will improve the effectiveness of the Project, sense of ownership, and attention to infrastructure maintenance.

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Objectives The Project will assist the Government to reduce rural poverty through sustainable economic growth, rural development, and improved infrastructure. This objective supports the Government’s goals to promote economic development and reduce poverty through rural infrastructure development. The Project will (i) improve rural roads; (ii) improve rural infrastructure such as growth center markets, boat landings, ferries, and union council office complexes; (iii) improve rural infrastructure maintenance; (iv) strengthen LGED capacity and improve local governance; and (v) support LGED in project management.

Cost Estimates The total project cost is estimated at $112.4 million equivalent

comprising foreign exchange of $30.1 million, and local currency of $82.3 million equivalent.

Financing Plan ($ million) Source Foreign

Exchange Local

Currency Total Cost Percent

ADB 23.5 36.5 60.0 53.4 Germany (KfW) 5.2 6.7 11.9 10.5 Germany (GTZ) 1.4 3.6 5.0 4.5 Government 0.0 34.0 34.0 30.3 Local Government

Bodies 0.0 1.5 1.5 1.3

Total 30.1 82.3 112.4 100.0

ADB = Asian Development Bank; KfW = Kreditanstalt für Wiederaufbau; GTZ =

Gesellschaft für Technische Zusammenarbeit. The German Government has been requested to provide a grant

totaling about $11.9 million equivalent through KfW to finance project activities in four districts and implementation consultants in Khulna division. The German Government has also been requested to provide a grant of $5.0 million through GTZ to finance the capacity building component.

Loan Amount and Terms The proposed ADB financing from ADB's Special Funds resources

is equivalent in various currencies to Special Drawing Rights 45,461,000 [$60.0 million]. The loan will have a maturity of 32 years, including a grace period of 8 years, with an interest charge of 1% during the grace period and 1.5% thereafter.

Period of Utilization Until 30 June 2009 Estimated Project Completion Date

31 December 2008

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Executing Agency LGED, in the Local Government Division of the Ministry of Local Government, Rural Development and Cooperatives.

Implementation Arrangements

The Project will be implemented by an appropriately staffed project management office (PMO), established by LGED at its headquarters in Dhaka. A full-time project director will head the PMO. The project director will be directly responsible for overall project implementation and coordination and will report to the chief engineer of LGED. The PMO will establish two zonal offices– one in LGED’s Jessore district office and one in LGED’s Barisal district office–each headed by a deputy project director. The deputy project directors will have day-to-day responsibility for project implementation activities in their zone, and supervise project-related work. A project steering committee will be established comprising the concerned line agencies, local government bodies, and nongovernment and private sector representatives to provide overall policy advice and direction in project implementation.

Procurement All procurement under the Project will follow ADB’s Guidelines for

Procurement. Major items such as equipment and vehicles will be procured through international competitive bidding. Civil works will comprise many small contract packages for improving infrastructure and facilities scattered over a large area. All civil works will be procured through local competitive bidding procedures acceptable to ADB among prequalified local contractors. ADB approved advance action and retroactive financing for Government recruitment of consultants.

Consulting Services Consulting services will assist LGED in project implementation.

Two consulting services groups are required to facilitate project implementation and to strengthen LGED capacity and improve local governance. The consultants will be recruited in accordance with ADB’s Guidelines on the Use of Consultants and other arrangements satisfactory to ADB for engaging domestic consultants.

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Project Benefits and Beneficiaries

The direct and quantifiable benefits of the Project consist of savings in vehicle operating costs on the improved feeder roads. The beneficiaries are the various road users–bus and truck owners and operators, passengers, cargo owners, and the population in the area of influence in general, estimated to be about 5.9 million people, about 50% of whom are poor. Improvements in growth center markets will allow more efficient trading. About 50,000 person-years of employment will be generated during the Project for local laborers to assist in road improvement and maintenance, thereby increasing the incomes of the rural poor. The project infrastructure will create about 84,000 person-years of permanent employment, of which 30% will be for women. The Project will also improve access to basic education and social services leading to long-term economic and social benefits to the poor. The Project's overall economic internal rate of return is 22.8%. The Project will contribute to poverty reduction by (i) enabling poor people to participate in economic opportunities and to access social services, and (ii) creating additional economic opportunities for poor people by stimulating economic growth. Project beneficiaries will comprise (i) poor people who will have increased access to economic opportunities and human development services because of improved rural infrastructure; (ii) people living in the 16 districts who were previously unable to pursue employment and other economic opportunities due to the long journey times; and (iii) companies, employees, consumers, and transport operators in the region that directly and indirectly use goods and services transported on the roads. About 2,100 person-years of road maintenance employment for rural poor women will be created annually by the Project.

Risks and Assumptions The Project has been carefully formulated to manage and mitigate

risks. Advance action will help expedite recruiting consultants to supervise implementation. Risks from the use of local contractors to carry out most of the civil works despite their limited capacity have been successfully addressed in previous ADB-financed projects. Participatory processes involving stakeholders at all levels will give a sense of ownership and minimize delays caused by lack of local involvement in decision making. Environmental and social processes including participatory mechanisms introduced for the Project will address issues of local sensitivity and minimize adverse effects.

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I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed loan to the People’s Republic of Bangladesh for the Rural Infrastructure Improvement Project.1

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES A. Performance Indicators and Analysis 2. Bangladesh has an extensive road transport system comprising about 227,000 kilometers (km). The 4,890 km long primary road network of national and regional roads connects the main cities to the 64 districts and is administered by the Roads and Highways Department (RHD). The secondary network includes feeder roads type A (FRAs) (connecting subdistricts2) comprising 15,962 km. The Local Government Engineering Department (LGED) of the Ministry of Local Government, Rural Development, and Cooperatives (MLGRDC) administers the 22,991 km network of feeder roads type B (FRBs) and rural roads type 1 (RR-1), with a total network of 67,067 km.3 Responsibility for the 116,000 km local rural road network of types 2 (RR-2) and 3 (RR-3), is currently delegated to the union councils.4 5 3. Road transport demand during the 1990s increased at 8.2% nationally, compared with the average annual gross domestic product (GDP) growth of only 4.8%. Between 1975 and 1997, the proportions of freight and passenger traffic using road transport increased from 35% and 54% to 63% and 73%, respectively. In the project area (Barisal and Khulna divisions), the annual growth in road transport was 4.5%. Passenger transport has shifted substantially from water and rail to road. Better quality rural roads provide improved service levels in public transport, improved comfort, less costly private trips, and vehicle operating cost (VOC) savings of 30-50% for all vehicles. With road network improvements, it is expected that the demand for road transport will continue to increase. 4. Since 1993 the Government has provided maintenance funds to LGED from the recurrent budget. From FY1998-FY2002, the Government’s allocation for LGED road maintenance has increased by 12% per year, from $21 million to $31 million. However, maintaining the existing and new road assets will require a 15% annual increase in funding. The gap in funding for maintenance requirements for LGED roads has expanded from 4% in FY1998 to 28% in FY2002, to maintain 20,693 km of improved roads. B. Analysis of Key Problems and Opportunities 5. In 1984 the Government adopted a strategy for rural development. The new strategy emphasized the critical aspects of the rural development process–agricultural development, improved physical infrastructure, and income generation for the poor including one or more of 1 Project preparatory technical assistance (TA) was provided under ADB. 2001. Technical Assistance to the People’s

Republic of Bangladesh for preparing the Rural Infrastructure Improvement Project. Manila 2 Subdistricts (upazila) are local governments at the third level of administration after divisions and districts (zila). 3 Of the total length of 22,991 km of FRBs, only 10,583 km, or 46% has been improved; only 10,110 km of a total

length of 67,067 km of RR-1, or 15%, has been improved. 4 Rural roads comprise (i) FRBs, which connect growth center markets with the national road network or subdistrict

headquarters; (ii) RR-1s, which connect local markets and union headquarters with subdistrict headquarters or the national road network; (iii) RR-2s, which connect villages and farms with local markets and union headquarters; and (iv) RR-3s, which are within villages.

5 Union councils (parishad), are the next level of local government below subdistricts, and are the level where local elections are held every 5 years.

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the following elements: (i) develop physical infrastructure (all-weather FRBs to connect growth center markets), improve rural roads and span the gaps in roads to give rural people better access to markets and services, and improve facilities at growth center markets to make trading more efficient; (ii) develop irrigated agriculture, and minor drainage and flood control works; (iii) reduce poverty through rural infrastructure maintenance programs; and (iv) implement production and employment programs for the rural poor. Developments in these four critical areas are introduced in rural districts to complement each other and provide synergistic development impacts to reduce poverty. 6. The strategy has been implemented through a series of projects that focused on development of road and market infrastructure implemented by LGED with external financing support (Appendix 1). Among them are the Asian Development Bank (ADB)-financed rural infrastructure development projects (RIDP)-I, RIDP-II, and RIDP-III.6 The project completion reports for RIDP-I and II and the project preparatory technical assistance (TA) concluded that the projects contributed successfully to the strategy, including employment for the poor through labor-intensive construction methods. The Bangladesh Rural Infrastructure Strategy Study commissioned in 1996, and lessons learned and impact evaluations from previous ADB and other externally-financed projects concluded that the 1984 strategy’s market growth center approach (focusing on public investments in selected market growth centers) remained valid. While the design of past projects was assessed to be fundamentally sound, new projects have incorporated the lessons learned from previous projects. Using lessons learned from RIDP-II and III, the proposed Project seeks to build the capacity of the executing agency to use more participatory approaches, continue the successful use of local labor contracting societies for routine maintenance to provide employment opportunities for destitute rural women, increase the training and use of private sector contractors for road construction and maintenance, and support the Government’s decentralization policy by increasing the roles and responsibility of local governments in development planning and implementation. The plan for the future development of the rural infrastructure subsector is in Appendix 2. 7. RHD, LGED, and subdistricts and union councils have responsibility for rural infrastructure development. FRAs and FRBs are essentially the same, and the Government has been considering the redefinition of classifications and management responsibilities between RHD and LGED. RHD continues to manage some FRBs and even RR-1s, while LGED has undertaken work on some FRAs. This system is not conducive to effective management of the secondary and tertiary road networks. ADB and other aid agencies have consistently recommended that (i) RHD should manage the primary road network of national and regional roads, (ii) LGED should manage the secondary road network of feeder roads and RR-1s, and (iii) subdistricts and union councils should manage the tertiary network of RR-2 and RR-3 roads. Implementation of this management system will improve the efficiency and effectiveness of road operations in the country. 8. ADB and other major aid agencies have invested heavily in the rural infrastructure sector. LGED’s annual average level of external project support through the 1990s was in the order of $140 million. As a result LGED now has a large improved road network to maintain, one which will soon double with the FRAs coming under its jurisdiction. As a major agency in the 6 ADB. 1988. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the

People’s Republic of Bangladesh for the Rural Infrastructure Development Project. Manila; ADB. 1992. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of Bangladesh for the Second Rural Infrastructure Development Project. Manila; ADB. 1997. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of Bangladesh for the Third Rural Infrastructure Development Project. Manila.

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roads sector, LGED will need to maximize the use of its resources to maintain the road assets under its control, and improve its planning and funding for road maintenance requirements. 9. Since its inception in 1984, LGED has continuously developed its capacity to implement projects. LGED recently recognized the critical importance of involving local stakeholders in planning, implementing and subsequently maintaining rural infrastructure, but the TA institutional analysis identified a need for extensive training of LGED staff in participatory approaches. If LGED is to be effective in this respect, it needs to develop an internal capacity to involve and facilitate community participation in project planning and management, undertake environmental and social assessments, and plan resettlement. LGED is in the process of adopting a new organizational structure that is more relevant to maintenance and facilitation roles, and will assist the union councils to develop into effective units of local government. The Project will assist this transition through training to facilitate the organizational change necessary for LGED’s new role. 10. Government policy has attached importance to creating efficient and effective local government institutions for decentralized decision making within a participatory framework. Union councils, being the administrative unit closest to communities, are targeted as the focal point for promoting socioeconomic changes and infrastructure development in rural Bangladesh. They are empowered to undertake revenue collection and local administration, and promote local development. Union councils receive allocations for projects through the central Government’s annual development program, but are also vested with powers to raise revenues to carry out their functions. In reality, however, there has not been much progress in decentralized governance at this level. The TA and other studies have concluded that most union councils in the rural regions have very limited capacity to carry out their functions, and are poorly equipped to provide meaningful development planning and administration for their constituencies. There is a need to strengthen the union councils and empower them to take more responsibility for local service delivery. 11. The Government has identified 2,100 of the estimated 8,600 rural markets in Bangladesh as growth center markets to serve as focal points and catalysts for poverty reduction and economic and social development, and around which investment in rural infrastructure would be concentrated. They are key locations for trade and commercial activities. Improvement of growth center markets is seen as a crucial element of the rural development strategy. The operation and maintenance of growth center markets is not entirely transparent, particularly the award of market leases. Because lease values have declined over the years, a Government regulation forces the lease values to be increased each year. While the concept of growth center markets appears sound as a strategy, new regulations to introduce greater transparency and local control of market management are required. 12. The project area, totaling 35,000 square kilometers (km2), comprises 16 districts of Khulna and Barisal divisions, which cover 24.1% of the total area of Bangladesh. Their population of 22.6 million represents 18.4% of the country's population. The project area was chosen because of the extensive poverty and low level of development in the region. In the two divisions, over 11 million people are poor. In 2000, 47% of the people were below the upper poverty line–40% in Barisal and 51% in Khulna. In the decade ending in 2000, mean per capita expenditure increased by 2.1% annually in these divisions while the national average annual increase was 2.4%. Only 39% of the FRBs and 30% of the growth center markets in the project area have been improved to all-weather standard, so there is considerable potential for further investment in rural infrastructure to reduce poverty.

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13. Improving physical infrastructure like roads, markets, and ferry crossings has a direct positive impact on the income of all categories of households living in the affected areas. Evaluation of the ADB-financed RIDPs and other projects has shown that these interventions were highly effective in reducing poverty. Improved roads and markets helped to lower marketing costs and VOCs, and improved overall access to public services (health, education, and agricultural extension) and economic opportunities. The poor specifically benefited because of the increased availability of goods and services at lower prices. The 2002 Bangladesh Public Expenditure Review confirms the positive impact of rural infrastructure improvement on poverty reduction. A project preparatory TA study7 also found that 75% of the poor had easier access to employment and their incomes increased by 20% on average. 14. To identify the most suitable project interventions within the project area, 27 participatory meetings at the local level were conducted during the TA. From these meetings, stakeholders also identified issues associated with governance (particularly at the local level), risk mitigation and stakeholder participation during project implementation. The issues included the need to strengthen the coordination and participation mechanisms of union councils and LGED, the need for sustainable and independent local level funding, and the need for these interventions to be sustainable beyond the project implementation period. These contributions and lessons learned have been incorporated into the Project’s design.

III. THE PROPOSED PROJECT A. Objective 15. The goal of the Project is to reduce rural poverty in 16 districts of southwest Bangladesh. To achieve the objective, the Project will increase economic opportunities for the rural poor through participatory improvement of sustainable rural infrastructure, social and gender development, and improved local governance in the project area. The impact on poverty reduction will be achieved by (i) targeting poor areas; (ii) closely involving the poor and other stakeholders, including women, in prioritizing and planning subprojects for project assistance, and maintaining rural infrastructure, while at the same time building their capacity; and (iii) indirect assistance in developing economic opportunities through partnership arrangements. The project framework is in Appendix 3. B. Components and Outputs 16. The Project will (i) improve rural roads; (ii) improve rural infrastructure such as growth center markets, boat landings, ferries, and union council office complexes; (iii) improve infrastructure maintenance; (iv) strengthen LGED capacity and improve local governance; and (v) support LGED in project management.

1. Rural Roads 17. The Project will upgrade about 1,030 km of FRBs to bitumen-surfaced standard and construct bridges and culverts along them to provide all-weather access to rural growth center markets.8 Local stakeholders selected the FRBs from lists compiled by LGED, through 27

7 ADB. 2000. Technical Assistance to the People’s Republic of Bangladesh for Road Network Improvement and

Maintenance. Manila. 8 If the Government decides to revise road classifications and reallocate the responsibility of FRAs and FRBs to

LGED, the total length of feeder roads to be upgraded by the Project may be reviewed during implementation.

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participatory meetings held under the TA. Further participation will be required at the local level if changes are needed at the detailed project design and implementation stages. Bridges and culverts with a total length of 3,000 meters (m) will be constructed on project FRBs. After meeting the requirements on these roads, bridges and culverts totaling a further 2,000 m will be built on other FRBs and RR-1s.9 Women labor contracting societies10 will be used to improve road shoulders, plant trees on roadsides, and maintain the roads. The women will be supported by nongovernment organizations (NGOs) to promote savings from their income, and to identify income-generating opportunities using the savings through partnership arrangements with microfinance institutions and NGOs. The use of performance-based maintenance contracts with private sector contractors will also be encouraged with consultant support.

2. Rural Infrastructure 18. During the project detailed design and implementation stages, through participatory meetings, local stakeholders will select from lists compiled by LGED 60 growth center markets and 50 boat landings to be improved under the Project. The growth center markets will also include sections for women. Growth center market management committees will be elected at public meetings and will be responsible for ensuring that the growth centers are properly managed financially and physically. A limited number of small ferries will be built to improve access in riverine areas. Management committees for the boat landings and ferries will be formed. New union council office complexes will be built in 99 unions to support efforts to improve local governance.

3. Infrastructure Maintenance

19. Road maintenance will be improved under the Project through central level reform, improved district operations, and assignment of increased responsibilities to the union councils for maintenance of rural roads (RR-2 and RR-3). The Project will require the Government to close the gap in funding for maintenance by providing sufficient funds to maintain all roads for which LGED is responsible. The Project will also support policy dialogue with the Government on ongoing and proposed ADB projects11 and other externally aided projects, to establish a mechanism to fund road maintenance adequately, and on a permanent basis. 20. LGED maintenance cells at the central and district levels will be supported to improve their maintenance management systems and procedures. The project consultant will review and introduce improvements to LGED’s maintenance operations and management systems currently in place.12 Engineers have already been dedicated to maintenance duties at district and subdistrict levels and LGED’s central and regional training units and consultants will train them in maintenance operations. LGED presently undertakes routine and periodic maintenance using a combination of in-house (mobile maintenance) units, labor contracting groups, and contracts. There are no performance-based specifications for maintenance. With the support of 9 An ongoing bridge replacement program, funded by the Government of Japan, covers 44 bridges that increase

access in the project area and is complementary to the project investments. 10 Labor contracting societies comprise poor rural women with limited earning possibilities who carry out routine

maintenance on rural roads using basic hand tools and material supplied by LGED. 11 ADB. 2000. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the

People’s Republic of Bangladesh for the Road Maintenance and Improvement Project. Manila; ADB. 2002. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of Bangladesh for the Road Network Improvement and Maintenance Project.

12 Pavement surface trials will be conducted in project areas to determine the optimum timing for periodic reseals. The highway des ign and maintenance standards model will also be recalibrated to model conditions on rural roads in Bangladesh and used as a tool for LGED to plan and manage maintenance.

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the project consultant, the Project will continue previous and current efforts in LGED and RHD to promote the coordinated development of performance-based maintenance using contractors. The subdistricts and union councils will be responsible for maintaining rural roads (RR-2 and RR-3), and for operation and maintenance of growth center markets and, where appropriate, the adjoining boat landings and ferries. To increase awareness of the union council's responsibilities, the project consultants will train union council members and staff.

4. LGED Capacity Building and Local Governance

a. LGED Capacity Building

21. LGED’s staff will be strengthened by training them in topics such as decentralized and privatized maintenance, procurement, financial management, and particularly the use of participatory approaches to infrastructure planning, development, and maintenance. The LGED units for road maintenance planning, and monitoring and evaluation will be strengthened with assistance from the project consultant. LGED will be supported in introducing organizational reforms to strengthen its capacity to undertake environmental and social assessments, and project performance management and impact monitoring. The need for further institutional reform will also be assessed. Under this component, the clear demarcation of responsibilities for road construction and maintenance between RHD (national and regional roads), LGED (all feeder roads and RR-1s), and union councils (RR-2 and RR-3s) will be approved, and LGED and union councils will be supported to undertake their new responsibilities. A uniform financial management system and uniform procurement procedures will be introduced in LGED. Consultant support will be provided in implementing LGED’s new gender strategy. 22. LGED staff require nontechnical training to meet the growing demand for them to perform the function of facilitators and social mobilizers. LGED community organizers will facilitate the training of LGED staff and of communities participating in the Project. NGOs with suitable capability will be engaged to provide social mobilization training and training for labor contracting societies and women shop owners. Staff of LGED's training division will give labor contracting society groups including women, technical training to maintain RR-2 and RR-3 roads in the project area. LGED staff will also be trained to prepare social and environmental impact assessments, screen subprojects for resettlement impacts, and prepare resettlement plans.

b. Local Governance

23. The Project will support the improvement of local governance by giving training in local government issues, planning, financial management, administration, and participatory methodologies to all members (at least 25% of whom will be women) of the 899 union councils in the project area to a level where they can confidently provide efficient and effective local governance to their constituents. The members of 32 pilot union councils will receive more intensive training. Similarly the members and staff of the management committees of growth centers, boat landings and ferries, and market trader associations will be trained to a level where they can confidently operate and maintain the infrastructure. 24. Union development coordination committees will be formed in 32 pilot union councils. The members will be various stakeholders such as line agency staff, NGOs, and primary stakeholder beneficiary groups. The committees will introduce a coordinated approach to planning and implementing subprojects to improve flows of microfinance, line agency services, and training to beneficiaries. The committees will be chaired by the union council chairpersons and will seek to align the programs of different stakeholders toward improving economic

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opportunities for project beneficiaries in the 32 unions. New women union council members will receive orientation training on their role as public representatives to make them more effective. 25. The subdistricts and union councils are responsible for managing and maintaining RR-2 and RR-3 roads, boat landings, and ferries, but the level of their expertise is low. ADB’s RIDP-III has provided a useful program to build the capacity of the union councils using national training specialists. The Project will continue this program, using existing materials and experience gained to train members of the Project’s 899 union councils and other stakeholders such as community organizers, union market management committee members, and boat landing committee members. Citizens’ forums will be established in each of the 32 pilot unions to enable the citizens to participate in planning and decision making for the development of the union. 26. A sense of ownership and sustainability of union councils would be enhanced if locally generated funds from market leases could be retained for local union operations and maintenance rather than be redistributed by the Government, as is presently the case. Such a system will be tested in the 32 pilot union councils. The Project will support the implementation of the newly approved market management regulation, including revised market management committee membership with members from the union (including women). The Project will implement new guidelines for the award and management of market leases. The potential for generating incremental funds for local development by granting union councils increased revenue mobilization powers will also be piloted. Pilot projects of clusters of the 32 union councils will test the concept of pooling revenues from the growth center markets and making the concerned union councils responsible for the use of the funds. The pilot projects will establish a methodology for LGED to provide matching funds as an incentive to unions that perform well in increasing their resource mobilization. Reforms will be introduced to devolve additional authority to union councils to increase revenue mobilization.13

5. Project Management Support

27. The Project will provide LGED with the resources necessary to support efficient implementation and management of all project activities. The Project will provide incremental staff for project management, including implementation supervision at the field level. A combination of international and domestic consulting services will be provided to support project implementation management, and capacity building. C. Special Features

28. The Project will improve local governance by training union council members in their roles and responsibilities, and support a pilot program to facilitate the introduction of participatory mechanisms for union-level governance. The Project will undertake pilot projects of clusters of 32 union councils that will test the feasibility of adjoining union councils sharing revenues from the growth center markets, and using such revenues for maintaining RR-2 and RR-3 and other infrastructure, and for local development. The pilot unions will be given additional responsibilities and incentives to increase revenue mobilization and retain the revenue for local development. This process will improve local governance. The Project will focus on developing the capacity of union councils and market management committees, and introducing other mechanisms for improved interaction with a range of stakeholders and

13 The proposed Urban Governance and Infrastructure Improvement Sector Project seeks to improve urban

governance in selected secondary towns of Bangladesh, focusing on urban councils, however, unlike in the Project, the urban councils will receive substantial funds to implement infrastructure investments.

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beneficiary groups involved in the rural development process. Promoting greater stakeholder participation in and planning of developments in their area will lead to better coordinated line agency activities at the union level and improved economic opportunities for the rural poor. Changing the organizational culture of LGED to include consideration of community participation in planning and implementing rural infrastructure is another feature of the proposed Project. The Project will support LGED to move from an implementation role to a role that facilitates greater involvement by the local level and the private sector. D. Cost Estimates

29. The estimated project cost is $112.4 million equivalent, inclusive of physical and price contingencies, taxes and duties, and interest and service charges during construction. The foreign exchange cost is estimated at $30.1 million, or about 26.8% of the total cost. The local currency cost is estimated at $82.3 million equivalent, or about 73.2% of the total cost. The local currency costs include an estimated $6.8 million equivalent for taxes and duties. The project cost estimate summarized in Table 1 should be regarded as indicative only. The detailed project cost estimates and financing plan are in Appendix 4.

Table 1: Cost Estimates ($ million)

Foreign Local Total Item Exchange Currency Cost A. Base Cost a 1. Rural Roads 17.2 48.3 65.5 2. Rural Infrastructure 2.0 8.5 10.5 3. Infrastructure Maintenance 0.0 1.2 1.2 4. LGED Capacity Building and Local Governance 1.3 3.2 4.5 5. Project Management Support 3.7 9.1 12.8 Subtotal (A) 24.2 70.3 94.5 B. Contingencies 1. Physical Contingencies b 2.2 6.4 8.6 2. Price Contingencies c 1.9 5.6 7.5 Subtotal (B) 4.1 12.0 16.1 C. Interest During Construction 1.8 0.0 1.8 Total 30.1 82.3 112.4 a In mid-2002 prices. b Physical contingency is 10% for civil works, equipment, and vehicles; and 5% for incremental staff salaries,

training, and surveys. c Estimated at 2.4% for foreign and local costs. LGED = Local Government Engineering Department

E. Financing Plan

30. The Government has requested a loan of $60.0 million from ADB's Special Funds resources to help finance 53.4% of the project cost. The loan will finance $23.5 million of the foreign exchange cost (78.1% of the total foreign exchange cost), and $36.5 million equivalent of the local currency cost (44.4% of the total local currency cost). The German Government has been requested to provide a grant through Kreditanstalt für Wiederaufbau (KfW) for financial

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cooperation of $11.9 million equivalent,14 or 10.5% of the project cost to finance project activities in four districts15 and implementation consultants in Khulna division. The German Government has also been requested to provide a grant through Gesellschaft für Technische Zusammenarbeit (GTZ) for technical cooperation of $5.0 million equivalent, or 4.5% of the project cost. The Government will provide $34.0 million equivalent, or 30.3% of the project cost. Union councils will contribute $1.5 million equivalent, or 1.3% of the project cost by contributing 10% of the cash cost for the civil works for bridges and culverts, growth center markets, boat landings, and union office complexes. ADB and the Government will continue to seek cofinancing sources. If additional funds become available during implementation, the project scope will be correspondingly increased. Also, if funding from the German Government is not forthcoming, the scope will be adjusted to fit the available funds. Local cost financing is justified given the poverty-oriented nature of the Project and the tight fiscal situation in the country. 31. The Borrower will be the People’s Republic of Bangladesh. The ADB loan will have a maturity of 32 years, including a grace period of 8 years. The loan will carry an interest charge of 1.0% during the grace period and an interest charge of 1.5% per annum during the amortization period. The financing plan is summarized in Table 2.

Table 2: Financing Plan ($ million)

Foreign Local Total

Source Exchange Currency Cost Percent Asian Development Bank 23.5 36.5 60.0 53.4 Germany (KfW) 5.2 6.7 11.9 10.5 Germany (GTZ) 1.4 3.6 5.0 4.5 Government 0.0 34.0 34.0 30.3 Local Government Bodies 0.0 1.5 1.5 1.3 Total 30.1 82.3 112.4 100.0 KfW = Kreditanstalt für Wiederaufbau; GTZ = Gesellschaft für Technische Zusammenarbeit.

F. Implementation Arrangements

1. Project Management

32. The Executing Agency will be LGED in the Local Government Division of MLGRDC. The existing interministerial steering committee established under the ongoing RIDP-III will be used to oversee the Project.16 The steering committee will meet as necessary, but not less than once a year to review progress. The Project will be implemented by an appropriately staffed project management office (PMO) that LGED will establish at its headquarters in Dhaka, led by a full-time project director. The Government will require LGED to appoint the key project PMO staff–including the project director, two deputy project directors, district engineers, accounts officers,

14 The German Government has indicated that it is considering increasing the grant through KfW to $16 million

equivalent. 15 Chaudanga, Jhenaidah, Kushtia, and Meherpur districts. 16 The secretary of the Local Government Division (LGD) will chair the committee, with members from LGD, LGED,

RHD, the Planning Commission of the Ministry of Planning, the Economics Relations Division of the Ministry of Finance, the Implementation Monitoring and Evaluation Division of the Ministry of Planning, the National Institute of Local Government, the Ministry of Women and Children Affairs, local government bodies, NGOs, and the private sector.

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an environment specialist, and the senior resettlement officer–by the date of loan approval. The project director will report to the chief engineer of LGED, and, supported by the PMO, will coordinate all project activities, and will be directly responsible for overall project implementation, monitoring, and supervision. The PMO will establish two zonal offices–in LGED’s Jessore and Barisal district offices–each headed by a deputy project director. 33. The PMO will (i) prepare the project implementation plan and consolidated annual work plan, (ii) closely monitor project progress in each subdistrict, (iii) prepare detailed subproject designs and appraisal reports, (iv) monitor and supervise all project management activities, (v) organize project performance management activities, (vi) ensure the satisfactory implementation of the gender action plan and other activities under the summary poverty reduction and social strategy, and (vii) prepare necessary progress reports and the project completion report. The PMO will be adequately staffed and assisted by consultants with expertise in engineering, finance and accounting, social and gender development, and capacity building and local governance. 34. The staff of the LGED district and subdistrict offices will work closely with the union councils and market and boat landing management committees to implement relevant project activities. Union development coordination committees will be formed to provide a mechanism for stakeholders and beneficiaries to participate in subproject planning and implementation. LGED will also facilitate effective operation of citizens' forums.

2. Subproject Implementation

35. The TA examined 20 sample FRBs that are considered a representative sample of the 99 candidate FRBs in the shortlist to be considered for final detailed design and improvement. The eligibility criteria for subproject roads and other infrastructure give the guidelines for the final approval of the subprojects. The criteria target poorer unions, taking into account social and economic indicators, roads, poverty, gender disparity, and environmental conditions in the subproject area. A participatory approach will be used to apply the criteria and to identify other issues during implementation. To be eligible for financing under the loan, the subprojects must (i) be technically justified and economically viable,17

(ii) be environmentally responsible and minimize land acquisition and resettlement, and (iii) comply with all applicable ADB guidelines. The PMO and the implementation consultant will finalize the subproject detailed design and appraisal reports for LGED and ADB approval, using procedures approved by the ADB.

3. Implementation Period

36. The Project will be implemented over a 6-year period. Implementation is expected to begin in the second quarter of 2003. Initial activities will include filling any vacant PMO positions, recruiting consultants, preparing the detailed design of the subprojects to be implemented in 2003, completing a benchmark survey, and procuring essential equipment. Physical works may not start before the fourth quarter of 2003 to allow time for completing the surveys and preparing detailed engineering designs and contract documents. The loan utilization period will terminate on 30 June 2009. The Government will not award any ADB-financed civil works construction contracts until after the implementation consultants have been appointed, the land and rights to land, free of encumbrances, are available for execution of such contracts, and resettlement activities and compensation payments have been completed. A summary project implementation schedule is in Appendix 5.

17 The economic internal rate of return will exceed 12% for eligible subprojects.

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4. Procurement

37. Goods, related services, and civil works financed by ADB will be procured following ADB’s Guidelines for Procurement. Since the civil works will be small and widely dispersed, foreign contractors are unlikely to be interested in bidding. Consequently, all the civil works contracts will be procured on the basis of local competitive bidding among prequalified contractors in accordance with the Government’s procurement procedures acceptable to ADB. Prequalification, selection, and engagement of contractors will be subject to the approval of ADB. Contracts for FRBs, growth center markets, boat landings, and union office complexes will generally be awarded by the concerned LGED district executive engineer, while contracts for structures on rural roads will be awarded by the LGED subdistrict engineer, under the guidance of the PMO. To ensure economy and efficiency in contract administration, small contracts for roads and drainage improvement works at various construction sites will be grouped together to obtain a higher contract value. Attempts will be made to award one contract for construction of each subproject FRB. Efforts will also be made to limit the number of contracts and engage larger professional contractors. This approach will shorten the construction period and ensure single accountability for the quality of work. Civil works contracts below the expenditure limit of $50,000 will be permitted on a case-by-case basis. LGED will award contracts for infrastructure construction that prioritize the involvement of poor people. 38. Each supply contract for equipment or materials estimated to cost $500,000 or more will be awarded on the basis of international competitive bidding, and those costing less than the equivalent of $500,000 (other than minor items) will be awarded on the basis of international shopping. Direct purchase procedures will be used for small or off-the-shelf items valued at less than $100,000. The PMO will procure the equipment and vehicles. ADB has approved advance action and retroactive financing for recruiting implementation consultants–from 2002 to the date of effectiveness of the ADB loan–to facilitate the start-up of project implementation. The Government has been advised that approval of advance action and retroactive financing does not commit ADB to finance the project. Indicative procurement packages are in Appendix 6.

5. Consulting Services

39. Two consulting services groups are required to facilitate project implementation and to strengthen LGED and improve local governance. An infrastructure implementation consultant will provide 134 person-months of international and 1,238 person-months of domestic consulting services for engineering design, planning, tender evaluation, supervision, and monitoring of project works. An international firm in association with a domestic firm will provide the services. A further 48 person-months of international and 606 person-months of domestic consultants will provide capacity building and local governance support through a separate organization or firm. LGED will engage consulting services in accordance with ADB’s Guidelines on the Use of Consultants and other arrangements satisfactory to ADB for engaging consultants. Quality and cost-based selection procedures will be used in recruiting the consultants. The outline terms of reference and a personnel schedule for the implementation consultants are in Appendix 7.

6. Land Acquisition and Resettlement

40. Land acquisition problems can be a major source of delays in implementing development projects in Bangladesh. Consequently, land acquisition requirements under the Project will be minimized, as they have been under the ongoing RIDP-III. All land required for road and other infrastructure improvement is generally either within the existing right-of-way or

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is owned by the Government. However, minimal parcels on government land only may have to be acquired for road realignment, growth center market improvement, and union complex construction. To minimize implementation delays due to land acquisition, the location of project infrastructure will be carefully determined. In addition, committees in the participating unions will be formed at the start of the Project to undertake rapid selection and evaluation of potential land sites, and a subproject agreement will be signed with the union council. LGED, in cooperation with the union committees, will complete the preparatory work for land acquisition before it submits subproject appraisal reports. Actual land acquisition will be completed within 365 days from the signing of the subproject agreement; otherwise, the subproject will be removed from the Project. Should a subproject require any involuntary resettlement, the subproject appraisal report will include a short resettlement plan, in accordance with ADB’s guidelines and resettlement policy. All compensation and resettlement activities will be completed before possession of land and other assets. LGED will publicly disclose the short resettlement plans in each subproject area after subproject appraisal.

7. Maintenance

41. The union councils will be responsible for maintaining infrastructure investments. Consultants will prepare maintenance manuals that describe the maintenance procedures for union infrastructure for the use of the subdistrict engineering staff and union councils. The consultants will provide subdistrict and union staff with specific training in maintaining infrastructure facilities. One of the tasks of the capacity building consultants will be to define each union’s maintenance requirements and obtain a realistic assessment of the costs involved. The consultants will use the manuals and on-the-job training to ensure that subdistrict and union staff are familiar with their maintenance responsibilities and requirements. The Project requires that the Government set aside adequate funds to cover maintenance expenditures for rural infrastructure constructed in the participating unions each year. The Project will provide training to help the union councils generate additional revenue for this purpose.

8. Disbursement Arrangements

42. The civil works contracts to be awarded will generally be small in value and involve a large number of contractors. To ensure effective project implementation and timely disbursement, the Government will establish an imprest account in the name of the Project at the Bangladesh Central Bank immediately after the effectiveness of the loan agreement. Payments for eligible items will be made through this account. The statement of expenditure (SOE) procedure will be adopted to facilitate reimbursement and liquidation of small contracts. The imprest account and the SOE procedure will be established, maintained, and audited in accordance with ADB’s Loan Disbursement Handbook. The ceiling of the imprest account will not exceed the estimated ADB-financed expenditures for the next 6 months, or $6 million, whichever is lower. The SOE procedure is applicable for reimbursing eligible expenditures below $50,000 equivalent and liquidating advances provided for in the imprest account.

9. Accounting, Auditing, and Reporting

43. The Government will submit to ADB quarterly progress reports on project implementation. The PMO will prepare the reports. The PMO will particularly address progress in meeting the project targets. The progress reports will include information on the physical progress of works and the status of the training and local governance improvement program. Within 3 months of substantial physical completion of the Project, LGED will submit to ADB a

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project completion report that will cover the details of project implementation, cost, benefit monitoring and evaluation activities, and other information requested by ADB. 44. LGED will maintain separate project accounts and records so as to facilitate identification of income and expenditures related to the Project. The PMO will be assigned sufficient and qualified accounting staff, including a financial manager. Auditors acceptable to ADB will audit all the accounts and statements of expenditures and revenues related to the Project annually. The Foreign Aided Project Audit Directorate is considered acceptable for this purpose. The annual audit will include the audit of the imprest account and SOE procedure. The annual audit report will include a separate audit opinion on the use of the imprest account and SOE procedure. Audited financial statements and project accounts, together with the report of the auditor, will be submitted within 9 months of the close of the financial year.

10. Project Performance Monitoring and Evaluation

45. To ensure that project activities and facilities are managed efficiently and that target groups receive the intended benefits, a participatory benefit monitoring and evaluation program is included in ADB’s project performance management system (PPMS) framework. PPMS activities will be conducted periodically to gather information through multiple sources to assess whether the project inputs and activities have delivered the expected outputs and benefits to the intended beneficiaries. The PPMS also seeks to detect at an early stage any discrepancy between the plan and the execution of the Project. The PMO will conduct initial district-level baseline physical and socioeconomic surveys and submit a detailed implementation plan for monitoring performance and for preparing benchmark information for ADB’s review and concurrence within 6 months of loan effectiveness. Thereafter, the PMO will submit annual benefit monitoring reports to ADB throughout the implementation period.

11. Project Review

46. Many unions and components are covered by the Project; therefore, the regular reviews to be conducted by ADB at least twice a year will be supplemented by a formal midterm review, to be carried out jointly by the Government and ADB. The regular project reviews will include a review of the union council’s financial performance and staffing, implementation of the loan covenants and reforms at the union level, implementation of the gender action plan, physical progress of project implementation, and capacity-building activities. The proposed midterm review will allow the Government and ADB to monitor the project closely and to make appropriate adjustments to the project design and implementation arrangements, if necessary.

IV. PROJECT BENEFITS, IMPACTS, AND RISKS

A. Economic Impacts

47. Evaluation of the quantifiable economic benefits and costs shows that the Project is economically feasible, with an economic internal rate of return (EIRR) of 22.8%. The basic assumptions on benefits and costs for the EIRR calculations were subjected to sensitivity tests under various adverse scenarios. The results indicate that the project EIRR is robust in relation to changes in the basic assumptions. The summary economic analysis is in Appendix 8. 48. The economic impacts of the Project include increased economic growth and employment opportunities, reduced VOCs, time savings for road users, better access to markets and essential services, lower prices for farm inputs and consumption goods, better

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marketing opportunities, and increased employment opportunities in the road and market construction and maintenance programs. These benefits will lead to a higher GDP growth rate. At present, many people do not have reliable access to health, markets, and educational services because of the poor condition of existing roads. The quantified economic benefits include only reduced transport costs. The beneficiaries include (i) those benefiting directly from the investment, that is, those who will be directly employed for infrastructure construction and maintenance, and the various categories of road users such as owners and operators of buses and trucks, the passengers of the various vehicle categories, and the freight owners; and (ii) those benefiting indirectly because they live and work in the roads' area of influence. B. Poverty Reduction Impacts

49. Rural infrastructure investments have a direct impact on the income and nonincome dimensions of poverty of all income groups. For the poor, the lack of affordable access deprives them of job opportunities and even of very basic social services. Reliable and regular access to education and health services contributes directly to the poor's accumulation of human capital, which is a key factor in sustainable poverty reduction. Improved access will help reduce poverty by (i) increasing labor mobility, particularly to distant markets; (ii) increasing employment opportunities; (iii) reducing loss of perishables, thereby allowing for increased farmgate prices; (iv) improving access to rural areas by health, school, veterinary, and rural development workers; and (v) stimulating the creation of transport-associated small businesses such as service stations, wayside food stalls, and guest houses. The Project will hire disadvantaged groups and give first priority for employment to the poor and disadvantaged in the construction of subprojects. Appendix 9 gives the summary poverty reduction and social strategy. Distribution analysis assessed the direct and quantifiable project benefits that will accrue to the poor in three core subprojects considered to be representative of the distributed impacts for the project area as a whole. The benefits included the savings in VOCs for motorized and nonmotorized traffic on the FRBs. The benefits were allocated among the road users, unskilled construction workers, the Government, and moneylenders. When the gains and losses of all parties were netted, the three core subprojects had poverty impact ratios in the range of 0.34-6.45, indicating that the Project would have a strong impact on poverty. C. Social Impacts

50. Improved access to infrastructure and services will yield significant positive social impacts (paras. 48 and 49). The social benefits will be maximized by targeting construction work opportunities for local people, particularly women. When formulating subprojects, the existing and proposed education and health facilities will be considered so that benefits from improved access to these facilities can be maximized. The multipurpose use of union complexes as a focal point for community consultation and as cyclone shelters in the southeastern part of the project area will also enhance positive impacts. The inclusion of poverty criteria in selecting and prioritizing subprojects will ensure that rural infrastructure investments are directed to the poorer areas. No indigenous people live on the selected roadsides. However, a good number of minority/indigenous people will potentially benefit. The Project will ensure their participation in planning and implementing the Project and in obtaining benefits from the infrastructure. D. Resettlement

51. The main socially negative impacts of infrastructure projects are those resulting from permanent land acquisition. In this Project the requirement for land acquisition will be minor because roads normally follow the existing alignments. A project resettlement framework was

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prepared (Appendix 10) to ensure compliance with ADB's resettlement policy, and sample short resettlement plans for 3 core subprojects were prepared as supplementary appendixes. E. Gender and Development Issues

52. In the project area, 50% of the population is women and most of them are engaged in farm household activities. The Project has sought opportunities to address gender concerns by (i) creating scope for women’s participation at the level of 30% of total membership, from participatory project planning to implementation, monitoring and evaluation; (ii) generating employment opportunities for women by involving them in construction, maintenance, and tree planting activities through labor contracting societies; (iii) facilitating linkages of rural women beneficiaries to different support resources for sustainability of their livelihood; and (iv) facilitating social and economic development aimed at user groups as a follow-up measure to increased access to infrastructure development activities. Women will also be supported in developing entrepreneurship by reserving market stalls for women and creating linkages with microfinance institutions. The component on LGED capacity building and improved local governance also incorporates the gender perspective by involving and training women in managing rural infrastructure. 53. The Project will employ specific measures to address gender issues in the project area (Appendix 11), including allocating at least 15% of the growth center market space as a women’s market section, and 5-10 shops for the use of women shopkeepers; gender-based employment targets on all project contracts; encouraging women shop owners to form associations and to be represented in the market management committees and citizen forums; and facilitating linkages with microfinance agencies and institutional linkages with government departments and NGOs handling development programs for women such as extension, technology, market promotion, microfinance, and legal aid. F. Environmental Impacts

54. Direct construction impacts are likely on soil (due to excavation for road fill material) and there is a risk of pollution to surface water and groundwater. There will also be social disruption including noise and dust, along with possible increased accident and health risks. These impacts will be minimized with appropriate environmental management measures during the design and construction phases. 55. The main impacts of the proposed Project on the natural environment will be those associated with possible changes in surface water flooding patterns as a result of constructing new embankments. There would be indirect impacts on the fish resource system and aquatic habitats. No new embankments will be constructed under the Project. However, adequate cross-drainage structures will be built to ensure passage of floodwaters without causing damage. In the estuarine areas of Khulna and Barisal divisions, structures will accommodate local needs for flow in both directions or gated flow in one direction only. The main environmentally sensitive area near the Project is the Sundarbans, which is internationally important. No interventions will be considered in the designated Sundarbans area, or in the four other designated ecologically sensitive sites outside it. The criteria for subproject selection explicitly exclude subprojects proposed in or near these environmentally sensitive areas. While there is likely to be some need to cut roadside trees so as to widen the roads, sensitive planning and a roadside tree-planting program will more than compensate for those lost. A summary initial environmental examination is in Appendix 12. Initial environmental examinations were undertaken for the three core subprojects, and the environmental mitigation measures and

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environmental monitoring requirements specified in the examinations will be adhered to in finalizing all subprojects during implementation. 56. LGED recently established an environmental unit. With the assistance of consultants, the unit's capacity to undertake environmental and social impact assessments will be strengthened. A full-time environmental specialist will be assigned to the unit. LGED has also recognized the need to update the 1994 LGED environmental guidelines to conform with current legal requirements for environmental assessment in Bangladesh. G. Risks

57. The Project has been carefully formulated to manage and mitigate risks. Advance action will expedite recruitment of consultants to supervise detailed design and implementation. Risks from the use of inexperienced local contractors to carry out the civil works have been mitigated with their participation in training in several ADB and externally financed projects. Measures such as advance procurement action, use of ADB’s standard tender documentation, and strengthened project management arrangements will minimize potential delays in project implementation. Civil works contracts will only be awarded after the resettlement plan is implemented, and when the rights to the land and clearance of utilities and trees are obtained. The Government’s commitment to provide counterpart funding through budgetary allocations will also be required before ADB approves contract award. The Government has assured ADB of adequate annual budget allocations to maintain the project facilities after completion. 58. The Government is committed to implementing its decentralization policy that will in effect empower the union councils. However, should this commitment diminish, the Project's participatory capacity building and resource mobilization activities at the union level will nonetheless have empowered local communities to provide and demand delivery of better services. However, this risk is relatively low given the current government emphasis on decentralization, and commitment to introduce reforms. Stakeholder awareness raising courses are also included in the Project’s training program to inform them of local governance issues and encourage them to demand better service delivery from government agencies. 59. There is currently a gap in funding for operation and maintenance of rural infrastructure, including roads. The Government has agreed to increase funding to meet future annual LGED maintenance requirements and is exploring options for increasing maintenance funding for all roads in the country. Introduction of a guaranteed mechanism for funding road maintenance–the Government’s commitment to aid agencies–will reduce this risk significantly. 60. The Project will (i) select contractors on the basis of their resources and experience with road construction; (ii) provide assistance to contractors by having the project consultant offer practical day-to-day management and technical advice; and (iii) ensure the Government's commitment to promote a viable and efficient private sector contracting industry for road construction, improvement, and maintenance works.

V. ASSURANCES

A. Specific Assurances

61. In addition to the standard assurances, the Government has given the following assurances, which are incorporated in the legal documents.

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(i) If cofinancing by the German Government through either or both KfW and GTZ has not been obtained by 30 September 2003, the scope of the improved rural road infrastructure and improved rural infrastructure components will be reduced accordingly.

(ii) Subprojects will be selected in accordance with criteria agreed upon by the

Government and ADB. Each subproject will be implemented with the prior approval of both LGED and ADB. Before obtaining such approval, the PMO will submit a subproject appraisal report for each subproject for review by the project implementation consultant. The subproject appraisal report will establish the technical, financial, and economic viability of the subproject and its components as well as its social and environmental sustainability. The report will also include a summary initial environmental examination, an initial social assessment, and a resettlement plan if necessary.

(iii) Following ADB's approval of the subproject appraisal report, the concerned union

council will enter into a subproject agreement with LGED. The agreement will cover the delegation of responsibility for routine and periodic maintenance of non-FRB rural roads, market facilities, boat landings, and union council complexes to local government bodies.

(iv) The Government will ensure that the approved annual development program

allocations for the Project will be sufficient to cover all counterpart funding required for the Project in accordance with the financing plan, including the cost of land acquisition and other resettlement compensation, implementation and monitoring activities under the land acquisition and resettlement plans, utility relocation, and general project management expenses.

(v) The Government will ensure that local government bodies contribute at least

10% in cash toward the construction cost of bridges and culverts on lower level rural roads (RR-2s and RR-3s), improvements to growth center markets and boat landings, and construction of union council complexes.

(vi) In consultation with the concerned aid agencies, the Government will finalize the

national land transport policy before the midterm review. By the beginning of the year 4 of the project, the Government will implement the recommendations of the policy.

(vii) By 31 December 2003, the Government will issue an order realigning

management and responsibility for the roads network as follows: (a) the national and regional roads (the primary road network) and those alone will be under the authority of RHD; (b) all feeder roads (FRAs and FRBs) and RR-1s (secondary road network) will be under the authority of LGED; and (c) RR-2 and RR-3 rural roads (the tertiary road network) will be under the authority of the subdistricts and union councils.

(viii) Before the midterm review, the Government will examine the need for a road

transport and traffic bill.

(ix) Within 1 month of loan effectiveness, the Government will have approved the recommendations of the LGED study on local resource mobilization and will have

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begun to implement the strategies for increasing funds allocation to union councils, and union council resource mobilization authority.

(x) LGED will continue to implement fully the recommendations of the LGED

management capability strengthening report, and will prepare an update to the report by 30 September 2003, with a particular focus on strengthening LGED’s management and impact evaluation capacity.

(xi) By 31 March 2003, the Government will have finalized the revised policy on

leasing of marketplaces and market management committee membership, and will have adopted all measures needed to implement the policy. To increase resources available to the union councils for infrastructure development and maintenance, the Government will review and subsequently amend the regulations for sharing the market lease revenue, and introduce more transparent procedures and greater competition in market leasing in the project area.

(xii) The Government will ensure that civil works contractors comply with all

applicable labor laws. Bidding documents will include a clause prohibiting child labor for construction and maintenance activities, and a clause regarding equal pay for men and women for work of equal value. Compliance with these provisions will be strictly monitored during project implementation.

(xiii) Within 1 month of loan effectiveness, the Government will issue a directive

setting employment targets for poor and vulnerable people, particularly women, for road improvement and maintenance and other infrastructure construction activities. The Government will also adopt all necessary measures to reach these targets, including ensuring the provision of appropriate facilities for women and children in construction campsites.

(xiv) Before 30 June of each year during project implementation, LGED will agree with

ADB on the annual maintenance program for feeder and rural roads in the project area for the following year. By 31 May of every year, LGED will submit to ADB for review, the proposed maintenance budget.

(xv) The Government will ensure that for the entire project implementation period,

sufficient budget will be allocated to fund fully all routine and periodic maintenance activities for roads that fall under LGED’s responsibility. This amount will include budget allocations from all sources, including aid-financed project funds and food aid allocated for maintenance works.

(xvi) The Government will adopt all necessary measures to ensure that construction

and maintenance equipment is well maintained and replaced when needed. Such measures will include, but will not be limited to, the following: (a) RHD and LGED will set the charges for renting their equipment at a sufficiently high level to cover the maintenance and replacement costs of such equipment; and (b) the Government will annually make available to LGED funds at a level not less than the estimated rent collected for the equipment in the following financial year. This will be done through budget allocations into a separate identifiable item in the budget of RHD and LGED. RHD and LGED will ensure that the budget allocations of these accounts will be used exclusively to fund the maintenance and replacement of the equipment.

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(xvii) The union development coordination committees to be established in each of the 32 pilot unions under the LGED capacity building and local governance improvement component will be chaired by the union council chairpersons and will have representatives from line agencies’ staff, NGOs and representatives of union market management committees, local village leaders, the private sector, and community members.

(xviii) LGED will assign at least 16 community organizers to coordinate with the pilot

unions to expedite the implementation of project activities and local governance improvement. The organizers will submit monthly progress reports to the PMO.

(xix) LGD and LGED will take all necessary steps to thoroughly test the concept of

pooling revenues from the growth center markets in each of the pilot unions. It will delegate responsibility for the use of the funds to the concerned union councils and provide matching funds for those unions that demonstrate good performance in increasing resource mobilization.

(xx) By 31 December 2003, the Government will have approved a time-bound action

plan to increase private sector participation in road construction and periodic maintenance. The action plan should reflect the recommendations of the feasibility study on such participation, which will be prepared by the Project’s implementation consultant.

(xxi) By 30 June 2003, the Government will have established a committee with

representatives from the private sector road construction companies, equipment leasing companies, and RHD and LGED to advise on the preparation and implementation of the action plan mentioned in (xx).

(xxii) LGED will ensure that all necessary steps are taken to implement the summary

initial environmental examination, the initial social assessment, and the project resettlement framework. Within 6 months of loan effectiveness, LGED will update its 1994 environmental guidelines in conformity with the current legal requirements for environmental assessment in Bangladesh.

(xxiii) On completion of the detailed design of the three core subprojects prepared

during the TA, the Government will update the resettlement plans and ensure that census information and a full inventory of losses are included. The entitlement matrix will be revised if additional categories of affected persons are determined. A condition for award of civil works contracts for those core subprojects will be the submission of an updated resettlement plan for each subproject, consistent with the provisions of the resettlement framework and in form and substance acceptable to ADB.

(xxiv) The Government will ensure that all people affected by land acquisition will be

compensated prior to possession of land and assets. Compensation based on replacement cost will be done in a manner satisfactory to ADB.

(xxv) The Government will ensure that LGED will complete all preparatory works for

land acquisition before submitting the subproject appraisal reports. Actual land acquisition must be completed within 365 days from the signing of the subproject agreement; if not, the subproject will be removed from the Project. If involuntary

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resettlement and land or asset acquisition are required, a resettlement plan will be included in the subproject appraisal report. LGED will publicly disclose the resettlement plan for each subproject. The resettlement plan will be prepared in accordance with the project resettlement framework included in the loan documents and ADB’s Handbook on Resettlement, and will include a complete census and inventory of losses. The PMO will not award any civil works contract for any subproject unless a resettlement plan for such subproject, in form and substance acceptable to ADB, has been submitted to and approved by LGED and ADB. Land acquisition work including compensation payments will be completed prior to possession of land and other assets, in accordance with the agreed upon resettlement plan.

(xxvi) The Government will take all necessary steps to ensure full implementation of the

Project’s gender action plan.

(xxvii) The Government will cause LGED to implement in full all the provisions of LGED’s gender action plan for the Project's duration. To this end, the PMO will prepare field manuals for the gender action plan and conduct training for PMO staff.

B. Conditions for Loan Effectiveness

62. The following are the conditions for loan effectiveness.

(i) The project proforma, consistent with the Report and Recommendation to the President and loan agreement, will have been approved by the Government.

(ii) The PMO will be operational with all staff in place.

(iii) A first-year work plan for the PMO will have been prepared and submitted for

ADB’s approval.

VI. RECOMMENDATION

63. I am satisfied that the proposed loan would comply with the Articles of Agreement of ADB and recommend that the Board approve the loan in various currencies equivalent to Special Drawing Rights 45,461,000 to the People’s Republic of Bangladesh for the Rural Infrastructure Improvement Project from ADB’s Special Funds resources with an interest charge at the rate of 1% per annum during the grace period and 1.5% per annum thereafter; a term of 32 years, including a grace period of 8 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft Loan Agreement presented to the Board.

TADAO CHINO

President 7 November 2002

Appendix 1

21

EXTERNALLY FINANCED RURAL INFRASTRUCTURE PROJECTS Project Title Duration Estimated

Cost (Tk

millions)

Estimated Cost

($ millions)

Source of Finance

Rural Development Project 3: Infrastructure, Greater Sylhet District (2nd Phase)

1993-2002 1,578.50 31.57 IDB

Rural Development Project 4: Infrastructure, Faridpur, Madaripur, Rajbari and Gopalganj Districts (3rd Phase)

1997-2000 739.1 15.00 SIDA

Rural Development Project 6: Infrastructure, Manikganj District 1989-1997 411.1 9.50 SDC

Rural Development Project 7: Infrastructure, Greater Rajshahi, Pabna and Bogra Districts

1989-1997 3,489.50 81.15 IDA, SDC, KfW

Rural Development Project 8: Infrastructure, Greater Rangpur District

1989-1997 984.7 23.00 EC, The Netherlands

Rural Development Project 11: Infrastructure in Greater Rajshahi, Bogra, Pabna and Dhaka Districts (Village Road and Market Development and Maintenance Project-2) (2nd Revised)

1996-2002 10,268.60 198.00 IDA/SDC

Rural Development Project 13: Infrastructure Greater Dinajpur and Jamalpur Districts

1988-1997 3,796.10 91.00 ADB

Rural Development Project 14: Infrastructure, Tangail District (2nd Phase)

1996-2002 1,404.60 26.50 GTZ, KfW

Rural Development Project 16: Infrastructure, Barisal, Patuakhali, Bhola, Barguna, Jhalokati and Pirojpur Districts

1993-1999 2,791.20 60.00 DANIDA

Rural Development Project 18: Infrastructure, Greater Khulna, Jessore and Kushtia Districts

1993-1999 4,093.00 89.00 ADB

Rural Development Project 19: Infrastructure in Greater Barisal District

1997-2004 1,653.10 30.50 OPEC

Rural Development Project 21: Infrastructure in Greater Rangpur, Dinajpur, Mymensingh and Jamalpur Zilas (Revised)

1997-2005 8,328.40 156.00 ADB, SIDA, IFAD, JBIC

Rural Development Project 22: Infrastructure in Noakhali Zila (Revised)

1998-2004 87 16.00 SDC

Rural Development Project 24: Greater Faridpur, Rural Infrastructure Development Project (Work Facility and Participatory Rural Infrastructure Development) Revised

1998-2006 4,207.00 76.00 JBIC

Rural Infrastructure Development Project in Greater Sylhet District

1998-2004 1,900.00 35.00 IDB

DFID Aided Steel Bailey Bridge Construction Project (2nd Part) Post Flood Rehabilitation Project (3rd Revised)

1998-2003 869.5 16.00 DFID

Portable Steel Bridge Construction Project under ORET Program under The Netherlands Grant

1998-2002 1,872.20 35.00 The Netherlands

Rural Development Project: Infrastructure, Greater Rajshahi, Pabna, Bogra and Dhaka Districts (RRMIMP-2)

1996-2001 7,018.20 140.00 IDA, SDC

22 Appendix 1

Project Title Duration Estimated Cost (Tk

millions)

Estimated Cost

($ millions)

Source of Finance

Rural Development Project: Greater Dhaka District (Manikganj, Munshiganj, Gazipur, Narayanganj and Narsingdi Districts)

1997-1998 457.5 10.00 Saudi Arabia

Portable Steel Bridges Project: Dhaka, Chittagong and Sylhet Divisions

1994-1997 1,543.00 36.00 JICA

Flood Rehabilitation Project: (Roads and Appurtenant Structures, 4th Revision)

1989-1997 3,798.30 94.00 Japan

Construction/Reconstruction of Road, Bridge and Culverts (Flood Damage Infrastructure) in Rural Area on priority basis

1997-2003 8,000.00 145.00 IDB

Construction of Bigger Bridges / Culverts on important Feeder and Rural Roads Project (Revised)

1997-2002 2,216.00 41.00 Japan

Construction of Bridge/Culverts through Monetised USAID 1993-98 1,185.40 28.00 USAID

Flood Aid Provided Under PL-480, Title-III

Rural Maintenance Program (3rd Phase) 1995-98 2,363.80 45.00 CIDA

Integrated Food Assis ted Development Project (IFADEP) 1994-98 1,138.70 23.00 EC

Growth Center Connecting Road (GCCR)

Growth Center Connecting Road Program Ongoing 1,798.50 33.00 WFP

Integrated Food for Development (IFFD) Project 1994-1999 5,520.80 121.00 USAID

Flood Damage Repair 1999-2001 130 2.60 KfW

Rural Development Project: Infrastructure, Tangail District (3rd Phase)

1999-2003 390 7.50 KfW

Subtotal: Externally Financed Roads and Markets Projects

84,816.80 1,715.32

ADB = Asian Development Bank; CIDA = Canadian International Development Agency; DANIDA = Danish International Development Agency; DFID = United Kingdom's Department for International Development; EC = European Community; GTZ = Deutsche Gesellschaft für Technische Zusammenarbeit; IDA = International Development Association; IDB = Islamic Development Bank; IFAD = International Fund for Agricultural Development; JBIC= Japan Bank for International Cooperation; JICA = Japan International Cooperation Agency; KfW= Kreditanstalt für Wiederaufbau; OPEC = Organization of Petroleum Exporting Countries; SDC = Swiss Agency for Development and Cooperation; SIDA = Swedish International Development Cooperation Agency; USAID = United States Agency for International Development; WFP = World Food Program.

Appendix 2 23

SECTOR ANALYSIS

Item Indicators 1997 2002 2007 2012 2017 Remarks 1. Sector Outcomes

Productive employment generation 0.65 1.3 2.0 2.6 3.3 million person-years Employment under road infrastructureimprovement program 0.5 1.0 1.5 2.0 2.5 million person-years Average condition of feeder road B (FRB) and rural road 1 and 2 (RR-1 and RR-2) network poor poor poor fair good FRB and RR-1, RR-2 in maintainable condition 30/5/0 45/10/1 57/12/2 72/16/3 90/20/4 % Average vehicle operating cost on FRBs and RR-1 and RR-2 9.5 8.7 8.2 7.7 7.3 Tk/kilometer for minibus Funding for maintenance 21.0 42.9 51.7 62.0 74.4 $ million Private sector share of domestically funded road works 0 10 20 30 50 % Local government share of rural road maintenance cost 0 5 7 20 30 %

2. Sector Outputs (i) National level reform

Finalize national land transport policy By 31 December 2005 Review need for road transport and traffic bill

By 31 December 2006

Realign management and responsibility for the road network between Roads and Highways Department, Local Government Engineering Department (LGED), and local government

31 December 2003

Develop guaranteed road maintenance funding mechanism

By 31 December 2005

Increase private sector participation in construction and maintenance

Action plan 31 Dec 2003

(ii) LGED capacity building Implement LGED gender action plan Continuous Continue management strengthening and staff capacity building

Continuous

(iii) Local governance - Improve local resource mobilization capacity

Implement from 1 April 2003

- Strengthen union level capacity Continuous (iv)Development targets

Improved FRBs 6,904 (30) 10,583 (46) 13,119 (57) 16,570 (72) 20,714 (90) kilometers (%) improved Improved RR-1 1,341 (2) 10,110 (15) 14,753 (22) 20,118 (30) 26,823 (40) kilometers (%) improved Improved RR-2 982 (2) 2,945 (6) 4,909 (10) 7,363 (15) 9,818 (20) kilometers (%) improved Improved structures, FRBs 81,078 (36) 112,608 (50) 146,390 (65) 180,173 (80) 202,695 (90) meters (%) improved Improved structures, RR-1s 119,631 (27) 203,423 (45) 252,553 (57) 310,154 (70) 376,615 (85) meters (%) improved Improved structures, RR-2s 35,251 (19) 55,659 (30) 70,498 (38) 92,761 (50) 129,865 (70) meters (%) improved Improved growth center markets 210 (10) 820 (39) 1,260 (60) 1,575 (75) 1,890 (90) number (%) improved

3. Sector Issues/Constraints (i) Increasing community participation in infrastructure development and maintenance (ii) Coordinating complementary road and water transport and development activiies (iii) Establishing and funding a sustainable maintenance system (iv) Increasing the role of the private sector in infrastructure development (v) Instituting viable operation and maintenance systems for improved infrastructure (vi) Continued capacity building of LGED at the central and particularly local levels to use more participatory approaches (vii) Increasing role and responsibility of local government in development planning, implementation, and financing to ensure sustainability of infrastructure maintenance (viii) Improving rural market management and leasing system for greater user participation to improve Efficiency and increase revenue (ix) Realigning responsibility for the national and regional, and feeder and village roads

24 Appendix 2

4. Actions/Milestones/Investments Schedule By Agency ADB Government Others 1. Road Network Improvement and (iii, iv, v, ix) 2003-2007 X X OPEC Maintenance Project 2. Rural Infrastructure Improvement Project (i-ix) 2003-2009 X X KfW, GTZ 3. Rural Transport Improvement Project (i-ix) 2003-2008 X IDA

GTZ = Deutsche Gesellschaft für Technische Zusammenarbeit; IDA = International Development Association; IDB = Islamic Development Bank; KfW= Kreditanstalt für Wiederaufbau; OPEC = Organization of Petroleum Exporting Countries;

Appendix 3 25

PROJECT FRAMEWORK

Design Summary Performance Targets/Indicators Monitoring Mechanism Assumptions

and Risks Development Goal Reduce rural poverty in 16 districts of southwest Bangladesh

Regional gross domestic product increased by 6% per year to 30 June 2012 Spatial poverty reduced to 50% of the existing rate with removal of 44,500 households from the upper poverty line

Project performance audit report Bangladesh Bureau of Statistics reports Ministry of Agriculture reports

Objective/Purpose Increased economic activities and employment opportunities in secondary and tertiary roads sectors

By 30 June 2010, more than 10 million people utilizing all-weather roads to access economic and market opportunities By 31 December 2009, income of 89,000 poor households increased by at least 25% in constant terms

Bangladesh Bureau of Statistics reports Monitoring and evaluation reports including employment and wage surveys Project review missions Project completion report

Macroeconomic stability maintained Poverty-focused programs continued Project completed on schedule

Outputs Component 1: Rural roads Feeder roads type-B (FRBs) upgraded to bituminous surfaced standard

By 30 June 2010, selected 1,030 kilometers of FRBs improved, connecting growth center markets with higher road network By 31 December 2008, at least 100% increase in existing transport volume, and at least 50% reduction in travel time expected Employment totaling 54,000 person-years and seasonal work generated by road improvement and maintenance

Project progress reports Bid documents indicating extent of competition during annual biddings Monitoring and evaluation reports including market surveys Project review missions Project completion report

Timely flow of available funds No major natural disasters Sufficient contractors’ capacity in project districts Applicable labor laws complied with Local government bodies contributing 10% of cost of structures on rural roads and growth centers Local Government Engineering Department (LGED) prioritizing routine maintenance of improved FRBs in allocation of its maintenance budget

Bridges and culverts constructed on project FRBs and other FRBs and rural roads type 1 (RR-1s), using participatory subproject selection procedures

By 31 December 2008, 3,000 meters of structures on project FRBs constructed By 31 December 2008, 2,000 meters of structures on other FRBs and RR-1s constructed

26 Appendix 3

Design Summary Performance Targets/Indicators Monitoring Mechanism Assumptions

and Risks By 30 June 2010, all structures on rural roads

completed and provide uninterrupted connections 10% contribution from union councils to the cost of all structures on rural roads deposited with LGED

Component 2: Rural infrastructure

Growth center market and public facilities including women’s corners and women open areas in selected growth center markets constructed and improved

By 31 December 2010, increase at least 50% of volume of commodities traded and 40% of financial transactions By 31 December 2008, 60 growth center market facilities improved including women’s corners By 30 June 2010, all shops in the women’s corners leased out By 30 June 2004, local resources mobilized to meet union councils’ share of 10% of cost

Bid documents indicating extent of competition during annual bidding

Project progress reports Monitoring and evaluation reports including market, boat landing, and ferry surveys Project review missions Administrative records of growth centers

Microenterprises developed around growth centers and more cash crops produced by farmers. Women’s corners and areas continue operation and stimulate greater women participation in buying and selling activities. LGED training will produce skilled facilitators.

Boat landing facilities, including waiting sheds and toilets, around growth center markets constructed and improved and ferry facilities constructed

By 31 December 2004, designs finalized through participatory meetings By 30 June 2008, 50 boat landings constructed, and ferry crossings at 5 places constructed and leased out to private operators and are in operation By 30 June 2005, local resources mobilized to meet the union councils’ 10% contribution to the cost of boat landings and ferries and deposited with the project fund

Union council office complexes constructed

By 31 December 2008, 99 union council office complexes constructed By 30 June 2005, local resources mobilized to meet the union councils’ 10% contribution to the cost of union council office complexes, and deposited with the project fund

Component 3: Road maintenance

Traffic operation and road maintenance improved

By 31 December 2010, local infrastructure resources in terms of length of improved roads increased by more than 25% in the project area By 31 December 2010, at least 100% motorized and 50% nonmotorized traffic increased creating an additional 70,000 permanent jobs in the sector

LGED road inventory LGED annual maintenance plans Monitoring and evaluation reports including baseline surveys Project progress reports

Market management committees take responsibility for maintaining growth centers as well as other facilities provided. New market lease agreements are approved and accepted.

Appendix 3 27

Design Summary Performance Targets/Indicators Monitoring Mechanism Assumptions

and Risks

By 30 June 2005, an LGED annual road maintenance plan for the whole of its network, particularly for improved FRBs and RR-1s, showing budget allocation and funding gaps Government allocating sufficient budget to fund all routine and periodic maintenance activities By 30 June 2006, a guaranteed mechanism for funding road maintenance established By 30 June 2009, 20,000 person-years (7.3 million person-days) of employment created in construction and maintenance works for the poor and disadvantaged By 31 December 2006, at least 2,100 poor and disadvantaged women contracted for road maintenance and 2,400 for tree planting and caretaking By 30 June 2009, 30,943 kilometers of RR-2s and RR-3s maintained by union councils

Project review missions Project completion report Growth center bidding documents Annual growth center reports Ministry of Agriculture statistics and reports Department of Women’s Affairs statistics and reports

Growth center market operation and maintenance improved

Increased annual revenues from growth centers, and more funds available for their maintenance from earmarked (25%) allocation of revenue income Increased volumes of trade and financial transactions in the growth center markets By 31 December 2010, at least 2,000 person-years of permanent jobs created in drivers’ training and vehicle maintenance workshops By 31 December 2010, at least 40,000 person-years of permanent jobs created in roadside enterprises based on local raw materials, agricultural processing, and handicrafts By 31 December 2010, at least 20,000 person-years of permanent jobs created in improved growth center markets in small trade and shopkeeping Income-generating activities in vehicle repairs, transport, driving, motor mechanic, high-value agricultural products increased

28 Appendix 3

Design Summary Performance Targets/Indicators Monitoring Mechanism Assumptions

and Risks Component 4: LGED capacity building and local governance

LGED capacity strengthened By 30 June 2004, functional and facility buildings extended By 31 December 2002, LGED organizational reform implemented and by 30 June 2003, 13 positions for socioeconomists created

By 31 December 2003, LGED’s participatory planning unit established and road maintenance unit strengthened By 31 December 2002, project performance management and impact evaluation unit established and by 30 June 2003, uniform project financial management system and improved procurement procedures introduced By 31 December 2008, LGED staff trained in technical aspects and key personnel trained in using participatory planning approaches and social and environmental assessments By 31 December 2002, LGED gender strategy adopted Official approval of the revised equipment rental rates by 31 December 2002 Official approval of mechanism for LGED to retain equipment rental income by 30 June 2003 By 30 June 2003, division of road maintenance responsibilities approved Time-bound action plan prepared privatizing maintenance equipment and workshops by 30 September 2004

Project progress reports Project Review missions LGED project performance management reports LGED annual reports

Political commitment to introduce change continues. LGED staff accept proposed organizational and behavioral changes. Trained staff apply new knowledge and skills. LGED management is committed to the change process. Road transport and traffic bill will be passed into law in time. Government and LGED approve privatization plan for equipment and workshops. Government will continue to implement the recommendations of the management capability strengthening report, and will prepare an update to the report by 30 September 2003.

Local governance improved

By 31 December 2008, members and staff of 32 union councils and m embers of 32 market management committees trained on pilot basis By 30 June 2004, revised roles and responsibilities of union council members implemented in 32 union councils By 31 December 2004, consultation mechanisms, improved coordination and service delivery procedures being implemented in 32 pilot union councils

Staff of line agencies are willing to coordinate and deliver services more effectively to union councils. Stakeholders at union level accept increased responsibility for increased role in rural development service delivery.

Appendix 3 29

Design Summary Performance Targets/Indicators Monitoring Mechanism Assumptions

and Risks By 31 December 2008, fiscal resources of

selected 32 union councils increased by 300% By 30 June 2003, new guidelines for market lease procedures approved and new market management committee membership regulation implemented By 31 December 2003, union council incentive fund established

Taxpayers are willing to pay for services. Stakeholders support increased role of women in local government administration.

Component 5: Project management support

Project management and monitoring services established

By 30 June 2003, design and supervision consultants appointed (134 person-months of expatriate and 1,238 of domestic professional inputs) By 31 October 2003, 48 person-months of international and 606 of domestic consultants appointed for institutional and training support Successful agreements entered into between LGED and union councils for subproject implementation and management Resettlement framework and summary initial environmental examination implemented Project gender action plan implemented

Project progress reports Project review missions Project accounts reports

Project equipment is maintained in efficient working order. Appropriately qualified staff are available to the project management office. Consultants are competent and effective. Annual ADB allocations are adequate. Counterpart fund allocation is available on time. Project activities can be implemented without undue delay. Benchmark study is done during initial year of implementation.

Inputs Civil works Land acquisition and resettlement Vehicles and equipment Consultants Training Surveys and studies

$85.6 million (including contingencies) $1.4 million (including contingencies) $6.2 million (including contingencies) $7.7 million (including contingencies) $1.6 million ((including contingencies) $0.3 million (including contingencies)

Project progress reports Project review missions Project accounts and reports

Appendix 4

30

COST ESTIMATES AND FINANCING PLAN

Table A4.1: Project Cost Summary by Component

% Item

Tk Million

$ Million Foreign

% Total Base

Local Foreign Total Local Foreign Total Exchange Costs A. Rural Roads 1. Feeder Roads Type B 2,386.6 827.7 3,214.2 41.1 14.3 55.4 26 59 2. Road Structures 413.0 177.0 590.0 7.1 3.1 10.2 30 11 Subtotal (A)

2,799.6 1,004.7 3,804.2 48.3 17.3 65.6 26 69 B. Rural Infrastructure

494.5

113.5

608.0

8.5

2.0

10.5

19

11

C. Infrastructure Maintenance

71.2

-

71.2

1.2

- -

1.2

-

1

D. LGED Capacity Building and Local Governance

185.0

73.2

258.2

3.2

1.3

4.5

28

5

E. Project Management

Support

528.3

212.6

741.0

9.1

3.7

12.8

29

14 Total Baseline Costs 4,078.6 1,404.0 5,482.5 70.3 24.2 94.5 26 100 Physical Contingencies 370.0 128.3 498.3 6.4 2.2 8.6 26 9 Price Contingencies 325.2 107.7 432.8 5.6 1.9 7.5 25 8 Total Project Costs 4,773.8 1,640.0 6,413.7 82.3 28.3 110.6 26 117 Interest During

Implementation

-

104.4

104.4

-

1.8

1.8

100

2 Total Costs to be Financed 4,773.8 1,744.4 6,518.1 82.3 30.1 112.4 27 119 LGED = Local Government Engineering Department

Appendix 4 31

Table A4.2: Project Cost Summary by Expenditure Account

% % Total Tk Million $ Million Foreign Base Item Local Foreign Total Local Foreign Total Exchange Costs I. Investment Costs A. Civil Works 1. Feeder Road Type-B (FRB) 2,240.3 746.8 2,987.0 38.6 12.9 51.5 25 54 2. Structure on FRB 273.0 117.0 390.0 4.7 2.0 6.7 30 7 3. Structure on Rural Road 140.0 60.0 200.0 2.4 1.0 3.4 30 4 4. Tree Planting and Caring 37.7 - 37.7 0.7 - 0.7 - 1 5. Growth Center Market 120.0 30.0 150.0 2.1 0.5 2.6 20 3 6. Union Council Complex 246.5 50.5 297.0 4.3 0.9 5.1 17 5 7. Boat Landing 60.0 15.0 75.0 1.0 0.3 1.3 20 1 8. Ferry 42.0 18.0 60.0 0.7 0.3 1.0 30 1 Subtotal (A) 3,159.5 1,037.2 4,196.7 54.5 17.9 72.4 25 77 B. Land Acquisition and Resettlement 1. Land Acquisition 44.0 - 44.0 0.8 - 0.8 - 1 2. Resettlement Compensation 30.2 - 30.2 0.5 - 0.5 - 1 Subtotal (B) 74.2 - 74.2 1.3 - 1.3 - 1 C. Vehicle and Equipment 1. Vehicle 95.7 43.3 139.0 1.7 0.7 2.4 31 3 2. Construction Equipment 74.2 80.9 155.1 1.3 1.4 2.7 52 3 3. Office Equipment 30.5 - 30.5 0.5 - 0.5 - 1 Subtotal (C) 200.4 124.2 324.6 3.5 2.1 5.6 38 6 D. Consultants 1. Capacity Building Consultant a. International Capacity Building Consultant - 50.1 50.1 - 0.9 0.9 100 1 b. Domestic Capacity Building Consultant 64.9 - 64.9 1.1 - 1.1 - 1 c. Local Support Staff 8.0 - 8.0 0.1 - 0.1 - - Subtotal (D1) 72.9 50.1 123.0 1.3 0.9 2.1 41 2 2. Implementation Consultant a. International Implementation Consultant - 141.8 141.8 - 2.4 2.4 100 3 b. Domestic Implementation Consultant 113.1 - 113.1 2.0 - 2.0 - 2 c. Local Support Staff 17.6 - 17.6 0.3 - 0.3 - - Subtotal (D2) 130.7 141.8 272.5 2.3 2.4 4.7 52 5 Subtotal Consultants 203.6 192.0 395.5 3.5 3.3 6.8 49 7 E. Training 77.0 7.2 84.2 1.3 0.1 1.5 9 2 F. Surveys and Studies 5.5 10.7 16.2 0.1 0.2 0.3 66 - G. Union Council Incentive Fund 38.4 - 38.4 0.7 - 0.7 - 1 H. Social Development Fund 3.0 - 3.0 0.1 - 0.1 - - I. Implementing NGO 14.5 - 14.5 0.3 - 0.3 - - Total Investment Costs 3,776.1 1,371.3 5,147.4 65.1 23.6 88.7 27 94 II. Recurrent Costs A. Incremental Staff 1. Project Director's Office 16.2 - 16.2 0.3 - 0.3 - - 2. Deputy Project Director's Office 7.6 - 7.6 0.1 - 0.1 - - 3. District Office 59.5 - 59.5 1.0 - 1.0 - 1 4. Subdistrict Office 38.6 - 38.6 0.7 - 0.7 - 1 5. Miscellaneous Expenses 52.8 - 52.8 0.9 - 0.9 - 1 Subtotal (A) 174.7 - 174.7 3.0 - 3.0 - 3 B. Office Expenditure 36.0 - 36.0 0.6 - 0.6 - 1 C. Consultant Expenditure 1. Capacity Building Consultant Expenses 12.1 5.2 17.3 0.2 0.1 0.3 30 - 2. Implementation Consultant Expenses 13.2 11.7 24.9 0.2 0.2 0.4 47 - Subtotal (C) 25.3 16.8 42.1 0.4 0.3 0.7 40 1 D. O&M for Vehicle and Office Equipment 47.4 15.8 63.2 0.8 0.3 1.1 25 1 E. Care for Trees 19.0 - 19.0 0.3 - 0.3 - - Total Recurrent Costs 302.5 32.7 335.1 5.2 0.6 5.8 10 6Total BASELINE COSTS 4,078.6 1,404.0 5,482.5 70.3 24.2 94.5 26 100 Physical Contingencies 370.0 128.3 498.3 6.4 2.2 8.6 26 9 Price Contingencies 325.2 107.7 432.8 5.6 1.9 7.5 25 8Total PROJECT COSTS 4,773.8 1,640.0 6,413.7 82.3 28.3 110.6 26 117 Interest During Implementation - 104.4 104.4 - 1.8 1.8 100 2Total Costs to be Financed 4,773.8 1,744.4 6,518.1 82.3 30.1 112.4 27 119NGO = nongovernment organization; O&M = operation and maintenance

32 A

ppendix 5

IMPLEMENTATION SCHEDULE

2002 2003 2004 2005 2006 2007 2008 2009 Work Description Quantity Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Rural Roads Civil works Upgrading feeder roads 1,030 km Road structures 5,000 m Tree planting and caring 800 km Land acquisition and resettlement

Rural Infrastructure

Civil works Growth centers 60 Boat landings 50 Ferries 5 Union council complexes 99 Land acquisition and resettlement

Infrastructure Maintenance

Union council incentive fund

LGED Capacity Building and

Local Governance Capacity-building consultants Training Surveys and studies

Project Management Support

Infrastructure implementation consultants

Incremental staff salaries

Appendix 6

33

PROCUREMENT PACKAGES

Distribution of Contract Packages Item Mode of

Procurement Number

of Packages

Total Value

2003 2004 2005 2006 2007 2008

ADB Financing

(%) Vehicles and Equipment Vehicles ICB, IS 5

Tk million $ million

154.9

2.7

2 149.3

2.6

3 5.6 0.1

92.1

Construction equipment ICB, IS 6

Tk million $ million

173

3.0

1 157.6

2.7

5 15.4

0.3

94.8

Office equipment IS 4 Tk million $ million

34

0.6

4 34

0.6

97.0

Total ICB, IS procurement $ million 6.3 LCB civil works

Upgrading of feeder roads Total Length: 1,030 kilometers

Number of packages

LCB

360

Tk million $ million

3,527 60.8

90 30

291 5.0

190

60 628

10.8

220

90 745

12.8

268

90 929

16.0

202

90 717

12.4

60

- 218

3.8

52.9

Road structures Feeder roads Total Length: 3,000 meters

Number of packages

LCB -

Tk million $ million

464 8.0

170

25 0.4

480

71 1.2

650

99 1.7

650

101 1.7

600

96 1.6

450

73 1.3

64.4

Rural roads Total Length: 2,000 meters

Number of packages

Total value, road structures

LCB

989

Tk million $ million

$ million

241 4.2

12.2

230

80 26

0.4

310 180

36 0.6

510 240 61

1.1

510 240

63 1.1

440 249

55 1.0

58.8

Growth center markets 60 growth centers

Number of packages

LCB

30

Tk million $ million

179 3.1

12

6 34 0.62

12 16 35

0.62

12 16 36

0.62

12 16 37

0.62

12

6 37 0.62

58.3

Total LCB procurement $ million 76.1 54.7

ICB = international competitive bidding; IS = international shopping; LCB = local competitive bidding.

34 Appendix 7

OUTLINE TERMS OF REFERENCE FOR CONSULTING SERVICES A. Infrastructure Implementation Consultants

1. A team of consultants will assist the Local Government Engineering Department (LGED) in implementing the Project (Table A7). The consultants will work directly with and support the LGED staff in the project management offices (PMO) and the zonal offices in Jessore and Barisal, and at LGED regional, district, and subdistrict offices in the project area. 2. The consultants must have substantial experience in rural infrastructure development projects, especially in South Asia. They will work to ensure the effectiveness of project implementation. The consulting services will include the following tasks:

(i) Assist LGED in preparing and implementing project activities, including planning, procurement of goods and services, execution and methodologies, training for sustainable operation of improved infrastructure, operating the quality control regime, and planning and executing routine and periodic road maintenance programs.

(ii) Assist and advise LGED in all aspects of contract documentation preparation;

contractor prequalification, tendering, evaluation, and contract award; and contract administration, payment, and completion procedures. Assist and advise LGED with supervision of physical works, including procedures for on-site checking and monitoring of work and construction methods, procedures for laboratory and field tests and materials quality, LGED’s materials laboratories operation, and certification of quality and work progress.

(iii) Assist LGED in preparing documents, tendering, evaluating, and awarding supply

contracts; planning, monitoring, reporting, and financial management aspects, including project framework techniques for planning and training; programming maintenance; and financial monitoring of implementation and operations of market, boat landing, and ferry improvements.

(iv) Assist in land acquisition procedures and documentation; construction equipment

charge rates, allocation, and use; identifying and reporting adverse environmental and social impacts by carrying out initial environmental examinations and initial social assessments for subprojects and modifying designs and practices to mitigate them, such as by preparing environmental management plans and resettlement plans; generally accomplishing project preparation tasks; and preparing monthly, quarterly, and final reports including draft project completion report.

(v) Assist in facilitating participatory planning, implementing participatory governance

activities, and implementing the gender action plan. B. LGED Capacity-Building and Local Governance Consultants

3. The consultants will advise and support LGED in training LGED staff and local government representatives and staff. The tasks are as follows:

Appendix 7 35

(i) Advise and support LGED in building its capacity as a facilitator by training LGED staff in participatory development and assisting them in maintenance planning, socioeconomic development, and promoting stakeholder participation; mainstreaming of gender issues; implementing the gender action plan; and introducing a participatory, gender based management system. Provide support in the tree planting program for women, routine maintenance contracting procedures, and training for union councils to maximize employment for the poor and disadvantaged women. Develop contractors’ capability to plan and develop union council complexes, and plan and implement women’s areas in markets.

(ii) Advise and support LGED in training subdistrict personnel, local bodies including union council chairpersons, members, and secretaries; committee members from union council market management committees; and market, boat landing, and ferry management committees in governance, transparency, financial management and accounting, local resource mobilization, gender and development, and participatory methods.

(iii) Advise and support LGED in orienting contractors–who have not worked with LGED before–in contract law, bid preparation, work programming, financial management and cash flow, quality control, defect liability; and motivate all contractors to reduce the wage gap between women and men.

4. Domestic specialists will provide training under the guidance of an international consultant. They will use the facilities of the LGED training centers where possible. Trainers will develop training materials and programs for courses new to LGED.

36 Appendix 7

Table A7: Consultants’ Schedule

Personnel No. Person-

Months Sub-total

Total

A. Infrastructure Implementation International Consultants

1 67 67 Project Management Adviser Regional Project Engineering Adviser 1 67 67 Subtotal, International 134 Domestic Consultants

1 67 67 1 67 67 1 24 24 16 60 960

Senior Road Engineer/Deputy Team Leader Regional Project Engineer Senior Structural Engineer Field Resident Engineers Quality Control Engineers 2 60 120 Subtotal, Domestic 1,238

B. LGED Capacity Building and Local Governance International Consultants

Institutional Strengthening/Management Specialist/ Team Leader

1 48 48

Subtotal, International 48 Domestic Consultants

1 36 36 1 48 48 1 60 60

Gender Specialist Sociologist/Resettlement Specialist Maintenance Specialist Maintenance Engineer 2 60 120

1 36 36 1 48 48 1 24 24 1 36 36 1 18 18 1 48 48 1 48 48 1 48 48

Benefit Monitoring and Evaluation Specialist Database Management/Programming Specialist Performance Management Specialist Financial Management Consultant Hydrologist/Environmentalist Governance Specialist Community Development Specialist Capacity Building Specialist Fiscal Decentralization Specialist 1 36 36

Subtotal, Domestic 606

Appendix 8 37

SUMMARY ECONOMIC ANALYSIS

A. Introduction

1. The principal project investment is in the improvement of feeder roads type B (FRBs). Other project investments such as growth center markets and boat landings are not appraised as discrete investments. The economic evaluation examines a set of 20 sample roads representative of all FRBs in the project area. These sample roads were selected in a feasibility study undertaken by the Local Government Engineering Department (LGED). Quantifiable benefits of the FRB investment include savings in vehicle operating costs (VOCs), time savings for motorized traffic, and savings in operational and time costs for nonmotorized traffic. To be conservative, the economic analysis estimated costs and benefits with and without the project, but excluded time savings.

1. Road Condition and Existing Traffic 2. Road condition in terms of roughness is measured by the international roughness index in meters per kilometer (m/km). In the without-project situation, earth roads have an average roughness index of 15 m/km; herringbone brick roads, 12 m/km; and bituminous carpet roads, 8 m/km. With the Project, road roughness is estimated to reduce to 4.0 m/km. It was assumed that there are five classes of motorized vehicles and four classes of nonmotorized vehicles, primarily with light load factors. Traffic counts were undertaken to identify existing traffic on each of the 20 subproject roads. In calculating the annual average daily traffic for the base year, the counts were adjusted to reflect market days and seasonal differences in traffic.

2. Traffic Forecast

3. A review of historical information and recent studies indicates that transport of both freight and passengers has grown at an average rate of approximately 8% per year over the past decade. This relatively high rate of growth is primarily due to improvements in the road transport subsector and the growth of the Bangladesh economy. The economy is expected to continue growing rapidly over the next decade. The rate of traffic growth in Bangladesh is derived from the rate of growth in gross domestic product (GDP) and the income elasticity of demand for transport with respect to the GDP. The gross domestic income elasticity of demand for transport in Bangladesh is about 1.5 for both passengers and freight. The average annual growth rate of real GDP over the last decade is 5.5%, but there has been a slowdown in the last few years because of crop failures. The current projection for annual growth in GDP is 5%, suggesting annual traffic growth rates of 7-8% for Bangladesh. A standard set of traffic growth rates was adopted for the project evaluation. These rates reflect historical and forecast growth rates for the population and the economy, historical average traffic growth rates, and proposed improvements for rural roads and associated infrastructure under the Project. 4. Normal traffic forecasts for each subproject road were calculated using base year traffic levels and the rates of traffic growth. Generated traffic was not included in the traffic forecasts. For subproject roads in poor condition and with no existing bus traffic, the with-Project scenario assumed that at least 2% of the motorized traffic will be light bus traffic. B. Economic Evaluation

5. The economic analysis compared estimated benefits and costs of the Project for 20 years’ operation after completion of civil works. Valued in 2002 constant prices, the project

38 Appendix 8

benefits and costs in financial prices were adjusted to economic prices by deducting taxes and duties, and by applying a conversion factor of 0.8 to nontraded local currency costs, used as the standard conversion factor for the Bangladesh road sector.

1. Costs

6. The economic evaluation of the subproject roads included the costs associated with upgrading FRBs, improving other rural infrastructure, strengthening LGED and local government capacity, improving maintenance procedures, and land acquisition and resettlement. Including physical contingencies, but excluding price contingencies and interest during construction, financial costs were converted to economic costs using a conversion factor of 0.8. Incremental maintenance costs were calculated as the difference in maintenance requirements with and without the Project. It was assumed that in the without-Project scenario, the roads would receive minimal routine maintenance and spot improvements. The with-Project scenario includes full routine maintenance and a periodic maintenance reseal every 5 years. No residual value was considered at the end of the project life.

2. Benefits

7. Improved road pavements and surfaces with the Project would reduce travel costs for all road users. This would include a reduction in VOC and time costs for motorized and nonmotorized vehicles. Factors influencing VOCs include vehicle speed, horizontal and vertical alignments of the road, and the physical condition of the road surface, in addition to vehicle type, price, age and load. For each year in the analysis period for all vehicle classes, highway design and maintenance model version 4 (HDM-4) was used to calculate pavement deterioration in the with- and without-project scenarios based on traffic levels and road design, and to calculate the annual economic VOC and time savings using forecast future road roughness. No changes were made to the technical data in HDM-4. The input is in 2002 prices and is net of taxes, duties, and other charges. The output of the model includes physical quantities of road consumption and speed, and the associated VOC per predefined unit of 1,000 vehicle-kilometers. 8. The Project is expected to generate additional benefits that have not been quantified. These benefits include improved access to education and health facilities, reductions in rural poverty by employing the poor to improve the roads and other rural infrastructure, and maintain the roads. Lower rural transport costs and travel times also encourage increased agricultural production of higher yielding rice and other crops because of lower prices for fertilizers and higher farm and market prices. Lower transport costs, improved access, and mobility also encourage nonagricultural job creation in the service sector.

3. Economic Internal Rate of Return (EIRR)

9. The economic evaluation of the subproject roads compared costs and benefits with and without the Project. It assumed that the project capital costs would be incurred in 2003-2004, and that the project benefits would start in 2005 and would continue for 20 years until 2024. The basic quantified benefits are savings in road user VOCs and savings in operational costs for nonmotorized traffic. These benefits were compared with the economic costs of road improvement and maintenance. The net benefits were then used to calculate the EIRR. All costs and benefits were estimated net of duties and taxes, and are expressed in constant 2002 prices. The EIRR was calculated for each subproject road and for each section of each road of a different pavement construction type. The EIRR for the individual project roads ranged from

Appendix 8 39

6.5% to 64.3%, while the EIRR of pavement sections ranged from 1.6% for a bituminous carpet section in fair condition to 99.0% for an earth section in poor condition. The results of the economic evaluation of individual subproject roads are summarized in Table A8.1.

Table A8.1: Economic Internal Rates of Return of Subproject Roads

Name of FRB EIRR by Section (%) EIRR (%) of

Bituminous Earth Brick Macadam Road Mirpur – Bheramara 64.3 64.3 Meherpur – Dariapur 6.9 36.4 16.6 Daulatgonj – Sabadalpur 10.3 41.4 15.1 43.0 35.7 Kotchandpur – Gunna 45.7 9.3 17.8 Kharaguda – Katlamari 10.2 39.0 12.6 11.1 26.1 Singra – Shimankhali 3.4 24.7 5.4 19.8 Tularampur – Sheilkhati 4.8 27.8 24.3

Chowgacha – Arpara 20.2 81.9 71.6 Haibatpur – Hasimpur 19.7 20.7 23.5 57.7 Digholia – Arua 23.2 99.0 28.4 37.6 Barakpur – Polathat 10.4 41.2 13.0 36.2 Charkhulia – Kachuria 1.6 22.9 21.6 Kaligonj – Assasuni 12.9 42.8 15.6 20.3 Muladihat – Mridrahat 23.5 2.8 8.3 Pirojpur – Sreeramkati 17.7 85.3 23.2 13.8 Rajapur – Balorjore 13.4 2.5 6.5 Subitkhali – Kakrabunia 14.0 14.0 Jhaudia – Halsha 3.5 25.3 5.7 13.1 Chandkhali – Paikgacha 17.7 85.3 23.2 40.6 Jhalokati – Manpasha 9.9 37.8 14.6 27.0

EIRR All Subproject Roads 22.8% EIRR = economic internal rate of return; FRB = feeder road type B. 10. As indicated in Table A8.1, benefits from upgrading the existing earth road sections to an all-weather sealed surface are high. The upgrading of all earth sections is economically justified. However, upgrading a brick or bituminous section of a road is likely to generate relatively lower economic benefits, suggesting that priority should be given to upgrading the earth sections to provide an all-weather road. The overall cost and benefit streams for upgrading the 20 sample subproject roads resulted in an EIRR of 22.8%. The result reflects the high level of benefits associated with providing all-weather access in a rural environment. The economic evaluation demonstrates that upgrading the project roads is economically justified. 11. The results in Table A8.1 represent the most conservative estimates of the EIRR, excluding time savings for motorized and nonmotorized traffic. However, studies on the impact of improving rural roads and markets have found that travel time costs are reduced considerably when an all-weather FRB road is provided. Other factors that may affect the economic benefits and feasibility of the proposed road improvements include (i) delayed periodic maintenance of improved roads and subsequent deterioration of the upgraded roads, (ii) reduced traffic growth rates, (iii) increased construction costs, and (iv) reduced nonmotorized traffic benefits.

40 Appendix 8

12. Full evaluation of the 20 subproject roads including benefits from passenger time savings was carried out by rerunning HDM-4 for all sections of each subproject road. Including benefits in passenger time savings significantly increased the quantified benefits of upgrading those subproject roads. The overall package of 20 subproject roads had an EIRR of 66.5%, with passenger time savings included. The significant increase in EIRR reflects the scale of passenger time savings compared with other benefits. The major part of existing traffic on the project roads is nonmotorized vehicles that have very low financial operating costs. The main economic costs for these vehicles are the time of the operator and the opportunity time of passengers. When FRB earth roads in poor condition are upgraded to good sealed roads, the speed of rickshaws and rickshaw vans on those roads will increase by more than 400%. The increase will significantly improve the productivity of the rickshaw operators, so that they can lower their charges. Lower charges and potential time savings encourage additional customers and additional economic activity, especially by those who participate in the cash economy. 13. HDM-4 was also rerun to test the sensitivity of subproject road improvements to a 5-year delay in periodic maintenance. The present LGED practice is to reseal roads every 4-5 years and it is likely that this timing would apply to the project roads. The analysis indicated that if periodic resealing were delayed 5 years and normal routine patching and potholing continued, the EIRR for the improved subproject roads would increase from 22.8% to 23.8%. This suggests that it may be appropriate to conduct pavement surface trials in the project areas to determine the optimum timing for periodic reseals for FRB roads. If the 4-5 year reseal program is supported by the research results, then there is a need to recalibrate HDM-4 to better model Bangladesh rural road conditions. The Project will provide assistance in refining the model. 14. The annual traffic growth rates used indicate a 343% increase in traffic over the 22-year project life. However, if economic growth in Bangladesh were to fall to only 3% per annum, it is possible that traffic growth rates in the project area would fall to approximately 4.5% per annum. This is equivalent to a 23% reduction in traffic volumes over the project life. When traffic growth rates were reduced to 4.5% per annum for all vehicle classes, the EIRR for all subproject roads fell from 22.8% to 17.6%. Similarly a 15% increase in capital costs reduces the EIRR from 22.8% to 20.3%. A corresponding 15% decrease in motorized and nonmotorized traffic benefits would reduce the EIRR to 19.5%. Generally, the results of the sensitivity tests indicate that the Project’s viability is robust to adverse changes in key variables. 15. The sensitivity indicator1 was calculated. The results of the sensitivity analysis are in Table A8.2. Switching values2 were also calculated. The scenario of a combination of a 15% decrease in benefits, a 15% increase in capital costs, and a 23% reduction in forecast traffic because of lower GDP growth rates reduced the EIRR for the overall sample subproject roads from 22.8% to 15.8%, which is still economically viable.

1 The sensitivity indicator shows the effect of a change in a variable on the Project. 2 The switching value shows the percentage increase in a cost variable (or decline in a benefit variable) required for

the net present value to become zero, which is the same as the EIRR being reduced to the cutoff level of 12%.

Appendix 8 41

Table A8.2: Results of Sensitivity Analysis

a Sensitivity indicator = absolute value of (percentage change in EIRR/percentage change in variable).

Scenario EIRR(%) Net Present

Value (Tk million)

Switching Value (%)

Sensitivity Indicator a

1. Base case excluding passenger time savings 22.8 714.0 - - 2. Decrease in benefits by 15% 19.5 473.6 44.6 1.0 3. Increase in capital cost by 15% 20.3 606.0 99.2 0.7 4. Combination of 2 and 3 17.2 365.6 30.4 1.5 5. 5-year delay in periodic maintenance 23.8 771.5 - - 6. GDP growth rate drop by 40% 17.6 345.4 61.3 0.57 7. Reduction in benefits by 20% 19.3 463.2 56.9 0.8 8. Combination of 2, 3 and 6 15.8 262.6 31.9 1.5 9. Combination of 2, 3 and 7 16.4 302.9 30.4 1.5

42 Appendix 9

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

A. Linkages to the Country Poverty Analysis

Sector identified as a national priority in country poverty analysis?

Yes Sector identified as a national priority in country poverty partnership agreement?

Yes

Contribution of the sector/subsector to reduce poverty: Poverty remains pervasive in Bangladesh. Investments in social infrastructure (education, health, and nutrition) and physical infrastructure (roads, electricity, and flood control) are seen as important inputs for sustainable poverty reduction. The impact of rural infrastructure on poverty reduction is well documented in the development literature of Bangladesh. Roads and growth centers can influence poverty reduction by creating new employment opportunities, especially in the nonfarm sectors, changing input and output prices, and through higher wages. The Project will contribute to poverty reduction by creating sustainable seasonal and long-term employment opportunities targeted to the poor. Increased levels of transport services will create employment for the poor on bus, truck, and other traditional modes of transport plying rural roads. Similarly, the improved growth centers are expected to serve landless and marginal farmers, and small traders. The Project is expected to have a positive impact on the socioeconomic development of the region by providing immediate economic benefits to farmers, merchants, and other occupational groups including poor men and women, through better access to goods and services. The improvement of feeder roads type B (about 1,030 kilometers), 60 growth centers, 50 boat landings, and 5 ferries will improve access to markets, social facilities, and employment opportunities. The infrastructure improvement undertaken by the Project will directly generate income-earning opportunities of about 50,000 person-years for the poor.

B. Poverty Analysis Proposed Classification: Poverty intervention

The people below the poverty line in the country declined by about 1 percentage point annually over the last decade. The household income and expenditure survey of the Bangladesh Bureau of Statistics 2000 shows that about 50% of the population of the country lived below the upper poverty line in 2000. Over the last decade, rural poverty remained more extensive than urban poverty. In Barisal (40%) and Khulna (51%) divisions together, 47% of the people were below the upper poverty line in 2000. In the decade ending in 2000, poverty incidence in these two divisions declined by about 1.4 percentage points per year. Although poverty incidence in the two divisions is slightly below the national average, per capita gross domestic product in FY2000 was lower in Barisal ($306) and Khulna ($355) than the national average ($363). In some of the districts of Khulna and Barisal, poverty incidence is greater than the divisional and national averages. Over 11 million people in Khulna and Barisal are poor. The mean per capita expenditure during the last decade increased by 2.1% annually in these divisions, compared with the annual increase of 2.4% in the national average. According to the Bangladesh Bureau of Statistics 2000, household income and expenditure survey, the cost-of-basic-need poverty lines expressed as Tk/person/month in Barisal (covering rural Barisal, Patuakali) were Tk616 (upper poverty line) and Tk546 (lower poverty line). In Khulna (covering rural Khulna, Jessore, Kushtia), the cost-of-basic-need poverty lines in Tk/person/month are Tk624 (upper) and Tk527 (lower).

Appendix 9 43

The direct benefit to the poor from the Project will be employment opportunities in infrastructure construction and maintenance activities. An estimated 135,000 person-years of employment opportunities will be creat ed for unskilled laborers and an estimated 30% of the employment will be generated for women (Appendix 11, Summary Gender Action Plan). Road networks will create employment for large numbers of poor as transport workers or operators, ancillary support and service providers, and traders. Transport operation costs will be reduced and people including men, women, and children will have better access to service facilities and institutions including education, health, microfinance and small enterprises due to improved year-round communication. Travel time will be short. The market infrastructure will lead to better prices of locally produced goods and services, including increased volume of trading and improved storage. Environmental conditions in market areas will be significantly improved. An important element of the market infrastructure is to increase the self-reliance of poor women through their access to market infrastructure. In addition, microfinance agencies including nongovernment organizations (NGOs) will be encouraged to expand their credit support programs in the project area, especially to the women shop owners to increase their access to financial resources. Improved rural infrastructure will also have a favorable impact on agricultural and nonagricultural wages, and agricultural output prices.

C. Participation Process

The infrastructure and other project components were discussed with the union councils and all major stakeholders in 25 field workshops. The outputs were (i) formulation of criteria for selecting roads, growth centers, and boat landings for improvement; and (ii) identification of roads, growth centers, and boat landings of each subdistrict. The selection was confirmed during two regional workshops. There were recommendations on mechanisms to enhance the capacity of union councils, ways to ensure participation of women, and means to build the Local Government Engineering Department’s (LGED's) capacity. To strengthen the union councils and for greater sustainability of the infrastructure, a participatory approach will be followed in implementation. The Project will emphasize stakeholders’ participation in implementation, operation, and maintenance of improved rural infrastructure; and union-level governance and revenue generation. In the pilot unions, union development coordination committees consisting of union council and service-providing agencies will be established. Citizens’ (including women’s) participation in planning of union council activities will be ensured through citizens'- forums. Regular interaction between the union councils and citizens will be promoted through joint meetings, rallies, and consultations at the union and ward levels. Women’s participation in market management committees, infrastructure maintenance, and markets will be promoted. NGOs will support establishment of the participatory process in union council governance.

44 Appendix 9

D. Potential Issues

Issues

Significant/ Non-

Significant/ Uncertain/

None

Strategy to Address Issues Plan

Required

Resettlement/Compensation

Uncertain

In most feeder roads, there will be some minor land acquisition. Existing unimproved roads have been selected for improvement. Land acquisition and compensation requirements will be identified and addressed during implementation and before starting improvement of any road or growth center market.

A resettlement framework and resettlement plans for three subprojects have been prepared.

Gender Significant Infrastructure is considered a domain of men. The infrastructure components of the Project will address women’s needs in the design of the infrastructure, such as union council complexes and women’s market corners. The Project will increase women’s access to infrastructure as users of markets, union council complexes, and roads. Short-term and seasonal employment in improving and maintaining infrastructure will be created. Employment and income-earning opportunities in women market corners will be generated. The Project will promote the effective participation of women in governance and will facilitate (i) strengthening of the role of female union council members through capacity building to plan, coordinate activities, be involved in development activities and union development coordination committees and clarification of their roles and responsibilities; (ii) introducing gender issues within LGED and union councils; and (iii) increasing the participation of women through recruitment and provisions of a quota in management committees.

A detailed gender action plan has been prepared.

Affordability Nonsignificant The rural people lack access to improved infrastructure. The Project will therefore create access to infrastructure. Union councils will make cash contributions of 10% to the costs of growth centers, union council complexes, boat landings and rural road drainage structures, to be met from their budgets.

None

Labor Significant No adverse impact is anticipated. The Project will have a significantly positive impact by creating jobs for both skilled and unskilled laborers during and after infrastructure improvement. Poor women will obtain employment during construction and maintenance. With the improvement of roads and

None

Appendix 9 45

Issues

Significant/ Non-

Significant/ Uncertain/

None

Strategy to Address Issues Plan

Required

growth centers, occupational opportunities for the poor will be expanded in the nonagriculture sectors and will reduce seasonal unemployment and generate full-time employment in other sectors. The Project will attempt to reduce the gap in wages paid to women and men in construction work.

Indigenous People

Uncertain No indigenous people live on the selected roadsides. However, a substantial number of minority/indigenous people will potentially benefit from the Project. About 2,000 to 2,500 Hindu weavers live within the catchment area of Jhaudia-Halsha road in Kushtia Sadar subdistrict. They will benefit from the improved road and growth center in marketing their products. Similarly the Rakhain community (Buddhists) in Kalarpara subdistrict, Paluakhali who are mostly engaged in nonagricultural activities (weaving, small trade, and cottage industries) will also derive benefits from marketing their products. The Project will ensure their participation in planning and implementing the Project and in obtaining benefits from the infrastructure.

The Project will ensure that during the selection of shop owners, women maintenance crews and users of infrastructure facilities, members of these minority groups will also be targeted. The Project will establish linkages between NGOs and indigenous groups for credit and marketing support and training.

Other Risks/ Vulnerability River erosion

Uncertain Erosion from the Lower Meghna River on its right-hand banks in Bhola and some other areas is a problem. No new infrastructure will be built in erosion-prone places.

NGOs will be encouraged to strengthen their activities.

Other Risks/ Vulnerability Trafficking in women and children

Significant The border districts in Khulna division, especially Satkhira, Jessore and Kushtia, are both source and routes for human trafficking, especially women and children. Some other areas in both Khulna and Barisal divisions are routes for trafficking. The employment opportunities created will significantly contribute to reducing vulnerability, migration, and trafficking. The pilot union councils will be oriented to the problem and involved in preventing it by raising awareness and support.

The pilot union councils will be oriented to the problem and involved in preventing it by raising awareness and support.

46 Appendix 9

Issues

Significant/ Non-

Significant/ Uncertain/

None

Strategy to Address Issues Plan

Required

Environmental Nonsignificant / uncertain

No adverse environmental impact is anticipated. Specific issues requiring attention include ?? inadequate cross drainage to control water-

logging; ?? surface water irrigation channels crossing

some road alignments; ?? some minor land acquisition and felling of

roadside trees; and ?? arsenic in drinking water which is a serious

problem in large parts of the project area.

?? Design drainage pipe under road

?? Short resettlement plans

?? Tree planting

?? Water supply plan should include arsenic mitigation plan.

Appendix 10 47

RESETTLEMENT FRAMEWORK A. Project Background and Description

1. The Project intends to address poverty reduction, regional socioeconomic development, and acceleration of pro-poor economic growth by providing services and resources in the relatively neglected southwestern region of the country. About 22.6 million people will benefit directly or indirectly from implementation of the Project in 16 districts: 10 in Khulna and 6 in Barisal divisions. 2. The Project will improve small-scale rural infrastructure–improvement of rural roads for better access to markets, development of ferry landing sites in this riverine region, improvement of market growth centers to a certain standard according to the criteria established by the Local Government Engineering Department (LGED), the Project’s Executing Agency. 3. Three core subprojects have been planned by evaluating various design factors, with full consultation with and participation of the stakeholders. An overall development plan and prioritization of the project investment plan will be prepared for the whole project area using lessons learned from the planning of these core projects. 4. The three subprojects were selected from three districts: Kushtia, Khulna, and Jhalokathi. About 31 kilometers (km) of road will be widened and improved, and two market growth centers and three union council offices will be improved. Resettlement plans were prepared for these three core subprojects that will also serve as models for addressing potential resettlement issues in other subprojects. About 1.5 hectares of land, mostly along the existing road, will be acquired. This will entail partial relocation and shifting of about 120 existing housing or business entities, and loss of agricultural land, fishing ponds, and livelihood. 5. The actual amount of land to be acquired and the number of people to be affected will be finalized after conducting detailed socioeconomic surveys in conjunction with the subproject design. This resettlement framework will be used in preparing plans to resettle and rehabilitate the project-affected persons, and guide the preparation and implementation stages. Implementation of the subprojects is expected to start in the third quarter of 2003. B. Resettlement Policy Framework 6. The current legislation governing land acquisition for public purposes is the Acquisition and Requisition of Immovable Property Ordinance (Ordinance II of 1982) and its subsequent amendments in 1993 and 1994. The 1982 ordinance is the only law that governs all cases of acquisition and requisition by the Government of immovable property (land, crops, and built structures) for any public purpose or in the public interest. The ordinance does not cover project-affected persons without title or ownership records such as informal settlers or squatters. Further, in most cases, the compensation does not constitute market or replacement value of the property acquired. 7. In the absence of a government policy consistent with the Asian Development Bank (ADB) policy on involuntary resettlement, poverty reduction, and social development, a project-specific resettlement policy framework and resettlement procedure guidelines will be adopted. The framework and guidelines in this appendix will apply to all subprojects to be prepared and approved under the Project. It will ensure that persons affected by land acquisition permanently or temporarily losing livelihood will be eligible for appropriate compensation in the Project.

48 Appendix 10

8. The resettlement policy framework reflects the Government’s land acquisition laws and regulations and ADB policy on involuntary resettlement and guidelines. It stipulates eligibility and provisions for all types of losses (land, crop, trees, fish, structures, business, employment, workdays, wages, and social infrastructure). Land for land will not be feasible because replacement land is not available. As land acquisition will be minimal, project-affected persons’ livelihoods will be most affected. Lost livelihood will be compensated at full replacement cost, which will help the affected persons to rehabilitate themselves to a great extent. 9. Affected households compensated by the district deputy commissioner for lost assets will receive (i) an additional cash grant to match replacement market value, and (ii) other resettlement assistance such as shifting allowance and compensation for loss of business, workdays, and income because of dislocation. Households headed by females and other vulnerable households will be eligible for further cash assistance to relocate and to reconstruct house or structure. Table A10 presents the measures adopted in the resettlement plan on land acquisition and resettlement issues to bridge the gap between the ADB policy on involuntary resettlement and the Government policy on land acquisition, and assessment and valuation of acquired property. C. Resettlement Procedural Guidelines 10. The summary resettlement plans for the three core subprojects are in the supplementary appendixes. Specific resettlement procedure guidelines have been established to guide the preparation of appropriate resettlement plans that will be adequate for the magnitude of land acquisition for the subsequent subprojects. 11. The resettlement procedure guidelines require that (i) LGED carry out an initial social assessment survey once the scope of each subproject is identified, based on preliminary technical designs; (ii) if impacts are found to be “significant,” LGED will prepare a full resettlement plan for each subproject; and (iii) if subproject impacts are less than significant, a short resettlement plan will be sufficient for subproject preparation. The short resettlement plan must, however, comply with ADB’s policy on involuntary resettlement and other social safeguard guidelines. D. Institutional Responsibilities and Resettlement Cost 12. The Ministry of Local Government, Rural Development and Cooperatives, through LGED, has overall coordination, planning, implementation, and financing responsibilities. LGED fully recognizes the importance and complexity of the resettlement programs in the Project. Therefore, an experienced nongovernment organization (NGO) or resettlement specialist with clearly defined tasks will be engaged to implement the plans. A senior LGED staff (preferably a social scientist), with the rank of executive engineer, will be appointed as chief resettlement officer to supervise the implementation work with the help of existing LGED community organizers at the subdistrict level. 13. If required, the appointed NGO/consultant will open field offices in 16 districts and will involve affected persons, including women, in implementation. The NGO/consultant will also liaise with LGED and the contractor to assist the project-affected persons, especially women and other vulnerable persons to obtain employment during the construction period. In the contractor contracts, LGED will include a provision for preferential employment of qualified project-affected persons, including affected women, in road slope turfing.

Appendix 10 49

14. LGED will ensure that the resettlement plans adhere to the resettlement policy framework and resettlement procedure guidelines so that appropriate entitlements and mitigation measures are established. LGED will further ensure that the resettlement budgets are delivered on time to the deputy commissioner’s office and the implementing NGO/consultant, for timely implementation of the resettlement plan. 15. The cost of land acquisition and resettlement for the Project is estimated at $1.4 million, including physical contingencies. The Government will provide the funds for land acquisition and resettlement. The funds will be released through the deputy commissioners' offices for acquired properties, whereas all other additional benefits will be paid directly by the Executing Agency through the implementing NGO/consultant. E. Disclosure, Consultation, and Grievances

16. Each resettlement plan will be prepared and implemented in close consultation with the stakeholders and will involve focus group discussions and meetings, particularly with the project-affected people. The resettlement policy framework will be made available in the Bangla language during focus group meetings at the village level. Copies of draft resettlement plans will be distributed among community groups to obtain local inputs before finalizing the detailed design, after the socioeconomic survey so as to avoid fraudulent claims. 17. Complaints and grievance procedures will be outlined in each resettlement plan and grievance redress committees will be established for each subproject, with representatives from LGED, affected persons, women and vulnerable groups, local government, and NGOs. The chief resettlement officer, or authorized person nominated by the chief resettlement officer, will chair the grievance redress committee. Other than disputes relating to ownership rights, the committee will review grievances involving all resettlement benefits, relocation, and relevant assistance. Grievances will be redressed within 2-4 weeks from the date of lodging the complaint. F. Monitoring and Evaluation 18. LGED will establish a monitoring system involving LGED and implementing staff, and prepare progress reports on all aspects of land acquisition, compensation, and resettlement activities. LGED will report to ADB on land acquisition and resettlement in the quarterly progress report.

50 A

ppendix 10

Table A10: Measures Proposed in the Resettlement Framework to Comply with ADB Policy

Land Acquisition and Resettlement Issue

Covered by Government Policy Measures Proposed in the Resettlement Framework to Comply with ADB Policy

A. Assessment of Losses and Identification of Owners

1. Land and physical property on the acquired property

Deputy commissioner and LGED jointly conduct verification to categorize land by type any assets thereon, and identify the owners of physical assets.

The deputy commissioner and LGED will prepare a population record (to be updated to a census during detailed design) and socioeconomic surveys of identified households to assess the losses and identify owners of acquired assets. In addition, an independent NGO as a member of the joint verification team confirms the joint verification data of physical property for adequate implementation.

2. Livelihood and income opportunities

Laws on acquisition of land and property do not count loss of income and employment.

Loss of income and employment is recognized through census and socioeconomic survey.

3. Squatters/illegal occupants

Laws on acquisition of land and property do not recognize the squatter or illegal occupants.

Squatters are recognized as owners of structures they live in through census and socioeconomic survey conducted by independent agency. Joint verification team assesses and recognizes loss of structure.

4. Social dislocation Laws do not count social dislocation due to the acquisition.

Social and emotional disturbance due to dislocation from original place of residence is recognized.

B. Assessment of Compensa tion and Valuation

5. Land (agricultural, pond, homestead and commercial plots)

Deputy commissioner collects recorded price for preceding 1-year period and averages the sales prices for compensation. The award includes an additional 50% as premium on the assessed price due to compulsory acquisition.

An independent agency conducts a land market survey through structured survey and consultation to assess current market price of land. A property valuation advisory team recommends a replacement value as additional payment directly to owners of acquired property over the payment made by the deputy commissioner (if necessary).

6. Trees, crops, fishes, perennials

Prices from the Forest Department, Agriculture Extension and Fisheries Department are used for affected trees, standing crops and fishes.

Deputy commissioner's price is reviewed and additional value is added to ensure market price. The property valuation advisory team recommends the replacement price of trees, crops, and fish.

7. Structure and nonstructure assets

Public Works Department price is considered to assess the prices of different types of structures.

The Public Works Department price for different types of structures is reviewed. The property valuation advisory team also conducts valuation to recommend the real market price of structures at replacement cost.

Appendix 10

51

Land Acquisition and Resettlement Issue

Covered by Government Policy Measures Proposed in the Resettlement Framework to Comply with ADB Policy

C. Compensation Entitlements

8. Loss of land, structures, tree, crops, and fish

Assessed market price of land and other immovable properties and a 50% premium on that to legal owners Removal cost at 12.5% of the assessed value Auction out the salvaged materials

Market price at replacement cost assessed by property valuation advisory team Stamp duty/registration cost is reimbursed for purchase of replacement land within stipulated time. Shifting and reconstruction assistance Allow affected persons to take salvaged materials free of cost Additional shifting allowance for households with female heads and vulnerable people

9. Livelihood and income opportunities

No provision for loss of income or employment

Cash assistance for income restoration

10. Informal settlers and squatters No provision for loss of structure of informal settlers or squatters

Replacement price of structure Shifting and reconstruction assistance:

Business reestablishment grant Plot on alternate resettlement site/equivalent valuation

11. Social dislocation No assessment Options for relocation of the affected persons are considered for resettlement. Renovation and extension of community facilities in host areas are provided. Special assistance is provided to households with female heads and other vulnerable groups.

52 Appendix 11

SUMMARY GENDER ACTION PLAN 1. The project preparation team undertook extensive consultations with the general public, women ward members of union councils, local women leaders, women's labor contracting societies for routine road maintenance, and women sellers at various markets. The purpose was to understand their needs and identify possible activities to incorporate gender and development in the project design. 2. From the consultations at the field level and the lessons from previous rural development projects of the Local Government Engineering Department (LGED) and other agencies, a project gender action plan (GAP) was prepared. The GAP covers capacity building for staff of the project and government local bodies on gender and development; developing the capacity of women as change agents and beneficiaries; gender-focused infrastructure and other services; and increasing women’s participation in development institutions, infrastructure construction and maintenance, governance, and benefit monitoring. The GAP contained in a supplementary appendix provides the details of the plan. The main elements of the GAP are (i) increasing understanding–on the part of stakeholders, including the project staff, the union council officials, and the citizens–of the role of women in rural development and local governance; (ii) increasing participation of women in decision making, implementation, and monitoring of community-based activities through union development coordination committees, citizens' forums, and subdistrict development coordination committees; (iii) preparing women ward members of union councils for their roles and responsibilities as public representatives; (iv) increasing participation of women in implementing infrastructure investments and maintaining and managing completed works; (v) increasing access to infrastructure services and markets offered by the Project; (vi) reducing the wage differentials between women and men in construction activities; (vii) mobilizing women groups assisted by nongovernment organizations (NGOs) to promote their participation in local governance; (viii) developing skills of women in managing business, managing and maintaining infrastructure, and undertaking income-generating activities; and (ix) linking women shop owners with microfinance sources. 3. Thirty-two pilot union councils will undertake specific activities to promote the participation of stakeholders in managing the union council, preparing the budget, and coordinating development programs. The capacity of women citizens and women ward members will be built through their participation in training and regular meetings. 4. The project consultants will assist the union councils to set targets and implement activities. The consultants will support the development of training materials and field manuals for the staff and for partner NGOs. The Project will arrange orientation and training for staff at various levels and NGO partners for orientation on the GAP. Specific training manuals will be developed for the union council officials and the women ward members on their roles and responsibilities in union council management and in promoting women’s participation. Special manuals and guidelines will be developed for the pilot project areas. 5. To support implementation and monitoring of the GAP in mainstreaming gender in the Project, a gender and development specialist will be hired, in addition to the training coordinator and community development specialist at the project level who will also support implementation of the GAP. The terms of reference of the staff and consultants will include their responsibilities in implementing and monitoring the GAP at their respective levels. At the subdistrict level, LGED community organizers will be trained and be responsible for implementing and monitoring activities related to gender mainstreaming.

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6. The implementation of the GAP will be ensured and monitored. The project monitoring system will be developed with gender-sensitive tools, formats, and reporting system for various levels. Project staff will receive training to monitor gender-disaggregated data, and gender-specific information will be included in the project reporting system. The monitoring system will include the union councils and women in monitoring and assessing benefits and impacts.

54 Appendix 12

SUMMARY INITIAL ENVIRONMENTAL EXAMINATION A. Introduction

1. The initial environmental examination (IEE) of the Project, which seeks to upgrade the local road transport network and physical infrastructure in 16 specified districts in the southwest of Bangladesh, aims to determine the degree of the likely impacts and identify possible mitigation measures for the proposed Project. The primary output is a statement on whether the Project is fundamentally sound in environmental terms. The IEE will indicate if a further detailed full environmental impact assessment (EIA) is required, or if the IEE itself with specified mitigation and enhancement measures suffices to address the management of the predicted environmental impacts. The EIA includes both the natural and human/social environments. Of specific concern is the human use of resources and how this changes as a result of the proposed project interventions. The key environmental concerns were identified using a checklist screening procedure and analyzed for each of the four elements of the proposed Project. Appropriate mitigation and enhancement measures have been suggested for the identified impacts. B. Description of the Project

2. The Project does not follow the conventional feasibility study and detailed design phases completed prior to project implementation. The summary IEE (SIEE) thus forms an overall initial scoping of the broad framework of the Project and allows key environmental issues to be identified so that detailed subproject formulation can take them into account. The project area includes the Sundarbans mangrove forest area. While the project area is large, the proposed interventions are spread widely across it. As a result, the likelihood of significant localized cumulative impacts is reduced. There are unlikely to be significant impacts that will affect locations outside the project area. Three core subprojects were identified as case examples with SIEE conclusions. C. Description of the Environment 3. The environmental baseline situation in the project area is extremely well documented in the regional environmental profiles produced for the whole country by the Water Resources Planning Organization as part of the National Water Management Plan. A semidetailed baseline description, written in the context of the Project and following the sequence prescribed in the Asian Development Bank (ADB) environmental assessment guidelines, was given in the IEE. The work concludes that the following environmental issues–listed in order of importance–are the most important in the project area:

(i) Changes in the water resources regime . The recent reductions in dry season surface water flows in the area have consequences for surface water quality. Lack of dilution appears to result in the saline water interface moving northward. Reduction in flows and increased sedimentation are reducing natural fish resources and boat navigation, including the accessibility of Mongla port. Localized flooding occurs in the monsoon season, particularly in the Khulna-Jessore area where congested drainage is a problem. Bank erosion in north and east Bhola is severe and causes serious household destitution.

(ii) Management of environmentally sensitive areas. The Sundarbans area is of international importance and requires careful sustainable management. The four

Appendix 12 55

other major sensitive areas are the perennial wetlands of Chanda, Dakatia, and Marjiat, which present complex management issues. The fourth is the designated wildlife sanctuary of Kukuri Mukri.

(iii) Relatively poor communication and access. The area has poor road links to the rest of the country. Within the area, the road network is less developed than that in most other parts of the country. As a result, waterborne navigation is still important, especially in the southeast of the project area; however, reduced dry season flows and increased sedimentation are serious problems.

(iv) Potable water supply and sanitation problems . Potable water supplies in the coastal areas are expensive to exploit because the salinity of the shallow aquifer requires deep tubewells. The incidence of natural arsenic in the shallow aquifer is a serious problem for the central part of the project area. Lack of adequate sanitation facilities causes serious fecal pollution in surface water.

(v) Land use conflicts. Land use conflicts are serious between shrimp aquaculturists and agriculturists. Brackish water shrimp aquaculture is causing serious environmental damage and needs to be managed in a sustainable manner.

(vi) Cyclone risk. The cyclone risk is very high in the coastal areas. The social implications are very serious in the southeastern part of the study area where the Sundarbans do not provide natural protection from cyclone-induced storm surges.

D. Forecasting Environmental Impacts and Mitigation Measures

4. Use of a master screening checklist drawn up for rural infrastructure development in Bangladesh identified significant impacts (both positive and negative) and eliminated insignificant ones. An impact matrix was constructed using the checklist and is included in a supplementary appendix. The potential impacts were rated separately for each of the four elements of the Project. A checklist identifying significant potential project impacts was produced. The impacts are outlined below, with the appropriate mitigation and enhancement measures.

1. Social Impacts 5. The main social negative impacts of the Project are likely to be the result of permanent land acquisition. While the requirement for acquisition is likely to be minor, the localized impacts at household level can be significant. A resettlement framework has been prepared. The Project area has 42 listed nationally important monuments and damage to them should be avoided in preparing the subprojects. 6. Due to improved access it is likely that there will be significant positive social impacts across many sectors, including agriculture, industry, marketing, education, and health. It will be possible to maximize the direct social benefits by targeting construction work opportunities to local people, particularly women. In addition, there are significant enhancement possibilities if the provision of deep tubewells in growth centers, boat landings, and union council centers is targeted in the worst arsenic-affected areas. When formulating subprojects, the existing and planned education and health facilities should be considered so that the potential benefits of

56 Appendix 12

improved access to these facilities can be maximized. The multipurpose use of facilities as cyclone shelters in the southeast part of the project area will also enhance the positive impacts.

2. Environmental Impacts

7. The main environmental impacts are those associated with possible changes in surface water flooding patterns. These include indirect impacts on the fish resource system and aquatic habitats. The main mitigation measure for these impacts is to provide adequate cross-drainage facilities to ensure that there are no changes in flooding patterns. The main environmentally sensitive area is the Sundarbans. No interventions should be considered in the designated Sundarban area, nor in the four other designated ecologically sensitive sites outside it. Six species on the internationally threatened red list are found in the project area. While there is likely to be some need to cut roadside trees to widen the roads, cutting can be minimized by sensitive planning. The roadside tree planting program will more than compensate for those lost. There is a serious erosion risk in the north and east of Bhola island and construction of any new infrastructure should be avoided in those areas.

3. Environmental Criteria for Selection and Appraisal of Subprojects

8. Based on the SIEEs for the three core subprojects, the following environmental criteria should guide the selection and prioritization of subprojects: (i) no subproject should be implemented in the Sundarbans or other designated protected areas; (ii) the extent of a perennial water body is not to be reduced to below that of February 1995 as a result of the Project; (iii) no registered historic building or cultural site should be affected; and (iv) land acquisition should be minimal. E. Institutional Requirements and Environmental Monitoring Program

9. National procedures for environmental assessment in Bangladesh are outlined in the Environmental Conservation Act of 1995 and the Environmental Conservation Rules of 1997. The Local Government Engineering Department (LGED) has a set of environmental guidelines produced in 1994; however, these need updating to incorporate the procedures that have to be followed under the national legal requirements. Under the classification system of the environmental rules, the Project is likely to be in the orange B group. This is the second most severe category, which includes roads below the level of national or regional highways and bridges that are less than 100 meters long. However, the final categorization of the project by the Department of Environment (DOE) is likely to depend on the degree of the resettlement requirement. For an orange B classified project, an IEE with appropriate no-objection certificates needs to be produced. 10. Assuming that the Project is categorized as orange B, then the key stages to be followed and the decisions that need to be made for the national environmental assessment process before subproject construction contracts are awarded are as follows: (i) ADB to approve the IEE and SIEE; (ii) agreement given to fund the subproject; (iii) discussion with DOE as to its environmental classification; (iv) if DOE declares the project to be in the orange B category, then preparation of an IEE for submission to DOE, with a proposed general methodology for environmental assessment of each subproject at implementation stage; (v) if there is land acquisition, then prepare an outline resettlement action plan for submission to DOE with the IEE; (vi) obtain no-objection certificates from the local administration for submission to DOE with the IEE; (vii) liaise with the Forest Department and the Inland Water Transport Authority to see if they require special approvals; (viii) submit the IEE, the no-objection certificate, and

Appendix 12 57

resettlement action plan to DOE at least 90 working days before any construction contract is awarded; and (ix) obtain site clearance and an environmental clearance certificate from DOE. 11. Environmental management capability for subproject formulation and design will be needed. The environmental assessment methodology devised during the preparation of the DOE IEE document will need to be followed. Appropriate environmental management clauses also need to be included in the construction contracts, with monitoring during construction. It will be necessary to monitor the Project after completion to see if the predicted impacts (both positive and negative) actually occurred. F. Findings and Recommendations

12. The most significant potential impacts of the Project are those related to permanent land acquisition. These impacts are likely to be the most problematic, but because nearly all of the road alignments are existing, the permanent land acquisition required is only for widening and will not be large in area. It is predicted that all impacts can be mitigated, provided permanent land acquisition is minimized. Environmentally sensitive design during subproject formulation is critical to minimize any negative impacts. 13. The overall detailed intervention program cannot be fixed at this stage, as it depends on subproject formulation, which is based on assessment of local needs. The subproject formulation process will be carried out during the implementation stage of the Project. Three subprojects have been assessed as case examples and the main conclusion is that the environmental issues are highly site specific and greatly differ. The main requirement is to establish an environmental management system following general principles and that can be used during subproject finalization and implementation. The methodology that has been used for the three sample subprojects will be refined during the next phase of the Project when a formal IEE is carried out for submission to DOE. 14. It will be necessary to strengthen LGED’s capability to implement the environmental management measures for the Project. This is particularly so because of the nature of the project implementation program. LGED should appoint a full-time project environmental officer to check the work of the consultants and ensure compliance with the environmental assessment methodology that will be developed for the formulation and design of the subprojects. It is urgent that the 1994 LGED environmental guidelines be updated to conform to the legal requirements for environmental assessment. 15. The Project is judged to be in ADB’s environmental impact category B. However, the degree of permanent land acquisition required can be accurately assessed only during subproject finalization at the implementation stage. The participatory planning process as part of subproject detailed design ensures that land acquisition requirements will be minimized. 16. Once ADB approves the IEE and outline resettlement plan, then the national procedures for environmental assessment will need to be followed. The nature of the national environmental assessment requirements will depend on DOE's classification of the Project (likely to be orange B), which will, in turn, probably depend on the amount of land acquisition required. The methodology for environmental assessment of the subprojects during implementation also needs to be refined in consultation with DOE. The environmental assessment work should be an intrinsic part of subproject planning and final design. LGED will require a full-time environmental specialist specifically designated for the Project over its duration.

58 Appendix 12

G. Conclusions

17. The conceptual framework of the Project allows the establishment of a planning and implementation process that can ensure interventions are environmentally sound and sustainable. The process can be set up so that negative impacts, particularly land acquisition requirements, can be minimized and positive impacts enhanced. Avoiding or adequately mitigating all predicted negative impacts will require detailed plans to be drawn up to address adequately the land acquisition, resettlement, and compensation issues for all subprojects. Land acquisition will need to be carried out in a fair, equitable, and timely manner for all subprojects. 18. The IEE has determined that the Project is in ADB's category B. If an acceptable outline resettlement strategy is produced, there is no need to carry out a detailed EIA. However, because of the nature of the implementation of the Project, it will be necessary to use an environmental assessment methodology for subproject formulation and management. The three case study subprojects have demonstrated that the broad methodology used for the overall assessment will work at the subproject level, even though the environmental conditions, issues, and mix of interventions are very different for each subproject. 19. Under Bangladesh environmental assessment procedures, it is likely that all the project interventions will be classified in the orange B group, as they are for upgrading of existing local roads and no bridges are likely to be longer than 100 meters. However, as the resettlement requirements for each subproject cannot be finally quantified until the implementation stage, it will probably be necessary to prepare a resettlement action plan to submit with an IEE and no-objection certificates to DOE to obtain the necessary clearances. 20. The required LGED capability to handle adequately the environmental assessment needs of the Project has been reviewed and discussed with the environmental section of LGED. Since there are likely to be approximately 100 subprojects phased over 6 years, a full-time LGED environmental specialist will be needed to monitor the Project.

1. Summary of Conclusions of Jhaudia-Halsha Road Subproject IEE

21. The SIEE revealed that the subproject has no major significant negative environmental impacts. Potential social and economic benefits including poverty reduction, employment creation, and income generation are anticipated. Some potential negative environmental impacts will likely arise from dust generation; soil, air, and noise pollution; disruption of fish and wildlife habitats; and tree removal. In addition, some socioeconomic impacts (acquisition of about 0.2 hectares and relocation of about 4 houses, 30 commercial structures, and 1 rice mill) are also likely to occur. These impacts can be offset or reduced by implementing mitigation measures appropriate to the conditions. The subproject will not require a follow-up EIA other than the resettlement plan.

2. Summary of Conclusions of Paikgacha-Mazidpur Road Subproject IEE

22. The SIEE revealed that the subproject has no major significant negative environmental impacts. Potential social and economic benefits including poverty reduction, employment creation, and income generation are anticipated. Some potential negative environmental impacts will likely arise from dust generation; soil, air, and noise pollution; disruption of shrimp habitats; and tree removal. In addition, some socioeconomic impacts (acquisition of about 0.1 hectares and relocation of about 2 houses and 30 commercial structures) are also likely to

Appendix 12 59

occur. These impacts can be offset or reduced by implementing mitigation appropriate to the conditions. The subproject will not require a follow-up EIA other than the resettlement plan.

3. Summary of Conclusions of Jhalokati-Balokdia Road Subproject IEE

23. The SIEE revealed that the subproject will have no major significant negative environmental impacts. Potential social and economic benefits including poverty reduction, employment creation, and income generation are anticipated. Some potential negative environmental impacts will likely arise from dust generation; soil, air, and noise pollution; disruption of fish and wildlife habitats; and tree removal. In addition, socioeconomic impacts (acquisition of about 1.5 hectares, partial or full relocation of about 59 commercial structures, 1 mosque, and 1 religious school) will also likely occur. These impacts can be offset or reduced by implementing mitigation measures appropriate to the conditions. The subproject will not require a follow-up EIA other than an updated resettlement plan.